The management of Tata Steel is left with limited options -- the same old that they have been trying to execute for at least a decade -- to turn around its sick European business. The CEO and managing director TV Narendran and executive director and CFO Koushik Chatterjee said in the integrated report 2020 that significant market headwinds, particularly in the last two quarters, and the disruptions caused due to the COVID-19 pandemic, have made the issue complex in Europe.
The transformation programme is aimed at reducing cost of operations, improving productivity, focussing on marketing and sales, and improving competitiveness both in the UK and the Netherlands. The debt-ridden steelmaker realised benefits of about Euro 370 million in the last financial year due to improvement programmes. These benefits are attributable to lower material costs and cost takeout strategy, which were partly offset by lower capacity utilisation in Europe, the management said.
Earlier, Tata Steel and German steelmaker Thyssenkrupp planned to combine the steel businesses in Europe to turn around their ailing businesses. But the proposal failed to receive the approval from European Commission. Tata Steel Europe, erstwhile Corus Plc, was acquired by the Indian steelmaker for $12 billion in 2007. It has 12.3 MT steel-making capacity.
The management and leadership team at Tata Steel Europe remain committed to making the operations self-sustaining in a phased manner and generate better returns in the future, Narendran and Chatterjee said in their management analysis.
In the report, Tata group chairman has not mentioned anything significant on the turnaround possibilities in Europe. "In Europe, we maintained production levels in FY 2019-20 in line with FY 2018-19," he said. Overcapacity in China played a role in the softness in steel prices last year, he added.
Tata Steel wants to change its European business simpler, leaner and sustainable, and generate savings across multiple initiatives. Tata Steel Europe showed an EBITDA of about Euro 8 million in the fourth quarter of FY 2019-20. However, profitability was affected by weak market conditions, aggravated by the pandemic impact.
"For most of FY 2019-20, the global steel industry faced a number of challenges due to global demand and geopolitical tensions which have affected the contours of the business environment in which we operate. Next came the onset of the COVID-19 pandemic in the final quarter of the year, which ushered in a new reality for industries across the world," Chandrasekaran said.
India was just beginning to show signs of coming out of a protracted slowdown that began in early 2018 when COVID-19 arrived, he mentioned. "The Indian steel sector registered a stark easing of growth to 1.8 per cent in 2019 compared to 7.7 per cent growth in the previous year. Domestic steel prices declined sharply in FY 2019-20 (15 per cent year-on-year, on average) due to weak demand from key industries including automobile, construction, and consumer durables," Chandrasekaran added.
Tata Steel in India is on course of reorganising its subsidiaries into four segments: mining, long products, downstream and Infrastructure and utilities. It is also continuing expansion of Kalinganagar capacity to 8 MT from 3MT.