Directors' Report

South-East Asian operations:

The South East Asian operations continued to improve its performance especially in Thailand despite various challenges in the market environment.

NatSteel Holdings Pte. Ltd. (NSH) enhanced its capabilities across all geographies and invested capital in technology building, strengthening information technology and capability building during the Financial Year 2013-14 despite uncertainties posed by a volatile, uncertain and highly competitive business environment especially due to Chinese exports to the ASEAN region. Its Singapore operations completed major plant modernisation projects, including the New Scrap Shear, New Shaft Furnace and various downstream automation projects.

NSH has posted a turnover of Rs.12,128 crores during the Financial Year 2013-14, an increase of about 30% over the previous year. However, the profit before interest, depreciation, exceptional items and taxes (EBITDA) was at Rs.246 crores that was lower by 31% compared to the previous year. Profitability was adversely affected as the operating costs were higher during the stabilisation period post the completion of the plant revamp in Singapore and influx of low-priced materials from China putting pressure on the margins.

The Chinese imports into ASEAN region jumped more than 50% in 2013, which created significant pressure in those domestic markets. In addition, political turmoil in Thailand continues to affect the underlying performance of Tata Steel Thailand (TSTH). Despite this, TSTH recorded a 10% increase in finished goods deliveries at 1.30 million tonnes in Financial Year 2013-14 over the previous Financial Year. This is primarily led by ongoing projects in the construction sector, continued exports to neighbouring countries and a stronger presence in the upcountry market translating into higher rebar sales. On the downside, the wire rods product line was adversely affected by the cheaper imports from China. The profit before interest, depreciation, exceptional items and taxes (EBITDA) at Rs.193 crores, which is about 50% higher compared to the previous year.

Review of Impairment Risks

Under the Indian Accounting Standards, a company is required to undertake an impairment review of its assets and investments at each reporting date based on certain triggers relating to the business or the operating environment. Changes in assumptions underlying the carrying value of certain assets, including as a result of adverse market conditions could result in impairments of such assets and the Company is obliged to recognise the same. The Company has recognised an impairment charge of Rs.141.76 crores in standalone books and Rs.45.84 crores in consolidated books primarily on account of continuous losses and substantial erosion of net worth in Tayo Rolls Limited (a subsidiary of Tata Steel Limited) and de-allocation of the Coal mine in view of pending milestones in Strategic Energy Technology System Private Limited (a joint venture between Tata Group and South Africa's Sasol Synfuel to convert coal to liquid fuel from a coal block in Odisha).

While an impairment loss is recognised as an expense in the income statement, it is a non-cash charge and does not affect any of the financial covenants and the funding position of Tata Steel Group.

Review of Regulatory Risks

The Central Government constituted a one member Commission comprising Hon'ble Justice M B Shah, former Judge of Supreme Court of India, to look into the nature and extent of illegal mining of iron and manganese ores and recommend suitable measures for regulation. Pursuant to the study carried out by the Commission in the states of Goa, followed by Odisha, reports have been submitted to the Central Government. In the report there are observations regarding mining activity in the State of Odisha covering
(i) various aspects of non-compliance to the statute viz: absence or delay in taking approvals under environment statutes, forest statutes, mining plans, etc. (ii) extraction of ore beyond the limits permitted by such approvals, (iii) non-disposal of mining lease renewal applications for several years by the State and mining continuing under deeming provisions.

The Company is of the opinion that its mining operations are within the norms of the required regulations including Environment Clearance, Forest Clearances and Consent to Operate. The Company has since inception demonstrated the principle of mineral conservation and mineral development by undertaking scientific and sustainable mining practices including caring for the environment and the communities around the mining operations.

