Tanfield Group Plc
Annual Report 2008

Plain-text annual report

TANFIELD GROUP PLC REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 Registered in England & Wales Company number 04061965 Tanfield Group PLC REPORT AND FINANCIAL STATEMENTS 2008 CONTENTS Page Directors, Advisers and Officers Financial and Business Review Directors’ Report Corporate Governance Directors’ Remuneration Report Statement of Directors Responsibilities Independent Auditors Report Consolidated Income Statement Consolidated Balance Sheet Company Balance Sheet Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Cash Flow Statement Company Cash Flow Statement Accounting Policies Notes to the Accounts 1 2 6 10 13 17 18 20 21 21 22 22 23 23 24 32 DIRECTORS, ADVISERS AND OFFICERS Tanfield Group PLC DIRECTORS Executive DS Kell CD Brooks BJ Campbell GE Allison Non-executive RRE Stanley Dr JN Bridge M Groak C Billiet SECRETARY CD Brooks REGISTERED OFFICE Vigo Centre Birtley Road Washington Tyne and Wear, NE38 9DA AUDITORS Baker Tilly UK Audit LLP 1 St James’ Gate Newcastle upon Tyne NE1 4AD SOLICITORS Ward Hadaway Sandgate House 102 Quayside Newcastle upon Tyne NE1 6AE NOMINATED ADVISOR Arbuthnot Securities Arbuthnot House 20 Ropemaker St London EC2Y 9AR NOMINATED BROKERS Arbuthnot Securities Arbuthnot House 20 Ropemaker St London EC2Y 9AR REGISTRARS Capita IRG plc Bourne House 34 Beckenham BR3 4TH Chief Executive Finance Director Managing Director Powered Access Managing Director Zero Emission Vehicles Chairman Non executive Director Non executive Director Non executive Director Page 1 Tanfield Group PLC FINANCIAL AND BUSINESS REVIEW 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 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. Page 2 Tanfield Group PLC 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. Page 3 Tanfield Group PLC 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 Page 4 Tanfield Group PLC 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. Page 5 Tanfield Group PLC DIRECTORS’ REPORT The directors submit their report and the financial statements of Tanfield Group PLC for the year ended 31 December 2008. PRINCIPAL ACTIVITIES The company’s principal activity is that of a holding company. Tanfield Group PLC is the parent company of a group engaged mainly in the powered access, zero emission vehicle industries and engineering. RESULTS AND DIVIDENDS The financial result, for the twelve months to 31 December 2008 reflects the impact on the Tanfield Group plc of the decline in its global markets and its response to that decline. Turnover for the twelve month period grew to £146m which compares to £123m for the full year to December 2007. Although this is a growth of 18%, this reflects a strong first 5 months and then a decline month on month since June 2008. Profit from operations before impairments and restructuring costs and tax for the period of £1.7m shows a significant reduction from the £12.8m profit in the year to December 2007. The 2007 figure included an amount of £2m in relation to the recovery of a Snorkel customer debt. A review was undertaken of the carrying value of assets in the Powered Access division given the significant changes to market prospects. This review gave rise to impairments of those assets totaling £90m. After restructuring and impairments, the loss before tax for the period of £88.7m reflects the impact of the impairments. The balance sheet remains very robust after impairments, with net assets at the end of December of £86m (£165m: December 2007). Net Current Assets were £62m (2007: £110m) with cash balances in excess of £11m and no borrowing. This demonstrates that the company has significant levels of working capital allowing it to work through the current trading conditions. No dividend has been paid or proposed for the year (2007: £nil). The loss of £89m (2007: Profit of £10.4m) has been transferred to reserves. REVIEW OF THE BUSINESS The year was dominated by the deterioration in trading conditions in our main markets and the company’s response to that deterioration. A detailed review of the business is included in the Business and Financial Review on pages 2 to 5. FUTURE DEVELOPMENTS The main focus in the short and medium term is one of managing through the difficult trading conditions, taking all appropriate steps to minimise costs and preserve cash while retaining skills and resources to respond to any market improvements when they arise. Management policies will continue to be reviewed in the light of changing trading conditions. Page 6 Tanfield Group PLC DIRECTORS' REPORT (continued) POLITICAL AND CHARITABLE CONTRIBUTIONS During the year, the group has made no political or charitable donations (2007 - £nil). FINANCIAL INSTRUMENTS The Group’s financial instruments comprise cash, finance leases, unsecured loan notes and short term debtors and creditors arising from its operations. The principal financial instruments used by the Group are cash balances raised from share issues by the company and are applied in financing the group’s fixed assets. The Group has not established a formal policy on the use of financial instruments but assesses the risks faced by the Group as economic conditions and the Group’s operations develop. MARKET VALUE OF LAND AND BUILDINGS The directors are of the opinion that the market value of properties at 31 December 2008 would exceed the net book values included in the financial statements, but they are unable to quantify this excess in the absence of a professional valuation, the costs of which are not considered justifiable in view of the group’s intention to retain ownership of its existing properties for use in its business for the foreseeable future. RESEARCH AND DEVELOPMENT The Group maintains a development programme as continuity of investment in this area is essential for the maintenance of the Group’s market position and for future growth. EVENTS SINCE THE END OF THE YEAR There have been no significant events since the end of the year. DISABLED PERSONS The group will employ disabled persons when they appear to be suitable for a particular vacancy and every effort is made to ensure that they are given full and fair consideration when such vacancies arise. Where existing employees become disabled, it is the Group’s policy wherever practicable to provide continuing employment under normal terms and conditions and to provide training and career development to disabled employees wherever appropriate. EMPLOYEE INVOLVEMENT The Group encourages the involvement of its employees through regular dissemination of information of particular concerns to employees. To facilitate this, the company undertakes a Communications Forum where all employees are represented by a colleague within their department at regular meetings with senior managers. Page 7 Tanfield Group PLC DIRECTORS REPORT DIRECTORS The present membership of the board is set out on page 1. GE Allison was appointed to the board on 23rd Sept 2008. Directors shareholding Beneficial RRE Stanley DS Kell CD Brooks BJ Campbell M Groak G Allison JN Bridge C Billiet Ordinary shares of £ 0.01each 31/12/2008 31/12/2007 27,769,292 1,700,000 112,463 111,979 - 104,207 47,500 294,000 19,649,292 - - 6,119 - - 27,541 - All directors have the right to acquire shares in the company via the exercise of options granted under the terms of their service contracts, copies of which may be inspected by shareholders upon written application to the company secretary. Details of the directors’ options to acquire shares are set out in the Directors’ Remuneration Report on pages 13 to 16. POLICY ON PAYMENT OF CREDITORS It is group policy to agree and clearly communicate the terms of payment as part of the commercial arrangements negotiated with suppliers and then to pay according to those terms based on the timely receipt of an accurate invoice. The company supports and the UK based businesses follow the CBI Prompt Payers Code. A copy of the code can be obtained from the CBI at Centre Point, 103 New Oxford Street, London WC1A 1DU. Trade creditor days based on creditors at 31 December 2008 were 77 days. (2007 – 64 days) SUBSTANTIAL SHAREHOLDINGS On 31 December 2008 the following held substantial shares in the company. No other person has reported an interest of more than 3% in the ordinary shares. Nortrust Nominees Barclayshare Nominees TD Waterhouse Nominees (Europe) HSDL Nominees Productive Nominees HSBC Global Custody Nominee (UK) LR Nominees Prudential Client HSBC GIS Nominee Hargreaves Lansdown (Nominees) 42,314,575 32,799,010 28,063,410 21,502,543 21,217,112 20,525,985 19,406,957 14,644,718 11,751,518 As disclosed in the Directors report RRE Stanley holds shares of 7.5% which are held through nominee companies. DIRECTORS’ INTEREST IN CONTRACTS No director had a material interest at any time during the year in any contract of significance, other than a service contract, with the company or any of its subsidiary undertakings. AUDITORS A resolution to reappoint Baker Tilly UK Audit LLP as auditors will be put to the members at the annual general meeting. Baker Tilly UK Audit LLP has indicated its willingness to continue in office. Page 8 Tanfield Group PLC DIRECTORS' REPORT (continued) STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS The directors in office on the date of approval of the financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the directors have confirmed that they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. DIRECTORS INDEMNITY Every Director shall be indemnified by the company out of its own funds. Approved by the Board of Directors and signed on behalf of the Board Director 16 April 2009 Page 9 Tanfield Group PLC CORPORATE GOVERNANCE Principles of Corporate Governance The company is committed to high standards of corporate governance. The Board is accountable to the company’s shareholders for good corporate governance. The company has partially complied throughout the year with the code of best practice set out in Section 1 of the Combined Code 2006 (effective for periods commencing