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Vol.1979/0246

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COMMISSION
OFTHE
EUROPEAN COMMUNITIES
GeneralSecretariatCOM(79)733 final
Brussels,11thDecember1979
FOROFFICIALUSEONLY
REQUESTFORASSENT,PURSUANT TOARTICLE56.2a
OFTHEECSCTREATYTOGRANTING ARECONVERSION LOANTO
"McKELLAR WATTLIMITED".SCOTLAND (U.K.)
(Communication fromtheCommission totheCouncil)
COM(79)733final

COMMISSION
OFTHE
EUROPEAN COMMUNITIES
INTERNAL DOCUMENT
COMMUNICATION TOTHECOUNCIL
Subject:Requestforassent,pursuanttoArticle56.2aoftheECSCTreaty
tograntingareconversion loantoMcKellarWattLimited,Scotland(U.K.).
I.ESSENTIAL INFORMATION
Applicant
Beneficiary
Project
Location
Investment
Loanrequested
Jobscreated
Interestreduction:McKellarWattLimited
:Same
:Expansionofproduction andfreezingcapacity
tomeetgrowthofFreezerSales
:17OldShettleston Road,Glasgow,
Strathclyde Région-Scotland
b4.45-M
b2M<+3.23MEUA)
148full-time,52part-time
51.000EUAperyearforfiveyears.
II.CONFORMITY WITHARTICLE56OFTHEECSCTREATY
InScotlandasawholeitisestimatedthatabout230,000jobshavebeenlost
inthepast20yearsinthekeyindustries ofcoal,shipbuilding ,steel,
railwayvehiclemanufacture,textilesandagriculture alone.Theselosseshave
beenpartiallyoffsetbygainselsewhereinmanufacturing andservices.But
inthedecade1966-76therehasbeenanoverallnetlossof50,000jobsdespite
strengthened regionalpolicymeasuresinthe1960'sandtheimpactofNorth
SeaOilinthe1970*s.
Strathclyde whichcontainsabouthalfofScotland'spopulation presentsthemost
formidable problemofregionaldevelopment inScotland.Theprincipal
industries withdeclining employment,notablyshipbuilding ,steel,textiles,
coalmining andheavyengineering,areheavilyrepresented inthisarea.From
1966-76employmentfellbyabout105,000(9%)muchmorerapidlythanin
Scotlandasawhole.Unemployment hasbeenconsistently aboutone-fifthhigher
thaninanyotherregionoftheUK.Theproblemsofindustrialdeclineare
•■■/•••
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-2-
paralleled bypoorhousing,environmental andsocialconditions whichhave
persisteddespiteamassivehousebuilding andurbandevelopment programme :
datafromthe1971CensusshowsthatClydesidecontained averylargeshare
oftheworstareasofconcentrated socialdeprivation intheUK.
Themainconcentration oftheseproblemsisinGlasgowwherepopulation and
employment havebeenfallingmoresharplythaninStrathclyde regionasawhole.
Substantial netemployment losseshaveoccurredinmanufacturing industry
mainlythroughcontraction andclosureoffirmsoutweighing gainsfromnew
openingsandexpansion.Unemployment inthecityiscurrently 8%(male10%)
comparedwith7%(male8%)inScotlandasawhole.
Theeasternareaoftheinnercity,withinwhichtheapplicant company,
McKellarWattLtd.,islocated,hassufferedfromevensharperadversetrends
thanGlasgowasawhole,andisarguablythelargestsingleareaofurban
deprivation inthecity.Incontrasttomostotherareasserviceindustry
employment hasfallenaswellasmanufacturing ,andurbandeclinehasleftapoor
environment ofderelictlandanddecayingbuildings.Becauseoftravel-to-work
patternsunemployment ratesarenotcalculatedfortheeasternareaalone,but
itisknownthatsubstantial numbersoftheresidentpopulation arewithoutjobs.
Becauseoftheparticularly severeproblemsoftheareatheGlasgowEastern
AreaRenewal(GEAR)projectwassetupbytheGovernment .Thisisaimedat
achievingthecompletesocial,economicandenvironmental regeneration ofthe
area.TheprojectinvolvesbothCentralGovernment andvariousofitsagencies
and localauthorities,undertheco-ordination oftheScottisch
Development Agency.
Between1969and1976employment incoalmininginScotlandfellbyabout
11,000(28%)andinironandsteelmanufacture byabout4,500(15%).Since
1976therehasbeenafurthersubstantial contraction inemployment inthesteel
industryinScotlandinvolvingtheclosureofopen-hearth steel-making plants
andrationalisation ofotheractivities .Althoughsubstantial investmentis
takingplacetomoderniseScottishsteeloutputatworkssuchasthatat
Ravenscraig nearGlasgow,fewifanynewjobsarelikelytoarise.Thewhole
ofthisprocessofadjustmentistakingplaceinandaroundGlasgowandWest
CentralScotlandwherethesteelindustryislocated.
IntheimmediatevicinityofMcKellarWattLtd,theClydeIronWorksofthe
BritishSteelCorporation wereclosedinFebruary1978withthelossofover
1,000jobsoverthe3yearspriortoclosure.Employment hasalsodecreased
atothersteelplantswithinthearea-Clydebridge (Open-Hearth Furnace
andPrimaryMill)withabout1,000lostjobopportunities andTollcross (Foundry)
withalossofabout350jobs.Althoughnofurtherspecificclosuresare
imminentlyinprospect,ongoingrationalisation projectsdoleadtoredundancies
fromtimetotime.Thereisnoscopefortheabsorption ofredundantsteel
workerswithintheindustryandtheextenttowhichtheycanbere-employed
elsewheredependsontheavailability ofalternative employmentintheareaandon
thesuitability oftheindividuals affected,someofwhompossessonly
specialisedskillsacquiredaftermanyyearsinsteel-making .
■•»/aa•

