The directors present the strategic report for the period ended 31 March 2025.

The directors aim to present a balanced and comprehensive review of the development and performance of the company during the period, and of its position at the period end. The review is consistent with the size and the non-complex nature of the company and is written in the context of the risks and uncertainties faced.

The accounts for the six months ended 31 March 2025 represent the first full accounting period under the new 100% share ownership acquired on 27th September 2024 by the Secretary of State for Defence of Great Britain and Northern Ireland and renamed Octric Semiconductors Ltd (“Octric”).

The previous ultimate parent company, Coherent Incorporated, no longer participates in any aspect of the business. A new Board of directors has been appointed which includes Non-Executive Shareholder representation, with further strengthening in progress across a range of technological, defence, commercial, governance, and governmental relations expertise.

The new shareholder regards the investment as strategic to maintain an appropriate UK semiconductor capability for current and future UK military applications, while also offering the potential to diversify across a broader range of commercial objectives over time. The company benefits from a strong platform of decades of technology development, skills, expertise, resource, and know-how in a highly complex specialist industry.

The company previously has manufactured and supplied semiconductor product and services and continues to develop technologies and production capabilities to bring commercial and defence product lines to market. Within the first six months, the company has initiated investment in new technology platforms to serve current and future defence markets that also has the potential to serve wider commercial markets.

The global market for compound semiconductor-based devices continues to grow in both defence and commercial sectors. Octric continues to use its manufacturing capability to capture this growing market. The focus on Gallium Arsenide (GaAs) and full service offerings is being expanded via a long-term investment project into Gallium Nitride (GaN) technology.

In December 2024, Graham Love, ex-Chair of the Royal Mint, was appointed as Interim Chair of Octric following a competitive recruitment process to drive Octric’s transformation. The new Board will adopt full best practice governance and include responsibilities for RemCo (Remuneration Committee) and ARAC (Audit and Risk Assurance Committee and Control).

The company has an aligned long-term funding plan agreed with the new shareholder and is now in the process of building its strategic Business Plan to cover the five to ten years ahead. The shareholder has provided both working capital facilities of up to £15m and equity funding delivered on a planned and agreed basis for the year ahead and beyond.

Net assets at the period end of 31 March 2025 were £22.1m.

Health and Safety Risk

The directors view their top priority and risk, to be the effective safeguarding the health, safety and welfare of persons at work; to aim to protect others against risks to health and safety arising from work activities, and apply procedures, protocols and criteria to underpin this philosophy. Risk exists wherever there is not total control of a situation, and so the business seeks to apply best practice, frameworks and procedures to minimise these risks in the workplace. The Board meetings commence with reviewing HSE (Health, Safety and Environmental) matters and latest KPIs (Key Performance Indicators). Over the period to 31 March 2025, Octric’s Accident Frequency Rate as measured under RIDDOR (Reporting of Injuries, Diseases, and Dangerous Occurrences Regulations) was zero.

HR and Skills Gap Risk

Immediately after acquisition the newly appointed Board set about assessing the risk of skills gaps in the workforce and management. Management has commenced rolling out a plan to mitigate risks of gaps in skills, experience and cover throughout the employment structure, while strengthening the organisation for growth. This has involved identifying and planning to recruit skilled and specialised headcount for developing markets. Octric has also removed roles via an appropriate redundancy programme earlier in the period.

Employee motivation, retention, and corporate values are seen as key to employee long-term satisfaction

and the competitive success of Octric. This is being supplemented by a range of internal training, team-

building and two-way regular collective employee communications at all levels.

These initiatives are seen as essential to building successful long-term growth, employee development and retention, and to mitigate HR and Skills gap risk.

Liquidity and Going Concern Risk

Liquidity risk arises mainly from the company's management of working capital cash flows and their funding availability. Liquidity risk of the company encountering difficulty in meeting its financial obligations as they fall due, runs in parallel with Going Concern risk. Management mitigates these risks with regular weekly updates of its cash flow forecast, MI and accounts reporting, weekly governance and reporting meeting with MOD (Ministry of Defence) senior representatives, and monthly Board meetings, including the monitoring and reporting on risks, opportunities and countermeasures and actions arising therefrom.

Structurally, the company operates a Working Capital Facility from the shareholder at arm’s length rates and terms. The Facility is supplemented by equity funding commitments from the shareholder to fund and support business investment and maintenance requirements. These funding provisions remain in line with the business case considered by MOD as part of the acquisition and enable management to anticipate and meet foreseeable debts adequately as they fall due.

The planning of equity injection commitments is arranged through regular reporting to, and engagement with, the shareholder, in order to plan for capital expenditure project investments throughout the year and longer-term, as well as meeting daily and weekly funding requirements within the working capital cycle.

