Vallourec S.A.

Hello and welcome to the Valoric Q2 and half year 2024 results call. My name is Saskia and I will be your coordinator for today's event. Today's call is being recorded and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to Conor Lainer, Vice President of Investor Relations, to begin today's conference. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Valorac's second quarter and first half 2024 results presentation. I'm Conor Lainer, Vice President of Investor Relations at Valorac. I'm joined today by ValorX Chairman and Chief Executive Officer, Philip Guillemot, and ValorX Chief Financial Officer, Sasha Bieber. Before we begin our presentation, I would like to note that this conference call will be recorded and a replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are available for download here as well. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced at the beginning of our slide presentation. These are also included in our universal registration document filed with the French Financial Markets Regulator, the AMF. This presentation will be followed by a Q&A session. I will now turn the call over to Philip Guillemot.

Thank you, Kudo. Welcome, ladies and gentlemen, and thank you for joining us to discuss Valorect's second quarter 2024 results. Before proceeding, let me draw your attention to slide two, where you can consult our safe harbor statement. Today's agenda is on slide three. I will start with the highlights of the second quarter of 2024, followed by an update on the market and commercial environment. Sacha will then take you through our second quarter numbers. I will finish with our outlook for the third quarter and full year 2024. Let's look at the highlights of the second quarter 2024 on slide five. Our second quarter results continue to reflect the strong international OCTG market and the benefits of the new VALREC plan. As expected, Group EBITDA was down moderately versus Q1. EBITDA was €250 million, while EBITDA margin remained strong at around 20%. EBITDA pattern was also very strong at €599, above €550 for the 7th straight quarter, despite significant lower pricing in the US versus this time last year. We remain ahead of plan in deleveraging. Net debt reached 364 million euros at the end of the second quarter. For the full year, we expect Group EBITDA to range between 800 and 850 million euros. The decline in second half EBITDA is largely related to lower realized pricing in the US which we do not assume to be fully offset by continued strong international results. That said, we do expect to generate further cash flow in the second half. Our balance sheet is now at a level we see as resilient for any market condition. As such, cash flows generated from here will be allocated predominantly towards shorter returns which I remind you will begin in 2025 at the latest. Moving to slide six, it is worth taking a moment to reflect on the success we have enjoyed as we implemented the new value-added plan. In addition to experiencing a strong market for our premium products, the new value-added plan and our focus on value over volume have delivered structurally improved profitability versus our performance over the past several years. This profitability has allowed the rapid deleveraging you see on the right. We have removed over a billion euros of net debt from our balance sheet in less than two years. Let's look at how we have executed this and what is still to come within our overarching strategy. I am on slide 7. Our strategic journey since the financial restructuring has been truly transformative. In 2022 and 2023, we executed the new Valorec plan, which fundamentally changed Valorec into a more profitable, more resilient, and more cap-generative business. As a result, we have been able to significantly reduce our net and gross debt which was punctuated by our successful balance sheet refinancing in April. We have several operational levels remaining to create value, regardless of the market environment. Here, we highlight three of the most meaningful. Our performance enhancement program for our Brazilian tubes operation, the phase one and phase two extension project at the Pau Branco iron ore mine, and the development of our New Energies franchise. We gave you a look at our opportunity set in New Energies at our event in Hono Emery last month. Today, we will give you an update on our performance announcements program in Brazil Tubes. Before we get there, though, I would note that our work to optimize capital employed is by no means finished. We continue to progress on non-core asset cells, the largest of which is a former production facility in Rath. Ultimately, this will enable us to return 80 to 100% of our total cash generation to our shareholders, as we indicated at our Capital Market Day last September. I reiterate that these returns will begin in 2025 at the latest, subject to board and shareholder approval.

Please turn to slide eight.