Major developments during the Financial Year 2013-14

  1. Amalgamation

    1. Kalimati Investment Company Limited

      Pursuant to the sanction of the Hon'ble High Court of Bombay to the Scheme of Amalgamation, the assets and liabilities of the erstwhile Kalimati Investment Company Limited, a wholly-owned subsidiary of the Company (whose principal business was to carry on the business of investment and finance, and was registered as a non-banking financial company with the Reserve Bank of India) has been amalgamated with the Company with effect from January 1, 2013 in accordance with the scheme so sanctioned by the Court. The effect of the merger has been given in the accounts.

    2. Tata Metaliks Limited

      Tata Metaliks Limited (TML), a subsidiary of the Company is one of the largest producers of Foundry Grade Pig Iron in India. On 10th April, 2013, Tata Steel Limited announced the merger of TML and its subsidiary TMKPL with your Company under a Scheme of Amalgamation to be sanctioned through a court approval process. Tata Steel will issue 4 (four) equity shares of Rs.10 each for every 29 (twenty nine) equity shares of Rs.10 each held by the public shareholders of TML upon approval of the Scheme by the Courts. Tata Steel holds 50.09% of the equity share capital of TML. The Shareholders' approval for the Scheme is being sought at the Court Convened Meeting of the shareholders to be held on 16th May, 2014.

  2. Capital Projects

    1. 2.9million tonnes expansion project in Jamshedpur

      Major facilities such as Pellet Plant, Coke Oven Battery 10, "I" Blast Furnance, LD3 and TSCR under the 2.9 mtpa expansion project in Jamshedpur were commissioned in the Financial Year 2012-13. These facilities have been stabilised during the year which has enabled the Company to ramp up its production to 9.16 million tonnes of crude steel.

    2. Greenfield Project in Odisha

      Kalinganagar Project in Odisha is the Company's second integrated greenfield steel plant with 6 million tonnes crude steel capacity, after Jamshedpur. It is being executed in two phases of 3 million tonne each, with the entire capacity principally devoted to flat products. The Company's Phase 1 of the 3 million tonne per annum of green field project at Kalinganagar Complex in Odisha has progressed significantly during the Financial Year. The stage wise commissioning of various units, namely power generation units, coke ovens, sinter plant, blast furnace, steel melting shop and hot strip mill of the first phase is expected to be initiated towards the end of Financial Year 2014-15. Subsequent to the commissioning and ramp up of the first phase of operations in Kalinganagar, the Company will also progress towards the implementation of second phase of the project in future.

    3. Direct Shipping Ore Project in Canada

      The Company through its Joint Venture Company (Tata Steel Minerals Canada Limited) is developing a Direct Shipping Ore (DSO) Project in the provinces of Quebec and Newfoundland & Labrador. The Company indirectly holds 80% in Tata Steel Minerals Canada (TSMC). New Millennium Corporation (NML), a Toronto listed company, holds 20% stake in the joint venture company. In addition, the Company holds 26.33% stake in NML.

      The project primarily comprises of mining, crushing, washing, screening and drying the runof-mine ore with a state-of-the-art facility near Schefferville, Québec to produce 4.2 million tonnes per annum of sinter fines and pellet feed. The processing facilities will be housed under a large steel supported fabric structure to enable year round operations. The construction of the processing plant is on-going and is expected to be commissioned by end of Financial Year 2014-15. Besides a dry crushing and screening facilities have also been installed which will produce about 1.8 million tonnes per annum of iron ore product. The above facilities will enable TSMC to produce and despatch around 6 million tonnes per annum of iron ore in a phased manner.

      TSMC had already commenced mining activity in September 2012 and the mine has produced around 1 million tonnes till Financial Year 2013-14 through dry crushing and screening. TSMC shipped about 0.25 million tonnes in Financial Year 2013-14 and the shipment for Financial Year 2014-15 is expected to commence shortly.

