OREANDA-NEWS. August 17, 2011. Tata Steel Limited declared Consolidated Financial Results for the quarter ended June 30, 2011.

Group Performance Highlights:

•           Tata Steel Group recorded profit after tax of 5,347 crores (USD 1.2 billion) in Q1 FY'12, almost three times the profit of 1,825 crores (USD 408 million) recorded in Q1 FY'11.

•           Tata Steel Group recorded EBITDA of 8,358 crores (USD 1.9 billion) in Q1 FY'12 which included one-off gains of 4,007 crores (USD 896 million). The underlying EBITDA was 4,351 crores (USD 974 million) compared to the EBITDA recorded in Q1 FY'11 of 4,506 crores (USD 1 billion).

•           Group Revenue in the first quarter of 33,000 crores (USD 7.4 billion) was an increase of 21.4% over 27,194 crores (USD 6.1 billion) recorded in Q1 FY'11, due to higher average realisations and volumes. Group deliveries of 6.1 million tonnes in Q1 FY'12 were 3.1% higher than the deliveries of 5.9 million tonnes recorded in Q1 FY'11.

•           The Indian operations continued to perform strongly, with EBITDA of 3,656 crores (USD 818 million) and profit after tax of 2,219 crores (USD 497 million). The underlying EBITDA margin, excluding one-off gains of 511 crores (USD  114 million), was 40% in Q1 FY'12, 3.3 percentage points higher than the EBITDA margin of 36.7% in Q4 FY'11.

•           The European operations performed steadily on the strength of higher average realisations. EBITDA of 1,907 crores (USD  427 million) was 41.2% higher than the EBITDA recorded in Q1 FY'11 of H,351 crores (USD  302 million).

•           Net debt at the end of June 2011 of 40,824 crores (USD 9.13 billion) was lower than the 46,627 crores (USD 10.43 billion) recorded at the end of March'11.

•           The Company divested its stake in Riversdale Mining Limited (RML) for a consideration of 4,942 crores (USD 1,106 million). Following this stake sale, the Company continues to hold a 35% stake in Riversdale Energy (Mauritius) Limited, a project company currently developing the Benga coal tenement in Mozambique.

1. Financial Performance Analysis:

Consolidated Financial results summary (under Indian GAAP) for the quarter ending June 30, 2011

All figures in USD  mn, unless specified

HIGHLIGHTS

Q1 FY'12

Q4 FY'11

Q1 FY'11

Steel Deliveries (Mn tons)

6.1

6.6

5.9

Turnover

7,383

7,568

6,084

EBITDA

1,870

1,052

1,013

One-off Items

896

0

5

Underlying EBITDA

974

1,052

1,008

Underlying EBITDA Margin

13.2%

13.9%

16.6%

Depreciation

257

261

234

Net Finance Charges

165

171

134

Profit before Taxes (after Exceptional Items)

1,436

1,124

624

PBT Margin

19.4%

14.9%

10.3%

Profit after Taxes, Minority Interest and Share of Associates

1,196

934

408

PAT Margin

16.2%

12.3%

6.7%

For the purposes of converting all financial numbers to USD  for all comparable periods, a USD /f exchange rate of 44.695 has been used throughout this document.

Executive Comment

Tata Steel Managing Director Mr HM Nerurkar said: "Volumes and earnings from the Indian operations were robust despite signs of slower growth in India. Deliveries in Q1 rose 14% over the previous year on the back of successful marketing and collaboration with key customers on product development. We are continuing to consolidate the gains captured in recent quarters through our company-wide Continuous Improvement programmes, though high raw material prices and monetary tightening in India remain cause for concern. Our next expansion phase at Jamshedpur will start coming on stream in the last quarter of this financial year and the Odisha greenfield project is progressing well, with the first 3mtpa phase due for commissioning in 2014. In South East Asia we continue our efforts to improve performance through new product launches, cost reduction measures and operating initiatives."

Tata Steel Europe MD & CEO Dr Karl-Ulrich Kohler said: "Tata Steel followed up the exceptional March quarter by delivering an encouraging performance in April-June, even though the weakening of the European steel market, which affected our deliveries, was made worse by rising imports. European steelmakers also faced the challenge of sharp raw material cost increases, which have largely been maintained into this quarter, despite the uncertain economic outlook. We continued to work on our strategy of strengthening customer relationships and cost leadership, including initiating a process that is designed to turn around the performance of our Long Products business and return it to profitability."

2. Regional performance: India

Saleable steel production in Q1 FY'12 increased to 1.75 million tonnes, 10.0% higher than the 1.59 million tonnes in Q1 FY'11. Sales volume in Q1 FY'12 rose by 13.9% to 1.59 million tonnes compared to 1.40 million tonnes in Q1 FY'11.

Turnover in Q1 FY'12 at X7,860 crores (USD 1.76 billion) was 20% higher than the X6,551 crores (USD 1.47 billion) recorded in Q1 FY'11. Tata Steel's average realisations improved in India, despite steel prices softening in the spot market. EBITDA in the first quarter came in at X3,656 crores (USD 818 million), up 23.3% from XI,965 crores (USD 663 million) in Q1 FY'11. EBITDA included one-off gains of X511 crores (USD 114 million) from the sale of the Company's stake in Tata Refractories Limited. Excluding the one-off gains, underlying EBITDA at X3,145 crores (USD 704 million) was higher by 6.7% and 2.6% compared with the underlying EBITDA recorded in Q1 FY'11 and Q4 FY'11 respectively.

