Vallourec S.A. (VK) Earnings Call Transcript & Summary

Hello, and welcome to the Vallourec's Q1 2022 Results Call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Jerome Friboulet, Head of Investor Relations, joined by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Sascha Bibert, Chief Financial Officer. Thank you.

Thank you for joining us for Vallourec's Q1 2022 results presentation. I am Jerome Friboulet, Head of Investor Relations, joining me today to comment these results, we have Philippe Guillemot and Sascha Bibert. 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 Philippe, I wanted to add 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 information, the forward-looking statements and risk factors that could affect those statements are referred at the beginning of our slide presentation and are included in our annual 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 Philippe Guillemot.

Thank you, Jerome. Good morning, everyone, and thank you for joining us today. First of all, I would like to say that I am honored and proud to serve as Chairman and CEO of Vallourec. I will leverage my industry and transformation background to accelerate and extend Vallourec's transformation, increase its focus on commitment to energy transition opportunities and thus, create shareholder value. As mentioned by Jerome, Sascha Bibert is with me today to comment on these results. Sascha joined us a month ago and he brings with him a deep knowledge of the energy sector and capital markets. Moving on Page 4. Let me summarize our Q1 performance, our market environment, our outlook and new initiatives. First, our Q1 results, in the first quarter of 2022, Vallourec recorded EUR 916 million, up 30.5% compared with first quarter of 2021. It's performance was mainly driven by our activities in North America. I will ask Sascha give you more details later. As expected, our EBITDA was negatively impacted by the suspension of the operation of our iron ore mine in Brazil. Therefore, in Q1 2022, our EBITDA is lower compared to the prior year, now amounting to EUR 45 million. Under normal circumstances, we would have expected this figure to be around EUR 130 million. We have now partially restarted the operation of the mine after having obtained the approval of the mining authorities to resume activities for a period of 3 months without using the waste pile. During this period, we target a progressive ramp-up of the operations from 70% to full capacity. In parallel, we are continuing to prepare for return to normal operations subject to the validation of the stability of the waste pile by the mining and state environmental authorities. H2 activity will depend on this validation. Returning to our quarterly results. Our free cash flow was negative at EUR 230 million. It has been predominantly driven by working capital buildup, reflecting higher forward volume expectations, raw material price increases and ForEx. Second, in terms of market dynamics, you will see later in the presentation that we benefit from strong market dynamics. Drilling activity is increasing again globally, thus reflecting a tight OCTG market. Global E&P CapEx is projected to increase significantly over the next 4 years. Favorable price evolution in the current inflationary environment will also support our growth. Based on this market trend and assumptions, particularly related to the operations of the iron ore mine, our EBITDA is now expected to increase significantly for fiscal year 2022 compared to the previous year. Crucially, we have announced 2 decisions that will reshape Vallourec's footprint and lower our breakeven point. First, we have decided to launch the closure process of our German site and rationalize our European assets. We confirm that this will lead to EUR 130 million recurring EBITDA and EUR 150 million ongoing cash uplift. Second, we will streamline our corporate structure to drive a leaner organization and reshape our industrial footprint. We will -- this will lead to an additional EUR 100 million recurring EBITDA contribution. These are major steps not only to lower the breakeven point, but to create a cycle-proof Vallourec that is free cash flow positive at the bottom of the cycle. I will give you more details on these initiatives later in the presentation. Now moving on Page 5. And before going into detail on the initiatives mentioned on the previous slide, I would like to spend some time on my findings after my first 2 months in Vallourec, and give you a first glimpse of what I would like to put in place in the coming months. First of all, I could see that the group benefits from great assets such as solid engineering culture, strong customer relationship, a global presence with market-leading products and an expertise beyond core tubular business. Nevertheless, there are opportunities which can be saved to drive growth even further. To name a few, increasing our low-cost manufacturing base, reshaping our entrepreneurial approach to focus on value not volume and accelerating cultural change to adapt to a fast-evolving market. Since I joined, we are fostering a new dynamic, accelerating our strategy execution and strengthening our performance culture. On our strategy execution, I will ensure that we reduce our fixed cost and therefore substantially lower our breakeven point. The group's transformation will also be driven by an increased focus on energy transition opportunities, preparing Vallourec for future low-carbon economy. With this agile and entrepreneurial approach, we will build a new Vallourec that is stronger, more efficient and innovative for the years to come. In short, the new Vallourec will now focus on value not volume and have a culture of continuous improvement, leading to a EUR 230 million EBITDA improvement, which is EUR 100 million more than previously communicated. Turning to Page 7. I would like to detail the actions we are taking to lower the cost of our manufacturing base to serve the international oil and gas markets. As disclosed in November 2021, Vallourec launched the disposal process of all its German manufacturing assets in order to find a new operator, better position to profitably sell the European industry markets. The disposal process has been carried out and no credible buyer has been identified. As a result, we are now launching the closure process of our German assets. The closure process will