2009 annual report - vallourec · 2009 annual report. profile and key figures 01 vallourec world...
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2009 Annual Report
01Profile and key figures
VallourecWorld leader in Premium tubular solutions
Sales segments in 2009 by geographic and markets
France 5%
Germany 18%
Other E.U. 9%
Rest of the world 8%
North America 23%
Asia, Middle-East, Africa 19%
South America 18%
Automotive 5%Mechanical engineering 7%Other 4%Petrochemicals 8%
Power generation 26%
Oil & Gas 50%
France 5%
Germany 18%
Other E.U. 9%
Rest of the world 8%
North America 23%
Asia, Middle-East, Africa 19%
South America 18%
Automotive 5%Mechanical engineering 7%Other 4%Petrochemicals 8%
Power generation 26%
Oil & Gas 50%
Vallourec is the world’s leading supplier of Premium tubular solutions, mainly for the energy markets as well as other industrial applications.
Specializing in the most complex industrial applications (involving high temperatures and pressures in corrosive environments), the Group offers a comprehensive portfolio of tubular products and high value-added services. Vallourec is now a leading supplier all over the globe, particularly in the oil & gas and power generation markets, and has manufacturing and sales operations worldwide.
At the start of 2010, Vallourec announced a major investment project to meet the specific needs of the North American non-conventional gas market, demonstrating once again the Group’s ability to make long-term commitments to its customers and pursue a strategy of conquering new market sectors.
Key figuresAround fifty production facilities
18,600 employees in more than 20 countries
€4,465 billion in sales in 2009
84% in the energy sector (Oil & Gas, Power generation and Petrochemicals)
68% outside the European Union
Contents01 Profile and key figures
03 Locations worldwide
05 Statement by the Chairmen
06 Business performance
07 Capacity to adapt
09 Highlights
11 Corporate governance
13 Management
15 Stock market
our focus18 Strategy
20 Energy markets
22 Competitiveness and growth
Brazil leads the way
24 Production and services
26 Innovation and R&D
our activities30 Oil & Gas
34 Power generation
38 Petrochemicals
40 Other industrial applications
our responsibilities 48 Social and civic responsibility
50 Environmental responsibility
52 Economic responsibility
54 Balance sheet and income statement
56 Glossary
locations worldwide
• ManufaCtuRE StEEL • PIPE MILL • fInISHInG LInE • fORESt anD MInE • SaLES anD SERvICE OffICES
03
18,000 people striving for excellence and innovation
With four steel mills, 10 pipe mills and 37 finishing units located worldwide, Vallourec boasts a high-performance production base, which will soon be further enhanced by a new plant in Brazil and a new pipe mill in the United States. The 18 sales and service offices, as well as the VAM® licensee network, offer the added advantage of being located close to our customers. The five R & D centres are spread throughout France, Germany and Brazil.
Workforce breakdown by region
List of major customers
Oil and Gas Companies
- Aramco- Petrobras- Sonatrach- Total
Oil and Gas Distributors
- Champions Pipe & Supply- Pipeco Services- Premier Pipe- Pyramid Tubular Products
Power Generation
- Alstom- Areva- Bharat Heavy Electricals- BHR Group- Dongfang- Doosan- Hitachi Power
Trading Companies
- Açotubo- Buhlmann- Salzgitter- Subsea 7- ThyssenKrupp
2009 annual rePort
Asia, Middle-East, Africa 6%
Brazil 33%
North America 11%
Europe 50%
Vallourec’s main locations
2009 annual rePort
Statement by the Chairmen
statement by the chairmen 05
Many important lessons can be drawn from the eventful period we just went through. In very difficult economic conditions, Vallourec has shown its ability to adapt and continued to prepare for its future expansion.
The Group responded very rapidly to drastically changed market conditions, using its flexibility to adjust production levels. Above and beyond the cost savings obtained under the Cap Ten plan, the far-reaching measures implemented in 2008 paved the way for a solid performance in 2009, with an EBITDA margin of 22% despite the very substantial decline in activity.
At the same time, the Group has continued to implement its strategy. The energy and drive of Vallourec’s teams is visible in all areas: enhanced competitiveness, strengthened financial situation, reorganization of R & D, development of innovative, cutting-edge solutions such as the VAM® 21 connection, targeted acquisitions in growth markets in Asia and the Middle East, ongoing construction of the new Brazilian plant. Also, ideally positioned to make the most of growth opportunities offered by the spectacular development of the unconventional gas market in the United States, Vallourec has decided to invest in a new plant at its existing Youngstown, Ohio site (United States).
These initiatives have been successfully implemented with the active involvement of all staff, and in accordance with Vallourec’s Code of Ethics and corporate values. Vallourec’s Cap Ten Safe plan for improving work safety and Value 09 employee share ownership plan illustrate how we care for each and every employee.
Vallourec’s most important values are professionalism, collective commitment and reactivity. These values drive our entire staff and proved to be a powerful force during the crisis to tighten our relationships with customers and partners, lead solidarity actions within Vallourec’s employment zones and adapt rapidly to changing market conditions. These same values will help the Group through 2010, which is likely to be another challenging year although it is expected to mark the start of the recovery.
We are confident that the many initiatives taken in recent months will bear fruit and strengthen Vallourec’s leadership to the benefit of all its stakeholders.
“Vallourec continues to expand, invest and innovate to build closer relationships with its customers, enhance its competitiveness and prepare for the future.”
Jean-Paul ParayreChairman of the Supervisory Board
Philippe CrouzetChairman of the Management Board
2009 annual rePort 07business Performance and ability to adaPt
Ability to adaptIn a good position to make the most of the recovery
2009 annual rePort
an EBItDa margin of 22% in 2009
Sales contracted by 31% to €4,465 million in 2009, reflecting a strong 46% decrease in volumes, which was partly offset by an increase in average selling prices. This resulted from the delivery in 2009 of Premium tube orders taken on favourable terms and conditions during 2008 in the Oil & Gas and Power generation sectors. Sales at the other business segments were severely affected by the drastic slowdown in industrial activity at the end of 2008 and by destocking by customers and distributors. For the year as a whole, the weight of the energy sector (Oil & Gas, Power generation and Petrochemicals) increased to represent 84% of Group sales.EBITDA amounted to €981 million, corresponding to an EBITDA/sales ratio of 22%. This high margin was attributable to a better price mix than in 2008 and to the significant efforts made to adapt costs. Thus, operating costs decreased by 35%
in 2009 compared with 2008. The Cap Ten cost-savings plan launched at the beginning of 2008 with the aim of achieving recurring annual cost savings of €200 million within three years was ahead of target at the end of the second year.
a stronger financial position
Vallourec generated record cash flow of €1,611 million, resulting from cash flow from operations and the measures taken to reduce working capital requirements, particularly in terms of inventories. This enabled the Group to progress from a situation of net debt at end-2008 to a positive net cash situation of €407 million at the end of 2009. Thanks to its strong financial position, the Group was able to raise the level of strategic investments to €677 million, of which half was dedicated to construction of the Vallourec & Sumitomo Tubos do Brasil integrated plant, and for the rest of it to the pursuit of its policy of targeted acquisitions.
Business performanceStrong resultsIn 2009, Vallourec managed to keep its EBITDA margin high despite a significant decline in sales volumes against a backdrop of global economic recession. The record cash flow generated by operations during the year enabled the Group to finance a high level of investment while continuing to strengthen its financial position.
Since the end of 2008, the Group has been faced with a drastic deterioration in market conditions linked to the global economic crisis. It rapidly drew on its flexibility to implement a series of adaptation measures while preserving the essential: its staff, skills base and capacity to invest and innovate as well as its close relationship with its customers.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2005 2006 2007 2008 2009
4,307
5,542
6,1416,437
4,465
trend in sales over 5 years (in € million)
0
500
1,000
1,500
2,000
2005 2006 2007 2008 2009
EBITDA/SalesEBITDA 0%
10%
20%
30%
40%
24.6%
1,061 1,665 1,751 1,694 981
30.1% 28.5%26.3%
22.0%
trend in EBItDa over five years (in € million and as a % of sales)
To cope with the business fluctuations linked to the economic cycle, the Group has reduced its fixed costs and maintained a sound financial structure that enables it to invest across the cycles.
Moreover, Vallourec is in a better position than in the past. The Group is now more competitive as its international expansion has enabled it to enter new local markets while reducing its cost base. Also its market positioning on Premium solutions primarily for the energy markets has enabled it to substantially increase the added value of its products.
The measures taken at the end of 2008 during the global economic crisis have enabled the Group to adapt production to the drastic fall in business volumes. Priority was given to reducing overtime worked, cutting back the number of temporary jobs and using time accounts. Summertime closure of some sites was extended. Vallourec also implemented short-time working as well as staff reductions in Brazil, the United States and the United Kingdom.
Whenever possible, the Group has drawn on transfers of staff between Group activities and within a same employment region, particularly in France, in Montbard and Saint-Saulve, and in Brazil between V & M do Brasil and VSB, in order to minimise the impact of the recession.
Cost-cutting programmes and measures to reduce working capital requirements were implemented in addition to the three-year cost savings plan implemented under the Cap Ten programme.
With these actions, Vallourec has sought to preserve its development potential, maintain its skill base and continue to invest for the future. With the markets in which the Group operates showing the first signs of recovery, particularly the North American gas market, the Group is convinced that it will emerge from the crisis stronger than before.
“ In Montbard, the difficult economic conditions have led us to merge the hot-rolling activities located at V & M with the cold-rolling activities carried out by Valti. The two companies had become increasingly interdependent and their merger has enhanced the efficiency and competitiveness of the whole, thanks to better industrial and marketing coordination. To limit the social impact, a programme of voluntary and concerted transfers to another Group company, Valinox Nucléaire, was put in place. Valinox Nucléaire, also located in Montbard, had just announced the launch of a major project to increase capacity, thereby creating jobs. This transfer programme has enabled many employees to join Valinox Nucléaire, thereby keeping their jobs without having to change region”.
An example of good practice in terms of adapting
denis boulinier Plant Manager of Valinox Nucléaire
bruno saintes General Manager, Valti
2009 annual rePort 09
HighlightsA Group in motion
In 2009, despite the challenging economic climate, Vallourec continued to strengthen
its market positions, to step up its investment programme, to make targeted acquisitions,
enhance its research and development efforts and roll out its policy of industrial
and sales partnerships. A few examples of practical initiatives carried out in 2009 are
given below.
