Auditors raise the red flag over British Steel

British Steel has been warned by its former auditor it may not be able to continue trading in the latest setback for the embattled sector.

The news comes as the accountancy firm who raised the red flag about the Chinese-owned company’s overdue accounts resigned last week.

Minor audit firm Moore Kingston Smith said there was ‘material uncertainty’ about British Steel’s ability to continue as a going concern as its owner Jingye had not made a legally binding commitment to plough more funds into the struggling steelmaker. Jingye rescued British Steel in March 2020.

The Scunthorpe-based company operates two of the four remaining blast furnaces in the UK that make steel from scratch using raw materials. Tata Steel runs the other two.

But Tata sent shockwaves through the British manufacturing industry last week when it confirmed it plans to shut down the blast furnaces and set up green steelmaking facilities at the cost of 2,800 jobs.

Setback: British Steel operates two of the four remaining blast furnaces in the UK that make steel from scratch using raw materials

British Steel is also reportedly seeking state funding to shutter its blast furnaces for new electric-arc furnaces, which could affect 2,000 employees. This is dependent on Jingye committing to protect jobs and invest at least £1 billion in the group by 2030, according to reports.

British Steel’s financial health has been under question since last October, when The Mail on Sunday reported it had told trade unions it was losing up to £30 million a month. It is the second biggest steelmaker in the UK and employs 4,500 staff.

The most recent accounts for British Steel Limited show that in 2021 it made a loss of £50 million, down from a profit of £268 million the year before.

The auditors said that if the company continued to make losses, it would need more funding from Jingye.

Directors said they were ‘confident’ it would have enough funding for at least 12 months. But the auditors said that the absence of ‘legally binding’ agreements in place to provide more cash made its prospects uncertain.

The accounts were more than a year late – they were only signed off in November 2023 – and the company has given no guidance on when the 2022 documents will be released.

British Steel owed £364 million to Jingye by the end of 2021, though this was said to have ‘increased significantly’ since then, adding more financial strain. When Jingye was bidding for British Steel, it effectively pledged to write a blank cheque to keep the steelworks going. In a presentation delivered to officials at the time, the Chinese group said: ‘Need funds? No problem. Jingye is here to invest.’

Around 34,500 staff work in the UK’s steel sector and it is seen as a critical industry. The sector produces 7 million tonnes of steel per year, but faces stiff competition from cheap imports, particularly from China.

A British Steel spokesman said that Jingye has invested hundreds of millions of pounds in the business and is ‘committed to investing in the long-term future of British Steel as we transition to net zero’.

The spokesman said that it is not unusual for ‘material uncertainty’ disclosures to be made about a company’s ability to continue as a going concern, as the auditors did in this case. The spokesman added: ‘Our parent company has provided a support letter to British Steel to underpin our ongoing concern.’

The spokesman said that these commitments are ‘by their nature, not legally binding’. ‘But our shareholder continues to provide all necessary financial support to underpin stable trading and strategic capital investment, and in the months ahead we will commission a new £50 million billet caster and a £26 million service centre,’ he said.

Charlotte Brumpton-Childs, National Officer for the GMB union, said it was ‘impossible to have any meaningful discussion with British Steel about going green without transparency on the company’s financial position. At the very least they must file up to date accounts and it’s a dereliction of duty if they don’t,’ she said.

Moore Kingston Smith has not audited British Steel for long. The company’s last accountants, Mazars, quit in July 2022 citing issues with payment from the company.