Final Results

Cosalt plc

("Cosalt" or "the Group")

 Results for the 14 months ended 31 December 2010

·; Announced proposed sale of the UK and continental Marine operations for £31 million (net proceeds £27 million), subject to shareholder approval

·; Introduced 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.

·; Proceeds from the proposed sale of the Marine operations will be used to reduce Group borrowings and stabilise its financial position

·; Results for this announcement are for a 14 month period following the change of year end to 31 December 2010; prior period comparatives are for the 12 months ended 1 November 2009

·; Group sales of £112 million (2009: £108 million); operating profit of £2.3 million (2009: £8.6 million) before special items

·; Loss before tax of £0.8 million (2009: £5.5 million profit) before special items of £28.7 million (2009: £8.8 million) of which £17.4 million were non-cash items

·; New contract wins in the period with Siemens, Acergy and Shell demonstrate the underlying need for the Group's services, against backdrop of challenging trading conditions

Mark Lejman, Chief Executive, commented:

"The proposed sale of Marine which will be unanimously recommended by the Directors, will enable us to adopt a new more focused strategy on the Offshore Oil and Gas and Renewables sector. It will also provide us with a stable financial position from which to do so. Whilst trading conditions during early 2011 continued to be challenging, there are signs of an improvement, with a recent strengthening of the order pipeline and our Offshore, Workwear and Renewables businesses are trading broadly in line with the Board's expectations. Whilst considerable work remains, the Group now has an opportunity to build upon these foundations and develop the business."

ENQUIRIES:

Cosalt plc (www.cosalt.com) Tel: +44 (0)1472 725100

Mark Lejman, Chief Executive

Evolution Securities Tel: +44(0)113 243 1619

Joanne Lake / Peter Steel

Cardew Group Tel: +44 (0)20 7930 0777

Tim Robertson / James Milton

01 /Cosalt plc /Annual report & financial statements 2010

Overview

Chairman's Statement

Due to the change in the Company's year end, this report covers a period of 14 months to 31 December 2010. It has been a time of significant change for the business as we commence a new, more focused strategy, as a specialist provider of critical safety equipment and related services to the Offshore Oil and Gas and Renewables Sector.

As part of this strategy, today we have also announced the proposed sale of the Company's UK and continental Marine operations to Survitec Group for £31 million in cash (£27 million after adjusting for working capital levels at completion and transaction costs). If approved by shareholders at the General Meeting scheduled later in June, the Company will be refocused on its established Offshore business and the recently launched Renewables business and will also retain its Workwear specialist clothing business. In addition, the proceeds from the Disposal will be critical to reducing Group borrowings and stabilising the Group's financial position. The Directors will be unanimously recommending the proposed transaction to shareholders. A separate announcement was made to the stock exchange today and a circular will be sent to shareholders in due course.

During the period, the Company succeeded in securing a number of important new contracts which will form the basis of the future growth of the business. Most notably, our Workwear business secured a major contract with a consortium of Fire Brigades in the South East of England, the Renewables division commenced operations with a contract with Siemens (discussed in the Chief Executive's Review below) and the Offshore division gained important wins with Acergy and Shell.

In September 2010, the Group announced an internal review into the operating practices of the Offshore division. The review uncovered a shortfall in stock and work in progress. The Group is currently pursuing a claim through the Scottish Courts against the parties responsible for part of the shortfall and 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.

Discovering and subsequently dealing with the alleged fraud was firstly extremely disappointing and then has proved to be, in particular dealing with the litigation, an arduous and unpleasant task and a significant distraction for management.

Results

The underlying need for our specialist services and products is unchanged but, in line with trends in the wider economic environment, our customers have frequently continued to delay or defer decisions where possible, which is reflected in our overall financial performance.

Total revenues in the 14 month period to 31 December 2010 were £112 million and for the 12 month period to 1 November 2009 revenues were £108 million showing that this has been a difficult period with sales only slightly ahead, despite the additional two months of trading.

In the period under review, the Company generated an operating profit of £2.3 million before special items and a loss before tax of £0.8 million, excluding special items of £28.7 million. Special items of £28.2 million have been charged against operating profit. Details of the special items are: one-off non-cash impairment against intangible fixed assets £14.7 million; other non-cash write downs of intangible fixed assets £2.7 million; stock and work in progress shortfall and associated litigation costs £4.6 million; other reorganisation costs, including the closure of the Italian office £5.4 million and write down of investment properties of £0.8 million.

The special item of £0.5 million relating to financing costs represents renegotiating bank facilities (both fees paid to banks and professional fees).

The funds generated from the proposed sale of the Marine division will be key to stabilising the Group's financial position. It is intended that the net proceeds will be used to reduce net indebtedness which, as at 31 December 2010, stood at £24.3 million. Subject to completion of the Marine businesses disposal the Group has agreed with the Group's banks amended and restated facilities totalling £11.4 million, comprising a revolving credit and ancillary facility. As substantial shareholders in Cosalt, Sovereign Holding and I have also agreed to subscribe for £2.0 million (£1.0 million each) unsecured loan notes to be issued by the Company. The Board believes the new facilities will be sufficient to finance the ongoing working capital funding requirements of the Group, as well as the Workwear business' South East Fire Service contract. The implications of the disposal not proceeding are considered further in Note 1(a) to the accounts under 'Going Concern'.

The Board has concluded that it will not be recommending that a final dividend be paid.

We also intend to take further actions to improve the continuing Group's financial position, including measures aimed at reducing indebtedness and strengthening the balance sheet. To that end, the Board has identified a number of freehold and long leasehold properties which are surplus to ongoing requirements. I have 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 unsecured loan notes on terms the Board considers to be commercial. We have also identified a number of areas where we can realise significant cost-savings.

In addition, the Company has agreed with the Trustees of the Cosalt Pension Scheme that the continuing Group will not be required to make any ongoing contributions to reducing the deficit in the Cosalt Pension Scheme for a period of up to 18 months from March 2011. The deficit in the pension scheme according to International Accounting Standards has reduced to £9.1 million as at 31 December 2010 (2009: £11.8 million), as a result of improved investment values, increased bond yields and referring to CPI rather than RPI as the inflation measure to determine

02 /Cosalt plc /Annual report & financial statements 2010

Chairman's Statementcontinued

Pension increases where applicable. Addressing the pension deficit continues to be of primary importance for the Group.

