final nucor (1)

8/10/2019 Final Nucor (1)

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Mission

To Take Care Of Our Customers

By being

The safest,

Highest quality,

Lowest cost,

Most productive

Most profitable

Steel and steel products firm


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Nucor History

1897 - Ransom E. Oldsfounded the Olds Motor

Vehicle Company which waslater sold to General Motors.

In 1905 Olds launched the ReoMotor Car Company in Lansing,Michigan. This company filed for

bankruptcy in 1938 and wasreorganized to focus on building

trucks during WW II and lawnmowers in the post-war era.

The firm was sold at a $3miilion loss to BohnAluminum and Brass

Company and was leftwith no viable

businesses primarilybecause of the intensecompletion in the lawn

mower industry.

In 1955 a group ofdissident share-holders

opposed the Nucorboards decision to

liquidate the company.Instead, they forced it to

acquire a tiny nuclearservices company called

Nuclear Consultants,Inc.

The original Reo MotorCompany was renamedthe Nuclear Corporation

of America, Inc. Its andthe headquarters weremoved to the EmpireState Building in New

York City.

Source: www.Nucor.com


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1950s -1960started acquiring unrelated

businesses including Vulcraftamanufacturer of steel joists

located South Carolina. Kenneth

Iverson was hired as GeneralManger of Vulcraft in 1956.

1965- promotion of Ken Iverson topresident and Sam Siegel to chief

financial officer.

Iverson and Siegel sold off orliquidated all Nuclear businesses

except Vulcraft and movedcompany headquarters to NorthCarolinaslightly over 100 miles

from the Vulcraft plant inFlorence.

1969-Expansion into steel joistsand introduction of mini-

mills

1980-one of the most profitablecarbon steel operations in

the world

2000 -Don DiMicco was

promoted to CEO in andKen Iverson retired.


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2 Basic Businesses in the Steel

Industry

Steel joist plants

Steel frames for building

Steel mills using Mini-mill technology

Smaller scale production


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Reasons for success

Ken Iverson restructured the company Engaged in divestment of high-tech business

Focus on profitable business: steel

Decentralized operations with decisionmaking power to managers.

No volume discounts

Shift from the normal shipment delivery

charges Use of the latest technology and advancement

in processes


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Steel and Iron Industry

Three main competitors

ArcelorMittal USA, Inc.

Commerical Metals Company United States Steel Corp.

Less competitors = more opportunities


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Nucors Philosophy

There were three principles that defined their

philosophy

Honesty

Autonomy to workers in decision making and

allowing them to focus upon more effective

ways to perform their duties

Fairness to all employees


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Steel Making Process

Mini-mills Bar mills

Used junk auto parts instead of

ore

Used Steel scrap as raw

material

Produced steel used inintegrated mills

Production process: melting,casting and extrusion

Production cost: $250 per

tonne

Production cost: under $ 135

per tonne


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Evolution of US steel Industry

The US steel industry witnessed cyclic periods ofgrowths

In the mid 1980s faced with external competition fromAsian steel firms, slowdown in the automobile industry,the steel industry faced a slowdown

However with focus on modernization, cost reductionand innovation the situation improved for the US steelfirms

In 1997-98. due to fall in demand and flooding of theUS steel market with imported steel, the situationchanged quickly


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Competitive Advantage

Corporateculture

TechnologyInnovation

Low coststructure

Operationalexcellence


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Cost leadership

Lean structure

JIT

Mini mills technology using scrap as rawmaterial

Offices in rural areas near the markets they

serve

Simple routine office building

Emphasis on recycling and less use of paper


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Nucor culture

Egalitarian

Same colouredhard hats for allemployees

No designatedparking spaces formanagers

No separateexecutive dininghalls

Bi-directionalcommunicationeven with KenIverson

Pay for performance

Weekly bonus ashigh as 150% ofbase pay for work

groups those whoachievedproductivityabove standards

College tutionplan

Employee stockownership options

Flat organizationstructure

Four layers ofmanagement onlybetween

chairman andhourly workers

Wide spreadsharing ofinformation

Source: Nucor website


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Corporate success factors

Corporatesuccess

Employeerelationship

Compensation/ benefit

system

Organisational

structure

Work ethics


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Organisational Structure

Nucors structure was decentralized, with only the fourmanagement layers: Chairman / Vice Chairman / President

Vice President / Plant General Manager

Department Manager Supervisor

The general manager at each plant was grantedconsiderable autonomy, essentially operating thefacility as an independent business.

Each plant could source its inputs either from anotherNucor plant or from the outside market

Tolerance for experimentation and risk taking.


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Leadership

From a bankrupt conglomerate to the 2ndlargeststeel producer in US . It took some acuteleadership skills from Aycock and Iverson

Iverson had the courage to do thing and take risksas Iverson believed that- failure to take risk is afailure

Iverson always promoted independence andautonomy

He set an example by living a modest life andallowed only for simple and organized offices,sending a message that steel production wastheir sole focus not public appeal


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Incentive Plan

At 4 levels:

Production Incentive plan

Department manager incentive plan Non-production and non-department

manager incentive plan

Senior officer incentive plan


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Personnel Policies/Employee relations

Nucor plant did not have job description, flexibleworkforce and non-union status of employees.

No performance appraisal. If employee was notperforming well , dealt directly.

Employees were kept well-informed about thecompany.

Absenteeism and tardiness was not a problem.

Safety was a concern for critics. The average hourly workers pay was more than twice

the average paid by other manufacturing companies.


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Vulcraft: Joist division Nucors major businesses was manufacture and sale of open web steel

joists and joist girders at vulcraft division.

Joist industry was characterized by high competition but Nucor had beenlargest supplier of joist in U.S since 1975.

