Cubic Defence UK Ltd. - Limited company accounts 20.1

REGISTERED NUMBER: 04248256 (England and Wales)

STRATEGIC REPORT, DIRECTORS' REPORT AND

FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2021

FOR

CUBIC DEFENCE UK LTD.

Page

Company Information

1

Strategic Report

2

Directors' Report

3

Report of the Independent Auditors

6

Statement of Comprehensive Income

10

Balance Sheet

11

Statement of Changes in Equity

12

Notes to the Financial Statements

13

Reconciliation of Equity

35

Reconciliation of Loss or Profit

39

DIRECTORS:

M Knowles

M Armstrong

M Luxton

T Chester

SECRETARY:

K Blom

REGISTERED OFFICE:

AFC House

Honeycrook Lane

Salfords

Redhill

Surrey

RH1 5LA

REGISTERED NUMBER:

04248256 (England and Wales)

AUDITORS:

Rothmans Audit LLP

Chartered Accountants & Statutory Auditors

Avebury House

St Peter Street

Winchester

Hampshire

SO23 8BN

The directors present their strategic report for the year ended 30 September 2021.

REVIEW OF BUSINESS

The Company continues to deliver essential training to the UK and European militaries and in doing so it directly contributes to operational readiness whilst increasing market share.

PRINCIPAL RISKS AND UNCERTAINTIES

Principal risks and uncertainties are the volatile nature of the UK Defence market as a result of the long term impact of BREXIT and the disruption to the UK economy caused by the Covid-19 pandemic.

KEY PERFORMANCE INDICATORS

The Company monitors the development, performance and position of the business using key performance indicators relating to turnover and gross profit as a percentage of turnover.

Turnover represents a key performance indicator for the value of work completed and progress made within the financial period. Turnover for the period ended 30 September 2021 was £16,998,882 (2020: £16,068,924).

Gross profit as a percentage of turnover for the period ended 30 September 2021 was 34.5% (2020: 45.0%).

ON BEHALF OF THE BOARD:

M Armstrong - Director

11 July 2022

The directors present their report with the financial statements of the company for the year ended 30 September 2021.

DIVIDENDS

No dividends will be distributed for the year ended 30 September 2021.

RESEARCH AND DEVELOPMENT

Cubic Defence UK will continue to invest in its Live, Virtual and Constructive training ecosystem and in particular its Indirect Fire training systems which are increasingly relevant.

FUTURE DEVELOPMENTS

The business will, in line with the broader Cubic enterprise, continue to expand its UK portfolio of Multi Domain LVC training capabilities as part of a regional strategy.

POST BALANCE SHEET EVENTS

The company has no post balance sheet events to disclose.

The directors continue to monitor developments relating to COVID-19 which may affect its sites and customers, taking the necessary and practical steps to mitigate disruption to the business.

DIRECTORS

The directors shown below have held office during the whole of the period from 1 October 2020 to the date of this report.

M Knowles

M Armstrong

Other changes in directors holding office are as follows:

A Aga - resigned 2 August 2021

H L Hageman - resigned 8 July 2021

R V Williams - appointed 2 August 2021

D A Jenkins - appointed 2 August 2021

M Luxton and T Chester were appointed as directors after 30 September 2021 but prior to the date of this report.

D A Jenkins and R V Williams ceased to be directors after 30 September 2021 but prior to the date of this report.

FINANCIAL INSTRUMENTS

Cubic Defence UK Ltd's operations expose it to a variety of financial risks that include the effect of changes in market prices, foreign exchange risk, credit risk and liquidity risk. The Company has fully incorporated risk management in its strategic and operational processes that seeks to limit adverse effects on the financial performance of the Company by monitoring levels of debt finance and related finance costs. The Company does not use derivative financial instruments to manage risk and, as such, no hedge accounting is applied. The Managing Board assesses the functionality of risk management policies and continues to pursue further improvement of the internal risk management and control procedures. Given the size of the Company, the Directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the Board. The policies set by the Board of Directors are implemented by the Company's finance department. The department has policies and procedures that sets out specific guidelines to manage risks and circumstances where it would be appropriate to use financial institutions to manage these.

Price Risk

Price risk is the risk that the fair value of financial instruments will fluctuate due to changes in market prices. The Company is exposed to price risk as a result of its operations. However, given the size of the Company's operations, the costs of managing exposure to price risk exceed any potential benefits. The Directors will revisit the appropriateness of this policy should the Company's operations change in size or nature. The Company has no exposure to equity securities price risk as it has no listed or other equity investments.

Foreign exchange risk

Cubic Defence UK Ltd and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the Company (sterling) or one of its subsidiaries conducting the business. The purpose of the Company's foreign currency policy is to manage the effect of exchange rate fluctuations on income, expenses, cash flows and assets and liabilities denominated in selected foreign currencies, in particular denominated in US dollars.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations by virtue of a financial instrument or customer contract, leading to a financial loss. Financial instruments that potentially subject the Company to concentrations of credit risk arise from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to retail customers, including outstanding receivables and committed transactions. These instruments contain a risk of counterparties failing to discharge their obligations. Credit risk exposure is monitored and managed, by type of financial instrument, by assessing the creditworthiness of counterparties. Cash and cash equivalents are deposited with a limited number of highly-rated major financial institutions. The creditworthiness of our counterparties are closely monitored and concentration risk is mitigated by not limiting the exposure to a single counter party.

Liquidity Risk

Cubic Defence UK Ltd's liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and others that relate to the uncertainties of the global economy and the defence industry. Although cash requirements fluctuate based on the timing and extent of these factors, cash generated from operations, together with principal sources of liquidity are sufficient to satisfy our current requirements, including our expected future capital expenditures.

QUALIFYING THIRD PARTY INDEMNITY PROVISIONS

During the period and up to the date of the signing of this director's report there were no qualifying indemnity provisions in force in respect of directors or former directors of the Company.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 'Reduced Disclosure Framework'. 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, Rothmans Audit LLP, will be proposed for re-appointment at the forthcoming Annual General Meeting.

