RNS No 6898h
BRITISH STEEL PLC
16th November 1998
BRITISH STEEL plc - INTERIM STATEMENT FOR 1998/99
CONTENTS
Index
Financial Highlights
Chairman & Chief Executive's Statement
Financial Review
Consolidated Profit and Loss Account
Consolidated Balance Sheet
Statement of Total Recognised Gains and Losses
Reconciliation of Movements in Shareholders' Funds
Consolidated Cash Flow Statement
Supplementary Information
Review Report by the Auditors
The Interim Statement reports on the results for the six months to 3 October
1998 and, unless otherwise stated, comparisons are to the first half of
financial year 1997/98. Figures for the year ended 28 March 1998 have been
extracted from the audited accounts which have been delivered to the
Registrar of Companies and on which the auditors issued an unqualified
report.
The Interim Statement will be mailed to shareholders on 18 November 1998 at
which time copies will also be available from the Secretary's Office,
British Steel plc, 15 Marylebone Road, London NW1 5JD, or by telephoning
0800 484113.
British Steel plc Investor & Media Relations
15 Marylebone Road London NW1 5JD Tel +44 (0)171 314 5502 Fax +44 (0) 171
314 5604
FINANCIAL HIGHLIGHTS
Profit before tax of #108m
Earnings per share of 3.99p
Interim dividend per share of 3p
Net funds of #432m
STATEMENT BY SIR BRIAN MOFFAT, CHAIRMAN & CHIEF EXECUTIVE
In my statement at the Annual General Meeting in July, I said that results
for the first quarter were up to our expectations but that the trading
situation for the rest of this financial year would depend on a number of
external factors.
During August and September, selling prices weakened for most steel
products, as the adverse effects of the economic crises in the Far East
impacted on European and North American markets.
Subsequently there has been further deterioration in selling prices, a trend
which if continued will lead to losses for the full year, particularly if
pressure intensifies on sales volume.
On a more positive note, we are one of the most efficient steel producers in
the world and continue to drive forward our cost and efficiency improvement
programme, the benefits of which we expect to accelerate in the second half
year.
Our employees and trade unions recognise the extremely difficult trading
environment that faces the Company and are co-operating on manpower
productivity improvement measures. Good progress and further input cost
reductions were also achieved through our suppliers initiative in the first
half year, and the first tranche of business improvement projects have been
developed and launched in conjunction with Cap Gemini, our IT and management
consultants.
These improvements will move us closer towards restoring our competitive
position despite the continuing strength of sterling and I anticipate being
able to report significant year-on-year benefits arising from these
initiatives when reporting our annual results in June of next year.
Although there has been some recent weakening in sterling, the benefits of
which will flow through towards the end of the financial year, we look
forward to further reductions in interest rates which we hope will help to
redress the overvaluation of the Pound which, for some two years, has
undermined our UK customers' competitive position, both in domestic and in
export markets.
Good cash management, particularly on working capital, has ensured that the
Balance Sheet remains strong with net funds of #432m at the end of the half
year. Consequently, the Company is well positioned to take advantage of
suitable investment opportunities and, in due course, for the upturn in our
markets.
The Board has declared an unchanged interim dividend of 3p per share and
intends to maintain the level of the final dividend at 7p per share, making
10p for the year.
FINANCIAL REVIEW
Group operating profit for the half year (which comprised 27 weeks rather
than the normal 26) amounted to #82m (1997/98: #121m), the reduction mainly
a result of the adverse effects of the continued strength of sterling and
the marked deterioration in the results of Avesta Sheffield, our 51% owned
stainless steel subsidiary.
Despite an increase of 1% in deliveries to 7.6mt, Group turnover of #3,376m
(1997/98: #3,398m) was slightly below last year's level. This reflected a
reduction of 2% in average revenue per tonne, principally due to the lower
levels of stainless steel prices. British Steel's deliveries to the UK
market totalled 3.8mt, of which 3.3mt were in the Company's main carbon and
engineering steel finished products. Demand for these products, at 6.1mt,
was 5% higher than in the same period of 1997/98 but a sharp rise in
imports, fuelled by the crises in Asian economies, reduced the Company's
market share to 54% (1997/98 : 57%). Import pressures were also strong in
other markets, notably mainland Europe, although British Steel was able to
increase deliveries there by 4% to 2.7mt. Deliveries to markets outside
Europe reduced to 1.1mt (1997/98 : 1.2mt).
