| || |
Marketing Strategy of Corus Group plc -
December 16th, 2010
Tata Steel Europe (formerly Corus Group) is a steel-making company headquartered in London, United Kingdom. It is the second-largest steel maker in Europe and is a subsidiary of Tata Steel of India, one of the 10 largest steel producers in the world.
Corus Group was originally formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999. It was once a constituent of the FTSE 100 Index, but was taken over by Tata in 2007. On 27 September 2010 Corus announced it was changing its name to Tata Steel Europe and adopting the Tata corporate identity.
Incorporated: 1967 as the British Steel Corporation
Sales: $17.49 billion (2000)
Stock Exchanges: London New York Amsterdam
Ticker Symbols: CS (London, Amsterdam); CGA (New York)
NAIC: 331111 Iron and Steel Mills
Corus aims to be an innovative company with a strong customer focus, providing metal solutions to an increasingly sophisticated marketplace. The Corus strategy is targeted at creating shareholder value by achieving world class competitiveness through operating excellence and technological advance. The emphasis is on achieving leading positions in attractive market sectors where sustainable growth can be achieved.
1918: A group of manufacturers in The Netherlands establish a national iron and steel business, Koninklijke Nederlandsche Hoogovens en Staalfabrieken NV.
1924: Hoogovens first begins producing pig iron.
1928: Hoogovens launches a fertilizer factory, Mekog.
1930: Hoogovens establishes a cement factory.
1939: Hoogovens begins producing steel.
1950: Hoogovens establishes Breedband NV, a subsidiary that produced hot strip, cold band, and tinning materials; The Iron and Steel Corporation of Great Britain is established as a state-owned holding company for newly nationalized steel companies that had formerly been in the private sector.
1953: Great Britain begins re-privatizing its steel companies, selling them off primarily to former shareholders.
1958: Hoogovens opens its oxysteel factory, which employed a new production method.
1967: Great Britain again nationalizes its steel industry, forming the British Steel Corporation.
1972: Hoogovens joins with German steelmaker Hoesch Dortmund to form Estel, the fourth largest steel company in Europe.
Early 1980s:Hoogovens dissolves its joint venture with Hoesch Dortmund.
1987: Hoogovens expands its aluminum division; the British government announces plans to privatize British Steel Corporation.
1988: Hoogovens sells off all businesses but those pertaining to aluminum and steel; British Steel Corporation is privatized as British Steel plc.
1995: British Steel announces plans to expand in Latin America, central Europe, and Asia.
1997: British Steel builds its first steelmaking facility outside the United Kingdom, in Alabama; it begins a program of job reductions to keep costs down.
1999: British Steel and Hoogovens merge, forming Corus Group.
2000: Corus merges its stainless steel subsidiary with a Finnish stainless producer to form AvestaPolarit.
2001: Faced with heavy losses and a weak market, Corus announces massive cuts in production and jobs.
2002: Corus announces that it plans to sell its aluminum businesses.
Corus Group plc, one of the largest steel companies in Europe, came into being in 1999 with the merger of British Steel plc and Dutch steelmaker Koninklijke Nederlandsche Hoogovens en Staalfabrieken NV. The company manufactures, processes, and distributes metals products to the construction, automotive, mechanical engineering, packaging, and other markets--primarily in Europe. The bulk of its production facilities are in the United Kingdom, but it also has a presence in The Netherlands, Germany, France, Belgium, the United States, and Canada. The company's products include coated and uncoated steel strip products, sections and plates, tubular products, engineering steels, wire rods, stainless steel, and carbon steel products. Corus also operates a significant aluminum business; as of early 2002, however, the company was planning to sell its aluminum-related units.
Early History and Development
The company is the successor, by way of the state-owned British Steel Corporation (BSC), of the leading private steel companies that survived the Depression of the 1920s and 1930s and World War II. Under the Labour government of 1945 to 1951 these companies first profited from the large compensation payments they received for giving up their coal mining interests to the state and then were nationalized themselves, on the grounds that they formed an oligopoly with the power to restrict output, raise prices, and prevent technical progress. The Iron and Steel Corporation of Great Britain was established in 1950 as a state holding company for their shares, but the steelmasters retained the initiative, mainly through a boycott organized by the British Iron and Steel Federation (BISF), the industry's trade association, which they controlled.