on or after 1 November 2006) appended to the Listing Rules of the Financial Services Authority. The role of the Board is to provide entrepreneurial leadership of the company within a framework of prudent and effective controls, which enables risk to be assessed and managed. The Board sets the company’s strategic aims, ensures that the necessary financial and human resources are in place for the company to meet its objectives and reviews management performance. The Board sets the company’s values and standards and ensures that its obligations to its shareholders and others are understood and met. Board Structure During the year the Board comprised the Non-Executive Chairman and Chief Executive, three other Executive Directors, and three independent Non-Executive Directors. Geoffrey Allison was appointed to the board on 23 September 2008. Board Role The Board is responsible to shareholders for the proper management of the Group. The Non-Executive Directors have a particular responsibility to ensure that the strategies proposed by the Executive Directors are fully considered. To enable the Board to discharge its duties, all Directors have full and timely access to all relevant information and there is a procedure for all Directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the Group. The Board has a formal schedule of matters reserved to it. It is responsible for overall group strategy, approval of major capital expenditure projects and consideration of significant financing matters. The Board met on six separate occasions in the year and all Directors attended. Appointment and Induction of Directors The composition of the Board is kept under review with the aim of ensuring that the directors collectively possess the necessary skills and experience to direct the Group’s business activities. Board Committees The Board delegates certain matters to its two principal committees, which deal with remuneration and audit. Remuneration Committee The Remuneration Committee comprises John Bridge (Chair) and Martin Groak. The Remuneration Committee determines and agrees with the Board the framework of remuneration for the Executive Directors. The Board itself determines the remuneration of the Non-Executive Directors. There was one remuneration committee meeting in the period which was fully attended. The report on Directors’ remuneration is set out on pages 13 to 16. Page 10 Tanfield Group PLC CORPORATE GOVERNANCE (continued) Audit Committee The Audit Committee comprised the Non-Executive Directors Martin Groak (Chair), Colin Billiet and John Bridge. Meetings are also attended, by invitation, by the Non Executive Chairman, Chief Executive and Group Finance Director. The Audit Committee is responsible for: • Reviewing the scope of external audit, to receive regular reports from Baker Tilly UK Audit LLP. • Reviewing the half-yearly and annual accounts prior to their recommendation to the Board. • Reviewing the Group’s internal financial controls and risk management systems and processes. • Making recommendations on the appointment, re-appointment and removal of external auditors and approving the terms of engagement. • Reviewing the nature of the work and level of fees for non-audit services provided by the external auditors. • Assessing the independence, objectivity and effectiveness of the external auditor. The committee met on two occasions during the year and they were fully attended. Internal Control The Board has overall responsibility for the Group’s system of internal control and risk management and for reviewing the effectiveness of this system. Such a system can only be designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can therefore only provide reasonable and not absolute assurance against material misstatement or loss. The Board are of the view that due to the current size and composition of the Group, that it is not necessary to establish an internal audit function. Relations with Shareholders The Company values its dialogue with both institutional and private investors. Effective two-way communication with fund managers, institutional investors and analysts is actively pursued and this encompasses issues such as performance, policy and strategy. Private investors are encouraged to participate in the Annual General Meeting at which the Chairman presents a review of the results and comments on current business activity. The Chairmen of the Audit and Remuneration Committees will be available at the Annual General Meeting to answer any shareholder questions. Notice of Annual General Meeting will be issued in due course. Page 11 Tanfield Group PLC CORPORATE GOVERNANCE (continued) Going Concern The directors confirm that they are satisfied that the Company and Group have adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Statement by the Directors on compliance with the Provisions of the Combined Code Throughout the year ended 31 December 2008, the Group has complied with the provisions set out in Section 1 of the Combined Code. Darren Kell Chief Executive 16 April 2009 Page 12 Tanfield Group PLC DIRECTORS’ REMUNERATION REPORT Remuneration Committee The company has established a Remuneration Committee which is constituted in accordance with the recommendations of the Combined Code. The members of the committee are JN Bridge and M Groak who are both non-executive directors and the committee is chaired by JN Bridge. In determining the directors’ remuneration for the year, the committee consulted the Chief Executive DS Kell and the Finance Director CD Brooks about its proposals. Remuneration Policy The policy of the committee is to reward executive directors in order to recruit, motivate and retain high quality executives within a competitive market place. There are four main elements of the remuneration packages for executive directors and senior management: • Basic annual salary (including directors’ fees) and benefits; • Annual bonus payments; • Share option incentives; and • Pension arrangements. Basic salary Basic salary is reviewed annually in March with increases taking effect from 1 April. In addition to basic salary, the executive directors also receive certain benefits in kind, principally private medical insurance. Annual bonus The committee establishes the objectives which must be met for each financial year if a cash bonus is to be paid. The purpose of the bonus is to reward executive directors and other senior employees for achieving above average performance which also benefits shareholders. Whilst bonuses awarded in prior years relating to prior year performance were paid in 2008, no bonuses were awarded or paid in relation to 2008 performance. Share options The executive and non-executive directors have options granted to them under the terms of the Share Option Scheme. There are no performance conditions attached to the share options. No share options were awarded in 2008. Pension arrangements Executive directors are members of a money purchase pension scheme to which the group contributes. Their dependants are eligible for dependants’ pension and the payment of a lump sum in the event of death in service. No other payments to directors are pensionable. Page 13 Tanfield Group PLC DIRECTORS’ REMUNERATION REPORT (continued) Directors’ contracts It is the company’s policy that executive directors should have contracts with an indefinite term providing for a maximum of one year’s notice. In the event of early termination, the directors’ contracts provide for compensation up to a maximum of basic salary for the notice period. Non-executive directors The fees of non-executive directors are determined by the board as a whole having regard to the commitment of time required and the level of fees in similar companies. Non-executive directors are employed on renewable fixed term contracts not exceeding three years. Performance graph The following graph shows the company’s performance, measured by closing share price, compared with the performance of the FTSE Aim All Share Index which has been selected by the Board as being the most appropriate measure as no readily identifiable benchmark group of companies exists. Share price 3000 2500 2000 1500 1000 500 ) 0 0 1 o t d e s a b e r ( e c i r p e r a h S 0 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Time period -5yrs TANFIELD GROUP FTSE AIM ALL-SHARE Aggregate directors' remuneration The total amounts for director’s remuneration were as follows: Emoluments Gain on exercise of share options Money purchase pension contributions Total 2008 £000's 1,379 - 87 1,466 2007 £000's 1,339 10,015 60 11,414 Page 14 Tanfield Group PLC DIRECTORS’ REMUNERATION REPORT (continued) Directors emoluments Salary £000's Benefits in kind Bonuses £000's £000's Total 2008 £000's Total 2007 £000's Pension Total 2008 £000's Pension Total 2007 £000's Executive Directors RRE Stanley DS Kell CD Brooks BJ Campbell GE Allison* Non Executive Directors JN Bridge M Groak C Billiet 119 227 161 161 24 25 25 25 18 18 18 18 - - - - 150 167 92 92 24 5 5 5 287 412 271 271 48 30 30 30 369 438 270 200 - 25 25 12 18 22 15 31 1 - - - 19 16 12 13 - - - - 767 72 540 1,379 1,339 87 60 *GE Allison was appointed to the board on 23 Sept 2008. Directors share options As at 31/12/2007 Granted/ Lapsed Exercised As at 31/12/2008 Market Price at date of exercise (pence) Date from which normally exercisable* Exercise Price (pence) Expiry Date DS Kell RRE Stanley CD Brooks BJ Campbell JN Bridge M Groak 2,056,671 4,300,000 6,356,671 4,000,000 1,250,000 1,000,000 2,250,000 700,000 250,000 1,600,000 2,550,000 150,000 150,000 15,456,671 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,056,671 4,300,000 6,356,671 4,000,000 1,250,000 1,000,000 2,250,000 700,000 250,000 1,600,000 2,550,000 150,000 150,000 15,456,671 20p 20p 20p 23p 20p 1p 20p 20p 20p 20p 01/03/2009 01/03/2016 02/01/2010 02/01/2017 02/01/2010 02/01/2017 14/06/2009 14/06/2016 02/01/2010 02/01/2017 14/09/2008 14/09/2015 01/03/2009 01/03/2016 02/01/2010 02/01/2017 01/03/2009 01/03/2016 01/03/2009 01/03/2016 * Certain share option agreements have a clause that allows the options to be exercised early if market capitalisation exceeds a certain level. On 31 December 2008 the market price of the ordinary shares was 5p. The range during 2008 was 3.5p to 124.75p. Page 15 Tanfield Group PLC DIRECTORS’ REMUNERATION REPORT (continued) Approval This report was approved by the board of directors and authorised for issue on 16 April 2009 and signed on its behalf by: John Bridge Chairman of Remuneration Committee 16 April 2009 Page 16 Tanfield Group PLC DIRECTORS' RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. UK company law requires the directors to prepare Group and Company Financial Statements for each financial year. Under that law the directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU and have elected to prepare the company financial statements in accordance with IFRS as adopted by the EU. The group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. The company financial statements are required by law to give a true and fair view of the state of affairs of the company. select suitable accounting policies and then apply them consistently; In preparing each of the group and company financial statements, the directors are required to: a. b. make judgements and estimates that are reasonable and prudent; c. d. state whether they have been prepared in accordance with IFRS adopted by the EU; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the requirements of the Companies Act 1985. