Vallourec's (VLOUF) CEO Philippe Crouzet on Q2 2016 Results - Earnings Call Transcript

| About: Vallourec SA (VLOUF)

Vallourec SA (OTCPK:VLOUF) Q2 2016 Earnings Conference Call July 28, 2016 12:30 PM ET

Executives

Etienne Bertand - Head, Investor Relations & Financial Communications

Philippe Crouzet - Chief Executive Officer

Olivier Mallet - Chief Financial Officer

Nicolas de Coignac - Senior Vice President North America

Didier Hornet - Senior Vice President, Eastern Hemisphere

Analysts

Michael Shillaker - Credit Suisse

Robert Pulleyn - Morgan Stanley

Delaby Guillaume - Société Générale

Kevin Roger - Kepler Cheuvreux

Fiona Maclean - Merrill Lynch

David Farrell - Macquarie

Etienne Bertand

Dear all, good evening and thank you for joining us tonight in Paris. With me today to comment the H1 2016 results are Philippe Crouzet, CEO; Olivier Mallet, CFO; Nicolas de Coignac, Senior Vice President North America; Philippe Carlier, Senior Vice President, Europe; Didier Hornet, Senior Vice President, Eastern Hemisphere.

I would like to inform you that this conference is audio webcasted and will be recorded. The slides that will be commented by the management during this presentations are available for download on our website and before I hand over to Philippe, I must warn you that today’s conference call contains forward-looking statements and that future results may differ materially from statements or projections made on today’s call. For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the beginning of our slide presentation and are included in our annual registration document filed with the AMF.

This presentation will be followed by a Q&A session and I will now leave the floor to Philippe.

Philippe Crouzet

Thank you, Etienne. Good evening and thank you for attending our H1 results. I will now start by presenting the operational and financial highlights for Q2 and then H1 and we will update you on the presentation of our transformation plan and then Olivier will come back to our financial performance and give more details. So, this semester continues to be obviously marked by very difficult market conditions and as a result our volumes decreased significantly over semester impacting revenues which are down 30% and the EBITDA which stood at minus €104 million. The free cash flow was negative at minus €317 million.

If you look at Q2 figures as expected our activity was better including in Q1, thanks to better mix and higher delivering in this quarter. Revenues therefore reached €763 million over the quarter, so slight increase quarter-on-quarter. EBITDA stood at minus €32 million and free cash flow at minus €78 million. Let me now provide you with an update on the execution of our transformation plan as you will remember this plan which we announced on February 1 is structured around four major strategic initiatives it aims at weathering the downturn and transforming Vallourec to secure its long-term profitability.

On the operational side, we are as a reminder again reshaping our European footprint, developing competitive hubs in China and Brazil and reinforcing our partnership with Nippon Steel & Sumitomo Metal Corporation notably on the innovation front. In parallel, we’ve take decisive action to strengthen our balance sheet and all-in-all this plan will generate €750 million of EBITDA contribution additional EBITDA contribution by 2020 and half of this amount being independent from any market republic. So, this is the plan, now let’s look at what we achieved over the last quarter’s over the semester. First, as far as reorganizing our operations in Europe, as you may have seen from last week’s announcement, entered into exclusive negotiations with Ascometal for the sale of 60% of our steel mill in Saint-Sauve. As you know Saint-Sauve is a modern and high technology production tool which supplies us with special steels. This deal will enable us to reduce our cost significantly and address our overcapacity in steel production in Europe while keeping access to capacity of 100,000 tons per year. In addition, as far as closing our rolling mills, our French rolling mills, we have now completed the mandatory negotiations with the workers councils in France and we plan to close two rolling mills respectively as far as the one in Rouen -- Déville-Lès-Rouen in H2 2016 and Saint-Sauve rolling mill will be closed in Q1 2017.

