British Steel rails against Government on sterling

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The chairman of British Steel yesterday attacked the Government over its stance on the single currency as the company reported a near halving in profits and warned of more jobs cuts to come. Michael Harrison reports on the toll that exchange rates are continuing to take on the manufacturing sector.

Sir Brian Moffat criticised the Government's decision to rule out entering the single currency in this parliament and said the Chancellor, Gordon Brown, and other ministers should be doing more to talk the pound down.

"I wouldn't close the door this side of the next government. If you can keep the door open you are in a better bargaining position," he said.

Sir Brian was speaking as British Steel announced a 45 per cent slump in pre-tax profits for the first six months of the year from pounds 262m to pounds 143m and refused to deny reports that 10,000 jobs would disappear from its UK workforce over the next few years.

The company believes that Britain's refusal to contemplate entering economic and monetary union before 2002 is contributing to the artificially high level of sterling which is wreaking such havoc on its profits.

The 20 per cent rise in the value of sterling against the German mark in the last year has cost British Steel an estimated pounds 600m in profits and Sir Brian said the Government should be doing more to help by talking down the currency. He said that he had written to the Chancellor a fortnight ago setting out his view and had received a reply from Mr Brown saying, in effect: "I hear your words."

The exchange rate squeeze has meant a redoubling in British Steel's efforts to reduce its cost base. It is aiming to cut its pounds 2.5bn supply bill by up to pounds 500m while slashing employee numbers further. The UK workforce has fallen by 3,000 in the last 12 months to 40,800 and by the end of this year will have declined by a further 2,100, including 600 jobs that will disappear with the outsourcing of its IT activities to CAP Gemini.

Sir Brian refused to comment on the possibility of British Steel taking a stake in the German steelmaker Preussag Stahl. But he confirmed that plans to invest in a $600m (pounds 353m) steel mill in Indonesia had been put on the backburner because of the economic turmoil in Pacific Rim countries.

The fall in profits was due to an 11 per cent slump in revenues per tonne which more than cancelled out a 4 per cent increase in deliveries to 7.5 million tonnes and a 20-25 per cent improvement in prices across the board. However, the decline in earnings was not as bad as analysts had predicted and British Steel shares put on 3.75p to close at 148.75p.

Sir Brian said the impact of the strong pound was likely to be more pronounced in the second half but, set against this, the company would have the full benefit of higher prices. Analysts' forecasts for second-half profits vary from pounds 100m to pounds 200m which would give full-year profits of about pounds 250m- pounds 350m compared with pounds 451m last year.

Investment column, page 20

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