ON BEHALF OF THE BOARD:

M Armstrong - Director

11 July 2022

Opinion

We have audited the financial statements of Cubic Defence UK Ltd. (the 'company') for the year ended 30 September 2021 which comprise the Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity and 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 101 'Reduced Disclosure Framework' (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 30 September 2021 and of its loss 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 Directors' 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 this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

-	the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

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

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 Directors' 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 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 pages four and 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

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.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

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

The extent to which the audit was considered capable of detecting irregularities including fraud

Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:

-

the engagement partner ensured that the engagement team collectively had the appropriate
competence, capabilities and skills to identify or recognise non-compliance with applicable laws and
regulations;

-

we identified the laws and regulations applicable to the company through discussions with the
directors, and from our knowledge and experience of the sector;

-

we focused on specific laws and regulations which we considered may have a direct material effect on
the financial statements or the operations of the company, including the Companies Act 2006,
employment and health and safety legislation;

-

we assessed the extent of compliance with the laws and regulations identified above through making
enquiries of management and inspecting legal correspondence. The identified laws and regulations
were communicated within the audit team regularly and the team remained alert to instances of
non-compliance throughout the audit.

We assessed the susceptibility of the company's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:

-

making enquiries of management as to where they considered there was susceptibility to fraud, their
knowledge of actual, suspected and alleged fraud; and

-

considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and
regulations.

To address the risk of fraud through management bias and override of controls, we:

-

performed analytical procedures to identify any unusual or unexpected relationships;

-

tested journal entries during the year and at the year-end to identify unusual transactions;

-

assessed whether judgements and assumptions made in determining the accounting estimates set
out in note 2 were indicative of potential bias;

-

investigated the rationale behind significant or unusual transactions;

In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures, which included, but were not limited to:

-

agreeing financial statement disclosures to underlying supporting documentation;

-

reading the minutes of meetings of those charged with governance;

-

enquiring of management as to actual and potential litigation and claims;

-

reviewing legal and professional expenditure incurred in the year.

There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.

Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.

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.

Susan Sullivan FCA (Senior Statutory Auditor)

for and on behalf of Rothmans Audit LLP

Chartered Accountants & Statutory Auditors

Avebury House

St Peter Street

Winchester

Hampshire

SO23 8BN

1 August 2022

TURNOVER

3

16,998,882

16,068,924

Cost of sales

11,126,886

8,833,996

GROSS PROFIT

5,871,996

7,234,928

Administrative expenses

8,540,503

4,664,606

(2,668,507

)

2,570,322

Other operating income

4

509,877

106,148

OPERATING (LOSS)/PROFIT

(2,158,630

)

2,676,470

Interest receivable and similar income

6

248,313

195,206

(1,910,317

)

2,871,676

Amounts written off investments

7

1,248,315

1,926,798

(3,158,632

)

944,878

Interest payable and similar expenses

8

209,700

427,684

(LOSS)/PROFIT BEFORE TAXATION

9

(3,368,332

)

517,194

Tax on (loss)/profit

11

42,209

(345,752

)

(LOSS)/PROFIT FOR THE FINANCIAL
YEAR

(3,410,541

)

862,946

OTHER COMPREHENSIVE INCOME

-

TOTAL COMPREHENSIVE INCOME
FOR THE YEAR

(3,410,541

)

862,946

FIXED ASSETS

Owned

Intangible assets

12

5,701,534

9,484,936

Tangible assets

13

1,027

8,670

Right-of-use

Tangible assets

13, 19

743,983

832,731

Investments

14

-

6,446,544

10,326,337

CURRENT ASSETS

Stocks

15

46,468

51,676

Debtors

16

6,941,485

4,813,640

Cash at bank

1,989,329

2,578,387

8,977,282

7,443,703

CREDITORS

Amounts falling due within one year

17

12,629,937

26,187,241

NET CURRENT LIABILITIES

(3,652,655

)

(18,743,538

)

TOTAL ASSETS LESS CURRENT
LIABILITIES

2,793,889

(8,417,201

)

CREDITORS

Amounts falling due after more than one
year

18

(553,312

)

(660,584

)

PROVISIONS FOR LIABILITIES

20

(3,429,967

)

(4,129,556

)

NET LIABILITIES

(1,189,390

)

(13,207,341

)

CAPITAL AND RESERVES

Called up share capital

21

8,281,474

Capital Contribution Reserve

22

15,428,492

-

Retained earnings

22

(24,899,356

)

(21,488,815

)

SHAREHOLDERS' FUNDS

(1,189,390

)

(13,207,341

)

The financial statements were approved by the Board of Directors and authorised for issue on 11 July 2022 and were signed on its behalf by:

M Armstrong - Director

Called up

Capital

share

Retained

Contribution

Total

capital

earnings

Reserve

equity

£

Balance at 1 October 2019

8,281,474

(22,351,761

)

-

(14,070,287

)

Changes in equity

Profit for the year

-

862,946

-

862,946

Total comprehensive income

-

862,946

-

862,946

Balance at 30 September 2020

8,281,474

(21,488,815

)

-

(13,207,341

)

Changes in equity

Deficit for the year

-

(3,410,541

)

-

(3,410,541

)

Total comprehensive income

-

(3,410,541

)

-

(3,410,541

)

Capital contribution

-

15,428,492

Balance at 30 September 2021

8,281,474

(24,899,356

)

15,428,492

(1,189,390

)

1.	STATUTORY INFORMATION

Cubic Defence UK Ltd. 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 preparation

These financial statements have been prepared in accordance with Financial Reporting Standard 101

"Reduced Disclosure Framework" and the Companies Act 2006, except for the departure from the Companies Act explained below. The financial statements have been prepared under the historical cost convention.

The company does not amortise goodwill in accordance with the requirements of IFRS as applied under FRS 101. Instead an annual impairment test is performed and any impairment that is identified is recognised in the income statement. The non-amortisation of goodwill conflicts with paragraph 22 of Schedule 1 to ‘The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410), which requires acquired goodwill to be written off over its useful economic life. As such, the non-amortisation of goodwill is a departure, for the overriding purpose of giving a true and fair view, from the requirement of paragraph 22 of Schedule 1 to the Regulations.

It is not possible to quantify the effect of the departure from the Companies Act, because a finite life for the goodwill has not been identified.

This is the first year in which the company has applied IFRS and FRS 101, having previously presented its accounts in accordance with FRS102. Details of the transitional adjustments made to these accounts are disclosed in the notes to the accounts.

