Tata Steel has warned of ‘material uncertainty’ over the future of its UK steel business, citing tough trading conditions and a lack of clarity over government support to help it transition to more forms green steel fabrication.
The Indian group, which owns Britain’s biggest steelworks at Port Talbot in Wales, disclosed the warning in its financial results for the year to the end of March 2023.
The results show that earnings before interest, tax, depreciation and amortization at Tata Steel Europe, the subsidiary which includes the company’s UK and Dutch operations, fell 60% to £477m during the year. The company recorded a loss of £176 million in the last quarter of the year.
Although Tata Steel Europe’s statements have been prepared on a going concern basis by auditor PwC, there is significant uncertainty regarding its subsidiary Tata Steel UK, the company said in a note.
He said a stress test conducted by the board to assess the potential impact of the economic downturn found that while the European business was to have adequate liquidity under different scenarios, Tata Steel UK’s outlook was less. some.
The outlook was “to be adversely affected to meet its cash requirements and, therefore, its ability to continue as a going concern,” the company said.
Tata cited factors such as rising inflation and interest rates among external market risks as well as uncertainty over whether support from the UK government to help it decarbonise its operations would be adequate.
PwC said in its own earnings report that the UK firm had received letters of support from the group promising access to additional working capital as well as a promise to refinance or repay certain credit facilities set to expire in later in June 2024. However, as the letters were “given only as a comfort”, there was no certainty that the necessary funds would be made available.
This is not the first time that Tata has made such a harsh assessment of its UK operations. The company warned in 2020 that the coronavirus pandemic could threaten its ability to continue operating.
The industry is at the crossroads given the challenge of decarbonizing to meet tough climate targets and the warning will fuel concern among the company’s 8,000 UK employees, including around 4,000 in Wales.
The government has offered Tata Steel UK and British Steel, Britain’s second largest producer, aid of around £300m each. The sum is well below the estimated investment of more than £2bn that it will take for Tata to decarbonise its operations and below the billions offered to its European rivals.
Henrik Adam, chairman of Tata Steel UK, declined to comment specifically on the talks, but told the Financial Times steelmakers needed a “relatively certain guarantee that they will have a level playing field with their European rivals”. The industry, he said, was looking for certainty on the level of investment support as well as the cost of energy.
“I believe that having a manufacturing industry is at the heart of a modern economy. . . If you stop making steel in the UK why should the remaining manufacturers stay in the UK,” Adam added.
Tata Steel told the FT: “As Tata Steel UK starts the year at the bottom of the cycle with challenging market conditions…we ended 2022/23 with a positive cash balance and unused funding facilities.
He added: “We hope that this – together with specific actions to improve business performance – will ensure that we manage this downturn.”
The UK company recently embarked on a cost-cutting drive to save around £100million over the next six months.
Unions and opposition MPs have warned that the industry, which employs around 34,000 people, needs more support. Last year, crude steel production fell 17% to just 6 million tonnes, its lowest level since the Great Depression of the 1930s, according to industry trade body UK Steel.
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