During the course of the year, Ken Murray and Maurice White were appointed to the Board as Non-Executive Directors. Calum Melville resigned and Simon Gilbert stepped down from the Board due to other commitments on his time. I would like to thank Simon for his contribution and also re-iterate our welcome to Ken and Maurice joining the Board.

Outlook

The sale of the Marine business will enable the Company to stabilise its financial position and adopt a new more focused strategy on the Offshore Oil and Gas and Renewables Sector. Whilst trading conditions during early 2011 in our Offshore division's core markets have continued to be challenging, we are now seeing signs of an improvement, with a recent strengthening of the order pipeline and this operation, as well as the Group's Workwear and Renewable activities are trading broadly in line with the Board's expectations. There is considerable work still to do but the Company will now have an opportunity to put in place solid foundations upon which to develop the business.

David RossChairman3 May 2011

03 /Cosalt plc /Annual report & financial statements 2010

Overview

Chief Executive's Review

In a challenging business environment, during a period that has also seen considerable internal change at Cosalt, we have focused on maintaining the quality of provision of our safety products and services within our key Offshore market and organised the sale, subject to shareholder approval, of our Marine division. This will enable Cosalt to focus in future on its already established presence in the Oil and Gas market, as well as the Offshore Wind Sector through our newly established Renewable Energy arm. The Company will also intend to provide safety-focused Workwear to each of these sectors, building on its existing activities in this area.

In common with many other sectors of the economy, market conditions in the Offshore and Marine industries have been challenging over the past 18 months. Macroeconomic uncertainties and low oil prices led to significantly reduced activity as clients re-examined their investment plans and sought ways to reduce costs whilst maintaining margins.

The 20 April 2010 oil spillage in the Gulf of Mexico was a difficult time for the whole industry but one which served to re-focus the entire Offshore oil sector's attention on the absolute primacy of safety on rigs. The oil companies are taking this opportunity to re-examine every aspect of their operational procedures, with particular emphasis on safety and equipment maintenance programmes. There is undoubtedly a role for those at the leading edge of supplying safety products and services to the Sector to demonstrate the value they add through the breadth of their experience and their expertise.

Against this backdrop, I can report that we have kept a rigid focus on five key strategic objectives to underpin plans for the recovery and long-term growth of the Group.

> Our position as the "gold standard" specialist provider of critical safety equipment.

> Downward pressure on costs and overheads.

> Concentration on growth areas such as the Offshore renewable energy Sector and specific niche product areas such as the supply and maintenance of a new generation of lifeboats.

> Supporting customers international development into emerging markets including West Africa, Kazakhstan and Brazil.

> Expansion and consolidation of customer base.

Cosalt Offshore

Cosalt Offshore supplies, inspects, tests, maintains and manages a wide range of safety equipment, from portable lifting and working-at-height equipment, gas detection and breathing apparatus and powered hand tools to lifeboats and liferafts, for the Offshore oil and gas industry. We also provide a range of inspection services for Offshore fixed platforms and portable rigs operating out of three sites at Aberdeen, Lowestoft and Stavanger. The business employs 300 specialist engineering staff and provides a pan-North Sea supply of goods and services to the oil and gas industry.

For the 14 month period ended 31 December 2010, Cosalt Offshore reported turnover of £42.1 million (12 months 2009: £44.2 million) and operating profit before special items of £2.1 million (12 months 2009: £5.3 million).

We retained and increased business from our existing client base, as well as winning some major contracts with new clients, including two contracts with leading seabed to surface engineering company, Acergy, worth an estimated £3 million per annum, to supply and manage all its new subsea lifting equipment in the UK and Norwegian sectors of the North Sea. We also extended our long-term collaboration with Sparrows for the supply of services to key customers such as BP.

Our lifeboat supply and servicing business, launched in 2008, continues to grow and represents an area of significant potential expansion in the period ahead. Cosalt has been working with key operators in the industry and regulators to draw up new international regulations covering the design and specifications of a new generation of lifeboat. We have won several important new contracts in this area with BP, Talisman and Chevron worth a combined £0.9 million.

Management issues at our Aberdeen operation during the year have been very time consuming. As previously announced we became aware of some doubtful transactions that took place within the Offshore division and a stock shortfall was subsequently identified. The Company is now pursuing claims through the Scottish courts and will update the market further as and when required. We would like to thank both the Aberdeen management and staff for pulling together to get through such a difficult period and their focus is now on the future. The senior management team has been strengthened with the recent appointment of Rob Buchan as the new CEO of the Offshore Division and Runar Blakstad as Managing Director of the Norwegian operation and we believe their combined expertise will aid future growth.

There are prospects for a continued improvement in market conditions during 2011, with increased activity levels generally within the Offshore oil and gas sectors, both in the North Sea and further afield, and consolidation recently in the Sector with a merger between Subsea7 and Acergy and the proposed acquisition of PSN by Wood Group. These four major players are existing clients of Cosalt and we are looking to supply their needs as they seek ever higher standards of quality and safety from a smaller number of reliable partner suppliers.

Cosalt Renewables

We believe that supplying services and equipment to the UK Renewables industry from our existing geographical bases can be an area of significant growth for Cosalt. In July 2010, Cosalt established Cosalt Wind Energy (CWE) as a separate business, coming under the umbrella of Cosalt Renewables. CWE has secured a framework agreement with Siemens, the largest supplier of Offshore wind turbines, for the installation and servicing of turbines as well as the safety training of their Offshore operatives. Operating in partnership with Danish specialist, APRO, our aim is to establish CWE as a "turnkey" partner for both turbine suppliers and wind farm operators, able to supply the full range of services and ancillary equipment they need.

04/Cosalt plc /Annual report & financial statements 2010

Chief Executive's Review continued

Cosalt Marine

Cosalt Marine comprises four main business units - UK Marine, Continental Marine, Crewsaver and Workwear- and supplies goods and services to the international freight shipping and cruise industries. The Division performed in line with the Board's expectations in 2010, meeting all of its key targets. For the period under review turnover was £69.9 million (12 months 2009: £63.6 million) whilst operating profit before special items was £3.1 million (12 months 2009: £4.9 million). The Division's focus throughout 2010 was on improving returns within the business, securing new contracts with existing and new customers, and on extending our product offering, including a range of state-of-the-art lifejackets and hi-vis clothing. We have today signed an agreement with Survitec Group to sell Cosalt Marine, with the exception of the Workwear business which will continue as part of the Group.

