CSLT.L Regulatory News (CSLT)

NOT FOR RELEASE PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTOAUSTRALIA, CANADA, JAPAN OR THE UNITED STATES

Cosalt plc

("Cosalt", "the Company" or "the Group")

Proposed Disposal of the Marine Business to Survitec Group Limited

Summary

·; Exchange of contracts for the sale of the Group's Marine Business now taken place for a headline price of £31 million;

·; Completion of the Disposal conditional, amongst other matters, upon approval of shareholders at general meeting; circular to be published in connection with the Disposal in due course;

·; Expected net proceeds of approximately £27 million (after an adjustment to reflect the expected level of working capital at completion and transaction costs) to be used to reduce outstanding bank borrowings;

·; Company to issue £2.0 million of unsecured loan notes to substantial shareholders, David Ross (Non-executive Chairman) and Sovereign Holding Limited, to provide additional funding;

·; Following completion of the Disposal and the issue of the unsecured loan notes, Group bank borrowings expected to be approximately £7.4 million;

·; Amended debt facilities with the Group's senior lenders totalling £11.4 million to be put in place from completion until 31 December 2012; guarantees of £5.8 million provided by David Ross and Sovereign Holding Limited to the senior lenders;

·; Proposed sale part of the Board's adoption of a new, more focused strategy as a specialist provider of critical safety equipment and related services to the Offshore Oil and Gas and Renewables sectors; and

·; Board implementing a number of cost saving actions to improve the Group's financial position.

For further information, please contact:

Evolution Securities Limited, which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively for the Company and no-one else in connection with the Disposal and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Evolution Securities Limited nor for giving advice in relation to the Disposal or any other matters referred to in this announcement.

Hawkpoint Partners Limited, which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively for the Company and no-one else in connection with the Disposal and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Hawkpoint Partners Limited nor for giving advice in relation to the Disposal or any other matters referred to in this announcement.

Important notice

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, any applicable restrictions or requirements. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction. This announcement has been prepared for the purposes of complying with English law and the Listing Rules and the applicable rules and the information disclosed may not be the same as that which would have been disclosed if this document had been prepared in accordance with the laws and regulations of any jurisdiction outside of England and Wales. The statements contained in this announcement are made as at the date of this announcement, unless some other time is specified in relation to them, and publication of this announcement shall not give rise to any implication that there has been no change in the facts set forth herein since such date. Nothing contained in this announcement shall be deemed to be a forecast, projection or estimate of the future financial performance of the Company, the Cosalt Group, the Continuing Group or the Marine Business except where otherwise stated.

Forward looking statements

This announcement contains certain "forward-looking statements" with respect to the financial condition, results of operations and business of the Company, the Cosalt Group and the Continuing Group and certain plans and objectives of the members of the Cosalt Group. In some cases, these forward-looking statements can be identified by the fact that they do not relate to historical or current facts and by the use of forward-looking terminology, including the terms "anticipates", "believes", "estimates", "expects", "intends", "plans", "prepares", "goal", "target", "will", "may", "should", "could" or "would" or, in each case, their negative or other variations or comparable terminology. These statements are based on assumptions and assessments made by the Directors in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe appropriate. Investors should specifically consider the factors identified in this announcement that could cause actual results to differ before making an investment decision. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, the Cosalt Group or the Continuing Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. They are also based on numerous assumptions regarding the Company's, the Cosalt Group's and/or the Continuing Group's present and future business strategies and the environment in which it is believed that the Continuing Group will operate in the future. These forward-looking statements speak only as at the date of this announcement. Except as required by the FSA, the Listing Rules, the Disclosure and Transparency Rules, the London Stock Exchange or applicable law, the Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this announcement. 

Introduction

The Board of Cosalt announces that the Group has exchanged contracts to sell the entire issued share capital of certain subsidiaries substantially comprising the Group's UK and continental European Marine operations ("the Marine Business") to Survitec Group Limited for a headline consideration of £31 million in cash, subject to an adjustment to reflect the actual level of net debt and working capital in the Marine Business at Completion ("the Disposal"). Following this adjustment and after paying associated transaction costs, Cosalt expects to receive net proceeds of approximately £27 million which the Group intends to use to reduce its bank borrowings. The Disposal constitutes a Class 1 Transaction under the Listing Rules requiring shareholder approval. The Group will therefore, in due course, send a circular to shareholders convening a general meeting at which shareholders will be asked to vote on a resolution to approve the Disposal.

For the reasons set out below, it is very important that shareholders vote in favour of the resolution so that the Disposal can proceed.

Background to and reasons for the Disposal

On 1 November 2010, the Board announced that it had been approached with regard to a potential offer for the Marine Business. That approach was from Survitec Group Limited, a leading manufacturer of marine safety and survival equipment and an important trading partner of the Marine Business.

