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Towards $100/t EBITDA
We’ve returned from our visit to Corus’ plants in Europe with better details
and greater conviction on the margin enhancement measures currently
underway there. Tata Steel is targeting a floor EBITDA of US$100/t in Corus
in 5 years via multiple product-mix/cost initiatives. We believe that this is
achievable though reckon that most of the benefits will be visible over 3-5
years while the associated capex will rise much earlier. We were impressed by
the downstream capabilities at Corus – much better than in India. While the
Ijmuiden facilities were impressive, the UK units suffer from inefficient
layouts, technical drawbacks as well as excess staffing. We suspect that much
more could have been done to cut employee size in the UK. We also got the
feeling that all the different Corus units are working in silos and believe that
the ‘one company’ initiative within Corus could yield material benefits. BUY.
Multiple cost reduction initiatives underway
Corus is considering setting up its own power plant in Ijmuiden as the Nuon thirdparty
plant, which currently converts waste gas to power charges high conversion
fees. A gas recovery initiative is also underway in the UK. Efforts are on to
increase the level of coal injection in UK to levels of Ijmuiden to save on coal
costs. The rebuilding of blast furnace 4 in Port Talbot will also lower costs.
Measures to optimize supply chain are also going on. Corus is also focussing on
improving the skill-sets of its employees to make them capable of performing
multiple roles, which will help the company cut back on contractual labour.
However, we didn’t hear of any moves to reduce head-count at Scunthorpe and
Rotterham, which seem highly over-staffed based on shared data.
An improving focus on product-mix
Corus is aiming at leveraging its impressive downstream units and R&D
capabilities by partnering in product development with customers and improving
product mix. Currently 40% of sales happen directly to end-sectors with the
balance happening to intermediaries. The target is to take this to 65% in 5 years.
390 projects are currently underway. However, we note that product-mix
initiatives will yield benefits only if competitors don’t do the same.
Margam coal project could be a big positive longer-term
Corus has completed the geological study and is on the verge of completing the
feasibility study in the Margam coal project in Wales. The mine contains measured
and inferred resources of 37mt of hard coking coal. A decision on mine
development will be taken soon. There could be large capex and the project could
take 4-5 years but could provide a meaningful portion of Corus’ coking coal
requirements in the long-term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Towards $100/t EBITDA
We’ve returned from our visit to Corus’ plants in Europe with better details
and greater conviction on the margin enhancement measures currently
underway there. Tata Steel is targeting a floor EBITDA of US$100/t in Corus
in 5 years via multiple product-mix/cost initiatives. We believe that this is
achievable though reckon that most of the benefits will be visible over 3-5
years while the associated capex will rise much earlier. We were impressed by
the downstream capabilities at Corus – much better than in India. While the
Ijmuiden facilities were impressive, the UK units suffer from inefficient
layouts, technical drawbacks as well as excess staffing. We suspect that much
more could have been done to cut employee size in the UK. We also got the
feeling that all the different Corus units are working in silos and believe that
the ‘one company’ initiative within Corus could yield material benefits. BUY.
Multiple cost reduction initiatives underway
Corus is considering setting up its own power plant in Ijmuiden as the Nuon thirdparty
plant, which currently converts waste gas to power charges high conversion
fees. A gas recovery initiative is also underway in the UK. Efforts are on to
increase the level of coal injection in UK to levels of Ijmuiden to save on coal
costs. The rebuilding of blast furnace 4 in Port Talbot will also lower costs.
Measures to optimize supply chain are also going on. Corus is also focussing on
improving the skill-sets of its employees to make them capable of performing
multiple roles, which will help the company cut back on contractual labour.
However, we didn’t hear of any moves to reduce head-count at Scunthorpe and
Rotterham, which seem highly over-staffed based on shared data.
An improving focus on product-mix
Corus is aiming at leveraging its impressive downstream units and R&D
capabilities by partnering in product development with customers and improving
product mix. Currently 40% of sales happen directly to end-sectors with the
balance happening to intermediaries. The target is to take this to 65% in 5 years.
390 projects are currently underway. However, we note that product-mix
initiatives will yield benefits only if competitors don’t do the same.
Margam coal project could be a big positive longer-term
Corus has completed the geological study and is on the verge of completing the
feasibility study in the Margam coal project in Wales. The mine contains measured
and inferred resources of 37mt of hard coking coal. A decision on mine
development will be taken soon. There could be large capex and the project could
take 4-5 years but could provide a meaningful portion of Corus’ coking coal
requirements in the long-term.
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