take place over the next 2 years and will include the sale of the loan and building. In parallel, we will transfer all our European OCTG production activity to Brazil. This transfer will require EUR 110 million of CapEx in our Brazilian operations to support the transition of premium tubular volumes from Europe by the end of 2023. The closure of our German assets leads to a further recitation of the other European assets, which are finishing tubes rolled in Germany. This will entail the consolidation of all European threading activity in a single location in Aulnoye in France. We will launch the closure process of the heat treatment line in Saint-Saulve France, and of the threading line in Bellshill in Scotland. In addition, we will complete the divestiture of Vallourec Bearing Tubes. We also decided to entrust the leadership of the new organization, One R&D to the Aulnoye Competence Center. Over to Page 8. In addition, we have launched a new comprehensive program to streamline global overhead in line with the group's new manufacturing footprint, mostly located in Americas. This represents a major step to lower our breakeven point and create a cycle-proof Vallourec, free cash flow positive at the bottom of the cycle. To increase productivity, we will implement process automations for all transactional processes and will consolidate support functions in larger Shared Services Center. We will have a more selective approach to research and development and IT projects with clear return on investment targets. To achieve this, we will create, as I said earlier, one global research and development organization. Slide 9 shows the clear benefits of our initiatives. The completion of the closure of our German assets, the transfer of our oil and gas activities to Brazil and the rationalization of our other European assets will allow us to benefit from a lower cost manufacturing base capable of serving worldwide oil and gas markets. This reorganization aims to generate EUR 130 million of additional run-rate EBITDA and EUR 20 million CapEx reduction. The associated head count reduction should be approximately 2,400 positions. With the streamlining of overhead, we will generate EUR 100 million of additional run-rate EBITDA. The associated headcount reduction should be approximately 550. Combined, these initiatives will lead to EUR 230 million of additional recurring EBITDA and EUR 200 (sic) [ 250 ] million ongoing cash uplift. Equally important, we will reduce CO2 emissions as the CO2 content of tubes produced in Brazil is 30% lower than our tubes produced in Germany. We target to finalize the execution in Q1 2024. Moving to Page 10. Before commenting the market environment, I would like to spend some time on how we are preparing Vallourec for the future low-carbon economy. In 2020, Vallourec announced its ambition to reduce its direct and indirect carbon emissions by 2025. These objectives were approved by the Science Based Target initiative, SBTi and Vallourec became the first company in the oil and gas sector to obtain this recognition. The group, which is already a low emitter of greenhouse gases is committed to reducing its direct emissions by 20% Scope 1 and 2 compared to 2017 and reducing both direct and indirect emissions by 25% Scope 1, 2 and 3 compared to 2017. In December 2021, Vallourec is again, top of the A list comprised by the Carbon Disclosure Project. This accomplishment is a recognition of our transparency and leadership on climate issues. In terms of tons of CO2 emitted to produce a tube, Vallourec is clearly best-in-class. The group consumes 1,796 ton of CO2 per ton of tube produced to be compared to 2 tons on average for peers. Now we want to accelerate and develop new profitable business opportunities. That's why at the beginning of the month, we announced the appointment of Ulrika Wising, Senior Vice President, Energy Transition. Ulrika has broad energy transition and corporate development background. She will strengthen our focus and commitment to energy transition and will be responsible for accelerating and developing new profitable business opportunities. On May 3rd, we announced an investment in GreenFire Energy, an American startup developing advanced geothermal systems based on its innovative technology called GreenFire window. This transaction was carried out alongside other major investors and clients, Baker Hughes and Helmerich & Payne. Vallourec has been present in geothermal energy for many years. The technology developed by GreenFire could unlock the possibility of producing geothermal energy anywhere in the world instead of in a very specific unlimited areas as of today. To conclude on that slide. I would like to mention the new milestone we have reached in the carbon capture and storage and hydrogen fields. We have connected test on our connections for hydrogen and carbon capture application. These tests have confirmed that our tubes are perfectly suited to the constraints of the demanding environment. Our goal is to be benchmark on these markets. Now before handing over to Sascha, I would like to tell a few words about our market environment. Over to Page 12. After several years of underinvestment, we saw a rebound in 2021, and we anticipate a global increase in E&P capital spending over the coming years. If you look at the graph on the right side of the slide, you will see that compared to March last year, forecast in March 2022 project, a CapEx increase of $173 billion in aggregate from '22 to '25. Vallourec is highly positioned to benefit from these positive market environments. Moving on to the slide -- the next slide on Page 13. Drilling activity is increasing again globally with the current rig count up 63% from its COVID-19 trough. This situation translates to a tight OCTG market, particularly in North America, which results in a positive price environment. The Middle East region is also seeing high activity, particularly in the UAE and like Iraq. North Africa is showing strong growth, while market conditions are remaining solid in South America. Nevertheless, there is more potential for further growth. With the current rig count at only 78% of pre-COVID levels. You can see on the right side of the slide that OCTG prices are increasing following the rebound of global demand and raw material and energy price increases. I will now hand over to Sascha to comment on our Q1 2021 -- '22 results.

