Battle to forge a future in nuclear industry depends on Government

Will British steel be used in the new wave of UK power stations? Business Editor Bernard Ginns looks at one Yorkshire company's bid.

AFTER years of decline, there is just one British-owned steelmaker left in what remains of the UK steel industry. Fittingly, it is based in Sheffield.

After coming close to extinction in the early part of last decade, Sheffield Forgemasters has enjoyed a renaissance since a management buyout in 2005. Today, the company finds itself at a turning point.

Hide Ad
Hide Ad

Forgemasters wants to compete for some of the huge contracts up for grabs as countries across the world renew their energy sources, with nuclear forming the centrepiece of many state policies.

To be in with a chance, Forgemasters needs to invest in a new 15,000-tonne forging press to make the bigger components required for the new generation of larger power stations.

The management is wary of saddling the company with too much debt – its rescue of a business haemorrhaging money still fresh in the mind – and, instead, put together a bid for government loans to fund the 140m project.

The Government has been sitting on the bid since the summer. Early reports last June suggested a positive announcement would be made within weeks, but summer came and went with no news.

Hide Ad
Hide Ad

Hopes began to fade and, in October, a well-placed source in Yorkshire said the Treasury was less than keen on the idea.

But this month the chairman of Forgemasters, Tony Pedder, said he was hopeful of an announcement soon of "a funding formula that works for everyone".

Graham Honeyman, the chief executive of Forgemasters, told the Yorkshire Post about the benefits of the investment.

"The new press would create 200 jobs on our site. Because we have about 1,000 suppliers to our company, it would create in our supply chain another 200 jobs.

Hide Ad
Hide Ad

"It would increase our sales from about 120m to 250m and would lead to a big increase in profitability. We will be able to support the supply chain into British nuclear power stations. It would also add significantly to exports into nuclear power stations."

To push home the point, he added: "I can assure you it will be all Japanese steel going in Japanese nuclear power stations."

In November – after several years of delayed decision-making by a Labour Government acutely aware of anti-nuclear sentiment among its backbenchers – Climate Change Minister Ed Miliband approved 10 sites for new stations, saying nuclear power is "a proven and reliable source".

The need is pressing – most of Britain's existing power stations are set to be decommissioned by 2023.

Hide Ad
Hide Ad

Dr Honeyman described the programme as "probably the biggest engineering development project in the UK for decades" and said investment at Forgemasters would help prevent jobs being lost overseas.

South Yorkshire, he added, has the opportunity to become a powerful player in the resurgent nuclear industry. For example, Rolls-Royce announced plans last month to help create a Nuclear Advanced Research Centre at the Advanced Manufacturing Park in Rotherham.

Dr Honeyman said: "Suddenly, there's things around Sheffield happening nuclear-wise. They are building nuclear power stations everywhere in the world and, therefore, we need to take advantage of our expertise."

Forgemasters' main competitors in the market for new power stations are based in South Korea, Japan and France, and most belong to larger groups.

Hide Ad
Hide Ad

The Sheffield company cannot compete with the Far East on price, but it can compete on quality.

"Our technology is the best," said Dr Honeyman. "We cannot afford to stop. We have to carry on pushing forward."

Manufacturing in the UK has suffered over the last few decades. This decline accelerated in the last 10 years as financial services became the overlord of the UK economy, with disastrous consequences.

With a weak pound, the stage has been set for manufacturers to lead the country out of recession, but the sector's infrastructure has been hamstrung through lack of investment.

Hide Ad
Hide Ad

Elsewhere in Europe, manufacturers in countries such as Italy and Spain have benefited from huge government spending and can boast expensive new equipment.

It is a different story in the UK where the lack of investment has perpetuated a vicious cycle of declining profits and slashed research and development budgets.

Dr Honeyman said: "You have to get out of the depressing cycle of cutting numbers and hacking back until you can go no further and close. You have to believe you can be the best."

Another challenge facing UK manufacturers is regulation and the tax system. Forgemasters last year spent 1.1m on complying with health and safety legislation and a further 1.5m on environmental taxes.

Hide Ad
Hide Ad

Dr Honeyman said: "We agree there needs to be legislation worldwide but we are disadvantaged because of that. Not everyone is on board with it. It makes us slightly less competitive in a fierce market (with competitors in Eastern Europe and the Fast East]."

Sheffield Forgemasters can trace its history back to the mid-18th century and has tasted both success and failure during its long history.

It nearly ceased existence in the early years of the last decade and one month lost a staggering 75m. Forgemasters had serious quality problems and a large debt burden, with a 65m deficit in the pension scheme. The company limped into administration in 2003.

Dr Honeyman led the management buyout in 2005 and persuaded the Government to admit the scuppered pension fund into its lifeboat scheme, which had been set up to rescue the funds of insolvent companies.

Hide Ad
Hide Ad

Yorkshire Forward, the regional development agency, ploughed in 2m in public money to cover the legal bills of the buyout.

Dr Honeyman now owns 50 per cent of the company, with employees owning the rest. He said: "It became a people's company 100 per cent owned by us – nobody else is a shareholder. We are the only British-owned steelmaker left in the UK."

It serves a number of markets, with offshore oil and steel plant rolls together providing about two-thirds of the company's business. It is carrying out an increasing number of defence and civil nuclear projects. Exports make up three-quarters of its products.

Forgemasters has spent 22m on research and development in the last two years. Dr Honeyman said: "Every single penny has been reinvested back into the company. If I did it for the money, I could sell this company tomorrow."

Hide Ad
Hide Ad

The investment includes the first press to be installed in Sheffield in 60 years – a 4,000-tonne press bought from South Korea for 10m. The press became operational in December.

A government announcement on the funding bid is expected next month. If positive, then it seems likely that British steel will be used in Britain's new nuclear power stations.

Making the grade

Sheffield Forgemasters operates a highly competitive apprentice scheme. The business, in Brightside Lane, has 73 apprentices on

the books.

Nine out of 10 make the grade and are offered jobs at the end of the three-year process, said the company. A recent intake had up to 10 applications for each place.

Most, if not all, apprentices are recruited from Sheffield.