Sheffield Forgemasters Engineering Limited

July 28, 2005 06:04 ET

New Dawn for Sheffield Forgemasters

LONDON, UNITED KINGDOM--(CCNMatthews - July 28, 2005) - The board of one of Britain's foremost global engineering businesses, Sheffield Forgemasters Engineering Limited ('SFEL'), has made proposals for a management buyout (MBO) following a restructuring that is set to secure the jobs of 600 workers. An important aspect of the deal was the management's commitment to achieve the best possible outcome for the members of the Company's pension scheme.

After a decade marked by profound business and financial challenges, the directors of SFEL have put together a refinancing package which has the support of its major creditors. The complex arrangements that are necessary will secure the future of the business and prepare it for considerable opportunities in its international markets.

The 600-strong workforce, based at Brightside Lane in Sheffield, includes 41 apprentices, of whom two have won recognised national awards for their efforts in the last few months.

The business has been hampered over the last 10 years by fluctuating trading conditions, inter-company debt obligations and the financial failure of the parent company Atchison Castings Corporation.

After three years of effort by the management team, headed by Dr Graham Honeyman, Managing Director of SFEL, these problems have now been addressed. The Company is profitable, having recorded operating profits of Pounds Sterling 2.5 million in the 12 months to 30 June 2005, and the newly emerged business is poised to take advantage of a record order book and projected strengthening demand for its highly competitive products and service.

SFEL's immediate parent company Sheffield Forgemasters Limited (SFL) was placed in administration in September 2003 after the financial failure of US-based Atchison. The administrators had hoped to sell SFEL as a going concern but could not find a buyer due to the extent of its pension fund and inter-company debt liabilities. Accordingly, SFEL's management team has agreed to acquire the business, and has reached an agreement with certain of the Company's creditors.

While heeding continuing challenges, notably uncertainty over power and raw-material prices, SFEL's business will, on completion of the refinancing, be equipped to address burgeoning demand for its high-tolerance products in key industries such as defence, nuclear, oil & gas exploration, power generation, marine and construction.

As the deal formally depends on creditors representing 75% of the total liabilities accepting the terms of a company voluntary arrangement (CVA), a meeting to confirm the proposals will be held in August. This will clear the way for a new parent company, Sheffield Forgemasters International Limited (SFIL), to take ownership of the business.

On Wednesday 27 July the Board unveiled its strategy to a group of key suppliers, who confirmed their unanimous support for SFIL. On the same day Dr Honeyman, who previously served in several senior roles in the business before returning in May 2002 as Managing Director, obtained the support of the Company's workforce in a series of addresses coinciding with shift patterns.

The arrangements have been carefully monitored by the Pension Protection Fund (PPF), a statutory corporation that became operational on 6 April 2005 to protect members of defined-benefit pension schemes in the event of business insolvency. It is expected that the pension scheme will enter an Assessment Period under the PPF and that ultimately it will be accepted into the PPF. This will mean that scheme members will receive benefits up to the maximum compensation levels set by the PPF. In the circumstances, acceptance into the PPF will provide the best outcome overall for scheme members after what has been a very worrying time for them.

Under the CVA, the PPF has secured on behalf of the pension scheme a value similar to what it would have received had SFEL stopped trading, with the added advantage of certainty and timing. Additionally, the pension scheme will receive a minority stake in the new company, with potential for future recovery. The current value of the scheme's assets is approximately Pounds Sterling 120 million. If the scheme is accepted into the PPF, the scheme's assets will also transfer into the PPF.

A new stakeholder pension scheme has been immediately established for the workforce at Sheffield Forgemasters.

Following the MBO, the business will comprise three divisions:

- Engineering

- Steel

- Vulcan SFM - a newly established project management company

Graham Honeyman said: "When I returned in 2002, there was understandable doubt about the future of this business. But we saw clearly both the global opportunity and the skill and expertise of the workforce, and viewed them as secure foundations upon which to build a competitive, world-class business.

"I am especially encouraged to have received the full backing of the workforce and the unions that represent them, and also to have secured as non-executive directors, Tony Pedder, the former Chief Executive of Corus plc, and Peter Birtles, a former Managing Director of SFEL. Both will make a massive contribution to the strength of the operation.

"I also gratefully acknowledge the significant contribution that a long list of advisers and partners have made to this highly complex deal. That list includes Burdale Financial, DLA Piper, the DTI, the Engineering Employers' Federation, KPMG, PricewaterhouseCoopers, the PPF and Yorkshire Forward.

"There are great challenges ahead. However, I am confident that having secured the support of all our stakeholders, we can achieve our objectives of re-establishing Sheffield Forgemasters as a world leader in large-scale engineering technology, and unlocking even greater commercial success."


