The directors present the strategic report for the year ended 31 December 2021.
At a glance
Acro Aircraft Seating Limited's (the "company" or "Acro") purpose is to Perfect Comfort for Passengers. We are a leading designer and manufacturer of aircraft seats and spare parts supplying a wide variety of airline customers spanning the globe, through both linefit and retrofit markets. We are headquartered in the United Kingdom, with staff based in the UK, US and Asia.
Our central belief is that 'seats can't be comfortable, only people can' and armed with this perspective we focus on the user's experience of the seat. We see our seats as pieces of furniture rather aircraft equipment.
Our primary design and manufacturing location is situated in the South East of the United Kingdom, with our supply chain spanning the globe.
The business was founded in 2006 by three members, and was acquired outright by our then ultimate parent company, Zhejiang Tiancheng Science & Technology Investment Co., Ltd. ("ZTC") in 2017. This investment marks the next stage of our businesses growth as we look forward to an even stronger future as a UK headquartered global aircraft seating business.
Due to the COVID-19 pandemic, the aviation industry was significantly impacted. The business during 2021 suffered significant revenue reduction. Customers delayed orders from 2021 into 2022 and 2023. However, during the last quarter of the year, there are signs of recovery in US domestic market and China domestic markets where the business has a presence.
The business has taken serious actions to react to the challenging market and the management team as well as the parent company are determined to invest in future growth.
Our business models
We strive to set ourselves apart from our competitors by the application of our design philosophy in our seats and by putting the customers' requirements at the centre of our offering. This allows us to offer shorter lead-times, a willingness to customise and adapt our designs to suit our customers' needs and controlling risks through excellent project management.
We manage our business by maintaining a range of forward looking, continuous improvement projects that are embedded throughout the organisation and constantly challenging ourselves on what great looks like and forging plans to achieve it.
Our strategy
We focus on seats for economy, premium economy and short-haul business class along with the associated spares sales. We continue to explore ways to increase our offering to our customers and expect to be able to make some key announcements on being able to supply more of the cabin interior to our customers over the coming year and years.
Our developing product range is well suited to take advantage of both the expanding market and our growing reputation, and includes:
Series 3:
Our Series 3 seat has dominated our sales to date, with over 130,000 passenger places flying and is available in recline and fixed back variants.
Series 6:
In 2017 we launched the Series 6 seat - a comfortable, easily maintainable and lighter economy seat, largely for the single aisle market, in fixed back and recline variants. The first customer deliveries took place in early 2018. We are pleased with the excitement in the market, which has been demonstrated by our growing order book. We continue to broaden the appeal of this seat with variants suited to the different markets our customers operate in. In 2021, we focus on developing new generation for Series 6 which will bring more benefit for our customers with greater cost effectiveness.
Series 7:
A seat aimed at the twin-aisle, long-haul premium economy market as well as the single-aisle business class market; our new Series 7 is a more generous seat that delivers an impression of luxury whilst remaining true to our design values of simplicity and the creation of living space. Launched in 2017, we delivered our first Series 7 seats to customers in the first half of 2018. The positive reaction in the market place will drive interest in this key area following the market recovering.
Series 9:
This exciting new product was launched at the Hamburg AIX Trade Show in June 2022, it is designed to be more robust and is lighter than previous seats. The Series 9, a seat without compromise delivers more; a lightweight, robust and comfortable seat with exceptional living space even in high density cabins.
The innovative seat architecture is an all-new design. The integrated headrest offers support for passengers of all sizes, the cleverly designed armrest provides additional space where it’s needed most, and the fully optimised aluminium alloy structure gives the new Series 9 an impressive pax weight from 7.5kg.
Class-leading pax width has been achieved without compromise to either armrest or aisle width, making travel more comfortable for the crew and providing passengers with outstanding stretch-out legroom even at a reduced pitch.
The new Series 9 platform of seats meets the rigorous demands of all airlines from short haul to long haul, plus our impressive range of feature options enable you to customise the seat to support your individual requirements and reflect your unique brand attributes.
Further development:
Looking ahead we are constantly reviewing our position in the marketplace and how our offering can best serve our customers and stakeholders. We continue to work closely with particularly Airbus and other aircraft manufacturers to see how we can best support their future development resulting in new investments in new offerings over the coming years.
