REG - Tanfield Group PLC - Snorkel Investment & Loan Subscription Update

TanfieldAnnouncement

24/08/2022 07:00

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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.

 

·    The Snorkel investment is valued at £19.1m.  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 &      5,592    3,414    4,218    5,926    5,211    4,761

     currency costs

 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 &      10,784   8,069    9,546    12,754   11,480   9,164

     currency costs

 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 £700,000 had
subscriptions totalling £625,000, the second loan note instrument (the
"Second Loan") of up to £1m had subscriptions totalling £950,000, and the
third loan note instrument (the "Third Loan") of up to £2m had subscriptions
totalling £950,000, the Board is pleased to announce that a number of
existing shareholders have collectively subscribed to a further £300,000 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 £135,000 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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