(News Bulletin 247) – The manufacturer of seamless tubes for the oil and gas industry anticipates results for the second quarter of 2023 above its expectations. Vallourec also gave more details on its outlook for the full year 2023.

Some companies take advantage of the day before public holidays to spread bad news, in the absence of many operators. In the case of Vallourec, it is quite the opposite. The specialist in seamless tubes for the oil and gas industry announced Thursday evening that it expects second quarter results “likely to exceed its expectations”.

The French company is now counting on a gross operating result (Ebitda) of around 370 million euros, while it expected the gross operating result for the second quarter to be “similar” to that of the first three months of 2023. The latter stood at 320 million euros and represented more than seven times that generated over the same period of 2022.

The company’s confidence is supported by a better orientation of its activity in the Eastern Hemisphere region, in particular in the Middle East, as well as by lower losses than anticipated in Germany.

To gain in competitiveness, the company has indeed 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.

“Additional credibility”

In addition, Vallourec is also announcing good news relating to its cash generation. For its second quarter, the company expects to achieve free cash flow of around 110 million euros, whereas it had until then anticipated an overall cash generation “close to balance”. “The higher overall cash generation has also benefited from efficient management of the working capital requirement”, explains Vallourec.

The group therefore remains on the right track. In the first quarter, Vallourec generated free cash flow of 147 million euros and adjusted free cash flow of 194 million euros, after announcing a return to positive cash generation in the fourth quarter. .

Cash generation, closely linked to the group’s debt reduction trajectory, is a factor closely monitored by the market. On the debt front, the specialist in seamless tubes for the oil and gas industry intends to continue its slimming cure. Net debt is expected to decline and should stand at around 870 million euros at the end of June 2023, compared to 1 billion euros at the end of the first quarter of this year.

Quoted by Reuters, Jefferies analysts believe that the group’s new net debt reduction forecast helps bring “additional credibility to management’s recovery plan”. This is “a clear step in the right direction”, adds the design office.

On the Paris Stock Exchange, this upward revision of the outlook is also welcomed. The title of the specialist in seamless tubes rose 5.4%, around 10:40 a.m., the largest increase in the SBF 120.

More details for the year 2023

Vallourec is taking advantage of this communication to refine its outlook for 2023. And this adjustment of objectives is also a step in the right direction. Management now expects gross operating income of between 950 million euros and 1.1 billion euros for the 2023 financial year, against “gross operating income up compared to 2022”. In 2022, Vallourec had published an Ebitda of 715 million euros.

Regarding free cash flow, it should be positive this year, an objective that Vallourec specifies, does not include the impact of potential asset disposals. As a result, the French group expects a further reduction in its net debt during the second half of 2023 compared to the level of the second quarter of this year.

The forecasts announced by management are based on two assumptions. Vallourec expects volumes sold on the US market to reach a low point during the third quarter, given the normalization of distributor inventories. “Market prices should fall moderately from their current level,” adds Vallourec. In addition, the French group takes into account the orientation of the Platts 62% Fe CFR China index – an index following the price of ore containing 62% iron – which is expected around 105 US dollars per ton during the second semester 2023.

The group is therefore beginning to see the first effects of its “New Vallourec” plan. This roadmap was put in place in May 2022, after the arrival of CEO Philippe Guillemot, previously managing director of the collective catering group Elior. It must enable the company to be more profitable and to be less dependent on economic cycles.

Philippe Guillemot underlined that this plan – which provides for a full-year improvement of 230 million euros in gross operating income – should take full effect from the second quarter of 2024. Management also remains focused on generating of cash and on its objective of reducing net debt to zero by the end of 2025 at the latest.