Vallourec SA

PAR:VK

Earnings Call Transcript

[Operator]

Good day, and welcome to the Q2 and H1 2018 results. Today's conference is being recorded.At this time, I'd like to turn the conference over to Alexandra Fichelson. Please go ahead.

[Alexandra Fichelson, Director of Investor Relations]

Good evening. With me today to comment on the Q2 and first half 2018 results are Philippe Crouzet, Chairman of the Management Board; Olivier Mallet, CFO; Didier Hornet, SVP, Development and Innovation; Nicolas de Coignac, SVP, North America; and Edouard Guinotte, SVP, Middle East Asia. The slides presentation is available for download on our website.I must warn you that today's conference call contains forward-looking statements and that future results may differ materially from statements or prediction 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 and are included in our annual registration document filed with the AMF.This presentation will be followed by a Q&A session.Now I would like to leave the floor to Philippe.

[Philippe Crouzet, Chairman of the Management Board]

Thank you, Alexandra, and good evening, everyone. I'd like to start this presentation by taking a brief look at Slide 4, which summarizes the key highlights for H1. During H1, we recorded good growth in both revenue and EBITDA. It confirms that the recovery we have seen over the last quarters is on its way, and this is particularly true in the U.S. with fundamentals improving both volume-wise and price-wise. It is true as well in Europe, Africa, and Middle East and Asia regions, which show that the recovery is also underway and we've had quite a number of bookings, higher bookings in these markets during H1.And lastly in Brazil, as you know, we renewed and, in fact, we reinforced our historical partnership with Petrobras, and it does comfort our position and leadership there. We are continuing to harvest good results from our transformation plan. It generated significant savings in H1. Further steps are being taken to rationalize our operations, notably in Europe, where the optimization of our footprint is progressing well. We've sold quite a number of operations, those integrated in Vallourec drilling products as an example, and a small fitting business as well. And in Brazil, we've just shut down the steel mill of our historical operation in Belo Horizonte, and this happened just at the beginning of July. And of course, it does not impact our H1 performance. In addition, I would like to point out as well that our liquidity has been strengthened, thanks to EUR 400 million refinancing through the bonds that we issued in April.So before I turn to Olivier for a detailed review of our financials, let's have a look at Slide 5 where we summarize our key pillars for future growth. First and foremost, the transformation plan that I already told you about. It will continue to help us increase our competitiveness at a global scale and generate significant savings on our operations. In terms of savings, we expect, of course, additional savings in Europe and Brazil. Cash management will be reflected in our CapEx and working cap level through the year. In terms of competitiveness, we continue the development of our new routes, China and Brazil, with nice commercial successes achieved in H1. So this transformation plan remains our key focus because it is fully under our control.On top of that, we will continue to benefit from the volumes recovered, and this is, of course, linked to the continued growth of the oil and gas markets. More investment is definitely needed to compensate for the depletion. And we all have in mind that each year, the world needs at least to replace 3 million barrels of supply lost in mature fields. And on top of that, of course, we need to match robust demand growth of 1.5 million barrels per day per annum on average. So it is obvious that the current level of E&P CapEx is not sufficient to match those needs, and this is evidenced by the historically low level of discoveries that's been achieved over the last years. So we expect this to be corrected over the coming years. And we also benefit from an improving environment of our industry businesses. All this is, therefore, driving up our volumes and, of course, it contributes to our top line. But that's not enough, we expect as well to fully leverage the price and mix recovery, which is allowed by the increasing demand in the regions where we operate. It is clearly ongoing in North America, and just starting elsewhere.I will now pass over to Olivier who will further present our H1 financial results.