The foundation stone was laid at the extension to the Valinox Nucléaire plant (Montbard, France) October 2009
2,6%
Enhanced cooperation with Sumitomo in the United States, in the field of Premium connections for the Oil & Gas market February 2009
In Brazil, Vallourec was a partner of the Year of France celebrations April 2009
The first structures were erected at the VSB construction site in Jeceaba, Brazil June 2009
Philippe Crouzet was appointed as Chairman of the Management Board of Vallourec April 2009
Cooperation agreement with Tubacex (Spain), relating to the development and commercialization of stainless steel tubes February 2009
A new research centre opened in Riesa, Germany for testing innovative tube rolling processes March 2009
A new OCTG threading shop opened in Nigeria November 2009
The Technology, Innovation, Research & Development department was formed to organize and enhance Vallourec’s research potential December 2009
VAllOUREC PUBlISHED ITS CODE OF ETHICS “the Vallourec way” October 2009
The Group acquired two companies specializing in drilling products in the Middle-East: DPAl FZCO in Dubai September 2009 and Protools in the United Arab Emirates February 2010
Implementing the Cap Ten Safe plan enabled Vallourec to surpass its safety performance targets December 2009 20% The GreenHouse project
was launched with the aim of reducing the Group’s energy consumption by 20% between 2008 and 2020 May 2009
The Value 09 operation was a great success, increasing the share of the Group’s equity owned by its employees to 2.6% December 2009
The acquisition of Serimax strengthens Vallourec’s offering in the area of Premium solutions for offshore line pipes - April 2010.Serimax, a French company, is the world leader in welding solutions for offshore line pipes.This acquisition will enable Vallourec and Serimax to pool their respective expertise in the manufacture and welding of tubes for offshore line pipes.
highlights
The Group is investing in a new pipe mill for small-diameter products in the United States, to satisfy the specific requirements of the non-conventional gas market in North America. The new plant, which has an annual production capacity of 500,000 tonnes of seamless tubes, will initially produce 350,000 tonnes per year. This new unit addresses specific requirements in terms of equipment for shale gas wells, a market currently experiencing unprecedented growth. This €650 million facility, which will be directly responsible for the creation of around 350 jobs, is scheduled to begin operating in the fourth quarter of 2011. February 2010
Vallourec increased its stake to 78.2% in PT Citra Tubindo (PTCT), Indonesia’s leading Premium OCTG threading specialist July 2009reduction
2009 annual rePort 11
Composition of the Supervisory Board (at 1 May 2010)
ChairmanJean-Paul Parayre, Member of the Supervisory Board of Peugeot, Chairman of the Supervisory Board of Stena Maritime.
Vice-ChairmanPatrick Boissier (1), Chairman and CEO of DCNS.
MembersJean-François Cirelli (1), Vice-Chairman and Chief Operating Officer of GDF Suez.Michel de Fabiani (1), Director of BP France and Rhodia.Denis Gautier-Sauvagnac (1) François Henrot, Managing Partner of Rothschild & Cie.
Edward G.Krubasik (1), Vice-Chairman of the Federation of German Industries (BDI).Jean-Claude Verdière (1), CEO, Member of the Management Board of Vallourec up to 30 June 2001.Bolloré (1), represented by Thierry Marraud, CFO of the Bolloré group.
Honorary ChairmanArnaud Leenhardt, Chairman of the Board of Directors of Vallourec from 1981 to 1994, then of the Supervisory Board from 1994 to 2000.
Censeurs (non-voting members)Arnaud Leenhardt, Chairman of the Board of Directors of Vallourec from 1981 to 1994, then of the Supervisory Board from 1994 to 2000. Luiz-Olavo Baptista, lawyer and Professor of International law. (1) Independent members within the meaning of the AFEP-MEDEF corporate governance code.
Special Committees
The Supervisory Board draws on the work of three committees (Finance and Audit Committee, Appointments and Remuneration Committee and Strategy Committee). The role of these committees is to provide advice and to prepare the necessary information for the Board’s deliberations. Their duties are approved by the Supervisory Board.
Finance and Audit CommitteeThe Finance and Audit Committee is composed of Messrs Jean-Claude Verdière (Chairman), Edward G. Krubasik and Thierry Marraud, i.e. three independent members out of a total of three. It met six times in 2009. It monitors the preparation of financial information, the efficiency of internal control and risk management systems and the legal control of Vallourec’s company and consolidated financial statements. It advises the Supervisory Board on the relevance and consistency of the accounting methods adopted for the preparation of Vallourec’s Company and consolidated financial statements, particularly at the time of publication of the annual or interim financial statements. It also supervises the selection of the Auditors.
The Finance and Audit Committee reviews the Group’s financial strategy. The Chairman of the Supervisory Board may decide to refer to the Finance and Audit Committee any issue requiring the Board’s prior approval (transactions affecting the share capital, etc.), as well as any proposed acquisitions of significant value.
Appointments and Remuneration CommitteeThe Appointments and Remuneration Committee is composed of Messrs Jean-Paul Parayre (Chairman), Patrick Boissier, Michel de Fabiani and Jean-Claude Verdière, i.e. three independent members out of a total of four. It met six times in 2009.
The duties of the Appointments and Remuneration Committee are as follows:
• Appointments: preparing the procedure used to select members of the Supervisory Board and Management Board and proposing their appointment or re-appointment. The choice of candidates must take into account, in particular, the desired balance of the composition of the Board.
• Remuneration: proposals concerning the amounts and allocation of attendance fees paid to Board members as well as the remuneration of the Chairman of the Board and of the members of the Committees, recommendations relating to the remuneration of members of the Management Board and concerning the Group’s policy in terms of share subscription and share purchase options or allocations of performance shares. The Committee is also informed of the appointment of Executive Committee members, their remuneration and the succession arrangements.
Strategy CommitteeThe Committee is composed of Messrs Edward G. Krubasik (Chairman), François Henrot and Jean-Claude Verdière, i.e. two independent members out of a total of three. The Committee helps to review the Group’s strategic orientations and long-term strategy. Each year it examines Vallourec’s strategy plan and reviews any transaction that could significantly modify the Group’s business scope or financial structure, as well as any major acquisition, disposal or investment. The Strategy Committee met four times in 2009.
Corporate governanceAt the forefront of governance
2009 annual rePort
Vallourec has a dual governance structure with a Supervisory Board and a Management Board, which provides for a well-balanced governance of the Group in its shareholders’ interests. The proposed appointment of two new Supervisory Board members will make the Board more representative, more international and improve its gender balance.
corPorate governance
Proposal to appoint Vivienne Cox and Alexandra Schaapveld to the Supervisory Board
The Supervisory Board has decided to submit to the vote of the Annual Shareholders’ Meeting of 31 May 2010 the appointments of Vivienne Cox and Alexandra Schaapveld as members of the Supervisory Board. As Vivienne Cox and Alexandra Schaapveld are both free of interest as defined by the AFEP-MEDEF corporate governance code, these appointments would bring the number of independent members to nine out of a total of eleven Board members.
Vivienne CoxBritish national, a graduate of Oxford University and INSEAD and holder of an honorary doctorate from Hull University, Vivienne Cox spent her entire professional career, from 1981 to 2009, with BP. She is a director of several companies and institutions, including Rio Tinto and INSEAD, and she is the Chairwoman of investment and consulting firm Climate Change Capital.
Alexandra SchaapveldDutch national, a graduate of Oxford University and with a degree in Development Economics from Erasmus University, Alexandra Schaapveld has spent her entire professional career with ABN AMRO, which she joined in 1984. In particular she held the job of Head of Investment Banking from 2005 to 2007 before becoming European Director of Royal Bank of Scotland /ABN AMRO in 2008.
2009 annual rePort management team 13
ManagementA renewed management team
The Management Board is now supported by a newly-expanded Executive Committee, younger, more operational and international. It takes into account the splitting of the Oil & Gas Division into two divisions - OCTG and Drilling Products – and integrates new functional responsibilities. The new management structure combines all the Group’s industrial experience, expertise and know how.
An operations-focused management teamVallourec has instilled the management with new energy by adopting a more pragmatic organisation, in direct contact with the various operations. The result is a more operationally-oriented management and improved responsiveness.
Several operational steering committees have therefore been set up, corresponding to the priorities established by the Group. These include, among others, the Investment Committee (comprising members of the Executive Committee, the Management Control department and the Corporate Investment department), the Cap Ten (cost savings) and Cap Ten Safe (improved work safety) steering committees and the Sustainable Development, Innovation, Human Resources Management and Risk committees.
1 2 3
4 5
7
6
8 9
10 11
Management Board (at 1 May 2010)
The Management Board is composed of three members:
Philippe Crouzet, Chairman of the Management Board (1)
Jean-Pierre Michel, Member of the Management Board and Chief Operating Officer (2)
Olivier Mallet, Member of the Management Board and Chief Financial Officer: Finance and Legal (3)
flavio de azevedo, Chairman of V & M do Brasil and VSB (4)
Dirk Bissel, Managing Director, Drilling Products Division (5)
françois Curie, Corporate Vice-President Human Resources (6)
Pierre frentzel, Managing Director, Strategic Projects (7)
Didier Hornet, Managing Director, OCTG Division (8)
Jean-Yves Le Cuziat, Managing Director, Energy & Industry Division (9)
alexandre Lyra, Chief Executive Officer of V & M do Brasil (10)
Philippe Roch, Chief Performance Officer, Vice-President, Controlling and Quality, Marketing and Purchasing (11)
Executive Committee (at 1 May 2010)
In addition to the three Management Board members, the Executive Committee is comprised of:
15stock market
Stock marketA lasting relationship with the shareholders
2009 annual rePort
Earnings per share and dividend (1) Dividend
It has been decided to ask Annual Shareholders’ Meeting of 31 May 2010 to approve payment of a net dividend of €3.50 per share in respect of financial year 2009, down from the dividend of €6.00 paid the previous year given the trend in the Group’s results. The payout ratio corresponds to 38.6% of the net income, Group share compared with 33.2% the previous year, in line with the Group’s policy which aims for an average payout ratio of 33% over the long term.
For the second consecutive year, shareholders will be able to choose, during the option period from 7 to 22 June 2010 inclusive, to receive payment of the dividend in cash or in shares with a discount of 10% on the price of the new shares. The payment of the dividend in cash or in new shares will take place on 30 June 2010.
Share price performance from 1 april 2008 to 31 March 2010
Calendar
12 May 2010: release of 2010 first-quarter results 31 May 2010: General Meeting of shareholders28 July 2010: release of 2010 first-half results 24 September 2010: Investor Day 9 November 2010: release of 2010 third-quarter results
Share
listed on the Euronext Paris Eurolist (Section A)Admitted to the Deferred Settlement ServiceISIN code: FR0000120354Indices: CAC 40, Euronext 100, MSCI World IndexFTSE classification: engineering and industrial machineryMarket capitalisation: €8.6 billion as at 31 March 2010
Following the fall in the Vallourec share price at the end of 2008, linked to the global economic and financial crisis, 2009 saw a significant rebound in line with the international stock markets. Boosted in particular by external factors such as the rise in oil prices and US dollar appreciation, as well as the upturn in US demand for oil and gas, the share has significantly outperformed the CAC 40 index in the first part of 2010.
Vallourec endeavours to establish an open and constructive dialogue with its shareholders, whether private individuals or institutional investors, in France and abroad. This dialogue is based on the Group’s determination to communicate clearly, understandably and transparently on the Group’s actions, choices and performance. The application of a coherent dividend payout policy over the long term and compliance with an efficient and well-balance corporate governance form part of its efforts to build a lasting relationship with its shareholders.
0
4
8
12
16
20
0%
10%
20%
30%
40%
(1) The amounts of dividends paid have been recalculated to take into account the 5 to 1 share split on 18 July 2006. (2) Proposed dividend. (3) Excluding exceptional distribution.
