ISD Dunaferr

Steely determination from Dunaferr

ISD Dunaferr, with its headquarters in the city of Dunaújváros and around 8000 employees, is a prominent enterprise in the Hungarian steel industry and one of the biggest production companies in Hungary.

The organisation’s key products include coke, sinter, pig iron, LD steel, LH heavy plates and HR products. CR products, HR pickled products, profiles and galvanised plates complete the ISD Dunaferr offering.

Dating back to 1950 and formerly known as the Dunaferr Company Group, ISD Dunaferr is today a steel-producing business that operates through the use of integrated technology. Following privatisation in September 2004, the owner of the company has been a consortium led by the Industrial Union of Donbass (IUD). The IUD, founded in 1995, is one of the leading steel company groups of the Ukraine and the CIS, and also has business interests in Hungary and Poland. Its main products are steel, rolled products, steel tubes, coke and metallurgical and coking equipment. The IUD has interests in raw material mining, heavy vehicle manufacturing, building industry, telecommunications, as well as in the recreational and agricultural sectors. The strategy of the Union is to raise its production to 15 million tons by 2010.

The Dunaferr Company Group centralised its activities and management structure within the framework of its Integration Project in July 2007, and subsequently took up the ISD Dunaferr name in August 2007.

With these changes in ownership and management, the business has seen some significant shifts in strategy over the last three years. Valeriy Naumenko is the CEO of ISD Dunaferr Zrt, and therefore the ideal person to tell Manufacturing Today Europe more about this transformation.

He begins: “Since 2004 the Dunaferr Group owned by the consortium has been carrying out extensive activities within the Hungarian and international steel markets. Dunaferr as the largest employer in the region annually spends about HUF 700 to 800 million on regional development programmes. It considers it important to support activities for social, health protection and educational purposes, maintain university relations and co-operate with higher educational institutions. But the most important factor for Dunaferr is to maintain competitiveness and develop so that it can keep abreast with its market competitors.”

To address these aims and commitments, the company’s owner launched its large-scale Integration Project in 2006, in the course of which the majority of the member companies belonging to the Group were integrated into Dunaferr Zrt. “The integration is more than merely a merger of the subsidiaries with the parent company,” explains Valeriy. “Its aim is to eliminate overlapping activities and at the same time work out and implement the related organisational and cost optimisation processes. Integration has various other benefits besides cost reduction. Joint strategic aims can be defined for the whole company. The decision-making process becomes simpler and a ‘flatter’ management structure can be established. Due to the optimised production processes product quality is improving and administration is becoming simpler.”

He adds: “The three key areas of integration are power supply, production and logistics. This process is designed to keep the company on the market, create a single market appearance, achieve simpler financing, better corporate management and a more transparent operation. Integration also aims to turn the company into a unified organisation.”

As part of the first phase of the Integration Project, the legal merger of the two power companies – EMA-Power Kft. and Dunaferr Energiaszolgáltató Kft. (DESZ) – took place in April 2007. The company established is not integrated into Dunaferr Zrt. but continues its operation under the name of ISD-Power Energiatermelo” és Szolgáltató Kft (ISD-Power Kft.) as part of the Group.

The second phase brought the simultaneous merger of a further nine companies operating in the area of production and service on 30 June 2007. Following completion of this integration project, these businesses now operate as part of Dunaferr, and since that date the company has represented one single entity. As a result of the reorganisation a single large company with transparent operations has been created. Consequently, about 80 to 85 per cent of the ISD Dunaferr Company Group is now concentrated within Dunaferr Zrt.

Finally, as a third phase, the group’s three logistics companies merged on 30 September 2007. Kiköto” Kft. and Logisztikai Kft. merged into Portolan Kft. The resulting company – similarly to the power business – did not integrate into ISD Dunaferr Zrt. but continues its operation as part of the Group under the name of ISD Portolan Kft.

Continuing, Valeriy comments: “Dunaferr plays an important role in the new owner’s strategy. This is being supported by a range of large-scale investments ensuring the long-term competitiveness of the group.” The investment programme that he mentions began in 2006, is scheduled to continue into 2009, and will result in substantial capacity increases for Dunaferr.

The completion of the reconstruction of the company’s coke battery No. III/1 kicked off this programme in 2006 and was followed later that year by the reconstruction of its blast furnace No. I. In 2007 investment was concentrated on Dunaferr’s hot rolling mill, with the capacity of its existing pusher furnaces being increased to 320 t/h, and the installation of L1 and L2 automated systems onto the finishing line.