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for the maintenance and integrity of the Tanfield Group plc website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Page 17 Tanfield Group PLC INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TANFIELD GROUP PLC We have audited the group and parent company financial statements which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Shareholders’ Equity and the related notes. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union (“EU”) are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. In addition we report to you if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Financial and Business Review, the Directors’ Report, Corporate Governance Report and Directors’ Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Page 18 Tanfield Group PLC Opinion In our opinion: • the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union of the state of the group’s affairs as at 31 December 2008 and of its loss for the year then ended; the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 December 2008; the financial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors’ Report is consistent with the financial statements. • • • BAKER TILLY UK AUDIT LLP Registered Auditor Chartered Accountants 1 St James’ Gate Newcastle upon Tyne NE1 4AD 16 April 2009 Page 19 TANFIELD GROUP PLC CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008 Note 2008 £000's 2007 £000's Continuing operations Revenue Changes in inventories of finished goods and WIP Raw materials and consumables used Staff costs Depreciation and amortisation expense Other operating income Other operating expenses Restructuring costs Profit from operations Impairment of Goodwill Impairment of Intangible assets Impairment of Property, plant & equipment Impairment of Inventories Impairment of Receivables (Loss) / profit from continuing operations Finance income Finance costs (Loss) / profit before taxation Income tax expense (Loss) / profit for the year from continuing operations Discontinued operations Loss for year from discontinued operations (Loss) / Profit for the year Earnings per share From continuing operations Basic Diluted From continuing and discontinued operations Basic Diluted 2 4 5 6 31 31 11 31 31 7 7 8 9 10 145,734 4,808 (102,724) (32,197) (3,195) 500 (11,221) (372) 1,333 (31,895) (12,605) (83) (22,185) (22,894) (88,329) 457 (913) (88,785) 239 (88,546) 123,288 8,702 (87,980) (23,667) (2,724) 2,769 (7,560) (1,270) 11,558 - - - - - 11,558 1,210 (331) 12,437 (560) 11,877 - (1,484) (88,546) 10,393 (23.91)p (23.91)p (23.91)p (23.91)p 3.59p 3.41p 3.14p 2.99p Page 20 BALANCE SHEETS AS AT 31 DECEMBER 2008 ASSETS Non current assets Goodwill Intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Investments Current assets Inventories Trade and other receivables Investments Current tax assets Cash and cash equivalents TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Tax liabilities Obligations under finance leases Other creditors Non-current liabilities Other creditors Obligations under finance leases Deferred tax liabilities TOTAL LIABILITIES EQUITY Share capital Share premium Share option reserve Loan stock equity reserve Merger reserve Capital reduction reserve Translation reserve Profit and loss account TOTAL EQUITY TANFIELD GROUP PLC Group 2008 £000's 2007 £000's Company 2008 £000's 2007 £000's Note 12 13 11 22 16 14 15 16 17 16 18 20 21 21 20 22 24 27 27 27 27 27 25 26 356 15,153 6,346 1,779 1,500 - 25,134 60,560 20,595 251 - 11,130 92,536 32,244 22,685 6,098 785 - - 61,812 60,352 47,197 120 1,459 27,952 137,080 - - - - - 15,124 15,124 - 59,732 - - 5,372 65,104 - - - 278 - 50,048 50,326 - 82,133 - - 24,607 106,740 117,670 198,892 80,228 157,066 19,807 687 565 9,954 31,013 - 569 307 876 26,406 - 684 467 27,557 5,021 1,100 - 6,121 769 - 10 5,720 6,499 - - - - 31,889 33,678 6,499 3,704 138,511 1,653 - 1,534 7,228 9,290 (76,139) 85,781 3,703 138,493 992 - 1,534 7,228 879 12,385 165,214 3,704 138,511 1,653 - 1,534 7,228 - (78,901) 73,729 327 - 120 - 447 5,021 10 - 5,031 5,478 3,703 138,493 992 - 1,534 7,228 338 (700) 151,588 TOTAL EQUITY AND LIABILITIES 117,670 198,892 80,228 157,066 The financial statements on pages 20 to 55 were approved by the board of directors and authorised for issue on 16 April 2009 and are signed on its behalf by: Charles Brooks FD Page 21 TANFIELD GROUP PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 Share capital £000's Share premium Share Option reserve Loan Stock reserve £000's £000's £000's Balance at 1 January 2007 2,921 29,578 255 Issue of ordinary share capital (net of expenses) 706 107,893 Exercise of convertible loan stock Share options exercised Exercise of share options Share option provision Foreign exchange differences on retranslation of net assets of subsidiary undertakings Net profit for the year 8 68 - - - - 67 955 - - - - - - - - 737 - - Balance at 1 January 2008 3,703 138,493 992 Issue of ordinary share capital (net of expenses) Exercise of convertible loan stock Share options exercised Exercise of share options Share option provision Foreign exchange differences on retranslation of net assets of subsidiary undertakings Net loss for the year - - 1 - - - - - - 18 - - - - - - - - 661 - - Balance at 31 December 2008 3,704 138,511 1,653 6 - (6) - - - - - - - - - - - - - - Merger reserve £000's 1,534 Capital Reduction reserve £000's 7,228 - - - - - - - - - - - - - - Profit and loss account Total Equity Translation reserve £000's £000's £000's - - - - - - 879 1,896 43,418 - - - 96 - - 108,599 69 1,023 96 737 879 - 10,393 10,393 1,534 7,228 879 12,385 165,214 - - - - - - - - - - - - - - - - - - - 8,411 - - - - 22 - - - 19 - 683 8,411 - (88,546) (88,546) 1,534 7,228 9,290 (76,139) 85,781 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 Share capital £000's Share premium Share Option reserve Loan Stock reserve £000's £000's £000's Balance at 1 January 2007 2,921 29,578 255 Issue of ordinary share capital (net of expenses) 706 107,893 Exercise of convertible loan stock Share options exercised Exercise of share options Share option provision Foreign exchange differences on retranslation of net assets of subsidiary undertakings Net loss for the year 8 68 - - - - 67 955 - - - - - - - - 737 - - Balance at 1 January 2008 3,703 138,493 992 Issue of ordinary share capital (net of expenses) Exercise of convertible loan stock Share options exercised Exercise of share options Share option provision Foreign exchange differences on retranslation of net assets of subsidiary undertakings Net loss for the year - - 1 - - - - - - 18 - - - - - - - - 661 - - Balance at 31 December 2008 3,704 138,511 1,653 6 - (6) - - - - - - - - - - - - - - Merger reserve £000's 1,534 Capital Reduction reserve £000's 7,228 - - - - - - - - - - - - - - 1,534 7,228 - - - - - - - - - - - - - - 1,534 7,228 Profit and loss account Total Equity Translation reserve £000's £000's £000's - - - - - - 338 - 338 - - - - - (338) - - (505) 43,418 - - - 96 - - 108,599 69 1,023 96 737 338 (291) (291) (700) 151,588 - - - - 22 - - - 19 - 683 (338) (78,223) (78,223) (78,901) 73,729 Page 22 CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 Operating Activities Cash used in operations Income taxes received (paid) Interest paid Net Cash used in Operating activities Investing Activities Acquisition of subsidiaries, net of overdraft acquired Purchase of investments in subsidiary undertakings Purchase of property, plant and equipment Payment of deferred consideration Proceeds from sale of property, plant and equipment Purchase of investments Purchase of intangible fixed assets Interest received Net cash used in investing activities Financing Activities Proceeds from issuance of ordinary shares Repayment of borrowings Repayments of obligations under finance leases Net cash from financing Net (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents at beginning of Year Effect of foreign exchange changes Cash and Cash Equivalents at end of Year TANFIELD GROUP PLC Note 29 Group 2008 £000's 2007 £000's Company 2008 £000's 2007 £000's (10,935) 510 (913) (11,338) (29,041) (2,943) (331) (32,315) (20,491) - (38) (20,529) (56,574) - (32) (56,606) - - (1,087) (252) 623 (45) (6,431) 457 (6,735) (44,564) - (1,851) - 758 (23) (2,949) 1,210 (47,419) 19 - (693) (674) 109,622 (14,904) (621) 94,097 - (42,591) - - - - - 1,089 (41,502) - - - (252) - - - 785 533 19 - 109,622 - - (120) (101) 109,622 (18,747) 27,952 1,925 11,130 14,363 13,546 43 27,952 (20,097) 24,607 862 5,372 11,514 13,093 - 24,607 Page 23 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”), IFRIC interpretations and the Companies Act 1985 applicable to Companies reporting under IFRS. