Vallourec Third Quarter 2024 Results

                                                               Press release

Meudon (France), November 15^th, 2024

Vallourec, a world leader in premium tubular solutions, announces today its results for the third quarter 2024. The Board of Directors of Vallourec SA, meeting on November 14^th 2024, approved the Group's third quarter 2024 Consolidated Financial Statements. 

Third Quarter 2024 Results

• Q3 EBITDA of €168m, EBITDA margin remained strong at 19% • Very strong total cash generation, with €130 million in Q3 • Net debt now €240 million, marking eighth consecutive quarter of deleveraging • Group full year EBITDA guidance of €800 – €850 million confirmed; Q4 EBITDA to increase sequentially • Vallourec confirms total cash generation in Q3 and future periods will be subject to its 80 – 100% payout ratio • Vallourec plans to announce dividend proposal for 2025 AGM with Full Year 2024 results communication^a

HIGHLIGHTS

Third Quarter 2024 Results

•       Group EBITDA of €168 million, down 22% QoQ as anticipated; EBITDA margin remained strong at 19% o             Tubes EBITDA per tonne of €556 was down (7%) sequentially and only (1%) year over year due to lower US OCTG prices, offset by robust international OCTG prices and cost savings

o    Mine & Forest EBITDA of €22 million, up 43% sequentially due to improved cost performance and down (44%) year over year due to lower realized prices and volumes

•       Adjusted free cash flow of €183 million; total cash generation of €130 million 

•       Further deleveraging during the quarter: net debt declined €124 million sequentially to €240 million

Fourth Quarter 2024 Outlook^b

•       Group EBITDA to increase versus Q3: o In Tubes, volumes will increase sequentially driven by higher deliveries for both US and international markets

o    In Mine & Forest, iron ore production sold will decline sequentially due to rainy season impact and soft export market conditions 

•       Net debt to be broadly stable versus Q3 2024, driven by sequentially higher EBITDA offset by sequentially higher capex, increased restructuring charges & non-recurring items, and higher financial cash out

Full Year 2024 Outlook

•       Confirm full year Group EBITDA will range between €800 and €850 million

•       Confirm second half total cash generation will be positive

•       Confirm net debt will decline versus the Q2 2024 level in H2 2024             

^a                       Vallourec’s dividend policy would in any event be conditional upon the Board’s decision taking into account Vallourec’s results, its financial position including the deleveraging target and the potential restrictions applicable to the payment of dividends. Dividends would also be subject to shareholders’ approval.

^b                       In all cases, total cash generation and net debt guidance excludes the potential positive impact of major asset sales. See further details regarding the fourth quarter and full year 2024 outlook at the end of this press release.

Information

Quarterly statements are unaudited and not subject to any review. 

Unless otherwise specified, indicated variations are expressed in comparison with the same period of the previous year.

Please see “Definitions of Non-

Philippe Guillemot, Chairman of the Board of Directors and Chief Executive Officer, declared: 

“Our third-quarter results were driven by healthy profitability in international OCTG markets, despite the anticipated weakness in the US OCTG market. In this context, the Group has proven its ability to control its costs, manage its working capital and ultimately to generate significant cash flow. This marks the Group’s eighth consecutive quarter of deleveraging which ended with the exit from the safeguard plan implemented in 2021.

“Over the quarter, Vallourec has once again demonstrated its role as a key partner for offshore developments. Thanks to its unique offering of premium seamless tubes, accessories and associated services, Vallourec has secured a major contract with Petrobras for the technically-sophisticated Sepia 2 and Atapu 2 projects. Elsewhere in the deepwater market, the Group will be a key supplier for the development of TotalEnergies’ Kaminho deepwater project in Angola. We also announced an addition to our premium offshore product offering via the acquisition of Thermotite do Brasil (TdB). This transaction will add to our coating capabilities in our Project Line Pipe (PLP) business by allowing Vallourec to provide premium thermal insulation solutions for some of the most challenging offshore projects.

