Select Committee on Science and Technology Minutes of Evidence

Examination of Witnesses (Questions 45 - 59)




  45. Mr Hopwood, welcome to our Select Committee. Mr Treadgold and Mr Jones, welcome too. Mr Hopwood, we are going to put questions to you about Corus. You will know that we are the Science and Technology Select Committee and that our interest is really in the Science Base. We are investigating how the amalgamation of British Steel and Hoogovens has affected science within the new Corus organisation. I think you may have been present in the public galley on the previous occasion.

  (Mr Hopwood) Yes.

  46. I thought that was so. We shall direct questions to you, Mr Hopwood, but if you think it is more appropriate that Mr Treadgold or Mr Jones should answer, please indicate and we will be very pleased to hear from them. Also, if Mr Jones and Mr Treadgold wish to say anything, if they catch my eye I will make sure I call them so that they can have their say. May I also say that Dr Kumar, who may well be known to you personally, cannot be with us at the present time because I believe he is with the Prime Minister lobbying on behalf of the steel industry; so his absence, I am sure you will agree, is for a very good reason. He hopes to join us before this session is over. Mr Hopwood, is there anything you would like to say yourself before I ask the first question? Would you like to introduce yourself and your colleagues and tell us what your jobs are, what your roles are within your organisation, and something about your Union perhaps.
  (Mr Hopwood) I am the National Secretary of SIMA, which is the Steel and Industrial Managers Association. That is a semi-autonomous union within the AEEU, the Amalgamated Engineering and Electrical Union. We are predominantly in the steel industry, although the name implies that we are in other industries. We have some other small parts but we are predominantly in steel. We have, in fact, about 3,500 members in Corus (UK). My colleague, Mr Treadgold, is a scientist working within technology, as is Mr Jones. Mr Treadgold works in Teesside and Mr Jones works in South Wales.

  47. Thank you very much indeed. The first question I was going to ask, you have already answered. That was: how many people have you got working in Corus? You said 3,500. They are all working in a scientific and technological capacity?
  (Mr Hopwood) No, only about 400 are working in the technical departments. The rest of them are working either as middle managers or engineers, professionals, in the works.

  48. I thought that was a very high number. In fact, when we had our last evidence session I think 400-450 was the figure given.
  (Mr Hopwood) It is about 400.

  49. Can you tell us to what extent your Union was kept informed by Corus management regarding the restructuring of the R&D technical programmes.
  (Mr Hopwood) We were kept informed. We were concerned, however, that initially when the merger was announced—and I would be the first to admit that the climate was a different one financially, the pound was not as strong as it later became and put the company under great pressure—but we were informed that the idea behind the merger was to expand the steel production; to go for growth. I asked specifically of Mr John Bryant, the Chief Executive Officer, what would be the implications for R&D. This is because my experience in other industries is that when mergers of international companies come together, then there is always an opportunity to look at synergies and look at duplication. The response from Mr Bryant at that time was that the Wales Technology Centre was attached to the Wales production plant, and that the Teesside Technology Centre was attached to the Teesside production plant, but then there was Swinden Technology Centre which was not effectively attached to anything. I read between the lines that this might mean that this could be under some threat in the future. I was quite surprised that there was a complete reversal of what had previously been the policy of the company, to concentrate the technology within the businesses. A complete reversal in that now there was supposedly going to be one technology centre based in Sheffield, which is not attached to any steel works. So I was somewhat disappointed, to say the least.

  50. Just straying slightly from the remit of this Committee, when you talk about synergies and duplication and the opportunity for increased efficiency, not referring specifically to R&D, have you found that there have been synergies in the production process, or sales and marketing, or in financial administration? Has that happened in those areas?
  (Mr Hopwood) Yes. I am sure the Committee will be aware that 4,500 jobs have been lost in the United Kingdom the last year.

  51. In your written submission to the Committee—for which we thank you very much indeed; you are one of the few people who gave us written evidence and we are grateful to you for that—you said: "it is entirely possible that if the merger had not taken place ... British Steel would have been forced into a retrenchment programme." From the information you have now and the experience that you have had since the merger, do you think that would have happened? Do you think, therefore, that the merger might have saved research and development jobs in this country?
  (Mr Hopwood) I am not sure that it would have saved. I think the opposite might be the case. It is certainly true that the profitable side of the business is the Dutch side, the IJmuiden site, because they are in Euroland. The company is making losses, at the moment, across the whole business.

  52. But profit is there?
  (Mr Hopwood) They are still making some profit there. Not as much as they would like because there are some inefficiencies that they are trying to get out of the system, but certainly that is effectively propping up the rest of the business in that they are making massive losses over here. The domestic market is shrinking slightly and they are not making any money on exports to Europe because of the strength of the pound against the euro. If we did not have the IJmuiden element, then clearly there would have been massive pressure on British Steel Limited to do something about adjusting its production to meet the demand.

