Etienne Bertrand - Investor Relations and Financial Communication Director Philippe Crouzet - Chairman and Chief Executive Officer Olivier Mallet - Chief Financial Officer Jean-Pierre Michel - Chief Operating Officer Alexandre Lyra - CEO, Vallourec Tubos do Brasil, Brasil Sector Philippe Carlier - Director, Upstream Division, Upstream/Industry Sector Didier Hornet - Director, OCTG Division, OCTG/Drilling Products Sector Hubert Paris - Head, Valens

Jean-Luc - CM CIC Gaël de Bray - Société Générale Raphael Veverka - Exane Alessandro Abate - JPMorgan Jean Granjon - Oddo Securities Nick Green - Bernstein Michael Flitton - Citi Michael Shillaker - Credit Suisse Henry Tarr - Goldman Sachs Amy Wong - UBS Rob Pulleyn - Morgan Stanley

Thank you, Clara, and everyone, thank you for joining us tonight. A brief safety announcement before we start, the exit doors are located on your right hand side, just in case of emergency.

With me today to comment on the full year 2014 results, Philippe Crouzet; Olivier Mallet; and shortly joining us, Jean-Pierre Michel. We have as well the following members of the Group management committee, Alexandre Lyra; Philippe Carlier; and Didier Hornet; and heading Valens project, Hubert Paris is well present in this room.

I would like to inform you that this conference held live in Paris is presently broadcasted both by conference call and on our website, www.vallourec.com. It is recorded and replay will be available on our sites.

The slides that will be commented by the management during this conference are available for download on our website, both on the homepage and on the Financial section of the Investor Relations site. 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 conference.

Those statements are referenced at the beginning of our slide presentation and are included in our annual registration documents filed with the AMF. I’m handing the floor to Philippe.

Philippe?

Thank you, Etienne. Good evening, everyone.

And thank you for attending our full year 2014 results. A short forward before entering into the details, in addition to this year results, this presentation is about our response to new challenging environment.

This response is three-fold. On operation, we are launching a vigorous short-term adaptation plan and two years structural changing in operational model.

On cash, we put a strong focus on cash generation and on a more disciplined capital allocation. On value creation a full commitment on return on capital improvement overtime.

So I will start by presenting this year’s operational and financial highlights, which Olivier will comment in more details, and then we will move to second part of the presentation, where I will provide detailed explanation on how we are working to adjust to the new market environment and improve structurally our competitiveness. Let me first comment rapidly on our achievements in 2014.

We have achieved all our operational targets. Our results are in nine with our guidance, on sales, EBITDA and free cash flow.

Sales are up 2%, close to 4% at constant exchange rate and this is mainly due to record year in oil and gas sales and great performance in North America. EBITDA is down 5% to €855 million.

This is in line or even slightly better compared to our guidance and we generated a strong free cash flow of €274 million and this is fully matching our target of positive free cash flow. Of course, our net profit does not reflect those achievements since we impaired some of our assets due to the changes in the business perspective of those assets as you already know and this is not the cash element.

And in addition, we have achieved a number of operational successes particularly in Africa, Asia and in Brazil. Now, our environment is changing.

First, of course, the recent fall in the oil prices is severally impacting our short-term perspectives and this is true as well for the whole industry. Therefore we are adapting fast and accordingly.

But beyond this cyclical change our oil and gas market are changing structurally, and this is what we want to address with Valens. We will present to you the outcome of this work that we started prior to the recent change in the cycle.

With Valens we are aiming at improving our structural competitiveness and designing a new framework for capital allocation. We have the right strategy, but I want to make Vallourec leaner and stronger.

This is what the plan is about. Last word on return to shareholders, this is a high priority of ours.

This is why we proposed to maintain the dividend at 2013 level or €0.81. Obviously, this is the result of the strong free cash generation that we achieved in 2014.

Now I hand over to Olivier for more detail on the financial results.

Thank you, Philippe. Good afternoon, everyone.

So I will start by quickly re-commenting the key figures, as Philippe was commenting, we achieved all our performance target last year. Sales up 2.2% or 3.9% at same exchange rate.

Our EBITDA at €855 million, down 7% compared to the year before. That our guidance was around minus 10%, so we are fully in line.

And finally, and most importantly, because it’s a number one priority, we generated positive free cash flow by €274 million, which does represents an increase of €315 million compared to 2013. If we analyze the sales evolution by market and then by geography, starting with the markets.

The main area of growth came again this year from so that we achieved sales wise. Recall your last year oil and gas sales that did finally reach exactly two-third of our total sales.

The other smaller segments posted small increases or decreases minus 6.5% for petrochem, which is not very premium and highly competitive segment, plus 6.6% for power generation, in last part due to a strong year for nuclear sales and finally, stability minus 2.1% or plus 1.3% at same exchange rate for industry and other, where in this category Europe was slightly up and Brazil was down due to the local difficult macroeconomic environment. Moving to an analysis by region, very strong year in North America in 2014, as you can see sales went up by close to 20% and this is fully due to the very successful technical and commercial ramp up of the new rolling mill we opened in Ohio early 2013 in an environment that in 2014, it will change this year was supportive.

You can remember for instance that we could increase our prices in H2 in North America 2014. Different evolution in Brazil minus 22% largely due to the decision made by Petrobras in the spring to change its inventory policy to actually eliminate its tubes inventories by year end and more largely speaking due to the difficult environment in this country last year.

