Tanfield Group PLC Snorkel Investment Update (1310T)

TIDMTAN

RNS Number : 1310T

Tanfield Group PLC

12 November 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 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.

-- The Snorkel investment is valued at GBP19.1m. The outcome of the US Litigation referenced below could have an impact on this valuation.

-- In November 2018 the Company announced it had received a call option notice over its interest in Snorkel which the Board rejected as being invalid. On 22 October 2019, the Company announced that it had received a Summons and Complaint, filed in Nevada (the "US Litigation"), relating to the purported call option notice.

-- 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 solicitor acting for the Company in 2013, in order to fully protect the Company's rights pending the outcome of the US Litigation. Those proceedings seek to ensure that the Company can, if necessary, hold Ward Hadaway to account for the firm's role in and/or advice to Tanfield in relation to the Contemplated Transaction.

-- Snorkel's sales for the 9 months to 30 September 2019 were US$169.5m, an increase of 11% compared to the same period in 2018 when sales were US$152.7m.

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 has provided the latest management account information for the business. Snorkel's sales for the first 9 months of 2019 were US$169.5m (2018: US$152.7m), an increase of 11% compared to the same period in 2018. The gross profit for the 9-month period increased by US$2.3m to US$21.8m (12.9% margin) compared to US$19.5m (12.8% margin) for the same period in 2018. Selling, general & administrative costs for the 9-month period increased significantly to US$19.1m, compared to only US$16.6m for the same period in 2018, an increase of US$2.5m (15%). As reported on 22 May 2019, the Board have asked both Snorkel and Xtreme questions to ascertain the reason for the increase but their response provided no useful analysis, other than to say the increased costs are likely to continue.

Despite the increase in sales and gross profit, as a result of the significant increase in selling, general and administrative costs, the EBITDA for the 9-month period fell slightly to US$2.7m from US$2.8m for the same period in 2018. Depreciation and other non-operating costs for the 9-month period were US$1.9m (2018: US$2.2m) resulting in a net profit for the 9-month period of US$0.8m (2018: US$0.7m).

The Board has not been made aware of any reason why the sales trend should not continue in the final quarter of 2019 and would therefore expect sales for the full 2019 year to be in the region of US$220m (2018: US$200.5m). The Board is unable to give an opinion on the EBITDA or net profitability.

Below is a summary of the consolidated operating statement for the first three quarters of 2019, as well as the year to date figures for 2019 and 2018:

 
 
   US$000's                           Q1 2019   Q2 2019   Q3 2019     YTD 2019   YTD 2018 
 
 Net sales                             51,604    60,848    57,051      169,503    152,708 
 Cost of goods sold                    45,732    52,950    49,005      147,687    133,218 
 Gross profit                           5,872     7,898     8,046       21,816     19,490 
                                     --------  --------  --------  -----------  --------- 
                                        11.4%     13.0%     14.1%        12.9%      12.8% 
 
 Selling, general & administrative 
  costs                                 6,599     6,119     6,369       19,087     16,618 
 Foreign currency exchange 
  (gain)/loss                             228     (192)       (1)           35         38 
 
 EBITDA profit/(loss)                   (955)     1,971     1,678        2,694      2,834 
 
 Depreciation & non-operating 
  costs                                   619       922       354        1,895      2,166 
 
 Net profit/(loss)                    (1,574)     1,049     1,324          799        668 
                                     --------  --------  --------  -----------  --------- 
 

The Snorkel investment is valued at GBP19.1m based on the Board's understanding of the terms of the agreements and the intent of the parties. As a requirement of the AIM rules, as well as a requirement of the agreements, the terms of the Contemplated Transaction required approval by Tanfield's shareholders before the agreements could be entered into. Therefore, the terms of the agreement and the intent of the parties were summarised within the Circular dated 20 September 2013, which were put to shareholders and approved at the General Meeting held on 7 October 2013. The outcome of the US Litigation could have an impact on this valuation.

On 22 October 2019, the Company announced that it had received a Summons and Complaint in relation to the US Litigation, regarding the purported call option notice announced by the Company in November 2018. As reported, despite the Board seeking to resolve the dispute amicably, Snorkel and Xtreme, by filing the Summons and Complaint, continue in their attempt to take ownership of Tanfield's 49% investment in Snorkel for an overall nil consideration, having not paid any consideration to Tanfield for Xtreme's initial 51% of the joint venture and purporting that no consideration is due to Tanfield before it can compel the Company to transfer its remaining 49% investment to Snorkel / Xtreme. The Company is preparing to vigorously defend its position and continues to seek advice, including considering whether to bring counterclaims against Snorkel and Xtreme.

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 solicitor acting for the Company in 2013, in order to fully protect the Company's rights pending the outcome of the US Litigation. Those proceedings seek to ensure that the Company can, if necessary, hold Ward Hadaway to account for the firm's role in and/or advice to Tanfield in relation to the Contemplated Transaction (given that the Company was unable to agree a suitable Standstill Agreement with Ward Hadaway which would have protected the Company and avoided the need for the claim to be brought at this time). The Company has recently served its Particulars of Claim on Ward Hadaway (through its solicitors) as part of the natural progression of the claim. As previously reported though, it remains the intention of the Board to seek a stay of the claim, pending the outcome of the US Litigation, as the outcome of that litigation will have a direct and material impact on the Company's claim, including the quantum of the claim. To date, it has not been possible to agree an amicable stay of proceedings with Ward Hadaway. Should the Company continue to be unsuccessful in its attempts to agree a stay, it is the intention of the Board, at an appropriate time, to apply to the court for a stay of proceedings pending the outcome of the US Litigation.

The Board will provide further updates 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 / Lydia Zychowska                                                    020 7220 1666 

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November 12, 2019 07:00 ET (12:00 GMT)