1st Sep 2011 07:01
Cosalt plc
(" Cosalt" or "the Group")
Interim results for the six months ended 30 June 2011
Summary
·; Completed the £31 million sale of the Marine division to Survitec on 26 August 2011.
·; Proceeds from the sale will be used to reduce Group borrowings from £32 million at 30 June 2011 to £7 million during September 2011. The Company now has a more stable financial base, from which to develop its Offshore services businesses.
·; Turnover and the operating loss from continuing operations before special items was £20.9 million (2010: £20.1 million) and £1.8 million (2010: profit of £0.1m) respectively. Special items from continuing operations for the period were £6.7 million: £3.6 million are non-cash relating to a write down in property values and impairment of goodwill, the balance are re-structuring, amortisation of intangibles, refinancing and litigation costs.
·; Appointment of new Chief Executive Officer and Chief Financial Officer.
David Ross, Chairman, commented:
"The sale of the Marine division has enabled us to stabilise the business, reduce borrowings and re-focus the business on providing services to offshore industries. Trading has been challenging but the disposal of the Marine division will enable us to make a fresh start. To that end, we have today announced the appointment of a new senior management team, who come with extensive financial and commercial experience and I look forward to working together with them to grow the business."
ENQUIRIES:
Cosalt plc (www.cosalt.com) Tel: +44 (0)1472 725560
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
Sophie Leigh Pemberton
CHAIRMAN'S STATEMENT
Overview
I am pleased to be able to report the completion of the sale of the Marine division and subsequent restructuring of the Group's finances. As a result, the business is now in a stable position. Trading conditions have been challenging, a situation made harder to manage given the recent cash constraints across the Group and internal management issues in our Aberdeen business. With the sale of the Marine division, we have addressed some of the issues facing the Group and we can now focus on developing our core business of providing a range of specialist services to offshore industries.
Following the sale of the Marine division, Mark Lejman has decided to step down as CEO and we wish him well. In his place I am pleased to announce the appointment of Trevor Sands who joins from the global engineering multinational Emerson Electric Inc and we have also announced today the appointment of Dolores Douglas as Chief Financial Officer. Together, we will seek to create a long term solution for the business and deliver sustainable shareholder value.
Results
Excluding the discontinued Marine division, the results for the continuing operations saw turnover increase to £20.9 million (2010: £20.1 million), despite a tough market environment. After absorbing head office costs, the Continuing Group reported an operating loss before special items of £1.8 million (2010: profit of £0.1m). The loss before tax and special items was £3.3 million (2010: £1.2 million loss). Trading in the Offshore division has improved since June but in the first half was affected by reduced volumes in Norway. Despite a strong order book raw material shortages affected Workwear's ability to meet demand but we expect Workwear to recover in the second half.
The Continuing Group incurred special items of £6.7 million (2010: £2.0 million), of which £3.6 million are non cash items relating to a write down in investment property values and impairment of goodwill. The goodwill in respect of the Norwegian business has been impaired following continued trading weakness. The balance relates to restructuring of the head office to more readily align its size with the ongoing business, amortisation of intangibles, re-financing and litigation costs. Consequently, the Group recorded a loss before taxation from continuing operations of £9.1 million (2010: £2.4 million loss).
The discontinued Marine division recorded a post-tax profit before special items of £2.4 million (2010: £1.6 million). The Group has been required to recognise £2.7 million of one-off advisory and other costs related to the disposal of the Marine division in the income statement ahead of recognising the overall profit on the sale. The post-tax loss from discontinued operations after special items was £0.3 million (2010: £1.2 million profit). The Total Group loss for the period after taking all these into account was £9.4 million (2010: £1.3 million).
After the application of the net proceeds from the disposal, net borrowings will reduce to £7 million during September. The Group has banking facilities in place of £11.4 million and on the conclusion of the disposal of the Marine Division, Sovereign Holding Limited and I, as substantial shareholders in the Group, each subscribed for £1 million of A Loan Notes in the Company as set out in the circular to shareholders dealing with the disposal of the Marine division and as set out in note 3 to the interim financial statements. Both the banking facilities and the shareholder loans expire in December 2012. The Board believes the shareholder support and banking facilities provide the Group with sufficient headroom to support its ongoing commitments.The deficit in the Pension Scheme, calculated in accordance with International Accounting Standards, was £9.0 million as at 30 June 2011 (31 Dec 2010 £9.1m). As disclosed in note 3 to the interim financial statements, and as agreed with the Trustees of the Cosalt plc Retirement Benefits Plan, no contributions towards reducing the deficit in the Plan will be required for up to 18 months from March 2011. The Company is not proposing to pay an interim dividend.
Operations
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 floating facilities operating out of two sites at Aberdeen and Stavanger. The business employs 300 engineering staff and provides a pan-North Sea supply of goods and services to the offshore oil and gas industry.
Reporting under the Offshore division, Cosalt Wind Energy ("CWE") completed its first year of operations. CWE is still in the early stages of its development but the scope of the market opportunity to provide specialist services to the expanding wind energy market in the UK is significant.
Cosalt Offshore generated turnover of £16.4 million (2010: £14.6 million) in the period, reflecting an increase in activity in Aberdeen. However lower volumes in Norway, coupled with the costs of supporting the development of the wind energy business, meant the Offshore division recorded an operating loss before special items of £0.4 million (2010: operating profit before special items of £0.9m). Trading since the half year has improved, with significant offshore activity on both sides of the North Sea associated with construction projects and maintenance shutdowns.