[Olivier Mallet, CFO & Member of Management Board]

Thank you, Philippe, and good evening to everyone. So let's start with our revenue on Slide 7. As you see, it's up 7.5% from H1 '17, or 17.6% at constant exchange rate. This revenue growth is mainly due to a positive volume impact and price impact, notably in the U.S. The breakdown of revenue by segment shows that on our largest market, oil and gas, revenue is up 3.5% or 15.2% at same exchange rates. This is driven by a strong momentum in North America. In Europe, Africa and Middle East Asia regions, the increase in volumes and prices has been partly offset by a negative ForEx.Petrochemicals saw the strongest increase at plus 64% over last year, largely due to the recovery in the U.S. Industry & Other was up by 8.6%, or 16.9% at constant exchange rate, both in Europe and Brazil. This was driven by higher activity for mechanical engineering and automotive applications. Last, Power Generation was down 4.8% year-on-year, essentially due to lower sales in nuclear and despite conventional power generation revenue being slightly up.On the next slide, let's focus 1 minute on the benefits of our transformation plan, which had an impact of EUR 52 million of gross savings in H1 2018, or EUR 367 million since its beginning in 2016. As mentioned by Philippe earlier, our plan is very well on track, and we are continuing its deployment. As an illustration, you can see on this graph our continuing effort to reduce, for instance, SG&A.We are all as well deploying our new competitive routes with commercial successes both on Tianda and VSB. And in parallel, we have continued in H1 to divest non-core businesses, drilling products and fittings, and to further rationalize our European and Brazilian operations with [indiscernible] decision to close the finishing line for boiler tubes. Given all of this, we are confident that we'll achieve our target of EUR 750 million contribution to our EBITDA coming from our transformation plan by 2020.Moving on to Slide 9. You can see how our revenue growth and savings contributed to an increase by close to 10% of our industrial margin to EUR 233 million. This has been achieved despite an increase in our raw material costs and as well the negative impact of the currency evolution.I talked about the transformation plan earlier and pointed the reduction in SG&A. You can see there, they're now down to EUR 200 million under this semester at 10.8% of our revenue compared to 12.9% last year. As a consequence of the different drivers, EBITDA improved by EUR 36 million year-on-year, going from a negative EUR 18 million to a positive EUR 18 million.On Slide 10, some comments about the rest of the P&L below EBITDA. The operating results in H1 was a loss of EUR 205 million compared to EUR 189 million in the same period last year. This is due to EUR 57 million and EUR 13 million of extra surcharges related to restructuring measures taken in Europe and to the divestiture of 2 remaining French drilling product entities. These factors led to a net income negative by EUR 307 million.Let's turn now to cash on Slide 11. First, with our cash flow from operating activities, which improved by EUR 16 million compared to last year to a negative EUR 144 million. The better EBITDA contribution was partly offset by higher financial interest and tax cash out. The working capital increased by EUR 236 million, and this is a consequence of usual seasonal effects, but also of the increasing production [ for the revenue ] to take place in H2 '18, and to a lesser extent, to a temporary increase in inventories in Brazil, linked to the Section 232 quotas.Finally, CapEx are lower by EUR 23 million compared to the same period last year, up EUR 38 million. As a result, Vallourec generated a negative free cash flow of EUR 418 million in H1 2018.On Slide 12, I would like in particular to highlight the successful efforts made over the last years by our teams to reduce our operating working capital. I mean, by that table [indiscernible] and inventories. As you can see, you have the trend in the number of days of sales, and this trend have shown significant improvement over the last few years.On the next slide, 13, our net debt increased to EUR 1.9 billion at the end of June, compared to $1,542,000,000 at the beginning of the year. The disposal of Vallourec drilling products and some ForEx impact did contribute slightly positively to this evolution.Lastly, Vallourec liquidity position on page -- slide remains very strong with EUR 900 million of cash and EUR 2.2 billion of undrawn committed bank facilities. This includes the EUR 400 million bond issued in April to refinance in advance the bond repayment that will take place in 2019.With that, I will now hand it back over to Philippe who will tell you about our outlook before your questions.

[Philippe Crouzet, Chairman of the Management Board]

Thank you, Olivier. We'll now move to Slide 16, where we confirm our market outlook for 2018. On the Oil & Gas market, firstly, we expect demand to stay strong, notably North America, where we foresee continued robust drilling activity. With respect to the Section 232 measures, we are currently working to debottleneck our North American finishing capacities and to adapt accordingly the other production routes. I also want to point out that Vallourec has effectively realized, as planned, significant OCTG price increases in North America that will show up in our H2 results.In Brazil, drilling activity is expected to remain stable at a good level, and we will benefit from our long-term contracts with Petrobras. In Brazil, steel industry should also benefit from a relatively better economy. In the rest of the world, Vallourec is anticipating higher deliveries in oil and gas as well as solid macroeconomics with respect to industry. Only for Power Generation are we expecting a decline as a result of lower number of conventional power plant projects being started.Lastly, our transformation plan will again generate significant savings through the rest of the year. Therefore, despite unfavorable currencies and raw material prices that we faced in H1, we confirm our positive outlook and our target to improve our EBITDA in 2018 full year versus 2017, with the second half being significantly higher than the first half of 2018.Thank you for your attention. We are now ready to take your questions.

