Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 340 - 359)



  340. Do you really think those massive losses on the restructuring are in the company's long-term interest?
  (Sir Brian Moffat) No, it is not but by law, when we make decisions, we have to account properly for them, otherwise we would not get our accounts signed by our auditors or be judged by our shareholders to be properly reflecting the situation of the company, which is what we try to do. We have to provide for that situation which we have announced.

  341. It just seems that the losses are so enormous associated with this programme that it seems to me, to go back to the earlier theme, that a shot should have been given to the proposals which came forth from the unions and the Government.
  (Sir Brian Moffat) The problem was that we were continuing to lose huge amounts of cash which we have to try to stop and we are in the process of doing so, in terms of restructuring and stemming the losses. That is what it is all about. A lot of the provisions you are talking about are not actually cash, they are writing off assets which we are going to close. The cash has been expended. It is just making the provision.

  Ms Morgan: I suppose it just returns us to the earlier discussion.

Mr Livsey

  342. We are talking now about the profitability of the company. Would it be possible to have a breakdown of individual plant costings, please?
  (Sir Brian Moffat) No, I am sorry.

  343. Why not?
  (Sir Brian Moffat) Because that would be extremely sensitive.

  344. Would you accept if those were made available to a management/workers buyout that they had a view of the breakdown of their plant? Do they know this already or not?
  (Sir Brian Moffat) Yes, they know on an individual basis.

  345. On a plant by plant basis.
  (Sir Brian Moffat) Yes.

  346. The system of accounting which you deploy is absolutely vital as far as knowing whether a plant actually remains open or not and I should just like to quiz you a little about this. I assume the figures we are getting relate to net profit and a profit and loss account. Is that right?
  (Sir Brian Moffat) Yes, it is a fully integrated standard cost system in the sense that we can cost out products by product on a tonnage/customer basis, by category. If you multiply the tonnes by the costs or the margin, you come to the same figures which are in the profit and loss account.

  347. It is a sort of a cost accounting system on a pretend basis.
  (Sir Brian Moffat) No, it is a totally integrated standard cost financial system. It has been in operation for at least 30 years and refined over many more years.

  348. So the whole question of return on capital and rate of return on it where for example a plant may have been written off, like Ebbw Vale shall we say—
  (Sir Brian Moffat) It was not, but parts of it may well have been, as many other parts of assets if they are older, 20 years old, will have been. Operating plant has a life in depreciation terms of 20 years.

  349. That does not feature as a judgement as to whether you would close a plant or not.
  (Sir Brian Moffat) No.

  350. If we look at your consolidated balance sheet, why did you in fact have four different audit dates from 2 December 1999 through to the end of the 15-month period on 30 December 2000?
  (Sir Brian Moffat) Because first of all the two old companies, British Steel and Hoogovens, had two different accounting dates, December and March and indeed Avesta, Sheffield, of which we owned 51 per cent, a subsidiary of ours, also had a different accounting date. Under UK law, our first accounting date had to be from the merger date, which was October, until the original date of our British Steel year end, which was 31 March. That is by law, because we were going into a new accounting period at 31 December to rationalise all the dates. We then had progressively to report, therefore October to March was the first six-month period for the old British Steel, which in fact acquired the Hoogovens company. It then had to account for its first six-month period. We then had to account for the next six-month period involving Hoogovens, which was to 30 June and then the six-month period for the new company to 31 December last year. Very complex. All I can say is that it is the law and we have to abide by the law.

  351. I have some knowledge of management accounting. I understand the complexities when you explain. Do you not think that it was rather unwise, given such a turbulent period in accounting, to then have gone ahead and made decisions on the profitability of individual plants when you could have waited for another 12 months?
  (Sir Brian Moffat) We could not afford to sustain the losses. You will see in the balance sheet how the cash situation has been eroded in that situation.

  352. I noted that but also perhaps you could explain to me why the fixed assets went up by £1.5 billion in the three-month period between 2 October 1999 and 1 January.
  (Sir Brian Moffat) British Steel acquired the assets of the whole of the Hoogovens Group. That is why it went up then. It was a consolidation.

  353. It was integral to the consolidation of the company.
  (Sir Brian Moffat) Yes.

  354. Then it went down by £820 million in the last six months or so.
  (Sir Brian Moffat) A lot of that was the provisioning that Ms Morgan was asking about. Out of the £1,100-odd million, just short of £700 million was asset write-off as against direct cash for closure costs to bring them down to zero value.

  355. Really the auditing of the accounts over the period we have just been talking about was a decision of the company to have it officially audited over a 15-month period.
  (Sir Brian Moffat) Yes, but it has to by law.

  356. Not a 12-month period.
  (Sir Brian Moffat) We do not have an independent decision. We have by law to do exactly what we did. I, like you, I can assure you, questioned having to do that, paying all these auditors' fees and so on, and the time it takes to produce and publish accounts, but it had to be.

  357. Most of the difference we have been talking about seems to be intangible assets as far as I can see on the balance sheet. Tangible assets seem to be the biggest movement on fixed assets.
  (Sir Brian Moffat) Yes. Intangible is largely goodwill on certain acquisitions which have been over time, which we now have to account for on the balance sheet as against writing off.

  358. The current assets appear to be debtors; quite a significant increase.
  (Sir Brian Moffat) Year on year again that is because of the group impact. The comparator figures were just British Steel the year earlier and the new ones are the total consolidated group.

  359. Were you relying on all of these accounting fluctuations to make the decisions you have actually made about closing plants?
  (Sir Brian Moffat) Yes, we had to make them in the light of the accounting situation, driven by the financial situation we were in.

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