Last checked at 24 Aug 2021 07:00
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")
Snorkel Investment & Legal Proceedings 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 business.
Investment Background
· Tanfield is a 49% shareholder in the equity of Snorkel following the joint venture between the Company and Xtreme Manufacturing LLC ("Xtreme") (the "Contemplated Transaction"), a company owned by Don Ahern of Ahern Rentals Inc, relating to Snorkel, in October 2013.
· The Snorkel investment is valued at £19.1m. The outcome of the US and UK Proceedings referenced below could have an impact on this valuation.
· On 22 October 2019, the Company announced that it had received a Summons and Complaint, filed in Nevada (the "US Proceedings") by subsidiaries of Xtreme, relating to the Contemplated Transaction.
· On 24 October 2019, the Company announced it had become necessary to issue and serve a claim in the English High Court against Ward Hadaway (the "UK Proceedings"), the solicitor acting for the Company at the time of the Contemplated Transaction, in order to fully protect the Company's rights pending the outcome of the US Proceedings.
Highlights
· Snorkel continues to recover from the impact of the global COVID-19 pandemic and has seen sales for the second quarter of 2021 increase by around 140% to US$40.3m compared to the second quarter of 2020 when sales were only US$16.8m.
· On 20 May 2021 the Company announced that due to an ongoing deficiency in the production of documents by Snorkel in the US Proceedings, it became necessary to move the trial to a five-week window that begins 7 March 2022.
· On 20 May 2021 the Company announced that Ward Hadaway sought to join Tanfield's US based law firm in 2013 into the UK Proceedings. That process has now completed and a revised trial date for the UK Proceedings has been set for November 2022.
Business Update
Tanfield is a 49% shareholder in the equity of Snorkel following the joint venture between the Company and Xtreme, a company owned by Don Ahern of Ahern Rentals Inc, relating to Snorkel, in October 2013.
Snorkel continues to recover from the impact of the global COVID-19 pandemic, which has impacted its ability to operate as normal, and has seen sales for the second quarter of 2021 increase by around 140% to US$40.3m compared to the second quarter of 2020 when sales were only US$16.8m.
While the gross profit margin has increased to 8.9% for the second quarter of 2021, compared to 7.2% for the 2020 full year, the Board remain of the opinion that gross profit margins generally do not appear to have been in line with the industry averages. Accordingly, steps to investigate the historic margins, which includes ensuring all related party transactions have taken place at an arm's length basis, have commenced and are ongoing.
Below is a summary of the consolidated operating statement for the first two quarters of 2021, as well as the year to date figures for 2021 and 2020:
US$000's | Q1 2021 | Q2 2021 | YTD 2021 |
| YTD 2020 |
|
|
|
|
|
|
Net sales | 31,431 | 40,286 | 71,717 |
| 60,242 |
Cost of goods sold | 29,407 | 36,719 | 66,126 |
| 56,598 |
Gross profit | 2,024 | 3,567 | 5,591 |
| 3,644 |
| 6.4% | 8.9% | 7.8% |
| 6.0% |
|
|
|
|
|
|
Selling, general & administrative costs | 4,507 | 3,350 | 7,857 |
| 10,235 |
Foreign currency exchange (gain)/loss | 148 | 64 | 212 |
| (379) |
|
|
|
|
|
|
EBITDA profit/(loss) | (2,631) | 153 | (2,478) |
| (6,212) |
|
|
|
|
|
|
Depreciation & non-operating costs | 567 | 591 | 1,158 |
| 1,107 |
|
|
|
|
|
|
Net profit/(loss) | (3,198) | (438) | (3,636) |
| (7,319) |
The Board continues to view the continued recovery from the impact of COVID-19 during the first six months of 2021 as a positive development and is not aware of any reason why this improving trend should not continue. The Board therefore anticipates improved results for the remainder of 2021, compared to the same periods in 2020.
