Etienne Bertrand - Investor Relations and Financial Communication Director Philippe Crouzet - Chairman of Management Board and Chief Executive Officer Olivier Mallet - Chief Financial Officer, General Counsel and Member of Management Board Didier Maurice Francis Hornet - Director of the OCTG Division

Gael de-Bray - Societe Generale Cross Asset Research Fiona Margaret Maclean - BofA Merrill Lynch, Research Division Raphael Veverka - Exane BNP Paribas, Research Division Jean-Luc Romain - CM-CIC Securities, Research Division Robert Pulleyn - Morgan Stanley, Research Division Michael E. Flitton - Citigroup Inc, Research Division Jean-Francois Granjon - Oddo Securities, Research Division

Thank you, Clara. Good evening.

Thank you for joining us tonight. With me to comment the third quarter and first 9 months is -- of 2014 results are Philippe Crouzet, Olivier Mallet, Jean-Pierre Michel and Didier Hornet.

I would like to inform you at this stage that this conference call will be recorded and a replay will be available. The conference is audio webcasted on our Investor Relations website, www.vallourec.com.

And the slides that will be commented by the management during this presentation are also available for download on our website, both on the homepage and on the Investor Relations sections in the Financial Results page. Lastly, before I hand over to Philippe, I must caution that today's conference call contains forward-looking statements and that future results may differ materially from statements or projections made on today's call.

For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the beginning of our slide presentation and are included in our annual registration documents filed with the AMF. Philippe?

Thank you, Etienne, and good evening to all of you. If I had to summarize these results, I would say, first and foremost, that they are broadly in line with our June expectations and previous announcements.

So, in fact, no real surprise. As anticipated, Q3 was a low quarter.

Despite the robust performance of our Oil & Gas operations in the U.S., it was mainly impacted by the fast inventory adjustment by Petrobras. Therefore, in order to mitigate the different challenges we've been facing in Brazil and simultaneously in the Middle East, I decided to extend the adaptation measures, both in Brazil and in Europe, where we supply Middle East.

This includes cancellation of temporary contracts, extension of some stoppage, use of time accounts and short-time work in most of our French mills. Overall, we use all the flexibility means that are built in our production scheme, especially in Europe.

And of course, on top of that, we keep the strictly monitoring of our SG&A costs. So thanks to these measures and thanks as well to the tight management of our working cap and capital expenditures, we are in line with our free cash flow commitments.

We generated a positive free cash flow of EUR 135 million during the first 9 months of 2014. So the key point I really want to highlight is that despite the slow Q3, we maintained our yearly guidance: sales close to those of 2013 and EBITDA down by approximately 10% compared to 2013 and a positive free cash flow.

Let me now hand over the mic to Olivier for short comments on our activities and financial results.

Thank you, Philippe. Good morning or afternoon, everybody.

So -- and we start on Slide 6 with the sales evolution, with Q3 sales that were down 2.6% year-over-year, with higher volumes by 3.5%, the positive currency translation effect of 1.1% being more than offset by negative price and products mix effect of minus 7.2%, which is related mostly to lesser sales in Brazil and to a much smaller extent, to a lower mix and a negative foreign exchange impact in the EAMEA region. 9-month sales were up 5.3% at same exchange rates, positive volume growth by plus 7.8% and a price mix effect negative by 2.5%.

Let's move now on Page 7 to have a look on our Oil & Gas sales. That we are down 5.2% year-on-year at constant exchange rates in Q3.

In Brazil first, Q3 2014 sales were, as expected, heavily impacted by Petrobras' decision to eliminate most of its tubes inventories by the end of the year. This reduction was very concentrated on Q3, which means that the progressive restart of orders will take place in the course of Q4.

Also, as a reminder, Q3 2013 Oil & Gas sales in Brazil included significant sales to IOCs, which was not the case in the third quarter of the current year. In the EAMEA region, sales increased in Q3 compared to the previous year, benefiting from higher volumes but with a less favorable product mix and a negative ForEx impact due to a stronger euro against the U.S.

dollar. The low level of orders recalled by Vallourec, notably in the Middle East, during Q3 will affect the group's deliveries in the next quarters.

And finally, in the U.S.A., higher volumes reflected the increased demand and the commercial success of our enlarged offer, and prices were raised since July, as previously announced. Let's move now to Slide 8 to comment on our Powergen activity.

