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Edited Transcript of VK.PA earnings conference call or presentation 21-Feb-18 5:00pm GMT

Full Year 2017 Vallourec SA Earnings Call

Boulogne-Billancourt Feb 25, 2018 (Thomson StreetEvents) -- Edited Transcript of Vallourec SA earnings conference call or presentation Wednesday, February 21, 2018 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Nicolas de Coignac

Vallourec SA - SVP of North America

* Olivier Mallet

Vallourec SA - CFO & Member of Management Board

* Philippe Crouzet

Vallourec SA - Chairman of the Management Board

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Conference Call Participants

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* David Richard Edward Farrell

Macquarie Research - Oil and Gas Research Analyst

* Hin Kin Wong

UBS Investment Bank, Research Division - Executive Director and Analyst

* Jean-Francois Granjon

ODDO BHF Corporate & Markets, Research Division - Analyst

* Jean-Luc Romain

CM-CIC Market Solutions, Research Division - Analyst

* Kevin Roger

Kepler Cheuvreux, Research Division - Research Analyst

* Maria-Laura Adurno

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Michael Shillaker

Crédit Suisse AG, Research Division - MD and Head of Global Steel and European Miners

* Nicholas James Green

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Robert John Pulleyn

Morgan Stanley, Research Division - Analyst

* Vladimir Maximovich Sergievskiy

Barclays Bank PLC, Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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I'll now leave the floor to Philippe Crouzet.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [2]

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Thank you. Good evening, everyone. I'm very pleased to be with you tonight to comment on the great achievements we've made this year, starting with a breakevening on the EBITDA, and of course, the debt level as well. To achieve these as stated on the slide here on Slide #4, if I'm right, we firstly benefited from the first tangible signs of the recovery in the oil and gas industry, specifically in North America, where drilling activity recovered to a stronger pace than what we initially forecasted. And this allowed us to boost our deliveries and increase our prices as well.

In international oil and gas markets, tendering activity began to resume at a more gradual pace. And meanwhile, the improved macroeconomic context in Europe and Brazil supported our industry and other activities. All in all, our sales were up 25% or 15% at constant exchange rate.

Reaching EBITDA breakeven came as well from the continued implementation of our transformation plan. And we are pretty successful in generating savings implementing and expanding our new competitive production routes and developing a organization that brings our team closer to our customers.

We maintained as well a continued focus on cash, namely, by efficiently managing the working capital requirements and monetizing some noncore assets. And lastly, of course, you are probably familiar with the fact that we strengthened and diversified our liquidity position by raising EUR 800 million on the bond and convertible bond market. I would like for those achievements to thank all the teams -- all the Vallourec teams for their commitment and their hard work. As a result of these efforts, we delivered a financial performance that truly exceeded our initial expectations, again, both at EBITDA and debt level.

If we move on to the next slide, I'd like to say a word about safety, which is a top priority of ours, I should say the #1 priority as we work a lot on that and we have been working a lot with -- as you can see here, great results. And I'm very pleased that year 2017 is third consecutive year without any fatality, which is not that common, unfortunately, in our industry. Our safety results improved in most of our operations over last year, especially in terms of lost time incidents. We had a slight disappointment in terms of the total recordable incident numbers, but this is very focused, can be explained, but it's not satisfying, since we commit to achieving the highest standards of safety in our industry. So we have defined and we will implement specific action plans. All in all, in 2018, we will continue our efforts on our roadmap, on our safety roadmap, along 3 main initiatives for the year. First, safety leadership, we plan to work more on that at every level of the organization. Second, deploy our safety observation cards program everywhere in every operation of ours. And lastly, extend the risk assessment, which obviously, is already systematic, but to unusual working situations, because we have more to do there.

Let me now move on to the market fundamentals and starting with our #1 market, oil and gas market. As you all know, a demand for seamless tubes is primarily driven by the level of CapEx, capital expenditure for development and production by the participants of the oil and gas market. And this level is, itself, driven by the balance of supply and demand for oil and gas, and the current and expected oil and gas prices. So starting with this aspect, the balance between supply and demand as you can see on the first chart, 2017 saw a rebalancing between supply and demand with demand exceeding supply in most of the year and contributing to a significant reduction in the stocks and the inventories by year-end, specifically. And we expect this trend to continue over the coming quarters, thanks to a strong demand growth averaging 1.3 million, 1.4 million per barrel, quite above the average mid-term perspective of demand growth. And of course, this in spite -- I know there's a lot of debate around that, in spite the shale potential in North America. Just as a reminder, in addition to demand for oil and gas, increasing demand, field depletion is the key driver and remains the key driver of demand for oil and gas production over time. Oilfields produce less and less as we all know, and the impact of this depletion is shown on the second graph. It can be cautiously evaluated at an additional estimated need of 2.5 million barrels per day to be produced each year on top of the existing production just for the conventional output to remain flat. So this is true for all oil production, but it's even more important for title, where the depletion rate is considerably higher than the 6% translating into 2.5 million barrels per -- did this -- just to remind that the more shale is growing as a proportion of the oil production in the world, the more depletion will be an important factor in this supply/demand aspect and in the need for drilling. So I reaffirm my personal opinion that this combined factors of demand growth and accelerated depletion should inevitably lead to rebound in CapEx in order to meet the increased needs and to avoid an oil counter-shock. And of course, especially since we have seen 3 years now of underinvestment in exploration and production. Now what did we see in 2017. We've seen some of this happening in the course of the year.

Moving to Slide 7. We take a closer look at the CapEx -- E&P CapEx, and we see that after 2 years of freefall 2015 and 2016, they started to -- not rebound, recover, I should say, in 2017. And we have a close look at the breakdown per region. It is entirely due to a rebound, a significant rebound in North America, where the E&P CapEx increased by more than 30%, which means by the way that in the rest of the world and especially in offshore, the figure was still negative. And thanks to our exposure to the North American market. This, obviously, was a driver for Vallourec sales growth over the year 2017 whereas the level of CapEx in other regions was relatively flat or going down. So consistent with that situation, of course, we experienced a very strong increase of the rig counts operating in North America since mid-2016 and you see this on the next graph. At the end of the year, as you may be aware, we reached -- North American rigs operating reached more than 900 so -- coming from a low of slightly above 400 in April 2016, so quite a rebound. And in addition to the increasing number of rig operating in North America, let me insist on the fact that the OCTG consumption is as well driven, especially in North America by an increase in the consumption of tubes per rig, which we call rig efficiencies. And this continued in the course of 2017 and we anticipate to see the same factors in 2018, meaning increase -- moderate increase in the number of rigs operating compared to where we stand today and a continued increase in the consumption per rig.

