The directors present the strategic report for the year ended 31 December 2022.
At a glance
Acro Aircraft Seating Limited's (the "company" or "Acro") purpose is to be the world leading aircraft seating supplier. 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 throughout the world.
Our primary design and manufacturing location is situated in the Midlands in the United Kingdom, with our supply chain spanning the globe.
Due to the COVID-19 pandemic, the aviation industry was significantly impacted. The business during 2020, 2021 and 2022 suffered significant revenue reduction. Customers delayed orders from 2020 into future years. During the second half of 2022, there are signs of recovery in US domestic market predominantly with some signs of recovery in Europe as well, however many markets are still significantly impacted by the pandemic.
The business has taken focussed actions to react to the challenging market and the management team as well as the parent company are determined to invest in the future as the market will eventually recover and the business will be back in to a period of growth.
Our business models
We strive to set ourselves apart from our competitors by the application of our design and operational approaches. 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 careful management of work scope and activity.
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 exciting 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 previously dominated our product portfolio, with over 130,000 passenger places flying and is available in recline and fixed back variants prior 2022. As the market evolves and customer taste preference changes, this product is slowly becoming obsolete.
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. In 2021, we focused on developing new generation for Series 6 which will bring more benefit for our customers with greater cost effectiveness. Despite the fact we have made a successful product over the last 4 years, however it has become a non-competitive product in the aerospace industry where most of the customers are seeking a more light weight and sustainable product.
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:
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. This new product was first introduced at Hamburg AIX Trade in June 2022, it is designed to be more robust and is lighter than previous seats. This was our first AIX since 2019 as 2021 had been cancelled due to Covid. Although it was good to see customers and potential customers, it wasn’t as busy as we expected as many airlines didn’t attend the show due to Covid restrictions or concerns about Covid.
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 Airbus and Boeing but particularly Airbus as well other aircraft manufacturers to see how we can best support their future development resulting in new investments in new offerings over the coming years.
Since March 2020 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 aerospace industry is still in the grip of Covid with large elements of the worldwide commercial aircraft fleet ‘parked’ due to low passenger demand. Many airlines are still loss making and consuming large amount of cash and therefore their thoughts are on survival and not on cabin interior upgrades or new aircraft.
The parent company and the management team were determined to invest in potential future growth and therefore the business made a strategic relocation in November 2020. The new premises provide significant additional capacity with better access to resources including skilled employees and is also better positioned in the UK for logistics. Acro also learned lessons already from Covid and we have started vertically integrating some of our supply chain – including all composite manufacture, significant machining capability and cut and sew. This strategic move has demonstrated that the business is looking towards long-term growth.
Key performance
The overall performance is in line with management expectations in the current economic environment.
Revenue 2022: £24.21m (2021: £32.35m)
Sales hit by the Covid-19 impact of the aviation industry
Further deliveries of Series 6
Gross profit and margins 2022: £6.58m and 27% (2021: £7.10m and 22%)
The revenue decreased from the prior year however we had an increased gross margin.
Loss before tax 2022: loss £12.50m (2021: loss £4.62m)
Driven by the drop in sales due to the pandemic.
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.
Full impairment of development cost
Intangible assets 2022: £0.042m (2021: £7.04m)
Full impairment of development cost
Future trends
The year, despite the continuing impact caused by the pandemic, we continued to further improve 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. We are also actively engaged in opportunities to get Acro Boeing line fit offerability as well, which would significantly grow our potential customer base.
As we see further potential market recovery from Covid we will accelerate our market penetration of Series 9 with Acro positioned and prepared for incoming demand challenges because we believe there will be a significant demand for flights after this long pandemic. Acro have appropriate plans and resources in place to deal with the extra demands that this will place on the business from a 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: Medium
Potential Impact: The aviation industry has been hit hard by the Covid 19 pandemic and most airlines are deferring or cancelling 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 for Acro’s customers.
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 2022, 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 costs. This includes expanding our global supply base and will increasingly leverage the relationships that our parent company have. Our parent company continues to support by providing the main parts of the product from strategic point of view. 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: Low
Potential Impact: Our ability to maximise current opportunities and take advantage of future growth opportunities will be limited due to the delayed effect of the pandemic which will 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 will implement vertical procurement integration to increase flexibility and responsiveness to fluctuating demand. The business will also implement lean manufacturing across all production lines to improve productivity. 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: Due to high staff turnover, the business will experience high recruitment agency fees and consultancy fees which will have severe impact to our profitability and cashflow.
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. The company continues to offer support to employees with hybrid and flexible working where appropriate to business needs. 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
Potential Impact: Business will incur increased friction when trading with customers and suppliers within European Union and consequently the business performance will be adversely impacted.
Mitigation: Acro takes a proactive approach to embrace the Brexit challenge. Project team have been setup to monitor challenges caused by Brexit and prepare actions accordingly during this ever-changing period while senior management team review the progress regularly to ensure all agreed actions were completed. Increasingly, our supply chain is Asian based, 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: High
Potential Impact: The business is unable to exploit emerging opportunities should the market recover more quickly than planned. Hence we might be in the position of not having 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, however the business constantly seeks the growth opportunity in the market and convert into firm sales order to generate cash to support Acro’s business plan.
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 short term we anticipate that airlines will prefer and challenge seating suppliers for low weight and sustainable products.
Mitigation: We are 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. Hence Series 9 will establish a new benchmark in the industry for low weight, sustainability and durability.
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 part 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 2022.
The results for the year are set out on page 16.
The Directors do not intend to declare a dividend for 2022 (2021; £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 Notes 1.9 and 1.10.
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.
The auditor, TC Group, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The Directors have considered going concern and more details can be found in Note 1.2.
Qualified Opinion
We have audited the financial statements of Acro Aircraft Seating Limited (the 'company') for the year ended 31 December 2022 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
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 at the appropriate time, 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
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
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 401 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 made a loss before tax of £12.49m during the year and had net assets of £1.7m as at the balance sheet date.
The ultimate parent and a fellow group undertaking have provided extended credit terms where they are acting as trade suppliers to the company.
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.
The company has received loans of £9.6m from its immediate parent, Acro Holdings Limited during 2023. The company 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 lives 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, trade 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:
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.
The bank loans were repaid in 2023.
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 is £439k (2021: £600k).
The dilapidation provision of £440k (2021: £410k) relates to the leased property at Old Brighton Road, Lowfield Heath, Crawley, lease ending on 31 December 2024. The dilapidation provision of £44k (2021: £nil) relates to the leased property at Eldon Way, Crick, Northampton, lease ending December 2035.
The total costs charged to income in respect of defined contribution plans is £611k (2021: £555k).
At the balance sheet date, the Company has three 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.
On 22 December 2022, the Company 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.
Ordinary A shares
On 31 October 2017, 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 nil (2021: 94) Ordinary A shares in a sum of nil (2021: £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.
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.
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;
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 ultimate and immediate parent companies represent the recharge of services provided by the company, charge for the year amounted to £86k (2021: £170k) and £28k (2021: £32k) respectively.
At the year end, the amount due from the intermediate parent company was £1.184m (2021: £1.098m) and from the immediate parent company £nil (2021: £128k). These balances are unsecured, interest free and repayable on demand (Note 14).
The amounts owed to group undertakings represent various short term loan and trade payable balances.
The loans bear interest rates of 0.5% or 1%. Interest charge in 2022 amounted to £125k (2021: £144k). These loans were repaid during the year. At the year end, amounts owed to group undertakings were £2.741m (2021: £29.925m) (Note 17).