The accounting policies which follow set out the policies which apply in preparing the financial statements for the year ended 30 September 2021.

Going Concern

The company balance sheet as at 30 September 2021 shows net current liabilities of £3,652,655 and

net liabilities of £1,189,390.

The Cubic Group has undertaken that it will support the company by financing its normal trading activities where necessary. Whilst the directors are confident that the company will have sufficient resources to fund its operations for at least the next 12 months there can be no certainty in these matters.

The financial statements have been prepared on a going concern basis, which assumes that the company will continue in operational existence for the foreseeable future. This assumes that the Cubic Group will financially support the company by providing the funds necessary to enable the company to continue to trade profitably.

Taking into account all of the information that could reasonably be expected to be available the directors consider it appropriate to prepare the accounts on a going concern basis.

The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by FRS 101 "Reduced Disclosure Framework":

•

the requirements of paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii),
B64(o)(ii), B64(p), B64(q)(ii), B66 and B67 of IFRS 3 Business Combinations;

•

the requirements of IFRS 7 Financial Instruments: Disclosures;

•

the requirements of paragraphs 91 to 99 of IFRS 13 Fair Value Measurement;

•

the requirements of paragraph 52, the second sentence of paragraph 89, and paragraphs 90, 91
and 93 of IFRS 16 Leases;

the requirements of paragraph 58 of IFRS 16;

•

the requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118,
119(a) to (c), 120 to 127 and 129 of IFRS 15 Revenue from Contracts with Customers;

•

the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present
comparative information in respect of:

-

paragraph 79(a)(iv) of IAS 1;

-

paragraph 73(e) of IAS 16 Property, Plant and Equipment; and

-

paragraph 118(e) of IAS 38 Intangible Assets;

•

the requirements of paragraphs 10(d), 10)(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and
111 of IAS 1 Presentation of Financial Statements;

•

the requirements of paragraphs 134 to 136 of IAS 1 Presentation of Financial Statements;

•

the requirements of IAS 7 Statement of Cash Flows;

•

the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors;

•

the requirements of paragraphs 17 and 18A of IAS 24 Related Party Disclosures;

•

the requirements in IAS 24 Related Party Disclosures to disclose related party transactions
entered into between two or more members of a group;

•

the requirements of paragraphs 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairments of
Assets.

Cubic (UK) Limited, of AFC House, Honeycrock Lane, Salfords, Redhill, Surrey. RH1 5LA, is the parent of the smallest and largest group in which the results of Cubic Defence UK Limited are consolidated.

Copies of the group financial statements of Cubic (UK) Limited are available from AFC House, Honeycrock Lane, Salfords, Redhill, Surrey. RH1 5LA.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the company's accounting policies, the directors are required to make judgements estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The judgements management has made in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognised in the financial statements are those in respect of its revenue recognition policies, valuation of goodwill and accounting for business combinations, which are described in detail later in this section.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of revision and future periods where the revision affects both the current and future periods.

Management have not identified any key assumptions or sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Turnover

The company generates revenue from the sale of integrated solutions such as air and ground combat training systems, and products with C4ISR capabilities. A significant portion of our revenues are generated from long-term fixed-price contracts with customers that require us to design, develop, manufacture, modify, upgrade, test and integrate complex systems according to the customer’s specifications. We also generate revenue from services we provide, such as the support of specialized military training exercises.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

To determine the proper revenue recognition method, we evaluate each contractual arrangement to identify all performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of our contracts have a single performance obligation because the promise to transfer the individual good or service is not separately identifiable from other promises within the contract and is, therefore, not distinct. These contractual arrangements typically represent a bundle of contracted goods and services that are integrated and together represent a combined output, which may include the delivery of multiple units.

Some of our contracts have multiple performance obligations, primarily (i) related to the provision of multiple goods or services or (ii) due to the contract covering multiple phases of the product lifecycle. For contracts with more than one performance obligation, we allocate the transaction price to the performance obligations based upon their relative standalone selling prices. For such contracts we evaluate whether the stated selling prices for the products or services represent their standalone selling prices. In cases where a contract requires a customized good or service, our primary method used to estimate the standalone selling price is the expected cost plus a margin approach.

The majority of our sales are from performance obligations satisfied over time. Sales are recognized over time when control is continuously transferred to the customer during the contract or the contracted good does not have alternative use to us.

For those contracts for which control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided.

For our design and build type contracts, we generally use the input measure of progress because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the input measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contract costs include material, labour and subcontracting costs, as well as an allocation of indirect costs, and are generally expensed as incurred for these contracts.

Sales from performance obligations satisfied at a point in time are typically for standard goods and are recognized when the customer obtains control, which is generally upon delivery and acceptance. Costs of sales are recorded in the period in which revenue is recognized.

Sales under service contracts are generally recognized as services are performed or value is provided to our customers. We measure the delivery of value to our customers using a number of metrics including units of work performed, and costs incurred. We determine which metric represents the most meaningful measure of value delivery based on the nature of the underlying service activities required under each individual contract. In certain circumstances we recognize revenue based on the right to bill when such amounts correspond to the value being delivered in a billing cycle. Costs incurred under these service contracts are generally expensed as incurred.

Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. Some of our contracts with the UK government, including contracts with the MOD, are subject to the Single Source Contract Regulations and may include an element of variable consideration where the final contract value is reduced if final costs are lower than anticipated at the point of contract agreement. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. Typical payment terms under fixed-price design and build type contracts provide that the customer pays either performance-based payments based on the achievement of contract milestones or progress payments based on a percentage of costs we incur. For the majority of our service contracts, we generally bill on a monthly basis which corresponds with the satisfaction of our monthly performance obligation under these contracts.

We recognize a liability for payments received in excess of revenue recognized, which is presented as a contract liability on the balance sheet. The portion of payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer from our failure to adequately complete some or all of the obligations under the contract. Payments received from customers in advance of revenue recognition are not considered to be significant financing components because they are used to meet working capital demands that can be higher in the early stages of a contract.

For fixed-price and cost-reimbursable contracts, we present revenues recognized in excess of billings as contract assets on the balance sheet. Amounts billed and due from our customers under both contract types are classified as receivables on the balance sheet.

