Steel works
£50m investment for giant Scunthorpe plant
BRITISH Steel is ramping up investment at its Scunthorpe steelworks and says its turnaround effort is “firmly on track” after its profits took a knock due to a technical problem at its production facilities.
The business, which was created through turnaround fund Greybull’s acquisition of a chunk of Tata Steel for a symbolic £1 in 2016, said annual turnover rose by £200m to £1.4bn. Earnings before interest, tax, depreciation and amortisation were almost 50pc higher at £68m, although that excludes a £47m hit from a problem with a blast furnace, which the company is trying to claim against insurance.
Roland Junck, the executive chairman, said the transformation of British Steel was “firmly on track with unprecedented levels of investment”.
Alongside the results, British Steel announced £50m of new investment to upgrade wire rod mill facilities at its giant Scunthorpe steelworks, along with £120m committed over three years. The new investment is funded by £90m of debt financing from White Oak Asset Finance, an offshoot of a US credit fund. British Steel would not disclose how much interest it is paying on the funding.
Gerald Reichmann, chief finance officer, called the arrangement with White Oak “quite innovative and in line with our entrepreneurial spirit, it is higher risk profile and priced to reflect that”. Mr Reichmann said the company had a total of £265m of credit facilities, mainly with high-profile lenders.
However, there are concerns about the future of the industry as the tariffs the US has imposed on imported steel begin to bite.
Paul Martin, deputy chief executive of British Steel, said: “The big risk is steel which would have gone into the US – we have to make sure we don’t become a dumping ground for subsidised steel.”
One of the main causes of the crisis in the British steel industry in 2015 was a flood of cheap steel coming into the country. Thousands of jobs were cut as domestic suppliers became unable to compete with steel coming into the UK, mainly from China and often subsidised. Mr Martin said he welcomed news from the EU that it will this week begin “safeguarding” measures to block imports of steel that would otherwise have gone to the US.
Announcing the introduction of the measures, Cecilia Malmström, the EU trade commissioner, said: “The US tariffs on steel products are causing trade diversion, which may result in serious harm to EU steel makers. We are left with no other choice than to introduce provisional safeguard measures to protect our domestic industry against a surge of imports.”
She added the safeguards “ensure the EU market remains open”, calling them the “right balance between the interest of EU producers and users of steel, like the automotive and construction sectors, who rely on imports”.
The steel crisis was a major factor in the creation of British Steel, when Tata decided to start disposing of its underperforming UK assets.
This allowed Greybull to swoop in and buy Tata’s Scunthorpe-based “long products” unit, which supplies to the rail industry, among others.