Operating costs at #3,294m (1997/98 : #3,277m) rose slightly, reflecting the
rise in deliveries but also progress made on measures to improve British
Steel's competitive position. These were described in the Report & Accounts
for 1997/98, and are commented on in the Chairman & Chief Executive's
Statement. Numbers employed reduced by 1,400 during the half year to 47,000
and it is anticipated that the rate of reduction will accelerate in the
second half year.
Group net interest and investment income receivable of #21m (1997/98: #22m)
was slightly lower than in 1997 due to the lower level of average net funds
during the period. After net interest there was a profit before taxation of
#108m (1997/98: #143m) and earnings per share of 3.99p (1997/98: 4.75p).
The Group achieved an increased operating cash inflow of #299m (1997/98:
#194m) with reduced funds required for working capital. After taking
account of capital expenditure, dividends and tax payments, this resulted in
net funds of #432m at the half year end, only #14m below the year end level,
despite the reduced operating profit. In May, British Steel raised #200m in
6.75% sterling bonds due 2008. The bonds were issued at 99.122%. This
further strengthens the balance sheet by providing a long term, low cost
source of capital.
Dividend payment
For ordinary shareholders, the interim dividend of 3p per share is payable
on 11 January 1999 to shareholders on the register at close of business on
27 November 1998.
For American Depositary Receipt holders, the dividend is payable in US
dollars on January 21, 1999 by the Depositary, The Bank of New York, to the
ADR holders of record on November 27, 1998.
Year 2000
A consistent methodology for managing Year 2000 compliance has been adopted
across the Group and Group companies are actively engaged in projects to
minimise the business risk from the possibility of computer or equipment
failure or malfunction associated with the Year 2000 date change. Priority
is being given to impact analysis, renovation and testing, and replacement
where necessary in respect of the most critical business systems, including
process control. The programme, which started in late 1996 and is targeted
to be substantially complete by end 1998, has an estimated total cost of
approximately #60m. In addition to dealing with internal risks there is also
a programme to address those risks to which the Group may be exposed from
problems at suppliers, customers or other third parties. The complexity and
unprecedented nature of the Year 2000 issue mean that, while every effort is
in place to overcome the problem, it cannot be certain that Year 2000
issues, particularly those external to the Group, will have no significant
impact on British Steel's operations or financial condition.
Accounting policies
The half year accounts have been prepared in accordance with the accounting
policies and standards expected to apply for the financial year 1998/99,
including the application of FRS 10 'Goodwill and Intangible Assets', FRS 11
'Impairment of Fixed Assets and Goodwill', FRS 12 'Provisions, Contingent
Liabilities and Contingent Assets', FRS 13 'Derivatives and Other Financial
Instruments: Disclosures' and FRS 14 'Earnings per Share'. The accounting
policies are consistent with those set out in the 1997/98 Report & Accounts
except as disclosed below.
The adoption of FRS 10 and FRS 12 has resulted in changes to accounting
policies. Goodwill arising on acquisition and intangible assets acquired is
now capitalised and amortised over its estimated useful economic life to a
maximum of 20 years. Goodwill written off to reserves under the Company's
previous policy will not be reinstated and, accordingly, no restatement of
comparative figures is required. Revenue costs of rationalisation and
related measures are provided for when a constructive obligation has arisen
before the balance sheet date. The adoption of FRS12 has had no material
effect on the results or balance sheet of the Group and no restatement of
comparative figures is required.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited Unaudited Audited
half year half year full year
to 3 Oct to 27 Sept to 28 Mar
1998 1997 1998
#m #m #m
TURNOVER : GROUP AND SHARE OF JOINT VENTURES 3,472 3,509 7,166
Less : share of joint ventures' turnover (96) (111) (219)
------ ------ -----
GROUP TURNOVER 3,376 3,398 6,947
OPERATING COSTS (3,294) (3,277) (6,682)
------ ------ -----
GROUP OPERATING PROFIT 82 121 265
Share of operating results of joint
ventures and associated undertakings - 1 -
------ ------ -----
82 122 265
Profit on sale of fixed assets 6 - 6
Profit on disposal of businesses,
subsidiaries and associated undertakings - - 5
------ ------ -----
PROFIT BEFORE INTEREST 88 122 276
NET INTEREST AND INVESTMENT INCOME
Group 21 22 41
Joint ventures and associated undertakings (1) (1) (2)
------ ------ -----
PROFIT BEFORE TAXATION 108 143 315
Taxation (45) (43) (82)
------ ------ -----
PROFIT AFTER TAXATION 63 100 233
Minority interests 16 (5) (7)
------ ------ -----
PROFIT FOR THE PERIOD 79 95 226
Dividends (62) (58) (195)
------ ------ -----
PROFIT RETAINED FOR THE PERIOD 17 37 31
====== ====== =====
EARNINGS PER ORDINARY SHARE 3.99p 4.75p 11.44p
====== ====== =====
FULLY DILUTED EARNINGS PER ORDINARY SHARE 3.98p 4.68p 11.22p
====== ====== =====
There were no material acquisitions or discontinued activities.
