TIDMTAN
RNS Number : 5907J
Tanfield Group PLC
30 June 2017
The Tanfield Group Plc
("Tanfield" or "the Company")
Final Results for the year ending 31 December 2016 and Notice of
AGM
Tanfield Group Plc, a passive investing company as defined by
AIM Rules, announces its final results for the year ending 31
December 2016. 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 7 August 2017 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.
Daryn Robinson, Chairman of Tanfield, said:
"During the year we have continued to monitor closely the
progress of both of the Company's investments. The Board once again
feels that some progress has been made towards a realisation of
value in the investment in Snorkel following further growth in
2016. The calculation of the Snorkel valuation was made in 2013 and
is based on the formula detailed in the circular that was
distributed prior to the disposal of the controlling interest in
Snorkel, which expires on 30 September 2018. There is no guarantee
that the financial targets required to trigger the realisation of
this value will be met before the expiry date. The Board is of the
opinion that should the financial targets not be met before the
deadline, the current valuation could be a fair reflection of the
investment value beyond the end of the 5 year period. With respect
to Smith, however, the Board continue to hold the view that the
value of the investment should be nil. The current combined value
per share of investments is 23p 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. Sales levels
(unaudited) have continued to grow during 2016, increasing by 19%
to $130.5m (2015: $109.9m / 2014: $85.3m). Despite market
conditions continuing to be challenging, Snorkel has been able to
achieve improved market share in targeted regions allowing it to
also create a broader and more diverse customer base. This is
expected to help underpin further growth expected for 2017,
including from large rental companies that have not purchased
Snorkel product for a number of years. This is testament to the
progress Snorkel has made in recent years and the improvements to
the product range, build quality and customer service.
The Snorkel 2016 accounts report an operating loss (unaudited),
excluding depreciation, of $2.8m (2015: $10.6m / 2014: $14.9m) with
$1.9m of this loss being incurred in the first quarter of the year
and the business operationally breaking even during some of the
later periods. The significantly reduced operating loss is
partially linked to the increased sales levels but is mainly the
result of the focused cost-down activity that has taken place
during 2015 and 2016 coming to fruition, thereby reducing the bill
of material costs and lowering the break-even sales point.
Despite the challenging trading conditions, the Board understand
Snorkel is again targeting double-digit growth in 2017 from their
UK manufacturing facility which mainly provides product to the
European marketplace. Tanfield are, however, unsure how much growth
will come from the US manufacturing facility in 2017, given its
dependency upon Ahern Rentals as its principal customer.
Nevertheless, as a result of the success of the cost down activity
and the double digit European growth expectation, the Board
believes Snorkel could still achieve combined growth, as evidenced
in the March 2017 quarterly accounts, and move into profit for the
full 2017 year, in line with their forecast.
Should economic conditions materially change in the latter
stages of 2017, this may have an impact on the expected outcome,
but the Tanfield Board is currently of the opinion that the
investment in Snorkel will result in a return to shareholders in
the future, although it should be noted that this may not
materialise until after 30 September 2018 when the outcome then
becomes uncertain and could be more or could be less than the
calculated realisation value.
Valuation of Snorkel holding
The Board of Tanfield has taken a view of the carrying value of
its 49% holding and its preferred interest position that takes
account of risks in the industrial global markets and the normal
cycles that operate within these markets. The range of potential
valuations can be broad, with the added complexity of a time-
driven element whereby the agreement for the current valuation
formula could only be triggered during a five year period ending in
September 2018. The transaction is described below, largely
extracted from page 7 of the Circular distributed to Shareholders
in 2013 and available from the Company website at
http://www.tanfieldgroup.com with current values* inserted where
appropriate.
