Tanfield Group PLC
('Tanfield' or 'the Company')
Snorkel Investment Update
The Board of Tanfield is pleased to update the market on its investment in Snorkel international Holdings LLC ('Snorkel').
Current Investment Situation:
• Holding in Snorkel: Tanfield holds 49% of the equity of Snorkel.
• Value of holding in Snorkel: The carrying value of its 49% holding and its preferred interest holding (Loan note) is $60.1 million (£38.3 million) as set out in the Company's interim accounts and this represents approximately 26p per share. Tanfield's other investment, Smith, has an estimated current value per share of approximately 5p resulting in a combined estimated value from investments of 31p per share.
• Realisation of investment: Following the disposal of 51% of the Snorkel business in 2013, the trigger event for the realisation of the Snorkel investment occurs when the company has achieved an annualised trailing EBITDA of $25 million dollars, this is represented by an EBITDA of just over $2 million in any month.
• Snorkel Operations:
o Estimated 2014 Output of approximately $100 million. This is forecast to rise to approximately $150 million in 2015
o Working Capital investment of over $45 million.
o Spares business operating at 100% coverage of parts.
Update:
1. Production and output: The Snorkel business continues to progress well. Production throughout the year has increased significantly from its run rate during 2013. The business has taken advantage of the general uplift in the market for its products. The company expects to achieve turnover of approximately $100 million for the year ending [December ]2014.
2. Order book and Working Capital Investment: The order book through the year rose substantially compared to 2013. There has been a significant level of working capital invested into the company currently totalling in excess of $45 million. This has meant that supplier constraints have been reduced and the spares business has improved dramatically. This is important in that it means that Snorkel can more effectively support its machines in the field, which was difficult last year due to cash restraints.
3. Restructuring and winter cycle: Ahern Rental, a related company through ownership of Snorkel, has absorbed the full costs of certain Snorkel assembly and distribution centres. Also a number of functions have been consolidated onto one site. This strategic restructuring has had the benefit of extending Ahern's reach whilst maintaining Snorkel distribution at much reduced cost. A number of temporary staff have been laid off to accommodate the move into the winter months when the market tends to reduce demand and the company builds stock in anticipation of increased demand in the spring. These actions have reduced the breakeven level of turnover of the business.
4. Redesign of equipment: The Snorkel business is going through a process of redesigning its catalogue of equipment with a view to increasing the commonality of parts, reducing build cost and improving functionality for the end user.
5. Rebuild Centre: Snorkel also is undertaking an extensive program of rebuilding machines. A 200,000 square feet centre dedicated to rebuild has been established in Kansas USA
Comment
The Tanfield Board takes the view that the signs are very promising for Snorkel in its progress to sustainable profitability. Mr Don Ahern, the owner of Extreme and Ahern Rentals has made a number of positive statements about Snorkel in trade magazine articles supporting the above update, which the Board views as very encouraging. As a note of caution the Board would point out that the market is cyclical. The business is moving into the winter months which are typically quieter in the industry. Building stock in anticipation of the upturn in spring depends upon the availability of working capital which Snorkel now seems to have at its disposal.
Contacts:
Tanfield Group Plc
Roy Stanley 0845 155 7755
WH Ireland Limited
James Joyce / James Bavister 0207 220 1666