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
at 3 Oct at 27 Sept at 28 Mar
1998 1997 1998
#m #m #m
FIXED ASSETS
Goodwill 1 - -
Tangible assets 3,279 3,323 3,335
Investments in joint ventures 105 104 104
Investments in associated undertakings 10 7 9
Other investments and loans 202 176 181
Own shares - - 18
------ ------ ------
3,597 3,610 3,647
------ ------ ------
CURRENT ASSETS
Stocks 1,285 1,296 1,222
Debtors 1,403 1,617 1,643
Short term investments 1,230 1,124 1,043
Cash at bank and in hand 152 100 163
------ ------ ------
4,070 4,137 4,071
CREDITORS: AMOUNTS FALLING DUE WITHIN
ONE YEAR (1,449) (1,668) (1,672)
------ ------ ------
NET CURRENT ASSETS 2,621 2,469 2,399
------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES 6,218 6,079 6,046
CREDITORS: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR (909) (684) (723)
PROVISIONS FOR LIABILITIES AND CHARGES (282) (319) (292)
ACCRUALS AND DEFERRED INCOME
Regional development and other grants (54) (64) (58)
------ ------ ------
4,973 5,012 4,973
====== ====== ======
CAPITAL AND RESERVES
Called up share capital 991 973 991
Share premium account 51 17 51
Capital redemption reserve 47 47 47
Statutory reserve 2,338 2,338 2,338
Profit and loss account 1,215 1,265 1,195
------ ------ ------
SHAREHOLDERS' FUNDS - EQUITY INTERESTS 4,642 4,640 4,622
MINORITY INTERESTS
Equity interests in subsidiary undertakings 331 372 351
------ ------ ------
4,973 5,012 4,973
====== ====== ======
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
half year half year full year
to 3 Oct to 27 Sept to 28 Mar
1998 1997 1998
#m #m #m
Profit for the period 79 95 226
Exchange translation differences on
foreign currency net investments 3 (1) (29)
----- ----- -----
Total recognised gains relating to the
period 82 94 197
===== ===== =====
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
half year half year full year
to 3 Oct to 27 Sept to 28 Mar
1998 1997 1998
#m #m #m
Profit for the period 79 95 226
Dividends (62) (58) (195)
----- ----- -----
17 37 31
Exchange translation differences on
foreign currency net investments 3 (1) (29)
Share buyback - (146) (146)
New shares issued - 1 19
Goodwill arising on consolidation - (8) (10)
----- ----- -----
Net increase/(decrease) in shareholders'
funds 20 (117) (135)
Shareholders' funds at beginning of period 4,622 4,757 4,757
------ ------ ------
Shareholders' funds at end of period 4,642 4,640 4,622
====== ====== ======
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
half year half year full year
to 3 Oct to 27 Sept to 28 Mar
1998 1997 1998
#m #m #m
Net cash inflow from operating activities 299 194 512
Dividends from joint ventures and
associated undertakings 3 3 6
Returns on investments and servicing of
finance 10 10 36
Tax paid (18) (15) (183)
Capital expenditure and financial investment (166) (173) (366)
Acquisitions and disposals (9) (40) (25)
Equity dividends paid (140) (142) (201)
------ ------ -----
CASH OUTFLOW BEFORE USE OF LIQUID
RESOURCES AND FINANCING (21) (163) (221)
MANAGEMENT OF LIQUID RESOURCES
Net (purchase)/sale of short term investments (184) 236 311
FINANCING
Purchase of own shares - (146) (146)
Issue of ordinary shares 3 1 16
Increase in debt 187 26 88
------ ------ -----
NET CASH INFLOW/(OUTFLOW) FROM
FINANCING ACTIVITIES 190 (119) (42)
------ ------ -----
(DECREASE)/INCREASE IN CASH IN THE PERIOD (15) (46) 48
====== ====== =====
RECONCILIATION OF NET CASH (OUTFLOW)/INFLOW
TO MOVEMENT IN NET FUNDS
(Decrease)/increase in cash (15) (46) 48
Increase/(decrease) in liquid resources 184 (236) (311)
