REGISTERED NUMBER: 03495807 (England and Wales)

STRATEGIC REPORT, REPORT OF THE DIRECTORS AND

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2025

FOR

MARCO LIMITED

Page

Company Information

1

Strategic Report

2

Report of the Directors

3

Report of the Independent Auditors

5

Statement of Profit or Loss

9

Statement of Profit or Loss and Other Comprehensive Income

10

Statement of Financial Position

11

Statement of Changes in Equity

13

Statement of Cash Flows

14

Notes to the Statement of Cash Flows

15

Notes to the Financial Statements

16

DIRECTORS:

B P Alexander

S O Roberts

SECRETARY:

Taylor Wessing Secretaries Limited

REGISTERED OFFICE:

Block 3

The Industrial Estate

Edenbridge

Kent

TN8 6HF

REGISTERED NUMBER:

03495807 (England and Wales)

AUDITORS:

BSR Bespoke

Chartered Accountants

Registered Auditors

Linden House

Linden Close

Tunbridge Wells

Kent

TN4 8HH

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

REVIEW OF BUSINESS

MARCO is a world leading provider of technology solutions that optimize productivity and efficiency for manufacturing and packing operations across a varied market sector. MARCO provides an end-to-end solution from design through to in-house manufacturing of its branded software and hardware. Combined with the provision of installation and maintenance processes MARCO differentiates itself as a leader in this world marketplace of enhanced production efficiency.

PRINCIPAL RISKS AND UNCERTAINTIES

MARCO exports a high percentage of its production. Accordingly, the Company needs to remain vigilant concerning global trade tariffs, agreements and exchange rates. With the assistance of ATS parent company compliance officers MARCO is more aware and able to monitor these risks and respond accordingly.

Our own risk to rising interest rates is managed by a professional central treasury function provided again by ATS parent company.

In this increasingly uncertain global environment, credit risk is managed by review of new customers credit references provided by third party agencies and ensuring milestone payment terms are met before shipment.

REVIEW OF THE DEVELOPMENT OF THE BUSINESS DURING THE YEAR

The business continues to focus on its areas of product and geographical strength as well as investing in the proprietary software. However, customers continue to face huge challenges with the cost and availability of manual labour along with difficulties in onward commercial agreements which has led to delays in securing new agreements for Marco Ltd. Despite this, the business has seen successful onboarding of new customers throughout the year although overall revenue has fallen (-11%).

Marco remains committed to the development of our core range of products and the acceleration of our innovation pipeline.

Despite the aforementioned challenges and decline in revenue, the gross margin has remained acceptable at 54.4%.

Over this period Headcount has remained stable and new recruits are wherever possible sourced from local people to provide the required skills enabling MARCO to grow as part of the community.

The following KPIs are monitored by the parent entity:

2025

2025

2024

2024

£k

£k

Revenue

9,009

100%

10,128

100%

GM

4,899

54%

5,608

55%

SG&A

5,504

61%

5,827

58%

EBIT

(605

)

(7%

)

(219

)

(2%

)

Stock

1,285

14%

879

9%

ON BEHALF OF THE BOARD:

S O Roberts - Director

13 May 2026

The directors present their report with the financial statements of the company for the year ended 31 March 2025.

PRINCIPAL ACTIVITY

The principal activity of the company in the year under review was that of the manufacture of innovative factory productivity systems.

DIVIDENDS

The total distribution of dividends for the year ended 31 March 2025 was £nil (2024: £nil).

RESEARCH AND DEVELOPMENT

Marco remains committed to launching new products to meet the world's revised needs for labour saving, low energy use equipment despite a challenging year. Marco has a strong innovations team that will always be seeking resolutions to customers' problems as they bring them to us with renewed expectations, but also to enhance the standard product range offering.

FUTURE DEVELOPMENTS

The North American market continues to develop and, with the support of the ATS group, Marco continues to seek new opportunities within this region.

DIRECTORS

B P Alexander has held office during the whole of the period from 1 April 2024 to the date of this report.