Thank you, Philippe, and good morning, everybody, also from my side. Thank you very much for joining our call today, which marks the beginning of what we call the New Vallourec. I've been in the role for roughly 4 weeks now, and the opportunities we have in front of us are amazing. That said, the call for action is equally clear. And Philippe summed it up by saying that Vallourec needs to lower its breakeven point to become cycle-proof. In addition to the corresponding execution of those targets, I will work together with my team to ensure that Vallourec is adequately understood in the capital markets. You may identify a few changes in today's presentation, but more is to come. In this respect, I look forward to engaging with you, our investors and analysts in order to receive your feedback on how we can develop our reporting going forward. Before diving into the numbers, I would like to take the opportunity to express my gratitude to my predecessor, Olivier Mallet. He has been a very loyal and dedicated leader of our finance function. He also helped me tremendously in the first weeks after taking my new role. So Olivier, thank you very much. My key content messages for today are first quarter EBITDA adjusted for predominantly a normal operation of the mine stands around EUR 130 million compared to EUR 45 million reported. While the inflationary cost environment is already flowing through our P&L, price increases are not yet fully incorporated, and we expect to see margins expand going forward. Free cash flow is impacted by an increase in working capital, driven by cost increases and the continued recovery of volumes in a very supportive overall business environment that Philippe discussed. Similar to EBITDA, the free cash flow is equally impacted by the absence of mine contributions. We upgrade our full year outlook to now significantly above prior year. Assuming a normal operation of the mine after the 3 months ramp-up. Beyond '22, we will create a more focused, leaner and a more competitive group leading to an EBITDA uplift of EUR 230 million and a higher cash run rate of EUR 250 million, backed by defined measures. Now turning to Page 15. Our figures for the first quarter came in largely as expected. We already announced at the full year presentation that Q1 would be impacted by the shutdown of the mine and inflation. While the mine restart took slightly longer than expected and inflation continues to exceed expectations, prices are also rising faster than we have seen before. And overall, we are more bullish about our business outlook than before. Measured in tons volumes are up 10%, driven by all regions, but predominantly North America, which is up almost 70% year-on-year. The sales increase of 30% exceeds the volume increase due to favorable pricing with increases across the board. Sales in North America even tripled year-on-year. As such, the average selling price increased by almost 20%. Let me make a quick comment on the normalized EBITDA of around EUR 130 million. We're using this figure to predominantly illustrate the impact of the temporary shutdown of the mine in order for investors to get a better perspective on the performance of the remaining business. The normalization adjustment takes our budgeted volumes at the mine together with actual market prices of the first quarter. I will comment on free cash flow in more detail on a later page. On Page 16, you find the revenue and for the first time an EBITDA bridge. Both bridges separate the mine/other effect from other drivers. Therefore providing a much better base for the analysis of our core business. Revenue is up by EUR 214 million to EUR 916 million or a bit more than 30%. The major part of the increase comes from the price mix effect, contributing 22 percentage points to the year-on-year increase. The category mine/other contributed with a year-on-year delta of EUR 62 million negative. Volume growth in tonnage has been 10%, and we currently expect this growth to accelerate throughout the balance of the year. This means that the second half will make a disproportionate contribution to volume performance as well as sales and EBITDA. Turning to EBITDA. The first quarter was challenging, given, among others, the war in the Ukraine with sudden and extreme cost increases. We acted swiftly, but we will do more in the months to come. In this context, reported EBITDA is down to EUR 45 million driven by a price/mix effect of plus 143, which more than compensated for the effects of cost inflation. Cost inflation here includes price increases of raw materials, inflation on other costs like labor, energy and other purchases, partially offset by savings. The positive price/mix effect results predominantly from our U.S. business but also from other regions. We are optimistic that the price/cost relationship will stay favorable for the group throughout the year and even improve. Additionally, just like in revenues, also EBITDA is impacted by EUR 105 million lower contribution of mine/other. The mine restarted production on May 4, and we are now progressively going up to 100% capacity. Next to the mine delta, the category also includes other expenses like provision increases. I will now make a few comments on items below EBITDA related to the P&L in the backup on Page 