Vallourec S.A. (OTCPK:VLOUF) Q2 2024 Earnings Conference Call July 26, 2024 3:30 AM ET
Company Participants
Connor Lynagh – VP-IR
Philippe Guillemot – Chairman and CEO
Sascha Bibert – CFO
Conference Call Participants
Kevin Roger – Kepler Cheuvreux
Daniel Thomson – BNP Paribas
Christopher Kuplent – Bank of America
Baptiste Lebacq – Oddo BHF
Jean-Luc Romain – CIC
Kevin Roger – Kepler Cheuvreux
Operator
Hello, and welcome to the Vallourec Q2 and Half Year 2024 Results Call. My name is Saska, and I will be your coordinator for today's event. Today's call is being recorded and for the duration your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. [Operator Instructions]
I’ll now hand you over to Connor Lynagh, Vice President of Investor Relations, to begin today's conference. Please go ahead, sir.
Connor Lynagh
Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's second quarter and first half 2024 results presentation. I'm Connor Lynagh, Vice President of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot; and Vallourec's Chief Financial Officer, Sascha Bibert.
Before we begin our presentation, I would like to note that this conference call will be recorded and a replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are available for download here as well. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced at the beginning of our slide presentation. These are also included in our Universal Registration Document filed with the French financial markets regulator, the AMF. This presentation will be followed by a Q&A session.
I will now turn the call over to Philippe Guillemot.
Philippe Guillemot
Thank you, Connor. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's second quarter 2024 results. Before proceeding, let me draw your attention to Slide 2, where you can consult our safe harbor statement. Today's agenda is on Slide 3. I will start with the highlights of the second quarter of 2024, followed by an update on the market and commercial environment. Sascha will then take you through our second quarter numbers. I will finish with our outlook for the third quarter and full year 2024.
Let's look at the highlights of the second quarter 2024 on Slide 5. Our second quarter results continue to reflect the strong international OCTG market and the benefit of the New Vallourec plan. As expected, group EBITDA was down moderately versus Q1. EBITDA was €250 million, while EBITDA margin remained strong at around 20%. EBITDA per ton was also very strong at €599, above €550 for the seventh straight quarter despite significant lower pricing in the U.S. versus this time last year. We remain ahead of plan in deleveraging. Net debt reached €364 million at the end of the second quarter. For the full year, we expect group EBITDA to range between and €850 million.
The decline in second half EBITDA is largely related to lower realized pricing in the U.S. which we do not assume to be fully offset by continued strong international results. That said, we do expect to generate further cash flow in the second half. Our balance sheet is now at a level we see as resilient for any market condition. As such, cash flows generated from here will be allocated predominantly towards shareholder returns, which I remind you, will begin in 2025 at the latest.
Moving to Slide 6. It is worth taking a moment to reflect on the success we have enjoyed as we implemented the New Vallourec plan. In addition to experiencing a strong market for our premium products, the New Vallourec plan and our focus on value over volume has delivered structurally improved profitability versus our performance over the past several years. This profitability has allowed the rapid deleveraging you see on the right. We have removed over €1 billion of net debt from our balance sheet in less than two years.
Let's look at how we have executed this and what is still to come within our overarching strategy. I am on Slide 7. Our strategic journey since the financial restructuring has been truly transformative. In 2022 and 2023, we executed the New Vallourec plan, which fundamentally change Vallourec into a more profitable, more resilient and more cash generative business. As a result, we have been able to significantly reduce our net and gross debt, which was punctuated by our successful balance sheet refinancing in April.
We have several operational levers remaining to create value regardless of the market environment. Here, we highlight three of the most meaningful. Our performance enhancement program for our Brazilian Tubes operation, the Phase I and Phase II extension project at the Pau Branco iron ore mine and the development of our new energies franchise. We gave you a look at our opportunity set in new energies at our event in Aulnoye-Aymeries last month. Today, we will give you an update on our performance enhancement programs in Brazil Tubes.
Before we get there, though, I would note that our work to optimize capital employed is by no means finished. We continue to progress on noncore asset sales, the largest of which is a former production facility in [indiscernible]. Essentially, this will enable us to return 80% to 100% of our total cash generation to our shareholders, as we indicated at our Capital Markets Day last September. I reiterate that these returns will begin in 2025 at the latest, subject to Board and shareholder approval.
