Thank you. Thank you for joining us for our Q3 nine-months results presentation.

I am Jean Marc Agabriel, Head of Investor Relations. With me today, to comment this results, we have Philippe Crouzet, Chairman of the Management Board, Olivier Mallet, Member of the Management Board and Chief Financial Officer, Nicolas de Coignac, Senior Vice President of North America, Edouard Guinotte, Senior Vice President of Middle East/Asia, Didier Hornet, Senior Vice President of Development & Innovation, Hubert Paris, Senior Vice President of Europe/Africa.

This conference is available by conference call which will be recorded and a replay will be available. It is also audio webcasted and the presentation slides are also available for download.

Before I hand over to Philippe Crouzet, I must warn you 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 document filed with the French AMF regulator.

This presentation will be followed by a Q&A session. Now, I leave the floor to Philippe Crouzet.

Thank you, Jean Marc. Good evening, everyone.

I am pleased to present our 2019 Q3 and nine-months results. As you may have seen already, it's another good quarter indeed and brings evidence that we are well on track on our recovery path.

I will start by going through the highlights and Olivier will detail our financial results. So let me start from slide five with the usual overview of the key achievements of the quarter.

The main takeaways, I guess, for Q3 first, are the following. First, in Q3, we delivered once again a good set of results, aligned with our guidance.

Note that despite some expected headwinds from the U.S. market where, I remind you, we make approximately 30% of our total revenue, we benefited from high oil and gas sales in the EA-MEA regions and this drove our revenue growth as well as our profitability.

Our revenue grew 10% year-on-year while our EBITDA almost doubled compared to last year third quarter at €84 million. Second, free cash flow performance was another key achievement of the quarter.

As we did on Q2, we generated a positive free cash flow of €26 million in Q3, compared to an outflow of €153 million last year. Thirdly, we continue to benefit from a sound liquidity position and Olivier will say on that point.

Lastly, a few words on our outlook. We will elaborate more in the last part of our presentation, but for now let me just highlight that based on our solid quarter and on the current microeconomic and market trends, we confirm our target for 2019.

We continue to target therefore a strong increase in EBITDA for the full yea with EBITDA generation achieved in the first semester confirmed in the second one. The lower activity in North America oil and gas market, should be offset by an overall good level of activity in the group's other markets and by stronger savings targeted in H2 compared to H1.

And in addition, we now target free cash flow to be positive for Q4 2019 as well. Let me now rapidly go through the details of the key figures of the third quarter on slide six.

So strong operating results at all levels. Topline first, revenues at 10% year-on-year, 7% at constant exchange rates with a price mix effect positive by 5% and volumes slightly up at 2%.

Again, the growth was largely driven by our oil and gas activities in the EA-MEA regions and this, of course, more than compensated the decrease in revenue in North America. In addition to that, we continue to benefit from high volume and prices of iron ore in Brazil.

Second, we significantly improved our profitability. As I said, EBITDA that almost doubled in Q3 and this makes us confident in reaching our objective of a strong EBITDA growth for the whole year.

The margin grew by more than three percentage points. Lastly, free cash flow remained positive at €26 million as a result both of increased cash flow from operating activities and from the actions undertaken to manage our working capital requirements.

Free cash flow generation, of course, remains our top priority. Now moving to slide seven, you have a similar picture for the first nine months of the year.

Revenues are at as well double digit at plus 13%, 11% at constant exchange rate, both reflecting higher volumes and a better price mix effect, again mainly driven by the good performance of our activities for oil and gas in EA-MEA regions. Of course, mining revenue in Brazil benefited as well from a high iron ore prices and volumes whereas powergen continued to decrease steeply as anticipated.

Over the first nine month, EBITDA was multiplied by more than four year-on-year to reach positive €253 million and the EBITDA martin growing by almost six percentage points. It shows that the strong positions of volume hike in the EA-MEA regions combined with the mining operations and with the benefits of our transformation plan are definitely driving substantial operating leverage.

Coming to the free cash flow for the first nine months, it is still in the negative territory but only due to Q1 and it shows a very meaningful improvement of €454 million compared to the same period of 2018. On slide eight, a few words on our transformation plan, although specifically on three key initiatives.

