REGISTERED NUMBER: SC171923 (Scotland)

OCEAN KINETICS LIMITED

STRATEGIC REPORT,

REPORT OF THE DIRECTORS AND

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST DECEMBER 2025

Page

Company Information

1

Strategic Report

2

Report of the Directors

5

Report of the Independent Auditors

7

Income Statement

11

Other Comprehensive Income

12

Balance Sheet

13

Statement of Changes in Equity

14

Cash Flow Statement

15

Notes to the Cash Flow Statement

16

Notes to the Financial Statements

18

DIRECTORS:

J Henderson

S M Strachan

SECRETARY:

L W Henderson

REGISTERED OFFICE:

Port Business Park

Gremista

Lerwick

Shetland

ZE1 0TW

REGISTERED NUMBER:

SC171923 (Scotland)

AUDITORS:

The Kelvin Partnership Ltd

Chartered Accountants & Registered Auditors

505 Great Western Road

Glasgow

G12 8HN

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

REVIEW OF BUSINESS

As shown in the profit and loss account on page 11, turnover for the year increased to £20,940,333 (2024: £19,908,710). Despite this growth in revenue, profit before taxation decreased to £1,187,611 (2024: £2,071,039), reflecting a number of sector specific and operational factors during the year.

Turnover in the Marine sector decreased by 32% to £5,331,925 (2024: £7,872,482). During the year, the Company's marine fleet underwent significant maintenance works, including a major engine replacement. These non recurring costs increased overheads and had an adverse impact on both turnover and profitability within the sector.

Turnover in the Company's Orkney division decreased to £875,410 (2024: £1,328,372). During the year, the division rented additional space and completed the transition from its former premises. While the relocation caused temporary disruption and negatively impacted turnover, the Directors are confident that the move to improved facilities will support higher levels of activity and enhanced profitability in future periods.

Performance in other business areas was strong and more than offset the reductions noted above. Turnover in Oil, Gas and Renewables increased by 26% to £5,280,436 (2024: £4,179,936). Engineering, Aquaculture and other activities grew by 29% to £7,882,991 (2024: £6,110,924). Hire department turnover increased significantly to £1,529,585 (2024: £480,559), reflecting strong demand and the successful expansion of this service offering.

The Company made significant capital investments during the year, including the acquisition of the land occupied by the Aberdeen department, the purchase of a new workboat and a marine ROV, and the addition of various items of plant and machinery for the Hire department. These investments support the Company's long term strategy to broaden its service capabilities and strengthen its competitive position.

The Company's future workload is encouraging, and the Directors remain confident in the prospects for continued growth and sustainable profitability.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties affecting the company include the following:

Liquidity Risk

The company manages its liquidity risk by managing cash generated by its operations and having access to adequate working capital borrowing facilities, as required.

Political and Regulatory Risk

Political uncertainty arising from the prospect of Scottish independence presents a potential risk, although its impact is difficult to quantify. A significant proportion of existing and targeted future business is located in England, and any changes to the constitutional position of Scotland could adversely affect the Company's ability to bid for and secure this work.

Ongoing challenges associated with importing and exporting goods to and from the EU continue to be time consuming and costly. The Company's investment in MG Welding in Ireland provides some mitigation against these challenges.

Uncertainty surrounding international trade policy, including the potential impact of US tariffs, also presents a risk to future activity levels.

Market and Economic Risk

Fluctuations in salmon prices and ongoing uncertainty within the oil and gas market may impact demand for the Company's services. In addition, wider geopolitical instability, including conflicts in the Middle East and Ukraine, continues to contribute to economic uncertainty.

Operational and Workforce Risk

The Company faces challenges in sourcing skilled local labour, compounded by high accommodation costs. Rising labour costs represent an ongoing financial risk.

Supply Chain Risk

Shortages, delays, and increased costs for certain materials persist following Brexit, placing pressure on operating margins and delivery schedules.

FUTURE DEVELOPMENTS

The Directors are confident that the Company will continue to secure work within the marine, renewable energy and utility sectors, while further strengthening its position in decommissioning and salvage projects. Renewable energy represents a significant growth opportunity in Shetland, and the Company is strategically well positioned to benefit from this expanding market.

The space industry continues to develop in the islands, and the Company has successfully secured contracts in this emerging sector.

Looking ahead, the Company intends to continue expanding its operations by exploring new markets and service offerings in both the UK and overseas. The Directors will also evaluate opportunities for future acquisitions alongside continued organic growth.

Ongoing investment in equipment, machinery and staff training remains a key priority. These investments will enable the Company to deliver additional services at competitive cost levels, supporting further market expansion and allowing the Company to offer a more comprehensive service to its clients.

