Tata Steel's Global CEO & MD Narendran has said that the focus in Europe is to generate cash flow
Despite receiving interest from potential partners for its European business, Tata Steel is not talking to anyone. The company is, instead, focusing to run a cash positive business in Europe and shed the latter's dependence on Indian operations, said a top executive.
"There are people who are interested, but we are not talking to anyone. We don't want to distract the management from the current focus," Tata Steel's Global MD & CEO TV Narendran told Moneycontrol.
That is a change in the stance of the largest Indian steelmaker, after it initially hinted that - in the aftermath of the collapsed JV with thyssenkrupp - it might look for a new partner.
The proposed JV, which would have merged the European steel businesses of Tata Steel and thyssenkrupp, was dropped after the regulators blocked it due to concerns over its impact on competition in the local industry.
Engaging with a new partner, explained Narendran, would have taken time and distracted the management from ensuring a cash positive business. "We are taking next two years to focus on the business, and then we will see as things go along," said the senior executive.
This is also significant because Tata Steel Europe has just undergone a change in its leadership. Henrik Adam has taken over as the CEO of Tata Steel Europe, replacing Hans Fischer. Adam will report to Narendran.
Collapse of the JV was seen as a serious setback for Tata Steel's plan to stabilise the European business, which has suffered under a prolonged demand slump in the continent and high operating costs.
Analysts have also pointed out that the demand from the auto sector, a key client for Tata Steel Europe, may further slide later in the year. The market conditions have also forced ArcelorMittal, the largest steelmaker in the world, to cut production in its European units.
But, Narendran reiterated that circumstances are now different for Tata Steel Europe.
"ArcelorMittal, which produces 46 million tons of steel a year in Europe, has cut production because it has multiple sites with different cost structures. When demand is low, you typically cut production in the high cost sites," said Narendran.
On the other hand, Tata Steel Europe, explained Narendran, has shed much of its weight. From four, Tata Steel Europe now has two major sites - one in the UK and another in the Netherlands. "Earlier, in Europe, we had 18 million tons of capacity. That is now down to 10 million tons a year. Specific to the UK, the capacity has come down from 11 million tons to three million tons a year," said Narendran.
Rationalisation in the UK was more important as the Netherlands unit is said to be among the most profitable ones in Europe.
The JV would have also helped in reducing Tata Steels' debt burden. The JV would have taken off $2 billion of debts off the shoulders of Tata Steel. The company has a total debt of $13 billion.
While that is not possible now, Narendran said that the company was still pursuing the target to reduce overall debt by $1 billion in FY19-20. The Global CEO & MD has said that the company is looking at options, including adjusting its capex needs, working capital, working on its portfolio and reducing costs; to lower the debt burden.
The talks with thyssenkrupp on the proposed JV had ticked off the workers unions, who were concerned about job losses after the merger.
"Unions, to be fair, will be tough," said Narendran.
"They are elected leaders. I always say that we are all selected, they are elected. We have to respect that."
He added: "The best way to secure jobs is to make sure that the company is profitable. So, we are on the same page on that. But we may have a different view on how to make it profitable, but both of us want the business to prosper."
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