MEL Aviation Components Limited - Limited company accounts 20.1

REGISTERED NUMBER: 08488525 (England and Wales)

STRATEGIC REPORT, DIRECTOR'S REPORT AND

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 OCTOBER 2020

FOR

MEL AVIATION COMPONENTS LIMITED

Page

Company Information

1

Strategic Report

2

Director's Report

4

Report of the Independent Auditors

5

Income Statement

7

Other Comprehensive Income

8

Balance Sheet

9

Statement of Changes in Equity

10

Cash Flow Statement

11

Notes to the Cash Flow Statement

12

Notes to the Financial Statements

13

DIRECTOR:

Mr N G Harvey

SECRETARY:

Mr R W B Argent

REGISTERED OFFICE:

Laurence Walter House

Addison Road

Chilton Industrial Estate

Sudbury

Suffolk

CO10 2YW

REGISTERED NUMBER:

08488525 (England and Wales)

SENIOR STATUTORY AUDITOR:

Mr Paul Dell FCA

AUDITORS:

Raffingers LLP

19-20 Bourne Court

Southend Road

Woodford Green

Essex

IG8 8HD

The director presents his strategic report for the year ended 31 October 2020.

REVIEW OF BUSINESS

The company's turnover reduced from £11.25m to £7.46m (due to the current pandemic as the aviation industry has been significantly affected). Gross Margin has improved from 21.0% to 26.3% with Operating Profit at £519k (2019: £513k).

A strategic decision was made early in the financial year to move towards Exchange and Repair rather than Outright Sale. This has led to the revenue mix as follows: -

2019/20

2018/19

Outright

65.4%

72.6%

Exchange

9.8%

5.3%

Repair

24.8%

22.1%

The net result of this movement is an increase in Gross Margin percentage.

In the current climate, there will be a continued drive on this strategic positioning as end users choose the exchange\repair route to aid their cash flows. We anticipate the mix moving back towards outright sale as the industry starts to pick up again and demand increases, going back more towards 2019 levels.

In the circumstances, it has been a successful year and the state of affairs at the balance sheet date is considered to be satisfactory with net assets increasing to £3.77m (2019: £3.41m).

The key financial performance indicators for the company are as follows:-

2020

2019

Measure

Gross Profit Margin

26.3%

21.0%

Gross Profit/Turnover

Debtors days

60 days

51 days

Trade Debtors/Turnover

Creditor days

32 days

41 days

Trade Creditors / Cost of Sales

Please note for both the debtor and creditor days, the related parties' balances have been excluded.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties affecting the business include:-

- Regulatory - the company operates in a highly regulated area. It maintains extremely high standards of quality control over its products and services.

- Retention of customers - the company maintains strong relationships with each of its key customers and has established procedures for monitoring performance and service levels.

- Competitive risk - the company's reliance on any single customer has reduced over the past 3 years as part of its strategy to mitigate its risk in this area.

- Market conditions - the company's ability to adapt quickly to changes in the marketplace, mitigates the risk of this area.

- Exchange rate risk - the company trades in dollars and maintains its banking and financing in dollar denominated accounts where possible to mitigate any exchange rate risk. There are translation differences at each year end but these are accounting adjustments for statutory reporting purposes.

- Coronavirus risk - at this time there is little effect on the company due to the current pandemic. The aviation industry has been significantly affected but many airlines have taken the opportunity whilst planes are grounded to carry out the cyclical work that has to be done under the Civil Aviation Authority.

The director believes that the company has adequate financial resources in place to meet its forecast trading requirements and all risks and uncertainties are managed appropriately.

FUTURE DEVELOPMENTS

The company will continue to expand its product range whilst concentrating on products and services that deliver higher margins.

Its new commercial facility which it moved into in May 2019 provides significant space for expansion as part of the strategic plan.

The director is confident of delivering sustainable future growth in its sector.

FINANCIAL INSTRUMENTS

The company has banking facilities in place with Clydesdale Bank and operates within its facility limits.

