Tanfield Group PLC
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FINANCIAL AND BUSINESS REVIEW
Financial Highlights
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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
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30% cost base reduction in 2008
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Further 27% cost base reduction in 2009
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Strong balance sheet remains after impairments
·
US joint venture and customers


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.




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Tanfield Group PLC
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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.

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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 a credit line of £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

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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.