In the nuclear activity, first, sales were up year-on-year. As a reminder, in Q3 2013, nuclear sales were affected by the rescheduling of some projects from '13 to '14.

The market environment for conventional Powergen sales is still marked by an intense competition and some price pressure. On Page 9, regarding Industry & Other.

Q3 2014 sales were down 6.1% year-on-year at constant exchange rates. In Europe, first, sales benefited from higher volumes, offset by negative price and product mix effect.

In Brazil, then, sales were down year-on-year, notably due to the decline of automotive sales and more particularly heavy vehicles, domestic and export suffering from the continuing deterioration of the local macroeconomic environment. Q3 2014 iron ore sales were slightly down year-on-year due to the continuing iron ore price decline.

Let's move now to the financials on Page 11 with some comments on the EBITDA in Q3. For this third quarter, EBITDA was EUR 175 million, down 27% year-on-year, with an EBITDA margin decreasing to 13% of sales.

The drop in margin mainly resulted from the less favorable sales in Brazil, and to a small extent, from the lower mix and a negative foreign exchange impact in the EAMEA region. It should be noted that SG&As were stable at EUR 137 million, 10.2% of sales, benefiting from the strict cost [indiscernible].

On a 9 months basis, on Page 12, just as a summary, EBITDA stood at EUR 619 million, with a margin of 15.3% to be compared to 16.7% in the first 9 months of 2013. Next page, Slide 13.

Just a few points to complete the 9-month P&L review. There was, first, an increase in the depreciation of industrial assets compared to the 9-month 2013, in line, of course, with the investments made over the past years.

The financial results improved at minus EUR 41 million, many thanks to a positive foreign exchange result. And the effective tax rate was 35.2%, similar to 35% in 9 months last year.

Let's go now to cash on Page 14, on free cash flow. We generated EUR 98 million free cash flow in the third quarter.

And the free cash flow generation was positive by EUR 135 million in the first 9 months of 2014, which is in line with our objective. In comparison to the first 9 months of 2013, this improvement is a result of efficient working capital requirement management and reduced capital expenditure.

As you can see there, our CapEx were at 35% lower than the first 9 months of last year. And if you were to compare to 2012, it's 59% below the 2012 9 months lever.

On Page 15, we confirm our target of EUR 400 million in 2014, which will be twice less than 2 years ago in 2012. Page 16.

Thanks to the free cash flow generated in the beginning of the year, net debt remained broadly flat, up to EUR 1,657,000,000. On Page 17, mostly as a reminder, our balance sheet structure and liquidity profile are still quite strong.

And I'll remind you that on September 29, Vallourec announced the success of a EUR 500 million bond issue, maturing September 2024, with an annual coupon of 2.25%. This has enabled Vallourec to lengthen the maturity of its debt while benefiting from the current very favorable market conditions.

And now let's move -- give back the floor to Philippe to conclude.

Well, thank you, Olivier. Actually, not about to add.

As you commented, Q3 is a low quarter, but our capacity to deliver on free cash flow is on track. Therefore, this quarter doesn't change our view of the full year.

One last word maybe on the recent oil prices trends. They obviously bring uncertainties on the markets.

But I don't think they change the long-term attractiveness of global oil and gas markets. And we definitely remain committed to our strategy of providing innovation, technology and the most competitive solutions to our customers.

Now we turn on to you for the questions.

We can start the Q&A session.

I'm actually curious to know what the approximate contribution to EBITDA of your activity in the so-called deepwater and other complex projects. And also, in relation to that, have you now started to see some E&P operators postponing tenders and, I would say, increasingly towards the end of the quarter?

So that's the first question. The second one is about the current utilization rate, capacity utilization rate at VSB, and what it could be going into next year, given the low orders you've had recently in the Middle East.

And is VSB now back in negative territory? Or would it be going into Q4 and maybe in the beginning of '15?

And the last question is just a technical one. Looking at the tax rate in Q3, it looks very high.

So do you have any explanation behind this?

Okay. Maybe on deepwater, I'll start with Brazil, no impact so far.

As you know, Brazil and Petrobras, most specifically, is a key driver on the specific market. Didier, on the other areas, the work?