In the autumn of 1951 a new Conservative government suspended the corporation's activities after eight months of mostly ineffective existence. Between 1953 and 1963 an Iron and Steel Holding and Realisation Agency sold off 16 of the 17 nationalized firms, mostly to the former shareholders. At the same time an Iron Steel Board was given the negative powers of fixing maximum prices for products sold in the United Kingdom and approving or rejecting any investment of more than £100,000. Price control was nothing new, having begun on a more modest scale in 1932, with the result by the 1950s that losses during low points of the economic cycle could not be offset by higher profits in more prosperous times. The companies' reluctance to invest intensified, and the Iron and Steel Board--or rather the taxpayers who financed it--became the major source of new investment funds.
During the 1950s and 1960s the British steel industry lost its historic advantages of cheap coal and plentiful iron ore, the industry's basic raw materials. Coal prices rose by 134 percent between 1950 and 1967, and the domestic iron ore industry was neglected in favor of ore from new fields overseas. Rearmament, from 1950 onward, caused the company to retain old plants, instead of investing in costly new plants, in the attempt to keep up with demand. Between 1945 and 1960 total crude steel production in the United Kingdom doubled in volume, an increase attributable in large part to such technical innovations as oxygen-based production and continuous casting. The claim that the industry had now been taken out of politics was belied by the events of 1958 and 1959, when the Conservative prime minister, Harold Macmillan, sanctioned not the single extra strip mill the industry wanted, but two, one at Llanwern in Wales and another at Ravenscraig in Scotland, both subsidized from public funds and neither able to operate at full capacity.
The British steel industry's problems, however, were not all due to the government or the companies. It faced new rivals, especially in Japan, as well as old ones, in France, West Germany, Belgium, and Luxembourg, which were now protected by the European Coal and Steel Community and some of which were blessed with deep-water harbors taking in high-grade ores. In addition, there was a general fall in the rate of growth of world demand for steel from about 1960, leading to declining prices and profits for the steel industry worldwide, a scramble to dispose of surplus output at the lowest sustainable prices, and a worldwide steel glut that lasted until 1969. The British industry in particular continued to be marked by a cautious attitude learned in the 1920s and never shaken off and by the refusal of the individual firms to cooperate with one another in anything that might threaten their own identities. The steel industry faced the 1960s with a fragmented structure based on investment decisions that, apart from the establishment of the Ravenscraig mill, had been made in the 1930s.
Re-Nationalization Under Labour in the Mid-1960s
In 1964 the Labour Party returned to office with a commitment to re-nationalize steel. The BISF's response was the Benson report, which concluded that the industry needed to go over entirely to the basic oxygen process, to build extra capacity in much larger plants, to site them near the coasts (for raw materials supplies), and to shed 65 percent of existing plant space and 100,000 workers. These proposals gave the government new ammunition, since in spite of the companies' claims that they could provide most of the necessary capital from their falling profits, it was clear that the industry alone could not hope to finance these developments. The nationalized British Steel Corporation (BSC) began operations on July 28, 1967, just when new orders were at their lowest level in five years, and in a period of mergers among companies in France, Germany, and Japan. At its inception BSC was the second largest steel company in the noncommunist world, endowed with the assets of the 14 crude steel companies, whose output exceeded 475,000 tons. They employed 268,500 people and included Richard Thomas & Baldwins, a company that had remained in state ownership since 1951.
BSC faced some formidable problems. First, since compensation to the former owners was based on stock market values, and not--as in private mergers and acquisitions--on net assets or future profitability, the shareholders received about £350 million more than the assets were worth. A later Conservative government recognized the loss to BSC and wrote off that amount of its debt in 1972. In addition, the 14 companies' return on capital had fallen from 15 percent in 1956 to 3.7 percent, making them unable to carry out the Benson plan they had commissioned, and the sorry state of their assets was bound to damage BSC's profitability for some time to come. In addition, 10 percent of crude steel production and about 30 percent of finished steel production remained in the private sector, leaving BSC with the generally less profitable bulk steel and lower-quality finished steel business. As the private firms were effectively subsidized through the controls on BSC's pricing of crude steel sold to them, they could concentrate resources on technical advances that allowed higher productivity, giving them about a third of the market for finished steel, with only a quarter of total capacity, by the late 1970s. In this respect BSC was unlike its major rivals abroad, which were diversified within steel and across other sectors. Finally, BSC's capital consisted of £834 million, to be repaid to the Treasury at a fixed rate of interest, regardless of its profit cycle. Between 1967 and 1980 BSC's interest payments were equivalent to 73 percent of its losses. A private sector company in the same situation would not have been burdened with interest payments.