And finally, we completed the divestiture of Vallourec Heat Exchanger Tubes end of April. So this is for Europe. Second, China, we’ve received clearance from the Chinese competition authority to acquire a controller stake in Tianda. This is the major step towards this acquisition. We still need some regional key runs which should not be a problem. As a reminder, while we are talking about clearance, we’ve already obtained the clearance from the Brazilian competition authority to proceed with the merger of VBR and VSB our two subsidiaries in Brazil both deals should be completed before the end of the year.

Thirdly, we strengthened our balance sheet and we continue to keep a permanent focus on liquidity. As you are well aware, the rights issue was a success with subscription rate of 160%. We completed the last steps of our capital increase with the following conversion of Bpifrance and Nippon Steel’s mandatory convertible bonds. In addition to the rights issue, we’ve continued to improve our financial flexibility and for that we signed in May additional credit lines for total amount of €500 and we successfully extended in July maturity of €1.5 billion medium and long term credit facilities. So to conclude on the highlights, let me just rapidly focus on our adaptation plan, so we are taking a more short-term approach there. We keep a tight control over CapEx. We intend to cap CapEx at €200 million this year down €70 million approximately versus last year. Parallel to that, we keep on reducing headcount. We have reduced total headcount globally at the end of June 2016 by 20% compared to just 18 months ago totaling 5300 people.

H1 reduction pace was 1800 person fully in line with the pace achieved in 2015 and most of this jobs the ones during the first half are permanent positions. Our plan is also allowing us to reduce our fixed costs, SG&A which here we take as an example. SG&A are down at €225 million for the first semester of 2016 still competitive under 64 in 2015. And overall, we’ve achieved about €60 million in total cost savings in the first half of 2016 in addition to the €100 million already saved in 2015. This is fully in line with our objectives.

I will now hand over to Olivier for a more detailed review of our financial result for the semester.

Olivier Mallet

Thank you, Philippe. Good morning or good evening. So let’s start with the next slide that gives you some perspective on the depths and duration of the downturn in terms of volumes first. As you can see H1 volumes were down more than half compared to the average volume sold over H1 2015 and 2014 which is of course in line with a global cut in E&P CapEx by 42% between 2014 and now.

On the next slide, the revenue decline of 30.7% in H1 is mostly by the volume drop. In addition, you can notice only a slight currency impact of minus 3.4%. In terms of revenue breakdown by market and by region on the next slide, the group revenues breakdown by activity first reflects mostly the decline in the oil and gas sales while you can see a slight increase in active contribution of power gen. the breakdown by region show that North America share has been devalued by two due to the very low demand for OCTG product and continued de-stocking. Asia and Middle East share has increased due to the raise to NOC in the Middle East as well as two power gen raise two customers in Asia.

Let’s then take a look at the P&L. As already commented, revenues were down 30.7%, mostly due to the volume drop. This in turn had a strong impact on our industrial margin at 8.5% despite a good adaption of our cost of sales that went down by 24%. As Philippe mentioned, you can see an example of our cost of savings on the SG&A line that was capped by almost 15% compared to a year ago.

Moving to slide 14, on the line other, you see restructuring charges of €83 million and internal charges of €68 million linked mostly to our transformation plan announced in February and as well booked mostly in Q1. Currency loss increased compared to last year due to forex result. Income tax shows a positive number mainly related to the recognition of deferred tax assets and the net result, group share is a loss of €415 million. Let’s now move to the cash flow on slide 15. The group generated a negative free cash flow of €317 million in H1, 2016 mainly due to the negative cash generated from operating activities at minus €203 million due as well to some seasonal increase in working cap that took place actually in Q1 it was a negative €61 million in Q1 and a positive €20 million in Q2 and our CapEx at €73 million show some decrease compared to last year, we continue to put some heavy pressure on our CapEx.

In terms of debt, slide 16 the group net debt at the end of H1 decreased by €575 million compared to the end of last year to €944 million which results in a gearing ratio of 25% compared to 50% at the end of 2015. This is of course thanks to the success of the right issue combined with the issuance of reserved mandatory convertible bonds to NSSMC and Bpifrance that have been converted into shares already. As a reminder because it was already the case in Q1 the other others, disposals and other items includes the deposit in Q1 of €57 million in an escrow account linked to the acquisition of Tianda Oil Pipe.

