The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Naomi Powell published in the June
23, 2006 edition
By Naomi Powell
The Hamilton Spectator
TORONTO (Jun 23, 2006)
A huge jump in productivity, 700 fewer workers, annual
revenue exceeding $3 billion and an eventual sale to a global giant.
This is the new Stelco -- as envisioned by its CEO, Rodney
Mott.
Mott presented his aggressive blueprint for Hamilton's
storied steelmaker at the company's annual general meeting in Toronto
yesterday.
"We want to be the main company (in Canada), we want to
be the largest producer," Mott said yesterday. "We want the rest of
the industry to recognize that we're competitive with the best mills certainly
in North America ... we'll dominate in our marketplace."
Mott detailed a plan to cut 700 jobs from Stelco as part of
an aggressive strategy to increase revenue by 33 per cent over 2005.
The cuts, which will be achieved through attrition and a
pair of recently announced buyout plans open to a third of the company's
employees, will fall mostly on Stelco's Hamilton workers.
"We do believe that Stelco as a company has gotten a
little bit heavy in the workforce," Mott said. "It's gone through a
change in technology, it's gone through a change in the business plan, and it
hasn't had a good opportunity to adjust the workforce at the same time ...
Let's let people move on that want to move on."
Although Stelco has offered buyouts to almost at third of
its 4,800 employees, Mott said he anticipates only 15 per cent of eligible
salaried and unionized workers will accept the deals. Of the 1,000 unionized
employees at Hamilton Steel (formerly Hilton Works) who are eligible for a
$20,000 golden handshake, Mott expects a little more than 300 -- or 15 per cent
of the hourly workers -- to exit by the end of the year. A second buyout
offering a year's pay to salaried workers will likely be accepted by about 330
workers or 25 per cent of the salaried group.
The remaining workforce of 4,100 employees will be expected
to boost productivity by 40 per cent per worker, Mott said. That would hike
Stelco's annual production from 4 million tonnes of steel to 4.8 million tonnes
-- an increase analysts say is key to Stelco's return to profitability.
"We expect significant changes going forward in volume.
That's going to be the biggest driver in the change of revenue," Mott
said, adding the change is expected to take place through the next 12 to 18
months.
Union leaders were not available for comment.
Stelco shares surged almost 18 per cent on the Toronto Stock
Exchange yesterday to close at $21, as the company promised to achieve an
annual revenue target of more than $3.4 billion by the end of 2007, a 33 per
cent improvement over 2005. Stelco emerged from two years of bankruptcy
protection in March to post 2005 revenues of $2.6 billion with a net loss of
$76 million.
"The market obviously liked what Mr. Mott had to
say," said Randy Cousins, a steel analyst with the Bank of Montreal
Nesbitt Burns in Toronto. "If he can enhance productivity at Stelco
enough, he has the opportunity to create a company that's successful at the top
of the market as well as the bottom and that's the true test of a steel
company."
The workforce buyouts will cost Stelco $25 million,
depending on participation, but will save the company about $45 million
annually, Mott said. Stelco also expects an estimated $65 million in cost
savings per year through changes to production volumes, salaried employee
benefits plans, energy management and the elimination of contractors. The
company will also increase prices in 2007.
Mott, who estimated Stelco's earnings before interest, taxes
and amortization (EBITDA) at $400 million, also made no secret of the company's
potential as a consolidation target.
"I do tell our employees that Stelco has to be part of
something bigger someday because there is a tendency to go toward
globalization," Mott said. "And that's OK for the Stelco employees. You
make steel on the shop floor, you service your market on a regional basis, but
you're always looking for that security, that strength that goes along with
being part of a global company."
In takeover situations, EBITDA is often used as a partial
measure of a company's worth, making Mott's $400 million estimate particularly
interesting, said Michael Willemse, a steel analyst with CIBC World Markets.
Stelco has also cut elements of its electricity cogeneration
plans in Hamilton and Nanticoke after Ottawa backed out of a promise to
contribute $30 million to the project.
"In a way they're back pedalling a little bit ... but
there's still a good chance they'll come through with all or part of that
money," Mott said. "And again we're prepared to adjust the project to
accommodate that."
npowell@thespec.com
905-526-4620