Unlike other public corporations BSC had been given the freedom to decide organizational questions for itself. Its structure was regionally based until 1970, divided into six product divisions until 1976, configured on a different geographical basis until 1980, and then redivided into different product divisions with numerous profit centers within them and linked to a new system of mostly self-financing local bonus schemes for the workers.
One unique aspect of BSC's organization was the presence of worker-directors, first on the boards of the regional groups, then on the boards of the product divisions, and last, after 1976, on the main board. The steel industry long had enjoyed a comparably good record in industrial relations. The relatively few strikes in the industry's history had usually been over demarcation among the trade unions, of which there were 17 in the industry in 1967, and among which the Iron and Steel Trades Confederation (ISTC) was dominant, containing half of the 80 percent of the workforce that belonged to unions. It was the ISTC that felt most threatened by change, since it would tend to cut into the union's base among the less skilled workers. The part-time worker-directors were appointed after consultations with these unions and with the Trades Union Congress (TUC), the national labor federation. Since the management retained its monopoly of information and authority, the influence of these unelected representatives was minimal, ceasing altogether with their abolition in 1983, three years after the defeat of the national steelworkers' strike had signaled the end of the trade unions' influence in the company. In 1970 and 1971 the new Conservative government at first considered various ways of breaking up or partially privatizing BSC, then decided to continue with the status quo while raising the corporation's borrowing limits and giving some flexibility on pricing. BSC later announced that with British steel prices held below European Community levels from 1967 to 1975 the losses amounted to about £780 million, representing another indirect subsidy to the private sector, in this case to steel consumers.
BSC in the 1970s
The corporation initiated its "heritage program" in 1971 and 1972 to develop the strengths and overcome the weaknesses of the assets inherited from the private companies, in particular the low productivity of blast furnaces, which was due to inefficient cooling and the use of such low-grade material as coking coal with a high sulfur content. By 1973 BSC had invested £764 million in this program and in such new projects as Anchor III, the construction of a new plant at the Appleby-Frodingham complex in Scunthorpe, Lincolnshire, on the site of abandoned ironstone workings. At the nearby port of Immingham, a terminal was built to accommodate 100,000-ton vessels bringing foreign ore for the furnaces. The opening of the plant only three years after the scheme was authorized seemed to bode well for BSC's increased efficiency, and helped accelerate the trend whereby imported ores rose from 55 percent of the total used in the United Kingdom in 1967 to 85 percent in 1974.
By 1973 British steel consumption had exceeded 18 million tons a year. The ten-year development strategy started in 1973 envisaged concentration of resources on five inherited sites, and on a new sixth complex in Teesside. Some £3 billion--half from BSC, half from the taxpayers--were to be spent on raising capacity and on shutting down older plants, with the loss of at least 50,000 jobs--in other words, a slightly revised version of the BISF's Benson report. BSC also did something that the steelmasters had never done; it created a subsidiary, BSC (Industry) Ltd. in 1975, to invest in new nonsteel ventures in areas where its closure program would hit hardest.
The development strategy committed the government, BSC, and the country to the largest capital investment program in British history. Also in 1973, the United Kingdom joined the European Community, where excess capacity in steel was already at the highest level in the world and where BSC could no longer rely on an 8 percent tariff to keep European imports out. Then came a worldwide slump, caused by the Arab oil embargo and the ensuing energy crisis. The collapse of demand for steel during 1975 caused BSC to accelerate its closure program, after a public fight over the issue with the Labour government and, in 1977, to give up the ten-year strategy in favor of aiming for 30 million tons by 1982.
Operating Under Conservative Policies in the 1980s
The Conservative government elected in 1979 at first announced that no more money would be available for BSC. Then in 1980, when BSC's losses rose to £545 million, the government increased its borrowing limit once again, while the board announced that 60,000 jobs would be cut within 12 months. The 13-week national strike that followed, the first in the steel industry since 1926, cut deeper into BSC's profits as imports rose to fill the gap it caused.
In 1980 and 1981 the Conservative government abolished the BSC's statutory duties to promote the supply of iron and steel and to further the public interest, took new powers to direct BSC's use of its assets, and wrote off a total of £5 billion of debts. In the next few years BSC regained some lost ground and beat European records for closing plants and making cuts in the workforce, but by 1982 British customers' demand for steel was down to slightly more than 12 million tons, and BSC's share of this market went below 50 percent for the first time. The majority of the private steelmakers also sought state aid and received about £50 million in 1982--more in later years. They benefited as well from the "Phoenix" series of joint ventures with BSC, starting in 1981, since they were financed mainly out of public funds.
