The performance of Tata Steel Europe (formerly Corus) continues to drag the Tata Steel group as the consolidated results for the first quarter of 2009-10 show that the group reported a loss of Rs. 2,209 crore as compared to a profit of Rs. 3,901 crore in the same period in the previous year.
The group’s consolidated turnover was significantly lower at Rs. 23,292 crore (Rs. 43,496 crore) primarily due to a drop in sales volume in Tata Steel Europe as well as in prices in India and Southeast Asia.
Operating profit was Rs. 204 crore (Rs. 7,375 crore) and this huge drop has been attributed mainly to the challenging economic environment caused by the global recession, especially in the U.K. and Europe.
The group has a healthy liquidity position of over Rs. 16,750 crore and the net debt at end-June was Rs. 49,170 crore.
According to a company statement, the cost savings benefits arising out of the ‘Weathering the storm’ and ‘Fit for the future’ programmes during 2009-10 are expected to far exceed Rs. 6,200 crore ($1.3 billion) and the benefits achieved in the first quarter was around Rs. 2,200 crore ($460 million).
B. Muthuraman, Managing Director, Tata Steel, said, “The results of Tata Steel group for the quarter reflects the impact of the global economic downturn, particularly in the developed markets”.
According to Kirby Adams, CEO, Tata Steel Europe, “We anticipated that the first two quarters of the current year would be a difficult one for European steelmakers, which is why we started taking action early this calendar year to align our output and costs to the lower demand levels in Europe”.
The unexpected termination of the Teeside offtake agreement in April by the four offtakers cost Tata Steel Europe Rs. 244 crore in earnings before interest and tax (EBIT) and Rs. 742 crore in operating cash flows during the quarter. Despite the reported losses, Tata Steel Europe generated substantial operating cash flows in the quarter through tight working capital and spend management.