As lender and shareholder, the business owner is in a strong and uncontended position to provide stability and funding to the ongoing business on an agreed and appropriate basis.

As part of managing this risk, the business is committed to:

a)    regular reporting to the Board and shareholder to monitor financial performance and

b)    reporting risks with proposed countermeasures on an ongoing basis, and

c)    with due reference to government financial guidance, frameworks and principles where appropriate.

Revenue Growth risk

As disclosed in the accounts for the period ended 30 September 2024, the company experienced a significant decline in revenue as a result of the expiry of commercial contracts under the previous ownership. Revenue for the period continued to be affected by these factors and is significantly lower than in prior periods. As a result, the business is currently loss making. It is expected that, given the long lead times involved in this business sector to rebuild new revenue streams and growth, that turnover will be comparatively low in the medium-term while new customers are identified and new technology income streams are developed.

Under the new shareholder, the business is best viewed as a start-up and is underway with a turnaround strategy. The company is planning to rebuild its customer base and pipelines in both defence and commercial markets as part of its overall strategy to maintain, within the UK, the capability considered critical to UK defence in the long term. This is a long-term venture given the long cycle time required to bring complex custom integrated semiconductor technology to market. The time-related risk to compete effectively in markets is being countered by:

a) Business Development mapping led by a newly appointed BD Director, continuing the enhancement and expansion of sector knowledge and proactive networking across both established and new business relationships

b) Intensive focused investment in proven technological and operational equipment to expand capability.

c) Investment in specialist skills across the technology supply chain and a workforce in which Octric excels in quality and reliability.

Security Risk

The company’s market position serving defence sectors as well as other private commercial markets, means that security and confidentiality is paramount to company operations and communications. The directors are not aware of any material breaches of security in the period.

Strict government frameworks are applied accordingly to the running the business, site and systems, including enhanced cybersecurity controls. The company strives to continually improve its security and cybersecurity controls to protect its employees, supply chain, site, and all those who interact with the business. Regular security reviews take place at all levels from floor to Board level throughout the site and across daily business, with the aim to continuously improve. The accounting period has witnessed a significant step up in both cybersecurity and physical security plans, which are being rolled out since the balance sheet date.

Credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The company’s credit risk arises from credit sales. Terms are negotiated at arm’s length, and limits applied to each customer subject to management approval. Risk here is currently deemed low.

Interest rate risk

The company’s only lending facility is from the new shareholder and is repayable by 31 March 2027 and based on SONIA market rates plus an agreed margin. Interest rate repayments are calculated and reported monthly to the lender, with regular repayments made. Unutilised facility fees are paid to the extent that the facility is not being used. Risk here is currently deemed low.

Revenue and Gross Profit KPI’s are the overriding business driver to maximise contribution to overheads and capital investment. The company experienced a significant decline in revenue as a result of the expiry of commercial contracts under the previous ownership.

All areas of the business have their own KPI’s linked to their functional and business objectives. These include HSE KPI’s, HR KPI’s of Employee Turnover %, Absence % and Headcount, Cost KPI’s for Operating overheads costs against budget, and Quality and Efficiency KPI’s for yield and scrap rates. There are also Business Development KPI’s focusing on technology and revenue development milestone targets.

The company has achieved its key objectives in its first six months under the new ownership of the Secretary of State for Defence of Great Britain and Northern Ireland.

In separating from its US-based privately owned vendor group, the company has had to ensure complete operational self-sufficiency as a stand-alone and independent business in an intensive period of transition and turnaround. This included the creation of stand-alone independent functions for HR, Finance, IT, Quality, Supply Chain and Business Development.

This has involved separation from the vendor’s systems and establishment of full new ERP (Enterprise Resource Planning) systems across the business. All core systems have now been transferred successfully, and the final stage of integrating Manufacturing systems is expected to be complete in 2026.

All Transitional Service Arrangements (TSA) to date have been executed to plan with the vendor with final TSA’s on track to complete in 2025.

Underpinning the business turnaround and transformation, the high standards of internal governance and strategic planning expected by the new shareholder are being met with the appointment of a highly experienced Board, which has required the rapid resetting of the business in its new direction.

The company is now developing its capability to serve newer and growing markets using Gallium Nitride (GaN) technology requirements by building synergistically on its established Gallium Arsenide (GaAs) technology, which remains in significant demand.

While the lead-time from development to market for GaN, typical of this technology, is several years, the company is already well-placed to meet its market-readiness targets and has formed strong alliances to help deliver the technology relatively quickly, securely, and effectively.

This will provide Octric with a technological gateway to the future, serving both defence and gradually increasingly commercial markets too for both GaAs and GaN platforms. As noted, this is a long-term investment to yield a reliable UK defence and commercial semiconductor supply chain, and the initial groundwork to achieve long-term objectives is already under way.

