Sheffield Forgemasters’ financial results for the year ended 31st December 2017 show a one-off pre-tax loss of £16.4m as the result of an accounting change.
It’s happened because of a decision to accelerate the depreciation of the asset base of the company. Before it, the company recorded a modest pre-tax profit of £0.2m on revenue of £76.1m (up 4% over 2016), a consolidation of underlying performance since the downturn in the oil & gas sector of 2014/15.
David Bond joined Forgemasters as CEO in August, in the wake of Dr Graham Honeyman stepping down from the board in July. David has been joined by Steve Hammell as CFO and Paul Cahill as COO. In addition, the company has just appointed a new Chairman, Colin Smith, a veteran of Rolls-Royce plc, to complete the formation of the new top team.
David Bond said: “The company won an increased volume of new defence contracts in 2018 and is now in a position to take advantage of a buoyant order book, currently sat at £140m, and improving margins from higher value sectors. Accordingly, we have adjusted our depreciation policy for plant and machinery to match our peers in the engineering sector. The net effect of this change is that the reported results show a significant, one-off correction in 2017.
He added: “The new team is expecting a return to stronger levels of profitability in 2018 with the delivery of high specification UK and US defence products. We are also focussed on expanding our customer base for premium products and design consultancy in complex engineering applications, to drive future margins and profitability.”
SFIL’s investment strategy has continued with £10m invested into new plant in 2017, including a £2m upgrade to its electric arc furnace and a £6.5m investment into state-of-the-art BOST machining centres, which provides the company with machining capabilities that are unmatched in the UK. In 2018, SFIL also committed to a record intake of 33 apprentices and now employs 670 staff.
David Bond said: “Making prudent financial decisions does not detract from the necessity of running a business which needs to succeed in a fiercely competitive global marketplace. So our technical capability and reputation for innovation is a key market differentiator and demands we maintain our skill base through our apprenticeship programme, research and development efforts and investment in the latest manufacturing technology, enhancing our competitive edge.
“Looking ahead, we will be increasing the amount of investment into plant and equipment in 2019 as we work to maintain the highest delivery and quality standards and drive continuous improvement in our health & safety performance, key priorities for the new team.”
To support these developments, the company also announces that it has extended its asset based lending facilities with Wells Fargo to 30 April 2020, with the debt ceiling reduced from £45m to £40m.
Steve Hammell said: “SFIL has seen it debt levels increase over the last three years, and we are determined to reverse this trend to deliver a long-term sustainable business. The £5m reduction in the lending facility is a step in the right direction and we will continue to reduce our borrowings over the coming years. We are pleased to have negotiated this extension and provide the financial scope to drive the business forward in 2019.”
Mr Bond added: “I am confident that the team leading Forgemasters is united in building a long-term future for the business in a fiercely competitive market. We are all proud to be a part of this iconic company and enthusiastic about the opportunity to make a positive impact for our employees, stakeholders and customers.”