Please turn to Slide 8. Our Brazilian asset base remains one of the best platforms for premium tube production in the world. We have not yet seen the peak performance of this asset base is capable of. We can celebrate some of our national accomplishments in 2022 and 2023. First, we significantly redesigned our organizational structure from the way the business is managed to the way our production units are organized within the mills. We executed our major CapEx program to enable the transfer of volumes from Germany on time and on budget. Finally, we delivered a notable improvement in Tubes EBITDA in 2023 compared to 2022.
In 2024 and 2025, we are moving from investing in our assets to optimizing the way we run them. We have three main work streams that will contribute to this cost. First, we are rationalizing our production footprint. Second, we are further reducing complexity and cost in our production process. Finally, we are creating a platform for higher premium tube production. You can see we are already expecting to generate some significant improvement in EBITDA per tonne in Brazil in 2024, reflecting some of the significant changes that have already occurred.
Slide 9 details the first pillar of this performance program. On the right, you can see our asset base in Brazil today. You will recall that we have three rolling mills in the country, our state-of-the-art facility in Jeceaba, which was commissioned in 2011 and two smaller, more flexible mills in Barreiro. We have made the decision to close the oldest mill, the Barreiro Plug rolling mill. Following the closure of our assets in Europe, this is the oldest rolling mill within the Group. As such, it has rising reinvestment needs and does not run with the same efficiency of our more modern assets.
In addition, this product range has significant redundancy with our Jeceaba facility. We see multiple benefits of this decision. First, we will be able to reduce cost outright due to lower staffing requirements. Second, we will avoid future cash costs, both in terms of CapEx and maintenance spend. Third, we can better load our remaining capacity and particularly take advantage of the fact that Jeceaba can product comparable products at significantly lower cost than the Barreiro plant.
Importantly, we continue to see upside to production volumes from Brazil, despite this change in our nameplate capacity.
Let's move to Slide 10. Our playbook to deliver higher returns remain very consistent. While it is not at the same scale as our full exit from the European industry market, we are making changes to our portfolio in Brazil. Ultimately, we aim to reduce the inefficiency that low margin, small orders in part into our production processes. Accordingly, we are exiting several industry businesses, many of which we use to serve from the Vallourec Plug Mill, where pricing does not reflect our high value-add.
Meanwhile, we are implementing strict minimum order quantity limits and decreasing our industry and process SKUs by a further 30%, as you can see on the right. We believe that these measures will allow a more efficient production process ultimately enabling higher throughput with lower cost per tonne.
In addition, we see opportunities to improve our labor management. Labor, both ours and external contractors, is one of the largest costs within our organization, and we are not satisfied with the utilization of labor in some of our maintenance and direct production activities. We see the potential to reduce our overall labor cost in Brazil by 10% to 15%.
Finally, we are also renegotiating raw materials and freight contracts and working to improve our process yields and quality performance, all of which will contribute to better profitability. Putting these altogether, we see potential to reduce the cost in our Brazilian Tubes operations by over €150 per tonne by year-end 2025 measured versus the 2023 baseline.
On Slide 11, we detail the final step of this performance improvement plan, creating the platform for future growth. Value over volume remain our guiding principle in how we approach the market and manage Vallourec. That said, we see factors both outside and inside of Vallourec that point to the potential to produce higher volumes from this asset base going forward.
On the demand side, we see robust potential demand from our global OCTG and PLP customers. We have made significant progress in qualifying our Brazilian production route for these applications and further efforts will contribute to expanding the set of addressable opportunities. In addition, we will increasingly use our asset base to serve high-value segments of the New Energies industry and process markets, all of which we expect to grow in the coming years.
Internally, we see the opportunity to continue to improve our production efficiency, which will allow us to meet this future demand. Overall, we have seen meaningful improvement in process efficiency, but there is still upside to benchmark utilization levels. Part of the path to getting to this higher utilization involves debottlenecking our high-value equipment, light equipment and premium trading equipment. We have already delivered a 15% increase in some of this capacity in 2024. But with further operational planning and improved use of our global finishing capacity, we can deliver more premium tubes in the future.
