Corus first profit of £163m

STEEL giant Corus was on song today as the company reported its first profit since the controversial merger of British Steel and Hoogovens of the Netherlands five years ago.

First-half pre-tax profits came in at £163m, easily beating most City forecasts and representing a stark turnaround from last year's interim loss of £89m.

The results are likely to see analysts scrabbling to change their forecasts and the newly emboldened company reported that things can only get better with expectations for an even greater improvement for the second half of this year.

The return to the black comes after a sharp change in the fortunes in the world steel market with the massive demand coming from China allowing higher-cost producers like Corus to push through price rises.

But the revival will also lead to plaudits for Philippe Varin, the Frenchman brought in as chief executive to shake up the ailing company and who instituted a £250m restructuring programme tagged Restoring Success.

He said about half of today's reported turnaround or about £100m of the surplus was due to his restructuring initiatives.

Fierce worldwide competition has seen the company rack up losses of £2.7bn since its merger.

That took Corus shares to as low as 3 3/4p some 18 months when the group appeared to be on the edge of collapse.

They opened today at 49 1/2p, valuing the company at more than £2bn and putting it on the trail of an extraordinary return to the FTSE 100.

The revival comes with the growth of the Chinese economy, which accounts for more than a quarter of the world's steel consumption - up from less than 10% a decade ago.

But the results also come amid the rising price of raw materials. Iron ore has leaped 24% in the past three years, imported coking coal is up fivefold in the same period and scrap metal prices have risen by 200%.

'Based on a combination of further planned benefits from the Restoring Success programme, previously announced price increases and continued tight market conditions, the board expects the progress in operating profit and margins will continue in the second half of 2004,' Varin said.

The rise in Corus's share price has earned tens of million of pounds for Alisher Usmanov, the Russian oligarch who has used Corus's depressed stock price to build up a 13% stake.

Corus also said that it is to raise €500m (£342m) to replace €400m of 5 3/8% bonds due in 2006 to reduce existing borrowings and complement the £300m of new equity raised last December.

The company added to its board today with the appointment of 31-year Hoogovens veteran Rauke Henstra as an executive director and Jacques Schraven as non-executive deputy chairman. Richard Turner, a non-executive since Corus was formed in 1999, is to retire at the end of the year.

Reaction to the figures was lukewarm. 'They were good numbers but not blow-away,' one City analyst said. 'The management team were relaxed and confident in the presentation but not overly ebullient.'

Attention is focused on the lack of a decision on the fate of the Teeside plant. 'They have to do something with it, but they can‘t find anyone to buy it,' said a long-term investor.

The issue of a new corporate bond to reduce the pressure of debt repayments is more psoitive. Observers insist, however, that the company needs to sell the Dutch aluminium assets to reduce debt significantly. The assets have been up for sale since 2002.

With no interim dividend this year, shareholders may have to wait until at least 2006. The reinstatement has been delayed significantly while the group has struggled to return to profitability.