Tata Steel unveils cost-cutting plans for Europe businesstext_fields
London: Tata Steel has unveiled restructuring and cost-cutting plans for its Europe business, including job cuts, to arrest the decline in profitability of the business.
The exact job cut figure is yet to confirmed by the company but could be up to 3,000.
The Indian steel major said the changes were needed to ensure the business can thrive despite severe market headwinds and also accelerate innovation towards carbon-neutral steel making.
"Today we are highlighting important proposals towards building a financially strong and sustainable European business," said Henrik Adam, CEO of Tata Steel in Europe, in a statement on Monday.
"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," he said.
The programme is focused on four areas to improve financial performance - 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; 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 employee numbers to be reduced are expected to be office-based ('white collar') roles; and reduction of procurement costs through smarter sourcing and strengthening cooperation with companies within the Tata Steel group.
Through its proposed transformation programme, Tata Steel Europe said it is initially targeting a positive cash flow by the end of its financial year ending March 2021. It is also aiming for an EBITDA margin of around 10 per cent throughout the market cycle.
Based on full year 2019 revenue figures, this would equate to 750 million pounds in EBITDA (Earnings before interest, tax, depreciation and amortisation). With improved earnings and cash flows, Tata Steel Europe will be a financially self-sustaining business able to invest in asset reliability and improvements while also servicing its financial obligations to its lenders and shareholders.
"A transformation is needed to mitigate the current structural and cyclical headwinds and create the foundation for the company's future success. Stagnant EU steel demand and global overcapacity have been compounded by trade conflicts which have turned the European market into a dumping ground for the world's excess steel capacity," the company said.
"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 per cent in EBITDA to 31 million pounds and revenue stood at 3.25 billion pounds.
Tata Steel is one of Europe's leading steel producers, with steelmaking in the Netherlands and the UK, and manufacturing plants across Europe. The company supplies high-quality steel products to the most demanding markets, including construction and infrastructure, automotive, packaging and engineering.