Vallourec Repeats 2014 Warning as Q2 Profits Rise

Steel pipes maker Vallourec (VAC.F) turned in a second quarter net profit rise of 41.9 percent to 88 million euros ($117.67 million) on Wednesday and repeated its recent warning that challenges in Brazil will eat into its second half performance.

The French group said on June 10 that core profit would drop 10 percent this year as customers - mainly Brazilian state oil company Petrobras - run down inventories to save money.

Petrobras alone will account for some 60 million euros ($82 million) of the slide in earnings before interest, tax, depreciation and amortisation (EBITDA), which Chairman Philippe Crouzet said in June would amount to between 80 and 90 million. EBITDA was 920 million euros last year.

Crouzet expects Petrobras to take until about the end of the year to run its pipe inventories down to nothing.

On Wednesday, Crouzet told reporters that in 2015, "Petrobras will return to a coherent rhythm of orders in line with its needs."

Vallourec depends on Brazil for about 25 percent of its sales, on Brazilian oil and gas for about 12.5 percent, and on Petrobras itself for between 5 and 10 percent.

Petrobras is undertaking a $221 billion five-year oil and gas capital investment programme but is struggling with high debts from the spending and a lack of cash flow as it waits for new production to come on stream.

Also weighing on its finances are the costs of state-imposed fuel price controls under the government of President Dilma Rousseff - a former Petrobras chairwoman - and a weakened real currency.

The strength of the euro will also continue to hit profitability of the deliveries from Europe, Vallourec added in Wednesday's results statement, adding that it remained "focused on generating positive free cash flow for 2014.

(1 US dollar = 0.7478 euro)

(Reporting by Andrew Callus and Benjamin Mallet)