"Continuous result improvement from operations is our first priority. I am glad to report that our business areas are delivering in this respect," said executive vice president and CFO John O. Ottestad at Hydro's Capital Markets Day in Oslo on Monday.
"With regard to capital expenditures we are exerting strict capital discipline, sharpening our return requirements and scrutinising project robustness. Completion of major capital expenditure projects on time and within budget is critical in a capital intensive industry like Norsk Hydro’s and we are delivering in this respect," said Ottestad.
Ottestad pointed out that Hydro is well on track to meet its divestment target of NOK 10 billion by the end of 2003. Agreements for divestment of businesses valued at NOK 6 billion had so far been entered into. Since 1999 the company has divested businesses for NOK 22 billion.
John O. Ottestad's presentation (PDF 340 KB)
This year, Hydro has purchased businesses for NOK 28 billion, the acquisition of VAW constituting the major portion. I am satisfied that not only the SDFI acquisition, which is benefiting from high oil prices, but also VAW and Technal, which experience challenging aluminium markets, are all accretive to earnings in 2002.
John Ottestad termed Hydro’s financial position as strong. Liquidity reserves are comfortable, the long-term funding solid and our debt/equity ratio meets our long term target of 0.5.
"We intend to keep our single-A rating", he underscored. "We repeatedly demonstrate our ability to deliver on promises to bring our debt/equity ratio swiftly back to our long-term target after completing major acquisitions like Saga and VAW."
Hydro’s key financial measure is CROGI - Cash Return On Gross Investment. Given Gross Investments of NOK 270 billion in the denominator of this ratio, and a requirement for a 10 percent CROGI, cash earnings after tax will have to be NOK 27 billion for the target to be met.
Ottestad described CROGI as an important indicator serving management well in monitoring progress on improvement measures. This year CROGI at average cycle "normalised" prices is expected to end up in the bracket eight to nine percent. Next year’s ambition is half a percentage point higher, not counting on any help from the markets. Aluminium, which is lagging the two other business areas on CROGI performance, is making major steps forward in 2002, a development expected to continue in 2003," concluded Ottestad.
John O. Ottestad's presentation (PDF 340 KB)