Our Brazilian asset base remains one of the best platforms for premium cube production in the world. We have not yet seen the peak performance this asset base is capable of. We can celebrate some of our major accomplishments in 2022 and 2023. First, we significantly redesigned our organizational structure from the way the business is managed to the way our production units are organized within the mills. We executed our major CAPEX program to enable the transfer of volumes from Germany on time and on budget. Finally, we delivered a notable improvement in tubes EBITDA in 2023 compared to 2022. In 2024 and 2025, we are moving from investing in our assets to optimizing the way we run them. We have three main workstreams that will contribute to this cause. First, we are rationalizing our production footprint. Second, we are further reducing complexity and cost in our production process. Finally, we are creating a platform for higher premium Q production. You can see we are already expecting to generate some significant improvement in EBITDA pattern in Brazil in 2024, reflecting some of the significant changes that have already occurred. Slide nine. It is the first pillar of this performance program. On the right, you can see our asset base in Brazil today. You will recall that we have three rolling mills in the country, our state-of-the-art facility in Jezaba, which was commissioned in 2011, and two smaller, more flexible mills in Barreiro. We have made the decision to close the oldest mill, the Barreiro plug rolling mill. Following the closure of our sets in Europe, this is the oldest rolling mill within the group. As such, It has rising reinvestment needs and does not run with the same efficiency of our more modern assets. In addition, its product range has significant redundancy with our GC-ABA facility. We see multiple benefits of this decision. First, we will be able to reduce costs outright due to lower staffing requirements. we will avoid future cash costs, both in terms of capex and maintenance spent. Third, we can better load our remaining capacity and particularly take advantage of the fact that GCRBA can produce comparable products at significantly lower costs than the Barreiro plug. Importantly, we continue to see upside to production volumes from Basel despite this change in our nameplate capacity. Let's move to slide 10. Our playbook to deliver higher returns remains very consistent. While it is not at the same scale as our full exit from the European industry market, we are making changes to our portfolio in Brazil. Ultimately, we aim to reduce the inefficiency that low margin, small orders, impact into our production processes accordingly we are exceeding several industry businesses many of which we use to serve from the barrier plug mill where pricing does not reflect our high value add meanwhile we are implementing strict minimum order quantity limits and decreasing our industry and process skus by a further 30 percent as you can see on the right We believe that these measures will allow a more efficient production process, ultimately enabling higher throughput with lower cost per ton. In addition, we see opportunities to improve our labor management. Labor, both ours and external contractors, is one of the largest costs within our organization, and we are not satisfied with the utilization of labor in some of our maintenance and direct production activities. we see the potential to reduce our overall labor cost in Brazil by 10% to 15%. Finally, we are also renegotiating raw materials and freight contracts and working to improve our process yields and quality performance, all of which will contribute to better profitability. Putting these all together, we see potential to reduce the cost in our Brazilian tubes operation by over €150 per tonne by year-end 2025, measured versus the 2023 baseline. On slide 11, we detail the final step of this performance improvement plan, creating the platform for future growth. Value over volume remains our guiding principle, in how we approach the market and manage Valorect. That said, we see factors both outside and inside of Valorect that point to the potential to produce higher volumes from this asset base going forward. On the demand side, we see robust potential demand from our global OCTG and PLP customers. We have made significant progress in qualifying our Brazilian production route for these applications and further efforts will contribute to expanding the set of addressable opportunities. In addition, we will increasingly use our asset base to serve high-value segments of the new energies, industry, and process markets, all of which we expect to grow in the coming years. Internally, we see the opportunity to continue to improve our production efficiency which will allow us to meet this future demand. Overall, we have seen meaningful improvement in process efficiency, but there is still upside to benchmark utilization levels. Part of the path to getting to this higher utilization involves debottlenecking our high-value equipment, like heat treatment and premium threading equipment. We have already delivered a 15% increase in some of this capacity in 2024. But with further operational planning and improved use of our global finishing capacity, we can deliver more premium tubes in the future. The final step is a continued alignment of our global operations, which had not historically been run as an efficient integrated business. With better data and process management, we can deliver the most from our production base. Putting all of this together, we have the ability to serve higher premium market demand with potential for more than 100,000 incremental tons of production from Brazil versus our first half 2024 run rate. Now let's move to our usual discussion of the commercial environment on slide 13. We focus on the US OCTG market. The horizontal recount took another step lower in the second quarter, exiting the quarter about 7% lower than the end of the first quarter. Imports have taken different paths depending on whether you look at the seamless or welded portion of the market. You can see here that major welded importers like Korea, Taiwan and others have been responsible for a significant portion of the recent import volumes. Excluding these producers, you can see a clear downward trend since the start of the year. I found this out to suggest that our view of a consolidated, rational set of seamless suppliers is well supported, although we do experience knock-on price effect when more commoditized products are oversupplied. On the point of imports, I would like I would highlight that US Customs has determined that there is a reasonable suspicion of evasion of anti-dumping and countervailing duties on OCTG from China by transshipment through Thailand. We commend Customs for addressing these unfair trade practices used by some of our competitors. By applying the appropriate anti-dumping margins and countervailing duties to these imports, we have seen and will likely continue to see a meaningful reduction in imports from these players. While this is a positive development, there has been some further price pressure in the spot market in the second quarter that will influence our pricing the third quarter. Demand trend remains the most important catalyst in driving pricing for our product, so the second quarter declining in rig count has been unhelpful from this perspective. That said, we see some medium-term upside to activity levels here that I will discuss momentarily. On slide 14, we address the international OCTG market. Drilling activity has remained stable at strong levels for the past several quarters, both on and offshore. We continue to see very active tendering activity from our major customers, with opportunities across all our core markets, from the Middle East to Africa and South America. In the Middle East region, our relationship with Saudi Aramco remains robust as we execute on our long-term agreement and deliver the discrete orders we announced to you last year. Elsewhere, you have seen our recent extension with ADNOC, which should support ongoing expansion in activity there, and we see further tendering activities from Kuwait and Qatar as well. In Iraq, We currently see strong tendering activity from international oil companies, and we expect to be one of the most important OCTG suppliers in the country for both carbon and CRE tubes. As part of our premiumization program in China, we have recently received formal qualifications for our Tienda facility to produce for some of our customers in the Middle East region. In Africa, We remain well positioned to serve the needs of Sonatrac, Algeria's national oil company. We see significant demand ahead from this key customer. Meanwhile, we have seen growing opportunities in Western and Southern Africa, such as a multi-year contract we recently received from Total Energy in Angola. In South America, Our operations in Brazil continue to benefit from the robust drilling activity in the country. Demand is expected to remain strong with several major development programs ongoing. In addition, we remain well positioned for ongoing activities in nearby Guyana and Suriname, where we already have a close working relationship with ExxonMobil and other key IOCs in the region. At the market level, pricing has remained relatively flat at healthy levels for several quarters. We continue to see strong pricing for our new orders in line with this robust demand level. Let me wrap up to comment on our tubes business on slide 9. Despite the well-known pressure on our business from US price declines, we have continued to deliver strong profitability and saw a significant increase in our shipments from international markets in the second quarter. The supportive international market environment is evident in our recent contract wins, such as our contract extension and new order with ADNOC, our multi-year contract with Equinox in Brazil, and the fourth major order from Exxon under our long-term agreement in Guyana. We look forward to sharing more wins like this with you in the future. On the other hand, the US market has been weaker than we expected at the beginning of the year. At this point, though, many forecasters are now suggesting that today's activity levels are too low to even sustain current levels of gas production and will likely cause oil production growth to slow significantly in the second half of 2024. We therefore demand bias to the upside over time as producers seek to sustain, and in some cases, growth their currently high levels of oil and gas production. In other words, we remain optimistic about the structural merits of the US market for the coming years. Let's turn to our mine and forest segment on slide 16. Iron ore production sold was approximately 1.4 million tons in the second quarter, which was a slight increase sequentially. Our BDA generation in the second quarter was somehow somewhat below our expectation for reasons that Sacha will discuss soon. However, we reiterate our full year expectation of approximately 6 million tons of production and approximately 100 million euros of EBITDA assuming high owner prices stay near the current level. Turning to our mine extension project, we were pleased to announce that we had received the necessary approval to progress the phase one extension as planned. This project is well underway and we are clearly on track with our target for a startup of this project in late 2024. As far as the larger phase two extension is concerned, This project is moving ahead nicely. We are engaging with the relevant regulators to ensure that our 2027 startup is well within reach. We will update you as we reach significant milestones on this project. Thank you for attention. I will now hand the call over to Sacha to comment on our financial results.

