30.09.2008

Tanfield writes off £75 million

Tanfield, owner of UpRight and Snorkel has taken a £75 million write down of its assets in its first half results. Aside from the exceptionals the company increased revenues by over 150 percent to £92.8 million – compared to £36.8 million in the first half of 2007 and doubled operating profits to £10.3 million.

The company says that it has £12 million in cash as of today, and that cash flow is expected to improve in the fourth quarter. It also says that it has no debt and is therefore sufficiently funded for the medium term without needing to raise additional funds.

Powered access represented 79 percent of total revenues at £72.9 million with electric vehicles making up the balance. The effect of the massive write offs, was to turn last years pre tax profit of £5.3 million into a loss of over £65 million.

The write offs include most, if not all, of the goodwill in Snorkel, acquired this time last year, which resulted in a £33 million hit, a further £15 million in intangible assets, £15 million of inventory, and an £11.5 million write down in its receivables. Virtually all of the write downs were within the aerial lift business.

Tanfield chairman, Roy Stanley said in his statement:

“The group continued to make progress in the six months ended 30 June 2008. Because of a market analysis and ongoing trading conditions, the board felt it prudent to undertake an impairment review of its goodwill and other assets, particularly those arising from the acquisition of Snorkel International Inc in 2007. As a result there were a series of impairments totalling £75m, of which £48m arose from the impairment of Powered Access Goodwill and other intangible assets. These adjustments are non-cash items and result in loss after impairments of £65m.”

“The Balance Sheet after the impairments remains strong with net assets of £98m and excess of current assets over current liabilities of £82m. Cash at 30 June 2008 was £12m, at the end of September the cash figure is £12m. The Group's cash flow forecasts anticipate an increase in the Group's cash balances during the 4th quarter aided by the unwinding of working capital. Ernst & Young LLP were engaged by the Group to undertake a review of its cash flow forecasts, together with the underlying assumptions, for the remainder of the year. Having considered their report, the Board remains confident that:
• The Group's cash balances will start to increase in the final quarter;
• The business has sufficient working capital for the medium term; a
• There will be no requirement for any fund raising.

The business also has an unutilised debt facility in the USA of $35m.

“We announced on July 1st that, following exceptional and unpredictable changes in our markets, our revised strategy would be to focus on cash conversion of profit and growing at a more moderate rate. The focus has been placed on being able to respond as quickly as possible to the rapid change in our trading environment. With this in mind, we have sized the business in line with expected market conditions.”

“In order to generate further cash we are reducing finished goods stock levels and building new machines, wherever possible, from existing inventory. In addition we have, where necessary, cancelled or rescheduled all outstanding purchase orders to reduce our raw material inventory and future liabilities. Our supply chain team is working on consolidating our supply base and re-negotiating terms and conditions to allow us to improve our flexibility and responsiveness in line with customer expectations.”

Trading Outlook

Powered Access

“Trading in the first five months of the year was strong, with significant inroads being made into the US, Western European, and emerging markets, assisted by the breadth of the combined product range and brand equity afforded by the combination of UpRight and Snorkel. June was a turning point for our industry with a significant reduction in overall industry demand and a substantial swing in product mix. The emerging markets remain buoyant and our penetration into these areas continues but even here, as with the more developed markets, the rate of growth is being hindered by the availability of credit. The directors believe that the long term outlook for the industry is still strong due to the fundamental market drivers.”

“Tanfield has responded rapidly to the market downturn for aerial work platforms, cutting capacity in line with market conditions. We believe that, globally, due to the swiftness of the downturn, there remains an excess inventory of finished machine stock in the industry. In management's view this excess will take time to be depleted due to the reduced capital expenditure the larger rental companies are now reporting.”

“North America remains the most challenging market, the global macro-economic conditions exacerbated by uncertainty over the forthcoming election, further compounded by geographically the greatest concentration of excess equipment.”

“As anticipated, the UpRight distributor network is maintaining relatively strong sales to end users aided by an expanding range of equipment and our global presence. This goes some way to hedge against the global downturn in Powered Access, as UpRight is far less reliant on sales to major equipment rental companies than its competitors. However this market has been affected by the availability of credit to our end users.”

Smith Electric Vehicles

“The supply issues which we referred to in our July statement have been resolved. We now have robust supply chains in place for Edison and Newton. We have been successful in developing new electric drive trains and are working to put a robust supply chain in place for the Ampere, our latest generation electric car based van.”

“The credit crunch is causing concern and delaying investment particularly within the volume end of the market. Registrations of commercial vehicles are significantly down as users reduce capital expenditure due to concerns over their own trading conditions and the availability of funding. Whilst we are therefore confident of further market and customer trials and further expansion into Europe, and North America, we believe that volume orders will be dependent upon the return of customer confidence.”

“However, interest in the Smith range of vehicles remains buoyant. We have just received an order for our largest 12 ton electric truck: a £1.1m contract to deliver 10 vehicles for TKMaxx. We have firm orders for 60 trial vehicles for the USA next year with letters of intent for another 200. Given the current economic climate the Board is considering a number of strategies in the way it is going to approach the opportunity in the USA. “