Tanfield Group Plc
Annual Report 2017

Plain-text annual report

TANFIELD GROUP PLC REPORT AND FINANCIAL STATEMENTS 2017 Registered in England & Wales Company number 04061965 TANFIELD GROUP PLC FINANCIAL STATEMENTS REPORT AND FINANCIAL STATEMENTS 2017 SUMMARY OF CONTENTS Directors and Advisers Strategic Report Directors’ Report Corporate Governance Directors’ Remuneration Report Statement of Directors’ Responsibilities Report of the Independent Auditor Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Attributable to Equity Shareholders Cash Flow Statement Accounting Policies Critical Accounting Estimates and Key Judgements Notes to the Accounts 2 3 5 6 7 9 10 12 13 14 15 16 18 20 1 TANFIELD GROUP PLC FINANCIAL STATEMENTS DIRECTORS AND ADVISERS DIRECTORS NON-EXECUTIVE J Pither D Robinson M Groak SECRETARY D Robinson REGISTERED OFFICE AND ADVISORS REGISTERED OFFICE Sandgate House 102 Quayside Newcastle upon Tyne NE1 3DX AUDITOR RSM UK Audit LLP 1 St James’ Gate Newcastle upon Tyne NE1 4AD SOLICITOR Ward Hadaway Sandgate House 102 Quayside Newcastle upon Tyne NE1 3DX Chairman (resigned 31 May 2017) Non executive Director (appointed Chairman 31 May 2017) Non executive Director NOMINATED ADVISOR WH Ireland 24 Martin Lane Londno London EC4R 0DR NOMINATED BROKER WH Ireland 24 Martin Lane Londno London EC4R 0DR REGISTRAR Link Market Services Limited (formerly Capita Registrars Limited) The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 2 TANFIELD GROUP PLC FINANCIAL STATEMENTS STRATEGIC REPORT CHAIRMAN’S STATEMENT We have continued to closely monitor the progress of the Company’s main investment in Snorkel during the year whilst still maintaining a watchful eye over the investment in Smith despite the carrying value being nil. The Board is pleased with the progress made by Snorkel during 2017 and feels that, should the progress continue, it makes the likelihood of a realisation of value in the future more probable. The calculation of the Snorkel valuation was made in 2013 and is based on the formula for realisation of value, which expires on 30 September 2018, detailed in the circular that was distributed prior to the joint venture between Tanfield Group Plc and Xtreme Manufacturing LLC. Whilst progress continues to be made, the Board is of the view that the financial targets required to trigger the formula for realisation of value will not be met before this expiry date. After this date, the calculation of the investment value becomes uncertain and the return could be less than the carrying value. The Board continues to hold the view that the value of the investment in Smith should be nil. NON-EXECUTIVES' REVIEW Background The Company is defined as an investment company with two passive investments. This definition resulted from the disposal of the controlling interest in Smith Electric Vehicles in 2009 and the formation of a joint venture between Tanfield Group Plc and Xtreme Manufacturing LLC relating to Snorkel in October 2013. Tanfield currently owns 5.76% of Smith Electric Vehicles Corp. ("Smith") and 49% of Snorkel International Holdings LLC ("Snorkel"). OVERVIEW Snorkel Tanfield continues to own 49% of Snorkel, which it has held since the joint venture was established in October 2013. Sales levels (unaudited) have continued to grow during 2017, increasing by 27% resulting in sales of $165.8m (2016: $130.5m/ 2015: $109.9m / 2014: $85.3m). Snorkel's strategy of creating a broader and more diverse customer base in targeted areas is one of the factors that has assisted the continued sales growth. The Board is not aware of any market factors, nor has it been made aware of any other specific reason why further growth could not take place in 2018. The Snorkel unaudited accounts for 2017 report an operating profit, excluding depreciation, of $1.6m (2016: $2.8m loss / 2015: $10.6m loss / 2014: $14.9m loss). The Board takes comfort from a sustained period of operating profitability experienced in 2017. This is testament to the focused cost- down activity that has taken place in recent years and that is expected to continue in future and which, if successful, should reduce the bill of material costs and improve gross margins further. With the continued focus and support received from the majority owner Don Ahern, the owner of Xtreme, the Board sees no reason why Snorkel could not once again see growth in 2018, having achieved sales growth of 29% in 2015, 19% in 2016 and 27% in 2017, and therefore potentially increase the level of operating profitability. Tanfield is, however, unsure if the dependency in the US upon Ahern Rentals as its principal customer may have an impact upon this possible outcome. Should economic conditions materially change during the remainder of 2018, this may have an impact on the expected outcome, but the Board is currently of the opinion that the investment in Snorkel will result in a return to shareholders in the future, although it should be noted that this is not expected to materialise until after 30 September 2018, when the outcome then becomes uncertain and could be less or could be more than the calculated realisation value. Valuation of Snorkel holding: unchanged at £36.3 million The Board of Tanfield has taken a view of the carrying value of its 49% holding and its adjusted priority amount that takes account of risks in the industrial global markets and the normal cycles that operate within these markets. The range of potential valuations can be broad, with the added complexity of a time- driven element whereby the agreement for the current valuation formula could only be triggered during a five year period ending in September 2018. At the end of 2017 there were just 9 months left to run on the fixed terms of the agreement. If the formula is not triggered within the 5 year time frame, Tanfield will retain a 49% interest in Snorkel but the trailing 12 month $25m EBITDA trigger compelling payment of the $22.4m adjusted priority amount and the Company's put option compelling the purchase of Tanfield's remaining interest in Snorkel will expire. The Board continues to hold the view that Don Ahern, the owner of Xtreme, would wish to one day own 100% of Snorkel and will therefore seek to exercise the call option to buy Tanfield’s holding in Snorkel at some point in the future. As the Board is of the view that the $25m EBITDA trigger will not be achieved by the expiry date, the calculation of the investment value then becomes uncertain. The Board has considered a number of possible scenarios, which assume that both progress within Snorkel and the wider global market conditions will continue to improve and, given the range of possible outcomes, the actual realisation could be less or more than the current valuation. A number of factors could influence the valuation and performance of Snorkel between now and a potential realisation date beyond September 2018, including Xtreme’s negotiating stance and the exchange rate at the time of any realisation. 