When it comes to addressing uncertainty, it helps to have a resilient mindset. Steve Hammell, CFO of Sheffield Forgemasters says he was well equipped to be finance chief of the engineering group that has had to manage ups and downs in its recent history, given his own career journey.
The 200-year old firm, which makes ultra-large forgings and castings for large scale engineering contracts, has had to address a decline in defence spending over the years, which has inevitably brought uncertainty.
So when the firm was seeking a new finance lead following a board clearout in July 2018, it sought out someone able to cope with the pressures of the role. In Steve Hammell they found someone who has experienced corporate life from all sides- as a finance director, as a commercial banker through the financial crisis, and briefly CEO of a listed company.
“Although I had no prior experience of being a CFO of a manufacturing business, the corporate change and disruption that I’d experienced in my previous two roles in the technology sector, including significant upheaval at my last firm, placed me in good stead at Sheffield Forgemasters. I think the board were looking for a robust leader able to withstand a lot of pressure,” says Hammell.
For Hammell, being able to stay calm under pressure has allowed him to help steer Forgemasters from a cash squeeze on his arrival to a more sustainable footing. With CEO David Bond, who joined at the same time, he set about renegotiating defence contracts with major clients, which enabled the firm to halve debt to about £20m. “It was essential crisis management that needed to be addressed head-on,” he says.
For the year ended 31 December 2018, Sheffield Forgemasters recorded revenue of £66.3m (down from £76.1m in 2017) with pre-tax profit of £2.1m (up from £0.2m in 2017) and carried an order book of £160m into 2019.
If the cash squeeze hadn’t been enough, Forgemasters was beset by another crisis last November when the river Don , which runs through the heart of the Forgemasters site, burst its banks. “We suffered flooding across most of the site and severe disruption to our customer programmes into the New Year,” says Hammell.
But although the initial crisis passed, the firm was still under pressure. “Immediately after the flood, the finance team was faced with a new set of challenges – dealing with external communication with funders and customers, tracking the cost of damage, managing the insurance claim process and re-setting forecasts and financial expectations..
“Similarly, other parts of the company had to deal with the recovery process, maintaining a safe working environment and arranging repairs that were needed to our equipment and infrastructure. This was a hectic period for everyone within the business.”
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So when the coronavirus pandemic hit earlier this year, Hammell and the rest of the management team were well accustomed to handling rapidly evolving situations. “We made a conscious effort to stay ahead of the curve and anticipate developments. You have to deliver a calm, professional, organised response that harnesses your people, reassure them and bring them along with you to manage the crisis.”
Forgemasters’ initial response was to safeguard and protect its employees, including establishing strict hygiene and social distancing measures, zoning of the manufacturing site and enabling home working for all vulnerable staff and office- based teams. The main areas of the plant have remained fully operational throughout the pandemic, continuing to deliver on customer commitments, supported by the key worker status granted to those parts of the site serving national security interests.
“Our operational staff have very much rallied around key worker status, provided that we are observing social distancing and Covid-specific health and safety measures. We’ve tried to balance the absolute necessity to protect the health of our staff with the preservation of the business, by maintaining the safe operation of as much of the site as possible,” says Hammell.
Nevertheless, there are areas of the business where sales have been reduced by the pandemic, such as the supply of smaller forgings, known as work rolls, to steel mills. “After Covid-19, orders from steel mills declined very rapidly as the major producers struggled with the collapse in demand for steel. The oil and gas sector has also been hit hard with oil prices falling to historic lows.
With the core business protected, Forgemasters then was able to maintain operational effectiveness by enabling admin teams to work remotely and vulnerable staff to be protected. “Our staff and unions have very much rallied around that, provided we are observing social distancing and the correct measures for our staff. We’ve tried to balance off the absolute requirement to protect the health of our staff, whilst also protecting their economic interest, by keeping as much of the facility operating as possible,” adds Hammell.
He remains concerned by the near term impact of Covid-19: “Over the short-term, the outlook is very challenging as the fundamental uncertainty as to the depth and duration of the pandemic grips the global economy. Having said that, I remain optimistic as to the prospects for a strong recovery over the medium-term,” he says.
