(BFM Bourse) – Free cash flow was negative in the third quarter at 81 million euros. However, the oil services group has confirmed all the objectives for this year and expects an excellent fourth quarter.
The quarterly results of the French oil groups are definitely not convincing the market. GTC he had seen its publication in early November be harshly punisheddown 24%, as July-September tallies fell significantly short of expectations.
Without knowing such a violent dive, Vallourec suffers in turn Monday on the Paris stock exchange after delivering the results of the third quarter. The specialist in the production of seamless pipes for the oil industry fell 8.5% to 10.52 euros at around 11:15 am, posting the largest drop in the SBF 120 index.
Highly volatile, the stock fell despite relatively encouraging results, although the group still consumed cash over the period. Cash generation is in fact closely monitored because the group remains indebted, with net debt of 1.5 billion euros at the end of September. This though Vallourec carried out a capital increase last year that has repaired its balance sheet and that the group does not face debt maturities before 2026.
In the period from July to September, Vallourec it burned 81 million euros of liquidity (free cash flow), compared to 103 million euros in the previous year. While the group has generated a large increase in free cash flow generated by the business, its working capital needs have increased significantly, “reflecting the higher volumes expected to be delivered and increases in the price of raw materials,” he explained the group in a press release. However Vallourec confirmed that for the entire second half of 2022 free cash flow will be positive, thanks to the “strong expected performance” in the last quarter of the year.
“The market is sanctioning negative cash flow this quarter, but it’s just a bad time to go through and probably the last quarter that the group is burning cash,” puts one financial intermediary into perspective. The latter also points out that if cash flow turns out to be negative, analysts on average expected the company to burn through even more liquidity, with a consensus of -110 million euros.
As for its income statement, Vallourec saw its turnover increase by 53.6% in one year to 1.28 billion euros while the gross operating margin stood at 198 million euros against 128 million euros the previous year. The company reported net income of €6 million compared to a net loss of €7 million in the third quarter of 2021. Invest Securities points out, however, that this third quarter has fallen short of expectations, citing a consensus that expected revenue of 1.37 billion euros and a net result of 94 million euros.
On his prospects, Vallourec in addition to the cash flow target, it confirmed the gross operating margin target, which should be between 650 and 750 million euro.
The company has also ensured that its “New Vallourec”, announced last May, was on the “right path”. This strategy aims to turn the group around by favoring value over volume and streamlining the group’s portfolio. In purely financial terms, this project is expected to generate an additional 230 million euros of EBITDA, with full effect starting from the second quarter of 2024, and to generate positive free cash flow even in the lower part of the cycle, i.e. when the economic climate is not favourable.
This plan unveiled by the new CEO Philippe Guillemotarrived in March from Elior, it was accompanied by the announcement of job cuts totaling 3,000 worldwide, most of which will take place in Germany.
The group said on Monday it had finalized social plan deals in Germany, France and the UK, “significantly reducing the risks associated with the New Vallourec“. Vallourec he also indicated that he has launched other initiatives in Brazil, as well as on increasing production in the United States and Saudi Arabia.
A renewed organization in Brazil
Philip Guillemot in particular, he indicated to analysts that in Brazil the company would have “simplified the organization” around nine autonomous production units, making sure to have “staff where value is created, i.e. on the sites”. “We discovered that in Brazil we have a high percentage of ‘indirect people’ compared to ‘direct people’, this is what we will change by the end of the year,” she explained.
The group also announced that it has received authorization to continue operating the Pau Branco iron ore mine in Brazil, using alternative tailings storage facilities “until the beginning of the second quarter of 2023”.
In early 2022, Vallourec he had been fined around €45 million for “environmental damage” after a sediment retaining dam at this mine overflowed.
“Nous avons achevé les travaux nécessaires au rétablissement du niveau de sécurité minimum requis pour l’utilisation du parc de résidus miniers d’origine, ‘Cachoeirinha’, et nous avons demandé officiellement l’autorisation pour une reprise à pleine exploitation”, in expliqué the society.
Julien Marion – ©2022 BFM Exchange