Payout ratioEarning per share Dividend per share (in �)Exceptional distribution (in �)
(2)
(3)
2005 2006 2007 2008 2009
9.4
25.1%
34.7%
37.4%
33.2%
38.6%
2.24
17.818.9
18.3
6.00
4.00
7.00
9.4
3.50
6.00
On 1 April 2008Vallourec: €158.21 CAC 40: 4,866 On 9 March 2009: €54.21
On 31 March 2010Vallourec: €149.3 CAC 40: 3 974
ChangeVallourec: -5.6%CAC 40: -18.3%
Vallourec share price in euroCAC 40 relative to Vallourec share price at 1 April 2008
0
50
100
150
200
250
01/06
/08
01/05
/08
01/07
/0801
/08/08
01/09
/0801
/10/08
01/11
/0801
/12/08
01/01
/0901
/02/09
01/03
/0901
/04/09
01/05
/0901
/06/09
01/07
/0901
/08/09
01/09
/0901
/10/09
01/11
/0901
/12/09
01/01
/1001
/02/10
01/03
/1031
/03/10
01/04
/08
Total number of shares: 57,280,789Total voting rights: 57,338,039
SharesVoting rights
Public 85.03%
Treasury shares 0.41%
FSI + CDC 5.02%
Bollore Group 5.22%
Group employees 2.60%
Sumitomo Metal Industries 1.72%
Financial communication The Group’s financial communication is organised with a view to transparency and the completely equal treatment of shareholders. This involves providing the same information to each audience, whilst adapting specific information to meet the needs of each segment. All the information is available to all shareholders at all times in the ‘Shareholders/Investors’ section of the Vallourec website.
The shareholders’ letter sent out to individual shareholders in May is designed to inform them and encourage them to participate in the Annual Shareholders’ Meeting, either by attending or by voting. The Group also organises meetings with institutional investors throughout the year: group meetings and conference calls when the quarterly results are released, road shows in the main countries and an annual Investor Day.
Capital breakdown at 31 March 2010
By the variety of the subjects presented, Investor Day, which has been held in each of the past four years, is an opportunity for institutional investors and analysts to discuss issues with the Management Board and with Vallourec’s operating management outside the context of earnings releases. The issues discussed at the 2009 Investor Day covered a wide range of subjects including operational excellence, the capacity to create value across the cycle, oil and gas solutions, energy efficiency and the Group’s strategy. Now a key event for the financial community, Investor Day is accessible to all in the form of a live video-cast on Vallourec’s website.”
Investor day, a key encounter with investors
Étienne bertrand Head of Investor Relations and Financial
Communication
“Contact
Étienne Bertrand 27, avenue du Général leclerc 92100 Boulogne-Billancourt
Tel: +33 (0)1 49 09 39 76 Email: [email protected]
Full information is available on the Group’s website: www.vallourec.com
2009 annual rePort our focus 17
active for many years in the seamless steel tubes market, vallourec has constantly endeavoured to develop high value-added products. the success of the vam® joint, the merger with mannesmann and the close relations developed with the oil majors have strengthened vallourec’s position in Premium products and its specialization in the energy markets. through the acquisitions and investments made subsequently, particularly in brazil and the united states, the group has continued in this direction, while at the same time expanding at an international level.
this policy has been accompanied by considerable efforts in terms of modernizing its industrial facilities.
the focus is now on developing innovative solutions, building closer relations with its customers and strengthening its presence in regions with high potential through continuing investment and targeted acquisitions. to assist its customers on the ground, the group has created finishing units on every continent and developed a comprehensive services offer.
OUR FOCUS
19
Major strategic directions
By focusing on Premium tubular solutions targeting growing energy markets and by expanding global operations, the Group has taken two major strategic steps that have led to its world leadership in the market for Premium tubular products.
Premium positioningVallourec’s first strategic move consisted of strengthening its positioning in the Premium tubular segment, primarily for energy markets. At the same time, the Group decided to significantly reduce its exposure to sectors with less value-added in which it did not have the necessary critical size.
Global expansionThrough targeted acquisitions and investments in new industrial and commercial capacities, Vallourec expanded its global reach, enabling it to penetrate local markets, enjoy closer contact with its customers and strengthen its competitive edge. Vallourec’s acquisitions in recent years and its decision to invest in new plants, particularly in Brazil and the United States, reflect this approach.
One goal
Vallourec seeks to consolidate its leading position as a provider of Premium tubular solutions, especially for energy markets. Beyond the economic crisis, energy markets remain buoyant due to the growth in world demand, itself driven by population growth and economic development.
One vision
A key challenge: developing innovative solutionsDue to environmental concerns and the rising complexity of oil and gas installations, demand for Premium solutions is on the rise. To offer its customers high-value-added products and services, anticipate their future needs and maintain a technological lead over its competitors, Vallourec has increased its research and development capabilities. In 2009, for example, the Group opened a new research centre in Riesa, Germany, with the aim of improving the process for rolling seamless steel tubes.
Moving closer to our customersExpanding our local presence has become key to meeting our customers’ demands and setting us apart from our competitors. With superior professional expertise and considerable technical resources, the Group can offer a wide range of services, from product design to on-site use.
strategy 2009 annual rePort
Emergence of a global leader: key events
1997 Merger of Vallourec and Mannesmann’s seamless tube activities in a joint venture called V & M Tubes, 55% owned by Vallourec.
2000 Acquisition of Mannesmann’s Brazilian business, renamed V & M do Brasil.
2002 Acquisition of North Star Steel’s assets from Cargill and creation of V & M Star.
2005 Purchase of Mannesmann’s remaining 45% stake in V & M Tubes.
2002-07 Creation in China of five tube production and finishing units as well as two service companies.
2007 Decision to invest in a new integrated plant in Brazil (VSB).
2005-09 Targeted acquisitions of drill pipe operations in France, the United States and the Middle East.
2008-09 Acquisition of PTCT in Indonesia and three Premium OCTG companies in the United States.
2009 Strategic partnership with Tubacex. Investment in a finishing unit in Nigeria.
2010 Decision to invest in a new pipe mill in the United States, to support the development of unconventional gas production.
StrategyA long-term perspective
Vallourec has experienced profound change since 1997, the year it merged with Mannesmann. Thanks to its strong positioning in Premium tubular solutions, mainly in growing energy markets, and its global expansion, particularly in Brazil and the United States, the Group has consolidated its position as world leader.
Expanding operations in strategic regionsOne of the Group’s top priorities is to grow its manufacturing and commercial operations in high-potential regions and market segments, while improving its competitive edge. This approach is demonstrated by the opening of a threading unit in Nigeria, the acquisition of a larger stake in PTCT, which covers the Indonesian and Southeast Asian markets, the acquisition of DPAl and Protools, two companies that specialise in drill pipes in the Middle East, and the recent decision to build a new pipe mill in the United States.
Service centre: a major asset for VAM Global Solutions
Vallourec has developed “one-stop-shop” service centres, which offer customers comprehensive solutions that make it easier for them to use high-tech products like our VAM® joint. Because it helps us gain customer loyalty and serves as a major competitive advantage, the “one-stop-shop” has become a growth tool for Vallourec.
Over the past decade, we’ve witnessed the growing dominance of national oil companies. Similarly, in the field of power plant construction, we’ve seen the emergence of new players who are often controlled by the government in their country of operation. In these cases, the companies want more of the added value from their purchases to be produced locally, thereby contributing to the development of their national economies.In view of these challenges, Vallourec has expanded its manufacturing operations worldwide by building more facilities, especially in China, Indonesia, Brazil, Nigeria and the Middle East. In the future, Vallourec will continue to seize every opportunity it can to grow in booming regions, serving customers influenced by the local content of their purchases as well as the higher quality of service offered by closer proximity.”
Growing importance of local content
gérard terneyre Vice-President, Strategy and Development
“
21energy markets2009 annual rePort
Our investment in a new small-diameter pipe mill in Youngstown comes at a decisive turning point in the North American natural gas market, and the first companies to gain a foothold in this segment will have a decisive advantage. Ideally located near major shale gas basins, like the Marcellus field, and combined with the Group sites close to other gas basins, like those in Fayetteville and Haynesville, this new facility will strengthen our position as the leader in Premium tubular solutions.”
A major investment to win over the North American market
skip herald Managing Director OCTG, North America
“
Multi-pad techniques
Trapped in deep layers of shale, the gas is extracted using horizontal drilling and rock fracturing techniques, made possible by injecting water and sand. Sand keeps the fracture open and allows gas to escape. Shale gas production also requires a larger number of wells. The sophisticated multi-pad technique, so-called because of its multiple wells and directions, limits the number of wellheads on the surface.The use of these technologies drives a rising need for Premium joints and small-diameter alloy tubes, and Vallourec has both the technology and expertise required.
Shale gas, a revolution in the American natural gas market The exploitation of non-conventional natural gas resources, especially shale gas, represents a turning point in the US natural gas market. Thanks to new technologies that reduce extraction costs, shale gas has become a sustainable source of gas supplies. Non-conventional gas already accounts for 50% of North American gas production, a figure expected to reach 85% in 2025 (2). These gas fields have allowed the United States to raise its gas reserve estimates from 30 to more than 90 years, which has led many other countries to conduct their own assessments.
(2) Source : Wood Mackenzie.
Energy marketsAddressing the major energy challenges of our time
While experiencing structural growth, world energy demand is largely driven by global demographic trends and emerging countries’ industrialisation. After 25 years of uninterrupted growth, however, energy consumption fell in 2009 due to the economic crisis. This decline has had punctually a negative impact on oil company investments in exploration and production and on the construction of new power plants, but it does not call into question the projected growth in long-term demand.
Different types of energy
Fossil fuels (oil, natural gas and coal) will continue to dominate the market in coming decades for lack of alternatives. Demand for oil should remain strong, particularly in the transport sector, and demand for natural gas should also continue to rise, mainly due to its eco-friendly qualities. The long-term hike in demand for oil and gas, added to the
natural depletion of existing wells, will generate a need for new and increasingly complex equipment for drilling operations and oil and gas wells. To ensure stable energy supplies and reduce CO2 emissions, many countries have begun building nuclear power plants, for which Vallourec provides a complete range of tubular products. If the economic crisis has led to the postponement or cancellation of many conventional power plant projects,
long-term growth in demand for electric power, however, will again generate significant needs for tubes used in power plant, whether they are fuelled by natural gas (combined cycle) or coal.
Growing complexity
It has become increasingly difficult to access oil and gas fields and increasingly complex to operate them. Well equipment must meet more exacting specifications, both technical (deep offshore, corrosive environment, deviated wells) and environmental (pollution risk management). Similarly, shale gas exploitation, which is growing rapidly in the United States, also relies on new horizontal drilling techniques, which require the use of Premium, small-diameter tubes and joints adapted to very specific drilling conditions. Moreover, the new supercritical and ultra-supercritical power plants offer greater energy efficiency, while meeting stricter environmental standards.
These facilities require tubes capable of withstanding increasingly high pressures and temperatures, one of Vallourec’s areas of expertise. The growth of nuclear energy also stimulates much higher demand for special tubular products.
Meeting new challenges
Vallourec has achieved significant progress in the area of deep offshore oil and gas field exploitation, particularly in Brazil and West Africa. With the boom in shale gas and the February 2010 announcement of a USD 650 million investment in a new small-diameter pipe mill in Youngstown, Ohio (United States), the Group has shown once again its commitment to meeting customers’ needs for high-value-added products.