Overall, as far as stability for Asia and Middle East and the rest of the world, mostly Africa, where I would just like to point out the fact that we made high deliveries volume wise and mix wise to Middle East to a large extent based on the very large orders made by Saudi Aramco in 2013. As you know they have slowdown into 2014 and it will impact our 2015 derivatives.

And finally, Europe more or less stable within this two years. Briefly on our sales evolutions of 2.2%, mostly driven by volume and in this plus 7.6% volume increase, mostly coming from North America, with currency translation impact of 1.7% and a negative pricing mix coming mostly from Brazil in 2014.

Moving to some comments on the EBITDA evolution, minus €65 million between 2013 and 2014. As you can see on this slide it has been coming from the industrial margin, where we the efficient cost control that was in place and the positive contribution from increase sales in North America could not fully offset the negative evolution on the Brazilian market and as well negative exchange rate impact on our EBITDA.

SG&A actually is stable despite an increase in our R&D effort and with inflation being offset by savings. This slide is giving you all the details about the impairment that we already announced to you on January 29th.

As you remember, this is -- this rebasement of our assets has been made in order to take into account the change in some of our end market, mostly due to the severe fall in the oil prices that we have experienced since mid-2014. So you have here the final impact, €1.1 billion, exactly in the middle of the bracket that we announced end of January and this €1.1 billion is almost exactly shared between the two CGUs that are mostly impacted Europe and VSB.

And of course, I remind you that these impairments have no cash or liquidity effect. This leads to reach the overall evolution of our net income.

I already commented about the EBITDA. Not a lot to say about the G&As and others, industrial depreciation due to our recent investments but other elements are going down in the same G&A area.

Financial results slightly improved compared to 2013 mostly due to some currency effects. Income tax and equity affiliates, if you take aside the tax imparts of the impairment and the DTA amortization slightly reduced.

All this leading to a net income before the runoffs due to the impairment and the DTA amortization of €239 million which means decline of 8.8% compared to 2013, very much in parallel with the EBITDA evolution. And you know already the figures about the impairment and the related DTA.

Let’s move now to cash and this is definitely an area of satisfaction for us as far as 2014 is concerned. We did generate €274 million of free cash flow which allowed us to reduce our net debt by €84 million.

On the free cash flow side, cash from operating activities slightly down compared to the year before due to the EBITDA and result evolution. The stability in the working capital which is probably a good achievement since we had told you a year ago that we did end 2013 with a level of working -- already reduced compared to the previous years and CapEx down 32% compared to 2013 at €288 million.

So that’s after payment of dividends. We ended the year within the debt of €1,547 million.

This was 2014. 2015 is experiencing some significant changes in all markets that I will comment now.

Probably the slide will not teach you a lot. Just a reminder on some of the key elements that are going on.

First is the right hand side, the brutal drop in the oil prices about minus 50% compared to the level that was one in the summer of the last year. This will definitely lead many of the oil companies to decrease their E&P expenses this year compared to 2014 with an impact that will be uneven depending on the region.

You have on the right hand side as well the evolution or the rig count in the USA which is a very reactive market and that is why we’re acting extremely strongly to the drop of the WTI as we speak as you know last week, the number of the rigs in the U.S. is already down 32% compared to the peak of September last year.

This is continuing and our central scenario is to see a drop in the U.S. rig count from year end to year end that could be between 40% and 50% through major evolution.

But this decline of the E&P expenses will as well take place in other geographies and I will comment on that now quickly. USA just keep in mind that on top of the decline of the OCTG linked to the decline of rigs that will be like every time some destocking at the distribution level, all this leading to pressure on pricings.

In other region, Asia and Middle East, rest of the world will experience a lower level of deliveries, both volume wise and mix wise compared to 2014 for series of structures, reduced level of bookings throughout 2014 and added cautiousness, of course, brooked by the current oil price level and the fact that some major customers in particular, Saudi Aramco, are continuing to destock in this part of the world. Brazil is in a different situation.

As you probably have seen, Petrobras has announced cut in its CapEx at the beginning of the year but which doesn’t impact that much our products since Petrobras reaffirmed as well its focus on pre-salt and Petrobras for many reasons is relatively immune to the evolution of the oil prices. This being said we all know that Petrobras is facing other sources of uncertainties which means that we will really likely have to wait for the release of their new strategic plan in order to learn about the decisions that will be made by the new managements at Petrobras.

And finally, about Europe, of course, oil and gas down in North Sea. Lots and lots of changes probably to be expected in industrial markets and one significant good news in this part of the world is strengthening of U.S.

dollar versus euro and versus the real as well that is adding some competitiveness to the sales that we make in U.S. dollars on this part of the world where the load of the mills will be substantially reduced.

So we are adapting to this brutal change in this situation. We know how to do that and all value hike mills have the flexibility levers in place.

We’ll give out examples of what we know we can do and we are doing. Temporary shutdowns, anticipated maintenance, reduction in shifts and overtime, in contractors, in temps, layoffs where necessary.

So that is seen from today. We expect the number of working hours in our mills to be reduced by about 15% this year compared to 2014.

And this will include reduction in the permanent workforce by about 7%, which include both short-term measures and most structural measures. While adapting in terms of P&L, while adapting in terms of cash flow as well and we’ll be extremely focused in 2015 in adapting in real time our working capital to the drop in the activity and to reduce as soon as in 2015, all CapEx envelope to our new normative level of $350 million yields.

And I will now give back the floor to Philippe for strategic update and introduction to our competitive plan.

Thank you, Olivier. The starting point is really that our markets will structurally grow in the medium term regardless of the current volatility.

