SRT Marine Systems plc Annual Report and Financial Statements for the year ended 31 March 2023 www.srt-marine.com Contents Directors and Advisors About SRT Marine Systems plc Annual Report Highlights Chairman’s Statement Strategic Report Directors’ Report Statement of Directors’ Responsibilities in respect of the Accounts Corporate Governance Report Independent Auditor’s Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Cash Flows Company Statement of Cash Flows Consolidated Statement of Changes in Equity Company Statement of Changes in Equity 4 6 7 8-9 10-11 12 13 14-15 16-21 22 23 24 25 26 27 28 Notes to the Accounts Notice of Annual General Meeting 29-55 56-59 3 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Directors and Advisors Solicitors CMS Cameron McKenna Mitre House 160 Aldersgate Street London EC1A 4DD Nominated Advisor & Broker finnCap 60 New Broad Street London EC2M 1JJ Registrars Computershare Investor Services PLC PO Box 82 The Pavilions Bridgewater Road Bristol BS99 7NH Company registered number 05459678 Website www.srt-marine.com Directors Simon Tucker Neil Peniket Richard Hurd Jean Francois Bonnin Kevin Finn Simon Rogers Simon Barrell Secretary Richard Hurd Registered Office Wireless House Westfield Industrial Estate Midsomer Norton Bath BA3 4BS Bankers Barclays Bank plc 4-5 Southgate Street Bath BA1 1AQ CLA Evelyn Partners Limited Statutory Auditor & Chartered Accountants Portwall Place Portwall Lane Bristol BS1 6NA Auditors 4 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 5 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC About SRT Marine Systems Plc Our mission is to help solve the global issues of maritime safety, security, and sustainability. We are doing this through the development and application of innovative advanced digital technologies, products and integrated systems that deliver a new level of maritime domain awareness to vessel operators, coastguards, and fishery and environmental agencies. • • • Security – we enable coastguards to maintain continuous surveillance and fully automatic AI-driven detection of suspicious and illegal activities. Safety – we enable ships to navigate more safely and efficiently, and when in trouble at sea to be rescued more quickly. Environment – we enable long-term sustainable fishing and protection of the marine environment, whilst also ensuring food security and the long-term productive livelihoods of fishermen. The global marine domain is digitising and SRT is at the forefront of this market providing a growing range of solutions. Our products and systems integrate layers of proprietary innovative technologies, and are trusted and used daily by hundreds of thousands of vessels, plus an increasing number of national government agencies, such as Coast and Border Guards to secure and sustain their marine domains. 6 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC About SRT Marine Systems Plc Annual Report Highlights Financial: Operational: Increased revenues to £30.5m. Profit after tax £0.1m. £2.2m gross cash at year end. Post year end £5.4m equity raise and £20m loan note programme headroom increase. £160m systems forward contract order book and £1.4bn new prospects pipeline. Significant transceiver distributor network expansion. Continued progress with new NEXUS VHF/AIS radio system and DAS transceiver products, both of which entered testing phases. Expansion of analytics within the SRT-MDA System to improve dark vessel detection and tracking capabilities. Expansion of SRT delivery team to accommodate multiple simultaneous projects. 7 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Chairman’s Statement Whilst not as high as we had hoped, I am pleased to report that we were profitable on a 273% year-on-year increase in revenues to £30.5m, as our target markets recovered and recommenced their expansion, enabling us to benefit from our accumulated investments in technologies, products and customers over many years, and enter the new financial year with a £160m forward order book and substantial new prospects pipeline. As reported in our year-end trading update in March 2023, year-on-year group revenues grew to £30.5m (2022: £8.2m), of which transceivers generated £12.1m and systems £18.4m. Gross profit margin increased to 36% (2022: 33%), resulting in a profit after tax of £0.1m (2022: loss £5.8m). As at year-end, gross cash was £2.2m (2022: £5.9m) and, after the year-end, we completed an equity raise of £5.4m and increased our loan note programme capacity by an additional £20m. During the period, our systems business executed on three projects – two with coastguards and one with a national fisheries ministry, increased our forward contract order book to £160m, and grew our new prospects pipeline to be worth an estimated £1.4bn. This growth is driven by the increasing desire of national agencies to have effective maritime surveillance and intelligence in line with what has become the norm in air traffic control. The Philippine BFAR IMEMS system is now fully operational and in daily use, enabling BFAR to track, monitor and manage all their fisheries within a single optimised system. This project was originally scheduled to complete in December 2022, but is now expected to complete during 2023. This delay is a consequence of COVID where all installation work was suspended for well over a year due to mandatory travel and work suspensions. We also won and delivered a small but strategically important project to a national coastguard to enable the sharing of maritime information between multiple government agencies and completed the first phase of a £40m SRT-MDA System Vessel Tracking & Identification systems contract with a major Middle East Coastguard; the formal sign-off of which was concluded shortly after our financial year end, along with preparations for the next and final two phases, which are scheduled to be implemented by the end of 2024. The SRT-MDA System is a flexible