CSLT.L Regulatory News (CSLT)

Cosalt plc

Update on trading and change of year end

The Board of Cosalt plc ("Cosalt" or "the Group") provides the following update:

Offshore division - litigation

On 20 October 2010, the Group announced that an inventory check, being part of a wider internal review of the Offshore division's operating practices in Aberdeen, had identified a shortfall in stock and work in progress of up to £4 million. A detailed investigation of part of the shortfall undertaken by KPMG Forensics concerning stock purchases is now complete. The Board believes that the special item losses arising from the stock and work in progress shortfall, together with charges for related costs and other deficiencies and professional fees in the period to 31 October 2010 will be no more than £4.5m.

The Group is pursuing a claim through the Scottish Courts against the parties responsible for part of the shortfall. Currently, the Group is seeking damages against Calum Melville and Stuart Melville (previous employees of the Group) and companies associated with them for losses suffered by the Group as a consequence of an alleged fraud, including the costs the Group has incurred in relation to this matter. Further updates will be provided to the market as may be relevant during the Court process.

Current trading

Having now completed the extensive investigations into the Offshore division, the Group's position is that during the period to 31 October 2010, significant activities took place in this division which it is alleged were fraudulent. Together with a challenging trading environment this had the effect of reducing the contribution from Offshore and as a result Group trading for the period ended 31 October 2010 was below the Board's expectations.

Discovering and then investigating the scale of the alleged fraud has been an arduous and unpleasant task but the Board is now satisfied this process is complete. To that end, Rod Buchan, a new CEO of the Offshore Division was appointed in January 2011 and we can again be confident in the business practices and operations. Whilst the division's trading conditions have continued to be challenging, there have been signs of improvement as evidenced by a strengthening of the order pipeline and the recent Acergy contract win in both Norway and Aberdeen.

The Marine Division traded in line with the Board's expectations for the twelve months and has continued to trade satisfactorily since the end of October 2010.

In addition to the special item referred to above under "Offshore Division litigation" the Group has incurred other necessary reorganisation costs including those charged in the first half of the year and consequently the total exceptional and special charges are likely to be in the region of £7 million in the period to 31 October 2010.

The Board is also considering making a non-cash impairment charge against the carrying value of goodwill and intangible assets in relation to the Group's Offshore operations in the UK and Norway which is likely to be in excess of £10 million. The reasons for this action largely relate back to the poor trading and losses which the business operations suffered under the previous Offshore management team.

Potential offer for the Marine business

The Board announced on 1 November 2010 that it had been approached with regard to a potential offer for the Group's Marine business. Although there can be no certainty that any transaction will be concluded, the Board can confirm that considerable progress has been made since the date of the last announcement and discussions are continuing and are relatively well-advanced.

Banking

As previously mentioned in the Group's most recent half yearly report, the Group has been involved in discussions with its banks about an increase to its facilities following the award of the new contract with the South East Fire and Rescue Services. The Group's indebtedness has increased in recent months due to a number of factors including the significant level of funding required for that contract; the hitherto slower trading in Offshore; and the exceptional and special charges referred to above. Discussions with the Group's banks regarding its long-term funding are continuing; they have also indicated a willingness to increase the short-term facilities.

Change to accounting reference date 

The Board believes that it makes good commercial sense to align the Company's year-end with that of many of its customers and suppliers and as a result of this and the matters covered above, the Board has decided that now is an opportune time to change the Company's accounting reference date from 31 October 2010 to 31 December 2010. Following the change to the accounting reference date, the Company will be required to publish its audited accounts for the 14 months ended 31 December 2010 by 30 April 2011.

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