Company registration number 02968071 (England and Wales)
ESUK AEROSPACE AND SIMULATION LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ESUK AEROSPACE AND SIMULATION LIMITED
COMPANY INFORMATION
Directors
Mr M C S J Fausset
Mr G Trevarthen
Mr Y Shmuely
Company number
02968071
Registered office
Cairo House
Greenacres Road
Waterhead
Oldham
OL4 3JA
Auditor
Edwards
34 High Street
Aldridge
Walsall
West Midlands
WS9 8LZ
ESUK AEROSPACE AND SIMULATION LIMITED
CONTENTS
Page
Strategic report
1 - 3
Directors' report
4 - 5
Directors' responsibilities statement
6
Independent auditor's report
7 - 9
Statement of comprehensive income
10
Statement of financial position
11
Statement of changes in equity
12
Notes to the financial statements
13 - 27
ESUK AEROSPACE AND SIMULATION LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 1 -
The directors present the strategic report for the year ended 31 December 2022.
Principal activities and review of the business
On 7 January 2022, the company passed a special resolution to change the name of the company from Ferranti Technologies Limited to ESUK Aerospace and Simulation Limited.
On the same date, the trade and assets of the company’s power and control business were disposed of to TT Electronics Power Solutions (UK) Limited, a subsidiary of TT Electronics PLC Group for a total cash consideration of £8.4 million. All company employees relating to the power and control business were transferred to TT Electronics Power Solutions (UK) Limited on 7 January 2022 under the Transfer of Undertakings (Protection of Employment) Regulations 2006.
As a result of the above, the company's activities continue to be the design, development, manufacture and after‑market support of a wide range of products and technologies for the aerospace and defence market, including:
Key to the on-going success of the company is its ability to deliver innovative and bespoke products and services to help provide solutions to our key customers’ needs for use in extreme environments and safety critical applications common in the aerospace and defence industries. This is delivered through the company's own turnkey design, engineering and manufacturing capabilities as well as leveraging the links that exist through the larger Elbit Systems group.
Some of the key financial and other performance indicators are shown below:
2022
2021
£000
£000
Turnover
10,078
31,862
Operating (loss)/profit
(866)
134
Profit after tax
1,572
110
Order book
27,507
147,374
The directors report turnover of £10,078,000 (2021 - £31,862,000) and an operating loss before exceptional items of £866,000 (2021 - profit of £134,000) for the year to 31 December 2022. The decrease from 2021 is attributable to the trade and asset sale referred to above, continued serious competition in the marketplace and additional unforeseen costs incurred on certain projects.
The closing order book stands at £27,507,000 (2021 – £147,374,000). The order book includes further contract wins in 2022 with the UK MoD, Bae and Rolls Royce. The new business orders won in 2022 were £10,223,000 (2021 - £11,950,000).
Despite the current constraints on the UK MoD budgets, there is still a very accessible large market with considerable opportunities for the company’s products and services, which we are well placed to secure. As our products also cover the commercial aerospace market this gives us some diversification to offset any fluctuations in demand from defence customers, where we have secured long term agreements with some key customers.
ESUK AEROSPACE AND SIMULATION LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 2 -
Principal risks and uncertainties
There is always the threat of Government budgetary cut backs in defence programmes. Although there are signs that some defence programmes may still be subject to cutback or delay, the overall UK market is still robust.
The company’s position on a number of platforms covering the air, land and naval sectors also provides resilience in the event of a downturn in a single sector of the market, combined with the end customers' need to support older platforms for longer if new programmes are delayed. We can take advantage of this with our CLS (Customer Logistic Support) facilities.
The company has a number of contracts traded in Euro’s and Dollars. It must be recognised that the instability of the pound could impact these contracts. The company manages foreign exchange risk using hedging techniques relevant to the size and duration of each contract in order to minimize where possible any exposure.
The company has considerable financial resources together with a number of long term contracts with various customers. As a consequence, the directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The directors know of no reason to believe that any uncertainty exists that would cast any doubt over the ability of the group to continue as a going concern and therefore the directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Section 172 statement
Under Section 172 of the Companies Act 2006, directors are required to promote the success of the Company for the benefit of its shareholders and, in doing so, to have regard to the interest of all of our stakeholders.