-- Yes. On other areas, remember that about 40% of our activity is offshore, 60% of our activity is onshore in the Oil & Gas business.

So far, we didn't see slowdown in our deepwater HP/HT activity, except 1 project in the U.K. very recently.

For example, we are supplying Chevron Alder in the U.K., still active. In the Gulf of Mexico, we recently confirmed the orders, and we are delivering [indiscernible].

Keep in mind we are qualifying and developing products for Shell Mars B. We now have qualified 6 premium joints out of the 8 that we'll need and 3 riser products out of the 4 that we'll need.

We are also qualifying for Shell Optimax V2. We are qualifying for BP, Chevron.

So, so far, I would say we don't see, at that moment, slowdown in HP/HT programs.

Which are most of the deepwater projects.

Yes.

Olivier, on most of the other questions, I guess, for you?

So first, about VSB, Gael. So VSB now is part of the industrial assets that deliver oil and gas tubes mostly for the EAMEA region, which is being affected, as you know, by the slowdown of orders and the destocking phase that has started Aramco.

As a result, VSB, as well as some of the open plants, is less loaded than it used to be a few quarters ago. And we can estimate that as of today, the load rate is something around 50%.

As a consequence, since you know that the breakeven point for VSB is about 2/3 utilization rate, VSB is back to below a breakeven point at this time. And as far as 2015 is concerned, it will depend on the evolution of orders in this part of the world.

As far as tax rate is concerned, of course, as you know, tax rate doesn't mean anything on a pure quarterly basis. Every quarter, we reestimate our tax forecast on a full year basis.

We have done that in Q4, and this has led us to re-evaluate to 35% our approximate for the 9 months or an estimate for the full year based on the evolution of the mix by geography of our results and the fact that in some areas, we don't activate taxes on carryforward. So this will be a technical explanation.

Yes, it's Fiona at Merrill Lynch. I have a question around 2015.

I appreciate you won't-- I assume you are not giving EBITDA guidance for next year. But could you talk us through each of the factors that were contributing to your warning in June and update us on how they are progressing for positive or negative contribution for 2015?

And I'm thinking in particular around the inventory issues that you had in Brazil as well as in the Middle East, and also what you're seeing onshore in the U.S. market as well.

Didier will start, and then I will comment on Brazil.

So, I will start with the Middle East. And by the way, after talking with them this last weekend, they confirmed that today, 204 rigs active this week that they are still planning to get to 114 at year end and...

214.

Yes, 214 at year end. And that Saudi Aramco will continue to grow their business in 2015.

So this confirms the long-term trend in the kingdom. Now, it's a fact that they have adjusted their inventory down.

They are still in the -- in this adjustment, we believe it's not finished. As a consequence, we are not expecting major tenders before the end of this year.

And if any comes, it will correspond to specific mix with lower volume than their usual quarterly activities that we are only planning to see back to the standard levels step-by-step through 2015.

As far as Brazil is concerned, which was, as I'm sure you remember, Fiona, that the number one reason for our warning last June. What we can confirm is that Petrobras will reach its target inventory level by year end, by the end of this year, then.

So therefore, in 2015, we will not have the strong negative inventory effect that we experienced in 2014, especially this last quarter. If we take a longer view, obviously, pre-salt development remains key for Petrobras for the years to come.

And in fact, they are constantly reallocating their assets from traditional, conventional or shallow waters well, to the very productive pre-salt wells, so we are pretty confident there. We anticipate this to happen step-by-step for 2014.

We anticipate overall stable drilling activity until they get -- 2015, sorry-- until they get their newest PSOs. The newest PSOs that they have ordered are being constructed as we speak.

They will be available in 2016. 7 FPSOs are expected to be delivered then.

And this, obviously, will trigger significant scale-up in the well construction activity. But this is for 2016.

They have reallocated their orders with less local content because it would have delayed this scale-up. And now we think and I think the market thinks that these are reliable targets in terms of timing.

So if we -- I think we've answered about the 2 areas, both Middle East and Petrobras, which triggered some lower activity since last June. Let me remind you that as far as North America is concerned and, specifically, onshore U.S.

activity, shale activity, there, we keep on having a positive view.

I had 2 questions, in fact. First, on the U.S., if you could come back on the price.

