Vallourec : Statutory Auditors’ report on the Consolidated Financial Statements

Consolidated Financial Statements December 31, 2023

Auditors Report to the Audit Committee

March 8, 2024

Introduction

To the Audit Committee of Vallourec,

Pursuant to Article L. 821-63 of the French Commercial Code, we hereby present our report on our audit of the financial statements of Vallourec for the year ended December 31, 2023.

The main items that we wish to bring to your attention are presented on page 3 to 24. Some of the items we have already discussed with the Audit Committee are included in the appendices.

Management is responsible for the preparation of the annual and consolidated financial statements. The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of internal control and risk management systems and, where applicable, its internal audit, regarding the accounting and financial reporting procedures.

As part of our work as Statutory Auditor, it is our responsibility to express an opinion on the financial statements prepared by Management, after having audited them. However, our audit of the annual and consolidated financial statements does not discharge either Management or the Audit Committee of their responsibilities.

This report has been prepared on the basis of the information available at the date when the consolidated financial statements were approved by the Board of Directors.

This report, which is notably intended to bring to your attention those items that in our opinion are important for the performance of the duties of the Audit Committee, does not express an opinion on specific items of the annual or consolidated financial statements.

The content of this report is intended solely for the Audit Committee, and may not be transmitted to third parties other than the competent authorities referred to in Article D.821-198 of the French Commercial Code (H2A and, where applicable, AMF and ACPR), or used or cited for other purposes.

Deloitte & Associés

KPMG S.A.

Véronique Laurent

Alexandra Saastamoinen

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Introduction

Respective roles of external Auditors, Management and the Audit Committee

We have completed our audit of the Company's 2023 consolidated financial statements in accordance with our Audit Plan, and this report sets out, as the basis for discussion at the closing meeting, our significant findings and other matters which we believe should be brought to your attention.

Our audit of the consolidated financial statements was performed, in accordance with French Standards on Auditing, to obtain reasonable, rather than absolute, assurance whether the consolidated financial statements are free of material misstatements whether caused by fraud or error.

The Management should be aware that there is a risk that material errors, fraud, and other illegal acts may exist and may not be detected by an audit performed in accordance with French Standards on Auditing as a result of such factors as: the nature of audit evidence, which is based on the use of testing, much of which is persuasive, rather than absolute; the inherent limitations of internal control and the characteristics of fraud.

An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and their application and significant estimates made by management, evaluating the overall consolidated financial statement presentation, making specific enquiries of management, and obtaining a supporting representation letter from management concerning the effectiveness of internal controls and the representations embodied in the consolidated financial statements, including the notes thereto.

Auditors Independence

Our internal procedures, assuring us that no situation is likely to call into question our independence, allow us to confirm our independence vis-à-vis Vallourec Group, within the meaning of the ethical rules applicable in France. Our respective declaration of Independence to the Chairman of the Audit Committee are presented with appendix.

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Report to the Audit Committee

Audit opinion

No change in accounting standards applicable as at January 1st, 2023

The accounting and valuation standards applied by the Group as at December 31, 2023 are consistent with those used in the consolidated financial statements as at December 31, 2022.

No significant new accounting standard expected to be applicable as of January 1st, 2024

Presentation of financial statement in accordance with the European Single Electronic Format (ESEF) with technical limits inherent in the block-tagging of the consolidated financial statements

Based on our materiality level, unrecorded audit differences are, individually or in aggregate, assessed as not significant

Management is responsible for assessing the impact of any misstatement detected during the preparation and audit of the consolidated financial statements, individually and in the aggregate, and determining if such adjustments should be recorded. As required by auditing standards, we must report uncorrected misstatements (other than inconsequential items) to the financial statements.

Uncorrected audit differences represent audit findings for which we do not agree with the amount, classification, presentation or disclosure of items in the financial statements. Uncorrected audit differences are detailed in appendix.

We express an unqualified audit opinion on both consolidated and annual financial statements

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Report to the Audit Committee

Going Concern

When preparing the financial statements, management is responsible for assessing the company's ability to continue as a going concern disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there are plans to liquidate the company or to cease operations.

As part of our audit conducted in accordance with the professional standards applicable in France, we assess the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company's ability to continue as a going concern.

Management has not identified any issues regarding going concern that would need to be disclosed in the financial statements.

In the course of our work, we have not identified any additional information that needs to be brought to your attention.

However, as specified in Article L.823-10 of the French Commercial Code, our audit does not include assurance of the viability or the quality of management of the affairs of Vallourec.

© 2024 Deloitte & Associés - KPMG	Auditors Report to the Audit Committee 5

Report to the Audit Committee

Executive summary

Consolidated & Annual financial statements Management representations

For the purposes of our engagement, we are required to obtain a representation letter from the legal representatives of the entity. For the year ended December 31, 2023, the letter includes specific statements on the following:

• HKM Take or Pay
• Recoverability of Deferred tax assets

Internal control

The nature and extent of the procedures on the internal control have been determined on the basis of the work we have deemed necessary for us to express an opinion on the financial statements, but not for expressing an opinion on the effectiveness of the entity's internal control and we express no opinion on the internal control.