Dr Jones

  53. In their evidence to the Committee, Corus have quoted the Boston Consulting Group who claim that a merger like theirs generally results in an overlap of between 20 and 40 per cent in R&D. Corus say that in this case there was a 20 to 25 per cent overlap. Would you agree, therefore, that it is inevitable that jobs and facilities must be shed due to duplication?
  (Mr Hopwood) It was my expectation that this would happen. That is why I asked the question of Mr Bryant. It is just that I think that what has happened since is that the reduction in the number of employees and the promises of reinvestment from the synergies does not appear to be coming to fruition. Also, the fact that some of the jobs which were supposed to go into the works, transferred into various plants, that again has been reduced from 150 already to 100. We expect that to be reduced even further. So we think it is much worse than was originally suggested.

  54. What were the promises of investment?
  (Mr Hopwood) What was suggested was that from the synergies there would be a certain amount of money available for certain projects—I am not a technical person—but the kind of blue sky stuff. Perhaps Chris could help you with that when I have finished. So that money was suggested and it would be reinvested to keep more jobs to do scientific work, but it does not appear that a great deal of money has been generated. Therefore, those jobs are not going to materialise.
  (Mr Treadgold) The statements that were made, particularly by John Bryant at the time of the merger relating to the overlap that would be found within the R&D organisation, is that the effort, which would be released by eliminating the duplication, would be reinvested. They had the concept of what they call "break-through" projects. These were projects that would be intended—I think this is quoting Mr Bryant—"to kick the company forward", maybe into new market areas that we have not been in before. So there was a clear intention stated at the time of the merger that synergies found in R&D would be reinvested but unfortunately, as things have transpired, that really has not happened.

  55. Do you think that if that promised investment had taken place, the jobs that have been lost could have been avoided?
  (Mr Treadgold) In the R&D organisation this would certainly have gone some considerable way to reducing the numbers of jobs that were lost, yes.

  56. You think the proposed projects would have actually been a benefit in the long term to the company?
  (Mr Treadgold) That certainly was the intention at the time of the merger: that we would have, as I say, these break-through projects aimed at pushing business into maybe new market areas, and technology would have a very big input in doing just that.
  (Mr Hopwood) The problem with this is whether those jobs would be created because Dr Edington, when he gave evidence last week, suggested that people were not just let go willy-nilly but the company were careful to keep whatever it needed. But the fact is that everyone who volunteered went. We are in a situation now where in South Wales those people who will not relocate will be granted redundancy, no doubt about it. Those people in Teesside who will not relocate to Sheffield will be granted redundancy, no doubt about it. All those jobs are lost. So, effectively, if there are any jobs generated by these reinvestments, they will have to get some people from another planet to fulfil them.

Dr Williams

  57. We are told by Corus that the amount of money invested in research and development is about £85 million a year in a turnover of £8 billion, which works out at about 0.9 per cent. Compared to most manufacturing industry that is fairly low. Why is it so low? Is the steel industry peculiar in having a high turnover industry with relatively low R&D?
  (Mr Treadgold) I think the sort of level that Corus is spending, the .8, .9 per cent of turnover, is comparable with steel industries in the rest of Europe, maybe in the rest of the world. There was a difference in the amount that Hoogovens spent compared with British Steel. Hoogovens spent slightly more. There was certainly a hope, if not an expectation, when British Steel and Hoogovens merged, that maybe Corus would move more towards the Hoogovens level of spend rather than staying with what British Steel spent. Again, that has not proved to be the case, and we are still at the .8, .9 per cent.

  58. When Corus speak about other steel companies in Europe, Japan, United States, is that .9 per cent about the level of things or are we way behind Japan and the United States and third world countries?
  (Mr Treadgold) I do not think we are way behind on average. I am not expert on the Japanese steel industry. You might find examples in Japan where they spend somewhat more. You might find examples where they spend perhaps a little bit less. That sort of level is not untypical for the steel industry.

  59. Could I ask one very general question about Corus. It follows from your earlier comments, Mr Hopwood, that in Britain there is the problem of the high pound. It is almost a 50/50 or 60/40 merger. The Holland part is profitable. It should be incredibly profitable. It is a high pound but ideally the fundamental problem is the low Euro. In terms of exports to third countries, be it to the States or South East Asia or wherever, the Dutch part of the operation should be superlatively placed on the world markets. You would have thought that one carries the other, that the two should absolutely complement each other in terms of sharing the risk, should they not?
  (Mr Hopwood) If you think about it, Hoogovens is only a third of the size of the partnership and British Steel is two-thirds. There have been some production problems in the Netherlands. I do know that the company is trying very hard to drive those problems out of the way. I do not believe the Board is happy with the output or the profitability of the IJmuiden site but I am told that it is beginning to come right. But, in a way, that success is also quite worrying for Corus (UK) because we have got the domestic market, particularly sections at Teesside and Scunthorpe, and then the flat products, the strip products, which are nearly all exported into Europe. The Board has made it perfectly clear that they are not going to export and not make a profit.

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