So it is what we place our work upon. On oil, we can see on the chart that most of the supply will come from the Middle East from the U.S.

and from Brazil. And this is precisely where we’ve invested over the last year because we knew supplying from Europe will become -- would become more and more challenging.

So basically, to address that situation, that goal, we have a strategy which is familiar to you and which we’re confirming. The strategy is based on three pillars, be more premium, more local and more competitive.

In terms of premium technology, now industry is the name of the game. You all know the VAM connections are the reference of the market and really a major strength of ours.

And we’ve done significant process over the last year to premiumize our sales. And we will continue and thanks notably to our innovation plan in place.

If we take the percentage of heat treated products as a proxy for premium, we’ve gone from 43% in 2005, 58% in 2008 and 66% to date and it will increase to approximately 70% in the next five years. So this is for the first pillar on more premium.

Second pillar, more local. We’ve repositioned our assets closer to the fastest growing markets.

You see on the Street by chance here that those markets now represent the majority of our sales. This movement will not stop.

The benefit for our customers are being supplied locally is high both in terms of cost and in terms of complying with growing local content regulations. So we will pursue localizing trend as well.

The third pillar of our strategy is competitiveness. And this is the one which we will boost.

And the one on new plan is emphasizing. Our number one challenge is to come back to value creation in an environment which is getting more and more competitive.

And for this we have a plan. This plan has a name, it’s Valens.

It is a two-year plan which is relatively short-time period. It has three levers.

The first one is cost reduction. Based on last year’s volume and cost base, we target €315 million of new rules of cost reduction.

Over only two years, $350 million will be the full impact of the plan. And so it will be achieved on a full year basis into ‘17 compared to ’14.

It represents 10%, more than 10% of our added cost, ex-raw materials and a 60% increase in savings compared to our prior initiatives. The second lever is cash generation and its optimal use.

The normalized CapEx will be capped at €350 million per year. This is €100 million less per year than our former targets of €450 million.

It is an optimized level to maintain and grow the business. And lastly, we have redesigned our organization to make it leaner and so have the implementation of our Valens plan will be efficient.

Therefore starting April 1st, the group will be organized under four regions, Europe, North America, South America and Eastern Hemisphere, while corporate will monitor centrally all cash and resource our location according to strict rules and processes. Today with us, we have Alexandre Lyra who will be managing South America, Didier Hornet, managing Eastern Hemisphere and Philippe Carlier, managing Europe, Nicolas de Coignac will head North America.

The four of them are experienced managers with international profiles. They report to me and belong to the group management committee.

Let me now provide you more details on the cost side. Here, you have lots of figures to make all those figures relatively simple, let me mention a few things.

First, our costs are made of one-third raw materials, €1.7 billion, €1.8 billion based on 2014 sales 50%, plus manufacturing cost €2.5 billion and the rest is SG&A. So our target is to deliver over the next two years a 10% reduction on what you call added costs meaning manufacturing plus SG&A.

And again, this represent a 60% increase in savings compared to our former capital plus savings plan, including some limited savings on the raw material, approximately 2% of the €1.7 billion. It would represent total savings of €350 million in 2017 based on the 2014 level of activity.

In a non-inflationary environment, it is a significant contribution to our cash generation. To reach these targets, we’ve developed a number of initiatives.

More than 400 local initiatives have been identified and agreed by the Valens’ steering committee. Each initiative is led by a project manager.

He has his roadmap and a tracking tool. Some of this project have already been launched and will start to deliver into ’15.

Others will require additional discussions with various stakeholders. All these initiatives are coordinated by Valens’ project manager reporting to me, Hubert Paris present here today, the steering committee of Valens is our group management committee.

So everybody is committed and embarked. As far as the cash side of the program is concerned, we are implementing some significant changes as well.

The Group CapEx would be reduced from €450 million to €350 million. This amount includes both maintenance and productivity CapEx, representing approximately 60% of the total and the resources necessary for our premiumization and development strategy.

To implement it, we have defined a rigorous CapEx process for decision and we have dedicated centralized resources. They are in place.

And in fact, it has by implementing that new procedure that we are able to reach the €388 million of CapEx in 2014, instead of our initial budget of €500 million. So, we catch, we get strongly but we catch selectively.

Lastly, we are fundamentally changing our approach to capital allocation. We have a clear definition of the way we’ll use the cash we generate.

First, CapEx, in order to maintain and grow the company, with govern by strict return on capital employed objectives. Second, dividend, we maintain our commitment to shareholders returns.

And third, the conservative balance sheet management. We target to reduce our debt.

And overall, we target an ROCE objective of being above our cost of capital, weighted average cost of capital in 2018, assuming of course normal oil market. In conclusion, let me insist that Vallourec is clearly committed to generate cash for 2015 as in 2014.

We have again a positive free cash target in a very tough environment. And on the more medium to long-term, we target a return on capital employed above the cost of capital.

We will achieve these targets by maintaining our strategy, adapting fast and strong to the short-term environment, focusing on the major competitiveness improvement, thanks to the Valens plan and implementing strict cash discipline and capital allocation policy. Thank you for your attention.

I’m now ready with Oliver and the team to answer your questions.

Thank you, Philippe. Just for a question of organization.

We will alternate questions in the room and we will start with the question in the room. So if anybody would like to start, Jean-Luc?

Even referring to your price, could you give us an idea of the load factors of your plans currently in your different regions? And maybe an indication about the competitor’s reaction to lower volumes, are there some competitors willing to get prices to maintain or to gain market share?