Cosalt Workwear

The Workwear business won a number of important contracts during the year. This included a new framework agreement with the Fire & Rescue Service in South East and Eastern England, with potential to generate revenue in excess of £30 million over eight years, for the supply of fire tunics, over-trousers, hoods, helmets, boots and gloves and a contract to provide the North West Fire & Rescue service with new fire tunics and over-trousers. There were also two new contracts in the rail Sector, including an extension with Network Rail to supply protective clothing to 18,000 employees and a three-year contract with Babcock Rail to provide a range of protective equipment for the company's workforce nationwide.

People

The Board believes that the commitment and expertise of our people make them one of the most talented teams in the Sector. To everyone in the Cosalt team I express my thanks for the outstanding contribution they make to the Company.

Mark LejmanChief Executive3 May 2011

05 /Cosalt plc /Annual report & financial statements 2010

Overview

Financial Review

Results

The revenue for the Group from continuing operations was £112.0 million for the 14 month period ending 31 December 2010 compared to £107.8 million from the previous year. Although the revenue has increased, the comparative figure of £99 million for the year to October 2010 shows that the actual turnover has decreased as a result of the market issues described in the Chairman's Statement and the Chief Executive's Review.

Operating profit

Operating profit before special items reduced from £8.6 million to £2.3 million. This reflects the difficult economic environment which has put volumes and margins under pressure, as well as the management issues in the Aberdeen business. Overhead costs have remained within expectations.

Finance costs

Financing costs are principally interest (including interest rate hedges) on bank debt and the financing cost of the defined benefit pension schemes.

The financing costs for bank borrowings was £2.4 million, a reduction over the prior period of £2.5 million. This reflects the reduced borrowings throughout the period and the increase in the length of the reporting period by two months.

Details of the financing cost to the pension scheme are set out in note 25.

Special items

Details of the special items are set out in notes 3 and 5 to the accounts.

Special items of £28.2 million have been charged against operating profit. Details of the special items are: one-off non-cash impairment against intangible fixed assets £14.7 million; other non-cash write-downs of intangible fixed assets £2.7 million; the current year's stock and work in progress shortfall and associated litigation costs £4.6 million; other reorganisation costs, including the closure of the Italian office £5.4 million and write down of investment properties of £0.8 million.

The special item of £0.5 million relating to financing costs represents renegotiating bank facilities (both fees paid to banks and professional fees).

Tax

The income tax credit charge on the loss before taxation (excluding special items) is £2.4 million. Cash tax payments in the year were £0.2 million.

Based on the loss before tax, after special items the tax credit for the current year is £3.4 million.

Earnings per share

The diluted earnings per share from continued operations, before special items, were a loss of 0.78p (2009: 4.17p).

The diluted earnings per share from total operations after special items represented a loss of 6.44p (2009: a loss of 2.93p).

Dividend

No dividend has been proposed for 2010. The Board intends that Cosalt will resume dividend payments, when the markets have stabilised and they believe it is prudent to do so, taking into account the Group's earnings, cash flow and balance sheet position.

Balance sheet

Shareholders' funds

The consolidated shareholders' funds are £25.1 million (2009: £49.4 million). The decrease is primarily due to the loss for the period which is significantly due to the impairment of intangible assets.

Bank facility

Details of the Company's bank facility arrangements are included in the Corporate Governance report under the heading of "Going Concern" on page 11.

Interest rate and foreign exchange risk management

In order to provide protection against significant interest rate changes, as reported in the previous year's accounts, the board purchased a cap in 2008. The amount covered by the cap reduces in line with repayments on the then term loan. A floor transaction was taken out at the same time and on the same basis in order to minimise the upfront premium for this cover. As part of the refinancing done in the previous year two additional hedging instruments have been taken out that are relatively immaterial to the cap referred to earlier.

The Group takes out a series of forward exchange contracts to cover purchases overseas - principally US dollars. In addition the Group carries a euro loan to cover the balance sheet risk as a natural hedge against its investment in the European Marine business.

06 /Cosalt plc /Annual report & financial statements 2010

Financial Review continued

Cash flow

The movement in net debt can be summarised set out in the table below:

Defined benefit schemes

The Group has one significant and a number of small defined benefit schemes.

The deficit at 31 December (net of tax) is £6.6 million (2009: £8.5 million). The movement principally relates to the investment performance exceeding the expected return in the period and referring to CPI rather than RPI as the inflation measure to determine pension increases where applicable.

The main Group scheme was closed to future accrual on 31 December 2006 and all current members were offered membership of a defined contribution scheme. The Group was making payments of £100,000 per month to the Trustees to reduce the deficit. As part of the Group's refinancing the pension scheme trustees have agreed, subject to completion of the sale of the Marine business, that these monthly contributions will cease for 18 months from March 2011.

The Board, together with the Trustees, continues to investigate the feasibility of other possible actions that could be taken to manage or reduce the pension scheme deficit and further updates on this area will be provided as appropriate.

Neil Carrick

Director

3 May 2011

07 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

Directors' Report

The Directors present their report with the accounts for the 14 month period ended 31 December 2010.

Business review

The results for the period to 31 December 2010 reflect our progress in challenging market conditions and during a period of considerable internal change. Further details can be found in the Chief Executive's Review on page 3 and key performance indicators on page 18.

Details of the financial results can be found in the Financial Review on pages 5 and 6.

The loss on continuing operations after tax, financing costs and special items was £26.0 million, (£2.6 million in the 12 month period in 2009).

Dividends

No dividends were paid in the period, (2009: nil).

Fixed assets

In note 12 on page 44, information is provided on assets used by the Group which are subject to lease agreements.

Investment properties are stated at fair value after undertaking professional valuations.

Share and loan capital

There were no changes in share capital during the Period.

As at 30 March 2011 the Company had 404,403,397 Ordinary Shares of 1p each in issue. Save for the treasury shares and some shares held under the Performance Share Plan these Ordinary Shares carry equal rights to dividends, voting and return of capital on the Winding up of the Company. There are no restrictions on the transfer of securities in the Company and there are no restrictions on any voting rights other than those prescribed by law, nor is the Company aware of any arrangement between holders of its shares which may result in restrictions of the transfer of securities or voting rights.

