Heavy open die forge brings in orders

Twelve months after a management buy-out from its American owners, Sheffield Forgemasters International's open die forge is well and truly back in action with GBP 100 million of orders.

Only 12 months ago one of the UK's manufacturing giants, Sheffield Forgemasters International (SFIL), stood on the brink of disaster.

In a remarkable turnaround the historic company has moved from being hours from complete closure to amazing success in just one year.

The company was saved by a management buy out, engineered by Dr Graham Honeyman, Chief Executive of Forgemasters, which secured 600 jobs and paved the way for a phenomenal one-year turnaround - the first anniversary of which comes on September 19, 2006.

For more than four years Dr Honeyman, together with a close-knit team, maintained a vision for the 200-year-old engineering company in the face of complete adversity, staving off liquidation to save jobs, pensions and 1,200 suppliers from possible economic collapse.

The team were aided by tactical support from the former Corus chief executive and now SFIL Chairman, Tony Pedder, and former managing director of the company, Peter Birtles - now an SFIL director, as they worked with administrators PriceWaterhouseCoopers to save the company.

Now with a turnover of GBP 100 million, SFIL exports 80% of its products, has offices worldwide and an order book worth GBP 100 million.

This was made possible through a complex landmark deal aided by the government's Pension Protection Fund (PPF) - only the second ever resolution worked on by the PPF - which solved the bankrupt company's pension fund deficit and enabled the buyout to succeed but also through the hard work and determination from Honeyman and his colleagues.

Dr Honeyman and his dedicated management team worked tirelessly to protect Forgemasters future and to secure the MBO deal, winning full backing from the government, the SFIL workforce and the involved trade unions.

Dr Honeyman said: "This has been a consuming passion of ours for a long time now.

We have never let go of the fact that this company did not deserve to be put in administration." He added: "Forgemasters is one of the last great British companies and every day we feel proud that our belief was right and that this buyout is working better than anyone would have believed." SFIL now has the biggest order book in its history, its highest ever level of sales predicted for next year and an award-winning apprentice trained workforce, putting valuable specialist knowledge back into the British steel industry.

It now also has 40 new apprentices on its books - an important benchmark for the future.

Dr Honeyman started working for Forgemasters in 1988 as a technical director and was made managing director under an American owned administration in December 1998 before leaving the company in early 1999.

Two years later, the American owners asked him back to work as a consultant in a bid to regain some stability for the company.

Dr Honeman worked hard to streamline operations, build a strong management team and to get rid of loss making contracts.

These efforts culminated in his appointment as MD and subsequently leading the management buy out in 2005.

Their over-arching notion for a MBO remained totally averse to putting the company in administration - which would only retain the company's assets and some of its workforce.

Dr Honeyman said: "Things were looking very bad when I went back to Forgemasters.

The American owners were having massive problems across their organisation and none of that was reflecting well on their UK operations.

We started work almost immediately to build relationships with creditors." He said: "Forgemasters had been beset by problems for many years, culminating in a period in 2005 when we literally had hours before we closed." Peter Kenny, finance director at SFIL, said: "Our concern was that the situation we were in - facing administration - was going to strip the workforce of their hard-earned pensions, make us lose our customers and cripple many of our suppliers.

It would have created a situation that Forgemasters could not have recovered from.

We had to find another way." Dr Honeyman added: "We were not going to let the people here down.

These people are specialists working in a specialist organisation and would have found it extremely hard to get another job.

We worked closely with the government to keep the company going and never gave up." Dr Honeyman's pioneering view of SFIL in his earliest days with the company was, and still is, based upon SFIL embracing increasingly technical bespoke contracts and working to diversify the business.

The MBO deal hinged around a GBP 65m deficit carried by Forgemasters' GBP 120m pension fund, which made a buyout implausible.

This was compounded by a GBP 10m inter-company debt and a possible GBP 10m clean up cost for a French Foundry left by the US owners.

The government's PPF stepped in as a contingent creditor and pursued its objective of maximising a return to the pension scheme.

The PPF agreed to a cash amount of more than was available through liquidation and a 26% share in the newly established company (SFIL).

"The idea of administration never held any sway with us, but our creditors didn't think it could be done any other way," said Kenny.

"Without the support of MPs like Richard Caborn, Clive Betts and Helen Jackson, and local civic leaders like Sir Bob Kerslake, who had the confidence and integrity to support our strategy for Forgemasters MBO, the whole shooting match would have gone, including the pensions of a dedicated workforce.

The Government recognised that as one of the biggest employers in Sheffield it was a hugely important institution to keep." Clive Betts, MP for Attercliffe, said: "Sheffield Forgemasters International is a world class company employing a highly skilled workforce.

I am really pleased that with help from other local MP's and myself, the PPF was persuaded to offer assistance to ensure that a successful MBO secured the future of the company." This view was reflected by Sir Bob Kerslake, chief executive of Sheffield City Council, who said: "The service that Sheffield Forgemasters provides to our national and regional industry cannot be ignored.

They are an important employer and have a superb approach to putting skills back into the UK steel industry.

"The vision that Dr Honeyman and the MBO team displayed has produced a company with an outstanding export record and a forward thinking approach to further developing the organisation." Richard Caborn, Minister for Sport and MP for Sheffield Central, has long family links with Forgemasters and backed the MBO plans from the outset.

"Sheffield Forgemasters is a hugely important South Yorkshire company, which has employed generations of Sheffield families including my own, which made my own involvement even more pertinent," said Caborn.

"I was delighted to have played a part in its future." With assistance from Caborn, the Forgemasters management team initiated crucial talks with the Department of Trade and Industry, the result of which was that Yorkshire Forward provided GBP 2m investment for the buyout to complete the mission.

Volker Schaffer, Forgemasters' sales director, said: "Forgemasters' success now, as a working company, is entirely due to this management's early vision about the need to be flexible and to take on a diversity of contracts.

We cannot be tied to any one industry or sector and the orders that pass through our manufacturing facilities are totally different from one week to the next." Building on the strength of renewed client faith in the company and a burgeoning order book, the management team continues to steer SFIL on a dynamic course and recently created a subsidiary company, Vulcan SFM - providing specialist services ranging from design consultancy to engineering production solutions, contract management, outsourcing and acquisition.

Covering 62-acres SFIL is one of only 14 large scale open die forging companies in the world and the only one of its kind in the UK.

It has the largest forging and foundry facilities in the UK.

The company continues to supply an increasing global demand for high quality engineered products to key industries such as defence, nuclear, oil and gas exploration, power generation, marine and construction.

The original nine strong MBO team at SFIL has subsequently evolved and expanded to provide a dynamic and diverse management structure to move the company forward.

So why did the team take on this huge task at a significant financial risk? Dr Honeyman said: "This company is special and we have survived.

We always knew it was viable and there was a future for it.

This country should never be without a company that can do what we do.

We make critical items here - People's lives depend on how well we make them." He added: "Everything we do is done with passion.

We take a piece of scrap and transform it into a highly engineered component.

There's excitement, heat and noise.

We've led the world in this industry and will continue to do so." Dr Honeyman enthused: "There is nothing in the UK to compare with this and we are the only independent Forgemasters left in the world.

All the others are owned by large corporations and lacking in our ability to adapt to industry change.

And it's not just about traditional manufacturing.

Vulcan is unique in its skill base and is winning contracts from across the globe." He said: "SFIL now stands in a position that we believe will enable it to roll with the punches.

Against the odds it remains competitive, yet offers a level of quality that is envied across the globe.

There is still a public perception that the engineering industry in this country, even in this city, is in decline.

We are determined to shout about what we are doing here and let people know the real answer.".

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