Vallourec - comment

Higher shipped volumes than we had expected, drove top-line revenue and in turn increased EBITDA over our projections. But the increase in EBITDA has not corresponded to an increase in Free cash flow. Vallourec has invested in working capital, as levels of activity increase, and some timing differences in relation to their CAPEX spend. End result, €17m increase in FCF despite the high iron ore prices enjoyed during 2021.

Looking forward, iron ore prices are expected to revert to $110/t from $161/t average in 2021. Additionally, mine operations have been temporally suspended. This follows heavy rain in early January which caused the mine's waste pile to slide into a rainwater dam causing it to overflow. Thankfully no casualties, but Vallourec are awaiting consent to restart the mine.

Despite this, the "core" tubes business should continue to rebound in 2022, and although visibility into H222 is poor, Vallourec are confident that FY22 EBITDA levels should exceed FY21. Note, Q1 will be lower on the back of the incident at the iron ore plant and some inflationary pressures.

We still view the Vallourec 2026 bonds as a prime candidate for refinancing when they are capable in June 2023.