Regarding gross savings and the new initiatives announced at the beginning of the year are progressing well. The reorganization of our German operations and the continuous optimization of operations in Brazil resulted in €48 million of gross savings achieved in H1.

But on H2, we target to generate higher savings than this amount and we will be well in line with our objective of at least €200 million of additional gross savings over 2019 and 2020. Regarding now the conventional powergen business, as you may remember, we announced that we will exit that business as already mentioned in July, due to the higher tariffs applied by the Chinese authorities since the month of June 2019, on a significant part of the steel pipes that are produced in Germany for the Chinese conventional powergen market.

The divestiture of the German part of our conventional power business has become unlikely. Therefore we are currently evaluating different industrial and social scenarios for our facilities located in Germany.

Lastly, regarding our project to extend the production capacity of our iron ore mine in Brazil, I remind you that this project aims at increasing the capacity of the mine up to around 8.5 million tons per year as of 2022. We have been granted the required license to proceed with the construction, as we already told you in July.

The investment proposal approval procedure is in process and we should make the final investment decision in the next few months. In the meantime, we continue to work to improve to increase the production volume through productivity improvements.

And I am pleased to confirm that through these actions we will increase the production capacity of the mine from 4.7 million tons in 2018 to around six million tones in 2019. And we expect our production to remain at that level until full completion of the expansion project.

I now hand over to Olivier who is going to go in detail our financial results.

Thank you Philippe. Good morning or good evening everyone.

On slide 10, first let me give you more details around revenue growth by activity and by geography, starting with our largest segment, the oil and gas which represented 63% of our total revenue. Revenue was up 7% year on year or 4% at same exchange rate.

As Philippe pointed out, this strong performance was as expected, first and foremost, driven by the Europe, Africa and the Middle East, Asia region, EA-MEA with a higher price mix and higher volume. In North America, oil and gas revenue decreased year-on-year due to the current U.S.

market slowdown impacting volume and prices. And lastly, in South America, oil and gas revenue was down year-over-year with relatively low level of offshore activity deliveries.

Petrochemicals revenue ramped to €84 million at 5% year-over-year mainly driven by higher volumes sold in Middle East, Asia and South America. Industry and other activities was totally, plus 20% at same exchange rates while industry in Europe revenue remained under pressure, mining activities in Brazil continue to enjoy higher volumes and prices compared to last year.

Power generation was at 6% in Q3, but still at a low level, while for the first nine months of 2019, the revenue was down 32% year-over-year due to the decline in global demand for coal-fired conventional power plants. Switching now to slide 11 with more details on revenue and EBITDA.

First, we continue to record revenue growth in Q3 in absolute terms plus €100 million year-over-year, primarily thanks to price mix and volumes with ForEx contributing as well for 3%. The industrial margin improved significantly by 26% to €177 million adding two percentage points of margin.

It mainly reflects higher price mix in oil and gas in the EA-MEA regions, the higher contribution from the mine as well as the cost savings that have been achieved. They largely offset lower contribution from North America.

Tight cost control continued on SG&A which decreased by 6% year-over-year. SG&A represented 8.8% of revenue against 10.3% in Q3 2018.

So in summary, strong growth in EBITDA almost doubling year-over-year. On the next slide, some quick comments on the key lines of the rest of the P&L.

The first element to highlight is the €39 million year-to-year progress of the operating income. This was driven entirely by the EBITDA contribution evolution.

You can notice as well that operating income turned positive in Q3 of this year. Financial charges were slightly reduced, thanks to lower foreign exchange hedging costs and the group net loss was reduced by €32 million to amount to minus €16 million.

Going to slide 13, let me comment on the working capital management with again a nice performance in Q3. This is a slide that we have been presenting for a few quarters now which shows you the evolution of our net working capital requirements in days of sales, quarter-after-quarter.

At the end of Q3 this year, net working capital requirement in days was down by 19 days compared to Q3 2018 to 105 days. This is, by far, the best level reached probably over last 10 years.

Now if we look at the average of the first three quarters of 2019, net working capital requirements in number of days was reduced to 110, compared to 120 for the same period of last year. This is full inline with our objective to reduce working capital in number of days on a quarterly average and it does demonstrate that our efforts to tighten working capital management are successful.

