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Operational Review"We continue to strengthen and grow our relationship with Ford, which we believe provides Tanfield with a considerable competitive advantage over our peers."
Zero Emission Vehicles Division The agreement includes dual-badging certain vehicles as Ford and Smith products and marketing support. Ford will continue to supply considerable engineering resource for the design and development of future commercial electric vehicles. This resource is focused on the chassis and does not involve Tanfield sharing its knowledge, expertise or intellectual property concerning the electric drive train. We continue to strengthen and grow our relationship with Ford, which we believe provides Tanfield with a considerable competitive advantage over our peers.
Joint Venture to Produce Pure Under the agreement, LTI and Tanfield will produce an all-electric version of LTI’s TX4 black cab, branded the TX4E. Preliminary specifications for the vehicle are a top speed of 50mph and a range in excess of 100 miles on one battery charge. The TX4E will contain all the conventional features of the TX4, but will be powered by Tanfield’s advanced electric drive train and Iron Phosphate lithium-ion battery pack. It will be manufactured in the UK for the domestic urban taxi market and sold through LTI’s distribution network. Based on current electricity prices, the vehicle will cost less than 4p per mile to run, therefore providing significant whole life cost savings over an equivalent diesel vehicle. We believe that this partnership will create a unique and highly marketable zero emissions vehicle and see the TX4E as an exciting growth opportunity that gives us first mover status in what is potentially a very large global marketplace.
Sales and Order Book We closed 2007 with an order book of 387 units and at the end of March 2008, the confirmed order book for the remainder of 2008 stood at 523 units. This is a combination of initial orders, plus a myriad of fleet orders from clients moving from the low volume trial stage to smaller fleet purchases. We expect this process will lead to further significant volume fleet orders in 2008. In the first three months of 2008, we built and shipped 146 vehicles to over 50 new customers in the private sector, along with a considerable number of public sector organisations.
Other Developments This 150,000sq ft (14,000sq m) factory, also in the North East of England, will provide maximum capacity for 3,000 vehicles per annum – or 58 vehicles per week, ensuring the electric vehicle business has the space to grow over the medium term. Plans are at an advanced stage to transfer the entire Zero Emissions Vehicles Division, including the Sales, Product Support, Technical, and Production teams to the new facility. We anticipate that the first vehicles will begin to roll off the new lines of this facility early in the second half of 2008. The strategy we outlined at the beginning of 2007 was to sell seed vehicles to major fleet operators in our core market of UK urban delivery, while establishing the methodology for volume production. Against these targets, Smith Electric Vehicles delivered an excellent performance throughout 2007. Our vehicles continue to demonstrate cost savings and environmental benefits to major fleet operators. We significantly increased our addressable market with the launch of several new products, on 15 April 2008, at the Commercial Vehicle Show (CV Show) in Birmingham, UK. Ampere is based on the Ford Transit Connect chassis cab and has a GVW of 2,340kg, with payload capacity of up to 800kg. This smaller, lighter vehicle sector is the largest volume market within commercial vehicles. We will begin full production of Ampere in the second half of 2008. Ampere is dual badged as both a Ford and a Smith Electric Vehicles product and Ford launched Ampere on its stand at the CV Show concurrently with Smith. Ford provided significant engineering support with regard to the Connect chassis throughout the vehicle design and development process. Ampere is powered by a drive train developed in-house and Tanfield retains all the intellectual property on this drive line. Ford has already announced that the Ford Transit Connect will be sold in North America and has unveiled a taxi cab variant intended for the USA. We will launch our Ampere vehicle in North America concurrently with Ford’s launch of the Connect, next year. The CV Show also marked the launch of our new Edison series, powered by an Iron Phosphate lithium-ion battery pack. This advanced technology allows us for the first time to produce van-sized vehicles with the same carrying space as the equivalent diesel vehicles. The previous battery technology could not be packaged as intricately and ate slightly into Edison’s load area. Joining the panel van and chassis cab variants of Edison is a new, pure electric minibus. The minibus is in the final stages of pre-production and customer deliveries will commence later this year. All Edison models are based on the Ford Transit chassis and, going forward, will also be dual badged as Ford and Smith products. A small but significant number of fleet operators in the UK require heavy vans with a GVW in excess of 3,500kg, for extra payload capabilities. To accommodate this sector of the market, Tanfield has specifically developed a larger version of Edison, utilising the new 4,600kg larger Ford Transit chassis cab. In North America, Ford has agreed to supply Tanfield with a range of its F-Series commercial vehicles as the chassis cabs for our US-specific commercial vehicles. This will include the F350, F450, F550 and F650 vans and trucks, providing