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")

Interim Results for the six-month period to 30 June 2019

Tanfield, an investing company as defined by AIM Rules, announces its half year results for the period ending 30 June 2019. The unaudited financial information will shortly be available on the Company website at www.tanfieldgroup.com.

Background

The Company is currently defined as an investing company that has two passive investments. This status resulted from the disposal of Smith Electric Vehicles in 2010 and the transfer of the Snorkel division to Snorkel International Holdings LLC ("Snorkel") in October 2013.  Tanfield currently owns 49% of Snorkel and 5.76% of Smith Electric Vehicles Corp. ("Smith").

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

Summary

·    As reported in the 2018 interim results, the Board impaired the Snorkel investment value to £19.1m, representing approximately 11.7p per share.

·    Smith continues to be held at a nil balance sheet value following the impairment of the investment at the end of 2015. 

·    As reported in November 2018, the Board received a call option notice in which Xtreme, via its subsidiary SKL Holdings, requested to exercise a call option to acquire Tanfield's interest in Snorkel. In the request, SKL Holdings stated that the option price to acquire Tanfield's holding was $0 (nil) and that payment of the priority amount and preferred return (collectively "the Preferred Interest") was not required.

·    The Board did not agree with this statement and does not believe that the contractual agreements, or the circular distributed to shareholders to fully explain the terms of the transaction - and thereby seek their authority to enter in to the transaction - allow for a call option whereby Xtreme can acquire Tanfield's interest in Snorkel for a nil value.  The Board therefore rejected the call option notice and discussions are ongoing.

·    The Board remain of the opinion that the Preferred Interest, being the calculated value placed on the assets Tanfield transferred to the joint venture, is the minimum payment required under the terms of the contractual agreements, as described in the circular, in order for Xtreme to acquire Tanfield's interest.  Therefore, the Board deem this to be an appropriate basis for determining the value the investment is to be carried at.

·    Due to the risks involved with the ongoing different opinions regarding the contractual agreements, it is possible the actual realisation of value could be less than the current valuation.  Due to these inherent uncertainties, the Board is unable to determine whether the actual outcome will be less than the current valuation of £19.1m, which it believes is underpinned by the value of the Preferred Interest, and so feel the valuation of £19.1m should be maintained.

·    Should Xtreme attempt to acquire Tanfield's 49% interest in Snorkel for an unacceptable value, the Board will vigorously defend its position that the Preferred Interest is payable.

·    The Company's operating loss in H1 2019 increased to £127k (H1 2018: £94k) as a consequence of additional legal fees during the period, with the retained loss for the period being £127k (H1 2018: £17.3m, including a £17.2m impairment of the Snorkel investment).

Overview of investments

Based on the unaudited financial information received from Snorkel, during the first 6 months of 2019 the business achieved further sales growth resulting in sales of US$112.5m, an increase of around 17% compared to H1 2018 when sales were US$96.3m.  Should the trend of sales growth continue for the remainder of the year, the Board believes 2019 could see total sales of around US$230m (2018: US$201m).  

The reported gross profit for the period was US$13.8m, an increase of $1.5m compared to H1 2018 (US$12.3m) however, the gross profit margin reduced slightly to 12.2% compared to 12.7% in H1 2018.  Selling, general and administrative costs increased to US$12.7m (2018: US$11.5m) during the period, resulting in an operating profit, excluding depreciation, of US$1.1m (H1 2018 US$0.8m). 

The reported EBITDA for the last 12 month period, ending June 2019, is US$3.2m.  The Board did not receive the information necessary to provide a comparison for the 12 month period ending June 2018, and the closest comparison available is for the 12 month period ending September 2018, which saw a last 12 month EBITDA of US$1.8m reported. 

The Board is unable to provide an opinion at this juncture on the profit expectation for the remainder of 2019.

In 2015 the investment in Smith was impaired to nil due to the uncertainty around its future and the level of funding it required. The situation continues to be monitored but the Board is of the opinion that it is highly unlikely that any value will materialise from the investment.

For further information:

Tanfield Group Plc                                                                          020 7220 1666

Daryn Robinson                                                                                                 

WH Ireland Limited - Nominated Advisor / Broker

James Joyce / Lydia Zychowska                                                     020 7220 1666