A significant milestone has been becoming a supplier to Boeing, this will allow us to sell seats to Customers that are purchasing new aircraft from Boeing, and this has the potential to be a step change for the business. The first deliveries to Boeing – on behalf of Allegiant in the US – are scheduled for early in 2023.
The significant investment in extending and widening our product range provides a strong base for our growth plans. In order to deliver this investment, we take a keen interest in managing our cash position. We continue to have a strong relationship with our bankers HSBC. The banking trade loan facilities have had their annual renewal, which takes place in March of each year. The Directors are not aware of any reasons why these would not be renewed.
During 2020 and 2021, the business was impacted significantly by COVID-19, however, with the financial backing from the parent company, the business carried out significant restructuring to reduce the cost and minimise the financial impact to the business.
The parent company and the management team were determined to invest in future growth and therefore the business made strategic relocation in November 2020. The new premises provide 100% capacity increase with better location access to resources i.e., skilled employee for manufacturing and better for logistics. This strategic move has demonstrated that the business is looking for the long-term growth.
Key performance
The overall performance is in line with management expectations as we emerge from the Global Pandemic.
Revenue 2021: £32.35m (2020: £16.32m)
Sales hit by the Covid-19 shutdown of the aviation industry
Further deliveries of Series 6
Gross profit and margins 2021: £7.10m and 22% (2020: £2.31m and 14%)
The revenue increase from the prior year has delivered an increased gross profit margin
Loss before tax 2021: £4.62m (2020: loss £7.35m)
Driven by the drop in sales due to the pandemic as well as restructuring costs.
Increasing in amortisation on investment in product development, which is a part of our strategic plan in order to focus and prepare for the future growth from both the current order book and orders we intend to win.
redundancy payments
Intangible assets 2021: £7.04m (2020: £5.89m)
Mainly is Series 6 development capitalised.
2022 will see the continued development of Series 6 and 7 as we adapt these products to other airframes to widen the addressable market.
We are also developing a Series 9 product that will launch in 2022.
The Directors expect the business to be well positioned to take advantage of the expected increase in order book over the year ahead and to start to implement our global footprint plan further.
Future trends
The year, despite the impact by COVID-19, we continued further improved the quality of our people, and we continue to be committed to in-depth training and development courses for the leadership team. The Company has furthered its relationship with Airbus, and we continue to be pleased with the strong support Airbus offers us. This 'line fit offer ability' is transforming our business. We are only the fifth economy seat supplier to Airbus A320 family and have seen a significant change in the type and number of enquiries we get from potential customers. We expect that this trend will continue and lead to the significant growth of our order book we are planning for.
We have appropriate plans and resources in place to deal with the extra demands that this will place on the business from a project management, design and manufacturing capacity point of view and so are well placed to take advantage of the coming opportunities.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board is committed to protecting and enhancing the Company's reputation and assets, while safeguarding the interests of its shareholders. It has overall responsibility for the Company's system of risk management and internal controls. The Company's business is affected by a number of risks and uncertainties that are subject to internal and external factors, some of which we cannot control. Many of the risks are similar to those found by comparable companies in terms of scale and operations.
The risks and uncertainties facing the Company have also been considered in the context of Brexit. We continue to assess the immediate risk from Brexit as low given our global reach, and strong order book and the certainty this gives us in what our customers expect from us over any one six-month horizon. Further we note, that with an ever-growing customer offering in a very large global market for seats, the medium and long term future of the business remains in our hands, and we have every confidence that we will perform well in whatever environment Brexit and its aftermath creates. As such, we consider that the principal risks affecting the Company are unchanged. The Board will, however, continue to closely monitor market conditions and will react accordingly.
Our approach
Risk management and maintenance of appropriate systems of control to manage risk are the responsibilities of the Board and are integral to the ability of the Company to deliver on its strategic priorities. The Board has developed a framework for risk management that is used to establish a culture of effective risk management throughout the business by identifying and monitoring material risks, setting risk appetite and determining the overall risk tolerance of the Company. This framework has been enhanced this year by the additional rigour that ZTC bring, and additional processes have been developed that will assist the Board to monitor and assess the principal risks throughout the year. The Company's risk management systems are monitored and reviewed regularly by the Board.