us with vehicles that will be recognisable to and readily accepted by American customers. The requisite design engineering work to bring these vehicles to market is underway and we displayed a pre-production, all-electric F650 truck at the CV Show. We are working through the necessary legislative requirements for vehicle type approval in North America, with support from Ford, and expect to commence US manufacture in the second half of 2008. Following the development of our relationship with Ford in the USA, we have re-examined our options for the manufacture of vehicles in North America. As a result, the Board has identified several potential sites in North America for the production of commercial electric vehicles and we will provide further detail in due course. Edison and Newton are both attracting buyers outside of their core market of urban delivery vehicles. We have now delivered product to diverse sectors including vehicle rental, tool hire, utilities, airports, telecommunications, construction and highways. In short, our electric vehicles are demonstrating cost savings, improved driver satisfaction and environmental benefits for customers in a widening range of applications for commercial vehicles within a closed urban environment. We have achieved our first sales into mainland Europe, to customers now including TNT in the Netherlands and Carlsberg in Switzerland. Europe represents a significant opportunity for Tanfield’s electric vehicles and the Group is embarking on a strategy of appointing distributors for Smith Electric Vehicles in key European territories.
Powered Access Division We have enjoyed a strong start to the year and sales for the first three months of 2008 reached £43m. At the end of March 2008, the confirmed order book for the calendar year 2008 stood at £101m. This reflects our increased penetration of all key target markets, including North America, Europe, Scandinavia, Russia and the Baltics, the Middle East and the Asia-Pacific region. Total global production capacity currently stands at 320 units per week, compared to 270 units per week at the close of 2007 and 45 units per week at the end of 2006. At Vigo Centre, we have maintained production capacity at 200 units per week, despite introducing larger products with a higher unit price into the build mix. The relocation of the Zero Emission Vehicles division will allow for the crane lines to increase in length and will provide room for up to two more similar lines. This space will be required for the larger, more expensive machines we wish to build in Vigo. The acquisition of Snorkel Holdings LLC in August 2007 significantly enhanced our Powered Access product offering, improved our market presence in North America and increased our production capabilities. Snorkel is enjoying its strongest start to the year for a decade, with sales of £21m in the first three months of 2008. Through our cross-selling into the UpRight distributor network, Snorkel is exporting more machines than ever before. Similarly, Tanfield is significantly increasing Snorkel’s domestic sales, in particular to Tier One equipment rental companies. Examples of this growth include one of America’s largest equipment rental companies outlining an initial fleet requirement in excess of US$50m. Tanfield has achieved preferred vendor status with this customer and we are examining further opportunities to grow sales and develop the relationship. Another major rental company and long-standing Snorkel customer placed a US$10m order for Snorkel products at the ConExpo construction equipment exposition in Las Vegas in March 2008. The strong start to 2008 by Snorkel, allied to our successful strategy of pushing the Snorkel big booms through the UpRight distribution channels outside of America, has significantly increased demand on Snorkel’s production facilities in Kansas, USA. Although we have initiated a plan to ramp up production in Kansas by 60%, we have already sold the first six months of output in 2008. We are increasing the assembly footprint in Kansas by 100,000sq ft, or 25 per cent. Through the introduction of lean manufacturing techniques and smarter working practices, we also expect to significantly improve efficiencies from the existing floor space. Prior to the UpRight acquisition, Tanfield produced the steel fabrications for its aerial work platforms in-house. UpRight brought with it a fabrications supply chain from low cost countries including China and we further expanded, developed and refined this supplier base during 2007. Initial payment terms had a detrimental effect on working capital, but we successfully negotiated much more favourable terms as volumes grew. We are switching Snorkel to this low cost supply chain and expect the process to be complete by end of 2008. During 2007, we increased the UpRight distributor network to 180 members and have raised this to over 200 dealers during the first three months of 2008. We increased the UpRight product portfolio from 10 machines to over 30, by re-introducing models discontinued under the previous owners and by adding Snorkel products to the range. I am pleased to announce that Tanfield has signed an OEM agreement with construction equipment and aerial work platform manufacturer Manitou. Under the agreement, Tanfield will manufacture certain key products from its range for Manitou’s Maniaccess range of aerial work platforms, to be sold via Manitou’s extensive global network of over 500 distributors. We have further augmented the UpRight distributor network in the first quarter of 2008, by appointing strong dealers in key territories including Southern Africa, the Iberian Peninsula and the Middle East.