3 TANFIELD GROUP PLC FINANCIAL STATEMENTS STRATEGIC REPORT (Continued) Due to the inherent uncertainties, the Board is unable to determine whether the outcome will be less than the current investment value so feel the current valuation of £36.3m should be maintained. This valuation has been assessed against various criteria, including past performance, production capacity, market conditions, the capability of the business to increase output and exchange rate fluctuations. The Board would like to draw your attention to the critical accounting estimates and key judgments on pages 18 and 19 which further explain the uncertainty and to the Auditors’ report on page 10 in which they have also highlighted the uncertainty. Smith In October 2014 Smith completed a restructuring exercise that saw it convert debt to equity. As a result of this, they informed the Company that its equity shareholding had reduced from 24% to 5.76% (excluding warrants). Since then, Smith has sought to raise funds which would allow it to implement its strategic plan. To date, no significant fundraise has been completed and the Board of Tanfield does not foresee this happening in the immediate future. In May 2015 Smith executed a conditional agreement to form an exclusive joint venture with strategic partner and investor FDG Electric Vehicles Limited ("FDG"). In May 2016, the Board of Tanfield was informed that Smith had filed a complaint against FDG and the new Joint Venture. The Board of Tanfield understands that counter-claims have been made against Smith and that legal proceedings are ongoing. Valuation of Smith holding In 2015, the Board of Directors carried out a review of the investment in Smith resulting in a decision to impair the investment value to nil. The Board came to this decision due to the funding uncertainties as well as the legal proceedings between Smith and FDG. In the light of the ongoing legal proceedings and Smith’s inability to raise any meaningful funds since that time, the Board maintains its opinion that the investment value should be held at nil. in Strategy of Tanfield Board of Directors relation to its Investments Although the Board cannot predict the timeframe for a return of value from its investment in Snorkel, the Directors believe that it will result in a return of value to shareholders over time. In contrast, at this stage it does not look likely that its investment in a return of value to shareholders. The Directors will update shareholders should this view change. in Smith will result The strategy of the Company in relation to these investments is to return as much as possible of any realised value to shareholders as events occur and circumstances allow, subject to compliance with any legal requirements associated with such distributions. The Board takes the view that while there has been further progress made by Snorkel, there is still a risk of failure, although based on progress to date and commitments from Don Ahern / Xtreme, this seems unlikely. The Board will continue to fulfill its obligation to its shareholders in seeking to optimise the value of its investments. The investments are defined as passive investments and in line with this definition Tanfield does not hold Board seats in either Snorkel or Smith. There is no limit on the amount of time the existing investments may be held by the Company. Finance expense and income The interest cost in the period of £nil (2016: £13k) was incurred from loan interest charged during the period and interest income of £nil (2016: £1k) received on bank balances. Loss from operations Loss from operations was £148k (2016: £237k). Loss per share Loss per share from continuing operations was 0.1 pence (2016: 0.2 pence). No dividend has been declared. (2016: £nil) Cash At 31 December 2017, the Company had cash of £0.1m (2016: £0.3m) and approximately £0.3m as at the date of this report. Risks and uncertainties Following the successful placing of shares on 22 February 2018 raising £0.25m, the Board believes the business has sufficient cash funds to continue in business for the foreseeable future, beyond a period of 12 months from the date of this report. However, there is no guarantee if and when a realisation of value from one of its investments will happen and the Board will closely monitor progress. It recognises that its investments have a level of risk associated with them and is reliant on the continued performance within their respective markets. KPI's The Board do not use any KPI's to monitor the performance of the business. Approved by the Board of Directors and signed on behalf of the Board Daryn Robinson Chairman 23 April 2018 4 TANFIELD GROUP PLC FINANCIAL STATEMENTS DIRECTORS’ REPORT The directors submit their report and the financial statements of Tanfield Group PLC for the year ended 31 December 2017. Tanfield Group Plc is a public listed company incorporated and domiciled in England and quoted on AIM. PRINCIPAL ACTIVITIES The company’s principal activity is that of an investment company. POLICY ON PAYMENT OF CREDITORS It is Company 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 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. investments. It INVESTING POLICY The holdings in Snorkel International Holdings LLC and Smith Electric Vehicles Corp. are passive is the intention that where distributions or realisations of such holdings are made (or there is a receipt of marketable securities) that these are distributed to shareholders, subject to compliance with any legal requirements associated with such distributions. There is presently no anticipated limit on the amount of time the holdings are to be held by the Company. The Company does not have and will not make any cross holdings and does not have a policy on gearing. RESULTS AND DIVIDENDS The financial result, for the year to 31 December 2017 reflects the principal activity of the company being that of an investment company. Turnover for the year was £nil (2016: £nil). The operating loss in the year of £148k (2016: £237k) arose from operating costs. The statement of financial position remains consistent with total assets at the end of the year of £36.4m (2016: £36.6m). Net Current Assets were £0.1m (2016: £0.2m) with cash balances of £0.1m (2016: £0.3m). The directors believe the Company has sufficient working capital to allow it to continue for the foreseeable future, beyond a period of 12 months from the date of this report No dividend has been paid or proposed for the year (2016: £nil). The loss of £148k (2016: £249k) has been transferred to reserves. FINANCIAL INSTRUMENTS The Company’s financial instruments comprise cash, current debtors and current and non current creditors arising from its operations. The principal financial instruments used by the Company are cash balances raised from share issues by the Company. The Company has not established a formal policy on the use of financial instruments but assesses the risks faced by the Company as economic conditions and the Company’s operations develop. DIRECTORS The present membership of the Board is set out on page 2. 