Thank you, Philippe. And good morning, everybody. Thank you for joining. I'm starting on page 18. With our Q2 results, we have reported a 20% EBITDA margin, both for the group as well as for our tubes segment. This has been made possible in spite of a roughly $1,400 per ton change in U.S. prices year over year. As our various new Valorec initiatives in the context of a strong international troops environment mitigated those unfavorable changes in the U.S. Whatever the environment, we at Valorec stay on course with the execution of our strategy, enhancing efficiency, lowering the break-even point, generating cash, and driving towards a high-yielding investment for our owners. On to page 19. As indicated during the Q1 call, volumes sold have picked up in Q2 to 351K tons. In line with lower U.S. prices and a slightly less favorable international mix, the average selling price has declined. Our revenues by geography are now more balanced and less biased to the U.S., and by market, follow the new VALOEC focus towards profitable oil and gas customers. On page 20, you'll find our profitability in percent and per ton. I can say that similar to revenues, our EBITDA split by geography has become much more balanced. While the US was dominant a year ago, we have seen a strong pickup from the eastern hemisphere and South America, while the US has declined. Over to mine and forest on page 21. Following a good first quarter, the second quarter EBITDA in this segment is on the low side. We remain confident, however, to revert back to the roughly 25 million euro EBITDA run rate per quarter and keep our approximate 100 million euro EBITDA guidance for the full year unchanged, driven by about 6 million tons of production sold. Q2 was impacted by low shipments, partially due to temporary constraints in the shipping to customers, low ore quality. But we also booked an extraordinary provision and have a slight loss of $2 million in the non-cash revaluation of the forest following IAS 41. On page 22, you see that our operating results now continuously lead to positive net profits. Below EBITDA, there were several items, positive and negative, that will not reappear in the next quarter or medium term. Financial income was positively impacted by the refinancing, largely by non-cash effects. On the expense side, we have in other the cost of the HKM supply agreement in Germany. In addition, we have added minor provisions also for the ongoing restructuring in Brazil. On page 23, you will see that net debt went down by 121 million, driven by 215 million EBITDA, all of which was cash effective. Please remember that Q2 is generally loaded with a higher than average financial cash out since we pay bond interest and in this quarter also some extraordinary fees for the refinancing. Also, tax payments are generally high in this quarter, driven by the US and Brazil. We furthermore released some working capital, especially inventory. Restructuring cash out continues to be dominated by Germany, including payments for the HKM supply contract, costs for the ramp down team, and for dismantling, as well as for pension. Please note, that selectively we have the cost of activities in this line item while having corresponding revenues in the line asset disposals and other. Speaking of which, in asset disposals and other, we have proceeds from the sale of equipment, for example, though the lion's share in this quarter comes from changes in cash collateralized guarantees, which we are actively renegotiating following our much improved balance sheet. Out of the 80 million non-cash adjustment, a bit more than half is related to the refinancing. The other half is quote unquote normal and due to accrued interest in line with interest paid in the same quarter. On page 24, you can see the tangible change of our company. Net debt is down to 364 million, and gross debt is also down by about 800 million since the peak and about 500 million against the prior quarter. As part of the refinancing, we have utilized some of our cash on hand in order to pay down debt. Liquidity continues to be rock solid nevertheless, close to 1.5 billion. Page 25 addresses individual line items of our cash flow statement. The overall message remains, we are ahead of plan in our deleveraging. So this is predominantly technical help for those who run a line by line forecast. Financial cash out in 24 is expected to be around 100 million. We will then see the benefits of refinancing in 2025. Relatively to the prior update, we now expect the tax cash out to be lower. we also expect a slightly lower capex than previously guided. Conversely, our assumption for restructuring cash out has increased. However, as I just explained, there are partially corresponding offsets in asset disposals and other cash items. As such, we advise to look at the sum of those two line items. Our cash flow and net debt guidance still does not include any benefit from major asset sales, i.e., the sale of RAT in Germany. Finally, while we did not and still do not guide on working capital, we are incrementally more optimistic on potential releases of working capital. On page 26, we refine our capital allocation framework. The core of this has already been communicated to you during our capital market day in September last year. What we are specifying today is that we have now reached our target capitalization. This means that cash we generate from now on will be allocated predominantly towards shareholder return. With that, let me hand back to Philipp. Thank you, Sacha.