and scalable integrated surveillance system solution that can be configured for either coastguard or fisheries use. After many years of continuous development, it offers an extensive range of innovative functionalities and capabilities that deliver enhanced maritime domain awareness. I am pleased to report that our development and product team have continued to enhance existing functionalities and introduce new capabilities. Of particular note is our focus on multi- sensor and multi-platform network integration, data fusion, and management and intelligent analytics in the area of automated vessel detection and identification, along with specialist fisheries functionalities, such as aquatic modelling and electronic catch reporting and auditing. This continuous development of the SRT-MDA System falls to our expanding development team, which we have carefully built over many years and today combines a rare blend of scale, talent and experience. The transceivers division grew year on year by 60% to a turnover of £12.1m, generating a blended gross profit of 45%, with some product and application areas generating margins as high as 80% and some 20%. We believe that growth has come from the compound effect of our reputation for having the best products, being a reliable supplier, expanding our distribution channels, and the slow but steady rolling adoption and proliferation of AIS across commercial and leisure vessels. We remain in the early stages of AIS adoption, with an estimated 500,000 vessels out of 26 million now having an AIS device, and most navigation aids at an even earlier stage. We therefore see very significant opportunity for steady long-term growth from our transceivers business driven by the same fundamentals of recent years. 8 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC In summary, the year has seen both our businesses grow strongly as a result of our long-term technology, and product and market investments that have placed SRT at the centre of the global digitisation of maritime domain awareness and navigation. With over 3,000 transceiver distribution partners, established products, £160m of forward contracts and a pipeline of new prospects that has grown to £1.4bn, we feel very confident, although not complacent, about the future. This year really has been operationally tough, with a lot of product development and sales and contracts work to keep up with market demands, so I would like to take this opportunity to thank our staff, partners and shareholders for their hard and diligent work throughout the year. Kevin Finn, Chairman, Date: 26 July 2023 The primary focus of our transceiver development team has been the development of our NEXUS VHF/AIS product. This product moves SRT into the voice communications segment of the leisure and commercial marine electronics market, which has much greater volumes than data only AIS due to its greater maturity. NEXUS is a significant investment for SRT and the project is now in its third year, with the expectation that it will start commercial shipments in early 2024. In 2023, we decided to delay the commencement of shipping by approximately up to 9 months to allow for further testing. This decision was made in the context of our global reputation for excellence and wishing to enter this new segment with a truly innovative product that matches our history of reliable and trustworthy products. NEXUS will therefore not contribute material revenues during the coming financial year, but we do expect it to make an impact thereafter. In the meantime, we have seen a significant growth in our distribution network and have added additional sales and marketing resource, particularly with our first in-territory presence in the USA, the effects of which we expect to see in the coming financial year. During the year, we soft launched our DAS product offer and have received a good response with visibility of some substantial new projects. DAS targets the aids to navigation market, which is integral to the digitisation of the marine domain and the realisation of safer and more efficient navigation. In the coming year, we will invest more in this segment, including the hiring of a dedicated salesperson. Shortly after the year end, we signed a new systems contract worth £140m to deliver an integrated maritime surveillance and intelligence system to a National Coastguard, increasing our forward systems order book to £160m. This opportunity was previously in our new systems prospects pipeline, which continues to grow and now contains prospects at various stages of the sales cycle with an aggregate value of £1.4bn; I expect to see some of these convert into contracts in the coming months. In the first half of the new financial year, we expect to commence the implementation of the next and final phases of our Middle East project, whilst the newly-signed £140m National Coastguard contract, with associated revenue milestone completion, will commence first implementation milestones in the second half of the financial year. As usual, our transceivers business will be more balanced but with the traditional second half weighting. 