Tanfield Group PLC Snorkel Investment & Loan Subscription Update (9914W)

TIDMTAN

RNS Number : 9914W

Tanfield Group PLC

24 August 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 & Loan Subscription 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, as well as with respect to additional loan subscriptions.

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 GBP19.1m. 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 second quarter of 2022, Snorkel achieved further sales growth as it continued to recover following the global COVID-19 pandemic. Sales for the quarter increased to US$46.8m, compared to US$40.3m for the second quarter of 2021, an increase of 16.3%. This resulted in sales for the first 6 months of 2022 being US$88.6m, compared to US$71.7m for the same period in 2021, an increase of 23.5%.

-- Despite the increase in sales, the EBITDA for the second quarter of 2022 was a loss of US$4.3m, compared to a profit of US$0.2m for the second quarter of 2021. Likewise, the EBITDA loss for the first six months of 2022 increased to US$7.8m, compared to US$2.5m for the same period in 2021.

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 second quarter of 2022 increase to US$46.8m, compared to US$40.3m for the second quarter of 2021, an increase of 16.3%. This resulted in sales for the first 6 months of 2022 being US$88.6m, compared to US$71.7m for the same period in 2021, an increase of 23.5%.

Despite the increase in sales, the EBITDA for the second quarter of 2022 was a loss of US$4.3m, compared to a profit of US$0.2m for the same period in 2021. Likewise, the EBITDA loss for the first six months of 2022 increased to US$7.8m, compared to US$2.5m for the same period in 2021. The Board once again note that the gross profit margin has reduced even further to 2.8% for the second quarter of 2022, compared to 8.9% for the second quarter of 2021 and the already low level of 4.1% in Q1 2022. The Board is unaware of the reason for the continuing reduction to the gross profit margin and continues to believe that it is not in line with the industry averages. Work to investigate this is ongoing.

To highlight the dramatic change in recent years, at the height of the pandemic in Q2 2020, Snorkel achieved sales of only US$16.8m and reported an EBITDA loss of US$4.3m. 2 years later in Q2 2022, Snorkel sales have increased by almost 179% to US$46.8m compared to Q2 2020, yet the reported EBITDA in both periods is a loss of around US$4.3m. To put this further into context, in Q2 2017 Snorkel achieved a slightly lower level of sales at US$44.9m and yet in that quarter reported an EBITDA profit of US$1.0m, some US$5.3m higher than the loss reported in Q2 2022.

Below is a summary of the consolidated financial statement for the second quarter of 2022, including comparative figures for the previous 5 years:

 
 US$000's                   Q2 2022   Q2 2021   Q2 2020   Q2 2019   Q2 2018   Q2 2017 
 
 Net sales                   46,848    40,286    16,818    60,848    51,766    44,870 
 Cost of goods sold          45,521    36,720    16,852    52,951    45,108    39,084 
 Gross profit                 1,327     3,566      (34)     7,897     6,658     5,786 
                           --------  --------  --------  --------  --------  -------- 
 Gross profit margin           2.8%      8.9%    (0.2%)     13.0%     12.9%     12.9% 
 Selling, general, admin 
  & 
  currency costs              5,592     3,414     4,218     5,926     5,211     4,761 
 
 EBITDA                     (4,265)       152   (4,252)     1,971     1,447     1,025 
                           --------  --------  --------  --------  --------  -------- 
 

Below is a summary of the consolidated financial statement for the first six months of 2022, including comparative figures for the previous 5 years:

 
 US$000's                   H1 2022   H1 2021   H1 2020   H1 2019   H1 2018   H1 2017 
 
 Net sales                   88,554    71,717    60,242   112,452    96,302    79,749 
 Cost of goods sold          85,514    66,126    56,598    98,682    84,033    69,181 
 Gross profit                 3,040     5,591     3,643    13,770    12,269    10,569 
                           --------  --------  --------  --------  --------  -------- 
 Gross profit margin           3.4%      7.8%      6.0%     12.2%     12.7%     13.3% 
 Selling, general, admin 
  & 
  currency costs             10,784     8,069     9,546    12,754    11,480     9,164 
 
 EBITDA                     (7,744)   (2,478)   (6,212)     1,016       789     1,404 
                           --------  --------  --------  --------  --------  -------- 
 

The Board is not able to determine if or when Snorkel's sales might return to pre-pandemic levels. However, it views the ongoing increase to sales as a positive development and is not aware of any reason why this improving trend should not continue.

Loan Subscription

Further to the update on 24 May 2022, in which the Company announced that the first loan note instrument (the "First Loan") of up to GBP700,000 had subscriptions totalling GBP625,000, the second loan note instrument (the "Second Loan") of up to GBP1m had subscriptions totalling GBP950,000, and the third loan note instrument (the "Third Loan") of up to GBP2m had subscriptions totalling GBP950,000, the Board is pleased to announce that a number of existing shareholders have collectively subscribed to a further GBP300,000 of the Third Loan.

This constitutes a related party transaction under Rule 13 of the AIM Rules as a result of OTK Holding A/S, which hold approximately 14% of the issued shares of the Company, subscribing to a further GBP135,000 of the Third Loan. The Third Loan is unsecured and carries annual interest of 10% which is to accrue and is repayable on the earlier of (i) 28 February 2025 or (ii) receipt of funds relating to either the US or UK Proceedings. Should repayment take place prior to 28 February 2025, a 20% early redemption premium shall apply. The Directors of the Company, having consulted with WH Ireland Limited, the Company's nominated adviser, consider the terms of the transaction to be fair and reasonable in so far as shareholders are concerned .

The Third Loan will be used to provide ongoing working capital funding, including costs related to the US and UK Proceedings.

The Board believe that further subscriptions to the Third Loan may be necessary to ensure that the Company continues to protect its investment in Snorkel. Following discussions with the existing shareholders, if further subscriptions were required, the Board are of the opinion that further funding will be made available.

Legal Proceedings

The US Proceedings are continuing, with a jury trial currently expected to take place around the summer of 2023. The UK Proceedings are also continuing, with a trial scheduled for November 2022. The Board continue to believe that a positive outcome to either or both proceedings is possible. So far as it is necessary, 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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August 24, 2022 02:00 ET (06:00 GMT)