The Ministry of Defence has confirmed it is planning to buy specialist steel firm Sheffield Forgemasters in a bid to secure the supply of components for “critical” current and future defence programmes.
It said the immediate cost of the acquisition is £2.56m for the entire share capital of the company and its debts, but that the government’s long-term vision is to invest up to £400m in the business over the next 10 years.
The MoD said that the firm is the only available manufacturer with the skills and capability to produce large scale high-integrity castings and forgings from specialist steels in an integrated facility to the highest standards required for its programmes.
“The acquisition has been assessed as the best value for money for the taxpayer due to the unique capabilities and circumstances,” the department said in a statement.
“Furthermore, SFIL’s ownership will not prevent other UK-based manufacturers bidding for MoD contracts, which will continue to be run in an open and fair competition.
“The MoD has already started working closely with the company to implement best practice governance that will ensure appropriate financial oversight to secure the company’s future success, with the aim eventually to return the business to the private sector.”
In its most recent annual report and accounts, covering the year to 31 December 2019, the company – the full name of which is Sheffield Forgemasters International Limited – said it was facing “significant challenges” due to “subdued demand”.
In his overview, dated 31 July 2020, company chairman Colin Smith said the Covid-19 pandemic had been a source of “unprecedented uncertainty” in the months since the reporting period.
The 2019 accounts showed that although Sheffield Forgemasters’ turnover increased to £79.3m from £66.3m the previous year, pre-tax profit dropped from £2m to £781,000, while tax left the business with a £16,000 annual loss.
Sheffield Forgemasters said this week that the government’s acquisition of the business will support “a substantial recapitalisation” of its defence-critical plant and equipment.
“The investment will secure Sheffield Forgemasters’ role as a critical supplier to the next generation of UK defence programmes, while continuing our independent commercial activities, serving markets such as civil nuclear, oil and gas, power-generation, renewables and steel processing,” the company said in a statement.
The MoD’s proposed £400m investment will fund a new heavy forge line and building, a flood-alleviation scheme, major machine-tool replacements and a site-wide power-system upgrade, the business said.
“Sheffield Forgemasters and its shareholders are not able to fund an investment of this size and so this transaction marks the completion of a process started two years ago by the board to develop a strategy for the business that enables it to be a reliable and secure supplier to defence for the long-term,” the company said.
The transaction is subject to a three week offer period and is due to be completed on 19 August.