TANFIELD GROUP PLC

Business and Financial Review • Apr 10, 2018

National Storage Mechanism | Additional information

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RNS Number : 4248K

Tanfield Group PLC

10 April 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 ("AWP") 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, relating to Snorkel, in October 2013.

·     The carrying value of Tanfield's interest, as set out in the Company's 2016 Report and Financial Statements and subsequent updates to the market, is £36.3 million. This represents approximately 22.9p per share.

·     The trigger event for Tanfield to request payment of the calculated realisation of the preferred interest holding in Snorkel is dependent upon Snorkel achieving an annualised trailing EBITDA of $25 million in any 12 month period by 30 September 2018.

·     The Board are of the view that this trigger threshold will not be achieved by that date.

·     After 30 September 2018, based on the prognosis that the above event will not be met, Tanfield's ability to request payment of the calculated realisation value (which is the basis of the £36.3 million balance sheet value) will come to an end. Tanfield will remain a 49% shareholder but any calculation of investment value becomes uncertain and the return could be less than the current carrying value.

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 fourth quarter of 2017 were $41.7m (Q4 2016: $26.2m), an increase of 60% in comparison to the same period in 2016, with an operating loss, excluding depreciation, of $1m (Q4 2016: $1.8m loss).  This resulted in full year sales for 2017 of $165.8m (2016: $130.5m), an increase of 27% in comparison to 2016, with an operating profit, excluding depreciation, of $1.6m (2016: $2.8m loss). 

As reported in the Snorkel investment update on 20 November 2017, the focused cost down activity assisted in reducing the bill of material costs, resulting in increased gross margin levels, which continued into the third quarter of 2017, at which time the average gross margin percentage for the 9 month period ending 30 September 2017 was 13.2%.  In the quarter ending 30 December 2017 the gross margin has dropped by 2.3% to 10.9%.  The impact of the reduction in gross margin has resulted in the operating profit in the quarter being approximately $1m lower than if the gross margin had remained consistent with the 9 months to 30 September 2017. 

Selling, general and administrative costs for the first 3 quarters of 2017 were $4.4m, $4.7m and $4.7m respectively.  In the fourth quarter of 2017, selling, general and administrative costs increased by $0.8m to $5.5m. 

The combination of these variances, which do not follow the trends of the previous 3 quarterly results total $1.8m.  The Board has inferred from the information that it has received that part of the variance in the final quarter's operating profit, before depreciation, is related to one-off adjustments made as part of the year end procedure and audit and as a result of seasonality in the AWP sector.

In order for shareholders to better understand the level of variance in the fourth quarter, the quarterly results for Snorkel are summarised below:

SNORKEL INTERNATIONAL HOLDINGS LLC
QUARTERLY CONSOLIDATED OPERATING STATEMENT
	Mar-17	Jun-17	Sep-17	Dec-17	2017 Year
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
Net sales	34,878	44,870	44,316	41,746	165,811
Cost of goods sold	30,097	39,084	38,464	37,183	144,828
Gross profit	4,781	5,786	5,852	4,563	20,983
	13.7%	12.9%	13.2%	10.9%	12.7%
Selling, general & administrative costs	4,355	4,715	4,730	5,545	19,345
Operating profit/(loss) excl depreciation	426	1,071	1,122	(982)	1,638

As evidenced by the growth in sales on a quarterly basis (2017 vs 2016 quarterly growth Q1: 5%, Q2: 20%, Q3: 32%, Q4: 60%) and annualised growth in 2017 of 27% (2017: $165.8m, 2016: $130.5m), Snorkel continues to improve its market share in targeted regions and has had success selling to some large rental companies which have not purchased Snorkel products for a number of years.     

The Board understands that the global AWP market is expected to see growth again in 2018 and beyond. The Board is currently of the opinion that the investment in Snorkel will result in a return to shareholders in the future, however, at the current rate of growth, the Board believes this will not materialise until after 30 September 2018, when the outcome becomes uncertain and could therefore be less than the current carrying value.

For further information:

Tanfield Group Plc

Daryn Robinson                                                                                                0700 349 7489

WH Ireland Limited - Nominated Advisor / Broker

James Joyce / Alex Bond                                                                              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.

This information is provided by RNS

The company news service from the London Stock Exchange

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