9 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Strategic Report for the year ended 31 March 2023 The directors present their Strategic Report for the year ended 31 March 2023. System execution risk The implementation of a system contract contains a wide range of execution risks. These risks are mitigated through forming long-term partnerships with local installation partners and investing in customer support and system project delivery teams. Attracting and retaining employees with appropriate skills The Group’s ability to execute its strategy is dependent on the skills and abilities of its staff. The Group undertakes ongoing initiatives to foster good staff engagement and ensure that remuneration packages are competitive in the market. Component shortages Whilst the situation has improved during the latter part of the financial year, the current global shortages of components have continued to lead to a lengthening of lead times and has meant that normalised production has periodically been unable to meet customer demand. The Group has continued to mitigate this issue by acquiring components outside of normal supply chain routes, although these suppliers often require immediate payment and thus deployment of additional working capital to support growth. Business Review The principal activity of the SRT Marine Systems plc Group is the development and supply of integrated maritime surveillance, monitoring, management and safety systems used by coastguards, fishery authorities, infrastructure and vessel owners for the purposes of managing and controlling their maritime domain. The financial key performance indicators (KPIs) used by the Board to monitor progress are revenue growth, gross margin, profit before tax, and cash flow. These are used because they best indicate performance against the Group’s strategic objective of delivering profitable growth, which in turn will drive shareholder value. Non-financial KPIs used include status of customer and development projects against milestone targets. Performance against these metrics has been discussed in the Chairman’s Statement on pages 8-9. Principal Risks and Uncertainties The key risks and uncertainties faced by the Group are: Nature of systems customers These customers tend to be governments and thus can be subject to significant risk, including but not limited to the forecasting of project commencement dates and project delivery schedules, political and financial change and uncertainty, sudden cancellation and or changes to contracts without the possibility for redress, negotiation and or compensation. Furthermore, payment terms are frequently extended and variable, and in the event of non- payment may not be collectable. The Group seeks to manage this risk by obtaining a deep understanding of our markets, end customers and local partners, which is achieved through extensive and close co-operation. 10 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Section 172 (1) Statement Each individual director must act in the way he considers, in good faith, would be the most likely to promote the success of the Group for the benefit of its members as a whole, and in doing so have regard to: • • • • • long-term consequences of any decisions the interests of the Group’s employees the need to foster business relationship with suppliers, customers and others the impact of the Group’s operations on the community and the environment the need to maintain a reputation for high standards of business conduct and act fairly between members of the group. Key issues Key issues include the investment and delivery of key projects in the systems business in overseas territories. In all evaluations, the need to foster important business relationships with customers and local in-country suppliers are key considerations, which are weighted heavily, as are the need for high standards of business conduct, and health and safety and environmental compliance. Furthermore, the interests of our employees post- pandemic continues to be of paramount importance with the business having last year transitioned to a flexible hybrid work location operating model. During the course of the year, we have implemented improvements to our human resources function with the engagement of a human resources consultant, and will intend to continue to implement further improvements over the coming year. Stakeholders Key stakeholders include shareholders, employees, customers and suppliers. Methods of engagement The Group uses a range of methods of engagement with stakeholders, ranging from formal structures to personal engagement. Shareholders are updated regularly on business activities via investor roadshows, quarterly on-line web casts, one-on-one communication with the executive directors, and AGM presentations. The Group’s flat management structure allows personal interaction at all levels, which facilitates communication within the organisation, as well as externally with customers and suppliers. An ‘open door’ culture is operated with all stakeholders. Employees have regular personal interaction with their line managers and the executive directors, and have annual targets set against which formal assessments of performance is reviewed. All key suppliers and customers are personally met in order that business relationships can be fostered. Investing for the future We acknowledge that our chosen market places are still in their early stages and, as a result, we need to continue to invest in our organisation in order to meet the challenges that a growing market will bring. This will involve adding to our existing product and system portfolio, as well as evolving our current technology offerings, which is further discussed in the Chairman’s Statement. Approved by the Board of Directors and signed on behalf of the Board on 26 July 2023. S Tucker, Director 11 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Directors’ Report for the year ended 31 March 2023 General information SRT Marine Systems plc is a public limited company, which is listed on the AIM market of the London Stock Exchange and is incorporated and domiciled in the United Kingdom. Directors’ indemnities The Company has made qualifying third-party indemnity provisions for the benefit of its directors, which were made during the year and remain in force at the date of this report. Results for the year and dividends Going concern The Group is reporting a profit after tax of £69,520 (2022: loss £5,838,005). The directors have not recommended the payment of a dividend (2022: £nil). Future developments and strategy These are considered in the Chairman’s Statement on pages 8-9. Research and development activities These are considered in the Chairman’s Statement on pages 8-9. Financial instruments