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. The excess of cost of acquisition over the fair values of the Group’s share of identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair value of identifiable net assets acquired (i.e. discount on acquisition) is recognised directly in the income statement. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The costs of an acquisition are measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date irrespective of the extent of any minority interest. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All intra-group transactions, balances, and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Page 24 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation (cont) The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill on acquisition of subsidiaries is included as a non current asset. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Goodwill is allocated to cash generating units for the purpose of impairment testing. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Revenue recognition Service revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes. Revenue from the sale of goods is recognised when goods are delivered and title has passed. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter an operating lease are also spread on a straight line basis over the lease term. Investments Investments are included at cost less amounts written off. Page 25 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Borrowing costs All borrowing costs are recognised in the income statement in the period in which they are incurred. Pensions Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Share Based Payments The Group issues equity-settled share based payments to certain employees and has applied the requirements of IFRS2 “Share-based payments”. Equity settled share-based payments are measured at fair value at the date of the grant. Fair value is measured using a Black-Scholes model. The fair value is expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Foreign currencies Transactions in currencies other than sterling, the presentational and functional currency of the Company, are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in the income statement for the period, except for exchange differences on non-monetary assets and liabilities, which are recognised directly in equity, where the changes in fair value are recognised directly in equity. In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts (see below for details of the Group’s accounting policies in respect of such derivative financial instruments). On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Page 26 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost less any subsequent accumulated depreciation. Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight- line method, on the following bases: Plant and Machinery over 3-10 years Short Leasehold Property Alterations over the lifetime of the lease Fixtures, fittings and equipment over 3-10 years Motor Vehicles over 3-5 years Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Internally-generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group’s business development is recognised only if all of the following conditions are met: • • • an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. (10 to 15 years) Other intangible assets Computer Software is stated at cost less any accumulated amortisation. The software is amortised over a period of 5 years on a straight line basis. Other intangible assets have been brought in on the acquisition of businesses and capitalised at a fair value. The intangible assets are amortised over the relevant period, ranging from 2 to 10 years on a straight line basis. Manufacturing schedules have been brought in on the acquisition of businesses and capitalised at a fair value. The intangible assets are amortised over 10 years on a straight line basis. Page 27 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of property, plant and equipment and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument. Trade receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash and cash equivalents comprise cash on hand less short term bank overdrafts. Page 28 CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) TANFIELD GROUP PLC Financial instruments (continued) Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Convertible loan notes Convertible loan notes are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. Trade payables Trade payables are not interest bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments and hedge accounting The Group transacts derivative financial instruments to manage the underlying exposure to foreign exchange risks. The Group does not transact derivative financial instruments for speculative purposes. Derivative financial assets are included in the balance sheet at fair value. Changes in fair value are recognised directly in equity where they qualify for hedge accounting because they have been designated as hedges of future cash flows, otherwise they are recognised in the income statement as they arise. Government grants Government grants towards staff re-training costs are recognised as income over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Government grants relating to property, plant and equipment are treated as deferred income and released to profit and loss over the expected useful lives of the assets concerned. Segmental reporting A business segment is a group of assets and operations that provide a product or service and that is subject to risks and returns that are different from other business segments. A geographic segment is a group of assets and operations that provide a product or service within a particular economic environment and that is subject to risks and returns that are different from segments operating in different economic environments. Page 29 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Goodwill The recoverable amount of cash generating units are determined on value in use calculations. These calculations require the use of estimates, including management’s expectations of future revenue growth, operating costs and profit margins for each cash generating unit and a discount rate in order to calculate present value. Intangible assets Amortisation of intangible assets is charged to the income statement on a straight line basis over the useful economic lives of each intangible asset. The Directors review the assumptions made at the time of acquisitions in the light of current evidence in the market, and estimated useful economic lives and revisited the carrying value of each intangible asset. Significant changes in the carrying values assessed are charged through the income statement as an impairment. Trade receivables The Group regularly assesses the recoverability of its trade receivables based on a range of factors including the age of the receivable, creditworthiness of the customer, any credits required to release payments, and changes in that customer’s access to credit to fund their purchases. When determining the recoverability of an account the Group makes estimations as to the financial condition of each customer, their importance in providing a route to market, any debt collection strategy in place and their ability to subsequently make payment or provide other future revenue benefits. Inventories In accordance with IAS2 the group regularly reviews its inventory to ensure it is carried at the lower of cost or net realisable value. The management constantly reviews slow moving and obsolete items arising from changes in the product mix demanded by customers, reductions in overall volumes, supplier failures and strategic resourcing decisions. Obsolescence provisions are calculated based on current market values and future sales of inventories. In situations where market demand changes, significantly altering production volumes, inventories are reviewed to ensure that components have a realistic likelihood of being used in current models in a reasonable timeframe. If this review identifies significant levels of obsolete inventory, this obsolescence is charged to the income statement as an impairment. Adoption of International accounting standards IFRS 2 (Amendment) "Share-based payment" (effective for periods commencing on or after 1 January 2009). This amendment clarifies that vesting conditions are service conditions and performance conditions only and that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. Management do not believe that the impact of the change in disclosure will be significant IFRS 3 (Revised) "Business combinations" (effective for business combinations occurring in accounting periods beginning on or after 1 July 2009). This standard continues to apply the acquisition method to business combinations. However, it introduces a number of changes that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. The Group will apply this standard from 1 Jan 2010 as applicable. IFRS 8 ‘Operating Segments’ (effective for periods commencing on or after 1 January 2009). IFRS 8 introduces new disclosure requirements for segmental information and supersedes IAS 14 “Segmental Reporting”. Management do not believe that the impact of the change in disclosure will be significant. Page 30 TANFIELD GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) IAS 1 (Revised) "Presentation of financial statements" (effective for annual periods beginning on or after 1 January 2009). The new standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income which presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group will apply this revision to IAS 1 from 1 January 2009 and is currently evaluating whether it will present one or two statements. IAS 23 (Amendment) "Borrowing costs" (effective for annual periods beginning on or after 1 January 2009). This amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset, removing the option to immediately expense those borrowing costs. The group currently has no borrowing costs. IFRS 1 (Amendment) "First-time adoption of IFRSs" and IAS 27 (Amendment) "Consolidated and Separate Financial Statements" (effective for annual periods beginning on or after 1 January 2009). The amendments to IFRS 1 allows an entity to determine the cost of investments in subsidiaries, jointly controlled entities or associates in its opening IFRS financial statements in accordance with IAS 27 or using a deemed cost. The amendment to IAS 27 requires all dividends from a subsidiary, jointly controlled entity or associate to be recognised in the income statement in the separate financial statements. The Group will apply these amendments from 1 January 2009. This will have no impact on the Company as the financial statements are already prepared under IFRS. Page 31 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 1 Presentation of Financial Statements The financial statements have been prepared in accordance with International Financial Reporting Standards as endorsed by the EU (“IFRS”). These financial statements are presented in Sterling. 