British Steel plc: Late 1980s and 1990s
In 1986 the chairmanship of BSC passed to Robert Scholey, who had spent his entire career in the industry and whose father was a director of one of the pre-1967 private steel firms. In 1987, with Scholey's full support, the government announced its intention to privatize BSC and the company became British Steel plc in 1988, just before demand for steel began to fall. The new company undertook to keep all five of its main plants open until the end of 1994, subject to market conditions.
British Steel plc's first 18 months were certainly eventful. The company carried out the fourth overhaul of its production structure since 1967, ending up with five divisions--general steels, strip products, stainless steels, distribution, and diversified activities. The company then won the contract to supply rails for the Channel Tunnel, was fined by the European Commission--along with five other steel companies--for participating in an illegal cartel to fix stainless steel prices, acquired the Mannstädt division of the German steel firm Klöckner-Werke, and announced that the hot strip mill at Ravenscraig would be shut down in 1991. It replaced national pay bargaining with divisional and local talks to reinforce the emphasis on productivity and increased total payments to the directors of the company by 78 percent.
The pendulum of ownership of British Steel often led to discussions of its management, yet the act of nationalizing the company seemed to have made little difference to its operations. Even BSC's huge investment program might have been carried out by a public board aiding private firms, as in the 1960s, although BSC's second chairman, Sir Monty Finniston, told the House of Commons Select Committee on Nationalized Industries in 1977: "We would have done nothing if we were in the private sector, absolutely nothing." At the same time the company's history revealed that the act of privatizing did not automatically improve its efficiency or contribute to its economic growth.
Steel production was repeatedly affected by changes in the world economy. Supplies of coal and iron ore were subject to enormous fluctuations in price and volume. The industry had fixed capital costs. Steel was a raw material, with construction accounting for 18.5 percent of British Steel's sales in 1989 and 1990; the motor industry accounting for 14.6 percent of sales; and other manufacturers providing further sales. Fluctuations in the steel industry's economic conditions depended on the demand for its customers' products, not for steel itself. Government intervention, to control prices, protect jobs, promote regional development, and secure self-sufficiency, had been pervasive but inconsistent. Steel production displayed long-term tendencies toward alternating crises of under- and over-production, in what had generally been a four-year cycle. The postwar history of the British steel industry displayed all of these features, and apparently would have done so regardless of ownership.
The company's improved results in the late 1980s, both in and out of state ownership, were due--at least in part--to the growth of the British economy, to the global fall in the prices of raw materials, and to favorable movements on the foreign exchange markets since 1985. Post-tax profit, declared in June 1990 after BSC's first full year in the private sector, was £565 million.
In 1990 iron ore and coal prices moved upward again, while sales of steel in the United Kingdom fell by approximately 10 percent, and the company's own pretax profits fell by 27 percent. The company decided to shut down the Clydesdale seamless tube works, and the chairman stated that running five big integrated plants put the company at a competitive disadvantage.
Foreign Expansion Signaling Growth in the 1990s
In 1992, British Steel merged its stainless steel division with Avesta AB, of Sweden. The following year, the economy in the United Kingdom began to advance and so did demand for steel. By 1994, the company had returned to profitability after two years of heavy losses. In 1995, British Steel announced plans to expand its operations in Latin America, central Europe, and Asia, in the expectation that demand for steel from these emerging markets would persist into the next century. For example, the British Steel Track Products Ltd. unit, which supplied rails and railway infrastructure, was involved in projects in several countries in Latin America, including Brazil, Colombia, and Paraguay. In 1996, the company sold 6,000 tons of rails to Latin America, chiefly in fulfillment of a $3 million contract to supply rails to Peru's state-owned Empresa Nacional de Ferrocarriles. Plans for 1997 included selling 10,000 to 15,000 tons of rails for Brazil's Sao Paulo subway.
In 1997, British Steel built its first steelmaking facility outside the United Kingdom, in Tuscaloosa, Alabama. The unit, Tuscaloosa Steel, was located on the banks of the Black Warrior River and produces plate in coil and cut length form used in the construction, transportation, and energy industries. Some 800,000 tons were expected to be produced annually. In nearby Mobile, British Steel invested in two Direct Reduction Iron units that would produce feedstock for the Tuscaloosa plant and another company unit, Trico Steel, based in Decatur. Trico was British Steel's first steelmaking joint venture in the United States. Its 25 percent stake was part of a $450 million project that produced high quality, light-gauge, hot rolled coil.
In addition to expanding in overseas markets and investing in joint ventures, British Steel sought to maintain profitability by selling units. In 1997, the company sold British Steel Forgings, the unit that supplied forged and machined components to the automotive and aerospace industries, to United Engineering Forgings Ltd. It also began streamlining operations, eliminating redundancies. Between 1997 and mid-1999, the company cut some 7,000 jobs.