The new management team, under recently appointed divisional CEO Rod Buchan, has made good progress over a relatively short period, establishing an organization structure and strong support functions aligned to Offshore's growth strategy in key market segments.
During the first half of the year, the business retained and renewed all material support contracts, signed a new long term collaboration agreement with Sparrows Offshore and secured a number of new contracts in the lifeboats and consultancy sectors, both of which are seen as future growth areas. The business was also proud to be awarded an International Safety Award by the British Safety Council.
The Company is continuing to vigorously pursue claims through the Scottish courts against the parties believed to be responsible for the stock and work in progress shortfall identified in Aberdeen in September 2010. This includes 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 of the Group in relation to this matter. As a Board we have committed to seeing these proceedings through to completion and once the civil case closes, it is the Board's intention to pass the files over to the relevant authorities/police.
Cosalt Workwear
Trading for the period saw lower revenues of £4.5 million (2010: £5.5 million), attributable to lower volumes due to a shortage of raw materials slowing delivery and reduced orders in certain areas reflecting the weaker economic environment. These factors led to a loss before special items at the operating level of £0.3 million (2010: operating profit before special items of £0.2 million). However, looking ahead, the division has a strong order book worth £1.6 million which, with more readily available raw material supplies, should recover in the second half of the year.
A key focus for the Workwear business is delivering on the substantial framework agreement with the Fire & Rescue Service in South East and Eastern England. Workwear has also won new contracts with BAA, Renault, Toyota and the MOD.
Cosalt Marine
Cosalt Marine was sold to Survitec on 26 August 2011. For the period under review turnover was £29.2 million (2010: £28.3 million) whilst operating profit before special items was £3.6 million (2010 £2.3 million).
People
In a separate announcement today, following the sale of Marine division, the Company announced that Mark Lejman has agreed with the Board that he will step down as Chief Executive Officer and will leave the company on 26 October 2011. Trevor Sands has been appointed as the new Chief Executive Officer and he will commence his appointment from 27 October 2011. Also announced today is the appointment of Dolores Douglas as Chief Financial Officer.
Further to the announcement made on 18 May 2011, the Board of Cosalt now confirms that Neil Carrick, Director, will remain with the Group until 30 September 2011. Mike Reynolds, the Group's former Chief Financial Officer and a previous Director, left the Group on 30 June 2011.
Principal Risks and Uncertainties
Further to the circular dated 2nd June 2011, the risk factors surrounding the disposal of the Marine Business have been dealt with. However the delay in the OFT approval will affect the speed of the "Workwear Business" growth trajectory.
The risks relating to the continuing group include the following:
Ongoing performance of the business is required to support the Company's financial obligations and whilst indications in the Oil and Gas sector appear favourable, activity levels in Norway in particular, can fluctuate.
Internally the separation from the Marine business is subject to the success of the IT TSA (transitional service agreement) and requires constant monitoring.
Current Trading and Outlook
Trading in our continuing businesses since the period end has been satisfactory, with volumes in all three operations improving. The disposal of the Marine division has enabled the Group to reduce its borrowings to a manageable level and remove the cash constraints in the short-term under which the Group has operated in recent times. Whilst we need to address the trading issues facing the business, the core business of providing offshore services is sound and I believe we have secured the right team with which to build this business back up.
Condensed Consolidated income statement | |||||||||
for the 6 months ended 30 June 2011 | |||||||||
Before | After | Before | After | After | |||||
special items | Special items* | Special items | special items | Special items* | special items | special items | |||
6 months ended | 6 months ended | 6 months ended | 26 weeks ended | 26 weeks ended | 26 weeks ended | 14 months ended | |||
30 June 2011 | 30 June 2011 | 30 June 2011 | 2 May 2010 | 2 May 2010 | 2 May 2010 | 31 Dec 2010 | |||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | |||
Revenue | 20,901 | - | 20,901 | 20,086 | - | 20,086 | 45,122 | ||
Operating (loss)/profit | (1,810) | (5,610) | (7,420) | 85 | (1,923) | (1,838) | (28,751) | ||
Financial income | 35 | - | 35 | 30 | - | 30 | 61 | ||
Financing costs | (1,478) | (1,088) | (2,566) | (1,351) | (105) | (1,456) | (3,518) | ||
Loss before taxation | (3,253) | (6,698) | (9,951) | (1,236) | (2,028) | (3,264) | (32,208) | ||
Income tax expenses | 872 | 15 | 887 | 295 | 523 | 818 | 4,930 | ||
Loss from continuing operations | (2,381) | (6,683) | (9,064) | (941) | (1,505) | (2,446) | (27,278) | ||
Post-tax profit/(loss) of discontinued operations | 2,378 | (2,689) | (311) | 1,634 | (438) | 1,196 | 1,229 | ||
(Loss)/profit for the financial period | (3) | (9,372) | (9,375) | 693 | (1,943) | (1,250) | (26,049) | ||
Attributable to: | |||||||||
Equity shareholders | 38 | (9,372) | (9,334) | 693 | (1,943) | (1,250) | (26,035) | ||
Non-controlling interests | (41) | - | (41) | - | - | - | (14) | ||
(Loss)/profit for the financial period | (3) | (9,372) | (9,375) | 693 | (1,943) | (1,250) | (26,049) | ||
Earnings per ordinary share | |||||||||
Basic and diluted** | |||||||||
On continuing operations | (0.58)p | (2.23)p | (0.23)p | (0.61)p | (6.75)p | ||||
On discontinued activities | 0.59p | (0.08)p | 0.40p | 0.30p | 0.30p | ||||
Total earnings per share | 0.01p | (2.31)p | 0.17p | (0.31)p | (6.45)p | ||||
* 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 payment and LTIP costs technical compliance costs, incremental directly attributable costs of disposal relating to discontinued operations and the inventory shortfall and associated litigation costs.
