SOCIALISM BY ANY OTHER NAME
UK
Ministry of Defence acquires Sheffield Forgemasters
By Jonathan Wilson
Published Wednesday, July 28, 2021
Sheffield Forgemasters’ shareholders have agreed to sell the company’s entire share capital to the Ministry of Defence (MoD) to support a substantial recapitalisation of its defence-critical plant, equipment and infrastructure necessary to secure the delivery of components into future MoD programmes.
The Ministry of Defence will buy Sheffield Forgemasters, saying it intends to invest up to £400m into the firm for defence-critical plant, equipment and infrastructure over the next decade. The cost of the acquisition is £2.56m for the entire share capital of the company, plus debt assumed.
The intervention will secure Sheffield Forgemasters’ role as a key supplier into the MoD for the long term, and is structured to invest substantial new capital into the modernisation of defence-critical assets, including plans for a replacement heavy forge line and building; a flood alleviation scheme, and major machine tool replacements.
The company’s main driver of revenue and profitability over recent years has been manufacturing specialist forgings and castings for submarine platforms and surface vessels as a supplier to Rolls-Royce, BAE Systems and Babcock International, who have provided guarantees to support the financing of the company. With the company’s existing credit facilities due to expire in December and significant investment required for it to a reliable supplier into MoD, the intervention provides the financing necessary to place the company on a secure footing.
David Bond, CEO at Sheffield Forgemasters, said: “The agreement to bring the company under the ownership of the MoD provides a more secure future for the business and its people. The MoD’s intention is to invest up to £400m over the next 10 years to replace defence-critical equipment and infrastructure as we recapitalise our productive capacity, positioning the company to retain and create new highly skilled manufacturing jobs within the Sheffield City region.
“Sheffield Forgemasters and its shareholders are not able to fund an investment of this size and so this acquisition marks the culmination of a process, started two years ago, that enables us to be a reliable and secure supplier to defence for the long-term. I am grateful to my colleagues on the board and throughout the business who have supported us on this journey.”
The intervention heralds a new chapter in the long history of Sheffield Forgemasters and is expected to benefit the local economy.
Steve Hammell, CFO, added: “The board of directors at Sheffield Forgemasters is unanimous in its support for the terms of the acquisition and is strongly of the view that the deal is in the long-term interests of all stakeholders of the business, including shareholders, employees, customers, suppliers, the local community and the Sheffield City region.
“We have secured the support of our major shareholders, who have agreed to sell their shares to the MoD at a price of 121 pence per share, equating to total consideration of £2.56m. The transaction also involves a refinancing of the company’s credit facilities with the financial guarantees provided by Rolls-Royce, BAE Systems and Babcock falling away. We will now enter an approved offer period with completion of the deal to follow in three weeks’ time.
“We recently announced the purchase of a second-hand 13,000-tonne forging press from Japan and will move forward with the recapitalisation programme to renew defence-critical infrastructure.”
Sheffield Forgemasters will operate under the leadership of its current executive directors and senior management, supplemented by the appointment of two further non-executive directors including one from UK government.
Bond highlighted the future ambitions of the business: “Although the MoD’s priority is to secure defence outputs, we will continue to operate in commercial markets with our existing equipment and will also look to exploit opportunities that may arise from the UK government’s net-zero carbon agenda, including off-shore wind projects and the civil nuclear market.
“Sheffield Forgemasters has now established a base for a sustainable future. These are exciting times for the company as we enter a new chapter in its 200-year history alongside the Ministry of Defence.”
A ministry statement said the change “will not prevent other UK-based manufacturers bidding for MoD contracts, which will continue to be run in an open and fair competition”.
Unions have welcomed the move to nationalise the historic steel company, saying it ends years of instability. Unite union assistant general secretary Steve Turner said: “Unite has been engaged in a long battle with the Ministry of Defence and the UK government to protect UK steel supply to our defence and nuclear programmes, so today’s news will be welcomed with a huge sigh of relief right across our steel communities.
“It brings to an end years of instability for this historic 215-year-old company, but is also a sign that government is maybe finally waking up to a crisis of its own making. Critical infrastructure industries like steel function better in public hands, and advanced economies like our own need to have stable, secure domestic steel production capabilities to protect our national security interests as well as to compete in global markets.
“We look forward to a secure future for the plant which brings with it the guarantee for both today’s workforce and the thousands of young workers to follow the hope of a highly skilled job in a well-paid, unionised plant.”
Roy Rickhuss, general secretary of the Community trade union, said: “This move will secure Sheffield Forgemasters’ role as a critical supplier to the next generation of UK defence programmes. We know with the right framework of support our industry has a bright future at the core of a low-carbon economy, so we are pleased to see some much-needed investment going into Sheffield Forgemasters to provide long-term security.
“We see this move as a recognition of the importance of the steel industry to our country’s economic future. The pandemic has showed us the danger of relying on fragile overseas supply chains, so we are pleased to see a viable future secured for Sheffield Forgemasters.”
Sheffield Forgemasters provides casting and forging solutions for complex engineering challenges, specialising in the design and manufacture of high-integrity forgings and castings and offering end-to-end manufacture for steel production from a single site in the UK. Its global markets include UK and global defence; civil nuclear; oil and gas; power generation; renewables, and steel processing.
Some of the largest bespoke engineered steel products in the world are produced at the company’s Brightside Lane facility, with capacity for castings of up to 350 tonnes and forgings of up to 175 tonnes finished weight
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