Jon-Harald Nilsen: "Hydro Aluminium stronger in weak market"

December 9, 2002, 00:00 CET

VAW and Technal have been integrated. New remelt plants in Spain and Texas, and the new metal plant in Sunndal are in operation, while VAW Flexible Packaging has been sold. Market positions have been given a boost in a weak market, said executive vice president Jon-Harald Nilsen at Monday's Capital Markets Day in Oslo.

At the same time he underlined Hydro Aluminium's main focus will still be cost improvements. The company's strengths are innovative business solutions, good customer relations and the ability to operate plants at high productivity levels.

He stated that Hydro Aluminium in 2004 would meet the company's required CROGI - Cash Return On Gross Investment - target of 10 percent.

"We are expecting a certain increase in aluminium shipments in 2003," said Nilsen, who could point to more shipments from rolling mills and extrusion plants of late, but who also said that there is still much uncertainty regarding the world economy. "Still, we have managed to boost our position considerably in a difficult market situation."

As far as primary metal is concerned, the aluminium industry's attention is turned towards developments in China. The country has traditionally been an importer of aluminium, but is expected to become a net exporter in the years to come. Meanwhile the situation in the USA North West, where large sections of the aluminium industry are still closed because of power shortages, is being closely monitored.

Five nationality-strong management team

Internally it is the integration of the German aluminium company VAW and the French building system company Technal that has been the main focus during the past year. Both these comprehensive processes have been completed quickly and without major problems. Nilsen characterizes the efficiency of the integration as setting a new industry standard.

Following the merger, there are now five nationalities in Hydro Aluminium's top management team.

Cost improvements in metal plants

The production costs of primary metal are coming down and will be further reduced as a large section of the new Sunndal plant comes on stream. More and more production will take place at large, effective and environmentally adapted plants, while the smallest metal plants will largely benefit from their proximity to markets and their production of high value cast products.

As 2002 draws to a close, the company's casthouses will have handled three million tonnes of aluminium in the course of the year. Costs per tonne have been reduced, and Hydro has been a driving force in restructuring this market.

Strength downstream

Over several decades, Hydro has built up a very effective management model for its extensive extrusion business in Europe. Productivity at the company's plants in Europe is considerably better than in the USA. Expertise from the European system will therefore be put in place to improve operations at the American plants.

"As regards rolled products, the company increased its turnover several times following the acquisition of VAW. Hydro is now one of the four major players in this market with an especially strong position in the litho, foil and automotive sheet markets," added Nilsen.

Better balance

Senior vice president Arvid Moss pointed to the fact that there is a better balance in Hydro Aluminium, after the VAW acquisition, between primary production and downstream as the share of rolled products has grown. Its primary metal position has also been given a boost, through low-cost plants outside Europe, while automotive activities have been expanded to embrace cast products and sheet.

"We have achieved a critical size in new areas," he said. One of the challenges ahead will be to reduce primary metal production costs and further develop downstream activities in Europe and in selected markets outside Europe. In automotive, the goal is to become a global player in selected segments, and we are hard at work improving operations at those plants that are not yet delivering satisfactory results."