Tata Steel Limited today declared Unaudited Consolidated Group Financial Results for the first half (H1) and second quarter (Q2) ending September 30, 2009.

Group Performance Highlights:

• Improving market conditions in the second quarter were demonstrated by total Group steel deliveries rising 17% to 6.22 million tonnes from 5.34 million tonnes in Q1 FY’10 and by a 9% rise in Group consolidated turnover (net sales plus other operating income) to Rs. 25,395 crores (US$ 5,280 million).
• The worst of the downturn is in the past and Tata Steel Europe (TSE) moved into positive EBITDA at the start of the third quarter. The cost-saving benefits achieved in the first half from the ‘Weathering The Storm’ and ‘Fit For The Future’ programmes at TSE totalled around Rs. 3,750 crores (US$ 780 million) and the target of realising savings of more than GBP 1 billion this financial year is on track.
• Despite the worst trading period for generations, the Group recorded profits on a consolidated EBITDA basis throughout the first half, doubling profits in Q2 FY’10 to Rs. 402 crores (US$ 84 million) from Rs. 204 crores (US$ 42 million) in Q1 FY’10. The Q2 figures in particular were lower than they would otherwise have been because of a number of one-off considerations.
• The Group continues to enjoy a strong liquidity position (including undrawn credit lines) of Rs. 17,893 crores (US$ 3,720 million) as of the end of September 2009, and tight working capital management across all geographies. The Group’s net debt at the end of September 2009 stood at Rs. 50,745 crores (US$ 10,550 million).

Executive Comment

Tata Steel Group Vice-Chairman Mr. B. Muthuraman said: “The economic crisis has affected Tata Steel’s operations as much as those of any other major world steel company, but this should not be allowed to obscure the fact that the long-term fundamentals for the steel industry remain good. Emerging economies continue to require more and more basic materials such as steel, and steel companies that harness the best in global technology will reap the most benefit from this growth. I take comfort from the fact that rigorous management of working capital and expenditure has led to the outlook for our operations and for our financial performance being much brighter now than they were just a few months ago.”

Tata Steel Europe MD & CEO Mr. Kirby Adams said: “We took timely action during the exceptionally difficult first-half trading period, and I am pleased to report that the second half of this financial year will look entirely different. Revenues will be higher, costs lower, restructuring charges fewer and the position of Teesside Cast Products resolved. We are on track to realise more than £1 billion in cost savings this year, and because of that we are also on track to meet our H2 financial targets. Steel demand in Europe and North America started to recover from exceptionally low levels during Q2. While we expect that trend to continue, the recovery remains fragile, particularly in the UK and in construction markets. But we believe that we are now over the worst in Europe and can look forward to a return to positive financial performance.”

Tata Steel MD Mr. Hemant Nerurkar said: “Increased capacity in India enabled the Group to take advantage of continuing demand growth. Our plans are on course to raise capacity at Jamshedpur by almost 50% in the next two years, so we are in a better position than any other global steelmaker to benefit from Indian steel demand, which from next year is expected to start growing faster than in any other major emerging economy. When the Jamshedpur expansion is complete, low-cost production in India will move up from less than 18% of the Group total at the time of the Corus acquisition to at least a third. We are continuing to invest in other fast-growing regions, such as South East Asia, where the Group is also strongly positioned.”

Financial Performance Analysis:

Consolidated financial results summary (under Indian GAAP) for the six months ending September 2009

Notes:

1. The actuarial gains and losses on funds for employee benefits (pension plans) of Tata Steel Europe Limited for the period from April 1, 2008 have been accounted in “Reserves and Surplus” in the consolidated financial statements in accordance with IFRS principles and permitted by Accounting Standard 21. This treatment is consistent with the accounting principles followed by Tata Steel Europe and earlier by Corus Group plc. under IFRS. Had the company recognised changes in actuarial valuations of pension plans of Tata Steel Europe in the profit and loss account, the consolidated loss after taxes, minority interest and share of profit of associates for the six months ended September 30, 2009 would have been higher by Rs. 2,282.54 crores (Rs. 135.44 crores for the quarter) and the consolidated profit after taxes, minority interest and share of profit of associates for the six-months ended September 30, 2008 would have been lower by Rs. 4,352.35 crores (higher by Rs. 1,156.02 crores for the quarter ended September 30, 2008).