The Board of Directors of ESUK Aerospace and Simulation Limited considers, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in S172(1) (a-f) of the Companies Act 2006) in the decisions taken during the year ended 31 December 2022.
The board of directors have identified the key stakeholders that are impacted by the company’s activities and have identified the activities through which the board can either directly or indirectly (through senior management or the wider group’s engagement) engage with these stakeholders. The key stakeholders identified are customers, suppliers, employees, local community and parent company (Elbit Systems Limited) during 2022
ESUK AEROSPACE AND SIMULATION LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 3 -
Examples of direct and indirect engagement activities with the stakeholders are:
Customers:
Dedicated business unit teams covering disciplines and market sectors
Project management responsible for sustainable solution design
Sector specialist knowledge to build tailored solutions in response to customer needs
Regular feedback from ‘Voice of Customer’ reviews, used to address customer specific issues
Strategic review process providing information on the customer landscape across all the market in which we operate
Suppliers:
Our terms and conditions require suppliers to act responsibly and to adhere to our conduct and other policies
Conduct initial and periodic due diligence and expect suppliers to operate according to professional and quality assurance standards
Periodically review and discuss significant supplier contracts, challenges and arrangements
Modern slavery risk assessment
Employees:
Systems for physical and mental wellbeing, health and safety
Appealing employee value proposition that attracts talent
Culture that encourages high levels of engagement and commitment
Recognition of employees achievements through Outstanding Global awards
Continuous learning and development opportunities
Code of ethics, whistleblowing hotline and training
Performance and development reviews
All employee Town Hall meetings conducted with local and Parent management
Employee engagement surveys, sharing of results and deliverable actions plans
Local community:
Protecting society
Environmental impacts through indirect and direct actions
Clear polices to making our operations more energy efficient
Support local initiatives and charitable causes
Support academic institutions and further education in promoting events
Parent company:
Regular interactions with General Manager and Financial Manager, who convey strategy and performance with shareholders and lenders.
Monthly management reviews of the business to review financial performance against budget and forecast
Quarterly reporting to parent of financial and operational performance both at a legal and business unit entity level, with updates to ensure a good understanding of forecast expectations.
Directors reviews of the business and board meetings
Submitting annual operating business unit budgets for Group approval
The board confirms that decisions affecting the Company made by the board of Directors have been made in consideration of the Company’s’ stakeholders and the information they have provided to the wider group of companies facilitates in decision-making at a divisional or group level with regard to the Group’s stakeholders.
Mr M C S J Fausset
Director
20 November 2023
ESUK AEROSPACE AND SIMULATION LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 4 -
The directors present their annual report and financial statements for the year ended 31 December 2022.
Directors
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Mr M C S J Fausset
Mr G Trevarthen
Mrs T Pollinger
(Resigned 7 February 2022)
Mr Y Shmuely
Mr A Raviv
(Resigned 27 July 2022)
Mr R R Goldsmid
(Appointed 5 February 2022 and resigned 18 September 2022)
Results and dividends
The results for the year are set out on page 8.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
Market value of land and buildings
Although there have been no formal valuations carried out in the year for the company's land and buildings, the directors believe the market value to be in excess of book value.
Research and development
The group continues to invest in research and development to enhance our product base and capability, and in addition are being supported by our parent undertaking to invest in new products.
Post reporting date events
Subsequent to the year end, the directors of the company's immediate parent undertaking, Elbit Systems UK Limited ("ESUK") have undertaken a strategic review of their UK activities and have, as part of that review, made the decision to consolidate certain contracts previously managed by the company into ESUK's core Aerospace and Simulation business unit, an operating division of ESUK, during 2023. At the date these financial statements are approved, this consolidation process is underway and still ongoing.
Auditor
The auditor, Edwards, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
Energy and carbon report
As the company has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.
Statement of disclosure to auditor
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.