We only include amounts representing contract change orders, claims or other items in the contract value when we believe the rights and obligations become enforceable. Contract modifications routinely occur to account for changes in contract specifications or requirements. In most cases, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract.

Transaction price estimates include additional consideration for submitted contract modifications or claims when we believe there is an enforceable right to the modification or claim, the amount can be reliably estimated, and its realization is reasonably assured. Amounts representing modifications accounted for as part of the existing contract are included in the transaction price and recognised as an adjustment to sales on a cumulative catch-up basis.

Warranty obligations arising from services provided to customers are accounted for depending on the nature of the contract. If the warranty provides for additional services, such as ongoing maintenance, it is accounted for as a distinct performance obligation. If the warranty is solely and assurance-type warranty against latent defects then the inherent warranty embedded in the contract is reflected in the performance obligation for the related good or service.

Contract Estimates

Use of the input method of revenue recognition requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. Revisions or adjustments to estimates of the transaction price, estimated costs at completion and estimated profit or loss of a performance obligation are often required as work progresses under a contract, as experience is gained, as facts and circumstances change and as new information is obtained, even though the scope of work required under the contract may not change. In determining the estimated costs at completion, we have to make assumptions regarding labour productivity and availability, the complexity of the work to be performed, the availability of materials, estimated increases in wages and prices for materials, performance by our subcontractors, and the availability and timing of funding from our customer, among other variables. Revisions or adjustments to our estimated transaction price and estimated costs at completion may also be required if contract modifications occur. The revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, and in some cases result in liabilities to complete contracts in a loss position. Based upon our history, we believe we have the ability to make reasonable estimates for these items. We have accounting policies and controls in place to address these, as well as other contractual and business arrangements to properly account for long-term contracts, and we continue to monitor and improve such policies, controls, and arrangements.

Because of the significance of the judgments and estimation processes, it is likely that materially different amounts could be recorded if we used different assumptions or if our underlying circumstances were to change. When adjustments in estimated contract revenues or estimated costs at completion are required, any changes from prior estimates are recognized by recording adjustments in the current period for the inception-to-date effect of the changes on current and prior periods using the cumulative catch-up method of accounting. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.

Contract Assets

Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion method of revenue recognition is utilised and revenue recognised exceeds the amount billed to the customer per the contractually agreed project milestones. Contract assets are classified as current assets.

Trade Debtors

A trade debtor is recognised when an amount of consideration that is unconditional is due from the customer (i.e.only the passage of time is required before payment of the consideration is due). Trade debtors that do not contain a significant financing component are measured at the transaction price. Where the time value of money is material, receivables are carried at amortised cost.

Provisions for expected credit losses are made using the simplified approach set out by IFRS9 and the loss allowance is measured at an amount equal to lifetime expected credit losses. Because the company's contracts are bespoke to each customer, each receivable outstanding at the reporting date is evaluated separately and expected credit losses are determined by evaluating a range of possible outcomes taking into account the time value of money and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

Contract Liabilities

Contract liabilities include advance payments and billings in excess of revenue recognised. Contract liabilities are classified as current based on our contract operating cycle.

Provisions for Losses on contracts

We establish reserves for loss contingencies when, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including the type, nature and progress of the matter, the advice of legal counsel, and our experience in similar cases. We may increase or decrease our provisions in the future, on a matter-by-matter basis, to account for developments in such matters.

Business combinations & goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Company elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Company re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

Investment in associates and joint ventures

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Company's investment in its associate and joint venture are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Company's share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

The statement of profit or loss reflects the Company's share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Company's OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Company recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

The aggregate of the Company's share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.

The financial statements of the associate or joint venture are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company.

After application of the equity method, the Company determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss within ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss.

Upon loss of significant influence over the associate or joint control over the joint venture, the Company measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

Intangible assets

Intangible assets acquired separately from a business are capitalised at cost. Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition. Subsequent to initial recognition, intangible assets are stated at cost less accumulated amortisation and accumulated impairment.

All of the intangible assets held by the company, other than goodwill, have finite useful lives. Intangible assets are amortised over their estimated useful lives. The carrying value of intangible assets is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The depreciation methods applied to each intangible asset reflects the expected pattern of the consumption of its economic benefits and is as follows:

Customer Relationships acquired from H4

2 years straight line

Non Compete Agreements acquired from H4

2 years straight line

Backlog acquired from H4

2 years straight line

Software acquired from H4

2 years straight line

Customer Relationships acquired from Deltenna

9 years straight line

Technology acquired from Deltenna

8 years straight line

Trade Name acquired from Vocality

9 years SYD

Customer Relationships acquired from Vocality

11 years SYD

Hardware acquired from Vocality

5-7 years SYD

Software acquired from Vocality

9 years straight line

If there are indicators that the residual value or useful life of an intangible asset has changed since the most recent annual reporting period previous estimates shall be reviewed and, if current expectations differ the residual value, amortisation method or useful life shall be amended. Changes in the expected useful life or the expected pattern of consumption of benefit shall be accounted for as a change in accounting estimate.

Amortisation and impairment charges are included within administrative expenses in the statement of comprehensive income.

Tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the aggregate amount paid to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended. Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life:

Plant and machinery

- Straight line over 2 years

Fixtures, fittings and equipment

- Straight line over 5 years

IT equipment

- Straight line over 3 years

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the income statement in the period of derecognition.

Financial assets

Initial Recognition and Measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit and loss, loans and receivables or available for sale financial assets, as appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus directly attributable transaction costs. At present, the Company has only loans and receivables.

Subsequent measurement of Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance revenue in the income statement and the losses arising from impairment are recognised in the income statement in administrative expenses.

Impairment of financial assets

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired.

If there is objective evidence that an impairment loss on loans and receivables carried at amortise cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced, with the amount of the loss recognised in administration costs.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss in recognised in the profit and loss account, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Stocks

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

Taxation

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the balance sheet date.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date.

Research and development

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

Government grants, such as the R&D Expenditure credit, are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.

Foreign currencies

Foreign currency transactions are translated into sterling using the exchange rates prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.