Now moving to slide 14 to comment on free cash flow. As Philippe mentioned in his opening remarks, free cash flow was again positive in Q3 at plus €26 million to be compared with an outflow of €153 million last year in Q3 last year.

This is an improvement year-over-year of €179 million. About a third of this improvement comes from the recovery in profitability with the EBITDA recovery translating into higher cash flow from operating activities.

This cash flow from operating activities was close to breakeven and up €52 million compared to Q3 2018. The rest comes from the tight management of working capital requirement which decreased by €71 million versus an increase of €73 million in Q3 2018.

Capital expenditure was slightly up €43 million in Q3 2019, compared to €26 million in Q3 last year. As a result, the free cash flow for the first nine months of 2019 was negative at €117 million with very significant improvement of €454 million year-over-year with more than €200 million coming from an improved cash flow from operating activities and the rest coming essentially from working capital management.

Moving now to net debt on slide 15. The group net debt as of September 30, 2019 stood at €2.104 billion.

This is slightly less than the €2.111 billion reached at the end of June. Aside from the free cash flow movement, there is no specific item to highlight that impacted net debt in Q3.

To conclude my thoughts, a few words about liquidity on slide 16. Vallourec liquidity, as you know, is strong and basically unchanged compared with the end of June.

We have access to a total liquidity of around €2.2 billion including cash proceed of €1 billion and €1.12 billion of undrawn committed bank facilities. In August, we paid back €400 million private placement and we have no major bond maturity before Q4 2022.

We have as well no major bank lines maturity before 2021. At the end of September, the banking covenant ratio, which is tested once a year at the end of December was estimated at 81%, still far from the limit of 100%.

And I remind you that the calculation of this covenant ratio is no impacted by the implementation of IFRS 16. And with these words, I now give back the floor to Philippe.

Thank you Olivier. So before open the Q&A session, I would like to end our presentation with some comments on the trends we see on our main markets.

Starting with oil and gas which we see at the moment as following. The EA-MEA region's market growth should remain robust, notably for special steel products where supply and demand situation is pretty tight at present and should remain so in the near future.

Obviously, this reflects mostly the positive dynamics of the deep offshore activities. In North America, the operating environment remains more challenging.

Operators maintain a strict CapEx discipline whereas distributors are in the process of adjusting down their inventories which leads us to anticipate lower shipments and prices in Q4. In South America, we expect the anticipated pickup in deliveries in Brazil, to Brazilian customers, to materialize in the latter part of the year and then to accelerate in 2020.

As you may know, this is driven by a significant increase in drilling activity for exploration in deep offshore fields which we think should last for the next few years. As far as our industry and other segment is concerned, we see the trends experienced in the recent quarters to continue into Q4, namely in Europe low demand with pressure, both on volumes and prices, in particular in Germany whereas in Brazil, iron ore production is targeted.

We expect, as I said, total production of six million tons in 2019 which represent an increase of 25% compared to 2018 in volume. I will now conclude with our outlook for 2019, basically, no change.

In view of the solid performance achieved in Q3, we confirm the full year target that we communicated last July, that is a strong increase in EBITDA, with EBITDA generation achieved in the first half confirmed in the second half. Looking at current slowdown in the North American market, it should be counterbalanced by an overall production and sales level strong in our other markets and by higher savings in the second half of the year.

We continue as well to target working capital improvement by diminishing number of days on a quarterly average basis and our CapEx envelope for the year hasn't changed at around €180 million. As a result, we now target a positive free cash flow in Q4 following positive Q3 and Q3.

Lastly, based on all these objectives, we reiterate our confidence that the group would respect its banking covenant at the end of 2019. This concludes our presentation and we now open the floor for the Q&A session.

Hi. Thanks very much for taking my questions.

The first one, just on your reported EBITDA of €84 million. You note in the release that it would be €64 million excluding IFRS 16 and provision.

IFRS 16 was about €9 million impact implying €11 million from provision. Can you give us a little bit of an idea about what that provision was related to/ And if there would be any expected repeat of that in Q4?

Yes. We continue to give this indication, honestly compared to three years ago.

The variations in provisions now are really not meaningful. What can happen is that in some cases, we feel we can take some orders below full production cost then you take a provision and you reverse it when you deliver the product.

