Tata Steel Limited · NSE:TATASTEEL
Tata Steel — Q2 FY2010 Earnings Presentation
55 slides from Tata Steel's earnings presentation, Nov 26, 2009
Slide 1: Consolidated Financial Results Quarter Ended September 2009
C Consolidated lid t d Fi Financial i lRResults lt Quarter Ended September 2009 Analyst Meet – Mumbai November 26 , 2009 1
Slide 2: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & South East Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ B
Slide 3: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & South East Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ B
Slide 4: Global steel production and growth
Ex- China Steel Production & Growth ¾ Apparent A steell usage iis expected d to d decline li 8.6% YoY in 2009 but estimated to increase in 2010 by around 9% ¾ Brazil, India, China & Middle East are the Chinese Steel Production & Growth drivers of global demand recovery ¾ Global recovery has begun bu
Slide 5: Regional steel market conditions
¾ Europe • Manufacturing output stabilizing at low levels • Construction sector and its funding are still depressed • St l iindustrial Steel d t i l orders d rising, i i lleading di tto hi higher h capacity it utilization tili ti • Steel stocks are low throughout the value chain • Recovery in end us
Slide 6: China indicators
Fixed Asset Investment (YoY % Growth) Industrial Production ( real) (YoY % Growth) % % Average Capacity Utilization rate of top 20 mills Monthly Steel Exports 6 Source: Nomura & CLSA
Slide 7: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & South East Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ B
Slide 8: Tata Steel Europe key performance indicators
Q1 Q2 H1 H1 H1 FY2010 vs FY2010 FY2010 FY2010 FY2009 H1 FY2009 Safety – Lost time injuries (LTIF – 1.5 1.4 1.5 1.9 21% employees & contractors) Capacity Utilization (%) – Inc TCP 56 78 67 100 33% Capacity Utilization (%) – Ex TCP 53 75 64 100 36% Li id steel Liquid t l production d ti ((mt) t) 28 2.
Slide 9: Revenue and tonnage decline H1 FY10 vs H1 FY09
H1 FY10 vs. H1 FY09 Revenue Collapse : 51% Tonnage Fall :41% 1300 1200 1,138 verage Price (US$) 1100 1000 900 938 800 700 600 Av H1 FY2010 H1 FY2009 500 Turnover : US$ 6.7 Bn Turnover : US$ 13.7 Bn 400 300 200 100 7.1 12 1 2 3 4 5 6 7 8 9 10 11 12 13 Deliveries (Mn t) 9
Slide 10: Tata Steel Europe division performance and EBITDA trend
Strip Products Long Products ** Distribution & Building*** 1.8 1.6 1,200 1 0.90 1,200 1.2 1,200 1.6 0.9 0.80 1.0 1,000 1,000 1.0 0.95 1,000 1.4 0.8 1.2 1.2 800 0.7 0.77 800 0.8 0.9 800 1.2 0.6 1 600 0.5 600 0.6 600 0.8 0.4 0.6 400 0.3 400 0.4 400 0.4 0.2 200 200 0.2 200 0.2 0.1 0 ‐ 0 ‐ 0.0 ‐ Q4 FY09
Slide 11: Capacity utilization and blast furnace restarts
90% 75% 80% ¾ IJmuiden Blast Furnace reignited 70% in July’09 60% 54% 53% 50% ¾ Port Talbot Blast Furnace 40% reignited in Oct’09 30% 20% ¾ Llanwern rolling facilities 10% temporarily restarted in July – Sep’09 0% Q4 FY09 Q1 FY10 Q2 FY10 Year End capacity y utilization likely y to continue at simila
Slide 12: Teesside Cast Products update
¾ Long term off takers unilaterally terminated 10 year contract in April 2009 ¾ Two potential buyers of TCP cancelled MOU in June 2009 ¾ Tata Steel Europe immediately exposed to over 3mt of slabs to sell in depressed market with high raw material carry – over costs ¾ Arbitration and legal proceeding