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 7 to 8. Trade creditor days based on creditors at 31 December 2017 were 65 days (2016: 48 days). SUBSTANTIAL SHAREHOLDINGS On 31 December 2017 the following held substantial shares in the company. No other person has reported an interest of more than 3% in the ordinary shares. No. % HSBC GLOBAL CUSTODY NOMINEE 49,506,267 31.67% CHASE NOMINEES LIMITED 29,773,712 19.05% VIDACOS NOMINEES LIMITED 15,873,967 10.15% AURORA NOMINEES LIMITED 14,566,045 9.32% THE BANK OF NEW YORK (NOMINEES) 11,142,907 7.13% LYNCHWOOD NOMINEES LIMITED 7,455,780 4.77% INTERACTIVE INVESTOR SERVICES 4,746.186 3.04% 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. AUDITOR A resolution to reappoint RSM UK Audit LLP as auditor will be put to the members at the annual general meeting. RSM UK Audit LLP has indicated its willingness to continue in office. STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR 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 auditor is unaware. Each of the directors has 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 Daryn Robinson Chairman 23 April 2018 5 TANFIELD GROUP PLC FINANCIAL STATEMENTS 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 complied substantially the throughout corporate governance guidelines for smaller quoted companies issued by the Quoted Company Alliance and details are provided below. the period with 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 At the start of the year the Board comprised of Jon Pither, Chairman, Daryn Robinson and Martin Groak, independent Non Executive Directors. Following Jon Pither's resignation on 31 May 2017, the Board comprised of Daryn Robinson, Chairman and Martin Groak, Independent Non-Executive Director. Board Role The Board is responsible to shareholders for the proper management of the Company. The Non-Executive Directors have a particular responsibility to ensure that the strategy is 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 Company. The Board has a formal schedule of matters reserved to it. The Board met on six separate occasions in the year. 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 Company’s business activities. Board Committees The Board delegates certain matters to its two principal committees, which deal with remuneration and audit. Remuneration Committee During the year the Remuneration Committee comprised of Jon Pither (resigned 31 May 2017 and Martin Groak appointed) and Daryn Robinson. The Remuneration Committee determined and agreed with the Board the framework of remuneration for 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 7 to 8. Audit Committee During the year the Audit Committee comprised of Martin Groak and Jon Pither (resigned 31 May 2017 and Daryn Robinson appointed). The Audit Committee is responsible for:    Reviewing the scope of external audit, to receive reports from RSM UK Audit LLP. Reviewing the half-yearly and annual accounts prior to their recommendation to the Board. Reviewing the Company’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 effectiveness of the external auditor. independence, objectivity the and   The committee met on two occasions during the year and they were fully attended. Internal Control The Board has overall responsibility for the Company’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 is of the view that due to the current size and composition of the Company, 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 the Annual General Meeting will be issued in due course. Going Concern The directors confirm that they are satisfied that the Company has 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. Daryn Robinson Chairman 23 April 2018 6 TANFIELD GROUP PLC FINANCIAL STATEMENTS 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 during the year were J Pither (resigned 31 May 2017 and M Groak appointed) and D Robinson and the committee was chaired by J Pither (D Robinson from 31 May 2017). Remuneration policy There were four main elements of the remuneration packages for directors:  Basic annual salary (including directors’ fees) and benefits; Annual bonus payments; Share option incentives; and Pension arrangements.    Basic salary The basic salary of the directors is reviewed annually 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. Annual bonus The committee established the objectives which must be met for each financial year if a cash bonus was to be paid. The purpose of the bonus was to reward directors for achieving above average performance which also benefits shareholders. Share options The directors have options granted to them under the terms of the Share Option Scheme. There are no performance conditions attached to the share options. Share options were awarded as set out in the table on page 8. Pension arrangements Some directors were members of a money purchase pension scheme to which the company contributed. Directors interests The interests of directors holding office at the year end in the company’s ordinary 5p shares at 31 December 2017 and 1 January 2017 are shown below: M Groak J Pither (resigned 31 May 2017) D Robinson Total Number of shares 2017 - - 942,785 942,785 2016 - 1,542,553 942,785 2,485,338 The directors, as a group, beneficially own 0.6% of the company’s shares. 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. 7 TANFIELD GROUP PLC FINANCIAL STATEMENTS DIRECTORS’ REMUNERATION REPORT (continued) Remuneration review Directors emoluments for the financial year were as follows: M Groak J Pithera D Robinson Total a J Pither resigned on 31 May 2017 Salary 2017 £000's 25 14 42 81 Pension 2017 £000's - - 2 2 Total 2017 £000's 25 14 44 83 Salary 2016 £000's 20 24 41 85 Pension 2016 £000's - - - - Total 2016 £000's 20 24 41 85 Directors share options held at 31 December 2017 were as follows: M Groak b M Groak J Pither D Robinson Total 31 December 2016 200,000 100,000 100,000 100,000 500,000 Granted/ (Lapsed) (200,000) - - - (200,000) Exercised - - - - - 31 December 2017 - 100,000 100,000 100,000 300,000 Option price per sharea 5p 27p 27p 27p Date from which normally exercisable 02/01/2010 02/02/2015 02/02/2015 02/02/2015 Expiry Date 02/01/2017 02/02/2020 02/02/2020 02/02/2020 a On 31 December 2017 the market price of the ordinary shares was 13.25p. The range during 2017 was 11.88p to 16.38p b On 2 January 2017 the option lapsed Approval This report was approved by the board of directors and authorised for issue on 23 April 2018 and signed on its behalf by: Daryn Robinson Chairman 8 TANFIELD GROUP PLC FINANCIAL STATEMENTS STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in accordance with applicable law and regulations. law requires the directors to prepare financial Company statements for each financial year. Under that law the directors have elected to prepare the financial statements of the company International Financial Reporting Standards ("IFRS") as adopted by the European Union (“EU”). in accordance with The financial statements are required by law and IFRS as adopted by the EU to present fairly the financial position and performance of the company. The Companies Act 2006 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. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the financial statements, the directors are required to: a. b. c. d. select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRS as adopted by the EU; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the statements Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. comply with financial the The directors are responsible for the maintenance and integrity of the corporate and financial information included on 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. 