Now turning to the rest of the world, if I may say, as far as the oil and gas is concerned, we really are in a different world when we move out of the onshore U.S. market. International offshore projects showed in the course of the year, the first signs of a recovery with an increasing tendering activity. It's still modest, but we think it will continue in 2018. I'd just like to remind you that due to the nature of those projects, the international offshore projects, the impact on the deliveries will be modest and should be modest in 2018, I will come back to this in my conclusion. In this context of strong demands in North America, OCTG prices have started to recover from their lows of mid '16 and they really rose sharply, mostly in the U.S, where we recorded more than 20% average price increase, when we compared the lowest level achieved in 2016 to what we achieved in 2017. And prices are still showing incremental improvement as we enter into the year 2018. And the lower-left chart illustrates the price evolution and these are not Vallourec's average prices, these are prices that we get from public data. So all in all, 2017 was really about growth with sharp regional contrast and about volatility.

All these positive market trends in oil and gas were complemented by strong volumes as well in our industry and other markets. And they are reflected in Vallourec's volumes. This is the Slide 8, where you see the confirmation of the recovering trends quarter after quarter in 2017. Overall, our volumes went up from close to 1.3 million tonnes in 2016 to around 2.3 million last year. Not only thanks to market recovery but as well and this is the light, let's say, purple color on the right-hand side of the graph thanks to change in scope and, more specifically, the fact that we've included, we've consolidated Tianda since the beginning of 2017. So when we compare Q4 2017 to the last record deliveries, which was Q4 2014, the figures are very comparable, but of course there is a change in mix since at that time we had nothing from Tianda and unfortunately, of course, the price is not yet comparable.

I will now hand over to Olivier who will present you the key financial figures for the year.

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [3]

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Thank you, Philippe. Good afternoon, everyone. So let's start with some data on our revenue evolution by market. As you can see on this slide, our revenue increased quite significantly in 2017, driven by the market rebound for oil and gas in particular in the U.S. as well as in industry and as well from the scope effect, after the acquisition of Tianda and the full consideration of VSB in Brazil. Our total revenue as a consequence was up 26% or 15% at same scope and ForEx. Our largest market is, of course, oil and gas, which does represent 61% of our sales and revenue went up by 28% on this segment. It was laid by the U.S. with a very strong recovery volume-wise, which allowed us as well to increase our prices significantly in H2 '17. Revenue for oil and gas was stable in the EAMEA part of the world with some positive scope impact with Tianda and VSB, but offset by negative price effect due to '17 deliveries made at lower price than '16 based on contracts that were ordered mostly in '16 at low prices.

And finally, some growth in our oil and gas revenue in Brazil, mostly in Q1 with some exploratory wells for the Libra field.

Moving to the non-oil and gas segments, one word on Power Generation, where the market environment is difficult, with both our conventional power plants and nuclear ones, which led to a decline in revenue of 16% in '17. The good news came from the industry and other segments with a very significant growth, 38% or 30% at same scope in ForEx, which took place both in Europe, where we delivered mostly to the German industry for mechanical products and as well in Brazil, which is progressively getting out of 2 years of recession and where we said as well iron ore, where prices went up in '17 compared to '16.

On the next page -- slide. You see first a bridge in terms of revenue, where the biggest driver was volume, 35% excluding the scope effect, which was about 11% and this negative price mix effect of 19% due both to a change in the volume mix with a strong growth in the U.S. and this negative price effect on deliveries in the EAMEA region. Moving to the P&L and to the EBITDA -- no, no, sorry, still the last one. The EBITDA evolution so up by EUR 221 million compared to 2016 with 2 key figures to be highlighted, I think. First one, industrial margin that was boosted both by the recovery in activity and by the successes in our Transformation plan and associated savings to increase by 90% close to doubling compared to 2016. The second key figure on this slide is about SG&As, which are again down by 2% compared to 2016 despite the addition of Tianda and VSB and some inflation on salaries, which shows that we continue to make savings in this SG&A area, despite a strong recovery in our activity.

Next slide is about the Transformation plan execution, where good results were achieved in 2017. Starting with savings. We delivered, again, a strong year, with EUR 164 million gross savings after EUR 151 million in 2016. This leaves us after 2 years of implementation to a total of EUR 315 million to be compared over 2 years, to be compared with an objective of EUR 400 million over 5 years so we're definitely doing better than initially anticipated for savings. The other side of the Transformation plan is a policy deployment of new very cost-competitive routes. We have achieved what we wanted to achieve so far with a reduction of capacity in Europe done in '16 and early '17 with the acquisition of Tianda and with the merger of VBR and VSB in Brazil. The integration of Tianda in the industrial setup as a group is progressing very well. And we saw in 2017, the first commercial successes of this new route with, for instance, a contract in Egypt with BAPETCO, a JV between Shell and a local player for products to be partly delivered from Tianda for premium tubes. As far as Brazil is concerned, the anticipated synergies from the merger are higher than what we are thinking and a significant part of the overall savings that we are delivering to make Brazil our very, very cost-competitive export base. So that we can say that after 2 years of implementation, we have achieved approximately 50% of the EUR 750 million contribution from this Transformation plan to our EBITDA improvement. And this makes us, of course, very comfortable in our capability to deliver the EUR 750 million contemplated improvement from this plan. This is mostly about the P&L. The Transformation plan is as well focusing on cash items. Two elements there I could highlight. First in terms of CapEx. Again, in '17, very efficient CapEx management, only EUR 152 million cashed out for CapEx. And in terms of working capital, we have been able to again decrease our working capital by EUR 61 million, despite the revenue increase by 26%, which is definitely something we're very pleased about, which came from inventories, from receivables, from some synergies -- tax synergies in Brazil as well. To give you an additional figure about that, if you compare our operational working capital payable with your inventories vis-à-vis our Q4 annualized sales. At the end of '17, we are 23% to be compared to 31% at the end of 2016. So definitely a very good year in terms of working capital management.

On the next slide, a few comments about the rest of the P&L below EBITDA. Maybe 3 points to be noticed on top of the fact that our net result has improved in line with EBITDA by EUR 221 million. First one, our financial expenses increased compared to 2016. This is due to the change in scope with the addition of VSB in particular, with some change in the fair value of the Nippon Steel shares we were holding before we sold it in Q4 and some higher interest charges as well. Second point, we recorded in 2017, and mostly in Q4, about -- sorry, EUR 65 million impairment charges and EUR 79 million charges related to asset disposal, restructuring and other. You have 3 main components in these charges, which are noncash charges. One is related to the insolvency procedure of Ascoval, the steel plant company in which we had a minority stake. The second one is related to the disposal of some noncore assets, like our drilling products. And the third one is an impairment of some assets in China linked to the reduction in a number of projects for coal-fired plants. Last comment on this P&L. We recorded a tax gain of EUR 100 million, mainly related to the recognition of different tax assets in Brazil and in the U.S.