Market Outlook A growing number of cities are imposing fiscal penalties on commercial vehicles which enter their most densely populated urban centres, in a bid to reduce congestion and improve air quality. The continued exemption of electric vehicles from these congestion charges and road tolls adds to the inherent cost savings that our products already provide to customers. The Board continues to expect that the economic, environmental and operator benefits of deploying electric vehicles over conventional vehicles in urban areas will increase the number of fleet managers who engage with us. The widespread success of field trials with logistics and delivery companies during 2007 will continue to drive volume sales in 2008 and beyond. Our early penetration of other sectors deploying urban fleets bodes well for the development of new markets, while buoyant sales of commercial vehicles in the UK and Europe demonstrate that both the overall market and our addressable market are growing. The appetite for electric vehicles in the USA is extremely strong and we expect this market to develop at a much faster rate than in Europe. Also, our early experiences with US customers indicate that in many cases, the percentage of vehicles within a fleet which fall within the operating capabilities of our EVs is higher than in the equivalent sector in Europe. The launch of the world’s first higher function electric minibus and the world’s first high performance electric light van further consolidate our position as the market leader in zero emission commercial vehicles. No other manufacturer in the world can offer anywhere near the breadth and depth of Tanfield’s road-going electric vehicle portfolio. The cementing of our partnership with Ford, one of the most respected names in the automotive industry, underlines our global leader status, allows for faster and more efficient new product development and provides access to new, untapped markets. We expect this relationship will create many more exciting opportunities for both companies to exploit as we develop together. 2. Powered Access Division Snorkel’s position in this critical sales territory is unique, in that it is a well-respected brand but has not reflected this eminence in market share. As part of The Tanfield Group Plc, Snorkelis already beginning to properly leverage its brand equity. The outlook for the US construction market remains mixed, but most signs are that non-residential construction – the key end user market for larger aerial work platforms – will continue to grow, albeit at a reduced rate. Residential construction has little impact on our Powered Access sales. This is because the chief product offering in the residential sector from our peers is the rough terrain fork lift, or telehandler. Tanfield does not manufacture telehandlers, so is nowhere near as exposed to trends in residential construction as its competitors. Globally, the outlook for the construction industry is extremely healthy. Regions expected to grow the most this year include the Middle East, Russia & the Baltics and Southern Africa. Tanfield has worked hard to appoint high quality distributors in all these territories. The continued growth of non-residential construction is equally as important to the smaller aerial work platforms in the product range, as these machines are primarily deployed in repair and maintenance of commercial and industrial premises. Globally, end user purchases represent just 30% of all powered access sales, with the remaining 70% sold direct to equipment rental companies. Our increasing penetration of the rental sector therefore represents a significant opportunity going forward. The growth achieved with UpRight in 2007 was almost entirely from sales to end users, via the distributor network, with practically no sales to large equipment rental companies. However, the added value that UpRight’s unique distributor network brings is also attracting rental company business in Scandinavia, Europe, the Baltic States and the Middle East. Along with our expanded product range, rental companies particularly appreciate the local, own-language product support with which the dealers can provide them. We are engaging with all of the major rental companies in Europe and Scandinavia at present and will continue to explore sales in this market, where appropriate.
Current Trading & Prospects Our decision to utilise proven chassis from major manufacturers as the basis for our electric vehicles, rather than design a new product from the ground up, is proving to be the best route to growing profitable sales. It enables us to take years off the time frame of bringing a new vehicle to market. This strategy also allows us to benefit from the original vehicle manufacturers’ investment in design development, which typically totals hundreds of millions of pounds. It provides us with robust and reliable chassis, which means we can focus our resources on the battery and electric drive train. Crucially, it also avoids any potential reliability issues that a newly-designed chassis could encounter. The achievements of the first quarter of 2008 demonstrate that we are capitalising on the highly promising opportunities afforded by our growing global reputation. These new opportunities, allied to the ongoing development of existing products and sales channels, will continue to support the execution of our high growth strategy.
Darren Kell |
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