9 TANFIELD GROUP PLC FINANCIAL STATEMENTS REPORT OF THE INDEPENDENT AUDITOR Independent auditor's report to the members of Tanfield Group Plc Opinion We have audited the financial statements of Tanfield Group PLC (the ‘company’) for the year ended 31 December 2017 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity and the Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion, the financial statements:    give a true and fair view of the state of the company’s affairs as at 31 December 2017 and of its loss for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared requirements of the Companies Act 2006. in accordance with the Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:   the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of in the audit and directing the efforts of the resources engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Carrying value of non current investments Included in the Statement of Financial Position are non current investments with a carrying value of £36.3m. This represents holdings of 5% and 49% respectively in Smith Electric Vehicles US Corp and Snorkel International Holdings LLC. Note 6 and the Critical Accounting Estimates and Key Judgements of the financial statements describe the judgements made by the Board with regards to the need for an impairment to be booked in respect of each of these investments and, in particular, the uncertainty concerning the carrying value of the company’s £36.3m investment in Snorkel International Holdings LLC. The investment in Smith Electric Vehicles US Corp has already been fully impaired. The investment in Snorkel represents the sole significant asset held within the Statement of Financial Position of the company and accordingly any uncertainty as to the likely realisation of this investment for either more or less than its carrying value could have a material impact on the financial statements. The Board has only limited financial information upon which to calculate its estimate of the realisation value and our audit work has information, the considered the nature of that financial assumptions used by management to calculate the estimated realisation value and such other audit evidence as was available to consider the reasonableness of these assumptions and calculations. The Critical Accounting Estimates and Key Judgements on pages 18 and 19 set out the basis whereby the Directors have considered the fair value of the investment, based on its possible recoverable amount, and the assumptions made therein. The timing of when the company will be able to realise its interest in Snorkel and the sum to be realised are both dependent on the underlying trading performance of Snorkel over the period to a realisation of value beyond September 2018 and on the applicable rate of exchange at the time that the US$ proceeds are converted into GBP. The Board have undertaken a series of sensitivities based on the trading information for Snorkel and have set out on pages 18 and 19 a range of potential recoverable amounts between £22m and £40m. The actual outcome will be dependent on both the future trading performance of Snorkel and the exchange rate at the date of realisation. Having undertaken these sensitivities, because of the significant uncertainties over the amount and timing of it remains realisation, appropriate to include the investment at the existing fair value of £36.3m. In carrying out our audit work described above we have considered the range of outcomes and the sensitivities applied by the directors, the conclusion the directors have reached about the reliability of any alternative valuation and the disclosures on pages 18 and 19 and in Note 6. the Board have concluded that Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures and to evaluate the effects of misstatements, both individually and on the financial statements 10 TANFIELD GROUP PLC FINANCIAL STATEMENTS REPORT OF THE INDEPENDENT AUDITOR (CONTINUED) as a whole. During planning we determined a magnitude of uncorrected misstatements that we judge would be material for the financial statements as a whole (FSM). During planning FSM was calculated as £248,000, which was not changed during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted differences in excess of £1,000, as well as differences below those thresholds that, in our view, warranted reporting on qualitative grounds. An overview of the scope of our audit Our audit scope covered 100% of revenue, profit and total assets and liabilities. It was performed to the materiality levels set out above. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. the other information In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. required Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit:  the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.  Matters on which we are required to report by exception In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:   adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or  certain disclosures of directors’ specified by law are not made; or remuneration  we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 9, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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. Andrew Allchin FCA (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 1 St James’ Gate Newcastle upon Tyne NE1 4AD 23 April 2018 11 TANFIELD GROUP PLC FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 Revenue Staff costs Other operating income Other operating expenses Loss from operations Finance expense Finance income Net finance expense Loss from operations before tax Taxation Loss & total comprehensive income for the year attributable to equity shareholders Notes 2017 £000's 2016 £000's 1 3 2 2 4 - (83) 84 (149) (148) - - - (148) - (148) - (85) 30 (182) (237) (13) 1 (12) (249) - (249) Earnings per share Loss per share from operations Basic and diluted (p) 5 (0.1) (0.2) 12 TANFIELD GROUP PLC FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION (Company registration number 04061965) AS AT 31 DECEMBER 2017 Non current assets Non current Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Total liabilities Equity Share capital Share premium Share option reserve Special reserve Merger reserve Retained earnings Total equity attributable to equity shareholders Notes 6 8 7 9 10 10 2017 £000's 36,283 36,283 13 134 147 2016 £000's 36,283 36,283 61 269 330 36,430 36,613 56 56 56 7,816 17,190 331 66,837 1,534 (57,334) 36,374 91 91 91 7,816 17,190 459 66,837 1,534 (57,314) 36,522 Total equity and liabilities 36,430 36,613 The financial statements on pages 12 to 25 were approved by the board of directors and authorised for issue on 23 April 2018 and are signed on its behalf by: Daryn Robinson Chairman 13 TANFIELD GROUP PLC FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS FOR THE YEAR ENDED 31 DECEMBER 2017 At 1 January 2016 Comprehensive income Loss for the year Total comprehensive income for the year Transactions with owners in their capacity as owners:- Issuance of new shares (note 10) Share based payments (note 11) At 31 December 2016 Comprehensive income Loss for the year Total comprehensive income for the year Transactions with owners in their capacity as owners:- Share based payments (note 11) At 31 December 2017 Share capital Share premiuma £000's 7,546 £000's 16,800 Share option reserveb £000's 461 Merger reservec Special reserved Retained earningse Total £000's 1,534 £000's 66,837 £000's (57,067) £000's 36,111 - - - - 270 - 7,816 390 - 17,190 - - - - - - - (2) 459 - - - - - - (249) (249) (249) (249) - - 1,534 - - 66,837 - 2 (57,314) - - - - (148) (148) 660 - 36,522 (148) (148) - 7,816 - 17,190 (128) 331 - 1,534 - 66,837 128 (57,334) - 36,374 a The share premium account represents amounts subscribed for share capital in excess of nominal value, net of directly attributable share issue costs. b The share option reserve represents the cumulative share-based payment expense. c The merger reserve has arisen on the legal acquisition of subsidiary companies. d The special reserve relates to a previous reclassification of the share premium account. e The retained earnings represents the accumulated retained profits and losses less dividend payments. 