2 Revenue (Group) An analysis of the Group's Revenue is as follows: Continuing Operations Powered Access Platforms Zero Emission Vehicles Other 3 Business and Geographical segments (Group) Business segments (Continuing operations) 2008 £000's 2007 £000's 114,388 25,087 6,259 90,064 26,109 7,115 145,734 123,288 For management purposes, the Group is currently organised into three operating divisions – Powered Access Platforms, Zero Emission Vehicles and other operations. These divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Powered Access Platforms: design and manufacture of powered access equipment Zero Emission Vehicles: design, manufacture, service and maintenance of electric vehicles Other: design and manufacture of engineering parts. Segment information about these businesses is presented on the next page. Page 32 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 3 Business and Geographical Segments For the twelve months ending 31st December 2008 Revenue External Sales Inter-segment sales Total revenue Result Segment Result before restructuring Restructuring Costs Segment Result Unallocated corporate expenses Loss from operations Finance costs Loss before tax Income tax expense Loss after tax Other information Capital additions Depreciation and amortisation Impairments Balance Sheet Assets: Segment assets Consolidated total assets Liabilities: Segment Liabilities Consolidated total liabilities Powered Access Platforms £000's Zero Emission Vehicles £000's Other Segments £000's Consolidated £000's 114,388 25,087 6,259 145,734 114,388 25,087 6,259 145,734 (82,689) (263) (82,952) (1,389) (38) (1,427) (3,879) (71) (3,950) 2,179 2,025 88,385 38,557 38,557 19,133 19,133 5,317 904 1,097 21,388 21,388 3,677 3,677 22 265 180 57,725 57,725 9,079 9,079 (87,957) (372) (88,329) - (88,329) (456) (88,785) 239 (88,546) 7,518 3,195 89,662 117,670 117,670 31,889 31,889 Page 33 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 3 Business and Geographical Segments For the twelve months ending 31st December 2007 Revenue External Sales Inter-segment sales Total revenue Result Segment Result before restructuring Restructuring Costs Segment Result Unallocated corporate expenses Profit from operations Finance costs Profit before tax Income tax expense Profit after tax Other information Capital additions Depreciation and amortisation Balance Sheet Assets: Segment assets Consolidated total assets Liabilities: Segment Liabilities Consolidated total liabilities Powered Access Platforms £000's Zero Emission Vehicles £000's Other Segments £000's Consolidated £000's 90,064 26,109 7,115 123,288 90,064 26,109 7,115 123,288 9,486 (1,270) 8,216 2,848 - 2,848 177 - 177 2,825 1,484 3,025 933 122 307 164,412 164,412 26,225 26,225 25,762 25,762 4,150 4,150 8,718 8,718 3,303 3,303 12,511 (1,270) 11,241 317 11,558 879 12,437 (560) 11,877 5,972 2,724 198,892 198,892 33,678 33,678 Page 34 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 3 Business and Geographical segments (continued) Geographical segments The Group’s operations are located in the UK, US, Australasia and Japan. The following table provides an analysis of the Group’s sales by geographic market, irrespective of the origin of the goods/services. UK Europe USA Other 2008 £000's 28,721 25,983 58,349 32,681 145,734 2007 £000's 43,982 29,249 35,597 14,460 123,288 In 2007, revenue from discontinued operations totalled £219k. The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets analysed by the geographical area in which the assets are located: Carrying amount of segment Assets Additions to property, plant, equipment and intangible assets 2008 £000’s 63,313 37,179 3,965 13,213 117,670 2007 £000’s 122,007 64,172 3,133 9,580 198,892 UK USA Japan Australasia 4 Staff Costs Group Average monthly number of employees Production Head Office and Administration Total Aggregate remuneration comprised Continuing Wages and Salaries Share scheme expense Social Security Costs Other Pension Costs Total staff costs from continuing operations Discontinuing Wages and Salaries Social Security Costs Other Pension Costs Total staff costs 2008 £000’s 6,989 442 24 62 7,517 2008 No. 834 316 1,150 2008 £000’s 28,756 683 2,431 327 32,197 - - - 32,197 2007 £000’s 5,888 64 - 20 5,972 2007 No. 812 323 1,135 2007 £000’s 20,313 833 2,008 513 23,667 138 13 2 23,820 Page 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 TANFIELD GROUP PLC Staff costs (continued) Details of Directors’ fees and salaries, bonuses, pensions, benefits in kind and other benefit schemes together with details in respect of Directors’ share option plans are given in the Directors Remuneration Report on pages 13 to 16. 5 Depreciation and Amortisation Continuing Depreciation of property, plant & equipment Amortisation of intangible fixed assets Total depreciation and amortisation from continuing operations Discontinuing Depreciation of property, plant & equipment Amortisation of intangible fixed assets Total depreciation and amortisation charge 6 Profit from continuing operations (Group) Operating lease rentals Depreciation of property, plant & equipment - owned assets - leased assets Amortisation of intangible fixed assets (Profit)/Loss on sale of property, plant & equipment Grants received One off bank charges relating to interest rate swap Staff costs (see Note 4) Income from Snorkel bad debt previously written off Share options granted (see Note 4) Restructuring costs Net (profit) on foreign exchange Auditors' remuneration (see below) Research and development costs Impairment of Goodwill Impairment of Intangible assets Impairment of property, plant & equipment Impairment of Inventories Impairment of Receivables 2008 £000’s 1,165 2,030 3,195 - - 3,195 2008 £000’s 939 894 271 2,030 (587) (500) 145 31,514 - 683 372 (2,433) 228 308 31,895 12,605 83 22,185 22,894 2007 £000’s 974 1,750 2,724 17 2 2,743 2007 £000’s 1,417 581 410 1,752 57 (750) - 22,987 (2,019) 833 1,270 (2,186) 195 - - - - - - Restructuring costs of £372k relate to employee costs and expenses incurred while resizing the Group in line with current market conditions and future expectations. Prior year costs of £1,157k relate to employee costs and expenses incurred during the alignment of the businesses after the Snorkel acquisition. Also in the prior year, other restructuring costs of £113k are from the acquisition of the Upright business. Page 36 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 6 Profit from Operations (Group) continued Amounts payable to Baker Tilly UK Audit LLP and their associates in respect of both audit and non audit services Audit Services - statutory audit of parent and consolidated accounts 148 155 2008 £000’s 2007 £000’s Other Services - audit of subsidiaries pursuant to legislation, where such services are provided by Baker Tilly UK Audit LLP - work provided by associates of Baker Tilly UK Audit LLP in respect of consolidation returns or local legislative requirements Other services relating to taxation - compliance services Services relating to Corporate finance Comprising: - - audit services non audit services - 30 40 10 228 178 50 228 - - 40 191 386 155 231 386 The figures presented are for Tanfield Group plc and subsidiaries as if they were a single entity. Tanfield Group plc has taken the exemption permitted by SI 2005 2417 Reg 5 to omit information about its individual accounts. The parent of Tanfield Group PLC is exempt from disclosing its income statement. The loss for the year is £78,223k (2007: £291k loss). 