Focus is on improving cash flows of European operations, says Tata Steel

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After the setback of Sweden’s SSAB pulling out of talks to buy the Dutch units, Tata Steel is now focusing on improving cash flows of its European operations.

The Indian steelmaker will continue with the process to separate the Dutch and UK units of its European operations, the company said after announcing financial results for the third quarter ending December 31, 2020.

“Following the termination of the discussions with SSAB on Tata Steel Netherland (TSN), the company will be focusing on performance and cash flows in the immediate term,” the company said in a statement on February 9.

“Tata Steel is committed to arrive at a strategic and sustainable resolution for its European portfolio. Tata Steel’s IJmuiden plant is among the most environmentally efficient and cost competitive steel producers in Europe. The process to separate Tata Steel Netherlands and Tata Steel UK is currently underway,” it added.

On January 29, SSAB announced the termination of the talks which were made formal in November. “We cannot align Tata Steel Ijmuiden with our sustainability strategy in the way desired,” Martin Lindqvist, President and CEO at SSAB, had said.

Subsequently, industry observers had told Moneycontrol that the Indian company will now be forced to look outside of Europe to get a buyer. “It is a setback for Tata Steel. They have been looking for a solution for their European business. But now with two failed attempts, their scope for a good solution is narrowing,” said a senior executive from the European steel industry.

The financial burden

That Tata Steel will need to re-focus investments into Tata Steel Europe was evident from the third quarter results.

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The Indian operations reported better-than-expected numbers, with the highest ever quarterly EBITDA of Rs 8,811 crore, more than doubling from the same quarter in the corresponding year. On the other hand, Tata Steel Europe posted loss of of Rs 724.27 crore at EBITDA level in Q3FY21 against Rs 956.30 crore in Q3FY20.

“In Europe, our underlying performance has improved quarter on quarter while the reported EBIDTA was negatively impacted by few one-offs. We remain committed to arriving at a strategic and sustainable solution for Tata Steel Europe, though in the immediate term, we will focus upon business performance and cash flows,” CEO and Managing Director TV Narendran said.

The company has been in talks with the UK government for financial aid. Industry observers have said the company would need to invest a substantial amount in its European units to ensure lower carbon footprint, an issue that governments are keen on.