Gathered momentum to face the
challenges
The economic slow-down continued
through 1998-99 resulting in sluggish demand for basic industrial products.
Industrial production grew by only 3.8% during the year,as compared to
6.6% in the previous year. There was no growth in the apparent domestic
consumption of steel during the year,which in fact reduced by 1%. Several
large infrastructural projects in sectors such as power, irrigation, transportation
and telecom have not yet been implemented due to a variety of reasons.
The sizeable contraction in demand for automobiles and commercial vehicles
has also had a very great adverse effect on the demand for steel-in particular,
flat products. These difficult market conditions have been exacerbated
by new investments in additional steel capacity of the order of 3.3 million
tonnes in 1998-99 made in the private sector.Low-priced steel imports from
East Asia and from the CIS countries have also has an adverse impact,since
domestic producers have had to match the prices offered from these low-cost
overseas producers, putting margins under great pressure.
Despite this scenario,Tata Steel
was able to operate at full capacity, increased its sales by 4% in tonnage
terms and increased its market share in several significant product sectors.
However,the Company saw an erosion in its margins, given the market conditions
described earlier. The Company's exports also suffered a severe reduction
in margins, in the face of increase competitiveness of Asians steel producers,
brought about by devaluation in their respective currencies.
The economic slow-down experienced
over the last few months, finally appears to be bottoming out, and there
are some signs of prices firming up as also some slight increase in demand.
Tata Steel has invested extensively in doubling its hot rolled steel capacity
and installing cold rolling and finishing facilities, aimed mainly at serving
the white goods and automotive sectors. This would enrich the Company's
product mix and enhance product value. Although the growth rate in the
white goods sector has been lacklustre and the auto industry is facing
an unprecedented slump in demand, it is expected that both these sectors
will revive substantially when the Indian economy revives.
The next few years will be challenging
for Tata Steel and will call for the exercise of hard options to ensure
competitiveness, and in fact,long-term survivability. Several measures
are under consideration and specific actions in the areas of cost reduction
and increased productivity have already been initiated. Tata Steel has
set itself the goal of being one of the most cost-effective steel producers
in high value-added products in the world. Towards this goal, the Company
has been endeavouring to exit from its non-core businesses, and is in the
process of divesting its interests in the Cement Division, and has sold
its holdings in Tata Timken Limited. Great emphasis will be made in the
coming years to focus new investments in well-defined present and future
core areas, which would result in ensuring the enhancement of shareholder
value.
The political uncertainty, the economic
crisis in various Asian countries, the weak economy in Europe and global
excess capacity in steel have all contributed in making this period an
extremely difficult one for Tata Steel.In such circumstances, the commitment
of the Company's people towards achieving their objectives while not surrendering
the underlying values of the Company, has been very noteworthy.
While the present times have been
difficult, there is good reason to believe that there will be growth in
the steel industry in India. The per capita consumption of steel continues
to be extremely low and there is every expectation that this will grow
substantially in keeping with India's growing economic prosperity.
Tata Steel and its people have over
the past nine decades served the nation and participated in its industrialisation.
Tata Steel will continue to play its role in the further development of
India's economy. The Company must and will be a significant player in its
major product segments in the Indian steel industry in the coming years.
The year gone by saw rapid changes
in the customer and market focus area with two major initiatives; business
process re-engineering and an intensive innovative customer satisfaction
programme.At Tata Steel,where customer is the king, the Japanese word `dantotsu'-striving
to be the best of the best captures the very essence of the Company's commitment
towards them. With changing customer and market demands, a need was felt
to radically reorient the customer facing processes of order generation
and fulfilment as well as market development. Business processes were redesigned
with a view to increasing customer satisfaction levels,enhancing compliance
to customer order specifications and reducing the order to cash cycle time.
On the threshold of a new millennium,
Tata Steel embarked upon a comprehensive programme to serve the customer
better in the year 2000 and beyond. The programme Customer 2000
aims to improve customer consciousness and emphasize customer orientation.
