Strategy

Making the future possible, by Philippe Crouzet, Chairman of the Vallourec Management Board

Let’s talk economic climate. Is it recovering or not?

There’s a recovery, unquestionably. The recovery is strong, but geographically centered in the United States, in the areas of unconventional oil and gas exploitation. And that’s where we are expecting the recovery. The crisis has mobilized the whole industry to improve operating performance and oil prices have returned to a level which is now sufficient to ensure profitability in these regions. This is not yet the case for the heavier and more complex deep offshore and onshore projects. However, production cuts and the rebalancing of supply and demand suggest a return to investment.

The sector has undergone a profound restructuring in the United States. How can all the skills be found to restart?

The sector cut more than 300,000 jobs in the United States in 2015 and 2016, but the speed of the recovery is generating a return of skills. By fall 2017, the sector will have recovered a large portion of its workforce. In the US, we have maintained our skill base, even during the lowest point. In Europe, we have reduced our capacities, but preserved our R&D budgets and key technology skills, while continuing to innovate and to look beyond the cycle.

Vallourec is establishing a new industrial footprint, a new organization. How is it going?

The new organization has two objectives. The first is competitiveness. We need to optimize our new production routes resulting from the plan announced and implemented in 2016. This means being able to choose the most competitive route for our customers and for the Group at all times by considering all parameters, from plant loading to costs, delivery times and exchange rates. It is the central Technology & Industry department that now allocates production in close and transparent cooperation with the regions. Its mission is also to stimulate and support the regions to improve their industrial and technological performance. 

The second objective is growth. Over the past two years, we have focused on adapting our industrial facilities and reducing our costs. Today, we devote more time and resources to finding new growth paths, increasing the value of our offer, expanding it, developing new solutions and entering new terrains for the benefit of the entire Group. There, too, a central Development & Innovation department drives a transversal approach, stimulating cooperation between the regions, which are on the front lines of the commercial battlefield, in contact with customers. Transparency, sharing and confidence are the levers of the new Vallourec.

The recovery in the US is providing a live test of the new organization. How is it progressing?

In the United States, the sharp decline in demand was amplified by a massive destocking by distributors. The rebound is equal to the amount of the drop. In six months, our capacities have returned to a level close to saturation.

Some of the recovery in demand is temporary, of course, and we are completing the American offer with an offer from Brazil, where the difficult market leaves capacity available, and even from Europe. This exercise validates two strategic choices: doubling the capacity of the Youngstown plant and establishing new production routes to meet global demand.

In China, what is Tianda’s biggest stake?

This is probably the boldest project in Vallourec’s transformation. We know Tianda very well, having become a shareholder in 2010. We know and have validated the quality of their equipment and their attractive production costs. In 2016, we took complete control of this company under very attractive financial conditions. So, where is the audacity? The challenge is to raise Tianda’s standards to the Group’s premium entry level without losing its competitive advantage, by gradually changing behaviors and installing our best practices in terms of safety, quality and maintenance

In Europe, what is the future for premium?

 Small, well-valued and short-term delivery runs remain the prerogative of Europe for oil and gas as well as for niche and specialty markets in industry and power. The core of R&D in all business lines also remains in Europe, especially in France for oil and gas, and in Germany for power and industry. Although the crisis has affected our customers’ priorities, innovation remains a growth engine for Vallourec. We are working on new products and services associated with our tubes in a approach sought by our customers and considering the total cost of ownership.

In this accelerated transformation, what has been the most difficult? And what are you most proud of?

The hardest part has been to fight on all fronts at once, to adapt production very quickly and at the same time to launch an in-depth transformation in the medium term. You have to ask employees to make efforts and be creative when business is halved. It was the most difficult part, but we did it and everyone contributed. I am most proud of convincing the teams and the shareholders to follow us in this industrial and financial challenge with a short timeline. We responded to it without blemish and without delay. Even the toughest decisions were executed on time, without penalizing our customers and in keeping with our commitments to our employees who were most affected. Everyone shares in this pride.

In its communication campaign, Vallourec promises to make the impossible possible. Is it true?

We all need a positive boost, our teams as well as our customers, and we decided that it would come from within Vallourec. This campaign says: more than ever, Vallourec is capable of meeting your technical challenges, enabling you to achieve your most impossible projects and your wildest dreams. Today, Vallourec is ready to produce the best for less and to surpass new frontiers. It is a message of confidence in the future that we are sending to all of our stakeholders around the world, faithful to the pioneering spirit of Vallourec.

 

 A new industrial organization


World tour of initiatives to strengthen the Group competitiveness

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Texas

Belo Horizonte

Aulnoye-Aymeries

Rath

A new industrial organization


By 2018, the Group will adjust its European presence, streamline and optimize its Brazilian operations and create a 2nd highly competitive hub in China.

3 major strategic initiatives:


1
A proposed reorganization of European activities with a 50% reduction in capacity in Europe compared to 2014 and a specialization of German units in the hot rolling process and of French units in finishing

2
Creation of a single production hub in Brazil by merging the companies VSB and Vallourec Tubos do Brasil

3
Acquisition in China of Tianda Oil Pipe, enabling Vallourec to create a new highly competitive production route