(News Bulletin 247) – The specialist in tubes for the oil industry has published gross operating income well above expectations in the first quarter and indicated that it could exceed one billion euros for the current financial year. Vallourec also once again generated positive cash flow over the first three months of the year.

Vallourec has a string of good publications. After a last quarter of 2022 which had already marked the return to positive cash generation, the specialist in seamless tubes for the oil industry is continuing its good momentum.

In the first quarter of 2023, the group led since last year by Philippe Guillemot, generated revenues of 1.34 billion euros, up 46% over one year.

The company benefited from higher volumes, particularly in its “oil and gas” market in the United States, with a contribution to growth of 9 percentage points and, above all, from favorable pricing conditions, with a “mix/ price” by 26 percentage points.

Cash in the green for the second quarter in a row

Above all, its gross operating income (Ebitda) exceeded expectations, standing at 320 million euros, more than seven times more than over the same period of 2022.

“The consensus of analysts was around 280 million euros”, appreciates a Parisian analyst who adds that “the company’s results are very good”. “And the group continues to deleverage, which is important since debt is a point of attention of the market on this type of company”, he adds.

Despite a capital increase carried out in 2021 and a healthier balance sheet, the group remains indebted, with a net debt which represented 1 billion euros at the end of March. Cash generation, closely linked to the group’s debt reduction trajectory, is thus closely monitored by the market.

However, in the first quarter, Vallourec generated free cash flow of 147 million euros and adjusted free cash flow of 194 million euros. This last indicator, which excludes the impact of restructuring charges and other non-recurring items, was added by the group in an attempt to provide investors with more clarity.

Consequently, Vallourec reduced its net debt from 1.130 billion euros at the end of December to, therefore, 1 billion euros at the end of March.

A debt-free company by the end of 2025 at the latest

The company confirmed that it intended to deleverage completely, by the end of December 2025 at the latest. Vallourec also confirmed its objectives for this year, namely an increase in gross operating income compared to 2022, a decrease in net debt – without factoring in the impact of potential asset disposals – and a positive free cash flow.

The CEO, Philippe Guillemot, also specified that the gross operating income for the second quarter would be “similar” to that of the first. However, this line of account will be higher in the first half than in the second. “In the second half of the year, we will probably see a decline in results due to the planned reduction in volumes produced in Germany and sequential price declines in the United States,” explained Philippe Guillemot.

As the Parisian analyst mentioned above points out, the company’s indications therefore assume a gross operating profit of around 640 million euros in the first half. However, according to this same analyst, the consensus is on a figure of around 1 billion euros for the whole of 2023. This implies that Vallourec only needs to free up around 360 million euros in the second semester to meet such expectations, i.e. 30% less than over the same period of 2022 (510 million euros).

Questioned during a conference call by a Bank of America analyst on this consensus of 1 billion euros, Philippe Guillemot replied that this figure constituted a “floor”, that is to say a floor, in the company forecasts.

“New Vallourec”

On the Paris Stock Exchange, investors appreciate these good results and these indications, the Vallourec share winning 8.4% around 3:50 p.m., the largest increase in the SBF 120.

Vallourec launched its “New Vallourec” plan last year, which should enable the company to be more profitable and less dependent on economic cycles. “They are more selective and focus more on value than volumes,” notes the previously quoted Parisian analyst.

Philippe Guillemot stressed that this plan – which provides for a full-year improvement of 230 million euros in gross operating income – must take full effect from the second quarter of 2024.

For the time being, to gain in competitiveness, the company has decided to gradually stop the activity of its production sites in Germany to transfer it to Brazil, a movement which should be completed by the end of the year. Sales processes are underway for the land at its Düsseldorf-Rath and Mülheim sites.

The company also obtained authorizations last week to resume full operation of its Pau Branco iron mine in Brazil, which should be back in full operation by the end of June. The closure of this mine, in January 2022, due to exceptional rains, then its reopening with limited capacities in May, had led the group to produce only 4 million tonnes of iron ore volumes last year, by compared to theoretical annual capacities of 8.7 million tonnes.