RT Tanner & Co Ltd

Home

Contents
Conclusions
Management
Operations
Accounting Systems
Trading Performance
Review of Balance Sheet
Future Prospects
Appendix

Bank Report

1. Introduction
1.1 Activities, Background and Ownership
(a) Activities
Tanner Has been involved with the paper industry since 1859. The core activities of the business are the manufacture of envelopes and the merchanting of paper. The Company’s products, comprising approximately 1,200 lines, are aimed at the quality business market and the customer base includes many household names such as TSB, Barclays Bank PLC and WH Smith & Son Limited. The manufacturing, central sales and administration functions are based in Crayford with a warehouse for finished stock at Dartford. There is also a sales outlet and warehousing facility at Leeds.

(b) Background
The Company is a long established family owned business which has been trading for over 130 years. The business was originated by PT’s great grandfather at which time trading was closely allied to the printing industry around Fleet Street. Tanner was incorporated in 1908 and the base activity of paper merchanting continued unchanged for some years until the manufacture of envelopes was introduced to the business. The Company moved from its original location in the City to Crayford in 1961. During the next decade, Tanner experienced low levels of profitability as trading attempted to come to terms with the additional cost of purchasing a freehold property and this was not redressed until the early 1970s. Over the next thirteen years, the Tanner family enjoyed a reasonable standard of living from the business although this resulted in a lack of investment in new equipment. Consequently, upon the appointment of a new board in 1983, it was recognised that Tanner would be increasingly unable to compete in a rapidly changing market with its existing old machinery. Since that time, management has engaged in the acquisition of new machinery to reduce unit costs and improve the Company’s competitiveness.

Tanner has a 33% holding in Krolle which is involved in the production of high quality leather goods. In the light of the current difficulties facing the Company, we understand that agreement has been reached for this interest to be sold for Ł90k net.

(c) Ownership
The authorised share capital of the Company of Ł70k comprise 60k ordinary shares of 25p each, 15k 5% Cumulative First Preference Shares of Ł1 each and 40k 4% Second Preference Shares of Ł1 each. We show, at Appendix A, the shareholding structure of Tanner. 93.87% of the issued ordinary share capital of Ł6,802 is owned by Auctor, the balance being held in the name of the current directors and AR Tanner, PT’s brother. Auctor is a non trading holding company which was formed by DT to purchase shares in Tanner from distant members of the family and to mitigate Capital Transfer Tax. Auctor has an issued share capital of Ł1,000, all of which is owned by DT and his family. The holdings are as follows:

	Issued Ordinary Shares Of Ł1	%
A D P Tanner	220	22
A R Tanner	220	22
P D Tanner	120	12
Mrs E C Fanstone	120	12
Mrs P S Morris	120	12
A R Tanner - Children's Trust	20	2
P D Tanner - Children's Trust	20	2
Mrs E C Fanstone - Children's Trust	20	2
Mrs P S Morris - Children's Trust	20	2

The issued 5% and 4% Cumulative First and Second Preference Shares is Ł39,598 which, with the exception of Ł1,033 held in the names of MK and WL Pearson, is owned by members of the Tanner family. We understand that the Memorandum and Articles of Association of the Company ensure that these shares do not have any voting rights other than pari passu in any meeting to liquidate Tanner or following non payment of dividends.

Auctor also owns the whole of the issued share capital of Ł100 of Maxim. We understand that this is a small business which is operated by AR Tanner, virtually alone.

1.2 Background to Unit Visit and Terms of Reference
During the last year, the Company’s borrowing requirements from the Bank have increased significantly. This was a consequence of difficult trading conditions arising from the general economic climate, production problems associated with the delayed completion of urgent roof repairs to the factory in Crayford and losses incurred during the financial year ended 31 March 1991. This culminated in a recent request to provide an additional Ł300,000 by way of short term assistance although, in the light of the recent experiences, the Bank has expressed reservations regarding the longer terms prospects of the Company. Against this background, the Unit was asked, in a letter dated 15 April 1991 from the City Regional Office, to undertake a full review of the Company’s activities. Specific comment on the following terms of reference has been sought:

a) The effectiveness of the Company’s internal controls
b) The reliability of forecasts and management accounts and information
c) The Company’s immediate borrowing requirements

1.3 Places and Dates of the Unit’s Visit
Two members of the Unit visited the Company’s premises at Wheatsheaf Works, Maxim Road, Crayford, Dartford DA1 4BQ on 24-26 April 1991. Whilst we were able to also visit the Dartford warehouse, we were unable to see the operations at 2 Lockwood Close, Leeds, LS11 5UU due to time constraints.

Full co-operation was received at all times during our visit. However, the Company introduced a new computer system at the beginning of 1991 which lost a considerable amount of the historical database. Since that time, severe problems have been encountered and the system is not yet fully operational. In the circumstances, our review has been hampered by the inadequacy of the Company’s records and our understanding of overall operations has not been as full as we would wish.

1.4 Facilities Available from the Bank
We understand that, at the time of our visit, the Company had access to the following facilities from the Bank’s Law Courts, Chancery Lane Branch:

	Ł'000
Overdraft/Documentary Credits	300
Plus temporary and occasional excess	200
Loans	134
Terminable indemnities	30
Total	664

From a review of the Bank papers, it appears that the overdraft is for normal working capital purposes and is subject to the Bank’s normal terms and conditions including repayment on demand. It is subject to interest at 1.5% above the Bank’s base rate, minimum 7.5% for the first Ł300,000 and 2% above thereafter.

The Loan Account was agreed in respect of machinery purchases and the cost of repairs to the factory roof. It is subject to monthly repayments of Ł6,000 to achieve clearance within 6-7 years from June 1989. The loan attracts interest at 1.75% above the Bank’s base rate, minimum 7.5% and is also repayable on demand.

The terminable indemnities facility is available for a guarantee in favour of HM Customs and Excise in respect of Value Added Tax on imports. We understand that the facilities are due for review on 22 May 1991.

1.5 Facilities Available from other lenders
We understand, at the time of our visit, the following facilities were available from Bank 2:

	Ł'000
Overdraft	130
Loan	210
Total	340

We were told that the overdraft is not used for trading purposes but represents accumulated costs relating to the claim against the roofing contractors. Clearance is expected from anticipated damages arising from legal action.

The loan account was originally agreed at Ł450,000 for the purchase of machinery and is subject to repayments of Ł11,000 per month to achieve clearance over a five year term.

Both accounts attract interest at 1.75% above Bank 2’s base rate and the facilities are due a revisal in July 1991.

The Company has a number of hire purchases and lease purchase agreements, the outstanding capital amounted to Ł69,000 as at 31 March 1991.

1.6 Status of this report
Both Tanner and Maxim are, effectively, wholly owned subsidiaries of Auctor and, in the normal course of events we would view the companies as a group. However, consolidated accounts are not prepared on a monthly basis and the Group statutory accounts are completed by independent auditors to those of the Company. Auctor is non trading and the low level of activity of Maxim with its relatively loose ties with Tanner does not, in our opinion, have a material bearing on our review of the Company. In the circumstances, this Report concentrates on the affairs of Tanner.