Moving to Slide 14. For the net debt evolution. Our net debt at the end of '17 was EUR 1,542,000,000. So an increase of EUR 255 million compared to end of '16. And to be noticed, a decrease of this net debt by more than EUR 100 million over Q4. What are the big components on this year-to-year or year-on-year evolution? Cash flow from operating activities at minus EUR 332 million compared to EUR 400 million negative in '16. I mentioned the additional reduction in working capital and the limited amount of expenses for CapEx. You have in the asset disposals and other items current EUR 168 million, some ForEx effect. And the disposal of our own Nippon Steel shares for EUR 69 million. Finally, on our liquidity position. We have a strong liquidity at the end of '17, which is made of EUR 1 billion cash on our balance sheet, plus EUR 2 billion of undrawn mid- and long-term committed bank facilities. As you know, this liquidity has been reinforced in October, when we very successfully issued EUR 550 million of bonds and EUR 250 million of convertible bonds on the market. We have as well, as you know, gained flexibility on our bank liquidity, with a gearing covenant on this bank facilities raised from 75% at the end of '17 to 100% for the years to come. At the end of '17 we were at 47% in terms of the covenant gearing, which leaves us with a large headroom for the coming years.

And I will now hand over back to Philippe who will tell you more about our outlook.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [4]

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Thank you, Olivier. So here on the next slide, we summarized the key elements, basically in the continuity with what we experienced in 2017, we see the sharp contrast between North America and the rest of the world as far as oil and gas is concerned. So we expect to benefit from a favorable activity level in the U.S., we anticipate the average recount to continue to increase, although more moderately of course, and the U.S -- the OCDG consumption per rig as well to continue to rise. So we should benefit from the full year impact of the volume and price increases, which we achieved in the course of 2017, especially in the second half, plus some additional moderate increase.

Oil and gas activities should remain stable overall in Brazil with the renewal of our frame agreement with Petrobras, which is expected in the first half of this year. Whereas in the rest of the world, we foresee an increasing tendering activity for -- still for oil and gas projects, but again, this should result in higher bookings with positive impact on deliveries to materialize mostly as of 2017. Meanwhile, we remain optimistic regarding the improved momentum in the industry markets in Europe as well as in Brazil in the case of Brazil industry and others, including iron ore sales. And we know these markets, we remain very competitive, but the volume is there and some price increases opportunities have already appeared. From a more macro perspective, there is some kind of change, if I may say, over the last weeks, we definitely experienced, and I want to highlight that unusually high volatility in a number of factors, which may impact our financial performance notably some consumable prices, electrodes, which we use in our electric-armed furnaces and, of course, high volatility in currencies as well, no need to insist. But as you know, just as a reminder, we are very sensitive to the euro-dollar rate, ForEx exchange rate, and this of course, as we speak, is quite unfavorable to our P&L and balance sheet as well, by the way. In this context, on the positive side, what we control -- what is under our control will continue to deliver, I think, good results. So we will continue to steadily execute our Transformational plan. And we expect to generate, again, significant savings and on top of that, of course, to improve -- continue improving our competitiveness. So if we combine the continued progress on what we control with the market and sales improvement, we expect to see our financial performance improving in 2018. Thank you for your attention.

Now we can move to the Q&A session, both with the audiences in this room and on the net -- on the phone.

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Questions and Answers

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [1]

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To start, yes? Kevin.

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Kevin Roger, Kepler Cheuvreux, Research Division - Research Analyst [2]

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Kevin Roger, Kepler Cheuvreux. I will start with 3 questions, if I may. Recently the press reported that you could sell from Brazilian assets with especially information on the ForEx with cash discussion up to EUR 600 million. I was wondering, if you can comment it, please. Second question, you just said that on the guidance, you said you expect an improvement for the '18 compared '17, could you please give us your view or so on the consensus, which is at the moment close to EUR 230 million, something like that? And the last point is on the ForEx, previously you used to say that $0.10 was one of the most immediate EBITDA impact, if you can update us or so on this point, please.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [3]

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Okay, these are 3 questions for Olivier. Thank you, Kevin.

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [4]

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Thanks for that, Kevin. So

(technical difficulty)

getting the number of blast furnaces, in particular by shutting down the 2 blast furnaces, in Barreiro, Belo Horizonte. One has been shut down in '16 and the second one will be shut down as planned mid this year. So that -- we said that steadying part of our or maybe all our (inaudible) forest since we can buy charcoal of the market. Could make sense, if we have a buyer offering a nice price for it. This kind of asset is not something that is liquid, where you have lots of potential buyers. So it's a long process. We won't sell it, again, before we find a buyer with a good project and a good price, so that you should discount the owners that you whether we are -- which are backed by -- as of today confirmation that they could give the name of the buyers according to (inaudible) and the price they offered. This is not based on what we have in this process. On your second question, what about the consensus. We never really comment at the conferences which as you say is EUR 200 million or slightly above EUR 200 million of EBITDA. Just the addition I can make is that you have to notice and to take into account and it's a transition to your third question. The fact that quite recently we've seen these changes in ForEx, which may have a negative impact on our 2018 results improvement. So moving to this ForEx affect, you're right. We were saying a few years ago that about $0.10 in the euro-dollar evolution had an impact of EUR 100 million EBITDA-wise after some delay because we have hedges in place each time we take orders. This sensitivity has been reduced since then for 2 reasons. It's most 2014 sensitivity at full volume and we are not at the same volume size in 2014. It was at the time where everything was exported from Europe. So a strong exposure to the euro-dollar. Now we export much more from Brazil instead of Europe and to some extent from China as well. So this sensitivity has been reduced quite significantly. Still it does exist. So that -- to give you an order of magnitude if the euro-dollar and taking into account as well as a higher dollar-real actually, were to stay I'd say EUR 125 million for the euro-dollar and associated other currencies. The negative impact in '18 compared to '17 could be a few tens of million euros.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [5]

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Question? Yes?

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Jean-Luc Romain, CM-CIC Market Solutions, Research Division - Analyst [6]

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Jean-Luc Romain, CM-CIC Market Solutions. In 2017, how much do you attribute in your improvement in EBITDA to volumes and how much to implementation of your plans? And a couple of years ago you had mentioned a negative volume effect on EBITDA of EUR 900 million. I understand that the scope has changed and Tianda is now included, but how much could you recoup of this negative volume impact, if volumes could go back to 2014 levels, excluding stock effect?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [7]

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Again, for you.

