06.09.2018

Snorkel lifts revenues 21%

Snorkel has reported first half revenues of $96.3 million, up almost 21 percent on the same period last year.

Operating profits however almost halved to $811,000 due to slightly lower margins as a percentage of sales, and higher sales and administration costs. The company has also substantially increased the liabilities on the balance sheet from $27 million at the end of the first quarter to $79 million at the end of June.

The numbers were revealed in a statement from Tanfield, which still owns a 49 percent stake. It also prepares shareholders for the possibility that the sale of the holding in Snorkel will yield a very modest return at best, and possibly nothing at all. A call option to acquire Tanfield’s 49 percent can be made in October, with the value being based on the results and the balance sheet.

The Tanfield statement said: “Slower sales growth and lower profitability have unfortunately negatively impacted Tanfield's expectations as to the financial outcome for its shareholders as we approach the next phase of the transaction after 30 September 2018.”

“The board of Tanfield has sought - and is continuing to seek - advice in order to clearly define the effect of the Agreement on Tanfield's investment, as well as the effect of the restated balance sheet (if valid) and will update shareholders further as and when appropriate. In the event that the call option is exercised in October 2018, the Board anticipates that there will most likely be a period of negotiation - potentially protracted - prior to any financial realisation and the Board will need to assess the Company's position and, if necessary, take appropriate advice and initiate an audit at or prior to that time.”

Vertikal Comment

It is clear from the tone of the Tanfield statement that it believes that the majority owner - Don Ahern - has suppressed profitability and increased liabilities in order to pick up the rest of the company for next to nothing.

It is almost certain that if Snorkel published 'underlying results', as many companies trying to paint a rosier picture often do, the numbers would be brighter.

The fact is, this was ‘on the cards’ from the very beginning as we predicted back in 2014. Snorkel was rapidly approaching bankruptcy, production had all but ceased, parts were often unavailable and simply would not have survived. Ahern had many reasons for rescuing the business and has transformed it in the years since he bought it. Few observers would consider that Tanfield have any right to expect to gain anything from the sale, given the gross mismanagement displayed at the senior and board level. It simply burnt up shareholders cash as it went on an acquisition spree which seemed to work on a formula of 2+2=0.5.

While we predicted at the start that it was unlikely that Tanfield would see any payment for Snorkel, at one point it valued its 49 percent stake at $122 million!

No further comment........for now