[Operator]

[Operator Instructions] We will now take our first question from Rob Pulleyn, Morgan Stanley.

[Robert John Pulleyn, Analyst]

A few questions, if I may. First of all, could you, to the question of working capital, give a little bit of a steer as to how we should think about the investment in working capital as volumes increase through the second half? To try and have an idea of when that [ debt ] will end the year. The second question is regarding Section 232, and I'm sure it won't be the last question on it, but could you maybe give a little bit of a steer as to how that's impacting your Brazilian operations? I believe you imported 100,000 tons from Brazil in 2017, and of course, the quota now looks somewhat full already as of June. And are you able to pass through the tariff from your European mills to customers that you're still exporting to the U.S.? And then, the last one, if I may, just to finish the 3 questions, is on the sustainability of CapEx, I mean, it's great that the capital discipline is there, but is this in anyway impairing the future of your physical asset base?

[Philippe Crouzet, Chairman of the Management Board]

Maybe, Rob, quickly on the last one on CapEx. Of course not. I mean, we have some seasonality on the way we spend our CapEx. Let me assure that our operations are properly maintained. And keep in mind that we've closed quite a number of old operations, which were consuming quite a lot of CapEx. Whereas the remaining operations in Brazil and in North America, as an example, are pretty new, so we definitely need less maintenance CapEx than in the past. Olivier, on the working cap?

[Olivier Mallet, CFO & Member of Management Board]

Yes. Robert, on working cap, here, as well as you know, there is a strong seasonality effect. There's always an increase in working cap at the beginning of the year and more of a decrease in H2. This will happen again this year. We target a decrease in our working capital between now and the end of the year. This being said, our activity is picking up, which is a good news. And despite the fact that our performance in terms of days of sales has been continuously improving over the last few years, this increase in activity will, of course, trigger some actual needs in terms of working capital. It's very difficult to give you, as of today, a precise number for that for the end of the year because it will depend on the development of orders to be taken [ further away, ] early 2019. But this is important caveat since from today, you can anticipate maybe increasing working cap on a full year basis, say, between EUR 100 million and EUR 150 million, unless we have some additional good news from a bookings point of view at the end of the year.

[Philippe Crouzet, Chairman of the Management Board]

As far as Section 232 is concerned, let me first comment on Brazilian side, and I'll let Nicolas comment on the tariffs because that's definitely North American topic. As far as Brazil is concerned, you're absolutely right, we're not going to be able to export as much as we have done last year at least, indeed to the quotas. And now, this being said, we've been rapidly shifting our routes, and we've been capable of decently loading our Brazilian operation, thanks to commercial successes that we achieved elsewhere in the world. So in terms of loading our Brazilian operations, it is not a dramatic impact, and it will probably vanish over the next months. And as far as inventory is concerned, it is true that we closed H1 with somewhat higher inventories than normal in Brazil. And this is due to the fact that some product, which were already manufactured and which we had planned to ship to the U.S., will be reoriented to other customers elsewhere. This, over the very short term, generates an extra inventory level, which will, as well, disappear in the course of the second half. But pricing, North America, Nicolas?

[Nicolas de Coignac, Senior Vice President of North America]

Yes. So Rob, to your question about passing through the tariff. First, I'd like to start by reminding that we largely supply our customers by our domestic manufacturing routes. You know that we're essentially a domestic player. And to that extent, 232 is favorable to us, being fully domestic. So there are still some products that we're not able to manufacture in the U.S. that are imported essentially from Europe. And for those, we've had, during a short period of time, quite a few bookings because everybody was looking at what would happen on the market and the outcome of 232. And now, bookings are back, and our, of course, condition is that we have to be able to pass through the whole of the 25% tariff and bookings that we're making today for those products, we'll see full pass-through of the tariff.

