The directors present the strategic report for the year ended 31 August 2023.
The Group has found the year to be a much-improved trading year even though Global economic and political conditions continue to be challenging.
As a result, the results of the group for the year, set on page 11, demonstrate the improvement that the business has achieved and show an operating profit of £2,562,732 (2022 restated profit of £1,678,942) and a profit before taxation of £2,119,253 (2022: restated profit of £1,391,909).
Shareholders’ funds of the group, excluding minority interests, increased to £17,897,403 (2022: restated £16,406,059).
The results for the year represent a significantly improved position and give the directors’ confidence for the future, even though trading conditions remain challenging. Therefore, the directors do believe that the profitability of the Group will continue to improve over the current position in the forthcoming year.
With regard to the individual group business streams:
Defence
During the year the UK defence business, was successful with winning a programme to produce an additional fleet of High Mobility Transporter (HMT) vehicles for the UK Ministry of Defence. This programme is to be delivered within a period of 12 months and to support the delivery, the business has engaged with a Tier One defence supplier to assist with the volume manufacture. In addition, due to the ongoing conflict in Ukraine, the business was asked to support and deliver another programme to re-role a number of MoD owned HMT vehicles for operations in Ukraine. This business stream was also asked to undertake an engineering project for a commercial customer to investigate the use of HMT technology within an autonomous environment. A number of these programmes remain ongoing at the year end.
Support activities for the UK defence business (Spares, repairs maintenance and overhaul and post design services) stream significantly improved during the year, with a 45.3% increase over the previous year.
Non-defence
Due to the increased workload placed on the business by the Defence business stream, there has been limited opportunity to further develop the of non-defence business. The business has continued with engineering activities and chassis manufacture related to electrically powered, scale sized replica vehicles together with other limited engineering services to non-defence customers.
Overall revenues increased by 105.0% to £51,340,551 (2022: £25,021,553) in the year due to the contracting of the large opportunity for the UK. Whilst gross margin has decreased in the year to 27.2% (2022: restated gross profit margin of 40.1%), the directors believe that this is primarily due to the mix of work that has passed through the business. Given the current workloads and opportunities, the directors fully expect the business to exceed the levels of revenues and margin in the forthcoming year.
Other UK subsidiaries
Other UK subsidiaries within the Group have also been working hard during the year to mitigate the continuing effects of the Global pandemic and the current conflict in Ukraine, whilst still striving to develop opportunities within their sectors.
The fabrication business has struggled with the continuing delays of its main project. However, the business was successful in bidding to support its sister company with the fabrication of chassis for its recently won contract and as a result, the business believes that it has a viable future for the medium term.
The Marine engine distribution business has had a successful year. Whilst there have been aspects of its distribution have remained challenging, its main product, the Oxe Diesel Outboard engine is now finally becoming an outboard engine of choice for commercial customers. As a result, the business has posted its highest level of sales since acquisition by the Group.
Overseas Subsidiaries
The Australian subsidiary has had another positive year in respect of its sales for the period. The business revenues have continued to improve because of the continued support contract of its Australian and New Zealand customers. Its continuing work streams with Tier 1 defence companies remains challenging, with expected opportunities taking longer than originally anticipated to be realised, as those businesses struggle with their own work priorities. The directors do believe that this frustration will ease in the forthcoming period.
Group performance
As a result of the improved performance of the individual business units, the group financial performance has also improved:
Revenues have significantly increased by 105.0% to £51,340,551 (2022: £25,021,553) in the year due to the reasons highlighted above. Gross margin however, has decreased in the year to 27.2% (2022 restated gross profit margin of 40.1%), primarily due to the mix of work moving through the group. The directors expect the business performance to continue to improve in the forthcoming year as existing programmes are delivered upon.
The Group remains committed to investing heavily in the continued development of new and existing products and has invested some £1,169,327 (2022: restated £1,695,574) on these activities, which the Group has capitalised.
The Group continues to invest in marketing activities to continue to promote the business brands within different sectors. Due to the increasing levels of business, distribution costs have increased in the period by 24.1% over the previous year.
Administration expenses have increased this year to £11,022,391 (2022: £8,491,724) which represents 21.5% of turnover (2022: 33.9% of turnover).
The Group operates primarily in the engineering sector, its principal customers being Government organisations. As a result, the directors have identified that the results of the business are affected by pandemics, global economic conditions, cuts in government spending and competitor pressures, especially around tender prices.
The Group has continued to be exposed to the Coronavirus pandemic for the full financial year, not only in the countries in which it operates but also the countries in which its major customers and suppliers are based. In addition, the geopolitical upheaval as a result of the conflict in Ukraine has introduced a further risk to the supply and delivery of product to our customers. The business has also experienced the crystallisation of risks of delay in customer procurement decisions as a result of these uncertain conditions.