In 2008 improvements will be spread across Dunaferr’s operations. The installation of a new walking beam furnace, a mechanical work roll changer and a new down coiler will all be seen in the company’s hot rolling mill. Meanwhile, in the cold rolling mill, a new pickling line and 1700 cold roll stand will be installed. Looking forward even further, a new quartro pre-roller and vertical stand will be added to the hot rolling mill in 2009, while that year will also see the installation of a new power plant.

These improvements to the group’s facilities will allow Dunaferr to significantly increase its levels of production going forward, and as a result, expand its market share in different regions. Currently, Germany, Poland, Austria and the Czech Republic represent the most important export markets for the business, although it does also supply to customers across the rest of Europe, Asia, Africa and the US.

“As the Hungarian market cannot significantly absorb the increased product volumes that go with capacity increase, it obviously means that ISD Dunaferr’s exports will be increased in the future. These market segments, however, constitute a part of the strategy of the entire Donbass Group,” Valeriy explains.

In addition to increasing its export activities, Dunaferr will also look to expand its product offering. Based on hot rolled products (coils) ISD Dunaferr already produces a whole range of further processed products (cold rolled, coated, profile, unique equipment, etc). The company will build on this in a number of ways; for example in the future ISD Dunaferr will further process the slabs produced in the Ukrainian plant of the IUD.

As ISD Dunaferr looks to expand both its products and its coverage, there will obviously be a variety of challenges for the organisation toovercome. Valeriy highlights steel prices as the main area to be aware of in the industry at the moment: “Prices have been fluctuating over the last year,” he explains. “In the first half of the year they were better, then they decreased a little but they are still relatively high and stable now.

“We are trying to benefit from this steel industry opportunity. The demand was booming in the first half of the year, but this has lessened now and as a result it requires more intensive work to be able to secure the results expected by our owners.”

Remembering that the European market is not independent of the global market is key to this, as Valeriy appreciates: “The most intensively developing region is now South East Asia, mainly China and India, and experts also predict an increase in activity in Brazil and Russia. This expansion period also affects Hungary and Europe indirectly, as Chinese products have now reached Europe and imports are growing at a very high rate, especially those destined for Southern Europe.

“All that has not influenced our presence in the Hungarian market significantly so far but our sales in the European markets, particularly in Southern Europe may be affected. All this also hampers our sales opportunities both in terms of price and volume.”

He adds: “Therefore, a key task is to find and serve the markets that are the closest to us. This is what the activity of the past two years has been all about. So by going beyond our earlier sales strategy – the predominance of the German-Italian market – we have created more stable and safer sales possibilities by having access to more markets.”

As with many other companies around the world, a major focus for ISD Dunaferr going forward is corporate social responsibility. Although Valeriy recognises that the core aim of the organisation is to create value, he also believes that: “ISD Dunaferr is a determining business of a town, an area, a region and as such it must carry responsibility for its employees and owners, and of course for its direct environment too.”

Supporting this statement, a remarkable 20 to 25 per cent of the town of Dunaújváros’ budget is covered by the business activity tax paid by ISD Dunaferr Zrt – showing perfectly the company’s importance to the area.

“We consider our environmental developments as part of our social responsibility, which also includes the social benefit system that is unique today in Hungary and which is safeguarded by the collective agreement. On the other hand, CSR also includes a considerable part of the money spent on sport subsidies and support of the micro region. In order to ensure sustainable development we are unifying the system of corporate social responsibility and regrouping our assets to ensure the most efficient operation of that,” he says.

As Valeriy mentions, ISD Dunaferr is a hugely important business to the town of Dunaújváros and the surrounding areas. The company employs around 8000 people from this region and works hard to develop and reward this workforce wherever possible. “We have a staff of well-prepared employees, and positions within the company can only be taken by specialists possessing the qualifications, practice period and adequate experience required for the given job,” he explains.

“Recently the activity of the company has been mscreened at job level, which offers a possibility, in addition to the earlier mentioned integration, to eliminate overlapping activities within the Group. Employees’ commitment is strengthened by the regional and emotional attachment to the company, the care-taking outplacement programme and the fair benefits for employees and families.”

Although already recognised as the largest steel exporter in Hungary, ISD Dunaferr is looking to significantly grow its overseas markets in the future. When asked what he puts the company’s ongoing success down to, Valeriy replies: “It is definitely due to the new owner’s approach, which has put the emphasis on cost reduction and optimisation, while intensive developments have been initiated and steel industrial activity is being carried out in coordination with our partners.”

Valeriy also feels that the integration process that the group has gone through has been extremely important to ensuring that the business remains competitive. He concludes: “The owner rationalised the cost structure in the various companies and then, in order to simplify the whole corporate and management structure mergedtheir activities into ISD Dunaferr Zrt. Therefore, from the fragmented group a transparent company has been created. Hence our new philosophy, which is: ‘One brand, one name’.”