Building a truly global IR effort: Vale
Doing simple things extraordinarily well is the guiding principle behind Vale’s IR success, says Roberto Castello Branco, director of investor relations at the Rio de Janeiro-based mining giant.
Consistent with that philosophy, the world’s second-largest diversified mining company has done far more than simply list on the Hong Kong Stock Exchange (HKEx) in order to realize its goal of increasing the company’s exposure in Asian markets.
It recently hired a full-time investor relations professional for its Singapore office and has made frequent trips to the region to meet prospective investors.
Castello Branco is convinced that Asian investors comprise an audience well worth wooing. ‘The Asia-Pacific equity market is number two in the world, second only to the North American market,’ he points out. ‘This market is not only large, but also has great growth potential.’
He notes that the economies of Asian companies are expanding rapidly and the savings rate among Asian investors is high. To date, only around 5 percent of Vale’s investors are based in Asia, but Castello Branco is convinced this number will grow with time.
Five years ago, Vale began searching for an Asian stock exchange on which to list its shares. The company chose to list on the HKEx in December 2010, and became the first company in the Americas to do so.
The Hong Kong listing greatly expanded the length of Vale’s trading cycle; today investors actively buy and sell its shares on exchanges 20 hours a day.
A little more than a year after launching the Hong Kong listing, Castello Branco points out that the pool of Hong Kong depositary receipts (HDRs) remains small. He also observes that Hong Kong taxes the shares of DRs – something that ‘limits their attractiveness’.
These negatives aside, Vale is pleased to have the Hong Kong listing because it raises the company’s profile in Asia. Hong Kong is also considered a critical gateway to the emerging market of mainland China, a region in which Vale is naturally eager to gain a toehold.
Listing in Hong Kong is one part of a more ambitious campaign to raise the company’s profile in the Asia-Pacific region. In 2011 Vale hired a full-time IR professional, Christian Perlingiere, to run the company’s Asian IR effort.
Perlingiere, who is fluent in Mandarin, is based in Singapore, which is Vale’s corporate center for the Asia-Pacific region, and he is supported by colleagues in the company’s Singapore and Shanghai offices. ‘Singapore is a good location because it’s just a three-hour flight from Hong Kong, and in the same time zone,’ says Castello Branco.
Vale is well aware of the fact that Asia-Pacific investors are not monolithic; investors in one country in the region can differ dramatically from investors in another.
For instance, Castello Branco notes that Singapore is a center for institutional investors and has a wealth of asset management companies based there. By contrast, Hong Kong has ‘a lively retail market, with one third of the population owning a portfolio of active shares.
Hong Kong has wealthy investors – the so-called tycoons: billionaires who are active in the equity market – but it’s poor in terms of institutional investors.’
Vale often meets with prospective Asian investors at conferences, where Castello Branco has seen ‘a lot of interest’. What’s more, he’s encouraged by the fact that Asian investors have traveled to Brazil alongside other international investors to meet Vale’s management, visit headquarters and observe the company’s assets firsthand.
For Castello Branco and other members of Vale’s 15-person IR team, world travel is a key component of the job. Even with frequent air travel and a large IR team, however, communicating with investors is no mean feat given that Vale currently has half a million shareholders worldwide.
Last year all 15 members of Vale’s IR team frequently visited Asia, while Castello Branco spent most of his time in the US, continental Europe and the UK.
Vale, which took home several honors from the 2011 IR Magazine Brazil Awards, attributes its success to its view that IR is a strategic role for the growth process of the company. Even after winning awards, Castello Branco announced that he was ‘never satisfied’ because his goal ‘is always to improve’.
Vale Day at the NYSE: Vale’s CEO Murilo Ferreira (second from left) and IR director Roberto Castello Branco (third from left) on the floor of the exchange
Unlike most IR teams in the US and Europe, which concentrate solely on investor communications, Vale’s team also tackles economic forecasting. Its IR professionals ‘act as the department of economics for the company,’ Castello Branco explains.
‘We make forecasts for price actions, GDP, industrial growth and several other variables. This is important for our budgeting and our strategic planning processes.’
Although the IR team made some small forecasting errors in 2011, it got the large trends right and its overall results were impressive. Castello Branco jokes that his IR team did well, but not as well as Paul, the German octopus that boasted a 100 percent track record forecasting the winners of the 2010 soccer World Cup matches.