The company has not entered into any hedging arrangements as the director perceives the exchange rate risk to the business to be low. Although the reporting currency is sterling, the operational currency is predominantly the US dollar. There are accounting adjustments in the accounts in relation to the translation of currency balances at the period end.

ON BEHALF OF THE BOARD:

Mr N G Harvey - Director

24 March 2021

The director presents his report with the financial statements of the company for the year ended 31 October 2020.

PRINCIPAL ACTIVITY

The principal activity of the company in the year under review was that of supplying components and equipment to the aviation sector.

DIVIDENDS

No dividends will be distributed for the year ended 31 October 2020.

DIRECTORS

Mr N G Harvey has held office during the whole of the period from 1 November 2019 to the date of this report.

Other changes in directors holding office are as follows:

Mr N F Smith - resigned 10 March 2020

Mr G W Harvey - resigned 10 March 2020

Mr N Ackroyd - resigned 10 March 2020

STATEMENT OF DIRECTOR'S RESPONSIBILITIES

The director is responsible for preparing the Strategic Report, the Director's Report and the financial statements in accordance with applicable law and regulations.

Company law requires the director to prepare financial statements for each financial year. Under that law the director has 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 director must not approve the financial statements unless he is 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 director is 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 director is 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 him to ensure that the financial statements comply with the Companies Act 2006. He is 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 director is 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 he 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.

ON BEHALF OF THE BOARD:

Mr N G Harvey - Director

24 March 2021

Opinion

We have audited the financial statements of MEL Aviation Components Limited (the 'company') for the year ended 31 October 2020 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 31 October 2020 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

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

-	the director's use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

-

the director has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The director is responsible for the other information. The other information comprises the information in the Strategic Report and the Director's Report, 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 there is a material misstatement in the financial statements or a material misstatement of the other information. 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 Director's Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-	the Strategic Report and the Director's Report 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 Director's Report.

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 director's remuneration specified by law are not made; or

-	we have not received all the information and explanations we require for our audit.

Responsibilities of director

As explained more fully in the Statement of Director's Responsibilities set out on page four, the director is 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 director determines 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 director is 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 director either intends to liquidate the company or to cease operations, or has 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.

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.

Mr Paul Dell FCA (Senior Statutory Auditor)

for and on behalf of Raffingers LLP

19-20 Bourne Court

Southend Road

Woodford Green

Essex

IG8 8HD

31 March 2021

TURNOVER

4

7,457,776

11,247,590

Cost of sales

(5,499,525

)

(8,889,103

)

GROSS PROFIT

1,958,251

2,358,487

Administrative expenses

(1,491,748

)

(1,864,338

)

466,503

494,149

Other operating income

52,477

19,238

OPERATING PROFIT

6

518,980

513,387

Exceptional items

7

-

(240,698

)

518,980

272,689

Interest receivable and similar income

8

11

17

518,991

272,706

Interest payable and similar expenses

9

(77,914

)

(109,623

)

PROFIT BEFORE TAXATION

441,077

163,083

Tax on profit

10

(82,046

)

(40,012

)

PROFIT FOR THE FINANCIAL YEAR

359,031

123,071

PROFIT FOR THE YEAR

359,031

123,071

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

359,031

123,071

FIXED ASSETS

Tangible assets

11

176,593

208,871

CURRENT ASSETS

Stocks

12

8,013,724

7,476,186

Debtors

13

1,825,480

2,055,348

Cash at bank

102,342

198,018

9,941,546

9,729,552

CREDITORS

Amounts falling due within one year

14

6,291,582

6,425,050

NET CURRENT ASSETS

3,649,964

3,304,502

TOTAL ASSETS LESS CURRENT LIABILITIES

3,826,557

3,513,373

CREDITORS

Amounts falling due after more than one year

15

(25,147

)

(62,792

)

PROVISIONS FOR LIABILITIES

19

(30,294

)

(38,496

)

