Speech given by Mr. Travis Engen
President and chief executive officer, Alcan Inc.
February 11, 2003
Maximizing value a sustainable business proposition
Bonjour. Good afternoon ladies and gentlemen. I would first of all like to thank the Board of Trade for inviting me here to speak today. I am truly delighted to be given the opportunity to address a forum that contributes so much to the economic vitality of Montreal and Quebec.
Alcan, of course, has been a vital part of this business community for a century. As some of you may know, a company, which was later to become part of Alcan cast the first aluminum produced in Canada over 100 years ago in October 1901, in Shawinigan. We also contributed to building the transmission network that supplied power for the lighting of Montreal, from Shawinigan.
The first ever meeting of Alcan shareholders took place right here in Montreal 100 years ago last spring, on June 16, 1902.
That's quite a history, by anyone's standards. And I am proud to be at Alcan's helm as our Company embarks on its second century of growth. It really is an exciting time to be a part of this great organization. As a matter of fact, it was my appreciation of the opportunity to build an even better Alcan that prompted me to become a candidate for the CEO's job two years ago. I had been a member of Alcan's Board since 1996. But it was only when I became involved in the search for a successor to my friend Jacques Bougie and got a closer look at the first-rate assets and great people that I decided building an even better Alcan was a challenge I would love to take on!
Our strategy for meeting that challenge provides the theme of my remarks this afternoon: Maximizing Value - A Sustainable Business Proposition. Over the past year or so, Alcan has launched major initiatives in two key areas that we view as complementary. Indeed, I would go farther and suggest they are, in fact, mutually reinforcing, gaining added strength from one another. Those two areas are corporate sustainability and Maximizing Value the latter being Alcan's governing objective.
Simply put, it is clear to us that a healthy, profitable enterprise has a much greater capacity to improve its sustainability than a struggling or poorly performing company. Having Maximizing Value as a governing objective provides us with the practical framework by which we can increase shareholder value and ensure Alcan's sustainability for the future.
I will elaborate on that proposition in a moment or two. First though, I would like to set the scene by providing you with a brief overview of today's Alcan for the benefit of those who might not be up to speed on recent developments within our company.
Today's Alcan is a dynamic and, in many respects, a very different organization than it was even a couple of years back. As well as changing the way we do business, we've become considerably more diversified, building upon our strengths in aluminum to become a global leader in packaging and engineered products as well.
With 2002 revenues of US$12.5 billion, Alcan has approximately 48,000 employees and operations in some 38 countries which makes us a truly multilingual and multicultural organization. And we are continuing to grow the business or more precisely, the businesses, plural as we seek out profitable growth opportunities that fit with our value agenda.
An example is our recent acquisition of VAW's Flexible Packaging business, which once approved by the regulators, will add some US$600 million to Alcan's revenue, add some 5,400 employees to our talent pool and extend our global reach into another 2 countries. It will also build our presence in the very promising and exciting markets of China and Turkey.
Strengthening our Quebec Base
However, notwithstanding this global footprint, Alcan remains very conscious of its Quebec roots. Montreal and Quebec play a pivotal role in the Company's affairs. Our global headquarters are here, all key corporate functions Finance, Legal and M&A, Human Resources, Environment, Health and Safety, Corporate Affairs and Communications, etc. are overseen from Maison Alcan. Montreal is our corporate centre. Moreover, two of our six business groups that drive global operational performance Primary Metal and Bauxite, Alumina & Specialty Chemicals are based in Montreal. All told, Alcan directly employs some 8,500 people in Quebec. And that's not counting the 560 employees at the partly owned Alouette smelter in Sept-Îles.
Speaking of Alouette, I should note that over the past year we have made a number of substantial investments to enhance our Quebec smelter base and facilitate increased aluminum fabrication and processing activities. Among the more noteworthy accomplishments, we:
· Officially inaugurated our world-class, US$2.2 billion smelter and casting complex at Alma;
· Invested over US$330 million to acquire a 40% interest in the Aluminerie Alouette consortium, which operates a modern 243,000-tonne smelter in Sept-Îles that is now undergoing a major expansion;
· Collaborated with the National Research Council of Canada to establish the Aluminum Technology Centre in Chicoutimi to conduct research into new processes that will provide an impetus for the establishment of fabrication activities in the Saguenay Lac-St-Jean region; and
· Along with our Alouette partners, committed to creating 1,000 jobs in aluminum transformation and other activities over the next 10 years, in return for a block of energy supporting the Alouette expansion.
Furthermore, just a couple of weeks ago, we announced several other initiatives that, in the short term, will create as many as 420 new jobs in the Saguenay Lac-Saint-Jean region. Among them is a new pot-lining centre to be built adjacent to our Alma smelter. This project, representing an investment of approximately US$40 million, will create up to 200 new jobs in connection with the lining requirements at the Alma complex. This type of initiative could not have been possible without the involvement and active collaboration of an innovative partner - our Alma-based union leadership.
