British Steel losses increase to pounds 149m: Reduction in European capacity needed as outlook remains fragile, says chairman

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The Independent Online
A FURTHER fall in European steel prices drove British Steel deeper into the red in the year to 3 April, increasing pre-tax losses from pounds 55m to pounds 149m, writes Terence Wilkinson.

Brian Moffat, chairman and chief executive, said yesterday that although price declines had begun to reverse and sterling's devaluation was worth up to pounds 70m to British Steel the profit outlook was still 'fragile'.

He warned that the situation in the European steel industry was unsustainable and progress was needed to reduce capacity by the 30 million tonnes proposed by the European Commission together with the complete elimination of state aid.

'Unless subsidies are eliminated by the Commission and member states there is a danger that efficient private sector producers such as British Steel will be forced to reduce capacity further while weaker but state-supported enterprises are sustained,' he said.

A lot of competition faced by British Steel was uneconomic and the companies' balance sheets were in ruins. In contrast, the company was Europe's lowest-cost producer and had borrowings equivalent to only 2 per cent of shareholders' funds.

British Steel, having passed its interim dividend last November, is paying a final of 1p against a total of 4.5p in the previous year. Both the increased losses and reduced dividend were in line with stock market expectations and the shares rose 0.25p to 98.75p.

Mr Moffat said the reinstatement of dividend payments to more normal levels was heavily dependent on a further improvement in steel prices. This in turn depended on a solution being found to the structural problems of the European steel industry.

European prices are still 10-25 per cent below their peak levels of mid- 1989. British Steel, which faced a 4 per cent drop in prices and a 2 per cent volume decline last year, has announced average price increases in the UK of 9 per cent.

Andy Chambers, an analyst with Nomura Securities, forecasts a pounds 300m boost to revenues from this source and a swing back to profits of pounds 100m in 1993-94.

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