ASW expects steel subsidies to continue

ASW, the steel producer based in South Wales, yesterday said that a subsidy-ridden European market for steel would remain in place for the foreseeable future.

The comments came with news that ASW has stemmed losses. In the year to December the company turned a pounds 10.8m loss into a modest pounds 100,000 profit.

The company attributed the turnaround to improved productivity. Edward Townsend, finance director, said: 'We have worked hard to get our cost base down and yet many rivals, which must be suffering horrendous losses, are subsidised to a level where they can compete with us.'

He added that subsidies might become less important but the scale of their use meant they would continue to dominate European steel production for the foreseeable future.

At the operating level, ASW turned around from losses of pounds 4.1m to profits of pounds 5.2m. In continuing operations ASW made profits of pounds 8.1m after breaking even last time.

Productivity has benefited from spending on new equipment and on acquisitions that have broadened ASW's spread of activities. ASW has spent pounds 57m on development in the past three years but borrowings have risen to pounds 38m in the process.

The company said an improvement in profit margins in the second quarter of the year was wiped out in the second half by an increase in the price of scrap metal. ASW makes two-thirds of its steel products from recycled material.

For the future, ASW said an improvement in margins depended on a reorganisation of European steel production. 'Improvement in our margins depends on action by major competitors in Europe as they become unable or unwilling to incur continuing losses.'

ASW recorded a loss per share of 0.7p, compared with losses last time of 16.2p. The final dividend has been maintained at 3p, making the total payment for the year 6p, the same as last time. The shares were unchanged yesterday at 190p.