And welcome to the Vallourec Q4 and Full Year 2021 Results Call. My name is Sasha, and I will be your coordinator for today's event. Please note that this conference is being recorded. And for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions] I will now hand over to your host, Jerome Friboulet, IR Director, to begin today's conference. Thank you.

Good evening, everyone. Thank you for joining us for Vallourec's full year 2021 results presentation. I'm Jerome Friboulet, Head of Investor Relations. With me today to comment this result, we have Edouard Guinotte, Chairman of the Board of Directors and Chief Executive Officer; and Olivier Mallet, Deputy Chief Executive Officer. This conference will be recorded, and a replay will be available. It is also audio webcasted on our Investor Relations website, and the presentation slides are available for download. Before I hand over to Edouard Guinotte, I want to read the disclaimer 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 slides presentation and are included in our Universal Registration Document filed with the French Financial Market Regulator, the AMF. This presentation will be followed by a Q&A session. Now I would like to give the floor to Edouard Guinotte.

Thank you, Jerome. Good evening, everyone. Thank you for joining us tonight despite the rather unhealthy geopolitical context. Before I move to the key highlights of the year, I would like to make a quick update on the situation of our mine in Brazil. As you know, after exceptionally heavy rainfalls in Minas Gerais at the beginning of January, some material from a waste pile slid into a rainwater dam causing it to overflow on the national highway underneath. The structure of the dam was not affected, and there was no flow in the maintenance procedures. There were no casualties, and we estimate the environmental damages to be rather limited. We have – since then, the operations of the mine have been temporarily suspended for obvious safety reasons. And since then, we have a very constructive, active and fully transparent dialogue with the local and regional authorities who are working with us to get back in operations as quickly as practical and safe. We plan to restart the mine's operations in the coming weeks, subject to receiving the necessary authorizations, at first, without using the waste pile. In the meantime, our team is preparing the report on the waste pile stability, which is to be validated by the mining authorities. We expect, therefore, the mine to be back to operating to normal levels during the second quarter. Let's now move to the key highlights for this call. First of all, looking at our full year 2021 results and comparing them year-on-year. We are posting a strong EBITDA growth to reach €492 million. Net income group share was positive at €40 million, and free cash flow was slightly better than anticipated at minus €284 million, mainly reflecting working capital rebuild and one-time charges related notably to the financial restructuring. Finally, as Olivier will detail, we have a strong liquidity position at the end of December at above €1 billion. Independently from improving market conditions, our focus remains on optimizing our operational efficiency in order to lower our costs and breakeven points and remain solidly profitable and cash flow positive throughout a business cycle. In addition, we have adopted a value-over volume approach across all our business enterprise, which is made easier, let's say, thanks to the adaptation of our capacity to expected activity. The transformational move we announced in Q3 is well on track both for the disposal process of the German assets and for the preparation of the transfer of their oil and gas activity to Brazil. Meanwhile, we continue additional efforts to identify and launch saving initiatives across the group in 2022. Finally, we also launched a project aiming at reducing our inventory and introducing sustainable and repeatable business practices to more efficiently manage working capital moving forward, which is particularly important at the time when our activity is increasing. Once this program is adopted, we expect to see significant improvements in our inventory management and levels going forward. And I can now hand over to Olivier for more details on the financials for Q4 and 2021.

