Steel fundamentally is still a profitable business:Sanjeev Gupta

A: Yes, indeed.

Q: Why did you get them going? Where did this passion for steel and this new energy come from?

A: Fundamentally, because it is a viable business and it is a profitable business. The opportunity first came up to acquire that steel plant back three years ago. We got the opportunity to acquire that at a good price, we spent some time fixing all the problems which had accumulated in the plant over years and all that came to a conclusion second half of last year when we were able to restart the plant after having cleaned up its debt, its legal claims. So now today it runs as a totally debt-free, claim-free, credit-free plant and it is running and making money as you can see.

Q: You said it was in distress and you also said it was profitable, how did you put the two together?

A: It had the potential to be profitable. UK is one of the highest priced markets for steel in the world. There are several things problematical with steel in the UK but they are fixable and this was the first step towards that.

Q: This is in New Port in Wales.

A: Yes.

Q: How far are we from Port Talbot?

A: About half an hour.

Q: We are in New Port, a short distance from Port Talbot. How far are we from getting Port Talbot for Liberty House's steel?

A: I cannot say a great deal about the process because we are in a non-disclosure agreement (NDA) but we are engaged, we have put together a panel of experts, they are doing their analysis and it takes quite some time and quite some work when we will make an attempt that making a bid for the assets.

Q: So you will be making a bid for Tata Steel and you had stated that your intention a while back but from a statement of intention to a letter of intent (LoI) is not a long distance, when are we likely to see the second?

A: Everybody knows, that is public information that is due next week. So we will be submitting our LoI.

Q: So you will be submitting the letter of intent next week to buy Tata Steel?

A: Yes.

Q: All of Tata Steel?

A: We are in an NDA situation, so I will not say too much but we have a panel of experts working doing all the analysis and we will be submitting our bid next week.

Q: Tata said and I think the government have also indicated that they are not looking at a piecemeal sell of those assets. So you are still considering that?

A: In all likelihood, we are submitting our bid for all the assets. That is our intention.

Q: That will be all of the plants, whether Port Talbot or in the midlands or in the north, all of them?

A: Yes.

Q: And all of the elements in all of the plants?

A: Yes.

Q: We have been hearing about the blast furnace versus arc furnace debate, what is that debate about?

A: I have spoken about it already so won't go in to a lot of the details but in a nutshell, one melts scrap domestically generated scrap and makes steel from that which is through an arc furnace.

Q: That is a blast furnace that Tata found unprofitable to run.

A: What I just ascribe is arc furnace which is melting domestic scrap and a blast furnace makes primary steel from iron ore and coal which is imported.

Q: Which is what Tata has found unsustainable.

A: Correct.

Q: When you look at the whole works and you look to buy the whole works, you would look to buy the blast furnace as well and run it?

A: Yes. Our contention has been stated is that we would analyse opportunity to convert some or all of the blast furnaces to arc furnaces.

Q: With no redundancies?

A: Yes, because if you are successfully able to convert from on one to the other, there is no need for damage because you need more or less equal number of people in those two processes.

Q: There has been some resistance to that is an idea, where is that resistance coming from?

A: There is a long tradition of primary steel making in a country so there is some attachment to that but fundamentally, we are not changing steel, we are not changing the fact that we will look to make steel, we will just make it from one process rather than another. These are early days, we need to do the full modelling and full due diligence. Once that is done, once we can assess the situation, we can present a full model including where the technology comes from, what the cost of production is, what is the profitability of the business will be, where the funding of that will come from, we will present all of that, in full details.Q: There have been some studies and in fact there are very interesting study from Cambridge University suggesting that the arc furnace is the way of the future because there is scrap available to make steel from and that makes a lot more sense than importing iron ore and then producing steel from scratch. Is that the way forward for all of steel production you believe in this country? Can basic making from iron ore really be sustainable?

A: The main point which you have captured in your statement is that there is domestically available raw material, so our model will be focusing very much on seeing how we can use the domestically available raw material which is more competitive available than imported raw materials to make a product which is more green, is more sustainable. It is in alignment with the policy of this country and this government to decarbonise the economy. So, it is what we call green steel. Green steel is produced more recycling steel, hopefully with the renewable energy. It is sustainable in the long-term because scrap availability in UK is only going to increase.