14 TANFIELD GROUP PLC FINANCIAL STATEMENTS CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017 Loss before interest and taxation Operating cash flows before movements in working capital Decrease in receivables Decrease in payables Net cash used in operating activities Cash flow from financing activities Proceeds from issuance of ordinary shares net of costs Net cash generated by financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the start of year Cash and cash equivalents at the end of the year 2017 £000's (148) (148) 48 (35) (135) - - (135) 269 134 2016 £000's (237) (237) 25 (273) (485) 660 660 175 94 269 15 TANFIELD GROUP PLC FINANCIAL STATEMENTS ACCOUNTING POLICIES (i) Basis of preparation of statements the financial Tanfield Group Plc is a public company incorporated in England and quoted on AIM. These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”), IFRIC interpretations and the requirements of the Companies Act applicable to Companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, modified for the revaluation of certain financial assets and liabilities at fair value. The financial statements present the company accounts only and have not been consolidated as the changes to the accounts upon consolidation would be immaterial. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest thousand. the financial statements requires The preparation of management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial in “Critical accounting statements, are disclosed below estimates and key judgements”. (ii) Going concern The financial statements have been prepared on the going concern basis, which assumes that the Company will continue to be able to meet its liabilities as they fall due for the foreseeable future. At 31 December 2017 the Company had cash balances of £0.1m and is debt free. The Directors are confident that, following the successful placing of shares on 22 February 2018 raising £0.25m, the cash balances will allow the Company continue for a minimum of 12 months, or until it realises the value of its investments, and that the assumptions underlying their opinion are reasonable and that the Company can operate within its cash balances. Having taken the uncertainties into account the Board believes it is appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustment to the value of the statement of financial position assets or provisions for further liabilities, which would result should the going concern assumption not be valid. in than currencies other (iii) Foreign currencies Transactions the presentational currency of the company, are recorded at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the statement of financial position date. sterling, 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. (iv) Retirement benefit cost The company operates a defined contribution pension scheme and pays contributions to an externally administered pension plan. The company has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense in the period in which they fall due. (v) Share based payments The Company 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 Company’s estimate of shares that will eventually vest. (vi) Borrowing costs All borrowing costs are expensed in the income statement in the period in which they are incurred. (vii) Financial instruments Recognition of financial assets and financial liabilities Financial assets and financial liabilities are recognised on the Company’s statement of financial position when the Company has become a party to the contractual provisions of the instrument. Financial assets Investments Investments are included at either cost less amounts written off or fair value where applicable. Trade and other receivables Financial assets within trade and other receivables are initially recognised at fair value, which is usually the original invoiced amount and are subsequently carried at fair value less provisions made for impairment. Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Provisions for impairment are made specifically where there is evidence of a risk of non-payment, taking into account ageing, previous losses experienced and general economic conditions. 16 TANFIELD GROUP PLC FINANCIAL STATEMENTS ACCOUNTING POLICIES (continued) Cash and cash equivalents Cash and cash equivalents comprise cash on hand less short term bank overdrafts. liabilities and equity Financial liabilities and equity Financial 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 Company after deducting all of its liabilities. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds received. Trade and other payables Financial liabilities within trade and other payables are initially recorded at fair value, which is usually the original invoiced amount, and subsequently carried at historical cost. (viii) Segmental reporting IFRS 8 provides segmental information for the Company on the basis of information reported to the chief operating decision- maker for decision-making purposes. The Company considers that it only has one segment and that the role of chief operating decision-maker is performed by the Tanfield Group Plc's board of directors. (ix) Termination benefits (leaver costs) are payable when Termination benefits employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to the affected employees leaving the Company. (x) Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. (xi) Functional and presentational currencies The consolidated financial statements are presented in sterling which is also the functional currency of the company. 17 TANFIELD GROUP PLC FINANCIAL STATEMENTS CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS The preparation of financial statements in conformity with IFRS requires the use of accounting estimates and assumptions. It also requires management to exercise judgement in the process of applying the Company’s accounting policies. We continually evaluate our estimates, assumptions and judgements based on the most up to date information available. 