Norsk Hydro unveils strategy for the future

Oct 28, 1999 02:00 AM

The Norwegian industrial company Norsk Hydro has unveiled a strategy in which the group says it will focus its competence and capital on three core business areas - Oil and Energy, Light Metals, and Agri.
"In the short term, our most important areas of growth will be within Oil and Energy, and Light Metals," says Hydro president and CEO Egil Myklebust. "In Agri, the main challenge will be to improve the profitability of our European fertiliser operations, an area in which we can create significant value. Our other activities will either be sold or developed further through alliances."
These are some of the main points in the new strategy - "Focus for the future" - that the group is launching after a process in which its board of directors and corporate management extensively analysed Hydro's operations and business positions, and drafted opportunities for the future. Several major changes executed earlier this year, such as Hydro's acquisition of Saga Petroleum, underlines the direction in which Hydro is headed.
"Hydro's history and growth is closely tied to Norway. But to move forward and become a leading global performer in selected businesses, we need greater international presence in terms of market positions, assets and employees," says Myklebust. "Our base will continue to be in Norway, but we will have global operations in Oil and Energy, Light Metals, and Agri. It is in these areas that we intend to become a leading player, enabling us to create attractive returns for our shareholders."

In Oil and Energy, Hydro intends to grow its activities by using as a basis the position it has developed and strengthened through the take-over of Saga Petroleum. The business area will also seek to develop attractive opportunities in selected niche areas in European energy markets.
In Light Metals, Hydro is aiming to develop a profitable position among the world's top three integrated aluminium companies while further developing its leading position in magnesium. The business area will achieve these goals by developing its existing market positions and business models, and by establishing new alliances and acquisitions.
In Agriculture, the group wants to continue developing its position as a leading global player. In the short and medium term, Agri's main task will be to bring the profitability of its European fertiliser business back to acceptable levels. Other growth ambitions will be subordinated to this task.

Hydro believes this more concentrated portfolio will enable the group to create value for its owners and provide competitive long-term returns. "This will sharpen the focus on creating shareholder value as our primary benchmark for success," says Myklebust, adding that the group has already implemented a new management system that is designed to show where value is created - and where it is not. "Our ambition is to provide shareholders with total returns of 15 to 20 % per year over the duration of a business cycle," he says. "We will benchmark our performance, for example, against the Financial Times Eurostock 300, to make sure our returns are in line with the best of our peers. We know that achieving ambitious targets requires continuous efforts toward improvement. Reducing costs and improving efficiency must therefore be part of the everyday focus for employees at all levels."
He says Hydro will meet the financial goal of its Agenda 99 improvement program this year with performance improvements of NOK 1 bn. Through Agenda 99, Hydro is targeting further improvement of NOK 4 bn by the end of 2001, again using 1998 as the base year for the comparison. In addition, Hydro expects synergy gains of NOK 500 mm related to the integration of Saga Petroleum.
Hydro has a strong financial base as its starting point, says Myklebust, despite the recent completion of its largest merger ever and the adverse market conditions experienced over the last two years. He says the current goals are high and will require substantial financial resources.
"In the next few years, we anticipate an investment level of about NOK 15 bn per year," says Myklebust, noting that significant acquisitions could add to the figure. "Although our cash flow depends on the market prices of our products, we expect cash flow to increase considerably. Planned divestments will also strengthen our financial capacity. Furthermore, as the Saga transaction demonstrated, we know that we can use the Hydro share as an acquisition currency in special situations." He says the implementation of "Focus for the future" will make 1999 a year of change for Hydro.

Some important changes have already occurred, including:
-- The take-over of Saga Petroleum, which has brought Oil and Energy a long step forward.
-- Agreements with the Brazilian companies Alunorte, in which Hydro intends to take over a 25 % interest, and Aluvale, with which Hydro has signed a long-term aluminium supply contract. These agreements, coupled with an investment in a new remelting plant in the US, have strengthened the group's foundation for further metal growth in the Americas.
-- The reorganisation of Agri, which is designed to provide the business area with a more co-ordinated market approach and strengthened focus on operational efficiency.
-- The implementation of Agenda 99, a cost-efficiency program that will yield improvements of NOK 1 bn this year. The program includes workforce reductions of 2,300 employees by July 2000, of which 800 reductions are related to the Saga integration.
-- The divestment of non-core activities totalling NOK 2.6 bn this year. Hydro anticipates further divestitures amounting to an additional NOK 10 bn over the next two to three years.
-- The introduction of new management models and leadership tools to improve and simplify business planning processes and enhance performance management.