NET ASSETS

3,771,116

3,412,085

CAPITAL AND RESERVES

Called up share capital

20

200

200

Retained earnings

21

3,770,916

3,411,885

SHAREHOLDERS' FUNDS

3,771,116

3,412,085

The financial statements were approved by the director and authorised for issue on 24 March 2021 and were signed by:

Mr N G Harvey - Director

Called up

share

Retained

Total

capital

earnings

equity

£

£

£

Balance at 1 November 2018

200

3,288,814

3,289,014

Changes in equity

Total comprehensive income

-

123,071

123,071

Balance at 31 October 2019

200

3,411,885

3,412,085

Changes in equity

Total comprehensive income

-

359,031

359,031

Balance at 31 October 2020

200

3,770,916

3,771,116

Cash flows from operating activities

Cash generated from operations

1

71,198

540,703

Interest paid

(77,914

)

(109,623

)

Tax paid

(1,516

)

(280,184

)

Net cash from operating activities

(8,232

)

150,896

Cash flows from investing activities

Purchase of tangible fixed assets

(12,553

)

(213,599

)

Interest received

11

17

Net cash from investing activities

(12,542

)

(213,582

)

Cash flows from financing activities

New loans in year

-

71,131

Loan repayments in year

(112,257

)

-

Capital repayments in year

(37,645

)

100,437

Amount introduced by directors

75,000

-

Net cash from financing activities

(74,902

)

171,568

(Decrease)/increase in cash and cash equivalents

(95,676

)

108,882

Cash and cash equivalents at beginning of year

2

198,018

89,136

Cash and cash equivalents at end of year

2

102,342

198,018

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

2020

2019

£

£

Profit before taxation

441,077

163,083

Depreciation charges

44,831

19,054

Loss on disposal of fixed assets

-

3,249

Finance costs

77,914

109,623

Finance income

(11

)

(17

)

563,811

294,992

Increase in stocks

(537,538

)

(160,777

)

Decrease in trade and other debtors

228,577

1,254,409

Decrease in trade and other creditors

(183,652

)

(847,921

)

Cash generated from operations

71,198

540,703

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 31 October 2020

31.10.20

1.11.19

£

£

Cash and cash equivalents

102,342

198,018

Year ended 31 October 2019

31.10.19

1.11.18

£

£

Cash and cash equivalents

198,018

89,136

3.	ANALYSIS OF CHANGES IN NET DEBT

At 1.11.19

Cash flow

At 31.10.20

£

£

£

Net cash

Cash at bank

198,018

(95,676

)

102,342

198,018

(95,676

)

102,342

Debt

Finance leases

(100,437

)

37,645

(62,792

)

Debts falling due within 1 year

(1,750,981

)

112,256

(1,638,725

)

(1,851,418

)

149,901

(1,701,517

)

Total

(1,653,400

)

54,225

(1,599,175

)

1.	STATUTORY INFORMATION

MEL Aviation Components 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 (£).

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.

The preparation of financial statements in compliance with FRS 102 which, requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the company's accounting policies (see note 3).

The following principal accounting policies have been applied:

Going concern

The director has also considered the effects of Covid-19 on its operations for the foreseeable future. After making appropriate enquiries and assessing the support available, the director has formed a judgement that the entity will have sufficient resources available to neutralise the effect of the pandemic.

Turnover

Turnover represents the invoiced value of goods and services supplied to external customers, excluding value added tax.

Tangible fixed assets

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

-

Straight line over 10 years

Fixtures and fittings

-

20% on cost

Motor vehicles

-

20% on cost

Computer equipment

-

20% on cost

Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. The company assesses at each reporting date whether tangible fixed assets are fully impaired.

Depreciation methods, useful lives and residual values are reviewed if there is an indication of a significant change since last annual reporting date in the pattern by which the company expects to consume an asset's future economic benefits.

Government grants

Government grants, including non-monetary grants shall not be recognised until there is reasonable assurance that:

(a) the entity will comply with the conditions attaching to them; and

(b) the grants will be received

Stocks

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell (net realisable value). Costs, which comprise direct production costs, are based on the method most appropriate to the type of inventory class. Overheads are charged to profit or loss as incurred. Net realisable value is based on the estimated selling price less any estimated completion or selling costs.

