Challenging times at Forgemasters - but a strong recovery should follow

Chief financial officer Steve Hammell said main areas of the plant have remained fully operational throughout the pandemic, with staff working on defence contracts given key worker status.

But smaller forgings, including rolls for steel mills, have ‘declined very rapidly’ due to a collapse in demand for steel. And the oil and gas sector had been hit by oil prices falling to historic lows.

In an interview with financialdirector.co.uk, Mr Hammell said: “Over the short-term, the outlook is very challenging as the fundamental uncertainty as to the depth and duration of the pandemic grips the global economy. Having said that, I remain optimistic as to the prospects for a strong recovery over the medium-term.”

Forgemasters has brought in strict hygiene and social distancing measures and zoning of the sites at Brightside.

“We’ve tried to balance the absolute necessity to protect the health of our staff with the preservation of the business, by maintaining the safe operation of as much of the site as possible.

“Our operational staff have very much rallied around key worker status, provided that we are observing social distancing and Covid-specific health and safety measures.”

Mr Hammell joined, with chief executive David Bond, after a board clearout in July 2018. They renegotiated defence contracts enabling the firm to slash debt by half to about £20m.

“It was essential crisis management that needed to be addressed head-on,” he says.

For the year ended December 31 2018, Forgemasters recorded revenue of £66.3m (down from £76.1m in 2017) with pre-tax profit of £2.1m (up from £0.2m in 2017) and an order book of £160m into 2019.

The company was flooded when the river Don burst its banks in November. Defences held, but water came up through drains.

“We suffered flooding across most of the site and severe disruption to our customer programmes into the New Year,” says Hammell.

“Immediately after the flood, the finance team was faced with a new set of challenges – dealing with external communication with funders and customers, tracking the cost of damage, managing the insurance claim process and re-setting forecasts and financial expectations….This was a hectic period for everyone within the business.”

Looking to the future, he said: “Our long-term focus is looking beyond the wave of defence contracts that we’re active on, and considering the next set of programmes we need to be involved with, to secure the long term future of the business,” he says.

Part of the long-term view includes plans to recapitalise the firm’s plant and equipment.

“Large parts of this site are now quite old, so we’re understandably encountering instances of breakdowns and unplanned maintenance.

“We are addressing this challenge and it will require more investment, so we’re looking at how we can shape the business for the long term both from a revenue and investment perspective, to continue its long history in this city. The firm has been around for more than 200 years, and we want to build upon that heritage.”

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