Let's turn to slide 28 to discuss our outlook for the third quarter and full year 2024, starting with our tubes business. In the third quarter, we expect that our revenues will decrease sequentially due to lower U.S. shipments and pricing, as well as a Q4 weighted shipment schedule in our international business. For the full year, we expect a strong international market environment will persist but be offset by lower U.S. demand and pricing. In our mine and forest business, we expect Q3 production sold will be higher than Q2. The third quarter should mark the highest production quarter for the year due to the start of the rainy season in the end of the fourth quarter. Full year production sold is still expected to be 6 million tons with EBITDA around the 100 million euro range, assuming higher on our prices consistent with today's level. At the group level, we expect EBITDA will decline in the third quarter due to reduced tubes volumes and reduced US tubes pricing. For the full year, we see EBITDA ranging between 800 and 850 million euros. The second half decline in EBITDA is driven largely by the US market. Finally, we expect to continue to reduce our net debt in the back half of 2024 including a reduction in the sub-quarter. We remain ahead of plan in our net debt reduction, even without the benefit of major asset disposals. To conclude on slide 29, we have now built a sustainable balance sheet. Further cash generated from here will be directed largely towards shorter returns. in 2025 at the latest. Secondly, we continue to see meaningful upside to our performance in our core assets and particularly so in Brazil. The combination of cost reduction, efficiency improvement and capacity rationalization will drive returns in Brazil towards best-in-class levels. Finally, we remain upbeat about the demand outlook for our premium tubular solutions. The international OCTG market remains robust with ongoing high tendering activity. Meanwhile, medium-term U.S. demand is biased to the upside for reasons I laid out earlier. Thank you for your attention. Sasha and I are now ready to take your questions.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please sign it by pressing star 1 on your telephone keypad. That is star 1 for your questions today. We will pause for a brief moment. And our first question today comes from Kevin Roger from Kepler Chevrolet. Please go ahead. Your line is open.