Slide 13: One Company strategy and supply chain transformation
¾ New “One Company” strategy: Intention to operate TS Europe as one integrated manufacturing and sales organization with group-wide functions and renewed market / customer focus ¾ Rebranding of Corus to Tata Steel Europe in April – June 2010 quarter ¾ Supply Chain Transformation A multi year plan
Slide 14: Division initiatives
¾ Strip Product Division “Sprint to Success Programme” commitment targets fast and structural result improvement commencing Q4 FY2010 Work streams defined defined, manned up and identified to save additional US$ 300 Mn p.a pa Product mix enrichment, new products development and launch Lower
Slide 15: Fit For Future programme status
‘Fit For Future I’ Launched in January 2009; ‘Fit For Future II’ launched in June 2009 Status Update Asset 9 Restructured Engineering Steels in Rotherham to Restructuring produce higher margin specialty products Ongoing 9 MOU for 51/49 JV with Tata Power for IJmuiden Power Completed Plant Improving
Slide 16: Total employees at Tata Steel Europe
Total Employees y at Tata Steel Europe 43,000 42,400 42,000 42,000 40 900 40,900 41,000 40,100 40,000 39,000 38,200 38 000 38,000 37,000 36,300 36,000 35,000 34,000 33,000 Sep'08 Dec'08 Mar'09 June'09 Sep'09 Mar'10E Targeted Headcount reduction under Fit for Future progressing as per plan except in
Slide 17: One-off items and Short Time Working impact
USD Mn 800 Other , 10% 738 701 700 One off Items, 10% 600 500 Logistics , 4% 441 400 Manufacturing, 300 p y Employment , 55% 21% 200 100 ‐ Q3 FY09 Q4 FY09 H1 FY10 Lack of “Short Time Working” arrangements in UK severely damaged UK’s relative performance in H1 17
Slide 18: 2010 apparent steel use
2010 Apparent Steel Use (Y/Y % chg) IIn 2010 WSA has h forecasted f t d that th t global l b l demand d d returns t to t positive iti growth, th albeit lb it ffrom llow llevels l iin many markets ; China and India to grow further to record levels of demand ; US & Europe to remain at low levels with
Slide 19: Tata Steel Europe H2 outlook
¾ Adverse HI Impact of Teesside, minimized as operated at profit or mothballed ¾ Reduction in average raw material cost per tonne of liquid steel on new benchmark rates of iron ore and coal feeding through product costs in H2 ¾ Higher volume and capacity utilization in Strip Division ¾ Construction
Slide 20: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & South East Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ B
Slide 21: Tata Steel India key performance indicators
Q1 Q2 H1 H1 H1 FY2010 vs. FY2010 FY2010 FY2010 FY2009 H1 FY2009 Safety – Lost time injuries (LTIF – 0.54 0.59 0.59 1.13 48% employees & contractors) Capacity Utilization (%) 88 96 92 104 12% Crude steel production (mt) 1 50 1.50 1 64 1.64 3 14 3.14 2 61 2.61 20% Steel deliveries (mt) 1.42 1.46 2.88
Slide 22: Flat and long products; EBITDA trend
Flat Products Long Products 800 735 1.08 1.20 700 0.70 0.80 635 580 0.66 700 615 1.00 600 0.70 600 0.85 0.79 651 500 0.48 535 545 0.60 557 0.80 0.57 500 0.59 0.50 400 400 0.60 0.40 300 300 0.30 0.40 200 200 0.20 0.20 100 100 0.10 0 0.00 0 0.00 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY09 Q4 FY09 Q1 FY10
Slide 23: Ferro alloys and minerals