Other changes in directors holding office are as follows:

S O Roberts was appointed as a director after 31 March 2025 but prior to the date of this report.

R S Mcleod and J M Patten ceased to be directors after 31 March 2025 but prior to the date of this report.

The directors' interests in the share capital of the parent company are disclosed in that company's accounts.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Strategic Report, the Report of the Directors 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 UK-adopted international accounting standards. 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.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the company's auditors are unaware, and each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

AUDITORS

The auditors, BSR Bespoke, will be proposed for re-appointment at the forthcoming Annual General Meeting.

ON BEHALF OF THE BOARD:

S O Roberts - Director

13 May 2026

Opinion

We have audited the financial statements of Marco Limited (the 'company') for the year ended 31 March 2025 which comprise the Statement of Profit or Loss, the Statement of Profit or Loss and Other Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and Notes to the Statement of Cash Flows, Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the UK.

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 year then ended;

-	have been properly prepared in accordance with IFRSs as adopted by the UK; 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 Auditors' 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 directors are responsible for the other information. The other information comprises the information in the Strategic Report and the Report of the Directors, but does not include the financial statements and our Report of the Auditors 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.

In connection with our audit of the financial statements, 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 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 Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-	the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Report of the Directors.

We have nothing to report in respect of the following matters where 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.

Responsibilities of directors

As explained more fully in the Statement of Directors' Responsibilities set out on page three, 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 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.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a Report of the Auditors 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.

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

We obtained an understanding of the legal and regulatory frameworks that are applicable to the client and determined that the most significant are:

- The form and content of the financial statements, IFRS "UK-adopted international accounting standards" and the Companies Act 2006

- UK Employment Law and data protection, and

- International Organisation for Standardisation, including, ISO9001, ISO14001 and ISO45001

We gathered an understanding of how the entity is complying with the above frameworks by enquiring and observing management and those charged with governance, ensuring there is a culture of honesty with an emphasis on fraud prevention which may reduce opportunities for fraud to occur as well as acting as a deterrent.

We assessed the susceptibility of the financial statements to material misstatement due to fraud, by making an assessment of the key fraud risks, the manner in which any such risks may materialise, our knowledge of the client and an assessment of the current business environment.

We designed our audit procedures to identify non-compliance with such laws and regulations, including journals testing in order to test for indications of management bias. Where the risk was considered to be higher, we performed additional audit procedures to address each identified fraud risk to obtain reasonable assurance that the financial statements were free of fraud or error.

There are inherent limitations in the audit procedures described above, 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. The primary responsibility for the prevention and detection of fraud rests with management and those charged with governance.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.

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 a Report of the Auditors 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.

Stephen Pocock FCCA (Senior Statutory Auditor)

for and on behalf of BSR Bespoke

Chartered Accountants

Registered Auditors

Linden House

Linden Close

Tunbridge Wells

Kent

TN4 8HH

19 May 2026

CONTINUING OPERATIONS

Revenue

3

9,009,128

10,128,330

Cost of sales

(4,110,356

)

(4,520,665

)

GROSS PROFIT

4,898,772

5,607,665

Administrative expenses

(5,504,059

)

(5,827,028

)

OPERATING LOSS

(605,287

)

(219,363

)

Finance costs

5

(105,977

)

(130,650

)

Finance income

5

156,156

261,932

LOSS BEFORE INCOME TAX

6

(555,108

)

(88,081

)

Income tax

7

(96,740

)

63,407

LOSS FOR THE YEAR

(651,848

)

(24,674

)

LOSS FOR THE YEAR

(651,848

)

(24,674

)

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

(651,848

)

(24,674

)