At the end of the 1990s, the European steel industry underwent a wave of mergers and acquisitions. This was spurred in part by overcapacity across the industry, which drove steel prices down and made cost efficiencies a prerequisite for profits. The consolidation also was influenced by the advent of the Euro, which served to level the playing field by reducing variations in pricing across country and currency lines.
British Steel, like other steelmakers, had been adversely affected by the soft market. Despite its efforts to cut costs in 1997 and 1998, the company was unable to stay profitable, posting a net loss in 1999. With steel companies across Europe consolidating to stay afloat, it began to appear that British Steel would have to follow suit. In 1999, the company entered merger talks with Koninklijke Hoogovens, a smaller steelmaker based in The Netherlands.
Hoogovens's Early History
Koninklijke Nederlandsche Hoogovens en Staalfabrieken NV (Hoogovens) first came into existence just after World War I and gradually developed into a business specializing in steel and aluminum raw materials and products. As part of the trend in The Netherlands toward self-sufficiency in vitally important products, the idea proposed by a group of prominent manufacturers, led by H.J.E. Wenckebach from 1918 to 1924, took increasingly firm hold. They set out to establish a fully integrated national iron and steel industry capable of converting pig iron into steel products and semi-finished products. It was Wenckebach's vision, reinforced by his wide business experience, that sustained the project.
With the support of major industrialists such as the brothers Stork, owners of a machine factory; J. Muysken, transport; H. Colijn, Royal Dutch/Shell; F.H. Fentener van Vlissingen, Steenkolen Handelsvereniging (SHV); and A.F. Philips, in the incandescent lamps industry, a large part of the capital needed was acquired by subscription. The national interest and considerations of business prestige marked the nexus of personal relations between government officials and financiers. Without the contribution of Dfl 7.5 million from the Dutch state and of Dfl 5 million from the municipality of Amsterdam, the Dfl 30 million required could not have been raised. Participation by the state proved to be of crucial importance in enabling the company to stand up to the powerful competition in Europe. The execution of the major project, a blast furnace, steel, and rolling-mill works, was spread over a lengthy period because of the rapidly rising costs. Not until 1953 was it put into full effect.
Aside from financing, finding a suitable location was a significant strategic problem. The choice fell on the city of Ijmuiden, owing to its favorable seaboard location, symbolized in the emblem of the enterprise, the starfish. In The Netherlands, poor in raw materials, a ready supply of imported iron ore and pit-coal was of vital importance, as was the possibility of easy export. Other locations--near Rotterdam and Moerdijk--were ruled out because of the poor structure of the local soil. The construction of the first blast furnaces, however, still had to wait.
The first step was taken in 1918 in collaboration with the steel manufacturing firm of Demka at Utrecht. In 1920 a contract was concluded with the German steel business of Phoenix in Dortmund, enabling Hoogovens to convert its own pig iron into steel products at another factory. At this stage, Hoogovens was to confine itself to building two blast furnaces. A minority interest in Phoenix ensured a permanent place for Hoogovens within the European steel industry. This interest ran counter to the original plan for an independent basic industry, a conflict mitigated, however, by the resulting transfer of expertise. This dichotomy was to be Hoogovens's persisting paradox.
The production of pig iron in the first furnace began on January 24, 1924, under the control of the technical manager, A.H. Ingen Housz. The director from 1920 to 1945, G.A. Kessler, was faced with the task of placing the business on a sound economic footing. Hoogovens secured a foothold in the pig iron export market by maintaining direct contact with its customers. It could deliver a high-quality product at a low price. On the domestic market, growth in turnover was explosive. The volume of business rose from a quarter of the domestic pig iron market in the first year of production to three-quarters in 1934.
Production costs were kept under control by the utilization of various byproducts. In 1928, the fertilizer factory, Mekog, was launched, in conjunction with Royal Dutch/Shell, for the consumption of coking-oven gas. In 1930 the cement subsidiary Cemij was formed in collaboration with ENCI, to produce blast furnace sealants. By this means a competitive war between the Dutch cement producers Hoogovens and ENCI was prevented, and independence from foreign competition was achieved. Compared with pig iron turnover, sales of byproducts were stable, and were sufficient to cover Hoogovens's fixed expenses.
