It gives me great pleasure to welcome you to the 37th Annual General Meeting of your Company.
It has been more than a year that the global economy has been subjected to a financial crisis that gripped capital market globally, impact of which has been severely felt in the real economy. This was preceded by an unprecedented volatility in the prices of primary goods more particularly energy inputs and commodities. This has adversely affected consumer confidence and world economic growth, dented a range of asset prices and tested theories of 'decoupling'. The consensus view around this time last year was that the world economy will slow down but continued strong growth in China, India and other emerging economies will moderate the overall impact. Economies worldwide have indeed suffered in 2008 needing concerted and coordinated interventions by various governments to contain the impact of the meltdown.
India has not been immune to these developments. However, impact of the global crisis in India has been less severe as domestic consumption continues to be a major driver of growth. India could still achieve a GDP growth of 6.7% for fiscal 2008-09 against an average of 8.9% over the five year period prior to 2008-09. This is considered satisfactory given the fact that many countries have witnessed negative growth in 2008.
Global Steel Industry
The deteriorating global business environment adversely impacted the steel industry worldwide which experienced huge swings in its fortunes in the last fiscal. The demand as well as international prices of steel and also those of raw materials reached a historic high during first half of 2008, followed by sharp dip in steel prices in October 2008 onwards, as demand shrunk under the impact of global slowdown. Fall in market prices and demand was steep and sudden, affecting adversely steel producers across the globe who had to cope with falling output prices, declining demand and high input prices putting a great strain on their margins. This led to many steel majors, globally, to effect major cuts in production in order to align themselves with market demand and control rising inventory. The impact can be gauged by the fact that while the global steel output increased by 2.5% (YOY) in the first half of calendar year 2008, it fell by as much as 9.5% in the second half (YOY) and by more than 20% in the first half of 2009 (YOY).
Indian Steel Industry
Steel industry in India, as well, reflected the global trends. Prices which, had firmed up in the first half of 2008-09, plunged down sharply from October 2008 onwards. There was a sharp reduction in the off-take of steel as consuming segments resorted to destocking and deferring purchases in anticipation of lower prices. This resulted in production cuts by some steel companies to contain stock build-up. Despite all this, India ended the year 2008 on a positive note with crude steel production at 55.2 million tonnes (up from 53.1 million tonnes) and per capita consumption at 44.3 kg (up from 42.4 kg).
The World Steel Association (WSA) in its Steel Industry Outlook released in June '09, has indicated that global steel consumption would decline by 13% in the calendar year 2009 as compared to 2008. This is an improvement of 2% in demand, estimated earlier in April '09. There are early signs of recovery since June'09 with global steel production crossing 100 million tonnes in July'09, first time in any month in this calendar year. However, we have to closely monitor the developments given the extreme volatility being witnessed in global steel market in recent months. In India, steel demand is picking up in sectors like construction, automobiles and appliances with 6-7% growth in April-August '09. The increase in global prices recently also had similar effects on domestic steel prices, especially for flat products.
Response – Resilient SAIL
The depressed economic and industrial scenario while imposing a great challenge has also led to new pockets of opportunity thereby initiating a process of litmus test to measure the resilience of business entities. SAIL did not remain untouched by these developments. It chose to meet the challenges of tough times by steadily pushing towards the goal of maximizing yield from physical and human capital. With pro-active approach and its strategic actions, challenges have been converted into opportunities. The Company reoriented production in line with market demand, substantially increased production of value added steel and maximized the production of finished steel. In order to reduce the adverse impact of high imported coking coal prices, your Company took measures which included reduction of imported coking coal in the coal blend and advancing part shipments of latest low priced imported coking coal. Action plans were also drawn to take advantage in terms of better logistics, reducing in process inventory, minimizing waste, optimization in procurement, prudent fund management, curtailing cost of production and utilizing opportunities for improving the health of equipment. With these efforts, your Company achieved the best ever turnover of Rs. 48,681 crore (a growth of 7%), earned Profit Before Tax (PBT) of Rs. 9,403 crore and Profit After Tax (PAT) of Rs. 6,175 crore. During the year, Net Worth of your company has further grown by about Rs. 5,000 crore
In spite of severe slowdown in second half of the financial year, SAIL plants produced 12.5 million tonnes of saleable steel, achieving 113% capacity utilization during the year. Production of hot metal at 14.4 million tonnes and crude steel at 13.4 million tonnes also exceeded the rated capacity. SAIL plants enhanced operational efficiency by improving techno-economic parameters (2% lowering of coke rate and 3% in specific energy consumption rate, etc.). Cost reduction initiatives have resulted in savings of around Rs. 850 crore during the year
Your Company also achieved the best ever sales of long products at 4.45 million tonnes and a total sales of 11.32 million tonnes. You can also be justly proud that the Company made record supplies to projects of national importance to sectors such as Defence, Railways, Power, Telecom, Delhi Metro Rail Corporation, Bandra-Worli Sea Link etc. and also contributed more than Rs. 12,000 crore by way of taxes and duties to the national exchequer
Rural sector is home to almost two-thirds of our population. Focused efforts of the government in building rural infrastructure and livelihoods through Bharat Nirman and NREGA, together with marketing, storage and extension of support services and facilities will progressively raise rural incomes and purchasing power. To tap this opportunity, your Company has extended its authorized dealer network further to cover 625 districts in the country. There were 2406 dealers as on April 1, 2009 and sales of steel through dealers grew by over 50% in 2008-09.