Details of outstanding awards under the Cosalt plc Share Option Scheme and the Performance Share Plan are set out within the Remuneration Report on page 13. The Cosalt Employee Share Trust purchases shares to be granted to Senior Directors and Senior Executives via our long-term incentive schemes and subject to the achievement of performance targets. At 30 March 2011 the Trust held 483,346 Ordinary Shares in the Company. No dividends are payable on these shares until they vest.

As at 30 March 2011 the Trust held 28,096 of the 50,250 issued unquoted 7.50% preference shares in the Company. The rights attached to these shares are as follows:

(i) in priority to ordinary shareholders, to a fixed cumulative preference dividend at a rate of 7.50% per annum;

(ii) on a return of capital on a Winding up, will carry the right to repayment of capital together with a sum equal to any arrears of dividend in priority to the rights of ordinary shareholders; and

(iii) to attend and vote at a general meeting of the Company only in certain limited circumstances where the special rights attaching to these shares might be varied or their interest affected.

Articles of Association

The Company's Articles of Association give powers to the Board to appoint Directors. Specific rules regarding the re-election of the Directors are set out in the Corporate Governance report on page 9.

The Board of Directors may exercise all powers of the Company subject to the provisions or relevant statutes and the Company's Memorandum and Articles of Association. These include specific provisions and restrictions regarding the Company's power to borrow money. Powers relating to the issuing and buying back of shares are included in the Articles of Association and such authorities are renewed by shareholders each year at the Annual General Meeting.

The Articles of Association may be amended by Special Resolution of the shareholders.

As permitted by the Companies Act 2006, the Company has indemnified each of the Directors.

Directors

The membership of the Board is shown on page 9.

Mr Y Ophir stands for re-election as a Director, as he retires by rotation in accordance with the Company's articles of association.

Mr M Lejman stands for re-election as a Director, as he retires by rotation in accordance with the Company's articles of association.

Mr N Carrick stands for re-election as a Director, as he retires by rotation in accordance with the Company's articles of association.

Mr K Murray having been appointed as a Non-Executive Director since the last annual General meeting offers himself for re-election.

Mr N R Carrick and Mr M T Reynolds have rolling Service Contracts with Cosalt plc which are terminable upon one year's notice. Mr Lejman has a rolling Service Contract with Cosalt Plc which is terminable upon one year's notice, except for the period until 23 September 2011, when this period is reduced to six months for Notice by the Company.

08 /Cosalt plc /Annual report & financial statements 2010

Directors' Report continued

Directors interests in shares

All shareholdings are beneficial unless otherwise stated. Details of Directors' options may also be found in the report by the Remuneration Committee on pages 15 and 16.

There were no contracts of significance, during or at the end of the financial period, in which a Director of the Company was materially interested.

Substantial shareholdings

As at 30 March 2011 Sovereign Holding Ltd hold 74,032,710 shares (18.31%); Mr D Ross holds 60,998,069 shares (15.08%); Progressive Investments Ltd own 41,457,000 shares (10.25%); Hanover Investments Ltd hold 25,184,178 shares (6.23%); Barclayshare Nominees hold 20,788,475 shares (5.14%); TD Waterhouse hold 19,095,500 shares (4.72%); Gartmore Investments hold 18,348,742 shares (4.54%).

Other shareholdings

Mr N R Carrick is a trustee of a trust which has powers to acquire 7.50% preference shares of the Company. These shares, of which there are 50,250 in issue, are unquoted. At 30 March 2011 the Trust has acquired a total of 28,096 and will continue to acquire these shares as and when they are offered.

Community support and charitable donations

Charitable donations made by the Group during the period amounted to £7,613.

Employees

Details of the number of employees by business are shown in note 7 on page 39.

By various means, efforts are made to encourage employee involvement in the Group and to disseminate information to increase awareness of its activities and the decisions taken which affect employees' interests.

Supplier payment policy

It is the policy of the Company and its UK subsidiaries to establish, individually, terms of payment with suppliers when agreeing the terms of business rather than operating a standard code.

The aim is to despatch cheques to settle undisputed accounts on the due date, or where other means of payment are used, to deliver funds as if payment had been made by cheque. If payment is not made by the due date, it is made as soon as reasonably possible after the due date.

The number of days' purchases outstanding at the end of the financial year was 72 days for the Group and 92 days for the Company.

Key Risks

Key markets

The Cosalt businesses are well positioned to benefit from potential growth in their redefined market sectors. However, a substantial downturn in one or more of these key markets could have a material adverse impact on the Group. The Offshore businesses are affected by the international oil price.

Fluctuations in foreign currency

Many of the Cosalt businesses import a substantial amount of their products or raw material and hence have an exposure to foreign currency fluctuations, most notably the US dollar and the euro. In addition, particularly with Europe and Norway, there are increasing revenues in foreign currency. Whilst the Group seeks to mitigate the impact of these on the net cash flow, adverse movements in foreign currencies relative to sterling may lead to significant adverse movements in profitability and the Group balance sheet.

Safety issues

Because of the markets in which we operate and the customers we provide services and products to, we must (and do) place every emphasis on the safety of our products and services. We therefore control safety both externally and internally and it is treated as an absolute priority, with stringent monitoring and testing and the highest level of training for our staff.

Liquidity

It is essential that the Group has adequate loans and bank facilities in place to cover general business needs, and in particular the funding required for the South East contract. The Group manages its liquidity requirements by careful monitoring of all scheduled outflows and by ensuring it has sufficient loan and working capital facilities where necessary. Further relevant details are provided in the Going Concern section on page 11.

Fluctuations in revenue and expenses

The Group is subject to a number of external factors beyond its control such as general economic conditions, adverse movements in interest rates, seasonal and cyclical changes in revenue and legislative changes, which could result in significant variations in the operating results from period to period. In addition, the strategic changes taking place in the Group may result in acquisitions and disposals of businesses, which would significantly alter the Group's revenue and operating position.

Final Salary Pension Plan

The Group has an obligation to fund Final Salary Pension Plans and this creates an exposure to interest rates, inflation, investment returns and the longevity of the Plan members. The Group has eliminated these risks for future service by the closure of the Plan to future accrual from 31 December 2006.

09 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

The Company has established a Pensions Review Committee who is continuing to consider ways to improve the investment strategy of the pension fund as well as ways to mitigate and manage liability. The Committee is taking expert external advice.

