Eivind Reiten: "Keeping promises by a wide margin"
"We are delivering as promised - our 2002 results are strong and we are running the business better, but results in some of our operations are still not good enough. Our financial position is very satisfying, despite major investments. And cash flow was high throughout the year," says Hydro's President and CEO Eivind Reiten.
09:00Hydro is continuing to improve, boosted by sizeable increases in oil production, continued high oil prices and systematic efforts to improve operations. But competitiveness must still be improved in many of our operations. Therefore, further improvement efforts must be a priority.
"There is great uncertainty regarding future market developments. The oil price is the factor that is most obviously unclear, but the general development of the global economy also calls for some caution. Our plans for all three core business areas have therefore been drawn up with a view to further improving operations and also increasing the company's profitability throughout 2003. We are not relying on market improvements to provide any help," he says.
Nevertheless - a result of more than NOK 34 per share is in itself a strong one. However, the results do contain some major non-recurring accounting effects, especially linked to currency rates and the high electrical power prices. These factors could have the opposite effect later on.
Keeping his promises
Trust is important. Eivind Reiten told financial markets to expect a normalized CROGI (capital return on gross investment) of between eight and nine percent; it is therefore all the more satisfying to be able to deliver even more, and achieve a result of nine exactly.
Again, Hydro's board of directors stated that the goal over time was to maintain a debt/equity ratio of around 0.5. It is impressive to record that it is now down to 0.44, less than one year after major acquisitions such as VAW, Technal and the SDFI assets. This means that cash flow was healthy throughout 2002.
Furthermore, having set ambitious accident reduction goals in conjunction with the employees, it is reassuring to confirm that good progress was also made in 2002.
"Systematic safety work produces positive results month by month. For 2003 we've even raised our targets," he adds. Hydro has become a safer company in which to work.
None of this has simply come about by itself. It is the result of the solid and systematic work that Hydro's employees have carried out over a long period of time.
Market ups and downs, but steadily better operations
But the 2002 results are not only the result of Hydro's own improvement measures. The high oil price explains much of the solid earnings. On the other hand, fertilizer and aluminium prices moved in the opposite direction. In addition, efforts to integrate the German aluminium company VAW and the French company Technal have demanded major resources.
"I am generally very satisfied with the way productivity is developing and the execution of our projects are being executed," he adds.
"It is important that we keep up the pressure to improve, reducing costs and constantly enhancing our competitive position. During last year we saw that important parameters were changing. Our response is to improve underlying operations and results and, at the same time ensure that we are prepared to deal with major fluctuations in market conditions."
"Work is therefore proceeding in all three core areas to adjust costs and the organization, with the aim of maintaining competitiveness. 2003 will not represent an exception to this. Higher productivity is necessary. This means that the company's employees will need to be flexible and willing to change, also in future. Change is a part of everyday life for a company operating in the international arena."
"The competitiveness of our businesses in Norway, especially in Aluminium, represents a particular challenge for us at the moment. The combination of weak market trends and the strong Norwegian krone exchange rate, when measured against the US dollar and other currencies, indicates that we must work even harder on our improvement measures."
Portfolio growth and adjustment
The acquisitions of VAW and shares in the state petroleum assets (SDFI) contributed to the strong growth in volumes.
"We emerged from 2002 a much stronger company than when we entered it."
Reiten points out that, in addition to major acquisitions, the first phase of the new aluminium metal plant in Sunndal came on stream, on schedule and within budget. The extensive Grane project on the Norwegian shelf will soon be completed - below cost and ahead of schedule. On the Ormen Lange project, agreement was reached to bring the gas ashore in Norway, while important projects in Brazil and Qatar are progressing according to plan.
"We shall continue to adjust our portfolio this year as well. We are sticking to our ambition to divest assets worth NOK 10 billion in 2002 and 2003. Agreements have already been signed relating to the sale of assets amounting to NOK six billion," he confirms.
Strong result for Oil and Energy
Eivind Reiten expresses great satisfaction about the production trend for oil and gas. Even though much of the growth in 2002 is due to the acquisition of state petroleum assets (SDFI), production increases in the rest of Hydro's portfolio are particularly encouraging.
"I am particularly pleased that Oil and Energy has delivered results in excess of target. We have really got to grips with costs, and are in full control of developments, he emphasizes.
"On the other hand, the year was characterized by major exploration costs, which need to be seen in the light of disappointing results from several important wells."
Good improvement, but a long way to go
Last year there were considerable challenges in Aluminium connected to the acquisition and integration of VAW.
"We are carrying out the integration and achieving the cost improvements we announced. We have also been able to raise our ambitions even more. In both structural terms, and in the way we run the business, major changes are taking place in our aluminium operations. But in parts of the Automotive and Rolled Products sectors, the results are not good enough."
"On the other hand, market conditions were particularly demanding throughout the entire year of 2002, for both value-added products and primary metal. This, coupled with a very high krone exchange rate, has depressed results."
"The market forecast is still weak, both in the USA and in Europe. Even though the improvement in results was significant, there is still a long way to go before we get to where we should be. We are therefore pressing ahead with our improvement programme with renewed vigour."
Agri boost position in depressed market
"Hydro Agri's market position was boosted by means of increased market share in Europe and solid volume growth elsewhere. For the first time we sold more fertilizer in other markets than we did in the European market."
"However, volume growth in Europe was somewhat weaker we anticipated. Despite depressed markets throughout most of the year, we managed to post results at a good level. 2002 was the first entire year of operation after the completion of Agri turnaround. We demonstrated that we were able to press on with cost improvements, even after the conclusion of the restructuring process. I want particularly to single out the great productivity advances accomplished in many of our plants."