and risk management Details of the Group’s financial instruments and its policies with regard to financial risk management are given in note 24 to the financial statements. Directors The directors who served during the year were: Non-executive Chairman Non-executive Directo r Non-executive Director Kevin Finn Simon Rogers Simon Barrell Executives Chief Executive Officer Chief Operating Officer Chief Product Officer Chief Financial Officer Simon Tucker Neil Peniket Jean Francois Bonnin Richard Hurd The directors have prepared the financial statements on a going concern basis. They believe that the Group and Company will have adequate resources to continue in operational existence for the foreseeable future. Further details can be found in note 1, Accounting Policies. Disclosure of information to the Auditors In the case of each person who was a director at the time this report was approved: • • so far as that director was aware, there was no relevant available information of which the Company’s auditors were unaware; and that director had taken all steps that the director ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors were aware of that information. This information is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Auditors A resolution to appoint the auditors, CLA Evelyn Partners Limited (formerly Nexia Smith & Williamson Audit Limited), will be proposed at the next Annual General Meeting. Approved by the Board of Directors and signed on behalf of the Board on 26 July 2023. 12 S Tucker, Director www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Statement of Directors’ Responsibilities in respect of the Accounts 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 Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for ensuring that they meet their responsibilities under the AIM Rules. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The directors are responsible for preparing the Strategic Report, 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 Group and parent Company financial statements in accordance with UK-adopted international accounting standards. Under Company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the Group, 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 judgments and accounting estimates that are reasonable and prudent; • • state whether UK-adopted international accounting standards have been followed subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 13 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Corporate Governance Report for the year ended 31 March 2023 The directors recognise the importance of, and are committed to, high standards of corporate governance. AIM companies are required to apply a recognised corporate governance code. Of the three widely recognised formal codes, the directors have decided to adhere to the Quoted Companies Alliance’s Corporate Governance code for small and mid-size quoted companies. The Group’s compliance with this code is summarised below and can be found in full on the Group’s website at: www.srt-marine.com/corporate-governance. Business model and strategy SRT has published a share dealing policy on its intranet to seek the necessary approval from directors should they or their families plan to trade in the Group’s equities. The Board of directors The members of the Board have a collective responsibility and legal obligation to promote the interests of the group, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board. SRT is a global leader in the provision of maritime domain awareness (MDA). Our products are used by mariners, infrastructure owners, coastguards and fishing authorities to enhance safety, security and management efficiency of maritime regions. The Board consists of seven directors of which four are executive and three are independent non-executives. The Board is satisfied that at present it has a suitable balance between independence on the one hand and knowledge of the company on the other. SRT’s strategy and business model is to address MDA market segments using a small set of innovative core technologies, and products and systems, which can be combined and customised into multiple product configurations and types, each of which address different MDA market segments. The key risks and challenges faced by the Group are set out in the Strategic Report on pages 10 and 11. Risk management The Board is responsible for the systems of internal control and risk management, and reviewing their effectiveness. Furthermore, through the activities of the Audit Committee, the effectiveness of these internal controls is considered annually. A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. Revised forecasts are also produced on a monthly basis. The Group’s results, compared with the budget and forecast, are reported to the Board on a monthly basis. Within the scope of the annual audit, specific financial risks are evaluated in detail, including those in relation to revenue recognition, recoverability of receivables and stock, and intangibles valuation. During the year ended 31 March 2023, there were six Board meetings and calls. Each director attended all the meetings and calls during the year, except Simon Barrell, Simon Rogers and Neil Peniket who all missed one meeting. The Board has an agenda of items to consider at each meeting subdivided into the key activities of the business, namely operations, product management, project delivery, sales and marketing, and financial matters. Prior to the Board meeting, a board pack of information is compiled by the executive directors and circulated around the Board, together with the minutes from the previous meeting for approval, and the monthly management accounts. The Board believes that the composition and breadth of experience of the board are appropriate for the Group at present and that its blend of relevant experience, skills and personal qualities and capabilities is sufficient to enable it to successfully execute its strategy. All Directors receive regular and timely information on the Group’s operational, sales and financial performance. Biographies of the Board are set out in the Corporate Governance section of the Group’s website. The Board is supported by three committees: audit, remuneration and nomination. 