Whilst the risks noted above have been identified from the risk reviews undertaken throughout the Group, they do not comprise all the risks associated with the Group and there may be additional risks which have either been identified as not material or which are presently unknown which may have an adverse effect on the Group's businesses.

Forward-looking statements

This Annual Report may contain forward-looking statements based on current expectations of, and assumptions and forecast made by, Group management. Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation development or performance of the Group and the estimates and historical results given herein. Undue reliance should not be placed on forward-looking statements which speak only as of the date of this document. The Group accepts no obligation to publicly revise or update these forward-looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Disclosure of information to Auditors

The Directors who held office at the date of approval of this Directors' report confirm that, so far as they are aware, there is no relevant audit information of which the Company's Auditors are unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

Auditors

The Auditors, KPMG Audit Plc, have expressed their willingness to continue in office. In accordance with Section 487 of the Companies Act 2006, a resolution for their appointment will be proposed at the Annual General Meeting.

Cosalt plc is registered in England and Wales under registration number 019628.

Corporate Governance

This report explains the Board's application of the Principles of Good Governance contained in the Combined Code on Corporate Governance.

In this report the Board has adopted the "comply or explain" principle, setting out where the Group does not fully comply with the Code's recommendations and giving reasons for such non-compliance.

The Board

The Board consists of three Executive and four Non-Executive Directors and the role of Chairman and Chief Executive are clearly defined and separate. Mr White is the senior independent Non-Executive Director.

In accordance with the Articles of Association, one-third of the Board is required to retire by rotation each year. In addition any Director appointed during the year will stand for re-election at the next Annual General Meeting.

The Board has considered threats to independence and related safeguards and concluded that Mr Ophir (who is connected to Sovereign Holding Ltd) and Mr Ross, despite being significant shareholders or associated with significant shareholders, are still able to exercise independent judgement. The Board considers that Mr White and Mr Murray are fully independent.

The Board is responsible to shareholders for the proper management of the Group and for the Group's system of corporate governance. It reviews trading performance forecasts and strategy and agrees future plans. The Non-Executive Chairman, Mr Ross, is responsible for the running of the Board. Executive responsibility for the running of the Company's business rests with three Executive Directors, Mr Lejman, Mr Reynolds and Mr Carrick. The Directors are provided with regular information on the Company's performance and activities and meet on a regular basis. The Company has a formal schedule of matters specifically reserved for the Board's decision. The Board met 23 times during the period and Directors' attendance at Board meetings was as follows:

Messrs. Gilbert and Melville resigned during the period and Messrs Murray and White were appointed during the period. The Non-Executive Directors periodically visit different parts of the Group and meet the local management. Through this procedure, the Board is able to retain full control of the Group, determining strategy and monitoring performance of objectives and compliance with policies. Directors have access to the advice and services of the Company Secretary and may also take independent professional advice at the Company's expense. Appropriate training is available for all Directors as required. Executive and Non-Executive Directors are formally appointed by the Board on the recommendation of the Nominations Committee.

Non-Executive Directors are appointed for a specific term and their re-election is, along with all other Directors, submitted to the shareholders in General Meeting on a rotational basis at least once every three years and at the first opportunity after their initial appointment. Non-Executive Directors do not benefit from share options or pension provisions.

10 /Cosalt plc /Annual report & financial statements 2010

Directors' Report continued

Board Evaluation

The Board conducts regular evaluations of its own performance and that of its Committees as well as that of individual Directors and the Chairman. The evaluations consist of questionnaires.

The results of the evaluations are studied and discussed in detail by the Board as a whole. Any resulting actions are then acted upon during the forthcoming year. No serious or significant issues have been identified during the period.

Board Committees

The Audit Committee of the Board is chaired by Mr Murray and consists of Messrs. Ophir, White and Ross. Mr Murray was appointed on 27 September 2010. Mr Ross chaired the Committee prior to Mr Murray's appointment.

The Audit Committee has formal terms of reference which are available from the Company Secretary. Its main responsibilities are to review the integrity of the financial statements and announcements relating to the Group's performance and review the scope and findings of the Group's external Auditors and the Group's accounting controls and procedures through regular monitoring of operating units' controls. The Committee is also responsible for making recommendations to the Board in relation to the appointment of the external Auditor. During the financial period the Committee has reviewed the effectiveness of the external audit process and the audit strategy proposed by KPMG Audit Plc.

The Committee has met with the external Auditors to review their independence procedures and received a letter from KPMG Audit Plc confirming that, in their opinion, they remained independent. The Committee has also reviewed the expertise, resources and qualifications of the external Auditor and approved the proposed audit fee for the 2010 audit. The Group also uses KPMG for non-audit work, principally tax advice and due diligence, but the Committee and Board do not feel this undermines the Auditors' independence at all, as these are headed by different teams and senior managers, and the cost benefits in terms of the Auditors' knowledge of the Group's businesses are significant. This balance remains under ongoing review by the Audit Committee, and by regular dialogue with KPMG's senior team. The Committee has recommended to the Board that it proposes to shareholders that KPMG Audit Plc continue as the Company's external Auditor and a resolution to that effect is included in the notice of meeting for this year's Annual General Meeting. The Committee met prior to the Board Meeting at which the interim financial statements and the Annual Report and Accounts were approved.

The Committee considered reports from the external Auditor as well as the status of the Group's risk management and reporting processes, in addition to the accounting policies and financial reporting issues and judgements.

The Committee has been heavily involved in the investigation in Aberdeen into a significant stock shortfall following the suspension of Calum and Stuart Melville from the Offshore business. The investigation was as a result of a whistleblowing incident.

The Committee is reviewing the Company's whistleblowing arrangements as part of wider arrangements to comply with the forthcoming Bribery and Corruption Act.

The Audit Committee met twice during the period and the meetings were attended by all of the Members of the Committee. All Members were provided with reports in advance on which they were able to ask questions before the meetings.

The membership of the Remuneration Committee and its terms of reference are set out in the Remuneration Report as set out on pages 13 to 16.

The Nominations Committee consists of Mr White as Chairman and Messrs. Ophir, Murray and Ross. Mr White and Mr Murray were appointed during the period. The Committee met twice during the period and makes recommendations to the Board on Directors' appointments. Meetings were attended by all members.

The Annual General Meeting will be held on 22 June 2011. Full details of the meeting arrangements and all the proposed resolutions can be found in the separate Notice of Meeting at the back of this document.