Long-term growth in energy consumption As a result of the economic slowdown, world oil consumption declined by 1.7% (1) in 2009. According to the International Energy Agency, however, demand should rise again in 2010 due to the growing economies of emerging countries. long-term forecasts indicate a potential 40% hike in consumption by 2030 (baseline 2006).
(1) Estimate by the International Energy Agency.
OECD
Non-OECD
0
100
200
300
400
500
1980 1995 2005 2015 2030
History Projections
World Marketed Energy Consumption (1980-2030) (Quadrillion Btu) Source: IEA, International Energy Outlook 2009
23comPetitiveness and growth
Located in Belo Horizonte in the State of Minas Gerais, V & M do Brasil provides tubes for the fast-growing national oil industry as well as for other industrial sectors driven by the dynamic Brazilian economy. V & M do Brasil is the only steel tube producer that mainly uses renewable energy, creating products that can truly be called “tubos verde” (green tubes). The State of Minas Gerais will also be the location of a new Vallourec & Sumitomo Tubos do Brasil plant (VSB) set to open soon in Jeceaba, chosen for its major iron ore reserves, convenient means of transport to the port of Sepetiba and skilled workforce.
v & M do Brasil: a modern, integrated plant
V & M do Brasil is one of the world’s most modern integrated facilities, encompassing every step of the production line, from a steel mill to two hot-rolling mills and finally the tube finishing lines.
Benefiting from the booming Brazilian economy, the plant supplies many different sectors, including the particularly dynamic oil and gas industry – Brazil is the world’s fifth largest oil producer – as well as the rapidly growing industrial and automotive industries. In 2009, Brazil accounted for 16% of the Group’s sales.
V & M do Brasil specialises in high-end steel tubes protected by anti-corrosive coating and thermal insulation. These products are designed primarily for operating offshore pre-salt fields, such as Tupi off the coast of Brazil. Tupi is one of the most recent major discoveries by Petrobras, Brazil’s national oil company, with which Vallourec maintains close relations.
Industrial tubes are used in a wide range of applications in the mechanical engineering, power generation (piping, heat exchangers) and construction sectors. Vallourec recently supplied structural tubes for the roof of Rio de Janeiro’s water park.
V & M do Brasil also manufactures tubes for the automotive industry that are used in all types of vehicles, including two-wheeled vehicles, farm machinery and railway wagons.
Two major subsidiaries: V & M Mineração and V & M Florestal
V & M Mineração, which specialises in extracting and processing iron ore, owns the Pau Branco mine in the State of Minas Gerais. The company supplies both the V & M do Brasil steel mill and customers outside the Group.
V & M Florestal is responsible for planting and managing the eucalyptus plantations that provide charcoal for the steel mill’s blast furnaces. Bureau Veritas has granted the company Cerflor certification (Forestry Management Certificate).
Setting an example in sustainable development
Brazilian leader in the seamless steel tube segment, V & M do Brasil is a local player that contributes to the country’s economic development. But its involvement in local life goes well beyond the economic realm. In many fields, especially environmental protection and contributions to the well-being of employees and their families, the initiatives undertaken by Vallourec’s Brazilian operations set an example for the entire Group.
2009 annual rePort
vallourec, traditional partner to Petrobras
V & M do Brasil has been working closely with Petrobras since it was founded in 1952. Their collaboration involves the entire value chain, from the design of custom products to on-site operations. V & M do Brasil has, in particular, created service and storage centres at various Petrobras exploration and production sites to ensure just-in-time deliveries and a wide variety of services.
vSB, a new plant to foster vallourec’s growth
Seeking to boost its competitive edge, Vallourec is building a new integrated plant in Brazil in partnership with Sumitomo Metals at a subsidiary called Vallourec & Sumitomo Tubos do Brazil (VSB), whose first tubes will be available by the end of 2010. This new high-end plant will largely produce Premium tubes for global oil and gas markets. VSB will enable Vallourec to increase its tube production by 300,000 metric tons, or about 10%.
located a few dozen kilometres from V & B do Brasil, the current site offers optimal conditions in terms of raw material supplies, logistics, infrastructure, expertise and workforce skills.
Vallourec Belo Horizonte Research Centre
In 2009, V & M do Brasil, in cooperation with Petrobras, created a new research centre with teams of experts and a test laboratory. The centre aims to facilitate the development of new products that meet the specific requirements of the Tupi, Carioca, Jupiter and Corsa offshore pre-salt fields located off the coast of Brazil. These fields rank among the most significant oil discoveries of the past 20 years.
Year of France in Brazil As a major and historic player in Brazil’s economy and a committed partner seeking to follow a balanced development model that takes into account all social, cultural and environmental factors, Vallourec was proud to support the Year of France in Brazil in 2009.
The VSB construction site was enormous in size. We had to move 20 million cubic meters of earth to level the ground and make room for the buildings. Five concrete plants were created on site for the buildings. Equal in weight to nearly four Eiffel Towers, the building’s metal frame was quickly finished by using Preon®, a modular system developed by Vallourec. After receiving all the necessary equipment from all over the world, the plant will be ready to operate in late 2010 and we should be able to ramp up production throughout 2011.”
Birth of a giant
christoph Prasser Chief Technology Officer
“
Competitiveness and growthBrazil leads the way
25Production and services2009 annual rePort
High-performance industrial facilities
An integrated steelmaking processThe Vallourec Group operates four integrated steel mills: Saint-Saulve in France, Belo Horizonte in Brazil, Youngstown in the United States, plus a 20% stake in the German steelmaker HKM. A fifth steel mill (VSB) is currently being built in Brazil.
The round steel bars (or billets) produced by these four mills cover approximately 80% of Vallourec’s steel requirements. This strategy enables the Group to control the quality and grades of the steel used in its tube manufacturing processes.
Vallourec produces steel using two balanced processes with different raw materials:• A pig iron process is used for 55% of the Group’s in-house
steel production. A mixture of iron ore and carbon is heated in charcoal- or coke-fired blast furnaces to initially produce liquid pig iron. The oxygenation process, combined with the addition of alloying metals and 15-25% of scrap metal, yields liquid steel that can be cast into steel billets. Vallourec uses this manufacturing process in Germany and Brazil.
• A scrap metal process accounts for the remaining 45% of internal steel production. Scrap is melted in electric-arc blast furnaces and mixed with various alloying metals to form liquid steel, which is then cast into steel billets. This process is employed at the Vallourec steel mills in France and the United States.
Premium pipe mills and finishing units on every continentVallourec has ten fully automated pipe mills, with the number soon to rise to twelve after completion of the VSB facility in Brazil and the new mill in Youngstown, United States. These facilities allow the Group to produce the world’s most extensive range of pipes in terms of diameters, thicknesses and steel grades.
After rolling, tubes undergo inspection and finishing. The Group has 37 finishing units including heat treatment units, which strengthen and fix the mechanical properties of Premium tubes, and threading lines (installed either at the production facility or near the customer’s facilities), which serve the needs of the oil industry in particular.
Production and servicesQuality of our processes and Premium solutions
The quality, reliability, innovative design and technical content of the products supplied to customers by Vallourec are a testament to the Group’s meticulous management of every aspect of the production chain. The quality of Vallourec’s processes is a key factor in the Group’s performance, and it is given careful consideration when designing industrial facilities, manufacturing products, managing steel production and tube finishing operations (such as heat treatments and threading). The other decisive factor in Vallourec’s competitiveness is the Group’s ability to develop custom solutions for its customers based on a comprehensive range of services and strong local relationships.
“ The concept of a global offer provides our customers with a combination of local service and solutions tailored to their needs. This approach helps us to build long-term, trust-based relationships. The high added value delivered by this service offer helps us to stand out from our competitors, and is a key selling point for Vallourec.”
From mill to well
albert bruneau Marketing and Communication
General Manager, OCTG Division
Tube Alloy packaged solutions
V & M Tube Alloy (United States), which has been specializing in tubular accessories for oil and gas wells for 30 years, provides its customers with solutions that facilitate assembly operations, reduce the time spent on drilling operations, optimize inventory usage and provide back-up solutions for unforeseen contingencies.
Comprehensive customer-focused solutions
Vallourec provides its customers with a comprehensive offer encompassing all of the Group’s products and services at each stage in the tube life cycle, from design to repair. The Group provides professional expertise backed by extensive technical resources.
VAM® Global Solutions is the service offer introduced by the Group for the oil country tubular goods (OCTG) sector. Customers benefit from an integrated service solution that includes training for operators’ engineering teams, management of the supply chain, development of custom Premium solutions, manufacture and integration of accessories, as well as on-site expertise.
Tubular essentials “Tubular essentials” is the name of a complete drilling products and well equipment training and technical support programme designed to meet customers’ requirements at every stage, from oil and gas well design to well repairs.
Supply chain These integrated services relate to the transportation, storage and preparation of the tubes. They also include on-site supervision of installations.
Complex accessories The Group provides a wide range of services relating to the design, manufacture, supply, assembly and storage of complex accessories (see inset).
VAM® Field Services These on-site expertise centres provide customers with supervision, inspection, training and support services. In 2009, Vallourec opened new service centres in Egypt, Singapore, Angola and Kazakhstan.
VAM® Services These are repair services provided by the global network of licensed VAM® licensees. In 2009, the network was expanded in a number of strategic regions, including Russia, India, Australia and Thailand.
Replacing the foundations of the pilger mill in Rath In December 2009 work was carried out to replace the foundations of the pilger rolling mill in Rath, Germany, which had suffered over time, due to the weight of the mill and its perpetual movements against the supporting structure. After disassembling the rolling mill and moving 1,300 m3 of earth, steel rebars were laid and an 1,800 tonne concrete slab cast. Production restarted on schedule after six weeks of work.
innovation and r & d 272009 annual rePort
a suitably-adapted organization
As the development of new manufacturing processes and the creation of new products are closely linked activities, Vallourec has decided to enhance and reorganize its research and development capabilities by combining its Technology, R & D and Innovation activities in a single department. The new TRDI department oversees the five Vallourec Research centres located in Aulnoye in France, in Düsseldorf (two centres) and Riesa in Germany, and in Belo Horizonte in Brazil. When Vallourec’s divisions and plants are included, more than 500 engineers and technicians are involved in the Group’s R & D effort, to which a budget of more than €60 million was allocated in 2009.
R & D partnershipsVallourec has worked alongside Sumitomo for many years, developing the VAM® range of Premium connections for the oil and gas industry, which has become a benchmark in terms of oil well safety and gas-tightness. The Group’s VAM® joint development resources were recently enhanced with the creation of a research centre in Houston. In February 2009, a cooperation agreement for the development and
commercialization of stainless steel seamless tubes was reached with Tubacex, further extending the Group’s offer of Premium solutions for the oil and gas market (development of steel and alloy solutions for use in corrosive environments) and the power generation industry (highly-alloyed tubes suitable for use in next-generation power plants).
Breakthroughs in all fields
Vallourec is heavily committed to research & development, particularly in the Energy market. This effort is focused in three main areas: manufacturing processes, new products and product improvements, and new services.