To strengthen Hoogovens's position on the domestic market, a steel study center was set up, in cooperation with the Dutch authorities, which resulted in a steel plan. The steel plan had become necessary in view of the recession affecting--in the first instance--participation in the Vereinigte Stahlwerke (German Consolidated Steelworks). Demand for pig iron declined. Meanwhile, from 1936 onward, demand for raw steel and steel semi-finished products was very much on the increase, making it feasible to start building a steel factory. In 1939 steel production began at the Siemens-Martin factory. The age of iron was over. Consequently, the twin-headed directorate was expanded to include a doctor of economics, M.W. Holtrop, later to become director of De Nederlandse Bank. In 1940 the turnover of pig iron amounted to Dfl 10.2 million, of byproducts Dfl 3.1 million, of steel Dfl 7.1 million, and of tubing Dfl 1 million.
A dividend was paid to shareholders for the first time in 1939. The large scale of investments, along with the devaluation of the monetary value of the part-holding in Vereinigte Stahlwerke necessitated a strict internal policy regarding costs. Thanks to considerable credits from the Nederlandse Handel Maatschappij (Dutch Trading Company) and Royal Dutch/Shell, the crisis of the 1930s was surmounted. Yet up to 1940 Hoogovens was still no more than a moderate-sized enterprise compared with the steel giants of Europe.
1940s-60s: New Facilities, Methods, and Products at Hoogovens
During World War II, more than 50 percent of Hoogovens's shares were assigned to an Office of Administration in order to enable Hoogovens as a group of interested parties to resist excessive German infiltration. It worked. During the war, Hoogovens took over B. Van Leer's roller business. Until then Hoogovens had had its semi-finished products made in the rolling-mills of Demka and Van Leer.
Social responsibilities were a primary concern for Hoogovens's board, and a social department was established. After a difficult start, accompanied by strikes, good labor relations were important to the employers' association. There was no strict hierarchy. The cooperation of a flexible, informed, and dedicated workforce determined the free and easy organizational structure. Team spirit was reinforced by the technical character of the business and the hard physical work. Staff associations were encouraged and training, both general and technical, was carried out within the factory. In 1926 a social fund, the Wenckebach Fund, was created for the benefit of the staff. Pension funds followed, in 1929 for executives, and in 1938 for the workforce.
Foremost during the early postwar years was the Breedband project, which included the construction of a hot strip mill, cold band, and tinning installations. The tinplate surface inspectors in the tinning mills were the first women production assistants in a traditionally male occupation. The Breedband rolling-mills were financed by a contribution of Dfl 150 million from the state, within the framework of its industrial policy, Dfl 23.5 million of which came from Marshall Plan aid. The subsidiary, set up in 1950 as Breedband NV, in which Hoogovens itself invested Dfl 60 million, was fully incorporated in the blast furnace business in 1964 when Hoogovens purchased the state's shares. To put into effect the integration of furnaces, steel factory, and rolling-mills, management was from the outset in the hands of Hoogovens. During this period engineer Ingen Housz was in charge.
Hoogovens's share of output in the European Coal and Steel Community rose from 1.1 percent in 1952 to 3.4 percent in 1967. New production methods followed in rapid succession. In 1958 the oxysteel factory went into production. The process entailed blowing oxygen into liquid pig iron, by which process the carbon was burned off and steel obtained. From the beginning in 1924 it had been necessary to operate, whatever the state of the market, in a factory in a constant state of reconstruction; technical innovation was of crucial importance. In 1980 the continuous casting machine was introduced, realizing a continuous output of steel for slabs.
Hoogovens has been managed since 1961 by a five-member directorate. The directorate, known since 1965 as the board of directors, had proceeded on the policy of previous directors. Company programs included profit-sharing for personnel in 1949, the introduction of an industrial council in 1957, uniform conditions of labor for workers and salaried staff in 1966, and a comprehensive program of training, accommodation, and recreation. As a rule, half the personnel had been involved in in-house training schemes. Without well-trained steel workers, Hoogovens could not have kept pace with technological developments.
1970s-Early 1980s: Merger and Dissolution
By 1971 Hoogovens's activities were no longer restricted to steel production. The Hoogovens concern had established its present structure with the acquisition of subsidiaries in the aluminum, oil and gas, and coal sectors. In 1966 the board voted in favor of collaborating with the German steel firm of Hoesch in Dortmund, in the belief that this cooperation would take the companies into joint position among the top ten steel enterprises in Europe. Hoogovens had a 15 percent share in Hoesch. According to the chairman of the board of directors, P.L. Justman Jacob, this collaboration was a good thing for Hoogovens. All the same, mergers across the frontiers struck him, in 1968, as "damned difficult." In 1972 Hoogovens Ijmuiden and Hoesch Dortmund, the main industrial plants of the respective companies, amalgamated to form the steel firm of Estel, taking them to fourth place in Europe. Yet only 25 percent of turnover was achieved on the domestic market. The shipment of raw materials and products to and from its own port, the largest in The Netherlands after Rotterdam and Amsterdam, made Hoogovens a desirable partner in a merger.