As part of this programme the marketing and sales organisation structure
is being aligned to the order generation and fulfilment process which follows
through from sales planning and order generation to collections and complaint
settlement. Fifteen market development processes have been restructured
including segmentation, marketing strategy, customer account management
and customer acquisition. Also the marketing and sales organisation structure
is being IT-enabled through implementation of Enterprise Resource Planning
System.Coupled with these,the process of determining exact customer requirements
by various listening and learning approaches and translating them into
specific product and service features would result in enhanced customer
satisfaction, reduction in complaints and increase in share of spend.
Each customer is treated with great
care as part of the Company's policy of fostering friendship with him.
Customer 2000 is a means to this end. The three strategic plans
around which Customer 2000 revolves are:
JRD Quality Value : JRD QV,
a model for Business Excellence adopted at Tata Steel not only aims at
bringing out the best in people but also pinpoints the areas needing improvement
in a competitive world order. It is a long journey in quest of a passion
for excellence where perseverance and patience are the only companions.
At Tata Steel,the self-evaluation spirit in JRD QV is quite evident as
this process recognises change and urges improvement at every step. The
JRD QV canvas of evaluation leads to enhancement of stakeholder value with
due recognition to employees efforts.It covers customer satisfaction; employee
satisfaction through human resource results; suppliers as partners and
results therein; and maximisation of shareholder value manifested in the
financial results. In its march towards excellence,Tata Steel strongly
believes, "Quality is never an accident, but an incident of intelligent
effort". Since the introduction of the JRD QV model at Tata Steel, there
has been continuous improvement and scores have improved from 201 in 1996,
through 443 in 1997 and 510 in 1998 to 582 on the last assessment.
Today, the Company is more focussed
and has its Vision, Mission, Values, Critical Success Factors, Key Business
Process and Strategic Goals fully aligned. Regular monitoring helps to
evaluate and upgrade the process constantly. Given the results, the
Company is confident of achieving its strategic goals of total customer
satisfaction through faster response and by providing to the customers
quality products that are totally customer driven.
Code of Conduct : The Tata
Code of Conduct is amongst the most significant initiatives taken by Tata
Steel in recent times. It is a testament that clearly outlines the role
of the Company and its employees. The adoption of the Code renews the Tata
commitment to values of excellence and leadership with a view to delivering
maximum value to all the stakeholders. This commitment would help the Company
to face global competition head on. The Code gives employees a clarity
of purpose required to deal with an environment where the only certainty
is change and speed of action is the key in dealing with the process of
change.
Brand Equity and Business Promotion
Agreement :
Tata Steel, being the flagship company
of the Tata Group took the initiative and participated in the
Tata Brand Equity and Business Promotion Agreement in the larger interest
of the Group. The key objectives of this agreement are:
-
To promote a unified Tata Brand to
match the brand equity of international brand names
-
To manage, sustain and enhance the
Tata Brand Equity
-
To derive benefits from the combined
strength, resources and services available within the group
This agreement is a response to the
emerging competitive environment following the liberalisation and increasing
globalisation of the economy. The initiative is almost like transforming
22K gold into 24K. The positioning of the Tata Central idea was Leadership
with Trust. Clearly,while many corporate houses can claim to be leaders,
trust needs to be earned. Tata's leadership position in the country combined
with its being the most trusted name in Indian business makes it unique.
The Tata Brand Management Programme
represents change in a group that is more focussed, customer led, empowered,
integrated and result-oriented. The evolution of the Tata Brand imbued
with quality and ethical standards has definitely opened up newer vistas
towards greater customer delight.The brand is available to the group Companies
only on formal adoption of the Tata Code of Conduct (CoC) and the signing
of the Brand Equity and Business Promotion (BE-BP) Agreement and the CoC.