ON BEHALF OF THE BOARD:

S M Strachan - Director

22nd July 2026

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

PRINCIPAL ACTIVITY

The principal activity of the company in the year under review was that of the provision of engineering and fabrication services.

DIVIDENDS

The total interim dividends for the year ended 31st December, 2025 is £412,500.

RESEARCH AND DEVELOPMENT

During the period the company continued to design, develop and implement engineering solutions for the oil and gas industry.

DIRECTORS

The directors shown below have held office during the whole of the period from 1st January 2025 to the date of this report.

J Henderson

S M Strachan

DONATIONS

The company made charity donations during the year totalling £25,156.

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 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.

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 or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

ON BEHALF OF THE BOARD:

S M Strachan - Director

22nd July 2026

Opinion

We have audited the financial statements of Ocean Kinetics Limited (the 'company') for the year ended 31st December 2025 which comprise the Income Statement, Other Comprehensive Income, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and Notes to the Cash Flow Statement, 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 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 31st December 2025 and of its profit for the year then ended;

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

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

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.

- the directors were not entitled to prepare the financial statements in accordance with the small companies regime

and take advantage of the small companies' exemption from the requirement to prepare a Strategic Report or in

preparing the Report of the Directors.

Responsibilities of directors

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

We have been appointed as auditor under section 485 of the Companies Act 2006 and report in accordance with the Acts and relevant regulations made or having effect thereunder.

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:

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outline above, to detect material misstatements in respect of irregularities, including fraud. The extent to which these can detect irregularities, including fraud is detailed below.

To assess the susceptibility of the company's financial statements to material misstatement, including how fraud may occur.

- We enquired of the directors of the companies policies and procedures to detect fraud as well as whether they have knowledge of any actual, suspected or alleged fraud

- Using analytical procedures to identify any unusual or unexpected transactions

We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud within the company.

As required by auditing standards we perform procedures to address the risk of management override of controls and in particular that the company's management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as prepayments, accruals, depreciation and valuation of contracts.

We did not identify any additional fraud risks.

In determining the audit procedures, we took into account the results of our evaluation and testing of the operating effectiveness of the company's fraud risk management controls.

We also performed procedures including:

- Identifying journal entries to test for all full scope components based on risk criteria and comparing the identified entries to supporting documentation. These included, as relevant, those posted to unusual accounts

- Assessing significant accounting estimates for bias

- Reviewing large and unusual transactions outside the ordinary course of the company's business.

- Identifying undisclosed related parties

We discussed with management matters related to actual or suspected fraud and considered any implications for our audit.

We ensured that the audit team collectively had the necessary competence and skills to recognise non-compliance with laws and regulations.

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements and through discussion with the directors (as required by auditing standards).

As the company is regulated our assessment of risks involved gaining an understanding of the control environment including the company's procedures for complying with regulatory requirements.

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.

The potential effect of these laws and regulations on the financial statement varies considerably.

Firstly, the entity is subject to very strict laws and regulations that directly affect the financial statements including financial reporting legislation, including the Companies Act 2006, FRS102, UK Corporate tax laws and UK Vat laws. We assessed the extent of the compliance with these laws and regulations by carrying out a review of the financial statement disclosures and a review of correspondence with the tax authorities.

Secondly the entity is subject to many other laws and regulations including Environmental Waste regulations, the AML regulations, GDPR, Employment law, and Health and Safety, where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements.

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and management and inspection of regulatory and legal correspondence, if any.

Therefore if a breach of operational regulations is not disclosed to us or evident from the relevant correspondence, an audit will not detect that breach.

Context of the ability of the audit to detect fraud or breaches of laws and regulations

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatement in the financial statements, even though we had properly planned and performed our audit in accordance with accounting standards. For example, the further removed non-compliance with laws and regulations from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standard would identify it.

In addition, with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

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.

Brian Meldrum CA (Senior Statutory Auditor)

