RNS Number : 9842Z
Tanfield Group PLC
06 September 2018

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 ("Xtreme"), a Company owned by Don Ahern of Ahern Rentals Inc ("Ahern"), relating to Snorkel, in October 2013.

·     As reported in the Snorkel investment update on 21 June 2018, following a material increase in selling, general and administrative ("SGA") costs in Q1 2018, a 34% increase compared to Q1 2017, the Board re-assessed the indicative value of its interest in Snorkel as being $25.3m.  This indicative valuation is underpinned by the contractual adjusted priority amount ($22.5m) and the preferred return, being 2.5% interest charged annually on the priority amount, which at 30 September 2018 will be $2.8m.

·     The Board remains uninformed as to why Snorkel only invested in these key resources at the start of the fifth year, resulting in the material increase in SGA costs 12 months before it will have the ability to exercise its call option.  The Board is also unable to ascertain what impact these resources may have had on the current performance of Snorkel had they been made available to Snorkel progressively from the start of the joint venture.    

·     As reported in the Corporate Update on 13 July 2018, it is the Board's intention to impair the Snorkel investment value from £36.3m to £19.1m ($25.3m) in its forthcoming interim statements, which represents approximately 12p per share.

·     In June 2018, Snorkel indicated to the Board that it expects Xtreme will cause SKL Holdings to exercise its call option at the earliest opportunity, in October 2018.

·     The Board reported in the 2017 Annual Report that entering into the next phase would bring with it a level of uncertainty.  In the event that the call option is exercised in October 2018, the Board anticipates that there will most likely be a period of negotiation - potentially protracted - prior to any financial realisation and the Board will need to assess the Company's position and, if necessary, take appropriate advice and initiate an audit at or prior to that time.

·     Based on the information currently available to the Board, it is likely that the trailing 12 month EBITDA at October 2018 will result in the price of the call option being at best a modest amount, possibly nil, but this will need to be validated at the time and consequently the Board has restricted its current  valuation of the Company's interest in Snorkel to the priority amount and preferred return values only.

·     The Q2 results show a material restatement of the Snorkel balance sheet and a significant increase in the value of non-current liabilities from $27m at 31 March 2018 to $79m at 30 June 2018.  The directors have requested information on these changes, but do not believe that they will have a material effect on the financial outcome for Tanfield's shareholders if the call option is indeed exercised in October 2018.






Business Update


Tanfield continues to own 49% of Snorkel, which it has held since the joint venture was formed between Tanfield Group Plc and Xtreme Manufacturing LLC in October 2013. Snorkel's sales in the second quarter of 2018 were $51.8m (Q2 2017: $44.9m), an increase of 15% in comparison to the same period in 2017, with an operating profit, excluding depreciation, of $1.0m (Q2 2017: $1.1m profit). Sales for the first half of 2018 were $96.3m (H1 2017: $79.7m), an increase of 21% in comparison to the same period in 2017, with an operating profit, excluding depreciation, of $0.8m (H1 2017: $1.5m).  The Board believes that sales in 2018 could be in excess of $200m if these trends continue (2017: $166m).  This is approximately 5% lower than its previous projection due to slower growth in the second quarter.


Below is a summary of the 2017 consolidated operating statement that was reported to shareholders on 10 April 2018 so that they could better understand the impact of the variances that occurred in the in the fourth quarter of 2017:






 2017 Year

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

Net sales






Cost of goods sold






Gross profit











Selling, general & administrative costs






Operating profit/(loss) excl depreciation








The following is a summary of the first two quarters 2018, as well as the year to date consolidated operating statement, comparing it to the same period in 2017:




H1 2018

 H1 2017

$ 000's

$ 000's

$ 000's

$ 000's

Net sales





Cost of goods sold





Gross profit









Selling, general & administrative costs





Operating profit/(loss) excl depreciation







Tanfield entered in to the joint venture with Xtreme with optimism and good faith and the Board repeats that the premise of the agreement was that Xtreme would use its resources and best endeavours to maximise its ability to generate significant returns in the future for Tanfield's investors, which Xtreme believed could be exceptional when stimulated with the right set of internal and external forces. In 2013, prior to Xtreme entering into the agreements, it stated that it was their belief that they were uniquely positioned to greatly enhance Snorkel's credibility through the direct and significant involvement of Ahern affiliates in Snorkel's future operations. 


During the period since the joint venture was entered into in October 2013, the Board has issued trading updates which at times referenced slower than expected sales growth and factors, such as increases in material costs and the sudden increase in SGA costs mentioned in the highlights above,  that have resulted in lower levels of profitability.  The Board acknowledges that, under the Ahern Group's management, Snorkel has achieved year on year sales growth, however the growth each year has been significantly slower than the Tanfield Executive Directors in post prior to the joint venture, (and who subsequently became Directors of Snorkel after the joint venture in October 2013), had forecast.  This forecast was used as part of the basis for the original investment value. 


Furthermore, the gross profit margins achieved by Snorkel under the Ahern Group's management have also been lower than had been predicted by the Tanfield Executive Directors at the time of the signing of the joint venture, and also materially lower than the margins achieved by Snorkel under Tanfield Group's management at similar sales levels. The slower sales growth and lower profitability have unfortunately negatively impacted Tanfield's expectations as to the financial outcome for its shareholders as we approach the next phase of the transaction after 30 September 2018.


The Board of Tanfield has sought - and is continuing to seek - advice in order to clearly define the effect of the Agreement on Tanfield's investment, as well as the effect of the restated balance sheet (if valid), and will update shareholders further as and when appropriate.


Some of the information provided in this announcement is inferred by the Board of Tanfield based on information that has been presented by Snorkel.




For further information:


Tanfield Group Plc

Daryn Robinson                                                                                                 


WH Ireland Limited - Nominated Advisor / Broker

James Joyce / Chris Viggor                                                          020 7220 1666



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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