Leases

Right-of-use assets

Right-of-use assets are recognised at the commencement date of the lease (i.e. the date the underlying asset is available for use).

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.

Where ownership of the right-of-use asset transfers to the lessee at the end of the lease term, the right-of-use asset is depreciated over the asset’s remaining useful life. If ownership of the right-of-use asset does not transfer to the lessee at the end of the lease term, depreciation is charged over the shorter of the useful life of the right-of-use asset and the lease term. Deprecation is charged at the following rates:

Property Leases

- 5 to 10 years

Lease liabilities

The lease liability is initially recognised at the present value of the lease payments which have not yet been made and subsequently measured under the amortised cost method. The initial cost of the right-of-use asset comprises the amount of the initial measurement of the lease liability, lease payments made prior to the lease commencement date, initial direct costs and the estimated costs of removing or dismantling the underlying asset per the conditions of the contract. Lease liabilities are recognised within creditors falling due within one year and creditors falling due after one year on the balance sheet.

Transitional adjustments

On transition to FRS 101 the company applied the practical expedient in C3 of IFRS 16 to not reassess whether a contact is, or contains, a lease at the date of initial application.

On transition to FRS 101 the company applied the practical expedient in C5(b) of IFRS 16 and C8(b)(ii) and the value stated within cost or valuation above for leases held at the date of transition is therefore an amount equal to the lease liability upon transition, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application.

The weighted average lessee's incremental borrowing rate applied to lease liabilities recognised in the statement of financial position at the date of initial application was 2.56%

Employee benefit costs

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

Provisions for liabilities

A provision is recognised when the company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.

3.

TURNOVER

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

2021

2020

£

Range design, simulation & related services

14,704,633

13,390,065

Communication systems design, production & related services

1,032,961

2,307,252

Wireless infrastructure and access point design & production

1,261,288

371,607

16,998,882

16,068,924

The company's principal activity is the delivery of integrated solutions that increase situational understanding for defence, C4ISR and training customers worldwide. All revenue stated above relates to revenue recognised from contracts with customers.

In 2021, revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period totalled £81,315 (2020: £432,224).

In 2021 revenue arising from construction contracts, included above, totalled £65,156 (2020: £407,806).

On 31 March 2017 the company acquired the business of Vocality International Limited and has continued its trade of providing communication systems design, production and associated services.

On 30 September 2017 the company acquired the business of Deltenna Limited and has continued its trade of designing and manufacturing wireless infrastructure and access points.

4.	OTHER OPERATING INCOME

2021

2020

£

R&D Expenditure Credit

174,369

-

Exchange gains

335,508

106,148

509,877

106,148

5.	EMPLOYEES AND DIRECTORS

2021

2020

£

Wages and salaries

4,818,318

4,810,634

Social security costs

547,566

557,041

Other pension costs

294,506

347,794

5,660,390

5,715,469

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

2021

2020

Direct

80

74

Indirect

9

16

89

90

2021

2020

£

Directors' remuneration

211,182

129,567

Directors' pension contributions to money purchase schemes

5,248

5,119

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

Money purchase schemes

1

Information regarding the highest paid director for the year ended 30 September 2021 is as follows:

2021

£

Emoluments etc

211,182

Pension contributions to money purchase schemes

5,248

The highest paid director did not exercise any share options in the year and no shares were received or receivable by that director in respect of qualifying services under a long term incentive scheme.

Directors emoluments relate solely to one director directly employed by the Company.

The emoluments in respect of all other directors who served during the year have been borne by other Cubic Corporation Group companies, since these directors are either employees, officers or directors of other Cubic Corporation Group companies.

The Cubic Corporation Group does not make a specific charge to the Company for the services of these directors, however during the year fees of £687,790 (2020: £737,454) were paid to the Cubic Corporation Group for management services, which include services provided by these directors.

6.

INTEREST RECEIVABLE AND SIMILAR INCOME

2021

2020

£

Interest income

16

279

Interest receivable on loan to joint venture

248,297

194,927

248,313

195,206

7.

AMOUNTS WRITTEN OFF INVESTMENTS

2021

2020

£

Amounts written off investments

1,248,315

1,926,798

Amounts written off investments relate to provisions for irrecoverable loans to the joint venture Emirates Training Technology LLC (held within current assets) which have been impaired to their recoverable value of £Nil.

8.

INTEREST PAYABLE AND SIMILAR EXPENSES

2021

2020

£

Interest payable on loans from group
undertakings

192,172

407,571

Leasing

17,528

20,113

209,700

427,684

9.	(LOSS)/PROFIT BEFORE TAXATION

The loss before taxation (2020 - profit before taxation) is stated after charging/(crediting):

2021

2020

£

Cost of inventories recognised as expense

5,208

169,918

Depreciation - owned assets

7,643

382,286

Depreciation - assets on hire purchase contracts or finance leases

185,673

190,800

Other intangibles amortisation

663,289

723,673

Foreign exchange differences

(335,508

)

(106,148

)

Research and development costs

50,870

693,192

10.	AUDITORS' REMUNERATION

2021

2020

£

Fees payable to the company's auditors for the audit of the
company's financial statements

21,600

26,250

Total audit fees

21,600

26,250

Auditors' remuneration for non audit work

11,400

16,000

Total non-audit fees

11,400

16,000

Total fees payable

33,000

42,250

No benefits in kind have been provided to the company's auditors.

11.

TAXATION

Analysis of tax expense/(income)

2021

2020

£

Current tax:

Tax

100,582

(323,358

)

Deferred tax

(58,373

)

(22,394

)

Total tax expense/(income) in statement of comprehensive income

42,209

(345,752

)

Factors affecting the tax expense

The tax assessed for the year is higher (2020 - lower) than the standard rate of corporation tax in the UK. The difference is explained below:

2021

2020

£

(Loss)/profit before income tax

(3,368,332

)

517,194

(Loss)/profit multiplied by the standard rate of corporation tax in the
UK of 19% (2020 - 19%)

(639,983

)

98,267

Effects of:

Trade expenses not allowable

869,530

349,295

Depreciation in excess of capital allowances

27,799

84,850

Movement on deferred tax provision in respect of acquired intangibles

(58,373

)

(22,394

)

Utilisation of historic losses

(257,346

)

(532,412

)

Prior year tax losses surrendered to Group

(73,787

)

(323,358

)

Prior period RDEC Adjustments

174,369

-

Tax expense/(income)

42,209

(345,752

)

Factors that may affect future tax charges

Subject to the agreement of HM Revenue and Customs the company has tax losses from trading of £3,021,142 and non-trading losses of £1,207,859 to carry forward. No deferred tax asset has been recognised in respect of these losses as the transfer of future economic benefit is uncertain.

