ARCATECH_SYSTEMS_EUROPE_L - Accounts

The directors present the strategic report for the year ended 31 December 2021.

Arca Group mainly focuses on products intended for automated banknote processing, including recognition, validation, distinction between good and worn out banknotes and the ability TO transport and deposit into safe deposit boxes.

These products manage the automatic deposit and withdrawal of cash and are associated with the acronym TCR (Teller Cash Recycler), because the collected money is made immediately available for withdrawal (banknotes ‘recirculation’).

These systems/solutions, born as niche products at the end of the nineties, intended mainly for the physical safety of money, have spread in the banking market and have contributed to change the work management of the agencies. The integration of these devices with the banking management software and the consequent availability of real time information, increased the efficiency of the agencies themselves, significantly reducing the cash management costs.

The combination of physical security, validation of the deposited money and the possibility of a remote check on the content make these devices interesting not only to banks, but also to other entities such as utility companies, large retailers and CIT (Cash in Transit).

Arcatech Group, like many businesses, was significantly impacted by COVID-19 and the associated restrictions on people’s movements which in turn affected business investment patterns. The group took prompt and decisive action to focus on gross margin while managing costs and in doing so managed to remain profitable, thereby protecting its balance sheet. As a result, the Directors were confident that the business was in a strong position to take advantage of the recovery when restrictions around the world start to lift. Revenue increase in 2021 confirms those expectations.

Results

The financial year 2021 was characterised by a relevant increase of sales (plus £9 Million compared to 2020) that is mainly due to growth of revenue in Spain in connection with the product replacement campaign. That market is distinguished from the others by the strong pressure on sale prices, which meant the gross margin increased to a lesser extent. Additionally, in 2021 gross margin was impacted by an additional accrual (£1.2 Million) to the obsolescence reserve, resulting in a gross margin (£22 Million) equal to 2020.

That being said, it is therefore an element of satisfaction to be able to present a financial statement that closes with a Profit before taxes of £2.4 Million (2020 : Loss £0.4 Million) and a Net Profit equal to £0.7 Million (2020: Loss of £4 Million).

The group operates in businesses and geographic markets which are not normally deemed to be burdened with specific risks (tax, legal, financial, currency risks, credit risks etc.) and/or general risks (technological, regulatory and market risks) that could significantly affect the future performance of the group itself.

There are no relevant pending cases, and the group is currently not significantly exposed to foreign exchange risks for normal procurement and sales processes.

Foreign exchange risks are substantially only related to sale transactions with the US parent company.

The type of customer, the guarantees including in contracts, the attentive and systematic monitoring of the credit positions reduces the credit risk we are exposed to. This is evidenced by negligible accruals and uses of provisions for doubtful debts.

As for the general market risks, we believe that, despite the now widespread competitive pressure in all sectors, including the areas where the company and the group operate, the opportunities outweigh the risks. We are however aware that the structural problems of the so-called traditional "Western countries” and the disparity in purchasing power between them and the emerging markets with the highest growth potential (but where penetration difficulties persist for products manufactured in developed regions) currently make extremely uncertain the operating environment of the company and the group, thus creating difficulties in forecasting an economic and financial scenario for the company for the coming years.

All that said, the current economic situation continues to be - as we know – heavily and negatively affected by the continuing effects of the COVID-19 pandemic; all economic sectors and all geographic markets have been affected with significant reduction in gross domestic product; the return to normality can only be expected in the medium term which is due to the foreseeable continuation of the psychological effects created by the pandemic. The sudden and radical change in lifestyles, work patterns, B2B and B2C business patterns, the same questioning of consolidated coexistence models between public and private sectors, will have or are expected to have at least medium-term effects, with obvious increases in the level of uncertainty and difficulty in defining business projections even in scenarios not exceeding one year.

The company and the group, like all economic entities, are exposed to this risk situation, which at the moment cannot be translated into quantitative terms to estimate its effects on the business.

