Tanfield Regulatory News (TAN)

8 Apr 2009 07:00



08 April 2009

Tanfield Group plc 

Preliminary Results

Tanfield Group plc ("the Group") announces it's Preliminary Results for the year ending 31 December 2008.

Financial Highlights

Turnover: £146m, +18% (2007: £123m)

Profit before exceptional items: £1.7m (2007: £12.8m)

Net cash at year end £11.1m

Impairment of goodwill, intangibles, inventory and receivables of £89.6m

Loss after impairment £88.5m

Corporate Highlights

30% cost base reduction in 2008

Further 27% cost base reduction in 2009

Strong balance sheet remains after impairments

US joint venture and customers

Roy Stanley, Chairman, said: "This has been a challenging year for the Group. However, we are a business that is lean, nimble and focused, with a highly experienced management team, which reacted promptly and decisively to the adverse market conditions. Tanfield is well placed to trade through the downturn and to move rapidly when its end markets improve".

Further Information

The Tanfield Group Plc +44 (0) 845 155 7755

Darren Kell, CEO

Charles Brooks, FD

Arbuthnot Securities +44 (0) 20 7012 2000

Nomad and Broker

James Steel / Katie Shelton

CHAIRMAN'S STATEMENT

After a profitable first half of the year, the Group encountered a downturn in its end markets in the second half of 2008. 

The Powered Access Division was impacted by the swift decline in the economy, which led to a blanket suspension of fleet replacement and expansion programmes by major equipment rental companies along with the almost complete withdrawal of financing globally for new aerial work platforms.

The Zero Emission Vehicles Division experienced some supply chain constraints in 2008, coupled with several order postponements. Several customers involved in urban delivery operations delayed the step up from trials to volume fleet orders, in response to concerns over the effects of the economic downturn on their own revenues.

Despite these challenges, we still succeeded in growing sales during 2008. Turnover in the period was £145.7m, an increase of 18% on 2007 (£123.3m) partially reflecting a full year of Snorkel. Profit from operations before restructuring of £1.7m represented a 87% decline, reflecting the more challenging trading conditions of the second half of 2008.

As discussed in our Interim Results, during 2008 the Board undertook a review of Tanfield's goodwill and other assets, particularly those arising from the acquisition of Snorkel Holdings LLC in 2007. The result was a series of impairments totalling £89.7m.

The balance sheet after the impairments remains strong with net assets of £85.8m and excess of current assets over current liabilities of £61.5m. Cash at 31 December 2008 was £11.1m and this position is being maintained.

This has been a challenging year for the Group. However, we are a business that is lean, nimble and focused, with a highly experienced management team, which reacted promptly and decisively to the adverse market conditions. Tanfield is well placed to trade through the downturn and to move rapidly when its end markets improve. I have great faith in the ability of all our people. I would like to thank everyone involved with Tanfield for their dedication and hard work and their continued efforts.

Chief Executive's Review

Trading conditions, particularly in our Powered Access markets, remain challenging with little visibility.

The swift and decisive steps taken to downsize the business have substantially mitigated the risk. This prompt action means that we can operate the business at a much lower break-even level than previously. Changes in the conditions of our end markets are constantly monitored, and we will take further actions, if necessary.

During 2008 we reduced our cost base by 30%, including an annualised wage bill reduction of £11m. Since the New Year, we have implemented shorter working weeks across all business units and geographical territories. Furthermore, the Executive Directors have volunteered a 20% pay reduction during this period.

The management maintains rigorous control of overheads and continually reviews the Group's cost base. Given the restricted nature of the market, our visibility for 2009, in line with our peers, is limited, except to indicate that we expect to see a contraction in 2009 compared to 2008.

Powered Access

We continue to demonstrate that we can react quickly to the dynamic market conditions experienced in this sector. While the global outlook remains weak, we are maintaining our presence in all markets through our distributors and dealers. Across the industry there remains a significant oversupply of powered access platforms and this will take some time to work through.

We are aggressively targeting the spare parts and refurbishment business, which is growing as owners seek to extend the working life of their aerial lifts. Our focus on the end user market has proven invaluable during this challenging period, as has our strategy of developing a dedicated distribution network. We continue to expand this global network and to support our dealers through targeted marketing initiatives, ensuring that they stay close to customers throughout the downturn. The relationships with dealers, distributors and customers that we forge during this period will position us well for when the market recovers. Despite the unique circumstances of the current recession, the longer term outlook for the powered access sector remains strong.

Zero Emission Vehicles

We continue to expand and strengthen our supply chain and we now have several motor, battery and electronics suppliers able to meet our stringent quality and availability requirements. 

The precipitous fall in demand across the entire commercial vehicle industry has impacted the electric vehicle sector. In spite of these unprecedented market conditions, our battery electric commercial vehicle offering is steadily gaining traction.

We have entered into Heads of Terms for a joint venture, Smith Electric Vehicles US Corporation (SEV US Corp) to assemble our commercial electric vehicles for the North American market. Tanfield will own a 49% equity stake in SEV US Corp, with the balance in the hands of private US investors. SEV US Corp will produce vehicles from a facility in Kansas City, Missouri. SEV US Corp will invest $10m to fund its launch and has secured $3m in incentives from State and local government. The first US production model will be the Smith Newton truck, commencing in the third quarter of 2009.