The final step is a continued alignment of our global operations, which had not historically been run as an efficient integrated business. With better data and process management, we can deliver the most from our production base. Putting all of this together, we have the ability to sell higher premium market demand with potential for more than 100,000 incremental tonnes of production from Brazil versus our first half 2024 run rate.
Now let's move to our usual discussion of the commercial environment on Slide 13. We'll focus on the U.S. OCTG market. The horizontal rig count took another step lower in the second quarter, exiting the quarter about 7% lower than the end of the first quarter. Imports have taken different paths, depending on whether you look at the seamless or welded portion of the market.
You can see here that major welded importers like Korea, Taiwan and others have been responsible for a significant portion of the recent import volumes. Excluding these producers, you can see a clear downward trend since the start of the year. I point this out to suggest that our view of a consolidated rational set of seamless supplier is well supported, although we do experience knock-on price effect when more commoditized products are oversupplied.
On the point of imports, I would like – I would highlight that U.S. Customs has determined that there is a reasonable suspicion of evasion of antidumping and countervailing duties on OCTG from China by transhipment through Thailand. We commend Customs for addressing these unfair trade practices used by some of our competitors. By applying the appropriate antidumping margins and countervailing duties to the imports, we have seen and will likely continue to see a meaningful reduction in imports from these players.
While this is a positive development, there has been some further price pressure in the spot market in the second quarter that will influence our pricing in the third quarter. Demand trend remains the most important catalyst in driving pricing for our product. So the second quarter declining in rig count has been unhelpful from this perspective. That said, we see some medium-term upside to activity levels here that I will discuss momentarily.
On Slide 14, we address the international OCTG market. Drilling activity has remained stable at strong levels for the past several quarters both on and offshore. We continue to see very active tendering activity from our major customers with opportunities across all our core markets from the Middle East to Africa and South America.
In the Middle East region, our relationship with Saudi Aramco remained robust as we execute on our long-term agreement and deliver the discrete orders we announced to you last year. Elsewhere, you have seen our recent extension with ADNOC, which should support ongoing expansion in activity there, and we see further return on activities from Kuwait and Qatar as well.
In Iraq, we currently see strong tendering activity from international oil companies, and we expect to be one of the most important OCTG suppliers in the country for both carbon and CLA tubes. As part of our premiumization program in China, we have recently received formal qualification for our Tianda facility to produce for some of our customers in the Middle East region.
In Africa, we remain well-positioned to serve the needs of Sonatrach, Algeria’s national oil company. We see significant demand ahead from this key customer. Meanwhile, we have seen growing opportunities in Western and Southern Africa, such as a multi-year contract we recently received from TotalEnergies in Angola.
In South America, our operations in Brazil continue to benefit from the robust drilling activity in the country. Demand is expected to remain strong with several major development programs ongoing.
In addition, we remain well-positioned for ongoing activities in nearby Guyana and Suriname, where we already have a close working relationship with ExxonMobil and other key IOC in the region. At the market level, pricing has remained relatively flat at healthy levels for second quarter. We continue to see strong pricing for our new orders in line with this robust demand level.
Let me wrap up to comment on our tubes business on Slide 9. Despite the well-known pressure on our business, from U.S. price declines, we have continued to deliver strong profitability and saw a significant increase in our shipments from international markets in the second quarter. The supportive international market environment is evident in our recent contract wins, such as our contract extension and new order with ADNOC, our multi-year contract with Equinor in Brazil, and the fourth major order from Exxon under our long-term agreement in Guyana. We look forward to sharing more wins like this with you in the future.
On the other hand, the U.S. market has been weaker than we expected at the beginning of the year. At this point, though, many forecasters are now suggesting that today’s activity level are too low to even sustain current levels of gas production and will likely cause oil production growth to slow significantly in the second half of 2024.
We therefore see demand bias to the upside over time as producers seek to sustain, and in some cases, growth they are currently high levels of oil and gas position. In other words, we remain optimistic about the structural merits of the U.S. market for the coming years.
Let’s turn to our Mine and Forest segment on Slide 16. Iron ore production sold was approximately 1.4 million tonnes in the second quarter, which was a slight increase sequentially. Our EBITDA generation in the second quarter was somehow somewhat below our expectation for reasons that Sascha will discuss soon. However, we reiterate our full year expectation of approximately 6 million tonnes of production and approximately €100 million of EBITDA, assuming iron ore prices stay near the current level.
