Snorkel Investment & Legal Proceedings Update

RNS Number : 8316K

Tanfield Group PLC

10 May 2022

 

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain

Tanfield Group Plc

("Tanfield" or the "Company")

Snorkel Investment & Legal Proceedings Update

The Board of Tanfield (the "Board") is pleased to update the market on its investment in Snorkel International Holdings LLC ("Snorkel"), the aerial work platform business.

Investment Background

· Tanfield is a 49% shareholder in the equity of Snorkel following the joint venture between the Company and Xtreme Manufacturing LLC ("Xtreme") (the "Contemplated Transaction"), a company owned by Don Ahern of Ahern Rentals Inc, relating to Snorkel, in October 2013 .

· T he Snorkel investment is valued at £19.1m.  The outcome of the US and UK Proceedings referenced below could have an impact on this valuation.

· On 22 October 2019, the Company announced that it had received a Summons and Complaint, filed in Nevada (the "US Proceedings") by subsidiaries of Xtreme, relating to the Contemplated Transaction .

· On 24 October 2019, the Company announced it had become necessary to issue and serve a claim in the English High Court against Ward Hadaway (the "UK Proceedings"), the solicitor acting for the Company at the time of the Contemplated Transaction, in order to fully protect the Company's rights pending the outcome of the US Proceedings. 

· On 26 February 2021, Ward Hadaway was granted permission to join Foulston Siefkin, Tanfield's US based law firm who were retained in 2013 to draft the documents governed by US law relating to the Contemplated Transaction, into the UK Proceedings.  As a result, the Company amended its claim to include Foulston Siefkin as a second defendant.

Highlights

· In the final quarter of 2021, Snorkel continued to see a recovery following the impact of the global COVID-19 pandemic with sales of US$41.0m, compared to US$24.2m for the same period in 2020, an increase of 69.2%.

· The full year sales of Snorkel in 2021 were US$155.0m, compared to US$110.8m in 2020, an increase of 39.9%.

· Both the US and UK Proceedings are continuing.  The US Proceedings trial window is currently scheduled to begin in February 2023, with the UK Proceedings trial set for November 2022.

Business Update

Tanfield is a 49% shareholder in the equity of Snorkel following the joint venture between the Company and Xtreme, a company owned by Don Ahern of Ahern Rentals Inc, relating to Snorkel, in October 2013 .

Snorkel continues to recover from the impact of the global COVID-19 pandemic, which impacted its ability to operate as normal, and has seen sales for the fourth quarter of 2021 increase by 69.2% to US$41.0m as compared to sales in the fourth quarter of 2020 of US$24.2m.  Sales for the full year of 2021 increased by 39.9% to US$155.0m as compared to US$110.8m in 2020.

Despite the increase in sales in the fourth quarter of 2021, the EBITDA loss for the period remained consistent at US$4.3m as compared to US$4.4m in the fourth quarter of 2020.  The Board once again note that the gross profit margin has reduced yet further to around 1.5% for the fourth quarter of 2021, compared to 6.6% for the fourth quarter of 2020.  Furthermore, the gross profit margin for the full year of 2021 has reduced to 5.4%, compared to 7.2% in 2020.  The Board are unaware of the reason for the reduction and continue to believe that the gross profit margins generally do not appear to be in line with the industry averages. There is currently ongoing work to investigate this.

Below is a summary of the consolidated operating statements for the last 5 years:

US$000's	2021	2020	2019	2018	2017
Net sales	154,951	110,764	220,844	200,507	165,811
Cost of goods sold	146,651	102,783	195,437	175,684	144,828
Gross profit	8,301	7,981	25,408	24,823	20,982
Gross profit margin	5.4%	7.2%	11.5%	12.4%	12.7%
Selling, general, admin & currency costs	17,861	20,565	25,496	21,859	19,621
EBITDA	(9,560)	(12,584)	(89)	2,964	1,361
Depreciation & non-operating costs	2,448	2,240	2,456	3,364	2,360
Net loss	(12,008)	(14,824)	(2,544)	(400)	(999)

The Board is not able to determine when the market for Snorkel's equipment will return to previous levels.  However, it views the ongoing recovery and increases to sales as a positive development and is not aware of any reason why this improving trend should not continue.  The Board expects to receive the results for the first quarter of 2022 shortly and will provide a further update at that time.

US & UK Proceedings

Further to the update on 31 January 2022, there are still ongoing deficiencies in the documents produced by Snorkel / Xtreme in the US Proceedings which continue to cause delays.  Despite the Board's best efforts to have Snorkel / Xtreme resolve these deficiencies, it nevertheless became necessary to move back the US Proceedings trial window once more until after the UK Proceedings trial in November 2022.  The US Proceeding trial window is therefore currently scheduled to begin in February 2023.

On 31 January 2022, the Company announced that it had amended its claim in the UK Proceedings to include Foulston Siefkin as a second defendant.  Following this amendment, further pleadings have been exchanged and the claim continues to progress towards trial in November 2022.  One of the next stages before trial is the preparation of expert accountancy evidence which seeks to value the Snorkel division at the time of the Contemplated Transaction.  The Company has recently, as part of its disclosure obligations, provided the defendants with an appraisal report of the tangible and intangible assets of Snorkel at the time of the Contemplated Transaction, prepared in 2014 by independent experts in the field for Xtreme, which the Board understand is the basis for the $45.5m net fair market value that Snorkel / Xtreme declared was contributed by Tanfield as part of the Contemplated Transaction.  The Board therefore continues to believe that the value of the Snorkel division at the time of the Contemplated Transaction was substantial.

The Board believes that a positive outcome to either or both of the US and UK Proceedings is a reasonable expectation, and the Company will continue to vigorously defend and advance its position in both proceedings, whilst continuing to seek advice. 

Further updates will be provided to Shareholders as and when appropriate.

For further information:

Tanfield Group Plc   020 7220 1666

Daryn Robinson 

WH Ireland Limited - Nominated Advisor / Broker

James Joyce / Megan Liddell    020 7220 1666

 

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