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THE TANFIELD GROUP PLC
('Tanfield' or 'the Group')
TRADING UPDATE
Tanfield, the leading manufacturer of aerial work platforms and zero emission electric vehicles provides the following update on trading in advance of its interim results for the six months ending 30 June 2008.
Key Points
Turnover for the first six months was £91 million, a 36% increase on the pro-forma 1H O7 numbers and a 147% increase on the reported 1H 07 turnover.
Although trading for the first five months of 2008 was relatively strong and in line with management's expectations, a marked slowing in our markets was experienced throughout June. In light of this and the deteriorating wider macro economic outlook, the Board of Directors has adopted a more prudent and conservative approach. The Group has therefore determined that its rapid growth strategy should be realigned. The outlook for the Group as a whole, whilst still one of year-on-year growth, is growth at a significantly lower level than previously forecasted. The revised strategy now focuses on delivering cash conversion of profit and growing at a more moderate rate. This will allow the Group to implement plans to address the anticipated radical changes in the global markets in which we operate, as they happen. Therefore the company will not meet the market's expectations for the year, which were set at a time of much more favourable and positive market conditions.
The dynamics have changed in Tanfield's main markets, most markedly in the Powered Access division, which accounts for 75%-80% of projected revenues, as customers react to overall change in economic outlook. Our distributors and end users customers are experiencing the following;
fall off in demand in their markets
reduction in access to credit
instigation of capital freezes
postponement of replacement plans
We have immediately implemented changes to protect the core businesses including accelerated work in progress and raw material inventory reduction, reduced expansion activity and headcount reductions.
The change in growth strategy will reverse previous working capital absorption. The Board is confident that the cash created by this process is sufficient to allow the business to weather any extended deterioration in market conditions. The net cash position of £11.1m at the half year, however, was less than expected resulting from customer payment delays; increased inventory levels; and late delivery arising from supply chain constraints. The impact of these issues has been offset, in part, by increasing creditor days.
Powered Access
Whilst the emerging markets (Russia, Eastern Europe and the Middle East) remain buoyant, and the appointment of new dealers and distributors in these areas continues, we are experiencing greater levels of caution from distributors, dealers and customers in Western Europe and the USA owing to reduced access to credit at end users and customers delaying replacement decisions because of the economic downturn.
In June we experienced our first customer rescheduling of orders, pushing some orders into 2009, both in Europe and the US. Additionally we have recently received our first order cancellations valued at $3m.
A number of major rental companies have now reported that they are reducing their capital spend by between 30% and 50%, resulting in cancelled orders with our competitors. In our view this will result in substantially higher levels of finished goods stock within the industry. The Board believes this will lead to significant price competition in the second half which will, in turn, affect our ability to maintain margins going forward.
We are now experiencing raw material price increases in excess of the purchasing savings secured earlier in the year which insulated the company from the earlier price rises. We expect increased pressure on margins throughout the second half.
The supply chain from China has delivered good cost savings, and enabled the growth in the period. It is, however, relatively inflexible - with lead times of approximately four months - meaning that the mix changes we have experienced have taken time to feed through. In certain components for models for which we have recently seen a major reduction in demand - e.g. electric scissors - we have significant levels of inventory that will take time to erode.
Throughout June we have experienced a deterioration of customer payment profiles. For example more than 200 machines were ready for delivery at period end and were not delivered as certain customers were on credit hold. This has had a significant effect on both turnover and cash receipts.
Smith Electric Vehicles
Although not immune from the factors impacting Tanfield's other markets, demand for electric vehicles has held up, helped by the strong rise in the oil price.
Through June a number of suppliers missed their committed ramp-up plans due to technical and production issues with a number of specialised components - specifically a new series of components required for the transition to the latest generation of vehicles. These supply chain issues include hard tooling on battery container systems (this is the longest lead time component with a 16 week resolution), technical production issues with dashboard and driver interface modules, vehicle charger and electric power steering systems availability and delivery rates.
The consequence of these supply chain constraints is that output in the second quarter was reduced by 112 vehicles. Given the short payment terms, the revenue from these vehicles was forecast to have been collected. This has had an impact on working capital. These vehicles have been re-scheduled.
Although the Directors expect that the current supply chain issues will be resolved by the end of this year, there continue to be areas where volume supply is unproven, and the forecast sales of electric vehicles are now lower than current market expectations.
Input costs have risen for certain key components. Whilst some of this is being passed on through sales price rises, electric vehicle margins will come under pressure. We are attempting to mitigate these rises through design and purchasing initiatives.