Turning to our mine extension project, we are pleased to announce that we had received the necessary approval to progress the Phase 1 extension as planned. This project is well underway, and we are clearly on track with our target for a start-up of this project in late 2024. As far as the larger Phase 2 extension is concerned, this project is moving ahead nicely. We are engaging with the relevant regulators to ensure that our 2027 startup is well within reach. We will update you as we reach significant milestones on this project.
Thank you for your attention. I will now hand the call over to Sascha to comment on our financial results.
Sascha Bibert
Thank you, Philippe, and good morning, everybody. Thank you for joining. I’m starting on Page 18. With our Q2 results, we have reported a 20% EBITDA margin both for the Group as well as for our Tubes segment. This has been made possible in spite of a roughly $1,400 per tonne change in U.S. prices year-over-year. As our various new Vallourec initiatives in the context of a strong international trips environment mitigated those unfavorable changes in the U.S. Whatever the environment we at Vallourec stay on course with the execution of our strategy, enhancing efficiency, lowering the breakeven point, generating cash and driving towards a high-yielding investment for our owners.
On to Page 19. As indicated during the Q1 call, volumes sold have picked up in Q2 to 351,000 tonnes. In line with lower U.S. prices and a slightly less favorable international mix, the average selling price has declined. Our revenues by geography are now more balanced and less bias to the U.S. and by market follow the new Vallourec focus towards profitable oil and gas customers.
On Page 20, you'll find our profitability in percent in per ton. We can say that similar to revenues, our EBITDA split by geography has become much more balanced. While the U.S. was dominant a year ago, we have seen a strong pickup from the Eastern Hemisphere and South America, while the U.S. has declined.
Over to mines and forest on Page 21. Following a good first quarter, the second quarter EBITDA in this segment is on the low side. We remain confident, however, to revert back to the roughly €25 million EBITDA run rate per quarter and keep our approximate €100 million EBITDA guidance for the full year unchanged driven by about 6 million tonnes of production sold. Q2 was impacted by low shipments, partially due to temporary constraints in the shipping to customers, low ore quality but we also booked an extraordinary provision and have a slight loss of €2 million in the non-cash revaluation of the forest following IAS 41.
On Page 22, you see that our operating results now continuously lead to positive net profits. Below EBITDA, there were several items, positive and negative that will not reappear in the next quarter or medium term. Financial income was positively impacted by the refinancing, largely by non-cash effects. On the expense side, we have in other the cost of the HKM supply agreement in Germany. In addition, we have added minor provisions also for the ongoing restructuring in Brazil.
On Page 23, you will see that net debt went down by €121 million, driven by €250 million EBITDA, all of which was cash effective. Please remember that Q2 is generally loaded with a higher-than-average financial cash out since we pay bond interest. And in this quarter, also some extraordinary fees for the refinancing. Also, tax payments are generally high in this quarter, driven by the U.S. and Brazil.
We furthermore released some working capital, especially inventory. Restructuring cash out continues to be dominated by Germany, including payments for the HKM supply contract. Costs for the ramp-down team and for dismantling as well as for pension. Please note that selectively, we have the cost of activities in this line item while having corresponding revenues in the line asset disposals and other.
Speaking of which, in asset disposals and other, we have proceeds from the sale of equipment, for example, though the lion's share in this quarter comes from changes in cash collateralized guarantees which we are actively renegotiating following our much improved balance sheet. Out of the €80 million non-cash adjustment, a bit more than half is related to the refinancing. The other half is “normal” and due to accrued interest in line with interest paid in the same quarter.
On Page 24, you can see the tangible change of our company. Net debt is down to €364 million, and gross debt is also down by about €800 million since the peak and about €500 million against the prior quarter. As part of the refinancing, we have utilized some of our cash on hand in order to pay down debt. Liquidity continues to be rock solid, nevertheless, close to €1.5 billion.