Increase in debt (187) (26) (88)
------ ------ -----
Change in net funds resulting from cash flows (18) (308) (351)
Long term debt acquired - (5) (1)
Other non cash items - - (3)
Effect of foreign exchange rate changes 4 (1) 16
------ ------ -----
Movement in net funds (14) (314) (339)
Net funds at beginning of period 446 785 785
------ ------ -----
Net funds at end of period 432 471 446
====== ====== =====
SUPPLEMENTARY INFORMATION
Half year Half year Full year
to 3 Oct to 27 Sept to 28 Mar
1998 1997 1998
1. GROUP TURNOVER #m #m #m
a. BY DESTINATION
United Kingdom 1,482 1,476 3,010
Rest of Europe 1,333 1,279 2,687
North America 376 339 654
Other areas 185 304 596
------ ------ -----
3,376 3,398 6,947
====== ====== =====
b. BY PRODUCT GROUPING
Uncoated strip products 525 550 1,140
Coated strip products 614 595 1,218
Sections and plates 502 481 1,014
Tubular products 206 160 347
Wire rod 107 109 227
Semi-finished carbon steel products 58 54 121
Engineering steels 246 254 528
Stainless steel products 651 734 1,473
------ ------ -----
Total steel industry products (*) 2,909 2,937 6,068
Distribution and further processing 406 408 779
Others 61 53 100
------ ------ -----
3,376 3,398 6,947
====== ====== =====
(*): By destination:
United Kingdom 1,308 1,285 2,662
Rest of Europe 1,172 1,119 2,387
North America 299 285 560
Other areas 130 248 459
------ ------ -----
2,909 2,937 6,068
====== ====== =====
2. SALES VOLUME mt mt mt
a. BY DESTINATION
United Kingdom 3.8 3.7 7.7
Rest of Europe 2.7 2.6 5.5
North America 0.7 0.6 1.2
Other areas 0.4 0.6 1.2
------ ------ -----
7.6 7.5 15.6
====== ====== =====
b. BY PRODUCT GROUPING
Uncoated strip products 2.1 2.2 4.4
Coated strip products 1.5 1.4 2.9
Sections and plates 1.7 1.6 3.4
Tubular products 0.5 0.4 0.9
Wire rod 0.5 0.5 1.0
Semi-finished carbon steel products 0.3 0.3 0.7
Engineering steels 0.6 0.6 1.4
Stainless steel products 0.4 0.5 0.9
------ ------ -----
7.6 7.5 15.6
====== ====== =====
3. OPERATING COSTS #m #m #m
Raw materials and consumables 1,480 1,525 3,019
Maintenance costs (excluding own labour) 283 273 578
Other external charges 532 489 1,044
Employment costs 677 664 1,348
Depreciation (net of grants released) 162 143 295
Other operating costs 212 234 434
Changes in stock of finished goods
and work in progress (47) (47) (26)
Own work capitalised (5) (4) (10)
------ ------ -----
3,294 3,277 6,682
====== ====== =====
The above costs include:
Redundancy and related costs 4 6 18
Accelerated depreciation 15 - 21
Other rationalisation costs 9 2 4
Realised gain on investments held
to fund insurance liabilities (30) - -
Note: Realisation of gains on investments held by Crucible Insurance
(our captive insurance company) is taken into account in the
assessment of the underwriting results and liabilities of that
company and is dealt with as part of the operating costs in
these accounts.
4. NET INTEREST AND INVESTMENT INCOME #m #m #m
Dividends from other fixed asset
investments 3 2 2
Interest receivable 49 46 91
Interest payable (29) (23) (48)
Finance leases (2) (3) (4)
Joint ventures (1) (1) (2)
----- ----- -----
20 21 39
===== ===== =====
5. TAXATION #m #m #m
UK Corporation tax at 31% 37 47 89
Double tax relief (1) (1) (7)
Prior year credit (2) (6) (4)
Overseas taxes 5 5 12
UK deferred tax 5 (4) (5)
Overseas deferred tax - - (8)
Joint ventures 1 2 4
Associated undertakings - - 1
----- ----- -----
45 43 82
===== ===== =====
The net taxation charge for the half year has been calculated by
reference to the estimated effective tax rates for each taxation
jurisdiction for the financial year 1998/99.