Xtreme, by way of its holding in SKL Holdings, entered in to a
staged acquisition of the Snorkel Division, via the creation of
Snorkel International Holdings, in which Tanfield retains a holding
until the consideration terms are fully met. Xtreme has made
significant working capital facilities available to Snorkel
International Holdings to deliver its growth forecast (currently
believed to be approximately $70m* of working capital) and has
delivered certain other strategic benefits and synergies to Snorkel
International Holdings. Tanfield retains an initial interest in 49%
of Snorkel International Holdings and an adjusted preferred
interest position of $22.4m*, in exchange for Xtreme's controlling
interest in Snorkel International Holdings. Subject to the Snorkel
Division reaching an EBITDA of at least $25m for any prior 12 month
period prior to 30 September 2018, Tanfield can demand payment of
this preferred interest which would be paid when Snorkel
International Holdings is able to fund such payment and its net
debt/EBITDA ratio is less than 2, ultimately reducing Tanfield's
interest to 30% and Xtreme will hold 70% of Snorkel International
Holdings.
Subject to the payment of the preferred interest, and before 30
September 2018, Tanfield has a "put" option on this remaining
holding, whereby SKL Holdings will be obliged to purchase the
remaining interest held by Tanfield at an agreed multiple of 5.5
times EBITDA earnings, as at the date of the put, again subject to
Snorkel International Holdings being able to fund such a payment.
SKL Holdings has a call option on the same commercial terms.
At the end of 2016 there were just under two years left to run
on the fixed terms of the agreement. If the formula is not
triggered within the 5 year time frame Tanfield will retain a 49%
interest in Snorkel but the $25m EBITDA trigger compelling payment
of the $22.4m adjusted preferred interest position and the
Company's put option compelling the purchase of Tanfield's
remaining interest in Snorkel will expire.
The Board continues to have discussions with Snorkel and remain
of the view that Don Ahern, the owner of Xtreme, would wish to one
day own 100% of Snorkel and will therefore seek to buy Tanfield's
holding in Snorkel at some point in the future.
The Board has considered a number of scenarios and, based on the
range of possible outcomes, feel the valuation of GBP36.3m should
be maintained. This valuation has been assessed against various
criteria, including past performance, production capacity, market
conditions, the capability of the business to increase output and
exchange rate fluctuations.
The original valuation was based on the assumption that the $25m
EBITDA target would be reached within the 5 year period. Whilst
that target now seems increasingly unlikely to be achieved, if the
assumption is made that both the progress within Snorkel and the
wider global market conditions will continue to improve, then the
current GBP36.3m valuation could still be a fair reflection of the
investment value beyond the 5 year period; with the caveat that a
number of factors could influence the valuation and performance of
Snorkel between now and a potential realisation date beyond
September 2018, including Xtreme's negotiating stance. Therefore,
the actual value that might be realised could be more or less than
the current valuation.
The Board would like to draw your attention to note 2 of this
announcement and that the auditors have also highlighted this
uncertainty.
The Board will continue to monitor the investment and is
reviewing the original agreements with its advisers to ensure it
has an accurate understanding of the position post September 2018
should the EBITDA target not be achieved beforehand.
Smith
In October 2014 Smith completed a restructuring exercise that
saw it convert debt to equity. As a result of this, they informed
the Company that its equity shareholding had reduced from 24% to
5.76% (excluding warrants).
Since then, Smith has sought to raise funds which would allow it
to implement its strategic plan. To date, no significant fundraise
has been completed and the Board of Tanfield does not foresee this
happening in the immediate future.
In May 2015 Smith executed a conditional agreement to form an
exclusive joint venture with strategic partner and investor FDG
Electric Vehicles Limited ("FDG"). In May 2016, the Board of
Tanfield was informed that Smith had filed a complaint against FDG
and the New Joint Venture. The Board of Tanfield understands that
counter-claims have been made against Smith and that legal
procedures are ongoing.
Valuation of Smith holding
In 2015, the Board of Directors 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
funding uncertainties as well as the legal proceedings between
Smith and FDG.
We understand that legal proceedings are ongoing and that Smith
have not been able to raise any meaningful funds since that time
and so the Board maintain its opinion that the investment value
should be held at nil.
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 it
will result in a return of value to shareholders over time. In
contrast, at this stage it does not look likely that its investment
in Smith will result in a return of value to shareholders.