Some comments on slide 16 on liquidity and financing. In order to insist as Philippe mentioned on the fact that we have been very active on the liquidity front since the beginning of the year because on top of the capital increase, we signed in May around €520 million of additional bank credit lines, so that our medium and long term undrawn committed credit facilities amount now to €2.3 billion.

On July 4, 2016 we extended the maturity of €1.5 billion of medium and long-term credit lines as follows on the bottom right corner of the slide. As a result of the partly [ph] management of our liquidity, the two graph on the left hand side shows a strong maturity profile of both our long term debt essentially bonds and our long term committed bank facilities and now I will hand over back to Philippe.

Philippe Crouzet

Let us move to some comments on how we see the remainder of the year. We continue to foresee very difficult market conditions in the absence of recovery of CapEx for exploration and production of oil and gas deliveries will obvious continue to be impacted by the low drilling activity. Looking at every regions and in order to give you little more color on what we anticipate, let me start first by North America. North America is the only market where we very recently seen some increasing drilling activity but U.S. separators continue to focus on enhancing efficiencies and improving their cash flows. So on the positive side in H2 ongoing inventory reduction distributors should start to dissipate progressively and prices could start recovering moderately helping to offset scrap prices evolution. And we are well positioned to make the most of this market improvement. We really definitively believe in the efficiency of our model which combines local manufacturing, local avenue resources and a very efficient distributor network.

In EAMEA, till the IOCs continue to reduce their CapEx and they keep on being extremely selective in sanctioning new projects as opposed to national oil companies which are launching significant tenders that very disputed vendors, so very disputed prices. H2 deliveries will suffer from the low order intake in 2015 – second half of 2015 and since the beginning of the year and of course from the steep decline in prices. In Brazil, we do not expect any major change in market trends. Petrobras has adjusted its business plan downwards at the beginning of the year and we focus more on the dropping pre-salt basins which is reducing but reducing all other fields and as a result, our OCTG deliveries will decline in 2016 versus 2015.

In other markets, non oil and gas market, we expect power generation revenues to be broadly stable. Nuclear power generation being down it’s a low year as opposed to conventional power generation which is more resilient. Industry and other operations in Europe should continue to be effected by the weakness of global investment and by pricing pressure. So in this context which is pretty consistent with our initial expectations, we confirm R 2016 [ph] guidance and I remind you that we are targeting an EBITDA still lower than in 2015 and negative free cash flow of approximately €600 million assuming the same working cap level and exchange rate, same exchange rate as the end of 2015. And we target net debt not exceeding €1.5 billion at the end of the year after the full acquisition of Tianda and full consolidation of VSB. Thank you for your attention and we will now answer your questions.

Manuel, we may start with question now.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] We are now going to take our first question from Michael Shillaker, company Credit Suisse. Please go ahead sir.

Michael Shillaker

Yes, hi, thanks Philippe taking my questions here. I have got three maybe four questions actually if I may. Firstly, just on the H2 outlet, last quarter you were little bit more explicit in suggesting the Q2 would be a slightly abnormal blink up given mix improvements and similarly would anticipate in the second half of the year, and therefore not to expect the Q2 run rate to continue into the second half of the year. Can you confirm given you haven’t changed guidance that is still the call and therefore H2 should be weaker than the Q2 run rate or something changed within that?

Second question just on CapEx, so we are running at two thirds CapEx to deprecation, which I guess is okay in the short-term, but how long can you actually do this, how long is this sustainable before you actually end up damaging the business in some way. And third question just on Saint-Sauve, can you give us any form of help in terms of the financial impact of the deconsolidation of the asset in terms of A, was it negative EBITDA? B, is that debt involved that disappears from the balance sheet and C, is there actually any financial payment for the percentage stake that may be taken? Thank you.