Norsk Hydro Safe Harbour Statement
-- The nature of the company's operations and the environment in which it operates is subject to changing economic, competitive, regulatory and technological conditions, risks and uncertainty.
-- In connection with the United States Private Securities Litigation Reform Act of 1995, Hydro is providing the following factors, which among others, could cause future results to differ materially from the forward looking statements, expectations and assumptions expressed orally or written herein. The statements include management aims, objectives, plans, as well as targets for long-term debt to equity ratio, dividend pay-out ratio, and return to shareholders.
Management does not anticipate that all targets would necessarily be met in any individual period, and targets must be seen over a longer time perspective. Factors which could cause results to differ include, but are not limited to: fluctuations in supply and demand affecting product prices and raw materials, changes in governmental laws and regulations, including income taxes and environmental protection control, political developments, adverse effects of fluctuations in exchange rates and changes in marketsentiment, evaluation of risk, economic or other conditions affecting the valuation of share price.
Organisational changes In order to improve the top-level management of the group's business areas and to streamline reporting lines and co-ordination within each core area, Hydro is changing the way its corporate management team will work. Until now, Hydro has had a system where bottom-line responsibility rested with divisional management, while the relevant members of corporate management had a co-ordinating function for the divisions that reported to him.
Under the new format, the members of corporate management will be responsible for the strategic development and performance within their respective business areas, thus improving the strategic and operational co-ordination within the business areas and providing a clearer system of accountability at the top management level. Division heads will continue to be responsible for the results in their divisions.
In a company where dynamic structural changes may occur rapidly within its business areas, Myklebust says it is necessary to have a top management that is focused on the strategic challenges and able to act decisively and with speed when required. "Our corporate management team will in their work be able to draw upon the support of a competent corporate centre with sufficient capacity to manage and implement several major processes in parallel," he says. A more detailed outline of the changes in the corporate centre's organisational structure will be announced later this year.

Hydro's corporate management will continue to consist of five members. In addition to Myklebust and executive vice president and CFO Leiv L. Nergaard, the group includes Thorleif Enger (Agri), Eivind Reiten (Light Metals) and Tore Torvund, who will be responsible for Oil and Energy from January 1, 2000. Torvund is currently the division president for Exploration & Production Norway. Since summer, he has been heading the project to integrate Saga's and Hydro's oil organisations.
Myklebust says that Hydro's non-core activities "will continue to benefit from a strong focus on operations, strategy and business development, as long as these activities remain company-owned. If performance is satisfactory and improved," he says, "then considerable assets can be derived from these activities through divestments or alliances."
Hydro is establishing management boards for its most important non-core businesses, including Petrochemicals, which will be led by executive vice president Thor Hakstad. He will report directly to Myklebust. In addition, Hakstad will serve as chairman for Pronova, a subsidiary company that will assume the responsibility for developing projects and units that do not fit within Hydro's core business scope.
In other management changes, Kjell Ramberg, head of corporate control and accounting, will replace Sven Arild Andersen as managing director of Pronova A/S, while Georg Stormer, who heads corporate finance, will move into a new position where he will work full-time with Hydro's acquisitions and divestments.
The organisation of the Oil and Energy business area has also been altered. It will now comprise the divisions Exploration & Production Norway, Exploration & Production International, Energy, Hydro Technology & Projects, and Refining & Marketing. In addition to its power operations, Energy will be responsible for several business areas that until now have been organised within other divisions. These include crude oil marketing and liquid natural gas sales, and upstream gas marketing. Reidar Saether will continue to head Energy.
Lars T. Bjerke, currently executive vice president of Saga Petroleum, will replace Tore Torvund as division president for Exploration & Production Norway. The division Exploration & Production International will be led, as before, by Morten Ruud. The division presidents for Oil and Energy's two other divisions will also remain unchanged. These are Tom R0tjer (Hydro Technology & Projects) and Bengt Goran Markeborn(Refining & Marketing).

Source: Business Wire
Market Research

The International Affairs Institute (IAI) and OCP Policy Center recently launched a new book: The Future of Natural Gas. Markets and Geopolitics.

Cover_242-width

The book is an in-depth analysis of some of the fastest moving gas markets, attempting to define the trends of a resource that will have a decisive role in shaping the global economy and modelling the geopolitical dynamics in the next decades.

Some of the top scholars in the energy sector have contributed to this volume such as Gonzalo Escribano, Director Energy and Climate Change Programme, Elcano Royal Institute, Madrid, Coby van der Linde, Director Clingendael International Energy Programme, The Hague and Houda Ben Jannet Allal, General Director Observatoire Méditerranéen de l’Energie (OME), Paris.

For only €32.50 you have your own copy of The Future of Natural Gas. Markets and Geopolitics. Click here to order now!


 

Upcoming Conferences
« September 2018 »
September
MoTuWeThFrSaSu
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30

Register to announce Your Event

View All Events