Development of manufacturing processesVallourec constantly strives to improve manufacturing processes in a wide range of areas, including industrializing charcoal-making for the Brazilian pig-iron industry, and increasing the 9% and 13% chromium steel production capabilities at the steel mill in Saint-Saulve, France. The Group has also set up a number of process communities, which are enabling rapid and uninterrupted progress by encouraging the sharing of best practices.
Innovation and R & DDesigning the future every day
Vallourec operates five R & D centres with the necessary resources to develop higher-performance, safer technological solutions as well as new manufacturing processes. Vallourec is strongly committed to forging constructive partnerships, cooperating closely with customers, sharing best practices between production units and enlisting the support of university laboratories and academics.
A new Chair in innovative design at the Mines Paris Tech academy
The Chair in “Innovative Design Theory and Methods”, which was established in 2009 at the Scientific Management Centre at the Mines ParisTech academy, is the end result of an Innovative Design Research Programme launched in 1994. This programme has produced a number of major theoretical and practical breakthroughs. Beside Vallourec, the new Chair is also sponsored by Dassault Systèmes, RATP (Paris Metro), Renault and Thalès.
Carbon capture and storage project
Vallourec has launched studies relating to the capture and underground storage of carbon dioxide, particularly in salt-water aquifers in porous rock formations, where carbon dioxide can easily be stored in liquid form. The Group’s R & D teams, together with numerous partners, are involved in several carbon dioxide capture and storage projects, researching for improvements in the strength and resistance of well system components.
Innovative solutionsDeveloping innovative Premium products that meet the needs of the Group’s oil and gas customers is an essential task.The range of Sour Service steel grades specially designed to withstand the corrosive environments associated with deep water offshore applications was extended in 2009 with the introduction of VM125SS.The new generation of VAM® 21 Premium threaded connections feature outstanding compressive strength and fully comply with the requirements of technical qualification specifications for the harshest and most demanding applications.Clean Well Dry® is a non-polluting coating developed for use on threaded connections, where it replaces the greases customarily used, offering effective protection against seizing and corrosion, even at extremely low temperatures. The VAM® HTF joint, featuring self-locking variable threads and metal-to-metal seals, is designed to withstand very high torque. It provides a solution for the most challenging situations in deviated well shafts with long horizontal sections.Industrial projects carried out in partnership with drilling companies have resulted in the approval of the VAM® ET WISE family of threaded connections suitable for use with expandable tubes. These products simplify well engineering and increase oil and gas production.Besides, a new generation of drilling products named HydroClean has been developed to enhance drilling performance by removing drilling waste more rapidly.In the power generation market, tubes able to withstand very high temperatures for extended periods will also be required for the latest, less polluting generation of power plants. In the petrochemical sector, the Group is conducting research on tube technologies suitable for use at very low temperatures in gas liquefaction applications. lastly, the patented Preon® tubular roof frame system is now being used very effectively in buildings and other structures all over the world.
“Our research teams work closely with customers to develop personalized solutions and adapt tubes and joints for increasingly complex technologies. Regarding offshore applications for example, the threaded riser tubes that link floating platforms to the sea bed require exceptional fatigue resistance. Vallourec was able to draw on its experience acquired during numerous projects in Brazil, the Gulf of Mexico and Indonesia in order to develop the VAM® RISER range of threaded products, which is now the market leader for deep sea applications.”
Tackling the needs of the numerous offshore fields
in Brazil, West Africa and the Gulf of Mexico
alain lancry R & D/Marketing and Development
Director, OCTG Division
our activities 292009 annual rePort
after five years of uninterrupted growth, vallourec’s activity slowed in 2009, following a sudden fall in demand for tubes due to the global economic crisis. although the volumes of tubes delivered decreased sharply, vallourec’s sales fared better, supported in particular by orders placed on favourable terms in late 2008 and early 2009.the situation nevertheless began to improve during the closing months of the year and the long-term fundamentals remain very promising. activity in the north american
gas market recovered, national oil companies resumed their exploration and production programmes and demand for Premium tubes for the oil and gas industry strengthened. in the power generation sector, where large projects involve significant capital expenditure, the market is likely to recover more slowly. the group’s other industrial activities (mechanical engineering, automotive industry and other markets) also began to recover slightly in late 2009 as destocking by customers drew to an end.
OUR ACTIVITIES
Oil & Gas
Main products
• Tubes and accessories for drill strings: drill pipes, drill collars, heavy weight drill pipes.
• Well equipment pipes (known as oil country tubular goods - OCTG): casing and tubing.
• Standard and Premium threaded joints for tubes and accessories, in particular the VAM® and Atlas Bradford® Premium connection ranges.
• Offshore line-pipes that carry hydrocarbons from well heads to the surface (risers) or the coast (flowlines).
Main services
• Personalized product design and development.
• Accessory manufacturing and integration.
• Supply chain management.• On-site services (preparation,
inspection and repairs).• Training for oil firms’ engineering
staff, and consultant advice relating to the use of products.
Oil & Gas as a proportion of vallourec’s 2009 sales:
trends in Oil & Gas sales
2009 2,239
2008 2,969
2007 2,830
2006 2,683
2005 1,829
(in € million)
50%
oil & gas 312009 annual rePort
vallourec designs and develops a wide range of solutions for the oil and gas industry. the group’s Premium offer, sold through the vam global solutions brand, combines products and services to provide personalized solutions for oil companies’ requirements in terms of product design, manufacture and use in wells. the group is a universally acknowledged tube specialist for extreme operating conditions, with expertise in deep wells, corrosive environments, extended reach drilling, high temperature/high pressure applications and offshore drilling. the vam® family of threaded connections is now the world’s best-selling Premium brand, and vam drilling is the world’s second-largest drill pipe manufacturer.
33oil & gas
Signs of recovery
Across the industry, global investment in exploration and production projects fell by around 14% (1) in 2009, resulting in the postponement of certain projects and a reduction in the number of rigs in operation around the world. This weaker end-user demand prompted a wave of destocking by oil companies and distributors. The first encouraging signs in terms of tube consumption and demand were detected towards the end of 2009, as the drilling business began to recover.
(1) Source: Barclays Capital, Global E&P Survey, December 2009
vallourec’s american teams are in the starting-blocks
In the United States, demand fell during 2009, due to weakening of the drilling business, destocking by distributors and price discounting. These factors were partly offset by strong performance in the Premium threading business and by the recovery in activity levels in the fourth quarter.Vallourec and Sumitomo merged VAM USA and V & M Atlas Bradford to form VAM USA llC, a company with a workforce of 500, based in Houston, Texas. Vallourec holds a 51% stake in the new company, with the remaining 49% being owned by Sumitomo. A new competence centre was recently set up in Houston to enhance the Group’s VAM® joint development resources. In the tubular goods market, Sumitomo acquired 19.5% of V & M TCA, which was merged with V & M Star in July 2009.
2009 annual rePort
Extended reach drilling (ERD) for BP Liberty in Alaska BP is operating the liberty field just near the Beaufort Sea coastline, where reserves are estimated to exceed 100 million barrels. The liberty project involves ERD drilling at considerable depths, and Vallourec has supplied more than 30 km of tubes and connections designed to withstand severe mechanical stresses.
non-conventional gas – the new Eldorado
The boom in non-conventional gas is revolutionizing the American energy market. These deposits have enabled the United States to upgrade its estimated gas reserves from 30 years to more than 90 years. The latest horizontal drilling and hydraulic fracturing techniques have lowered operating costs. As wells are depleted rapidly, however, they require larger quantities of small-diameter Premium tubes. In order to meet these specific needs, Vallourec decided to invest in a new plant in Youngstown (Ohio). The Group will be ideally positioned in this market segment as a result of the quality of its tubes and Premium joints, coupled with its ability to provide integrated solutions.
Strong demand from national oil companies
Outside the US, demand for tubes for the oil and gas market weakened in 2009, as a result of the slowdown in drilling activities. This was partly offset by orders secured in 2008 on favourable terms with regard to prices and product mix that kept activity levels high throughout most of the year. In Brazil, sales also held up throughout the year, supported by investments by the state-controlled oil company Petrobras. Vallourec supplied the first tubes for the test well in the Tupi offshore field in Brazil.
National oil companies in the Middle East (Saudi Arabia, United Arab Emirates and Kuwait) and North Africa (Algeria) issued greater numbers of requests for proposals during the second half of the year.
To strengthen its presence near customers, Vallourec set up two sales offices in Kazakhstan and Egypt, and expanded the Moscow and Dubai offices. The acquisition of a controlling stake in PTCT, Indonesia’s leading Premium OCTG threading specialist, has enhanced the Group’s presence throughout the Asia-Pacific region. In addition, the new VAM Onne Nigeria ltd threading unit, located in the Port Harcourt free zone, delivered its first threaded tubes in December 2009.
lastly, the successive acquisitions of two companies specializing in drill pipes, namely DPAl FZCO in Dubai and Protools in the United Arab Emirates, have made the Group the only manufacturer in the Middle East able to offer an integrated solution covering the complete drill string.
India possesses significant energy resources. For the Mumbai High North (MHN) offshore oilfield, one of India’s largest, Vallourec beat off fierce competition to secure an order for almost 12,000 tonnes of offshore line pipe. Vallourec’s project teams had to overcome some exceptional challenges in order to meet schedules and develop advanced sour service alloys for use in corrosive environments.”
Line-pipe for the Mumbai High North offshore field in India
christian caesar Project Line-Pipe department manager
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VAM® HTF
As operating conditions become increasingly severe, state-of-the-art drilling and well lining technologies are more essential than ever. The new VAM® HTF (high torque flash) Premium connection is particularly suited to operating so-called ‘deviated’ wells with long horizontal sections, due to its remarkable torque capability.
In the Oil & Gas market, the Group, which now includes PT Citra Tubindo (an Indonesian company in which Vallourec acquired a controlling interest in July 2009), achieved sales of €2,239 million in 2009, down 25% from 2008. This is Vallourec’s largest activity, accounting for 50% of the Group’s consolidated sales.
Oil & Gas
Power generation
Main vallourec products
• Seamless carbon steel and alloy steel tubes.
• Welded titanium and stainless steel tubes.
• Seamless nickel alloy tubes.
Main applications
• Boilers.• Condensers.• Header pipes.• Steam pipes.• Steam generators.• Feedwater heaters.• Superheaters.
Power generation as a proportion of vallourec’s 2009 sales:
trends in Power Generation sales
2009 1,155
2008 1,308
2007 1,119
2006 903
2005 724
(in € million)
26%
vallourec designs and supplies products capable of withstanding the extremely severe temperature and pressure conditions found in modern coal- and gas-fired power plants, as well as in nuclear power plants. the group supplies various types of tubular solutions in a wide range of sizes, materials (carbon steel, alloy steel, stainless steel, titanium and nickel alloys) and finishes. this extensive offer makes vallourec the only supplier in the world able to supply the full range of tubes required for a power plant. the group is the world leader in the Power generation market, and an acknowledged specialist in the area of tubular solutions for next-generation supercritical and ultra-supercritical thermal power plants.