[Operator]

We will now take our next question from Amy Wong, UBC (sic) [ UBS ].

[Hin Kin Wong, Executive Director and Analyst]

It's Amy Wong here from UBS. A couple of questions for me. The first one is going to be on the evolution of your sales volumes into the second half. Can you talk about whether these bottlenecks in the U.S. onshore activity have any impact on your outlook for your North American volumes? The second question relates to how we should think about your cost savings. You had some gross savings of EUR 52 million in the first half. However, it didn't -- your improvement in EBITDA half on half is a bit lower than that. So does it mean that underlying EBITDA is still turning out negative EBITDA? How should we think about that EUR 52 million and how it impacts your P&L?

[Olivier Mallet, CFO & Member of Management Board]

Amy, maybe I will start with the savings. So we generated EUR 52 million of gross savings in H1. I think the key point there is that it has some positive effect, of course. EBITDA in H1, it's above inflation on our costs, added costs. The point to add is that we target higher savings in H2 versus H1, one of the drivers that will lead to significantly higher EBITDA in H2 than in H1. I would just give you one example of this additional savings among many others. It is the full closure of the steel plant and blast furnace in Belo Horizonte that just took place now, and that will lead to ensured savings in H2, but there are many others. An additional comment maybe on your comment on H1 EBITDA is that we had, in front of these savings on added costs, some extra cost in terms of raw materials. You know that the scrap price went up quite significantly in the U.S. at the beginning of the year and as well in Brazil. This is now stabilized, but this had negative impact in H1. And compared to H2 last year, it will again have a negative impact on H2, also now stabilized. Same comment maybe on ForEx. You know that we are exposed to some price sensitivities for what we manufacture in euros and sell in U.S. dollars as well as the translation into euros of the profit we make in Brazil or in the U.S. So these had the negative impact during H1 as well. And I will turn to Nicolas for the other question.

[Nicolas de Coignac, Senior Vice President of North America]

Amy, concerning your question on debottlenecking, so as of today, we are perfectly in line with what I've been commenting in previous calls. You know that we target to increase our output from our domestic plant in the U.S. by about 100,000 tons, and we will achieve the bulk of this increase by year-end, as commented earlier, with the full impact in 2019. As far as 2018, this will help us to offset part of what we'll not be able to bring from Brazil due to 232.

[Philippe Crouzet, Chairman of the Management Board]

And just as a reminder, I'm sure you're aware that, and conscious of that, Amy, that debottlenecking our operations, our capacity in North America does not require big CapEx. We have capacity of rolling more tubes than what we finished today. So for us, the word debottlenecking does not refer to rolling, which is where the major CapEx would potentially be. We have that capacity already invested. But what we need to adjust is capacity of heat treatment, of threading, inspection as well, which is a completely different universe in terms of the CapEx required. It's more technical stuff than really CapEx, so don't expect major CapEx. We will get to the figures mentioned by Nicolas, not with the significant addition of CapEx.

[Hin Kin Wong, Executive Director and Analyst]

That's very helpful of you to provide the insight into the debottlenecking of your U.S. plants. My initial question was actually more related to some of the bottlenecks we're seeing in the U.S. onshore in general, such as people slowing down rig increases due to pipeline capacity being full in Permian. How is that impacting your overall outlook for the U.S. onshore markets?

[Nicolas de Coignac, Senior Vice President of North America]

Well, Amy, really, for us, what -- we have anticipated that the second half would probably remain quite flat compared to where we are today. So actually, when you look at the rig count over the last couple of months, it has been pretty stable, with some weeks with the negative trend and the following week with a positive trend. We expect this to probably remain until the end of the year with maybe, as usual, some softness more at the end of Q4 as usual when our operators reach the end of their CapEx envelope. But this has been anticipated, and there is no significant impact to us seen as of today.

[Operator]

We will now take our next question from Michael Shillaker, Crédit Suisse.