Whilst these risks are expected to continue to challenge the business for the foreseeable future, the directors will continue to work to mitigate those risks though adequate contingency planning, monitoring of government guidance and working with its customers, suppliers and key stakeholders.
The key performance indicators of the business are turnover and gross margin which are discussed above and can be seen in the profit and loss account on page 11.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 August 2023.
The results for the year are set out on page 11.
No ordinary dividends were paid. The directors do not recommend payment of a dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Group's activities expose it to a number of financial risks including price risk, credit risk, liquidity risk and foreign exchange risk which are managed as follows.
In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group uses a mixture of long-term and short-term debt finance.
The Group is exposed to currency risk on revenue and purchases that are denominated in a currency other than sterling. The Group seeks to reduce foreign currency exchange exposures through a policy of matching and the use of forward currency contracts as considered necessary.
The Group’s principal financial assets are bank balances and cash, trade debtors and other receivables. The credit risk on liquid funds is mitigated because the counterparties are banks with high credit-ratings. Trade debtors and other receivables are managed in respect of credit risk by policies concerning the credit offered to customers and the regular monitoring of amounts outstanding for both time and limits. A significant part of the Group’s operations are with national governments which have low credit risks.
The Group is engaged in long term contracts where the prices are often fixed. The Group is therefore exposed to sub-contractor and supplier price risk. The Group manages its exposure to these risks by engaging in ongoing negotiations with sub-contractors and suppliers over prices. The Group looks to fix prices where possible to reduce exposure to price fluctuations on contracts. The Group also continues to improve its systems to ensure that the Group manages the risks associated with contract costs, which will help ensure that the Group's results continue to improve into the future.
The Group continues to design and develop the HMT family of vehicles. The Group also continued the development of a number of vehicle platforms, including the Light Weight Recovery Vehicle (LWR) and an autonomous All Terrain Mobile Platform (ATMP) vehicle. In addition, research continues on hybrid electric drive systems for both the land and marine environments.
Regular meetings are held between local management and employees to allow a free flow of information and ideas.
The directors recognise that the year has been difficult and consider that the next year will continue to be challenging due to the continued uncertainty in global economic and political conditions. However, opportunities are beginning to present themselves to the Group and as a result, the directors remain confident about the future.
We have audited the financial statements of SC Group-Global Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 August 2023 which comprise the group income statement, the group statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows, the company statement of cash flows 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).
Basis for opinion
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 group and parent 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 group's and parent 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 directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. 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 the 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.
In the light of the knowledge and understanding of the group and the parent company and their 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 by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
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 parent 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 parent company or to cease operations, or have no realistic alternative but to do so.
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 specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the group and parent company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the group and parent company by discussions with directors and by updating our understanding of the sector in which the group and parent company operates.
Laws and regulations of direct significance in the context of the group and parent company include The Companies Act 2006 and UK Tax legislation.
Audit response to risks identified
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of group and parent company financial statement disclosures. We reviewed the parent company's records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities to identify potential material misstatements arising. We discussed the parent company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.
As group auditors, our assessment of matters relating to non-compliance with laws or regulations and fraud differed at group and component level according to their particular circumstances. Our communications included a request to identify instances of non-compliance with laws and regulations and fraud that could give rise to a material misstatement of the group financial statements in addition to our risk assessment.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
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.
Use of our report
This report is made solely to the parent 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 parent company's members those matters we are required to state to them in an auditors 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 parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £837,890 (2022 - £1,241,876 profit).
SC Group-Global Limited (“the company”) is a private company limited by shares incorporated in England and Wales. The registered office is The Airfield, Dunkeswell, Honiton, Devon, England, EX14 4LF.
The group consists of SC Group-Global Limited and all of its subsidiaries.
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 £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The consolidated group financial statements consist of the financial statements of the parent company SC Group-Global Limited together with all entities controlled by the parent company (its subsidiaries) with the exception of Supacat GmbH and Supacat Engineering Services Private Limited. Whilst these subsidiaries are wholly owned they are near dormant and considered immaterial to the group.
All financial statements are made up to 31 August 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed under the acquisition method. Where the acquisition constitutes a group reconstruction the financial statements have been prepared using merger accounting principles as if the group had always been in existence.
At the time of approving these financial statements, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
As part of making the above assessment, the directors continue to review the business in the current trading environment and in particular the adequacy of its current banking facilities and its access to additional facilities should these be required. The Group has an on-demand bank facility that is renewable on an annual basis and believe that this will continue to be renewed at the current levels in line with previous years. The directors continue to test their assumptions with forecasts being reviewed regularly and ongoing discussions with lenders and banks to explore opportunities to increase facilities if appropriate.