ASSETS

NON-CURRENT ASSETS

Owned

Intangible assets

9

211,318

222,356

Property, plant and equipment

10

280,033

267,354

Right-of-use

Property, plant and equipment

10, 19

2,548,490

2,715,745

3,039,841

3,205,455

CURRENT ASSETS

Inventories

11

1,285,051

879,417

Trade and other receivables

13

4,429,920

5,678,127

Tax receivable

141,072

130,864

Cash and cash equivalents

14

417,201

109,988

6,273,244

6,798,396

TOTAL ASSETS

9,313,085

10,003,851

EQUITY

SHAREHOLDERS' EQUITY

Called up share capital

15

22,636

22,636

Share premium

16

99,300

99,300

Capital redemption reserve

16

2,215

2,215

Retained earnings

16

3,727,775

4,379,623

TOTAL EQUITY

3,851,926

4,503,774

LIABILITIES

NON-CURRENT LIABILITIES

Trade and other payables

17

2,583,957

2,711,561

Deferred tax

21

129,285

32,545

2,713,242

2,744,106

CURRENT LIABILITIES

Trade and other payables

17

2,747,917

2,718,838

Financial liabilities - borrowings

Bank overdrafts

18

-

37,133

2,747,917

2,755,971

TOTAL LIABILITIES

5,461,159

5,500,077

TOTAL EQUITY AND LIABILITIES

9,313,085

10,003,851

The financial statements were approved by the Board of Directors and authorised for issue on 13 May 2026 and were signed on its behalf by:

S O Roberts - Director

Called up

Capital

share

Retained

Share

redemption

Total

capital

earnings

premium

reserve

equity

£

£

£

£

£

Balance at 1 April 2023

22,636

4,404,297

99,300

2,215

4,528,448

Changes in equity

Total comprehensive income

-

(24,674

)

-

-

(24,674

)

Balance at 31 March 2024

22,636

4,379,623

99,300

2,215

4,503,774

Changes in equity

Total comprehensive income

-

(651,848

)

-

-

(651,848

)

Balance at 31 March 2025

22,636

3,727,775

99,300

2,215

3,851,926

Cash flows from operating activities

Cash generated from operations

1

1,013,022

(1,680,986

)

Interest paid

10,064

(12,574

)

Lease interest paid

(116,041

)

(118,076

)

Tax paid

(10,208

)

-

Net cash from operating activities

896,837

(1,811,636

)

Cash flows from investing activities

Purchase of intangible fixed assets

(2,262

)

(10,810

)

Purchase of tangible fixed assets

(84,075

)

(45,711

)

Increase in amounts owed by group

(496,619

)

1,645,373

Interest received

156,156

261,932

Net cash from investing activities

(426,800

)

1,850,784

Cash flows from financing activities

Payment of lease liabilities

(125,691

)

(116,704

)

Net cash from financing activities

(125,691

)

(116,704

)

Increase/(decrease) in cash and cash equivalents

344,346

(77,556

)

Cash and cash equivalents at beginning of year

2

72,855

150,411

Cash and cash equivalents at end of year

2

417,201

72,855

1.	RECONCILIATION OF LOSS BEFORE INCOME TAX TO CASH GENERATED FROM OPERATIONS

31.3.25

31.3.24

£

£

Loss before income tax

(555,108

)

(88,081

)

Depreciation charges

251,950

224,751

Profit on disposal of fixed assets

-

(20,364

)

Decrease in provisions

-

(14,964

)

Finance costs

105,977

130,650

Finance income

(156,156

)

(261,932

)

(353,337

)

(29,940

)

Increase in inventories

(405,634

)

(9,310

)

Decrease/(increase) in trade and other receivables

2,022,067

(1,823,887

)

(Decrease)/increase in trade and other payables

(250,074

)

182,151

Cash generated from operations

1,013,022

(1,680,986

)

2.	CASH AND CASH EQUIVALENTS

The amounts disclosed on the Statement of Cash Flows in respect of cash and cash equivalents are in respect of these Statement of Financial Position amounts:

Year ended 31 March 2025

31.3.25

1.4.24

£

£

Cash and cash equivalents

417,201

109,988

Bank overdrafts

-

(37,133

)

417,201

72,855

Year ended 31 March 2024

31.3.24

1.4.23

£

£

Cash and cash equivalents

109,988

150,411

Bank overdrafts

(37,133

)

-

72,855

150,411

1.	STATUTORY INFORMATION

Marco Limited is a private company, limited by shares , registered in England and Wales. The company's registered number and registered office address can be found on the Company Information page.

