A crisis company no longer: Corus to show its mettle with a £140m profit

Thanks to rising prices, and the success of its restructuring, the steelmaker has defied the doomsayers. Clayton Hirst reports
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The Independent Online

After racking up losses of nearly £1bn since its creation, sacking 10,000 workers and spending most of its four years in turmoil, Corus will this week do what some thought was impossible - announce a profit.

After racking up losses of nearly £1bn since its creation, sacking 10,000 workers and spending most of its four years in turmoil, Corus will this week do what some thought was impossible - announce a profit.

On Thursday, the Anglo-Dutch steelmaker is expected to reveal an operating profit of around £140m for the first six months of the year. This compares with a dismal £41m loss for the same period last year, when some commentators predicted that the British side of the business might not survive long enough to announce another set of results.

There are two forces behind Corus's change in fortune. In the past six months the worldwide price of steel has soared, largely on the back of surging demand from China. This has helped to reduce overcapacity in the steel market - a problem that has dogged companies like Corus for years.

Analysts believe that the rise in steel prices will hold up for the rest of the year, and Corus is predicted to make full-year profits of around £340m.

The company's profit is also self-made. In May 2003, Frenchman Philippe Varin took over as chief executive and quickly devised a £250m restructuring programme, dubbed "Restoring Success". When he arrived at the company, formed through the merger of the old British Steel and the Dutch steel group Hoogovens, it was in a mess. Corus had been wounded by aborted mergers, infighting between the British and Dutch sides of the business, inefficient practices and a poor customer service record.

Having sorted out Corus's balance sheet with a new £1.3bn working-capital facility and a £291m rights issue, Mr Varin has started to turn his attention to some of the fundamental problems besetting the business. A £680m cost-cutting drive is now under way, and relations between the British and Dutch parts of the business have improved. But he still has a long way to go before Corus is on a par with its more efficient and focused continental rivals.

One hurdle is the sale of its operations in Teesside, which employs 2,000 people. Centred on the Redcar furnace, the plant produces 3.4 million tons of steel slabs a year.

On Thursday, Mr Varin will reveal that Corus is in discussions with a number of parties over the sale of up to 75 per cent of the Teesside facility, which analysts believe could fetch £70m to £90m. The interested parties are understood to include Duferco, a Swiss-Italian steelmaker and trader; CSN, a Brazilian steel producer; and Sumi- tomo Metals of Japan.

Of the three, Duferco has been making the most positive noises, saying last week that it may make an offer by the middle of next month.

Corus is also trying to sell its aluminium business, which analysts estimate is worth up to £600m. Because of the size of the operation, Corus is making slower progress on the sale. But Norsk Hydro, Alcoa of the US and Alcan of Canada have been cited as possible bidders.

Corus's recent improvement in fortunes has temporarily silenced one of its biggest critics, Alisher Usmanov, the Russian steel magnate. In March, Mr Usmanov, who is the largest shareholder in Corus, with a 13.4 per cent stake, attempted to oust the company's chairman, James Leng. The coup failed, but a spokesman for Mr Usmanov claimed that he was still keen to see changes.

He said: "We will still press for a new independent non-executive director and continue to talk to the company and its shareholders."

He added that Mr Usmanov was concerned that Corus's board lacked sufficient "international experience".

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