Note that, subsequent to the period end the Marine Division disposal has completed. This is expected to result in a profit on disposal being recognised in the full year financial statements. However as required by IFRS £2.7million of the costs of this disposal have been charged in the first half of the year as incurred, as special items on discontinued operations, although the profit that will result from selling the business at more than its carrying value cannot be recognised until the second half year.
** as restated for the 26 weeks ended 2 May 2010 and the 14 months ended 31 December 2010 (see note 11)
Condensed Consolidated statement of comprehensive income | |||
for the 6 months ended 30 June 2011 | |||
6 months ended | 26 weeks ended | 14 months ended | |
30 June 2011 | 2 May 2010 | 31 Dec 2010 | |
£000 | £000 | £000 | |
Loss for period | (9,375) | (1,250) | (26,049) |
Other comprehensive income: | |||
Effective portion of changes in fair value of cash | |||
flow hedges net of recycling | 266 | 107 | 503 |
Currency translation differences | 700 | 237 | 96 |
Actuarial gains/losses on defined benefit scheme | 80 | 868 | 1,662 |
Tax on other comprehensive income | (111) | (243) | (537) |
Other comprehensive income for the period net of tax | 935 | 969 | 1,724 |
Total comprehensive income for the period | (8,440) | (281) | (24,325) |
Attributable to: | |||
Equity holders of the parent | (8,399) | (281) | (24,311) |
Non-controlling interest | (41) | - | (14) |
Total comprehensive income for the period | (8,440) | (281) | (24,325) |
Condensed Consolidated balance sheet |
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as at 30 June 2011 |
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30 June 2011 | 2nd May 2010 | 31st Dec 2010 | |||||||||
£000 | £000 | £000 | |||||||||
ASSETS |
| ||||||||||
Non-current assets |
| ||||||||||
Intangible assets - goodwill | 20,995 | 34,590 | 33,388 |
| |||||||
Intangible assets - customer contracts |
| ||||||||||
and relationships | - | 15,147 | 469 |
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Intangible assets - computer software | 896 | 1,097 | 1,056 |
| |||||||
Investment properties | - | 2,765 | 2,015 |
| |||||||
Property plant and equipment | 7,977 | 9,949 | 10,308 |
| |||||||
Investments | - | 225 | 225 |
| |||||||
Deferred tax assets | 3,519 | 2,968 | 3,644 |
| |||||||
33,387 | 66,741 | 51,105 |
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Current assets |
| ||||||||||
Inventories | 9,880 | 19,632 | 16,199 |
| |||||||
Trade and other receivables | 10,723 | 24,580 | 16,057 |
| |||||||
Corporation tax recoverable | 1,840 | 476 | - |
| |||||||
Derivative financial assets | 62 | 24 | 62 |
| |||||||
Cash and cash equivalents | 1,012 | 4,607 | 1,267 |
| |||||||
Assets classified as held for sale | 33,329 | - | - |
| |||||||
56,846 | 49,319 | 33,585 |
| ||||||||
Total assets | 90,233 | 116,060 | 84,690 |
| |||||||
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LIABILITIES |
| ||||||||||
Non-current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 516 | 17,752 | 18,143 |
| |||||||
Deferred tax liabilities | 475 | 2,949 | 130 |
| |||||||
Deferred Government Grants | 6 | 6 | 6 |
| |||||||
Provisions | 25 | 112 | - |
| |||||||
Retirement benefit obligations | 8,937 | 10,624 | 9,065 |
| |||||||
9,959 | 31,443 | 27,344 |
| ||||||||
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Current liabilities |
| ||||||||||
Interest bearing loans and borrowings | 32,928 | 6,854 | 7,384 |
| |||||||
Corporation tax payable | 375 | 296 | 226 |
| |||||||
Provisions | - | - | 145 |
| |||||||
Trade and other payables | 18,219 | 27,409 | 23,935 |
| |||||||
Derivative financial liabilities | 276 | 900 | 542 |
| |||||||
Liabilities classified as held for sale | 11,802 | - | - |
| |||||||
63,600 | 35,459 | 32,232 |
| ||||||||
Total liabilities | 73,559 | 66,902 | 59,576 |
| |||||||
| |||||||||||
Net assets | 16,674 | 49,158 | 25,114 |
| |||||||
EQUITY |
| ||||||||||
Share capital | 10,336 | 10,336 | 10,336 |
| |||||||
Share premium | 48,115 | 48,115 | 48,115 |
| |||||||
Merger reserve | 7,586 | 7,586 | 7,586 |
| |||||||
Other reserves | 1,148 | 1,148 | 1,148 |
| |||||||
Translation reserve | 3,465 | 2,906 | 2,765 |
| |||||||
Hedging reserve | (299) | (876) | (480) |
| |||||||
Retained losses | (53,622) | (20,057) | (44,342) |
| |||||||
Total equity attributable to equity holders of the |
| ||||||||||
Parent | 16,729 | 49,158 | 25,128 |
| |||||||
Non-controlling interests | (55) | - | (14) |
| |||||||
Total equity | 16,674 | 49,158 | 25,114 |
| |||||||
Condensed Consolidated cash flow statement | |||
for the 6 months ended 30 June 2011 | |||
6 months ended | 26 weeks ended | 14 months ended | |
30 June 2011 | 2 May 2010 | 31 Dec 2010 | |
£000 | £000 | £000 | |
Cash generated from operations | |||
(Loss) for the period | (9,375) | (1,250) | (26,049) |
Adjustments for: | |||
Income tax | 272 | (252) | (3,396) |
Depreciation | 1,288 | 1,139 | 2,804 |
Amortisation and impairment of intangible assets | 3,333 | 1,502 | 17,929 |
Net finance costs | 2,531 | 1,488 | 3,601 |
Share based payment charge | - | 35 | 35 |
Investment property losses | 615 | - | 750 |
Pension contributions in excess of charge | 66 | (200) | (502) |
Profit on sale of intangibles | - | - | - |
Profit on sale of investments | 10 | - | - |
Loss on disposals of property, plant and equipment | 62 | 6 | 11 |
Cash flow before changes in working capital | (1,198) | 2,468 | (4,817) |
Decrease/(increase) in inventories | 271 | (703) | 2,688 |
(increase)/decrease in trade and other receivables | (5,508) | (1,484) | 4,646 |
Increase/(decrease) in trade and other payables | 4,039 | 1,002 | (524) |
Decrease in provisions | (63) | (136) | (32) |
Net cash used in)/from operations | (2,459) | 1,147 | 1,961 |