[Michael Shillaker, MD and Head of Global Steel & European Miners]

I'll start with the U.S. if I can and then move away to the rest of the world. So just on the U.S. market, I'm hearing, I think, this was called out in the U.S. news, consumers are largely [indiscernible] the tariffs on imported material. But I guess, if that's the case, because it's very important to you as a domestic producer, one would imagine the PipeLogix price to have probably got up quite a lot more than it has so far. So why do you think that the -- obviously, the import market is up 25% since 232, but the PipeLogix price has really only crept up by a few percent, and why hasn't that gone up by more? Because if I'm a domestic consumer, one would imagine I'm going to be trying to source as much from domestic producers as possible where I don't want to pay the tariff. And do this mean that we should expect the PipeLogix price to be up 25% or so in the second half of the year is question number one. Question number two on the U.S., just to follow-up to Amy's question, is the 100,000 tons debottlenecking, is that the maximum you can get out of the U.S.? Or do you actually have even more capacity, especially rolling, because with the current tariff structure, it would actually make sense to roll as much as you can in the U.S., even if that means shipping and bill it from outside with the tariff. So is there more than the 100,000 tons you can get to there? The third question, just on the market outside of North America. Can you give a little bit more sense, given it's still your biggest market, on the tender market outside of North America, especially with regard to volume and price. And have you seen any negative impact on price or expectations in that market post 232? Because obviously, there is a risk of flowback. I don't know what the Koreans are going to do in similar, but there is a risk of flowback into the ex-North American market for material that was previously destined to the U.S. One very quick question, just from the forestry sale, any update on that because that's obviously gone quiet. And then, final question from me, just on the outlook, which clearly was pretty vague, and I understand why, but should we really be looking at H2 as U.S. price times U.S. volumes? So the change in U.S. price primarily, including your positive benefits from cost reductions less cost inflation, is that really the difference H1 -- H2 versus H1? Or are there any other material moving parts that we're missing in H2 versus H1?

[Philippe Crouzet, Chairman of the Management Board]

It's a long list. Thank you, Michael. Nicolas?

[Nicolas de Coignac, Senior Vice President of North America]

So starting with the prices evolution on the market, Michael. This is certainly a great question but I'm not sure I have a great answer so far. We're expecting to see the market become a little bit more tense at some point in time. But as of today, I think everybody's waiting to see how the dust settles and probably have anticipated some inventory, some buffers somewhere. And as of today, we've been able to pass all of our price increase, which is very significant and it was not a given. I was optimistic, but we're happy that we've done that part of the exercise. It's a great achievement, and it's in place as of July 1. This was an increase that is now in our bookings. To go beyond that, we had to wait for a little bit more to see how the dust settles, as I said already. And we have not locked our Q4 prices. We let this open to take further opportunity if ever this eventuality of more tightness on the market appears. And as you say, we'll see if -- the market was highly dependent of import. There's very significant cut, which is the ERW cut from Korea, and this is material. It's over 600,000 tons. It should create a significant dis-balance on the supply side. And we'll be waiting and watching very carefully how does this impact ultimately prices for the fourth quarter. You had a second question about the 100,000 tons. Is this the max that we can get? As of today, it's probably the best we can see. But I can tell you, all the teams in North America are looking at any potential upside. It will most certainly not be at the same magnitude, but anything, any additional ton that we can get, we'll be working on this. We first have to achieve the full plan of the 100,000 tons. And if we can get a little bit more, we definitely will be targeting it.

[Philippe Crouzet, Chairman of the Management Board]

Maybe Edouard?

[Edouard Frederic Guinotte, Senior Vice President of Middle East Asia]

Yes. As far as the rest of the world is concerned and primarily Middle East and Asian market, what we see on the oil and gas-related market is progressive rebound, both in volumes and prices. It takes much longer time than in the U.S., because the business model in this region is based on longer-term tenders, some of them are multi-years. So the prices and volumes are increasing at the pace these tenders are released on the market, so we already witnessed [indiscernible] some volume and price increases. And we expect this to continue into the next year, into H2 and probably into the beginning of next year. This would apply also to Southeast Asia and China domestic market. Not so rosy, as commented by Philippe, is the situation on power generation-related market where, definitely, the trend is down in terms of business opportunities and, therefore, our capacity to get volumes in this segment.