After the worldwide economic crisis of 1973 came the 1975 European steel crisis. Schemes for curbing the overproduction of steel in Europe made it essential that Hoogovens keep abreast of technology. Only modern businesses that could provide a high-quality product at a low price would survive. The much criticized Maasvlakte project--involving the establishment of a second blast furnace concern in Rotterdam--was then abandoned. By May 25, 1983, Hoogovens had produced 100 million tons of steel since 1939. The one million frontier had been crossed in 1958.
After seven years of crisis in the steel industry and handicapped by governmental financial support given to its European competitors, Estel was no longer strong enough financially to carry out independently a restructuring of--in particular--the steel business in Dortmund. Among the last steel enterprises in the European Economic Community (EEC) to ask for assistance from a government, Estel requested help from the German and Dutch authorities. The conditions laid down by the German authorities meant that the merger between Hoesch Dortmund and Hoogovens would have to be terminated. What Justman Jacob had anticipated in 1968 came to pass. The crisis in steel and the government subsidies of other European steelworks, as well as differences in national industrial policies, made a binational undertaking unworkable.
In 1981 the European Commission ruled that any offer of support must be dependent on a commitment to reduction in capacity and a program of restructuring. This would result in a recovery of earning power. Production and pricing agreements, imposed by Brussels, controlled the European steel industry since 1980. Through the closure of Demka and curtailment of hot strip mill production, Hoogovens contributed more than its share toward putting the EEC steel industry on a sound footing. As a result, in 1982 Hoogovens developed a strategy for the years 1982 to 1985.
The strategy was then focused on diversifying activities in steel manufacture, maintaining low price levels, and raising productivity. An extensive investment program, centered on the steel business, was intended to be one-third financed by the Dutch government. The viability of the Hoogovens business was evident from the fact that other European steel concerns received considerably greater government support. Again, the company had no trouble obtaining money from the capital market, owing to the soundness of its planning and support from the Dutch government.
Over the period 1974 to 1985, as one of the few large integrated steel businesses in the EEC, Hoogovens was able to limit cuts in staffing to 22 percent. This took place without forced dismissals, through natural attrition and retraining. The industrial council had from the start opposed any loss of jobs. The management made it a point of policy. Hoogovens's commitment to reducing job cuts, as far as possible, corresponded to the government's wishes. The state with 14 percent and the city of Amsterdam with 6 percent initially had owned a fifth of Hoogovens's shares.
Late 1980s-Late 1990s: A Two-Metal Company
After 1984 the state of the steel market improved, enabling Hoogovens as one of the primary European steel concerns to become profitable again. Hoogovens diversified in an attempt to become less dependent on the cyclical movement in steel. The aluminum division was expanded substantially in 1987 by the takeover of several German firms. All the same, Hoogovens remained a medium-sized business in which 4.5 percent of EEC steel production was concentrated. Liberalizing of the steel market could lead to a rise in production for export-oriented business. In 1988 the Noordwinning Group, involved in natural gas, was sold off, followed in 1989 with the divestments of the cement factory and the cable factory. As a result, Hoogovens became a two-metal concern, with the aluminum sector accounting for 30 percent of the turnover. Growing environmental and technical requirements had resulted in Hoogovens's developing into a supplier of flue-gas desulfurizing installations. On his retirement in 1988 the departing director, J.D. Hooglandt, summed up the current strategy: "Not more steel, but doing more with it."
Although Hoogovens was profitable when it entered the 1990s, its fortunes suffered a sudden reversal in the early years of the decade. The company posted losses of 51 million guilders ($27 million) in 1991, due to both depressed metal prices and weak demand, especially in Western Europe. The losses in 1992 and 1993 were much worse: 595 million guilders and 234 million guilders, respectively. Hoogovens responded with deep cuts, scaling back capital spending and curbing both steel and aluminum production, reducing its workforce by some 2,300.
The company returned to profitability in 1994, and remained profitable throughout the next few years. During that time, it expanded its aluminum business, acquiring the extrusion business of VAW Aluminum AG in Germany, a producer of large aluminum sections; Afal, an aluminum panels and sidings division of the French company, Pechiney-Batiment. Hoogovens also added to its steel operations, building a new thin strip caster plant at its Ijmuiden facility, opening a new hot-dip galvanizing line in Belgium, and increasing its holdings from 50 to 100 percent in the German company Hille and Muller.