16 1200 15 ¾ Restocking in auto & appliance sector 967 14 1045 1000 leads to increased global stainless steel 12 816 12 demand 800 10 ¾ Net Operating profit in FAMD 8 600 increased to US$ 15 Mn in Q2 FY10 6 from US$ 4 Mn in Q1 FY10 4 349 400 307 4 309 ¾ TSKZN is currently operating at full 200 2 cap
Slide 24: Imported coal cost
Average Imported Coal cost ¾ Decline in cost of imported coal in Q2 ( US$ / Ton of Dry Coal) 300 over Q1 was a result of renegotiation of last 260 249 250 218 year’s contract 200 ¾ Further lowering of imported coal costs 150 expected in Q3 100 50 0 Q4 FY09 Q1 FY10 Q2 FY10 24
Slide 25: Brands, products and market reach
¾ New Brand • GALVANO – Zero Spangle GP Brand launched first time in India for Appliance, Bus-body & Ducting segment ¾ New P N Product d t • Introduced new ULTIMA – An aesthetic Roofing Solution for Rural Customers • Tata TISCON – The first brand in INDIA to introduce 500 D – a pure steel rebar ¾ Ma
Slide 26: Improvement initiatives and savings
US$ Mn FY10 Target > Break up of Savings achieved in FY’10 through US$ 208 M Mn improvement initiatives: 140 11 120 107 119 11 11 100 9 89 80 13 5 60 98 108 40 76 20 ‐ 93 FY2008 FY2009 FY2010E Process Improvement Synergy Aspire TOC Marketing Initiatives Synergy Initiatives resulting in Savings ¾ Raw
Slide 27: Nat Steel and Tata Steel Thailand production and deliveries
Nat Steel Finished Steel Production (Mt) 0.8 Deliveries (Mt) 0.50 0.46 07 0.7 0.7 0.45 0.40 0.38 0.6 0.33 0.5 0.35 0.5 0.30 0.4 04 0.4 0.25 0.20 0.3 0.15 0.2 0.10 0.1 0 05 0.05 0 0.00 Q4 FY09 Q1 FY10 Q2 FY10 Q4 FY09 Q1 FY10 Q2 FY10 Tata Steel Thailand 0.35 Crude Steel Production (Mt) Deliveries (Mt)
Slide 28: Capacity utilization at Nat Steel and Tata Steel Thailand
Nat Steel (Singapore) Rolling Mill Wires 120% 93% 105% 100% 91% 90% 95% 95% 90% 100% 87% 89% 74% 84% 80% 80% 70% 60% 60% 58% 60% 50% 40% 40% 30% 20% 20% 10% 0% 0% Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Tata Steel Thailand Steel Production Roll
Slide 29: Rebar and scrap price spread
US$/Ton 1200 1000 800 600 Selling Price Rebar Scrap 400 Spread : US$ 279 /t Scrap Price 200 0 ESTIMATED Apr'08 May'08 Jun'08 Jul'08 Aug'08 Sep'08 Oct'08 Nov'08 Dec'08 Jan'09 Feb'09 Mar'09 Apr'09 May'09 Jun'09 Jul'09 Aug'09 Sep'09 Selling Price Scrap Price 29
Slide 30: India and South East Asia outlook
¾ Focus on higher volumes in H2 FY10 across India & SE Asia ¾ Lower cost of production on account of lower price of imported coal & declining scrap prices ¾ Performance Improvement measures in India to exceed the benefits realized in H1 FY10 ¾ Rebound in regional economies to positively impact const
Slide 31: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & South East Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ B
Slide 32: Orissa greenfield project progress
¾ Land 3,400 acres of land acquired and compensation paid ¾ Rehabilitation & Resettlement 70% families shifted to rehabilitation colonies Work to relocate the balance people is moving full steam ahead ¾ Site Progress Incoming Material Section construction work in progress Intake Well for s
Slide 33: Benga coal project, Mozambique
¾ Government of Mozambique has approved the mining contract ¾ Feasibility study completed by JV partners for Benga Project ¾ Alternate options on low cost transportation being evaluated ¾ Riversdale and Tata Steel have approved development of Benga Stage 1 at a cost of $ 270 Mn ¾ Production is likel
Slide 34: Canada iron ore DSO project JV