Identifying and monitoring material risks
Material risks are identified through a detailed analysis of individual processes and procedures (bottom-up approach) and a consideration of the strategy and operating environment of the Company (top-down approach).
Our principal risks and uncertainties
We have identified the following principal risks and uncertainties:
1. Global Pandemic
Likelihood of occurring : High
Potential Impact: The aviation industry has been hit hard by the Covid 19 pandemic and most airlines are delaying orders, where they can. Our strong relationship with Airbus has allowed us to continue to deliver seats to the Airbus production line, however, a number of retrofit orders have been pushed out into future years. The effect of this is that the orders have not been cancelled, just delayed.
Mitigation: We continue to liaise with our Customers to determine the delivery timescales of these orders. Acro works hard with our suppliers to go through this global pandemic period. During the year, Acro has been very proactive to work with our suppliers to manage cashflow to ensure we go through the tough time together. During 2020, with the cash support from Acro's Chinese parent company, Acro has significantly reduced its debt with external creditors in order to maintain good supplier relationships.
2. Material price inflation on costs we incur
Likelihood of occurring : Medium
Potential Impact: Our profitability may decrease if the inflation we experience cannot be offset by sale price increases or savings elsewhere.
Mitigation: We have invested in a dedicated procurement team to source the best components at the most appropriate prices. This includes expanding our global supply base and will increasingly leverage the relationships that our parent company have. The design team is involved to ensure that we fully control any changes needed to components or end products and our quality team are embedded into the process to ensure we continue to produce quality products from quality supplies.
3. Foreign exchange exposure on the items we purchase and the products we sell
Likelihood of occurring : Medium
Potential Impact : Our profitability may increase or decrease if the change in costs or income due to exchange rate fluctuates from that originally expected.
Mitigation : To date the Company has been very successful at ensuring both its supply base and customer base transact in GBP. As such, the current exposure, and therefore risk, remains small. However, it is recognised that as we grow this may not be as possible and as such, we plan to ensure we have a robust foreign exchange strategy along with associated policies and procedures in place to deal with this change.
4. Scaling business processes to match growth
Likelihood of occurring : Medium
Potential Impact : Our ability to maximise current opportunities and take advantage of future growth opportunities will be diminished to the extent we do not have the right business structure and underlying procedures and processes in place both in our business and throughout our supply chain. This could threaten our future profitability.
Mitigation : With the support of our parent company and other external stakeholders, we have accelerated our investment in our processes, policies and people. We actively engage in the third-party audits that we are subject to, and seek to learn and improve from whatever may be shown. We have conducted studies to assess our ability to ramp up, for example in the capacity of our current premises, and as a result of those will be making improvements to make us more robust. We have also planned to reconfigure the shop floor and warehousing space following the introduction of Series 6 and Series 7 to generate more capacity within the same footprint to support the additional trade we expect this product to bring. We plan to continue to widen and deepen our relationships with our supplier base, both old and new, to support them as necessary and work with them to ensure our joint processes are as smooth as possible, so that we jointly are able to deal with the planned growth levels.
5. Key staff leaving
Likelihood of occurring : High
Potential Impact : Our ability to maximise current opportunities and take advantage of future growth opportunities will be diminished to the extent we do not have the right people in place. This could threaten our future profitability.
Mitigation : Our people are our key asset. In turn we look to reward their hard work with appropriate remuneration and a constant investment in their personal development. This includes significant on the job training, coaching and mentoring supported by specified tailored training programmes. We believe that results in a workforce that consciously chooses to remain in our employ, which in turn leads to better, faster solutions being developed and implemented. We continue to be Living Wage accredited.
6. Brexit impact
Likelihood of occurring : High
Acro takes a proactive approach to embrace the Brexit challenge. Project team have been setup to monitor Brexit progress and prepare actions accordingly during this ever-changing period while senior management team review the progress regularly to ensure all agreed actions were completed. At the same time, we are working closely with Airbus to ensure we meet the compliance as an Airbus supplier. The majority of our supply chain is either UK based, or based outside of Europe, therefore, we have seen minimal disruption due to Brexit. Sales going in to Europe have mostly been on an ex-works basis, therefore the burden of additional documentation sits with the Customer, not with Acro.