There are again, that same study which you talk about shows that the scrap availability in UK will increase dramatically in days to come. So, there will be an abundant competitive raw material locally available and we will look to try and use that. That plant there, at the backend is where which used to produce steel from arc furnaces and our intention actually before the Talbot opportunity or the Tata opportunity came along our intention which is still the case is to reinstate that and to melt steel here. So, whether we do Tata or not we will make steel from scrap in this country. There is no doubt about that.

Q: We are on the roof of the power station that you just got going and you speak about green steel. How green is this for steel?

A: First of all let us talk about two things – when you are recycling steel you are basically saving carbon. So, whichever form of energy you use you are already gone long way about being green. However, you are right this station is currently fired by coal. When we bought this plant, December, a year before last it was with the intention to convert this to biomass. There were some changes in government policies after that and there are still ongoing changes in policy and we are still very much hopeful that we will convert this plant to be fired by biomass rather than coal which would make it a green plant.

Q: Very fascinating changes you are talking about but do we need changes also in government policy by way of pricing for the energy, by way of pensions and the commitment to pensions because certainly these are huge issues that you would have to face as a potential buyer?

A: I am not going to talk about the Tata process because as I explained we are in a legally binding situation. However, energy definitely whether it is for any steel plant today specially if it is recycling plant energy is a issue which needs to be addressed which can be addressed either by readjusting some of the policies or by making more and more renewable energy. So, one of the two routes is the route to solve the energy problem which we have.

Q: You do realise that you are bucking the fashion when a lot of people thinking that well steel is really a thing of the past and you have this great faith in steel?

A: It cannot be a thing of the past.

Q: Making steel in Britain, would be a thing of the past, not steel itself ofcourse?

A: Britain is a mature economy. A mature economy generates more and more scrap and recycling that is only a natural step in revolution of steel making. It is not something new; we are not trying to do something which is an invention. Countries like the US already produced most of their steel from recycling scrap so it is a natural process. This country is not doing it because it has the excess capacity in primary steel making, but primary steel making today is a challenge. However, recycling steel is not and should not be a challenge because the country is surplus in scrap, should be able to melt. Almost every country in the world does it to large extent and we are not following that trend but we need to fix that.

Q: Is that what you would bring to the operations that Tata could not or would not?

A: You are absolutely right; the point is that recycling steel generally speaking is done in plants of 1-2 million tonne. To go to 3-4 million tonne, there are few plants, there is a plant in Turkey, there are some in Korea, Japan and so on but generally, globally recycling steel is a done in smaller plants, plants of 1-2 million tonne; plants like that which make 1-2 million tonne. Larger plants generally don’t based on the primarily route, but given a situation where you have to import all your raw material compared to domestically available raw material there is logic in our mind at least to convert one to the other.

Q: We understandably that you are not going to speak about pensions certainly that is some confidential matter that you have to consider and discuss and negotiate but we have had a Sajid Javid, a business secretary saying that no new buyer could realistically take on that kind of burden. Is that kind of indication from the government welcomed?

