RNS No 8683e
BRITISH STEEL PLC
15th June 1998
BRITISH STEEL plc - RESULTS FOR 1997/98
CONTENTS
Index
Financial Highlights
Chairman & Chief Executive's Statement
Review of the Year
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
The Consolidated Profit and Loss Account, Consolidated Balance
Sheet, Statement of Total Recognised Gains and Losses,
Reconciliation of Movements in Shareholders' Funds and the
Consolidated Cash Flow Statement have been extracted from the
audited accounts, to be delivered to the Registrar of Companies
and on which the auditors issued an unqualified report.
The Report and Accounts will be mailed to shareholders in
late-June 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 #315m
Earnings per share of 11.44p
Final dividend per share of 7p making 10p for the year
Net funds of #446m at the end of the year
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The Company performed well in achieving pre-tax profits of #315m
(1997:#451m), earnings per share of 11.44p (1997:15.22p) and
strong operating cash flow, in spite of the adverse influences
of the progressive strengthening of sterling and the economic
crises in the Far East.
The Board is recommending a final dividend of 7p per share which
makes a total dividend for the year of 10p per share, the same
as last year.
The engine room for profit is the Company's UK asset base which
again put in a very strong performance with a significant number
of new production and efficiency records. Our growing portfolio
of distribution businesses also had a good year while the policy
of co-ordinating the commercial approaches across the various
businesses is beginning to show results.
During the year sterling further appreciated against the
deutschmark and we estimate this to have reduced Group profits
by in excess of #500m, due both to the translation effect and to
the fact that German domestic steel prices directly influence
those in the rest of Europe.
British Steel has no influence over exchange rates and therefore
we think it prudent to plan on sterling remaining strong, while
also recognising the need to create shareholder value. To this
end we have established a target for our businesses of
achieving a minimum 15% per annum pre-tax return on net
operating assets, averaged over the businesses' economic cycles.
Furthermore, in early 1997 we began to implement a three part
strategy to restore the competitive advantage that British Steel
had in 1995.
Firstly, we are streamlining the organisation structures and
working practices in order dramatically to improve manpower
productivity; secondly, we are creating a more cost effective,
reliable and innovative supplier base; and thirdly, we are
developing and using information technology more creatively with
the objective of becoming indispensable to our customers.
Such significant changes will take some three to four years to
become fully effective but good progress has already been made.
Avesta Sheffield, our 51% owned Swedish stainless steel
subsidiary, continued to be badly affected by currency and
depressed selling prices.
Trico Steel, our 25% owned joint venture in the USA, encountered
operational difficulties during the year which means that it is
not expected to be fully commissioned until towards the end of
this year.
Capital expenditure during the year amounted to #404m. The
largest project was the continuous annealing line at Port Talbot
which is due to be commissioned in July 1998.
Our direct reduction iron plant at Mobile in Alabama was
successfully commissioned in the second half of the year and is
producing good quality product in line with expectations. At
Tuscaloosa Steel the working up programme is well advanced and
we expect to reach full capacity later this year.
With the current economic uncertainty in South East Asia it is
unlikely that we will invest in that region in the short term.
However, other areas of the world, particularly Europe and North
America, could present profitable prospects and we are alert for
growth opportunities in steel or steel-related businesses in
these regions.
During the year the Company purchased 4.6% of its shares for
#146m. At the year end, shareholders' funds totalled #4,622m
and net cash funds amounted to #446m.
The steel trading outlook is complex. The economic crises in
South East Asia, Korea and Japan are bound to cause disruption
to traditional world steel trade flows, particularly for
export-based business. It is still too early to judge the
extent of their impact but they will undoubtedly affect the USA
and Western Europe.
The outlook for steel demand in the UK will rest heavily on the
effectiveness and efficiency of our export driven customer base.
Needless to say, British Steel will make the most of its
opportunities as they unfold. The Company is in good shape, in
the process of regaining its competitive position, and will use
its wide product range to maximum effect in the market place.