7. Future funding for expansion and development does not materialise
Likelihood of occurring : Low
Potential Impact : Our ability to maximise current opportunities and take advantage of future growth opportunities will diminish to the extent we do not have the right funding in place and are unable to generate our own funds.
Mitigation: We are owned by ZTC, who have global ambitions. They remain committed to the future growth of Acro and subject to their own internal approvals are here to support future product development. We continue to manage our cash flows very carefully to ensure that our objective of earning money to invest money is fulfilled. To the extent that funds are not available in the quantities we want, this would simply have the impact of reducing our growth potentials rather than stopping us growing, as our profits and associated cashflow will support a portion of our planned growth as is.
8. Impact of Climate Change on Customer Demand .
Likelihood of occurring : Medium
Potential Impact : We note that the climate change movement is gathering pace on a global basis and we are aware that air travel is considered to be a major cause of climate change. In the longer term (ten years plus) we anticipate this having an effect on new aircraft sales with a trend towards refurbishing existing aircraft.
Mitigation : We are well placed as a business to carry out refurbishment work for existing aircraft in the event that the market moves away from new build aircraft. We are also carrying out multiple projects aimed at reducing the weight of our seats (lower weight = less fuel consumed = lower pollution) and this will form a sizable portion of our USP (Unique Selling Point) going forward.
NON FINANCIAL INFORMATION
Culture
The Board recognises that it has an important role in assessing and monitoring that our desired culture is embedded in the values, attitudes and behaviours we demonstrate. The Board has established honesty, integrity and respect for people as part of our core values. The Code of Conduct helps everyone to act in line with these values and to comply with relevant laws and regulations. The Health, Safety & Environmental policy applies across the business and is designed to ensure that staff always act in the best interests of our people and the environment.
Stakeholder Engagement
The Board recognises the important role it must play and is highly committed to stakeholder engagement, this is par of our strategic ambition. The Board strongly believes that Acro will only succeed by working with Customers and Suppliers and sharing knowledge and experience with our stakeholders and acknowledges the impact of ongoing engagement and dialogue.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2021.
The results for the year are set out on page 16.
The Directors do not intend to declare a dividend for 2021 (2020; £nil).
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Company has a robust risk management process that follows a sequence of risk identification, assessment of probability and impact, and owner assignment to manage mitigation activities. The Company's financial instruments fall into one of two categories - receivables at amortised cost (Financial Assets) and loan and other liabilities at amortised cost (Financial Liabilities). More detail on financial instruments is provided in Note 19.
Receivables at amortised costs: these comprise of trade and other receivables, cash and cash equivalents.
Loans and other liabilities held at amortised cost: these comprise trade and other payables, debt and the banking facilities.
These financial instruments are subject to a number of risks. The main types of risk are market risks, credit risk and liquidity risk. The Company's senior management oversees the management of these risks and agrees the policies for managing each of these risks. The Company does not engage in the trading of financial assets for speculative purposes nor does it write options.
TC Group were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
The Directors have considered going concern and more details can be found in Note 1.2.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements:
give a true and fair view of the state of the company's affairs as at 31 December 2021 and of its for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for qualified opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As described in the basis for qualified opinion section of our report, our audit opinion is qualified for inappropriate recognition of an intangible asset for product development costs, not recognising an impairment charge also in relation to the capitalised product development costs, and for the inappropriate recognition of a deferred tax asset. Information on intangible fixed assets for product development costs and on the deferred tax asset in the strategic report also omits this information and accordingly we have concluded that the other information is materially misstated for the same reason.
Opinions on other matters prescribed by the Companies Act 2006
Except for the possible effects of the matters described in the basis for qualified opinion section of our report, in our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors' r eport for the financial year for which the financial statements are prepared maybe impacted; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Our approach was as follows:
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, and through discussion with the directors and other management (as required by auditing standards), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations;
We considered the legal and regulatory frameworks directly applicable to the financial statements reporting framework (FRS 101 and the Companies Act 2006) and the relevant tax compliance regulations in the UK;
We considered the nature of the industry, the control environment and business performance, including the key drivers for management’s remuneration;
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit;
We considered the procedures and controls that the company has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and controls.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included: testing manual journals; reviewing the financial statement disclosures and testing to supporting documentation; performing analytical procedures; and enquiring of management, and were designed to provide reasonable assurance that the financial statements were free from fraud or error.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/Our-Work/Audit/Audit-and-assurance/Standards-and-guidance/Standards-and-guidance-for-auditors/Auditors-responsibilities-for-audit/Description-of-auditors-responsibilities-for-audit.aspx .
