UPDATE 1-Vallourec ups cost efforts as MidEast slows, euro bites

Wed May 7, 2014 12:28pm EDT

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By Benjamin Mallet

PARIS May 7 (Reuters) - French pipes and tubes maker Vallourec is to step up cost saving measures as its profits are hurt by the strong euro currency and a slowdown in orders from the Middle East energy sector, still the main driver of demand growth.

Vallourec, whose products are supplied mainly to the oil and gas industry, said net profit in the three months to March grew 60 percent from a year earlier to 56 million euros ($78 million), higher than a 44 million euro company-supplied consensus of analysts expectations, but down from 85 million in the fourth quarter.

Sales volume growth in the quarter of 13.3 percent outweighed a 1.6 percent negative price and product mix effect and a 6.9 percent negative currency impact as the euro - the base currency for its costs - strengthened against the Brazilian real and the U.S. dollar - in which much of its revenue is received.

The company said it was nevertheless still targeting stable to moderate increase in sales and core earnings and positive free cash flow generation this year.

Where Middle East orders were concerned, "it seems that some clients in the region have a level of stocks that is getting high, and that this is leading to a slowdown in orders and a less favourable mix of orders since the end of the first quarter," said Finance Director Olivier Mallet on a telephone conference call.

"The Middle East nevertheless remains the most dynamic in the EAMEA (Europe, Asia, Middle East & Africa) zone and still supports our long term growth perspectives," he said.

Mallet noted strong demand in particular from Saudi Arabia, which he said planned to raise the number of exploration rigs in action to 200 by the end of 2014 from 170 at the moment.

(Additional reporting and writing by Andrew Callus; editing by John Irish)

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