Okay. I will say that by far, North America is where the load is always going to be the lowest.

Olivier gave you some figures about what we expect in terms of the number of rigs operating there, probably full of 40% to 50% which is huge. It’s going very fast.

It’s been accelerating, actually over the last weeks. And on top of that, we have to integrate to include a de-stocking from the distribution networks.

So there and the load will probably go down, will go down to probably less than half of our maximum capacity, which we are using until the end of last year as mentioned as well. We had a very successful year last year and running full speed on the two rolling mills and all the finishing activities.

So, I would say that probably two-shifts maximum is kind of load we can expect for North America. In Europe, I don’t -- maybe I can ask our management team here.

Philippe, it varies from one business to the other, please?

Yes. For Europe, it varies from let’s say 40% to 70%, 80% because we still have some market segments which are filling quite well, some at special capacities.

But what we do at the same time, we are currently adapting this capacity offered and then we are also doing reduction of shifts. We are running some mills a two shift operation.

We are making some full stoppages of some plant as well, one week per month of some of them and all of them. We can maintain the load at 50%, 60% of the operating capacity.

Alexandre for Brazil. Basically, the same kind of adaptation as in Europe, so in Brazil, also we are reducing eliminating over time, so reducing the number of shifts, okay.

So overall strong adaptation everywhere and we have the resources and all the flexibility levers to do that, so we will do what we have to do.

On price, on price, I would say so far from what I hear -- of course we have the normal tensions of prices, which typically occur when the market changes trends, going down. You have some nervous key, I would say.

My feeling is that most of the players to date are very busy doing exactly the same adaptation that we are doing. We read everyday, especially in North America about plant closure, about stoppage, about temporary workers being let go, et cetera.

So my feeling is that for the moment, the perception is that most of the competitors are adapting their capacities and to what they think the market will require. And that’s the right answer I guess.

We’ll switch now to the call. Guilome, is there a question from the U.K.?

Nothing. The next question is from Gaël de Bray from Société Générale.

Please go ahead.

Hi. Good afternoon.

This is Gaël. Can you hear me?

Yes, very clearly, Gael. Speak slowly.

Okay. Great.

[Indiscernible] The last question would be on where you potentially see the trough in your margins in 2015 and -- or at least, where do you see the margins in the first half of 2015?

As far as comparing that prices, so that’s a downturn in the cycle to the last one which was 2009, 2010. I would say basically -- well, it’s pretty different.

First of all, the starting point is different, starting point in terms of prices. No need to remind the glorious days of 2007, 2008, where the prices were extremely high.

So even if the falling volumes were pretty strong and fast as well in 2009, we benefited from a much better pricing starting point. So that’s one.

Second, I would say as far as North America is concerned, it isn’t in fact the first time that the shale oil and gas model is being challenged. Last time, the relative weight of conventional was much higher.

Now we have non-conventional representing the significant part of the market and what we experienced as I speak is that this segment is extremely reactive, extremely reactive, lots of small players, they can stop easily their drilling plants. And so it makes a big difference in nature.

As far as we are concerned, I would say the major difference that I see is that in 2009 and until part of 2010 as well, we still had some support from our other businesses than oil and gas. We had a good backlog entering into 2010.

I remember good backlog on most of our businesses, including power gen, including oil and gas, which is much less the case today in terms of industry and power gen as commented by Olivier. We are at the same level.

We have not great backlog, normal I would say, but normal is much lower than then. And in terms of oil and gas, as we’ve said, all along the year or two, or 2014 in some areas, especially in Middle East, customers were reducing their orders.

So all in all, I would say the market generally speaking and we are entering into that downturn and down part of the cycle in the position which is not as strong as in 2009. In terms of Petrobras and the bribery case, to be honest I don’t have a lot to say.

It’s a very special case of course in order to say that we are completely out of this picture. My perception is that at least in terms of operations, and specifically in terms of operations and result, the company is on a day-to-day business as before.

We see and perceive no difference, even though the change in management. As you know the new executives were in fact already into the management more or less the same position level lower and we know all of them.

So the business is going on I would say as before. Now we all are conscious that this case is creating a lot of uncertainty, but I would say more on the financial side than on the industrial side as far as we are concerned as well.

Olivier on the last part?

Yes. On the last one Gael, of course as you can imagine, it would be very unwise from us to give any guidance in terms of sales or EBITDA for this coming year.

There is far way too much volatility and uncertainty on the markets to do that. What we will focus on and what we commit about is to offset what will be the negative version of the EBITDA by an increase in other sources of free cash flow, I remind of course CapEx and working capital in order to generate positive free cash flow.

This being said, since part of your question was about H1 as well, I confirm to you that H1 will be tough for series of reasons that you probably already have in mind. In the USA the level of activity is dropping very quickly following the drop in the rig count as a distribution.

For EAMEA, as we commented since many quarters the level of new orders has been fairly reduced since Q2 2014 for many years. IOC is experiencing more capital discipline and as well from Aramco, which is destocking.

All this will lead now to a reduced level of deliveries in this part of the world. As far as Brazil is concerned, the first part of 2014 was pretty good in terms of oil and gas and we had at that time prices of iron ore that were significantly above what we see as of today on the market.

And finally, one positive that I was commenting which is a strengthening of the U.S. dollar both versus the euro and versus the real, will start having some favorable impact mostly in H2 this year because of the delivery times and the hedges that are in place.

Thank you, Olivier. We will turn to the room now.

Thank you, Gael.

