BRITISH Steel's first-half results are stunning with pre-tax profits
soaring from #27m to #159m and would have been very much better had
prices not been held down in Europe by unfair competition.
Overall turnover rose 12% to #2197m with volume and price contributing
equally.
Sales in the UK improved just 6% to #991m on the core steel mill
operations thanks in part to a change in mix towards lower margin hot
rolled products. The impetus came more from Europe where there was a
near-25% advance because of buoyant exports.
Chairman Brian Moffat said yesterday that BS is now operating at about
95% capacity in its mainstream products and that it would soon run up
against capacity constraints. Asked whether he regretted earlier plant
closures, he riposted that even at current prices Ravenscraig would
still be unprofitable.
He also indicated that the company would not be spending substantially
on new plant in the UK for at least the next three years. That points to
there being little likelihood of a new #400m plate mill being built on
Teeside to replace both Dalzell and Scunthorpe for the foreseeable
future, particularly while ''plate business is quite profitable and the
plate market has not developed as people had thought''.
Predictably, he sounded off against the subsidies being paid to
Italian, Spanish and east German producers who are prepared to sell the
steel at a loss, safe in the knowledge the state will pick up the bill.
Some #5000m has been spent on five million tonnes of unproductive
capacity which has driven down prices and made it uneconomic for the
efficient private sector companies to invest in Europe.
The EC Commission has thrown in the towel on reducing this chronic
over-capacity and so BS is taking legal action for the mis-use of state
aid in an attempt to stop further subsidy and looks for the effective
backing of the British Government.
Prices are currently about 10% below the levels seen at the peak in
1989 and German producers are set to close the gap soon which would be
beneficial to BS helped by the strength of the Deutschmark against
sterling. But the impact of subsidy can be measured with US hot rolled
steel prices some 15% higher than those in Europe. So BS is spending
#97m on a major investment at Tuscaloosa in Alabama and is considering
another significant development in Florida.
It is also looking for a joint venture partner in South-east Asia
which will buy 850,000 tonnes of BS structural steel this year out of
total output of about 12.2 million tonnes.
There has been a major turnround at the now 49.9%-owned Avesta
Sheffield stainless steel associate and to a lesser degree at the not
yet fully efficient United Engineering Steels where partner GKN may be
seeking to sell.
Together they contributed #49m of the #132m profits improvement and
are set to do significantly better in the current six months.
Full-year profits could leap from #80m, after a #24m provision for an
EC fine for alleged anti-competive practices to about #470m. That would
leave the shares at 159[1/2]p trading at 10 times fully-taxed earnings
and a ratio that could halve perhaps a couple of years later as the
company pushes towards the #1000m mark.
The interim dividend has quadrupled to 2p and a full-year total of
perhaps 7p is likely for a 5.5% yield.
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