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BRITISH STEEL plc - RESULTS FOR 1996/97 |
Chairman & Chief Executive's Statement
Review of 1996/97
Dividend Payment
Consolidated Profit and Loss Account
16 June 1997
FINANCIAL HIGHLIGHTS
PROFIT BEFORE TAX of £451m
EARNINGS PER SHARE of 15.22p
FINAL DIVIDEND of 7p per share making 10p for the year
NET FUNDS of £785m
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The year ended 29 March 1997 proved to be a difficult one for the Company due to weak prices in our major markets and, latterly, the strength of sterling, particularly against the deutschmark. Despite these difficulties the Company made a profit before tax of £451m (1995/96 : £1,102m) and earnings per share of 15.22p (1995/96 : 38.28p). The Board is recommending a final dividend of 7p per share which makes a total dividend for the year of 10p per share, the same as last year.
All UK businesses were affected by the pricing and currency situation, but Avesta Sheffield AB, our 51% owned Swedish stainless steel subsidiary, was particularly badly hit. Furthermore it also incurred delayed commissioning and rationalisation costs so that its contribution to British Steels results before tax for the year amounted to a loss of £7m compared with a profit in 1995/96 of £228m.
Capital expenditure during the year amounted to £413m, the highest level since 1991. The largest project completed in the year was the new steelmaking and continuous casting plant and the upgrading of the hot steckel mill at Tuscaloosa in Alabama, USA. The plant began hot commissioning in October 1996 and has made good progress since, with production ahead of the project plan. The development of the direct reduced iron facility at Mobile, also in Alabama, is proceeding well and is due to come on stream progressively later this year. A number of major projects are also being undertaken in the UK, notably the start of the installation of a continuous annealing line at Port Talbot at a total cost of £121m, the completion this summer of the Scunthorpe bloom caster at a cost of £43m and the rebuild of the Scunthorpe Queen Bess blast furnace at a cost of £30m.
Trico Steel Company LLC, our joint venture in the USA with LTV Corporation and Sumitomo Metal Industries Ltd, made good progress. The plant began hot commissioning in March of this year and is due to be fully operational by Spring 1998. During the year British Steel disposed of its Forgings Business and at the end of the year its 40% interest in TWIL Limited.
We continue to look for suitable opportunities to expand the Groups manufacturing base in the growing markets of Asia and the Far East. We are proceeding with the purchase of land near Bombay in India to build an organic coating line and roll profiling facilities in conjunction with Jindal Iron & Steel Co. Ltd. We have also been in discussions for some time with PT Bakrie & Brothers with a view to building a coil plate mini-mill in Indonesia, and are currently carrying out feasibility studies.
The steel trading outlook for 1997/98 is one of cautious optimism, although concerns remain about the current strength of sterling and its serious impact on our future profits. Demand remains buoyant in the UK, USA and Far East and is progressively improving in mainland Europe where prices are also now improving. However, the strength of sterling is a problem to British Steel and to many of its UK customers who are also significant exporters. Their order books are bound to be affected later this year if sterling remains at its present level.
British Steel trades successfully in most steel markets in the world and is determined to continue to do so, despite the present currency scene. Accordingly three major initiatives have been launched to improve costs and efficiency further. These relate to reducing the number of employees and improving the skills of the remaining workforce, a drive for sustained reduction in the costs of raw materials, supplies and services, and to enhance and make better use of our information technology systems on a Group wide basis. We are confident that these initiatives coupled with our marketing and commercial skills will ensure our products remain competitive in our various markets.
Sir Brian Moffat
Chairman and Chief Executive
Turnover at £7,224m, while 2% higher than the previous year, included the full year effect of the consolidation of Avesta Sheffield AB which became a 51% owned subsidiary on 30 September 1995.
For steel industry products, turnover of £6,327m (1995/96 : £6,044m) and sales volume of 15.2 mt (1995/96 : 14.4 mt) were also affected by the consolidation effect. Setting this aside, there was a reduction in turnover of 6%, an increase in sales volume of 2% and average revenue per tonne was down by 8%, from £362 in the previous year to £332 in 1996/97.
In the UK, sales volume amounted to 7.5 mt, of which 6.6 mt were in British Steels main finished products. UK demand for these products at 11.3 mt was 2% below the level of 1995/96, largely as a result of destocking. British steel, however, increased its UK market share to 58% as compared with 57% for the previous year.
In other markets British Steels deliveries increased, in the rest of Europe to 4.8mt (1995/96 : 4.3mt) and, in markets outside Europe to 2.9mt (1995/96 : 2.7mt), the effect of the consolidation of Avesta Sheffield AB for the full year being a major factor.
From a peak reached in mid-1995 world steel prices have declined, reflecting a deteriorating supply/demand balance as growth in demand slowed and excess steel stocks were run down. This was evident first in China, where steel imports fell sharply, and subsequently in the USA and then in Western Europe where destocking was particularly vigorous.
The effect of falling prices on British Steels results has been exacerbated by the increasing strength of sterling, particularly against the deutschmark. Although in 1996/97 the effect was partially offset by currency hedging, average revenue per tonne, of £398 in the second half, was 9% below the level of the first half.
Operating costs at £6,848m in 1996/97 were 12% above the previous years level due, almost entirely, to the effect of the consolidation of Avesta Sheffield AB for the full year. Excluding this factor, total costs were largely unchanged, with the effects of increased sales volume, relatively low cost inflation, the higher level of provisions, efficiency improvements and exchange rate effects, broadly cancelling each other. Included in 1996/97 operating costs were provisions of £61m, in contrast to a net release of £14m in the previous year.
The number of employees worldwide was 50,400 at the end of 1996/97 as compared with 54,000 at the end of the previous year. Part of this reduction, some 2,100 employees, related to the disposal of the Companys Forgings Business in January 1997.
British Steel continued to be strongly cash generative in 1996/97 with the operating cash inflow of £869m, including the benefit of a £182m improvement in working capital. Despite significantly higher cash outflows on tax and capital expenditure, net funds at the end of the year increased to £785m (1995/96 : £690m).
For ordinary shareholders the final dividend of 7p per share is payable on 11 August 1997 to shareholders on the register at close of business on 27 June 1997.
For American Depositary Receipt holders the dividend is payable in US dollars on August 21, 1997 by the Depositary, The Bank of New York, to the ADR holders of record on June 27, 1997.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE FINANCIAL YEAR ENDED 29 MARCH 1997
1997
£m1996
£mTurnover
Operating costs7,224
(6,848)
=======7,048
(6,107)
=======TRADING PROFIT
Share of results of associated undertakings376
13
-----------941
128
-----------OPERATING PROFIT
Profit on sale of fixed assets
Profit on disposal of businesses, subsidiaries and associated undertakings
389
-
18
-----------
1,069
4
17
-----------PROFIT BEFORE INTEREST
Net interest and investment income407
44
-----------1,080
22
-----------PROFIT BEFORE TAXATION
Taxation451
(144)
-----------1,102
(276)
-----------PROFIT AFTER TAXATION
Minority interests307
3
-----------826
(49)
-----------PROFIT FOR THE FINANCIAL YEAR
Dividends310
(204)
-----------777
(204)
-----------PROFIT RETAINED FOR THE YEAR 106
=======573
=======EARNINGS PER ORDINARY SHARE 15.22p
=======38.28p
=======
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