Here is the full text of Tata Steel chairman Natarajan Chandrasekaran's speech at the company's annual general meeting on Friday.
It is my privilege to address you as the Chairman of Tata Steel.
Before I talk about the company’s performance, let me first an assessment of the year gone by.
Macro Economic Trends Global Scenario: The world economy in 2017-18 was stable and continued its broad-based momentum with a growth of 3.8%, its strongest growth record since 2011, with more than half of the world economies registering positive growth. Global manufacturing activity continued to grow due to favorable financing conditions, accommodative policies, rising investor confidence and rising commodity prices. Global steel markets continued their recovery in FY 2017-18. Steel prices rose across the regions, aided by growth demand, supply side reforms in China and low inventory levels. China, which consumes about 46% of the global steel demand has taked unprecedented actions of tightening regulatory norms on environment and emissions. This has led to improved utilization across the world and coupled with robust global steel demand has led to improved global steel prices. Global steel demand grew by nearly 2% to 1.6 billion tonnes while the global crude steel production increased by 4% to 1.7 billion tonnes, as compared to the previous year. Indian Steel Industry Scenario: India too witnessed steel demand growth of 7.8% supported by strong demand in steel consuming sectors i.e. auto, construction and consumer durables. The growth in the steel demand also helped the utilization of the steel industry and India produced around 102 million tons of steel during the year, of which around 92 million tons was consumed domestically and the balance was exported. Future of the Steel Industry: The World Steel Association predicts that the global steel demand will grow at 1.8% in CY 2018 to 1.62 billion tonnes and a further 0.7% in CY 2019 to reach 1.63 billion tonnes. This growth is expected to continue in both advanced and developing market, even though the escalation of trade tensions between US and China could be a potential risk. Indian economy has been one of the fastest growing economy and the structural indicators point to a continued trajectory of growth. India’s demographic strength, large consumption potential, rising trend of urbanisation and the urgent need on building a globally competitive infrastructure, aided by the competitive federalism amongst State to attract investments and the government’s focus on the Make in India program, are the major megatrends.
Tata Steel has played its role as a nation builder serving the interest of the country and the communities. In the last 1 year, your Company relooked at the future strategy and has decided to invest and grow in India. Consistent with the above strategy, your company undertook several strategic actions of unprecedented scale and complexity to set its path for the future. I would now like to highlight some of these actions.
Company: Strategic Initiatives in FY17-18 Firstly, the resolution and restructuring of the 16 billion pound British Steel Pension Scheme through a UK regulator approved process ensured that the Pension Scheme risks were minimised and the underlying business was more sustainable. This was achieved through a long period of multi stakeholder negotiations and complex structuring process. Secondly, I would like to highlight the recently concluded 50:50 JV agreement to combine Tata Steel Europe with thyssenkrupp Steel Europe to create a pan European Steel champion. This is a very important strategic milestone for Tata Steel. The combined business will be a competitive business focusing on technology and quality There exist identified synergies worth €400-500 million per annum. Both shareholders expect significant value creation in the future. The finalisation of the joint venture agreement was time consuming and complex. It is heartening that we have successfully completed the consultation process and all stakeholders including the Works Councils in Europe have supported the joint venture. The company also in parallel chartered the growth strategy of the Indian business both organically and inorganically. Kalinganagar Plant has not only been successfully commissioned, but had has ramped up its operations to operate at rated capacity. The Board of Tata Steel, has also approved the next phase of expansion of Kalinganagar by 5 million tons per annum to 8 million tons per annum. This expansion will have lower capex compared to the first phase and will be completed within 48 months. The asset configuration has been carefully designed to ensure a state of the art facilities including a modern 2.2 million tons per annum cold rolling mill that will produce high end products. Continuing with the strategy to enhance the company’s capacity and market presence in India, Tata Steel participated in the Insolvency and Bankruptcy Code process. Following a very transparent process under the oversight of the National Company Law Tribunal, Tata Steel was declared the highest bidder to acquire controlling stake in Bhushan Steel. Tata Steel has already taken operational control of the company and the integration process is in full swing. This acquisition is very strategic and fits in well with the product and market strategy of Tata Steel. Taking into account the cost, time and effort to build greenfield projects in India, the quality of asset and downstream asset profile of Bhushan Steel along with the proximate synergies for Tata Steel, the acquisition value of Bhushan Steel of Rs 35,200 crores has been fairly priced and has a great potential to create value in the future Adequate care has been taken to ensure the acquisition is funded with a prudent capital structure with significant equity funding. It is expected to be value accretive in the future. Finally, during the year, your company undertook one of India’s largest ever Rights Issue of 2 billion US dollars which was overwhelmingly supported by the shareholders and I would like to thank you for supporting the company. The company also issued 1.3 billion US dollar long term bonds to rebalance the repayment profile for the company. Now, let me now turn to the financial performance for the year 2017-18. The Tata Steel Group recorded total deliveries of 25.27 MnT (previous year - 23.88 MnT). The turnover for the Group was at ₹1,33,016 crores, an increase of 13% over the previous year. This increase is due to higher steel prices and increased volumes from Kalinganagar. The ferro alloys business also saw an increase in revenue owing to higher volumes. The turnover of the European business also increased due to improvement in average revenue per tonne. The Group EBITDA was ₹22,045 crores, an increase of 29.5% over the previous year. This increase in EBITDA was due to higher volumes and improved realizations, which was partly offset by increase in operating costs, mainly of raw materials in India. This increase in India EBITDA was partly offset by decline in steel spread and operational issues encountered in our European business. The reported consolidated profit after tax (including discontinued operations) of Tata Steel was ₹17,763 crores as against a consolidated loss of ₹4,169 crores in the previous year. The year’s profit includes an exceptional gain of ₹9,599 crores as against a charge of ₹4,324 crores during the previous year. The exceptional gain during the year is primarily due to non-cash accounting surplus arising from the formation of the new British Steel Pension Scheme. The underlying profit during the year improved due to increased production ramp-up at the Kalinganagar plant and improved selling prices. For the Financial Year ended March 31, 2018, the Board of Directors of the Company has recommended a dividend of ₹10 per fully paid Ordinary share and a dividend of ₹2.504 per partly paid Ordinary share.
I would like to emphasize that Tata Steel’s underlying strength lies on its operational excellence program, prudent financial and risk management process, emphasis on new products, services and solutions, marketing network and customer collaboration along with strong leadership and people capabilities.
Tata Steel also recognises its responsibility towards the environment and it is the continuous endeavour of the company to identify, assess and address the risks and opportunities of the impact of climate change to create a more sustainable future.
The company will be financially prudent while executing the growth strategy so that it can generate sustainable free cash flows and create long term shareholder value.
As one of the flagship company of the Group, I can also say that Tata Sons is committed to back Tata Steel in its growth strategy and value creation journey as was evident during the recent Rights Issue.
Finally, I thank you for the support and confidence in the Company and I look forward to your continued and valuable support in taking this Company to greater and newer heights.
I now request Mr. Koushik Chatterjee, Executive Director and Chief Financial Officer to make a brief presentation on the financial and operational performance.