Snorkel Investment Update

RNS Number : 8639Z

Tanfield Group PLC

22 May 2019

 

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 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 Tanfield Group Plc and Xtreme Manufacturing LLC, a Company owned by Don Ahern of Ahern Rentals Inc ("Ahern"), relating to Snorkel, in October 2013.

·    As reported in the Interim Results on 28 September 2018, the Board impaired the Snorkel investment value from £36.3m to £19.1m.

·    Snorkel's growth trend continues with sales in the first quarter of 2019 increasing by 16% to US$51.6m (Q1 2018: US$44.5m). 

·    The Board reported in the 2017 Annual Report that entering into the next phase would bring with it a level of uncertainty and the Board anticipated that there would likely be a period of negotiation - potentially protracted - prior to any financial realisation. On 22 November 2018 the Company announced it had received a call option notice over its interest in Snorkel which the Board rejected as being invalid. This continues to be the position.

Business Update

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

Snorkel has provided the latest management account information for the business.  Snorkel's sales in the first quarter of 2019 were US$51.6m (Q1 2018: US$44.5m), an increase of 16% in comparison to the same period in 2018.  The gross profit margin for the period reduced to 11.4% compared to the average in 2018 of 12.4%.  The Board have asked both Snorkel and Xtreme to comment on the reasons for the reduction, but their responses provide no useful analysis, other than that to say the reduced margin is likely to continue.  Selling, general & administrative costs for the quarter have increased by around 25% to US$6.6m compared to US$5.2m in the third quarter of 2018 and US$5.3m in the fourth quarter of 2018.  Again, the Board have asked both Snorkel and Xtreme questions to ascertain the reason for the increase but their responses provide no useful analysis, other than that to say the increased costs are likely to continue. 

Despite sales increasing by US$7.1m (Q1 19 compared to Q1 18), as a result of the reduction in margin and the increase in selling, general & administrative costs, the operating loss, excluding depreciation, increased by US$0.5m to US$0.7m (Q1 2018: US$0.2m).

The Board is of the opinion that growth in sales may continue in 2019.  In contrast, in the absence of a meaningful response to the questions asked regarding why the gross margin has reduced and the selling, general and administrative costs have increased, the Board is unable to give an opinion on operating profitability.

Below is a summary of the consolidated operating statement for the first quarter of 2019, as well as the first quarter of 2018 and the full year 2018 as comparisons:

US$000's	Q1 2018	Year 2018		Q1 2019
Net sales	44,535	200,507		51,604
Cost of goods sold	38,924	175,684		45,732
Gross profit	5,611	24,823		5,872
	12.6%	12.4%		11.4%
Selling, general & administrative costs	5,849	21,948		6,599
Operating profit/(loss) excl depreciation	(238)	2,874		(727)
Depreciation & non-operating costs	1,061	3,274		847
Net loss	(1,299)	(400)		(1,574)

As reported in the Snorkel investment update on 6 September 2018, Snorkel materially restated its balance sheet as at June 2018 by reclassifying as a non-current liability approximately US$50m which had always previously been reported as members' equity.  At the time, the Board asked both Snorkel and Xtreme to supply the reason for the restatement, but no response was given and the justification for the restatement is still unknown.  However, it should be noted that it is the Board's belief that the restatement, if valid, would have the effect of increasing the amount allowed under the contract to be repaid to Xtreme by Snorkel, prior to any participation being payable to Tanfield; whereas, if it remained as members' equity, as it was always previously reported, there would be contractual limitations on its repayment.  Snorkel and Xtreme have stated, without explanation, that they do not share the Board's belief.

The Board will continue to take appropriate advice to safeguard Tanfield's investment and will update the market upon any material change.

For further information:

Tanfield Group Plc                                                                          020 7220 1666

Daryn Robinson                                                                                                 

WH Ireland Limited - Nominated Advisor / Broker

James Joyce / Lydia Zychowska                                                    020 7220 1666

 

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