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 disposal of 51% of the Snorkel business in 2013.

·     The carrying value of its 49% holding and its preferred interest holding (Loan note) is $60.1 million as set out in the Company's interim accounts which, based on today's exchange rate, is approximately £42.0 million.  This represents approximately 27p per share.

·     The trigger event for the initial realisation of the Snorkel investment occurs when the company has achieved an annualised trailing EBITDA of $25 million dollars in any 12 month period by 30 September 2018.

Business Update

As previously announced on 2 December 2015, Tanfield estimated Snorkel should achieve sales in 2015 of around $120 million, approximately 30% higher than 2014, which would see the business making a smaller operating loss compared to previous years.  Since the disposal of Snorkel in October 2013, over $70 million has been invested in the Snorkel business by the current owner, which has enabled a significant proportion of the funds to be used to improve the working capital of the business.  The Board takes comfort from this as it feels it confirms the commitment and aspirations of the current owners in making the business a success. 

From discussions with Snorkel, the Directors believe that coming in to 2016 the business continues to make progress but that market conditions remain tough.  It is expected that 2016 will see modest growth but that it will be at a slower rate compared to 2015.  This is also the sentiment in the wider AWP sector meaning that a lower level of expansion is expected to be the outcome for 2016 when compared to recent years. This has been caused largely by a slowing of the fleet replacement cycle as  a result of the low sales volumes in 2009, the peak of the recession, which is  now impacting on the normal replacement cycles as there is a lower level of product that needs to be replaced. It is hoped that there will be a positive correction to this during 2017.

Product margins are lower compared to those experienced pre-recession which is believed to be partly as a consequence of some manufacturers over-producing during the recession. This has resulted in excess finished goods stock and has contributed to prices being driven down across the industry.  Lower product margins have also been compounded by major manufacturers  competing for growth resulting in significantly cheaper prices being offered across the sector.  The Board understands that it is therefore the intention of Snorkel to focus on improving the profit margin of its products during 2016 through further procurement synergies and standardisation across the product range as well as efficiency improvements.  This would enable the business to further benefit from any future growth it achieves.

In March 2016 Ahern Deutschland, the Snorkel aerial lift distributor for Germany, opened its new €1.1 million headquarters as well as appointing new regional sales roles as part of ongoing investment in to the European markets. Snorkel recently expanded its electric scissor lift offering, which is particularly popular in the European markets, and as part of the work to standardise parts, the new products share many attributes with the rest of the range.

The Board has recently been reminded of the express intention of the 51% shareholder in Snorkel to acquire the 49% owned by Tanfield at some point in the future. The Board, however, recognises that Snorkel needs to further develop the business and welcome the focus on profitability as opposed to top line growth. The Board is of the opinion that as progress continues to be made, albeit in a very competitive environment, and if the business is successful in achieving improved profit margins, it should be well placed to benefit from further expansion in the AWP market in 2017 and beyond.  The Board therefore still retains its view that the investment in Snorkel will result in a return to shareholders in the future.  

For further information:

Tanfield Group Plc

Daryn Robinson                                                                               0700 349 7489

WH Ireland Limited - Nominated Advisor

James Joyce / Nick Prowting                                                      020 7220 1666

Peterhouse Corporate Finance - Broker

Peter Greensmith / Duncan Vasey                                           020 7220 9797