It can happen as well that we have grew provisions in front of tax questions and supply that, so nothing really meaningful. Just keep in mind that this level of movements and changes in provisions is now not really significant anymore and has no reason to pick up again.

Okay. And then turning to working capital, you have made significant progress this year.

Do you think you could achieve a similar level next year in terms of the lower per quarter amounts on days outstanding basis?

So it's a little bit too early to comment on next year. What I can tell you is that one of the key reasons for this improvement this year is due to the fact that we have put together a team at the beginning of 2019 in order to push what we call the PRI, payable, receivable, inventories task force.

And with the support, by the way, of a consulting firm, develop rules, initiatives in each and every significant operation in the group to continue to improve our working capital management. So this has started to deliver some successes along 2019.

We definitely believe that these initiatives that have started early this year, with, first, the diagnosis phase. And only since a few months is the execution phase has still a good potential, in particular as far as inventories are concerned that we of course intend to deliver next year.

Thank you. And the last one from me, leading to the powergen business.

Can you give us just us a sense of what the EBITDA impact has been either Q3 or year-to-date 2019?

Clearly, it's in the present situation where sales have gone down dramatically due to the decision taken by the Chinese authorities, it is not positive contribution to our overall performance.

Okay.

And so that's clearly the reason why we will solve that situation in the next two months.

Any sense of scale you can give us?

No. It's not messy but it's negative.

Okay. Thank you very much.

Jean-Luc?

Hello. Do you hear me?

Yes. Yes, we can hear you.

Okay. You mentioned increased deliveries for EA-MEA in Q4 at this strong growth.

You believe the increased deliveries will make up for lower deliveries in North America? That's my first question.

Second question is about the mine expansion. What should we estimate as capital expenditure for that expansion, please?

On the first point, what we say is that the slowdown in North America will be offset by EA-MEA sales, but by Brazil as well. So Q4 should definitely see the PC first, let's say, positive trend or acceleration trend in the sales in the year, South American region.

So this is the shape of Q4. It's not only EA-MEA.

It will be Brazil as well. Olivier?

On the mine extension you know that we have got all the local approvals that were necessary in July. So we are in the process of finalizing the file.

There is no doubt that it will be a very profitable CapEx and green light should be given in the next few months. We are, technically speaking, in the process of gathering all the quotes from equipment suppliers.

So it's a little too early to give you an exact number of our CapEx, take maybe a range between €60 million and €80 million overall and you will be not far from what is expected.

Thanks very much.

Thanks for taking my questions. If I can start with one on Brazil.

And as you increase the shipments into the year-end, could you talk about what that means for the margin mix for the group? And then also for working capital, is that draw down for those particular deliveries?

On that particular one, as you know, most of what we sell in the oil and gas domestic market in Brazil go to offshore, deep offshore and especially pre-salt areas. So it's quite a valuable product and with high margins, of course.

The impact on the working cap is limited since we have a very integrated supply chain with our top customer in Brazil. We have been implementing this kind of mill to rig service since quite a while in Brazil.

By the way, that's the kind of service we will implement as well in the Middle East in the coming of months. And so it results in very limited working capital addition.

So that is basically the situation in the coming quarters in Brazil.

Great. Thank you very much.

And thank you for the update on the balance sheet, just a couple of follow-ups. So firstly, I noticed a small amount, but this €300 million of banking facilities which expire next year, what's the plan for those?

And am I right in thinking you drew down on the revolver this quarter? So what's the logic behind that?

How do we think about the balance between drawing down on the revolver, putting cash on the balance sheet?

So on your first question, yes, it's about the amount you mentioned, our banking lines that have a maturity in course of 2020, you know that we have extended until 2021. The vast majority of the club deals who are set to expire next year, given the very strong liquidity we have, there is no need to act vis-à-vis the €300 million in 2020.

And in due time, of course, we will do the refinancing before the maturity expire in 2021. As far as the way we withdraw or not or reimbursed on the bank lines, we have already drawn, to some extent, at the end or before the end of H1 and we commented on that.

We have increased our drawings to some extent, in particular in anticipation of the repayment of the bond of €400 million that we have repaid early August and we have, to some extent, build maybe in a conservative way some extra cash drawn. So this is what it is all about.

Thank you.