We also unveiled details of a new mission for our Dubuc Works in the Saguenay, becoming a global leader in the production and fabrication of busbar power conductors, as well as a new generation of high value-added, engineered cast products. Finally, we confirmed a previously-announced US$112 million outsourcing initiative for information technology services to our neighbours CGI, which will maintain 100 jobs and create 60 new ones, also in the Saguenay.
Alcan's direct overall impact on the Quebec economy for 2002, including procurement, capital expenditures, wages and benefits, and taxes total some US$870 million.
Alcan, throughout its history and today, continues a very special relationship with key elements and institutions in Quebec society. Quebec obviously figures prominently in our value agenda, going forward. We will continue to look for opportunities that will add value to our business and are sustainable.
I'd like now to return to the underlying theme of my remarks. As I indicated earlier, we see Maximizing Value and sustainability as a sort of one-two punch that will enable us to meet and overcome the significant challenges that await us in the global economy of the 21st century. Challenges such as:
· A rapidly changing and ever-more competitive business environment;
· Increased investor expectations regarding performance and returns;
· Changing societal expectations; and
· Our needs as an organization to embrace change and pursue innovation.
Incidentally, ladies and gentlemen, those challenges are much the same regardless of what business you happen to be in, or whether your enterprise is based in Montreal or New York, Toronto or Tokyo, Paris or Beijing.
Maximizing Value is really all about focus. It's an approach to running the Company that focuses everyone's attention on where and why value is created and where and why it is destroyed.
Managing for value means we are focusing on outcomes, making sure that our various projects take us where we need to be. We use value impact as our basis for setting priorities, shaping strategies and choosing between alternatives. In other words, Maximizing Value now drives decision-making throughout the organization. That's why we refer to it as our governing objective. We are confident that our value-based approach will enable us to deliver a level of financial performance and profitable growth that will exceed investors' expectations and position Alcan among the world's top-performing companies.
A common denominator in our recent growth investments is selectivity: we have been and will continue to be very selective in our choice of the opportunities we would like to pursue, based, of course, on our value criteria.
A second Maximizing Value thrust involves the development throughout Alcan of enhanced capabilities and increased understanding of our governing objective. To accomplish this, we launched a comprehensive training and capability-enhancement program the most significant investment in Alcan people that we have ever made. Continuous-improvement systems and tools such as Six Sigma and Kaizen are becoming an integral part of Alcan operations around the world. And we also have undertaken a number of cost-driven, cross-business initiatives in the areas of logistics and procurement, which have yielded savings of some US$100 million to date. So when it comes to advancing our value agenda, no aspect of Alcan's operations is overlooked.
Incidentally, we think the positive impact of Maximizing Value is already being reflected in Alcan's performance and has begun to set us apart from the competition. For instance, our 2002 financial results, announced a couple of weeks ago, highlighted that despite a very difficult business environment we achieved record cash flows of US$1.6 billion, while enhancing the Company's financial flexibility and its ability to capitalize on new strategic opportunities that may present themselves.
Sustainability an Integral Part of Alcan's Approach
It goes without saying then, that Alcan is first and foremost an economic entity, which operates to maximize results. However, our Company has long been known for its commitment to social responsibility as well for doing the right thing. And we have recently taken this to another level by making sustainability an integral part of the pursuit of our governing objective.
We see sustainability as another means for us to improve our performance by increasing the economic results of our actions and reducing environmental impacts within the context of business growth. In addition, we will reap the benefits that result from being closer and more responsive to our markets and trends in the society that we serve. All this will make Alcan your investment, supplier, and employer of choice. For our communities, they will continue to see Alcan as a reliable and long-term partner. So the returns that our shareholders demand are driven by our ability to invest in employees, in customer service, in the best technology and equipment and in the best
performance in the areas of environment, health and safety. In turn, it is the economic results that generate the resources to invest in our capabilities. This must be seen as a virtuous cycle, working to grow the economic resources to facilitate our success in all dimensions.
To help you better understand our sustainability framework we have developed a colourful chart (Alcan's Sustainability Framework Integrates all Activities) that illustrates how we integrate sustainability into our business. At the base of this triangle you will see that our values, customer focus, management systems and stakeholder involvement represent the glue that holds our sustainability focus together. Without these basic principles, a company has no chance at building a long-term approach to sustainability. As we progress up the triangle, you will see that we move from short-term value protection to the identification of long-term opportunities for value creation.
The key point here is that Maximizing Value is just one of several contributors to the development of the sustainability mindset at Alcan. Our updated Worldwide Code of Employee and Business Conduct helps ensure that we do the right thing in complex situations, while regular global employee surveys provide us with the feedback to ensure that we are on the right track and that our objectives are well understood.
Last year, we published our first sustainability report, Alcan's Journey Towards Sustainability. This step is a part of being transparent and open to cooperation with our stakeholders in incorporating social, economic and environmental goals into the business objectives of the organization. As a first public step, our report has been well regarded. SustainAbility , a think tank working in collaboration with the United Nations Environment Program, ranked Alcan's sustainability report well up among the top 50 corporate reports worldwide in their biennial international benchmarking.