We believe that the new US administration's proactive approach to electric vehicles has unlocked latent demand from major American corporations for our products. A number of these US corporates have signed letters of intent to become launch partners for our vehicles. These companies are willing to pay a premium for our electric vans and trucks, in order to gain early adopter advantage in what they perceive as the mainstream automotive technology of the near future. 

Tanfield has signed a collaboration agreement with Ford Motor Company to assemble the Ford Transit Connect battery electric vehicle (BEV) in North America. Due for launch in 2010, this light van will be the first BEV to deliver on Ford's aggressive new electrification strategy. SEV US Corp will produce the vehicle in the USA on our behalf. The BEV Connect (Ampere) will also be available in the European market, assembled by Smith in the UK.

Along with owning a 49% stake in SEV US Corp, our JV agreement includes a royalty payment per vehicle sold, £1m of which will be paid in advance. Given that Newton will not go into production until Q3, we anticipate relatively low numbers of vehicles for 2009. However, SEV US Corp retains the flexibility to ramp up production for 2010 and beyond.

In the UK, we continue to work closely with central Government and our Regional Development Agency, One North East, to further develop the electric vehicle agenda. Tanfield is a member of the newly-formed London Electric Vehicle Partnership, created with the desire to maintain London at the global forefront of EV adoption. We are shortlisted for the Department for Transport's Low Carbon Vehicle Procurement Programme, with the aim of commercialising electric and low carbon vans through public sector procurement and expect a final decision on our inclusion shortly. 

With the European side of Ford, we recently unveiled a proof of concept vehicle - the "Tourneo Connect BEV" - which demonstrates the potential for our technologies to cross over into passenger vehicles. Given the positive response to this vehicle we are working with Ford to fully assess the market opportunity.

Summary

The management team is clearly focused on the generation of cash through operations and maximising the effectiveness of the working capital within the Group.  

The Group is debt-free, without banking covenants or interest costs and we do not anticipate this changing in the short to mid-term. We therefore believe we are well positioned to continue to ride out this downturn.

Our experience and first mover advantage in the electric vehicle sector means we can capitalise upon the growing momentum behind this market, particularly once the trading environment normalises. Any UK-based public procurement initiatives, such as those we are witnessing in the USA, will help to significantly accelerate the penetration of electric vehicles into the corporate and SME markets. Similarly the infrastructure stimulus packages in the North American market, once active, will ultimately have an impact on the construction sector and we will benefit in turn.

The Board remains confident of its ability to manage the growth of the business when macroeconomic conditions, the availability of credit, and customer confidence in our end-markets improve. 

Finance Director's report

The Revenue for the year of £145.7m (an 18% increase on 2007's revenue of £123.3m) reflected the deteriorating market conditions faced by the company in 2008, given a first half reported revenue of £93m and a full year of Snorkel. Revenue reduced month on month from June onwards ending the year at a low of £6.5m in the month of December.

Significant cost base reductions have been implemented both by reducing headcount and minimising other areas of spend including property costs by terminating leases. This has reduced the break-even point in response to the lower revenues. The speed of response to the market changes has allowed the company to report a Profit from Operations of £1.7m before non-recurring items.

Amortisation of Intangibles

Profit from operations is reported after charging amortisation. Of the £2.0m amortisation charged, £0.9m, arose from the write down of intangibles in the first half of the year that were impaired at the half year (see below).  This is not expected to recur.

Net operating expenses

Operating expenses are stated net of operating income, which includes income from Government Grants and one off costs of establishing credit line £145k and aborted acquisition costs of £250k.

Profit from Operations before Impairments and Restructuring costs

The Profit from Operations before Impairments and Restructuring costs was £1.7m (2007 12.8m) reflecting the challenging market conditions in the second half of the year.

Restructuring costs

Restructuring costs of £372k in the year arose from costs related to the headcount reduction implemented. This amount is relatively small given the size of the headcount reduction reflecting the short service history of many employees and redundancy regulations in the US.

Impairment of Assets

The huge changes in market prospects for the Powered Access division required a re-assessment of the carrying value of a number of assets on the balance sheet. This review gave rise to impairments in a number of categories; intangible assets and goodwill arising from the acquisitions of Snorkel and UpRight following a reappraisal of those cash generating units' value in use calculations, £44.5m; inventory, because of the impact of current trading conditions on product mix, overall volumes, supplier failure and resourcing decisions, £22.2m; trade receivables, reflecting an assessment of the impact of customers' financial viability in current market conditions and our debt collection strategies on their collectability, £22.9m. These impairments were made at June 2008 and the impairment levels reflect the asset values at that time. The year-end asset balances reflect the reduction in trading levels experienced since June. The receivable and inventory impairments have been reviewed since June in response to the further worsening of the market.

Finance Expenses

Finance Expenses in the year include the costs of marking to market an interest rate collar £516k.

Loss before tax

Given the impairments, the Loss before tax was £88.8m. The Group net assets after charging this loss were £85.8m.

Taxation

The loss before tax creates trading losses that can be carried forward and used against future profits. In recognition of these losses, a deferred tax asset of £1.8m has been created and added to the balance sheet.

Earnings per share before impairments and restructuring costs

Earnings per share before one off costs was (23.91p) (2007: 3.59p). No dividend has been declared. (2007: nil)

Net Cash

At 31 December 2008, the Group had cash of £11.1m. The cash allows the business to trade without exposure to financial covenants from banks or other institutions.

CONSOLIDATED BALANCE SHEET

Notes

ENDS