Thank you. Could you talk a bit about the $900 million contract with ADNOC?

First, is it all incremental €180 million a year? And then when can we expect it to start?

And is this going to be accretive to margins?

Edouard, maybe you can answer?

Yes. Thank you Philippe.

So this huge contract will be definitely incremental when you compare with 2018, 2019 because during these years we delivered very little to ADNOC just because of the sheer timing of their previous tender. So in average, yes, it's an increase.

Now, with regards to incremental margins within this contract, as you realize, we will supply the whole range of products from commodities to very high end. And on top of that, we have fair share of supply chain management services on top.

So this would definitely add to average margins made in this country over the past couple of years.

Great.

From a timing point of view, if I can, compliment. The first deliveries are expected to take place in the second half of 2020.

And then, as you know, the contract does last for five years with the potential extension for two additional years.

Great. Thank you.

And could you also provide us an update on what other sizable tenders are still outstanding? And have any new ones been issued since the recent award?

Maybe Didier?

Yes. Thank you Philippe.

So let's say, we are large tenders still open in the Middle East, Oman typically, Iraq, close East, Egypt for example. I would have forgotten about ARAMCO in the Middle East.

North Africa also. So let's say, the tendering activities is definitely very active and while it is difficult to anticipate, but recently our hit ratio has been significantly up.

Great. Thank you.

I will turn it back.

So two question from me, please. The first one is, just to pick up on your comments about the high tendering activity, particularly in the EA-MEA, could you be a bit more specific?

I get there is a sense of where the pricing on kind of these new tenders are going, a sense of where that's heading, whether that would be stronger or where we could be seeing some headwinds or tailwinds? And that's my first question, please.

Edouard, maybe on the Middle East?

Yes. So I think Didier already highlight some of the big tenders we expect coming to fruition in the next few months.

Now in terms of prices, what we expect is definitely some sustained tightness in the special steel products. So on this one probably a positive traction on price.

When it comes to the more mall standard commodity products, there is usually quite a large amount of available capacity in the market. So we don't expect any positive traction on this particular segment of the market.

Okay. All right.

Okay. My second question is a bit more of a housekeeping.

It looks like you have recorded an impairment of assets of €9 million in the quarter. Can you explain what those impairments are, please?

Yes. It's a small shop that was making very non-core products in Brazil, I think, that we have stopped.

So it's an impairment of this shop.

Okay. So it's a fixed asset impairment just to clarify?

Yes. It's a fixed asset impairment.

Yes. Just I mean, there seems to be quite a drip feed in the impairments, where if you look at the last few quarters, there seems to be high single digit or tens of millions being impaired.

Can you just talk us through a bit about how you are thinking about that line going forward?

And if you compare with past year, there has been a significant impairment. I would say that most of the job has been done in Europe to a very large extent.

And you can never say that it's over and that we are done forever with the potential impairments. But definitely, if new ones were to happen, it will be for small and not very meaningful magnitude.

All right. Thanks for that.

I will turn it over.

Yes. Good evening gentlemen.

A few question from my side, please, still related to the EA-MEA, please. I was wondering if you can quantify your backlog at the end of Q3 compared to what you had in hand at the beginning of the year?

Is that a single digit growth, double digit? If you can quantify the backlog that you have right now in the EA-MEA?

The second one is related to the credit line, as just mentioned before, you have withdrawn something like €0.7 billion of your credit line in the quarter. I was wondering if you can quantify the impact on the financial costs for the coming quarter?

And the last one is related to your comment that you made previously. You say that basically the decline in the U.S.

activity in Q4 will be offset by the improvements in the Middle East and Brazil, OCTG. But what about the decline of the iron ore pricing that we see since the beginning of Q4 going down from $120 to $80, what would be the impact on your profitability, please?

Maybe I will briefly answer on the backlog. Of course, we do not provide detailed figures but the trend is clearly up.

And of course, on the one hand we have this great success with the ADNOC tender, which has no equivalent at the beginning of the year, of course. And, generally speaking, as Didier mentioned, we are improving our hit ratio of positive gains or wins, if I may say, in the number of tenders.

And then I take this opportunity to highlight this improved competitiveness of ours. This is definitely reflective of the successful implementation of our transformation plan.