[Olivier Mallet, CFO & Member of Management Board]

Michael, I will continue on the 2 other questions. On the forestry divestitures, there's nothing new to report. We are optimistic and expecting without any sense of emergency, but unsure if that will meet our expectations, which is not the case so far. As far as H2 drivers are concerned, there are actually 3 drivers that will lead to H2 EBITDA significantly above H1. One, of course, is this price increase in the U.S. It's really a very good news for us. Three months ago, we had told you that we are targeting to increase prices in the U.S., as Nicolas just said. Now it's done as of July 1. And if ever, we have potential to do more at the end of the year due to Section 232, of course, we'll do it. The second driver is what's happening for oil and gas markets in the rest of the world. Here, again, 3 months ago, we had said that we're expecting some new significant tenders to come and hopefully to get some new significant awards. This is now done. This is what allowed us to tell you that in some part of industrial markets, we will have deliveries for significant amounts to start in H2 2018, which will contribute as well to [ important ] in our EBITDA. And the third lever, you mentioned it, it's the savings that we target to be stronger in H2 this year than the EUR 52 million that we did record in H1.

[Michael Shillaker, MD and Head of Global Steel & European Miners]

Just very quickly on the follow-up to the second one. Has there been any negative flowback from 232 in the ex North American market from the, obviously, the diverted volume that was previously -- or will previously have been going into the U.S.?

[Philippe Crouzet, Chairman of the Management Board]

Yes. Sorry, I forgot this part of the question. So we haven't noticed any significant new flow of products coming from the countries hit by 232. Of course, we are monitoring this very closely. We don't expect this to materialize in the very short term because this would require anyway to have these countries qualified by most of the customers, and this is a very lengthy process. So if ever we were to see this, it wouldn't materialize before a few quarters at least. Take also into account that when we talk about Korean producers, we are talking about ERW with welded pipe manufacturers, which are absolutely not or accepted in a very limited fashion by most customers in Middle East and Asia. So no significant impact expected in the short term.

[Operator]

We will now take our next question from David Farrell, Macquarie.

[David Richard Edward Farrell, Oil and Gas Research Analyst]

Just one question for me. It's going back to the U.S. capacity. Can you just clarify, in terms of rolling capacity, if you're to add the 100,000 [ barrels ] a day finishing, would that put your rolling mill in the U.S. at capacity in terms of productions? I'm just wondering whether there's an opportunity to outsource some of the finishing in terms of heat treating and threading to actually ensure that, that facility is at 100% utilization?

[Philippe Crouzet, Chairman of the Management Board]

Yes, David. Absolutely. We are taking the right steps to have more outsourcing. We are already using some companies to outsource part of the operations, whether it be inspection or some threading. And we are currently qualifying some more subcontractors, so this is one of the options we have to debottleneck, for sure. And so this is what will help us reach, let's say, our target at the end of this year of an additional 100,000 tons being delivered and hopefully more if we can find more for 2019.

[David Richard Edward Farrell, Oil and Gas Research Analyst]

All right. And sorry, just another quick question. If I look at the revenue out of North America, it obviously bounced back in the second quarter probably because, obviously, the first quarter had some issues. But it's still below the fourth quarter of 2017. Can you just explain kind of what is driving that? Why it is lower? I mean, is this Section 232 and the lack of deliveries out of Brazil, which is the main reason?

[Nicolas de Coignac, Senior Vice President of North America]

Yes. So David, there are several answers to this. Part of them, I did mention them during the call of Q1. We first have between Q4 and Q1, but also Q2, a number of days that is significantly lesser. So this is just a question of number of tons per day. This explains part of the gap. The second topic is that we always invoice more at the end of Q4. And this is for, let's say, more seasonality effect. And those are the 2 main reasons. We've been impacted partially on imported tons that we're not able to ship because we reached the max of our quota sometime in May. However, we'd still invoice them in June. So the number of -- the volume of tons that were impacted did impact Q2 compared to Q4, there is some, but it's quite minimal.

[Operator]

We will now take our next question from Kevin Roger, Kepler.

[Kevin Roger, Research Analyst]

All the questions have been asked, so that's fine for me. Thanks.

[Operator]

We will take our next question from Jean-Luc Romain, CM-CIC Market Solutions.

[Jean-Luc Romain]

[indiscernible] [ production, ] you have mentioned recovery of your deliveries in EMEA in the second -- in the first half, which is accelerating. When do you plan to have full impact of your price increases in EMEA deliveries in your results? Would it be a '19 impact? Or could it have an impact already in the second half?