7 Finance costs and interest receivable (Group) Continuing operations Interest on bank overdrafts and loans Interest on Invoice Discounting Interest on obligations under finance leases Total borrowing costs Less Interest Receivable 2008 £000's 650 146 117 913 (457) 456 2007 £000's 142 40 149 331 (1,210) (879) The Invoice Discounting interest relates solely to Snorkel Elevating Work Platforms PTY Limited. Page 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 8 Income Tax Expense (Group) Current Tax Domestic – current year Domestic – prior year Foreign Deferred Tax Current year Prior Year (Loss) / Profit before tax Tax at the domestic income tax rate 28% (2007: 30%) Tax effect of expenses that are not deductible in determining taxable profit Capital allowances in excess of depreciation Short term timing differences Tax losses for which no relief available Tax adjustments and relief Accounting adjustments Prior Year Tax adjustments Deferred tax asset recognised in the period Effect of different tax rates of subsidiaries operating in other jurisdictions Tax expense 9 Discontinued Operations Group Revenue Operating costs Goodwill Impairment Profit/(loss) before tax Income tax expense Profit/(Loss) on ordinary activities after tax TANFIELD GROUP PLC 2008 £000’s (278) - 727 449 (688) - (688) (239) 2008 £000’s (88,546) 2007 £000’s 1,201 (1,038) 176 339 200 21 221 560 2007 £000’s 10,953 (24,793) 3,286 (3,356) (286) - - 29,362 - - (688) - (239) 2008 £000’s - - - - - - (2,917) (359) - - 1,099 (229) (988) - 668 560 2007 £000’s 219 (1,301) (402) (1,484) - (1,484) Discontinued operations in 2007 relate to the Saxon Specialist Vehicles trade within Tanfield Engineering Systems Ltd, E-Comeleon Ltd, JoeKnowsIt? Ltd and ClickHere Ltd which have been discontinued. Also included are costs relating to a non trading company, Express 2 Automotive Ltd, in respect of leasing costs. Page 38 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 10 Earnings per Share Including discontinued operations The calculation of the basic and diluted earnings per share is based on the following data: Continuing and discontinuing operations 2008 £000’s 2007 £000’s Earnings Earnings for the purposes of earnings per share (88,546) 10,393 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares Share Options Weighted average number of ordinary shares for the purposes of diluted earnings per share Basic earnings per share Diluted earnings per share From continuing operations Earnings Number Number 370,361,089 331,253,401 9,298,615 16,584,411 379,659,704 347,837,812 (23.91)p (23.91)p 3.14p 2.99p 2008 £000’s 2007 £000’s Earnings for the purposes of diluted earnings per share (88,546) 11,877 Basic earnings per share Diluted earnings per share From discontinued Basic and diluted loss per share From continuing operations before exceptional items Earnings Earnings for the purposes of earnings per share Impairments Restructuring Earnings for the purposes of earnings per share before exceptional items Basic earnings per share Diluted earnings per share (23.91)p (23.91)p 3.59p 3.41p 2008 - 2007 (0.45)p 2008 £000’s 2007 £000’s (88,546) 89,662 372 1,488 0.40p 0.39p 11,877 - 1,270 13,147 3.97p 3.78p Page 39 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 11 Property, Plant and Equipment Group Leasehold property & alterations £000's 2,181 822 - 15 (645) 2,373 90 (167) 33 44 2,373 Plant & Machinery £000's 4,258 1,706 708 9 (203) 6,478 664 (2,292) 127 378 5,355 Fixtures, Fittings & equipment £000's 972 394 337 8 - 1,711 258 (1,031) (83) 114 969 Motor Vehicles £000's 917 101 113 4 (229) 906 75 (212) (77) 16 708 357 161 - 21 (87) 452 131 2 - (167) - 418 3,276 399 1 17 - 3,693 562 75 - (2,292) - 2,038 875 129 - 9 - 1,013 248 23 83 (1,029) (9) 329 86 302 - - (176) 212 224 5 - (176) 9 274 Total £000's 8,328 3,023 1,158 36 (1,077) 11,468 1,087 (3,702) - 552 9,405 4,594 991 1 47 (263) 5,370 1,165 105 83 (3,664) - 3,059 1,955 1,921 3,317 2,785 640 698 434 694 6,346 6,098 At 1 January 2007 Additions Acquisitions of subsidiary undertakings Exchange Differences Disposals At 1 January 2008 Additions Disposals Reclassification Exchange Differences At 31 December 2008 Depreciation: At 1 January 2007 Charge for the year Exchange differences Impairment of assets Eliminated on disposals At 1 January 2008 Charge for the year Exchange differences Impairment of assets Eliminated on disposals Reclassification At 31 December 2008 Carrying amount: At 31 December 2008 At 31 December 2007 The net book value of assets held under finance leases and hire purchase agreements is £1,321k (2007:£1,647k). The balances relate solely to plant and machinery. The impairment of £83k relates to legacy I.T system costs. Page 40 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 12 Goodwill Group Cost 1 January Recognised on acquisition of subsidiary undertakings Exchange differences 31 December Accumulated impairment losses 1 January Impairment losses (see Note 31) Exchange differences 31 December Carrying Amount 2008 £000's 2007 £000's 33,147 - 7 33,154 903 31,895 - 32,798 5,644 27,323 180 33,147 501 402 - 903 356 32,244 Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. A segment level summary of the goodwill allocated is presented below; Powered Access Zero emission vehicles Carrying values 2008 £000's - 356 356 2007 £000's 31,888 356 32,244 The group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired (see note 31). Page 41 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 13 Intangible Assets Group Development Costs £000's Manufacturing schedules £000's Other Intangible Assets £000's Computer Software £000's Cost: At 1 January 2007 Additions Acquisitions of subsidiary undertakings Exchange differences At 1 January 2008 Additions Disposals Exchange differences At 31 December 2008 Amortisation: At 1 January 2007 Charge for the year Impairment At 1 January 2008 Charge for the year Disposals Impairment Exchange differences At 31 December 2008 Carrying amount: At 31 December 2008 At 31 December 2007 1,709 2,799 - - 4,508 6,396 - - 10,904 146 171 - 317 451 - - - 768 10,136 4,191 - 10,938 148 11,086 - - 4,206 15,292 - 456 - 456 456 - 8,303 3,536 12,751 2,541 10,630 4,621 - 4,619 62 9,302 - (112) 1,776 10,966 475 1,089 71 1,635 1,065 (112) 4,302 1,776 8,666 2,300 7,667 Total £000's 6,567 2,949 15,557 210 25,283 6,431 (247) 5,985 37,452 775 1,752 71 2,598 2,030 (247) 12,605 5,313 22,299 237 150 - - 387 35 (135) 3 290 154 36 - 190 58 (135) - 1 114 176 197 15,153 22,685 The development costs in the year are in relation to the new product developments carried out in the year which includes the Ampere and other Zero Emission vehicles. Other intangible assets include trademarks, manufacturing schedules, customer order book and customer lists which arose on acquisition of the Snorkel International in 2007. The brought forward values of other intangible assets arose on the acquisition of the Norquip, SEV and Upright businesses. The impairment balance of £12,605k is made up of £12,094k provided against the intangible asset created on the acquisition of Snorkel International Inc (see Note 31) and £511k relating to the discontinued Norquip product line. Page 42 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 14 Subsidiaries (Group) Details of the Company’s subsidiaries at 31 December 2008 are as follows: Name of subsidiary Place of incorporation (or registration) and operation Proportion of ownership interest % Proportion of voting power held % Principal activity Aggregate capital reserves £000 Profit / (loss) after Taxation £000 Tanfield Engineering Systems Ltd Tanfield Engineering Systems US (Inc) HBWP Inc Snorkel Holdings LLC Snorkel International Inc Snorkel Elevating Work Platforms PTY Limited Snorkel Elevating Work Platforms Limited Snorkel Europe BV SEV Group Ltd E-Comeleon Ltd JoeKnowsIt? Ltd ClickHere Ltd Express 2 Automotive Ltd Sandco 854 Ltd Saxon Specialist Vehicles Ltd HMH Sheet Metal Fabrications Ltd Norquip Ltd YEV Ltd Tanfield Powered Access Ltd Tanfield Asia Pacific PTE. Ltd UK US US US US AUS NZ Netherlands UK UK UK UK UK UK UK UK UK UK UK Singapore 100 100 100 100 100 100 100 100 100 100 74 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 74 100 100 100 100 100 100 100 100 100 Engineering (30,746) (37,476) Powered Access Dormant Holding Company Powered Access Powered Access Powered Access Powered Access Vehicle Service, Hire & Maintenance Non Trading Non Trading Non Trading Non Trading Holding Company Dormant Dormant Dormant Dormant Non Trading Powered Access (778) - - 7,045 (444) 522 - (422) - - (5,808) (2,518) 209 - (2,670) (1,259) - - - - - - - - - - 632 - - - - - - - - - - (11) The minority interest in JoeKnowsIt? Limited has not been recognised as JoeKnowsIt? Limited has net liabilities which are unlikely to be recoverable from the third party. Details of the investments held in the Company accounts are as follows: Snorkel International Tanfield Engineering Systems Limited E-Comeleon Limited 2008 £000’s 13,013 2,111 - 15,124 2007 £000’s 47,937 2,111 - 50,048 During the year an impairment of £34,535k was made against the investment in Snorkel International Inc. During the prior year the investment of £175k in E-Comeleon Limited was impaired to £nil value due to the company ceasing to trade. Page 43 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 15 Inventories Group Raw materials and consumables Work-in-progress Finished Goods and goods for resale 2008 £000’s 33,665 2,087 24,808 60,560 2007 £000’s 38,221 5,731 16,400 60,352 During the year an impairment of £22.2m was made against obsolete and slow moving stock (Note 31). 16 Financial assets Trade and other receivables Group Current Trade amounts receivable Allowance for estimated irrecoverable amounts Amounts due from subsidiary undertakings Other Taxes Other debtors and prepayments Non-current Trade amounts receivable Average credit period taken on goods 2008 £000's 21,243 (1,483) - 203 632 20,595 1,500 2008 51 2007 £000's 44,146 (112) - 954 2,209 47,197 - 2007 142 Company 2008 £000's - - 59,688 - 44 59,732 2007 £000's - - 81,772 305 56 82,133 - - The following table provides analysis of trade and other receivables that were past due at 31 December, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the current financial status of the customers. Up to three months Up to six months 2008 £’000 2,915 825 2007 £’000 2,701 757 During the year an impairment of £22.9m (2007: £Nil) was made against potentially bad and irrecoverable debts (Note 31) from whom payment was over due by more than three months. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Bank balances and cash comprise cash and short-term deposits held by the group treasury function. The carrying amount of these assets approximates their fair value. Credit risk – The Group’s principal financial assets are bank balances and cash and trade and other receivables, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade receivables. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparts and customers. Page 44 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 17 Investments Group At 1 January Additions Exchange movements At 31 December The investment relates to the current value of a money market investment. 