Philippe Crouzet

Thank you, maybe I will take the first two ones and Olivier the third one. On the first one, yes Michael you are right, you should not take Q2 as the basis for second half. We clearly has more activity more deliveries in Q2 than we get especially in Q3. As far as CapEx is concerned, you're right in saying that we have pretty low level of CapEx for the moment and – but we don't think this is damaging the business as well in mind certainly a significant part of our CapEx is maintenance CapEx of course at the moment our mills are certainly not running at full speeds also they definitely need less maintenance CapEx than usual. On the other hand, we are about to divest or shutdown a number of equipments so therefore reducing our CapEx needs. So definitely we can sustain that level for how long it is probably too early to say but clearly when recovery will start to show, we will spend more CapEx in order to accompany the recovery both from maintenance side and from capacity and development for new product side. But this is not yet where we are today. On divestiture, Olivier.

Olivier Mallet

Yes, on the divestiture of the Saint-Sauve steel mill, first I would like to remind you what is the objective? It will generate savings in Vallourec P&L because thank to the increase in the load of the Saint-Sauve steel mill that will benefit from our existing or some of our existing load and the load to the brought by Ascometal. The special steel billets that we will buy from the new entity will be significantly cheaper than what we can get as of today. So somewhere after the [indiscernible] we will benefit from these savings in our P&L. It is probably too early because we are entering just into existing negotiations to comment on the precise forms for which deconsolidation will take place at the end of this year or beginning of next year so we will come back later on that but it won’t involve massive elements from the financial point of view

Michael Shillaker

Okay, thank you.

Philippe Crouzet

Thank you, Michael. We will take the next question Manuel.

Operator

Thank you, so we are going to take our next question from Robert Pulleyn from the company Morgan Stanley. Please go head, your line is open.

Robert Pulleyn

Yes, good afternoon, gentlemen. I am Rob Pulleyn from Morgan Stanley. Just two questions if I may. The first one, could you give a little bit of color around the financing cost of those credit lines you managed to secure which obviously improved the liquidity position, I am just sort of interested, what kind of terms you got from banks and finances at this point in the cycle. And secondly, you mentioned in the opening statements about the outlook in the U.S. obviously the rig count is rebounding. I would imagine that the first benefit from Vallourec is an improved utilization of its plants in the U.S. Could you maybe give a little bit of color as to when you expect the load out of those plants to improve as I imagine that will be quite key to profitability? Thank you very much.

Olivier Mallet

Yes on the first point, the extension has given place to some amortization in the financing cost of our values credit likes, which leads to cost if we draw the lines of about 3.5% and if we don’t draw the lines, talk about 10.4%.

Philippe Crouzet

About North America, Nicolas, some comments.

Nicolas de Coignac

Yes some comments, so Rob, here, of course the rebound of activity remain small. Of course we can see that there are about 50 rigs more than when we reached the trough. So this is not yet what can give a significant rebound in activity. However, the fact that the rig count is not decreasing any more, this is a good signal for our partner distributors that are definitely stepping out of the de-stocking process and we have seen over the last couple of months a significant improvement in our bookings still very far from what used to be the pick of the peak but this is more coming from lesser de-stocking from our distributors that have done their job significantly better than the average of distribution in North America and that this definitely helping the load of our plants in North America.

Robert Pulleyn

Okay thank you.

Philippe Crouzet

Thank you, Rob.

Operator

[Operator Instruction] We are now going to take our next question from Delaby Guillaume from Société Générale. Please go ahead, your line is open.

Delaby Guillaume

Yes, good evening, thank you for taking my question. In this very depressed environment I would like to ask some questions which might be little bit different in the sense I would like to ask if you see among your clients some new requirements either in terms of technology or are there some new needs which are appearing or do you see some new trends which you believe are likely to emerge in the coming quarters and years? So anything special you could share with us regarding some possible changes not necessarily in terms of volume of prices but about clients’ requirements?