The Customer 2000 Programme reiterates
the need to be focussed, synergised and addressed to customer delight more
single-mindedly.Tata Steel is set to deliver what it promises to offer.Customer
2000 will pave the way for the Steel Company to become an epitome of customer
delight.In a rapidly changing world, Tata Steel recognises that compared
to human endeavour which has spread over 50,000 years since the advent
to the thinking man,business endeavour is barely 200 years old.In this
scenario,by playing a successful role,that ushers in change,Tata Steel
will remain among the ones that create history.
In 1998-99 the Company spent Rs.44.60
million (15.80% of profit after tax) on social work for which it was conferred
the prestigious FICCI Award for an unprecedented third time,the Economic
Times Award for being an outstanding corporate citizen and the first Business
World Compaq Responsiveness award in recognition of its social commitment.
Corporate Citizenship
A Tata Company shall be committed
to be good corporate citizen not only in compliance with all relevant laws
and regulations but also by actively assisting in the improvement of the
life of the people in the communities in which it operates.
Notable initiates taken in the year
under review include the following:
Relief
Acting through the Tata Relief Committee,Tata
Steel fulfilled its commitment of providing succour to people affected
by natural calamities by constructing 156 houses and school-cum-community
centres in Madhya Pradesh and Andhra Pradesh, and tubewells in Orissa.
Civic Amenities
The Steel City is a model of civic
excellence.However, these civic facilities are not confined to the employees
of the Company, which has extended them to the people residing in bustees
and agricultural areas in Jamshedpur.In the last fiscal it spent nearly
Rs.12.80 million in slum development, roads, drains, hand pumps, deep borings,
street lights, parks, etc. in agricultural areas. The bus terminus for
long distance journey located in the heart of Sakchi was a traffic hazard
and an environmental eyesore. Tata Steel decided to relocate it to an open
area at a cost of Rs. 2.624 million. This has led to minimisation of congestion,
noise and air pollution.
Amphitheatre at Tribal
Culture Centre
The Steel Company also constructed
an open air theatre at Tribal Culture Centre at a cost of Rs. 0.965 million,
thereby reflecting the Company's commitment to the preservation of the
cultural ethos of the tribes of Chottanagpur.
Sustainable development
Launched on the World Environment
Day on June 5,1997 the three year programme envisaged to plant one million
trees by the turn of the century in the Company premises in Jamshedpur
as well as its out station operation centres, was completed in less than
two years. But insatiated, Tata Steel stretched the target to 1.5 million
trees to usher in a greener millennium.
CARE Project
Under its rural development programme
Tata Steel tied up with CARE, a voluntary organisation incorporation in
USA to "reduce infant and under two mortality" by improving coverage rates
of health protection associated with reduction in mortality.
HIV/AIDS
Tata Steel joined hands with the
government agencies and declared to take measures to prevent the incidents
and spread of AIDS and HIV virus in the local community.
Lifeline Express
Lifeline Express, the world's first
hospital on rails and initiated by IMPACT, India, was sponsored by Tata
Steel for an unprecedented fifth time. Manned by Tata Steel doctors and
medical staff, the train brought modern medical facilities to 3,286 villagers
living in the remote areas of Keonjhar, Jajpur and Dhenkanal Districts
of Orissa.
Sports
Cadets from Tata Football Academy,
sponsored by Tata Steel, swamped the pre-Olympic Indian football team for
Bangkok by booking 11 out of 20 places in the selections held in December
1998. Interestingly, the captain, vicecaptain and goalkeeper of the Indian
squad are products of the Academy.
Turnover & Profits
Total Income,during the year 1998-99,was
slightly lower at Rs.64,524.20 million as against Rs.65,165.80 million
last year( a marginal reduction of 1%).Due to adverse market conditions,the
realisation for the Company's products were lower and the profit
margin per tonne was squeezed by Rs. 566 per tonne compared to last year,in
spite of a richer product mix. The profit on steel was therefore depressed,
and was partially made up by better operating profits in the other Profit
Centres, most notably in Cement and in Tubes. It may be worth mentioning
that the gross profit was actually higher at Rs.11,144.30 million as compared
to Rs.10,784.30 million last year (an increase of Rs.360.00 million). However,because
of increased interest, depreciation arising from capitalisation of fixed
assets of Rs.13,450.00 million during the year, the profit before taxes
was down from Rs.3,633.30 million to Rs.3,152.30 million (a reduction of
13.23%), and profit after taxes was down to Rs. 2,822.30 million from last
year's Rs. 3,220.80 million, a reduction of 12.37%.
