Corus cuts its losses to £89m

STRUGGLING steel giant Corus warned that its desperate efforts to break into the black are being hampered by a slump in demand in its core markets.

New chief executive Phillippe Varin, presenting his first set of results, unveiled a sharp reduction in pre-tax losses to £89m for the six months to 28 June. This compares with £234m for the same period last year and £170m in the second half of 2002.

However, the Frenchman cautioned that demand was sliding away, particularly in construction and manufacturing. The warning unnerved the City and the shares dropped 4 1/2p to 25 1/2p.

Varin said: 'The second half is not as good as the first half and for the rest of the year we will have negative growth.' This 'will limit further improvement in our financial results in the immediate future'.

The company has lost more than £2bn since 1999 when it was formed through the merger of British Steel with Dutch rival Hoogovens. Since then, it has shed more than 10,000 jobs and went to the brink of bankruptcy earlier this year when the key disposal of an aluminium unit was blocked by a bitter row between the two halves of the business.

Corus also announced the first phase of a restructuring that will see £90m ploughed into its plants in Rotherham and Stocksbridge, near Sheffield. The investment is being funded through the disposal of two small North American businesses and surplus land in Britain, and financing from the Export Credit Agency.

The improvement in the first half of this year was driven by higher selling prices, more efficient use of its British plants and a recovery in sales. It also gained from the strengthening euro.

First-half turnover was up more than 12% from £3.6bn to more than £4bn. British turnover of £922m was 11% up on the same period last year.

Varin said his medium-term goals were to reduce the company's £1.5bn borrowings, regain investment grade status for its debt and resume the payment of dividends to shareholders.

It would take two to three years for Corus to close the 'competitive gap' on its main European rivals, he warned. Its margin on sales is just 3%, against an average 9% for its peers.

In August, Corus secured a e1.2bn (£832m) lifeline in the form of a new three-year bank facility to replace one due to expire in January. It cannot resume shareholder payouts until its interest bill is at least seven times covered by earnings. First-half net cash outflow from operations was £101m.

Cold steel as reality checks in

CORUS'S new boss Phillippe Varin got an unwelcome taste of cold steel when the markets opened today.

The honeymoon with the City, which has seen the shares chased from 4p in March to 38p this month, ended with a 10% fall.

Varin may be doing a lot - perhaps all - of the right things after years of poor management, but that does not make him a miracle worker.

Today's reality check shows that Corus's fundamental underlying problems, weak demand, overcapacity, inefficiency, cannot be magicked away. Varin has at least stopped the rot and secured financial stability but the 'Restoring Success' title for his overhaul programme could come back to haunt him. Corus is still way off the pace for companies of its size.

Investors will have been looking for some signs that the long awaited return to profitability is in sight. Instead they got yet another warning. And that went down like a lead balloon.