Group        Group     Company Company

2021          2020         2021     2020

Return on Equity - Net profit/(loss)         2.39%        (13.47%)     (0.79%) (0.02%)

Return on Equity - Operating profit/(loss) 9.61%         (1.55%)         (0.79%) (0.02%)

Return on sales                 4.79% (1.06%)         (0.26%) (0.42%)

Gross profit                 43.4%     54.9%     14.3% 23.9%

Stock turnover                 4.33         3.27         9.51 9.74

Acid test ratio                 1.41          1.52         0.10 0.11

Total liabilities/equity             0.64          1.92         0.18 0.16

Stock turnover measures the group and company's ability to effectively meet market demand and is a key performance indicator as it is the group and company's main source of revenue.

Return on equity (based on net profit and gross profit) and Return on sales are considered key performance indicators as they show the profitability of the group and company against equity and sales.

Acid test and debt equity ratios are key performances indictors as they measure the group and company's ability to meet its and thereby, contributing to its ability to continue as a going concern.

Operational performance

The known effects related to the Covid-19 pandemic continued to negatively impact on all economic sectors and which, therefore, also influenced the performance of the company and the group.

It is therefore an element of satisfaction for us to be able to present a financial statement that nevertheless closes with a net profit for a relevant amount.

As said, this is the consequence of prompt and decisive actions took during the last 2 years to focus on operating margin and remain profitable.

Spending reviews put in place for all business processes in 2020 continued to be pursued in 2021 as well as material cost reductions for all variable expenses.

In the meantime, the company and the group continued reviewing the organisation structure to make business processes more efficient; the effects have been an increase in the quality of the staff due to the reduced staff turnover. All those combined actions have positively influenced global performances.

Systems and Procedures

The company and the group continue to monitor and improve IT systems and organisation procedures.

The subsidiary Arca Technologies S.r.l obtained the renewal of the Quality Certification (ISO 9000) taking this opportunity to review all the processes and related procedures.

IT devices (PC, laptop, printers, servers, etc) as well as network infrastructure are constantly updated, mainly during this “pandemic phase” in order to manage business activities remotely.

ERP system has been updated to the most recent release , with consistent changes, if necessary, in organisation processes.

The evolution of the business can only be related to the overall economic performance and, more specifically, to the performance of the industry sector in which we operate. Given that the effects of the COVID-19 pandemic are continuing to affect all areas of the world and all business with effects that, as already said, will continue at least in the medium term, we must acknowledge that 2022 will be an extremely difficult year. Despite this, we believe – also supported by the trend of orders received to date – that the demand for our products will continue to grow (both banking and retail market) particularly in North America.

Section 172 of The Companies Act 2006 states that a director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and doing so have regard (amongst other matters) to:

• The likely consequences of any decision in the long term;

• The interests of the company's employees;

• The need to foster the company's business relationships with suppliers, customers and others;

• The impact of the company's operations on the community and the environment;

• The desirability of the company maintaining a reputation for high standards of business conduct, and

• The need to act fairly between members of the company

The following summaries how the company's directors fulfils their duties under Section 172.    

The company and the group's employees are fundamental to the success of the business, especially in small sized companies such as ours. The company and the group aim to be a responsible employer in its approach to the pay and benefits of employees. The health, safety and well being of its employees is one of the primary considerations in the way the company and its subsidiaries do business.

During 2021, a series of training initiatives were carried out aimed, on the one hand, at implementing and updating specific technical skills; on the other, at strengthening the individual and interpersonal characteristics necessary to better interpret their role within the corporate structure.

With regard to the technical skills, the following training initiatives are noted:

• Business English course for technical employees and staff

• Course on Agile methodology for technical staff (R&D and Quality area)

• Course on Assembling Techniques for production staff

• Course on Product Management for product management team

With regard to individual skills , the following training initiatives are noted:

• Leadership and Management individual course for technical staff with coordination roles

Customers

The group and its subsidiary Arca Technologies S.r.l sell their products via a network of local distributors. Major distributors are engaged through Distribution Agreements which define terms of sale, agreement duration, pricing, lead-times and minimum sales commitments. Smaller distributors are engaged through standard terms and conditions of sale. All sales partners are managed on a day-to-day basis by a team of account managers who are overseen by the commercial director. Major distributors are engaged through weekly conferences calls where forecasts, future business opportunities and other commercial issues are reviewed. There is a standard price list and variations to these prices have to follow approval process. New distributors undergo a rigorous selection process and are engaged on conservative commercial terms whilst performance is assessed.