2009 annual rePort Power generation 35
37Power generation2009 annual rePort
Many projects postponed
Numerous power plant projects were postponed, particularly in Europe and the United States, due to uncertainties relating to energy policy, coupled with more restrictive financing practices. The lengthy decision-making process involved with the launch of new projects is delaying the recovery in demand for tubes for the Power generation market. In China, in addition to the consequences of the smaller number of new projects, during the first half of the year Chinese boiler-making contractors gave priority to running down the sizeable stocks of tubes that they had accumulated in 2008. In the second half, several new power plant projects were launched, both in India and in China, where the process of replacement of small subcritical plants with more efficient, less polluting supercritical facilities resumed, albeit in conditions less favourable to Vallourec, owing to the presence of local competitors.
Overall, 2009 was marked by a significant decrease in world-wide demand for tubes for conventional power plants.
a major strategic agreement with tubacex
Although Vallourec was already supplying the world’s widest range of steel grades and tube dimensions, the Group further enhanced its offer in February 2009, with the signing of an agreement with the Spanish company Tubacex, the world’s second-largest manufacturer of stainless steel seamless tubes. This agreement also covers R & D activities relating to the development of tubes that comply with the increasingly demanding temperature and pressure specifications for the next generation of power plants.
Maintenance at the Bełchatów power plant in Poland In 2009, Vallourec took part in a programme to retrofit units 5 and 6 at the power plant in Bełchatów, Poland. The tube orders were taken by Alstom and the German boiler makers Steinmüller and Babcock Borsig. The project involved a total of 2,900 tonnes of tubes, a large proportion of which were manufactured using the patented VM12 grade. The high quality of Vallourec’s Premium products, and the Group’s ability to provide comprehensive solutions enabled it to address the specific requirements relating to this maintenance programme.
The extension to the Valinox Nucléaire plant in Montbard (Côte-d’Or department, France) will be completed in January 2011. The new unit will increase the plant’s annual production capacity by a factor of 2.5, to 4,500 km of tubes. Valinox Nucléaire’s order book is full until the end of 2013 and the agreements recently reached with Areva and the Chinese company S.E.N.P.E.C are very positive signs for the plant’s long-term activity. The company has now begun recruiting and training personnel to operate the new production lines. As part of this process, some employees have agreed to be transferred from other Group companies in the same region.”
Valinox Nucléaire expands its production capacity
Paul bounie Valinox Nucléaire Narval Project Manager
“
VM12SHC – A new alloy steel for ultra-supercritical power plants
Vallourec’s R & D teams regularly develop new grades of steel in anticipation of future industry trends. For example, the newly-developed VM12SHC 12% chromium steel alloy, designed for use at extra-high temperatures, is now being used industrially in highly efficient, ultra-supercritical power plants. The key feature of this steel in terms of innovation is its outstanding steam oxidation resistance.
Strong demand in the nuclear industry
The resurgence of the nuclear energy sector continued in 2009. The desire to reduce CO2 emissions is encouraging a growing number of countries to adopt this method of generating electric power.
The nuclear renaissance is reflected in the leap in the number of nuclear power plant construction projects around the world, particularly in China where authorities scaled up their plans several times during the year. After Italy, where the ban on nuclear power was lifted in July, and the United Kingdom, which announced an ambitious programme to build ten new power plants, the United States appears to be preparing to revive
its nuclear programme, with a decision by the federal government to allocate USD 54 billion in credit guarantees for power plant construction projects. France should extend the operating life of its existing plants (by 2025, some 24 reactors will have been in service for 40 years) as well as starting up a new EPR unit each year between 2020 and 2025.
The new nuclear power plants built between 2006 and 2030 should offer a combined generating capacity in excess of 344 GW (1). These new projects were partly responsible for the particularly high demand for tubes for nuclear power plants in 2009.
(1) Source Areva.
In the Power generation market, the Group achieved sales of €1,155 million in 2009, compared with €1,308 million in 2008. The scale of the decrease was limited by the delivery in 2009 of orders placed in 2008. Power generation as a proportion of the Group’s consolidated sales increased from 20% in 2008 to 26% in 2009.
Power generation
39Petrochemicals2009 annual rePort
PetrochemicalsVallourec develops an extensive range of carbon and alloy steel, stainless steel and titanium tubular solutions for the Petrochemicals industry. Most products are intended for use in chemical and petrochemical installations, in particular in refinery pipework, gas treatment facilities, oil and gas floating production, storage and offloading (FPSO) vessels and seawater desalination units. Products are available both as original equipment and for maintenance. Vallourec’s customers in this area include oil companies, engineering firms and distributors.
Main Vallourec products
• Line-pipes.• Furnace tubes.• Heat exchangers.• Fittings.
Trends in Petrochemicals sales
Petrochemicals as a proportion of Vallourec’s 2009 sales:
2009 365
2008 691
2007 625
2006 634
2005 461
(in € million)
8% Increasingly advanced technology
European refiners have been investing in projects to make their often outdated facilities compliant with current standards, while adjusting their production capacities to reflect increasing demand for diesel fuel. Processes such as hydrocracking are used to produce fuel from the heaviest oil fractions. As these processes operate at high pressures and temperatures in a corrosive environment, Premium tubes such as those manufactured by Vallourec are essential.
Annual sales in the Petrochemicals market fell to €365 million, from €691 million in 2008. lower consumption of petrochemical products and lower refining margins were among the main factors responsible for the difficulties faced by the petrochemicals industry in 2009.
Significant projects in the Middle East
Many investment decisions relating to major projects involving refineries and petrochemical complexes were postponed. In the market for maintenance and small projects, distributors’ stocks of tubes remained high for most of the year.
Most sales were achieved in Europe, with a significant contribution from the Middle East, where Vallourec has opened a sales office. A number of significant projects were launched in this region over the course of the year, including the huge refineries in Al Jubail (Saudi Arabia) and Ruwais (United Arab Emirates). Sales remained fairly weak in the rest of the world. In the fourth quarter, a slight improvement in volumes partially compensated for a drop in prices in this segment.
Developing new applications
Vallourec also supplies welded titanium tubes for use in heat exchangers at seawater desalination plants and in liquefied natural gas (lNG) plants. The Group has developed tubes for lNG facilities that are able to withstand very low temperatures. R & D teams are also working on a number of promising solutions for the future, including technologies for treating tubes to prevent the build-up of residues.
“Many projects to build new refining capacity, as well as refinery maintenance projects, have been temporarily postponed pending a recovery in the market and a return to higher profit margins. The sector, however, suffers from geographical imbalances and a mismatch between supply and demand, which will make certain adjustments essential. As a result, capital expenditure is likely to resume in the medium term. Furthermore, operators will need to continue investing in order to comply with stricter specifications relating to the sulphur content of their materials, as well as new regulations on refinery emissions.”
Challenges facing the global refining industry
duc huynh Process Pipe Sales & Marketing
General Manager
10,000 tonnes of tubes for Greece In Europe, Greece’s largest oil refiner, Hellenic Petroleum, awarded Vallourec the contract for a major project to extend its Elefsis refinery in 2009. The tubes supplied are for the hydrocracker (40,000 barrels per day) and the coking installation (21,000 bpd). This project accounted for sales of a total of 10,000 tonnes of carbon and alloy steel tubes in a wide range of diameters (from 27 to 610 mm), supplied by the Group’s European plants.
41
Other industrial applicationsMechanical engineering, Automotive industry and Other markets
non energy-related activities as a proportion of vallourec’s 2009 sales:
trends in non energy-related sales
2009 705
2008 1,469
2007 1,476
2006 1,322
2005 1,293
(in € million)
16%
aside from the energy markets, vallourec offers a wide range of specific solutions for various industrial applications. the group covers the full spectrum of mechanical engineering applications, from lifting gear to agricultural machinery, sales of which are generally made via european distributors. vallourec also supplies leading car makers and parts manufacturers with tubes and components, primarily in brazil. in the construction industry, vallourec produces structural tubes for use in innovative architectural projects, industrial and public facilities, as well as in private buildings.
sales in non energy-related markets (mechanical engineering, automotive industry and other activities) totalled €705 million, compared with twice that amount in 2008. in the first half of the year, sales were affected by the sudden downturn in industrial activity that began in late 2008, and by the related wave of destocking by end users and distributors. business recovered slightly during the second half of 2009, however, essentially as a result of the end of destocking in these markets.
other industrial aPPlications2009 annual rePort
Mechanical engineering
Automotive industry
Other marketsAutomotive industry 5 %
Other markets 4 %
Mechanicalengineering 7 %
Automobile 5 %
Autres 4 %
Mécanique 7 %
vallourec supplied structural tubes for the steel frame at soccer city stadium in Johannesburg, south africa.
2009 annual rePort mechanical engineering 43
Main products
• Tubes in standard or special grades,
and standard or custom sizes.• Cold-rolled rings.• Worked components (machining,
sand blasting, grinding, etc.).
Applications • Cranes.• Hydraulic cylinders.• Axles.• Mining equipment.• Agricultural machinery.
Mechanical engineering
Tubes for next-generation agricultural machinery
Horsch, a German company specializing in agricultural machinery, has for several years been designing equipment featuring MSH structural hollow sections supplied by V & M Tubes in Germany. Hot-rolled MSH sections have smaller bend radiuses than cold-formed tubes. In addition, they offer outstanding weldability, even on bends. The tubes supplied by Vallourec are both tough and lightweight, extending the service lives of machines. In use, the quality of the MSH sections optimizes power transmission to the ground and their load-bearing areas enable structures to withstand greater loads than with conventional tubes.
Vallourec is the market leader in tubular solutions for Mechanical engineering applications. This market covers a wide range of applications, and distributors play an important role in identifying end users’ requirements and pooling orders from end customers that often require only small quantities. In the Mechanical engineering market, the Group achieved sales of €325 million in 2009 (down 54% compared with 2008).
The decrease in industrial investment projects around the world badly affected the European capital goods sector (particularly in Germany and Italy), and the market for tubes for mechanical engineering suffered as a result. This phenomenon was aggravated by extensive destocking by distributors.
Activity levels bounced back to some extent after the summer as destocking of certain product ranges eased. The recovery now underway in Germany is also having a positive effect.
Staying one step ahead
Vallourec’s round and square-section seamless tubes have specifications that are superior to those of competing products such as hollow forgings, castings, pierced bars and rolled and welded sheet tubes. In order to satisfy its customers’ specific requirements, Vallourec has designed and developed a range of micro-alloyed, fine-grain carbon steel tubes sold through the Mecaplus® and Ecoval® brands. These tubes comply with even the most stringent machinability requirements of engineering customers.
Gigantic Terex cranes The CC 8800-1 TWIN is the most powerful crawler crane produced by the manufacturer Terex Cranes. With its safe working load of 3,200 tonnes, this behemoth is capable of lifting complete bridge sections, refinery columns, power plant components, offshore rig superstructures and wind turbine nacelles, which cannot be handled by conventional cranes. Terex Cranes uses extra-strong tubes supplied by Vallourec to manufacture the lattice booms for its crawler cranes. These heat-treated, low-carbon alloy steel tubes feature exceptional mechanical properties. ThyssenKrupp Schulte acts as an intermediary between the two companies and provides supply chain management services.
“Vallourec is the unchallenged leader in the Mechanical engineering sector, where sophisticated technologies are used extensively. Only Vallourec is able to supply personalized products and a complete range of sizes to meet end users’ exact requirements. We forge strong partnerships with manufacturers (OEMs) and distributors, and train them in the selection and use of our products.”