Page 25 addresses individual line items of our cash flow statement. The overall message remains we are ahead of plan in our deleveraging. So this is predominantly technical help for those who run a line-by-line forecast. Financial cash-out in 2024 is expected to be around €100 million. We will then see the benefits of refinancing in 2025. Relatively to the prior update, we now expect the tax cash out to be lower. We also expect a slightly lower CapEx than previously guided. Conversely, our assumption for restructuring cash out has increased. However, as I just explained, there are partially corresponding offsets in asset disposals and other cash items. As such, we advised to look at the sum of those two line items.
Our cash flow and net debt guidance still does not include any benefit from major asset sales, i.e., the sale of [indiscernible] in Germany. Finally, while we did not and still do not guide on working capital, we are incrementally more optimistic on potential releases of working capital.
On Page 26, we refined our capital allocation framework. The core of this has already been communicated to you during our Capital Market Day in September last year. What we are specifying today is that we have now reached our target capitalization. This means that cash we generate from now on will be allocated predominantly towards shareholder return.
With that, let me hand back to Philippe.
Philippe Guillemot
Thank you, Sascha. Let's turn to Slide 28 to discuss our outlook for the third quarter and full year 2024. Starting with our tubes business. In the third quarter, we expect that our revenues will decrease sequentially due to lower U.S. shipments and pricing as well as a Q4-weighted shipment schedule in our international business. For the full year, we expect a strong international market environment will persist, but be offset by lower U.S. demand and pricing.
In our Mine and Forest business, we expect Q3 production sold will be higher than Q2. The third quarter should mark the highest production quarter for the year due to the start of the rainy season in the end of the fourth quarter. Full year production sold is still expected to 6 million tons with EBITDA around the €100 million range, assuming higher prices consistent with today's level.
At the group level, we expect EBITDA will decline in the third quarter due to reduced tubes volumes and reduced U.S. tubes pricing. For the full year, we see EBITDA ranging between €800 million and €850 million. The second half decline in EBITDA is driven largely by the U.S. market.
Finally, we expect to continue to reduce our net debt in the back half of 2024, including a reduction in the third quarter. We remain ahead of plan in our net debt reduction even without the benefit of major asset disposals.
To conclude on Slide 29. We have now built a sustainable balance sheet. Further cash generated from here will be directed largely towards shareholder returns in 2025 at the latest. Secondly, we continue to see meaningful upside to our performance in our core assets and particularly so in Brazil. The combination of cost reduction, efficiency improvement and capacity rationalization will drive returns in Brazil towards best-in-class levels.
Finally, we remain a bit about the dividend outlook for our premium tubular solutions. The international OCTG market remains robust with ongoing high tendering activity. Meanwhile, medium-term U.S. demand is biased to the upside for reasons I laid out earlier.
Thank you for your attention. Sascha and I are now ready to take your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question today comes from Kevin Roger from Kepler Cheuvreux. Please go ahead. Your line is open.
Kevin Roger
Yes, good morning. Thanks for taking the time. I would have one question, if I may, on the guidance. So now we have a clear guidance for the full year, and you have also given trend for the Q3. Sorry to be pushy, but would you say that the Q3 will be the trough on your EBITDA and you expect the kind of flattish EBITDA in Q4 or improvement? Or you even expect Q4 to be done compared to Q3? That will be the first question, if I may.
And the second one, I agree. Maybe you do not want any more to really commit on that. But what do you see in terms of – you have mentioned the volumes for the U.S. with probably a pickup in the midterm, but what do you see now in terms of pricing, please?
Philippe Guillemot
Okay. Thank you, Kevin, for your questions. Yes, Q4 versus Q3. Well, first, as I said earlier, our volume out of the U.S. are weighted to towards Q4. So we expect lower volume in that part of the world versus in Q3 versus Q4. As far as the U.S. is concerned, something we expect higher volume in Q4, and we assume for the timing that prices in Q4 would be at the level of Q3. So when you combine the two, yes, we may expect slightly higher EBITDA in Q4 versus Q3.
Kevin Roger
Okay.
Philippe Guillemot
Yes, okay. And I think I answered your question about the volume in the U.S., too. So.
Kevin Roger
And the pricing, no, no, that’s very clear.
Philippe Guillemot
Okay.
Operator
Thank you. And our next question now comes from Daniel Thomson from BNP Paribas. Please go ahead.
