"Hydro is planning to sell off operations worth NOK 10 billion in the next couple of years. Petrochemicals, VAW Flexible Packaging and Hydro's 62 per cent stake in KFK, the Danish grain and feed company, are up for sale," announced executive vice president Leiv L. Nergaard on Capital Markets Day in Oslo on Tuesday.
Nergaard stressed that Hydro's main financial results target remains unchanged: a return on capital of minimum 10 per cent after tax on all investments (CROGI), a debt/equity ration of 0.5 and an average 30 per cent dividend for shareholders over the business cycle.
"The problem with a profitability goal of ten per cent is that we do not always know where we are in the business cycle for each of the areas. We therefore operate with normalized prices when measuring performance: an oil price of USD 18 per barrel, an LME 3 months aluminium price of USD 1500 per tonne, a CAN 27 fertilizer price of USD 113 dollar per tonne and a NOK/USD exchange rate of 8.00.
In real terms we achieved a CROGI of 12.3 per cent in 2000, but given normalized prices this was just nine per cent. Our CROGI forecast for 2002 has been scaled down from ten to between eight and nine per cent. The downwards adjustment is due primarily to weaker market conditions for aluminium and investments for new growth in the Aluminium and Oil and Energy areas that have not yet come on stream."
Nergaard pointed out that the average CROGI result for Oil and Energy during the past five years has exceeded ten per cent. This area has now entered a period of major international investments which do not generate immediate returns. Agri is much improved and in a position to achieve results of more than ten per cent in the coming years.
Because of the VAW integration, and the Sunndal expansion, Aluminium will have to wait until 2004 before CROGI attains ten per cent. The divestment of activities outside the company's core areas will make a positive contribution.
"The debt/equity ratio, which we have reduced considerably since the acquisition of Saga Petroleum, will now climb back 0.7 following our purchase of VAW. This is roughly the same level as it was at immediately after the Saga takeover.
Our goal is to aim for 0.5 again in 2003, but this is conditional on our managing to divest operations for NOK 10 billion during the course of the next couple of years. We are continuing to sell off activities not defined as part of our core areas, and some divestments already concluded will be entered into the books in 2002. These include Pelican and some licenses from Oil and Energy, plus Oleochemicals from Agri."
Nergaard stated that Hydro is planning to invest NOK 19 billion in 2002, with the VAW acquisition and a possible purchase of SDFI shares coming in addition. He added that the investment level illustrates "that we have once more established a platform for selective growth in Agri as well."