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [8]

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Your first question is, Jean-Luc, what about the drivers between volumes and other factors in 2017 improvement. The biggest driver was actually our savings, EUR 164 million. So very large cost savings and not above the inflation. That was actually low in '17, in particular, in Brazil, which had a very good performance in terms of inflation. Then we had some positive volume impact in particular in the U.S., of course. Volume-wise our volumes almost doubled in the U.S. in '17 compared to '16. Price-wise, as I think we said clearly, you had opposite effects. In the U.S. positive price impact mostly in H2 and that we'll have a full year affect over 2018 that will be a big plus. But on the other hand, this negative price impact in the Middle East region with orders delivered on the back of orders taken in '16 at lower prices. This to tell you that in the coming months and years, what we have to see considering is a continuation of volume growth in the U.S. to some extent, but now in other parts of the world as well and some price recovery that to pay so far essentially in U.S., not yet into rest of the world and that has to develop into rest of the world. And then in this regard, it's very difficult to tell you as of today what will be the exact pace of price recovery and this is the answer to the second part of your question, I guess.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [9]

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Questions from the phone. If you have some questions on the phone.

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Operator [10]

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Our first question over the phone comes from Michael Shillaker.

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Michael Shillaker, Crédit Suisse AG, Research Division - MD and Head of Global Steel and European Miners [11]

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My first question, if I may, just on Petrobras in Brazil. You talk about volumes looking as though they're probably stable this year, but in the renegotiation of the contract of the frame agreement, can you talk a little bit about what you are anticipating on pricing, because one would imagine there's quite a lot of pressure in Brazil to negotiate pricing down? And I guess, at the moment, given the global market is still pretty difficult to say that you've really got any pricing power. So if you could tell us a little bit about your thoughts on that. Second question just on CapEx. You're obviously running still around 50% CapEx to depreciation. In a business like yours, which does rely very heavily on sort of technology, innovation and R&D, how long do you feel comfortable running at that kind of level before you start losing ground potentially on the likes of (inaudible) and other, the high-end competitors? And on the Brazil asset sale -- sorry, if I missed the question, but we had an interruption from the mediator during that question, but the forest that you are planning on potentially selling, that is what you -- if you could look just far as you're taking charcoal from, I'm assuming. Is the idea if you sell that forest that you would no longer benefit from the charcoal cost and you would have to effectively buy charcoal or met coal, whatever you decide to do at market price? So you gain on the asset, but you lose on the OpEx. And I guess, final question just on working capital. You've done a great job on managing working capital through the downturn, but how are you feeling into this potential recovery on the position of working capital control going forward, because obviously you're going to continue to receive, clearly already build a lot of working capital into their recovery, I guess, you're going to be in a situation where as the recovery continues you're going to have to do the same?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [12]

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Okay. I'll take your first 3 questions, Michael. The one about Petrobras, it's true that since we are getting out of the contract, which was signed, I guess, in 2014, '12, even '12. Wow. Of course, the pricing is quite different today than it was then and it's part of a normal rediscussion of a contract that there are some pricing adjustments. Now in the meantime, we've been capable of enriching our offer including some services and that will obviously, be a way for us to increase the value of what we provide to Petrobras without harming, of course, their P&L and so this is -- integrating more value is a way of balancing some price decrease on the pure pipe part of the contract, which obviously, will happen. And let me as well add a word on why the volumes are stable for Petrobras next year. Petrobras, of course, is in a situation where there are some constraints on their CapEx plan and that is the reason why they are very disciplined on CapEx and they are rolling out an industrial plan, which includes growth and investment in pre-salt, but obviously, not at the speed that they would probably implement if they had lesser constraint on their balance sheet. The good news is that due to changes in the Brazilian legislation, there will be, in the near future, other operators in the pre-salt area. And those operators are already well known. Some of them have contracted strategic partnerships with Petrobras like Total, like Statoil, Shell and others might come. And of course, this will provide us with more opportunities to add to our present relationship with Petrobras, other volume growth in the pre-salt area. But of course, it takes time, because the new operators must get some licenses. We are, of course, operating in offshore and some very sensitive areas. So it will not show up in -- as early as 2018, and that is the reason why we foresee a stable activity in Brazil. Staying in Brazil by the way about the forest. What we commented, what Olivier commented is that we now have clearly an excess of forest capacity compared to our needs. And now that we have restructured or we are close to completing the restructuring of our steelmaking activities in Brazil. So we need significantly less charcoal than the capacity of our forests. And then the rest is subject to negotiation. So we will be opportunistic if there are offers which are attractive to more acquisition than what we initially put for sale. We might consider them, of course, taking into account the fact that this would be then associated to a long-term contract of charcoal supply. And about the CapEx, you're right. The level we achieved in 2017 is very low, half our depreciation. To be honest, I don't feel that we put that much constraint on our mills. We've been implementing programs of preventive maintenance quite efficient and which makes that compared to say a few years ago, we can get the same effect in maintaining our mills with less CapEx, on top of that, we have less mills since we've closed quite a number of lines and plants even. So we need less CapEx. This being said, I don't expect to remain at EUR 150 million for more than a year. We will certainly increase a bit, our CapEx in 2018, but should not come back to the levels where we were some years ago, again, because we have a different scope, we have a younger equipment on average and more concentrated operations. So these are your first three questions. The last one was on working cap, I guess, so Olivier?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [13]

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Yes, Michael, on the working capital. As you're seeing we've made a lot of progress over the last few years to manage much more efficiently our inventories, receivables, collection and so on. We are continuing to have programs in place, in particular, for some kinds of inventories. This being said, of course, we cannot cut working cap year-after-year in the context of increasing activity. So you should expect our working capital to grow again progressively starting in 2018. The rule of thumb that we're giving analyst was about 25% of our sales increased (inaudible) in working cap, we'll see whether we can do better than that. But some working capital increase is '18. '18, yes.

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Michael Shillaker, Crédit Suisse AG, Research Division - MD and Head of Global Steel and European Miners [14]

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Okay. Just one very quick follow up question on...

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [15]

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The light model in North America, where we work with distribution. So in North America, the very good service we provide, doesn't wait on our balance sheet, but I'm sure you know that Michael. Any other questions on the phone?

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Operator [16]

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Our next question comes from Nick Green from Bernstein.