Vendors

The company and the group as a whole perceive our global supplier network as a major contribution to value creation, quality and innovation and hence to our success.

Our collaboration with our suppliers is based on mutual understanding of product and production, quality material management, competitive prices and innovation.

The company and the group have continued to take all appropriate measures to reduce the environmental impact of its operations. The nature of the operations means that there is not a significant environmental impact with no high energy absorbing plant or machinery.

R&D machinery is mainly used to carry on studies and to stimulate projects and mechatronic solutions, mainly by means of highly sophisticated software with negligible environmental impact. The subsidiary Arca Technologies S.r.l, accountable for purchasing, manufacturing and R&D, is associated with the EcoRit Consortium, in order to correctly fulfil the obligations imposed on manufacturers of Electrical and Electronic Equipment (EEE).

The company and the group continue to make every effort to optimise the correct recycling and treatment of waste, by continuing to raise workers’ awareness on the separate collection of waste (paper, plastic, cartridges and toners etc.). There are also group policies aimed at achieving a full compliance with anti-smoking legislation, while also considering ‘smoking workers’ requests, through the creation of special areas where they are granted access with due flexibility during the working day.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2021.

The principal activity of the company and group continued to be that of distribution of cash handling equipment.

The results for the year are set out on page 11.

No dividends were paid during the year (2020:£Nil). The directors do not recommend the payment of final dividend (2020:£Nil).

Refer to the Strategic Report for discussion of the results and key performance indicators for the year.

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

As already reported in the Strategic report under Principal risks and uncertainties, the group is not exposed to material financial risks, like exchange rate risk, credit risk and others (tax, legal, financial).

In case unexpected and unpredictable circumstances should create a specific financial risk, it is believed that adequate and consistent decisions and actions will be taken in order to mitigate and manage the consequent negative effects.

As the group has not consumed more than 40,000 kWh of energy in this reporting period, it qualifies as a low energy user under these regulations and is not required to report on its emissions, energy consumption or energy efficiency activities.

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company, and of the profit or loss of the group 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;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the ;

•     prepare the on the going concern basis unless it is inappropriate to presume that the group and company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company is aware of that information.

We have audited the financial statements of Arcatech Systems Europe Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2021 which comprise the group statement of comprehensive income, the company statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of changes in equity, the company statement of changes in equity, the group statement of cashflows, the company statement of cashflows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 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 group's and the parent company's affairs as at 31 December 2021 and of the group's 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 Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent 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.

Other information

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

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

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

• the information given in the strategic report and the directors' report for the financial 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.

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

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

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent 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 parent company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

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

We considered the opportunities and incentives that may exist within the group for fraud and identified the greatest potential for fraud in the following areas; existence and timing of recognition of income, posting of unusual journals along with complex transactions and non-compliance with laws and regulations. We discussed these areas in detail with management and designed audit procedures to test the timing and existence of revenue, carried out analytical review and reviewed the internal controls in place and asked questions of management with regard laws and regulations.

We discussed with management the laws and regulations as being significant to the company and the group and whether there had been any breaches or litigation. The group and company are not considered to be in a particularly regulated industry which has reduced the level of risk.

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience through discussions with management (as required by the auditing standards).

We reviewed the laws and regulations in areas that directly affect the financial statements including applicable company law and considered the extent of compliance with those laws and regulations as part of our procedures of the related financial statement items,

With the exception of the known or possible non-compliance with relevant and significant laws and regulations, and as required by the auditing standards, our work in respect of these was limited to enquiry of the officers and management of the company.

