Memorandum submitted by Corus plc
A. THE CORUS
GROUP PLC.
1. Corus plc is the merger between British
Steel plc and Koninklijke Hoogovens NV, and came into existence
on 6 October 1999. The company has an annual turnover of about
£10 billion, and employs some 66,000 people worldwide. Corus
is the second largest steel producer in Europe, the fourth largest
in the world (production 21.3MT) and is also the fifth largest
aluminium company in the world.
2. The new company's strategy is to create
value by providing innovative metal application solutions to attractive
market segments where leading positions can be achieved.
B. WHAT WERE
THE REASONS
FOR THE
MERGER?
3. Corus was created as a result of three
main drivers.
(a) Changes in the international market.
The globalisation and consolidation of the world
steel market is causing key sectors to become dominated by major
international customers who seek suppliers with critical mass
capable of developing joint materials applications. These developments
have been accompanied by the progressive consolidation and increasing
competitiveness of the European steel industry.
(b) Strategic considerations of the partners.
British Steel sought to diversify away from dependence
on over 90 per cent of its manufacturing base being in the UK;
and also to reduce exposure to the strong value of the £
sterling. Hoogovens sought to acquire critical mass in the global
metals market.
(c) Improved customer service.
The combined group seeks a wider international
approach in order to respond more fully to the needs of customers
wherever they might be in the world.
4. Specifically, Corus Group plc intends:
— to offer customers a multi-metals
approach to its market. This means becoming the only company that
provides fully engineered components and sub-assemblies made of
several metals, to optimise performance for consumers. This will
be done through Corus' combined steel and aluminium expertise,
and a strong product portfolio;
— to be active in all major markets
where its key customers are present;
— to establish a strengthened international
distribution and service centre network;
— to achieve cost efficiencies through
synergies in areas of major overlap (elimination of duplication,
more effective utilisation of existing capacity, wider options
for routing supplies to customers, exchange of best technological
know-how and competencies).
C. WHAT WAS
THE IMPORTANCE
OF R&D TO
THE MERGER
5. The importance of high level R&D
to the new Company was emphasised from the outset (see attached
brochure page 5). R& D is the basis for increasing market
shares by providing world-class service and support to customers,
and developing new products and innovative multimetal solutions
to satisfy increasingly sophisticated customer needs. R&D
also underpins quality improvement and cost reduction by enhanced
efficiency in its manufacturing processes. R&D thus helps
to give the new company added competitive advantage, thereby raising
revenues and margins. It also helps create opportunities to grow
market share which would not have been available to the former
companies independently.
D. WHAT WERE
EACH COMPANY'S
R&D ACTIVITIES BEFORE
THE MERGER?
(a) British Steel
6. All Research and Development activities
at British Steel were carried out in the UK at three locations.
(i) Teesside Technology Centre, Grangetown—concentrating
on process research (eg improved efficiency of, and new ways of
operating, Blast Furnaces, improved Steelmaking processes and
steel quality).
(ii) Swinden Technology Centre, Rotherham—focusing
on product research and development, and environmental research
(eg ultra high strength steels, construction technology, improved
stainless steel, improved operating technology to reduce emissions,
life cycle analysis).
(iii) Welsh Technology Centre, Port Talbot—focusing
on product and applications development of Strip Products (eg
improved galvanised products for the car industry, new metal forming
processes such as hydroforming, longer life coatings, improved
packaging systems such as ultra-light beverage cans).
7. In addition to the above, design and
engineering work for the automotive market was also carried out
by the Automotive Engineering Centre in Coventry.
8. During the last three full financial
years prior to the merger, R&D expenditure by British Steel
was as follows:
| £m | 1996-97
| 1997-98 | 1998-99
|
| Gross expenditure | £49
| £52 | £49
|
9. At the end of 1999 the total number of employees of
the three above Technology Centres was approximately 750.
(b) Koninklijke Hoogovens
10. Almost all R&D at Hoogovens was carried out by
the central R&D department located at Ijmuiden in the Netherlands.
It covered essentially the same general topics listed in para
6.
11. During the last three financial years prior to the
merger, R&D expenditure by Hoogovens was as follows:
| £m | 1996-97
| 1997-98 | 1998-99
|
| Gross expenditure | £31
| £34 | £36
|
At the end of 1999 the total number of employees in R&D
at Hoogovens was approximately 500.
E. WHAT ARE
THE CONSEQUENCES
OF THE
MERGER FOR
R&D?
(a) Organisation
12. Since 1 January 2000, the R&D activities of Corus
Group plc have been grouped into Corus Research, Development and
Technology, which operates as an integrated organisation comprising
the three technology centres of British Steel and the former Ijmuiden
technology centre. The activity reports through a Group Director
of Research, Development and Technology (RD&T) to the Executive
Director, Technology.
13. The basic principle of the new organisation is that
Corus RD&T will operate as one entity, with researchers working
together on cross-site Research & Development projects, though
based on different locations.
(b) R&D strategy
14. The Boston Consulting Group have advised that, in
mergers of companies in mature industries, a 20-40 per cent overlap
in R&D activity is very typical. This is because both companies
are inevitably addressing broadly the same manufacturing and market
issues.
15. The Corus merger has been no exception to this general
rule, and has a 20-25 per cent overlap in the R&D activities
of British Steel and Hoogovens. The challenge now is to retain
the best of both companies' programmes, to improve the quality
of the work and to raise radically the level of contribution which
R&D makes to the Company's competitiveness, revenues and profitability.
The change will emphasise innovative engineered solutions developed
in deep partnership with customers, making engineering and design
the common language between Corus and its customers. This will
be combined with innovative multi-metals technology packages.
16. This R&D approach fully reflects the strategic
drives of the company as set out in paragraph 2.
(c) R&D Resource
17. A radical review of resource and expertise is under
way across the new Company in order to match the Group's R&D
activities to the business realities. At the same time we will:
— enhance the best of the R&D activities of
the former independent companies;
— eliminate duplication in the previously independent
programmes;
— identify new R&D activities directly aimed
at increasing market share, revenue and margins;
— bring in new technologies from outside to complement
Corus' own technologies;
— build and strengthen lasting relationships with
our customers.
F. WHAT IS
CORUS' VIEW
OF THE
UK AS A
RESEARCH BASE?
18. From the Corus point of view, the UK is a good location
for R&D. An important consideration here is the presence of
several universities (eg Oxford, Cambridge, Imperial College,
Birmingham, Sheffield and Swansea) with top level programmes in
engineering, metallurgy, physics and chemistry which qualify them
as good partners in co-operative research, and with qualified
and capable researchers. Nevertheless, it is a major concern of
Corus that this scientific excellence is being eroded by the progressive
decline in the UK of high quality students entering science and
engineering disciplines.
G. WHAT IS
THE IMPORTANCE
OF R&D TO
CORUS?
19. R&D is very important to Corus. As described
above in para 4, it is expected to provide high quality services
to the Corus Business Units by driving incremental innovation
in technology for existing products and processes, both to maintain
and improve competitive advantage and to protect or increase market
share. However, in common with other intelligently managed companies
in mature industries, Corus will look outside to acquire those
radically new technologies that are needed to provide the new
products and processes required to increase fundamentally market
share or move into new markets. This is the most effective method
of dealing with the inherently high risk process of radical innovation.
20. Typically in the metal industries companies spend
between 1-1.5 per cent of revenues on R&D depending on the
technical sophistication of the customers they serve and the market
in which they operate.
21. In the case of Corus, the current year's R&D
expenditure will amount to approx. 0.9 per cent of revenues.
5 April 2000
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