The Directors will update shareholders should this view
change.
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.
The Board takes the view that while there has been further
progress made by Snorkel, there is still a risk of failure,
although based on progress to date and commitments from Don Ahern /
Xtreme, this seems unlikely. 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 YEARED 31 DECEMBER 2016
2016 2015
GBP000's GBP000's
=============================================== ==== ==== ============= =========
Revenue - -
Staff costs (85) 618
Other operating income 30 27
Other operating expenses (182) (268)
------------------------------------------------------------ ------------- ---------
(Loss)/Profit from operations
before impairments (237) 377
Impairment of Investments - (4,770)
Loss from operations after
impairments (237) (4,393)
Finance expense (13) (54)
Finance income 1 1
------------------------------------------------------------ ------------- ---------
Net finance expense (12) (53)
Loss from operations before
tax (249) (4,446)
Taxation - -
----------------------------------------------- ---- ---- ------------- ---------
Loss & total comprehensive income for
the year attributable to equity shareholders (249) (4,446)
----------------------------------------------------------- ------------- ---------
Earnings per share
Loss per share from operations
Basic (p) (0.2) (3.1)
Diluted (p) (0.2) (3.1)
BALANCE SHEET (Company registration number 04061965)
AS AT 31 DECEMBER 2016
2016 2015
GBP000's GBP000's
========================================== ==== ==== ============= ============
Non current assets
Non current Investments 36,283 36,283
------------------------------------------------------- ------------- ------------
36,283 36,283
---- ---- ------------------------------------------ ------------- ------------
Current assets
Trade and other receivables 61 98
Cash and cash equivalents 269 94
------------------------------------------------------- ------------- ------------
330 192
---- ---- ------------------------------------------ ------------- ------------
Total assets 36,613 36,475
------------------------------------------------------- ------------- ------------
Current liabilities
Trade and other payables 91 110
------------------------------------------------------- ------------- ------------
91 110
---- ---- ------------------------------------------ ------------- ------------
Non-current liabilities
Other payables - 254
- 254
---- ---- ------------------------------------------ ------------- ------------
Total liabilities 91 364
------------------------------------------------------- ------------- ------------
Equity
Share capital 7,816 7,546
Share premium 17,190 16,800
Share option reserve 459 461
Special reserve 66,837 66,837
Merger reserve 1,534 1,534
Retained earnings (57,314) (57,067)
------------------------------------------------------- ------------- ------------
Total equity attributable
to equity shareholders 36,522 36,111
------------------------------------------------------- ------------- ------------
Total equity and liabilities 36,613 36,475
------------------------------------------------------- ------------- ------------
STATEMENT OF CHANGES IN EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
FOR THE YEARED 31 DECEMBER 2016
Share Share Share Merger Special Retained Total
capital premium option reserve reservea earnings
reserve
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
At 1 January 2015 7,187 16,455 845 1,534 66,837 (53,005) 39,853
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
Comprehensive income
Loss for the year - - - - - (4,446) (4,446)
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
Total comprehensive
income for the year - - - - - (4,446) (4,446)
Transactions with
owners in their capacity
as owners:-
Issuance of new
shares 359 345 - - - - 704
Share based payments - - (384) - - 384 -
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
At 31 December 2015 7,546 16,800 461 1,534 66,837 (57,067) 36,111
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
Comprehensive income
Loss for the year - - - - - (249) (249)
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
Total comprehensive
income for the year - - - - - (249) (249)
Transactions with
owners in their capacity
as owners:-
Issuance of new
shares 270 390 - - - - 660
Share based payments - - (2) - - 2 -
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
At 31 December 2016 7,816 17,190 459 1,534 66,837 (57,314) 36,522
------------------------------ --------- --------- --------- ----------- ----------- --------- ---------
a The company's special reserve relates to a previous
reclassification of the share premium account.