This description forms part of our auditor’s report.
Use of our report
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.
Acro Aircraft Seating Limited is a private company limited by shares incorporated in England and Wales. The registered office is Eldon Way, Crick Industrial Estate, Crick, Northampton, NN6 7SL. The company's principal activities and nature of its operations are disclosed in the directors' report.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest thousands ( £ '000) .
As permitted by FRS 101, the company has taken advantage of the following disclosure exemptions from the requirements of IFRS:
the requirement of IFRS 7 Financial Instruments: Disclosures;
the requirement of paragraphs 91-99 of IFRS 13 Fair Value Measurements;
the requirement of paragraph 52 of IFRS 16 Leases;
the requirement of the second sentence of paragraph 110 and paragraph 113 (a), 114, 115, 118, 119 (a) to (c), 120 to 12 and 129 of IFRS 15 Revenue from Contracts with Customers;
the requirement of paragraphs 10(d), 10(f), 16, 38A to 38D, 40A to 40D, 111 and 134 - 136 of IAS 1 Presentation of Financial Statements;
the requirement of IAS 7 Statement of Cash Flows;
the requirement in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
Where required, equivalent disclosures are given in the group accounts of Zhejiang Tiancheng Controls Co. Ltd.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated accounts. The financial statements present information about the company as an individual entity and not about its group .
Acro Aircraft Seating Limited is a wholly owned subsidiary of Acro Holdings Limited and the results of Acro Aircraft Seating Limited are included in the consolidated financial statements of Zhejiang Tiancheng Controls Co. Ltd which are available from the website;
http://www.cninfo.com.cn
Companies Act 2006 Section 405 permits a subsidiary to be excluded from the consolidation where its inclusion is not material for the purpose of giving a true and fair view. The subsidiary, Acro Seating Inc. (USA) is a dormant company, and the subsidiary Anke Aircraft Seating Shanghai Co., Ltd is not material. These financial statements present information about the company as an individual undertaking and not about the group.
The company incurred a loss before tax of £4.62 million during the year, had a net current liability of £23.48 million as at the balance sheet date including short term loans of £26.55 million from its ultimate parent company, Zhejiang Tiancheng Controls Co. Ltd.
The support of the parent company takes a number of forms, both in terms of cash support when required and the granting of extended credit (currently 360 days) terms where the parent company is acting as a trade supplier.
Although the short term loans from the ultimate parent company at year end were repaid in December 2022 (see note 27) the company has the continued support of the ultimate parent company, Zhejiang Tiancheng Controls Co. Ltd.
The company fully depends on its ultimate parent’s financial support, and has received an undertaking that this support will remain available for at least 24 months from the date of signing these financial statements.
Based on this, the directors have concluded that the company has adequate resources to continue in its operational existence. The company therefore continues to adopt the going concern basis in preparing its financial statements.
The company manufactures and sells a range of aircraft seating. Identification of the performance obligations within the contract is a key step to determining accounting under IFRS 15. We consider there is a single type of obligation within our arrangements being either each shipset or delivery of spares. Revenue is recognised at a point in time for both shipsets and spares, in both cases in accordance with the contract with the customer either at the point of delivery or when the goods are available for collection, since none of the criteria for measurement over time are met. In case of shipsets and spares, we have considered the possibility of alternative use, as this is the key consideration under IFRS 15, and have concluded in both cases there is an alternative use, albeit in the case of any shipset there would likely be a requirement for some re-work. The shipset encompasses the design, production and delivery at a point in time as per the customer request of enough of our seats to fill that part of the plan we have been asked to deliver. Spares include the production and delivery at a point in time as per the contract with the customer.
The warranties given are assurance warranties and so are out of scope of IFRS 15, as they relate to assurances that the seats will operate as promised and as set out in the contract. Management do not consider there to be any service type warranties. These warranties are assessed under IAS 37.
i) Development costs
Development cost expenditure on an individual project is recognised as an intangible assets when the company can demonstrate:
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete and its ability to use or sell the asset;
how the effort will generate future economic benefits;
the availability of resources to complete the asset; and
ability to reliably measure the expenditure during development.