Philippe Crouzet

Well I will probably let Didier answer in terms of oil and gas which is probably what you have in mind. Let me say it clearly that the dominant concern by our customers at the moment is about cash, so everything has to be aligned according to what is, how do we help them to improve the efficiency of their cash utilization either of course in terms of cost or in terms of service and working cap in the supply chain so I would say this is dominant concern short term and probably further in the future, we will certainly have some more technology related needs to sow up but this of course we need to see a confidence coming back at our customer’s place as far as new project and I specially have in mind off shore project. But as you know, I mentioned this is certainly not on the top of their priorities as far as we speak. Didier, any comment?

Didier Hornet

Yes, what I could add Philippe is because the customers, our customer’s objective is definitely to optimize cash, we see more and more focus on what’s being called total cost of ownership which means reusing and maximizing the efficiency of the cash they have. In this respect, some example that we can take is all the initiatives we take to shorten bid time to our customers thanks to our local and finishing capacities can be in the Middle East in Asia Pacific but also in Europe. This is also connected to the Vallourec global solutions initiatives where we are able specifically in the North Sea in Brazil and more and more in the U.S. to package and optimize the flows of pipes plus accessories plus services, field services also helping our customers to optimize the use of cash. A good example also of a strategic move that we are doing in that direction is the Cermak [ph] plus Technip initiatives that will allow us to optimize the performance for end users of the work that’s being done on the spool base together with Technip, so these are few colors as we are asking of options we now offer to our customers to optimize cash.

Philippe Crouzet

Maybe Nicolas, any specific needs as far as North American market is concerned.

Nicolas de Coignac

Yes certainly adding on what Didier already commented definitely one of the requirements that our customers are asking in North America is a much higher flexibility and reactivity. And we have been working on this over the last months being able to offer extremely reduced lead times to be able to adapt ourselves to what the customer is requesting when he is making some changes, last moment changes and one of our big I think advantage we have is definitely using this very limited number of partner distributors that combined with us and with this lead time we are providing are able to address absolutely every request within hours to what our customers request when they decide to put a new rig or to change what is their program or even change the design. We have now really a setup that is extremely reactive and flexible.

Delaby Guillaume

Thank you very much.

Nicolas de Coignac

Welcome.

Philippe Crouzet

Thank you, Delaby, any other question on your side?

Delaby Guillaume

Not at this stage.

Philippe Crouzet

Okay thank you, Manuel, we turn over to the next question.

Operator

Thank you, so we are now taking our next question from Kevin Roger, Kepler Cheuvreux. Please go ahead, your line is open.

Kevin Roger

Hi good afternoon, everyone thanks for taking my question. The first one is a followup regarding the EBITDA for the second part of the year, we understood that it would be lower than Q2. But do you see the Q1 as the bottom in term of EBITDA. Second question are really key to the U.S., can you please provide some information regarding the volume effect in Q2 and regarding the outlook for the H2, you previously say that you are negotiating price increase with your clients, did you already manage to increase pricing or is it still in course and regarding the volume activity in H2, number of U.S. companies recently announced ramp up in the drilling activity, so do you expect like say a good activity step up also for you in H2. And the third question is really to the working capital evolution in the second part of the year, can you please provide some information for us on this point?

Philippe Crouzet

Maybe back again to the USA, Nicolas about volume, how to anticipate?

Nicolas de Coignac

So hard to anticipate and of course with the price of the WTI still being quite unstable it’s hard to predict but again when we see the trend over the last couple of months in the rig count if you just try to extrapolate this trend towards the end of this year, we would probably reach around 600 rigs by yearend and this is, this will definitely beyond what is the end of the de-stocking effect will also require of course some restocking. So if you consider that we will be able to keep our customer will keep the same trend. This is where we expect to be by yearend, but again it’s pretty much linked to the WTI evolution. And it’s hard to position in time whether it will happen before yearend or beginning of next, it’s hard to say. The trend is favorable but it’s really hard to make statement on the speed of the recovery in North America. About price, Kevin, as you know we have announced a price increase in Q2, so definitely this was also made to offset the impact of the cost of raw materials. This is definitely helping but of course as usual, I would say on the U.S. market when you announced the first price increase, it doesn’t translate at all or after a big lag. So we are working on this. What I can say is that definitely we haven’t probably stopped erosion on margins, clearly but before this price increase materializes into the P&L we will have to wait a little bit more.

