Tanfield Realigns Growth Strategy
July 1, 2008 • Although trading for the first five months of 2008 was strong and in line with management's expectations, the Tanfield Group PLC, parent company of Snorkel and UpRight, announced it has adopted a more conservative approach to company growth in 2008. The change in outlook and postponement of aggressive expansion plans are due to a lower level of growth than previously forecasted.
For the first half of 2008, turnover was $181.5 million (£91 million), a 36 percent increase on the pro-forma numbers for the first half 2007 and a 147 percent increase on the reported first half of 2007 turnover. However, Tanfield notes that the dynamics have changed in its main markets, particularly the Powered Access Division, which accounts for 75 to 80 percent of projected revenues.
According to Tanfield, its distributors and end-user customers are experiencing a fall off in demand in their markets, reduction in access to credit, instigation of capital freezes, and postponement of replacement plans. “Throughout June, we have experienced a deterioration of customer payment profiles,” the company said in a press release. “For example, more than 200 machines were ready for delivery at period end and were not delivered as certain customers were on credit hold. This has had a significant effect on both turnover and cash receipts.”
In June, the Tanfield Group said it experienced U.S. and European customers rescheduling orders, pushing some into 2009, and a cancellation of an order valued at $3 million. Additionally, a number of major rental companies are now reporting they are reducing capital spending between 30 and 50 percent, which also has resulted in cancelled orders. “In our view, this will result in substantially higher levels of finished goods stock within the industry,” Tanfield reported. “The board believes this will lead to significant price competition in the second half, which will, in turn, affect our ability to maintain margins going forward.”
Tanfield's revised strategy now focuses on delivering cash conversion of profit and growing at a more moderate rate, which will allow the company to implement plans to address the anticipated radical changes in the global markets as they happen. The company does not expect to meet the market's expectations for the year and has immediately implemented changes to protect the core businesses, including accelerated work in progress and raw material inventory reduction, reduced expansion activity, and headcount reductions.
For example, while the company's supply chain from China has delivered cost savings and enabled growth, it is relatively inflexible with lead times, which means that the changes experienced have taken time to feed through. “In certain components for models for which we have recently seen a major reduction in demand • e.g. electric scissors • we have significant levels of inventory that will take time to erode,” the Tanfield Group said.
The change in growth strategy will reverse previous working capital absorption, according to Tanfield, and its board of directors is confident that the cash created by this process is sufficient to allow the business to weather any extended deterioration in market conditions. However, the net cash position of £11.1m at the half year was less than expected, resulting from customer payment delays, increased inventory levels, and late delivery arising from supply chain constraints.
As of June 30, 2008, the Tanfield Group has no debt. Company directors believe that the effect of taking a more prudent approach to the rate of growth, coupled with the measures that have been taken to drive additional cash from debtors and inventories, will result in the company becoming cash generative in the fourth quarter. Current plans for the group are expected to be met from existing cash and bank facilities.