Thank you, Edouard. Good evening, everyone. So let's start on Slide 6 with the key figures for Q4 2021. As you can see, revenue accelerating in Q4 at €10.064 billion, up 28% compared with Q4 previous year. This was driven by a strong volume effect of plus 25% mainly in the oil and gas market in North America and in the industry markets. EBITDA reached €136 million, an increase of €60 million compared to Q4 2020 and an increase of €80 million compared to Q2 2021. This sequential increase was achieved in spite of higher oil prices being down from $164 per tonne in Q3 to $110 in Q4, which reflects a strong recovery of our core tube business. Our free cash flow was positive at €70 million, less than in Q4 2020 due to a lower working capital decrease to be linked with a strong order book to be delivered in H1 2022. With Slide 7, let me give you more details on the fourth quarter revenue evolution by market and region. In oil and gas, which represented 61% of our Q4 revenue, sales are up 23% year-on-year. The lower activity in EA-MEA was more than offset by North America where revenue more than doubled and by the higher activity in South America. In the small petrochemical segment, our revenue was up by 61%. In Industry & Other, which represented 29% of our Q4 revenue, a strong increase of revenue was recorded at plus 36%. In Europe, this revenue growth reflected higher volumes. In South Africa, revenue was stable. The lower iron ore contribution resulting from pile decrease and lower volume was offset by higher sales in industry markets. And finally, Power generation revenue was up 22%, explained by higher activity in China. Now moving on to Slide 8. As far as revenue is concerned, just to highlight that the revenue increase of 28% year-on-year came mostly from a volume impact of 25%, driven by oil and gas in North America and by industry. EBITDA was up €60 million year-on-year at €136 million, reflecting trust, an industrial margin of €219 million, a 40% increase, the higher contribution from oil and gas in North America as well as to a lesser extent, in the oil and gas and industry markets in Brazil, significantly offsets the lower contribution of the mine and the lower activity for oil and gas at EA-MEA. SG&A costs were €83 million, 7.8% of revenue compared to 9% in Q4 2020. On the next slide, let's move on the Q4 2021 P&L elements below EBITDA. The operating income increased strongly and was positive at €75 million. The financial income was at minus €25 million compared to minus €48 million in Q4 2020, reflecting the new balance sheet structure. And the income tax amounted to a positive €40 million compared to a negative €45 million in Q4 2020. It included the partial reversal of deferred tax asset provisions and a positive one-off recovery of taxes. As a result, the net income group share amounted in Q4 to €89 million. Now let's move on to Slide 10 with the key figures for the full year. While volumes and revenue were only slightly up, EBITDA almost doubled at €492 million. The negative free cash flow was mainly due to working capital rebuild and nonrecurring charges. On Slide 11, not a lot to comment on the breakdown on the revenue bridge. I will just comment the EBITDA growth. EBITDA stood at €492 million, up €234 million year-on-year, and the EBITDA margin increased by more than 600 percentage points to 14.3% of revenue. It did reflect first, an industrial margin increase by 38% or €229 million, reflecting a higher contribution of the mine given the strong pricing environment in the first three quarters of 2021 and a higher demand and prices for our oil and gas tubular products in North America and in industry markets. Second, a reduction of our SG&A cost by 3%, with SG&A representing 9.2% of 2021 revenue compared to 10% in 2020. On the next slide, there are some comments on the most relevant items of the 2021 P&L below EBITDA. The operating income strongly increased and was positive at €274 million. In addition to the improvement in EBITDA, this was the result of lower depreciation of industrial assets, the positive effect of the sale of Reisholz building and land and the favorable Brazilian Supreme Court decision on a tax claim. As a reminder, of course, 2020 operating income was also negatively impacted by heavy internal and restructuring charges. The financial income was minus €236 million compared to minus €227 million in 2020. Net interest expenses were reduced at €247 million versus €196 million in 2020. The other financial income was negative by €40 million compared with a positive €28 million in 2020, largely due to one-off such as the €70 million cost of the DBOT repurchase in Brazil and the impact of the financial restructuring on financial income for minus €42 million. Income tax amounted to €101 million compared to €96 million in 2020, and this includes, as we've seen in Q4, the partial reversal of deferred tax asset provisions and a positive one-off recovery of tax credit. As a result, Vallourec recorded full year positive net income group share at €40 million compared with a net loss of €1.2 billion in 2020. Going to cash flow elements on Slide 13. Our net working capital represented on a quarterly average, one other days of sales in 2021 improved versus one and eight – 108 days in 2020. Nevertheless, days of sales were slightly higher in Q4 than in 2020, partly due to the good backlog to be delivered in H1 2022. Still, we will reinforce, in 2022, our actions on working capital management with a focus on inventory. Now moving on Slide 14. Q4 2021 free cash flow amounted to €17 million compared to €112 million in Q4 2020 due to a lower reduction in working capital. Over the full year, cash flow from operating activities increased by €172 million and was positive at €26 million, despite some one-off charges essentially the DBOT repurchase of €70 million and the financial restructuring fees for €56 million, only partly offset by a positive tax litigation settlement in Brazil for €28 million. The working capital increase, along with the activity recovery over 2021, while that decrease in 2020 and stable – remained stable. The CapEx – sorry, remained stable at €138 million. I will now conclude this part with net debt on Slide 15. The group's net financial debt at the end of 2021 stood at €958 million to be compared to €2.240 billion at the end of 2020 as a result, mainly of the financial restructuring. Our liquidity position as of December 31, 2021, is strong at €1.081 billion, comprised of €619 million in cash and the undrawn committed revolving credit facility for €462 million. And on this, I will now hand over to Edouard.

