The Chinese owners of British Steel Works at Scunthorpe revealed that they had not made any profit since they saved the company. British Steel Ltd., which is owned by Jingye since 2020, caught up with its annual accounts after two separate disputes over audit fees. The company reported losses of £408m in 2022, following a £50m deficit in 2021.
Jingye, in South Wales, is following the same path as Tata Steel in shutting down its old, energy-intensive blast furnaces that emit high levels of emissions. They will be replaced by cleaner and greener electric-arc furnaces. Port Talbot is losing 2,800 jobs as a result of the process. Scunthorpe is also at risk of losing thousands of jobs without government assistance.
In the 2022 accounts that were filed late this week by Xi Feng Han (the Jingye executive and British Steel chief executive), he acknowledged that trading continued to be “challenging… with losses continuing through 2023, 2024.”
Jingye bought British Steel from the Official Receiver at the same time that Covid-19 entered the picture. Greybull Capital, a group of financiers trading as Meyohas Brothers, had acquired Scunthorpe from Tata Steel for a nominal £1. Tata sold Scunthorpe in 2007 after it acquired it as part of the takeover of Corus. They believed it was doomed. The business collapsed under the Meyohas’ watch within four years.
Scunthorpe’s profits in its first year under Jingye’s ownership were £267million. This includes the blast furnaces, a rolling-mill and steel mills located in the north-east, as well as the giant blast furnaces and rolled mills.
British Steel’s performance in 2022 was marked by a falling demand. The output dropped from 2.6 to 2.0 million tonne, and this wasn’t helped by the soaring commodities prices or the surge in energy costs as a result the Ukraine war. The latest audits by British Steel said that there is “material uncertainty” about whether the company will continue to operate.
British Steel increased its revenues from £1.5 to £1.7 billion by increasing customer prices. With its rising costs, however, the operating margins slid from a break-even to -8.2 percent — a loss of £82 for every £1,000 in revenue. The bottom line losses increased eightfold to £408 millions after a £202 million write off of assets.
MHA, also known as Macintyre Hudson or Baker Tilly in the past, stated that there was “material doubt” about the company’s future, and indicated that it was dependent on Jingye continuing to support the business. The auditors issued a qualified report on the accounts, saying that they couldn’t verify the accuracy after taking over the audit from the previous auditors.
Moore Kingston Smith had resigned from the British Steel audit in just one year, claiming that it was “commercially impossible” to perform a satisfactory audit for the price Jingye would pay. Mazars resigned from the British Steel audit in 2008 for similar reasons.
British Steel’s filings reveal that audit fees went from £323,000 in 2020 under Mazars to £450,000 in Moore Kingston Smith to £900,000.
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