Earnings boost as British Steel makes biggest investment in a decade in Scunthorpe
Wire rod being manufactured at British Steel in Scunthorpe.
By Scunthorpe Telegraph | Posted: 18 Jul 2018
British Steel has announced the biggest single investment in its manufacturing operations for a decade, as it reports a first quarter profit of £21 million.
A total of £50 million is to be invested in the upgrading of the Scunthorpe Rod Mill, as the business builds for the future, with £68 million of annual earnings revealed for 2017 to 2018, on a £1.4 billion turnover, up £200 million year on year.
It emerged in the Greybull-owned business’s second annual trading update, with bosses underlining how the turnaround remains firmly on track.
On top of the rod mill, £40 million has been committed to further maintain and improve the works, making it £120 million in first three years of the post-Tata business. Further projects worth £500 million are being pursued.
A £47 million bill for a blast furnace chill – one of the most serious outages a works can suffer – is not included in the reckoning, as an insurance claim is pursued for the incident on Queen Victoria last July.
British Steel executive chairman Roland Junck, pictured right, said: “Our transformation remains firmly on track and continues apace with unprecedented levels of investment going into the business.
“Without the unique blast furnace chill last summer – the impact of which was widely reported by media – we’d have exceeded our Year Two target which demonstrates the growing strength of our business.
“This strength is why a number of leading financial institutions continue to provide us with additional financing to support our investment and growth plans. This is not only enabling us to improve our plant, products and services – as demonstrated with our rod mill investment – it’s allowing us to expand our portfolio by making strategic acquisitions such as FNsteel (a Dutch wire rod plant bought in October 2017).
“Increased raw material costs and fluctuating steel prices continue to be a challenge. It’s important safeguarding action is taken to prevent the dumping of cheap steel into Europe following the imposition of steel tariffs by the US. However, we remain in positive talks with the Government, and our other stakeholders, and are confident about our future.
“Our order book is strong and we’ve the capacity and capability to play a significant role in major infrastructure projects such as HS2 and the Heathrow expansion. We continue to invest in our people and products, remain focused on reducing the cost of liquid steel and are growing into new markets across the globe.
“With the support of our employees we’ve achieved a great deal in a short space of time and while a lot of hard work lies ahead, we’ve made significant progress towards building a sustainable future.”
A mill roll, used in the steel rolling process, being measured at British Steel in Scunthorpe.
Since the June 2016 nominal buy-out, 1,000 people have joined the business, with the 5,000 employees now receiving a staggered four per cent pay rise. They have been allocated a further one million company shares.
Paul Martin, British Steel deputy chief executive said: “Our people continue to be our most important asset, they’ve helped us come a long way in a short space of time. The pay rise, and award of more shares, recognise their incredible contribution to British Steel and I’d like to thank them, the unions and our valued customers and suppliers for the support they continue to give our transformation.”
The £50 million wire rod investment will see a new modern wire rod line open. It is being designed by Primetals which will also oversee installation. Work is scheduled to start this summer and the new operation is set to be commissioned in autumn 2019.
Mr Martin said: “This is a major investment in the future of our business, underpinning our commitment to providing customers with higher technical specifications of steel and a diverse, premium product range.
“Not only will this increase our ability to serve the domestic wire rod market, it will allow us to become a more competitive exporter and accelerate the growth of British Steel in line with our company strategy.
“By continuing to make investments like this our aim is to become the steel supplier of choice for more businesses across the world.”
£90 million finance deal underlines confidence in business model
Growth plans are being supported by £90 million of new financing from White Oak Asset Finance, an affiliate of San Francisco-headquartered White Oak Global Advisors LLC.
The recent track record makes appealing reading for backers, going from a £79 million loss in 2016 to a £47 million profit last year and now £68 million.
Quarter one of the current financial year puts it on track for more than £80 million of profit, which would represent a £160 million swing under Greybull.
Marc Meyohas, pictured left, Greybull Capital partner, said: “We’re pleased with the progress British Steel is making and will continue to do all we can to ensure the company thrives for years to come.”
White Oak is a hedge fund model, and is in addition to £175 million of traditional bank financing.
Tom Otte, president of White Oak Asset Finance, said: “Our investment in British Steel speaks strongly to the company’s turnaround over the past few years. We are very optimistic on the company’s continued growth, and fully expect our capital to finance its organic expansion.”
Questioned about the choice of structure, Gerald Reichmann, recently appointed chief financial officer, said: "It is quite an innovative concept aligned to our entrepreneurial spirit, that maximises the abilities of our business. It is £90 million of a wider £265 million, showing we have a very broad, strong portfolio of solutions to support us."
Declining to give details of terms, Mr Reichmann said: "It is always risk and reward, and it is set up with interest rates set up with the risk profile. This is first in, last out, it has a higher risk than existing financing and is priced accordingly.
"For the next three years we have a strong, secure financing base in place.”
Two further appointments have been made alongside him, with Ron Deelen as chief marketing officer and Ugur Yilmaz as chief operating officer.
FNsteel, the Dutch wire rod business acquired in October last year, is being integrated into the business, adding 300 more employees to the 5,000 headcount.
Paul McBean, Scunthorpe site multi-union chairman, said: “It wasn’t long ago that people were doubting if these works had a future but since the launch of British Steel the business has gone from strength-to-strength.
“The rod mill investment is a fantastic second birthday present for British Steel and the 5,000 employees contributing to our turnaround.
“While we still have a long way to go, investments of this scale – and the ongoing commitment to capital expenditure - demonstrate the great optimism flowing through this company.”