We've seen spot of VTG prices recovering through the summer. Are you expecting to improve your -- or increase your pricing for your contract going into beginning of next year?

And my second question is on ForEx. Could you help us assisting the benefits you should get next year from the weaker euro compared to the sensitivities you gave in the past?

Didier, on North America?

Yes. Concerning pricing in North America, it's true that we are today benefiting from the price increase that we passed to the market in July.

So it's hitting our P&L now. I don't think that a lot of competitors, including ourselves, got a lot from the recent price increase, which was really the -- which was small to prepare some avenues for 2015.

At this stage, it's a bit early to comment what we will be able to achieve in Q1 2015 in term of pricing.

As far as the exchange rate is concerned, Raphael, the starting point is that the average hedge rate in our euro-dollar [indiscernible], which is a key driver there in 2014, should be on $1.54 per euro. You all see as of today the strengthening of the U.S.

dollar. You know that the average delivery time for orders made in dollars and manufactured in euros is 6, 7, 8 months, so that we should start benefiting probably in 2015 of the strengthening of the dollar.

And on a full year basis, I can remind you of the order of magnitude of the sensitivity. For every $0.01 of variation between the euro and the dollar on a full year basis, the EBITDA impact is somewhere around EUR 10 million, EUR 12 million, depending, of course, on the volumes.

When the volumes are low, which may be the case in the next quarters, it's less than when the volumes are heavy -- high.

Okay. And if I had one very last question on cash flow and net debt.

Was wondering if -- given that you expect EBITDA profitability in Q4, are you expecting your net debt to decline by year end, which, I guess, is obviously depending on the swing in working capital?

We are working a lot on working capital, and we try to progress quarter-after-quarter in our performance there. But as you just said, there can be significant swings that are pretty difficult to predict.

So that at the time being, I think it's safe for us just to confirm that we are heavily focused on generating a positive free cash flow on a full year basis, as we have done over the 9 first months of the year.

My question is about Brazil. You mentioned orders will start in Brazil or will restart by the end of Q4.

When do you think it will have an impact on your sales?

Sorry, Jean-Luc, the line is bad.

My question is about Brazil. I was wondering, as you mentioned that orders are restarting in Q4, when are these orders should be delivered?

Is it 3 to 6 months delay or what? Can you give us some color on that, please?

Okay, thank you, Jean-Luc. Yes, we should see some reordering from Petrobras progressively restarting in the fourth quarter of the year.

We can only confirm full year target of ours, following this low Q3 if there is an improvement. That's what we assume, definitely.

Just a few questions for myself. The first one, if I may.

How does the mix of product look for Brazil next year? Obviously, there was an evolution in mix in 2014.

Is Petrobras going to be more focused on completions or new wells? And therefore, is the first half of '15 going to look a bit like the first half of '14 or more like what we saw back in 2013?

The second point is, sort of -- reading the release, it sounds like, obviously, given the oil price fall that the destocking in the Middle East is over and above what you expected when you gave the update in 2Q results. And therefore, I'm a little bit surprised that the guidance for the full year remains the same.

Or was the sort of extent that Middle East slowdown sort of just as you expected? Or maybe that's not -- the full impact to the oil price decline has maybe not actually come through yet?

And the last point, if we could maybe just check on the utilization of the plant in Ohio. I know we talked about VSB earlier, but an update on Ohio would be great.

Okay. I'll answer first on Brazil mix.

All in all, it should be not that different in 2015 compared to 2014. There will still be some rigs operating for completion in the Campos area until, really, the new FPSOs are delivered to Petrobras, then they will have to connect all the completed wells, and they will reorientate the rigs for more construction.

So the direct answer to your question is similar mix, change will be more significant in 2016. So in terms of oil and gas, that's the comment for Brazil.

Don't forget, and we should never forget, that we have other activities in Brazil not related to oil and gas. And this is certainly more of a worry.

It goes with, of course, the macroeconomic environment in Brazil, which is a bit unpredictable. And there might be, hopefully, some changes, but so far, we have no hint of any kind of improvement there.

And on top of that, iron ore, as you know, we are net seller of iron ore. Iron ore prices are up and down significantly, as you know.

So it's going to be a mixed bag in Brazil. Definitely, improvement in oil and gas due to the end of the inventory reduction.

But other elements will have an impact as well, and that's favorable, of course. Didier, on the other one?