On 14 February 2011, the Board confirmed that the Group's indebtedness had increased in recent months due to a number of factors including the significant level of funding required for the new contract of its specialist workwear clothing and equipment business ("the Workwear Business") with the South East Fire and Rescue Services; challenging trading conditions in Offshore; and the exceptional and special charges resulting from the discovery of a shortfall in stock and work in progress and subsequent litigation in the Scottish Courts.

The Board believes that the Disposal represents the most viable means of achieving a significant reduction in Cosalt's indebtedness in the short term. As at 31 March 2011, the latest practicable date prior to release of this announcement, Cosalt had outstanding bank borrowings of £30.5 million. Cosalt intends to use the entire net proceeds from the Disposal to reduce bank borrowings.

Subject to completion of the Disposal, the Group's senior lenders and certain of its principal shareholders will, as detailed below, provide debt facilities totalling £13.4 million, which the Board believes will be sufficient to finance the ongoing working capital funding requirements of the Group, including the South East Fire Service contract.

Following the Disposal, the Group will be a focused provider of specialist critical safety equipment and related services operating in three divisions: Cosalt's established Offshore Oil and Gas business, its Workwear Business and the recently launched Renewables business.

Information on the Marine Business

The Marine Business supplies a range of marine safety equipment such as liferafts, lifejackets and immersion suits and also provides a number of associated services to customers serving the marine industry from a network of locations in the UK and mainland Europe.

The Marine Business comprises five wholly owned subsidiaries of Cosalt (Cosalt International Limited, Oceana Air Sea Trading Company BV, Cosalt NV, Cosalt GmbH and Cosalt Seguridad Maritima S.L.), representing operating entities in the UK, Belgium, Holland, Germany and Spain. Following the Disposal, Andrew Richards, Johan Denis and Sue Else, respectively the Managing Director, General Manager Europe and Finance Director of the Marine Business, will remain in their existing roles in the Marine Business.

For the 53 weeks ended 1 November 2009, the Marine Business recorded revenues of £59.7 million and pre-tax profits of £3.3 million. As at 1 November 2009, the Marine Business had gross assets and net liabilities of £45.8 million and £13.5 million respectively.

Information on Survitec

Survitec is a leading manufacturer of high quality safety and survival equipment, including inflatable liferafts and marine evacuation technology and serves the military, marine, aerospace, and homeland security markets. It is based in London and Belfast with other locations in the USA, Australia, New Zealand, Singapore, Malaysia, Japan, England, France, Germany and Italy.

The Marine Business is a key distribution and service agent for Survitec's branded liferafts worldwide, and its integration within the Survitec group will improve the service offering provided to UK and European customers.

Survitec was acquired by global private equity firm Warburg Pincus in 2010. With the backing of its new shareholders, Survitec is pursuing its global expansion strategy and strengthening its position in the marine, defence and aerospace safety markets by growing organically and through acquisitions both within existing and new territories.

During 2010, Survitec acquired two other marine businesses, Seaweather Marine in the UK and the commercial marine business of Revere in the USA. Further information on Survitec is provided at www.survitecgroup.co.uk.

Terms and Conditions of the Disposal - Summary

Under the terms of the Disposal agreement, Cosalt has conditionally agreed to sell the entire issued share capital of each of the companies comprising the Marine Business to Survitec. Prior to the Disposal, Marine activities as carried on by GTC Group in Aberdeen (including assets relating to the provision of liferaft testing and servicing) will be transferred from GTC Group into Cosalt International so as to be included in the Disposal. Also prior to the Disposal, the business, assets and liabilities of the Workwear Business carried on by Cosalt International will be transferred to a newly incorporated subsidiary, Ballyclare Limited, which will remain wholly owned by Cosalt.

Completion is also conditional, amongst other matters, upon:

·; approval by Shareholders of the Disposal in general meeting;

·; anti-trust clearance being obtained, where necessary;

·; consents to the change of control of the companies comprising the Marine Business having been obtained as required under contracts in place with certain of those companies' customers and suppliers;

·; consent having been obtained from the relevant landlords in respect of the assignment of certain property leases; and

·; clearance or other confirmation from the Pensions Regulator in relation to the Cosalt plc Retirement Benefits Scheme ("Cosalt Pension Scheme") and the Scottish English and European Textiles Retirement Benefit Scheme, having been obtained in a form satisfactory to Cosalt and Survitec.

Following the Disposal, all liabilities associated with the Cosalt Pension Scheme will remain with Cosalt. As at 31 December 2010, Cosalt had net retirement benefit obligations of £9 million on an IAS19 basis. Further information regarding the arrangements with the Cosalt Pension Scheme is set out below.