Olivier Mallet

Maybe on your two P&L and cash flow questions, first question was to know whether we should see in H2 numbers confirming that Q1 is a baton. We are not used to comment quarter by quarter our EBITDA forecast. What I can just tell you is that based on our free cash flow guidance or based on the consensus as far as full year EBITDA is concerned this will be relatively consistent with what you said being an average quarterly result in H2, not that far away from what Q1 has been. Your second question was about the working capital evolution in the course of H2, two comments to be made there. As we commented there is typically within Vallourec some seasonality effect with an increase in working capital in Q1 and this is what we have seen in Q1 2016 sorry €61 million.

There has been then a slight decrease in Q2 by €20 million. What it will be at the end of the year will of course depend on the pace of the activity in Q4 and in Q1 2017. What I may be able to say is that if we take sort of the conservative approach where we don’t see a rebound in the activity or seamless country bound in the activity by the end of the year, so we may have some limited decrease in working capital requirement in the second part of the year.

Kevin Roger

Okay, thanks a lot.

Philippe Crouzet

Thank you, Kevin. We will take the next question.

Operator

We are now taking our next question from Fiona Maclean, company Merrill Lynch. Please go ahead, your line is open.

Fiona Maclean

Yes, it’s Fiona here from Merrill Lynch. Apologies if these questions have been asked already, I was little late joining the call. I got two questions on how easy things have been for you in terms of, and the first regard the pricing increase that you announced earlier in the year, how easy has that been for you to be able to push that to your customers and does that give you confidence to be able to increase prices even further maybe in the second half of the year, I mean the second question is with regards to the very extensive capital increase that you have executed in the first half of year. First of all, I would just like to get little bit more color on how easy you find that to actually even terms of being able to access more liquidity from the banks and whether you think those markets would be open again if you were maybe introduce so and do you feel confident and comfortable that the overall size of the capital injection has been enough to see this business through this very harsh downturn or is there any potential risk of having to revisit this at some point in time, thank you.

Olivier Mallet

So good afternoon, Fiona. Maybe on your two questions if I understood where they first one, it was about raw material increase and how we have been able to pass that through to our customers. It really depends on the geographies I would say as Nicolas just commented for the U.S. we believe that prices have stabilized. We are starting to increase moderately our prices on the North American market which in the short term should enable us to offset at least large part of the increase in scarp in the U.S. which by the way scrap cost has stabilized since fewer weeks.

If you move to Brazil and I am focusing on oil and gas there, as you know we have contract with Petrobras, we have some index closes that we follow. Finally, in the rest of the world in the EAMEA region, as Philippe was commenting, you don’t have that many tenders as of today on the market, the IOCs are still extremely cautious before launching new projects, the NOCs are still active but all in all the amount of what is at stake is limited which is still leading to a significant price pressure. Although we can hope as well that in this part of the world, we have find some sort of a bottom. But it’s quite too early to comment on any price increase in this part of the world.

Then in terms of liquidity, as I was mentioning during my introduction, that on top of the capital increase we increased our bank lines by about €520 million back in May and we just extended in July this as of today and overall multiplying by one or two years mostly one year for €1.5 billion. So that in terms of maturity profile both for our long term drawn debt bonds and our undrawn committed bank facilities, we have gained relatively good level of comfort which lead us to believe that as already announced, we can whether potentially salter the worst case scenario in terms of recovery or no recovery in 2017.

Fiona Maclean

Okay thank you. And just to follow-up, in terms of 2017, have you given any color on how you think that is going to shape up at give them what you know at the moment?

