Liberty House expects a leg up from Tata Steel's specialty biz

Tata Steel on Thursday sold its speciality steel business to Liberty House for £100 million.Happy with the deal, Sanjeev Gupta, Executive Chairman, Liberty House Group said the Tata Steel specialty business would immediately give them outlet to recycle domestic scrap, adding that the Rotherham facility is the most significant one.However, going forward he is cautious on steel prices due to oversupply -- businesses that are dependent on raw material imports and not integrated businesses which have their own mines. Recycling businesses in the US and UK are good too, he adds.Bimlendra Jha, CEO, Tata Steel UK said the funds from the sale would be utilised in a manner that is most appropriate, specifying that debt reduction is a more complex matter and he would not dwell into that now.According to him, the trajectory for the business currently is that they are close to breakeven and so going forward there would be no loss from this business.Last year they lost close to 70-80 million pounds on speciality business but the current run rate has improved and covered more than 75 percent of that gap.Jha also spoke about the revised pension plans at the Port Blair and Netherlands-based facilities.Below is the verbatim transcript of the discussion. Q: How much loss were you making from this particular facility and how much capacity were you working at. What is the benefit really coming to the table with this deal? Jha: First of all, I need to correct your previous number you said, speciality steel is sold for 1 million pound; it is not. It is sold for 100 million pound. Having corrected that number, last year we were losing almost 70-80 million pound on speciality business and our current run rate has improved significantly from there and we have covered more than 75 percent of that gap. The business is already on an improving track, there has been a big transformation exercise done just like the way we did it for long products before we sold it to British Steel and you can see that the business has become positive in British Steel on the back of the transformation work. Same exercise has been done now and therefore what is currently available is not what is to be seen as current performance, but the trajectory of that performance and the improvement that is already making it coming very close to break-even. Q: 100 million pound is the kind of benefit that is coming on the table for you, for Tata Steel with this particular sale, so, that could be utilised for debt reduction in UK as well? Jha: It will be utilised in a manner that is most appropriate because there will be elements of the working capital, etc. that is to be paid. So, all that will be part of the details of the work as and when that happens. Perhaps the debt reduction is a more complex exercise and I would not be able to deal with that subject right now. Q: Did you give us a number on how much loss is going to happen because of this sale? Jha: What I said was that we are now very close to break-even but that is a trajectory where we are. So, going forward, there is no loss that will come from this business. Q: Taking it forward, Port Talbot as well as the Ijmuiden facility, Netherlands-based facility, they are also remaining in your European operations, so, currently how is the pension plan, the ballot process for the revised pension plan going on and how much time before we come to a resolution on the pension front so that other processes can go forward? Jha: In this one, as you would know that we have had couple of years of this announcement that we want to focus more on the strip business and the transformation of the business and the restructuring of the portfolio has meant that we are finding safe homes and a better future for those businesses which would not remain with Tata Steel. However, as you have rightly pointed out that the business that remains with Tata Steel also remains with the liability of the pension and the risk associated with it. We had already announced the stoppage of the future accrual as an agreement between ourselves and the trade union and the ballot process is on. As soon as the ballot results are available to us in the near future, we can take the next step forward to then take the necessary steps that are required to close the future accruals to British Steel pension scheme and yet have a good resolution from employees point of view that whatever they have earned in the past is not destroyed by falling into PPF or something. Q: By the end of this month that resolution could be expected from the ballot process? Jha: It is a complicated process and therefore one month is a small time. However, it is as soon as possible. Q: Post that then there is a glimmer of hope that your Thyssenkrupp merger process would also pick up speed. So, how much timeline are you giving now with all this really falling into place for that merger to finally happen? Jha: You know that each step is an enabling step towards a better future for Tata Steel UK and that is what we are focused on. At this moment we have cleaned up the portfolio in a manner or that is not yet cleaned up because this speciality deal itself is subject to some regulatory clearances, etc. So, while we have reached a definitive agreement, there is still some time before even this business actually changes hands. So, similarly, there are other issues that are yet to be resolved including pensions as we have been discussing and as soon as we are able to secure the future for the Tata Steel UK business as a stronger partner within the Tata Steel Europe, then we decide on the future as to what is the best outcome for everybody. Q: Is a separate sale of Port Talbot plant now off the table? Will it be bundled up with your Netherlands facility for the ThyssenKrupp deal? Jha: Tata Steel Europe is one company and we operate as one company. We have only been correcting our portfolio to the extent that what is not strip business and therefore not core to our future plans, is where we are finding safe homes. This entire discussion is about that. So, I do not understand this part that whether it will bundled up because it is one company. Q: If you could give a little more clarity on the timeline, whether in the first half of this calendar year we can look at some sort of a resolution and that deal really fructifying or are you looking at a longer period? Jha: In the matters of mergers and acquisitions nothing is done till it is completely done and the timelines are never predictable. We are not speculating around any one of those subjects. So, rather than speculating on that, what we are focusing on is the strengthening of the core businesses and also strengthening those businesses that we are finding new safe homes for. Q: What is it that you are going to do with that business to make it profit making which Tata Steel couldn’t do? Gupta: I don’t want to speculate on what Tata Steel didn’t do. What I would talk about is how it fits into our business. Our business basically as we have stated quite publically is about creating a green steel strategy in the UK. UK is exporter of 70-80 percent of its scrap. It is the highest per capita exporter of scarp in the developed world. This availability of scrap is going to double in the next decade. So, from 10 million tonnes we go to 20 million tonnes of availability of scarp. We have an accumulated 800 million tonnes of steel in the UK economy which all has to eventually be recycled and it is coming to the end of its cycle. So, we have embarked upon a very clear strategy which is based on recycling. Within the recycling space in the UK, there are only a couple of assets which are significant and one the most significant one is Tata Speciality’s assets in Rotherham. So, that is one cornerstone in terms of our strategy is that it gives us an immediate access and immediate application to our green steel strategy where we can recycle domestic scrap. We have already launched Liberty Metal Recycling shortwhile ago where it is about collecting and processing scrap to the highest standard possible. This gives us an outlet for that. The other side of it is that the products which this business makes are amongst the highest products you can make. Prices of some of the special steels they make can fetch USD 20000-30000 per tonne and that goes into the most exacting applications, it goes into example landing gear for aircrafts, it goes into some very exacting applications. It is a very high value added product and that fits in perfectly with our engineering business. We are now the largest private owned engineering business in the UK. We supply to every OEM auto producer in the country. We are significant supplier to JLR, Renault, to every car producer you can think of and that gives us a very nice positioning towards strengthening our position with them. For us it is a great acquisition and we are very happy and proud of completing this or at least reaching an agreement to complete it. Q: A quick word on the steel cycle and the pricing scenario, how do you see it from now? Gupta: In general I am still very cautious. The world has not changed from last few years. We are still in same over capacity situation as we were last year. The production is still the same. So, there is no reason why we should feel comfortable with steel today. These things have a habit of coming to bite you unless something changes fundamentally which I don’t see happening for the next few years. When I say steel business, I am very cautious on steel businesses which are dependent on raw material imports. Integrated businesses which have their own mining are good and recycling businesses in the west like in America or the UK are also very good.