Vale’s IR strategy centers on attaining superior market intelligence. ‘Our philosophy is first that our team has to know not only about Vale but also about the global economy, other companies, their strategies and the markets where we sell our products and have our operations,’ says Castello Branco. ‘They have to know about the competition, and they have to have a view of the commodities market.’
He also places a strong emphasis on ensuring the IR team stays focused on investors and sell-side analysts – an effort he deems particularly important because of the company’s policy of foregoing all earnings guidance. Since 2004, Vale has maintained a strict policy against supplying analysts with guidance, even when the pressure to do so has been tremendous.
‘We think offering guidance is a mistake,’ Castello Branco says, noting that the IR team attempts to offer other types of insights to help institutions reach their own conclusions.
He attributes his IR team’s success to hiring young people willing to work hard, and then compensating them extremely well. He notes that the responsibilities associated with investor relations have grown enormously with time: today, for instance, all of the firm’s communications, from press releases to the annual report, are issued simultaneously in Brazilian Portuguese, English and Mandarin.
Although Vale has always striven to follow global IR best practices, Castello Branco, who has headed IR at the firm for the past 11 years, notes that other Brazilian companies are becoming more astute when it comes to their investor communications, too.
‘As a country, Brazil has improved significantly at investor relations,’ he says. ‘We now have a generation of dedicated [IR] professionals and we even have an organization of IR professionals in Brazil.’
During Castello Branco’s tenure at Vale, the company has changed dramatically. A decade ago, he reminisces, ‘we weren’t known outside Brazil except where our operations were.’ Today, the company is covered by four ratings agencies and more than 30 sell-side analysts based in the Americas and in Asia.
Port of Tubarão in Vitória, Brazil
For many years after Vale was privatized in 1997, the company was listed exclusively on the Bovespa in São Paulo. Today, it is listed in Hong Kong and on the New York and Paris stock exchanges, and has the number-one rated American depositary receipt (ADR) in the US. It also boasts both long-term equity and debt investors.
With roughly 450,000 retail investors, most of them based in the US, the company is dedicated to making presentations at a variety of individual investor conferences in the US and Canada each year.
Investor days abroad
In 2011 Castello Branco led an investor trip to Mozambique, where the company has extensive coal mining operations. This was the 11th annual Vale investor tour, trips in which around 50 international investors travel to operations to gain a more intimate glimpse of the company.
Vale, which is the world’s leading producer of iron ore and pellets and second-largest producer of nickel, has coal mining operations in Australia, Colombia and Africa.
In 2006 it acquired Inco, Canada’s second-largest mining company, for $18.3 bn, and in 2007 it bought AMCI Holdings, an Australian coal mining company, for $656 mn.
Vale’s investors are also truly international: roughly 40 percent-45 percent are based in North America, primarily in the US; 35 percent in South America, mainly Brazil; 15 percent-20 percent are in Europe; 5 percent in Asia and 1 percent-2 percent in Australia.
‘One of our goals is to show investors how we do business in different countries,’ says Castello Branco. ‘Through investor tours they learn about our operations and how we excel in them.’
The typical investor tour lasts two full days, although the recent trip to Mozambique required four days given the extensive travel involved. The tour began in Maputo, the capital of Mozambique. Vale’s IR team then led investors to Tete, where the company’s coal mining operations are based.
Moatize coalmine in Mozambique
‘Our investors were very happy with what they saw because it’s a real challenge to implement a very large mining operation in a very poor area that has next to nothing,’ notes Castello Branco.
‘Our investors saw that, as a by-product of our operations, we were giving back to the population in the communities. We not only made jobs for people but also stimulated the creation of new businesses in the area.
‘Our investors were really happy that we had contributed to a truly positive transformation in a very poor country. They recognized our contribution to economic growth and really appreciated our operations, so we felt very happy.’
Castello Branco understands that not all investors can devote the time and resources necessary to travel to operations in Mozambique or other far-flung locales.
Therefore, each year the company holds a Vale Day at the NYSE and in London. At these events, the IR team meets with investors abroad and it’s here that the company discloses quarterly earnings.
‘These are very important events,’ says Castello Branco. ‘I tell the team, This is our time to shine. This is our time to show our audience that we are really able to perform our tasks very well. In investor relations, there are no mysteries and there are no secret weapons. We just try to do ordinary things extraordinarily well.’
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