Economy

Tata Steel warns future of its UK business in doubt


Tata Steel has warned of a “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 move to greener forms of steelmaking.

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 end March 2023.

The results show that earnings before interest, tax, depreciation and amortisation at Tata Steel Europe, the subsidiary that includes the company’s UK and Dutch operations, fell 60 per cent to £477mn in the year. The company posted a loss of £176mn in the final quarter of the year.

Although the statements for Tata Steel Europe have been prepared on a going concern basis by auditor PwC, there is material uncertainty in relation to its Tata Steel UK subsidiary, the company said in a note.

It said a stress test conducted by the board to assess the potential impact of the economic downturn found that while the European business was expected to have adequate liquidity under different scenarios, the outlook for Tata Steel UK was less certain.

The outlook was “expected to be adversely impacted towards meeting its liquidity requirements and accordingly with respect to its ability to continue as a going concern”, the company said.

Tata cited factors such as higher inflation and interest rates among the external market risks as well as uncertainty over whether UK government support to help it decarbonise its operations would be adequate.

PwC said in its own report on the results that the UK business 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 due to expire on or before June 2024. However, as the letters were “given by way of comfort only” there could be no certainty the funds required would be made available.

It is not the first time Tata has made such a stark assessment of its UK operations. The company warned in 2020 that the coronavirus pandemic could threaten its ability to carry on operating.

The industry is at a crossroads given the challenge to decarbonise to meet tough climate targets and the warning will fuel concern among the company’s 8,000-strong UK workforce, including about 4,000 in Wales.

The government has offered Tata Steel UK and British Steel, Britain’s second-largest producer, about £300mn each in aid. The sum is far less than the estimated £2bn-plus investment it will take Tata to decarbonise its operations and less than the billions offered to European rivals.

Henrik Adam, chair of Tata Steel UK, declined to comment specifically on the talks, but told the Financial Times that steelmakers needed a “relatively safe guarantee that they will have a level playing field with European competitors”. The industry, he said, was looking for certainty on the level of support for investment as well as on the cost of energy.

“I believe that having a manufacturing industry is a core 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: “While 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 unutilised financing facilities.” 

It added: “We are expecting that this — along with specific actions to improve business performance — will ensure that we manage this period of downturn.”

The UK business recently embarked on a cost-saving drive to save about £100mn over the next six months.

Unions and opposition MPs have warned that the industry, which employs about 34,000 people, needs more support. Last year, crude steel production slumped 17 per cent to just 6mn tonnes, its lowest level since the Great Depression of the 1930s, according to the industry’s trade body UK Steel.



Source link

Leave a Response