“Looking ahead, we continue to see strong demand across offshore and onshore international markets, with opportunities stemming from a large variety of geographies and customers. Market pricing therefore remains robust as premium tube mills are well-utilized. Meanwhile, after several quarters of negative market dynamics, the US OCTG market has improved recently. We have seen a notable uptick in demand from our core US customers, suggesting inventory levels across the industry have normalized. On the supply side, OCTG imports have decreased over the past several months and recent trade actions to preserve fair competition in the US will support domestic suppliers like Vallourec. As a result, market sources have reported an increase in spot pricing in both September and October.

“For 2024, we reiterate our full-year expectation of EBITDA ranging between €800 and €850 million, which will result in healthy total cash generation. At the end of the second quarter, we declared that our target capital structure had been achieved, and we are well ahead of our plan to reach net debt zero by year-end 2025. Accordingly, 80% to 100% of the total cash generation in the third quarter 2024 and future periods will be returned to shareholders. We are pleased to announce that we will provide a dividend proposal for our 2025 AGM with our Full Year 2024 results communication.^c” 

Key Quarterly Data 

^c Vallourec’s dividend policy would in any event be conditional upon the Board’s decision taking into account Vallourec’s results, its financial position including the deleveraging target and the potential restrictions applicable to the payment of dividends. Dividends would also be subject to shareholders’ approval.

CONSOLIDATED RESULTS ANALYSIS

Third Quarter Results Analysis

In Q3 2024, Vallourec recorded revenues of €894 million, down (22%) year over year, or (18%) at constant exchange rates. The decrease in Group revenues reflects a (15%) volume decrease mainly driven by lower Industry volumes following the closure of the European rolling mills, a (1%) price/mix effect, a (2%) Mine & Forest effect, and a (4%) currency effect.

EBITDA amounted to €168 million, or 18.8% of revenues, compared to €222 million (19.4% of revenues) in Q3 2023. The decrease was largely driven by lower average selling prices in Tubes in North America as well as lower realized iron ore prices and production sold. This was partially offset by improved Tubes results outside of North America due to higher market pricing and the benefits of the New Vallourec plan.

Operating income was €124 million, compared to €146 million in Q3 2023.

Financial income (loss) was  (€19) million, compared to (€22) million in Q3 2023. Net interest income (expense) in Q3 2024 was (€6) million compared to (€21) million in Q3 2023.

Income tax amounted to (€28) million compared to (€44) million in Q3 2023. 

This resulted in positive net income, Group share, of €73 million, compared to €76 million in Q3 2023. 

Earnings per diluted share was €0.30 versus €0.32 in Q3 2023, reflecting the above changes in net income as well as an increase in potentially dilutive shares largely related to the Company’s outstanding warrants, which are accounted for using the treasury share method.

First Nine Month Results Analysis

In 9M 2024, Vallourec recorded revenues of €2,969 million, down (23%) year over year, or (21%) at constant exchange rates. The decrease in Group revenues reflects a (20%) volume decrease mainly driven by the decrease in Industry volumes following the closure of the European rolling mills and by lower volumes in Oil & Gas Tubes in North America, a (0.1%) price/mix effect, a (1%) Mine and Forest effect, and a (1%) currency effect.

EBITDA amounted to €618 million, or 20.8% of revenues, compared to €916 million (23.9% of revenues) over the first nine months of 2023. The decrease was largely driven by lower average selling prices in Tubes in North America, as well as lower iron ore production sold. This was partly offset by improved Tubes results in International markets due to higher market pricing and the benefits of the New Vallourec plan.

Operating income was €397 million, compared to €661 million in 9M 2023. Operating income was burdened by (€62) million of asset disposals, restructuring costs and non-recurring items, largely due to costs related to the closure of Vallourec’s German operations.

Financial income (loss) was positive at €18 million, compared to (€92) million in 9M 2023. Net interest income (expense) over the first nine months of 2024 was €17 million compared to (€74) million in 9M 2023. In Q2, Vallourec’s balance sheet refinancing had a net positive impact of approximately €70 million mainly related to the reversal of fair value accounting on the 2026 senior notes and State-guaranteed loan (PGE), of which €44 million impacted interest income.

Income tax amounted to (€114) million compared to (€167) million in 9M 2023. 

This resulted in positive net income, Group share, of €289 million, compared to €391 million in 9M 2023. 