ESUK AEROSPACE AND SIMULATION LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 5 -
On behalf of the board
Mr M C S J Fausset
Director
20 November 2023
ESUK AEROSPACE AND SIMULATION LIMITED
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
- 6 -
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
ESUK AEROSPACE AND SIMULATION LIMITED
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF ESUK AEROSPACE AND SIMULATION LIMITED
- 7 -
Opinion
We have audited the financial statements of ESUK Aerospace and Simulation 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 Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
In our opinion the financial statements:
give a true and fair view of the state of the company's affairs as at 31 December 2022 and of its profit 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.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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.
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.
We have nothing to report in this regard.
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.
ESUK AEROSPACE AND SIMULATION LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF ESUK AEROSPACE AND SIMULATION LIMITED
- 8 -
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We obtained an understanding of the legal and regulatory frameworks within which the Company operates, focusing on those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and regulations we considered in this context were the Companies Act 2006, taxation legislation and health & safety regulations compliance.
We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be in the following areas: recognition of income, the override of controls by management, revenue journals, inappropriate treatment of non-routine transactions and areas of estimation uncertainty specifically relating to the revenue and profit recognition relating to long term contracts and both stock and warranty provisioning. Our audit procedures to respond to these risks included enquiries of management about their own identification and assessment of the risks of irregularities, review and discussion of non-routine transactions, sample testing on the posting of journals and review of accounting estimates for biases.
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. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
These inherent limitations are particularly significant in the case of misstatement resulting from fraud as this may involve sophisticated schemes designed to avoid detection, including deliberate failure to record transactions, collusion or the provision of intentional misrepresentations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
ESUK AEROSPACE AND SIMULATION LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBERS OF ESUK AEROSPACE AND SIMULATION LIMITED
- 9 -
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.
Paul Tonks BSc (Econ) FCA (Senior Statutory Auditor)
For and on behalf of Edwards
21 November 2023
Chartered Accountants
Statutory Auditor
34 High Street
Aldridge
Walsall
West Midlands
WS9 8LZ
ESUK AEROSPACE AND SIMULATION LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
- 10 -
Continuing
Discontinued
31 December
Continuing
Discontinued
31 December
operations
operations
2022
operations
operations
2021
Notes
£000
£000
£000
£000
£000
£000
Turnover
3
10,078
-
10,078
25,371
6,491
31,862
Cost of sales
(7,470)
(7,470)
(21,060)
(4,948)
(26,008)
Gross profit
2,608
-
2,608
4,311
1,543
5,854
Distribution costs
(142)
(142)
(45)
(12)
(57)
Administrative expenses
(3,702)
(3,702)
(2,049)
(3,653)
(5,702)
Other operating income
370
370
39
39
Operating (loss)/profit
4
(866)
-
(866)
2,256
(2,122)
134
Interest receivable and similar income
7
128
128
5
5
Interest payable and similar expenses
8
(22)
(22)
Profit/(loss) on disposal of operations
18
-
2,671
2,671
-
-
-
Profit before taxation
(738)
2,671
1,933
2,239
(2,122)
117
Tax on profit
9
146
(507)
(361)
(134)
127
(7)
Profit for the financial year
(592)
2,164
1,572
2,105
(1,995)
110
ESUK AEROSPACE AND SIMULATION LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT
31 DECEMBER 2022
31 December 2022
- 11 -
2022
2021
Notes
£000
£000
£000
£000
Fixed assets
Intangible assets
10
Tangible assets
11
1,843
2,357
1,843
2,357
Current assets
Stocks
12
4,995
5,826
Debtors
13
22,212
25,874
Cash at bank and in hand
1,279
2,092
28,486
33,792
Creditors: amounts falling due within one year
14
(8,691)
(14,243)
Net current assets
19,795
19,549
Total assets less current liabilities
21,638
21,906
Provisions for liabilities
Contract provisions
15
672
2,512
(672)
(2,512)
Net assets
20,966
19,394
Capital and reserves
Called up share capital
17
1,000
1,000
Revaluation reserve
1,510
1,510
Profit and loss reserves
18,456
16,884
Total equity
20,966
19,394
The financial statements were approved by the board of directors and authorised for issue on 20 November 2023 and are signed on its behalf by:
Mr M C S J Fausset
Director
Company Registration No. 02968071
ESUK AEROSPACE AND SIMULATION LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
- 12 -
Share capital
Revaluation reserve
Profit and loss reserves
Total
£000
£000
£000
£000
Balance at 1 January 2021
1,000
1,510
16,774
19,284
Year ended 31 December 2021:
Profit and total comprehensive income for the year
-
-
110
110
Balance at 31 December 2021
1,000
1,510
16,884
19,394
Year ended 31 December 2022:
Profit and total comprehensive income for the year
-
-
1,572
1,572
Balance at 31 December 2022
1,000
1,510
18,456
20,966
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
- 13 -
1
Accounting policies
Company information
ESUK Aerospace and Simulation Limited is a private company limited by shares incorporated in England and Wales. The registered office is Cairo House, Greenacres Road, Waterhead, Oldham, OL4 3JA.
