Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong international OCTG market and benefits from the New Vallourec plan contributed to a solid EBITDA margin of around 20%.
- Net debt reduced to EUR364 million, showing significant progress in de-leveraging.
- Successful implementation of the New Vallourec plan has led to structurally improved profitability and rapid debt reduction.
- Brazilian asset base remains a strong platform for premium crude production with potential for further efficiency improvements.
- Plans to allocate cash flow predominantly towards shareholder returns starting in 2025.
Negative Points
- Group EBITDA expected to decline in the second half of 2024 due to lower realized pricing in the US.
- US market weaker than expected, with significant price declines impacting profitability.
- Temporary constraints in shipping and low ore quality affected the mine and forest segment's EBITDA in Q2.
- Closure of the Barreiro Plug rolling mill in Brazil due to rising reinvestment fees and inefficiency.
- Restructuring costs and provisions in Brazil, though relatively minor, still impact financials.
Q & A Highlights
Q: Would you say that Q3 would be the trough on your EBITDA, and do you expect Q4 to be flat or an improvement?
A: We expect lower volume in Q3 versus Q4, particularly in the US. We assume Q4 prices will be at the level of Q3. Combining these factors, we may expect a slightly higher EBITDA in Q4 versus Q3. - Philippe Guillemot, CEO
Q: Any update on your preference for shareholder distribution now that you've reached the leverage target?
A: There is no change in preference. Cash generated from now on will be predominantly allocated to shareholder return. Dividend will not commence before the AGM in '25. Warrants and share buybacks are possible, but no preset preference. - Sascha Bibert, CFO
Q: What's the PipeLogix assumption for seamless at both the top and bottom end of the full-year EBITDA range?
A: Q3 invoice prices will be driven by market prices, which changed by about $230-$235 per tonne in Q2 versus Q1. We assume post-summer prices will stay relatively flat. If this assumption proves incorrect, we will adjust our guidance range accordingly. - Sascha Bibert, CFO
Q: Can you provide more details on the Brazilian restructuring announcement and its impact on cost reductions?
A: Even with the shutdown of the plug mill, we have ample capacity to meet demand. We see potential for 100 kiloton more production in Brazil. Full impact of cost reduction plans will be seen by 2026. - Philippe Guillemot, CEO
Q: What is the status of the land sale in Germany?
A: We are progressing well with the sale, having launched a second process. There is significant interest, and we have more than one bidder. - Philippe Guillemot, CEO
Q: How does the increase in lateral length of wells in the US compensate for the lower number of wells?
A: Longer laterals require high-torque connections, which are more valuable. Despite lower rig counts, we remain optimistic about the US market due to continued high levels of oil and gas production. - Philippe Guillemot, CEO
Q: How many people are affected by the new industrial setup in Brazil, and what is the amount of the provision?
A: Between 10% and 15% of our workforce in Brazil is affected. The provision is relatively minor, in the single to low double digits, and will turn into cash quickly. - Philippe Guillemot, CEO and Sascha Bibert, CFO
Q: Is there any impact of the Brazilian restructuring on the mid-cycle EBITDA and EPS guidance provided last year?
A: No, the restructuring is part of our ongoing plan to improve cost efficiency without impacting our mid-cycle EBITDA and EPS guidance. - Philippe Guillemot, CEO
Q: What are the triggers behind your statement that shareholder returns will commence in 2025 at the latest?
A: Being comfortable with the EUR400 million net debt means that any amount below this can be returned to shareholders by '25 at the latest, subject to Board and AGM approval. - Philippe Guillemot, CEO
Q: Can you provide more details on the cost reduction plan in Brazil?
A: We aim to reduce costs by over EUR150 per tonne by year-end 2025 through rationalizing our production footprint, reducing complexity and cost, and improving labor management. - Philippe Guillemot, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
