Fears grow for North steel jobs
Nov 7 2006 By Graeme King, The Journal
The managing director of Corus suitor Tata Steel has surprised industry analysts by insisting that he can achieve 30% margins within five years, even with the Anglo-Dutch acquisition.
The claim by B. Muthuraman has sparked speculation that severe cuts will be required in the Corus business to achieve such a return, should Tata's £4.3bn takeover succeed.
Corus currently employs more than 2,000 staff at its plant on Teesside, out of 25,000 UK-wide, with the company as a whole employing 40,000.
Mr Muthuraman was quoted as saying: "We will be able to return to 30% at normal prices. I'd say in four or five years' time."
He did not specify exactly how this would be achieved, but said it was possible to achieve "synergies" between Corus and Tata, through combining the two businesses' departments in procurement, marketing, maintenance and other areas including tinplate production. But with Corus currently achieving margins of just 7%, while Tata has just posted a phenomenal 42%, there are fears large-scale job cuts will be required to meet Mr Muthuraman's prediction.
Meanwhile, the Tata boss has also said he is optimistic the company's bid for Corus will be successful by January, assisted by supportive shareholders of the Anglo-Dutch company.
The managing director said he believed Tata had offered a bid that was "fair value" for Corus, despite some prominent shareholders - including Standard Life - saying the offer was lower than they had expected.
If successful, the combined Tata/Corus business would be the world's fifth largest steel maker.
Last week, Tata posted net profits equivalent to £239m for the six months to September 30, up from £230m last time, and the company's EBITDA (earnings before interest, tax, depreciation and amortisation) margin was 42%, only slightly below the 45% achieved last year.
It was believed that Tata planned to achieve a margin of 25% should it manage to take over Corus, and industry analysts said it was simply not possible for the Indian company to keep delivering the same margin as in its home market.
In India, Tata benefits from cheap local iron ore and low cost labour, which cannot be relied upon in Europe.
Unions have been broadly optimistic about the prospect of a Tata takeover, informed by a belief that Corus needs to be part of a large conglomerate to survive in a very competitive market place.
But the Community union on Teesside has said there are issues around investment, and its members' terms and conditions which it wants to talk to Tata about before making public comment on a potential deal.