23. Starting with minus 11 million asset disposals, restructuring costs and nonrecurring items, those relate predominantly to the mine shutdown, but also adaptation costs following our ongoing restructuring. The financial loss improved by EUR 69 million to minus EUR 13 million. This line sums up 2 subcategories, which are interest expense and other. Interest expense improved to minus EUR 22 million due to our restructured balance sheet, I think, you can take this figure as a good run rate for the remaining year. Other improved due to the absence of one-off from last year of positive one-offs in this quarter. Over the medium term, this line item should be around 0 on average. Moving to cash flow on Page 17. Cash EBITDA is EUR 64 million as Q1 was depressed by EUR 19 million of noncash expenses within EBITDA. Interest payments are low, predominantly for the same reason, I explained before in the P&L section. Tax payments are lower than last year, however, still relatively high. Here, please keep in mind that we pay taxes in Brazil with 1 quarter time lag. After deducting other, which is predominantly cash out related to the mine, but also for adaptation measures, we arrive at the operating cash flow before working capital. Then we deduct EUR 217 million change in working capital. I would say that out of this EUR 217 million change, about EUR 100 million is related to operating working capital. And the remaining, i.e., about EUR 40 million to nonoperating working capital. The latter includes items such an increase of tax receivables and similar. So let's focus on the operating part of the working capital change, i.e., the EUR 180 million. Almost the vast majority is driven by an increase in inventory. Inventory moved up due to higher values, i.e., costs, but also volumes to be delivered in the coming quarters, mostly Q2. While in the current environment of robust volume growth, it is unlikely that the value of the inventory will decrease much in the coming months. We are very focused on ensuring that cash is spent prudently in the business. We expect sales and margins to increase and working capital in days to return to lower levels, positively influencing cash flow going forward. CapEx went up slightly to EUR 34 million, leading to a free cash flow of minus EUR 230 million. For the full year, CapEx is expected to be slightly above EUR 200 million including EUR 50 million for the preparation of the transfer of operations from Germany to Brazil. So to summarize on cash. The strong increase in working capital is related to both price and volume increases, which is reflected predominantly in an increase of inventories. Similar to EBITDA, also the free cash flow in the first quarter was impacted by the absence of mine contributions. Going forward, as the sales increase, and inventory already accounted for normalizes, Free cash flow is expected to pick up correspondingly. The increase of net debt on Page 18, is driven predominantly by the free cash flow of negative EUR 230 million derived from the previous slide as well as an additional minus EUR 25 million asset disposal and other items. The latter refers largely to FX and accrued interest. Net debt at end of Q1 '22 of EUR 1.2 billion is made up of gross debt of EUR 1.6 billion, basically unchanged to end of year '21, driven by the bonds, bank borrowings and PGEs and other financial liabilities, then offset by cash and cash equivalents of close to EUR 400 million. Key takeaway is that post the restructuring, we have a solid balance sheet, which enables us to fund the business opportunities that we currently have due to a strong market. Over the course of the year, net debt will follow a positive free cash flow development that I just described earlier. The last slides of our presentation, Page 20 and 21 are dedicated to our full year outlook. For our North American business, we have already indicated with the prior full year outlook that we are observing very favorable market conditions. Conditions have only improved since, and we expect the second half of the year to be even stronger, both price and volume wise. For Europe, Africa and Middle East, we expect oil and gas volumes to recover significantly with a progressive pass-through of cost to prices. For South America, we are also optimistic with respect to volumes and prices for the coming quarters. And uncertainty for the remaining year is the validation of the waste pile stability related to our iron ore mine operation. Currently, as I said previously, we are on track towards 100% capacity. Finally, to Page 21. We expect the EBITDA contribution to increase in coming quarters. Therefore, the full year will be weighted towards H2. For the group, we increased the qualification of the outlook from nearly above -- to significantly above prior year. Beyond the running year, we will generate an additional EUR 230 million EBITDA and EUR 250 million cash uplift with finalization of the project expected in Q1 '24, making Q2 '24 the first quarter with a full run rate. In summary, our new Vallourec initiatives will create a more focused, leaner and more competitive group with a lower breakeven point, which is closely linked with the ambition to become free cash flow positive. That said, Philippe and I are now ready to hear your questions.