Philippe Crouzet

No, we have not given any precise guidance for sure. Our vision remains the same we are – we keep the idea that there should be, we should experience progressive market recovery in 2017 starting in North America. We have already commented during the call that we are seeing some signs of this happening in North America since no more than two months but that’s already a beginning. As far as the rest of the world is concerned we kind of agree with the overall opinion that the oil market should rebalance now in the very short term by the end of 2016 of this year and this should trigger a progressive recovery of E&P spending which you know is our key driver. So definitely we keep the same vision that the bottom is in 2016 and a recovery should start to develop progressively in the course of 2017.

Fiona Maclean

Okay, thank you very much.

Philippe Crouzet

Thank you, Fiona, good evening. Maybe another question Manuel.

Operator

Yes we have another question from David Farrell, company, Macquarie. Please go ahead, your line is open.

David Farrell

Hi, there. Just wondering, if I could ask a question about the regional approvals that you are seeking in China, could you just elaborate on that please?

Philippe Crouzet

It’s pretty simple, China. It’s a complex country so when you make an investment being a foreign company especially you need to go through various steps first the national level, you go through a body called the MOFCOM, that’s kind of ministry and they gave you the approval on kind of principal of the investment and especially on the – under the light of competition concerns or titers [ph], what we call titers [ph] elsewhere. So we have gone through that and definitely this is the most complicated part of the process. The most cumbersome one and but then you have to go down to the lower level of the province where the investment is located in particular case, in our case the Anhui province. I am not sure I pronounced it perfectly but that’s where Tianda is located. But by concept there should be no problem there because the local authorities are very happy to see fine investors in. so we do not expect any problem but it’s a sequential process. There is no way to go faster and we have to follow that process. So hopefully that should be done before yearend. And then when this is done, it means that we will get the full majority control of Tianda and the last step would then to launch an IPO in the Hong Kong stock exchange where.

Olivier Mallet

NGO [ph]

Philippe Crouzet

NGO [ph], sorry, NGO [ph] where 28% of the shares are listed and this therefore should take place immediately when we get control of the majority of the company. But it’s a relatively short process, I think three, four weeks is enough to complete the final step. So that’s why I say we normally should be done by the end of this year.

David Farrell

Sorry, just as a followup. I think, I being of stupid. But in terms of your liquidity, you talk about a €650 million bond maturing in 2017, and then below this is on slide 17 say there is no bond, no significant payment until 2019. You just kind of square that circle for me please.

Olivier Mallet

Yet what I confirm to you, anything else you – I didn’t get your question. Yes it’s that, I can confirm yes.

David Farrell

If I look at page 17 under the liquidity heading, it says there is a €650 million bond maturing in February 2017. And then under strong LTE long term financing it say no repayment until 2019?

Olivier Mallet

Yes because when you look at the long term drawn debt where there is no repayment until 2019 which amounts as of today to €1.1 billion, the bond repayment that has to be done in February 2017 is not part of that because it’s not conceived as a long term debt but now as a short term debut because it will be repaid next year.

David Farrell

Okay and that will be paid out of the existing credit facilities that you have rather than being redone it?

Olivier Mallet

The cash because as of today we are €1.4 billion cash on our balance sheet which cover €1.2 billion of short term drawn debt including the €650 million to be repaid in February 2017.

David Farrell

Okay, yes, I am with you sorry.

Olivier Mallet

No problem.

Etienne Bertand

That’s okay, no problem. Is there any question left Manuel?

Operator

There are no further questions left.

Etienne Bertand

Okay, so I think this will conclude our presentation of today.

Philippe Crouzet

If I may conclude rapidly, so I think in a nutshell clearly market is not helping yet, although we have commented on some positive signs in North America therefore we definitely focus on our homework if I may say by this I refer to our transformation plan. And as I commented, we are rolling that plan running it out at a good pace. We are on track, we are on time especially in Europe where we all know that this is not a simple process but basically we are on track as well as in China and in Brazil.

Etienne Bertand

Thank you very much and good evening. And next time we will communicate our Q3 results early November. Bye-bye.

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