Thomas de Butler, Managing Director, Tata Steel Distribution Europe. Integrated steel mills vs steel service centres coexistence in one marketplace

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1 Thomas de Butler, Managing Director, Tata Steel Distribution Europe Integrated steel mills vs steel service centres coexistence in one marketplace

2 Tata Group, A worldwide concern One of the world s fastest growing and most respected corporations Tata businesses span 7 major industry sectors India s largest private sector employer, with 400,000 employees worldwide. Operations in more than 80 countries Total revenue in : $68 billion

3 Tata Steel Group at a glance In 2007 Tata Steel Limited acquired Corus Group plc On 27 September 2010 Corus rebranded to Tata Steel Tata Steel Group: Fortune 500 company Top 10 global steel producer Annual crude steel capacity of 28 million tonnes More than 80,000 employees Manufacturing operations in 26 countries across 5 continents Serving customers all across the globe Turnover : $22.8 billion

4 Tata Steel in Europe Major manufacturing sites in the UK, the Netherlands, Germany, France and Belgium Supplies to 7 demanding markets Sales offices and service centres in close to 50 countries 2nd largest steel producer in Europe Crude steel capacity of 18 mtpa 35,000 employees

5 Tata Steel in Europe: Enabling our customers to perform in their markets Picture of Lifting & Excavating sector Picture of Palfinger InBusiness Customer focus Understanding customer needs and challenges Market sector differentiation Organising to deliver for our customers Market sector teams Dedication & commitment Ease of doing business Structural problem solving Innovating together Partnering for growth Serving our home market A European perspective on our home market Aligning our assets Optimising routes to market Extending our reach

6 Tata Steel in Europe: Our market sector focus Automotive Construction Energy & power Lifting & excavating Packaging Rail Industry & portfolio (consumer goods, shipbuilding, aerospace, defence & security)

7 Tata Steel in Europe: Our distribution network in Mainland Europe 35% 8% 21% 23% 13% Automotive Materials handling Construction Consumer prod. Others Norsk Stal & Norsk Stal Tynnplater (Norway) Feijen Service Centre MultiSteel Unitol Vlietjonge Namascor IJzerleeuw & Geertsema SC Gelsenkirchen Blume Degels Blume Blume Blume Blume Layde Steel Service Hungary 11 different units 15 Locations 1 Sales OfficeJoint 5 Joint Ventures SSC 80% of turnover Stockholding 20% Tata Elastron SA 7

8 A few facts about steel distribution in Western Europe Share of direct supplies from the mill 35% Share of supplies through distribution 65% Western European steel market: A highly intermediated market Share of independent distribution 70% Share of independant SSC distribution 60% Share of mill owned distribution 30% Share of mill owned SSC distribution 40% Where vertical integration is a major feature, specially in North Western Europe Mill-integrated distribution have a particularly high share in SSC distribution* [ * ]: in the US, share of mill owned distributors is less than 10%

9 Why did steel producers ever get involved in distribution? Mill integrated players have led the consolidation of the distribution sector over the last 30 years, in parallel with the consolidation of the European steel industry However independent distribution has become increasingly active in the consolidation game Being active in distribution, from a steel mill point of view, has been alternatively offensive and defensive Mill-integrated distributors provide to their parent steel mill: Added value Route to market to strategic end-users Volume responsiveness to market circumstances Aligned approach to the market Secure market share For the European steel mills, having their own distribution is not exclusive from having strong relationships with independent distributors. Their channel strategy displays a mix of approaches according to the type of end-user and of market position of their own distribution

10 Role of steel distribution Sector Distribution Intensity Construction Consumer Goods Structure of the Steel Market Automotive Materials Handling Few large customers represent a significant share of the consumption, purchasing steel from steel mills and from distributors (when required) Numerous medium/small sized customers exclusively supplied by distributors

11 Market positioning of mill-integrated Large end-users Involvement of the mill Main function of distribution to the mill Share of mill integrated distribution 50% of the market High Capability Higher than average Medium/small end-users 50% of the market Low Reach Lower than average Typical requirements of large end-users: Relationships with the mills High technical requirements Large volumes Multinational/global customers

12 Mill-integrated distribution plays dual role in steel producers strategies 1. As a channel to market, supporting growth strategies for key accounts who require distribution capabilities Small number of large customers Back to back agreement Mill-Distributor-Customer One central contract (price, volume, product mix) Longer term contracts (yearly, half year, quarterly) Fully controlled supply chain 2. As a market sector in itself, related to the smaller end-users ( retail ) Large number of medium to small customers Contract between Customer and Distributor Shorter term contracts (spot, quarterly)

13 Mill-integrated distribution plays dual role in steel producers strategies (2) 1. As a channel to market, supporting growth strategies for key accounts who require distribution capabilities Added value: maximised profitability throughout the value chain (cost control) Route to market to strategic end-users: full visibility and control of the relationship with the end-user Aligned approach to the market: one face to the customer, one product and pricing strategy 13

14 Mill-integrated distribution plays dual role in steel producers strategies (3) 2. As a market sector in itself, related to the smaller end-users ( retail ) Added value: more focus on stand-alone profitability (control of purchasing mix) Volume responsiveness to market circumstances: possibility to flex between insourcing and out-sourcing feedstock Aligned approach to the market: focus on desired mix of the mill, aligned pricing policy Secure market share: captive market

15 Challenges in the steel market, impact for mill-integrated distribution Different impact for different players, ie multi-regional independent distributors, local independent distributor, mill-integrated distributors Continued consolidation/downward integration at all levels in the value chain: raw material suppliers (?), steel producers, distributors, end-users Distribution markets remain highly competitive: new entrants, new capacities Globalisation of strategic end-users Increasingly technical steel products, widening gap between commodities and premium products Increased volatility: ever shortening cycles The global squeeze : limited growth in EU / high priced raw materials These challenges point at the increasing necessity for total alignment between steel producers and their own distribution

16 Key issues for mill-integrated distribution Priority to customer intimacy, service levels and cost management in the channel to market role Similar priorities in the retail role + focus on: driving the strategy and the success factors in this part of the market, especially agile/competitive external sourcing in combination with sourcing preferred product mix from own mills Being a preferred channel to market must go hand in hand with being a profit center (market model) Combine the benefits of being part of large integrated steel companies and the flexibility of entrepreneurial structures Pressure on working capital: un-lock the synergies of being one supply chain In the allocation of ressources within steel producing companies, own distribution should demonstrate value for the whole value chain Mill-integrated and independents distributors will continue to exist side by side with different roles - in the strategies of steel producers

17 Thank-you for your attention