Research costs are expensed in the statement of comprehensive income as incurred.
ii) Patents, trademarks and licences
Patent and licence expenditure is recognised as an intangible asset when the company can demonstrate:
its intention to complete and its ability to use or sell the patent or licences;
how the asset will generate future economic benefits;
the availability of resources to complete the project; and
the ability to reliably measure the expenditure during development.
Additionally, we consider those costs incurred where we will gain significant competitive advantage and benefit over multiple years from investments in the partners’ ability to do business with, such as the costs of becoming offerable with Airbus. The costs are capitalised to the extent the company can demonstrate:
its intention to complete and its ability to use or sell the asset;
how the asset will generate future economic benefits;
the availability of resources to complete the asset; and
the ability to reliably measure the expenditure during development.
To the extent these are not met, the costs are expensed in the Statement of Comprehensive Income as incurred.
iii) Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Patents, trademarks and licences: 5 to 10 years
Capitalised development costs: 10 years
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful l ives are as follows:
Assets under construction are not depreciated.
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account .
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Cost includes all direct expenditure and an appropriate proportion of fixed and variable overheads.
Stocks are stated at the lower of cost and net realisable value, and after provisions. Costs incurred in bringing each product to its present location and condition are accounted for as follows:
raw materials - purchase cost;
work in progress - cost of direct materials, and labour; and
finished goods - cost of direct materials, overheads and labour.
Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Trade creditors and other short-term monetary liabilities, which are initially recognised at fair value and are subsequently carried at amortised cost using the effective interest method.
Other financial liabilities, including borrowings , t rade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method . For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The tax expense represents the sum of the tax currently payable and deferred tax.
At inception, the company assesses whether a contract is , or contains , a lease within the scope of IFRS 16. A contract is , or contains , a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a tangible asset is acquired through a lease, the company recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are included within tangible fixed assets, apart from those that meet the definition of investment property .
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs and an estimate of the cost of obligations to dismantle, remove, refurbish or restore the underlying asset and the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of other tangible fixed assets. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee, and the cost of any options that the company is reasonably certain to exercise, such as the exercise price under a purchase option, lease payments in an optional renewal period, or penalties for early termination of a lease.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in : future lease payments arising from a change in an index or rate; the company's estimate of the amount expected to be payable under a residual value guarantee; or the company's assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight-line basis over the lease term.
When the company acts as a lessor, leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees, over the major part of the economic life of the asset. All other leases are classified as operating leases. If an arrangement contains lease and non-lease components, the company applies IFRS 15 to allocate the consideration in the contract. When the company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately , classifying the sub-lease with reference to the right-of-use asset arising from the head lease instead of the underlying asset.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.
Intangible assets are amortised over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue. These estimates are reviewed at least annually and changes to these estimates can result in significant variations in the carrying value and amounts charged to profit or loss. The carrying amount of intangible assets by each class is included in note 1 and details of the useful lives are included within the accounting policy.
Provisions for warranties are made with reference to recent trading history and historic warranty claim information and the view of management as to whether warranty claims are expected. Provisions for dilapidation are made with reference to the building size and assessment of costs to restore the building to its original state.
Allowances for bad debt are determined with consideration given to the aging of receivables, and for inventory obsolescence to the recent and history of customer trading and management experience.
The Company's accounting policy for impairment of intangible assets is set out in Note 1. Intangible assets are reviewed for impairment annually if events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company's revenue recognition policy is set out in Note 1. Management has assessed the application of IFRS 15 using the five step model framework, within which the following critical accounting judgements were made:
i) Identify the contract with the customer - the contract with the customer is defined and agreed;
ii) Identify the performance obligations - these are taken to be the separate delivery of shipset or spares;
iii) Determine the transaction price - defined in the contract as there are no variable elements;
iv) Allocated the transaction price to the performance obligations - relates to either the shipset or spares;
v) Recognise revenue when the entity satisfies a performance obligation - at the point in time when the shipset or spares are delivered or made available to the customer as per the contract terms, given the nature of what is being delivered, as this is when the customer gains an economically useful asset.