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Nicholas James Green, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [17]

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Two, please. So the first one, to your comments on the long-term transformation plan. It's great that you've made good progress towards the EUR 750 million. What I'm about to question though, is are you still comfortable committing to the EUR 1.2 billion to EUR 1.4 billion EBITDA target by 2020? And if you are, in which case, could you help us understand how to bridge that please? If you've got about EUR 375 million left from the EUR 750 million, in the previous plan you had assumed about EUR 900 million volume recovery. Well, your volume in 2017 is not that far different now from your volume in 2014. So it is looking as if a decent amount of volume recovery has come in and yet it hasn't actually led to the same EBITDA uplift you had expected, so it would be good to understand, Philippe, do still stick behind that target? Do you want to step away from that target? Help us understand that bridge, please. The second question relates to more, sort of, business fundamental question regarding your operating cash flow. In Q4, you posted minus EUR 124 million operating cash flow before net working capital. Can you please help us understand why that is -- remains so negative, your Q4 tonnage, for example, 655,000, that is the highest tonnage you've posted since 2008. Why is it that this is negative operating cash flow and isn't that a -- could you help explain why that shouldn't be an ongoing concern for us?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [18]

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Yes, on the first one, remember what we said, Nick. There are 3 main levers that we have to play in order for EBITDA to continue to recover. One is what we do internally, our Transformation plan with a significant amount of EUR 750 million by 2020. And there is no doubt that we will achieve this objective. Then you have the market that we're much less in control of. In the market, you've got 2 levers, volume and prices. In terms of volume, it's actually a fair view of our 2017 volume. To say that we are back to 2014 because it's due to the Tianda acquisition that is producing about 500,000 tons per year, mostly so far for the Chinese market with, of course, nature of products and an EBITDA that is not comparable to what we sell in other parts of the world. So if we think and compare apple-to-apple, we're still pretty much below the 2014 volumes. We are convinced that the market will grow volume-wise. And that it will possibly come back to the 2014 volumes or close to it. For relatively simple reasons, that have been shown by Philippe at the beginning of the slides. The world needs to drill again in order to offset depletion and to follow the growth in demand for oil and gas. And when you drill, you need OCTG tubes. And even more if -- as we see as of today, the U.S. are leading the race, just be aware that the tube intensity in the U.S. is much higher than the rest of the world. The OCTG market in the U.S. is about 1/3 of the global OTG (sic) [OCTG] market. The oil production is much lower than that, like 10% or 12%. So volumes will come back. We don't know, of course, nobody knows whether it will be in 2020, '21, '22, but they will come back. Why it's much more difficult to assess what will happen is third lever, which is prices, of course, which went down quite a lot in most oil and gas markets since 2014. As of today, we have seen the start of a recovery in the U.S. not really in the rest of the world and this is what will have to happen in the coming few years as the volume enterprise recovery continuing in the U.S. and happening in the EAMEA region mostly.

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Nicholas James Green, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [19]

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So what I -- would it be fair to...

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [20]

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I think to your second question, when you say that you have very strong volume in Q4 '17, but still a negative cash from operations. Same answer. In our Q4 2017 volume, you have quite a lot of Tianda volume and volumes in part of the world where prices have not recovered yet compared to a few years ago.

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Nicholas James Green, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [21]

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So is it fair to say, I don't want to put words in your mouth here, but you're stepping away from your EUR 1.2 billion to EUR 1.4 billion EBITDA target by 2020. And instead preferring to stay closer to a EUR 750 million strategic initiative target?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [22]

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Stepping away? We always said that it was based on EUR 750 million internal contribution. And prices and volumes coming back to 2014 level.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [23]

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Add capacity, I mean, potential for additional volume growth, we have. We have in Brazil, we have in China. Apparently we sell all our capacity in China. But as reminded by Olivier, a significant part is still sold to the domestic market on, let's say, products we do not want to keep over the medium term and we will substitute by more value-added products, watch we are in the process of doing and we still could debottleneck our capacities in North America as well, but, of course, to get that additional volume, which would bring additional contribution to the EUR 750 million, this requires that the market are well oriented and provide attractive prices. Maybe questions in the room. There was one or two. Two?

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Unidentified Analyst, [24]

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(inaudible) from (inaudible). You didn't say a word about competition. In last year did you gain or lose market share in your main markets?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [25]

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Maybe it's an opportunity for me to introduce and give the floor to Nicolas de Coignac, who is heading our U.S. activities and that's probably one of the markets where we -- and there is more opportunities to grow and that's a good way to speak about what we achieved there. Nicolas?

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Nicolas de Coignac, Vallourec SA - SVP of North America [26]

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So just want to answer your question specifically in North America. In 2017, we have lost a bit of market share for a simple reason that the market recovered extremely quickly. And we had some delay in ramping up our plants to full production. Meanwhile, we're starting from a point in 2016, we're at the opposite. We gained very significant part of the market share. So I would say that in 2017, we're probably back to where we were 2 years ago. But now that our plants are working at full capacity, based on some of the bottlenecks on which we're still working, as Philippe was alluding to, we expect to gain back some points of market share in 2018.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [27]

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In another part of the world, it's harder to calculate, because it depends on tenders mostly. And so depending on how you counter that, it's -- you get different figures. In North America, we have broader statistics. We have, in fact, much more statistics than in the Middle East or the rest of the world. I would tend to say that probably no significant change in market share. We have strongholds like, of course, Brazil, some countries in the Middle East, where we have probably resisted pretty well. But on a quite a low level of activities, there were very, very low level of deliveries in this region of the world. In other markets than oil and gas, I would tend to say that in industry we've probably regained some market share on the most attractive segments and we're trying to get out of the commodity segments. In PowerGen, we've probably kept if not increase our market share, but it's a declining market, unfortunately. So it doesn't bring a lot to be honest. So I would say, all in all, probably no significant changes in the market share, but hopefully, some nice perspective now on. There was another question here. Mr. Francois?

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Jean-Francois Granjon, ODDO BHF Corporate & Markets, Research Division - Analyst [28]

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Jean-Francois Granjon with ODDO BHF. Four questions, please. The first one, on the pricing in North America. Due to the high level of WTI, could you expect some new price increase in '19 -- '18 as far the free growth levels last year. The second question concerning the transformation plan. So with EUR 350 million during the 2 previous years were near the EUR 400 million target for the -- until 2020. So do you expect a little higher than that? And for 2018, do you expect the same level and same -- maintain that EUR 150 million impact in 2018 compared to last year? The third question really the mix price. Due to higher level of price in North America, could we understand that the negative impact of the mix price effect at 20% last year could be lower than that in 2018? And the last question concerning, I come back to the ForEx impact. Could you give us the net position of the group in terms of percentage of sales to the [EBITDA] level? I know in the past everyone thought that probably 30% of net sales was exposed to the U.S. dollar. So could you give us an update with that?