SIR BRIAN MOFFAT
Chairman & Chief Executive
REVIEW OF THE YEAR
Group turnover was #6,947m (1997 : #7,224m), a reduction of 4%
from the previous year. This reflected the net effect of higher
sales volume but lower average revenue per tonne, principally as
a result of adverse exchange rate movements.
In the UK, sales volume totalled 7.7mt (1997 : 7.5mt), of which
6.8mt (1997 : 6.6mt) were in the Company's main carbon and
engineering steel products. Demand for this range of products
grew by 5% to 11.9mt, led by increased levels of activity in the
UK construction sector.
British Steel achieved a market share of 57% (1997 : 58%) as
import pressures were felt. These pressures were mainly due to
the effects of the strong pound and also resulted in average
revenue in the UK falling by 5% to #347 per tonne.
Sales volume in the rest of Europe rose to 5.3mt (1997 : 4.8mt)
in response to improved market conditions. Sterling's strength
against the deutschmark resulted in average revenue being 10%
lower, at #448 per tonne, despite the underlying improvement in
deutschmark selling prices.
Outside Europe, sales volume was 2.6mt (1997 : 2.9mt), with the
effect of a higher level of sales in North America being more
than offset by a reduction in sales in other markets, primarily
relating to the financial crises in South East Asia.
Operating costs were #6,682m (1997 : #6,848m), a reduction of 2%
from the previous year, despite higher volumes and underlying
cost inflation. The reduction in costs mainly reflected
benefits from the Company's initiatives to improve manpower
productivity and to create a more cost effective supplier base.
Further significant savings will be achieved during the next few
years. Operating costs included rationalisation and related
costs of #43m (1997 : #73m).
The manpower productivity programme was the main factor in a net
reduction of 2,000 employees during the year. At the year end
the total number of employees was 48,400 and, during the first
week of April, a further 400 employees left the Company.
DIVIDEND PAYMENT
For ordinary shareholders, the final dividend of 7p per share is
payable on 10 August 1998 to shareholders on the register at
close of business on 26 June 1998.
For American Depositary Receipt holders, the dividend is payable
in US dollars on August 20, 1998 by the Depositary, The Bank of
New York, to the ADR holders of record on June 26, 1998
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE FINANCIAL YEAR ENDED 28 MARCH 1998
1998 1997
#m #m
GROUP TURNOVER 6,947 7,224
OPERATING COSTS (6,682) (6,848)
------- -------
GROUP OPERATING PROFIT 265 376
Share of operating results of joint ventures and
associated undertakings - 15
------- -------
265 391
Profit on sale of fixed assets 6 -
Profit on disposal of businesses, subsidiaries and
associated undertakings 5 18
------- -------
PROFIT BEFORE INTEREST 276 409
NET INTEREST AND INVESTMENT INCOME
Group 41 44
Joint ventures and associated undertakings (2) (2)
------- -------
PROFIT BEFORE TAXATION 315 451
Taxation (82) (144)
------- -------
PROFIT AFTER TAXATION 233 307
Minority interests (7) 3
------- -------
PROFIT FOR FINANCIAL YEAR 226 310
Dividends (195) (204)
------- -------
PROFIT RETAINED FOR THE YEAR 31 106
======= =======
EARNINGS PER ORDINARY SHARE 11.44p 15.22p
======= =======
There were no material acquisitions or discontinued activities
in 1998.