The presentation currency of the financial statements is the Pound Sterling (£).

The financial statements have been rounded to the nearest Pound.

2.	ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with UK-adopted international accounting standards and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

Critical accounting judgements and key sources of estimation uncertainty

In the process of applying its accounting policies set out in note 2, the company is required to make certain estimates, judgements and assumptions that it believes are reasonable based on the information available. These judgements, estimates and assumptions affect the carrying amounts of assets and liabilities at the date of the financial statements and the amounts of revenues and expenses recognised during the reporting periods presented. Changes to these estimates, judgements and assumptions could have a material effect on the financial statements.

On an ongoing basis, the company evaluates its estimates using historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. As estimates carry with them an inherent level of uncertainty, the company performs sensitivity analysis where this is practicable and where, in management's opinion, it provides useful and meaningful information. This sensitivity analysis is performed to understand a range of outcomes that could be considered reasonably possible based on experience and the facts and circumstances associated with individual areas of the financial statements that are subject to estimates. Actual results may differ significantly from the estimates, the effect of which is recognised in the period in which the facts that give rise to the revision become known.

The following paragraphs detail the estimates and judgements the company believes to have the most significant impact on the annual results as reported in accordance with IFRS.

Revenue recognition

Accounting estimate - The company accounts for revenue in accordance with IFRS 15 Revenue from Contracts with Customers. For most of the company's contracts, revenue and associated margin are recognised progressively over time as costs are incurred. In calculating the amount of revenue to recognise, the company estimates the total contract cost and uses this to measure the stage of completion. The estimated contract costs are based on historical data, judgement and assumptions; actual results could differ from these estimates, which would result in revenues being adjusted in the period that the revision to the estimates is determined.

Property, plant and equipment

Accounting estimate - The estimated useful economic lives of PP&E and intangible assets is based on management's experience. If management identifies that actual useful economic lives differ materially from the estimates used to calculate depreciation, that charge would be adjusted prospectively. Due to the significance of PP&E and intangibles investment to the company, variations between actual and estimated useful economic lives could impact operating results both positively and negatively. As such, this is a key source of estimation uncertainty. The depreciation and amortisation expense for the year was £252k. A 10% increase in average asset lives would have resulted in an £22.9k reduction in this figure and a 10% decrease in average asset lives would have resulted in a £28k increase in this figure. It is therefore unlikely that there is a significant risk of a material adjustment to the carrying amounts of property, plant and equipment.

Leases as lessee

Accounting estimate - The company determines the lease term of contracts with renewal and termination options as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The company leases property from a fellow subsidiary company, ATS Automation England Holdings 1 Limited. There is a short-term lease in place but this does not include renewal or extension options. The company has occupied the properties for a number of years and intends on continuing to occupy the properties for the foreseeable future. The company therefore applied judgement to determine the lease term as the remaining useful economic life of the properties.

Accounting estimate - The company cannot readily determine the interest rate implicit in the property lease, therefore, it uses its incremental borrowing rate (IBR) to measure the property lease liabilities. The IBR is the rate of interest that the company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the company 'would have to pay', which requires estimation when limited observable rates are available. The company estimates the IBR using observable inputs, such as market interest rates, centralised treasury borrowing rates and the company's own financial history.

Leases as lessor

Accounting estimate - The company leases equipment to some customers. The company determines, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the asset and the present value of the minimum lease payments not amounting to substantially all of the fair value of the commercial property, whether it retains substantially all the risks and rewards incidental to ownership of these assets. These judgements determine whether the leases are accounted for as operating leases or finance leases.