In 1999, when Hoogovens approached British Steel about the possibility of a merger, it was profitable and healthy, but still a relatively small presence in the world steel market. All that changed just a few months later; when the merger was complete, Hoogovens became part of the largest steel company in Europe and the third largest in the world.
Late 1990s: Corus Group
On October 6, 1999, British Steel and Hoogovens merged, forming Corus Group plc. The CEOs of the two former companies, John Bryant and Fokko van Duyne, became joint chief executives. The new company, which located its headquarters in London, had 66,000 employees and annual sales of $14.8 billion.
Not only did the merger make Corus the largest steelmaker in Europe, it also made it a multi-metals company--with Hoogovens's strong aluminum units added to the business mix. This positioned the new company to provide a wider range of products and services. Corus believed that such diversification was increasingly important, because many of its major customers--such as automobile makers and construction companies--were themselves consolidating. As their businesses expanded and diversified, they needed suppliers with both a wide range of products and a broad international presence.
Within a few months Corus took another step to reinforce its position as a multi-metals player, merging its 51 percent owned stainless steel subsidiary, Avesta Sheffield, with a Finnish stainless producer, Outokumpu Oyj. Joined, the two companies--renamed AvestaPolarit--became the second largest stainless steel company in the world. The company also acquired a majority interest in Reycan, a division of Canada's Reynolds Metals Co. Reycan was a producer of aluminum heat exchanger material, with the North American auto industry as its main market.
Corus also wasted little time in taking advantage of the potential efficiencies inherent in a merger. Within its first year of operation, the steel giant had cut production deeply, eliminating more than 4,000 jobs. But even with such drastic cuts, Corus was unable to compensate for external problems in the market. Demand for steel was weak, and an oversupply on the world market, consequently, had pushed prices down. The company's earnings also were affected adversely by the strength of the pound relative to the Euro, which made it less competitive than its counterparts in the markets to which it exported. As a result of these adverse factors, Corus posted a £1.05 billion loss for 2000.
Faced with widespread criticism and pressure from company directors, Corus's joint CEOs, John Bryant and Fokko van Duyne, resigned from their posts in December 2000, having led the new company for little more than a year. An interim leader was appointed while directors looked for a new CEO. Meanwhile, the company went into self-preservation mode, making radical reductions in its production. It announced plant and/or line closings at Llanwern, Ebbw Vale, Bryngwyn, and Shotton facilities, in Wales, and at Teesside in England. It also announced plans to streamline functions across other U.K. businesses, resulting in further staff reductions. Together, the cutbacks were to eliminate some 6,000 jobs.
The layoffs drew criticism from both the labor unions and the British government. Union representatives accused Corus of taking a short-term approach to a long-term problem and offered their own alternative to the cuts--a government-backed "rescue package" that would pay for half of the wages of the employees identified for layoff if Corus would wait a year before restructuring. Both Britain's Prime Minister and Trade Secretary also urged the company to consider the union plan, but Corus rejected the offer and moved forward with its cuts.
It was into this maelstrom of restructuring that the company's new CEO, Tony Pedder, stepped in September 2001. Pedder had joined British Steel in 1992 and had headed up the company's Strip Products division.
Looking Ahead: Shedding Aluminum
Corus continued to lose money in the early part of the new century, posting a net loss of £385 million in 2001. In March 2002, the company announced that it was looking for a buyer for its three aluminum businesses. Pedder indicated that, as the aluminum industry continued to consolidate, Corus was finding it harder to compete against ever larger players. Selling its aluminum business indicated that the company had given up its stated goal of being a multi-metals supplier and, instead, was planning a return to a single focus on steel.
Principal Operating Units: Corus Building Systems; Corus Colors; Corus Construction & Industrial; Corus Consulting; Corus Engineering Steels; Corus Metal Services Europe; Corus Metal Service International; Corus Metal Service North America; Corus Packaging Plus; Corus Rail; Corus Research, Development & Technology; Corus Special Profiles; Corus Special Strip; Corus Strip Products Ijmuiden; Corus Strip Products UK; Corus Tubes; Corus Tuscaloosa; Cogent Power Ltd (75%); Corus Aluminum Extrusions; Corus Aluminum Rolled Products; Corus Primary Aluminum.
Principal Competitors: Arcelor; ThyssenKrupp AG; USX Corporation.