CONSOLIDATED BALANCE SHEET
AT 28 MARCH 1998
1998 1997
#m #m
FIXED ASSETS
Tangible assets 3,335 3,259
Investments in joint ventures 104 104
Investments in associated undertakings 9 8
Other investments and loans 181 194
Own shares 18 -
------- -------
3,647 3,565
------- -------
CURRENT ASSETS
Stocks 1,222 1,224
Debtors 1,643 1,610
Short term investments 1,043 1,359
Cash at bank and in hand 163 118
------- -------
4,071 4,311
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (1,672) (1,705)
------- -------
NET CURRENT ASSETS 2,399 2,606
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 6,046 6,171
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (723) (637)
PROVISIONS FOR LIABILITIES AND CHARGES (292) (341)
ACCRUALS AND DEFERRED INCOME
Regional development and other grants (58) (69)
------- -------
4,973 5,124
======= =======
CAPITAL RESERVES
Called up share capital 991 1,019
Share premium account 51 17
Capital redemption reserve 47 -
Statutory reserve 2,338 2,338
Profit and loss account 1,195 1,383
------- -------
SHAREHOLDERS' FUNDS - EQUITY INTERESTS 4,622 4,757
MINORITY INTERESTS
Equity interests in subsidiary undertakings 351 367
------- -------
4,973 5,124
======= =======
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE FINANCIAL YEAR ENDED 28 MARCH 1998
Profit for financial year 226 310
Exchange translation differences on foreign currency
net investments (29) (81)
------- -------
Total recognised gains relating to the year 197 229
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE FINANCIAL YEAR ENDED 28 MARCH 1998
Profit for financial year 226 310
Dividends (195) (204)
------- -------
31 106
Exchange translation differences on foreign currency
net investments (29) (81)
Share buyback (146) -
New shares issued 19 1
Goodwill arising on consolidation (10) (5)
Reversal of goodwill write-off through profit and loss
account on disposal - 13
------- -------
Net (decrease)/increase in shareholders' funds (135) 34
Shareholders' funds at beginning of year 4,757 4,723
------- -------
Shareholders' funds at end of year 4,622 4,757
======= =======
CONSOLIDATED CASH FLOW STATEMENT
FOR THE FINANCIAL YEAR ENDED 28 MARCH 1998
Net cash inflow from operating activities 512 857
Dividends from joint ventures and associated undertakings 6 12
Returns on investments and servicing of finance 36 26
Tax paid (183) (281)
Capital expenditure and financial investment (366) (410)
Acquisitions and disposals (25) 57
Equity dividends paid (201) (204)
------- -------
CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES
AND FINANCING (221) 57
MANAGEMENT OF LIQUID RESOURCES
Net sale/(purchase) of short term investments 311 (167)
FINANCING
Purchase of own shares (146) -
Issue of ordinary shares 16 1
Increase in debt 88 78
------- -------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES (42) 79
------- -------
INCREASE/(DECREASE) IN CASH IN YEAR 48 (31)
======= =======
RECONCILIATION OF NET CASH INFLOW/(OUTFLOW) TO
MOVEMENT IN NET FUNDS
Increase/(decrease) in cash 48 (31)
(Decrease)/increase in liquid resources (311) 167
Increase in debt (88) (78)
------- -------
Change in net funds resulting from cash flows (351) 58
Long term debt acquired (1) -
Other non cash items (3) -
Effect of foreign exchange rate changes 16 37
------- -------
Movement in net funds (339) 95
Net funds at beginning of year 785 690
------- -------
Net funds at end of year 446 785
======= =======
SUPPLEMENTARY INFORMATION
1998 1997
#m #m
1. GROUP TURNOVER
a. BY DESTINATION
United Kingdom 3,010 3,111
Rest of Europe 2,687 2,772
North America 654 673
Other areas 596 668
------- -------
6,947 7,224
======= =======
Included in above:
Exports from the United Kingdom 2,495 2,722
Sales to associated undertakings 185 370
b. BY PRODUCT GROUPING
Uncoated strip products 1,140 1,191
Coated strip products 1,218 1,179
Sections and plates 1,014 1,082
Tubular products 347 418
Wire rod 227 220
Semi-finished carbon steel products 121 140
Engineering steels 528 516
Stainless steel products 1,473 1,581
------- -------
Total steel industry products (*) 6,068 6,327
