Tata Steel reported a consolidated loss of Rs 5,674 crore in the fourth quarter of FY 15 on the back of an impairment charge on its UK business and a difficult business environment in India owing to surging imports, muted demand and regulatory uncertainties in captive mining operations. “It has been a very challenging year for the steel industry with several macro headwinds at play,” Tata Steel Managing Director (India and South East Asia) T V Narendran said.
The company reported a a 68% year on year (yoy) fall operating income at Rs 1,580 crore for the quarter and a 21% y-o-y fall in revenues at Rs 33,666 crore. The steel realisations of the steelmaker fell sharply during the second half of the year due to the deluge of imports from China, Russia, Japan and Korea combined with a sluggish domestic demand. For the full year 2014-15, Tata Steel reported a net loss of Rs 3,926 crore, against a profit of Rs 3,595 crore in the previous financial year. The company’s revenues for the twelve months ended March 31, 2015, stood at Rs 1.39 lakh crore, down 6.1 % yoy.
Koushik Chatterjee, Group Executive Director (Finance and Corporate), said that the company’s performance was also impacted by mining bans during the year, which forced to company to purchase costly iron ore from the markets. He added that the profitability in Europe improved in the current year. Tata Steel also successfully refinanced the $7 bn international debt portfolio almost 15 months ahead of the first major repayment helping the company de-risk the balance sheet. “The debt levels of the group have remained stable despite incurring a capex of Rs 13,492 crore,” Chatterjee added.
For the quarter ended March 31, the company recognized a non-cash writedown of goodwill and assets of Rs 4,951 crore in its consolidated financial results, “mainly relating to the long products UK business in Tata Steel Europe, which is now fully impaired”. This is the second time that Tata Steel has recognized an impairment charge on account of its long products business in Europe, which it is in talks to sell to the Geneva-based Klesch Group.This is in addition to the Rs 1,577 crore which we recognized as impairment in the first quarter on account of the Mozambique project.
The company also continues to pursue its strategy of exiting non-core assets and has initiated action on de-risking its exposure to the British pension scheme that would help the long-term sustainability of the British business amidst difficult business environment, Köhler said. On Wednesday, Unite, the country’s largest union,said in a press release that it will ballot its 6,000 members at Tata Steel UK for industrial action over its proposal to close the British Steel pension scheme (BSPS).
Despite domestic challenges, the firm’s Indian operations registered best ever production in hot metal, crude steel and saleable steel and successfully ramped up deliveries across its key business segments, it said. The revenues from Indian operations in 2014-15 was Rs 41,785 crore against Rs 41,711 crore in 2013-14 as benefits of high volumes were offset by lower realization and weak demand.
The South East Asian operations were also affected by weak demand and a contraction in the rebar-scrap spread on the back of a significant increase in imports from China. Deliveries increased at NatSteel’s operations in Singapore though they declined in China. Tata Steel Thailand recorded an increase in sales, including value-added domestic rebar sales, during the fourth quarter, the company said.
In Europe, the volume output in remained stable, despite demand and operational issues, the company said. Tata Steel Europe MD and CEO Karl-Ulrich Kohler said that the company’s European production and deliveries were stable,despite being constrained by reduced demand in the second half and operational issues such as a power blackout in the Netherlands in the fourth quarter.
Kohler added that with the economy is UK looking buoyant prospects in Europe look better. The differentiated products sales represented more than a third of overall sales for the year as a whole.The demand in the European Union is also expected to grow by 1.8% this year as market conditions improve. The depreciation of the euro is expected to boost competitiveness, he added.
The company will spend around Rs 10,000 crore in capex for FY 16, which is 20-25% lower than Rs 13,500 crore it spent in FY15 and Rs 16,500 crore in FY 14. The fall in capex is owing to the completion of Tata Steel’s greenfield project in Kalinganagar, Odisha. “We used to spend around Rs 7,000 crore annually and then increased capex over the years,” Chatterjee said. The phase I of Kalinganagar project will be completed by October.
Chatterjee said that the future looks brighter for the company going ahead as the company expects the regulatory uncertainties on mining to be behind us, thus focusing on the phased commissioning of the greenfield steel plant in Kalinganagar.
“We are hopeful that steel demand will rebound this fiscal year on the back of higher investments across key industrial and infrastructure sectors as the government’s ‘Make-In-India’ campaign starts yielding results,” Narendran added.