APPENDIX 7
Supplementary memorandum submitted by
Corus Group plc
Q1. Following references to declining
demand from the UK vehicle industry, it would be helpful to have
a note on the effects of each of the recent Ford, Vauxhall and
Nissan decisions in terms of approximate past and projected future
sales:
A1. Of all Corus' automotive flat-rolled
product sales, 60 per cent is sold indirectly through subcontractors
or distributors and 40 per cent directly to automotive companies.
Corus' direct sales to Ford, Vauxhall and Nissan
in the UK in 2001 will be circa 200k tonnes. Corus would hope
to increase this tonnage as a result of an improvement in UK market
share and as a direct result of Nissan's decision to build the
Micra in Sunderland.
Ford's announcement did not include the closure
of the Dagenham press shop which is the primary direct point of
sale for Corus products. The situation on direct supply therefore
remains stable.
Vauxhall's decision to cease production at Luton
had no direct sales impact as they assemble only and do not purchase
Corus products directly.
However, all three announcements do have a significant
adverse impact on the underlying UK demand for Corus' products
from component producers and distributors. In the case of Vauxhall
and Ford—reduced UK car build will have impacts on Tier
one and Tier two UK suppliers and on the UK component manufacturing
infrastructure. In the case of Nissan—whilst they are increasing
car build they have clearly stated their intent to either source
components from Mainland Europe or to source in the UK based on
Euro pricing.
Annex 1 illustrates the underlying changes in
the UK steel market over the last 30 years, in particular it shows
the growth of steel in the form of imported manufactured goods
which now represent the largest portion of UK steel demand.
Annex 2 demonstrates that whilst car production
is steady or inceasing in the UK, when the "assembly kits"
are excluded the underlying trend, which impacts on UK steel demand,
is reducing.
Q2. It would be helpful to have a note
on the requests for rates reductions referred to:
A2. There are three major points:
(1) five-yearly rate reviews, appeals and
the timescale to complete.
The setting of rateable values, the appeal process
and the timescales involved have had a detrimental effect on Corus'
competitive position over the last 11 years. This is demonstrated
by the following sequence of events:
— In 1990 the rateable value was assessed
at £100 million for Corus' four integrated works (Port Talbot,
Llanwern, Scunthorpe and Teesside).
— Corus has subsequently appealed and
it is likely that a reduction will be agreed which will re-assess
the four sites at £73 million.
— The appeal with respect to Llanwern
was agreed in February 2000, Teesside in January 2001, Port Talbot
is anticipated in March 2001. Scunthorpe is agreed.
— The process has taken 11 years and
has had a significant cash flow impact on the business.
— Following the 1995 revaluation, Corus
has again exercised its right to appeal. It is believed that this
will result in further repayments covering the period 1995 to
2000.
— The 1995 appeal cannot be completed
until all elements of the 1990 appeal have been finally settled.
— The 2000 revaluation is under appeal
and is as yet unresolved.
Corus would like to see the following:
— A more realistic initial assessment.
— An accelerated appeal process.
(2) Inconsistent implementation of the 2000
rates revaluation across England and Wales.
Following Corus' 2000 assessment, the different
approaches in the level of uniform business rate and the transitional
arrangements for England and Wales have adversely affected the
competitiveness of Corus' Welsh operations compared with those
in England.
In the case of Wales, the rates payable following
the 2000 assessment were increased in full immediately, whereas
in England there has been a phased approach.
(3) International comparisons
Comparing Corus' UK and Netherlands operations,
there is a wide differential between them in property taxation.
For example, Port Talbot and Llanwern together currently pay circa
£15 million pa in rates whilst in IJmuiden, which has the
capability to produce a comparable volume, the property tax burden
is circa £1.5 million.
Whilst recognising that the true comparison
should show the total business burden, the UK system impacts on
the fixed operating costs and cashflow and hence has a much more
distortive impact on investment decisons and international competitiveness.
Q3. The Committee was offered information
on the £300 million investment programme recently announced:
A3. Corus has not announced an investment
programme, but indicated that the capital investment programme
going forward would be of the order of £300 million per annum.
Details of current investment on an historical basis are set out
in the Annual Report and Accounts. In addition, announcements
are made about investments on an on-going basis.
Announcements made so far this year include:
— £6 million to enhance the product
range at Brinsworth narrow strip mill.
— £9 million to improve steel
quality and increase product range at Scunthorpe's continuous
caster.
— £3 million to improve steel
cleanliness at Teesside Cast Products.
Q4. Details on:
(a) the loss of specific markets in Northern
Europe to FSU steel suppliers.
(b) the level of imports into the UK of
Corus steel products from the continent.
A4 (a) Annex 3 shows EU imports from the
main non-EU supplying regions over the last 10 years (within the
Corus carbon steel product range).
The EU steel market is completely open and is
attracting increasing volumes of third country imports. Ten years
ago, EU steel imports of products in the Corus range totalled
some 8mt; that figure today is nearly 20mt. Much of the growth
in imports has been from the former Soviet bloc. Imports from
Eastern Europe/CIS now make up about half the total imports into
the EU and have been around 10mt per year in each of the last
three years. They are likely to be the highest ever in 2000.
The focus of these imports has been in the commodity
part of the market, particularly plates and hot rolled coil (especially
for tubemaking). Indirectly, these countries have also supplied
large quantities of very low priced coil and semi-finished products
for further conversion in countries like Turkey, who have consequently
been able to develop significant market shares in tubes (in the
Corus range) and in reinforcing bar (not in the Corus range, but
sill important).
Imports from Asia have also increased in the
last three years—peaking in 1998 at 4mt and likely to be
around 3.5mt in 2000. Prior to 1998 Asian imports accounted for
less than half a million tonnes in the EU market.
One consequence of increased competition in
the commodity part of the range has been to force Asian producers
towards added value products like cold reduced and galvanised.
(b) Annex 4 shows UK imports from the main
supplying regions over the last 10 years (again in the Corus carbon
steel product range).
Total imports into the UK have also grown over
the last 10 years, driven in particular by increased imports from
Asia and from Eastern Europe/CIS. However, imports from other
EU member states have been relatively constant over the last four
years and have remained at around 4.3mt.
2 March 2001
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