Earnings per diluted share was €1.19 versus €1.66 in 9M 2023, reflecting the above changes in net income as well as an increase in potentially dilutive shares largely related to the Company’s outstanding warrants, which are accounted for using the treasury share method.

RESULTS ANALYSIS BY SEGMENT

Third Quarter Results Analysis 

Tubes: In Q3 2024, Tubes revenues were down (21%) year over year due to a (15%) reduction in volume sold and a (7%) decrease in average selling price. This decrease in volumes was largely attributable to the closure of Vallourec’s German rolling operations as a result of the New Vallourec plan. Tubes EBITDA decreased from €193 million in Q3 2023 to €162 million Q3 2024 due to lower profitability in North America offset by improvements in the rest of the world due to higher market pricing and the benefits of the New Vallourec plan.

Mine & Forest: In Q3 2024, iron ore production sold was 1.3 million tonnes, a decrease of ~0.5 million tonnes year over year. In Q3 2024, Mine & Forest EBITDA reached €22 million, versus €39 million in Q3 2023, reflecting lower sales volumes and realized price.

First Nine Month Results Analysis

Tubes: In 9M 2024, Tubes revenues were down (22%) year over year mainly due to a (20%) reduction in volume sold, while average selling price was down only (3%) during the period. This decrease in shipments was largely attributable to the closure of Vallourec’s German rolling operations as a result of the New Vallourec plan and decreased volume sold in North America. Tubes EBITDA decreased from €802 million in 9M 2023 to €592 million 9M 2024 due to a decrease in profitability in North America partly offset by improvement in the rest of the world driven by higher market pricing and the benefits of the New Vallourec plan. 

Mine & Forest: In 9M 2024, iron ore production sold was 4.1 million tonnes, decreasing by 1.1 million tonnes year over year. In 9M 2024, Mine & Forest EBITDA reached €68 million, versus €137 million in 9M 2023, largely reflecting lower sales volumes, realized price, and non-cash forest fair value revaluation effects plus higher costs. 

CASH FLOW AND FINANCIAL POSITION

Third Quarter Cash Flow Analysis

In Q3 2024, adjusted operating cash flow was €117 million versus €171 million in Q3 2023. The decrease was attributable to lower EBITDA and higher financial cash out, only partly offset by lower tax payments. 

Adjusted free cash flow was €183 million, versus €217 million in Q3 2023. Lower adjusted operating cash flow was partially offset by reduced capex versus the prior year period. Both periods saw significant working capital releases.

Total cash generation in Q3 2024 was €130 million, versus €150 million in Q3 2023.

First Nine Month Cash Flow Analysis 

In 9M 2024, adjusted operating cash flow was €448 million versus €702 million in 9M 2023. The decrease was attributable to lower EBITDA, partly offset by reduced tax cash out. 

Adjusted free cash flow was €436 million, versus €585 million in 9M 2023. Lower adjusted operating cash flow was partially offset by a higher release in working capital and lower capex versus the prior year period.

Total cash generation in 9M 2024 was €273 million, versus €419 million in 9M 2023.

Net Debt and Liquidity

As of September 30, 2024, net debt^d stood at €240 million, a significant decrease compared to €570 million on December 31, 2023. Gross debt was €1,017 million, down from €1,470 million on December 31, 2023. Longterm debt was €736 million and short-term debt totaled €281 million^e. 

As of September 30, 2024, the liquidity position was very strong at €1,561 million, with €814 million of cash, availability on our revolving credit facility (RCF) of €550 million, and availability on an asset-backed lending facility

(ABL) of €197 million^f. Both liquidity facilities were upsized and extended in Vallourec’s April balance sheet refinancing.