Yes, good morning. Thanks for taking the time. I would have one question if I may on the guidance. So now we have a clear guidance for the full year and you have also given trend for the Q3. Sorry to be pushy, but would you say that the Q3 will be the trough on your EBDA and you expect a kind of flattish EBDA in Q4 or improvement or you even expect a Q4 to be done compared to Q3? That would be the first question, if I may. And the second one, I agree, maybe you do not want anymore to really commit on that. But what do you see in terms of, you have mentioned the volumes for the US with probably a pickup in the midterm. But what do you see now in terms of pricing, please?

Okay, thank you, Kevin, for your questions. Yeah, Q4 versus Q3. Well, first, as I said earlier, our volume out of the U.S. are weighted towards Q4, so we expect lower volume on that part of the world in Q3 versus Q4. As far as the U.S. is concerned, same thing. We expect higher volume in... higher volume in Q4, and we assume for the timing that prices in Q4 would be at the level of Q3. So when you combine the two, yeah, we may expect a slightly higher EBITDA in Q4 versus Q3. Okay. Yeah. Okay. And I think I answered your question about the volume in the U.S. too, so.

Yeah, and the pricing. No, no, that's very clear.

Okay.

Thank you. And our next question now comes from Daniel Thompson from B&B Paribas. Please go ahead.