2. The Company and its Indian subsidiaries have adopted the Companies (Accounting Standards) Amendment Rules 2009 relating to Accounting Standard AS11 during the last quarter of 2008-09. Accordingly, an exchange translation gain of Rs. 23.86 crores (loss of Rs. 0.27 crores for the quarter) has been adjusted to the cost of capital assets during the six months ended September 30, 2009 and Rs. 10 crores (Rs. 6.08 crores for the quarter), being amortization of cumulative net loss, has been charged to the profit & loss account for the six months ended September 30, 2009. Had the Company and its Indian subsidiaries followed the previous practice of recognising the translation gain / loss in the profit & loss account, the consolidated loss after taxes, minority interest and share of profit of associates for the sixmonths ended September 30, 2009 would have been lower by Rs. 287.09 crores (Rs. 4.82 crores for the quarter).

3. The Company changed its accounting policy for the accounting of derivatives effective April 1, 2009, in the consolidated accounts. In the absence of any operative Indian Accounting Standard on the subject, changes in the fair value of outstanding derivative instruments designated as cash flow hedges against firm commitments and highly probable forecast transactions that were hitherto accounted for in the profit & loss account have now been accounted for in “Reserves & Surplus” in accordance with IFRS principles and the proposed Accounting Standard AS30. Had the Company not changed its policy, the consolidated loss after taxes, minority interest and share of profit of associates for the six months ended September 30, 2009 would have been higher by Rs. 459.01 crores (lower by Rs. 392.76 crores for the quarter).

4. The Company had issued Convertible Alternate Reference Securities (CARS) for an aggregate principal amount of US$ 875 mn in September 2007. The Company invited holders of the CARS to offer to exchange their holdings for 4.5% Convertible Bonds due in 2014. The offer closed on November 16, 2009 and Convertible Bonds worth US$ 546.94 mn were issued in exchange of CARS having face value of US$ 493 mn. The 4.5% Convertible Bonds are convertible at Rs. 605.5325 at US$/INR rate of 46.36 at any time on or after December 31, 2009 and up to the close of business on November 11, 2014. The aggregate principal amount of CARS remaining outstanding after this exchange is US$ 382 mn.

5. Tata Ryerson Limited became a wholly owned subsidiary of the Company during the current quarter.

6. Figures for the previous period have been regrouped and reclassified to conform to the classification of the current period, wherever necessary.

7. The above results were reviewed by the Audit Committee at its meeting on November 25, 2009 and were approved by the Board of Directors at its meeting on November 26, 2009.

Tata Steel Group

Overall Group sales volumes in Q2 FY’10 rose by 17% compared to Q1 FY’10, even though Q2 FY’10 sales volumes at Tata Steel India rose by a more modest 3% in the same period. Average prices improved at all Group operations in Q2 compared to Q1. Partly as a result of this, even though the effects of high raw material costs lingered into the second quarter, the Group posted a positive EBITDA of Rs. 402 crores (US$ 84 million) in Q2 FY’10, up from Rs. 204 crores (US$ 42 million) in Q1 FY’10.

Tata Steel India

Turnover at Tata Steel India rose by 1% to Rs. 5,692 crores (US$ 1,183 million) in Q2 FY’10 compared to Q1 FY’10. EBITDA was up by 12% to Rs. 1,998 crores (US$ 415 million) in Q2 FY’10 in the comparable period.