FOURTH QUARTER AND FULL YEAR 2024 OUTLOOK^g

In the fourth quarter of 2024, based on our assumptions and current market conditions, Vallourec expects:

•       Group EBITDA to increase versus Q3: o In Tubes, volumes will increase sequentially driven by higher deliveries for both US and international markets

o    In Mine & Forest, iron ore production sold will decline sequentially due to rainy season impact and soft export market conditions 

•       Net debt to be broadly stable versus Q3 2024, driven by sequentially higher EBITDA offset by sequentially higher capex, increased restructuring charges & non-recurring items, and higher financial cash out

For the full year 2024, based on our assumptions and current market conditions, Vallourec confirms and clarifies its outlook as follows:

•       Confirm full year Group EBITDA will range between €800 and €850 million: o In Tubes, the strong international OCTG market environment will persist, offset by the alreadyrealized reductions in US demand and pricing 

o    In Mine & Forest, iron ore production sold is now expected to be slightly above 5 million tonnes (previously 6 million tonnes) and EBITDA is expected to be slightly below €100 million at current iron ore prices (€100 million previously), with the reductions resulting from weak export market conditions

•       Confirm second half total cash generation will be positive

•       Confirm net debt will decline versus the Q2 2024 level

^d                       Vallourec entered into 4-year cross-currency swaps (CCS) to hedge the EUR/USD currency exposure related to its USD 2032 Senior Notes. The fair value of the CCS related to the EUR/USD hedging of the principal of the notes is consequently included in the net debt definition.

^e                       Short-term debt includes €194 million of remaining PGE (prêts garantis par l'État) outstanding. Depending on the outcome of ongoing discussions with the PGE lenders, this remaining amount may be repaid by end of December 2024, as reflected in the financial statements, or by its original maturity in June 2027.

^f                       As of September 30, 2024, the borrowing base for this facility was approximately $230 million, and $9 million in letters of credit and other commitments were issued.  ^g In all cases, total cash generation and net debt guidance excludes the potential positive impact of major asset sales.

Information and Forward-Looking Statements

Presentation of Q3 2024 Results

Conference call / audio webcast on November 15^th at 9:30 am CET

•       To listen to the audio webcast: https://channel.royalcast.com/landingpage/vallourec-en/20241115_1/•             To participate in the conference call, please dial (password: “Vallourec”):

o    +44 (0) 33 0551 0200 (UK) o    +33 (0) 1 7037 7166 (France)  o +1 786 697 3501 (USA) 

•       Audio webcast replay and slides will be available at: 

https://www.vallourec.com/en/investors

About Vallourec

Financial Calendar

February 27^th, 2025      Publication of Fourth Quarter and Full-Year 2024 Results

May 15^th, 2025 Publication of First Quarter 2025 Results May 22^nd, 2025     Annual General Meeting

For further information, please contact:

The Group’s reporting currency is the euro. All amounts are expressed in millions of euros, unless otherwise specified. Certain numerical figures contained in this document, including financial information and certain operating data, have been subject to rounding adjustments.  

Documents accompanying this release:

•       Tubes Sales Volume

•       Mine Sales Volume

•       Foreign Exchange Rates

•       Tubes Revenues by Geographic Region

•       Tubes Revenues by Market

•       Segment Key Performance Indicators (KPIs)

•       Summary Consolidated Income Statement

•       Summary Consolidated Balance Sheet

•       Key Cash Flow Metrics

•       Summary Consolidated Statement of Cash Flows (IFRS)

•       Indebtedness

•       Liquidity

•       Definitions of Non-GAAP Financial Data

Tubes Sales Volume

Mine Sales Volume

Foreign Exchange Rates

Quarterly Tubes Revenues by Geographic Region

Year-to-Date Tubes Revenues by Geographic Region

Quarterly Tubes Revenues by Market

Year-to-Date Tubes Revenues by Market

Quarterly Segment KPIs^h

Year-to-Date Segment KPIs^h

^h Volume sold in thousand tonnes for Tubes and million tonnes for Mine & Forest. H&O = Holding & Other; Int = Intersegment Transactions. Values for percentage changes not shown where not meaningful.

Quarterly Summary Consolidated Income Statement

Year-to-Date Summary Consolidated Income Statement

Summary Consolidated Balance Sheet

In € million

Quarterly Key Cash Flow Metrics

Year-to-Date Key Cash Flow Metrics

Summary Consolidated Statement of Cash Flows (IFRS) 

Indebtedness

^(a)        Depending on the outcome of ongoing discussions with the PGE lenders, this remaining amount may be repaid by end of December 2024, as reflected in the financial statements, or by its original maturity in June 2027.