Internal controls

The Board is responsible for the Group's system of internal control and for reviewing its effectiveness. The system is designed to manage rather than eliminate risks and therefore can only provide reasonable and not absolute assurance against material misstatement or loss.

The Group has formally implemented a process to identify, evaluate and manage the Group's significant risks. The principal elements of the internal control system, which are in accordance with the Turnbull guidance and which were in force both during the period covered by the financial statements and to the date of signing the accounts, are described below.

The Board has put in place a reporting structure where operating and financial responsibility is clearly defined and, where appropriate, delegated to the divisional management. This allows the Group to obtain maximum benefit from their skill in the relevant business Sector. Identification and assessment of the risks inherent in each operating unit is carried out on a regular basis by the management of the individual business units and is discussed at monthly management meetings. On a quarterly basis, they are discussed at Senior Executive Meetings involving the CEO and CFO. The Board reviews a Group Risk Report and individual business Risk Reports every six months. In addition, any significant matters identified are brought to the attention of the Board at the earliest opportunity without waiting for the scheduled review.

11 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

The Group operates a comprehensive budgeting and financial reporting system. Annual budgets are approved by the Board and actual results are formally reviewed against budget and the prior year every month. Divisional Management reports monthly to the Board on their performance and any significant variances from budget and make revisions to forecasts as appropriate. Borrowings are controlled centrally and cash projections are prepared and monitored on a daily basis, if required, to ensure that the Group has adequate funds and resources for the foreseeable future.

Procedures and authorisation levels for all expenditure incurred throughout the Group have been clearly defined. However, when the investigation into the alleged fraud in Aberdeen was discovered, it became clear that some procedures had been overridden. As a result of this investigations were carried out around the rest of the business and formal procedures are being both reviewed and updated to ensure robust controls are in place. Further details regarding the alleged fraud in Aberdeen and the subsequent claim being pursued by the Company can be found in both the Chairman's Statement and the CEO's Review.

The external Auditors, in carrying out their work in order to express an opinion on the financial statements, review and test the systems of internal financial control and the information contained in the financial statements. They report on weaknesses found when meeting with the Audit Committee. The Company does not have a specific internal audit function, however it carefully monitors the process of internal audit and both the Audit Committee and the external auditors.

Going concern

As highlighted in the Chairman's statement on page 1 of the annual report, the Directors have proposed the disposal of the Marine operations. If approval is granted by the shareholders at the general meeting, and pre completion conditions are satisfied, the net proceeds will be utilised to reduce the Group's borrowings.

The Group meets its day to day working capital requirements through a revolving credit facility and longer-term funding through a term loan. Following the identification of an inventory shortfall in the Offshore division, the Group's banks waived a number of covenant tests in 2010 and in 2011, pending the finalisation of revised facilities and also deferred a planned repayment of £3 million due on 31 January 2011 and extended a further £4 million under the existing multi-currency revolving credit facility. Whilst the borrowing facilities are not due for renewal until March 2012, the Directors have agreed with the Group's banks amended and restated facilities to December 2012 on terms similar to those currently in place, subject to the Marine business disposal completing by 22 July 2011.

As a condition of these arrangements, two of Cosalt's substantial shareholders, David Ross and Sovereign Holding, have agreed to provide certain guarantees to the Company's banks and the Company will issue, subject only to Completion of the disposal, Loan Notes totalling up to £3.5 million to these shareholders.

The Group's forecasts and projections are prepared under the assumption that the Marine business disposal is approved and the revised banking facilities are in place. These forecasts and projections, taking into account sensitivities around operational performance, show that the Group will be able to operate within the facilities and covenant tests for the foreseeable future.

The Directors have concluded that the possibility that all required approvals for the Marine business disposal may not be obtained and that, were they not to be, additional or alternative sources of finance would be required, represent material uncertainties that cast significant doubt upon the Group's and Company's ability to continue as a going concern and that, therefore, the Group and Company may be unable to continue realising their assets and discharging their liabilities in the normal course of business. Nevertheless, the Directors have reasonable expectation that the sale will be approved by shareholders and other pre-completion conditions will be satisfied by 22 July 2011, with the consequent completion of the amended and restated banking facilities and associated reduction in borrowings. For this reason, they continue to adopt the going concern basis in preparing the annual financial statements. Further details are provided in the basis of preparation in note 1 to the financial statements.

Relations with Shareholders

The Company, principally through the CEO and CFO, maintains a regular dialogue with its major shareholders, institutional shareholders and financial analysts, particularly following the interim and preliminary results announcements. The Chairman makes himself available for these regular investor meetings if requested to do so. The Non-Executive Directors and the remainder of the Board are kept informed of the view of shareholders by regular reports from the CEO and CFO and independent feedback reports from brokers and the Group's financial PR Company. They also receive copies of independent research and brokers notes when published. The Company's Annual General Meeting is used as the main opportunity for the Directors to communicate with private investors. The Group maintains a website which provides additional information for shareholders. At all General Meetings, the Chairman indicates the level of proxies received on all the resolutions following the vote by the meeting. This information is also published on our website.

Statement of Compliance with the Combined Code

The Directors believe the Company has complied with the provisions set out in Section 1 of the Combined Code, except for the issues noted previously in respect of internal audit and internal control.

Statement of Directors' responsibilities in respect of the Annual Report and the financial statements

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law, they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the Parent Company financial statements in accordance with UK

12 /Cosalt plc /Annual report & financial statements 2010

Directors' Report continued

Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

> select suitable accounting policies and then apply them consistently;

> make judgments and estimates that are reasonable and prudent;

> for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

> for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement pursuant to the Disclosure and Transparency Rules

Each of the Directors, who are named on page 8 confirm that, to the best of each person's knowledge and belief:

> the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

> the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

N R CarrickCompany Secretary3 May 2011

13 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

Remuneration Report to the Members ofCosalt plc

The parts of this report which are subject to audit are indicated with an asterisk.

Remuneration Committee

The Remuneration Committee is chaired by Mr White and consists of Messrs. Ophir, Murray and Ross. Mr White was appointed as Chairman on 26 January 2011, following the resignation of Mr Gilbert in December 2010. The Committee met three times during the year with all Committee Members in attendance. The Committee determines the remuneration of Directors and Senior Executives and makes recommendations to the main Board in connection with the various share incentive schemes. In framing its remuneration policy, the Committee has given full consideration to Section B of the Combined Code and the report has been prepared in accordance with the Directors' Remuneration Reporting Regulations 2002. As required by these Regulations, a resolution to approve the report will be proposed at the Annual General Meeting.