We have not identified any significant deficiencies in the Vallourec company's accounting and financial internal control system.

We have not identified all areas for improvement that might be revealed by a more in-depth examination of the internal control.

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Report to the Audit Committee

Scope of consolidation and audit

Scope of consolidation

The scope of consolidation is described in Note 10 to the draft financial statements for the year ended December 31, 2023. There are no material change to report in the consolidation perimeter. The analyses performed by management to assess the immateriality of non-consolidated entities taken individually and collectively require no comment on our part.

Scope of audit

The scope of work is determined based on an analysis of risks at the consolidated level. The factors taken into account include quantitative criteria (the contribution of entities included in the scope of consolidation to the consolidated financial statements) and qualitative criteria (the risk that certain consolidated entities may present individually). Additional analysis was conducted on other entities to ensure they do not pose other risks. Where necessary, we have included some of these subsidiaries in the scope of our audit.

Sales

EBITDA

Assets

2023

2022

Use of audit firms outside the network or external experts for audit purposes

A review is performed by BDO on PTCT in Indonesia and Serimax France (in aggregate 2% of sales, 1% of EBITDA and 3% of total assets) in accordance with our audit instructions. These firms have confirmed to us in writing their independence with respect to your company and we are reviewing their audit files.

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Report to the Audit Committee

Summary of uncorrected audit differences

Uncorrected audit differences represent audit findings for which we do not agree with the amount, classification, presentation or disclosure of items in the financial statements and are summarized below.

Audit difference with impact on net result

None

Audit differences without impact on net result

Descriptions	Equity	Assets	Liabilities	Equity
In €m	2022	2023
VAD_Invoice related to social plan recognized as
trade payables instead of provision
- Provision			-2,6
- Trade payables			2,6
VAD_Missing value adjustment on raw materials
HKM
- Provision for onerous contracts			2,9
- Depreciation on inventories			-2,9
VSB/VBR/VTI_Invoices recognized as provision
instead of trade payables
- Provision			3,8
- Trade payables			-3,8

• Based on our materiality level, unrecorded audit differences are not significant

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Report to the Audit Committee

Summary of audit focus

Consolidation	Key estimates
matters
	Other audit
Vallourec SA standalone	Key estimates

	Key	Other
Audit focus	audit	audit
	matters	risks
Impairment tests	✔
Provisions and contingent		✔
liabilities
Tax		✔
Revenue recognition		✔
HKM Take or Pay		✔
Pension		✔
Management override of control		✔

Impairment tests

✔

Pages

12 - 15

19 - 20

21

17 - 18

22

24

We report to you on the result of audit procedures on:

• Key estimates

We considered the main accounting principles and valuation methods applied to the consolidated and annual financial statements.

Valuation methods applied by

management and requiring, as appropriate, the use of estimates and assumptions, or judgments, are indicated in Note 1.2.4 to the consolidated financial statements.

• • Impairment tests assessed as a key audit matter to be detailed in our audit reports.
• Others audit matters

We also report to you on audit focus flagged in our audit approach.

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Report to the Audit Committee

Executive summary

Matters	Comments and conclusions
Impairment tests of	•	EH Tubes: due to an overall improvement in Eastern Hemisphere, notably in MEA, €154m of
CGUs		impairment on assets CGU have been reversed as at Dec. 31st, 2023
(pages 12 to 15)	•	North-America: no triggering event
(Key audit matter)	•	Brazil Tubes: no impairment but limited headroom - CGU to be kept under watchlist
	• Brazil Mine/forest : no impairment and significant headroom
HKM Take or Pay	•	Following Vallourec decision to terminate the cooperation and supply agreements with HKM in
(pages 17 & 18)		2021, the arbitration tribunal confirmed in December 2023 the obligation for Vallourec to honor
		the Supply Agreement until the effective termination date of December 31st 2028.
	• From 2024, with the closure of VAD, the quantities to be purchased by Vallourec will be trade in
		their entirety and without transformation. The HKM take-or-pay is then a derivative instrument
		that must be measured at fair value at each balance sheet date.
	• As in 2022, management has established a cash flow scenario over 2024 to 2028 on HKM ToP. A
		loss of €127m has been recorded in 2023.
Provisions	•	Total provision amounts to €450m o/w €253m relates to new Vallourec reorganization measures
(pages 19 et 20)		and €19m relates to former social plans;
•	55% of costs are expected to be cash out on 2024.
	• No other significant increase or release of operating provisions notably at Brazilian side.
Taxes (page 21)	•	DTA balances are mainly related to Brazil (€162m over €209m) for which DTA on NOLS are
		supported by 5 years tax planning.
Pensions (page 22)	•	Variation YoY is mainly related to payments made by the Group in Germany in context of the plant
		closure.
	•	Discount rates used are consistent with our benchmark.

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