Raphael Veverka from Exane. Three questions if I may.

The first one on your cost savings target. Could you split what is fixed versus what is variable cost?

And can you confirm that this is net of inflation? My second question would be on your free cash flow guidance.

Do you expect this to be high enough to see more deleveraging this year? I am thinking also about working capital reduction.

Would you see your net debt more or less at similar levels by the end of this year? And the last one is on your medium-term return target, if you could just let us know what kind of work you are using in the calculation?

Thanks.

You start on the last two ones maybe.

I would like to start on the first one, fixed variable where you have the details in the appendix of the presentation. On the amount, €350 million, as it was kept in previously gross savings.

So before inflation, it does represent an increase of about 60% versus the pace we had previously with Captain and another difference is that integration is reduced now compared to what it was a few years ago.

This amount €350 million does include the implementation cost because to reach those kind of savings we need of course to spend some money, especially in the mills. So the €350 million is of course net of the implementation cost.

By the way some CapEx costs related to the plan are as well included in the €350 million of CapEx target. There was a question about net debt in 2015.

Olivier, that one is for you?

Yes. Too early to comment about that, the guidance we can give on free cash flow, not on net debt.

Thank you, Raphael. Guilome, your turn.

Sorry, Guilome not the one, no, sorry, Guilome, sorry, excuse me, we answered on the west question is around 9%.

Could you just repeat?

9%. So, Guilome.

Good afternoon to everybody. Just three questions mainly.

One is related to the Aramco situation and how long do you think this destocking and delaying trend may last. The second one is related to your Valens program, that is quite an ambitious target anyway.

If you can actually give a little bit more color about the situation in North America, considering the significant drop of rig counts that you mentioned in terms of expectation, what do you think your competitors might be doing? Also because they probably don’t have the same flexibility that you have in terms of global assets, so you can actually decide to shift more or less utilization rates across the plants.

And the third question is related to the Middle East. There seems to be probably stripping out the destocking of Aramco, a quite healthy market.

Do you think in this market also taking a look at what basically Tenaris has recently announced in view of the €1.3 billion net cash that they have? Do you think or maybe you foresee a kind of consolidation within the space in terms of potential M&A activity?

Thank you.

So maybe I will start with the Middle East and Didier might answer about North America. As far as Aramco is concerned, we don’t have a lot of visibility in terms of the tendering process.

There is an ongoing big tender, but targeting the next years and very short-term tender. The quarter, the same quarterly tenders are still on hold.

And we know Aramco is really very serious in trying to bring their level of inventory to let’s say a benchmark level compared to the past. Now we know as well that they are still very keen on increasing their drilling activity maybe not as fast as anticipated.

We know that they will very likely stop part of their program, their offshore program. They have a relatively small offshore program in the Red Sea, but everything related to drilling for gas, which is a key element of this strategy, they will pursue.

So we are still pretty confident that amongst the various players of our industry, this player, as well as most of the players in the Middle East are the ones which are going to reduce their CapEx to the lowest level. On average we tend to consider that out of North America where the figure is almost bigger, the average CapEx reduction of our customers, national oil companies and major oil companies is around 15% for the next year, for the year 2015 that’s the average of what they’ve recently announced.

Aramco is probably targeting more active CapEx policy, let’s say. Now consolidation in the Middle East is we all understand what you’re referring to, there are two rolling mills in Saudi Arabia, but it was probably not enough load for both of them or maybe for even for one of them.

I am not sure the present context is the best timing for considering any kind of consolidation as far as -- as we are concerned, we think that our challenge is to bring the best value to Aramco, our customer. For this we have invested in a finishing facility which we think is the way we contribute to their improving their supply chain, which obviously they are focusing upon.

Capacity in rolling mill is a complete different story. Didier, maybe on North America adaptation and Valens?

Thank you, Philippe. So as Philippe was mentioning, we are first and short-term adapting our capacity in North America.

Thanks to limitation or removing overtime contractors, implementing short weeks, moving to voluntary lease at a certain point for further layoffs, but that seems to around the 50% of the capacity as it was mentioned before. Valens just comes on top of that.

And Valens is not short-term adaptation plan. Valens is a two-year acceleration plan to deliver long-term savings and be in a strong position in 2017.

So North America, like the rest of the group, has started to implement this to your program on top of adaptation.

Alessandro, okay for you. Thank you.

We’ll switch now back to the room.

Jean Granjon, Oddo Securities. Just one question regarding the write-off you made €1.1 billion on constant the European units and Brazil units taking into account, sorry, the strong drop you expect for the U.S.

market. You see some risk regarding the U.S.

and the new plant -- the U.S. plants and there is some more write-off in the picture?

Thank you.

Now, the way we calculate the value of our assets as compared to what we have in our books is based on the medium to long-term business plans. So we take a long-term view of what’s going to happen in the various markets.

So it means that in the case of Europe as an example, we know that number of markets have gone out, will not come back Powergen is the case. The overall capacity in Europe is pretty structural, so we have to put into the model some relatively low prices and this is what comes to the lower valuation that what we had in our book.

So there is, in fact, more -- it’s in fact more an overall analysis of yes to short-term but more importantly, the medium-term perspective, which is driving the calculation. In the case of North America, it’s true that the short-term adaptation is very brutal, but it’s true as well that the potential for the market is great and that we are extremely well-positioned for that and we demonstrated that into 2014.

Let me remind you that we made the decision of investment a new rolling mill, I think, spring of 2010 and we produced a first pipe end -- very end of 2012 and we were running full capacity 18 months as after. So it demonstrates that it was a perfect timing and complete adequation to what the market is looking for?