We communicated identified laws and regulations and potential fraud risks throughout our team and remained alert to any indications of non-compliance or fraud throughout the audit. However, the primary responsibility for the prevention and detection of fraud rests with the directors.

A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of this Report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £343,969 (2020 - £7,026 loss).

Arcatech Systems Europe Limited (“the company”) is a private limited company domiciled and incorporated in Scotland. The registered office is Wright, Johnston & Mackenzie LLP, The Capital Building, 12/13 St Andrew Square, Edinburgh, EH2 2AF.

The trading address of Arcatech Systems Europe Limited is Unit 7, Kinawley Enterprise Park, Kinawley, Northern Ireland, UK BT94 F4H.

The group consists of Arcatech Systems Europe Limited and all of its subsidiaries.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention, modified to include the revaluation of freehold property at fair value. The principal accounting policies adopted are set out below.

In the parent company financial statements, the cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date. Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date. Investments in subsidiaries, joint ventures and associates are accounted for at cost less impairment.

Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination accounted for using the purchase method and the amounts that can be deducted or assessed for tax, considering the manner in which the carrying amount of the asset or liability is expected to be recovered or settled. The deferred tax recognised is adjusted against goodwill or negative goodwill.

The consolidated group financial statements consist of the financial statements of the parent company Arcatech Systems Europe Limited together with all entities controlled by the parent company (its subsidiaries) and the group’s share of its interests in joint ventures and associates.

All financial statements are made up to 31 December 2021. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.

Entities in which the group holds an interest and which are jointly controlled by the group and one or more other venturers under a contractual arrangement are treated as joint ventures. Entities other than subsidiary undertakings or joint ventures, in which the group has a participating interest and over whose operating and financial policies the group exercises a significant influence, are treated as associates.

Investments in joint ventures and associates are carried in the group statement of financial position at cost plus post-acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.

If the group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or associate, the group does not recognise further losses unless it has incurred obligations to do so or has made payments on behalf of the joint venture or associate.

Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the group’s interest in the entity.

At the time of approving the financial statements, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Turnover is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. The following criteria must also be met before revenue is recognised:

Revenue from the sale of goods is recognised when all of the following conditions are satisfied:

• the group has transferred the significant risks and rewards of ownership to the buyer;

• the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• the amount of revenue can be measured reliably;

• it is probable that the group will receive the consideration due under the transaction;and

• the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all of the following conditions are satisfied:

• the amount of revenue can be measured reliably;

• it is probable that the group will receive the consideration due under the contract

• the stage of completion of the contract at the end of the reporting period can be measured reliably; and

• the costs incurred and the costs to complete the contract can be measured reliably

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life, which is 10 years.

For the purposes of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

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

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

All intangible assets are considered to have a finite useful life. If a reliable estimate of the useful life cannot be made, the useful life shall not exceed ten years.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

At each reporting date the company assesses whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying amount exceeds the recoverable amount.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.

Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.

In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

An associate is an entity, being neither a subsidiary nor a joint venture, in which the company holds a long-term interest and where the company has significant influence. The group considers that it has significant influence where it has the power to participate in the financial and operating decisions of the associate.

Investments in associates are initially recognised at the transaction price (including transaction costs) and are subsequently adjusted to reflect the group’s share of the profit or loss, other comprehensive income and equity of the associate using the equity method. Any difference between the cost of acquisition and the share of the fair value of the net identifiable assets of the associate on acquisition is recognised as goodwill. Any unamortised balance of goodwill is included in the carrying value of the investment in associates.

Losses in excess of the carrying amount of an investment in an associate are recorded as a provision only when the company has incurred legal or constructive obligations or has made payments on behalf of the associate.

In the parent company financial statements, investments in associates are accounted for at cost less impairment.

Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.

At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.

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

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

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

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks to their present location and condition.

Stocks held for distribution at no or nominal consideration are measured at the lower of the lower of cost and replacement cost, adjusted where applicable for any loss of service potential.

Cost is based on the cost of purchase on a first in, first out basis.

Work in progress and finished goods include labour and attributable overheads.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

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

Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.