- | |||
Interest received | 124 | 87 | 67 |
Interest paid | (2,665) | (1,527) | (3,801) |
Interest element of finance lease rentals | (82) | (30) | (63) |
Dividends paid on preference shares | - | (2) | (2) |
Income tax paid | (272) | 55 | (172) |
Net cash (used in) operating activities | (5,354) | (270) | (2,010) |
Cash flows from investing activities | |||
Acquisition of subsidiaries net of cash acquired | - | - | (209) |
Sale of investments | 225 | 125 | 125 |
Proceeds from sale of property, plant and equipment | 112 | 1,154 | 1,268 |
Proceeds from sale of other intangibles | - | - | - |
Purchase of property, plant and equipment | (3,089) | (2,137) | (4,325) |
Purchase of intangible assets - software | (211) | (267) | (453) |
Purchase of intangible assets - other | - | - | (56) |
Net cash (used in)/from investing activities | (2,963) | (1,125) | (3,650) |
Cash flows from financing activities | |||
Finance lease principal payments | (195) | (179) | (434) |
New loans and facilities | 7,353 | 4,694 | 8,437 |
Repayment of bank borrowing | (28) | (4) | (2,551) |
Net cash from financing activities | 7,130 | 4,511 | 5,452 |
Net increase/(decrease) in cash and cash equivalents | (1,187) | 3,116 | (208) |
Cash and cash equivalents at beginning of period | 1,267 | 1,493 | 1,493 |
Effect of exchange rate fluctuations on cash held | 33 | (2) | (18) |
Cash and cash equivalents at period end | 113 | 4,607 | 1,267 |
Cash | 1,012 | 4,607 | 1,267 |
Overdrafts | (899) | - | - |
Cash and cash equivalents | 113 | 4,607 | 1,267 |
Condensed Consolidated statement of changes in equity |
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for the 6 months ended 30 June 2011 |
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Share | Share | Merger | Other | Translation | Hedging | Retained | Non-controlling | Total |
| ||||||||||||
capital | Premium | reserve | reserves | reserve | reserve | earnings | Total | interests | equity |
| |||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
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Balance brought forward 1 January 2011 | 10,336 | 48,115 | 7,586 | 1,148 | 2,765 | (480) | (44,342) | 25,128 | (14) | 25,114 |
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Loss for the period | - | - | - | - | - | - | (9,334) | (9,334) | (41) | (9,375) |
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Other comprehensive Income |
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Share option charge | - | - | - | - | - | - | - | - | - | - |
| ||||||||||
Currency translation differences | - | - | - | - | 700 | - | - | 700 | - | 700 |
| ||||||||||
Change in the value of hedged items | - | - | - | - | - | 181 | - | 181 | - | 181 |
| ||||||||||
Movement in pensions deficit and related taxation | - | - | - | - | - | - | 54 | 54 | - | 26 |
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Total other comprehensive income | - | - | - | - | 700 | 181 | 54 | 935 | - | 935 |
| ||||||||||
Total comprehensive income | - | - | - | - | 700 | 181 | (9,280) | (8,399) | (41) | (8,440) |
| ||||||||||
Balance as at 30 June 2011 | 10,336 | 48,115 | 7,586 | 1,148 | 3,465 | (299) | (53,622) | 16,729 | (55) | 16,674 | |||||||||||
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Share | Share | Merger | Other | Translation | Hedging | Retained | Non-controlling | Total |
| ||||||||||||
capital | Premium | reserve | reserves | reserve | reserve | earnings | Total | interests | equity |
| |||||||||||
26 weeks ended 2 May 2010 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
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Balance brought forward 1 November 2009 | 10,336 | 48,115 | 7,586 | 1,148 | 2,669 | (983) | (19,467) | 49,404 | - | 49,404 |
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Loss for the period | - | - | - | - | - | - | (1,250) | (1,250) | - | (1,250) |
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Other comprehensive Income |
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Share option charge | - | - | - | - | - | - | 35 | 35 | - | 35 |
| ||||||||||
Currency translation differences | - | - | - | - | 237 | - | - | 237 | - | 237 |
| ||||||||||
Change in the value of hedged items | - | - | - | - | - | 107 | - | 107 | - | 107 |
| ||||||||||
Movement in pensions deficit and related taxation | - | - | - | - | - | - | 625 | 625 | - | 625 |
| ||||||||||
Total other comprehensive income | - | - | - | - | 237 | 107 | 660 | 1,004 | - | 1,004 |
| ||||||||||
Total comprehensive income | - | - | - | - | 237 | 107 | (590) | (246) | - | (246) |
| ||||||||||
Balance as at 2 May 2010 | 10,336 | 48,115 | 7,586 | 1,148 | 2,906 | (876) | (20,057) | 49,158 | - | 49,158 |
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Share | Share | Merger | Other | Translation | Hedging | Retained | Non-controlling | Total |
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capital | Premium | reserve | reserves | reserve | reserve | earnings | Total | interests | equity |
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14 months ended 31 December 2010 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
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Balance brought forward 1 November 2009 | 10,336 | 48,115 | 7,586 | 1,148 | 2,669 | (983) | (19,467) | 49,404 | - | 49,404 |
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Loss for the period | - | - | - | - | - | - | (26,035) | (26,035) | (14) | (26,049) |
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Other comprehensive Income |
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Share option charge | - | - | - | - | - | - | 35 | 35 | - | 35 |
| ||||||||||
Currency translation differences | - | - | - | - | 96 | - | - | 96 | - | 96 |
| ||||||||||