Thank you, Olivier. Let's move on to our outlook for the year and let me clarify that obviously, this outlook doesn't take into account potential impacts of the situation in Ukraine, the extent of which remains to be evaluated by us in the next few days and weeks. In North America, the oil and gas market conditions are very favorable, observed at the end of 2021. We expect them to continue and even improve at least during the first half of 2022, both in terms of prices and volume and capacity utilization. Although, visibility is less for the second half of the year, a stronger increase in the contribution of the region is expected over the full year. In the oil and gas EA-MEA market following the resumption of the tendering activity in 2021 and supported by a stronger order book at the end of 2021 volumes to be delivered in 2022 are expected to significantly recover. Cost inflation, notably on energy and logistics might weigh on margins, particularly at the beginning of the year but will offer support for further price increases through the year. On the industry market, both volume and prices are expected to increase. In South America, oil and gas volumes delivered in 2022 are expected to increase slightly. And for industry markets after a very, very dynamic year in volumes are expected to decrease slightly due to distributor stock normalization and possible slowdown in economic activity ahead of the Brazilian presidential election. In addition, while the iron ore operations profitability will be affected by the January incident Vallourec aims to obtain the mining authorities permission for gradual restart of the mine in the second quarter. And our outlook is based on an iron ore price of circa $110 per tonne based on consensus estimates, which can be compared with $161 per tonne in average in 2021 and current spot price of $140 per tonne. Consequently and based on these market trends and assumptions, Vallourec targets of further improvement of its full year 2022 EBITDA relative to 2021, even though Q1 will be impacted by the incident at the iron ore mine and some inflationary headwinds. Finally, in 2022, we expect our CapEx to be slightly above €200 million, which includes around €50 million for the preparation of the transfer of the German oil and gas activity to Brazil. So these are the high-level points I wanted to share with you today. Thank you very much for your attention. And Olivier and I are at your disposal to answer your questions.

Thank you very much. [Operator Instructions] Our first question comes from the line of Alan Spence from Jefferies. Please go ahead.

Good morning, guys. I've got several questions. I'll take them one at a time. First of all, in the mine, I guess I'll say thank you upfront for providing an additional disclosure around your assumption and sensitivity. But I just want to we check, for the first quarter, were there any stockpiles you're able to sell downturn from? Or should we be effectively thinking about a lost quarter for the mine in Q1?

Yes. I mean the incidents occurred on the 8th of January. So at the very beginning of the month. And you can consider it’s, to a large extent, a loss quarter.

Okay. Second one, on the guidance. Any chance you could talk about that perhaps the scale of EBITDA improvement you expect for 2022?

No, not really. If – so what we communicate is that given all the market trends on which we’ve been quite talkative and the assumptions made and what is our target with regard to the restart of the mine, all this would lead to new additional improvement in 2022 of the EBITDA compared to 2021, but given the volatility of our markets. It would not be wise, we believe, to give a precise bracket in this regard.

Fine. Okay. Last one. Free cash flow outlook, and I appreciate, obviously, there’s many moving parts, if we remove the impact of working capital for 2022, how would you expect free cash flow to progress? And any potential range would be very much appreciated.

So you know we never give this answer either. What I can remind you is what are the main boxes in terms of free cash flow below the EBITDA itself, the first one being financial interest. And here, we know what we pay on our bonds and RCF. So the amount on a full year basis is almost exactly €100 million. We always have some additional financial costs when we hedge or do these kind of things, depending on the year, it’s a range between €10 million and €50 million. We have guided that the CapEx this year will be slightly about €200 million. And this does include, in particular, what would be expensed in 2022 in Brazil for the CapEx linked to the preparation of the transfer of the oil and gas activity to be made in the next years from Germany to Brazil. Then we have each and every year some restructuring charges, which are about usually a few €10 million and then some taxes, which were largely even if it’s not exclusively coming from that depend from the evolution of the iron ore price. So it should be a three-digit number, but too early to tell more on this one. So with that, you have all the main elements contributing to free cash flow before change in working capital. But what I could add as far as working capital is concerned, is that the final variation of working capital in 2022 will – to a large extent, depends on the 2023 demand to be delivered in H1 2023. That’s why we cannot give a precise forecast, still had in mind that the working capital rebuild in 2021 has been very significant. So that we can see from today expect the variation of working capital to be a much, much less significant in 2022.