Right-sizing - Charging
to Cost
The Company has been implementing
a series of Early Separation Schemes (ESS) since 1995-96 for its surplus
employees and till 31.3.99, 12,141 employees have opted for voluntary retirement
under these schemes. The schemes provide for the payment of monthly pension
till the age of normal retirement. Under the present accounting practice,
the provision for employee separation compensation is arrived at on the
basis of the net present value of future pension payments and is amortised
over a period of 5 years. Based on a review, it has been determined that
the average period of benefit accruing to the Company is in excess of 10
years. Consequently, the amortisation period is being extended to 10 years.
The family size has now been reduced to just over 59,000 (including the
employees of Tata SSL's Cold Rolling Division, which has been acquired
by the Company in March, 1999).
Industry Outlook
For the third successive year,near-recessionary
conditions prevailed in the Indian steel industry. It is indeed a matter
of great concern that in a developing economy such as ours, the persisting
weakness in steel demand actually resulted in a further contraction of
1% in apparent steel consumption over and above the reduction witnessed
in the previous year. While the Company achieved a volume growth of 5%
in domestic sales at 2.514 million tonnes (1997-98:2.388 million tonnes),
prices realised were substantially lower than in the previous year. The
slowdown in the steel industry was not just an "India" phenomenon. The
South-East Asia region, which is a major market for the Company, and to
a lesser extent, Europe and the USA, also reflected similar trends. The
global slow down of the steel industry prompted some countries to dump
steel in the Indian market at ridiculously low prices. It was precisely
to protect the domestic steel industry from such unfair competition that
the Government of India imposed "floor prices" on imports of certain steel
products from December 1998. It may be pertinent to add here that all major
steel producing nations, including those from the so-called free market
economies, have some sort of mechanism to protect their domestic industry
from unfair import practices. While India's total steel exports were lower
by 10% the Company's export volume dropped by only 2% to 0.426 million
tonnes (1997-98 : 0.433 million tonnes). Total sales grew by 4% to 2.940
million tonnes (1997-98:2.821 million tonnes). Export turnover was lower
by 12% at Rs. 6,360 million, of which Steel and Engineering goods was Rs.
4,420 million (1997-98 : Rs. 5,040 million) and raw materials Rs. 1,860
million) (1997-98 : Rs. 2,110 million).
Operations
The production of saleable steel
increased to an all-time record of 3.11 million tonnes. The expansion of
Hot Strip Mill (HSM) to a nominal capacity of 2 million tonnes per year
was completed during the year which resulted in a better product-mix with
semi-finished output being lowered to 27% for the year (previous year :
37%). Concurrent with the expansion of the HSM capacity, the capacities
to produce increased tonnages of continuous cast slabs from LD Shop No.
2 were also completed. The production capacities enabled the HSM to produce
1.58 million tonnes against a planned target of 1.6 million tonnes. From
the year 1999-2000 onwards, this mill is expected to produce at the rated
capacity of 2 million tonnes per annum. The proportion of continuous cast
steel increased significantly to 81% of the total (previous year : 64%).
In future, almost all the steel produced by the Company will be continuously
cast.
Steel Melting Shop No. 3, Rolling
Mill No.1 and Narrow Strip Mill were closed down during the year. Rolling
Mill No. 2 is also operating at a much lower rate and will be shut down
during the current year. Among the non-steel business of the Company, the
Tubes Division produced a record tonnage in spite of closure of the Seamless
Tubes Plant in January 1998. The Ferro Chrome output dipped by 16% compared
to the previous year to 77,400 tonnes in the wake of weak international
and domestic markets. The combined output of Cement from Jojobera/Sonadih
was lower by 20% at 1.287 million tonnes. The Bearings Division production
showed a significant upward trend at 14.5 million numbers, higher by 24%
compared to the previous year.