On the operations side, we are moving forward with the implementation of an integrated management model for environment, health and safety (EHS), an area of paramount importance to Alcan, and one that impacts directly on value creation. Our new, integrated EHS Policy makes it clear that improvement of our performance in these crucial areas is a responsibility shared by individuals at every level throughout the Company.
On the environmental front, we are now well into TARGET, an aggressive, greenhouse-gas-emissions reduction program that has been successfully implemented in all our business groups. I am pleased to note that, here in Quebec, we have managed to cut these emissions by more than two million tonnes over the past decade. And this past October, we raised the bar by signing an agreement with the government of Quebec to reduce them by an additional 285,000 tonnes from 1999 levels before the end of 2003. The agreement with Quebec is effective until 2007. Each year, working with government representatives, we will determine new targets for further voluntary reductions.
Relations with the communities in which we operate are also a priority. In Canada alone, Alcan donates over 1% of Canadian, pre-tax profits in line with our commitment as a member of Imagine, a nation-wide program to promote corporate giving. Alcan and Alcan employees support a wide variety of worthwhile endeavours at home and abroad. These range from participation in the Habitat for Humanity program to our sponsorship of Quebec Paralympic champion Chantal Petitclerc.
The community-related aspects of our business include university research, our own employees involvement in local organizations, our work to help develop small and medium business capability, outright donations to help our hospitals and schools, working with aboriginal peoples and supporting local economic development initiatives.
Elsewhere, Alcan's success in working cooperatively with customers to spearhead the growth of aluminum use within the automotive and transportation sector provides an excellent example of how we are able to progress simultaneously on the value and sustainability fronts.
Another high-impact, sustainability-related initiative is our effort in encouraging worldwide aluminum recycling that has benefited countless charitable organizations. It is worth noting that due to aluminum's high re-use value, and its infinite recyclability, used beverage cans make up less than 1% (by weight) of solid waste in North American landfills. The aluminum can is the foundation of recycling programs across North America because it is the only packaging material, due to its high value, that enables recycling to be profitable. Alcan recycles 40 percent of the beverage cans reclaimed in North America. Not only is this a strategic source of metal for us, but recycling also results in significant environmental benefits. Recycling new metal from used aluminum saves up to 95% of the primary aluminum energy requirements, which also means that up to 95% of the related emissions (such as greenhouse gases) are also avoided.
These examples underscore Alcan's efforts to strengthen the foundation of our approach to sustainability. As we progress, we move up that triangle' towards increasingly high value opportunities that connect our business with sustainability.
I am pleased to note that Alcan's approach has been recognized by our selection as a representative company on the Dow Jones Sustainability World Index which tracks the performance of sustainability-driven companies worldwide. In addition, Innovest Strategic Value Advisors has singled out our company as leading all aluminum producers in environmental performance. And, at the recent World Summit on Sustainable Development in Johannesburg, Alcan was honored for its development and long-standing support of the international Micro-Business Network. This is a program Alcan launched more than 10 years ago here in Quebec, providing primary school students with hands-on experience in understanding the link between entrepreneurship and sustainability. The program now reaches well over 32,000 young people around the globe each year.
At Alcan, corporate sustainability clearly is not just corporate rhetoric we back up our statements with action, integrity and commitment in the belief that this focus will contribute to our bottom line.
Just to recap, I wish to emphasize that our governing objective of Maximizing Value cannot be viewed in isolation from the many other concerted efforts that are underway to enhance Alcan's performance and ensure the Company's long-term well being or, if you prefer its sustainability.
Rather, Maximizing Value ought to be seen as the cornerstone of an ambitious building plan. We can look at the various initiatives and programs I have outlined here today as interlocking pieces: when you put them all together you get an attractive picture of a focused, thriving and responsible enterprise.
Our governing objective provides us with a common set of beliefs and principles at the core of which is the understanding that Maximizing Value for shareholders will ensure sustainable growth, which in turn will benefit all of the Company's stakeholders.
Our continuing commitment today is to build on our common foundation in Quebec, capitalizing on over 100 years of history and joint effort. The best approach is to review, develop and implement high value sustainable options for the future. This will involve change but then, Alcan and Quebec have demonstrated the appetite and the ability to embrace change for the sustainable economic performance that will be a cornerstone of a sustainable future.
For me this means that, in addition to the long practice of value added production of primary aluminum from alumina, we must jointly develop and establish innovative and technologically superior businesses that take advantage of our strengths here in Quebec. This includes our people, our physical assets and our existing and future products.
This means that we must continue to improve our productivity while looking inside to identify and deliver new job creation opportunities. We must be better at identifying external value options by looking at our customers' needs and our supply chain opportunities. Quite frankly this will involve looking and thinking in areas we have not yet begun to examine.
The future will in this case belong to those who can look to new and better ways of doing things, embracing the excitement of the future rather than the comfort of the past.
So to our way of thinking, Maximizing Value truly is the way to a sustainable business proposition. Join us and help make it happen.
Thank you very much. Merci!