Tata Steel Posts Surprise Loss On One-Time U.K. Pension Settlement
Tata Steel Ltd. reported a surprise loss in the three months ended March as it made a one-time settlement to close a pension scheme for improving the viability of its operations in the U.K.
India's second largest steelmaker posted a loss of Rs 1,168 crore in the fourth quarter, according to its stock exchange filing. Analysts tracked by Bloomberg had expected the company to post a profit of Rs 988.4 crore. Operating income tripled to Rs 6,982 crore from last year, while operating margins expanded 12 percentage points to 20.6 percent.
Tata Steel accounted for an exceptional non-cash payment of Rs 3,627 crore to members of the British Steel Pension Scheme, which the steelmaker closed on March 31 to make its U.K. operations viable. Securing the pension fund was one of the major challenges that Tata Steel had to overcome before it could go ahead and complete the planned sale of its U.K. operations.
The first phase of the pension scheme is closed with about 130,000 employees, group Executive Director Koushik Chatterjee told BloombergQuint.
Making U.K. (operations) more sustainable is important. That’s our priority.Koushik Chatterjee, Executive Director (Finance and Corporate), Tata Steel
The Tata Group company has been eyeing an exit from the U.K. since 2016 due to an oversupply of steel, cheap imports and high costs. It has been actively divesting non-profitable assets to pare its debt, which stood at Rs 72,367 crore at the end of March.
During the fourth quarter, Tata Steel sold its specialty steel business to the Liberty House Group for £100 million. It also sold its entire stake in wholly owned indirect subsidiary Kalzip Guangzhou in China for Rs 38.09 crore.
Net debt has reduced by more than Rs 4,300 crore over the previous quarter, a media statement said. Revenue in the fourth quarter grew 29.6 percent to Rs 33,424 crore, compared to the same period last year.
In India, Tata Steel's volume grew 18 percent over the last year, and 7 percent from the previous quarter to 3.21 million tonne.
Tata Steel’s ramped-up Kalinganagar plant crossed 2.2 million tonne of hot metal and 1.5 million tonne hot rolled coil production since its commissioning in May last year. This is lower than the 2-2.2 million tonne per month capacity of the plant, according to Managing Director TV Narendran. Tata Steel is facing logistics issues at Kalinganagar, majorly in getting raw materials, he told BloombergQuint.
The company had acquired Brahmani River Pellets Ltd. for Rs 900 crore to “meet its metallic requirements” for the Kalinganagar steel plant in December.
Its capital expenditure during the fourth quarter stood at Rs 2,092 crore, which according to Chatterjee was less than planned.
The capex was lower than plan due to prioritisation of our capital expenditure programme and we have been able to keep the debt stable despite price-related impact on working capital.Koushik Chatterjee, Executive Director (Finance and Corporate), Tata Steel
The capital expenditure for financial year 2017-18 is Rs 7,000 crore, Narendran said in the post-earnings media conference.
In Europe, volume improved 22 percent sequentially, but remained flat on a yearly basis. However, revenue from Europe was 33 percent higher than last year due to better sales of high-value products.
Tata Steel expects steel demand in Europe to grow by 1.3 percent in 2017. Steel mills in Europe will remain under pressure from imports, said Hans Fisher, managing director and chief executive officer of Tata Steel in Europe. Revenue from South East Asian operations too grew 26 percent year-on-year.
The board also recommended a final dividend of Rs 10 per share.
Talks With Thyssenkrupp
Tata Steel has been in talks with Thyssenkrupp AG and others for a joint venture of their European steel business, a strategy through which it aims to increase profitability. Narendran said that while the talks were on, the focus remains on closing the pension scheme first.
Shares of Tata Steel closed 0.3 percent higher, trailing the 0.8 percent rise in the benchmark S&P BSE Sensex.