MESSAGE FROM THE PRESIDENT
(GRI 1.1)
The year 2008 will be remembered as the last in a cycle of global economic expansion, fed by the wide availability of credit, which contributed to driving growth in the economies of several countries, including Brazil.
The reversal of this scenario was triggered by the real-estate subprime crisis in the U.S., which damaged the financial health of several global financial institutions, provoking a strong aversion to risk and a consequent generalized restriction in credit. These circumstances led to a deterioration in the main economic and consumer confidence indicators in several different countries, which required the governments of the same countries to adopt effective measures to contain the effects of the crisis. Various bail-out packages were introduced, of particular note being those directed at stabilizing the financial system and stimulating consumption. The practical effects of these measures have not been enough, so far, to reestablish normality in the markets, and the outlook, in the eyes of many analysts, is for a relatively long period of marked economic slowdown.
As a direct result of this scenario, there was a general flight by investors to safer assets, such as U.S. government bonds, leading to the devaluation of several currencies against the dollar. In Brazil, in particular, this movement caused significant volatility in the FX market, leading to a year-end US$/R$ in 2008 of R$2.337 compared to R$1.7713 at the end of 2007, which is equivalent to a depreciation of approximately 32% in the period. Despite the abrupt change in the scenario, our performance last year was satisfactory, mainly due to the robust level of demand, linked to the large number of real-estate projects previously launched; and the high level of employment, which led to an expansion in disposable consumer incomes, coupled with the availability of credit.
This scenario, together with our operational and financial discipline, allowed for the expansion of some activities, and we reported record gross revenue of R$2,554.8 million, equivalent to an increase of 14.8% in relation to 2007. The operating result, as measured by EBITDA, was slightly better last year than in 2007, totaling R$559.4 million. This performance was affected by the increase in important input costs, particularly those linked to the panel production process – such as electricity and resins.
With regard to our Capital Expenditures Plan (PAR), of note was the project to expand production capacity of MDF panels, which remained on schedule and which we estimate will be completed in April 2009. At the same site, the introduction of a new low-pressure coating line was successfully concluded, which operated at close to full capacity during the second semester and contributed to enriching our mix of panel shipments. Another significant factor was the acquisition of two competitors in the vitreous china segment: Ideal Standard do Brasil and Cerâmica Monte Carlo. These acquisitions led to a significant expansion in capacity at an extremely favorable moment.
However, the schedule for the second phase of expansion, announced in the first half of 2008, was delayed due to uncertainties about the economy over the next few years. As such, we opted to preserve our capital structure by reducing planned investment by approximately R$1.0 billion, of which R$450 million will be spent by the end of 2009.
We expanded our presence in increasingly competitive markets, mainly by introducing an innovative sales mix, with the launch of 63 products and different standards at the Wood Division. We also launched the Duratex Moulding line, which will contribute to increase sales and market share in the construction sector, and 19 new product lines at the Deca Division.
Corporate governance practices continue to be strengthened. All employees received training about the Code of Ethics and Conduct, which disseminated the importance of ethical behavior and transparent relationships with our strategic public audiences: employees, clients, shareholders, suppliers, partners, the capital market, competitors, public entities and society in general.
As well as being part of a select group of companies that adhere to the differentiated levels of Corporate Governance in the São Paulo Stock Exchange, our shares were also included in the Bovespa’s Business Sustainability Index (ISE) in 2008. This index is made up of companies that are noted for their adoption of differentiated management practices based on the sustainability of operations, from the standpoint of the existing practices of corporate governance, the nature of the product and their economic, social and environmental performance. We therefore consider our inclusion in the ISE as public recognition of the existence and effective application of the best practices directed towards business sustainability and creating additional value.
As examples of our differentiated approach, of particular note in the social area was our participation in the Na Mão Certa program (In the Right Road), an initiative taken by the World Childhood Foundation (WCF) to end the sexual exploitation of children and adolescents on Brazilian highways, as well as our support for several other projects for the purposes of education, social inclusion, stimulating preventive health and encouraging sport.
In the environmental arena, we reinforced our image by designating an area of 600 hectares of native vegetation for permanent preservation. Called the Olavo Edydio Setúbal Nature Reserve, it has been officially classified as a Private State Natural Heritage Reserve (RPPN). As such, we reinforced our commitment in both the eyes of the public authorities and society in general to preserving this area, rich in biodiversity, permanently as a nature reserve.
All these initiatives were put into practice in our business model, which combines profitability with ethical behavior, respect for the environment and social responsibility. To finalize, I remember with a heavy heart the passing-on of the President of our Board of Directors, and my father, Olavo Egydio Setubal. I would like to pay homage to this great leader, on behalf of all the employees at Duratex, with the certainty that his values and teachings will always inspire and guide our actions.
I would also like to give special thanks to the support received from our shareholders, the dedication and commitment of our employees, the partnership with suppliers and the trust extended to us by both clients and consumers.
Paulo Setúbal
President