Market in North America is looking to very short supply chain and we were unable to provide that. So we think that when the market will come back and we do think it will come back when the supply and demand is better adjusted, and prices are slightly up then the opportunity to come back to this level of activity will be there.

So this is what is behind the model, which confirmed that the valuation of that investment in our book is fine. And so that’s the way it work.

And it’s both the matter of volume and its matter of cost, as well as Didier said, balance enables us to lower our cost as well and so this is part of the model we use when we make the calculation for impairment.

We have a question from London, please.

Good evening, everybody. Thank you for taking my question.

The first question relates to the impairments on the VSB write-down, maybe just digging into the answer you had just given there, please? You made an interesting comment in the prepared press release about the emergence of new competitors in some less differentiated product markets?

I think, given the write-down in the VSB mill was quite a large percentage of the carrying value of that mill? Can you comment please to what extent you have made a comment here on the long-term growth prospects for OCTG and specifically those not being as good globally as you had previously thought?

Thank you.

The only comment I would make is the following. Initially VSB was designed as a kind of low cost mill, because when the decision was made in 2007, I guess, Brazil was a low cost country.

So the whole concept was made of a lot of big volumes orders that would cover the whole range of products, including low cost product and the entry premium. Since then, of course, lots of things have changed, the country has changed and the competitiveness of the mill to address, let say lower range of products has been challenged.

So we’ve decided to adapt to that change and make that mill more of a premium kind of mill. Of course, this means that the ramp up is more complicated that this is a smaller market.

There is, obviously, a competitive pressure in that segment as well, but when we recalculate everything based on our assumptions of where the prices now stand for these kind of premium products that VSB can address. We came to the conclusion that the valuation was overestimated in the books.

So it’s a combination of change in the market conditions and there are, of course, increased competition. And as well the fact that we are addressing smaller market with that mill compared to what was the initial plan which led to that investment.

Thank you. Second question, please, if I may.

You refer to your return on capital employed over WAC target in 2018 under normalized oil market conditions? Can you discuss, is there sort of an implicit oil prices assumption within that or an implicit growth market assumption in that, where should we be -- how should we help calibrate what will normalized market conditions refer to?

No. There is no specific oil price behind that.

We cannot guess better than the Google’s who failed. So I have no potential.

There are no -- the point there is that we refer to a situation where our customers, oil and gas companies, would resume their E&P investments as they have to do and they has -- they will have to do in order to reveal their reserves. So it more refers to normal conditions.

I don’t know it’s normalized. It’s a bit too strong.

Its normal conditions where our customers are investing because they need to explore, they need to produce and they need to reveal their reserves. That’s what behind this concept.

Okay. Thank you.

and Just one final question, if I may. It is on the Valens program.

So Valens was a fourth century Roman Emperor. His reign had been marked by some as the beginning of the collapse of the Western Roman Empire?

Just should be worried by the choice of name for this program?

You have a deep and thorough historical knowledge of the Roman Empire and the fall of the Roman Empire. Now we really took this word because in Latin and you guess its Latin, apart from the fact that the three first letters itself of course well with Vallourec.

It means strong. Its mean healthy that’s exactly what we are and what we want to state.

Thank you very much. I’ll turn it over.

Thank you, Nick. I’m turning back now to Paris to room here, any questions.

On the phone, Guilome, you have other people waiting for asking questions.

Hi there. Thanks for taking my question.

I have just a couple. In terms of that €350 million net number, I don't know if I missed it, but could you give us some guidance in terms of how much we retained from that?

Obviously probably quite difficult to say, but is a 50% assumption fairly reasonable? Sort of in line with most of the other restructuring we have seen in the broader material space.

And then on that free cash flow number, can you tell us how much working capital on one…

Michael, we didn’t hear you very well. Could you just repeat your question, the very first one?

Sure. Sorry.

In terms of the -- how much of the $350 million numbers going to be retained on an ongoing basis?

What you mean by retaining?

How much -- obviously some will be eaten up by the market in terms -- I mean, how much really is a fixed cost saving and how much is likely to be unwound as the market improves? Generally, I would expect sort of a 30% to 50% number of that to be retained on an ongoing basis.

And then secondly, in terms of working capital, can you tell us how much of that free cash flow guidance -- in terms of looking for a positive number in 2015, how much working capital unwind is baked into that number? Thanks.

On your first question, if I understand well, the answer is that it’s a permanent savings. It’s a recurring savings.

In other words even, if and when because it will, when the markets rebounds, when the activity moves up again, we will keep the same level of savings, we will keep the lowered level of fixed cost and variable cost, which we would have achieved. We are targeting in terms of valuable cost.

A lots of initiatives are regarding productivity, yields, et cetera, we plan to keep that. Only the adaptation part of say, the headcount production for example will change.

It is obvious that if we move back and when we move back from say, two ships in North America to five ships, we’ll hire some people. But this is different from the savings in Captain which will stay.

On your second question….

Yeah. the working capital side, the basic assumptions that we’ll have a significant production in our activity throughout 2015, including in the last quarter and that we’ll adapt accordingly your working cap in terms of number of days, in terms of percentage of sales, which goes typically, relatively easily in terms of tables, in terms of receivables as long as we continue to make a good job as we have done in 2014 on the production overviews.

So that’s the main challenge is definitely on the inventory side, which means it’s underway. That all the heads of our various operations have to make very quickly all the relevant decisions in order to order less raw materials so as to reduce inventories and to anticipate the decrease in sales.