¾ Signed g JV Agreement g for the DSO p project j ¾ Estimated reserves of over 100mn tons of direct shipping quality ore ¾ 100% offtake rights ¾ Feasibility study for the DSO project underway ¾ Expected production of 4mn tons per annum of iron ore from May 2011 ¾ Project j cost estimate of C$300 mil
Slide 35: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & South East Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ B
Slide 36: Consolidated deliveries, turnover, EBITDA and PAT
7 7,000 US$ Mn 6.2 5.9 Deliveries (Mt) 5,833 , Turnover 6 6 000 6,000 5.3 5,280 4,842 5 5,000 4 4,000 3 3,000 2 2,000 1 1,000 0 ‐ Q4 FY09 Q1 FY10 Q2 FY10 Q4 FY09 Q1 FY10 Q2 FY10 Underlying EBITDA Underlying PAT * 300 279 400 254 300 250 200 200 100 0 150 ‐100 Q4 FY09 Q1 FY10 Q2 FY10 92 ‐200 ‐20 100
Slide 37: Q2 FY10 results by segment
US $ Mn Tata TS NSH* TSTH Tata Steel Steel Europe Group** Deliveries (mt ) 15 1.5 39 3.9 07 0.7 03 0.3 62 6.2 Turnover 1,183 3,486 371 170 5,280 EBITDA – Reported 415 (375) 20 17 84 – Underlying 415 (205) 20 17 254 EBITDA margin (%) 35 - 5 10 2 PBT – Reported 281 (802) 9 9 (497) – Underlying 281 (44
Slide 38: Q2 FY10 reported to underlying earnings
US$ Mn Q2 FY FY’10 10 EBITDA PBT PAT Q2 Q1 Q2 Q1 Q2 Q1 FY10 FY10 FY10 FY10 FY10 FY10 Numbers as Reported 84 42 (497) (419) (563) (459) Add: Adverse Impact of Teesside Cast Products 170 50 170 50 170 50 Restructuring ,Impairment & Disposals - - 189 45 189 45 Underlying Earnings 254 92 (138) (324) (20
Slide 39: EBITDA bridge Q1 to Q2 FY10
India and South East Asia Europe US$ mn 63 236 170 254 14 9 71 84 23 (229) 136 42 (40) (37) (9) (196) Q1 FY10 Prices Cost Vol/Mix Perf Perf. Ferro Other Prices Cost Vol/Mix Perf Perf. Other Others* Others Q2 FY10 TCP Q2 FY10 Reported Impr. Alloys Inc/Exps Impr. Inc/Exps Reported Impact Underlying 39
Slide 40: H1 FY10 results by segment
US $ Mn Tata TS NSH* TSTH Tata Steel Steel Europe Group** Deliveries (mt ) 2.9 7.1 1.2 0.6 11.6 Turnover 2 351 2,351 6 652 6,652 663 302 10 122 10,122 EBITDA – Reported 787 (760) 28 18 126 – Underlying 787 (540) 28 18 346 EBITDA margin i (%) 33 - 4 6 1 PBT – Reported 529 (1,493) 12 3 (916) – Underly
Slide 41: H1 FY10 reported to underlying earnings
US$ Mn H1 FY’10 FY 10 EBITDA PBT PAT H1 H1 H1 H1 H1 H1 FY10 FY09 FY10 FY09 FY10 FY09 Numbers as Reported 126 3,273 (916) 2,241 (1,022) 1,803 Add: Adverse Impact of Teesside Cast Products 220 - 220 - 220 - Restructuring ,Impairment & Disposals - - 235 76 235 76 Exchange Loss - - - 135 - 135 Underlyin
Slide 42: EBITDA bridge H1 FY09 to H1 FY10
India and South East Asia Europe US$ mn 3273 124 121 47 217 (203) (979) 309 (1429) 560 220 346 68 126 (288) (1694) H1 FY09 Prices Cost Vol/Mix Perf. Ferro Other Prices Cost Vol/Mix Perf. Other Others* H1 FY10 TCP H1 FY10 Reported Impr. Alloys Inc/Exps Impr. Inc/Exps Reported Impact Underlying 42 * O
Slide 43: Working capital by region
Tata Steel India US$ Mn Tata Steel Europe 600 596 586 565 0.80 3,500 3,104 3.00 2,730 0.63 3,000 2,629 0.56 0.55 0.60 2,387 400 2,500 2,198 2,226 2,000 0.40 2.58 2.66 1,500 2.48 200 132 127 1,000 0.20 134 500 0 0.00 0 2.00 Q4 FY09 Q1 FY10 Q2 FY10 Q4 FY09 Q1 FY10 Q2 FY10 Nat Steel Tata Steel Thailand
Slide 44: Cash and undrawn lines
US $ Mn 4,000 3,543 3,602 3 500 3,500 2,893 3,000 1,320 1,377 2,500 1,012 2,000 1,500 1,000 , 2,223 2,225 1 881 1,881 500 ‐ Mar'09 Mar 09 June'09 June 09 Sep'09 Sep 09 Cash & Cash Equivalents Undrawn lines (*) Excludes other JVs, Subsidiaries & share of profit of Associates of the Tata Steel Group 4