Custom solutions
guilherme spadinger General Manager -
Business Development - Industry - E & I Division
2009 annual rePort other markets 45
Other markets Main products
• Structural tubes.• MSH hot-rolled structural hollow sections.• Micro-piles (Tecnipile®).
Main applications • Bridges.• Stadiums.• Hangars.• Factories.
Axles for ore-carrying trains operated by Vale in Brazil
In October 2009, Vallourec delivered an initial order for 120 next-generation tubular rolling stock axles for Vale, a Brazilian mining company. These axles, developed by the Group’s Brazilian R & D teams, are 40% lighter than earlier versions, thereby enabling wagons to carry heavier loads. The new design also reduces maintenance costs.
Vallourec works with leading design offices to provide innovative, customized solutions for a highly demanding clientele. Vallourec’s sales in the Automotive industry declined to €197 million in 2009. The Group’s activities in this sector are mainly based in Brazil, where the growth outlook is encouraging.
In Brazil, the slowdown in the automotive industry was mitigated by a range of government incentives, including preferential credit terms for companies purchasing heavy goods vehicles. The downturn was more marked in Europe. Sales in both Brazil and Europe improved in the fourth quarter as demand from end customers strengthened.
Vallourec supplies a wide range of special-purpose products for various industrial applications, including structural tubes that are used to build innovative architectural projects, industrial and collective facilities, as well as private buildings. Group sales in this market totalled €183 million in 2009, down 53% compared to 2008.
Capital expenditures for infrastructure projects launched by national governments to support their economies partially offset the lower level of activity and the effects of destocking by distributors.In this area, Vallourec has assembled a coherent, comprehensive offer of dedicated products, backed by a technical support service that delivers genuine added value and is greatly appreciated by customers.
dr. ulrich menne Stiefel rolling mill plant manager at the Düsseldorf-
Rath pipe mill
Automotive industry
Vallourec’s extensive expertise in manufacturing hot-rolled hollow sections enables the Group to satisfy customers’ every requirement. Our MSH sections can be manufactured using a wide variety of steel grades, in an unmatched range of lengths, diameters and thickness. In addition to having obvious aesthetic qualities, these products are very strong and offer excellent weldability. They have rapidly established themselves as the benchmark in the industry, to such an extent that the word MSH has practically become a generic term. Thanks to their outstanding mechanical properties, they can be used to build hangars with unsupported spans of 60 metres, such as the one in Saint-Nazaire where the new Airbus A350 will be assembled.”
MSH structural hollow sections are being used to build sports stadiums for the 2010 World Cup in South Africa Working in partnership with Cimolai – an Italian company that specializes in metallic construction and has particular expertise in the area of sports venues - Vallourec supplied approximately 1,000 tonnes of MSH structural hollow sections from its Preon® range for the construction of the pumpkin-shaped structural frame at the Soccer City Stadium in Johannesburg, South Africa. This 94,700-seat stadium will play host to the opening match and the final of the 2010 World Football Cup.
The competitive advantages of hot-rolled hollow sections
“Main products
• Hot-rolled and cold-drawn seamless tubes.• Forged shafts.
Applications • Chassis, suspension
and transmission parts.• Structural and passive safety
components.• Shock absorbers.• Bearings.• HGV axles.
2009 annual rePort our resPonsibilities 47
OUR RESPON- SIBILITIESvallourec has been pursuing a sustainable development strategy for a number of years and is well aware of the responsibilities this entails. the group has made progress towards its main objectives this year, and the results achieved in the four key areas of sustainable development (social, civic, environmental and economic responsibility) are encouraging.
vallourec has established a series of priorities for the coming years, and intends to focus on the following themes:
• assuring health and safety, developing employees’ skills and encouraging diversity,
• making a genuine contribution to society and forging strong relationships with the communities around us,
• reducing the carbon footprint of our products, considering each stage in the life cycle, from their design to use by customers,
• improving the Group’s procurement policy, placing the emphasis on responsible purchasing,
• encouraging the development of products and solutions that directly help to preserve the environment.
49social and civic resPonsibility
Social and civic responsibilitySafety is the overriding priority
The Group is particularly attentive to employees’ accommodation and working conditions, and to preserving and transferring expertise. Vallourec operates a fair and motivating remuneration policy. Employee safety is a priority for Vallourec and a systematic accident reduction plan has been successfully implemented.
2009 annual rePort
Social responsibility
Safety – The Cap Ten Safe success storyThe Cap Ten Safe plan, introduced in mid-2008 under the direct supervision of the Group’s Executive Committee, sets out ambitious safety targets for the period 2009-2012. More than 2,000 managers around the world have received safety training, and over 21,000 safety awareness initiatives aimed at employees have been carried out.The long term incident rate (lTIR) (calculated by multiplying the number of accidents requiring time off work by one million and dividing by the number of hours worked) decreased from 9.3 in 2008 to 5.3 in 2009 for all employees, permanent and temporary workers.
Safeguarding and transferring expertise “Seniors” plan In France, Vallourec and trade unions signed an agreement concerning the prolongation of employees’ working lives. To ensure that knowledge and skills are transferred successfully to the next generation, the agreement provides for volunteer mentors, chosen for their teaching abilities and professional skills, who provide guidance and support to less experienced employees in the most challenging job positions.
Training Vallourec’s training policy aims to reconcile the company’s requirements with the career ambitions of its employees. Almost half of this training time is devoted to improving professional skills.
ApprenticeshipsIn addition to on-the-job training, Vallourec is involved in training young people in the Group’s activities (in particular, metal-working), through apprenticeships and other forms of sandwich training.
Knowledge and skill sharing
In response to the Group’s international growth and the corresponding increase in its areas of expertise, Vallourec has been developing a knowledge management and sharing strategy since 2001. The resulting proprietary electronic knowledge management platform, known as Sharemind, now has 35 different practice communities and a total of 2,000 members, who have made some 2,750 contributions since Sharemind was launched.
Motivation – Encouraging team involvement
RemunerationVallourec’s remuneration policy is based on fair, motivating pay. Decreased business, however, affected employees’ remuneration as a result of the very marked reduction in overtime, short-time working and smaller performance-related bonuses. In 2009, total payroll (excluding temporary workers) for the Vallourec Group amounted to €821 million, down 4.3% from 2008.
Employee profit-sharing In 2009, the profit-sharing schemes set up to give employees a vested interest in the company’s performance paid out €41 million. This amount
was lower than in the previous year (€59 million), due to the decrease in the Group’s profits.
Employee share ownership policyFollowing several employee share ownership initiatives, in particular the successful operation carried out in 2008, a new subscription offer named “Value 09” was opened in 2009 to employees in the main countries in which the Group operates. Despite the challenging economic climate, this operation was very well received, with 62% of employees taking part.Employees now own 2.6% of the Group’s share capital, compared with 1.25% previously.
Civic responsibilty
Vallourec is committed to a balanced, respectful growth model, and attaches particular importance to its partnerships with surrounding communities. The Group is very active in Brazil, organizing training for young people and staging regular cultural events. In the United States, the V & M Star plant in Youngstown, Ohio won the Community Involvement award presented by the American Iron and Steel Institute, in recognition of its support for charities and the hardship assistance provided to employees and their families.
The Code of Ethics A binding thread between Vallourec employeesThe Code of Ethics embodies the fundamental values that underpin the Vallourec spirit: integrity and transparency; standards and professionalism; performance and responsiveness; respect for people; and joint commitment. The Code provides each individual employee with a set of rules of conduct based on loyalty and honesty.
The Code of Ethics also defines principles for action (based on trust, openness and responsibility), which illustrate the manner in which Vallourec seeks to conduct its relationships with stakeholders.
“A continuous improvement team was set up at the Valtimet plant in Venarey-lès-laumes, (Côte d’Or department), to reduce the risk of accidents involving the hands. With the aid of photos representing manufacturing processes, operators were asked to describe the circumstances in which they touch tubes. The Group was able to identify solutions to minimize or eliminate these manual operations. An information campaign was then conducted to ensure that these solutions were implemented.”
The “Hands Free” continuous improvement team
valéry danjou Valtimet Operations Director, France
51environmental resPonsibility
Environmental responsibilityReconciling industrial activities and environmentalconcerns
2009 annual rePort
audits / ISO 14001 certifications
Regular audits are conducted in each country, to ensure compliance with regulatory requirements, assess environmental risks and determine the environmental performance of the Group’s plants. These diagnostic audits can then be followed by action in terms of investments as well as technical and organizational improvements. As of the end of 2009, the main Vallourec sites were ISO 14001 certified, in line with the Group’s target.
Environmental performance
Vallourec is committed to a process of continuous improvement and has set a series of multi-year targets aimed at reducing water and energy consumption, limiting greenhouse gas emissions and managing waste.lower activity in 2009 had a significant effect on our environmental performance indicators: our plants logically consumed less water and energy (in absolute terms). In terms of consumption per tonne produced, however, these indicators increased in relative terms. Nevertheless, these results do not reflect a deterioration in our environmental performance, and the Group remains committed to its long-term targets.
Green investment
Investments directly relating to safety and the environment remained at a high level in 2009, totalling €25.6 million for the Group as a whole (compared with €28.4 million in 2008). In particular, these investments concerned product and raw material storage conditions, reducing water consumption, ensuring acceptable waste water quality and reducing atmospheric emissions.
Green products
As safety, quality, reliability and environmental protection requirements become increasingly stringent, Vallourec continues to improve the mechanical specifications of its products and their ability to withstand ever more severe temperature, pressure and corrosion conditions. These developments directly help to preserve the ground, air and water of the planet.
Examples include: - VAM® joint: the worldwide benchmark in terms of oil well safety and
gas-tightness,- Cleanwell®: an eco-friendly lubricant-free solution used to assemble
offshore VAM® joints without polluting the marine environment, - expandable pipes and joints, as used to repair oil wells,- VM12: a 12% chromium steel alloy designed to withstand the
temperature and pressure conditions encountered in the latest, less polluting generation of power plants,
- tubes used to lighten the structures of cranes and vehicles.
2010 International year of biodiversityThe United Nations has declared 2010 to be the International Year of Biodiversity, in order to raise public awareness about the current situation and the consequences of the decline in biodiversity around the world.
Vallourec is well aware of the importance of this environmental issue, and for a number of years has been taking very practical steps to preserve biodiversity when considering its industrial development projects. An excellent example is the case of V & M Florestal, which cultivates eucalyptus plantations in Brazil to produce charcoal for use as a source of energy for steelmaking. The company operates plant and wildlife monitoring programmes in conjunction with the University of Minas Gerais and lavras. These observations enable the company to adopt appropriate measures to preserve biodiversity and maintain the balance of species. For example, a nature reserve has been created to protect the region’s characteristic ecosystems.
The Valti plant in Montbard is now totally autonomous in terms of its water use. Industrial water is systematically recycled after use and any additional water that may be needed is supplied by a storm-water basin that was built in 2009 to recover runoff water from the roofs and roads at the site.The plant no longer consumes any potable water, other than for sanitation purposes. The resulting saving in terms of water taken from the natural environment represents approximately 15,000 m3 per year.We intend to roll out this water management model to other Vallourec plants, and in particular the Valinox Nucléaire plant currently being extended.”
