Management

Message from the Managing Director, Tata Steel

The year 2008-09 was an eventful one. Tata Steel’s Indian operations posted a record performance yet again. Compared to the previous financial year, deliveries were higher by 9%, turnover increased by 23%, EBITDA was higher by 14% and net profit higher by 11%. This, despite the fact that the world faced an unprecedented meltdown in the second half of the financial year, when the prices dropped to nearly half of what these were in the first half. Another high point for Tata Steel was to win the Deming Application Prize, which is the highest award for quality in the world. Tata Steel thus became the first steel company in the world outside Japan to have ever won the Deming Prize. The Deming Prize is a reflection of Tata Steel’s commitment to its customers, employees, other business partners and the exceptional contribution the Company has made to the society as a whole. Tata Steel’s longevity bears testimony to its long-term approach and its ability to embrace change with ease.

In contrast to Indian operations, our operations in Europe faced severe hardships, in line with the fate suffered by all other steel producers in Europe and the US. Our operations in South East Asia also felt the effect of the meltdown but to a lesser degree.

Financial year 2008-09 was an exceptional year in which we witnessed the best of times and the worst of times. After setting records of every kind in the first half, the year witnessed a dramatic reversal in the second half. The steel industry is used to cyclicality but what caught us and everyone by surprise was the speed and intensity of the downturn. Nations across the world responded to the crisis by introducing bail out and stimulus packages.

In its 102 years of history, Tata Steel has faced numerous challenges and has responded to each one appropriately. This crisis was no exception. The Tata Steel Group responded swiftly to the situation and took measures to ‘weather the storm’. In our European operations, immediate steps were taken as tactical measures to align production and cost to the reduced market demand and there were medium and long-term strategic measures taken to ensure long-term competitiveness and sustainability. We took quick and decisive measures by curtailing production and introduced measures that reduced the cost by over one billion US$ in 2008-09. Our integration programme delivered significant gains accruing from improvement in operations in India and Europe. Our key cost savings and performance improvement initiatives are well advanced and are already giving significant results.

We shifted our priority to consolidation of ongoing initiatives and putting the current operations on even keel. Financial prudence remains the hallmark of any strategy that Tata Steel adopts and our efforts to
de-leverage our balance sheet gained greater momentum. We gave a closer look to our capital expenditure programme and reduced the capex plan by over 40% in the first two years by re-phasing the outlay to later years and deferring some of the initiatives, yet retaining thrust on high yielding growth projects.

We remain committed to our long-term strategy and will continue to allocate capital towards our existing operations and new projects that are of strategic importance. Our inherent belief about the attractiveness of the steel industry has not been dented. We continue to dream and envision our future. The Tata Steel Group has developed a pipeline of high quality projects, which will be executed, though we will re-phase the sequence. Projects like the 3 million tonne expansion in Jamshedpur, the proposed steel plant in Orissa and raw material projects in Mozambique, South Africa and Canada are key drivers of our future value creation. We remain focussed on enhancing raw material security for our European operations and are looking at ways to speed up overseas raw material projects.

Tata Steel’s philosophy of forging long-term partnerships with its stakeholders was vindicated once again during this downturn. Our employees have been a source of strength for us. The entire workforce worked as a team to fulfil the stretch targets that they set for themselves. Suppliers of equipment, materials and services responded positively to our requests by offering better payment terms and reducing prices to the extent they could. We are thankful to them for their understanding. The lenders too showed a great deal of understanding in resetting the covenants for our European borrowings. This speaks volumes about their confidence in Tata Steel and endorses the belief that the Tata Steel Group is as strong as it ever was.

The crisis in the second half of the year overshadowed some of the other achievements of the Tata Steel Group during the year. We set up the ‘H’ Blast Furnace at Jamshedpur during the year, which in addition to being the largest Blast Furnace in India, also achieved its rated capacity in a record time. The year also saw Tata Steel win the Economic Times’ ‘Company of the Year Award’ and the Golden Peacock Global Award for Corporate Social Responsibility.

In times of crisis, Tata Steel did not lose sight of the long-term sustainability, which has been the cornerstone of Tata Steel’s value systems. We continued to concentrate on safety and corporate social responsibility and sharpened our focus on climate change initiatives. Tata Steel along with Tata Power is setting up a captive power plant in IJmuiden, Netherlands using waste gases. This will reduce the carbon footprint of the Group significantly. Similarly ‘H’ Blast furnace will reduce CO₂ emissions in India in a significant way. These are just two of the many initiatives that were kick-started during the year. In order to institutionalise innovation, we have set up a Group-wide technology function headed by a senior executive to harvest innovative ideas in a structured manner.

On the outlook for the steel industry and of the economy as a whole, I believe the worst is behind us. The fact that we have reached the bottom of the cycle is itself a cause for satisfaction, as things can only improve from here. The buoyancy in the global economic activity was driven by trends of urbanisation and industrialisation in the Asian economies mainly of China and India. While the Indian economy remained largely on course even during this crisis, the revival of Chinese economy will be the turning point that will bring us back to the economic activity of the years 2007 and 2008.

I want to end by quoting Patanjali, who is credited with inventing yoga. This is what Patanjali said in 300 BC:

“When you are inspired by some great purpose,
some extraordinary project,
all your thoughts break their bonds –
your mind transcends limitations,
your consciousness expands in every direction,
and you find yourself in a new, great, and wonderful world.
Dormant forces, faculties and talents become alive
and you discover yourself to be a greater person
by far than you ever dreamed”.