Finished steel production at Tata Steel India for Q2 FY’10 was down by 1% to 1.52 million tonnes compared to Q1 FY’10. Sales volumes for Q2 FY’10 were up by 3% to 1.46 million tonnes in the same comparison.

During the first half Tata Steel India was recognised by the World Steel Association for demonstrating excellence in safety. The award acknowledged the total absence of injuries during the construction of the ‘H’ blast furnace at Jamshedpur.

Other highlights included the recommissioning of the ‘C’ blast furnace after a project in which its capacity was increased from 0.4 million to 0.7 million tpa. The project also led to the ‘C’ furnace becoming the first in the world to incorporate Gimbal Top Technology.

Tata Steel India’s domestic sales position was enhanced by the successful launch of earthquake-resistant ‘Fe500 D’ grade thermo-mechanically treated (TMT) rebar in the retail market. The Company also started supplying hydroformed tubes for the engine cradles of the new Tata Nano.

Tata Steel Europe

Turnover at Tata Steel Europe rose by 10% to Rs. 16,768 crores (US$ 3,486 million) in Q2 FY’10 compared to Q1 FY’10. EBITDA was up by 3% to a negative Rs. 1,802 crores (US$ 375 million) in Q2 FY’10 in the comparable period.

Liquid steel production at Tata Steel Europe for Q2 FY’10 rose by 40% to 3.96 million tonnes compared to Q1 FY’10. Steel deliveries for Q2 FY’10 were up by 24% to 3.92 million tonnes compared to Q1 FY’10.

The initiatives to restructure parts of the business and secure cost savings that began at the end of 2008 gathered pace during the first half of this financial year. ‘Weathering The Storm’ and ‘Fit For The Future’ accounted for a combined US$ 780 million in savings in the six months to the end of September, well on track to meet the target of £1billion (US$ 1.60 billion) for this financial year. These programmes have played a substantial part in the turnaround of the company’s financial performance that has been witnessed at the start of the third quarter.

Deteriorating market conditions in the April-June quarter led to the scope of the initiatives announced in January 2009 being extended, with a further 2,400 jobs identified as being at risk in the Long Products division.

The market turnaround that began in July enabled Tata Steel Europe to restart two of the three blast furnaces that had been temporarily idled. In September the company also brought the Llanwern hot strip mill back into temporary production.

The company’s H1 results were affected by several one-off factors. These included actions taken to restructure the business, especially in the UK. There was also an impact because of the absence in the UK of government-funded short-time work schemes. The competitive disadvantage UK steelmaking has consequently faced should dissipate as the recovery strengthens and the schemes wind up in Continental Europe.

The most significant one-off factor was the sudden withdrawal in April by a consortium of customers from a binding 10-year contract to buy slab from Teesside Cast Products. This decision left TCP wholly dependent on internal Corus orders for several months until new external business was generated. As a result TCP contributed as much as 35% of Tata Steel Europe’s EBITDA losses in the first half.

Efforts continue to secure the orderbook for TCP into the New Year, as well as to find a long-term solution for the Teesside site. But TCP’s present dependence on short-term orders is not sustainable. The possibility of mothballing the plant, which was first announced in May, will have to be put into effect if no long-term solution is secured early in 2010.

NatSteel

Turnover at NatSteel was higher by 19% to Rs. 2,900 crores (US$ 603 million) in Q2 FY’10 compared to Q1 FY’10. EBITDA was up by 140% to Rs. 99 crores (US$ 21 million) in Q2 FY’10 in the comparable period.

Finished steel production at NatSteel for Q2 FY’10 was higher by 20% to 0.46 million tonnes as compared to Q1 FY’10. Steel deliveries for Q2 FY’10 were up 26% to 0.68 million tonnes in the same comparison.

Tata Steel Thailand

Turnover at Tata Steel Thailand was higher by 28% to Rs. 817 crores (US$ 170 million) in Q2 FY’10 compared to Q1 FY’10. EBITDA was up by 1960% to Rs. 82 crores (US$ 17 million) in Q2 FY’10 in the comparable period.