Hi, good morning. Thanks for taking my questions. Maybe one for Sasha. I know it's your favorite question, but just any update on your sort of preference for shareholder distribution now that we've reached the leverage target, essentially. if we talk about next year, are you aiming to be a sort of higher dividend yield play? Or was it more about kind of addressing the lower multiple perhaps on the buyback side? And then any comments on your thoughts on the warrant question? And then secondly, yeah, on US pricing, I was just wondering what's the pipe logics sort of equivalent assumption for seamless that you have at both the top end and the bottom end of the full year EBITDA range. If we talk about what you're assuming for Q3 and Q4 in terms of the pipe logics index. Thanks. Okay.

Sascha, you want to take the two questions?

Yeah, I'll try. Dan, good morning, first of all. When it comes to the types of shareholder return, There is no update, there is no change in preference. I think the important message of today is that we continue to be ahead on our deleveraging plans. There are no principle changes to how we look at the balance sheet, i.e. net debt zero with the corridor. However, specifying that we have indeed reached a debt level that we are feeling comfortable and therefore cash generated from now on will be predominantly allocated to shareholder return. You know that the dividend will not commence before the AGM in 2025. Warrants and share buybacks prior to that are in principle possible, but we have no preset preference for either of the two. We obviously acknowledge that the valuation of the share should play a role in the overall discussion. When it comes to U.S. prices and pipe logics, and when you think about our earnings development going forward, so I think Q3 is reasonably straightforward, i.e., our Q3 invoice prices will largely be driven by market prices, changes that we have seen in Q2 versus Q1. And if you look at the market data, I think we have seen a change to the magnitude of $230, $235 per ton. We then assume, when it comes to the midpoint of our range, that market prices post-summer will stay relatively flattish, and therefore, invoice prices in Q4 will do as well. Philipp already commented on volumes. If that assumption should prove to be either too pessimistic or too optimistic, we would then all as equal move towards the higher or the lower end of our guidance range.

All right. Thanks, Sasha. It's clear.

Thank you. And up next, we take a question from Christopher Coupland from Bank of America. Please go ahead.

Thank you very much, and thanks for taking my questions. I'm intrigued by the Brazilian restructuring announcement and wondered whether you can help us with some, I think, relatively straightforward maths. The 150 euros per tonne cash cost reduction, can you put that into context with the remaining capacity that you'll be left with in Brazil? I can see from your slide that should be about 1.7 million tonnes. And does that mean we should expect at least a full run rate by 2026? of quite substantial cost cuttings to come through. And second question, again, on cash returns, maybe for you, Sasha. I think that 400 million announcement is very important. And would you suggest, okay, now it's a sort of quarter by quarter decision for buybacks, depending on cash generation. What are the triggers behind your statement that it'll be at 2025 at the latest. Thank you very much.

Okay, I take the question about Brazil. First, as you understood, the value over volume strategy means that what comes first is how well we use our heat treatment capacity and premium threading capacity. So, holding capacity is not our utmost priority. Even with the shutdown of the plug, we still have ample rolling capacity to fill the heat treatment capacity we have. And by the way, in Barreau, we shut the rolling capacity, but we don't shut down the heat treatment capacity, which was just after. So we are obviously not hindering our capacity to increase volume. As I said during my presentation, we still see a potential for 100 kilotons more kept production in in brazil provided there is market demand for it obviously uh as far as when we will see the full impact of all this cost prediction plan uh we have announced yes for sure uh we talk about uh full impact 2026 for the time being okay thank you okay As far as cash return is concerned, again, I would like to insist all this is subject to board discussion and approval and obviously AGM approval. But what Sacha said is very important. Being compatible with the 400 million euro net debt, it means that each time we are lower, you have a sense of the amount that could be returned to shareholders. by 2025 at the latest because, as I said earlier in my presentation, we intend to continue to reduce net debt in the next quarters. So that's the reason why we are very affirmative on the fact that there will be a return to shareholders under which form to be debated with the board in 2025 at the latest.

Okay, thank you.

Thank you. And from OdoBHS, we have Baptiste Lebac with our next question. Please go ahead.

