India’s largest steel maker Tata Steel has unveiled restructuring and transformation program for its Europe business which includes cost-cutting plans through job cuts with an aim to arrest the decline in profitability.
In a statement issued to exchanges, the steel major said that the programme is needed to ensure the business can thrive despite severe market headwinds which have led to a sharp decline in profitability.
The programme is focused on four areas to improve financial performance that includes lowering employment costs, leading to an estimated reduction in employee numbers of up to 3,000 across Tata Steel Europe’s operations, about two-thirds of which are expected to be office-based (‘white-collar’) roles, the company said.
Increasing sales of higher-value steels by improving product mix and customer focus, efficiency gains by optimising production processes, supported by the application of big data and advanced analytics and reduction of procurement costs through smarter sourcing and strengthening cooperation with companies within the Tata Steel group are other such areas.
"We plan to change how we work together to enable better cooperation and faster decision-making. This will help us become self-sustaining and cash positive in the face of unprecedented severe market conditions, enabling us to lead the way towards a carbon-neutral future," said Henrik Adam, CEO of Tata Steel in Europe.
Tata Steel highlighted plans to urgently improve its financial performance to make sure the European business becomes self-sustaining and cash positive, while enabling investment to safeguard its long-term future. The plans include a proposed new way of working to boost productivity and reduce bureaucracy as well as a focus on increasing sales of higher-value steel products and solutions, the statement said.
Through its proposed transformation programme, Tata Steel Europe said it is initially targeting a positive cash flow by the end of its financial year 2021. It is also aiming for an EBITDA margin of around 10 percent throughout the market cycle.
Based on full-year 2019 revenue figures, this would equate to 750 million pounds in EBITDA.
"Together with a significant increase in the cost of emission allowances, this has created an urgent need for improvements to the company's financial performance," the company said, adding that it will engage with various stakeholders to ensure compliance with all European and national obligations.According to latest figures, in the first six months of its current financial year starting April 2019, Tata Steel Europe reported a drop of 90 percent in EBITDA to 31 million pounds and revenue stood at 3.25 billion pounds.