Exclusive: Forgemasters defies the slump to push up profits

The manufacturing giant, which was embroiled in a huge political row last year after the coalition axed an £80m loan agreed with the previous Government, pushed up profits slightly after driving efficiency improvements and seeing energy prices fall. It warned of another difficult year ahead, however, and said it was taking steps to counter a potential brain drain among its skilled staff.

Turnover for Sheffield Forgemasters International Ltd (SFIL), parent company for six subsidiaries, dropped to £104.8m from £117.3m but pre-tax profit rose to £6.5m, up from £6.4m, for the 12 months to June 30, 2010.

Operating profit rose to £7.68m, up from £7.29m and the directors recommended not paying a dividend.

The firm said it now accepted the “deeply disappointing” coalition’s cancellation of the loan for the press, which would have created 400 direct and supply chain jobs in South Yorkshire and turned the manufacturer into a world leader in components for new nuclear power stations. It also said it is looking at alternative ways of boosting its reputation for forgings and castings and would review the decision in early 2011.

Tony Pedder, chairman, said in the report: “This has been a difficult year for the group as the global recession has continued to adversely affect demand for our products and markets and margins have been squeezed.”

The firm said more than 70 per cent of its turnover is from outside Britain and it was seeking to cover its exposure to the fluctuations in the euro currency by hedging forward against currencies.

Forgemasters, which was subject to a management buyout from American owner Atchison Castings Corporation in 2005, also blamed previous owners for “a long period of under-investment” which it said it had to rectify.

It said it had spent significantly on capital investment projects, although at a lower level than the previous year, including on a 4,000-tonne press and the North Machine Shop.

The annual report also said it could be harmed by the departure of key staff.

“The nature of our work requires high levels of skills and experience that makes us vulnerable to loss of key personnel,” the directors wrote and said they looked at chances to train and promote workers as well as taking on a large number of apprentices.

Forgemasters, based in Nick Clegg’s political home city, was at the heart of controversy last year after the £80m loan, granted by Lord Mandelson in the final days of the Labour government, was cancelled as part of £2bn of coalition spending cuts. Vince Cable, who took over as Business Secretary, later admitted the deal would have been “value for money” and insisted it was only turned down because it was unaffordable given the size of Britain’s budget deficit.

An analysis of the scheme carried out by officials at the Department for Business, Innovation and Skills had calculated the loan would have generated up to £3 for every £1 at risk from the Government.

Forgemasters’ directors described the company’s performance for 2009-10 as “highly creditable” given the effect of weakened global markets and the rise in the value of the pound.

Turnover for the year 2010-11 is expected to be higher as market confidence improves, the directors added.

The firm also said it had formed a technology transfer agreement with Bharat Heavy Electricals, a major Indian energy infrastructure manufacturer in February last year.

In a statement, Mr Pedder thanked the 800-strong workforce for its contribution to the company’s success.