Revenues from the last pre-acquisition defence supply order pipeline were almost fully completed by March 2025, leaving the path clear to re-establish new requirements within the evolving new UK defence programme. New order pipelines are now being established expected for delivery from the next accounting period.

To support the company’s long-term investment for growth strategy in these sectors, the skill and experience resource base has been fully assessed. Consequently, new skilled and specialist positions are being recruited to support the reset and growth of the business. This has already introduced an excellent bank of talent and experience from operating to board level, including several senior people returning to Octric, having further developed their skills and experience elsewhere.

On behalf of the Board

The directors present their annual report and financial statements for the period ended 31 March 2025.

The principal activity of the company continued to be that of manufacturing electronic components.

The results for the period are set out on page 12.

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

The directors who held office during the period and up to the date of signature of the financial statements were as follows:

The company has an established, structured approach to risk management. The company's activities expose it to a variety of financial risks, including the effects of credit, liquidity, cash flow, foreign exchange and interest rate risks. The company has adopted risk management policies that seek to mitigate these risks in a cost effective manner. See further disclosures within the Strategic Report regarding risks to the company.

See disclosures within the Strategic Report regarding future developments of the company.

In accordance with the company's articles, a resolution proposing that Azets Audit Services be reappointed as auditor of the company will be put at a General Meeting.

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.

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;

• 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.

We have audited the financial statements of Octric Semiconductors Limited (the 'company') for the period ended 31 March 2025 which comprise the income statement, the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the 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).

In our opinion the financial statements:

• give a true and fair view of the state of the company's affairs as at 31 March 2025 and of its loss for the period then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for 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 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.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

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 period 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 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 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 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.

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.

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.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.

We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework.  Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.  This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.

We identified the following applicable laws and regulations as those most likely to have a material impact on the financial statements: Health and Safety; Environmental regulations; Compliance with ISO accreditations; employment law (including the Working Time Directive); and compliance with UK Companies Act.

In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:

• Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud; 

• Reviewing minutes of meetings of those charged with governance;

• Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the company through enquiry and inspection; 

• Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;

• Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias. 

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation.  This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance.  The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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.

Octric Semiconductors Limited is a private company limited by shares incorporated in England and Wales. The registered office is C/O Square One Law LLP, Anson House, The Fleming Business Centre, Burdon Terrace, Newcastle Upon Tyne, United Kingdom, NE2 3AE.

The financial statements include a shortened reporting period of 6 months from 1 October 2024 to 31 March 2025. This shortening was to bring the reporting period in line with the Government budget year end for funding, therefore, comparative amounts presented in the financial statements are not entirely comparable. The financial statements include an extended comparative reporting period of 15 months from 1 July 2023 to 30 September 2024. This extension was to bring the reporting period in line with the acquisition of the company by the Secretary of State for Defence of Great Britain and Northern Ireland.

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, modified to include the revaluation of freehold properties and certain financial instruments at fair value. The principal accounting policies adopted are set out below.

The company has taken advantage of the exemption available under paragraph 33.1A of FRS 102 and does not disclose related party transactions with members of the same group that are wholly owned.

On 27 trueSeptember 2024, the company was acquired by the Secretary of State for Defence of Great Britain and Northern Ireland from the U.S-based Coherent group of companies.

The new shareholder has committed an initial £15m working capital facility to the business in November 2024, expiring in 2028.

The long-term business plan projections and funding requirements, extended as far out as to March 2036, have been submitted since acquisition to the shareholders, and are materially comparable in funding requirement to the shareholders’ pre-acquisition projections.

The shareholder has supplied confirmation of its originally approved long-term funding commitment to the business, for the benefit of Going Concern Assessment. The shareholder has also confirmed the funding mechanism of periodic equity injections to support ongoing capital investment in the business and to meet foreseeable liabilities and commitments as they fall due.

This has been essential assurance of ongoing business funding after the loss of the business major customer and income stream in the accounting period ended 30 June 2023, and with the running down of current defence order pipelines in the current accounting period. This will enable the business to continue to run and make product on an ongoing business to maintain medium-term capability and allow time to adapt to evolving Defence critical capability and redevelop the order pipeline.

The financial statements have been prepared on the going concern basis which assumes that the company will continue in operational existence for at least the next 12 months from the issue of these financial statements. The directors believe that this basis is appropriate because the company's ultimate shareholder (the Secretary of State for Defence of Great Britain and Northern Ireland), has committed to provide appropriate financial support.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

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.

Revenue from contracts for the provision of professional services is recognised when the services are provided.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.