1.1
Accounting convention
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
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 £000s.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold properties and to include certain financial instruments at fair value. The principal accounting policies adopted are set out below.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 4 ‘Statement of Financial Position’ – Reconciliation of the opening and closing number of shares;
Section 7 ‘Statement of Cash Flows’ – Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Elbit Systems Limited. These consolidated financial statements are available from www.elbitsystems.com.
1.2
Going concern
Atruet the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 14 -
1.3
Turnover
Turnover is the total amount, excluding value added tax, receivable by the company in the ordinary course of business for goods supplied and services provided as a principal.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Sales of services and long-term contracts are recognised when the outcome of the transaction can be reliably estimated. Turnover is recognised by reference to the stage of completion based on services performed to date as a percentage of the total contractual obligation.
Property income is recognised on an accruals basis on when risks and rewards are passed to the tenant.
1.4
Research and development expenditure
Research and development expenditure is written off against profits in the year in which it is incurred.
1.5
Tangible fixed assets
Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
Freehold buildings
2% - 4% straight line
Plant and machinery
10% - 33% straight line
Fixtures, fittings and equipment
12.5% - 20% straight line
Computer equipment
20% - 33% straight line
Motor vehicles
15% - 20% straight line
No depreciation is provided on freehold land.
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 credited or charged to profit or loss.
Land and buildings are carried at deemed cost which was assessed at the date of transition to FRS 102.
1.6
Impairment of fixed assets
At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 15 -
1.7
Stocks
Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.
Stocks held for distribution at no or nominal consideration are measured at the lower of cost and replacement cost, adjusted where applicable for any loss of service potential.
At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.
1.8
Long-term contracts
The amount of profit attributable to the stage of completion of a long term contract is recognised when the outcome of the contract can be foreseen with reasonable certainty. Turnover for such contracts is stated at the cost appropriate to their stage of completion plus attributable profits, less amounts recognised in previous years. Provision is made for any losses as soon as they are foreseen.
Contract work in progress is stated at cost incurred, less those transferred to the profit and loss account, after deducting foreseeable losses and payments on account not matched with turnover.
Amounts recoverable on contracts are included in debtors and represents turnover recognised in excess of payments on account.
Payments on account in excess of amounts matched with turnover and offset against long-term contract balances are separately disclosed within creditors.
1.9
Cash and cash equivalents
Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts.
1.10
Financial instruments
The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the company's statement of financial position when the company becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets
Short term trade debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
Other financial assets
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 16 -
Impairment of financial assets
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Basic financial liabilities
Short term trade creditors are measured at transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
Other financial liabilities
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Derecognition of financial liabilities
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 17 -
1.11
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
1.12
Provisions
Provisions are recognised when the company has a legal or constructive present obligation as a result of a past event, it is probable that the company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation. Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value. When a provision is measured at present value, the unwinding of the discount is recognised as a finance cost in profit or loss in the period in which it arises.
1.13
Employee benefits
The costs of short-term employee benefits are recognised as a liability and an expense.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
1.14
Retirement benefits
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1
Accounting policies
(Continued)
- 18 -
1.15
Leases
Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight line basis over the lease term.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leases asset are consumed.