Recoverability of Trade Receivables

Accounting estimate - At each reporting date, the company evaluates the estimated recoverability of trade receivables and records allowances for expected credit losses based on experience. Estimates associated with these allowances are based on, among other things, a consideration of actual collection history. The company has also made specific considerations in light of current economic circumstances such as the cost of living experienced by customers.

Provisions

Accounting estimate - The Warminster site closed on 1 June 2021 with full integration of the operations to the head office in Edenbridge in place by 30 September 2021. The lease for the Warminster site expired in July 2022; until then the company was liable for the rent, rates, utilities and dilapidations. There are no further outstanding costs in respect of the Warminster site's closure as at 31 March 2025.

Stock

Accounting estimate - Stock is valued at lower of cost and net realisable value. Management apply judgement in estimating the net realisable value for each product line, which includes assessing the lifecycle of the product, sell through date and price achieved for the final product. Estimates are revised as latest information is available.

Changes in accounting policies

A voluntary change in accounting policy had taken place during the year to 31 March 2024 whereby the company now recognises the direct element of labour costs within cost of sales. This provides more accurate reporting based on the work done which is directly attributable to sales. This change has been applied from 1 April 2023; retrospective application is impracticable due to the transition to a new ERP during the year. The impact during the year ended 31 March 2025 is £480,730 (2024: £409,086) of labour costs which would have been shown within administrative expenses under the old policy.

Revenue recognition

Revenue and profit recognition

Revenue represents income derived from contracts for the provision of goods and services, over time or at a point in time, by the company to customers in exchange for consideration in the ordinary course of the company's activities.

The company accounts for revenue in accordance with IFRS 15 Revenue from Contracts with Customers. For most of the company's contracts, revenue and associated margin are recognised progressively over time as costs are incurred.

The ultimate profitability of contracts is based on estimates of revenue and costs, including allowances for technical and other risks which are reliant on the knowledge and experience of the company's project managers, engineers, and finance and commercial professionals. Revenue and cost estimates are reviewed and updated frequently, as determined by events and circumstances.

The company typically enters into the following types of contracts with customers:

- to design, build or create assets uniquely available to the customer, namely innovative factory productivity systems;

- to service or maintain assets over a period of time.

Revenue is recognised against each of these types of contracts in line with the following accounting policies.

Performance obligations

Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service or a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct and accounted for as separate performance obligations in the contract if the customer can benefit from them either on their own or together with other resources that are readily available to the customer and they are separately identifiable in the contract.

In some cases, the company provides warranties to its customers to give them assurance that its products and services will function in line with agreed-upon specifications. Warranties are not provided separately and, therefore, do not represent separate performance obligations.

Transaction price

At the start of the contract, the total transaction price is estimated as the amount of consideration to which the company expects to be entitled in exchange for transferring the promised goods and services to the customer, excluding VAT. If the consideration committed in a contract includes a variable amount, it is recognised only to the extent that it is highly probable that there will be no significant reversal when the uncertainty associated with the variable consideration is resolved. The transaction price does not include estimates of consideration resulting from contract modifications until they have been approved by the parties to the contract. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative stand-alone selling prices. Given the bespoke nature of many of the company's products and services, which are designed and/or manufactured under contract to the customer's individual specifications, there are typically no observable stand-alone selling prices. Instead, stand-alone selling prices are typically estimated based on expected costs plus contract margin consistent with the company's pricing principles.

Whilst payment terms vary from contract to contract, on many of the company's contracts, an element of the transaction price is received in advance of delivery. When cash is received in advance of goods or services being delivered, a contract liability is recognised. The company therefore has significant contract liabilities. The company's contracts are not considered to include significant financing components on the basis that there is no difference between the consideration and the cash selling price.

Revenue and profit recognition

Revenue is recognised as performance obligations are satisfied as control of the goods and services is transferred to the customer.

