TIDMTAN
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 GBP36.3 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
GBP36.3 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
END
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