Key developments during the year were as follows:

  1. The Company increased its resource base from 64 million tonnes to 93 million tonnes through exploration activities in DSO properties. An additional potential of 8 million tonnes has been identified.
  2. TSMC entered into an un-incorporated joint venture with Labrador Iron Ore Mines (LIM) to acquire a 51% stake in the Howse deposit based on the outcome of the feasibility study. This is expected to add an additional 24 million tonnes of reserves to the resources of the Company. The feasibility study is in progress. Considerable savings in operating costs are expected to be achieved due to access to the Howse deposit. With Howse deposits, the combined resource base stands at 125 million tonnes.
  3. The construction of the Deep Sea Port at Sept-IIes, Canada through which TSMC intends to export its products is likely to be completed by end of 2014. The access to the Deep Sea port is not available at present but the Federal and Provincial Governments are supporting the Port Authority's efforts to obtain the required access to the Deep Sea Port. It is expected that this issue will get resolved shortly. In the meanwhile, TSMC has entered into agreement with the Iron Ore Company of Canada to export its product for year 2014.

Safety and Health

The health and safety of the employees across its operations remains the highest priority for the Group. All endeavours are being taken to enhance safety standards and processes towards minimising safety risks in all operations in the company. The Company continues to broaden the impact of its programmes, including those from DuPont the world benchmark, to establish a strong safety culture based on inculcating safe behaviour among its employees, contractors and their employees. The Lost Time Injury Frequency Rate for Financial Year 2013-14 dipped to 0.56, an improvement of 7% over last year. Extensive work has been on-going over more than a decade to ensure risk control in many high hazard processes including underground mining has resulted in performance improvements. However, the journey will continue to ensure risks of fatalities are minimised in future. The Company's specific improvement areas are in construction activities, road traffic management and contractor management.

In order to build a sustainable work place environment, a common health and safety management system across Tata Steel Group is being implemented. This includes cross auditing activity to enhance sharing experiences and best practices across regions. During the year, Tata Steel was again recognised by its peers in World Steel Association with a health and safety recognition award for Tata Steel Europe.

Environment

Member companies of World Steel Association, including Tata Steel, are committed to a vision in which steel is recognised as a key element of a sustainable future. Environment protection forms a focus area with member companies expected to optimise the eco-efficiency of their products through the product lifecycle, including increased resource and energy efficiency in the production of steel and during the use of steel products. It also enjoins members to promote the recovery, reuse and recycling of steel.

In line with the above commitment, Tata Steel continues to focus on operational excellence aimed at resource efficiency, energy efficiency, along with recovery, reuse and recycling of waste to minimise the ecological footprint of the Company. Tata Steel's 2.9 mtpa expansion project in India and the upgrade of the blast furnaces by the European operations were aimed at aligning its environmental performance with best in class. The previously installed "I" Blast Furnace and the "H" Blast Furnace as part of 1.8 mtpa and 2.9 mtpa expansion projects in Jamshedpur are among the most resource efficient in India. CO2 emissions from the Jamshedpur Steel Works showed a significant change decreasing to 2.42 tCO2/tcs in Financial Year 2013-14 from 2.52 tCO CO2/tcs in Financial Year 2012-13.

Similarly, the Company is currently participating in a voluntary agreement with the Dutch government on energy efficiency improvements over the period 2013 to 2016 (with the previous agreement extending from 2009 to 2012 inclusive). The primary requirement of the agreement is an improvement in energy efficiency at the rate of 2% per annum, covering both energy used within the manufacturing process and energy saved across the product life cycle. The total energy efficiency improvement in 2013 was 4.9%. CO2 emissions in TSE during the Financial Year 2013-14 were 1.88 t CO2/tcs, against 1.95 tCO2/tcs in Financial Year 2012-13. Moreover, in the United Kingdom, TSE's engagement in a Climate Change Agreement ('CCA') continued to benefit the Company from reduced rates in relation to the Climate Change Levy ('CCL'). The UK Government also introduced an exemption from CCL for certain metallurgical & mineralogical processes from April 2014.

Specific environment protection measures and resultant benefits are provided in Annexure 'A' to the Directors' Report.