Some found this dramatic. But the message was clear when Hydro’s President and CEO at the time Egil Myklebust presented the new strategy in the autumn of 1999. The new branches in the company could not all compete for management’s attention. Some would be sold, and some would be given a new home under the subsidiary Pronova.
The strategy had the following objectives:
- Concentration on three business areas
- Growth in the oil and aluminium sectors
- A solution to Agri’s problem in Europe had to be found
- The target of 15-20 per cent dividend to shareholders was set
- Value creation through new management systems and work processes
- Higher quality through benefits of scale in improved shared functions
The sale of operations should both increase the concentration on the core areas and release resources for growth within these areas.
A clear conclusion
“The conclusion is clear: with a base in Norway, Hydro will build global positions for the three core areas Oil and Energy, Aluminium and Agri,” stated President and CEO Egil Myklebust.
Concentration on the three core areas would equip Hydro to meet global challenges through rapid and fundamental changes. Both financial and human resources would be directed to where the opportunities for value creation are greatest. The company will grow in areas that can be justified through results.
“The financial ability to handle growth is good. We are prepared to play with all the strings in our bow, as exemplified by the acquisition of Saga Petroleum this summer,” explained Myklebust in 1999.
The new strategy was seen as a guideline for Hydro’s development up to its 100th anniversary in 2005. The way ahead was decided after extensive work by the board and corporate management.
The new strategy included the following important points:
- Develop the oil and gas area through greater international activity, with the aim of increasing production to the critical level of around 800,000 barrels a day. Norway was to remain the main production area, with international activities focused on in four or five other geographic areas.
- Establish a clear position as the third integrated aluminium company in the world, not necessarily striving to gain the size of the top two, but with a leading position in our focus areas. Growth shall continue to take place through acquisitions and alliances and through future development of the metal supplier concept and extrusion activities.
- As a major global player in the fertilizer industry, and with its expertise and market positions, Hydro has a good platform from which to further develop its operation. The first and most important task, however, is to solve the profit and structure problems in Europe.
Standing firm on three legs
Analyses of Hydro’s own history together with an extensive study of other diversified companies gives a clear conclusion: the right thing to do is to focus on three core areas. These are to be cultivated, and everything that falls outside will either be sold or developed in alliances.
“The philosophy from the sixties, when the “new Hydro” developed from a regional fertilizer producer to a diversified company in which different operations support one another, still applies. We continue to build on the three business areas that have given us strength and financial capacity for several decades. But it is more important that the three legs are well defined in terms of objectives and strategies. Not everything can grow equally fast at all times. We have to prioritize consistently and systematically according to where the opportunities are greatest,” said Myklebust.
He also pointed out that the strategy was already taking form in practice: the acquisition of Saga Petroleum in 1999 was the largest purchase in Hydro’s history at the time and increased oil production by 40 per cent.
Meanwhile operations outside of the core areas were also being sold, such as Biopolymer, Mabo and Hydro Coatings, which resulted in a gain of around NOK 2.5 billion. “By the end of 2001, we should have freed up a further NOK 10 billion through the sale of operations. We continue the work to sell Hydro’s shares in Dyno and find a new owner for Hydro Seafood and the Petrochemicals operation,” Myklebust explained.
This strategy was followed in subsequent years. In the summer of 2003, Hydro started preparations to establish the Agri operation as a separate Norwegian-based company listed on the Oslo stock exchange. The Hydro group will continue to focus its full attention on the business areas Oil& Energy and Aluminium.
The decision to list Agri as a separate company was the result of an extensive portfolio review with a view to creating the greatest possible value for the company and its shareholders.
“Hydro’s agricultural operation has completed a successful turnaround operation and is now in a good position for profitable growth,” states Hydro’s current President and CEO, Eivind Reiten.
“Agri is the world’s leading fertilizer company and has a considerable potential for value creation. Agri’s further value creation and growth can best be achieved with greater financial freedom through direct access to the capital market. This decision also provides the starting point for concentrating our attention and financial resources on the significant development opportunities in Oil & Energy and Aluminium,” says Reiten, who took over the position of President and CEO from Egil Myklebust in 2001.