In the case of shipsets and spares, we have considered the possibility of alternative use, as this is a key consideration under IFRS 15, and concluded that in both cases there is an alternative use albeit in the case of any shipset there would likely be a requirement for some re-work. As a result of this, management consider the design, production and delivery of a shipset or spare parts as the key performance obligation and recognise revenue at a point in time, as none of the criteria for recognition over time are met as an asset is created which has an alternative use.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the company, the lessee's incremental borrowing rate is used, being the rate that the company would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the company uses recent third-party financing received as a starting point, adjusted to reflect changes in financing conditions since third party financing was received. The company used incremental borrowing rates of 3% to all the leases.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The charge for the year can be reconciled to the loss per the profit and loss account as follows:
Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:
In September 2021 the company moved out of the leased premises in Crawley to a new premises in Crick. Since this date the Crawley property has been used for storage. The directors of the company expect to sublet the premises space for an amount no less than the remaining lease payments. On this basis the directors do not believe the right of use asset to be impaired.
At the balance sheet date, the company invested in the following subsidiaries, the total investment was less than £1,000.
All amounts owed by group companies are unsecured, interest free and repayable on demand.
Other loans and borrowings included £2.8 million (£2.9 million) HSBC fixed and floating charge over the company's assets. Interest rate is 2.75% over Bank of England base rate.
Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.
The current warranty provision of £ 0.60 million (20 20 : £ 0 . 89 million) is expected to unwind within a year, and will be replaced with new provisions.
The dilapidation provision of £ 0.41 million (20 20 : £0.3 8 million) relates to the leased property at Old Brighton Road, Lowfield Heath, Crawley, lease ending on 31 December 2024.
The total costs charged to income in respect of defined contribution plans is £555 (2020: £591).
At the balance sheet date, the Company has two classes of share - Ordinary, Ordinary A and Treasury shares.
Ordinary shares
On 31 October 2017, the Company re-designated its Ordinary A shares, Ordinary B shares, and Ordinary C shares to Ordinary shares, in a total of 302,778 Ordinary shares at £0.001 each.
Ordinary A shares
In addition, 1,000 Ordinary A shares were allotted to the company's key personnel, and fully paid at £57 each, par value was £0.001 each.
Treasury shares
On departure of any key personnel, the company purchased back their Ordinary A shares and held as the company's treasury shares.
During the financial year, the shareholders of the Company approved to repurchase 94 (20 20 : 94 ) Ordinary A shares in a sum of £ 5,358 (20 20 : £ 5,358 ), pursuant to the provisions of Section 659 of the Companies Act 2006 and The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003. The repurchased shares held as treasury shares may be distributed as share dividends, reissued, cancelled or any combination of the three opinions.
As treasury shares, the rights attached as to voting, dividends, participation in other distribution and otherwise are suspended, and the treasury shares shall not be taken into account in calculating the number or percentage of shares or of a class of shares for any purposes, including substantial shareholdings, takeovers, notices, the requisitioning of meetings, the quorum for a meeting, and the result of a vote on a resolution at a meeting.
Other reserves relate to the company purchasing its own shares, held as treasury shares.
The operating lease income represent short term rental leases to third parties , details are as follows;
In December 2022, Acro Aircraft Seating Limited issued 30,000,000 ordinary shares of £0.001 each at a premium of £0.999 per share to its immediate parent, Acro Holdings Limited, for cash consideration of £30,000,000.
The proceeds were used to repay short term loans of £26,300,000 from the ultimate parent company, Zhejiang Tiancheng Controls Co . Ltd together with the accumulated interest of £245,819 on these loans, with the balance to be used as working capital for the business.
The remuneration of key management personnel, including directors, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures .
The following amounts were outstanding at the reporting end date:
The amounts due from the intermediate and immediate parent companies represent the recharge of services provided by the company, charge for the year amounted to £170k (2020: £68k) and £32k (2020: £27k) respectively. These balances are unsecured, interest free and repayable on demand (Note 15).
The recharge to fellow subsidiaries Acro Premium Seating Ltd and amounts due were waived during the year.
The amounts due to the intermediate parent company represents various short term loans with an interest rate 1% and 0.5%, interest charge in 2021 amounted to £144k (2020: £147k). Additional loan during the year was £5.1 million (2020: £15.8 million). (Note 18).