Water management at the Montbard plant - Zero consumption, zero effluent
Jean-luc dupuis Environment Director, Sustainable development expert
“The goal of the Vallourec environmental policy is to minimize the environmental impact of the Group’s activities. Vallourec has implemented a range of improvement programmes to reduce consumption of energy, water and raw materials, limit noise and emissions, and manage waste with a focus on recycling.
The GreenHouse project – A Vallourec initiative to reduce global warming
The aim of the GreenHouse project is to reduce the Group’s electricity and gas consumption – and therefore its greenhouse gas emissions – by 20% by the horizon of 2020. The V & M Deutschland plant in Mülheim was chosen as the pilot site for this project, which was launched at the end of May 2009 and subsequently rolled out to Vallourec’s other facilities during the second half of the year.
53
a sound financial position
Over the past few years, Vallourec has continued to expand while at the same time limiting its recourse to debt, which has enabled it to continue to seize investment opportunities. During the crisis period in 2009, Vallourec took action to reduce its working capital requirement. This action contributed to generating record operating cash flows (€1.6 billion) and enabled it to end the year with positive net cash.
a long-term dividend policy
With a view to ensuring long-term shareholder loyalty, Vallourec’s policy is to aim, over the long term, for an average payout ratio of around 33% of net profit Group share. It has been decided to propose to the General Meeting of shareholders of 31 May 2010, payment of a dividend of €3.5 per share in respect of financial year 2009, corresponding to a payout ratio of 38.6%, slightly higher than the average ratio defined in 2003.
Economic responsibilityCreating value throughout the cycle
For Vallourec, economic responsibility is an essential part of sustainable development and consists of ensuring the Group’s future, reinforcing its competitiveness and continuing to grow. Strong cash flows and a solid financial situation enable the Group to expand and invest in new industrial, technical and human resources while at the same time remunerating its shareholders.
a strategy that creates value
By positioning in Premium tubular solutions catering mainly for the growing energy markets and expanding its international presence, the Group’s strategy over the past ten years has enabled it to create value at all phases of the economic cycles.
Innovation
With five research centres around the world and more than 500 engineers and technicians, the Group has developed very significant technical resources and simulation tools, enabling it to develop new products and manufacturing processes that ensure it a constant technological edge over its rivals.
Investing for the future
With the aim of strengthening its industrial and commercial operations in regions with strong potential, while improving its business competitiveness, the Group has stepped up its strategic investments and continued its policy of targeted acquisitions. The construction of the VSB plant in Brazil, the acquisitions in 2009 of the majority of the capital of PTCT in Indonesia and of DPAl in the Middle East and the decision in February 2010 to invest in a new Premium quality tube mill in the United States are all a part of this strategy.
a three-year cost savings plan accompanied by measures to adapt to economic conditions
To improve productivity, at the beginning of 2008 Vallourec launched a cost-reduction plan known as “Cap Ten” designed to achieve annual cost savings of €200 million within three years. At the end of 2009, the Group was ahead of its target.
In addition, given the global economic crisis, Vallourec was obliged to rapidly adapt its production to the decline in business activity. The Group therefore took measures that enabled it to reduce by 23% the number of hours worked in 2009 compared with peak activity in 2008. All these moves helped maintain the Group’s EBITDA margin at an historically high level of 22% in 2009.
economic resPonsibility2009 annual rePort
How did Vallourec reduce working capital requirements in 2009?The priority action taken to reduce the working capital requirement concerned inventories, particularly raw materials as the Group, which launches productions once the order is taken, has only a small stock of finished products. The key challenge was to adjust supplies to the sudden drop in orders, which required operating managers to be highly responsive.
The key feature of the Alpha project was the introduction of an analysis of expenses by function, whereas these had originally been classified by type of expense in the income statement. This enhances the information provided by the industrial sites and operating divisions and enables a better understanding of the Group’s business performance, which is particularly important for deciding on adaptation measures”.
A modern reporting tool for improved monitoring of business performance
aude baragnon-bordessoule Vice-President, Financial department
“Alpha Project: the link between operational and financial management control
The Alpha project developed in 2009 consists of modernizing and automating reporting and consolidation tools to enable the operational management and consolidation reporting functions to reconcile their work more efficiently. The new application facilitates the internal reporting of information, analysis of results and the preparation of financial projections.
0
200
400
600
800
1,000
1,200
2005 2006 2007 2008 2009
Gross industrial investments Financial investments
trend in investment (in € million)
2009 annual rePort 55balance sheet and income statement
Summary consolidated income statement(in € million)
VALLOUREC 2009 In % of sales 2008 In % of sales 2009/2008
Sales 4,464.5 6,437.0 -30.6%
Production taken to inventory -330.7 7.4% 107.1 1.7%
Other operating revenues 36.9 0.8% 39.1 0.6%
Purchases consumed -1,211.4 27.1% -2,525.6 39.2% -52.0%
Taxes and duties -44.4 1.0% -51.6 0.8% -14.0%
Payroll costs -820.9 18.4% -856.6 13.3% -4.2%
Other operating costs -1,077.2 24.1% -1,442.5 22.4% -25.3%
Net provisions -36.2 -13.0 n.m.
EBITDA 980.6 22.0% 1,693.9 26.3% -42.1%
Depreciation -187.9 4.2% -165.6 2.6% 13.5%
Impairment of assets and goodwill -7.8 -1.4
Asset disposals and restructuring costs 1.4 -5.1
OPERATING PROFIT 786.3 17.6% 1,521.8 23.6% -48.3%
FINANCIAL INCOME (LOSS) -4.6 -18.8
PROFIT BEFORE TAX 781.7 17.5% 1,503.0 23.3%
Income tax -247.5 -480.7
Equity affiliates 2.3 2.4
TOTAL NET PROFIT 536.5 12.0% 1,024.7 15.9% -47.6%
NET PROFIT, GROUP SHARE 517.7 967.2 -46.5%
Summary statement of financial position(in € million)
VALLOUREC 31/12/09 31/12/08 31/12/09 31/12/08
Intangible assets 250.3 260.9 Shareholders’ equity (1) 3,860.5 3,132.8
Goodwill 397.8 308.3 Property, plant and equipment 2,367.0 1,641.0 Minority interests 241.5 99.2
Investments in equity affiliates 56.7 76.9 TOTAL EqUITy 4,102.0 3,232.0
Other non-current assets 188.2 38.6 Bank loans and other borrowings 634.9 650.2
Deferred tax assets 36.4 36.9 Employee benefits 132.8 146.6
TOTAL NON-CURRENT ASSETS 3,296.4 2,362.6 Deferred tax liabilities 125.7 84.0
Inventories and work-in-progress 927.2 1,443.6 Other provisions and liabilities 7.0 7.7
TOTAL NON-CURRENT LIABILITIES 900.4 888.5
Trade receivables 612.0 1,203.6 Provisions 140.5 93.2
Derivatives - assets 23.7 26.3 Overdrafts and other short-term bank borrowings 116.2 224.4
Other current assets 152.9 200.6 Trade payables 482.8 721.8
Derivatives - liabilities 29.5 113.3
Cash and cash equivalents 1,157.8 528.1 Other current liabilities 398.6 491.6
TOTAL CURRENT ASSETS 2,873.6 3,402.2 TOTAL CURRENT LIABILITIES 1,167.6 1,644.3
TOTAL ASSETS 6,170.0 5,764.8 TOTAL EqUITy AND LIABILITIES 6,170.0 5,764.8
Net debt -406.7 346.5 (1) including net profit, Group share 517.7 967.2
Balance sheet and income statement
2009 annual rePort RESPONSABILITé ENVIRONNEMENTALE 57
GLOSSARYAlloy: combination of a metal and one or more other chemical elements that acquires greatly enhanced mechanical properties when subjected to mechanical and heat treatments.
API standards: American Petroleum Institute (API): US organization that produces standards relating to the oil industry.
Billet: section cut from a steel bar (round tube) for the purpose of transforming it into a tube by mechanically working it while hot.
Blast furnace: reactor that uses carbon (in the form of coke or charcoal) as an iron ore-reducing agent to produce iron.
Buttress: standard threading for OCTG products.
Casing: tubes assembled by means of leak-tight threaded connections to form a column consolidating the walls of an oil or gas well.
Continuous caster: industrial facility that solidifies metal in a mould in a continuous process, forming long bars.
Drilling: use of appropriate tools to penetrate underground formations, whether for geological studies or to remove fluids (oil, gas, water, etc.) from the drilled terrain.
Drill pipe: extremely strong tube used to drill oil or gas wells. Drill pipes are assembled end-to-end to form a drill string, which may be up to 10,000 m long.
Electric arc furnace: furnace designed for smelting scrap metal or prepared ore, in which the main heat source is an electric arc.
Heat treatment: transformations in the structure of steel obtained by performing heating and cooling cycles for the purpose of improving the steel’s mechanical properties.
Hollow: semi-finished tube, which can subsequently be transformed into a product satisfying the specific requirements of a particular market.
Line-pipe: oil and gas transport pipes, generally consisting of seamless tubes in the offshore section and large-diameter welded tubes in the onshore section.
MSH section: trade mark registered by the Vallourec Group for Premium structural tubes.
OCTG: Oil Country Tubular Goods- casing and tubing products for oil and gas production.
Premium tube: high-performance tube, the manufacturing of which demands considerable technological and industrial expertise.
Riser: offshore pipe that carries oil extracted from the sea bed to the export facility on the surface.
Rolling mill: plant where seamless tubes are manufactured in a three stage hot process:1. pierce the billet;2. draw the resulting hollow on an internal mandrel;3. calibrate the final dimensions.
Structural tube (hollow section, micro-pile, etc.): round, square or rectangular hollow sections used in a vast range of applications in the mechanical engineering, construction and civil engineering sectors.
Supercritical or ultra-supercritical power plant: enhanced performance thermal power plants that operate at high temperature (>374°C) and high pressure (>221 bar). The term “ultra-supercritical” applies to plants operating at temperatures in excess of 600°C.
Threading: machined profile at the ends of tubes, allowing them to be assembled by screwing the male and female parts together.
Tubing: steel tubes assembled by means of gas-tight threaded connections to form a production string through which fluids are piped from a well bottom to the surface.
VAM® joints: family of premium threaded joints invented and patented by Vallourec. VAM® joints ensure a totally gas-tight connection and are suitable for a wide range of demanding applications.
Direction and writing: Vallourec, External Communications and Investor Relations - DDB Financial. Design and production: Marie-Louise. Photos: Matthew Ashton/AMA/Corbis - Jean-Pierre Bolle - Pedro Davi - Franck Dunouau - Thiago Fernandes - Frankenhauser Fotografie - Getty images - Hitachi Power Europe - Patrick Landmann - Larry Lee/Corbis - Fernando Martins - Peerakit - Ulrich Schiller - Guy Paul Simon - Philippe Stroppa - Thierry Truck - Vallourec, V & M Tubes - Philippe Zamora - X.Printed by Point 44 on recycled paper BalancePure.
Registered Office:27, avenue du Général Leclerc92100 Boulogne-Billancourt (France)552 142 200 RCS Nanterretel: +33 (0)1 49 09 39 76fax: +33 (0)1 49 09 36 94Internet: www.vallourec.com
French limited liability company(société anonyme)with Management andSupervisory Boardsand issued capital of € 229,123,156