Okay. That’s really helpful. Thanks and good evening.

Thank you very much. Our next question comes from the line of Jean-Luc Romain from CIC. Please go ahead.

Good evening. I have two questions, actually. One on deliveries, which will be made in Europe in EA-MEA the next – this year. Do you have a positive price effect compared to 2021 on that? The second question is on your overall financial costs. You mentioned about €112 million of nonrecurring costs, which were the DBOT repurchase at the financial restructuring. What should we expect in terms of overcharging for next year? Could we be back to the 2020 level?

Yes. So as far as the deliveries in EA-MEA are concerned, we do expect a price increase to materialize progressively through the Europe as the new orders come in to the backlog and are being delivered. So yes, the context is when you see for price increases. I hand over to...

Can ask for precision. The orders that you will deliver into the first quarter or first half, did that – which are probably orders that took in 2021, did that benefit yet from better prices than in 2020?

Yes. Let us just say that it’s been a continuous trend since probably mid-last year. So the orders which are going to be delivered beginning year would still be on a year-to-year basis increasing and further increase is expected in H2.

Okay. Understood.

On the other financial charges, Jean-Luc, is what I was saying a few minutes ago. Usually, they are somewhere between, say, €10 million and €50 million, and it depends on the activity year after year, the hedging cost, the swaps, things like that.

Okay. Understood. Thank you.

Thank you very much. Our next question comes from the line of Mick Pickup from Barclays. Please go ahead.

If I just look at the volumes in 4Q, obviously, a big, big step up from the 3Q. Is there anything exceptional in that 4Q? Is that the type of number we should be thinking over the starting point for the first half of this year?

Yes and no. There is always, when you look at the past years, some seasonality there, where Q4 is typically quite a big quarter in terms of volumes and Q1, a low quarter in terms of volumes for many reasons, seasonality of the business, a number of days for on. So keep that in mind. And what we communicated as well is that we expect in this regard, a significant increase in Q2, but don’t count too much on that for Q1, which is, once again, usually a low quarter volume-wise and sales-wise.

Yes. And then you talked about uncertainty in the U.S. in the second half. Obviously, lots of drivers one way or the other, depending on what outcomes are, things going on in the U.S. Can you just talk about what your current thinking is about the second half of the year in terms of uncertainties?

Yes. I think the – in terms of drilling activity, everything points towards decent levels continued through H2. The main uncertainty lies in the restart of ERW producers, coupled with their competitiveness based on the evolution of the HRC prices. In the U.S., the HRC prices have soared through 2021, resulting in [indiscernible] closing out the other manufacturers from the supply side. HRC prices have stabilized and some analysts expect they might decrease. If it was to be the case, obviously, that would enhance the capacity and the competitiveness of ERW manufacturers, which would impact to a certain extent the general supply in balance situation of the U.S. market in H2. But that’s a scenario. So that’s why we leave it open for now.

Okay. And one of your competitors mentioned on their call that ERW seamless volume gains have been a bit stickier this time than the previous one. What’s your view on that?

Yes. That’s what we saw, and that’s what we expect as well. The domestic less manufacturers leased through the 2020, 2021 crisis by adjusting capacities but not shutting them down completely contrary to ERW. And so therefore, we were much quicker in starting, and we benefited from structural competitiveness compared with ERW manufacturers. The ERW manufacturers, they suffered from difficulty to restarting industrial operation. There’s a shortage of manpower. We’ve had the difficulties in H2 last year. They are facing the same. And last but not least, I think the competitor you mentioned and ourselves are clearly the only two global across the product range manufacturers. So we benefit from the full product range, including premium, which we can complete with additional imports. We have excellent relationship with our key customers. So that’s why we are also confident in our ability to retain higher market share than maybe historical levels.