12.	INTANGIBLE FIXED ASSETS

Other

Goodwill

intangibles

Totals

£

COST

At 1 October 2020

6,587,720

5,747,398

12,335,118

Impairments

(2,664,557

)

-

(2,664,557

)

At 30 September 2021

3,923,163

5,747,398

9,670,561

AMORTISATION

At 1 October 2020

-

2,850,182

Amortisation for year

-

663,289

Impairments

-

455,556

At 30 September 2021

-

3,969,027

NET BOOK VALUE

At 30 September 2021

3,923,163

1,778,371

5,701,534

At 30 September 2020

6,587,720

2,897,216

9,484,936

Goodwill

The Goodwill shown above arose on the following business combinations:

Cost

£

Acquisition of the assets and trade of H4 Global in November 2015

1,070,000

Transfer of business from Vocality International Limited in March 2017

2,853,163

Transfer of business from Deltenna Limited in September 2017.

2,664,557

6,587,720

Impairment of Intangible Assets

During the year the company conducted a impairment review of its intangible assets. This review identified that changes in the business structure in 2021 have meant that there are no longer any separately identifiable revenue streams relating to the Deltenna goodwill and customer relationships. As a result of this review, the goodwill of £2,664,557 and the customer relationships of £455,556 arising from this acquisition have been fully impaired to their recoverable value of £Nil as at 30 September 2021. Impairment charges are included within administrative expenses in the profit and loss account.

Material Other Intangibles

Material intangible assets included within 'Other Intangibles' above include:

Remaining

Net

Amortisation

Book

Period

Value

£

Deltenna Technologies

48 months

415,000

Vocality Customer Relationships

75 months

575,644

Vocality OPUS Technologies

51 months

661,111

13.	TANGIBLE FIXED ASSETS

Fixtures,

Short

Plant and

fittings

IT

leasehold

machinery

& equipment

Equipment

Totals

£

COST

At 1 October 2020

1,017,307

2,583,953

233,434

1,288,392

5,123,086

Additions

96,925

-

96,925

Disposals

(25,138

)

-

(25,138

)

At 30 September 2021

1,089,094

2,583,953

233,434

1,288,392

5,194,873

DEPRECIATION

At 1 October 2020

184,576

2,583,953

224,764

1,288,392

4,281,685

Charge for year

185,673

-

7,643

-

193,316

Eliminated on disposal

(25,138

)

-

(25,138

)

At 30 September 2021

345,111

2,583,953

232,407

1,288,392

4,449,863

NET BOOK VALUE

At 30 September 2021

743,983

-

1,027

-

745,010

At 30 September 2020

832,731

-

8,670

-

841,401

Short leasehold assets relate solely to right of use assets.

14.	INVESTMENTS

The company's investments at the Balance Sheet date in the share capital of companies include the following:

Joint venture

Emirates Training Technology LLC

Registered office: Tawazan Industrial park, Admin Building A, Office AF2, Zone 2, Al Ajban, Sweihan, PO Box 131100, Abu Dhabi, UAE

Nature of business: Provision of military training solutions

%

Class of shares:

holding

Ordinary

49.00

2021

2020

£

Aggregate capital and reserves

(5,252,300

)

(4,428,177

)

Loss for the year

(1,005,006

)

(1,550,270

)

Emirates Training Technology LLC was incorporated on 1 October 2015 and is currently in the process of being wound up. The accumulated losses attributable to the company exceed the value of the initial investment, therefore this investment is carried at £Nil.

15.

STOCKS

2021

2020

£

Finished goods

46,468

51,676

The difference between the purchase or production cost of stocks and their replacement cost is not material.

16.

DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

2021

2020

£

Trade debtors

304,275

742,611

Bad debt provision

(73,942

)

(195,768

)

Amounts owed by group undertakings

4,039,737

1,874,369

Contract assets

1,285,154

1,487,457

Other debtors

527

VAT

1,207,939

750,819

Prepayments and accrued income

177,795

153,625

6,941,485

4,813,640

17.

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

2021

2020

£

Contract liabilities

2,917,872

276,989

Trade creditors

346,331

318,971

Amounts owed to group undertakings

8,445,999

24,795,161

Tax

2

Social security and other taxes

81,911

71,213

Other creditors

47,338

37,633

Leasing Liabilities

199,537

183,794

Accruals and deferred income

590,947

503,478

12,629,937

26,187,241

18.

CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR

2021

2020

£

Leasing Liabilities

553,312

660,584

19.

LEASING

Right-of-use assets

Tangible fixed assets

2021

2020

£

COST OR VALUATION

At 1 October 2020

1,017,307

1,023,530

Additions

96,925

1

Disposals

(25,138

)

(6,224

)

1,089,094

1,017,307

DEPRECIATION

At 1 October 2020

184,576

-

Charge for year

185,673

190,800

Eliminated on disposal

(25,138

)

(6,224

)

345,111

184,576

NET BOOK VALUE

743,983

832,731

The company leases the premises from which the company conducts its business. Set about above are the carrying amounts of right-of-use assets and the movements during the period.

Set out below are the carrying amount of lease liabilities and the movements during the period:

2021

2020

£

As at 1 October

844,379

1,030,681

Additions

96,925

-

Interest

17,528

20,113

Payments

(205,983

)

(206,416

)

As at 30 September

752,849

844,378

Due within one year

199,537

183,794

Due after one year

553,312

660,584

Total

752,849

844,378

The following are the amounts recognised in profit or loss:

2021

2020

£

Depreciation expense of right-of-use assets

185,672

190,800

Interest expense on lease liabilities

17,528

20,113

Total amount recognised in profit or loss

203,200

210,913

20.	PROVISIONS FOR LIABILITIES

Deferred
tax

Losses on
contracts

Contingent
consideration

Total

£

Balance at 1 October 2020

309,569

605,417

3,214,570

4,129,556

Charged / credited to profit or loss

(58,373

)

(27,164

)

334,158

248,621

Paid out in year

(948,210

)

(948,210

)

Balance at 30 September 2021

251,196

578,253

2,600,518

3,429,967

Deferred tax liabilities relate to temporary timing differences in relation to intangible fixed assets, such as trade names and customer relationships, where the related amortisation charges are not deductible for tax purposes.