The Company continued to focus on value addition, with shipments to downstream units growing compared to the corresponding period of the previous year. The forthcoming brownfield expansion at the Jamshedpur plant is expected to provide impetus to the Company's earnings in the next financial year. The Odisha project is progressing smoothly and the first phase of 3mtpa is scheduled to be commissioned in 2014.

Operational improvements continued across the units, with new records established in hot metal, crude steel and bar mill production. Long and flat product sales volume increased 16% and 12% respectively over the volumes recorded in Q1 FY'11.

Europe

Liquid steel production in Q1 FY'12 at 3.81 million tonnes was 1.9% higher than the 3.73 million tonnes in Q1 FY'11. Sales volume at 3.50 million tonnes was 2.2% lower than in Q1 FY'11.

Turnover in Q1 FY'12 at X20,535 crores (USD 4.6 billion) was 20.5% higher than the X17,047 crores (USD 3.81 billion) registered in Q1 FY'11 on account of higher average realisations, partially offset by lower shipments. Despite higher raw materials costs, reported EBITDA at X1,907 crores (USD 427 million) was up 41.2% from X1,351 crores (USD 302 million) in Q1 FY'11. The reported EBITDA included X685 crores (USD 153 million) as a one-off gain from the TCP arbitration settlement. Underlying EBITDA (excluding this one-off gain) was X1,222 crores (USD 273 million).

The company achieved this result by continuing to refocus its organisation around customer requirements. The 108-metre long rail rolling mill at Hayange in France, which enhances the company's position in the high-speed rail market, has now been commissioned. Inroads were secured with automotive OEMs that included a supply contract for 34 of the 36 unique parts in a new UK model. At Zwijndrecht in the Netherlands the company is establishing a manufacturing and service centre facility to service the auto tube market. Meanwhile, the company is positioning itself to take advantage of the emerging offshore renewables market - one example being the opening of a plate profiling centre in Scunthorpe.

The company took action to address costs in its Long products hub in the light of continuing subdued construction activity. The restructuring proposal announced during the quarter led to the opening of a minimum 90-day consultation period with affected employees and union representatives. These consultations are continuing and are expected to conclude in the next few weeks. The proposal targets cost savings amounting to Ј130 million (USD 209 million) per annum.

The European steel market in Q1 FY'12 suffered disruption from higher imports as material ordered in anticipation of March quarter price rises began to arrive at ports. This softening of the market has been compounded by the Eurozone sovereign debt crisis and by forward economic indicators that are pointing to a manufacturing slowdown in Europe and North America. These factors are likely to influence performance in a subdued summer quarter, though continuing strength in most of the Asian economies should be positive for global steel demand and pricing. The narrowing of the price differential between Europe and Asia caused by the softening of the market in Europe also suggests that import pressure may ease in the latter part of the year.

South East Asia NatSteel Holding

Finished steel production increased 10.7% to 0.41 million tonnes in Q1 FY'12 compared to 0.37 million tonnes in Q1 FY'11. Deliveries in Q1 FY'12 at 0.46 million tonnes remained flat compared to deliveries in Q1 FY'11.

Turnover in Q1 FY'12 at 2,215 crores (USD 496 million) was up 27.1% from 1,742 crores (USD 390 million) in Q1 FY'11. EBITDA recorded for Q1 FY'12 was 32 crores (USD 7 million), down from EBITDA of 94 crores (USD 21 million) in Q1 FY'11 due to a decline in the scrap/rebar price spread and an increase in electricity costs.

Tata Steel Thailand

Finished steel production and deliveries at 0.33 million tonnes each in Q1 FY'12 was 7.6% higher than the 0.30 million tonnes recorded for production and deliveries in Q1 FY'11.

Turnover at H,116 crores (USD 250 million) in Q1 FY'12 was up 28.0% from the 872 crores (USD 195 million) recorded in Q1 FY'11. EBITDA in Q1 FY'12 at 57 crores (USD 13 million) was flat compared to 56 crores (USD 12 million) registered in Q1 FY'11.

The South East Asian operations are well placed to take advantage of the growing demand for steel in the region due to greater activity in the construction and infrastructure sectors. The Company is taking steps to introduce higher value branded products in the South East Asian region. This, coupled with cost reduction measures and improvements in operational parameters, is expected to improve performance in the coming quarters.

3. Corporate Developments:

a)         Sale of Stake in Tata Refractories Limited

Following the signing of definitive agreements to bring Krosaki Harima Corporation (KHC) of Japan in as a strategic partner in Tata Refractories Limited (TRL), Tata Steel Limited on May 31, 2011 completed the transfer of a 50.84% equity stake in TRL out of its 77.46% stake and received sale proceeds of 576 crores (USD 129 million).

b)         Sale of stake in Riversdale Mining Limited

Tata Steel accepted an offer from Rio Tinto to sell the Company's entire 26.27% stake in Riversdale Mining Limited (RML) for AUSD 16.50 per share under the takeover offer for RML. The consideration of 4,942 crores (USD 1,106 million) represents an appreciation in value of around 100% since the Company first invested in RML.

c)         TCP arbitration settlement

On January 5, 2011, Tata Steel UK Limited (TSUK) received a partial final award in its favour in an arbitration proceeding between TSUK and certain off-takers of the Teesside Cast Products business (TCP). Among other matters, the arbitral tribunal found that the off- takers did not validly terminate their off-take agreements. Following that partial final award, a commercial settlement to all disputes relating to the off-take agreements was reached and on June 21, 2011 the Company completed a full and final settlement of claims with the consortium of former off-takers. As a result of this settlement, Tata Steel has received an aggregate sum of 598 crores (USD 134 million).