British Steel - Results for 1995/96.

LONDON--(BUSINESS WIRE)--June 17, 1996-- Chairman and Chief Executive's Statement

The company achieved record results for the year to March 30, 1996, despite a more difficult trading scene in the second half, with pre-tax profits of 1.102 billion pounds and earnings per share of 38.28p.

The board is recommending a final dividend of 7.0p per share which makes a total dividend for the year of 10.0p per share, an increase of 33% on last year.

The results of Avesta Sheffield AB have been consolidated from Sept. 30, 1995 following the acquisition of a further 1.1% of its shares, taking our interest to 51%. The results also include a full year's contribution from British Steel Engineering Steels, British Steel Forgings and Scunthorpe Rod Mill, all of which became wholly-owned in March 1995.

The balance sheet has become even stronger during the year with a cash inflow of 561m pounds, resulting in net funds at March 30, 1996 of 690m pounds.

In my interim statement in November 1995, I reported an easing in steel demand from that experienced in the first half of the year. This was particularly evident in mainland Europe and resulted largely from excess stocks in the supply chain. There has since been a consequential general weakening of prices although the de-stocking phase now appears to be close to its end. Inevitably, however, with the present weakness in market demand in Europe, and the accompanying impact on prices, profits for the current year will be adversely affected but I still expect a year of satisfactory performance.

Capital expenditure in the year at 321m pounds, including Avesta Sheffield's expenditure in the second half, was over twice the level of the previous year, but less than planned due primarily to delays, since resolved, in finalizing the land agreement for the Direct Reduced Iron facility at Mobile, Ala. However, good progress has been made on our other major US capital projects, at Tuscaloosa Steel and at the Trico Steel joint venture, both of which are due to be commissioned later this year.

I have referred in the past to the fact that while not neglecting Europe we are actively seeking business opportunities in the Asia Pacific region, arguably the area of fastest economic growth in the world. We continue to devote significant time and effort in considering possible ventures but the detailed evaluation of proposals and the building up of the appropriate relationships with local partners is, inevitably, a lengthy process.

We have tried for many years to ensure that the State Aid rules applicable to the European steel industry are properly and consistently applied. While progress has been made in this area we have also found it necessary to challenge the legality of certain decisions and State Aid payments. We are also discussing with the European Commission, together with a number of other producers, a new State Aid Code in order to try to ensure that future proposals are at least as robust as those currently in force.

Review of 1995/96

The results for the year showed a further significant improvement as compared to 1994/95, primarily due to better selling prices, but also reflecting the consolidation of new acquisitions.

Turnover at 7,048m pounds was 47% above the previous year. For steel industry products, turnover of 6,044m pounds (1994/95: 3,963m pounds) and sales volume of 14.4mt (1994/95: 12.6 mt), were at much higher levels than the previous year. It is not possible to make direct comparisons with last year as a result of the consolidation of new acquisitions, particularly the former UES Holdings Limited (in March 1995) and Avesta Sheffield AB (from Sept. 30, 1995). Setting aside the effect of these two major acquisitions, the underlying increases in turnover and sales volume of steel industry products were, respectively, 12% and 1%. Average revenue per ton, rose by 33% to 419 pounds in 1995/96 and, excluding engineering and stainless steels, was up by 10% at 348 pounds.

In the UK, British Steel's deliveries totalled 7.3mt of which 6.6mt were in main finished products. UK demand for these products was unchanged at 11.3mt in 1995/96 and British Steel's market share increased to 58% (1994/95: 56%). There was a sharp decline in imports from other EU countries, partly as a result of sterling's weakness against the deutschmark, but imports from outside the EU increased.

Deliveries to the rest of Europe amounted to 4.4mt (1994/95: 3.5mt), the increase being wholly due to the effect of the newly consolidated engineering steel's stainless steel, and wire rod businesses. Excluding these acquisitions, the level of British Steel's deliveries to the rest of Europe was unchanged from 1994/95.

In markets outside Europe deliveries at 2.7mt (1994/95: 2.3mt) were up on last year's level, largely as a result of the effect of acquisitions. The underlying increase of 2% mainly reflected increased sales in the final quarter of 1995/96, of uncoated strip products from Llanwern after completion of the second continuous caster at that works.