Provisions for losses on contracts relate to the estimated costs of closing out a historic contract where total costs are expected to exceed total revenues.

Contingent consideration relates to payments due to the sellers of H4 and Deltenna. The H4 consideration was fully settled in the year ended 30 September 2021 and the Deltenna consideration is due to be settled in FY2022.

21.	CALLED UP SHARE CAPITAL

Allotted, issued and fully paid:

Number:

Class:

Nominal

2021

2020

value:

£

8,281,475

Ordinary

£1

8,281,474

Ordinary shares have voting rights, are entitled to participate in distributions as regards dividends and capital distributions and are not redeemable.

22.

RESERVES

Capital

Retained

Contribution

earnings

Reserve

Totals

£

At 1 October 2020

(21,488,815

)

-

(21,488,815

)

Deficit for the year

(3,410,541

)

(3,410,541

)

Capital contribution

-

15,428,492

At 30 September 2021

(24,899,356

)

15,428,492

(9,470,864

)

On 30 April 2021 Cubic (U.K.) Ltd made a capital contribution of £15,428,492 to the company which has been recognised directly in equity within distributable reserves.

23.	PENSION COMMITMENTS

The company operated a defined contribution pension scheme during the period. The cost of contributions to the scheme amounted to £294,506 (2020: £347,794). At 30 September 2021 contributions amounting to £45,362 (2020: £36,573) were payable to the fund and included within creditors.

24.	ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY

The company's immediate parent undertaking is Cubic (UK) Limited. The company's ultimate parent undertaking and controlling party is Veritas Capital Fund Management L.L.C, a company which is incorporated in the United States of America.

25.	CAPITAL COMMITMENTS

Under the terms of the joint venture agreement in respect of Emirates Training Technology LLC Cubic Defence UK Ltd has agreed to provide additional working capital as a loan up to a maximum value of USD 4,000,000.

26.	RELATED PARTY DISCLOSURES

Emirates Training Technology Joint Venture

2021

2020

£

Amounts due from related party

-

Impairment of bad or doubtful debts from related party

1,248,315

1,926,798

The above loans are unsecured and are repayable on demand.

Key Management Personnel Remuneration

The remuneration of key management personnel, who are also directors, is as follows:

2021

2020

£

Aggregate Compensation

244,358

151,365

27.	FIRST YEAR ADOPTION

For all periods up to and including the year ended 30 September 2020 the Company prepared its financial statements in accordance with UK GAAP FRS102. These financial statements, for the year ended 30 September 2021, are the Company's first set of financial statements prepared in accordance with FRS 101.

Accordingly, the Company has prepared individual financial statements which comply with FRS 101 applicable for periods beginning on or after 1 October 2019 and the significant accounting policies meeting those requirements are described in the relevant notes.

In preparing these financial statements, the Company has started from an opening balance sheet as at 1 October 2019, the Company’s date of transition to FRS 101, and made those changes in accounting policies and other restatements required for the first-time adoption of FRS 101. As such, this note explains the principal adjustments made by the Company in restating its balance sheet as at 1 October 2019 prepared under FRS 102 and its previously published financial statements for the year ended 30 September 2020.

On transition to FRS 101, the company has applied the requirements of paragraphs 6-33 of IFRS 1 "First time adoption of International Financial Reporting Standards".

The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 30 September 2021, the comparative information presented in these financial statements for the year ended 30 September 2020 and in the preparation of an opening FRS 101 balance sheet at 1 October 2019.

In preparing its FRS 101 balance sheet, the Company has adjusted amounts reported previously in financial statements prepared in accordance with its previous basis of accounting (FRS102). An explanation of how the transition from UK GAAP to FRS 101 has affected the Company’s financial position and financial performance is set out in the following table and the accompanying notes:

CUBIC DEFENCE UK LTD. (REGISTERED NUMBER: 04248256)

RECONCILIATION OF EQUITY

1 OCTOBER 2019

(DATE OF TRANSITION TO FRS 101)

Effect of

transition

FRS 102

to FRS 101

FRS 101

Notes

£

FIXED ASSETS

Intangible assets

1

10,888,802

(680,194

)

10,208,608

Tangible assets

2

390,956

1,023,532

1,414,488

Investments

3

13,936

(13,936

)

-

11,293,694

329,402

11,623,096

CURRENT ASSETS

Stocks

221,594

-

221,594

Debtors

9,273,084

-

9,273,084

Contract assets

403,184

-

403,184

Prepayments and accrued income

2

445,763

6,422

452,185

Cash at bank

1,905,004

-

1,905,004

12,248,629

6,422

12,255,051

CREDITORS

Amounts falling due within one year

2,4

(30,903,240

)

(186,302

)

(31,089,542

)

CONTRACT LIABILITIES

Amounts falling due within one year

(692,367

)

-

(692,367

)

NET CURRENT LIABILITIES

(19,346,978

)

(179,880

)

(19,526,858

)

TOTAL ASSETS LESS CURRENT
LIABILITIES

(8,053,284

)

(149,522

)

(7,903,762

)

CREDITORS

Amounts falling due after more than one
year

2,4

(3,413,885

)

2,569,506

(844,379

)

PROVISIONS FOR LIABILITIES

4

(968,906

)

(3,413,885

)

(4,382,791

)

ACCRUALS AND DEFERRED INCOME

(939,356

)

-

(939,356

)

NET LIABILITIES

(13,375,431

)

(694,857

)

(14,070,288

)

CAPITAL AND RESERVES

Called up share capital

8,281,474

-

8,281,474

Retained earnings

5

(21,656,905

)

(694,857

)

(22,351,762

)

SHAREHOLDERS' FUNDS

(13,375,431

)

(694,857

)

(14,070,288

)

CUBIC DEFENCE UK LTD. (REGISTERED NUMBER: 04248256)