1.16
Government grants
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
1.17
Foreign exchange
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
1.18
Provisions are recognised when the company has a legal or constructive present obligation as a result of a past event and it is probable that the company will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 19 -
2
Judgements and key sources of estimation uncertainty
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 where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
Critical judgements
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Stock
Stock is valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Net realisable value is based on selling price less anticipated costs to completion and selling costs.
Warranty
Provision is made for the estimated future costs to be incurred on repairs to a number of contracts carried out.
Long-term contracts
The amount of profit attributable to the stage of completion of a long term contract is recognised when the outcome of the contract can be foreseen with reasonable certainty. Turnover for such contracts is stated at the cost appropriate to their stage of completion plus attributable profits, less amounts recognised in previous years. Provision is made for any losses as soon as they are foreseen.
Contract work in progress is stated at cost incurred, less those transferred to the profit and loss account, after deducting foreseeable losses and payments on account not matched with turnover.
3
Turnover and other revenue
Turnover is wholly attributable to the company's principal activity. Segmental analysis of turnover has not been given because the directors consider that such disclosure would be seriously prejudicial to the commercial interests of the company.
2022
2021
£000
£000
Other significant revenue
Interest income
128
5
Grants received
-
39
Rental and service charge income
370
-
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 20 -
4
Operating (loss)/profit
2022
2021
Operating (loss)/profit for the year is stated after charging/(crediting):
£000
£000
Exchange losses
61
58
Government grants
-
(39)
Fees payable to the company's auditor for the audit of the company's financial statements
26
27
Depreciation of owned tangible fixed assets
154
238
Loss/(profit) on disposal of tangible fixed assets
1
(2)
Cost of stocks recognised as an expense
4,966
23,441
Operating lease charges
50
49
5
Employees
The average monthly number of persons (including directors) employed by the company during the year was:
2022
2021
Number
Number
Office and management
25
29
Production
34
87
Selling and distribution
2
4
61
120
Their aggregate remuneration comprised:
2022
2021
£000
£000
Wages and salaries
3,852
5,437
Social security costs
427
593
Pension costs
276
335
4,555
6,365
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 21 -
6
Directors' remuneration
2022
2021
£000
£000
Remuneration for qualifying services
93
150
Company pension contributions to defined contribution schemes
-
6
93
156
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2021 - 1).
Some of the directors of the company are also directors of a number of companies within the group. These directors emoluments have been borne by other group companies. The directors do not believe that it is practicable to apportion between their services as directors of the company and their services as directors of the other group companies.
7
Interest receivable and similar income
2022
2021
£000
£000
Interest income
Other interest income
128
5
8
Interest payable and similar expenses
2022
2021
£000
£000
Other interest payable
-
22
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 22 -
9
Taxation
2022
2021
£000
£000
Current tax
UK corporation tax on profits for the current period
364
21
Adjustments in respect of prior periods
(3)
(14)
Total current tax
361
7
The actual charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:
2022
2021
£000
£000
Profit before taxation
1,933
117
Expected tax charge based on the standard rate of corporation tax in the UK of 19.00% (2021: 19.00%)
367
22
Tax effect of expenses that are not deductible in determining taxable profit
(1)
Adjustments in respect of prior years
(3)
(14)
Depreciation on assets not qualifying for tax allowances
9
Tax effect of enhanced capital allowances
(1)
Tax effect of change in deferred tax rate
3
Other timing differences
(14)
Taxation charge for the year
361
7
Factors affecting future tax charges
In October 2022, the UK Government announced that the proposed increase in the UK Corporation Tax rate to 25% will go ahead as planned starting 1 April 2023. As such, the actual and potential deferred tax has been recognised at future tax rates based on the estimated timing of reversal.
