UPDATE 1-Vallourec expects modest 2014 rise in sales, earnings

Wed Feb 26, 2014 1:06pm EST

* 2013 sales up 4.7%, EBITDA up 16.8%, beats consensus

* Expects oil and gas sales to continue rising in 2014

* To start cutting investment spending in 2014

* Expects positive cash flow in 2014, ups dividend 17.4% (Adds details from call)

PARIS, Feb 26 (Reuters) - French steel tube maker Vallourec said it expected sales and core earnings to rise moderately at best this year, after strong sales to oil and gas clients outweighed the pain from a higher euro to push up 2013 profit margins.

A bellwether for investment in heavy industry, Vallourec makes seamless steel tubing for oil and shale gas drilling, the automotive industry and for use in building components.

Vallourec's sales have been driven in the last few years by its oil and gas clients as they have made large investments, but it warned last year that a rise in the euro would hurt results from the fourth quarter of 2013. It manufactures most of its products in the euro zone.

"I am pleased with the strong dynamism of our oil & gas sales, which represented two thirds of our total sales in 2013 and contributed to the increase in our EBITDA (earnings before interest, tax, depreciation and amortization) margin," Vallourec Chairman Philippe Crouzet said in a statement.

Asked in a conference call whether the company would be affected by cuts in capital expenditures announced by major oil companies such as Total, Crouzet said he expected investment by independent oil explorers and national oil companies to offset that decline.

"In a survey we did, we had about 60 percent of oil majors announcing a stabilisation or a drop in capex ... but experts tell us national oil companies will continue to increase their capex," Crouzet said, adding he was seeing that in Africa, the Middle East and by major Brazilian client Petrobras.

After the market closed on Wednesday, Vallourec posted higher sales and profit figures than analysts had expected.

For 2014, Vallourec said it expected a rise in oil and gas investment among clients overall and a rise in oil and gas sales for itself.

The group as a whole is targeting a stable to moderate increase in sales and EBITDA, it added.

After years of investments to build plants in the United States and Brazil, Vallourec said it would start tapering capital expenditures and expected positive cash flow generation in 2014, its first since 2009.

It proposed to pay a dividend of 0.81 euro per share, up 17.4 percent and higher than the 0.79 euro analysts had expected.

Its sales rose 4.7 percent to 5.578 billion euros ($7.6 billion) in 2013, the group said, beating expectations.

EBITDA rose 16.8 percent to 920 million euros, with the EBITDA margin up 1.7 percentage points to 16.5 percent.

Net income rose 18.6 percent to 262 million euros.

Analysts expected on average net profit of 251 million euros and EBITDA of 899 million euros on sales of 5.43 billion euros, giving an operating margin of 16.6 percent, according to a Thomson Reuters I/B/E/S consensus. ($1 = 0.7317 euros) (Reporting by Michel Rose; Editing by Lionel Laurent and Jane Baird)