142601 F & B Cover

2002 Report & Accounts Corus Group plc Report & Accounts 2002 Contents 2 Chairman’s statement 4 Review of the period 22 Financial review 25 Directors’ report 30 The Executive committee 32 The Board 34 Report on remuneration 43 Statement of directors’ responsibilities in relation to financial statements 44 Independent auditors’ report to the members of Corus Group plc 46 Consolidated profit and loss account 47 Balance sheets 48 Statement of total recognised gains and losses and Reconciliation of movements in shareholders’ funds 49 Consolidated cash flow statement 50 Reconciliation of net cash inflow/(outflow) to movement in net (debt)/funds and Analysis of net borrowings 51 Presentation of accounts and accounting policies 54 Notes to the accounts 93 Supplementary information for North American investors 99 Five year financial summary 100 Some important data in euros 101 Other key data 102 Analysis of shareholdings at 28 December 2002 103 Glossary 104 Information for shareholders Corus Report & Accounts 2002 1 Chairman’s statement The underlying results for the Group At the end of the year, net debt The sale of our aluminium rolled for the year were marginally below the amounted to £1,236m and gearing products and extrusions businesses level of the previous year with a Group was reduced to 46%. Net proceeds to Pechiney was agreed in principle in operating loss of £393m (2001: from acquisitions and disposals October for approximately £543m. £377m), before taking into account amounted to £445m while ongoing The businesses are owned by Corus exceptional items of £53m (2001: cash flow demands amounted to Nederland BV, and the sale was, inter £8m). The net loss after tax and £121m, giving a reduction in net alia, subject to the approval of that minority interests for the year debt of £324m in the year. company’s Supervisory Board. In the amounted to £458m and, in the light event and despite the recommendation of this result, the Board has decided The year under review for Corus of the Management Board of Corus not to recommend the payment of a also proved to be very difficult and Nederland BV, the Supervisory Board dividend in respect of 2002. frustrating in other respects. The was not willing to give its approval. implementation of the Group’s Following an unsuccessful petition to While further progress was made in strategy of focusing on its carbon the Court in Amsterdam for that securing improvements in operational steel operations began with the decision to be set aside, the sale will performance and efficiency, the disposal of our stainless steel not take place. absence of any real global economic interests in AvestaPolarit, the recovery was the major factor which completion of the sale of our 20% The decision of the Supervisory led to the poor results for the year. interest in the aluminium business of Board to reject the sale of the The trend through 2002 saw prices Aluminerie Alouette and progressing aluminium businesses was taken in in Europe, Corus’ major market, fall the sale of the Group’s remaining the face of detailed proposals by sharply during the first quarter prior to aluminium assets. There were also Corus Group to meet the legitimate some modest recovery in the second a number of smaller transactions concerns that the Supervisory Board quarter and, subsequently, further including the acquisition of two had expressed for the consequences increases during the second half. downstream carbon steel operations, of that sale for Corus Nederland BV. As a result, for the second half year one in Sweden and the other in the The Board views this outcome as the Group incurred an operating loss UK. However, and despite the strong extremely disappointing and is of £141m, before exceptional items, strategic rationale, discussions reviewing the implications of it on its as compared with £252m in the first regarding the proposed merger carbon steel strategy and related half, with an improvement of £124m between Corus and CSN in Brazil, funding plans. in carbon steel being partially offset announced in July, regrettably had by a fall of £13m in the operating to be terminated in November due The carbon steel strategy is focused profit of aluminium. to the deterioration of, and ongoing on eliminating the Group’s losses uncertainties in, the global business which continue to emanate from the environment and financial markets. UK despite the steps that have been undertaken in recent years to reduce 2 Corus Report & Accounts 2002 capacity and improve competitiveness. to agreeing a new three year facility I am pleased to inform you that in Unfortunately the progressive decline from January 2004. The funding plans April 2002 Dr Anthony Hayward joined in UK manufacturing, coupled with the for the Group going forward are, the Board as a non-executive director. strength of sterling and increased therefore, an essential part of the Dr Hayward is a main Board director