It sought to be the lowest cost producer in the industry. Materials andfreight being the most important elements of cost. Maintained fleet of 150 trucks to ensure on-time delivery.

Plants located in rural area near the market they served.

Workers were responsible for quality and a quality control inspector

was appointed to keep a check on the produced items.

Time required for manufacturing joist varied with different

specifications and this time helped in determining plant teams

bonuses.


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Steel divisions

Nucor got into steel business in 1968 to provide rawmaterial to Vulcraft plants to make steel available tothem at a cheap rate .

It marketed its 75% of its shipments to Vulcraft andrest 25% to outside customers.

It also built 3 more bar mills between 1973-81.

Nucor was the first steel company to build mini-mill tomanufacture steel sheet for auto industry followed byother 3 plants in 1990.

Nucors total steel production capacity was 5.9 mn tonsper year at a cost of $300 per ton of annual capacity.


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Value chain

Source:businesssetfree.com/porters-value-chain/


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Each division/plant is manage marketing and sales

activities Domestic markets see Nucors position in small towns and

their ability to contribute to the community.

Nucors major customer segments were the constructionindustry (60 percent), the automotive and applianceindustries, (15 percent), and the oil and gas industries (15percent), with the remaining 10 percent divided among

miscellaneous users.

Marketingand sales

Each Vulcraft plant maintained its own engineeringdepartment to help customers with design problems orspecifications

All customers treated fairly with the same sales terms(closer is cheaper)

Service


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Support activities

Commonly ask the equipment supplier to provide aboutmaterials information

Buy materials from independent broker who followed the marketand made recommendations regarding the materials.

The company had alliances with outside parties and suppliers

Acquisition strategy (DJJ, Harris) and Joint Venture (Nextframe,Hismelt commercial plant)

Procurement

Didnt have a formal R&D department, a corporate engineeringgroup, or a CTO

Monitoring others work worldwide and attracted investors whobrought them new technical applications at the earliest possibledates

Technologicaldevelopment


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Support activities

No formal HR department Human

Proper wage and incentive structure Resource

Four principles of Employee Relations

No lay off policies

Attracts local workforces

HRM

Very flat organization, but then increase due toacquisition strategies Firm

Decentralization Infrastructure

Cost-effective management information systems

Union-free (except in the subsidiary Harris)

Firminfrastructure


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Nucor in the 21stcentury

Nucor was doing well in the beginning with mostof the other steel companies in the US operatingunder Bankruptcy.

Many regional companies underwent mergers in

Europe and Asia, making survival difficult forNucor.

However, after US introduced the protectivetariffs and rise in Demand , The Steel prices rose

in the country and Nucor took advantage of it. They acquired local steel companies like Trico

steel ,Birmingham Steel corp., Magnatrax corp.


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Contd.

Through Joint Ventures and Acquisitions Nucor

became the second largest steel producer in the

US with an annual capacity of 20.3 MMT.

With the rise in the raw material prices, Nucormaterial started with backward integration and

started acquiring scrap metal selling firms.

However in 2008, due to slowdown in theautomobile and construction industry, the

demand and price steel fell abnormally.


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Management Evolution

Iverson was removed as chairman in January,1999

John Correnti succeeded Iverson but he too

was voted out in June, 1999 David Ayecock came out of retirement to

become chairman

A level of Executive VPs added over four areasof business

Also appointed a new CFO a director of IT


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Necessary to change the perspective from

individual plant level to corporate level

In September, 2000, Daniel DiMicco becamePresident & CEO

Peter Browning was elected as Chairman of

the Board of Directors Nucor planned to achieve 10-15 percent

average annual growth and be the market

leader in every product group over the nextdecade


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Organizational Chart in 2000

Source: case


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Environmental and Political Issues

Nucors mill in Crawfordville was in news for

alleged violations of federal and state clean air

rules

Fast track approval to one of the facility which

was situated on the Chowan river and on a

stretch which was critical for marine life

Excessive incentives by the North Carolinagovernment to set up a steel mill in their state


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Issues

In 2008, fourth quarter, a severe economicdecline hit the company in 4thquarter

This was part of the world-wide recession thatbegan in September 2008

Steelmakers in US experienced sharp pullbackfrom buyers who were concerned about theslowdown in automobile and construction market

Capacity utilization (at Nucor) was 95% in the firstthree quarters of 2008. It dropped to 48% in thefourth quarter of 2008 and 45% in the firstquarter of 2009 (a 40% decline).


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Financial Issues

In April 2009, Nucor's loss, which was expected,totaled $189.6 million,

Revenue fell 47 percent to $2.65 billion.

Shipments dropped 43 percent and averageprices slipped 7 percent

Its mills operated at just 45 percent of capacity,down from 92 percent a year earlier. That meant

energy costs raised about $11 per ton because itsfurnaces continued using large amounts of powerbut produced less steel


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Nucors Financial Ratios


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Nucors response

Cut down prices

Suspending expansion plans

Reducing hours of plant employees but not

indulging in lay offs like major steel players in US Salaried employees also absorbed pay reduction

of 40% (share the pain philosophy)

Nucors acquisition and integration into steelproducts markets and raw material also providedmany opportunities


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Conclusion

Overall, despite the current credit crisis, we expect NucorCorporation to capitalize on the weakness competitors areexperiencing due to the current economic downturn. Weexpect Nucor to continue making a profit and payingdividends while positioning for growth through acquisitions.

Key Points for Basis of Recommendation: Cash is King: Nucor can afford to wait until things get better.

Secondary Offering raises $1.85 Billion. May 08 $1 Billion in cheap debt sold. May 2008.

Within the Steel Sector, Nucor clearly provides better returnson equity, assets, and investment than competitors.

Likely to benefit from US Government Stimulus Packagefocused on Infrastructure and Energy.


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THANK YOU

final nucor (1)

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