14 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Audit Committee The Audit Committee comprises Simon Barrell (Chairman) and Kevin Finn. It meets at least twice per year. The Audit Committee reviews the effectiveness of the internal controls of the business, as well as any key judgements made in the preparation of the interim and annual accounts, and the effectiveness of the internal financial management. The audit planning meeting took place on 31 May 2023, and the meeting to review feedback from the 2023 audit took place on 25 July 2023. Remuneration Committee The Remuneration Committee comprises Simon Rogers (Chairman), Kevin Finn and Simon Barrell; it meets at least once a year. During the year, the Committee met to discuss the remuneration of the Executive Directors. The remuneration policy for Directors is set by the Board and is described below. It is determined by the Remuneration Committee within the framework of this policy. The remuneration of the Executive Directors is determined by the Remuneration Committee, which consists entirely of Non-executive Directors. The Remuneration Committee consults with Simon Tucker, the Group Chief Executive Officer, as appropriate with regard to its proposals relating to the remuneration of the Executive Directors. The policy of the Remuneration Committee is to review the Executive Directors’ Remuneration based on market practice within the Group’s market sector. The Group wishes to attract, motivate and retain key executives. Accordingly, its policy is to design remuneration packages, which through an appropriate combination of basic salary, performance-related bonuses, share options, pension arrangements and certain benefits, reward executives fairly and responsibly for their individual contributions, whilst linking their potential earnings to the performance of the Group as a whole. The overall package, which is reviewed at least annually, may contain the following elements: (a) Basic salaries Basic salaries for Executive Directors are reviewed annually by the Remuneration Committee and are set at levels which reflect their performance and degree of responsibility. (b) Enterprise Management Incentive Share Option Scheme The Group has had in place, since November 2005, an enterprise management incentive share option scheme under which awards are met at the discretion of the Remuneration Committee. The share options held by the Directors are set out in note 3. (c) Performance-related bonus The Remuneration Committee can award discretionary bonuses, which are linked to the achievement of demanding individual, business and corporate objectives. (d) Pension allowance Simon Tucker elected not to join the Group’s Money Purchase Pension Scheme and, in compensation for this, the Remuneration Committee agreed to pay him the amount that the Group would have paid to the pension scheme on his behalf, for him to invest as he wishes. (e) Other benefits Other benefits include private health insurance. (f) Non-executive Directors The Non-executive Directors are independent of management and have no relationship which could materially interfere with the exercise of their independent judgement. The remuneration of the Non-executive Directors is decided by the Executive Directors. Nomination Committee The Nomination Committee comprises Kevin Finn (Chairman) and Simon Rogers. The Nomination Committee met during the year to discuss the appointment of new members of the senior management team. Corporate culture The Board aims to lead by example and do what is in the best interests of the Company. It seeks to maintain the highest level of integrity in the conduct of the Group’s operations. An open culture is encouraged within the Group, with regular communication to staff regarding progress and staff feedback sought on a regular basis. Given the nature of the customers and markets within our systems business, a strict anti-bribery and corruption policy is operated to ensure that business dealings are carried out to the highest ethical standards. 15 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Independent Auditor’s Report to the members of SRT Marine Systems PLC the FRC’s Ethical Standard as applied to listed entities, 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. Our approach to the audit The Group performs all transaction processing and financial statement preparation centrally in the UK. Of the Group’s nine reporting components, we audited five with one being audited by targeted audit procedures to group materiality levels, and the remaining components being dormant entities. The components within the scope of our work covered materially all of the Group’s revenue, all of the Group’s loss before tax, and all of the Group’s net assets. