Snorkel Investment Update

RNS Number : 8808W

Tanfield Group PLC

20 November 2017

 

Tanfield Group Plc

("Tanfield" or the "Company")

Snorkel Investment 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 disposal of 51% of the Snorkel business in 2013.

·    The carrying value, as set out in the Company's 2016 Report and Financial Statements, is £36.3 million.  This represents approximately 23p per share.

·    The trigger event for Tanfield to request payment of the calculated realisation of the preferred interest holding in Snorkel is dependent upon Snorkel achieving an annualised trailing EBITDA of $25 million in any 12 month period by 30 September 2018.

·    After 30 September 2018, should the above event not be met, Tanfield's ability to request payment of the calculated realisation value (which is the basis of the £36.3 million balance sheet value) comes to an end, Tanfield remain a 49% shareholder but the outcome becomes uncertain and the return could be greater or less than the current carrying value.

Business Update

Tanfield continues to own 49% of Snorkel, which it has held since the disposal of 51% of its stake in the business in October 2013.  Sales in the third quarter of 2017 were $44.3m, an increase of 32% in comparison to the same period in 2016, with an operating profit, excluding depreciation, of $1.1m.  This resulted in year to date sales for the 9 months to September 2017 of $124.1m, an increase of 19% in comparison to the same period in 2016, with an operating profit, excluding depreciation, of $2.6m (2016: $1m loss).

As reported in the Snorkel investment update on 21 August 2017, the focused cost down activity assisted in reducing the bill of material costs, resulting in increased gross margin levels, which has continued in to the third quarter of 2017.  As evidenced by the growth in sales in both the third quarter of 2017 and the year to date, Snorkel continues to improve its market share in targeted regions and has had success selling to some large rental companies which have not purchased Snorkel products for a number of years.   

As reported on 21 August 2017, Snorkel were targeting double digit growth in 2017 from their UK manufacturing facility but, given the extent to which the US manufacturing facility is dependent upon Ahern Rentals as its principal customer, it was unclear at that stage whether there would be growth in that facility in 2017.  While the Board has not been provided with any information that would allow it to ascertain the level of exact sales achieved by the US manufacturing facility, based on the overall growth in sales, the Board is of the opinion that the US manufacturing facility has likely achieved double digit growth so far this year. 

The Board is not aware of any reason why the continuing trend of sales growth at the improved margin level should not continue for the remainder or the year.  Therefore, should this trend continue, the Board estimates sales for 2017 will be around $150m to $160m and believes that 2017 will be a profitable year.

Should economic conditions materially change in the final quarter of 2017, this may have an impact on the expected outcome.  The Board is currently of the opinion that the investment in Snorkel will result in a return to shareholders in the future, however, at the current rate of growth, the Board continues to believe that it will likely not materialise until after 30 September 2018, when the outcome becomes uncertain and could therefore be greater or less than the current carrying value.

For further information:

Tanfield Group Plc

Daryn Robinson                                                                             0700 349 7489

WH Ireland Limited - Nominated Advisor

James Joyce / Alex Bond                                                            020 7220 1666

Peterhouse Corporate Finance - Broker

Peter Greensmith / Duncan Vasey                                         020 7220 9797

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

 

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