The majority of the business of the Group and the Company is in the defence sector. The latest budget has been reviewed, sensitised and a number of differing scenarios produced under different planning assumptions. The Group and Company are reliant on cashflows from a number of UK projects which are under contract and have positively contributed to the underpinning of the revenues for the business for the forthcoming year regardless of which scenario is considered. Although these scenarios, show a reduction of revenues and margins over the period, the plans that remain in place to conserve cash and mitigate the effect drops of this magnitude in the forecast, the scenarios continue to indicate that the business will be able to operate positively and effectively.
Following these reviews, the directors have a reasonable expectation that the business has adequate resources to continue in operational existence for the foreseeable future. Therefore, the directors consider it to be appropriate to prepare the accounts on a going concern basis.
Turnover comprises revenue receivable by the company in respect of goods and services supplied during the year, exclusive of value added tax and trade discounts and is recognised on the following basis:
Goods
Turnover from the sale of goods is recognised when the goods are physically delivered to the customer or when substantially all the risks and rewards are transferred, whichever is earlier.
Services
Turnover from the supply of services represents the value of services provided during the year to the extent that there is a right to consideration and is recorded at the fair value of the consideration due. Turnover is recognised when the service is provided.
Long term contract revenue
Where a contract is only partly complete at the balance sheet date, turnover is calculated by reference to the value of work performed to date as a proportion of the total contract value. Where payments are received from customers in advance of services provided, the amounts are recorded as deferred income and included as part of creditors due within one year. Turnover which has not been invoiced is included within amounts recoverable under contracts. Revenues derived from variations on contracts are recognised only when they have been accepted by the customer.
Funded development expenditure incurred on specific contracts is treated as a contract cost in accordance with the general accounting policy for contract work in progress. Unfunded development costs incurred on certain projects are capitalised and carried forward as intangible assets when their recoverability can be foreseen with reasonable certainty, there is an ability to sell the product being developed, there is a firm commitment to complete the project and there are sufficient resources to do so. These deferred costs, which include labour costs and an element of directly attributable overheads, are amortised on a straight line basis over the anticipated life of the benefits arising from the completed products or projects. The Directors consider that this treatment results in a more appropriate matching of costs and revenue. All other development expenditure is written off in the year of expenditure.
Investments held as fixed assets are shown at cost less provision for impairment.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the net assets of the company.
Financial instruments are recognised when the group becomes party to the contractual provisions of the instrument and derecognised when in the case of assets, the contractual rights to cash flows from the assets expire or substantially all the risks and rewards of ownership are transferred to another party, or in the case of liabilities, when the group's obligations are discharged, expire or are cancelled.
The group holds the following basic financial instruments:
Short term trade and other debtors and creditors;
Short term bank overdrafts and long term bank loans;
Long term bank borrowings.
The group also holds certain listed investments, which are held at fair value. Fair value is determined by the share price in the market. Such assets are included within debtors due within one year.
The company holds the following basic financial instruments:
Short term bank overdrafts and long term bank loans;
Long term intercompany debtors and creditors.
Basic instruments are initially measured at transaction price, including transaction costs. Those instruments considered current are subsequently carried at the undiscounted amount of the cash or other consideration expected to be paid or received, after taking account of impairment adjustments.
Bank loans are subsequently measured at amortised cost using the effective interest rate method.
Tax expense for the period represents the sum of the current tax currently payable and deferred tax.
Tax is recognised in the profit or loss account, except that a charge attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.
The current corporation tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the group operates and generates taxable income.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax. Deferred tax assets and liabilities are not offset.
A defined contribution plan is a pension plan under which fixed contributions are paid into a pension fund and the group has no legal or constructive obligation to pay further contributions even if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Contributions to defined contribution plans are recognised as employee benefit expense when they are due. If contribution payments exceed the contribution due for service, the excess is recognised as a prepayment.
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the Black Scholes model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.
The expense in relation to options over the parent company’s shares granted to employees of a subsidiary is recognised by the company as a capital contribution, and presented as an increase in the company’s investment in that subsidiary.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
Leases, in which substantially all the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
Assets held under finance leases and hire purchase agreements are recognised at the lower of their fair value at inception of the lease and the present value of the minimum lease payments. These assets are depreciated on a straight-line basis over the shorter of the useful life of the asset and the lease term. The corresponding liability to the lessor is included in the Balance Sheet as a finance lease obligation.
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 leased asset are consumed.
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.
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.