The Board will unanimously recommend in the Circular that Shareholders vote in favour of the resolution to be proposed at the general meeting, as the Directors intend to do in respect of their own beneficial holdings amounting, in aggregate, to 140,660,357 Ordinary Shares, representing 34.8 per cent of the Company's issued share capital.

Financial effects of the Disposal and future funding arrangements

As described above, the net proceeds will be applied in their entirety to reducing the Group's bank borrowings which were £30.5 million at 31 March 2011, the latest practicable date prior to release of this announcement. Following the completion of the Disposal, the Cosalt Board expects bank borrowings to be reduced to approximately £7.4m.

Cosalt's senior lenders have agreed, subject to the completion of the Disposal, to amend and restate the existing borrowing facilities to provide facilities totalling £11.4 million on terms similar to those currently in place. David Ross (Non-executive Chairman) and Sovereign Holding Limited, both of whom are substantial Cosalt shareholders, will provide unsecured guarantees to the senior lenders totalling £5.8 million over amounts drawn under these facilities on terms which the Cosalt Board considers to be commercial. These facilities will expire on 31 December 2012. The Company's Offshore business in Norway also has a £0.5 million revolving credit facility, which will continue to be available following the Disposal.

In addition to these arrangements, subject to completion of the Disposal, (i) the Company will issue unsecured Loan Notes totalling £2.0 million to Mr Ross (£1.0 million) and Sovereign Holding Limited (£1.0 million on terms that the Cosalt Board considers to be commercial and) which will be repayable on 31 December 2012; and (ii) the Cosalt Pension Scheme trustees have agreed that the regular payment of £0.1 million per month made by the Company as part of a deficit recovery plan on the Cosalt Pension Scheme will cease for a period of up to 18 months from March 2011.

Board actions to improve the Group's financial position

The Board is currently taking or, following completion intends to take, further actions with a view to improving the Group's financial position, including measures aimed at reducing indebtedness and strengthening its balance sheet. Such actions could include:

·; Disposal of non-core properties

The Board has identified a number of freehold and long leasehold properties owned by the Group which are considered surplus to its ongoing requirements. Such properties have been independently valued on an open market basis at £3 million. The net book value of such properties at 31 December 2010 (the Group's most recently published audited consolidated balance sheet) was £3 million.

·; Continuation of cost reduction exercise

The Board has identified a number of areas where it believes the Group can realise significant cost-savings. The Board is presently implementing this cost reduction exercise, in particular focusing on the Group's head office in Grimsby and the Offshore Oil and Gas Business' sites in Aberdeen and Stavanger. These measures principally comprise reductions in payroll costs and in procurement expenditure through negotiation of improved terms with suppliers.

·; Cosalt Pension Scheme

The Company has agreed with the Trustees of the Cosalt Pension Scheme that the Group will not be required to make any ongoing contributions to reduce the deficit in the Cosalt Pension Scheme for a period of up to 18 months from March 2011. The Company has identified other measures that could potentially be taken to manage the deficit in the Cosalt Pension Scheme more efficiently or to reduce it further, which the Company is investigating.

Working Capital and Importance of the Vote

The terms governing the Group's existing borrowing facilities contain various financial covenants. Since the announcement on 20 October 2010 regarding the identification of a stock and work in progress shortfall, the senior lenders have waived a number of these covenant tests. The senior lenders have also, subject to the Disposal completing by 22 July 2011, (i) waived their right to test the financial covenants contained in the existing borrowing facilities until that date; (ii) agreed that the £3.0 million capital repayment due on 31 January 2011 under Cosalt's term loan facility can be repaid out of the Disposal proceeds on completion; and (iii) agreed to extend an additional £4.0 million of funding under the Group's existing multi-currency revolving credit facility. David Ross has also agreed to provide up to £1.5 million of additional funding to the Group prior to completion of the Disposal. This funding will be provided by way of unsecured loans and loan notes on terms the Board considers to be commercial.

If the Disposal does not complete by 22 July 2011, there can be no guarantee that Cosalt's senior lenders would continue to waive these covenant tests. The £3.0 million due under the term loan facility and amounts outstanding under the recent £4.0 million extension to the revolving credit facility would also immediately fall due for repayment.

Further information regarding working capital and the importance of the vote will be provided in the circular to be sent to shareholders in due course. The Board will unanimously recommend in the circular that shareholders vote in favour of the resolution to be proposed at the general meeting, as the directors have irrevocably committed to do in respect of their own beneficial holdings amounting, in aggregate, to 140,660,357 ordinary shares, representing approximately 34.8 per cent of the Company's issued share capital.