[Operator Instructions] Our first question comes from the line of Alan Spence from Jefferies.

I've got 2, and I'll take them 1 at a time. The first one is just around guidance and kind of trailing off kind of the last couple of comments, significantly higher year-on-year. Can you give us any kind of range about that potential increase or maybe what you might think the lower end of that starting point could be?

Sascha?

Thank you, Philippe. Good morning, Alan. I hope I'll meet you soon just like the other guys. Now on the guidance, which is consciously qualitative. So I'm not going to turn it into something quantitative just on the spot. But let me say the following. It's a clear sign of confidence by the new CEO, Chairman and myself. And keep in mind that we are only in the role for 4 to 8 weeks. So maybe we want to have some -- a bit more time until we fully express our bullishness. But also keep in mind that feeling comfortable means that we are fully comfortable with the consensus that we see. The consensus that I currently observe in the market is about EUR 600 million for the full year EBITDA, and that has creeped up slightly over the last week. So fully comfortable with that as well. So let's see in the coming reporting occasions, whether we can then be more specific and give you a quantitative range.

Okay. That's helpful. And then just -- turning back to the operational footprint. Are you -- is there an ongoing exercise to look at potentially other noncore assets and potential divestments? Or given what you've kind of fully announced today in terms of the European footprint? Do you think that gets Vallourec to where it needs to be?

Yes. For the time being, there is no major noncore asset to be divested. But yes, definitely, what I have explained earlier is the plan we are implementing to make Vallourec so-called cycle-proof. And I think once this will be done, and we'll deliver EUR 230 million EBITDA impact end of Q1 '24. I think the company will definitely have done what, obviously, we need to do as I explained earlier.