When stocks are sold, the carrying amount of those stocks is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of stocks to net realisable value and all losses of stocks are recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of stocks is recognised as a reduction in the amount of stocks recognised as an expense in the period in which the reversal occurs.

Financial instruments

Financial instruments are recognised when the company becomes party to the contractual provisions of the instrument and derecognised when in the case of assets, the contractual rights to cash flows from the assets expire or substantially the risks and rewards of ownership are transferred to another party, or in the case of liabilities, when the company's obligations are discharged, expire or cancelled.

The company holds the following financial instruments, all of which meet the conditions to be classified as basic instruments:

- Cash, short term trade debtors and creditors

Such instruments are initially measured at transaction price, transaction costs, and are subsequently carried at the undiscounted amount of cash or other consideration expected to be paid or received, after taking account of impairment adjustment.

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.

Foreign currencies

The financial statements are presented in sterling. The company's functional currency is the dollar. Monetary items denominated in other currencies are translated at the rate prevailing at the end of the reporting period. All resulting translation differences are taken to the profit and loss account as exceptional items if material.

Pension costs and other post-retirement benefits

The company operates a fully insured defined contribution pension scheme for certain members of staff and the pension charge represents the amounts paid by the company to the fund during the year. These contributions are invested separately from the company's assets.

Hire purchase and leasing commitments

Assets that are held by the company under leases which transfer to the company substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the company are classified as operating leases.

Assets held under finance leases are initially recognised as assets of the company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the company's policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight­ line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Loans and borrowings

Loans and borrowings are initially recognised at the transaction price including transaction costs. Subsequently, they are measured at amortised cost using the effective interest rate method, less impairment.

3.	CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The items in the financial statements where these judgements and estimates have been made include:

• assessing the useful economic lives attributed to tangible fixed assets used to determine the annual depreciation charge, and

• the provision required for any bad or doubtful debts, and

• the provision required for closing stock.

4.

TURNOVER

An analysis of turnover by class of business is given below:

2020

2019

£

£

Outright sales

4,916,079

8,378,221

Repairs

1,835,056

2,492,454

Exchange

706,640

376,915

7,457,776

11,247,590

An analysis of turnover by geographical market is given below:

2020

2019

£

£

United Kingdom

1,052,133

2,267,274

USA

2,225,157

4,475,820

European Union

1,810,849

2,489,543

Rest of the World

2,369,636

2,014,953

7,457,776

11,247,590

5.	EMPLOYEES AND DIRECTORS

2020

2019

£

£

Wages and salaries

617,229

621,506

Social security costs

78,656

80,781

Other pension costs

14,042

13,191

709,927

715,478

The average number of employees during the year was as follows:

2020

2019

Administration and management

6

6

Operations

3

3

Sales

5

4

14

13

2020

2019

£

£

Directors' remuneration

90,000

120,500

Directors' pension contributions to money purchase schemes

2,952

4,290

The number of directors to whom retirement benefits were accruing was as follows:

Money purchase schemes

1

1

6.	OPERATING PROFIT

The operating profit is stated after charging/(crediting):

2020

2019

£

£

Hire of plant and machinery

6,611

1,140

Other operating leases

303,106

275,633

Depreciation - owned assets

16,547

9,626

Depreciation - assets on hire purchase contracts

28,284

9,428

Loss on disposal of fixed assets

-

3,249

Auditors' remuneration

20,500

20,000

Auditors remuneration - non audit services

2,345

15,790

Government grants

(30,314

)

-

During the year, the company received £30,314 (2019: £nil) in government grants from the coronavirus job retention scheme (CJRS) due to the pandemic.

7.	EXCEPTIONAL ITEMS

2020

2019

£

£

Exceptional items

-

(240,698

)

The exceptional items in 2019 represent foreign exchange translation differences at the balance sheet date.