RECONCILIATION OF EQUITY - continued

30 SEPTEMBER 2020

Effect of

transition

FRS 102

to FRS 101

FRS 101

Notes

£

FIXED ASSETS

Intangible assets

1

8,982,004

502,932

9,484,936

Tangible assets

2

8,670

832,731

841,401

Investments

3

13,936

(13,936

)

-

9,004,610

1,321,727

10,326,337

CURRENT ASSETS

Stocks

51,676

-

51,676

Debtors

4,807,219

6,421

4,813,640

Cash at bank

2,578,387

-

2,578,387

7,437,282

6,421

7,443,703

CREDITORS

Amounts falling due within one year

2,4

(27,038,483

)

851,242

(26,187,241

)

NET CURRENT LIABILITIES

(19,601,201

)

857,663

(18,743,538

)

TOTAL ASSETS LESS CURRENT
LIABILITIES

(10,596,591

)

2,179,390

(8,417,201

)

CREDITORS

Amounts falling due after more than one
year

2,4

(2,179,535

)

1,518,951

(660,584

)

PROVISIONS FOR LIABILITIES

4

(914,985

)

(3,214,571

)

(4,129,556

)

NET LIABILITIES

(13,691,111

)

483,770

(13,207,341

)

CAPITAL AND RESERVES

Called up share capital

8,281,474

-

8,281,474

Retained earnings

5

(21,972,585

)

483,770

(21,488,815

)

SHAREHOLDERS' FUNDS

(13,691,111

)

483,770

(13,207,341

)

Notes to the reconciliation of equity

1 Intangible Assets

Under FRS102, changes to contingent consideration were accounted for as changes in the value of goodwill, however under IFRS the value of goodwill is fixed at the point of acquisition and subsequent remeasurements of contingent consideration flow through the profit and loss and into reserves. Additionally, under FRS102 goodwill was amortised over its estimated useful life, but under IFRS goodwill is not amortised.

1 October

30
September

2019

2020

£

Intangible Asset NBV under FRS102

10,888,802

8,982,004

Reversal of movements in contingent consideration

(1,876,720

)

(1,677,406

)

Reversal of Amortisation of Goodwill

1,991,505

2,975,317

Fair value adjustments required under FRS 101, but not under
FRS102

(794,979

)

(794,979

)

Intangible Asset NBV under FRS 101

10,208,608

9,484,936

2 Leasing Adjustments

Under FRS102 operating leases expenses were charged to the profit and loss account as incurred, however under FRS 101 right of use assets and leasing liabilities have been recognised in respect of these leases with the date of transition to FRS 16 being taken as 1 October 2019.

The effect of these leasing adjustments has been as follows:

1 October

30 September

2019

2020

£

Fixed assets - right of use assets recognised

1,023,532

832,730

Current assets - deferred rent

6,422

Amounts falling due within one year - lease liabilities

(186,302

)

(183,793

)

Amounts falling due after one year - lease liabilities

(844,379

)

(660,584

)

Profit & Loss

727

5,225

3 Recognition of Investments in JVs under equity method

Under FRS102 investments in joint ventures were recognised at cost less impairment, however under IAS 28 the investments are recognised using the equity method. The joint venture has significant accumulated trading losses, which reduce its value as at 1 October 2019 to £Nil (see Investments note for further information). The effect of the transition to FRS 101 has therefore been to reduce the company's investments by £13,936 and to reduce the accumulated reserves by the same.

4 Reclassification of contingent consideration liabilities

Under FRS102 contingent consideration was recognised with creditors due within one year and creditors due after one year. On transition to FRS 101 the contingent consideration has been reclassified as a provision in accordance with IAS 32. The impact of this reclassification is as follows:

1 October

30 September

2019

2020

£

Reduction in creditors due within one year

-

1,035,036

Reduction in creditors due after one year

3,413,885

2,179,535

Increase in provisions for liabilities

(3,413,885

)

(3,214,571

)

5 Retained Earnings

Under FRS 101, retained earnings have been adjusted as follows:

1 October

30
September

2019

2020

£

Retained earnings under FRS102

(21,656,905

)

(21,972,585

)

Adjustment to treatment of contingent consideration

(1,876,720

)

(1,677,406

)

Reversal of amortisation of goodwill

1,991,505

2,975,317

Fair value acquisition adjustment

(794,979

)

(794,979

)

Derecognition of investment in JV

(13,936

)

(13,936

)

Recognition of right of use assets and leasing liabilities

(727

)

(5,226

)

Retained earnings under FRS 101

(22,351,762

)

(21,488,815

)

CUBIC DEFENCE UK LTD. (REGISTERED NUMBER: 04248256)

RECONCILIATION OF LOSS OR PROFIT

FOR THE YEAR ENDED 30 SEPTEMBER 2020

Effect of

transition

FRS 102

to FRS 101

FRS 101

Not

es

£

TURNOVER

16,068,924

-

16,068,924

Cost of sales

(8,833,996

)

-

(8,833,996

)

GROSS PROFIT

7,234,928

-

7,234,928

Administrative expenses

1

(5,863,345

)

1,198,739

(4,664,606

)

Other operating income

106,148

-

106,148

OPERATING PROFIT

1,477,731

1,198,739

2,676,470

Interest receivable and similar income

195,206

-

195,206

Amounts written off investments

(1,926,798

)

-

(1,926,798

)

Interest payable and similar expenses

2

(407,571

)

(20,113

)

(427,684

)

(LOSS)/PROFIT BEFORE TAXATION

(661,432

)

1,178,626

517,194

Tax on (loss)/profit

345,752

-

345,752

(LOSS)/PROFIT FOR THE FINANCIAL
YEAR

(315,680

)

1,178,626

862,946

Notes to the reconciliation of profit or loss

1 Administrative Expenses

£

Reversal of Amortisation of Goodwill

(983,810

)

Remeasurement of contingent consideration

(199,314

)

Reversal of rent expenses

(206,416

)

Recognition of depreciation of right of use assets

190,800

Total effect of transition to FRS 101

(1,198,740

)

2 Interest payable and similar expenses

Under FRS 101, £20,113 of interest on leasing liabilities has been recognised on right-of-use assets.