Our next question comes from the line of Mick Pickup from Barclays.

Firstly, can I just ask a quick question about iron ore. Obviously, you've given more details today than ever before. Can I just check you're going to be giving details going forward on that? -- tied in with that, I'm just looking at that Q1 to Q1 revenue bridge. I'm wondering why the mine impact is only EUR 61 million of revenues year-on-year when you did EUR 80 million of EBITDA this quarter, and pricing was such higher a year ago.

Thank you, Mick. Let me take that, and thank you for being on the call. Your first question was related to reporting going forward. Now we haven't taken any decision on how exactly our reporting will look like going forward, and that includes higher or lower splitting of mine. But I think if you look over the coming quarters, the information has simply increased -- and generally, that trend certainly would be reversed. With respect to your second question, you may notice there's a small asterisk also on that page, indicating that with respect to revenues, we have only taken external sales, i.e. there are certain revenues, which are also generated internally, and these are not included in the figure. So simply, I mean, these are delta figures anyway, but simply taking whatever you take out of the mine on revenue side and take it in relation to whatever you take for the mine on the EBITDA side, doesn't work. It's not quite the same parameter.

That's magic. I need to get my glasses out. And the second question, if I may. On the cost savings you've announced, obviously, predecessor has announced a series of cost savings, I think, up to about EUR 1.1 billion, EUR 1.2 billion of cost savings over the 7 years. This extra EUR 250 million or the EUR 250 million, what do we take as the base? And do we just assume a reset from what number and then think EUR 250 million of savings on top of.

Yes. Here, we are not talking about the same kind of savings. I think to understand the difference, assuming we would be able to fully compensate for cost inflation with our other cost reduction plan. This EUR 230 million would come untapped -- or said differently, would lower our breakeven point by the same amount. So it's clear that we still have, obviously, in Vallourec cost reduction plans to offset inflation on our cost lines and obviously, at minimum, the part which cannot be passed through to our customers. So for the -- and again, for the future, I think I'm likely -- we'll focus on giving you evidence that we are delivering the EUR 230 million additional EBITDA by the end of Q1 and we'll likely not talk anymore about all the cost reduction plan we are implementing in order to compensate for inflation.

[Operator Instructions] Our next question comes from the line of Guillaume Delaby from Societe Generale.

Yes. Two questions from my side. First, regarding the head count reduction if I understand correctly about what you said that the head count reduction should be completed by the end of 2023. Am I correct? Or I just want a confirmation. This is my first question. And my second question is regarding the competitive landscape, if you can try to give us a little bit of color, especially in the U.S. regarding competitive pressure from TMK and Interpipe and also -- and still there has been a recent close from, I would say, Argentinian and Mexican imports in the U.S., if you could give us some color about it.

Question on the -- is related to the market and the market dynamics. As far as head count reduction, as I said, we'll have the full impact of all the plants we are -- we have announced by end of Q1 '24, which means that head count reduction will happen end of Q1 '24. When you close a plant, you may stop production earlier, but you still need people to perform task in order to fully close the plant. So that's the reason why it will be end of Q1 2024. So head count reduction will happen much earlier. Especially in France as I explained earlier okay? As far as competitive landscape, Didier you want to comment.

Thank you, Philippe. So you were first talking about TMK and Interpipe, and they were supplying specifically to the U.S. in the range of 100,000 to 150,000 metric tons, which are disappearing. So this is increasing pressure on supply and contribute to a good pricing dynamic in the U.S. You also mentioned the impact of the antidumping measures. So I'd like first to comment that [indiscernible]. We still have uncertainties on the outcome of this resolution, but it is already contributing to the additional tension to the supply. So all of this contribute to the pricing dynamics that Philippe and Sascha were commenting for the U.S. market.

Our next question comes from the line of Kevin Roger from Kepler.