Change in the value of hedged items | - | - | - | - | - | 503 | - | 503 | - | 503 |
| ||||||||||
Movement in pensions deficit and related taxation | - | - | - | - | - | - | 1,125 | 1,125 | - | 1,125 |
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Total other comprehensive income | - | - | - | - | 96 | 503 | 1,160 | 1,759 | - | 1,759 |
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Total comprehensive income | - | - | - | - | 96 | 503 | (24,875) | (24,276) | (14) | (24,290) |
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Balance as at 31December 2010 | 10,336 | 48,115 | 7,586 | 1,148 | 2,765 | (480) | (44,342) | 25,128 | (14) | 25,114 |
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Notes to the condensed consolidated interim financial statements
1. Reporting entity |
Cosalt plc (the "Company") is a company domiciled in the United Kingdom. The condensed consolidated interim financial statements of the Company as at and for the 6 months ended 30 June 2011 comprises the Company and its subsidiaries (together referred to as the "Group"). |
2. Basis of preparation |
This half-yearly financial report comprises the interim management report, a responsibilities statement and condensed consolidated interim financial statements of the Group for the 6 months ended 30 June 2011. It has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the European Union. |
The Board believed that it made good commercial sense to align the Company's year end with that of many of its customers and suppliers. Consequently the Company's accounting reference date was changed in the 2010 annual report from 31 October 2010 to 31 December 2010. This half year report date has accordingly been changed to 30 June 2011. The comparative amounts disclosed are for the 26 weeks ended 2 May 2010 and the 14 months ended 31 December 2010.
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The half-yearly financial report 2011 was approved by the Board of Directors on 31 August 2011. |
The half-yearly financial report 2011 does not constitute financial statements as defined in section 435 of the Companies Act 2006 and does not include all of the information and disclosures required for full annual financial statements. It should be read in conjunction with the Annual report and financial statements for the 14 months ended 31 December 2010, copies of which can be obtained from the Company's registered office or website. |
The financial information contained in this half-yearly report in respect of the 14 months ended 31 December 2010 has been extracted from the Annual report and financial statements 2010 which have been filed with the Registrar of Companies. The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The auditors have reported on those financial statements; their report was (i) unqualified, (ii) did include a reference to going concern matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. |
3. Going concern |
The Group's business activities including factors likely to affect the future development and performance are set out in the Chairman's statement. |
At the completion of the sale of the Marine Division on 26 August 2011 the principal shareholders David Ross and Sovereign Holding Limited each subscribed for £1m of series A unsecured Loan Notes and amended and restated banking arrangements of £11.4m of Revolving Credit Facilities with maturity in December 2012 came into place. A separate facility was already in place in Norway for NOK 5m which expires in March 2012. |
The Group has been granted waivers during the current and preceding periods from the financial covenants in the old banking arrangements conditional upon completion of the sale of the Marine Division. New covenants have been negotiated under the new facility which will be tested quarterly starting in September 2011 for the duration of the facilities. |
The new banking arrangements are supported by the two principal shareholders who have provided unsecured guarantees to the Group's Banks totalling £2.4m over amounts drawn up to £8m. In addition David Ross has provided a further unsecured guarantee to the Banks for the remaining £3.4m of the Group's total facility over £8m. These guarantees expire at 31 December 2012. |
David Ross also subscribed for £750,000 of unsecured B Loan Notes during the period. £500,000 of this amount was repaid on 28 July 2011 following the sale of one of the Group's investment properties. The repayment of the remaining amount of £250,000 plus a further amount of £750,000 due to be subscribed for on or after 1 November 2011 is dependent on the sale of the Group's remaining surplus properties. The balance of any B Loan notes which is not repaid from property sale proceeds is due to be repaid on 31 December 2012. |
As part of the financial restructuring of the Group the Company has agreed with the Trustees of the Cosalt plc Retirement Benefits Plan and the Pensions Regulator that the Group will not be required to make any ongoing contributions to reducing the deficit in the Plan for a period of up to 18 months starting from March 2011. |
Having considered these factors and the amended and restated Bank facilities and associated covenants the Directors have reviewed the profit and cash forecasts of the Group with appropriate sensitivities around operational performance and the required investment in the South East Fire Brigades' contract. As a result of this review the Directors are satisfied that the Group has sufficient funds for the foreseeable future and therefore the going concern basis of preparation of the financial statements remains appropriate. |
4. Significant accounting policies |
Except as described below, the accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its financial statements as at and for the 14 months ended 31 December 2010.