And I insist, it's not only about savings. Of course, we deliver on savings, as you know.

But it's as well related to the new rules that we have successfully implemented. Let me insist on the fact that, for example, the ADNOC contract, since its public information, it's one I can comment on.

It will be supplied from Europe for a part of the product line, of course, the highest value products, but as well from Brazil and from China. And this is definitely a great success for our new business model.

And this is what truly drives our growth at the moment. And obviously this makes us much more resilient to some regional events like the North American downtown.

And so this is my comment on the backlog. Definitely up compared to the beginning of the year for OCTG, especially of course, situation is very different for powergen activities.

Olivier, on the two other ones?

Yes. Maybe just if I can add something on the backlog.

One of the beauties of our new business model in EA-MEA is that we enter tenders following FIDs, which gives, at the end of the day, quite nice visibility because it's a very long process between the FID, the tender, the award, the manufacturing time so that if you look at the number of FIDs life in the world, the behavior of NOCs gives you not in terms of backlog but in terms of trend what would be our deliveries in may be one year from now. So the market, if you look at the FIDs, is well oriented.

In addition to what has been mentioned, the mix is trending to improve progressively with more offshore compared to a shore project with more gas, compared to earlier, oil. So all this grows slowly but definitely in the good direction and will have a positive impact in our next quarters and beyond the year.

Moving to your other questions, Kevin. Of course, when we draw on our credit lines, it has a cost.

Don't overestimate it because, as you know, even on the bank lines, which are not drawn, we pay a commitment fee which is significant compared to what we pay for a withdrawal. So it has some cost but not a very large one.

Finally, in terms of iron ore prices, we had anticipated a few months ago when spoke at the end of July that iron ore prices will go down to some extent in H2. This has happened.

Actually, it's a little bit less than what we were anticipating. So if we want to compare H2 vis-à-vis H1 in terms of potential EBITDA generation, there is a decline in the U.S.

with no doubt and probably a little bit significant than expected by everyone a few months ago. On the other hand, the level of activity in our other businesses is doing well.

We have a really strong pickup in our deliveries to Petrobras' deep offshore in Q4 compared with the previous quarter. And if I may remind you that this pickup in exploration drilling in Brazil will be a key driver, if not to say the number one driver, as already notified of further results improvement in value in 2020 compared to 2019.

And wee have as well, as Philippe was highlighting, higher savings expected in H2 compared to H1.

Okay. Thanks a lot.

Yes. Good evening.

One simple question for me, please, regarding the recovery in basically in the Middle East. My question is simply, is Middle East starts to be significantly supplied by tender or is it still essentially products coming from Brazil?

So what is the ramp-up of tender in terms of basically of the premiumization process in terms of exports?

Edouard?

Yes. So in the Middle East, I would say we supplied or we leveraged the full power of our industrial network.

So typically higher-end products tend to come from Europe while conventional premium would come from both Brazil and China and the very basic quality products mostly from China. So we really rely on the full array of availability.

In terms of tender premiumization, it continues to progress continuously. If you recall, we were at low single digits of premium products coming out of China in 2017.

We should end up 2019 over 20%. And we expect this to continue to increase in the next few years.

It's a very clear. Thank you Edouard.

Thank you.

Okay. Thank you.

Thank you very much. So let me conclude by a few words about how we view this year-end.

So Q4, as you understood, will be a mix of positives and negatives. Positives, as Olivier mentioned in EA-MEA regions and Brazil offsetting the downturn in North America.

Positives as well on savings, but that will be obviously a significant impact in North America. So all in all, we really target to confirm in H2 the EBITDA achieved in H1.

That, I think, makes us pretty different from other players in the overall industry related to oil and gas. The other point I like to highlight is, as we mentioned at the very beginning, the fact that our debt has stabilized quarter-after-quarter, we confirm that the combination of operating efficiencies and the hard work on working capital is delivering good performance.

And if you compare our debt level to a year ago with the end of Q3 of last year, it was very similar to where we stand today. As you know, Q1 is always a bit up in our models due to seasonality but we are clearly significantly improving our performance as far as debt is concerned.

So this concludes my comments and our presentation. And I take this opportunity to wish you a very nice year-end.

Bye, bye.

Thank you. Good bye.