The first one is related to the group's capacity post the restructuring operations that you are implementing and notably in Brazil. I was wondering, the EUR 130 million CapEx that you spend in the country, do you bring additional capacity or just an upgrade of the current plant and that you will stick to the 1.2 million ton capacity that you have in Brazil. And I was just wondering if you can confirm me also that basically the group, let's say [run rate ] after the restructuring will be 1.2 million tons in Brazil, 0.75 in the U.S. and 0.5 in China in terms of million ton capacity? The second question is related to the German assets and the potential value of the land -- and the buildings, there has been some, let's say, numbers in press, et cetera, mentioned over the past weeks. So I was wondering if you can give us a bit of color on that and still confirm that basically you do not expect any cash out from the closure process of the German assets and what we should expect for the closure of Saint-Saulve and Scotland. And the last one, sorry, it's maybe an unpleasant one. But you just said that basically, you have been into the company just for 4 and 8 weeks, respectively. So I was wondering we defined those new measures that you are taking at the company level because I guess that to define those strategic measures in such a short time, it could be maybe difficult. So was it something, let's say, that was in preparation, not yet announced. Was it something on the table that has never been, let's say, pushed by the previous management. So -- sorry for that one. But just wondering how we can, let's say, see those measures after a change in management, please?

Okay. I will take the first and the last question, and I will hand over to Sascha on the cash-out profile of our restructuring. And we start with your last question. Maybe you have not looked carefully at my background, but I have performed several turnarounds in my career, all many in industrial companies. And the last one, by the way, was in Alcatel-Lucent that was near bankruptcy end of 2012. So I don't think it took me more than 2 months to come with a plan. So that's just, I think, obvious that given my background, it doesn't take long. Anyway, in Vallourec when it was announced in November last year that there will be a sales process for the German assets. It was clear that people were working in parallel on the backup plan because when you sell, you're never sure you go to the end. And as far as the rest is concerned, I think it's clear that I have made some decision on the organization, and how I want to manage the group and I have made some decisions to make it simpler and more agile with consequences, obviously, on the head count. As far as group capacity is concerned and CapEx, yes, there is EUR 110 million to be invested in Brazil, not so much to increase capacity, but to make Brazil capable to produce the SKUs that will be transferred from Germany to Brazil. And as far as capacity is concerned, it depends whether you talk about steel or rolling capacity. So the numbers you had -- you mentioned are roughly the right one. So you're right, we have rolling capacity in the U.S., rolling capacity in Brazil, and we have rolling capacity in China in Tianda. And for the time being, that's industrial footprint we are using to plan our future sales. And now I would like to hand over to Sascha for the cash profile of our restructuring.

Kevin, so I'm reflecting on what you call the costs related to our initiatives, and you will not be surprised that I cannot give you precise data today either for cash in or cash out given that we have to go first through a process of codetermination. But let's just think together, think about how the cash flow profile look like. And when I think about that, I have an optimistic mindset -- the reason being that generally in those programs, the major cash out is usually for social cost for severance and those cash flows are rather back-end loaded. In contrast to that, the cash in, be it from cost reductions, be it avoidance of losses or be it the release of working capital basically start right away. So net-net, the cash flow profile could actually be quite attractive. And just to reiterate on top of what I've just said, the full run rate of the savings or of the enhancement of earnings and cash will start at the end of Q1 '24. Now there were some thoughts on the cash flow profile. When you think in terms of P&L, certainly, cumulative, it should be roughly the same number. However, the timing may be quite different, i.e., in the P&L, there it is rather front-loaded, i.e., one example being we will have to consider setting up provisions for something like severance rather soon. I hope that helps a bit, Kevin.

The next question comes from the line of Daniel Thompson from BNP Paribas Exane.

Just 1 question from me as 2 of my questions have already been answered. Could you just give us any more detail on what exactly the authorities in Brazil want to see to allow a full and permanent restart of the mine?

