Examination of Witnesses (Questions 45
WEDNESDAY 22 NOVEMBER 2000
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
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 announcedand
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 pressurebut 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
51. In your written submission to the Committeefor
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 thatyou
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.
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
(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
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 projectsI am not a technical personbut 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 intendedI 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
(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.
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.