5. New IFRS and amendments to IAS The following accounting standards and interpretations have been effective since 1 January 2011:
* Amendments to IFRS 1 'First-time adoption of International Financial Reporting Standards' * Amendment to IFRS 2 'Share-based payment' * Amendment to IAS 32 'Financial instruments: Presentation' * IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments'
The application of these standards and interpretations will not have a material effect on the Group's financial statements except for additional disclosure.
6. Estimates The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the 14 months ended 31 December 2010.
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7 Segment reporting | ||||||||||||||||
Workwear | Offshore | Head office | Total | Marine | Total | |||||||||||
for the 6 months ended 3 June 2011 | unallocated | continuing | discontinued | |||||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | |||||||||||
Total revenue | 4,508 | 16,422 | - | 20,930 | 31,201 | 52,131 | ||||||||||
Inter segmental revenue | 29 | - | - | 29 | 2,013 | 2,042 | ||||||||||
Revenue from external customers | 4,479 | 16,422 | - | 20,901 | 29,188 | 50,089 | ||||||||||
Operating profit/(loss) before special items | (264) | (379) | (1,167) | (1,810) | 3,571 | 1,761 | ||||||||||
Special items | - | (3,351) | (2,259) | (5,610) | (2,689) | (8,299) | ||||||||||
Operating profit/(loss) | (264) | (3,730) | (3,426) | (7,420) | 882 | (6,538) | ||||||||||
Total assets | 10,911 | 36,981 | 10,412 | 58,304 | 31,929 | 90,233 | ||||||||||
Total liabilities | (5,999) | (8,390) | (47,367) | (61,756) | (11,803) | (73,559) | ||||||||||
Total net assets | 4,912 | 28,591 | (36,955) | (3,452) | 20,126 | 16,674
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Workwear | Offshore | Head office | Total | Marine | Total | |||||||||||
for the 26 weeks ended 2 May 2010 | unallocated | continuing | discontinued | |||||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | |||||||||||
Total revenue | 5,496 | 14,597 | - | 20,093 | 30,177 | 50,270 | ||||||||||
Inter segmental revenue | 7 | - | - | 7 | 1,916 | 1,923 | ||||||||||
Revenue from external customers | 5,489 | 14,597 | - | 20,086 | 28,261 | 48,347 | ||||||||||
Operating profit/(loss) before special items | 195 | 924 | (1,034) | 85 | 2,246 | 2,331 | ||||||||||
Special items | (44) | (548) | (1,331) | (1,923) | (451) | (2,374) | ||||||||||
Operating profit/(loss) | 151 | 376 | (2,365) | (1,838) | 1,795 | (43) | ||||||||||
Total assets | 7,077 | 60,014 | 10,159 | 77,250 | 38,810 | 116,060 | ||||||||||
Total liabilities | (1,830) | (12,257) | (39,204) | (53,291) | (13,611) | (66,902) | ||||||||||
Total net assets | 5,247 | 47,757 | (29,045) | 23,959 | 25,199 | 49,158 | ||||||||||
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for the 14 months ended 31 December 2010 | Workwear | Offshore | Head Office unallocated | Total continuing | Marine discontinued | Total | ||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | |||||||||||
Total revenue | 12,333 | 32,821 | - | 45,154 | 70,871 | 116,025 | ||||||||||
Inter segmental revenue | 32 | - | - | 32 | 4,004 | 4,036 | ||||||||||
Revenue from external customers | 12,301 | 32,821 | - | 45,122 | 66,867 | 111,989 | ||||||||||
Operating profit/(loss) before special items | 315 | 399 | (2,876) | (2,162) | 4,203 | 2,041 | ||||||||||
Special items | (17) | (6,968) | (19,604) | (26,589) | (1,296) | (27,885) | ||||||||||
Operating profit/(loss) | 298 | (6,569) | (22,480) | (28,751) | 2,907 | (25,844) | ||||||||||
Total assets | 9,458 | 37,672 | 3,899 | 51,029 | 33,661 | 84,690 | ||||||||||
Total liabilities | (10,488) | (6,545) | (32,726) | (49,759) | (9,817) | (59,576) | ||||||||||
Total net assets | (1,030) | 31,127 | (28,827) | 1,270 | 23,844 | 25,114 | ||||||||||
Basis of segmentation The Aberdeenbranch for Cosalt plc was included within the Offshore segment for the purposes of segmental reporting in the Annual report and financial statements 2010 and the half-yearly financial report 2010. This was based on the reporting structure of the group.