Modernization and Expansion – An investment for future
Despite soaring inputs prices, fluctuating market, and the world economy in a state of flux, SAIL remained focused on its modernization and expansion plans which after completion will add 12 million tonnes to its hot metal capacity progressively. The modernization and expansion plans of your Company, while emphasizing capacity expansion, also put maximum thrust on value addition and product mix improvement, technological upgradation, including modernization of existing assets and environment related projects. These investments will create competitive and sustainable businesses in the future enhancing long-term stakeholder value. Providing for part requirement of funds for ongoing modernization and expansion plans from internal resources, SAIL Board has recommended a final dividend of 13% of paid up equity capital which together with an interim dividend of 13% already paid takes the total dividend to 26% for 2008-09.
Your Company continues to give impetus to new business initiatives by way of collaboration and joint ventures. For security of coking coal, a joint venture company promoted by SAIL, CIL, RINL, NMDC and NTPC, namely International Coal Ventures Private Ltd., has been incorporated to acquire coal assets overseas. Further, a joint venture with Shipping Corporation of India is under formation to undertake transportation of imported coking coal and other dry bulk cargos. With the issuance of order by Ministry of Corporate Affairs on July 28, 2009, the process of merger of Bharat Refractories Ltd. with SAIL has been completed and this will help your company in sourcing input refractories at optimum cost. Your Company has also been successful in acquiring the assets of erstwhile Malvika Steel Ltd. located at Jagdishpur, Uttar Pradesh
Securing Raw Materials
Your Company has been meeting its entire requirement of iron ore for its steel plants from captive mines. After completion of the modernization and expansion plans, the requirement of iron ore is expected to be about 42 million tonnes per annum from the current level of about 25 million tonnes. Steps have been initiated for expansion of existing iron ore mines with beneficiation facilities and also for enhancing production of both coking and thermal coal in captive collieries. Grant of statutory clearances is in process for development of new coking coal mines at Tasra and Sitanala blocks. After rigorous follow-up and efforts of almost 25 years, your Company has obtained all the statutory clearances including final forest clearance for Rowghat mines. Actions for land acquisition and construction of rail link between Dalli-Rajhara and Rowghat are now under progress. Regarding Chiria / Gua mines, there is positive development with Government of Jharkhand giving approval to transfer leases in the name of SAIL instead of erstwhile IISCO and matter is being followed up. Your Company is also pursuing for allocation of new coking and thermal coal blocks to enhance security of coal supplies.
SAIL has always been serving its communities, aligning policies to encourage inclusive growth. The economic, environmental and social dimensions are well entrenched in the Company's vision which has spurred SAIL's journey so far. As a good corporate citizen, it has always been SAIL's endeavour to make a meaningful difference in people's lives. We already operate one of the largest health and education infrastructures run by any corporate entity in India. Taking our social responsibilities a step ahead, your Company has taken the initiative to develop 79 villages across 8 states as model steel villages with contribution towards medical and educational facilities, roads, sanitation, income generation schemes etc. and such jobs in 43 villages have already been completed. Your Company has also been running free schools and health centers in steel townships especially for the under-privileged. More than 2100 medical camps have been organized across the country benefiting almost 10 lakhs of the needy population
SAIL's Corporate Social Responsibility (CSR) efforts have been appreciated and recognized widely through various accolades and awards; to name a few – the CII-ITC Sustainability Award; the Golden Peacock Award for CSR awarded for 2008 to the Bhilai Steel Plant, the CSR award of the Tamil Nadu government awarded to Salem Steel Plant for 2008-09.
Today, one of the major challenges before us is of climate change and environmental sustainability. For a predominantly agricultural country like India, the consequences of climate change can be more devastating and economically crippling. The challenges of grappling with climate change, using our natural resources wisely, reducing carbon emissions etc., therefore, are of paramount importance.
SAIL seeks to contribute to the global efforts to reduce the negative impact on the environment. SAIL is adopting CDM mechanism to gather carbon credits from its various projects in the steel plants and is actively associated in the Asia Pacific partnership formed to reduce the global CO2 emissions by technology transfer of energy and environment friendly technology among the member countries of India, Japan, South Korea, Australia, China, USA and Canada
During the year, 2.9 lakh trees were planted. Pisciculture and eco-restoration are some of the other projects undertaken by your Company.
Your Company's performance has got due recognition from different quarters and a few need special mention. Sixty three SAIL employees received Vishwakarma awards 2007 declared in August 2009 – 52% of the total awards among private and public sector companies in the country. Twenty one of our employees have been conferred with the Prime Minister's Shram Award 2007 – over 40% of the total employees awarded in India. SAIL Quality Circle teams won highest number of awards in the country at the international QC meet in Bangladesh held in the last week of October 2008. These included 7 excellent, 7 extraordinary and 1 meritorious award.
Your Company is committed to conforming to the highest standards of corporate governance by ensuring transparency, disclosures, and reporting as required under various laws, regulations and guidelines including those issued by the Department of Public Enterprises.
SAIL's achievements in these turbulent times are a proof that while the clouds on the horizon of SAIL changed colors, its feet on the ground definitely grew firmer. SAIL's ascent in terms of productivity and performance irrespective of unfavorable situation is not a matter of chance. It is a consequence of deliberate actions geared towards instilling strength and flexibility in SAIL's physical resources and human potential.
For us in SAIL, the year 2008-09 marks yet another milestone dotted with challenging tasks and rewarding actions. At this juncture, when SAIL has completed 50 glorious years of commencement of its operation, we once again commit ourselves to evolving time-tested resilient practices, innovative spirit and deepen our resolve to fulfill our commitment to the nation.
Before I close, I would like to take this opportunity to thank all the shareholders of the Company for their continued support and encouragement. I would also like to thank and acknowledge the immense contribution made by the employees by their dedicated service. On behalf of the Company and the shareholders, I also want to put on record my sincere thanks for the guidance and cooperation extended by the Ministry of Steel, Government of India, state governments, other organizations and institutions.
Thank you ladies and gentlemen.
10th September, 2009
(S K Roongta)