18 Trade and other payables Trade payables Social security and other Taxes Accruals and deferred Income Average credit period taken on trade purchases Group 2008 £000's 9,314 1,085 9,408 19,807 2007 £000's 15,692 1,004 9,710 26,406 2008 77 2007 64 2008 £000’s 120 45 86 251 2007 £000’s 94 24 2 120 Company 2008 £000's 465 219 85 769 2007 £000's 179 - 148 327 The directors consider that the carrying amount of trade payables approximates to their fair value. 19 Financial instruments recognised in the balance sheet (Group) ASSETS Non current assets Trade and other receivables Current assets Trade amounts receivable Investments Cash and cash equivalents £000's Held for trading 2008 £000's Held to maturity £000's Total £000's Held for trading 2007 £000's Held to maturity 1,500 1,500 19,760 - 11,130 30,890 - - 1,500 1,500 - 251 - 251 19,760 251 11,130 31,141 - - 44,034 - 27,952 71,986 - - - 120 - 120 £000's Total - - 44,034 120 27,952 72,106 Total 32,390 251 32,641 71,986 120 72,106 LIABILITIES Current liabilities Trade and other payables Finance leases Other creditors Non current liabilities Finance leases Other creditors Total 19,807 565 9,954 30,326 569 - 569 30,895 - - - - - - - - 19,807 565 9,954 30,326 569 - 569 26,406 684 467 27,557 1,100 5,021 6,121 30,895 33,678 - - - - - - - - 26,406 684 467 27,557 1,100 5,021 6,121 33,678 Page 45 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 20 Obligations Under Finance Leases Group Amounts payable under finance leases Within one year In the second to fifth years (inclusive) Less future finance charges Present value of lease obligations Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Company Amounts payable under finance leases Within one year In the second to fifth years (inclusive) Less future finance charges Present value of lease obligations Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months Minimum lease Payments 2008 £000's 2007 £000's 640 626 1,266 (132) 1,134 829 1,232 2,061 (277) 1,784 Minimum lease Payments 2008 2007 £000's £000's 10 - 10 - 10 127 10 137 (7) 130 Present value of minimum lease payments 2008 £000's 2007 £000's 565 569 1,134 684 1,100 1,784 1,134 1,784 (565) 569 (684) 1,100 Present value of minimum lease payments 2008 2007 £000's £000's 10 - 10 10 120 10 130 130 (10) (120) - 10 It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 5 years. For the year ended 31 December 2008, the average effective borrowing rate was 10% (2007: 10%). Interest rates are fixed at the contract date. Obligations under finance leases are secured on the assets to which they relate. The fair value of the Group’s lease obligations approximate to their carrying amount. Page 46 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 21 Other Creditors Buyback Lease Liability Invoice Discounting Deferred consideration Other creditors payable within one year Deferred consideration Other Creditors Other creditors payable after one year Group Company 2008 £000's 2007 £000's 342 2,909 6,703 9,954 - - - 386 81 - 467 5,021 - 5,021 2008 £000's - - 5,720 5,720 2007 £000's - - - - - - - 5,021 - 5,021 The directors consider that the carrying amount of other creditors approximates to their fair value 22 Deferred Tax Group Group Company 2008 £000's 2007 £000's 2008 £000's 2007 £000's Analysis for financial reporting purposes: Deferred tax (liabilities) Deferred tax assets Net asset / (liability) position at 31 December (307) 1,779 1,472 - 785 785 The movement in the year in the Group’s net deferred tax position was as follows: At 1 January Recognised on acquisition of subsidiary undertakings Credit / (charge) to income for the year Release to income for the prior year At 31 December 785 - 687 - 1,472 (19) 1,025 (200) (21) 785 - - - 278 - (278) - - - 278 278 - - 278 - 278 The following are the major deferred tax components recognised by the Group and the movements thereon during the period: Deferred tax assets / (liabilities) At 1 January 2008 Credit / (charge) to income for the year Release to income for the prior year At 31 December 2008 Group Group Company Tax losses £000’s 785 994 - 1,779 Other £000’s - (307) - (307) Other £000’s 278 (278) - - At the balance sheet date, the group has unused tax losses of £49,237k (2007: £3,973k) available for offset against future profits of the same trade. A deferred tax asset has been recognised in respect of £1,779k (2007: £785k) of such losses. No deferred tax asset has been recognised in respect of the remaining £42,884k (2007: £1,356k) due to the unpredictability of future profit streams. Page 47 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 23 Provisions (Group) At 1 January 2007 Utilisation of provision At 1 January 2008 Utilisation of provision At 31 December 2008 24 Share Capital Group and Company Authorised: 500,000,000 (2007 – 500,000,000) Ordinary Shares of 1p each Issued and Fully Paid: 370,386,089 (2007 – 370,286,089) Ordinary shares of 1p each Legal Reserve £000's 262 (262) - - - Total £000's 262 (262) - - - 2008 £000’s 2007 £000’s 5,000 5,000 3,704 3,703 The Company has one class of ordinary shares which carry no right to fixed income. On 14 April 2008, 100,000 share options were exercised at a price of £1 per share for a total consideration of £100,000. The premium net of related charges on the issue of these shares has been credited to the share premium account. 25 Translation reserve Balance at 1 January 2007 Foreign exchange differences on retranslation of net assets of subsidiary undertakings Foreign exchange differences on retranslation of Investments in subsidiary undertakings Balance at 1 January 2008 Foreign exchange differences on retranslation of net assets of subsidiary undertakings Foreign exchange differences on retranslation of Investments in subsidiary undertakings Balance at 31 December 2008 26 Retained Earnings At 1 January 2007 Profit / (loss) for the year Share options charged directly to equity At 1 January 2008 Profit / (loss) for the year Share options exercised charged directly to equity Balance at 31 December 2008 Group £000's Company £000's - - 879 - 879 8,411 - 9,290 - 338 338 - (338) - Group £000's 1,896 10,393 96 12,385 (88,546) 22 (76,139) Company £000's (505) (291) 96 (700) (78,223) 22 (78,901) Page 48 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 27 Capital reserves Group Share capital Share premium Share Option reserve Loan Stock reserve Merger reserve Capital Reduction reserve Translation reserve Total £000's £000's £000's £000's £000's Balance at 1 January 2008 Issue of Ordinary share capital (net of expenses) Exercise of convertible loan stock Share options exercised Share option provision Foreign exchange differences on retranslation of net assets of subsidiary undertakings 3,703 138,493 992 - - 1 - - - - - 661 - - 18 - - Balance at 31 December 2008 3,704 138,511 1,653 - - - - - - - Company £000's 7,228 £000's £000's 879 152,829 - - - - - - - - - - - 19 661 8,411 8,411 1,534 7,228 9,290 161,920 Share capital Share premium Share Option reserve Loan Stock reserve Merger reserve Capital Reduction reserve Translation reserve Total £000's £000's £000's £000's £000's Balance at 1 January 2008 Issue of Ordinary share capital (net of expenses) Exercise of convertible loan stock Share options exercised Share option provision Foreign exchange differences on retranslation of Investments in subsidiary undertakings 3,703 138,493 992 - - 1 - - - - 18 - - - - - 661 - Balance at 31 December 2008 3,704 138,511 1,653 - - - - - - - £000's 7,228 £000's £000's 338 152,288 - - - - - - - - - - - 19 661 (338) (338) 1,534 7,228 - 152,630 1,534 - - - - - 1,534 - - - - - 28 Retirement benefits Defined contribution plans The Group operates defined contribution retirement benefit plans for all qualifying employees of its construction and leasing divisions in the UK. The assets of the schemes are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the scheme prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions. The employees of the Group’s subsidiary in Australia are members of a state-managed retirement benefit scheme operated by the government of Australia. The subsidiary is required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total cost charged to income of £327k (2007:£515k) represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes. As at 31 December 2008, contributions of £27k (2007: £51k) due in respect of the current reporting period had not been paid over to the schemes. Page 49 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 29 (a) Reconciliation of profit from operations to net cash used in operating activities Operating Activities (continuing and discontinuing) Profit (loss) from operations Adjustments for: Depreciation of property, plant and equipment Negative goodwill Amortisation of intangible fixed assets (Gain) Loss on disposal of fixed assets Impairment of Goodwill Impairment of Intangible assets Impairment of property, plant and equipment Impairment of Inventories Impairment of Receivables Loss on intercompany loan write off Loss on impairment of investments Operating cash flows before movements in working capital Decrease (Increase) in receivables Increase (decrease) in payables (Decrease) in provisions (Increase) in inventories Net Cash used in Operating activities Group 2008 £000's 2007 £000's Company 2008 £000's 2007 £000's (88,329) 10,074 (78,570) (1,853) 1,165 - 2,030 (587) 31,895 12,605 83 22,185 22,894 - - 991 - 1,752 57 402 71 47 - - - - - - - - - - - 51,618 34,535 - - - - - - - - - 1,400 175 3,941 4,585 (8,140) 2,612 (13,933) (10,935) 13,394 (19,049) 9,779 (4,416) (28,749) (29,041) 7,583 (29,199) 1,125 - - (20,491) (278) (57,290) 994 - - (56,574) 30 Operating Lease Arrangements The Group as a lessee: At the balance sheet date, the Group had total commitments under non-cancellable operating leases, which fall due as follows: Within one year In the second to fifth years inclusive Greater than five years 2008 £000’s 2,422 5,912 16,710 25,044 2007 £000’s 1,888 4,767 19,093 25,748 Page 50 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 31 Impairments The impairment losses recognised in the Consolidated Income Statement result from impairment reviews triggered by the significant changes in the market outlook for the Powered Access division, experienced during June 