Examination of Witnesses (Questions 340
WEDNESDAY 2 MAY 2001
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
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
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
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
(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
(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
(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
359. Were you relying on all of these accounting
fluctuations to make the decisions you have actually made about
(Sir Brian Moffat) Yes, we had to make them in the
light of the accounting situation, driven by the financial situation
we were in.