REVIEW OF OPERATIONS - UK & EUROPE

As part of the Tata Steel Group of Companies, Tata Steel Europe (TSE) remains committed to the Group’s vision of being a global benchmark in value creation and corporate citizenship, in spite of the challenges of a slow European recovery, high raw material costs and the pending introduction of the EU Emissions Trading Scheme (‘EU ETS’) Phase III.

In the year under review, the European market accounted for 84% of TSE turnover, of which the UK accounted for 27%. The TSE management has focused on restoring confidence in the Group and has achieved a number of milestones as follows:

  • In September 2010 Corus was rebranded as TSE, embracing the benefits of operating within the wider Tata organisation and closer to Tata Steel Limited.
  • As part of managing the TSE asset portfolio, TSE sold Teesside Cast Products to Sahaviriya Steel Industries Public Company Limited, Thailand’s largest steel producer on 24th March, 2011, in a transaction valued at £290 million, plus the actual value of working capital transferred at completion. The assets covered by the sale include the Redcar Blast Furnace, the Redcar and South Bank Coke Ovens, TCP’s power generation facilities and Sinter Plant and the Lackenby steelmaking and casting facilities.
  • Tata Steel UK Holdings Limited, a subsidiary of TSE, signed a Senior Facility Agreement in September 2010 with a syndicate of banks for a €3.4 billion term loan and £690 million revolving credit facility to replace the previous loan and revolving credit facilities.
  • Implementation of a new operating model started in the latter half of the financial year. TSE is now being reorganised to operate a single sales and marketing team, a supply chain organisation, three steelmaking operational hubs, speciality businesses and pan-European support functions.

Tragically, there were two fatal accidents during the financial year and one in April 2011. The first occurred in April 2010 while an employee was undertaking crane maintenance in the slab yard at Scunthorpe, England. The second one took place in August 2010 when a contract haulier at the same site was crushed by his runaway vehicle in a trailer park. The third took place in April 2011 in the coke oven plant at IJmuiden, the Netherlands.

PERFORMANCE The preceding financial year of 2009-10 started with the depressed market conditions evident at the end of 2008-09 and, whilst some modest recovery was seen by the third quarter, sales volumes and prices remained well below those experienced in the first half of 2008-09. Excluding seasonal effects, sales volumes were reasonably flat for the first three quarters of 2010-11, before showing an improvement in the fourth quarter, leading to the highest level of quarterly sales since 2008-09. Selling prices improved steadily through the year reflecting the significant increases seen in raw material costs and ended the year 18% higher than twelve months previously. The turnover for the period was £10,747 million (2009-10: £8,743 million), 23% higher than the previous year. Average revenue per tonne increased by 13% and deliveries by 11%.

The Blast Furnace site
at Scunthorpe, England



23%THE PERCENTAGE OF TURNOVER GROWTH IN FY 2010-11.

VALUE CREATION AND GROWTH In line with the TSL Group vision, TSE’s strategy is aimed at value creation. The pressing challenge in Europe is improving the quality of earnings and this challenge has been identified by the Group. The main priority in meeting this challenge is the Group’s approach to dealing with its customers.

In order to improve customer service, TSE is implementing a major ‘supply chain transformation’ project aimed at reducing inventory levels whilst at the same time improving customer service levels. In addition to the customer focus, TSE continuously works towards higher levels of operational excellence through improving asset performance in respect of quality, reliability and cost. In support of this, the steelmaking operational hubs have embarked on a number of developments and initiatives such as:

  • An investment of £185 million in the rebuilding of Blast Furnace 4 at Port Talbot, Wales, which will improve operating efficiency.
  • The Group’s site at IJmuiden, the Netherlands, has an objective and plans to operate its ironmaking and hot strip processing at European benchmark levels.
  • Launch of a fund of £100 million for short payback capital projects to improve operational efficiency across Europe.
  • Announcement in May 2011 of a proposed restructuring of the Group’s Long Products Europe hub to target high-value markets and to introduce greater flexibility into costs and operations.

In implementing its strategy, TSL aims to be a leader in corporate citizenship, providing a safe work place for employees, and caring for the environment and communities in which it operates. During the year, TSE commissioned a BOS gas-recycling scheme at Port Talbot, Wales that is saving approximately 250,000 tonnes of CO2 emissions each year. TSE is also a leading player in the European Ultra Low CO2 Steelmaking (‘ULCOS’) collaborative project and, under this project, has completed the construction of a new Hlsarna™ pilot plant at IJmuiden. If successful, this could result in a 50% reduction in CO2 emissions in steelmaking.