Yes. Concerning Saudi, Saudi Aramco, we always confirm that we were expecting Saudi Aramco to be at about 215 rigs in the fourth quarter.

They have 204 today, as I was mentioning, still planning to be 215 at the end of the year. So we are in line, which -- with what we were expecting in term of drilling activity.

And concerning the destocking, we also confirm we would not expect them back to standard ordering volumes before the beginning of 2015, and we believe it's happening now. So the other point -- the other question was related to the small diameter mill activity and utilization rate in North America.

We are delivering exactly according to our plan. We communicated the volumes at one point.

And we are on allocation, which means everything we can manufacture today, we sell it to the market.

Just got a couple of questions. Firstly, around sort of the more general impact of the oil price.

As this may not be something that you can help too much, as comment on it is a bit general, but do you have a sense of what level of the oil price you will see a significant, absolute volume decline in U.S. shale business?

Obviously, we are sort of hitting the level at which, potentially, a lot of these wells are breakeven. Are we going to see absolute declines around these levels?

Or is it -- do you feel as though it's a lower level at which these guys will actually pull back materially on the drilling programs? And secondly, just a question on -- I guess, the operations.

Obviously, you're extending the temporary measures to fight the downturn we're seeing. How long do you feel you can run those temporary measures for?

When do you feel you might have to look at something a little bit more substantial in terms of a restructuring measure?

Okay. I will take that one first.

In fact, we already go further than just the temporary measures. I was referring to the flexibility of resources we have both in France and Germany, and so adapting to changes of circumstances on the market.

And obviously, we are using them extensively at the moment. There is still room to go further.

May I remember you that in 2019 -- 2009, sorry, 2009, we were able to adapt to a full -- 50% total volumes in Europe. So it gives an idea of the level of flexibility we have.

But parallel to that, we are as well engaging more structural actions. Some of them ongoing, others will come further, including, very recently, we agreed with the unions, both in France and Germany, to substantially reduce workforce.

And this is a structural reduction in our Northern France, small diameter mill and in our German Düsseldorf small diameter mill as well. So in fact, we pilot both depending on the market, and our appreciation of whether the market changes are just short term or structural, but we do not wait.

We act already now. In terms of the impact of the recent changes in oil prices on our various activities, obviously, it's hard to answer now.

And obviously, there is still no consensus of where we're going. So I understand your question is more kind of sensitivity analysis.

Could our customers in North America react? Didier, do you have some views on that?

It's a bit hard.

Yes, I mean, the -- for sure, the term is uncertainties. I mean, everybody today has a lot of uncertainties.

With the WTI price as it is today, we think it is bringing already and it may bring further cash constraints. This is happening short term, despite some of our customers are also hedging oil or gas.

The fact is that the shale oil breakevens today go from single [indiscernible] to double in terms of dollars to the wellhead. So...

Depending on the plays, you mean?

Depending on the plays. So customers may adjust.

And the first areas which may be impacted are typically the [indiscernible], Mississippians and Bakkens, so we are following that. But again, we have a lot of uncertainties about where it will go in the coming month.

Just one question concerning the expectation for this year. You confirmed the guidance for the full year 2014.

Nevertheless, taking into account the labor or the third quarter EBITDA. This, in part, was strong rebound by more than EUR 200 million to EUR 210 million EBITDA for the fourth quarter to match with your guidance for the full year.

So can you explain how we can have a -- so strong improvement EBITDA in -- for the fourth quarter compared to third quarter to realize the guidance for the full year?

Olivier?

[French] Jean-Francois, yes, I think I can answer that. And your question clearly refers to the fact that we are below consensus for Q3.

It's basically due to the fact that the consensus was expecting the negative impact from Petrobras' destocking to take place mostly in Q4. And what happened is that, together with Petrobras, we have managed to as that happening more in Q3 than in Q4, which, as said previously, will mean some restart of the raise to Petrobras in Q4.

So that we will come back to -- which is actually the normal pace of results within Vallourec, which is having Q4 above Q3 and not vice versa. So this is the major element in this evolution, which brings us to a normal scheduling quarter-after-quarter.

Okay. So thank you very much indeed.

And we'll talk to you later for the Q4 results, at the end of February next year. Thank you, and bye-bye.