(News Bulletin 247) – The specialist in the manufacture of seamless tubes indicated this Tuesday ahead of a day dedicated to investors that it could resume paying a coupon as soon as it is out of debt, normally in 2025. The group also reveals its ambitions in new energies.

Vallourec has come a long way. Weighed down by years of underinvestment in oil and gas exploration and by its cost base, the specialist in seamless tubes for oil & gas (oil and gas) has had to carry out heavy financial restructurings, the latest of which in 2021.

This last operation then resulted in a capital increase, conversions of debt into capital and waivers of debts. Highly dilutive for its holders, it led the Apollo investment fund to become the company’s largest shareholder.

The group has, however, raised the bar, particularly since the arrival at the helm, at the start of 2022, of Philippe Guillemot. The group returned to positive cash generation in the fourth quarter of 2022, and more recently raised its objectives for the 2023 financial year in July thanks to better-than-expected results in the second quarter. If the action remains behind this year (-2%), it should be noted that Vallourec had signed the fifth largest increase in the SBF 120 in 2022 (+39%).

The group notably benefited from high market prices for its products. But this recovery also came at the cost of difficult decisions, such as the closure of sites in Germany with a gradual transfer of production to Brazil.

It is to take stock of this transformation and restructuring that Vallourec is organizing a day dedicated to investors this Tuesday.

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A dividend for the first time since 2015

Ahead of this day, the group has already formalized an announcement that many anticipated: the possible return to a dividend.

Vallourec has confirmed that it wants to achieve zero net debt by 2025 at the latest. If this sine qua non condition is met, then shareholders will benefit from a redistribution.

“The group is committed to creating the conditions enabling Vallourec to distribute dividends potentially from 2025. Vallourec aims for a return on investment ratio of 80% to 100% of its overall cash generation, in line with the ratios of distribution highest in the sector”, the company indicated in a press release. The company has not paid a dividend since 2015 for the 2014 financial year.

The “new Vallourec” also intends to improve its performance and its resistance to economic cycles. As an illustration, the company carried out a simulation of its results “in the middle of the cycle” (i.e. when the economy is neither at a high nor a low point). In this simulation, its gross operating profit (GER) would be around 850 million euros and its cash flow at 450 million euros.

For comparison, in 2022, with a particularly buoyant price environment for its “tubes” segment, Vallourec had generated a gross operating profit of 715 million euros and a cash disbursement of 216 million euros. Let us clarify once again that this is a simulation carried out by the company and not a forecast.

The stock falls

Concerning, precisely, its prospects, Vallourec reiterated its objectives for the 2023 financial year, namely an EBITDA (gross operating profit) of between 950 million euros and 1.1 billion euros, a positive cash flow in the second half and continued debt reduction, still in the second part of the year.

To return to Vallourec’s strategy, the company also intends to move its products upmarket in China, confirming the strategy of the group’s management which favors value over volumes.

“The underinvestment observed over the previous decade in the international Oil and Gas exploration and production sector, combined with the prospects for continued growth in global demand, will result in significant demand for Vallourec’s historic activities in the coming years,” the company also explained.

Important point in a sector sometimes unpopular with investors because it is essentially dependent on fossil fuels, Vallourec has delivered on its ambitions in “new energies” (geothermal energy, hydrogen storage) counting on achieving 10% to 15% of its EBITDA in this sector. segment by 2030.

On the Paris Stock Exchange, the market received the company’s announcements without much enthusiasm. Vallourec shares fell by 0.9% to 12.18 euros.

According to a financial analyst, the decline in the stock can be explained by the fact that “there are no big surprises” and that the group has not given information on the future of a bond maturing in 2026 with a nominal value of 1.023 billion euros for a heavy coupon of 8.5%. However, this obligation “costs them in terms of financial charges even though it is ‘callable’ (redeemable)”, he explains. This bond was issued in June 2021.