This branch formed part of the disposal group defined in the sale and purchase agreement for the sale of the Marine division in August 2011. As such it has been transferred into the discontinued Marine segment for the purposes of segmental reporting in this half-yearly financial report. The comparatives in respect of the 26 weeks ended 2 May 2010 and the 14 months ended 31 December 2010 have accordingly been restated above. | ||||||||||||||||
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8. Non-current assets held for sale and discontinued operation |
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| Discontinued operation |
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| In August 2011, the Group sold its entire Marine division. The Group was previously committed to a plan to sell this division due to the signature of a sale and purchase agreement dated 3 May 2011. The related assets and liabilities were classified as held for sale at 30 June 2011. At 30 June 2011, no gain or loss arose on the comparison of carrying value to fair value less cost to sell. |
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| Results of the discontinued operations |
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| 6 months | 26 weeks | 14 months |
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| ended | ended | ended |
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| 30 June | 2 May | 31-Dec |
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| 2011 | 2010 | 2010 |
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| £000 | £000 | £000 |
| ||||||||||||
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| Revenue | 29,188 | 28,261 | 66,867 |
| |||||||||||
| Expenses | (28,339) | (26,499) | (64,104) |
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| Profit before tax | 849 | 1,762 | 2,763 |
| |||||||||||
| Tax on profit | (1,160) | (566) | (1,534) |
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| Net (loss)/profit attributable to discontinued operations | (311) | 1,196 | 1,229 |
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| |||||||||||||||
| Basic (loss)/earnings per share (pence) | (0.08)p | 0.30p | 0.30p |
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| |||||||||||||||
| 6 months | 26 weeks | 14 months |
| ||||||||||||
| ended | ended | ended |
| ||||||||||||
| Cash flows from/(used in) discontinued operations | 30 June | 2 May | 31-Dec |
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| 2011 | 2010 | 2010 |
| ||||||||||||
| £000 | £000 | £000 |
| ||||||||||||
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| |||||||||||||||
| Net cash used in operating activities | 5,960 | 1,269 | 1,419 |
| |||||||||||
| Net cash used in investing activities | (3,957) | (939) | (1,680) |
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| Net cash from financing activities | (203) | (173) | (259) |
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|
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| Net cash from/(used in) discontinued operations | 1,800 | 157 | (520) |
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| 30 June |
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| 2011 |
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| Assets classified as held for sale |
| ||||||||||||||
| Intangible assets - goodwill | 10,090 |
| |||||||||||||
| Intangible assets - customer contracts and relationships | 367 |
| |||||||||||||
| Intangible assets - computer software | 41 |
| |||||||||||||
| Property, plant and equipment | 4,821 |
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| Deferred tax assets | 32 |
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| Inventories | 5,867 |
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| Trade and other receivables | 10,711 |
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| Marine business assets held for sale | 31,929 |
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| Investment properties held for sale | 1,400 |
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| Assets held for sale | 33,329 |
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| Liabilities classified as held for sale |
| ||||||||||||||
| Interest bearing loans and borrowings | (788) |
| |||||||||||||
| Provisions | (64) |
| |||||||||||||
| Retirement benefit obligations | (114) |
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| Corporate tax payable | (1,489) |
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| Trade and other payables | (9,347) |
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| Liabilities held for sale | (11,802) |
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9. Related Party Transactions
During the period fabric was sold to the Workwear Division on extended payment terms to the value of £247,180 By Kandahar Asset Management Company Limited a company in which Mr Ross has a controlling interest.
During the year the Offshore Division entered into finance leases with Kandahar Asset Management Limited. The value of assets acquired was £631,000 and a corresponding lease liability has been recognised. During the period lease payments totalling £74,000 were made and at 30 June 2011 the outstanding lease liability recognised was £611,000.
On 22 March 2011 David Ross provided an unsecured guarantee to the Group's Banks for £1m to secure additional borrowing facilities of £1m for the Group. This was released on the completion of the sale of the Marine Division.
Mr Ross also provided an unsecured Bridging Loan of £750,000 on 16 June 2011 which was repaid on the sale of the Marine division. A fee of £75,000 was charged which is being paid on a monthly basis over the twelve months starting from 26 August 2011.
Mr Ross subscribed for £750,000 B Loan Notes on 2 June 2011. £500,000 of this amount was repaid on 28 July 2011. Interest of Libor is payable on a quarterly basis on outstanding amounts starting at the end of July 2011.
On the completion of the sale of the Marine business the substantial shareholders Mr Ross and Sovereign Holding Limited each subscribed for £1m of A Loan Notes.
In addition both Mr Ross and Sovereign Holding Limited have provided a guarantee to the Group's banks for £1.2m each.
Mr Ross has also provided an additional guarantee to the Group's Banks for £3.4m.
Sovereign Holding Limited is a substantial shareholder and Mr Ophir (who is connected to Sovereign Holding Limited) is a member of the Board of Directors.
10. Litigation update
The Group continues to pursue a claim in respect of stock and work in progress shortfalls uncovered at the Offshore Division through the Scottish Courts 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.
11.Earnings per share
Headline EPS is calculated based on headline operating profit less net financial cost and assuming taxation at the effective rate and the average number of shares in issue (excluding shares held in the Employee Share Trust) in the period of 403,920,051 at 30 June 2011, 403,923,609 at 31 December 2010 and 403,928,354 at 2 May 2010.
The basic earnings are calculated on the basis of £6,039,000 (losses of £1,250,000 for 2 May 2010 and losses of £26,035,000 for 31 December 2010) attributable to ordinary shareholders and the average number of shares in issue as noted above. The options issued under the various Executive Share Option Schemes have no potential dilutative effect.