penetration from steel imports, has current Board review. of BP plc in charge of exploration undermined these initiatives. It is clear, and production. In the same month however, that Corus’ UK losses have The Group faces the challenges of Mr Jim Leng who joined the Board in got to be reversed and this will 2003 with a much more stable plant 2001 was appointed Deputy Chairman inevitably lead to significant further configuration following the resumption and senior non-executive director. capacity reductions and concentration in January of a two blast furnace of operations onto fewer sites. A review operation at Port Talbot, and there As has been announced already, by the Board is currently in progress are no planned blast furnace outages. in the light of the Company’s and an announcement will be made As to the market scene, the year has performance, the Board, including on its findings as soon as possible. started as expected with subdued Mr A P Pedder, Chief Executive, demand in the UK and flat demand in concluded that a change of leadership The proceeds of the aluminium sale mainland Europe. However, despite was required. Mr Pedder tendered his would have provided the capacity to this situation prices have improved for resignation which was accepted with finance the measures needed to flat and long products, and the recent effect from 13 March 2003. The reduce capacity in the UK but, with weakening of sterling against the Euro procedure for the recruitment of the sale no longer proceeding, the should bring some benefits in the UK. a new Chief Executive is underway. Group will need to look afresh for finance from equity and debt The last eighteen months has seen Mr Stuart Pettifor, a main Board providers, and from the sale of non- a significant erosion of global equity executive director, has been core assets. The timing and extent prices. The market value of Corus, appointed Chief Operating Officer of further actions to be taken will be however, has been further eroded by and will take responsibility for all largely dependent upon the availability the continuing loss making situation operational matters. At the request of of such further financing. Discussions and refinancing concerns together the Board I have agreed to defer my in respect to an extension of the with the difficulties encountered with planned retirement and will now be existing banking facilities due to the proposed merger with CSN and full time Chairman until my successor expire at the end of January 2004 with the divestment of our aluminium is appointed. were being pursued as part of the business as outlined above. The aluminium disposal process, and Board and management are very discussions also were taking place conscious and concerned about this to replace these facilities for the situation and are determined to take medium term. As the sale is not the necessary action to restore market proceeding, priority will now be given confidence. Sir Brian Moffat Corus Report & Accounts 2002 3 Review of the period The business, its the EU, Corus has an international industries, and industrial extrusions for objectives and strategy marketing organisation with sales the construction, transport and Corus was formed in October 1999 by offices in over twenty countries engineering industries. the merger of the British Steel Group supported by a world-wide trading and the Hoogovens Group. It is the network and a number of processing Until July 2002, the EU steel industry seventh largest steel producer in the and service centres. was regulated by the rules of the world and the fifth largest producer ECSC, established in 1952 by the of rolled and extruded aluminium In 2002, about 60% of Corus crude Treaty of Paris, and by the general products combined. Europe, steel production (excluding Tuscaloosa) rules of the European Commission principally the EU, is the most was rolled into hot rolled coil. Most of (EC), established in 1958 by the important market for Corus for both the remainder was further processed Treaty of Rome. Following the expiry its steel and aluminium products, into sections, plates, engineering of the Treaty of Paris in July 2002, all accounting for 80% of total turnover steels or wire rod, or sold in semi- steel products became subject to the in 2002. Steel accounted for 87% finished form. Some 35% of hot rolled Treaty of Rome, which is of indefinite of total turnover in the same period. coil was sold without further duration. The EC is responsible for processing, approximately 50% was implementing the objectives of the The Group produces steel by the basic further processed in cold rolling mills Treaties. oxygen steelmaking method at three and the remainder was transferred to integrated steelworks in the UK at Port Corus tube mills for the manufacture Corus has a strategy focused around Talbot, Scunthorpe and Teesside, and of welded tubes.

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