So this is the basic assumption.

Thank you.

Okay may be, Guilome, you can take another question from the call.

Thanks a lot. My questions, if I may, so the first question is just a qualification.

Am I right in listening to you saying that you are basically planning on running at a 50% load right across the group for the whole of 2015? So that is effective, more or less, volume guidance is question number one.

Question number two, I completely -- I think everyone on this call understands your reticence to give any form of mid-term guidance, but Tenaris on their call did give a Q1 margin guidance. And given we are a long way through Q1 already, can you at least give us some help on how Q1 is shaping up margin-wise?

Third question on cost reductions. Net of expenditure to realize those, how much of those cost reductions, if you haven't already said, do you actually expect to keep in 2015 as a starting point?

And can you also then just talk us through -- fourth and last question -- how you see the progression between volume and mix? Because the way I would see it, if the U.S.

is falling first, that tends to be API low-grade volume that is going first. Then you'll get the ex-US market where the mix tends to be better with a lag.

So am I right in thinking it's a big volume decline, but arguably a mix improvement into that? And then what happens is, as volume stabilizes, you will actually tend to get a mix improve -- a mix decline, sorry -- and actually what that does is that kind of drags out the downturn a little longer.

And this is one of the reasons why your visibility is so bad. Thank you very much.

Okay on the first point, no we are certainly not expecting a 50% decrease in volume. What we said is that we expect a 50% decline in the number of rigs operating in North America which is I’d say co related to our volumes but not directly.

Aggravating that is obviously the distribution the destocking effect but allegating that figure is also the efficiencies and the fact that typically wells are consuming more volumes than in the past. So the 50% round would apply only to North America.

Our vision of the rest of the world is different as we said Brazil might not be that off compared to 2014 volume wise. And the rest of the world Eastern Hemisphere and Europe should be slightly down but in an order of magnitude which is much, much than minus 50%.

On your favorite question on guidance as though your favorite answer.

On -- so on your favorite question my freight answer is that if I could have given you a guidance on Q1 I would have really done that. So I don’t do it now.

Then on Valens, you finally understood, you well, Michael your question is to figure out, which part of Valens will come in 201. Then it will be definitely be a first step in Valens implementation that is already engaged.

And as Philippe mentioned already, I want to remind you is that we have been working on Valens since the summer last year, which is actually a kind of a perfect timing because now it is ready to be launched and it is already launched. So as soon as in 2015, we will get the first part of Valens gains, then it will be even bigger in 2016 because every thing we will have been launched in working 2016 and we’ll have a full year impact in 2017.

On your last question which was, will you start having volume drop for not that premium product? So in the first part, we saw mix improvement and then mix deterioration.

I would not say that in the USA, yes, we will have a drop that will come soon enough but with no mix improvement. And as I commented, our deliveries to Middle East, to Africa, we are below as soon as in Q1 or Q2 and there was a very good mix in this part of the world.

So, I would not make this kind of segregation between H1 and H2.

Okay. So basically the take away in principle is that the earnings drop should be pretty sharp and pretty reflective of the run rate for the year in principle then?

So we're saying in the early part of the year?

Yes. It will come.

It will come quickly. I can’t say to you right now if it would be 150 for the rest of the year.

But yes, it will come quickly.

Okay. All right.

Thanks.

Thank you. Now, I’ll get back to the room if there is any questions here, not really.

In fact, some analysts are on holidays and most of analysts are somewhere on the road. So, Guilome, any questions?

Hi. Just two quick questions for me.

One is on the free cash flow generation for 2015. Are you including working capital in that, so you are expecting to be free cash flow positive pre-working capital?

And then, secondly, just a comment on the local strategy. Does that likely involve investment in new facilities in local markets?

And I just wondered whether in the current environment you are actually seeing sort of less emphasis on local content rather than more, or whether that's not something you've seen? Thanks.

Okay. As far as free cash flow is concerned, it does include what we will do on working capital of course.

In terms of the local, you are right in saying that there are different situations and the way to address them might differ from one country to the other. Generally speaking, there is a strong benefit seen for -- received from our customers to being supplied locally, as I mentioned in terms of service and in terms of direct costs.

There might be some difficulties in some countries about indirect costs and there are lots of tax issues in a number of emerging countries that are willing to say, take as much as they can out of their resources. So, I would say every case is specific.

The decisions we’ve made over the last years to invest in Indonesia, in Nigeria, in Saudi Arabia were all positive. We’ve not done more so far precisely because what we can control in terms of cost, in terms of delivery time, what is under our control is usually, makes it a very compelling business case and our customers agree.

But than some calculations, some tax issues, cost of utilities or these kinds of things may make a good business case, will become a less good business case. So in some circumstances, we have to discuss with local authorities, with our customers in order to convince them that if they want to really have local content, which bring to them of course jobs and skilled jobs and what they are looking for.

Now they need to make some efforts or at least not to make a good business case, become a bad business case. So there is no overall, but lot of specific answers and the reason why I am still putting it on top of our priorities is that I know from our customer’s standpoint it is generally a good business case.

Okay. Thank you.

Could I just come back quickly to the first point? So it includes the free cash flow positive includes working capital.

Are you confident that you're going to be free cash flow positive excluding working capital, or can't you say that at this point?

I think we can’t say that at this point.

Okay. Thank you.

Thanks, Henry.

Guilome, do you have other questions?

Hi. Good evening.