Weighted average number of ordinary shares | |||||
6 months | 26 weeks | 14 months | |||
ended | ended | ended | |||
30 June | 2 May | 31 December | |||
2011 | 2010 | 2010 | |||
£000 | £000 | £000 | |||
Weighted number of issued ordinary shares during the period | 404,403,397 | 404,403,397 | 404,403,397 | ||
Weighted effect of shares held in the Employee Share Trust during the period | (483,346) | (475,044) | (479,788) | ||
Weighted average number of ordinary shares during the period | 403,920,051 | 403,928,353 | 403,923,609 |
As noted on the income statement, the total earnings per share for the both comparative periods displayed have been restated to take into account shares held in the Employee Share Trust that should be deducted from the weighted average number of ordinary shares in issue, to take into account that that none of the potential ordinary shares were dilutive in any of the periods, and to exclude losses attributable to non-controlling interests.
12. Reconciliation of Headline figures to statutory figures | |||||||||
Six months | Six months | 26 weeks | 26 weeks | 14 months | 14 months | ||||
Ended | ended | ended | ended | ended | ended | ||||
30 June 2011 | 30 June 2011 | 2 May 2010 | 2 May 2010 | 31 December 2010 | 31 December 2010 | ||||
£000 | £000 | £000 | £000 | £000 | £000 | ||||
Head line operating (loss)/profit before tax | (1,810) | 85 | (2,162) | ||||||
Redundancies and re-organisations | (1,538) | (158) | (1,610) | ||||||
Technical compliance costs | - | (502) | (502) | ||||||
Share- based payments | - | (35) | (35) | ||||||
Amortisation of acquisition intangibles | (118) | (1,228) | (2,648) | ||||||
Impairment of acquisition intangibles | (3,000) | - | (14,700) | ||||||
Write downs and associated costs arising from alleged fraud | (339) | - | (4,619) | ||||||
Inventory write downs and onerous contracts | - | - | (1,725) | ||||||
Reduction in investment property valuations | (615) | - | (750) | ||||||
Special items in operating loss | (5,610) | (1,923) | (26,589) | ||||||
Statutory operating profits | (7,420) | (1,838) | (28,751) | ||||||
Financial income | 35 | 30 | 61 | ||||||
Financial cost | |||||||||
- Other | (1,478) | (1,351) | (3,019) | ||||||
- Special items | (1,088) | (105) | (499) | ||||||
Profit before taxation | (9,951) | (3,264) | (32,208) | ||||||
Taxation | |||||||||
- On continuing activities | 872 | 295 | (681) | ||||||
- special items | 15 | 523 | 5,611 | ||||||
Loss on continuing activities after taxation | (9,064) | (2,446) | (27,278) | ||||||
Discontinued operations | |||||||||
- Profit after taxation | 2,378 | 1,634 | (133) | 2,657 | |||||
- Special items - professional fees on disposal | (2,618) | - | - | ||||||
- Special items - technical compliance costs | - | (390) | (250) | ||||||
- Special items - other | (71) | (48) | (1,045) | ||||||
Special items in discontinued operations | (2,689) | (438) | (1,428) | ||||||
(Loss)/profit for the financial period | (9,375) | (1,250) | (26,049) | ||||||
13. Impairment tests for cash-generating units containing goodwill
Goodwill arising on business combinations is not amortised, being reviewed for impairment on an annual basis or more frequently if there are indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated to cash-generating units.
The recoverable amount of each CGU is based on value in use calculations. Five year financial forecasts have been prepared by the local management at CGUs and these forecasts have been approved and adopted by Group management. The principal components of these forecasts; sales volumes, selling prices and costs are based upon recent history and expected future changes in operating conditions. The cash flow projections beyond five years have been extrapolated using an estimated growth rate of 2.7% - 3.1% at 30 June 2011 and 31 December 2010 and 2% - 3% at 2 May 2010 and are appropriate because these are long-term businesses. The growth rates used are consistent with the long-term average growth rates for the countries in which the CGUs are located. Cash flows are discounted using the Group's pre-tax weighted average cost of capital which is adjusted for CGU risk factors resulting in rates of 16.4% - 19.5% at 30 June 2011, 31 December 2010 and 2 May 2010.
During the period it was necessary to make an additional impairment charge of £3,000,000 in respect of the goodwill of the Myhre Maritime CGU following continued weak trading and more challenging market conditions than had been expected in the period.
If actual sales were below forecast by 5% then the impairment charge for goodwill would have been £900,000 higher for Myhre Maritime.
The cumulative impairment of goodwill in respect of the Myhre Maritime CGU is £3,485,000 (31 December 2010: £485,000; 2 May 2010 £nil) and £1,005,000 (31 December 2010; £1,005,000; 2 May 2010: £nil) in respect of the GTC Group Limited CGU.
Responsibility statement of the directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
·; the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
·; the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Neil Carrick
Finance Director
31 August 2011Independent Review Report to Cosalt plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-year financial report for the six months ended 30 June 2011 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement, the Condensed Consolidated Statement of Changes in Equity and the related explanatory notes. We have read the other information contained in the half-year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-year financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-year financial report in accordance with the DTR of the UK FSA.
As disclosed in Note 2, the annual Financial Statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of Financial Statements included in this half-year financial report has been prepared in accordance with IAS 34Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the half-year financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the half-year financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.
David Morritt
for and on behalf of KPMG Audit PlcChartered Accountants1 The Embankment
Neville StreetLeedsLS1 4DW31 August 2011
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