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III.THEUNDERTAKING
TheCompanywasfoundedin1948byitspresentChairman,Mr.R.M.Wattand
remainsaprivateindependent familybusinesswhichinits30yearsof
activityhasgrowntobethebrandleaderinScotlandforfreshsausages
andpies,withahealthyexpansionrateinitsrecentlyformedFrozenFoods
DivisioncoveringtheentireUnitedKingdomandseveralmajorexportoutlets.
TheCompany'sOldShettleston Roadfreeholdpremisesarelocatedwithinthe
GlasgowEasternAreaRenewaldistrictontheirownsitewhichextendsto
7.7acresofwhich2.5acresapproximately arecurrentlyinuse.TheCompany
employingover600people,isalreadyamajoremployerintheareaandwill,
throughtheproposedinvestmentproject,createabout200additionaljobs
by1984.RentedsalesdepotsarealsomaintainedinManchester andCarnoustie
andasaresultoftheproposedinvestment,afewnewjobswillbeavailable
there.
IV.THEPROJECT
Tomeetanincreasing demandforfreezerfood,thecompanyhasdecidedto
implementasubstantialcapitalexpenditure programmewhichwillprovide,
interalia,additionalcapacitytoproduce,freezeandstoresausagesand
bakeryandatthesametimeimprovethegenerallayoutofthefactory.
Theprojectprovidesinthefirstinstanceforthebuildingofanewaccess
roadwithinthesiteatOldShettleston Roadtogetherwithanewentrance
andgatehouseandtheerectionofanexternallightingsystem.Workonthis
willstartinMarch1979andwillbecompletedbyJuly1979.Thereafterit
isintendedtobuildandequipvariousextensionstotallingabout53,000sq.ft.
comprising (a)an8,000sq.ft,bakeryproductionblock(startinginAugust,1979
readyforproductiontocommenceon1stJune,1980),(b)an18,000sq.ft.garage
in1979/80,(c)amaterialhandlingdepartmentofsome6,00Csq.ft.in1980/81,
(d)11,000sq.ft.ofsausageproductionareaalsoin1980/81,(e)newoffices
(50,000sq.ft.)in1981/82,(f)anadditionaltwo-storeybakeryblock
(3,000sq.ft.)in1981/82and(g)alsoin1981/82asecondfreezerstorefor
finishedgoods(2,000sq.ft.).I/iadditionextraplantandmachinerywillbe
purchasedtosetupotherproductionlinesinareasvacatedwhenthenew
buildingsarereadyforoccupation.
Thecapitalexpenditure anditsphasingisassessedatfc4,45Mmadeupas
follows:
Yearto31stMay 198019811982 Total
fc'OOOfc'OOOfc'OOO fc'OOO
Accessroad,entrance,
gatehouseandexternal
lighting100 100
ButIdings
PlantandMachinery870965960
2105757702,795
1,555
Totalfc'OOO 1,1801,5401,730 4,450
./..