Daniel Thomson
Hi. Good morning. Thanks for taking my questions. Maybe one for Sascha. I know it’s your favorite question. But just any update on sort of preference for shareholder distribution now that we’ve reached the leverage target essentially. If we talk about next year, are you aiming to be a sort of higher dividend yield play? Or was it more about kind of addressing the lower multiple perhaps on the buyback side? And then any comments on your thoughts on the warrant question.
And then secondly, yes, on U.S. pricing, I was just wondering what’s the PipeLogix sort of equivalent assumption for seamless that you have at both the top end and the bottom end of the full year EBITDA range. If we talk about what you’re assuming for Q3 and Q4 in terms of the PipeLogix index? Thanks.
Philippe Guillemot
Thank you. Sascha, do you want to take the two questions?
Sascha Bibert
Yes. I’ll try then. And good morning, first of all, when it comes to the types of shareholder return, there is no update. There is no change in preference. I think the important message of today is that we continue to be ahead on our deleveraging plans. There are no principal changes to how we look at the balance sheet, i.e., net debt zero with the corridor. However, specifying that we have indeed reached at that level that we are feeling comfortable and therefore, cash generated that from now on will be predominantly allocated to shareholder return.
You know that the dividend will not commence before the AGM in 2025 warrants and share buybacks prior to that are in principle possible, but we have no preset preference for either of the two. We obviously acknowledge that the valuation of the share should play a role in the overall discussion. When it comes to U.S. prices and PipeLogix, and when you think about our earnings development going forward, so I think Q3 is reasonably straightforward, i.e., our Q3 invoice prices will largely be driven by market prices, changes that we have seen in Q2 versus Q1.
And if you look at the market data, I think we have seen that change to the magnitude of $230 million, $235 per ton. We then assume when it comes to the midpoint of our range, that market prices post summer will stay relatively flattish. And therefore, invoice prices in Q4 will do as well. Philippe already commented on volumes. If that assumption should prove to be either too pessimistic or too optimistic, we would then all else equal move towards the higher or the lower end of our guidance range.
Daniel Thomson
All right. Thanks, Sascha. It’s clear.
Operator
Thank you. And up next, we take a question from Christopher Kuplent from Bank of America. Please go ahead.
Christopher Kuplent
Thank you very much and thanks for taking my questions. I’m intrigued by the Brazilian restructuring announcement and wondered whether you can help us with some, I think, relatively straightforward maths. The €150 per ton cash cost reduction, can you put that into context with the remaining capacity that you’ll be left within Brazil? I can see from your slide that should be about 1.7 million tons. And does that mean we should expect at least a full run rate by 2026 of quite substantial cost cuttings to come through?
And second question, again, on cash returns, maybe for you, Sascha. I think that 400 million announcement is very important. And would you suggest, okay, now it's a sort of quarter-by-quarter decision for buybacks depending on cash generation. What are the triggers behind your statement that it will be 2025 at the latest? Thank you very much.
Philippe Guillemot
Okay. I take the question about Brazil one. First, as you understood the value over volume strategy means that what comes first is how well we use our heat treatment capacity and premium threading capacity. So holding capacity is not our utmost priority. Even with the shutdown of the plug, we still have ample rolling capacity to fill the heat treatment capacity we have. And by the way, in Vallourec we shut the rolling capacity, but we don't shut down the heat treatment capacity, which was just after. So we are obviously not ensuring our capacity to increase volume. As I said during my presentation, we see a potential for 100-kiloton more production in Brazil provided there is market demand for it, obviously. As far as when we will see the full impact of all this cost reduction plan, we have announced yet, for sure. We talk about full year impact 2026, for the time being, okay.
Christopher Kuplent
Thank you.
Philippe Guillemot
Okay. As far as cash return is concerned, again, I would like to insist all this is subject to board discussion and approval and obviously, AGM approval. But what Sascha is very important being comfortable with the €400 million net debt, it means that each time we are lower, you have a sense of the amount that could be a return to shareholders by 2025 at the latest, because as I said earlier in my presentation, we intend to continue to reduce net debt in the next quarters. So that's the reason why we are very affirmative on the fact that there will be a return to shareholders under which form to be debated with the Board in 2025 at the latest.
Christopher Kuplent
Okay. Thank you.
Operator
Thank you. And from Oddo BHF, we have Baptiste Lebacq with our next question. Please go ahead.