Okay. That’s great. Thank you.

Thank you very much. [Operator Instructions] We have another question on the line from Alan Spence from Jefferies. Please go ahead.

Thank you, guys. I have two follow-up questions. Given everything that’s happened today, I was wondering if you could tell me any revenue exposure to Russia, please.

Yes. So, revenue exposure to Russia is not significant. We are doing very little business due to the already, the sanctions which have already been in place. So business at stake is not very material.

Okay. And then could you give us a rough guide on where your utilization of your North American plants are? So you’re obviously saying it’s going to be a stronger contribution for 2022. Is that just the higher spot prices flowing through? Or is there more volume to be achieved there?

Both, both. We’ve been ramping up capacities going through the pains of rehiring the necessary staff to run our operations in to late last year. So we do expect additional production in our facilities in 2022. We will be running very close to full capacity in 2022. And then there is the additional benefit of the pricing environment at the very least in H1.

Okay. And very last one for me. Any update on the decision around the potential sale of those German assets you announced that Q3 results?

Nothing concrete to share with you guys. The process is going on as planned. We are expecting to receive non-buying offers in the coming weeks, which will then be further details and go through the normal process of due diligence and additional negotiations. So we continue to expect to have a resolution on this, one way or the other, towards the end of April.

Thank you very much.

[Operator Instructions] We have another question on the line of Mick Pickup for Barclays. Please go ahead.

Thank you. I’ll take advantage of few people around. Two questions from me. You mentioned below the line this year, provisions or what charges will take for the mine. Is that €35 million provisions plus €50 million, was that you have to provide both of those at this stage? Or is it just a €35 million and €50 million? I’m a bit confused about that, first of all.

So there is no provision per say. So what we have communicated is that there are two kinds of potential costs, I would say. One or the costs associated to the remediation of environmental damages. Also Edouard said earlier that we believe that they are pretty limited or other potential liabilities. On this part, we made and it was pretty fast, which is a good result for everyone, so-called pre-agreement with the prosecutor in Brazil, and we agreed to put aside in a sort of escrow account that we manage, BRL200 million in order to progressively cover these costs when they come for the amount that would come that is completely unknown at the time being because of how we don’t face any significant litigation or anything like that. Then the second category is potential fines. One or two days after the incident, the state environmental agency issued a fine of BRL288 million that we have communicated about due to environmental damages and so on and so forth. We are challenged for various reasons, this fine. And just keep in mind that since it was issued like two days afterwards, nobody at that time had any clear view or assessment about the reality and the magnitude of potential issues, emerges, water pollution and so on. So the final amount will be part of the discussions and decisions to be made, I guess, in the final agreement. From a bookings point of view, we did not record any provision per se, because all these costs cannot be precisely estimated at all as of today. What we said in the press release, is that when we will be in a position to be able to book provisions it will logically below – go below EBITDA because they are already exceptional, of course, by nature.

Okay. And the second one, obviously, we know the pricing dynamics of the U.S. and the way that could move. Can you just talk about rest of the world pricing and whether higher prices in the U.S. is having any positive benefit in the rest of the world?

No, I wouldn’t say there is a direct coordination with the two, the situation of the U.S. market is very, very specific with domestic manufacturers and a lot of constraints for imports to flow in the country. Whereas in EA-MEA, you are talking about generally wide-open markets to global competition. This being said, the trend, as I said, is clearly upwards, both because drilling activities, so demand for our product is progressively restarting, and we see the well country count progressively creeping back up towards pre-COVID levels, but we are not there yet. So drilling activity increases. So demand of our product increases as well. Plus, we have a pretty strong cost inflation, which needs to be passed through to customers. So both on the demand and on the cost base, there is – there are strong drivers for price increases, which was, as I said, will start to materialize in our deliveries in H1 and accelerate in H2.

Thank you very much. And hope you have a good year.

Thank you.

Thank you very much. [Operator Instructions] Okay. It looks like there are no further questions in the queue. So I’ll hand you back over to the speakers.

Thanks, everyone, for your attention and your questions tonight. And see you. I’ll talk to you all very soon. Bye-bye.

Thank you very much for joining today’s call. You may now disconnect your handset.