Vale posts 1Q 2013 results
Vale had a solid financial performance in the first quarter of 2013 (1Q13), showing sequential increases in operating income, operating margin, earnings and cash generation, said in the company's press release.
Operating income, at US$ 4.2 billion, was 41.4% higher than in 4Q12, while operating margin surged to 38.0%, 1,400 basis points higher. Underlying earnings were US$ 3.2 billion, US$ 1.2 billion above last quarter.
Cash generation, measured by adjusted EBITDA, was 18.1% higher, reaching US$ 5.2 billion. It was second only to the figure for a 1Q in 2011, when iron ore, nickel and copper prices peaked on the back of the sharp recovery from the Great Recession of 2008-2009. It is worthwhile to notice that out of the US$ 1.9 billion cash received in 1Q13 as part of the gold streaming transaction – which has unlocked substantial value hidden in our base metals assets – only US$ 244 million was accrued as adjusted EBITDA due to accounting rules.
The quality of financial performance is highlighted by the fact that cost and expenses were an important source of improvement, for the first time in many years. Operating costs as well as SG&A and other expenses were meaningfully reduced as an outcome of several initiatives being implemented. It is not an one-off event and we remain strongly committed to pursue further significant decreases in operating costs, SG&A and other expenses.
Despite the progress achieved, there is still a long road towards the transformation of the cost structure to guarantee shareholder value creation through the cycles, mitigating the influence of price gyrations.
The base metals operations are being revamped. Operating margins and cash generation have improved and the three projects in ramp-up – VNC, Salobo and Lubambe – are running as planned. The ramp-up of Salobo and VNC is reflected on the significant reduction of pre-operating and idle capacity expenses. Moreover, the first review of VNC in 2013 leaves us confident in its feasibility.
As previously reported, 1Q13 was marked by a strong operational performance of the base metals assets, with copper and cobalt posting record production and nickel presenting its best first quarter since 2009.
Even in face of an output fall, we managed to maintain shipments of iron ore slightly above the level of 1Q12, employing distribution network to use inventories to continue to maximize exposure to the price recovery.
Realized iron ore prices have risen, but the increase was smoothed due to materially lower prices on contracts priced referencing price indices average for the past quarter with a one month lag.
Capital and R&D expenditures were US$ 4.0 billion, 8.4% higher than 1Q12 and in line with the US$ 16.3 billion budgeted for this year. R&D expenditures continued to drop, reflecting discipline in capital allocation, a key strategic priority.
A new milestone in the expansion of Carajás iron ore operations was attained with the environmental license to operate the port facilities of the CLN 150, which was structured to expand logistics capacity to 150 Mtpy of iron ore.
On April 30, the first tranche of the minimum dividend announced in January will be paid. This amounts to US$ 2.25 billion, equivalent to US$ 0.4366 per share.
Financial highlights in 1Q13:
• Operating revenues totaled US$ 11.2 billion, decreasing 10.7% over 4Q12. The reduction was primarily due to the effect of lower volumes.
• Income from existing operations, as measured by adjusted EBIT(a) (earnings before interest and taxes), was US$ 4.2 billion, rising from an adjusted EBIT - excluding the effects of non-cash non-recurring items - of US$ 2.9 billion in 4Q12 and US$ 3.9 billion in 1Q12.
• Operating income margin of 38.0%, as measured by adjusted EBIT margin.
• Underlying earnings in 1Q13 were US$ 3.2 billion, equal to US$ 0.62 per share on a fully diluted basis, against US$ 2.0 billion in 4Q12, net of the accounting effects of non-cash non-recurring items and US$ 3.6 billion in 1Q12. Higher tax payments and lower monetary and exchange variations are the main reasons for the yearly decrease in underlying earnings, more than offsetting the higher adjusted EBIT.
• Cash generation, as measured by adjusted EBITDA(b) (earnings before interest, taxes, depreciation and amortization) – excluding the effects of non-cash non-recurring items - of US$ 5.2 billion, 18.2% above 4Q12.
• Capex – excluding acquisitions – in 1Q13 equaled to US$ 4.0 billion, 8.4% higher than 1Q12.
• Investments in corporate social responsibility reached US$ 210 million, US$ 163 million of which was destined to environmental protection and conservation and US$ 47 million to social projects.
• Maintenance of a strong balance sheet, with low debt leverage, measured by total debt/LTM adjusted EBITDA, equal to 1.6x, long average maturity, 10.0 years, and low average cost, 4.6% per year as of March 31, 2013.