Tanfield Group PLC Snorkel Investment Update (2579I)

TIDMTAN

RNS Number : 2579I

Tanfield Group PLC

22 November 2018

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 updating the market on its investment in Snorkel International Holdings LLC ("Snorkel"), the aerial work platform business.

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.

As reported on 21 June 2018, Snorkel indicated to the Board that it expected Xtreme would cause SKL Holdings to exercise its call option at the earliest opportunity in October 2018. Yesterday, the Board received an email attaching a call option notice in which SKL Holdings has requested to exercise its call option to acquire Tanfield's 49% equity in Snorkel. In the request, SKL Holdings state that the option price to acquire the equity is $0 (nil) and that payment of the priority amount and preferred return (collectively "the Preferred Interest") is not required. The Board does not agree with this statement and continues to believe that the contractual agreements require that the Preferred Interest is paid prior to, or in conjunction with, a call option notice and therefore the Board does not view the call option notice as being valid.

As reported on 20 September 2018, Charles Brooks, the former Chief Financial Officer of Tanfield Group Plc, who had significant input into the key documents pertaining to the joint venture between Tanfield and Xtreme and whose employment transferred following the joint venture to become the Chief Financial Officer of both Snorkel and Xtreme, made assertions that the Preferred Interest was only applicable until 30 September 2018, after which date the value would be nil. The Board has sought clarification from Charles Brooks as to why, if he actually believed this and did so prior to the transaction being entered into, he did not ensure that this was clearly explained to shareholders (1) as part of the RNS announcement which gave a general overview of the proposed transaction and (2) within the circular distributed prior to the General Meeting to approve the transaction, which legally needed to provide a comprehensive, accurate, clear and concise summary of the terms of the transaction that was being proposed. To date, no justifiable explanation has been provided by Charles Brooks.

The Board does not believe that either the RNS or the circular indicate that the Preferred Interest amount is not payable and therefore believe that both the RNS and the circular support the Board's view that the Preferred Interest is payable prior to, or in conjunction with, a call option notice. Furthermore, the Board is satisfied, based on documents now in its possession, that Xtreme, along with its legal advisors, reviewed the circular prior to Charles Brooks releasing it on behalf of Tanfield as a detailed and accurate representation of the proposed transaction. So far as the Board are aware, Xtreme did not suggest any amendments to the circular which could have indicated or inferred that the Preferred Interest was not payable or that it had an expiry date whereby both elements of the Preferred Interest would be expunged after 30 September 2018.

As reported on 21 June 2018, the Q1 2018 results showed a material increase in selling, general and administrative ("SG&A") costs of 34% compared to Q1 2017. At the time, the Board stated that it was unaware why Snorkel only decided to invest in some key resources and functions, which it was told by Snorkel will ensure the business is in a position to grow further and perform better in the long term, around the time that the last twelve month period began before SKL Holdings would be able to exercise its call option and that in all likelihood, the material increase would eliminate any positive option price should Xtreme seek to exercise the option shortly after 30 September 2018.

As reported on 5 September 2018, the Q2 2018 results reported by Snorkel included 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 Board requested information on the reasons behind the material restatement at the time but Snorkel have not provided a response. Within the call option notice received yesterday, SKL Holdings allege that the total liabilities of Snorkel amount to $108m, a figure which is part of the call option price calculation. The Board therefore now infer that the material balance sheet restatement might have been undertaken in order to influence the calculation of the option price.

On 6 November 2018, the Board contacted Don Ahern and Matthew Elvin (CEO of Xtreme and Snorkel) to request a meeting to discuss what their plans and aspirations for the future were. It was suggested by them at the time that it would be best to establish the date for the proposed meeting in early December 2018. The Board therefore intend to follow up on the meeting request, as suggested, in early December 2018 where it hopes a meaningful discussion can take place surrounding the clearly different opinions relating to the requirement to pay the Preferred Interest amount if the call option is to be exercised and to better understand the justification for some of the recent actions taken.

As previously stated, the Board will vigorously defend its position that the Preferred Interest is payable prior to, or in conjunction with, the call option notice. 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, 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 it has been presented with.

Investment Background

-- As reported in the Interim Results on 28 September 2018, the Board impaired the Snorkel investment value from GBP36.3m to GBP19.1m (US$25.3m), which it believes is underpinned by the Preferred Interest value, made up of the contractual adjusted priority amount (US$22.5m) and the preferred return, being 2.5% interest charged annually on the priority amount, which at 30 September 2018 will be US$2.8m.

-- 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 after September 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.

For further information:

Tanfield Group Plc 020 7220 1666

Daryn Robinson

WH Ireland Limited - Nominated Advisor / Broker

   James Joyce / Chris Viggor                                                           020 7220 1666 

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November 22, 2018 10:56 ET (15:56 GMT)