Press Release Issued by Corus Group PLC
INTRODUCTION
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.
RESTRUCTURING OF
UK ASSET BASE
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
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.
ESTIMATED GROUP
OPERATING RESULTS
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.
ESTIMATED BENEFITS
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.
MERGER SYNERGIES
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.
GROUP INDEBTEDNESS
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.
NEW FINANCING
STRUCTURE
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.
OUTLOOK
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.
DIVIDENDS
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.
ESTIMATED GROUP
OPERATING RESULTS
(AFTER DEPRECIATION
BUT BEFORE
INTEREST)
| £ million |
Before
restructuring and
related charges
| Restructuring and
related charges
| Operating
profit/(loss)
|
| Actual three months to 1 January 2000 | (107)
| (15) | (122)
|
| Actual six months to 1 July 2000 | 78
| (52) | 26
|
| Estimated six months to 30 December 2000 |
(101) | (975)
| (1,076) |
| Estimated 12 months to 30 December 2000 |
(23) | (1,027)
| (1,050) |
| Estimated 15 months to 30 December 2000 |
(130) | (1,042)
| (1,172) |
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.
CERTAIN FORWARD-LOOKING
STATEMENTS
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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