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. Investments The status of the Company’s holding in Smith Electric Corp was reviewed. The Board previously advised that the company had ceased operations and did not feel that Smith had made sufficient progress towards achieving its plan of obtaining a public listing to maintain the previous valuation and had therefore decided to impair the investment in Smith to nil. Subsequently, a plan to joint-venture was beset by litigation (see Strategic Review above) and Smith has not been able to raise further funds, so the Board is maintaining its view that the investment currently has nil value. Nevertheless, the Board acknowledges that there is a chance the investment could result in a return to Shareholders and will continue to monitor the investment. Should progress be made in the future the valuation of the investment will be revisited. The status of the Company’s holding in Snorkel International Holdings was reviewed. The Board has concluded that, while Tanfield continues to own 49% of Snorkel, under the terms of the joint venture, they are unable to exercise significant influence over the activities and strategic direction of Snorkel and therefore holding the investment as a trade investment continues to be the correct treatment. Since the injection of working capital, following the joint venture in October 2013, Snorkel has continued to progress well with sales levels (unaudited) growing by 27% in 2017 (2016: 19% / 2015: 29%) resulting in sales of $165.8m in 2017 (2016: $130.5m / 2015: $109.9m / £2014: $85.3m). The 2017 operating profit (unaudited), excluding depreciation, was $1.6m (2016: $2.8m loss / 2015: $10.6m loss / 2014: $14.9m loss). The Board is not aware of any market factors and have not been made aware of any specific reason why sales growth and the trend of improved gross margins should not continue and therefore the board sees scope for further sales growth and increased operating profitability in 2018. Tanfield are, however, unsure if the dependency in the US upon Ahern Rentals as its principal customer may impact upon the possible outcome. Nevertheless, as the Board has not been made aware of an expected material reduction in sales from Ahern Rentals, the Board believes Snorkel could still achieve a reasonable level of sales growth, and therefore increase the level of sales and operating profitability, in 2018. Under the terms of the joint venture, the level of financial information available to the Board to assess the fair value of the investment in Snorkel is limited to quarterly historical financial information, incorporating a consolidated operating statement, balance sheet and cashflow. The current valuation of £36.3m was calculated in 2013 and assumed the $25m EBITDA trigger, compelling the payment of the $22.4m adjusted priority amount and the purchase of Tanfield's interest in Snorkel, would be reached within the pre defined period ending September 2018. At the end of 2017 there were 9 months left to run before the fixed term of the agreement after which Tanfield can no longer compel the purchase of the 49% interest in Snorkel. The Board continues to hold the view that Don Ahern, the owner of Xtreme, would wish to one day own 100% of Snorkel and will seek to exercise the call option to buy Tanfield's holding in Snorkel at some point in the future. The Board has reviewed the historic financial information, along with the global industrial and aerial work platform market conditions, and has concluded that the range of potential valuations, beyond the expiry date of September 2018, can be broad. However, based on the information available to the Board, it is felt the valuation of £36.3m should be maintained. in bill of material costs and This valuation has been assessed against various criteria, including past performance (including but not limited to a growth in sales, a improved operating reduction profitability), production capacity, market conditions, the capability of the business to increase output and exchange rate fluctuations. In coming to this opinion, the Board has considered the trends within the business and their consistency; in particular:  the rate of sales growth being more or less than that recently achieved by Snorkel. the level of operating profitability improvement being more or less than that recently achieved by Snorkel. The impact of exchange rate movements given that any proceeds will be received in USD, considering current, historic and average exchange rates.   Between January 2017 to March 2018, the range of the GBP to USD exchange rate has been vast with a low of 1.205 and a high of 1.427, the average being 1.309. If £36.3m is assumed to represent the average exchange rate then based on the low of 1.205 the valuation increases by approximately 8% to £39.4m and based on the high of 1.427 the valuation reduces by approximately 9% to £33.3m giving a potential movement of 17% in the valuation. There is an added element of uncertainty in the foreign currency markets due to the Brexit process which may result in the GBP to USD exchange rate improving or worsening as the process progresses. Whilst the Board is not in a position to mitigate against any potential exchange rate variation, until such time as the realisation of the Snorkel investment is known, it will continue to consider such means as may be possible to maximise the GBP return to shareholders. 18 TANFIELD GROUP PLC FINANCIAL STATEMENTS CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGEMENTS (continued) If the assumption is made that both the progress within Snorkel and the wider global market conditions will continue to improve, then the current £36.3m valuation could still be a fair reflection of the investment value beyond the 5 year period. As the Board is of the view that the EBITDA target will not be met, it has considered scenarios that resulted in assumed realisation values, beyond September 2018, ranging from $29m to $52m (or £22m to £40m based on the average exchange rate); with the caveat that a number of factors could influence the valuation and performance of Snorkel between now and a potential realisation date, including Xtreme’s negotiating stance and the exchange rate at the time of any realisation. Given the range of possible realisation values, which includes the potential for sums below the investment value of £36.3m, the Board has considered whether an impairment loss should be recognised but, due to the inherent uncertainties it is unable to determine whether it is likely that an impairment exists and, if it does, the quantum of this. Should economic conditions materially change during the remainder of 2018, this may have an impact on the expected outcome, but the Tanfield Board is currently of the opinion that the investment in Snorkel will result in a return to shareholders in the future, although it should be noted that this is not expected to materialise until after 30 September 2018, when the outcome then becomes uncertain and could be less than the current fair value of the investment. Accounting standards, amendments to published accounts interpretations and The Company considered the implications, if any, of the following amendments to IFRSs during the year ended 31 December 2017. New and amended standards and interpretations effective from 1 January 2018 not yet adopted by the Company At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS9 Financial instruments The IASB issued IFRS9 to include a logical model for classification loss and measurement, a single forward impairment model, and a substantially reformed approach to hedge accounting. Endorsed by the EU and effective from 1 January 2018. looking expected IFRS15 Revenue from contracts with customers Dealing with the recognition of revenues from contracts and customers. Endorsed by the EU and effective from 1 January 2018. IFRS16 Leases Introduces a single lessee accounting model, and eliminates the previous distinction between an operating lease and a finance lease. Endorsed by the EU and effective from 1 January 2019. Given the operational status of the company, the Directors do not think these new standards will have a material impact on the financial statements. and amended New and interpretations effective from 1 January 2017 adopted by the Company standards During the year ended 31 December 2017, the Company has not adopted any new IFRS, IAS or amendments issued by the IASB, and interpretations by the IFRS Interpretations Committee, which have had a material impact on the Company’s financial statements. 