Hammell picked up plenty of valuable career lessons at early posts, after graduating in economics and management studies from Leeds University. At Arthur Andersen, one of the things he worked out was that didn’t want to be an auditor. However, the ‘sink or swim’ attitude at the firm, prepared him well for joining the corporate finance arm of Price Waterhouse just as it was merging with Coopers & Lybrand, settling into the 40-strong team of dealmakers at PwC’s Leeds office.
This was the point in his career when he learned most, Hammell says of the role where he “enjoyed the chase of the deal, the speed at which things moved.” After nine years he joined Yorkshire Bank working in debt funding, which saw a huge amount of activity pre-the global financial crisis (GFC), but then became a very different experience following the credit crunch-“ a first real experience of corporate distress,” he says.
“It was very much the flip side of the corporate finance role where you’re normally buying or selling very successful companies. Suddenly in a downturn as severe as the credit crunch, we needed to renegotiate corporate debt facilities-very much the darker side of life,” he says.
After seven years in the bank, half of that time working with distressed companies, where he says “the darker side of life can take its toll, but an essential part of my training”, Hammell returned to corporate finance at Grant Thornton.
Although the economy was starting to rebuild after the GFC, a flurry of deals failed to materialise, as market uncertainty prevailed, which Hammell describes as “a bumpy ride.” Nevertheless, the chance arose in 2013 to become finance director of tech firm eBECS, based in Chesterfield, after identifying shortfalls in its finance function.
The chance to transform finance and cut his teeth on the operations side before the firm was sold to US tech giant Computer Sciences Corporation (CSC), also proved to be a springboard to be CFO of cyber security provider ECSC Group, which had recently listed on the junior market AIM. But his year there proved to be a roller coaster ride.
A series of mismoves, resulting in rapid cash burn of funds raised in the IPO six months before his arrival saw the CEO ousted form the board and Hammell vaulted into the top role. “It was one of those cases when it becomes appropriate for a CFO to step up into the CEO role, where restructuring is required and potentially some M&A,” he says.
However, his time was short-lived, as the former CEO, still a major shareholder, marshalled support to resume his role, leading Hammell and another board member to step aside. “It was an extraordinary set of circumstances, as I was CEO for just nine days. But I stayed calm and professional in what were very difficult circumstances for all involved, an experience that has benefitted me subsequently,” he says.
Into the furnace
By way of a short interim role guiding a tech firm through a fund-raising, Hammell arrived at Forgemasters in July 2018, as CFO in a very much a strategic sense, working very closely with the CEO David Bond.
Substantial board changes had been implemented in agreement with the company’s largest defence customers, reflecting the significance of the firm to the defence supply chain.
“Sheffield Forgemasters is a unique capability, certainly within the UK, in terms of the capacity to manufacture ultra-heavy forgings and castings for defence applications. We are the only player in the UK who can operate at that scale.
“With the number of external stakeholders we operate with, it is quite similar to a plc. It’s a different type of governance, but it’s a similar level of scrutiny, and the routines are quite similar to a plc. In that regard it was a real challenge in terms of stepping up into such a role, in such a prominent business,” says Hammell.
After halving Forgemasters’ debt, with support from the biggest clients that guarantee a proportion of the firm’s debt facilities, he put to work his operational skills forged at eBECS. “After we’d been able to renegotiate our revenue line, we needed to put something in for our stakeholders, in terms of driving a more efficient business over the long term.
“So we developed a transformation plan, focusing on improving operational efficiency and competitiveness. We have arranged funding to boost investment in plant reliability and are developing more agile ways of working,” he says.
Along with a new ERP system that went live in February, Hammell has been assessing ways the firm can perform in a more customer-centric. way “Our long-term focus is looking beyond the wave of defence contracts that we’re active on, and considering the next set of programmes we need to be involved with, to secure the long term future of the business,” he says.
Part of the long-term view includes plans to recapitalise the firm’s plant and equipment, based in Sheffield, where it is one of the largest private sector employers. “Large parts of this site are now quite old, so we’re understandably encountering instances of breakdowns and unplanned maintenance.
“We are addressing this challenge and it will require more investment, so we’re looking at how we can shape the business for the long term both from a revenue and investment perspective, to continue its long history in this city. The firm has been around for more than 200 years, and we want to build upon that heritage,” he says.