A: I prefer not to talk about it.Q: We hear about Liberty House as primarily a commodities company. This is slightly off the track for your company, is it?A: There are four fundamental parts to the group. In Liberty we have two groups. The Liberty Industries Group is largely about steel and engineering.Q: And that is yours?A: Yes. And the Liberty Commodities Group is about commodities. So, basically Liberty Commodities Group has been trading in and supplying commodities primarily steel and non-ferrous metal and materials globally for the last 25 years.Q: So, commodities like steel and ferrous stuff?A: Yes. That is international grading. We have 32 countries around the world where we have operations with hubs in London, Dubai, Singapore and Hong Kong. So, that business supplies steel and steel raw materials globally.Q: Where do you source it and where do you sell to?A: It depends and it changes. First of all it depends on the commodity. For example iron ore comes from Australia, Brazil. Whereas things like steel billets come from CIS, China. So, it depends on the commodity and depends on which country you are trying to serve.Q: Is that a USD 5 billion a year turnover business?A: No, this year we will do about USD 4 billion on the commodities business.Q: You mentioned that you particularly have gone into beyond the steel products and ferrous materials trading into steel production. What drew you to this?A: As I said there are four part of the business. Second part is the Liberty Industries business which is largely around steel and engineering businesses. Within that we have the steel plant which we saw from a distance a few minutes ago. In the midlands we have over we have over a dozen engineering businesses producing auto parts and components for the likes of Jaguar Land Rover and Rolls Royce. We have now mills in Scotland. So, we have various mills, also in Africa and also in various countries where we have steel operations. So, we have steel production scattered around the world and in the UK and engineering businesses, we are in that business.This business, the power business rests within SIMEC. SIMEC is my father's business and within that power is the mainstay. There are several businesses in that but power is the mainstay.Q: You were based in Dubai before you moved to London?A: No, I moved to Dubai from the UK about seven years ago and I was in Dubai for six years.Q: It wasn't steel that took you to Dubai?A: No, I was focussed on the commodities business. So, Dubai is our global headquarters for the commodities business, so I was running the commodities business while I was there. I came back to the UK to focus on the industry, to focus on both on Liberty and SIMEC.Q: What drew you to this?A: Change in the cycle, identification of opportunities. We had bought the steel plant and by last year we were at a position where all the problems had been cleaned up, the plant was cleaned, it was in a position to restart. So, I wanted to focus on that. This plant was also starting operations which is adjoining. So, we wanted to focus on this. Once I came back several other opportunities came up. ?3:30 came into administration, so were able to buy that outer administration and save over a 1000 jobs in that business. And then Tata's situation started to evolve and we were able to buy the plate mills in Scotland and so on and so forth.  Q: We were talking about your passion, bucking the trend of fashion. Now it is becoming unfashionable at least in this part of the world in Europe to try and step away from the steel business, we have seen the fate of Caparo, other industries, we have seen Mittal’s business decline a bit and you at the same have this renewed stronger faith in steel production here in the face of imports from China at the prices and given the quantities that they are exporting in. How does that add up?A: There are several aspects to this one fundamental point is that these are cyclical businesses and what once upon a time what’s all the groups you mentioned they have made their fortune from steel, so it’s nothing static in life in the chain. The other point is our model, so our model is not based on steel per se. Our model largely is based on recycling steel in the UK and in value added engineering businesses downstream, so UK is a mature economy, its need a lot of products, if we can manufacture those projects we have lot of skill set and lot of history here of making both in engineering and in steel making. So, if we can harness some of that, the assets we acquire were reset in the capital base because we are acquiring them for a very little money, so it’s not like we paid large amounts of money for the assets we bought. We bought them quite well, so to turn them into profits by resetting their costs base and pursue a model which largely is around recycling steel and serving the domestic market and adding value to the steel with engineering process so on, it has proven to be viable. We are making good money. We will surpass all our budgets for this year. We have budgeted profitability of GBP 150 million this year. We are already well way ahead of that and we will surpass that. So it’s already proven to be success and we believe this can continue to consolidate on this.Q: Beyond steel there have been several reports suggesting that you bought a very large number of companies in a short time. Now what has that to do with, is it do with steel or is to do with other parts of Liberty or something other than that?A: For example in Caparo business, there was more than 2,000 businesses and each of those businesses are companies, so each of those businesses are profit centres, each have MDs. There is over 1,200 people in Caparo businesses so far what we have and each of those businesses is separate production units and separate companies, so naturally in a large group you will have many, many companies and some of those questions, some of those queries are misplaced.  