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2016
2016 2015
GBP000's GBP000's
=========================================== ==== ============= =========
Loss before interest and taxation (237) (4,393)
Loss on impairment of investments - 4,770
-------------------------------------------------- ------------- ---------
Operating cash flows before movements
in working capital (237) 377
Decrease/(increase) in receivables 25 (25)
Decrease in payables (273) (1,331)
-------------------------------------------------- ------------- ---------
Net cash from/(used in) operations (485) (979)
Cash flow from financing activities
Proceeds from issuance of ordinary
shares net of costs 660 704
-------------------------------------------------- ------------- ---------
Net cash from financing activities 660 704
-------------------------------------------------- ------------- ---------
Net decrease in cash and cash equivalents 175 (275)
Cash and cash equivalents at the start
of year 94 369
-------------------------------------------------- ------------- ---------
Cash and cash equivalents at the end
of the year 269 94
-------------------------------------------------- ------------- ---------
1. Basis of preparation
The results announcement has been prepared under the historical
cost convention on a going concern basis and in accordance with the
recognition and measurement principles of International Financial
Reporting Standards and IFRIC interpretations as adopted by the EU
("IFRS").
The announcement has been prepared on the basis of the same
accounting policies as published in the audited financial
statements of the Company for the year ended 31 December 2016.
The information in this statement has been extracted from the
accounts for the year ended 31 December 2016 and as such, does not
contain all the information required to be disclosed in accordance
with the International financing reports standards ("IFRS").
2. Audited Financial Statements
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2016
or 2015 within the meaning of s435 of the Companies Act 2006 but is
derived from those accounts. Statutory accounts for 2015 have been
delivered to the registrar of companies, and those for 2016 will be
delivered in due course.
The auditors have reported on those accounts; their reports were
(i) unqualified and (ii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006 in respect of the accounts
for 2015 or 2016. However, (iii) in their audit report for the year
ended 31 December 2016 the auditors did draw attention by way of an
emphasis of matter to a material uncertainty that could impact the
carrying value of Non Current Asset Investments (no emphasis was
referenced in 2015). Further details can be found in the auditors
report on page 11 of the Company's statutory accounts for the year
ended 31 December 2016. The results for the year ended 31 December
2016 were approved and authorised for issue by the Board of
Directors on 29 June 2017 and are audited.
The information contained in this preliminary announcement was
authorised and approved by the Board of Directors on 29 June
2017.
3. Loss per share
Basic loss per share is calculated by dividing the loss attributable
to equity shareholders by the weighted average number of shares
in issue during the period. In calculating the dilution per share,
share options outstanding and other potential ordinary shares have
been taken into account where the impact of these is dilutive. As
the potential dilutive ordinary shares from share options reduce
the loss per share these shares are omitted from the dilutive loss
per share calculation. The average share price during the year was
12.88p (2015: 19.58p).
Number of shares 2016 2015
No. No.
000's 000's
---------------------------------------------------------------- -------- ------ --------- ---------
Weighted average number of ordinary shares for
the purposes of basic earnings per share 153,677 144,823
Effect of dilutive potential ordinary
shares from share options 122 171
---------------------------------------------------------------- -------- ------ --------- ---------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 153,799 144,994
---------------------------------------------------------------------------------- --------- ---------
Loss
2016 2015
From operations GBP000's GBP000's
---------------------------------------------------------------- -------- ------ --------- ---------
Loss for the purposes of basic earnings per share
being net profit attributable to owners of the
parent (249) (4,446)
Potential dilutive ordinary shares from share - -
options
---------------------------------------------------------------------------- ------------- ---------
Loss for the purposes of diluted earnings
per share (249) (4,446)
---------------------------------------------------------------------------- ------------- ---------
Loss per share from operations
Basic (p) (0.2) (3.1)
Diluted (p) (0.2) (3.1)
For further information:
Tanfield Group Plc
Daryn Robinson 0700 349 7489
WH Ireland Limited - Nominated Advisor
James Joyce / Alex Bond 020 7220 1666
Peterhouse Corporate Finance - Broker
Peter Greensmith / Duncan Vasey 020 7220 9797
This information is provided by RNS
The company news service from the London Stock Exchange
END
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