Memorandum submitted by Corus Group PLC
A. CURRENT CONFIGURATION
IN WALES
1. The locations of the principal Corus
businesses which manufacture and process steel in Wales are shown
in Figure 1 below.
Figure 1 Location of Manufacturing Plant
in Wales
The main concentration of employment is at Port
Talbot, Newport, Llanelli, Ebbw Vale and Shotton.
2. The processing works can be broadly divided
into six groups.
— Integrated works at Port Talbot
and Llanwern producing iron and steel as well as hot rolled, cold
rolled and coated products. These works provide the feedstock
for the other processing lines in Wales.
— Coating lines producing metallic
and pre-painted coils at Shotton, Bryngwyn, Tafarnaubach and Pontardulais.
— Tinplate works at Trostre
and Ebbw Vale.
— Specialised Strip lines producing
electrical steels and special narrow strip located at Orb works
and Whitehead works both at Newport.
— Construction Products works
supplying a range of profiled sheets, lintels, framing, crash
barriers for the construction industry. The main businesses are
located at Newport, Caerphilly and Ammanford.
— Services Centres at Caldicot,
Newport and Risca.
Figure 2 shows the main processes and Annex
1 summarises the processes at each works. A glossary of technical
terms is given in Annex 2.
B. PROJECTED
CONFIGURATION
1. 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 announcement
on 1 February outlined a reduction of 3 million tonnes of iron
and steelmaking, together with the closure/reconfiguration of
certain mills and processing lines in Wales as follows:
— Llanwern: the closure of iron and
steelmaking 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 and relocation
of a tinning line to Trostre.
— Shotton: the closure of the pickle
line, cold mill and one electro-zinc line.
— Bryngwyn: site closure.
In addition, the coil plate mill at Teesside
will be closed and slabs from Teesside will be rolled on the Llanwern
hot strip mill. 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 Vale that
will be completed by mid-2002. Annex 1 also shows the processing
lines that will close on each site.
C. NUMBERS EMPLOYED
1. Total number of people employed at the
principal sites in Wales are summarised below:
| Site | Current Direct
Employees at end
January 2000
| Previously
announced
restructuring (1)
| 1 February
Announcement | Employees
Remaining
|
| Port Talbot | 3,229 | 284
| 100 | 2,845 |
| Llanwern | 3,163 | 398
| 1,440 | 1,325 |
| Trostre | 960 | +35 (2)
| 0 | 995 |
| Ebbw Vale | 1,059 | 279
| 780 | 0 |
| Shotton | 1,167 | 91
| 319 | 757 |
| Bryngwyn | 134 | 7
| 127 | 0 |
| Other Sites | 1,248 | 22
| 49 | 1,177 |
| Total | 10,960 | 1,046
| 2,815 | 7,099 |
| | |
| |
Notes: (1) Restructuring still to be implemented following
previous annoncements.
(2) Transferred from Ebbw Vale to Trostre.
From the above it can be seen that the principal reductions
in employment will be at Llanwern and Ebbw Vale consistent with
the projected configuration described above.
2. In addition to direct employees an estimate has been
made of the number of contractors which could be affected by the
announcement and this is shown below:
| Site | Current
Contractors
| Contractors
after
restructuring
|
| Port Talbot | 1,100 | 1,100
|
| Llanwern | 1,100 | 350
|
| Trostre | 100 | 100
|
| Ebbw Vale | 100 | 0
|
| Shotton | 100 | 50
|
| Other Sites | 60 | 30
|
| Total | 2,560 | 1,630
|
| | |
D. CHRONOLOGY OF
EVENTS LEADING
UP TO
PROPOSED RESTRUCTURING
1. The key events are summarised below. There were a
large number of meetings and events at which ministers, MPs, AMs,
political advisors and senior officials in Whitehall and Cardiff
were given briefings about the state of the company and the need
for action. Not all are listed.
Oct—Dec 1999
Visits by Secretary of State for Trade & Industry, Rhodri
Morgan MP to Llanwern Works and Alun Michael MP to Port Talbot.
A presentation to each made highlighting the need for competitiveness
for manufacturing industry emphasising:
— the impact of the strength of sterling with an indication
that the damage threatens to be permanent and could result in
closure of otherwise viable businesses
— the consequences of the proposed climate change levy
which could result in significant risk of plant closures and job
losses
January 2000
Half-year results for British Steel plc to October 1999 showed
pre-tax loss of £167M due to "the continuing impact
of severe pricing pressure in Europe exacerbated by the adverse
of the strength of sterling". Previous results for British
Steel plc showed the deterioration in profitability of carbon
steel activities over the period since 1996/7. (See annex 3 for
details).
April/May 2000
A number of briefings at Port Talbot, Llanwern and in the Assembly
for Welsh AMs, Welsh MPs, No 10 Policy Unit, at which they were
told plants were becoming "vulnerable".
June 2000
Six months results for Corus Group plc to April 2000 indicated
continuing pre-tax losses of £113M. Within that, the carbon
steel businesses made an operating loss of £204M, £198M
of which was attributable to the UK. It was stated that "the
serious erosion of the competitive position of the Group and its
customer base in the UK as a result of the strength of the pound
against the Euro, inevitably means that further difficult decisions
will have to be taken in order to improve our competitive position.