Finished steel production at Tata Steel Thailand for Q2 FY’10 was higher by 17% to 0.31 million tonnes as compared to Q1 FY’10. Steel deliveries for Q2 FY’10 were up by 12% to 0.30 million tonnes in the same comparison.

Financing

During the first half of 2009-10 the Group raised US$ 1.54 billion (Rs. 7,414 crores) of new capital, through long-term debt amounting to US$ 1.04 billion (Rs. 4,993 crores) and the raising in July of USD 500 million (Rs. 2,421 crores) in equity through the issuance of Global Depositary Receipts on the London Stock Exchange. The capital raised has been deployed for reduction of debt of around US$ 1,062 million (Rs. 5,100 crores), of which an amount of US$ 160 million (Rs. 770 crores) has been prepaid in Tata Steel Europe, pre/repayment of debt in Tata Steel Limited of US$ 442 million (Rs. 2,125 crores), funding of capital expenditure plans for the expansion of capacity at Jamshedpur to 10 million tonnes per annum and for investment in global raw material projects. Net financing charges for the first half of FY’10 were around US$ 332 million (Rs. 1,599 crores) compared to US$ 342 million (Rs. 1,645 crores) in the first half of FY’09 due to capital initiatives in Europe and India. The Company continues to have a significant liquidity buffer of over US$ 3 billion (including undrawn lines) as of September 30, 2009 across the four entities of Tata Steel, in Europe, India and South East Asia. This has been achieved through savings being realised from tighter spend and working capital management.

As part of the Company’s long-term financial strategy, on November 11, 2009, the Company launched an exchange offer of new foreign currency convertible bonds for any or all of the existing US$ 875 million Convertible Alternative Reference Securities due 2012 (the “CARS”). Under the exchange offer the Company invited holders of the CARS to offer to exchange any or all of their CARS for new foreign currency convertible bonds, which have a coupon (and yield to maturity) of 4.5%, maturing on November 21, 2014 and are convertible into fully paid up ordinary shares of the Company at Rs. 605.5325 per share at a fixed exchange rate of Rs. 46.36 = US$ 1.00. Settlement of the exchange offer took place on November 20, 2009. The aggregate principal amount of CARS accepted by the Company for exchange was US$ 493 million. The aggregate principal amount of new bonds issued by the Company in exchange was US$ 546.94 million.

As a result of the CARS transaction the Company has been able to reduce its overall finance charges and also to enhance the tenure of the instrument by another two years since the new foreign currency convertible bonds will be due for payments (if not converted) in 2014. The Company will continue to look at market opportunities for further deleveraging options.

3. M&A Activity / Raw Materials Strategy

The Company continued in the first half to implement its long-term strategy to secure ownership of assets that will increase its raw materials security.

• Tata Steel crossed important milestones in the development of its Mozambique Coal Project. A feasibility study has been completed, following which the Company approved the investment for stage one of the project, a step that which will pave the way for committing to project construction.
• In October 2009 Tata Steel signed an Addendum to the Joint Venture Agreement with Cote d’Ivoire’s state mining company, Sodemi, regarding their joint iron ore mining project in the country. The JVA amendment brings the Mount Gao deposits within the ambit of the Joint Venture.
• Tata Steel entered into an agreement with MMTC Limited to establish a joint venture company for the acquisition, development and operation of mines and the processing of minerals and metals. Tata Steel will hold a 74% stake in the joint venture and the balance will be held by MMTC.
• In November 2009 Tata Steel also signed a Joint Venture Agreement with New Millennium Capital Corporation (NML) relating to NML’s Direct Shipping Ore Project in Canada. Should the feasibility study lead to a decision to proceed with the project, Tata Steel will take up an 80% stake in the project.

Disclaimer

Statements in this press release describing the Company’s performance may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include, among others, economic conditions affecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws and other statutes and incidental factors.