Profits warning hits Cosalt shares

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OFFSHORE services group Cosalt dealt investors another hammer blow with a profits warning yesterday, sending its shares diving.

The Grimsby-based company, which has suffered a glut of problems including an ongoing legal dispute, heavy debts, pension liabilities and weak trading, said working capital has been hit by the delayed sale of a business.

Cosalt finally completed the sale of its marine safety division in August for £31m, but only after the deal had been probed by the Office of Fair Trading.

The group said trading for the year to the end of December will likely be “significantly lower than the board’s previous expectations”.

It added the squeeze on cashflow from the delay hit margins in its offshore business.

The company said it has also delayed the roll-out of a pivotal workwear contract with fire services in the South East of England. The contract, won a year ago, is worth more than £30m over eight years.

Cosalt insisted it has not breached banking covenants, but said it has started a full review of its operations and funding needs.

Shares in the company shed 0.925p to close at 0.7p, a 57 per cent fall. That values the company, once a mini conglomerate, at just £2.8m.

The profits warning comes days after a major shareholder, Hanover Investors, sold its entire six per cent stake in Cosalt, some 24m shares.

Stephen Thomas, analyst at Hardman & Co, said the profits warning was perplexing and the company is caught in “limbo”.

“Having agreed a financing arrangement with their banks for the business going forward they’re now looking at their requirements again,” he said.

But he said the company could survive, despite investors being “incredibly cautious”.

“It may pull a rabbit out of the hat and survive,” he said.

“There’s no reason why the offshore business should not survive with the oil price as it is and the activity (in oil and gas).” Just last month, when the company published a £10m pre-tax loss for the 26 weeks to May 2, chairman and Carphone Warehouse co-founder David Ross insisted the sale of the marine division marked a “fresh start”.

“Together, we will seek to create a long-term solution for the business and deliver sustainable shareholder value,” said the 15 per cent shareholder, whose father and grandfather were directors of the company before him.

Outgoing chief executive Mark Lejman yesterday insisted Cosalt’s lenders, which include Royal Bank of Scotland and HSBC, “have been advised and are supportive”.

“Obviously nobody likes to make announcements of the sort we’ve made but that does not change what we said at the interims or the confidence of the chairman in the company,” he said.

Asked if Cosalt has a future as an independent entity, Mr Lejman said: “I’m not going to speculate.”

“The company has a good future,” he said.

“It’s a much smaller company than it has been and it’s one that we will have to wait to see what shape it will take. We’ve reduced it to its core business.”

Mr Lejman also declined to comment on plans for its Grimsby headquarters. Offshore, the bulk of its business, is based in Aberdeen, while workwear is in Barnsley. Its relatively new renewables division is in Grimsby.

Mr Lejman who is replaced by Trevor Sands next week, said it is a “good juncture” to move on.

“I said at the beginning to David Ross that the main thing for me was bringing down the debt and improving the balance sheet of the company,” he said.

He added the South East fire contract is now “continuing and going to plan”.