Yes, good morning everybody. Two questions from my side. The first one is dedicated to Brazil. How many people are concerned by let's say the new industrial setup and what is the amount of the provision? Can we say that the updated view regarding restructuring charges are taking into account at 100% let's say the new industrial setup in Brazil or will there another provision in 2025? And the second question, It's dedicated to your land in Germany. Can we have an update regarding negotiations with, let's say, potential buyers? Is it accelerating or on a pause mode for the moment? Thank you.

Okay, so number of people, as I said, between 10 and 15%. And I won't give you a specific number, but obviously it's a sizable number, given the headcount we have in Brazil, which I remind you is our number one industrial base. and capacity in the world. As far as the provision, I hand over to Sascha, but no, we are in Brazil, and the cost of restructuring in Brazil is not the one we have seen in Germany, but I let Sascha be more specific.

Thank you, Philipp, and good morning, Baptiste. Relatively minor provision that we have set up, directionally rather single digit than double digit, and that will turn into cash relatively quickly indeed, so yes, incorporated.

Okay.

As far as the loan in Germany is concerned, we are not on a pause. We launched a second process to go far away with that sale. So far, I think we are progressing well. We obviously have a very fruitful dialogue with the city of Dusseldorf. Obviously, we'll see in the next few months how this process will progress. And there is, I confirm, appetite for this land. So we have had more than one bidder for that land.

Thank you very much.

Thank you. And as a brief reminder, that is star one for your questions today. And up next, we have Jean-Luc Romain from CIC. Please go ahead.

Good morning. My question relates to the US. You have linked the reduction in volumes to the reduction in the rig count. But we also see in the US an increase in the lateral length of the wells which are being drilled. How does that increase in lateral length compensate for the lower number of wells?

Yeah, you're right. We see more and more longer laterals, which, by the way, require what we so-called high torque connections, which are, I think, more valued than the classic semi-premium connections. And obviously, we have developed such product and will continue to develop such product. So, yeah, you know, it's a difficult match you to understand why volume are where they are. It's true that recount is a good proxy, but on the other hand, as you said, longer laterals, imports, as we have commented, are mostly in welded and not so much on seamless, on top inventory and distributor and Resolo. So yeah, That's why we keep optimistic on the near term on the U.S. market, given the fact that, okay, all our customers seem to continue to be willing to produce high levels of oil and gas in the future.

Thank you.

Thank you.

And we now take a follow-up question from Kevin Roger from Kepler Chevrolet. Please go ahead.

Yes, sorry, a follow-up, if I may, related to the restructuring in Brazil, basically. And a year ago, when you did the Capital Market Day, you presented us, you know, a kind of mid-cycle EBDA for the coming years at 800+. Is there any impact of your restructuring in Brazil on this mid-cycle EBDA? And if yes, can you give us a bit of color on that, please?

No, there is no impact. It's just part of the plan we continue to execute. In my presentation, you saw one of the first slides was to give you the big picture, what we started to do in 2022 and what we still have to do until 2025 and onward. So, no, it's just there to consolidate our ability to improve our cost efficiency in Brazil, which is our number one export base. And while keeping room for more volume provided, there is demand for high-premium products from that base.

Okay, understood. Thanks.

Thank you. And once again, as a reminder, that is star one for your questions today. We will pause for another moment. There appears to be no further questions at this time, so I'd like to hand the call back over to you, Mr. Guillemot, for any additional or closing remarks.

Yes, thank you, operator. Thank you again for joining us for today's call. I would like to leave you with the following thoughts. Over the past two years, we have built a new Valorec. We have executed many meaningful changes in the way Valorec conducts business to make it more profitable, more resilient, and more cash-generative. but we have many more opportunities ahead of us and a strong demand runway ahead. We are pleased to already have our balance sheet in a position to return capital to our shareholders and look forward to commencing such returns in 2025 at the latest. Thank you again. Operator, you may close the call.

Thank you for joining today's call, ladies and gentlemen. You may now disconnect.