2008. In particular, the company addressed the valuation of the Intangible Assets and Goodwill arising from the acquisition of Snorkel International Inc and its subsidiaries in August 2007. In accordance with IAS 36 the Group values Goodwill at the lower of its carrying value or its recoverable amount, where the recoverable amount is the higher of the value if sold and its value in use. In addition IAS38 requires intangible assets with finite useful lives to follow the same impairment testing as Goodwill including the use of value in use calculations. The impact of market changes in June and the uncertainty within this market going forward, described elsewhere in this statement, have meant that the assumptions in the value in use calculations, prepared to support previous valuations, are significantly altered. The Group identified individual cash generating units for the purposes of IAS 36 within the group. Value in use calculations were prepared for Snorkel and its subsidiaries, UpRight and Smith Electric Vehicles. These have been compared with the assets for that unit and the impairments calculated accordingly. The value in use calculations were prepared using amended pre-tax cash flow projections based on financial budgets for the period to December 2011 based on management experience and current trading expectations, extrapolated to a ten year period using conservative growth assumptions, given current uncertainty. The key assumptions applied to the Snorkel calculations after 2011 on Gross Margin are 25%-30% and Growth Rate are in the range 2 -3%. The discount rate is set at 9.3% (2007 5%) to reflect the current market assessment of the time value of money and the specific risks of the cash generating unit. The key assumptions applied to the UpRight calculations after 2011 on Gross Margin are 30% and on Growth Rate is in the range 0% - 3%. The discount rate is set at 9.3% (2007 5%) to reflect the current market assessment of the time value of money and the specific risks of the cash generating unit. The key assumptions applied to the Smith Electric Vehicles calculations after 2011 on Gross Margin are 35% and Growth Rate are in the range 2% - 3%. The discount rate is set at 9.3% (2007 5%) to reflect the current market assessment of the time value of money and the specific risks of the cash generating unit. No impairment was made in Smith Electric Vehicles. Based on the value in use calculations, the Group has determined that the value of the Goodwill has been impaired and as such an impairment charge of £31.9m (Snorkel £27.5m, UpRight £4.4m) (2007: nil) has been made to write down the carrying value of the asset. Based on the value in use calculations the Group has determined that the value of the intangible assets has been impaired and as such an impairment charge of £12.6m (Snorkel £12.6) (2007: nil) has been made. Allowance for doubtful receivables A provision has been made against accounts that in the estimation of management may be impaired. Within each of the business segments an assessment has been made as to the impact of the dramatic reduction in volumes caused by the changes in market conditions and the reduction in availability of credit on the financial viability of customers, together with the importance of those customers in providing a route to market, and their effect on the recoverability of accounts receivable. The impairment was calculated, with reference to debt collection strategies in place, as the amount identified as problematic at specific customers less an estimate of the amount that may be collected when the market recovers discounted (9.3%) to reflect time to and probability of collection, that amount collected not limited to repayment of the principal but other revenue benefits. Page 51 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 During the year the Group charged £22.9m (2007: £Nil) to the income statement against trade receivables. The Group holds a provision for impairment of receivables at 31 Dec 2008 amounting to £1.4 million (2007: £nil) Inventories In accordance with IAS2 the group regularly reviews its inventory to ensure it is carried at the lower of cost or net realisable value. At 31 December 2008 the management believes the carrying value of inventories to be impaired by £22.2m due to slow moving and obsolete items arising from changes in the product mix demanded by customers, reductions in overall volumes, supplier failures and strategic resourcing decisions. Obsolescence provisions have been calculated based on current market values and future sales of inventories. Page 52 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 32 Share Based Payments (Group) Equity settled share based payment transactions Details of the Company’s and group share option scheme are given in the Directors Remuneration Report on pages 13 to 16. Movement in outstanding options 2008 Options (Number) Weighted average exercise price (£) 2007 Options (Number) Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at 31 December Exercisable at 31 December 19,665,004 - - (100,000) (83,333) 19,481,671 8,231,671 0.228 - 0.01 - 0.228 14,453,671 12,083,333 - (6,872,000) - 19,665,004 8,415,004 Weighted average exercise price (£) 0.188 0.22 0.107 0.228 The weighted average share price at the date of exercise for share options exercised during the year was £1.00. The options outstanding at 31 December 2008 had a weighted average exercise price of £0.228, and a weighted average remaining contractual life of 8.1 years. The range of exercise price is 1p to 40p. On 31 December 2008 the market price of the ordinary shares was 5p. The range during 2008 was 3.5p to 124.75p. Income statement charge A charge to the income statement of £684k has been made for options issued on or after 7 November 2002 that had not vested as at 1 January 2005 in accordance with IFRS2 ‘Share Based Payments’. The inputs into the Black-Scholes model are as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends 2008 22.01p 42.58p 43.2% 3 years 4.6% - Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 3 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Page 53 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 33 Financial risk management Credit Risk The group is exposed to credit risk due to its trade receivables due from customers and cash deposits with financial institutions The Group has no concentration of customer credit risk, with exposure spread over a large number of counterparties and customers. Although the Group has implemented policies and uses procedures to ensure that sales are made only to customers with appropriate credit history, the group has seen many previously creditworthy customers default due to the underlying market conditions. During the year the Group has also seen credit insurance removed against many of its customers leaving the Group with a much greater exposure which is reflected in the group’s trade receivables impairment. Liquidity Risk The Group is exposed to liquidity risk arising from having insufficient funds to meet the financing needs of the Group. The Group holds funds on deposit and has short term committed facilities that are designed to ensure that the Group has sufficient funds available for the forecast requirements of the Group. As well as forecasting the Group’s core liquidity needs, the Group Financial Management ensure subsidiary companies’ liquidity needs are met. Foreign Exchange Risk The Group is exposed to movements in foreign exchange rates due to its commercial trading denominated in foreign currencies, the net assets of its foreign operations into the consolidated statements and foreign currency denominated costs. Where possible the Group uses natural hedging of currencies where customer and purchase currencies are matched, otherwise the Group uses currency derivative financial instruments such as foreign exchange contracts to reduce exposure. The material foreign currency denominated costs include the purchase of components from low cost based countries, principally in US dollars. Interest rate risk The Group is exposed to interest rate risk due to its cash deposits. Cash and cash equivalents are the only interest bearing financial assets held by the Group. 34 Non-cash transactions Additions to fixtures and equipment during the year amounting to £Nil (2007: £1,172k) were financed by new finance leases. 35 Contingent Liabilities There are no contingent liabilities of which the Directors are aware. Page 54 TANFIELD GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 36 Related Party Transactions Group Transactions between the Company and its subsidiaries and between subsidiaries, which are related parties, have been eliminated on consolidation. These transactions are a management charge from Tanfield Group PLC to is subsidiaries. The bank hold a cross guarantee in relation to all the Group Company bank accounts. There are no other related party transactions. Company Details of the Company’s share in Group undertakings are given in note 14. The Company entered into transactions with its subsidiaries as disclosed below. Management charge for provision of services Amounts owed by related parties at year end Subsidiaries 2008 £000’s 5,567 2007 £000’s 3,425 59,688 81,772 During the year the company impaired £7,944k against Snorkel International Inc outstanding loans and also forgave £43,645k in loans to Tanfield Engineering Systems Ltd. Remuneration of key management personnel The remuneration of the key management personnel, which includes Directors, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual directors is provided in the Directors’ Remuneration Report on pages 13 to 16. Directors Emoluments Short-term employee benefits Post employment benefits Gain on exercise of share options Total Directors’ transactions 2008 £000's 1,379 87 - 1,466 2007 £000's 1,339 60 10,015 11,414 There were no other transactions with Directors during the year. There have been no related party transactions with any Director. Page 55 

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