Okay. So yes, here, we are talking about the west side. So the place where obviously, we store the waste of the mine. With the slide, I think, obviously, we need now to consolidate this part. We need to ensure that there is a proper drainage system. And that when we go deeper into this pile, there is not too much water, what we call the liquefaction of the pile that needs to be checked. So we need just to ensure that first, it's not the case and that we have implemented what's necessary to make sure it will never happen even in heavy rains condition as the one, we have been through in January. So that's what it requires. By the way, this work is already well advanced, but there is a lot to be achieved in the next 3 months, obviously, to be able to use again the -- yes, the waste pile that we used to use for years.

We do have another question on the line from Mick Pickup from Barclays.

Sorry to jump in again. Can you just talk about geographic pricing differentials at the moment? Obviously, we all know about the U.S. and what's going over there and you've seen the rest of the world starting to move. How do you expect that gap between the U.S. and the rest of the world to progress as we go through the year?

I'll hand over to Didier on the pricing.

Yes, you're right that we are facing today very specific market conditions in the U.S. We are on allocation as Philippe was commenting and let's say, the market is short of supply, which is generating the price boom we mentioned. And prices will progressively catch up in Eastern Hemisphere. And again, as Philippe was mentioning, first, through the pass-through of our cost to the price, and we are actually renegotiating prices on the backlog and some customers are following us. But also on all offers not yet awarded and modifying also our pricing policy with a systematic price formula adjustment. So this is with, let's say, a shorter supply allowing us to regain some pricing power and let's say, with some customers against security of supply.

Yes. I'll just complement, there was a question about what a CEO can do in 8 weeks. The first week I joined, I with Didier implemented price increase task force, and as Didier mentioned, not only on future sales, but on the backlog. And now we have a weekly reporting from our salespeople and how, obviously, we are increasing prices with our customers all over the world. So obviously, this is a key part of our guidance for the year.

[Operator Instructions] The next question comes from the line of Baptiste Lebacq from ODDO.

Two questions. First one is regarding restructuring. What is the main challenging country according to you in terms of restructuring? Is it Germany or I don't know, France maybe in order to give us -- if you can give us some clue on this element. And the second one is regarding your ESG engagements and also reduction of Scope 1 and 2. Can we imagine that in order to be able to reduce your CO2 emission, you can, I don't know, thinking about -- thinking about reducing your exposure to mining business?

Well, restructuring obviously is not managed in the same way in France and Germany, as you can imagine, or in the U.K. As far as France is concerned, out of 320 job positions that will be a reduction we contemplate. We have already solution for more 100, so here we are talking about finding solutions for 200 -- a bit more than 200 people in France, mostly white collars in the job market, which is rather favorable. So I think we are very confident in our ability to manage it in a -- yes, in a fair way and swift way by the way. So that's obviously as the dialogue so far in the company has always been good on this kind of topic. Fortunately, it's not the first time. I think this happened in France. As far as Germany, it's clear that it creates lot of emotion, it is massive. But again, same thing, I think, I entertain constant dialogue since I joined with the local authorities and with our union rep. And I will be in Germany, tomorrow to discuss the next steps. So I think I don't see for the time being any big roadblocks. But it's clear, it will require a lot of hard work and a very fruitful dialogue with all the stakeholders to do it in a very responsible way as we have always done it [indiscernible].

Thank you, Philippe. Looking at the clock, I think we need to come to a close -- that said, so I would hand over back to you, Philippe, for some closing comments, and I'm already thanking everyone who was on the call today. And also thank you for the questions.

Thank you, Sascha and thank you Didier for joining me for this Q&A session. Again, thank you for attending. Again, only 2 months in the job, it's true that a lot of information has been communicated today. Obviously, we'll be able to go into more details in the next few weeks. As you understand, we are here to build a new Vallourec, the new Vallourec that will be cycle-proof and we'll be able to generate cash with its core business to be invested in new development out of the Oil and Gas and obviously be a key player of low carbon economy. So that's what we are on. And there is a strong governance on all of this with very strong involvement of many, many people in the organization. And obviously, I will have the opportunity in the future to give you some evidence that we are doing what we said we would do. Thank you very much.

Thank you.

Thank you very much for joining the call today. You may now disconnect your handsets.