Remuneration policyBasic policyThe remuneration policy is designed to attract, retain and incentivise Senior Executives with the appropriate managerial and professional expertise to realise the Group's business objectives.

Remuneration packages consist of fixed elements of basic salary, pension entitlements and benefits in kind, typically a car or car allowance and private health insurance, plus performance related elements from time to time such as annual Bonus Scheme and participation in the Performance Share Plan. Bonus payments and benefits do not form part of pensionable salary.

In setting basic salaries and fees for the Directors and senior executives, the Remuneration Committee has used market data on remuneration levels in companies which it considers to be comparable in the broad business sectors in which the Group operates and by reference to market capitalisation and annual turnover. It also takes into account the general pay and conditions within the rest of the Group in determining those salaries and fees.

The remuneration of the Chairman and Non-Executive Directors is determined by the Board. No individual takes part in the discussion or decision regarding their own remuneration.

Annual performance related bonus schemePerformance payments are based upon a combination of profit and working capital targets linked to base salaries. Targets are agreed each year with the Remuneration Committee.

Share Option SchemesTwo Executive Share Option Schemes and Long-Term Incentive Plans were set up in January 1997. The Committee had made regular awards of options to Executive Directors and other Senior Executives. The schemes expired in February 2007 and accordingly no further options will be issued under the schemes.

Performance criteria have been applied to all options. Options will not be exercisable until the Company's earnings per share have grown by 2% per annum above the Retail Price Index, over a rolling three-year period. This target is considered to be realistic, and was chosen to align performance with the objective of corporate profit growth.

A deferred bonus plan involving the issue of matching shares to Executives was introduced in March 2006, but so far no awards have been made under this Scheme.

A Performance Share Plan ("the PSP") was introduced following approval by Shareholders at the AGM in March 2007. It provides for awards of either nil (or nominal) cost share options or restricted shares. Awards of nil cost options were made during 2008 to Directors and Senior Executives. The Remuneration Committee set a performance target in respect of these options over a fixed three-year period ending in October 2011, that the annual adjusted EPS must increase (between 5% and 13% plus RPI). An award of nil cost options were made to Directors and Senior Executives in March 2010. These are due to vest in 2013. The performance target was set by the Remuneration Committee, is measured over a three-year period, and measures on a ratio of 50%/50% growth in EPS (between 5% and 15% plus RPI) and Total Shareholder Return (TSR). Once again, this target was considered to be realistic and appropriate, and to align the performance with the corporate strategy.

No options were exercised during the period. No awards have vested during the period.

The Cosalt 2009 Company Share Option Plan ("the CSOP") was approved by shareholders at the general meeting on 1 September 2009, and the first award of options was made to Directors and Senior Executives in March 2010. These are due to vest in 2013. The performance target was set by the Remuneration Committee, is measured over a three-year period, and measures on a ratio of 50%/50% growth in EPS (between 5% and 15% plus RPI) and TSR. This target was selected to tie in with the criteria of the PSP grant which was awarded at the same time. The options were awarded in accordance with the scheme rules and were not gifted (conditionally or unconditionally) to any participant.

No options were exercised during the period. No awards have vested during the period.

14 /Cosalt plc /Annual report & financial statements 2010

Remuneration report to the Members of Cosalt plccontinued

Directors' remuneration*

The remuneration of the individual Directors is set out below:

1 Resigned 6 January 2010.

2 Resigned 30 November 2009.

3 Resigned 6 September 2010.

4 Resigned 9 December 2010.

5 Appointed 6 January 2010.

6 Appointed 27 September 2010.

Mr Lejman is the highest paid Director. Total remuneration, including pension contributions of £5,000, amounted to £311,000 (2009: £255,000).

Pension rights*

Mr Carrick participated in the Group's Defined Benefits Pension Scheme on the same terms as other Executives and Staff until its closure to future accrual on 31 December 2006.

Pension entitlements and corresponding transfer value changes during the year of the Executive Directors who were Members of the Defined Benefit Scheme were as follows:

* The GN11 transfer values for N R Carrick include the value of transferred in benefits from previous schemes. These amounts are not included within the accrued pension.

The change in the transfer value includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and Directors such as stock market movements and gilt yields.

The GN11 transfer values disclosed above do not represent a sum paid or payable to the individual Director. Instead they represent a potential liability of the pension scheme. The Trustees are currently reducing any transfer values from the Scheme due to the Scheme deficit based upon actuarial calculations.

Mr Carrick received a contribution of 7% of his salary per annum to a personal pension arrangement. Messrs. Lejman and Reynolds received 12% of their annual salary to their pension arrangements.

15 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

Performance graph

The following graph shows the Company's performance, measured by total shareholder return (TSR) compared with the performance of the FTSE All Share Index also measured by TSR. TSR is defined as share growth and reinvested dividend. The FTSE All Share Index has been selected for comparison as it represents a broad equity index without the inherent volatility of the FTSE Fledgling Index.

Executive Share Option Scheme*

16 /Cosalt plc /Annual report & financial statements 2010

Remuneration report to the Members of Cosalt plccontinued

Performance Share Plan*

* Performance criteria must be met before vesting occurs.

The market price of the shares at 31 December 2010 was 3.38p and the range during the period year was 3.38p to 11.25p.

The report was approved by the Board of Directors on 3 May 2011 and has been signed on its behalf by:

N R Carrick

Company Secretary

3 May 2011

17 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

Our responsibilities

Our people

Throughout the business, our ethos is one through which we methodically and expertly strive to deliver failsafe solutions to protect the lives of people operating in hostile environments. We are firmly of the opinion that our employees are our key resource. It is through them, their commitment and expertise that we will achieve our corporate objectives.

Diversity

We have a presence in principal ports across the UK, Norway and in Continental Europe. Each location has its unique culture with subtly differing identities reflecting our diverse locations, nationalities and the wide range of customers we serve. Our aim is to ensure that we capitalise on the opportunities that having a diverse workforce offers us and that our workforce reflects the diversity of our locations.