US Proceedings
On 22 October 2019, the Company announced it had received a Summons and Complaint in relation to the US Proceedings, regarding the purported call option notice announced by the Company in November 2018. The Board notes that Snorkel / Xtreme claim they can take ownership of Tanfield's 49% investment in Snorkel for nil consideration, despite declaring in various K-1 US tax declarations that Tanfield, via its subsidiary HBWP Inc, contributed properties with a net fair market value of US$45.5m to the joint venture company in October 2013. The Board continues to believe that the contractual agreements require that the preferred interest (valued at £19.1m) is paid prior to, or in conjunction with, a call option notice.
On 30 March 2020, the Company announced that Snorkel and Xtreme filed a motion in favour of their claims and against claims brought by Tanfield, without a trial, claiming that there were no genuine issues of material fact (the "Motion"). On 3 April 2020, the Company announced that the judge determined that there appears to be genuine issues of material fact pertaining to the contract, its terms, and its execution and therefore the Motion was denied.
On 20 May 2021, the Company announced that despite the Board's best efforts to keep procedural matters to the agreed timetable, due to ongoing deficiencies in the production of documents by Snorkel / Xtreme it became necessary to reschedule the trial to a five-week window that begins 7 March 2022. While some additional documents have been produced by Snorkel / Xtreme since then, there is still a significant deficiency in the documents. As a result of the deficiency, subpoenas have been issued to third parties in an attempt to obtain some of the documents by other means. The Board continues to do everything it can to progress other aspects of the timetable to try and ensure the March 2022 trial window is maintained. The Company will continue to seek assistance from the court should Snorkel / Xtreme not provide the deficient documents in short order and / or tries to delay matters via other means.
UK Proceedings
On 24 October 2019, the Company announced that it had been necessary to issue and serve a claim against Ward Hadaway, the Company's appointed solicitor since before its AIM listing in 2000, in order to fully protect the Company's rights pending the outcome of the US Proceedings and to ensure the Company could hold Ward Hadaway to account for its role in and/or advice in relation to the Contemplated Transaction if necessary. This was necessary as a result of Ward Hadaway refusing to agree to a standstill agreement that would fully protect the Company's rights pending the outcome of the US Proceedings.
Whilst the Board vehemently deny the claims made by Snorkel and Xtreme in the US Proceedings, a major part of the UK Proceedings is premised on the Company being wholly or partly unsuccessful in the US Proceedings. If that were to happen, the UK Proceedings are, in summary, that Ward Hadaway were retained to advise and assist the Company in connection with the Contemplated Transaction, in particular the preparation of the Circular and the process of obtaining the required Shareholder and Board approvals before the Contemplated Transaction could be entered into, and that the firm was negligent and/or acted in breach of contract in carrying out that role, the result of which has led to the Company suffering substantial financial loss.
On 20 May 2021, the Company announced that Ward Hadaway sought to join Tanfield's US based law firm in 2013 into the UK Proceedings so that, if Ward Hadaway are found liable, then they claim a contribution from the US based law firm towards any such liability. That process has now completed and a revised trial date for the UK Proceedings has been set for November 2022. The trial date being set for November 2022 so that, in part, it allows for a delayed timetable so that the US Proceedings will hopefully complete before the UK Proceedings substantially progresses through its remaining timetable before reaching the trial date.
A future stage of the UK Proceedings will be the preparation of expert evidence which seeks to value the Snorkel division and assets which were contributed to the joint venture as part of the Contemplated Transaction. This is scheduled in the timetable for July 2022 and the Board continue to believe that value to have been substantial, which it believes is supported by Snorkel's K-1 US tax declarations that state Tanfield, via its subsidiary HBWP Inc, contributed properties with a net fair market value of US$45.5m.
The Board still believe that a positive outcome to either/both the US Proceedings and UK Proceedings is possible and, so far as it is necessary, the Company will continue to vigorously defend and advance its position in both proceedings, whilst continuing to seek advice.
Further updates will be provided to Shareholders as and when appropriate.
For further information:
Tanfield Group Plc 020 7220 1666
Daryn Robinson
WH Ireland Limited - Nominated Advisor / Broker
James Joyce / Lydia Zychowska 020 7220 1666