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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen. Thank you for standing by and welcome to Vale's conference call to discuss fourth quarter 2008 earnings results. If you do not have a copy of the relevant press release it is available at the Company's website at www.vale.com at Investors link. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.
(Operator Instructions)
As a reminder this conference is being recorded. The replay will be available until February 26, 2009. To access the replay please dial 55-11-4688-6312, the access code 728. The file will also be available at the Company's website at www.vale.com at Investor session. This conference call and this live presentation are being transmitted via internet as well. You can access the webcast by logging on to the company's website, www.vale.com, Investor session or at www.prnewswire.com.pr.
Before proceeding let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors.
With us today in Rio de Janeiro are Mr. Roger Agnelli, Vale's CEO, Mr. Fabio Barbosa, Vale's Chief Financial Officer, Mr. Jose Carlos Martins, Executive Officer for Ferrous Minerals, and Mr. Eduardo Bartolomeo, Executive Officer for Logistics, Engineering and Project Management. First, Mr. Agnelli will make his opening remarks and then Mr. Barbosa will proceed to the presentation and after that we will open for questions and answers. It is now my pleasure to turn the call over to Mr. Agnelli. Sir, you may now begin.
ROGER AGNELLI, PRESIDENT AND CEO, VALE: Good morning, everybody. A pleasure (technical difficulties) 2008 results. The year was a very challenging year but we started the year with the temperature of Rio de Janeiro and we finish the year with the Siberia temperature. But in an average I think was a little, was let's say reasonable. But I'd like to give Fabio Barbosa the opportunity to make some comments and then I will join you again to make some comments about the future.
FABIO BARBOSA, CFO, VALE: Thank you very much, Roger. Well, our agenda today encompasses a discussion of our 2008 results, how we see, what we are doing to deal with the current challenges and what we see beyond the current global financial crisis.
First, it's fair to say that we had a very good performance in 2008 despite a major change that was observed in the fourth quarter. We achieved eight production records, eight shipment records and we did have an outstanding financial performance as you can see by the several indicators in revenues that we reached an all-time record of $38.5 billion netted almost $16 billion. The cumulative growth rate in the range of 46% and 50% respectively.
The record cash generation and net earnings of EBITDA and net earnings as you can see there, $19 billion and $13 billion respectively and the return to our shareholders that reached a record level also in 2008 with $3.6 billion in total involving also the share buyback that we performed during the year.
At the same time our investments reached a record level of $10.2 billion out of which almost three-fourths was dedicated to growth, clearly stating our perspective about the future of the mining industry as a whole. And finally, it's important to mention that this growth that we managed to achieve over the several years helped us to achieve and consolidate our current position as the second largest mining company in the world with a market cap as of last week of about $81 billion.
So we came a long way, we transformed our Company, we changed it for the better and now we are very well poised to explore the opportunities and also to face the challenges that the current situation presents. In fact, as you can see in the second section of this presentation, the global industrial production declined sharply in the last quarter of '08 and this still is suffering in the early months of 2009.
This is a major change in economic environment and Vale has been extremely responsive to this environment and react in a very quick fashion. In fact, we announced several production cuts to avoid inventory build-ups, undesired inventories because we actually took the opportunity that this environment represented to replenish our inventories at the ports in order to optimize our operation.
At the same time we focused on cost minimization, we managed to enhance operational flexibility in both production and CapEx execution management and of course we have available to Vale the financial flexibility to pursue whatever course of action we feel appropriate considering our perspective about the industry. And as we put there, our long term growth strategy remains unchanged because our views about the future haven't changed considering that we do believe that the structural transformation that is taking place should continue although of course we'll have some adjustment in the short term, but the long term perspective is extremely positive in our view.
In terms of the cost control, the cost cutting measures that we have done to deal with the current situation, we shut down several higher cost operating units as it would make no sense to keep them operating in this environment. We cut administrative costs. We are improving our efficiency in our corporate activities by reducing and improving the quality of its services and downsizing its infrastructure. We are seeking flexibility in labor contracts and we managed to negotiate several important initiatives to preserve the employment level in our Company.
We are working to reduce our working capital since July. In terms of materials and parts, we reduced about $300 million in working capital besides other initiatives. We are renegotiating existing contracts with service providers in order to disinflate, in order to make them to reflect the current environment as the situation allows us to do so.
And finally, we are also working on the CapEx side and Eduardo Bartolomeo will comment a little bit later on that, trying to review the costs and the timing of delivery of several equipment associated with our very important CapEx program that we have ahead of us.
Well, as we put in chart 15, the initiatives to reduce costs they didn't show a result yet particularly in this case of the fourth quarter associated with the lag of the long production cycle of the nickel business. So we still have some intermediate products that are costing us more today than they will cost in the future. So this lag in the reaction of the cost structure, that is reflected in this bulk of this $66 million price change that you see there. But otherwise of course we are benefiting from the devaluation of the currency, the Brazilian currency, the Canadian currency, against the real, and of course at DOW on a quarter by quarter basis.
In terms of our long-term growth strategy, as we put there, it is unchanged because Vale is uniquely poised to explore all the growth options it has available. We are in a very good and sound financial position and we can and we should pursue more growth moving forward. And we continue to develop our project pipeline as I would like to ask Eduardo Bartolomeo to comment upon.
EDUARDO BARTOLOMEO, EXECUTIVE DIRECTOR OF LOGISTICS, ENGINEERING AND PROJECT MANAGEMENT, VALE: Okay, good morning. I think as Fabio mentioned we are in a good position to (inaudible) again. We are sticking to our product pipeline, that's I think the first key message that we have to deliver. We're not opening up in that. But facing the reality today we see a lot of opportunities ahead of us. Of course one of those is the currency devaluation but besides that we have the market turning into a buyer's market so equipment is already facing some good news, metallic structures also, engineering is still under pressure but as we can see in the long term or in the medium term, we will be able to deliver the same pipeline with much less pressure, with higher quality, I think that's a very key issue too, with low cost, with much lower costs.
So I think at the end we're going to be able to benefit from this side of the --not the good news about our market but anyway from the project side, we're going to be able to deliver the pipeline at a lower cost with higher quality because we're going to have more time to engineer. It's an open up window to engineer better because if we remember six months ago we were under pressure so this lower pressure brings us a huge opportunity on revising scope, revising standards. So at the end my personal view is that we're going to be able to deliver the same pipeline much cheaper and with higher quality.
FABIO BARBOSA: Okay, thank you very much. So the message is we kept and we keep our focus on growth and then development of our very important project pipeline with all the required caution of course. We are trying to pursue cost reduction there and we are already successful in some front and we also benefit from the effect of the devaluation of the exchange rate. So this combined should lead keeping the same indicated scope should represent a much lower disbursement at the end of the day of our cash position.
We are of course a global leader in iron ore and a point I would like to make that is leadership was consolidated during the last down cycle at the early 2000, 2001 when we acquired several assets. We always had a very long term perspective and we're always well-poised to explore opportunities that could arise from the financial distress that from time to time occur as we are in a cyclical world and a cyclical economy. And this is precisely the case now.
And we are fortunate enough and we did the right things of course to have a very strong balance sheet and the opportunity to explore these alternatives that are there. So we just bought an asset in Argentina and an asset in Canada related to the potash business so we are entering, more heavily, in the fertilizers business as we do believe there's a great...
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