[Olivier Mallet, CFO & Member of Management Board]

Jean-Luc, we already have some impact in our '18 deliveries, but not only H2, H1 and H2 as well. From some price increase, we did benefit from vis-à-vis a few large customers in Middle East on tenders awarded last year for the raise in 2018. So there is a continuous process. We are getting the benefit from that as soon as in '18. And based on the overall comments made recently made by Edouard in particular for all the Asian region, we expect further effects in next quarters and years, but it's really a continuous and progressive process.

[Operator]

We'll now take our next question from Rob Pulleyn, Morgan Stanley.

[Robert John Pulleyn, Analyst]

So it seems that you're running short of questions, which is certainly a change. So I had a couple of extra, if that's okay. The first one is you talked about a significant pickup in EBITDA in the second half. I just wondered if we could sort of zero in on this. Consensus is EUR 150 million for the full year. You obviously are a long way below that run rate in the first half. Are you happy with that consensus number? Is that your definition of significant rebound? And then, the second question is, you're around about halfway or slightly over halfway through this cost savings and transformation plan. And obviously, a lot of that is being absorbed by the cyclical downturn. I was wondering if you could provide a bit of color as to whether the second half of this transformation plan to get to the 750 million is now actually going to increasingly come through in numbers? Or whether there's some offsetting factors we should take into account?

[Olivier Mallet, CFO & Member of Management Board]

Well, on the first one, Rob. As you know, I would like it but we never comment on consensus. The only thing I can add is that if our expectations were materially different from what the consensus is, I would be obliged to comment about it, which I don't.

[Philippe Crouzet, Chairman of the Management Board]

As far as the transformation planning is concerned, Rob, we are more than halfway. We've done quite a lot in terms of actions planned. It is true that we have more actions going on. Some have already been mentioned, like divestiture of loss-making businesses. They are all done as we speak, so we should see some benefit in the second half and next year. Others are still ongoing. As you may remember, we are in the process of closing an additional mill in Northern France. That is, as well, ongoing and there's no obstacle to this, so it will generate additional savings. As mentioned by Olivier, the closure of the steel mill and [ last ] blast furnace, small blast furnace that we had in our historical mill in Brazil will, as well, impact our performance in H2 and the years to come. And we have more coming on in Europe and in South America, mostly. I would dare to say that as far as North America and Middle East and Asia regions are concerned, most of the fixed cost-cutting has been achieved, but we have potential there as well to improve performance, and this is part of our plan as well. And last but not least, we are very actively reorienting our product flows, in some cases, just mere optimization, and of course, building more out of Brazil and more out of China, to take those 2 examples. In some cases, like Section 232, we have to adapt to this new environment and reel in our flows to get the best of the new situation. Now that this whole global scheme is up and running and definitely generating the savings we were expecting. And again, earlier than what we had planned. So -- and I see no real obstacle to that, of course, except if a global downturn would hit the oil industry, but that's not on the map as we speak. I see more positive than negatives if we take the sectorial view of the oil and gas markets.I guess, we have no more questions, so we'll conclude. Let me just add a comment on 232. There have been many questions, and that's normal because it's completely new. We dare to say it's unexpected, like many things coming from the U.S. But overall, it is a positive for Vallourec, so just keep that in mind. And because, of course, we are a significant domestic player in the U.S., and as we've commented, we add capacity, which was not used in the former trade situation where more than half of the needs of the North American market were imported. Now this percentage will obviously fall down significantly, it creates more opportunities for us. So hence, our focus and especially the focus of our North American team on adding capacity through debottlenecking. These are subcontracting finishing operations or reorganizing our mills in order to generate more and more volumes, more capacity, without even subcontracting. So this is a positive for us, even if, as we commented as well, we have to reorient the flows out of Brazil to other markets, but the good news is that we are doing that pretty efficiently as we speak.So this is the whole story about 232. It's a positive. And based on that and our internal efforts on what we control, which is basically our cost and our working cap as well, our EBITDA is improving and will continue to improve, and we are remaining very much focused on returning to positive cash territories. So this is the conclusion of that presentation, and I wish nice holidays to all of you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.