Government grants relating to turnover are recognised as income over the periods when the related costs are incurred. Grants relating to an asset are recognised in income systematically over the asset's expected useful life. If part of such a grant is deferred it is recognised as deferred income rather than being deducted from the asset's carrying amount.
Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into the respective functional currency of the entity at the rates prevailing on the reporting period date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the initial transaction dates. Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated.
In the application of the group’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.
Provisions are held against slow moving stock and work in progress. This inherently requires a degree of estimation. The directors have estimated the stock provision based on age, on a line by line basis. Provision against work in progress is made where total costs on projects are expected to exceed total revenues. The total amount provided is disclosed in note 18.
The company makes significant investments on an annual basis in research and development, which is a key element to enable it to compete in its marketplace. The business continues to adopt a policy of capitalising these costs as part of its Intangible fixed assets, where it believes that the development costs incurred will lead to future economic benefit. The amount capitalised in the year is disclosed in note 12.
The directors have considered the judgements and estimation uncertainties included in these financial statements and the accounting policies applied. These may have a significant effect on the amounts recognised in the financial statements. 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 that period only, or in the period of revision and future periods if the revision affects both current and future periods. The following are considered to be key areas of estimation by the directors.
Profit on long term contracts is taken as work is carried out if the final outcome can be assessed with reasonable certainty. This requires an accurate assessment of the stage of completion of each contract, as well as the estimated costs to complete each contract. Judgement, influenced by historical performance, is required when estimating the expected costs to complete the project. The amount recognised in the year is disclosed in note 3.
During the prior year, the company undertook a restructuring programme which has resulted in exceptional redundancy costs amounting to £42,697. There were also exceptional legal costs incurred in 2021, in which an exceptional credit of £60,000 was received in 2022.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2022 - 3).
The directors are considered to be the key management personnel of the group.
The actual charge/(credit) for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The Group recognised a tax credit in the prior year of £357,086 arising from a claim made under the Research and Development scheme in the UK. This has been classified as arising from prior years as the claim related wholly to the 2022 financial year. This amount was fully receipted after the balance sheet date and as such is included as a tax receivable within note 19 of the financial statements. Deferred tax has been provided for at the substantively enacted rate of 25% (2022: 25%).
Individually material intangible assets
High Mobility Transporters (HMT)
The carrying amount of this asset is £2,683,997 (2022 restated: £3,013,256). There were additions in the year of £593,795 (2022 - £195,261).
The amortisation of the original HMT 400 project commenced in the year ended 31 August 2003, upon commencement of commercial production of the HMT 400 vehicle. Similarly, the amortisation of the original HMT 600 vehicle development costs commenced in the year ended 31 August 2007 upon its successful commencement of commercial production. Subsequent product enhancement expenditure is written off over ten years from the date of capitalisation.
Additional development costs have been capitalised in relation to HMT projects in Australia which are expected to generate future economic benefit. The carrying amount of these development costs is £1,639,483 (2022: £2,178,727).
Light Reconnaissance Vehicle
The carrying amount of this asset is £1,790,282 (2022 - £2,143,078). Development of the assets commenced in the year ended 31 August 2015 and 31 August 2014 respectively. Whilst not yet in commercial production, the directors consider the project to be substantially complete and amortisation began in the prior period, writing off the development costs over a 10 year period. A total amortisation charge of £365,903 (2022: £270,596) has been recognised.
Lightweight Recovery Vehicle
The carrying amount of this asset is £1,864,486 (2022: £1,982,438). Development of these assets commenced in the year ended 31 August 2017. Amortisation commenced in the year when the asset was brought into use. A total amortisation charge of £98,551(2022: £220,271) has been recognised.
Land 400
The carrying amount of this asset is £338,198 (2022 - £447,839). Development costs have been capitalised for a project which is expected to generate future economic benefit to the group in relation to partnering with a prime contractor on the Australian Land 400 programme. This is being amortised over a period of 7 years.
RHM external rack redevelopment
The carrying amount of this asset is £772,054 (2022 - £1,068,355). This is being amortised over a period of 7 years All remaining intangible assets are written off over the period that they are expected to produce commercial benefit.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Investment property comprises of one property. The fair value of the investment property has been arrived at on the basis of a valuation carried out at 5 May 2022 by JLL Chartered Surveyors, who are not connected with the company. The valuation was made on an open market value basis by reference to market evidence of transaction prices for similar properties.