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Nicolas de Coignac, Vallourec SA - SVP of North America [29]

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Okay. Maybe let's start with the 2 questions regarding North America. I think it was essentially one, Philippe, concerning prices. So prices in North America what as you know, we revise our prices about every 6 months, more or less and in some few cases every 3 months. We have pushed the prices north of 20% last year. And for the first half of 2018, we expect those prices or we know that those prices will remain stable compared to the end of 2017. However, you have probably read that we announced prices increase very recently $125 a ton. And this will impact very slightly Q2, nearly nothing, because we are under our contracts, but certainly the second half of the year. And we are pretty vocal on saying that this is probably not the last increase that we will announce.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [30]

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Regarding the savings, Jean-Francois, you are right being where we are at the end of 2017, we will certainly do significantly more savings than the EUR 400 million. I do not articulate any precise figure today, but obviously, we have plan to go further, and especially in North America, where in fact really the consequences of the merger between the 2 entities that we have there, the former company we were owning 100% and the joint venture with Nippon Steel. The merger of the two entities is really delivering good savings, but as well in Europe, we have other plans and we are constantly generating new ideas. So there will be more savings definitely than the EUR 400 million and that we contribute, of course, to reaching our overall targets, which we already commented. Olivier for the next questions.

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [31]

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On your third question, Jean-Francois, which was about the price effect in '18 after the negative one of '17. Yes, we anticipate a positive price effect in '18 compared to '17, due mostly to 2 factors. One, in the U.S., which is first full year effect of the price increase of a good 25% that took place July 1 in the U.S., plus what Nicolas just said, very likely further price increases in the course of '18, essentially in H2. In the other parts of the world, we were saying during the presentation that for industrial sales, demand in Europe, in particular and to some extent in Brazil, has been picking up since, I would say, mid-'17. It is starting to allow us to increase prices for this kind of mechanical products, not as fast as the 25% we had last year in the U.S., but at the level, which allows us to regain some margin on this kind of products. And finally in the EAMEA region, for oil and gas, again, for a limited number of customers but significant customers, where the prices have been the most under attack in 2015, '16 because there were only one coming with tenders regularly. We have successfully started to increase prices again in the course of 2017. As you know, the delivery time in this part of the world is on average 9 months so that we didn't see the positive impact in '17 deliveries, but we see some positive impact in '18 knowing that it's only a few customers once again. We cannot say in this part of the world so far that it's a general price increase for any kind of customer. And I think this is the -- mostly in Brazil, we mentioned the Petrobras contract renewal that we are targeting where there could be some price concession that we don't expect to be too massive. Finally on your last question, euro-dollar sensitivity. The question is what is the share of our sales in U.S. dollars made by non-U. S. dollars companies? It happens both ways when we say in U.S. dollars and in some countries where are sales that are not in U.S. dollars, but indexed to some extent on the U.S. dollar. So the share changes every year, of course. Back in 2017, it was probably close 30%, above 35% of our group sales. I don't have a figure for '18, but I guess, the more the U.S. sales increase, which are domestic sales, the less this percentage will be.

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Operator [32]

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Our next question comes from Vlad Sergievskiy from Barclays.

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Vladimir Maximovich Sergievskiy, Barclays Bank PLC, Research Division - Equity Research Analyst [33]

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I actually have 3. First, can you clarify a few points on provision reversals you had in 4Q and then '17? So in your press release, you disclose EUR 45 million of noncash provision reversals impacting EBITDA in Q4. In this respect, can you confirm that clean EBITDA net of this effect was negative EUR 34 million in Q4 '17? Also can you disclose the full number of provision reversals for 2017 you had? And can you give us any idea of how much of these provisions left for you to revert in 2018? That's my first question, please.

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [34]

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So on your first question, since we knew you would ask it, we gave the number in our press release. So the amount of net provision reversals that took place in '17 is EUR 81 million, which by the way is a good news. What is it about? It's about the fact that in 2015 and '16, in some cases, we're accepting to sell products below their full cost. In this case, you book a provision and you release it when you deliver the products, which took place in '17. The good news is that in 2017, with the customers that we are leading these kinds of provisions, prices went up. So the amount of new provisions to be booked has been reduced very largely in '17, which leads to the second part of your question, the '18 situation will be such that we will have almost no net provision reversal, leading to the fact that our cash flow from operations will improve significantly more than the EBITDA per se, because these moves in provisions will not happen again.

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Vladimir Maximovich Sergievskiy, Barclays Bank PLC, Research Division - Equity Research Analyst [35]

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All right. That's clear, and a few more questions, if I may. So can you give us an idea of profitability of your U.S. business for the first half of 2018? You just highlighted the prices overall, so effectively, they are a threat. Obviously you are pointing towards cost inflation, including electrodes but not only in your press release. Does that mean that profitability built on or margin of your U.S. business is likely to shrink in first half '18 compared to second half '17? And if I may, third question, straightaway, on the offshore. According to some of your competitors, offshore projects are now offering comparable economic to U.S. shale, which was obviously not the case in the prior world. And they also require significant working capital investments. Do you agree with this assessment of the offshore market today? And does your balance sheet allow you to compete in this sort of market conditions?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [36]

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Yes, on the U.S. business, I'm not sure I fully understood your question. But the end of the question was, will the profitability of your U.S. business shrink in H1 '18? And the answer is, no.

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Vladimir Maximovich Sergievskiy, Barclays Bank PLC, Research Division - Equity Research Analyst [37]

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Yes, exactly. So the question was really, what is the change of profitability total in the U.S. directional in first half '18 versus second half '17, please?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [38]

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Basically, no bigger change, as Nicolas said, prices are stable in H1, volumes will be at least at the same level as H2 '17. So that there is -- there will be no significant change in these sectors. And in addition to that, we're increasing to some extent our exports from Brazil to the U.S. in order to be able to answer the growing demand in the U.S., which is adding some profitability share between Brazil and the U.S. due to our transfer pricing rules.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [39]

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And as far as the offshore projects are concerned, I didn't notice any significant change in the practice, even if in some cases, some players but not all of them are putting for tender broader offers in terms of services, but this does not necessarily require a significant increase in working cap. Our present balance sheet, including working cap, does include some significant offshore projects and some of them there that come to my mind are delivered from Brazil to Australia, as an example so we typically, of course, incurred the working cap impact of long delivery time, but I think that that's all and we are absolutely capable of financing that as we've always done when we work on offshore projects. Where we see opportunities to work with a leaner balance sheet is obviously, onshore and especially onshore North America, where we are working with distribution and developing innovating approach with them in order to improve the service, but there is no change there in terms of working cap. This is completely carried as well as the financial risk by the way by the distribution companies, which are partnering with us.

