Back from the brink

Norsk Hydro ASA Executive Vice President Thorlief Enger, knows his nitrates. He also knows where the markets for these fertilizers are and how to beat the competitors to them.

But for the European fertilizer giant, the balance sheet was not always a pretty picture. Faced with declining markets for its products and the prospect that its share price was bottoming out on global markets, Enger, who is also President of Hydro Agri in Trinidad and Tobago, a subsidiary of Norsk Hydro, knew that he’d better face the music and as he put it, “get his house in order” or preside over a dying company. To prevent a free fall, he sliced US$400m in fixed costs and fired about 6,000-7,000 people globally. “It was all about leadership expectations and opportunities,” he said matter-of-factly. If this multi-faceted global company plays its cards right, it may well be the poster boy for a corporate turnaround in both the US and Europe. His words resonated throughout the room at the Crowne Plaza, where the Institute of Business (IOB) held “The Ideas Forum” last week. His talk on on “Restructuring for Productivity in a Dynamic Global Market” might have had a pretentious ring to it, but Enger was able to break it down. And break it down he did. In 1998, when Norsk Hydro had to close down plants across the globe, including Italy, France, Germany and Sweden, it had to get the go-ahead and cooperation of the unions. “Most plants are unionised,” he told his guests, drawing murmers and smiles from the crowd as he evoked the thorny issue of Caroni’s restructuring.   

 The company also trimmed businesses  and secured divestments for those that were not part of its core operations, this included 30 businesses and plants since 1999.   After all this, the data he presented showed that in 2001, there was a gross return on assets for Hydro Agri. He was able to show that employees’ production increased, while foxed costs per tonne dropped. On whether there was a sense of crisis during the turnaround, Enger said it appeared so, at first. “People didn’t realise where they stood,” he said, noting that when the plan was presented, some employees took their severance packages and walked. The important thing, he said, was to face the realities, even though unpleasant, and pull together. But his key message was that Norsk’s unique business model was based on global strengths and that good industrty performers deliver competitive shareholder returns. Norsk Hydro also owns and manages three ammonia plants, HAT (100 percent owned), Tringen 1 and 2 (49 percent) at Savonetta, Point Lisas. When he told business executives from both the private and public sector that strategising meant cutting costs to the tune of US $400 in fixed costs, they froze. Apart from cutting costs, they also had to keep productivity up, he said.  “We let people know what was going on, there was always communication,” he said in an interview later. “A company always has to be aggressive if it wanted to move ahead, he added.” He was quick to point out that Norsk Hydro fashioned its own business model for change, and refused to hire any consultants for the company’s new road map. Consultants, he felt, would not only cost money and muddy the entire process. “Consultants?” he asked, making it sound as if the word were obscene. “We did our own thing, the Norsk Hydro way,” he said, laughing.

The unions, he said, were helpful in the process and helped achieve results. “It was no magic, but hard work,” he said with a smile. In the end, the company had to sever ties with about 6,000 workers. It ditched business that the company felt hamstrung it , Enger said, and stuck to its core products: oil and energy, aluminium and fertilizers. “We had to go back to where the business was core,” he said, in response to a question from prominent accountant Vishnu Maharaj. The company now has a strong presence in Latin America, Africa, US and Europe. “We have a good spread globally,” he said. Norsk Hydro’s trump card which has been successfuly deployed against its competitors is that it controls and owns its own shipping fleet. It is something, he said, that his company will not compromise on. Having been in the fertilizer business since 1905, “we feel strongly about production and marketing,” he said. In his engaging presentation, he noted that in ammonia, the company was coming to grips with shifting global trends. Production, he said, is moving from where the market is, and being drawn to cheap material like natural gas. That’s why TT is crucial to its hub of global operations, noting that when natural gas prices rise, other global producers are either forced to shut down or close but with TT being a low cost producer of gas, Hydro Agri stays in business. Another leadership trinket he dished out was that ”if one wanted to be a global leader, one had to find one’s strengths.”

Today, Norsk Hydro has a strong financial base and demonstrated that it can still deliver profitability as well as share holder value and growth. According to Enger, Norsk Hydro knows what its chess board looks like; even though the world population is increasing, and the demand for land is diminishing, people must eat. For Enger, that means mineral fertilizer is going to be in demand. “Mineral fertilizer is the only sustainable major source of nutrient,” he said as he showed a graph depicting how the demand for fertiliser is growing. The expected growth for this sector is 2-3 percent, he noted. “Our agri-business is a unique combination of size and global presence,” he told business executives, noting that half of the company’s sales take place outside its European home market. While fertilizer consumption in Europe is stagnating, many overseas markets continue their strong growth. He is a pragmatist. “We will continue to apply an up-or-out policy to assests which do not perform,” he said, noting that in light of the ongoing consolidation, Hydro Agri was attracting players who want to exit the business or enter alliances. Enger was dismissive of the world’s appetite for organic food. “The plant can’t distinguish between an organic and mineral fertilizer molecule.” Asked if Norsk Hydro was going to be listed on the TT Stock Exchange, Enger said his company was listed on the major global exchanges like the NYSE and London stock exchange. Mark Loquan, President, Hydro Agri, Trinidad, noted that Hydro Agri was part of Tringen, which was listed in NEL, and therefore Norsk had an indirect listing on TT’s Stock Exchange.