EMPLOYMENT
Glasgow Carnousti e Manchester
FT PTFT PT FT PT
Pre-Project
February1979 418 1579 422 6
May
1981 504 18011 426 6
1982 527 18811 426 6
1983 540 19611 426 6
1984 560 20911 426 6
Additional
Employment142 522 4
Basedontheaboveadditional employment
includes93full-timeproduction workers,forecast,
(49PT),thebreakdowninjobs
sales10,clerical9(PT2),
fitters/electricians 12,butchers8andbakers5with11additionalfull-time
and1PTmanagerialstaff.SituatedintheGlasgowEastEndintheheartof
anarearenewallocationthecompanyhasareadycatchmentareaforlabour
andnodifficulties shouldoccurinrecruiting theestimated numbersrequired
overtheperiod.
MARKETPROSPECTS
Until1975McKellarWatt'sexpansion wasmainlyachievedinfreshproduct
marketingviageographical expansion andnewproducts,throughout anarea
coveringScotland,NorthernEnglandandtheMidlandareas.In1975,dueto
thecomplexities offreshproductmarketing,coupledwithanindication of
lowerfutureprofitability inthefreshproductsindustry,thecompanydecided
todiversifyintofrozenfoodsthroughthehomefreezermarket.Thisoperation
hasbeenextremelysuccessful andnowfrozenfoodsaccountforabout25percent
oftotalproduction .Thisyearturnoverisinexcessoffc8Mperannumand
withabudgetedandprovenannualexpansionrateofaround14-15percentthe
companyrequirestocreateadditionalfacilitiestomaintainthisrateofgrowth*
Particularly thehomefreezermarketisgrowingatahealthyrateandisrapidly
takingoverfromthefreshsectorofthesausageandbakeriesmarket.There
isavastgrowthpotential,asthecompanyisachievingitspresentsaleson
ahomefreezerownershipof30%inEnglandand15%inScotland.Sincesales
ofhomefreezersincreasethefuturelookspromisingforMcKellarWatt.

-5-
VII.FINANCING
Theestimatedaggregatefinancialrequirements andresourcesfortheperiod
1979to1984willbeasfollows:
Requirements b'000
Capitalexpenditureforproject 4,450
Workingcapital 704
5,154
Resources
ECSCloan 2,000
RDG 979
IRG 608
Additionaloverdraft
Cashflow 1,567
-5,154
IX.CONCLUSION
TheCommissionconsidersthattherequestcomplieswithArticle56(2a)of
theECSCTreatyandthattheproposedinvestmentiseconomically sound.
Inconsequence theCommissionhasapprovedaloantoMcKellarWattLimited
foritsprojectintheEastEndofGlasgow,Strathclyde Regionforamaximum
amountoffc2M(+3.23MEUA)oritsequivalent amount.Interestistobe
reducedby51,000EUAperyearforthefirstfiveyearsafterthepaymentor
paymentsoftheloan.
TheCommissioninvitestheCounciltogiveitsassenttotheforegoingdecision ..