for and on behalf of The Kelvin Partnership Ltd

Chartered Accountants & Registered Auditors

505 Great Western Road

Glasgow

G12 8HN

22nd July 2026

TURNOVER

3

20,940,333

19,908,710

Cost of sales

14,014,427

13,157,087

GROSS PROFIT

6,925,906

6,751,623

Operating and administrative expenses

5,481,347

4,500,750

OPERATING PROFIT

6

1,444,559

2,250,873

Interest receivable and similar income

1,792

607

1,446,351

2,251,480

Interest payable and similar expenses

7

258,740

180,441

PROFIT BEFORE TAXATION

1,187,611

2,071,039

Tax on profit

8

179,471

278,887

PROFIT FOR THE FINANCIAL YEAR

1,008,140

1,792,152

PROFIT FOR THE YEAR

1,008,140

1,792,152

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

1,008,140

1,792,152

FIXED ASSETS

Intangible assets

10

32,360

46,229

Tangible assets

11

12,282,493

9,696,807

Investments

12

218,365

218,365

12,533,218

9,961,401

CURRENT ASSETS

Stocks

13

1,439,788

1,400,592

Debtors

14

6,200,419

5,324,091

Cash at bank and in hand

15,516

1,637,819

7,655,723

8,362,502

CREDITORS

Amounts falling due within one year

15

4,716,753

4,710,024

NET CURRENT ASSETS

2,938,970

3,652,478

TOTAL ASSETS LESS CURRENT LIABILITIES

15,472,188

13,613,879

CREDITORS

Amounts falling due after more than one year

16

(3,975,398

)

(3,008,727

)

PROVISIONS FOR LIABILITIES

21

(1,274,141

)

(978,143

)

NET ASSETS

10,222,649

9,627,009

CAPITAL AND RESERVES

Called up share capital

22

10,000

10,000

Retained earnings

23

10,212,649

9,617,009

SHAREHOLDERS' FUNDS

10,222,649

9,627,009

The financial statements were approved by the Board of Directors and authorised for issue on 22nd July 2026 and were signed on its behalf by:

S M Strachan - Director

Called up

share

Retained

Total

capital

earnings

equity

£

£

£

Balance at 1st January 2024

10,000

8,378,357

8,388,357

Changes in equity

Dividends

-

(553,500

)

(553,500

)

Total comprehensive income

-

1,792,152

1,792,152

Balance at 31st December 2024

10,000

9,617,009

9,627,009

Changes in equity

Dividends

-

(412,500

)

(412,500

)

Total comprehensive income

-

1,008,140

1,008,140

Balance at 31st December 2025

10,000

10,212,649

10,222,649

Cash flows from operating activities

Cash generated from operations

1

994,947

4,553,489

Interest paid

(220,255

)

(153,296

)

Interest element of hire purchase payments paid

(38,485

)

(27,145

)

Tax paid

94,932

(22,831

)

Net cash from operating activities

831,139

4,350,217

Cash flows from investing activities

Purchase of tangible fixed assets

(3,358,904

)

(2,761,400

)

Sale of tangible fixed assets

20,120

-

Interest received

1,792

607

Net cash from investing activities

(3,336,992

)

(2,760,793

)

Cash flows from financing activities

New loans in year

1,500,000

1,430,000

Loan repayments in year

(441,450

)

(651,260

)

New HP loans in year

350,031

216,771

HP capital repayments in year

(336,162

)

(268,246

)

Amount introduced by directors

244,875

408,778

Amount withdrawn by directors

(212,601

)

(672,065

)

Equity dividends paid

(412,500

)

(553,500

)

Government grants

(20,636

)

(55,981

)

Net cash from financing activities

671,557

(145,503

)

(Decrease)/increase in cash and cash equivalents

(1,834,296

)

1,443,921

Cash and cash equivalents at beginning of year

2

1,637,819

193,898

Cash and cash equivalents at end of year

2

(196,477

)

1,637,819

1.	RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS

31.12.25

31.12.24

£

£

Profit before taxation

1,187,611

2,071,039

Depreciation charges

746,532

609,767

Loss on disposal of fixed assets

22,920

2,231

Finance costs

258,740

180,441

Finance income

(1,792

)

(607

)

2,214,011

2,862,871

Increase in stocks

(39,196

)

(78,438

)

(Increase)/decrease in trade and other debtors

(888,006

)

487,256

(Decrease)/increase in trade and other creditors

(291,862

)

1,281,800

Cash generated from operations

994,947

4,553,489

2.	CASH AND CASH EQUIVALENTS

The amounts disclosed on the Cash Flow Statement in respect of cash and cash equivalents are in respect of these Balance Sheet amounts:

Year ended 31st December 2025

31.12.25

1.1.25

£

£

Cash and cash equivalents

15,516

1,637,819

Bank overdrafts

(211,993

)

-

(196,477

)

1,637,819

Year ended 31st December 2024

31.12.24

1.1.24

£

£

Cash and cash equivalents

1,637,819

193,898

3.	ANALYSIS OF CHANGES IN NET DEBT

At 1.1.25

Cash flow

At 31.12.25

£

£

£

Net cash

Cash at bank and in hand

1,637,819

(1,622,303

)

15,516

Bank overdrafts

-

(211,993

)

(211,993

)

1,637,819

(1,834,296

)

(196,477

)

Debt

Finance leases

(539,641

)

(13,869

)

(553,510

)

Debts falling due within 1 year

(382,599

)

(96,629

)

(479,228

)

Debts falling due after 1 year

(1,916,981

)

(961,920

)

(2,878,901

)

(2,839,221

)

(1,072,418

)

(3,911,639

)

Total

(1,201,402

)

(2,906,714

)

(4,108,116

)

1.	STATUTORY INFORMATION

Ocean Kinetics Limited is a private company, limited by shares , registered in Scotland. 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 (£).