Recruitment & Training

We aim to recruit and retain the best people in the business. Period. From technical engineers, designers and on-site service personnel to business development and sales staff, the composition of our workforce, therefore, evolves to reflect the broadening nature of our work. Our aim is to provide fulfilling and enriching careers and in support of this, we offer our employees a comprehensive range of training opportunities, from compliance training for front-line engineers, through intensive health and safety qualifications for line managers to advanced sales training.

As one of our initiatives, we established Cosalt Compliance, a specialist business unit within the company which focuses on the delivery of technical excellence to our customers in both off and onshore Marine environments. To this end, we have people with the requisite technical skills to provide leading-edge practical safety and operational solutions in what is a highly regulated environment.

Environment

We endeavour to achieve a high standard of environmental performance and to reflect society's environmental priorities through our products and services.

Our policy is to:

> comply rigorously with environmental legislation, regulation and other codes of practice (such as industry initiatives) and plan ahead for future requirements;

> monitor, evaluate and continuously improve environmental performance;

> respond to the environmental needs and concerns of local communities wherever possible;

> strive towards sustainability, balancing today's needs with those of the future;

> improve employee awareness of environmental issues and encourage the sharing of experience and expertise amongst our businesses;

> minimise any adverse environmental impacts of the Company's activities; and

> conserve resources by reducing waste and by recycling of materials wherever this is appropriate and economically practicable.

The policy is intended to provide a framework for setting and reviewing environmental objectives and targets. It is applied as the minimum standard across our business. Where individual businesses identify a need for additional, more stretching requirements, they are encouraged to build upon this policy. This helps us to maintain standards without restricting the development of any division.

Social and community

Wherever possible within their respective financial constraints, the Group's businesses support a range of charitable and community projects consistent with the Company's interests.

Health and safety

The Company is committed to maintaining a working environment and practices which are safe, without risk to health and afford due consideration to the welfare of employees and other persons who are or may be affected by Company activities. This policy is applicable to all divisions and locations within Cosalt and is complemented by additional operational Health and Safety Policies at divisional level.

Cosalt's Health and Safety policy is implemented through:

> ensuring that divisional Health and Safety policies and appropriate arrangements for Health and Safety are in place, communicated, understood and implemented effectively;

> ensuring that a safe working environment and safe systems of work are in place;

> ensuring the provision of adequate training, instruction and supervision for all employees in respect of health, safety, welfare and general systems of work;

> ensuring controlled safe practices are in use for the handling, storage, processing and movement of materials and goods;

> periodic review of policy, procedures, practices and statistics to ensure acceptable standards are maintained and to further reduce health, safety and welfare risks where appropriate; and

> compliance with relevant health, safety and welfare legislation and Codes of Practice.

The paramount importance of Health and Safety matters is regularly communicated to all employees. In addition, all staff are required to attend regular safety training programmes relevant to their operational roles within the Company.

The Board regularly reviews the Group-wide implementation of this policy and any other health and safety matters brought to its attention. Where deemed necessary, the Board of Directors will instigate appropriate corrective actions through divisional and/or safety management initiatives and will ensure that such actions are effective.

18 /Cosalt plc /Annual report & financial statements 2010

Our responsibilities continued

It should be noted that the increase in the number of accidents per 100 employees is because of two reasons: the reporting period is 14 months whereas last year it was for a 12 month period; and a change in our reporting process for "Near Misses".

KPIs

REVENUE (£m)

HEADLINE OPERATING PROFIT* (£m)

HEADLINE EPS* (PENCE)

NUMBER OF ACCIDENTS PER 100 EMPLOYEES

* Before special items.

Please note that the KPIs cover a 14 month period for 2010 and a 53 week period in 2008 and 2009.

19 /Cosalt plc /Annual report & financial statements 2010

Corporate Governance

Independent Auditor's report to the Members of Cosalt plc

We have audited the financial statements of Cosalt plc for the 14 month period ended 31 December 2010 set out on pages 20 to 71. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor

As explained more fully in the Directors' Responsibilities Statement set out on pages 11 and 12, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

> the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2010 and of the Group's loss for the 14 months then ended;

> the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

> the Parent Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;

> the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

> the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

> the information given in the Directors' Report for the financial period for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

> adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

> the Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or

> certain disclosures of Directors' remuneration specified by law are not made; or

> we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

> the Directors' statement, set out on page 11, in relation to going concern; and

> the part of the Corporate Governance Statement on page 11 relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review; and

> certain elements of the report to shareholders by the Board on Directors' remuneration.

Emphasis of matter - going concern

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in Note 1 to the consolidated financial statements concerning the Group's and Company's ability to continue as a going concern. The Company has agreed revised banking facilities which will expire in December 2012, but which are subject to the sale of the Marine business, which is itself subject to approval from the Shareholders and other pre-completion approvals. Should the business sale not complete the Directors would need to seek to extend existing facilities with the Company's banks or to seek additional or alternative funding. These conditions, along with other matters described in Note 1, indicate the existence of a material uncertainty which may cast significant doubt on the Group's and Company's ability to continue as a going concern.

David Morritt (Senior Statutory Auditor)

for and on behalf of KPMG Audit Plc, Statutory AuditorChartered Accountants

1 The Embankment

Neville Street

Leeds

LS1 4DW

3 May 2011

20 /Cosalt plc / Annual report & financial statements 2010

Consolidated income statement

for the 14 month period ended 31 December 2010

* Special items relate to gains and losses on disposal of surplus properties and revaluation of investment properties, amortisation and impairment of acquisition intangibles and exceptional costs relating to reorganisation, redundancy, re-banking, refinancing, abortive acquisitions, share-based payments and LTIP costs, technical compliance costs and the inventory shortfall and associated litigation costs.

21 /Cosalt plc /Annual report & financial statements 2010

Financial Statements

Consolidated statement of comprehensive income

for the 14 month period ended 31 December 2010

22 /Cosalt plc /Annual report & financial statements 2010

Consolidated balance sheet

as at 31 December 2010

The accounts were approved by the Board of Directors on 3 May 2011 and signed on its behalf by:

The notes on pages 25 to 60 form part of these consolidated financial statements.

23 /Cosalt plc /Annual report & financial statements 2010

Financial Statements

Consolidated statement of changes in equity

for the 14 month period ended 31 December 2010

24 /Cosalt plc /Annual report & financial statements 2010

Consolidated cash flow statement

for the 14 month period ended 31 December 2010