The slowdown in the manufacturing industry, especially in the automobile business, becomes another blow for the bleeding Tata Steel Europe (TSE), which was acquired by the Indian conglomerate (Tata Steel) for $12 billion in 2007. The company has sold its units piecemeal and cut the workforce on many occasions for reducing the losses on its books, but failed to help the company's turnaround when macro-economic issues overshadowed the British steel industry.
The Tata group chairman N Chandrasekaran recently told a British Newspaper that Tata Steel, India cannot continue funding the mounting losses at TSE's Port Talbot steelworks in the UK. "Whether it is in the Netherlands or here, we can't have a situation where India keeps funding the losses just to keep it going," he said. Port Talbot steelworks in Wales, one of the largest in Europe, needs to be self-sustaining, he added.
TSE recently announced its plans to shut down Orb Electrical steels in South Wales, Wolverhampton Engineering Steels Service Centre in the UK and Degels business in Germany as they were not getting any buyers. At the same time, Dutch media recently that the steelmaker plans to cut about 2,500 jobs, which is a quarter of its workforce, across Europe.
In November, TSE had begun consultations with the European Works Council (EWC) for restructuring the business, which would include up to 3,000 job cuts --- 1,600 of which planned in the Netherlands and 1,000 in the UK.
TSE made operational losses in nine out of the last 12 financial years, since Tata acquired Corus. In the second quarter of this financial year, the sales volume of TSE has increased by 1.2 per cent, but revenue from operations decreased around 12 per cent to Rs 14,035 crore year-on-year. The earnings before interest, tax, depreciation and amortization (EBITDA) fell drastically to Rs 165 crore from Rs 1,105 crore in the same period last year. The EBITDA per tonne fell to Rs 720, compared to Rs 4,862 crore a year back.
The gross debt of Tata Steel group increased 10.6 per cent to Rs 1.12 lakh crore in the first two quarters of this financial year. The net debt stood at Rs 1.07 lakh crore in September 2019.
Analysts don't expect much change in the financial performance of TSE in the third quarter. "We don't have any hope in the performance of TSE. So exiting from European business is the better option for Tatas as it will boost the ratings of Indian business, which is growing the profitability in double digits," said a banker in Mumbai.
TSE had launched a transformation programme recently to make operations simpler, leaner and sustainable for long-term success. "During the quarter, it completed the sale of First Steel business, UK and Cogent Power Inc, Canada," it said.
"In Europe, rising trade protectionism and overhang of Brexit continued to weigh on business confidence. Steel demand remained under pressure with continued weakness in key steel-consuming sectors during the (second) quarter; margins declined with drop in steel prices as complete benefit of recent raw material price correction is yet to flow through," Tata Steel said earlier.
European steelmakers have also been hit by mounting imports of cheap metal and surging carbon allowance prices that they must buy to offset emissions. TSE has a cumulative loss (excluding exceptional items) of about Rs 48,245 crore over the last 10 financial years. During the period, it made an operational profit only once --- Rs 1,666 crore in 2010-11.
The company was depending on the proposed merger with Thyssenkrupp AG for the turnaround of the business. But, the EU's powerful anti-trust authority blocked the merger in May, saying the deal would have pushed up prices and reduced competition. The merger intended to create the second-largest steel company in the continent behind multinational giant ArcelorMittal.
Tata Steel's new plan is to focus on the Indian market and cut losses in Europe. Almost 44 per cent of its 33 million tonnes (MT) annual production is from overseas and with India accounting for the balance. It plans to divest its South East Asia operations (in Singapore and Thailand) and expand production only in India to 32 MT by 2025 from the current 18.5 MT.