Q: So but is this all within the ferrous steel area?A: No, we have power as there is power plant is there. We invested in Tidal Lagoon which is very exciting new technology to harness the strength of tidal power basically.Q: But we are still talking steel, metal and energy?A: And financial services, so we have four verticals, commodities, steel engineering, power both renewable and otherwise and financial services. So we concluded the agreement to acquire Tungsten Bank in December. We are now in negotiations about change of control with the Bank of England on that. That opens up a new business model, a new business vertical for us which we are very excited about. Actually, out of the four businesses I am the most excited about that if I am honest, because financial services in our businesses always been core. We have as a commodities business, we have always provided financial supports to our suppliers, our customers and is being one of our key strengths and actually one of the key combinations with the steel business, with the engineering business. What makes us unique in terms of the proposition we have, we have not only a steel business, not only an engineering business, not only a power business but also a financial business.Q: Do they are talk to each other or are they just simultaneous?A: No, the idea is absolute synergy between these four verticals, so they all support each other, so for example power from this plant is supplied not only to the plant next door, but also to all our plants in the Midlands. It will be also supplied through this business unit to Scotland.Q: And the financial services will feed this?A: Absolutely. So for example supply chain finance, we do supply the raw materials to many mills around the world. We finance them. We provide credit to lot of steel mills around the world. In India, we provide credit to lot of steel companies for example, so that same strength we can use in-house. When steel is sold or products are sold to the market again credit needs to be provided by our steel mills to the market, those supply chain financing operations again will be undertaken by our bank. The idea is to basically synergies. They all are independent businesses, independently capitalise, independently managed. Each one has its board, the CEOs, management teams and so on, but they all support each other on an arm’s length basis on a comparative basis.Q: You mentioned India, are you planning to do more business in India or with India?A: Yes, of course, every NRI Indian has an aspiration ultimately to do something back home. India is a tough place, it has been through very tough times, but there is no doubt that the future of our industries verticals we are involved in is in India. We are negotiation and looking at various businesses in all four verticals including our financial services vertical and sooner or later we will take steps in India.Q: So you would consider making steel in India?A: Well, steel sector in India is in deep stress as you know and there are lot of mergers and acquisitions (M&A) activity.Q: That never seems to put you off.A: No, most of the times there is an opportunity out of the stress, so there are many turnaround possibilities in India at the moment as well, but we take India very carefully because to do business in India is not easy. It is a very difficult challenged environment to work in, so we are looking at India for all our businesses very carefully.Q: A broad timeframe in mind.A: No, it’s a continuous search. Events are not in one’s control always, it depends on how things transpire. Some of the businesses we have bought and turned around, I wouldn’t have anticipated some of the things which are happening now, I wouldn’t have anticipated, so these things are not always in one’s control.Q: Well, cold isn’t it and this is cold wave in the middle of the summer in India, of course, has been having quite a heat wave and that would include your Ludhiana, you get back there often?A: Not as often as I used to. I get more to Bombay. I try to go to Bombay at least once every two months.Q: Do you think yourself as a Ludhiana lad?A: I certainly think myself of a Punjabi, Ludhiana specifically I have not spent that much time actually. I was born there but most of my life was spent outside.Q: And how did you get outside?A: So I came on holiday when my brother was studying here, I think when I was 13 or 14 and I liked it and I insisted staying back and so I got into the same with my brother and that was the beginning of my journey here. I have been here since then.Q: And you went to University here that was Cambridge?A: Yes, I was in Kantian School, then London School and then I took couple of years out working for my father selling bicycles.Q: You took time off studies to sell bicycles?A: So it’s quite traditional to take between A levels and the university the gap years, I took two years and I was basically working with dad at that time and then I came to Cambridge and I then started Liberty House.Q: So gap year of course is a period between two academic pursuits and people usually take extended holidays and you decided to sell bicycles?A: Holidays are not in our vocabulary in terms of the way we were brought up. We always worked even during when I was a child during holidays we will go and spend lot of times in my father’s factory or in the office or whatever it is. We were always been involved in work one way or another.Q: Don’t tell me you don’t take holidays now to unwind and don’t tell me that you do steel to unwind?A: So, I don’t take holidays. I take holidays meaning I will take a weekend away. I mixed work and pleasure quite a lot, so I get time off here and there but I don’t take any extended holidays. I have never taken extended holidays. I took one after my A levels short holiday with my friends for about 10 days and the only other extended holiday was my honeymoon and that’s it. I have never taken extended holiday.Q: So, no fancy villas and no exotic yachts around the place?A: It’s not that I don’t enjoy life but I do, but I enjoy working so I will mix it up. I will work hard and I will play hard, but I will not take long holiday.Q: You went to Cambridge, you read at Cambridge, what did you read at Cambridge?A: Economics and management.Q: But you apparently took to management while reading management?A: Management part was easier I must confess and actually help me and by then I was working quite hard at Liberty, so I wasn’t giving enough time to my studies and in fact I get switched from economics to management. In Cambridge you have a tripos system so you can do two different degrees one after another. Two half let say, so the fact that I could switch to management help me a great deal because it was easier.Q: And some of the Cambridge bosses didn’t take very kindly to some of your management adventures then?A: No, it’s technicality what happens is that when I started I was obviously in college resident in halls as we call it and I got deaned which means you get hauled up if you done something naughty and the problem was that I had registered Liberty at the college address and the reason I had done that was because I wanted to my telephone and fax bills and telex bills very quite high so I wanted to reclaim VAT on that, so I had registered company at that address and apparently I didn’t know that you can’t run businesses from charitable institutions and universities are charitable institutions, so technically I could not stay in halls anymore, so I had to leave halls and I had to hire an apartment nearby and I continued my work from there.Q: But you are aware that you usually students are hauled up for doing other kinds of naughty things?A: It was I guess quite unique deaning, I don’t know if anybody was put up and deaned and thrown out of halls at least like that in the past.