Details of the company's subsidiaries at 31 August 2023 are as follows:
The principal activities of the Group are that of the research and development, design, prototyping, manufacture and sale of high mobility vehicles, trailers and other systems. Supacat Limited and Supacat PTY Limited primarily operate in the military sector, SC Marine Limited and Proteum Limited within the maritime sector and SC Innovation-Global Limited and Blackhill Engineering Services Limited provide engineering and training services supporting the group's activities. Supacat Engineering Services Private Limited, Supacat GmbH and SC Eco PTY Limited are near dormant subsidiaries in India, Germany and Australia respectively.
As Supacat Engineering Services Private Limited, Supacat GmbH and SC Eco PTY Limited are near dormant subsidiaries, these subsidiaries have been excluded from the consolidation of the Group accounts, as deemed non-significant and immaterial to the Group.
The registered office of each subsidiary is the same as that of the company, with the exceptions of Supacat PTY Limited and SC Eco PTY Limited which is HWT Tower Level 19, 40 City Road, Southbank VIC3006, Australia, Supacat Engineering Service Private Limited which is 406, Fourth Floor, Madhava Building, Bandra Kurla Complex Bandra, East Mumbai, Mumbai City - 400051, India and Supacat GMBH which is Schifferstrasse 210, D-47059 Duisburg, Germany.
SC Marine Limited was dissolved on 29 August 2023.
Amounts owed by Group undertakings are due more than one year, the remaining balance on consolidation relates to amounts owed by unconsolidated Group undertakings of the Group as at the year end.
Group
Financial assets measured at fair value
Shares held in listed entities
The Group holds shares of a supplier who is listed on a stock exchange. The share price at the year end has been used to determine the fair value of the investment.
The fair value at the year end is £Nil (2022 - £Nil) and the change in value included in profit or loss is £Nil (2022 - £Nil).
The bank loans are secured on all the assets of the Group by way of a cross guarantee.
The hire purchase agreements are secured on the assets to which they relate.
The UK Group has an on demand overdraft facility of a net £1.5m covering the UK Group companies. This is repayable on demand and attracts interest at 2.75% above base rate.
The Group have other loan facilities that attract interest at rates ranging between 4.35% and 9.5% that are repayable over the next 6 years. The loans are due to be repaid within 4 years.
The company has a loan with an interest rate of 2.75%.
The Australian subsidiary undertaking has an overdraft of AUD$2.75m and trade funding facility of AUD$2m available.
Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 5 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
A subsidiary within the Group provides for warranty costs up to agreed contractual amounts. This warranty provision is then utilised and released to the profit and loss account over the warranty period.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
The deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances that are expected to mature within the same period.
The group operates a defined contribution pension scheme. Contributions totaling £120,999 (2022 - £32,462) were payable to the scheme at the end of the year and are included in creditors.
The options outstanding at 31 August 2023 had an exercise price of £4,045 per share, are equity settled and have a remaining contractual life of 9 years 4 months.
All Ordinary shares have equal voting and participation rights in the company.
This represents the excess of the proceeds over the par value of shares includes less any directly attributable transaction costs.
This represents the accumulated profits of the group net of any distributions to shareholders.
This reserve reflects the nominal value of shares repurchased by the Group.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Group
Summary of transactions with all subsidiaries
One of the group entities is 90% owned by SC Group-Global Limited. During the year, sales were made to the entity by wholly owned members of the group totalling £826,288 (2022: £1,107,922) and the wholly owned members of the group purchased services from the entity totalling £180,387 (2022: £87,616). At the balance sheet date, the amount due from the entity that is not wholly owned was £2,770,474 (2022: £2,112,640) which is fully eliminated on consolidation.
Company
The company has taken advantage of the exemption in FRS 102 from disclosing transactions with wholly owned members of the group.
Summary of transactions with all subsidiaries
The company charged royalties, management fees and interest of £426,678 (2022: £744,290) to its non wholly owned subsidiary during the year. The balance due at the year end to the company totalled £2,326,719 (2022: £1,684,398).
The company is controlled by the directors who own 100% of the called up share capital. There is no single controlling party.
Costs identified in the prior year that were expensed to the profit and loss account, were identified as relating to the development costs, from which economic benefits have flowed to the company from these assets. The development costs category within intangible assets has therefore increased by £1,138,897, and cost of sales has decreased by £1,138,897 in the prior year, to capitalise costs incurred by the company that were previously expensed to the profit and loss account.
It was identified that the value of stock was materially understated as at the prior year end within one of the subsidiary companies of the group. The raw materials category within stock has therefore increased by £109,053 and cost of sales has decreased by £109,053 in the prior year, to increase the value of stock as at 31 August 2022.
Other operating income identified in the prior year was incorrectly included within administrative expenses in the profit and loss account. The other operating income category has therefore increased by £521,740 and administrative expenses has also increased by £521,740 in the prior year.