10
Intangible fixed assets
Trademarks
£000
Cost
At 1 January 2022 and 31 December 2022
7
Amortisation and impairment
At 1 January 2022 and 31 December 2022
7
Carrying amount
At 31 December 2022
At 31 December 2021
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 23 -
11
Tangible fixed assets
Freehold buildings
Plant and machinery
Fixtures, fittings and equipment
Computer equipment
Motor vehicles
Total
£000
£000
£000
£000
£000
£000
Cost
At 1 January 2022
2,507
3,133
442
783
8
6,873
Additions
18
1
22
41
Disposals
(179)
(179)
Transfer of trade and assets
(1,523)
(68)
(33)
(8)
(1,632)
At 31 December 2022
2,525
1,431
375
772
5,103
Depreciation and impairment
At 1 January 2022
878
2,496
413
721
8
4,516
Depreciation charged in the year
59
51
7
37
154
Eliminated in respect of disposals
(151)
(151)
Transfer of trade and assets
(1,150)
(68)
(33)
(8)
(1,259)
At 31 December 2022
937
1,246
352
725
3,260
Carrying amount
At 31 December 2022
1,588
185
23
47
1,843
At 31 December 2021
1,629
637
29
62
2,357
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 24 -
12
Stocks
2022
2021
£000
£000
Raw materials and consumables
1,314
5,501
Work in progress
3,681
325
4,995
5,826
13
Debtors
2022
2021
Amounts falling due within one year:
£000
£000
Trade debtors
1,111
5,871
Amounts recoverable on contracts
8,122
9,676
Corporation tax recoverable
91
229
Amounts owed by group undertakings
12,834
9,098
Prepayments and accrued income
54
1,000
22,212
25,874
14
Creditors: amounts falling due within one year
2022
2021
£000
£000
Payments received on account
9
896
Trade creditors
799
2,831
Amounts due to group and related undertakings
7,144
7,081
Other taxation and social security
377
948
Other creditors
43
58
Accruals and deferred income
319
2,429
8,691
14,243
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 25 -
17
Provisions for liabilities
2022
2021
£000
£000
Contract provisions
672
2,512
Contract
provisions
£000
At 1 January 2022
2,512
Additional provisions in the year
3,037
Utilisation of provision
(4,877)
At 31 December 2022
672
16
Retirement benefit schemes
2022
2021
Defined contribution schemes
£000
£000
Charge in respect of defined contribution schemes
276
335
The company operates a defined contribution pension scheme for all qualifying employees. The pension cost charge for the year represents contributions payable by the company to the scheme. Contributions of £31,000 (2021 - £53,000) were payable to the scheme at the year and are included in creditors.
17
Share capital
2022
2021
2022
2021
Ordinary share capital
Number
Number
£000
£000
Issued and fully paid
Ordinary shares of £1 each
1,000,000
1,000,000
1,000
1,000
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 26 -
18
Disposal of a business
On 7 January 2022, the trade and assets of the company’s power and control business were disposed of to TT Electronics Power Solutions (UK) Limited, a subsidiary of TT Electronics PLC Group for a total cash consideration of c.£8.4 million. All company employees relating to the power and control business were transferred to TT Electronics Power Solutions (UK) Limited on 7 January 2022 under the Transfer of Undertakings (Protection of Employment) Regulations 2006. Details of the book value of the assets disposed are itemised below:
£000
Tangible fixed assets
373
Trade and other debtors
2,126
Stock
4,172
Trade and other creditors
(2,328)
4,343
Profit on disposal of trade and assets
2,671
Total consideration (net of directly attributable costs of disposal)
7,014
Total consideration analysed as follows:
£000
Cash consideration
8,410
Directly attributable costs of disposal
(1,396)
7,014
19
Operating lease commitments
Lessee
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
2022
2021
£000
£000
Within one year
37
10
Between two and five years
25
26
62
36
ESUK AEROSPACE AND SIMULATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
- 27 -
20
Related party transactions
The company has taken advantage of the exemption conferred within FRS102 section 33.1A not to disclose transactions between wholly owned members of the same group.
21
Ultimate controlling party
The company is a subsidiary undertaking of Elbit Systems Limited, a company incorporated in Israel, which is the ultimate parent undertaking and controlling party.
Elbit Systems Limited is the largest and smallest group for which group financial statements are prepared. The group financial statements of this group are available to the public and may be obtained from www.elbitsystems.com
The immediate parent undertaking is ESUK Aerospace and Simulation (Holdings) Limited.
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