Cost Control
The Management of the Company has
formulated and put into effect several stringent measures to contain costs.
In the area of operations, procurement of important raw materials and in
the supply-chain management, several important and significant reductions
in costs have been achieved, which in turn, has mitigated the impact of
lower net realisations obtained for the products of the Company during
the year.
Ongoing Modernisation and
Capital Projects
The Company's Modernisation Programme
Phase IV was essentially completed during the year and only a few auxiliary
items need to be commissioned during the current year. Coke Oven Battery
No. 8 was commissioned during the current year and the Company is now the
largest producer in the world of stamp charged coke. Work on Battery No.
9 is progressing and when that is commissioned next year (2000-01), all
the coke produced in the Company will be through the stamp charge route.
Work on the Cold Rolling Mill (CRM)
is progressing ahead of schedule. Efforts are being made to commission
the CRM complex earlier than he scheduled date of June 2000. Site clearance,
civil and structural work is mostly completed and equipment erection work
is now in progress. With the commissioning of the CRM in June 2000, or
earlier, a new international benchmark will be set with regard to project
execution. The expenditure on the project is running within the budget.
Acquisition and Divestments
With the Company focussing on its
steel related business, certain acquisitions and divestments were made
during the year. The latter not only enables the Company to focus on its
core business but also releases cash which provides a source of finance
for funding capital expenditure thereby reducing dependence on borrowings.
Acquisitions
The Company acquired a 100,000 tonnes
per annum capacity Cold Rolling Mill located at Tarapur from Tata SSL
Limited as a downstream facility for processing its hot rolled coils.
Divestments
-
Sale of Cement plant
A sale agreement has been entered
into to sell the Cement Division to an affiliate of M/s Lafarge S.A for
a total consideration of Rs. 5,500 million
-
Sale of Shares in Tata Timken Limited.
The Company sold its holding of
about 25.5 million Equity Shares and 1.3 million 9% Preference Shares in
Tata Timken Limited.
Corporate Governance
The Company has undertaken a programme
for enhancing its organisational performance under the JRD QV programme
(instituted in the memory of Mr. JRD Tata), which enables the Company to
benchmark its performance against internationally accepted "best practices".
The programme also results in improvements in all areas of operations through
constant reviews of all key actions carried out by the Company. The adoption
of this programme reflects the overall commitment of the Company in reaching
and maintaining world class standards in the years to come.
The Company has also adopted the
Tata Code of Conduct which accompanies the use of the TATA Brand name 99%
of the executives of the Company have signed the Code of Conduct which
prescribes the manner in which employees will conduct the Company's business.
To facilitate the functioning of
the Board and to provide meaningful supervision, the Company has constituted
an Audit Committee, a Remuneration Committee and an Executive Committee
of the Board.
Corporate Citizenship
The Company continued its exemplary
record in Corporate Citizenship. In recognition of this contribution, the
Company received several awards during the year, the important ones being
Outstanding Corporate Citizen by Economic Times, Corporates Social Responsiveness
by Business World Compaq and Outstanding initiatives for Rural Development
by FICCI.
Energy, Technology, Foreign
Exchange
The Cost of energy inputs is a very
important factor in the total cost of saleable steel. The Company continues
to put in special efforts to reduce the energy consumption and, for the
year, finished at just below 8.00 (actually 7.99) Gcal per tonne of Crude
Steel. Furthermore, the input of liquid fuels is now negligible (4.23 kg/tonne
of crude steel during the year as compared to 45.43 kg in 1988-89). As
more and more improvements take place in Coke Oven Operations (with introduction
of increased stamp charging capacity as well as by-products recoveries)
coke oven/blast furnace/LD gas is being used to almost totally replace
the purchased liquid fuels. |