^(b)        Refers to ACC (Advances on Foreign Exchange Contract) and ACE (Advances on Export Shipment Documents) program in Brazil

^(c)        Vallourec entered into 4-year cross-currency swaps (CCS) to hedge the EUR/USD currency exposure related to its USD 2032 Senior Notes. The fair value of the CCS related to the EUR/USD hedging of the principal of the notes is consequently included in the net debt definition.

Liquidity

(a) This $350m committed ABL is subject to a borrowing base calculation based on eligible accounts receivable and inventories, among other items. The borrowing base is currently approximately $230m. Availability is shown net of approximately $9m of letters of credit and other items.

DEFINITIONS OF NON-GAAP FINANCIAL DATA

Adjusted free cash flow is defined as adjusted operating cash flow +/- change in operating working capital and gross capital expenditures. It corresponds to net cash used in operating activities less restructuring and non-recurring items +/- gross capital expenditure.

Adjusted operating cash flow is defined as EBITDA adjusted for non-cash benefits and expenses, financial cash out and tax payments.

Asset disposals and other cash items includes cash inflows from asset sales as well as other investing and financing cash flows.

Change in working capital refers to the change in the operating working capital requirement.

Data at constant exchange rates: The data presented “at constant exchange rates” is calculated by eliminating the translation effect into euros for the revenue of the Group’s entities whose functional currency is not the euro. The translation effect is eliminated by applying Year N-1 exchange rates to Year N revenue of the contemplated entities.

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization is calculated by taking operating income (loss) before depreciation and amortization, and excluding certain operating revenues and expenses that are unusual in nature or occur rarely, such as:

•       impairment of goodwill and non-current assets as determined within the scope of impairment tests carried out in accordance with IAS 36;

•       significant restructuring expenses, particularly resulting from headcount reorganization measures, in respect of major events or decisions;

•       capital gains or losses on disposals;

•       income and expenses resulting from major litigation, significant roll-outs or capital transactions (e.g., costs of integrating a new activity).

Financial cash out includes interest payments on financial and lease debt, interest income and other financial costs.

Free cash flow, as previously defined, may continue to be derived as follows: total cash generation - asset disposals & other cash items. This is also defined as EBITDA adjusted for changes in provisions, less interest and tax payments, changes in working capital, less gross capital expenditures, and less restructuring/other cash outflows.

Gross capital expenditure: gross capital expenditure is defined as the sum of cash outflows for acquisitions of property, plant and equipment and intangible assets and cash outflows for acquisitions of biological assets.

(Increase) decrease in net debt (alternatively, “change in net debt”) is defined as total cash generation +/- non-cash adjustments to net debt.

Industrial margin: The industrial margin is defined as the difference between revenue and cost of sales (i.e. after allocation of industrial variable costs and industrial fixed costs), before depreciation. 

Lease debt is defined as the present value of unavoidable future lease payments.

Net debt: Consolidated net debt (or “net financial debt”) is defined as bank loans and other borrowings plus overdrafts and other short-term borrowings minus cash and cash equivalents plus the fair value of the cross-currency swaps related to the EUR/USD hedging of the principal of the $820 million 7.5% senior notes. Net debt excludes lease debt.

Net working capital requirement is defined as working capital requirement net of provisions for inventories and trade receivables; net working capital requirement days are computed on an annualized quarterly sales basis.

Non-cash adjustments to net debt includes non-cash foreign exchange impacts on debt balances, IFRS-defined fair value adjustments on debt balances, and other non-cash items.

Non-cash items in EBITDA includes provisions and other non-cash items in EBITDA.

Operating working capital requirement includes working capital requirement as well as other receivables and payables. 

Restructuring charges and non-recurring items consists primarily of the cash costs of executing the New Vallourec plan, including severance costs and other facility closure costs.

Total cash generation is defined as adjusted free cash flow +/- restructuring charges and non-recurring items and asset disposals & other cash items. It corresponds to net cash used in operating activities +/- gross capital expenditure and asset disposals & other cash items.

Working capital requirement is defined as trade receivables plus inventories minus trade payables (excluding provisions).