British Steel rides the export boom

A tale of two economies: Industry makes gains overseas but the consumer sector stays depressed
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Business Editor

Strong export markets for its manufacturing customers helped British Steel to boost profits seven-fold from pounds 80m to pounds 578m before tax.

With the dividend nearly quadrupled to 7.5p a share, the results set the seal on British Steel's recovery from a recession that drove it into losses in 1992 and 1993 and allowed only a small profit in 1994.

Brian Moffatt, chairman, said that while there was little sign of a recovery in consumer confidence in the UK, "many of our customers, particularly those exporting, are experiencing better levels of activity and are generally more optimistic than for several years."

Car production was the highest for 20 years, manufacturing output was up 4 per cent, and there were signs of improvement among construction industry customers.

The company's recovery was boosted by rising prices for steel - up by 7 per cent on average, and 5 per cent in the UK - as the global steel market turned upwards, leading to shortages of capacity after years of glut and ruthless price wars.

Mr Moffatt, long a critic of state subsidies to loss-making European steel companies, made clear he was now less worried by this problem. Economic pressures on governments during the recession had led to positive moves to privatise a number of European steel companies, and he saw this as a "major step towards a truly open and competitive market in steel".

He said he would fight the Irish government's plan to give pounds 50m of subsidies to Cork-based Irish Steel, which employes 300. The subsidy represented pounds 170,000 per man and if it went through would prejudice British Steel's business in the same product areas.

British Steel continued to increase its efficiency during the year while its manpower dropped by 900 to 46,300. Capital expenditure rose pounds 25m to pounds 129m, while a 6 per cent rise in costs mainly reflected higher sales.

Although analysts were predicting it would be several years before the steel market turned down again, and there were suggestions that the next cycle would be less dramatic, "British Steel is not banking on this or indeed on a continuing favourable exchange rate", Mr Moffatt said. The company was now one of the most efficient steel producers in the world.

British Steel deliveries to the rest of Europe rose from 3 million to 3.5 million tonnes last year.

Mr Moffatt refused to discuss claims that the rising share price was set to give a pounds 13m profit to British Steel executives, beyond saying 12,000 employees had options. A company spokesman said the executive share options applied to 134 people.

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