The enquiry level and the number of new customers initiating trials are buoyant. The company is also in receipt of a number of letters of intent and statements of interest from targeted US customers based upon the availability of US specific electric vehicles. However we anticipate that due to the economic climate and the trading conditions our customers are experiencing, it will take longer for these trials to convert into volume orders.
In light of the above factors the Directors have made two key strategic decisions:
Postponement of the move to a dedicated Electric Vehicle site. The current facility has sufficient capacity headroom for the coming 18 months and this decision will be kept under review.
Revision of the expansion in USA. This is now likely to be executed through a joint venture with a business that already has facilities and infrastructure in the US in a related industry. We are in discussions with a number of industry partners in this regard.
Engineering Division
A number of Tanfield Engineering's customers have also recently witnessed a slowing in their markets resulting in a reduced build rate. This has precipitated a recent rescheduling of demand from these clients in line with their new production rates. The company has acted to preserve profitability in this division by implementing a plan to reduce the headcount at this facility in line with the revised demand.
Cash
The Directors had expected there to be a cash outflow during the period to fund the growth at Snorkel, and to move certain elements of the supply chain to China. The issues referred to above have, however, increased that outflow. As a result the Company's net cash figure at 30 June was £11.1 million. Reasons for the increase include £5million of delayed receipts at Smith Electric Vehicles due to supply chain constraints, a worsening debtor collection in Powered Access of £2.5million, a number of Powered Access customers being put on stop for a further £2million, and £3million additional inventory owing to product mix changes. These increases were offset by stretching creditor days. The Group has no debt as at 30 June 2008. The Directors believe that the effect of taking a more prudent approach to the rate of growth, coupled with the measures that have been taken to drive additional cash from debtors and inventories, will result in the Group becoming cash generative in the fourth quarter. The Directors believe, therefore, that the current plans for the group will be met from existing cash and bank facilities.
In conclusion, the Board of Directors believes that the outlook for the Group as a whole whilst still one of year on year growth is growth at a significantly lower level than previously forecasted. The company has postponed its aggressive expansion plans until a time when economic conditions are more favourable. The Board has revised its strategy to be more prudent in light of the current economic environment with a focus on cash conversion of profit and believes that the Group is well positioned for the future.
For further information:
The Tanfield Group Plc Tel: +44(0)845 1557 755
Darren Kell, Chief Executive
Charles Brooks, Finance Director
dan.jenkins@tanfieldgroup.com
Fishburn Hedges Tel: +44(0)20 7839 4321
Morgan Bone Mob: +44(0) 7767 622 967
tanfield@fishburn-hedges.co.uk
St. Helen's Capital plc Tel: +44(0)20 7628 5582
Ruari McGirr
Cenkos Securities plc Tel: +44(0)20 7397 8900
Stephen Keys
website: www.tanfieldgroup.co.uk
Notes to editors
The Tanfield Group Plc is the world's leading developer and manufacturer of road-going commercial electric vehicles and aerial work platforms. Tanfield is headquartered in Washington, Tyne & Wear, with operations in Europe, Scandinavia, North America, the Middle East, Asia-Pacific and Africa. It has two main divisions:
Smith Electric Vehicles, was founded in 1920 and acquired by Tanfield in October 2004. Following its acquisition, Smith is developing into a world leader in new technology electric vans and trucks with greatly enhanced performance, speed and range capabilities. This makes them attractive for all fleet operators in large towns, cities and closed industrial environments. For the first time, these fleet operators have economically viable, zero emission alternatives to using diesel vans and trucks. Smith has an unrivalled UK-wide service and support network, which already maintains over 5,000 vehicles for major fleet operators. Smith's airport offering is complemented by two specialist airport vehicle sub-divisions; Jumbotugs and Norquip.
Powered Access, contains two of the world's most established aerial work platform brands, UpRight Powered Access and Snorkel International. UpRight is the UK's biggest manufacturer of self-propelled aerial work platforms (also known as "cherry-pickers", "mobile elevating work platforms", "aerial lifts", etc). UpRight has assembly facilities in the UK and USA, with products sold through a strong network of over 200 independent, full-service distributors across Europe, Scandinavia, the Middle East and Asia-Pacific regions. Snorkel, acquired in August 2007, has significant manufacturing capabilities along with strong sales and distribution, in North America and Australasia. Tanfield has successfully extended its powered access product range and is now one of only three "full line" aerial lift manufacturers to have a significant global footprint in both the North America and EMEA regions, in what is a $7bn market.
www.upright.com / www.snorkelusa.com
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