For each performance obligation within a contract, the company determines whether it is satisfied over time or at a point in time. Performance obligations are satisfied over time if one of the following criteria is satisfied:

- the customer simultaneously receives and consumes the benefits provided by the company's performance as it performs;

- the company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or

- the company's performance does not create an asset with an alternative use to the company and it has an enforceable right to payment for performance completed to date.

The company has determined that most of its contracts satisfy the over-time criteria, either because the customer simultaneously receives and consumes the benefits provided by the company's performance as it is performed (typically services or support contracts, for example in the case of ongoing maintenance and support), or the company's performance does not create an asset with an alternative use to the company and it has an enforceable right to payment for performance completed to date (typically development or production contracts, such as in the production of factory equipment to customers' unique specifications).

For each performance obligation to be recognised over time, the company recognises revenue using an input method, based on costs incurred in the period. Revenue and attributable margin are calculated by reference to reliable estimates of transaction price and total expected costs, after making suitable allowances for technical and other risks including the impact of global economic uncertainties and climate change. Revenue and associated margin are therefore recognised progressively as costs are incurred, and as risks have been mitigated or retired. The company has determined that this method appropriately depicts the company's performance in transferring control of the goods and services to the customer.

If the over-time criteria for revenue recognition are not met, revenue is recognised at the point in time that control is transferred to the customer, which is usually when legal title passes to the customer and the business has the right to payment, for example, on delivery.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an expense.

Contract modifications

The company's contracts are sometimes amended for changes in customers' requirements and specifications. A contract modification exists when the parties to the contract approve a modification that either changes existing or creates new enforceable rights and obligations. The effect of a contract modification on the transaction price and the company's measure of progress towards the satisfaction of the performance obligation to which it relates is recognised in one of the following ways:

1. prospectively, as an additional, separate contract;

2. prospectively, as a termination of the existing contract and creation of a new contract; or

3. as part of the original contract using a cumulative catch-up.

The majority of the company's contract modifications are treated under either 1 (for example, the requirement for additional distinct goods or services) or 3 (for example, a change in the specification of the distinct goods or services for a partially completed contract), although the facts and circumstances of any contract modification are considered individually as the types of modifications will vary contract-by-contract and may result in different accounting outcomes.

Costs to obtain a contract

The company expenses pre-contract bidding costs which are incurred regardless of whether a contract is awarded.

Costs to fulfil a contract

Contract fulfilment costs in respect of over-time contracts are expensed as incurred. Contract fulfilment costs in respect of point in time contracts are accounted for under IAS 2 Inventories.

Cash and cash equivalents

Cash represents cash in hand and deposits held on demand with financial institutions. Cash equivalents are short-term, highly-liquid investments with original maturities of three months or less (as at their date of acquisition). Cash equivalents are readily convertible to known amounts of cash and subject to an insignificant risk of change in that cash value.

In the presentation of the Statement of Cash Flows, cash and cash equivalents also include bank overdrafts. Any such overdrafts are shown within borrowings under ‘current liabilities’ on the Statement of Financial Position.

Intangible assets

Intangible assets are initially measured at cost. After initial recognition, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.

Development of products is capitalised where there is expected to be a benefit to future periods and the following conditions are met:

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it is technically feasible to complete the research or development so that the product will be available for use;

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it is intended to use or sell the product being developed;

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the company is able to use the product;

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it can be demonstrated that the product will generate probable future economic benefits;

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adequate technical, financial and other resources exist so that product development can be completed and subsequently used;

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expenditure attributable to the research and development work can be reliably measured.

Development costs are amortised evenly over their estimated useful life of five years once commercial production has started or when the developed product or service comes into use.

Property, plant and equipment

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life or, if held under a finance lease, over the lease term, whichever is the shorter.

Short leasehold

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10% on cost and in accordance with the lease term

Plant and machinery

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25% on reducing balance and 10% on cost

Fixtures and fittings

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25% on reducing balance and 10% on cost

Motor vehicles

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25% on reducing balance, 10% on cost and in accordance with the lease term

Computer equipment

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25% on reducing balance and 20% on cost

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.