Corus profits continue climb.

Byline: Helen Logan

Steelmaker Corus, which employs 2,700 on Teesside, benefited from higher selling prices today as profits continued to climb towards the end of a three-year recovery programme.

The group, which is currently a takeover target for India's Tata Steel and Brazil's CSN, said profits from continuing operations rose to pounds 171m in the three months to September 30, compared with pounds 75m a year earlier.

Strong European demand meant selling prices rose 8% and offset the impact of a 2% rise in operating costs, mainly relating to raw materials.

Chief executive Philippe Varin said the performance reflected better market conditions and benefits from the company's Restoring Success programme.

The three-year overhaul is now drawing to a conclusion and is on track to meet its target of earnings benefits of pounds 635m a year by the end of 2006.

The programme involved initiatives to make Corus more competitive, but the company admitted last month that it needed a partner to bring about further cost reductions and open up fresh opportunities in new markets.

As a result it backed a pounds 4.3bn takeover by Tata, although that tie-up is now in doubt following a rival approach from CSN.

Corus shareholders will vote on the Tata deal on December 20 after the UK company agreed to move the date in order to give CSN more time to come up with its own proposal.

The takeover speculation and improved trading has caused Corus shares to rise from 200p in June of last year to 497p today.

Last year Corus was the ninth largest steel maker in the world with 18.2m tonnes of output, pre-tax profits of pounds 580m and a turnover of pounds 9.2bn.

Corus, which was set up through the merger of British Steel and Dutch group Hoogovens in 1999, employs 24,000 people in the UK at locations including Scunthorpe, Rotherham and Port Talbot as well as Teesside.

Mr Varin added that the commercial environment remained stable, although profitability for the fourth quarter was likely to be affected by seasonal production shutdowns.

Tata, which owns interests including Tetley Tea, which has a plant at Eaglescliffe, will become the world's fifth largest steel company if India's biggest ever acquisition of a foreign company goes through.

One potential stumbling block to the deal had been the Corus pension fund but Tata has said it will pay pounds 126m into the scheme and also increase contributions to the British Steel fund from 10% to 12% until March 2009.

CSN was due to meet Corus pension trustees this week.

So far, it is understood, it has had only preliminary talks with the pension trustees, whose opinion could be vital to any bid - as they could block an approach if they believe the Brazilians have not made sufficient commitments to Corus's pensioners.

Last week CSN told Corus that it was willing to pay more than the existing offer from Tata.

A tie-up between Corus and CSN would create the fifth largest steel company in the world with an annual output of 24 million tonnes - on a par with the proposed Corus-Tata deal.