From the last trough in 1993, world prices had risen to reach a peak, in most product areas, in mid-1995, reflecting a more favorable steel supply/demand balance, due to stronger economic growth and higher steel demand. Subsequently, world prices fell sharply with a number of factors contributing to this deterioration. Chinese net imports, which surged to 35mt in 1993, were virtually eliminated by mid-1995. Destocking was pursued vigorously in the US and, later, in Western Europe.

Despite generally weaker average prices in the second half year, average revenue per ton, excluding engineering and stainless steels, was largely unchanged as compared to the first half. In the UK and rest of Europe, average revenues per ton were, respectively, 2% and 4% higher, mainly as a result of product mix and exchange rate factors. The effect of these rises, however, was offset by the impact of an 8% fall in average revenue per ton in sales outside Europe.

Operating costs at 6,107m pounds in 1995/96 were 41% above last year's level, mainly reflecting the effect of newly consolidated subsidiaries. The underlying increase of 4% was due to a higher level of steel trading activity and cost inflation.

Setting aside the effect of acquisitions, there was a net manning reduction of 850 during 1995/96. At the year end, total employees worldwide were 53,900 (1994/95: 46,300), including 9,700 (1994/95: 3,900) outside the UK.

British Steel continued to be strongly cash generative, ending the year with net funds of 690m pounds (1994/95: 129m pounds).

Dividend Payment

For ordinary shareholders the final dividend of 7.0p per share is payable Aug. 12, 1996 to shareholders on the register at close of business on July 2, 1996.

For American Depositary Receipt holders the dividend is payable in US dollars on Aug. 22, 1996 by the Depositary, The Bank of New York, to the ADR holders of record on July 2, 1996.

                  Consolidated Profit and Loss Account
                For the Financial Year Ended March 30, 1996

                                            1996        1995
                                         (In millions of pounds)

Group turnover                             7,851        6,228
Turnover
Continuing operations (excluding
 acquisitions in 1995 and 1996)            5,186        4,748
Acquisitions in 1995                         856           36
Acquisitions in 1996                       1,006           --
                                           7,048         4,784
Operating costs                           (6,107)       (4,338)
Trading profit                               941           446
Share of results of associated undertakings  128           135
Operating profit
Continuing operations (excluding acquisitions
 in 1995 and 1996)                            888          581
Acquisitions in 1995                          119           --
Acquisitions in 1996                           62           --
                                            1,069          581
Profit on sale of fixed assets                  4            3
Profit on disposal of business and associated
 undertaking                                    7            1
Profit before interest                      1,080          585
Net interest                                   22           (7)
Profit before taxation                      1,102          578
Taxation                                     (276)        (107)
Profit after taxation                         826          471
Minority interests                            (49)          (3)
Profit for financial year                     777          468
Dividends                                    (204)        (152)
Profit retained for the year                  573          316
Earnings per share                           38.28p       23.21p

There were no material discontinued activities.

                             Consolidated Balance Sheet
                                 At March 30, 1996

                                            1996           1995
                                          (In millions of pounds)
Fixed assets
Tangible assets                            3,265           2,791
Investments                                  313             566
                                           3,578           3,357
Current assets
Stocks                                     1,391             883
Debtors                                    1,824           1,371
Short term investments                     1,207             543
Cash at bank and in hand                     143              80
                                           4,565           2,877
Creditors: Amounts falling due within
 one year                                 (2,025)         (1,390)
Net current assets                         2,540           1,487
Total assets less current liabilities      6,118           4,844
Creditors: Amounts falling due after
 more than one year                         (551)           (409)
Provisions for liabilities and charges      (322)           (244)
Accruals and deferred income
Regional development and other grants        (80)            (89)
                                           5,165           4,102
Capital and reserves
Called up share capital                    1,018           1,009
Share premium account                         17              11
Statutory reserve                          2,338           2,338
Profit and loss account                    1,350             729
Shareholders' funds - equity interests     4,723           4,087
Minority interests
Equity interests in subsidiary undertaking   442              15
                                           5,165           4,102

Additional tables available from Business Wire upon request.

CONTACT: Georgeson & Company Inc.

Mark Bonacci, 212/440-9824