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Vallourec Stock Down As It Trims FY14 Earnings View On Lower Demand

Shares of Vallourec SA (VLOWD.PK,VLOUF.PK) declined around 12 percent in the morning trade in Paris after the French producer of seamless and welded steel tube products trimmed its earnings forecast on Tuesday following a significant temporary reduction in demand for its Oil & Gas operations in Brazil and in EAMEA.

The company said it has taken actions to adjust to the temporary demand shortfall.

Philippe Crouzet, Chairman of the Management Board said, "The Group is facing a more challenging environment mainly due to temporary adjustments by selected large customers, and has taken immediate measures to adjust to this new situation. Management remains convinced of the long-term attractiveness of the global Oil & Gas end markets the Group serves and committed to implementing its strategy aimed at taking full advantage of these favorable structural trends."

For fiscal 2014, the company now expects earnings before interest, tax, depreciation and amortization or EBITDA, a key earnings metric, to be down by approximately 10 percent relative to 2013.

While announcing its first quarter results in early May, Crouzet had said that it projects stable to moderate increase in sales and EBITDA, and a positive Free Cash Flow generation in 2014.

According to the firm, the revision in forecast mainly reflects significant temporary adjustments due to key Brazilian customer Petrobras deciding to eliminate most of its tube inventories by year end, while maintaining its drilling plans. This one-time adjustment will heavily weigh on Vallourec's sales in the second semester of 2014, with an estimated net EBITDA impact of circa 60 million euros.

In addition, the Brazilian non Oil & Gas activities are impacted by the continued deterioration in the local macroeconomic environment, and declining iron ore prices, the company noted.

Further, the level of orders in the EAMEA region has strongly reduced resulting from E&P operators adjusting their inventories and delaying some tenders for premium products. This will impact deliveries through the end of the year and in the first half of 2015.

Vallourec said it has taken several actions on the operational front to mitigate these temporary negative impacts. The company is adapting its mills to the lower load in Brazil. In EAMEA, Vallourec is adapting its industrial operations servicing those markets to adjust to a lower demand, in addition to the recently announced measures aiming at structurally improving its European cost base.

The company also announced Capex reduction by 100 million euros to protect Free Cash Flow, down from an initial target of 500 million euros for 2014.

In Paris, Vallourec shares are losing 4.85 euros or 12.28 percent, and trading at 34.60 euros.

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by RTT Staff Writer

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