Distribution and further processing 779 805
Others 100 92
------- -------
6,947 7,224
======= =======
(*): By destination:
United Kingdom 2,662 2,726
Rest of Europe 2,387 2,412
North America 560 582
Other areas 459 607
------- -------
6,068 6,327
======= =======
1998 1997
mt mt
2. SALES VOLUME
a. BY DESTINATION
United Kingdom 7.7 7.5
Rest of Europe 5.3 4.8
North America 1.2 1.1
Other areas 1.4 1.8
------- -------
15.6 15.2
======= =======
b. BY PRODUCT GROUPING
Uncoated strip products 4.4 4.3
Coated strip products 2.9 2.7
Sections and plates 3.4 3.5
Tubular products 0.9 0.9
Wire rod 1.0 1.0
Semi-finished carbon steel products 0.7 0.7
Engineering steels 1.4 1.2
Stainless steel products 0.9 0.9
------- -------
15.6 15.2
======= =======
3. OPERATING COSTS
#m #m
Raw materials and consumables 3,019 2,967
Changes in stock of finished goods and
work in progress (26) 66
Employment costs 1,348 1,465
Depreciation (net of grants released) 295 288
Maintenance costs (excluding own labour) 578 573
Other external charges 1,044 1,031
Other operating costs 434 459
Own work capitalised (10) (1)
------- -------
6,682 6,848
======= =======
The above costs include rationalisation and
related costs of:
Redundancy and related costs 18 60
Accelerated depreciation 21 4
Other rationalisation costs 4 9
4. NET INTEREST AND INVESTMENT INCOME
Dividends from other fixed asset investments 2 2
Interest receivable 91 90
Interest payable (48) (43)
Finance leases (4) (5)
Joint ventures (2) (1)
Associated undertakings - (1)
------- -------
39 42
======= =======
5. TAXATION
UK Corporation tax at 31% (1997:33%) 89 168
Double tax relief (7) (12)
Prior year credit (4) (19)
Overseas taxes 12 4
UK deferred tax (5) (9)
Overseas deferred tax (8) 8
Joint ventures 4 4
Associated undertakings 1 -
------- -------
82 144
======= =======
6. EMPLOYEES
number number
Average weekly numbers employed:
Within UK 40,600 43,400
Overseas 9,400 9,500
------- -------
50,000 52,900
======= =======
Numbers employed at year end:
Within UK 39,100 41,000
Overseas 9,300 9,400
------- -------
48,400 50,400
======= =======
1998 1997
#m #m
7. CAPITAL EXPENDITURE
Purchase of tangible fixed assets 396 395
Movement in capital creditors 8 18
------- -------
404 413
======= =======
8. RECONCILIATION OF OPERATING PROFIT TO
NET CASH FLOW FROM OPERATING ACTIVITIES
Operating profit 265 376
Depreciation (net of grants released) 295 288
(Increase)/reduction in stocks (16) 67
(Increase)/reduction in debtors (9) 142
Increase/(reduction) in creditors 17 (27)
Rationalisation costs provided 22 69
Utilisation of rationalisation provisions (44) (24)
Other movements (net) (18) (34)
------- -------
512 857
======= =======
9. ANALYSIS OF NET FUNDS
Cash at bank and in hand 163 118
Bank overdrafts and other short term loans (65) (67)
Short term investments 1,043 1,359
Long term borrowings (638) (563)
Obligations under finance leases (57) (62)
------- -------
446 785
======= =======
10. US GAAP
PROFIT FOR FINANCIAL YEAR - UK GAAP 226 310
Adjustments:
Amortisation of goodwill (14) (13)
Profit on disposal of business and associated
undertakings - 9
Interest costs capitalised 27 19
Depreciation of capitalised interest (8) (8)
Pension costs (18) 86
Stock-based employee compensation awards (6) (4)
Rationalisation costs 14 -
Deferred taxation 9 26
Minority interests - (11)
------- -------
PROFIT FOR FINANCIAL YEAR - US GAAP 230 414
======= =======
EARNINGS PER ADS - US GAAP #1.16 #2.03
======= =======
DILUTED EARNINGS PER ADS - US GAAP #1.14 #2.00
======= =======
SHAREHOLDERS' EQUITY - UK GAAP 4,622 4,757
Adjustments:
Goodwill 207 212
Interest costs capitalised (net of depreciation) 137 118
Pension costs 103 121
Stock-based employee compensation awards (11) (5)
Quest shares held in trust (18) -
Rationalisation costs 14 -
Deferred taxation (496) (426)
Investments in equity securities 31 15
Proposed dividend 137 143
Minority interests 20 20
------ ------
SHAREHOLDERS' EQUITY - US GAAP 4,746 4,955
======= ======
END
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