Slide 45: Gross debt movement and net debt
US$ Mn 1,342 12,453 159 12,893 ( (1,062) ) 9,874 (2,343) (676 ) ‐ ‐ ‐ Gross Debts New Loans Repayments Reval. Impact Gross Debts Cash & Cash Hedge on Net Debts Mar‐09 Sep‐09 Eq Sep‐09 Foreign Sep‐09 Exchange Loans 45 * Cash and cash equivalents includes current investments
Slide 46: Tata Steel Europe term senior facility and working capital debt
Term Senior Facility Debt £Bn Working Capital Debt Undrawn Balance (%) 4.00 120% 3.19 0.72 3.29 3.50 0.62 100% 100% 3.00 100% 2.57 82% 2.50 80% 2.00 1.50 60% 52% 1.00 40% 0.50 0.00 20% Opening Repayments Underlying Foreign Closing 0% Balance @ Loan Exchange Balance @ D '08 Dec'08 M '09 Mar'09 J '09
Slide 47: Pension fund surplus and asset mix
Combined Surplus of all Tata Steel Europe Pension Funds BSPS Asset Mix US$ Mn 120% 2140 100% 1% 2% 3% 5% 2% 80% 51% 65% 68% 66% 64% 60% 986 6% 40% 595 561 4% 4% 531 5% 5% 20% 42% 26% 25% 28% 29% 0% Mar'07 Mar'08 Mar'09 Jun'09 Sep'09 Mar'07 Mar'08 Mar'09 Jun'09 Sep'09 Equities Real estate Bonds Cash
Slide 48: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & S.E Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ Business
Slide 49: Debt amortization and de-risking steps
Scheduled Debt Amortization vs. Post – Restructuring Repayments ¾ The company will seek to de-risk the balance sheet through a combination of: – Restructuring existing debts in order to reduce the risk of bunching repayment obligations – Using existing cash reserves to pay down high cost debt – Port
Slide 50: Raising of finances and debt repayment
1) Issue of Non Convertible Debentures – US$ 447 Mn 2) New Term Loan taken : US$ 591 Mn Raising of 3) Issue of Commercial Papers – US$ 104 Mn Finances 4) GDR Issuance of US$ 500 Mn in Q2 FY’10 FY 10 1) Pre / Repayment of Term Loans : US$ 410 Mn 2) Prepayment of US$ 160 Mn of Senior Facility in TS Pr
Slide 51: New convertible bonds exchange for CARs
New Bonds Description New Bonds convertible into fully paid up ordinary shares in exchange of existing CARS Issue Size Exchange of US$ 493 Mn of CARs with US$ 546.94 Mn New Bonds Maturity 21st November 2014 vs. CARs maturity of September 2012 YTM 4.50% vs. CARs YTM : 5.15% Conversion Premium 15.00%
Slide 52: Agenda
¾ Global Steel Environment ¾ Second S dQQuarter t Performance P f : Tata T t Steel St l Europe E ¾ Second Quarter Performance : Tata Steel India & S.E Asia ¾ Recent Corporate Developments ¾ Second Quarter Consolidated Financial Performance ¾ Financing g Strategy gy and Capital p Raising g ¾ Business
Slide 53: Business outlook
¾ Emerging economies, led by India and China , with their sizable domestic markets have led in arresting the contraction in world economy ¾ Steel sector in India continues to expand in positive trajectory supported by a recovery in automobiles and construction activities led by increased spending on
Slide 54: H2 FY10 outlook
¾ H2 FY10 consolidated lid t d EBITDA would ld b be ttrend d reversall ffrom H1 FY10 ¾ Higher Capacity utilization across the Group ¾ Lower cost base in H2 FY10 than H1 FY10 across the Group ¾ Adverse Impact of Teesside minimized ¾ Increased benefits from ‘Fit for Future’ in Europe ¾ Lower financing
Slide 55: Thank You
Thank You 55