19 TANFIELD GROUP PLC FINANCIAL STATEMENTS NOTES TO THE ACCOUNTS 1. Staff costs Aggregate remuneration comprised Wages and salaries Other pension costs Total staff costs Average monthly number of employees Directors Total 2017 £000's 81 2 83 2017 No. 2 2 2016 £000's 85 - 85 2016 No. 3 3 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 7 to 8. 2. Finance expense and finance income Finance expense Interest on director loans Total finance expense Finance income Interest on cash, cash equivalents & financial instruments Total finance income 3. Other operating expenses Property related expenses Auditor's remuneration (see below) Other operating expenses Total operating expenses 2017 £000's - - 2017 £000's - - 2017 £000's 43 26 80 149 2016 £000's 13 13 2016 £000's 1 1 2016 £000's 43 24 115 182 Auditor's remuneration Amounts payable to RSM UK Audit LLP and their associates in respect of both audit and non audit services are as follows: Audit Services  statutory audit of accounts Other services relating to taxation  compliance services Comprising  Audit services  Non audit services 2017 £000's 2016 £000's 24 2 26 24 2 22 2 24 22 2 20 TANFIELD GROUP PLC FINANCIAL STATEMENTS 4. Taxation Analysis of and factors affecting taxation charge The taxation charge on the loss for the year differs from the amount computed by applying the corporation tax rate to the loss before taxation as a result of the following factors: Loss before taxation Notional taxation charge at UK rate of 19.25% (2016: 20%) Effects of: Deferred tax asset not recognised in the period Total taxation charge in the income statement 2017 £000's (148) (28) 28 - 2016 £000's (249) (50) 50 - The Company has tax losses of approximately £3.1m (2016: £3.0m) available to carry forward against future profits of the same trade. No deferred tax asset has been recognised due to the uncertainty of future profitability of the Company. 5. Loss per share Basic loss per share is calculated by dividing the loss attributable to equity shareholders by the weighted average number of shares in issue during the period. In calculating the dilution per share, share options outstanding and other potential ordinary shares have been taken into account where the impact of these is dilutive. As the potential dilutive ordinary shares from share options reduce the loss per share these shares are omitted from the dilutive loss per share calculation. The average share price during the year was 14.10p (2016: 12.88p). Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares from share options Weighted average number of ordinary shares for the purposes of diluted earnings per share Loss From operations Loss for the purposes of basic earnings per share being net profit attributable to owners of the parent Potential dilutive ordinary shares from share options Loss for the purposes of diluted earnings per share Loss per share from operations Basic and diluted (p) 6. Non current investments A summary of the Non current investments is shown below: Investment in Smith Electric Vehicles US Corp Investment in Snorkel International Holdings LLC Total non current investments 2017 No. 000’s 156,324 - 156,324 2017 £000's (148) - (148) 2016 No. 000’s 153,677 122 153,799 2016 £000's (249) - (249) (0.1) (0.2) 2017 £000’s - 36,283 36,283 2016 £000’s - 36,283 36,283 Smith Electric Vehicles US Corp At 31 December 2017, the Company held a 5.76% (2016: 5.76%) share of the issued share capital of Smith Electric Vehicles US Corp, a company registered in the US. In 2015 the Board decided to impair the investment in Smith to nil and they continue to maintain this position. However, the Board will continue to monitor the investment. Snorkel International Holdings LLC At 31 December 2017, the Company held a 49% (2016: 49%) share of the issued share capital of Snorkel International Holdings LLC, a company registered in the US. This shareholding is being held as a non current investment at fair value (2017: £36,283k, 2016: £36,283k). See Strategic Report for impairment considerations. 21 TANFIELD GROUP PLC FINANCIAL STATEMENTS 7. Cash and cash equivalents Cash and cash equivalents comprise cash and short-term deposits held by the Company. The carrying amount of these assets approximates their fair value. The Company primarily holds Sterling. Currency denominated balances are translated to sterling at the statement of financial position date. Cash and cash equivalents 8. Trade and other receivables Receivable within one year Other debtors and prepayments 2017 £000's 134 2017 £000's 13 13 2016 £000's 269 2016 £000's 61 61 The directors consider that the carrying amounts of trade and other receivables approximates to their fair value. 9. Trade and other payables The directors consider that the carrying amounts of trade and other payables approximates to their fair value. Payable within one year Trade payables Social security and other taxes Accrued expenses Average credit period taken on trade purchases (days)a a Creditor days have been calculated as trade payables over other operating expenses multiplied by 365 days. 2017 £000's 2016 £000's 23 1 32 56 65 23 37 31 91 48 10. Share capital and share premium The Company has one class of ordinary shares which carry no right to fixed income. All shares are fully paid up. At 1 January 2016 Share options exercised New share issue 22 March 2016a New share issue 10 October 2016b At 31 December 2016 At 31 December 2017 a Nominal share value 5p 5p 5p 5p 5p Number of shares 150,924,073 30,000 2,758,620 2,610,824 156,323,517 Share capital £000’s 7,546 1 138 131 7,816 Share premium £000’s 16,800 - 254 136 17,190 5p 156,323,517 7,816 17,190 On 16 March 2016 the Company announced that it had conditionally raised gross proceeds of £400k. These funds were raised by way of a placing of 2,758,620 new Ordinary Shares of 5 pence ("Shares") with institutional investors at a price of 14.5 pence per Share which were issued onto the AIM market on 22 March 2016. Costs of £8k attributable to the share issue have been charged against the Share Premium account. b On 5 October 2016 the Company announced that Directors and former Directors of the Company were converting £267k of convertible loan and accrued interest in to equity which resulted in 2,610,814 new Ordinary Shares of 5 pence ("Shares") being issued. Under the terms of the convertible loan agreements, the shares were issued at a price of 10.25 pence per Share and were admitted onto the AIM market on 10 October 2016. 