Has Varin the va-va-voom to save Corus?

The steelmaker's new French boss tells Clayton Hirst about his role in a restoration drama
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He's very dapper, very French, but Philippe Varin has a very British problem on his hands. For the best part of a decade the former state-owned British Steel, which merged with the Dutch producer Hoogovens to create Corus, has been in decline. Once the engine room of Britain's manufacturing industry, Corus today casts a thin shadow - rocked by aborted mergers, mass redundancies, heavy losses, internal squabbling and inefficient working practices.

But Varin, who arrived at Corus as chief executive in May, after 25 years with the French aluminium producer Pechiney, believes he can succeed where his predecessors have spectacularly failed. "We are putting Corus on the road to recovery," he says. "But much more has to be done."

To reinforce the point, he produces graphs and tables which show that Corus is lagging its European peers by some 6 per cent based on earnings. "The problems of the sort I found at Corus cannot be sorted out quickly. It will take two to three years," he adds.

His turnaround plan, dubbed Re-storing Success, will cost £250m in two stages. Phase one, at £90m, will see Corus focusing production on three sites: Rotherham, Scunthorpe and Port Talbot. The money for this will be mainly raised through disposals, such as land.

Varin has yet to decide how the second £160m phase, which will determine the future of Corus's Teesside operations, will be funded.

The City got its first taste of Varin's plans on Wednesday when the 51-year-old presented an improved set of half-year results. But it wasn't terribly impressed and Corus's shares plunged 15 per cent on the day over fears that the company may have to launch a deeply discounted rights issue next year. Making matters worse, some analysts, notably Pascal Spano of Deutsche Bank, believe that Corus "needs considerably more funds than the £250m stated". Varin is, however, undeterred and insists: "The total cash won't exceed £250m."

His approach is very different to that of his predecessors. The recently departed chairman, Sir Brian Moffat, and former chief executive, Tony Pedder, were sometimes criticised for their abrasive and combative style. Varin - immaculately turned out in a perfectly pressed suit - is a diplomat; he even thanks journalists for taking the time to speak to him. He cites building bridges with Corus's Dutch supervisory board, which last year blocked the sale of the company's aluminium business to his old firm Pechiney, as a priority.

Nevertheless, his careful (if sometimes disjointed) use of language does little to hide his criticism of the old management regime. "The new team is substantially different to the old," he says. "It is more international, focused on value creation, customer orientated and fully accountable for performance.

"Change has already begun. But there will be future changes to the senior team [drawing on a] more international pool of talents."

One area of which he is particularly critical is Corus's "very poor" customer service. "It is very simple. In our business, when you serve the construction sector, the packaging business, the automotive business, you need to have a delivery service that is above 85 per cent [on time]. At Corus it is below this figure. It is significantly below, but I can't go too much into this."

Varin says that the poor service is partly down to the company's culture: "In some companies, when you deliver on time then the bell rings very loud. This doesn't seem to be the case with Corus."

However, he knows any changes he makes to Corus will have to be performed delicately given that the company has made around 10,000 people redundant in four years. Asked if there will be further job losses, he responds: "No, no." But there is a question mark over Teesside. Varin is assessing whether the plant can be refocused to supply international markets through some sort of partnership or joint venture with another company. "We want to see if we can make cash [out of it]. Our real efforts are to make a good business case. Everyone is working hard on it." Asked if outright closure is an option, he says: "Nothing is assured 100 per cent."

There is no shortage of people willing to talk to Corus about doing some sort of deal. Lakshmi Mittal, the controversial Labour Party donor who owns steel company LNM, has long been interested. And since Corus was plunged into its latest financial crisis - brought on when it failed to sell its aluminium business - there have been rumours that Varin has held informal takeover talks with Mittal. However, the Frenchman dismisses this: "I met a lot of competitors, just to say hello and introduce myself, in May and June. Since then I have not had any contact."

Corus has also received the attentions of Alisher Usmanov, a Russian metals entrepreneur who has bought nearly 7 per cent of the steelmaker through a Cyprus-based company. Last month the businessman told the US Securities and Exchange Commission he had amassed $100m (£60m) to buy more Corus shares. This would take his holding above the important 10 per cent - giving him the option of a seat on the board.

Varin says he has not yet met the Russian, who is now the third-largest Corus shareholder, but he expects to do so in the next few weeks. However, he doesn't think Corus will be on the receiving end of a takeover approach: "I have [heard] nothing that would lead me to think he has got anything but positive intentions towards the company."

Corus's shares are now trading at 25.25p, well above the all-time March low, when they sank to 4p. But the first sign of Varin's plans unravelling will have the vultures circling. Then we will see whether this diplomatic Frenchman also has the necessary nerves of steel.

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