Other questions on the phone.

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Operator [40]

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Our next question comes from David Farrell from Macquarie.

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David Richard Edward Farrell, Macquarie Research - Oil and Gas Research Analyst [41]

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I've just got one question. Last year you were very helpful in helping us kind of guide on a quarter-by-quarter basis some of the moving dynamics and I just wanted to come back to kind of the electrode issue. The quote on Bloomberg say not to conclude negative tens of millions of euros negative impact to the 2018 numbers. Is that going to flow through in the first half of 2018? And therefore, should we expect EBITDA to actually fall back in the next coming quarters and for your increased year-on-year profitability to be really driven by the second half of the year?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [42]

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Frankly speaking, it's not a huge impact. It's a few tens, but we have few tens of million euros on a full year. Assuming that for the part of our needs that are still exposed to the spot market, which is (inaudible) we don't get long-term deals, which we're trying to do. And it will happen relatively quickly. I think we have still some inventories that may cover say Q1 and then it will be a spread over the year.

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David Richard Edward Farrell, Macquarie Research - Oil and Gas Research Analyst [43]

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Okay. Because I guess, coming back to kind of the initial question around consensus. It does feel as if we could be seeing consensus downgrades here, potentially of 10% to 20% on the back of these 2 negative macro events. Is that something you would concur with?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [44]

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Again, we don't comment consensus. I think our approach has been that giving you guidance at this stage of the year, given the volatility of our markets, plus this year's volatility of ForEx and some consumables probably wouldn't be a good idea. We've done that last year. And it has been a little bit of shooting on our foot. We gave a guidance at the beginning the year and we improve this guidance quarter-after-quarter, which is probably not the best way to manage this kind of very volatile market. So we prefer to be qualitatively quite precise market-by-market and then to let you make your own assessment.

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David Richard Edward Farrell, Macquarie Research - Oil and Gas Research Analyst [45]

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I guess the difference being this year though that no one really kind of expects a material shift in the U.S. There was already in China at the start of last year.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [46]

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I refer to my comments that as far as 2018 is concerned in North America, we do not expect for sure such significant change as the one we experience in 2017. It's more full year effect plus as our vision today is some increase in the number of rigs operating compared to the year-end situation, but moderate increase. So I think this part of the forecast is probably much easier to anticipate than what happened last year. Of course, we leave completely aside, completely aside, it is out of our picture any potential impact of the 232 legislation, which is apart from not being easy to understand, really unpredictable.

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David Richard Edward Farrell, Macquarie Research - Oil and Gas Research Analyst [47]

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And I just wanted to follow-up on that. Obviously, I think, we can all appreciate how OCTG would move up. Is there any negative effect in terms of cost of sales, input costs, that might arise from Section 232?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [48]

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I think if we can understand what may happen, the first impact will be really -- and the stronger impact short-term, short-term, will be very likely on the domestic prices, because it will create, it could create depending of course, on the scenarios and the decision made by President Trump, but it would create an immediate shortage, so with an immediate impact on the pricing situation. Now I must insist on the fact that it is -- it might be a short-term vision, because given the nature of the measures, which are envisioned or presented or proposed by Secretary of Commerce Ross, it is hard to think that it will not trigger retaliation from other countries. The nature of the measures that are envisioned is country by country, which is very unusual. So it is hard to think. So I think the major impact would be on prices, no doubt. And then on the flows between countries, it's true that we export to the North American market, but relatively limited volumes compared to what we produce in North America. And as I said earlier in this meeting, of course, we are in the position to bottleneck some of our capabilities, capacities in North America so that that would be an option as well.

Question on the phone or in the room, phone? Phone?

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Operator [49]

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Our next question comes from Laura Adurno from Goldman Sachs.

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Maria-Laura Adurno, Goldman Sachs Group Inc., Research Division - Equity Analyst [50]

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So just one very first question, which is to clarify something. The guidance which you provided for full year 2017 EBITDA and the range that you provided, was that inclusive of the provisions or not just you'd be able to compare with current FY '17 EBITDA? So that would be my first question. Second question, based on all the comments you've been giving, would it be fair to assume that you should have relatively stable volumes into 2018? And third one is around free cash flow. If indeed you have stable volumes and well, to a certain extent you have potential headwinds coming from FX raw materials, then from a free cash flow statement standpoint, how should be think? Are you -- should we think about a deterioration versus FY '17?

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [51]

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I think your first question was to know whether our guidance for '17 was taking into account provision release. Yes, it was consistent, of course. On your second one, which is about 2018 volumes. There are 2 areas that should lead to higher volumes. One, of course, is the U.S. Keep in mind that we spent as Nicolas was saying, H1 '17 ramping up the offices by rehiring teams in the U.S. in order to be at full capacity in H2. So we have a full year impact of this full capacity situation of H2 '17 in the U.S. The second part of the business, where we definitely expect growing volumes is industry, both in Europe and in Brazil. I will say that we're enjoying strong momentum, since early mid-'17 in these areas and we see that continuing in '18. In the rest of the world, probably less significant changes volume-wise. And finally, for free cash flow, I can just remind you about what will be below the EBITDA. In terms of CapEx, you can assume an envelope close to the one we had announced for '16 and '17 of EUR 200 million CapEx. We've done less than that finally in '16 and '17, because we decided to spend more time in some cases on engineering studies before giving the final green line to some projects, but again, assume about EUR 200 million. In terms of financial charges, something slightly above EUR 150 million. And finally, if you add up tax restructuring these kind of other elements, it's about EUR 100 million. And then -- but depending on the level of activity of early '18 and late early '19 and late '18, you will have some increase in working capital, but which is not possible to precisely measure at this time.

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Maria-Laura Adurno, Goldman Sachs Group Inc., Research Division - Equity Analyst [52]

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Just one last follow-up question. So I remember I don't know whether it was a 2Q or 3Q, you had mentioned that actually the Brazil 5-year contract which you had was actually coming to an end in 2017. So I was just wondering, given that you're still in the process of negotiating whether from that standpoint it's business as usual from activity standpoint and also pricing if you're making any deliveries?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [53]

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Yes, definitely we continue with the existing contracts until we sign the new one, yes. The question on the phone?

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Operator [54]

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Our next question comes from Amy Wong from UBS.