For further information:

Sheffield Forgemasters Engineering Ltd
Graham Honeyman
Managing Director Tel: +44 (0)114 244 9071

Media enquiries:

Peter Curtain Tel: +44 (0)20 7398 7700

Justin Heath Tel: +44 (0) 113 390 6008


Photography is available on request from Abchurch. Please call Peter Curtain on
+44 (0) 20 7398 7700 or email

Notes to Editors

Sheffield Forgemasters

Sheffield Forgemasters Engineering Limited (SFEL), the current company, is a specialist producer of heavy forged and cast steel products for the global oil and gas, aerospace, marine, construction and heavy manufacturing sectors. The Company employs some 600 people at its main production site in Brightside, Sheffield, from where over 75% of its output is exported to countries as far afield as Eastern Europe, Russia, North America, South America, Japan, South Korea, and China.

Despite significant historical economic challenges, the Company's turnover has doubled in the last three years from Pounds Sterling 35 million to Pounds Sterling 70 million and, for the 12 months to 30th September 2004, it recorded an operating profit of Pounds Sterling 2.5 million.

SFEL's high tolerance products are recognised as world class by customers in key sectors such as defence, nuclear, oil & gas exploration, power generation, marine and construction. Supporting SFEL's production team is a group of highly experienced designers, a high proportion of whom are qualified to PhD level, and a network of specialist suppliers from across the region.

Burdale Financial

Burdale Financial Limited is a UK leader in comprehensive asset-based lending. Established in the UK in 1992, Burdale became a member of the Bank of Ireland Group in January 2005. The Bank of Ireland Group has EUR 126 billion of assets. Its long-standing good reputation, financial strength and range of products provide Burdale with the strong backing to deliver quality service and well-structured financial solutions to its clients.

DLA Piper Rudnick Gray Cary ('DLA Piper')

DLA Piper Rudnick Gray Cary is a global legal services organisation with offices across Europe, Asia and the US. Over 2,900 lawyers across 53 offices and 20 countries provide a broad range of legal services through our global practice groups. We are relationship driven and built to meet the ongoing legal needs of clients, wherever they choose to do business.

Commenting on the deal, Neil Thompson, Partner at DLA Piper, said: "Sheffield Forgemasters is a long-standing client of our Sheffield office and we have been advising the company on this complex management buyout for well over a year. We are delighted that the deal is nearing completion and believe it is excellent news for the company's workforce, suppliers and the regional economy as a whole."

Department of Trade and Industry (DTI)

A DTI spokesperson said: "After three years of great effort and perseverance by the management team and the whole workforce of Sheffield Forgemasters Engineering, we are delighted that a successful conclusion is in sight. We wish the new company all the very best and every success for the future."


KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. The firm operates in 148 countries and have around 6,500 partners, 70,000 client service professionals, and 17,000 administration and support staff working in member firms around the world. Its purpose is to turn knowledge into value for the benefit of clients, its people, and the capital markets.

Commenting on the rescue deal, Tony Sharp, Senior Director at KPMG Corporate Finance in Leeds, said: "Securing the prize of a stand-alone Sheffield Forgemasters, with all that means for so many families and companies in and around South Yorkshire, dwarfs the complexity involved in making this happen. Goodwill towards Forgemasters was evident from many quarters with local government playing its part to the full. I am sure that we all wish Graham Honeyman and his team the very best of good fortune in the years ahead."

PricewaterhouseCoopers ('PwC')

PwC provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 144 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.

Commenting on the deal, Steve Ellis, partner at PricewaterhouseCoopers and the proposed nominee of the Company Voluntary Arrangement (CVA), said: "We have worked closely with Graham Honeyman and the management team over the last 18 months to produce a solution that preserves maximum value for all stakeholders and protects the jobs of all employees. We are optimistic that the proposals will be approved by creditors at the meeting on 16 August 2005."

Pension Protection Fund (PPF)

The Pension Protection Fund is a statutory corporation, established under the provisions of the Pensions Act 2004, to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation. The PPF became operational on 6 April 2005.

Yorkshire Forward

Yorkshire Forward is the Regional Development Agency responsible for the economic development and regeneration of the Yorkshire and Humber area - one of the UK's most powerful and diverse regional economies, growing consistently faster than the European average and boasting a total GDP of Pounds Sterling 71 billion.

Yorkshire Forward through the MBO will assist in the purchase of assets in the new engineering subsidiary company via a Selective Finance for Investment grant.

Commenting on the deal, Alex McWhirter, Head of Enterprise, said: "Yorkshire Forward is delighted to be a partner in the future success of this Company. The MBO will secure 600 jobs in the Company (522 of these in the Engineering subsidiary), and emphasises our continued support for the advanced engineering and metals cluster in the Region.

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