(News Bulletin 247) – The manufacturer of seamless tubes generated positive cash flow in the fourth quarter and more than three times higher than expected. Its CEO, Philippe Guillemot plans to reduce the debt to 0 by 2025.

Vallourec had no room for error. The manufacturer of seamless tubes for the oil industry had promised in the fall that its cash generation would be strong in the fourth quarter of 2022, and would return to the green. The group had previously burned cash throughout the year, which had been sanctioned by the market, when the third quarter accounts were published.

Despite a capital increase carried out in 2021 and a healthier balance sheet, the group remains indebted, with net debt which represented 1.5 billion euros at the end of September. Cash generation, closely linked to the group’s debt reduction trajectory, is thus closely monitored by the market.

However, in the fourth quarter alone, Vallourec managed to generate free cash flow of 266 million euros. “It is very much higher than expected, the consensus was only 90 million euros”, explains a Parisian analyst. Cash generation was driven by the reduction in the activity’s working capital requirement (-183 million euros) as well as by the improvement in the group’s financial results in the fourth quarter.

Value rather than volumes

Over the last three months of the year, revenues increased by 45% over one year to 1.54 billion euros and, above all, its gross operating profit was multiplied by more than 2.5 to 312 million. euros.

The company benefited from price increases (with a 47% increase over one year in the average selling price per tonne of tubes) and its ability to direct its sales towards more expensive products (the “mix” effect) . The group thus believes that it is beginning to “harvest the fruits” of its strategy favoring value over volumes as part of the “New Vallourec” plan.

This plan was put in place in May, after the arrival of CEO Philippe Guillemot, previously general manager of the collective catering group Elior.

As a result of this good cash generation, net debt fell from 1.5 billion euros at the end of September to 1.13 billion euros at the end of December, thanks to both cash and other elements, including 26 million euros from asset disposals.

On this last point “Vallourec has also announced progress in the sales of its land in Germany”, appreciates the previously quoted Parisian analyst who welcomes “good news”.

The seamless tube maker said on Thursday it signed a sale agreement for its Mülheim site in Germany last month for 40 million euros, adding that the process of selling its largest Düsseldorf-Rath site was , “in progress”. The group has indeed decided to stop the activity of its sites in Germany and to transfer it to Brazil this year.

Zero net debt in 2025

Over the whole of 2022, Vallourec increased its turnover by 42% to 4.88 billion euros and recorded a net loss of 366 million euros, due in particular to provisions related to its restructuring and European social plans. The rationalization of the group’s activities as part of the “New Vallourec” plan has indeed resulted in the announcement of 3,000 job cuts, the majority of which in Germany, but also with departures in France and the United Kingdom.

Free cash flow for the whole of 2022 was negative at €216 million.

For 2023, Vallourec intends to increase its gross operating income, generate positive cash generation and continue to reduce its net debt. “At this stage of the year, it is normal for the objectives to be very literary and not quantified”, judges the Parisian analyst. “The group is on its way to improve its profitability and make it converge with that of its Italian competitor Tenaris,” he adds.

Quoted by AFP, Philippe Guillemot also declared that Vallourec’s net debt should be reduced to 0 by 2025.

On the Paris Stock Exchange, the market appreciates the results of Vallourec, with a little moderation. The action rose 3.6% around 11:10 a.m., after peaking at 6.2% at the start of the session.