Amortisation 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:

With the exception of freehold land and buildings, 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:

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.

Properties whose fair value can be measured reliably are held under the revaluation model and are carried at a revalued amount, being their fair value at the date of valuation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value of the land and buildings is usually considered to be their market value.

Revaluation gains and losses are recognised in other comprehensive income and accumulated in equity, except to the extent that a revaluation gain reverses a revaluation loss previously recognised in profit or loss or a revaluation loss exceeds the accumulated revaluation gains recognised in equity; such gains and losses are recognised in profit or loss.

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.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

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.

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.

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. Bank overdrafts are shown within borrowings in current liabilities.

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, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

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.

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.

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 assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The tax expense represents the sum of the tax currently payable and deferred tax.

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 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.

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.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

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.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

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.

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.

Research and development

Expenditure on research and development is written off in the year in which it is incurred.

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.

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

The annual depreciation charge for tangible assets is sensitive to changes in the estimated useful economic lives and residual values of the assets. The useful economic lives and residual values are re-assessed annually. They are amended when necessary to reflect current estimates based on technological advancement, future investments, economic utilisation and the physical condition of the assets.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.

The company manufactures semi-conductor products and is subject to changing consumer demands and economic trends. As a result, it is necessary to consider the recoverability of the cost of stock and the associated provisioning required. When calculating the stock provision, management consider the nature and condition of the stock, as well as applying assumptions around anticipated saleability of finished goods and future usage of raw materials.

The freehold building is stated at fair value based on a professional valuation performed by BDO LLP as at the reported date of 12 April 2024 and was commissioned by the Ministry of Defence prior to acquisition of the company. The allocation of value to buildings is based on the BDO assessment of average rental market values and average rental yields at this time. The remaining land value is based on the BDO report of market value assessments of related land values at the time of the report firstly with planning permission and then discounted for being without planning permission for new developments.

Irrecoverable VAT relates to VAT where the expected outcome of recovery is remote.

The average monthly number of persons (including directors) employed by the company during the period was:

Their aggregate remuneration comprised:

One of the Directors is employed by a service company. This company has been recharged inclusive of Employers NI and a payroll service cost which is included in administrative expenses. The individual's gross salary has been included in the above.

The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2024 - 1).

The actual credit for the period can be reconciled to the expected credit for the period based on the profit or loss and the standard rate of tax as follows:

In addition to the amount credited to the income statement, the following amounts relating to tax have been recognised directly in other comprehensive income:

Deferred taxation on revaluation gains/losses is taken to a separate non-distributable reserve through other comprehensive income. The rate of deferred taxation provisions on revalued property is 25% in line with government legislation on future corporation tax rates at the reporting date.

Land and buildings with a carrying amount of £17,000,000 were revalued at April 2024 by BDO LLP, independent valuers not connected with the company on the basis of market value. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm's length terms for similar properties.

The following assets are carried at valuation. If the assets were measured using the cost model, the carrying amounts would be as follows:

Stocks are stated after provision for impairment of £1,228,108 (2024: £867,500)

The long-term loan is denominated in sterling and is secured by a debenture including a fix charge over all property, a first fixed charge and first floating charge over all assets of the company dated 21 November 2024.

The repayment date is 31 March 2027 and an agreed interest rate applicable plus the SONIA Bank of England rate is charged.

The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:

Deferred tax is not recognised in respect of tax losses of £1,459,120 as it is not probable that they will be recovered against the reversal of deferred tax liabilities or future taxable profits.

The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.

Contributions totalling £78,542 (2024: £61,386) are outstanding at the period end and included within creditors.

The aggregate surplus on re-measurement of freehold land and buildings, net of associated deferred tax, is transferred to a separate non-distributable revaluation reserve in order to assist with the identification of profits available for distribution.

The capital contribution reserve was generated when the company was acquired by the II-VI group of companies in the year ended 30 June 2018. Capital contributions from group companies are non-repayable. As a result of the sale of the company to the Secretary of State for Defence of Great Britain and Northern Ireland in the prior period this reserve was released into profit and loss reserves.

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:

Amounts contracted for but not provided in the financial statements:

Post period end, in total the company issued 30,000,000 ordinary shares of £1.00 each. The shares were issued at par. £15 million was settled via a debt/equity exchange with the balance being paid as cash consideration.

During the period the company entered into the following transactions with related parties:

During the period, the Secretary of State for Defence of Great Britain and Northern Ireland provided a working capital facility loan of up to £15m of which £11m was drawn down in the period and included within creditors. The amount of interest charged in the period was £129,794 and the amount of fees incurred in the period was £73,698. See note 17 for details regarding the security of the loan.

The controlling party of the company is the Secretary of State for Defence of Great Britain and Northern Ireland.