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| Tata Steel to dispose of low-profit Corus assets |
| Press Trust Of India / Mumbai Aug 11, 2008, 04:36 IST |
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Aims to boost its return on invested capital to 30 per cent.
Seeking to bolster its return on invested capital (RoIC) in five years, Tata Steel might dispose of some low-profit making assets of Corus, the Anglo-Dutch steel maker that it acquired for $12.9 billion last year.
“The group will pursue the optimisation of its European assets, dispose and restructure assets that are of low-profitability and pursue differentiation of products and services,” Tata Steel Group Director (strategy) Jean-Sebastien Jacques said in the company’s latest annual report.
Tata Steel has set itself an ambitious target of improving the RoIC of its existing assets to 30 per cent from 19 per cent at present over the next five years, he said.
This will, however, be a daunting task for the group mainly because a large portion of its raw material resources come from long-term contracts.
Tata Steel, which has a combined steel making capacity of 28.1 million tonnes per annum and is the sixth largest maker of the alloy in the world, has been on the receiving end as Corus depends on long-term contracts for raw material supply, the prices of which have skyrocketed in recent times.
In India, Tata Steel is self-sufficient in iron ore and ahs 60 per cent security for coking coal. With the acquisition of Corus, the combined security of the group stands at 22 per cent, down from 80 per cent for Tata Seel on its own.
Due to flooding of the mines in Queensland, the force majeure declared by a number of US coking coal mines and increasing costs of Canadian coal, iron ore prices have jumped by 400 per cent and coking coal by 500 per cent since 2004.
Tata Steel is looking for mines abroad to feed Corus and targets 100 per cent self-sufficiency for India and 50 per cent for its European operations.
Interestingly, Tata Steel has inducted 800 people into its workforce, taking the total headcount to 41,900 as on March, 2008, from 41,100 during the time of acquisition on April 2, 2007.
Chief Financial officer Kaushik Chatterjee said that the incremental RoIC would be generated from better margins from the existing assets through performance improvement programmes that are currently underway, sweating of the existing capital employed in the business and efficient asset deployment in the new growth projects across the group.
It will also continue towards achieving benefits through continuous improvement of processes and products through synergies from the acquisition of Corus, Jacques said.
Tata Steel’s aim of creating synergies of $450 million between Tata Steel and Corus by March 2010 has already started showing results with the company generating $76 million during the year.
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