A lot of the capacity reductions that you are talking, it seems quite temporary. But if you actually look through the last few years and what is also coming down the -- your competitors are adding more capacity as well.

What I'm trying to say is, between yourself and Tenaris, you've added a lot of capacity to the OCTG market. But once again, the oil and gas industry just shows that it's quite cyclical and it interrupts these strong fundamentals that you guys keep saying that you see.

So would you consider actually closing down some of your capacity on a more permanent basis and would that actually result in more cost savings in the long run?

All options are on the table and what we’ve been doing over the last years is reposition our assets to bring the new capacities closer to where we thought the potential for growth was and I think we made the right moves. Now, it is true that as you say, beyond the cycles, there are as well some pockets of over capacities which remain and we will have to deal with that.

So, again, today all options are on the table. We’ve done a lot of work already on that particular point and we will come when the time comes with a additional details on that.

All right. Can I ask a question on kind of more financials now?

Looking at your depreciation and your other charges, this is excluding before the impairment, it seems to have ticked quite high. Are those appropriate run rates to use going forward, please?

As far the depreciation is concerned for the main part with the industrial depreciation, we should be relatively stable in 2016 compared to 2014. With some increase in the demands that did ramp up in 2014 mostly in the U.S.

and on the other hand less amortization on some assets that have been partly depreciated. But I wanted Amy to comeback once again on your latest question and just to encourage you or us not to look too short term either, 2016 will be a tough year we all know that.

But we know as well that some of the elements that go south in 2016 will go north again afterwards. Keep in mind that the U.S.

market is always active, down or up. It’s what we’ve seen during the last cycle.

When you see all the analysis of what will be going on in the next year or decades, the shale in the USA is not dead and will contribute to the growth in oil production for the coming years, it is necessary. We mentioned several times that one of big negatives in 2016 is the continuing destocking of Aramco.

This will not last forever. Aramco is a huge consumer of very premium product.

They will restart ordering at some point of time likely in 2016 leading to the raise that you are after. And finally, Petrobras is a huge asset for us.

Again, everybody knows that the significant part of the oil production grows in the world will come from pre-salt in the coming years. It is one of the areas where the extraction cost is the lowest one.

As of today Petrobras is facing some uncertainties, but Petrobras will increase its E&P expenses in pre-salt. We will get soon or later additional FPSOs and we’ll drill more.

So 2016 will be difficult. There will be better years after that.

Great. Thank you very much.

Thank you, Amy. I’m turning now to the room here in Paris.

Do we have a last question? Maybe [indiscernible] last question on the call, the final one.

Yes. Good evening, gentlemen.

Just a couple of quick ones from me, hopefully. The first one on the headcount reductions.

I believe you said they were permanent employees. So could I just ask, given the program for cost cutting, is the plan to reduce all of the temporary staff?

And if not, can you explain sort of why that might not be the case? And secondly, from your slide of cost savings, obviously outside of the cost savings program, you say that raw material savings would only be around about 2%.

Given the sort of direction that iron ore has been taking and some other commodities, I would have expected that to be larger. Am I missing something there?

Thanks very much.

As far as the raw materials are concerned, we are referring to commodity type of raw materials. We are referring to scrap, we are referring to cooking coal, and these kinds of materials are, let’s say, managed by market, which are relatively efficient that there is not a lot we can gain.

What we can gain is by slightly changing the mix. And that’s what included in the 2% using some cheaper material for some products.

But there is by far not as much to gain there compare to what we can do in improving the efficiencies of our mills. And so this is really the reason why we have only 2% on the raw material side.

Your first question about headcount, in fact there might be some confusion and we do not use temporary workers in most countries, but Europe and this is not kind of contracts we have in North America, nor I guess in Brazil. So when we’re referring to headcount reduction we include all kinds of contracted workers, as they are in Brazil and North America.

And in Europe, it does include the temporary workers there. We typically work with temporary workers precisely to keep some flexibility, but some might occupy more permanent jobs.

So when we referred to the reduction in headcounts in 2015, it does include reduction on temporary workers due to adaptation to the fall in activity and it does refer as well to permanent jobs, and this is typically what balance is about so. And last word on that, the 7% I was referring to, 7% of our manufacturing headcount representing approximately 1400 people is a global number.

So including North America, some in Brazil less because as we’ve said, the need to adapt is lower, to adjust is lower and it does include some workers in France and Germany as well. All being in the case of Germany and France negotiated for the year 2015.

So it’s done and it will be implemented all around the year and next, but these are the decisions made so far as far as the year 2015 is concerned. Did I miss something Olivier?

No, just maybe and I should comment on raw material if I understood well your question. The savings that we speak about are compared to the index which shows cost evolution of these elements.

So we see for instance as of today a drop in the scrap price in the USA if we don’t consider that as savings. Savings is going farther than the evolution of the cost of this commodity.

Very clear. Thanks, Olivier.

Okay. So I think it’s time to conclude.

So last words, I think as you can see we’ve a clear roadmap, a dense one. First, adapt fast and strong to the fall in activity in some of our key markets and globally.

Second, focus on the Valens, the competitive plan. Again, it is an ambitious plan in terms of the savings in cost and reduction in CapEx that we are targeting.

And this is even more ambitious because we want to deliver this over two years, which is quite unusual for this kind of savings plan. Typically companies would take four, five years to do that.

We think we are prepared enough and the team are committed enough and engaged enough to do this much more rapidly than others. And lastly, our commitment to generate free cash flow and come back to value creation is as well commitment of ours.

Thank you very much. Thank you for attending that conference.