2.	ACCOUNTING POLICIES

Basis of preparing the financial statements

These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Companies Act 2006. The financial statements have been prepared under the historical cost convention.

Going Concern Basis

The financial statements have been prepared on the going concern basis. The directors believe that the company has adequate resources and support to continue to operate for the foreseeable future.

Turnover

Revenue from contracts is recognised by reference to the stage of completion when the outcome can be estimated reliably.

Goodwill

Goodwill arising on the acquisition of businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight line basis over its useful economic life of 5 years.

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.

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value of each asset over its estimated useful life.

Freehold Property

-

2% straight line

Leasehold Property

-

2% straight line

Boats

-

8-25% straight line

Plant & Machinery

-

15-33% straight line

Motor Vehicles

-

20% straight line

During the year, the Company reviewed the estimated useful economic life of certain fixed assets. Following this review, the useful economic life of these assets was revised to better reflect the period over which they are expected to generate economic benefits. The change has been accounted for prospectively as a change in accounting estimate, with the resulting impact recognised in depreciation expense in the current and future periods.

Investments in associates

Investments in associate undertakings are recognised at cost.

Stocks and work in progress

Stocks are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items.

Where the final outcome of a contract cannot be assessed with reasonable certainty the work in progress is valued at the lower of cost and net realisable value.

Cost includes all direct expenditure and an appropriate proportion of fixed and variable overheads.

Debtors

Short-term debtors are measured at transaction price, less any impairment. Loans receivables are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.

Prepayments and accrued income

Prepayments are goods and services which have already been paid for; however, the full benefits of these goods are realised in the future. Accrued income is income that has been recognised at the time when it has been earned, which may not be the same time as it has been received.

Accrued expenses

Accrued expenses are expenses that have incurred in one accounting period, however, are not paid until a future accounting period.

Creditors

Short term creditors are measured at the transaction price. Other financial liabilities are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.

Holiday pay accrual

A liability is recognised to the extent of any unused pay entitlement which is accrued at the statement of financial position date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the statement of financial position date.

Dividends

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.

Financial instruments

Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as either financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its 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 its financial instruments.

Financial instruments are recognized in the company's financial statements when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are only 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

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 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.

Impairment of financial assets

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Derecognition of financial assets

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the charity 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.

Classification of financial liabilities

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 charity after deducting all of its liabilities.

Basic financial liabilities

Basic financial liabilities, including creditors and loans are initially recognised at transaction price and 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.

Taxation

Taxation for the year comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current or deferred taxation assets and liabilities are not discounted.

Current tax is recognised at the amount of tax payable using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date.

Timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the year end and that are expected to apply to the reversal of the timing difference.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Research and development

Expenditure on research and development is included within the profit and loss account in the year in which it is incurred.

Hire purchase and leasing commitments

Rentals paid under operating leases are charged to profit or loss on a straight line basis over the period of the lease.

Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital elements of the future payments are treated as a liability and the interest is charged to the profit and loss account at effective interest method.

Pension costs and other post-retirement benefits

The company operates a defined contribution pension scheme. Contributions payable to the company's pension scheme are charged to profit or loss in the period to which they relate.

Deferred government grants

Deferred government grants in respect of capital expenditure are treated as deferred income and are credited to the profit and loss account over the estimated useful life of the assets to which they relate.

Long term contracts

The company classifies as long term those contracts where the contract activity extends over more than one accounting period.

The amount recognised as turnover represents the value of work carried out during the year. Where the outcome of a contract can be assessed with reasonable certainty attributable profit is recognised in proportion to the amount of turnover recognised in the financial statements. Full provision is made for any foreseeable losses and these are included in accruals under creditors due within one year.

Where the amount recognised as turnover exceeds the payments on account received and receivable in respect of that contract, the balance is included in debtors as amounts recoverable on contracts. Retentions and payments on account receivable are included in debtors. Payments on account received in excess of the value of work done are included in creditors.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand together with bank overdrafts repayable on demand which form an integral part of the company’s cash management.