Select Committee on Trade and Industry Minutes of Evidence

Press Release Issued by Corus Group PLC


  Corus has today announced the results of a strategic review of its UK carbon steel activities, which seeks to ensure their return to profitability through margin enhancement and cost reduction measures. The proposed restructuring is a result of the continuing high losses, primarily in those activities. Corus' carbon steel operations incurred an operating loss of £301 million in the nine months to 1 July 2000, mainly due to weak UK demand and lack of competitiveness in export markets. In contrast, good progress has been made in the aluminium stainless steel business since the merger in October 1999.

  Commenting on today's announcement Sir Brian Moffat, Chairman and Chief Executive, said:

    "The radical measures announced today will significantly improve the Group's competitiveness and are crucial to the future of Corus' employees, customers and shareholders. However, it is with deep regret that despite the support and commendable track record of our UK workforce, further significant job reductions have to take place. The proposed measures will result in:

      —  the reduction of over three million tonnes of iron and steel-making capacity in UK flat products, together with the closure of certain mills and process lines. This will be accompanied by actions to simplify and streamline process flows in other operations;

      —  a major reduction in exports of basic flat products from UK operations;

      —  an even stronger emphasis on servicing our UK customers from our UK facilities; and

      —  increased focus on the pursuit of growth opportunities in profitable downstream businesses in all market areas.

    These actions together with the benefits of the Group's interests in aluminium and stainless steel will create a sound platform for the Group to secure sustainable growth, underpinned by its ability to provide customer-focused metals solutions.

    We are also announcing today an extensive refinancing package to be used to replace our principal existing bank facilities, thereby enhancing the Group's financial flexibility.


  The key factor behind the poor financial performance of the Group's UK carbon steel assets has been the lack of growth in UK demand, particularly for flat products. As a consequence, through the 1990s as the efficiency of the assets employed improved, an increasing proportion of UK basic flat products had to be exported.

  High transportation costs and aggressive price competition in export markets have more than offset the benefits of the ongoing cost and efficiency improvement measures achieved by Corus' UK workforce. This adverse situation has been dramatically worsened by the weakness of the Euro and as a result very significant losses have been incurred.

  Against this background the proposed restructuring programme comprises a reduction of over three million tonnes per annum in the UK flat products capacity. This will align capacity closer to a level which is consistent with a sustainable domestic market share. In parallel, a series of significant organisational, efficiency and manpower productivity improvement measures is being launched across other business operations.

  Corus' remaining UK flat products capacity will be focused primarily on supporting UK customers in order to secure mutual benefits in terms of quality, service and position in the market.

  The restructuring will result in the following plant configuration changes:

    —  Llanwern: the closure of iron and steel-making operations; the closure of the annealing and tempering facilities; and a reduction in activity levels at the hot strip mill and cold mill operations;

    —  Ebbw Vale: site closure;

    —  Shotton: the closure of the pickle line, cold mill and one electro-zinc line;

    —  Teeside: the closure of the coil plate mill; and

    —  Brngwyn: site closure.

  The annealing and tempering facilities at Shotton and the pickle and galvanising lines at Port Talbot, which were mothballed in Autumn 2000, will also be closed.

  The above configuration changes will be completed during 2001, with the exception of the closure of Ebbw value which will be completed by mid-2002.

  These measures will lead to reductions in manning of 3,000 comprising Llanwern 1,340, Ebbw Vale 780, Shotton 319, Teeside 234, Bryngwyn 127 and Strip Products central functions 200.

  Recognising the severe market pressures and the need to secure further cost savings, the following series of organisational, efficiency and manpower productivity improvement measures involving further job reductions of 3,050 will also be implemented across other business operations:

    —  the amalgamation of the business head offices of Construction and Industrial and Engineering Steels which, together with shared services across the two business, will lead to 400 job reductions;

    —  a range of job reductions across businesses comprising Construction and Industrial 1,086, Engineering Steels 390, Tubes 298, European Market Unit 292, European Electrical Steels 276, Special Profiles 46, Special strip 35 and Rail 27; and

    —  the streamlining of central functions, including the Corporate Centre, involving 200 job reductions.

  These measures will be implemented during 2001-03 and when completed Corus' manning in the UK will be some 22,000.