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

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

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

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

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

Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.

Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.

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

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

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

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

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

Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.

A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.

The group and the company's functional and presentational currency is GBP.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.

On consolidation, the results of overseas operations are translated into GBP at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.

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

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

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

Annually, the group considers whether goodwill is impaired. Where an indication of impairment is identified the estimation of recoverable value requires estimation of the recoverable value of the cash-generating units (CGU's).

This requires estimation of the future cash flows from the CGU's and also selection of appropriate discount rates in order to calculate the net present value of those cash flows. The recoverable amount of the CGU's is a source of significant estimation uncertainty and determining this involved the use of significant assumptions.

In assessing impairment judgement is required to establish whether there have been indicators of impairment for all assets, including intangible assets, tangible assets and investments. Once the need to determine the recoverable amount of an asset has been identified, valuation requires estimation of future cash flows and/or determining a fair value of the asset.

A provision is made for stock. This requires management's best estimate of the level of wastage expected and assessment of the condition of stock at the year end. The evaluation performed by management is based on an in-depth analysis of the rotation index to identify the 'slow/non-moving' components and products and the results are compared to expected sales trends.

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

The whole turnover is attributable to the distribution of cash handling equipment.

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

Their aggregate remuneration comprised:

The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2020 - 1).

The directors are remunerated through the group and the company.

Investment income includes the following:

The actual charge for the year can be reconciled to the expected charge/(credit) for the year based on the profit or loss and the standard rate of tax as follows:

As detailed in note 23 Arca Technologies S.r.l has been undergoing a tax audit for the accounting periods 2016 to 2021. At the date of signing as any potential tax liability cannot be reliably estimated no provision has been made in the financial statements.

Impairment tests have been carried out where appropriate and the following impairment losses have been recognised in profit or loss:

The impairment losses in respect of financial assets are recognised in other gains and losses in the income statement.

Other fixed asset investments include membership fees with service companies in Arca Technologies S.r.l, a wholly owned subsidiary of the company.

Details of the company's subsidiaries at 31 December 2021 are as follows:

The registered office address of the subsidiaries are:

Financial assets that are debt instruments measured at amortised cost, including Trade debtors, Amounts owed by group undertakings and Other debtors.

Financial liabilities measured at amortised cost include Obligations under finance lease and hire purchase agreements, Trade creditors, Amounts owed to group undertakings, Other creditors and Accruals.

There is no significant difference between the replacement cost of finished goods and their carrying value.    

Amounts owed by group undertakings are unsecured, interest free and repayable on demand.

Amounts owed to group undertakings are unsecured, interest free and repayable on demand.

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

For the company, there is an unrecognised deferred tax asset of £2,661,379 (2020: £2,596,547) as, at the date of signing the financial statements it is not probable that they will be recovered against future taxable profits.

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

The holders of Ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the group and company.

Other reserves is the foreign currency translation reserve.

The shares of the subsidiary Arca Technologies S.r.l are pledged in favour of lenders in the US in relations to loans to the US company.

Arca Technologies S.r.l has been undergoing a tax audit by the Italian Tax Police.  At the date of approval of the accounts the Tax audit investigation had concluded and findings notified to the directors. Following the Italian process, Arca Technologies S.r.l are to file a first defence brief to the Tax Office by 8 November 2022  before any official assessment is issued and potential settlement is made.  As the value of any potential tax liability cannot be reliably estimated no provision has been made in the financial statements.

At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

The company has taken advantage of the exemptions contained in FRS102 not to disclose transactions with related companies which are controlled within the Arca. Tech Systems LLC group of which the company is a subsidiary.

The ultimate controlling party is Arca Holdings LLC which is under the direct control of Arca. Tech Systems LLC by means of 100% shareholding.

The parent undertaking of the smallest and largest group of undertakings, of which the company is a member, and for which consolidated financial statements are prepared is Arca. Tech Systems LLC; a company incorporated in the USA and these are available from 1151 Holmes Road, Mebane, NC, 27302, USA.