Accordingly the Board and the management are giving this area
their urgent attention".
July 2000
Announced 1,300 manpower reductions within Strip Products and
Tinplate businesses in Wales to improve their competitive position.
August 2000
Announced the start of contractual discussions with suppliers
of material and services for the reline of No. 3 Blast Furnace
at Llanwern. The programme was subject to an ongoing business
viability review within Corus to ensure that it continues to be
in the overall interests of the Company. Against the prevailing
economic background it was stated that Llanwern Works in particular
must achieve a more competitive cost base in order to maintain
the current plant configuration in the future.
September 2000
Financial results for Corus Group plc for the nine months to July
2000 showed a loss of £165M before tax. An operating loss
of £301M was reported for carbon steel activities, "in
spite of a profit contribution from Hoogovens". Again it
was emphasised that "the trading situation for carbon steels,
particularly in the UK, is very difficult and accordingly the
focus of management has been directed towards efficiency improvements
and cost reductions".
October 2000
A cost reduction programme for the Group's Strip businesses launched
and the cessation of activities on certain production units and
reduced shift levels on others was announced. This included the
mothballing of Llanwern No.2 blast furnace, Port Talbot HDG line
and one pickle line, Shotton anneal & temper line and Bryngwyn
No.1 paint line. The announcement again highlighted the effects
of a particularly adverse business climate and worsening market
conditions.
Sept-Dec 2000
The downward pressure on prices continues and significant increase
in imports into the UK. The import share for strip products was
49% in 1999 compared to 41% in 1997. During this period, political
briefings continued at Secretary of State level and to MPs, AMs
and officials, taking place in London, Scunthorpe, Cardiff, Llanwern
and Port Talbot. All emphasised the vulnerability of plants to
the continuing market difficulties, exacerbated by the strength
of Sterling.
December 2000
The resignation of the Corus Joint Chief Executives was announced
and at the same time the Chairman made the statement that "whilst
the aluminium and stainless steel business are making good progress
the carbon steel business continues to struggle particularly in
the UK where market demand remains relatively weak. Demand in
the rest of Europe is strong but over-supply is now beginning
to cause a weakening in prices throughout the EU. In the light
of the market outlook and the continuing strength of sterling
against the Euro, it is inevitable that further major restructuring
will have to take place in the UK".
31 January 2001
Internal Corus configuration review completed.
1 February 2001
Announced restructuring.
E. MINIMISATION OF
IMPACT OF
JOB LOSSES
1. Specialist help and guidance will be available from
the Employment Service who will locate themselves on site to help
people find alternative employment and/or re-train to improve
their skills and future prospects for employment. Rapid Response
Units are being established to deal with the job losses in a co-ordinated
manner.
2. In addition, UK Steel Enterprise (formerly BS Industry)
will be working closely with each of the Task Forces as well as
the National Assembly and the Welsh Development Agency to identify
and assist with those initiatives most effective in helping to
regenerate steel areas. Additional resources will be made available
to assist the start up and growth of key job creating enterprises
and to help pump prime other regeneration and job creation initiatives
in these areas.
F. FURTHER RESTRUCTURING
1. The announced restructuring of the business—aligning
operational capacity to the UK market size, minimising unprofitable
exports and improving manufacturing efficiency—will lead
to improved financial performance. The long-term viability at
the remaining works will ultimately be determined by market conditions.
2. The fundamental driver behind the need for restructuring
is the continuing erosion of the UK industrial base and the increased
competition in European markets exacerbated by the weakness of
the Euro. Additionally manufacturing in the UK is being further
disadvantaged by high energy prices, climate change levy, transportation
costs, high business rates, as summarised below:
— Electricity prices paid by steel producers have
fallen, but at end-January 2001 prices remain up to 30 per cent
higher than for our European competitors and Government attempts
to do something about it have been delayed excessively.
— Meanwhile, gas prices have doubled in the last
10 months and spot prices have doubled again in the last few weeks.
— The Climate Change Levy will cost UK steelmakers
£10 million a year, a charge on their bottom-line, completely
unrelated to financial performance or ability to pay.
— UK steel producers will be amongst the three most
heavily taxed steel industries in Europe, along with the Italians.
The vast majority of steel producers will pay far less, not to
mention the producers of 40 per cent of world steel who are based
in countries that are not Kyoto signatories and therefore will
have nothing to pay.
— Transport charges are excessive with vehicle excise
duty and fuel taxes adding £10 million p.a. to the disadvantage
UK has compared with its continental neighbours, through the current
non-use of 44t lorries. On rail, track access charges are excessive.
Even port charges disadvantage the UK against continental competitors.
3. Corus Chairman, Sir Brian Moffat, told the Commons
Trade and Industry Committee on 14 February that the company was
aiming for a size that was competitive and commensurate with the
UK market in the foreseeable future. Unfortunately, the company
cannot guarantee the future. The market and the competitive performance
of the plants will determine that.
Sir Brian Moffat
Chairman and Chief Executive
26 February 2001
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