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Hin Kin Wong, UBS Investment Bank, Research Division - Executive Director and Analyst [55]

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Most of my questions have been answered. The one I have left is looking at your EAMEA order book for oil and gas, can you give us an idea how the pricing of that product, that book is about -- how it stretches out into 2018? How far it stretches? And then secondly, on the size of the tendering pipeline, which you are saying should result in increasing tendering activity. Can you quantify how much that tendering pipeline has increased now versus 6 months ago, please?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [56]

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Amy, it's hard to put figures on that, because there is a new trend, especially in the Middle East for big tenders. So not as frequent as before, but bigger. And so we expect quite a number of those tenders to take place in the course of 2018. We are already end of February, so it means that anyway the impact on 2018 will be negligible, if not nil. So this is the name of the game, I would say. So we cannot really put precise figures on that and anyway the impact will be more '19 than '18.

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Hin Kin Wong, UBS Investment Bank, Research Division - Executive Director and Analyst [57]

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But what about the current book that you're executing on? Is the pricing in there still continues to be lower in 2018 versus 2017? So how should we expect your EAMEA results to evolve in 2018?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [58]

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I cannot be explicit about '18. The trend is not lower than '17, but the message is that we still are and we still were in 2017 below the levels of say, 2 years before, definitely. So we've not recovered yet on the pricing side, as mentioned by Olivier earlier, and this is one of the key say, potential or question mark regarding the medium-term financial performance. So volumes that there are definitely know that quite a number of tenders are being prepared. There is a clear willingness of a number of operators in those regions and I'm referring there mostly to the Middle East, North Africa, less West Africa to be honest compared to a few years ago. So there are ambitions. There are projects. Now sometimes tenders take time to be put on the market. And the pricing situation is still pretty competitive, I would say, compared to 2 years ago, no doubt about that.

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Operator [59]

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Our final question comes from Rob Pulleyn from Morgan Stanley.

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Robert John Pulleyn, Morgan Stanley, Research Division - Analyst [60]

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Amazingly, I still have some questions, if that's okay. And if we can revisit Section 232 just quickly. As we've seen the proposals, as it stands, and I appreciate they are not firm yet. There would also be import tariffs and maybe quotas on countries such as Brazil and also maybe even Germany. Would that limit your imports from those areas into the U.S.? And just to understand that the importance of this, could you remind how many tons you are importing into the U.S. from those 2 areas? And the second question is, as you've previously talked about debottlenecking in the U.S. to try and deliver more tons to the U.S. market from your U.S. mills, could you give a little bit of color as to what would be possible in that exercise? And the third question is, you talked about the cash flow movements, you mentioned tax and other. Could you just give us a guide on where taxes could be in 2018 because clearly we've seen some very large deferred tax asset moves in 2017?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [61]

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Okay. Maybe, I'll leave the floor to Nicolas regarding 232, it's very preliminary, of course. And even in the volumes, we could import in the future. I'm sure you would understand that without knowing exactly what the scheme will be, it's pretty hard. So Nicolas?

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Nicolas de Coignac, Vallourec SA - SVP of North America [62]

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Yes, that's definitely a tough exercise that you ask from me, Rob. Of course, the options are still proposals at this stage and we know that anything could happen out of this, not only one of the 3 options, but anything in between and anything that is different. Just to insist on one of the points that Philippe has mentioned already, the large majority and by large I mean, really large majority of our sales in North America are produced domestically from the mill shops, so we have our capacity of melting our own steel and we do the rolling and all the finishing. What we do import is, first of all, we don't have all of the size range that is required from our customers out of domestic mills, mainly for some of the afore business. So we import some of those larger [ODs]. So that's a small volume, but it exists. The second one is certain amount of non-OCTG product or non-oil and gas related products that we do import and that are definitely at risk if there is some kind of tariff, either on Brazil or even on European countries. Although I think that this scenario is quite unlikely, I think, the measures that President Trump, is considering today and he's vocal about it, is essentially targeting at more China or countries using China material. So I think putting into the same baskets Europe and the Chinese import is probably not really what he's aiming at. But would Europe be impacted or Brazil will be impacted? To some extent, yes. We will have an impact, but it's a small one compared to the amount that is served directly out of the U.S.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [63]

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And lastly Rob, if I may, anyway even if there are tariffs on some imports from some countries, the key question is, what will be the domestic price? And we can't anticipate the domestic price to increase very significantly, which may bizarrely enough, not dissuade importers to ship to the U.S. So it is a really odd scheme. Anyway, every time you want to get out of the untied and being classical system, which is company-per-company not a country-by-country approach, you enter into an unknown territories and that's exactly where we are.

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Nicolas de Coignac, Vallourec SA - SVP of North America [64]

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And if I may add one point, Rob, is that definitely prices will increase. Bear in mind and you are doing this pretty well in this room and on the phone is that today, as far as we consider OCTG, for example, which is the bulk of seamless pipes is that, the consumption in the U.S. is served around 50%, maybe a little bit north of this from imports. And there is not that much available capacity if imports were completely banned. So if there is a tariff that's an increase in price for 50% of the volume. And undoubtedly, there will be an increase on domestic prices, which as a consequence, will may also impair the demand level, because if prices increase and CapEx from the operators will not increase accordingly, they will drill less wells. So that's a pretty complex equation to solve. And I think that we're preparing all kind of scenarios, but we better wait for the outcome and the final decision from President Trump.

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Robert John Pulleyn, Morgan Stanley, Research Division - Analyst [65]

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Okay. Fair enough. And on taxes and bottlenecking?

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [66]

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Olivier is back.

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Olivier Mallet, Vallourec SA - CFO & Member of Management Board [67]

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On taxes, I'm back. So say EUR 30 million, EUR 40 million cash out in 2018 and on bottlenecking, Nicolas is back.

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Nicolas de Coignac, Vallourec SA - SVP of North America [68]

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3 question, I forgot the bottlenecking part, which is certainly a major area of our action plan. So as you know, we have rolling capacity in the U.S. of 750,000 tons. This has been shared with you for a long time already. Today, we are not at this level, because as I shared it with you I think already in our Q3 earning call, we are having still bottlenecks on the finishing. We are working on several projects that are not extremely demanding in terms of CapEx to improve this debottlenecking and finally reach the maximum capacity of EUR 750 million before the end of this year. So we have some headroom to improve our domestic supply in 2018.

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Philippe Crouzet, Vallourec SA - Chairman of the Management Board [69]

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Okay. Last question from the room? No? Well, thank you very much to you all and thank you to all those on the phone. Bye-bye.

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Operator [70]

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This concludes today's conference. Thank you for your participation. You may now disconnect.