Tuesday, September 13, 2016

News: Tata bidders in due diligence

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The two shortlisted bidders for the speciality steel business are being given access to due diligence and management meetings, Tata Steel confirms.

At the end of March, the Indian-owned steelmaker concluded that it was exploring all options for portfolio restructuring including the potential sale of Tata Steel UK, in whole or in parts. Following a board meeting in July, the steelmaker decided on a separate process for the potential sale of its Speciality Steels business, which until recently employed over 2,000 people at sites like Aldwarke in Rotherham and Stocksbridge in Sheffield.

Tata confirmed the progress of its divestment of the Specialty Steel business and the pipe mills in Hartlepool in its financial results for the quarter to June 30.

The results showed that the group lost £370m when it sold its European long products division at Scunthorpe to Greybull Capital for a nominal sum. A deal for Speciality Steels is expected to raise around £100m.

EBITDA (Earnings before taxes) at Tata's European operations was a profit of around £96m, up from £65m in the previous quarter. Tata put this down to the depreciation of the Pound, short term improvements in steel prices, impact of restructuring undertaken earlier in the UK and stronger performance in Netherlands.

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Koushik Chatterjee, Group Executive Director (Finance and Corporate) at Tata Steel, said: "In Europe, the positive impact of the structural restructuring undertaken in the UK in the last six months along with a weaker Pound, cost reduction measures and an effective hedging strategy on raw material imports have enabled the business to report better performance for the quarter.

"With the completion of the Long Products divestment, Tata Steel Europe will focus on being a premium strip player and the management and employees of Tata Steel Europe continues to strive to structurally improve the business performance. The strategy for exploring further strategic consolidation in Europe is a step in that direction."

A potential joint venture with Germany's Thyssenkrupp, which would see the strip products businesses combined, has been discussed.

Hans Fischer, MD & CEO of Tata Steel in Europe, said: "We are making progress as a result of business improvement initiatives and the restructuring announced last year. Our differentiation strategy is also starting to create more robustness in terms of higher-value sales, and we sold our highest percentage of differentiated products in June. These factors, combined with more favourable market and currency tail winds, led to an improving quarterly EBITDA result.

"Modest forecasted growth in European steel demand this year is still being undermined by increased imports which is leading to continued declines in domestic deliveries. That's why it's vital we continue every effort to improve our competitiveness."

Speciality Steels is not considered a downstream business linked to Port Talbot and Tata Steel's strip products business. It produces around 225,000 tonnes of steel, comprising around 3% of Tata Steel Europe's total output. It has a £275m turnover and is Tata Steel Europe's only Electric Arc Furnace (EAF) based business, specialising in carbon, alloy and stainless steels for demanding applications like aerospace, motorsports and oil and gas. Until recently it employed over 2,000 people at sites like Aldwarke in Rotherham and Stocksbridge in Sheffield.

Investment in South Yorkshire has been key to the company's differentiated products strategy where the focus is on quality over quantity.

The group also used the results to confirm discussions are currently ongoing regarding the UK pension issue. Proposals from Tata Steel to amend pension scheme benefits in order to avoid entering the Pension Protection Fund (PPF) now appear as if they would be difficult to deliver. The group said: "Tata Steel UK is in engagement with all relevant stakeholders including the UK Government, the Trustee and the unions on the exposure to pensions of the UK business."

Tata Steel Europe website

Images: Tata Steel


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