Baptiste Lebacq
Yes. Good morning everybody. Two question from my side. The first one is dedicated to Brazil. How many people are concerned by, let's say, the new industrial setup? And what amount of the provision. Can we say that the updated view regarding restructuring charges or taking into account at 100%, let's say, the new industrial setup in Brazil with there another provision in 2025?
And the second question is dedicated to your land in Germany? Can we have an update regarding negotiations with, let's say, potential buyers? Is it accelerating on the [indiscernible] for the moment? Thank you.
Philippe Guillemot
Okay. So a number of people as I said, between 10% and 15%, and I won't give you a specific number, but obviously it's a sizable number given the head count we have in Brazil, which I remind you is our Number 1 industrial base and capacity in the world. As far as the provision, I hand over to Sascha, but no, we are in Brazil and cost of restructuring in Brazil is not the one we have seen in Germany, but I let Sascha be more specific.
Sascha Bibert
Thank you, Philippe and good morning, Baptiste.
Relatively minor provision that we have set up directionally rather single-digit than double-digit, and that will turn into cash relatively quickly indeed. So yes, incorporated.
Baptiste Lebacq
Okay.
Philippe Guillemot
As far as the loan in Germany is concerned, we are not on a pole. We launched a second process to go away with that sale. So far, I think we are progressing well. We obviously have a very fruitful dialogue with the City of Dusseldorf. And obviously, we'll see in the next few months how this process will progress. But – and there is a confirmed appetite for this land. So we have had more than one bigger for that long.
Baptiste Lebacq
Thank you very much.
Operator
Thank you. [Operator Instructions] And up next, we have Jean-Luc Romain from CIC. Please go ahead.
Jean-Luc Romain
Good morning. My question relates to the U.S., you have linked a reduction in volumes to the reduction in the rig count, but we also see in the U.S., an increase in the lateral length of the wells which are being drilled. How does that increase in lateral length compensates for the lower number of wells?
Philippe Guillemot
Yes, you're right. We see more and more longer laterals, which, by the way, require what we so call [indiscernible] connections, which are, I think more valued than the classic semi-premium connections. And obviously, we have developed such product, and we'll continue to develop such products. So yes, it's a difficult math to understand why volumes are where they are. It's true that recount is a good proxy.
But on the other hand, as you said, longer laterals imports, as we have commented, are mostly in welded and not so much on seamless on top inventory distributor and resolute. So yes, that's why we keep optimistic on the near term on the U.S. market, given the fact that Okay. All our customers seems to continue to be willing to produce high levels of oil and gas in the future.
Jean-Luc Romain
Thank you.
Operator
Thank you. And we now take a follow-up question from Kevin Roger from Kepler Cheuvreux. Please go ahead.
Kevin Roger
Yes. Sorry, a follow-up if I may, related to the restructuring in Brazil, basically. And a year ago, when you did the Capital Market Day, you presented us a kind of mid-cycle EBITDA for the coming years that €800 million [ph] plus, is there any impact of your restructuring in Brazil on this mid-cycle EBITDA? And if yes, can you give us a bit of color on that, please?
Philippe Guillemot
No, there is no impact. It's just part of the plan. We continue to execute. In my presentation, you saw one of the first slide was to give you the big picture, what we are started to do in 2022 and what we still have to do until 2025 and onwards. So no, it doesn't. It's just there to consolidate our ability to improve our cost efficiency in Brazil, which is our number one export base. And while keeping room for more volume provided there is demand for high premium product from that base.
Kevin Roger
Okay, understood. Thanks.
Operator
Thank you. [Operator Instructions] There appears to be no further questions at this time. So I'd like to hand the call back over to you, Mr. Guillemot, for any additional or closing remarks.
Philippe Guillemot
Yes. Thank you, operator. Thank you again for joining us for today's call. I would like to leave you with the following thoughts. Over the past two years, we have built a new Vallourec. We have executed many meaningful changes in the way Vallourec conducts business to make it more profitable, more resilient and more cash generative. But we have many more opportunities ahead of us and a strong demand runway ahead. We are pleased to already have our balance sheet in a position to return capital to our shareholders and look forward to commencing such returns in 2025 at the latest. Thank you again. Operator, you may close the call.
Operator
Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.