Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 62 - 79)




  62. Welcome, Sir Brian and colleagues, to the Welsh Affairs Committee on this auspicious day for Wales, St David's Day. I hope it is also going to be auspicious in terms of not so many job losses in Wales. If you have any nice things to tell us, we would be delighted to hear them. Can you begin by introducing your team?

  (Sir Brian Moffat) On my left is Mr Tony Pedder, one of my Board colleagues responsible for our strip business. On my right is Mr David Jackson, director of communications.

  63. We have had evidence that as part of the merger with the Dutch company you had to pay roughly £700 million to shareholders of British Steel. This seems to have resulted in you being under-geared in terms of being able to invest in companies. This is our interpretation but we would like to know what your interpretation is of that. Also, you are on record as saying that Corus is losing in the United Kingdom £1 million a day. If that is correct, it would be interesting to know how much you are paying in debt repayments per day.
  (Sir Brian Moffat) The first thing is that British Steel declared a special dividend to its shareholders in excess of £700 million at the time of the merger. This was to facilitate the merger and it was to bring what otherwise would have been a 70/30 per cent merger more in line to a 63/37 per cent merger and it was by way of financial engineering. The money was in the bank in British Steel and the board decided to pay that over to the then British Steel shareholders. It was to facilitate the merger. I am not sure of the connection between the loss per day and debt repayment.

  64. I will give you the connection. It is £1 million a day, as I understand it, that you are paying in debt repayments and it happens to be exactly the same as you claim you are losing per day.
  (Sir Brian Moffat) We are not paying £1 million a day. We are losing £1 million a day, as a result of which, if that was to carry on, the company would go bankrupt. We are not in a position to repay the moneys we owe the bank at a rate of £1 million a day. We pay interest to the bank at a rate of just under £1 million per week for the moneys that we have borrowed to help finance the group. One item is a profit and loss account item; the other item is a balance sheet item. There is not a connection.

  Chairman: I think there is probably a connection in ordinary people's minds, Sir Brian.

Mr Ruane

  65. The steel industry is typically cyclical in nature and I believe three years ago you were making £1 million a day profit. Should not good management have dictated that you should have stored some of that money away for a rainy day, for the trough, so that you could weather that trough and come out on the other side viable?
  (Sir Brian Moffat) We did that. The reason for the restructuring is that the United Kingdom assets have grown over-large relative to the United Kingdom market. Our customer base has been shrinking progressively in the United Kingdom, particularly in the latter part of the 1990s, and we have had as a result to export more products [abroad]. The price situation [abroad] and the competition scene abroad has been such that it is impossible, particularly from the distance we are from the market and the extra costs involved, to make money on those basic flat products in northern Europe. We had to downsize the business in order to bring it more in line and to try and ensure that we correct the loss situation which currently is occurring. In the meantime, we have been making losses getting on now for two and a half years, hoping that the scene would improve, but unfortunately it has not. Indeed, in the latter months, it has got progressively significantly worse both in price terms as far as the general market is concerned and market demand terms as far as the United Kingdom is concerned.


  66. Can you give us a figure for how much the United Kingdom part of your company is losing?
  (Sir Brian Moffat) Just over £1 million a day.

  67. For the United Kingdom part, not Corus as a whole?
  (Sir Brian Moffat) No. The only profitable part of Corus is the Dutch business.

Mr Caton

  68. I hear what you say about needing to dispose of this £683 million or whatever it was to facilitate the merger, though it does sound a bit like the only marriage in history where the bride's family have asked for the dowry to be divided amongst the groom's family before it is allowed to go ahead. Accepting perhaps that, to make the deal, you needed to use up some of that cash, is the only way you could have used it to divide it amongst the shareholders? Could it not have been invested in the United Kingdom steel industry, including the Welsh steel industry?
  (Sir Brian Moffat) Our problem is not about investment; it is not about efficiency or productivity of the workforce. You have not heard me criticising them. We have far too much investment in the United Kingdom. Today, we export over 50 per cent of what we make because the United Kingdom market is in permanent decline. That is the problem. Our United Kingdom customer base is being eroded year on year. I have the figures in front of me. In 1989, with three plants, we made 5.8 million tonnes of strip products in this country, of which 4.2 were used in the United Kingdom and only 1.6 exported. In 1999, we made, with two plants, 6.1 million tonnes. We had only 3.5 million tonnes of demand in the United Kingdom and we exported a million tonnes more.

  69. We have that in your written submission but I would like a yes/no answer. To get the deal to work, could you have used that money in another way?
  (Sir Brian Moffat) Not to get the deal to work, no.

  70. It had to be a shareholder pay-off?
  (Sir Brian Moffat) Of course. It is the shareholders' money.

  71. Hoogovens presumably were not demanding that you use the money in that way. They just did not want you to get this 70/30 deal ending up?
  (Sir Brian Moffat) The deal we came to with Hoogovens is we would do the deal but, as part of the deal, the British Steel shareholders would get £700 million back.

  72. I find it hard to believe that Hoogovens actually made it a requirement that you paid out British Steel shareholders.
  (Sir Brian Moffat) We made it a requirement.


  73. It seems strange to me that it always used to be the case that you had a company which was exporting, say, 60 per cent of its production and that was good for the United Kingdom. I do not understand why what you essentially are saying you want to do is to move steel production into Holland, away from the United Kingdom, from what was a British company. In terms of us here, in this room, as people wanting the United Kingdom to do well, that does not sound like good business to me.
  (Sir Brian Moffat) What we want to do is to sell steel which is converted into finished products and export it in finished product form from the United Kingdom. That way, the balance of payments is better; the wealth creation and the job facilitation as a result of that in the United Kingdom is better. That is permanently and continually being eroded. You only have to look at the figures in terms of steel consumption or consumer goods imported into this country to see how, year on year, the goods imported into this country are eroding the manufacturing base.

  74. That is absolutely true and I think we all know that.
  (Sir Brian Moffat) The basic product for manufacturing goods is steel. It is the most used product in the world.

  75. If you are making steel and you have a market abroad and you are able to export that, that is good for the United Kingdom. It would be even better if we were making stuff here from that steel but it is still not bad for the United Kingdom.
  (Sir Brian Moffat) It is good if we can make money at it, but if you cannot make money at it all it does is erode the fabric of the company.

Mr Caton

  76. Have Hoogovens ever merged with any other steel companies prior to British Steel?
  (Sir Brian Moffat) Yes. To my knowledge, one.

  77. Was it successful?
  (Sir Brian Moffat) No.

  78. What happened?
  (Sir Brian Moffat) It was demerged.

  79. Why?
  (Sir Brian Moffat) Because it was not successful. The Germans and the Dutch could not get on. I do not know the exact details of why it was demerged with Hoesch, the company that used to be in Germany in the 1970s.

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