22 TANFIELD GROUP PLC FINANCIAL STATEMENTS 11. Share based payments IFRS2 requires share based payments to be recognised at fair value. The company measures the fair value of its share based payments to employees, “share options”, using the Black-Scholes valuation method at the date of grant and recognised in profit or loss over the vesting period. All share based payments are equity settled and details of the share option activity during 2017 and 2016 are shown below. Outstanding at the beginning of the year Granted/(Lapsed) Exercised Outstanding at the end of the year Exercisable Number of share options 4,300,000 (200,000) - 4,100,000 4,100,000 2017 Weighted average exercise price (pence) 26 5 - 27 27 Number of share options 4,330,000 - (30,000) 4,300,000 4,300,000 2016 Weighted average exercise price (pence) 24 - (5) 26 26 The outstanding options at 31 December 2017 had a weighted average remaining contractual life of 4.0 years (2016: 3.8 years) The following table relates to share options outstanding and exercisable at 31 December 2017 Exercise price (pence) No of share options No of exercisable options Option exercise prices 27p 4,100,000 4,100,000 Total 4,100,000 4,100,000 Income statement charge In accordance with IFRS2 the company determined the fair value of its options at ‘grant date’. The company accrues this fair value charge over the share option vesting period. Share options that are forfeited during the year are credited directly to the share option reserve account. A charge to the income statement of £nil (2016: £nil), a credit directly to equity of £nil (2016: £2k) and a reserves transfer of £128k (2016: £nil) due to the lapse of share options have been made during the year in accordance with IFRS2 ‘Share-based payments’. The company uses the Black-Scholes model to value its share options. 12. Financial risk management The Company’s operations are exposed to various financial risks which are managed by various policies and procedures. The main risk and their related management are discussed below: Credit risk management The Company’s exposure to credit risk arises from its trade and other receivables and cash deposits with financial institutions. The Company’s maximum exposure to credit risk is summarised below: Trade and other receivables Cash and cash equivalents 2017 £000's 4 134 138 2016 £000's 61 269 330 2015 £000's 192 61 269 Liquidity risk management The Company is exposed to liquidity risk arising from having insufficient funds to meet the Company’s future financing needs. The Company’s liquidity management process includes projecting cash flows and considering the level of liquid assets available to meet future cash requirements along with monitoring statement of financial position liquidity. The Board reviews forecasts, including cash flow forecasts on a quarterly basis. 23 TANFIELD GROUP PLC FINANCIAL STATEMENTS 12. Financial risk management (continued) Maturity analysis The table below analyses the Company’s financial liabilities on a contractual gross undiscounted cash flow basis into maturity groupings based on amounts outstanding at the statement of financial position date up to the contractual maturity date. 2017 Trade and other payables 2016 Trade and other payables Within 1 year £000's 1 to 5 years £000's Over 5 years £000's Total £000's 56 56 91 91 - - - - - - - - 56 56 91 91 Foreign exchange risk management The Company is exposed to movements in foreign exchange rates due to the net assets of its foreign investments being denominated in foreign currencies. During 2017, the GBP to USD exchange rate averaged 1.2886 with a low of 1.2053 and a high of 1.3595. If appropriate the Company can use currency derivative financial instruments such as foreign exchange contracts to reduce exposure. These were not used in the period. Capital management The Company’s main objective when managing capital is to protect returns to shareholders. The Company also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital. The Company manages its capital with regard to risks inherent in the business and the sector in which it operates by monitoring its gearing ratio on a regular basis. The Company considers its capital to include share capital, share premium, special reserve, share option reserve and retained earnings. No gearing is currently calculated as the Company currently has no borrowings. 13. Contingencies Authorised Guarantee Agreement At the time of the joint venture between Tanfield Group Plc and Xtreme Manufacturing LLC relating to Snorkel in October 2013, Tanfield Group Plc was the tenant of the Vigo Centre manufacturing facility from which Snorkel carried out its UK manufacturing operations. In order to gain permission to assign the lease to Snorkel Europe Limited, Tanfield Group Plc entered into an authorised guarantee agreement on the 25 year lease which commenced 27 June 2006. 14. Related party transactions Remuneration of key 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 7 to 8. Salaries and short term benefits including NI Post employment benefits 2017 £000’s 81 2 2016 £000’s 85 - 83 85 15. Retirement benefits The Company operates a defined contribution retirement benefit plan for all qualifying employees. The total cost charged to income of £2k (2016: £nil) represents contributions payable to that scheme by the Company at rates specified in the rules of the scheme. As at 31 December 2017, contributions of £nil (2016: £nil) due in respect of the current reporting period had not been paid over to the scheme. 24 TANFIELD GROUP PLC FINANCIAL STATEMENTS 16. Financial instruments recognised in the statement of financial position Assets Current financial assets Trade and other receivables Investments Cash and cash equivalents Total Liabilities Current liabilities Trade and other payables Total 2017 Assets Available for Salea £000’s - 36,283 - 36,283 Held for tradinga Total £000’s 4 36,283 134 36,421 Total £000’s £000’s - - 55 55 Loans and receivables £000’s 4 - 134 138 Other financial liabilities £000’s 55 55 2016 Assets Available for Salea £000’s - 36,283 - 36,283 Held for tradinga Total £000’s 61 36,283 269 36,613 Total £000’s £000’s - - 54 54 Loans and receivables £000’s 61 - 269 330 Other financial liabilities £000’s 54 54 a Assets and liabilities at fair value through profit and loss. 17. Investments The tables below give brief details of the Company’s investments at 31 December 2017. The Company had no operating subsidiaries as of 31 December 2017. Investments Smith Electric Vehicles US Corp HBWP Inc Snorkel International Holdings LLC Tanfield Engineering Systems US (Inc) a Snorkel Europe Ltd a Snorkel International Inc a Snorkel Australia Limited a Snorkel New Zealand Limited a The Company’s interest is held indirectly through HBWP Inc, a wholly owned subsidiary, and its investment in Snorkel International Holdings LLC Principal activity Electric vehicle manufacture Holding Company Holding Company Powered Access Powered Access Powered Access Powered Access Powered Access Group Interest in allotted capital & voting rights 5.76% 100.00% 49.00% 49.00% 49.00% 49.00% 49.00% 49.00% a Country of incorporation US US US US UK US AUS NZ 18. Post balance sheet events The Company raised a total of £0.25m through the placing of 2,083,333 ordinary shares at a price of 12 pence per share. The shares were admitted to trading on AIM, a market operated by the London Stock Exchange plc, on 22 February 2018. 25 

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