British Steel’s auditors warn of ‘material uncertainty’ as it battles to survive

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

British Steel’s auditor has warned the company faces “material uncertainty” and requires “further future funding” if it is to survive, in an assessment released only days after its Chinese owner turned down an offer of financial support from the UK government.

The business, which last week announced plans to close its blast furnaces and lay off jobs, made a pre-tax loss of £231.2mn during 2023 after being hit by tough trading conditions including falling steel prices and high energy costs, accounts recently filed at Companies House show.

Although this was lower than the previous year, which included a one-off impairment charge, losses had continued into 2024, according to the accounts.

The filing also reveals that British Steel — which owns the UK’s last two remaining blast furnaces at its main site at Scunthorpe in Lincolnshire — has been funded mainly through debt facilities provided by entities controlled by Jingye, its Chinese parent.

British Steel had £735.7mn of debt outstanding of at the end of December 2023, up from £630.2mn the previous year, the accounts show.  

Auditor MHA warned the company needs “further future funding from its ultimate parent company and group as at the date of approval of these financial statements”.

Although Jingye had shown its “intent to support the company,” the auditor said there were no “legally binding agreements” to ensure the Chinese group would provide further funding.

Jingye’s UK holding company had also not issued audited financial statements for 2022 and 2023, it added. 

“These matters indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern,” said MHA.

British Steel told workers last week that it would start consultations on job losses, putting at risk between 2,000 and 2,700 jobs at Scunthorpe. The business employs about 3,500 people in the UK across three sites. 

The decision came after Jingye rejected an offer of £500mn from UK ministers to help it build two less carbon-intensive electric arc furnaces. The Chinese group had been seeking close to £1bn in support for the project, which it has estimated could cost around £2bn. 

Unions have warned that British Steel’s operations could run out of raw materials for the furnaces as early as June unless an agreement can be struck with ministers.

British Steel on Monday said “persistent financial losses . . . made worse by market conditions and now tariffs” had left it with “no other option” but to propose closing its blast furnaces. The company remained “open to further dialogue” with the government, it added.

The government is considering all options, including nationalisation, energy minister Sarah Jones told the House of Commons last week.

The government has deemed steelmaking to be strategically important to the UK, and last year set aside £2.5bn to safeguard the future of the industry.

Business secretary Jonathan Reynolds said last week that the government would “continue working tirelessly to reach an agreement with the company’s owners to secure its future and protect taxpayers’ money”.

One senior political figure said that the government was considering using the Civil Contingencies Act to seize control of the plant in the event that Jingye attempted to unilaterally shut down the blast furnaces.