Tanfield Group Plc

("Tanfield" or "the Company")

 

Final Results for the year ending 31 December 2015 and Notice of AGM

 

 

Tanfield Group Plc, the passive investing company as defined by AIM Rules, announces its final results for the year ending 31 December 2015. The audited financial statements are being posted to shareholders today and made available on the Company website at www.tanfieldgroup.com shortly.

 

Tanfield announces that its Annual General Meeting will be held at 11:30 a.m. (UK time) on 20 July 2016 at Sandgate House, 102 Quayside, Newcastle-upon-Tyne, NE1 3DX.  Information on the resolutions can be found in the Notice of Annual General Meeting circular that will be posted to shareholders today and made available on the Company website at www.tanfieldgroup.com shortly.

 

Jon Pither, Chairman of Tanfield, said:

 

" During the year we have continued to monitor the progress of both investments closely. The Board feels that some progress has been made towards a realisation in value of the investment in Snorkel following further growth in 2015. The Board does not feel that sufficient progress was made by Smith and, following a review of the investment in Smith, decided to impair the investment to a nil value. The current combined value per share of investments is 27p per share."

 

Investment Report

 

Background

 

The Company is defined as an investment company with two passive investments. This definition resulted from the disposal of Smith Electric Vehicles in 2009 and the disposal of Snorkel in October 2013.  Tanfield Group Plc currently owns 5.76% of Smith Electric Vehicles Corp. ("Smith") and 49% of Snorkel International Holdings LLC ("Snorkel").

 

Overview

 

Snorkel

Tanfield continues to own 49% of Snorkel, which it has held since the disposal of the business in October 2013.  Progress in production continued to be made during 2015 which resulted in sales increasing by approximately 30% compared with 2014.  Investment in Snorkel by the current owner since the disposal stands at over $70m.  This has allowed the business to make the progress to date and will assist in the continued progress that is targeted for the future.

 

The Board understands that it is the intention of Snorkel to focus on improving profit margins of its products during 2016 through further procurement synergies and standardisation across the product range as well as efficiency improvements.  In March 2016 Ahern Deutschland, the German distributor for Snorkel, opened a new €1.1 million headquarters along with new regional sales appointments into the European markets which underpins the ambition and drive to increase European market penetration.

 

Snorkel continues to operate in an aggressive market where competitors are also targeting increased market share but there is no reason why the progress made to date should not continue to be made into the future. The Board believes Mr Don Ahern, the owner of Extreme and Ahern Rentals and 51% beneficial owner of Snorkel, remains fully committed to Snorkel and has a strong desire to continue to grow and improve the business.

 

Valuation of Snorkel holding

The Board of Tanfield has taken a view of the carrying value of its 49% holding and its preferred interest holding (Loan note) that takes account of risks in the industrial global markets and the normal cycles that operate within these markets.  The range of potential valuation can be broad. The valuation has, to an extent, a time driven element. The agreement for the valuation formula to be triggered is over a five year period. At the end of 2015 there were just under three years left to run on this aspect of the agreement. If the formula is not triggered within the 5 year time frame Tanfield will still retain 49% of the equity. The decision has been made to maintain its valuation of £36.3m ($60.1m, being $43.1m equity holding and $17.0m preferred interest holding). This valuation has been assessed against a number of criteria using discounted cash flows in relation to the sale and purchase agreement and its valuation formula:

•   Level of investment in working capital.

•   Capital investment.

•   Production capacity.

•   Order Book.

•   Market conditions.

•   Historical capability of the business to ramp up output.

 

The valuation has not been adjusted for foreign currency fluctuations due to the uncertain nature of future foreign currency markets.  Based on the exchange rate at 31 December 2015, the $60.1m valuation would convert to £40.7m and based on the exchange rate at 1 June 2016, it would convert to £41.6m. This represents approximately 27p per share.

 

Smith

In October 2013 Smith completed a restructuring exercise that saw it convert debt to equity.  As a result of this, they informed the Company that the equity shareholding went from 24% to 5.76% (excluding warrants).