  Full consultation will take place with the relevant Trade Unions and a comprehensive counselling service will be provided to assist all employees who are affected.

  In addition, UK Steel Enterprise Limited, Corus' job creation arm in the UK, will be fully involved in helping to alleviate the social impact of this restructuring and the consequential manpower reductions.


  Provision will be made in the accounts for the period to 30 December 2000 for the impact of the configuration changes made public today, including the related fixed asset write-downs. Provisions will also be made in those accounts for the impairment of other fixed assets held in the UK and the US.

  Other provisions relating to organisational, efficiency and manpower productivity improvement measures, will be made during the first half of 2001.

  The preliminary announcement of Corus' results will be made on 15 March 2001. The Group's operating result, based on unaudited management accounts for the 12 months to 30 December 2000, is estimated to be a loss of £1,050 million after restructuring and related charges of £1,207 million. For the 15 months to 30 December 2000, the Group's operating loss is estimated to be £1,172 million after restructuring and related charges of £1,042 million.


  As a result of the measures made public today, estimated pre-tax benefits of some £180 million per annum are anticipated by the end of 2003, at an estimated net cash cost of some £220 million. The total job reductions identified since October 1999 fully encompass the manpower-related savings of the merger synergy programme.


  In its present plant configuration the Group is on track to achieve the targeted savings from the merger synergy programme. However, the impact of the proposed restructuring on plant configuration in the UK means that it will no longer be practical to identify separately the merger synergy savings.


  Estimated net debt of £1,660 million at 30 December 2000 was marginally better than the position at 1 July, despite the difficult operating environment.


  The Group has successfully concluded a new EUR 2.4 billion syndicated loan facility with a group of leading banks. This replaces the existing complex and inefficient bank facilities which were largely a legacy of the former companies. The new facility together with existing bonds and debentures will provide the Group with flexibility in meeting its medium term financing requirements.


  The oversupply of carbon steel products into the EU caused prices to weaken towards the end of 2000 and this trend has continued in early 2001. With the exception of the UK, however, demand remains firm in the EU. With the recent production cutbacks announced by Corus and other European producers, it is anticipated that some price recovery will take place in the second half of 2001.


  In view of the continuing challenging market conditions and the restructuring initiatives announced today, the Board will be recommending that no final dividend be paid for the period to 30 December 2000. It will consider the level of dividend for the current year in the light of trading conditions and market outlook.


£ million
restructuring and
related charges
Restructuring and
related charges
Actual three months to 1 January 2000
Actual six months to 1 July 2000
Estimated six months to 30 December 2000
Estimated 12 months to 30 December 2000
Estimated 15 months to 30 December 2000

  1.  The above figures are based upon unaudited management accounts.

  2.  The actual operating results, as reported for the three months to 1 January 2000 and the six months to 1 July 2000, included respectively losses of £149 million and £152 million in respect of Corus' carbon steel operations.

  3.  The preliminary results for the period from 6 October 1999 to 30 December 2000 are scheduled for release on 15 March 2001.

  4.  The estimated restructuring and related charges of £975 million for the six months to 30 December 2000 comprise:

    —  £65 million in respect of initiatives announced during the period;

    —  £220 million redundancy and other costs relating to the configuration changes made public today; and

    —  £690 million in relation to fixed asset write-offs and impairments.

  5.  A separate and further provision of some £50 million will be made in the first half of 2001, in respect of the series of organisational, efficiency and manpower productivity measures announced today.


  This news release includes certain "forward-looking statements" within the meaning of Section 27A of the US Securities act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended, many of which are beyond Corus' control and all of which are based on Corus' current beliefs and expectations about future events. Forward-looking statements are typically identified by words such as "will", "anticipate", "estimate" and similar expressions and include, among others, statements regarding Corus' strategy, operations, economic performance, financial condition, future results of operations and capital needs, its proposed restructuring and the steel industry generally. Although Corus believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause such differences include, but are not limited to (i) Corus' ability to execute the proposed restructuring, (ii) the economic climate in the UK and mainland Europe, (iii) the value of the pound sterling, particularly in relation to the Euro, (iv) changes in the global market for steel, (v) market developments, (vi) effective management of employees, supplies and technology, (vii) changes in environmental and other regulatory requirements and (viii) business risk management.

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Prepared 14 March 2001