6. DIVIDENDS
The dividend of #62m in the first half year includes the final dividend
for 1997/98 on shares which did not qualify for full dividend at the
year end but which were subsequently issued before the record date to
members of the British Steel Employee Sharesave Scheme.
7. CAPITAL EXPENDITURE #m #m #m
Purchase of tangible fixed assets 152 200 396
Movement in capital creditors (42) 1 8
----- ----- -----
110 201 404
===== ===== =====
8. EMPLOYEES number number number
Average weekly numbers employed:
Within UK 38,200 41,100 40,600
Overseas 9,400 9,400 9,400
------ ------ ------
47,600 50,500 50,000
====== ====== ======
Numbers employed at end of period:
Within UK 37,700 40,800 39,100
Overseas 9,300 9,500 9,300
------ ------ ------
47,000 50,300 48,400
====== ====== ======
9. RECONCILIATION OF OPERATING PROFIT TO
NET CASH FLOW FROM OPERATING ACTIVITIES #m #m #m
Operating profit 82 121 265
Depreciation (net of grants released) 162 143 295
Increase in stocks (61) (60) (16)
Reduction/(increase) in debtors 249 63 (9)
(Reduction)/increase in creditors (93) (62) 17
Rationalisation costs provided 13 8 22
Utilisation of rationalisation provisions (34) (19) (44)
Other movements (net) (19) - (18)
------ ------ -----
299 194 512
====== ====== =====
10. ANALYSIS OF NET FUNDS #m #m #m
Cash at bank and in hand 152 100 163
Bank overdrafts and other short term loans (66) (94) (65)
Short term investments 1,230 1,124 1,043
Long term borrowings (830) (600) (638)
Obligations under finance leases (54) (59) (57)
------ ------ -----
432 471 446
====== ====== =====
11. US GAAP #m #m #m
PROFIT FOR THE PERIOD - UK GAAP 79 95 226
Adjustments:
Amortisation of goodwill (7) (7) (14)
Interest costs capitalised 12 14 27
Depreciation of capitalised interest (4) (3) (8)
Pension costs - (45) (18)
Stock-based employee compensation awards (3) (2) (6)
Rationalisation costs (11) - 14
Deferred taxation 5 10 9
------ ------ ------
PROFIT FOR THE PERIOD - US GAAP 71 62 230
====== ====== ======
EARNINGS PER ADS - US GAAP #0.36 #0.31 #1.16
====== ====== ======
DILUTED EARNINGS PER ADS - US GAAP #0.36 #0.30 #1.14
====== ====== ======
SHAREHOLDERS' EQUITY - UK GAAP 4,642 4,640 4,622
Adjustments:
Goodwill 200 213 207
Interest costs capitalised
(net of depreciation) 145 129 137
Pension costs 103 76 103
Stock-based employee compensation awards (14) (7) (11)
Quest shares held in trust - - (18)
Rationalisation costs 3 - 14
Deferred taxation (491) (416) (496)
Investments in equity securities 8 26 31
Proposed dividend 59 58 137
Minority interests 20 20 20
------ ------ -----
SHAREHOLDERS' EQUITY - US GAAP 4,675 4,739 4,746
====== ====== =====
Review Report by the Auditors to British Steel plc
We have reviewed the interim financial information for the six months
ended 3 October 1998 set out on pages 5 - 13 which is the responsibility
of, and has been approved by, the directors. Our responsibility is to
report on the results of our review.
Our review was carried out having regard to the Bulletin "Review of
Interim Financial Information", issued by the Auditing Practices Board.
This review consisted principally of applying analytical procedures to
the underlying financial data, assessing whether accounting policies have
been consistently applied, and making enquiries of Group management
responsible for financial and accounting matters. The review excluded
audit procedures such as tests of controls and verification of assets
and liabilities, and was therefore substantially less in scope than an
audit performed in accordance with Auditing Standards. Accordingly we do
not express an audit opinion on the interim financial information.
On the basis of our review:
. in our opinion the interim financial information has been prepared
using accounting policies consistent with those adopted by British Steel
plc in its financial statements for the year ended 28 March 1998, except
for the changes in accounting policies described on page 4 necessary to
implement new accounting standards introduced in the period; and
. we are not aware of any material modifications that should be made
to the interim financial information as presented.
PricewaterhouseCoopers
Chartered Accountants
London
16 November 1998
END
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