 

In May 2015 it executed a conditional agreement to form an exclusive joint venture ("the JV") with strategic partner and investor FDG Electric Vehicles Limited ("FDG"). FDG is an international company listed on the Hong Kong Stock Exchange and is a vertically integrated electric vehicle manufacturer engaged in the R&D, production and distribution of all-electric vehicles.  Under the terms of the JV, Smith were to invest the Smith brand, the licence for Newton™ EV design and IP while FDG were to invest $15M in cash and $30m in assets, a licence for commercial EV design and IP.  The New Joint Venture entity was to be responsible for US product development, sales and marketing and Smith were to be responsible for manufacturing and maintain its right to territories outside of the USA. 

 

In May 2016, the Board of Tanfield was informed by the Board of Smith that it had filed a complaint against FDG and the New Joint Venture based on fraudulent misstatements that were given that induced Smith to enter into the joint venture. Smith have asked the court to declare the joint venture terminated or rescinded, thereby returning the right to sell its vehicles in the United States along with damages for the financial injury inflicted on Smith.

 

Following the complaint against FDG, the Smith Board is now focused on the sale and production of its existing vehicles and technology in the United States and European markets. It will continue to pursue opportunities for license/JV/partner opportunities throughout the Rest of the World whilst continuing to invest in the development of the next generation vehicle.

 

In order to implement its plan, the Smith Board is seeking to raise $15m in new funding through a series 'F' financing round. It is unknown at this stage whether this financing will be successful or not.

 

Valuation of Smith holding

In 2014, the investment in Smith was valued at £4.8m ($7.4m). The Board of Directors has carried out a review of the investment in Smith resulting in a decision to impair the investment value to nil. The Board came to this decision due to the uncertainty around the level of funding required before Smith is able to achieve profitability and become self financing as well as the disruption, costs and delays as a result of the relationship with FDG which the Board acknowledges Smith are now trying to remedy via legal proceedings.

 

The Board will continue to monitor any progress made by Smith in relation to the investment in Smith and will review the position should significant progress be made in achieving its plans.

 

Strategy of Tanfield Board of Directors in relation to its Investments

Although the Board cannot predict the timeframe for a return of value in its investment in Snorkel, the Directors believe that its investment will result in a return of value to shareholders over time.  At this stage it is uncertain whether its investment in Smith will result in a return of value to shareholders but the Directors will continue to monitor the situation.

 

The strategy of the Company in relation to these investments is to return as much as possible of any realised value to shareholders as the events occur and circumstances allow, subject to compliance with any legal requirements associated with such distributions. 

 

The Board takes the view that while there has been progress made by Snorkel, there is still a risk of failure. The Board will continue to fulfill its obligation to its shareholders in seeking to optimise the value of its investments. 

 

The Investments are defined as passive investments and in line with this definition Tanfield does not hold Board seats in either Snorkel or Smith. There is no limit on the amount of time the existing Investments may be held by the Company.

 

 

 

 

 

 

 

 

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
							2015		2014
							£000's		£000's
Revenue							-		-
Staff costs							618		(111)
Other operating income							27		18
Other operating expenses							(268)		(296)
Profit/(Loss) from operations before impairments							377		(389)
Impairment of Investments							(4,770)		-
Loss from operations after impairments							(4,393)		(389)
Finance expense							(54)		(91)
Finance income							1		624
Net finance (expense)/ income							(53)		533
(Loss)/Profit from operations before tax							(4,446)		144
Taxation							-		-
(Loss)/Profit & total comprehensive income for the year attributable to equity shareholders							(4,446)		144
Earnings per share
(Loss) / earnings per share from operations
Basic (p)							(3.1)		0.1
Diluted (p)							(3.1)		0.1
BALANCE SHEET (Company registration number 04061965)
AS AT 31 DECEMBER 2015
							2015		2014
							£000's		£000's
Non current assets
Non current Investments							36,283		41,053
							36,283		41,053
Current assets
Trade and other receivables							98		131
Cash and cash equivalents							94		369
							192		500
Total assets							36,475		41,553
Current liabilities
Trade and other payables							110		135
							110		135
Non-current liabilities
Other payables							254		1,565
Deferred tax liabilities							-		-
							254		1,565
Total liabilities							364		1,700
Equity
Share capital							7,546		7,187
Share premium							16,800		16,455
Share option reserve							461		845
Special reserve							66,837		66,837
Merger reserve							1,534		1,534
Retained earnings							(57,067)		(53,005)
Total equity attributable to equity shareholders							36,111		39,853
Total equity and total liabilities							36,475		41,553