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: • • • the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Opinion We have audited the financial statements of SRT Marine Systems plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2023, which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Cash Flows, the Consolidated and Company Statements of Changes in Equity, and the notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards. In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 March 2023 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006; and the financial statements 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 16 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Key audit matter Intangible assets – for Group only Description of risk How the matter was addressed in the audit The Group capitalises qualifying development costs as intangible assets, which are material to the Group’s financial statements. The audit risk is considered significant, given the stringent requirements that must be met to capitalise these costs in accordance with IAS 38. In addition, the value of these costs to the Group, once capitalised, presents an area of audit risk, given the uncertainty and value of future sales, and the projected future life of the intangible asset and amortisation period assigned. For these reasons, we have considered this an area of key audit focus. The main procedures performed on the recognition and valuation assessments, including areas where we challenged management, were as follows: • Obtaining and agreeing the breakdown of intangible assets by ongoing/finalised projects to note 9 in the financial statements. • • • • • • Assessing the most significant costs capitalised per each project at year end against the stringent recognition criteria of IAS 38 and corroborating the explanations received from management with information obtained elsewhere, such as corroborating sales levels and margins obtained on the projects for which amortisation is being charged to work performed on the respective sales area. Substantive testing of a sample costs capitalised during the year by agreeing to supporting documents and assessing them against the recognition criteria of IAS 38. Reviewing the amortisation charged during the year, to ensure it has been calculated in accordance with the Group’s amortisation policy, and consideration of whether the amortisation period is appropriate for the specific costs capitalised. Reviewing management’s assessment of the value of the intangible assets against the impairment indicators of IAS 36. Reviewing and challenging the impairment review conducted to ensure the value of intangible assets not yet in use were more than covered by the recoverable amount. Considering the appropriateness of the disclosures made in the financial statements in respect of these assets. Revenues – for Group only As shown on pages 31 and 32, and note 2, the Group has a number of revenue streams in its subsidiary companies. Under auditing standards, there is a default significant fraud risk associated with the recognition of revenues, and we considered the risk to be most significant for systems contracts spanning the year end, where there can be judgement required as to what the performance obligations are and whether these have been met. Given the significant increase in the level of revenues from the systems division, and new contractual arrangements, we have considered this to be a key area of audit focus, reflecting the level of senior time spent on this area. The main procedures performed on our review of the recognition of revenues, including areas where we challenged management, were as follows: • Obtaining detailed breakdowns of all revenue streams reported in the year. • • • • Substantively testing a sample of revenue transactions to invoices and receipt of monies from customer. Substantively testing a sample of revenue transactions around the year end to ensure revenues have been reported in the correct period. Reviewing the assessment made by management over the identification of performance obligations in the Group’s systems contracts, the revenue attributed to these performance obligations, and consideration of which performance obligations had been satisfied by the year end. Considering the appropriateness of the disclosures made in the financial statements in respect of revenues. 17 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Emphasis of matter – recoverability of intangible assets, investment value, intercompany debtor and goodwill We draw attention to note 1 in the financial statements concerning key sources of estimation uncertainty, and specifically the recoverability of £4.0m of intangible assets in the transceivers business: £634k of goodwill on the Group statement of financial position; and £20.9m of investment value and intercompany debtor of £974k on the statement of financial position of the Company. As described in Note 1 – Critical accounting judgements and key sources of estimation uncertainty – the recoverability of these assets is dependent on significant contracts being signed, delivered and cash collected, the timing of which is not certain. The financial statements do not reflect any impairment that may be required if the above Group assets totalling £4.6m or the above Company assets totalling £21.9m are not recoverable. Our opinion is not modified in respect of this matter. Our application of materiality The materiality for the Group financial statements as a whole (‘Group FS materiality’) was set at £610k. This has been determined with reference to the revenues of the Group, which we consider most appropriate given the Group’s focus on its revenues. Group FS materiality represents 2% of the Group’s revenues as presented on the face of the consolidated statement of profit or loss and other comprehensive income. The materiality for the parent company financial statements as a whole (‘parent FS materiality’) was set at £488k. This has been determined with reference to the benchmark of the parent company’s net assets as it exists only as a holding company for the Group. Parent FS materiality represents 3.6% of the parent company’s net assets as presented on the face of the parent company statement of financial position. Performance materiality for the Group financial statements was set at £396k, being 65% of Group FS materiality, for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. We have set it at this amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds group FS materiality. We judged this level to be appropriate based on our understanding of the Group and its financial statements, as updated by our risk assessment procedures and our expectation regarding current period misstatements, including considering experience from previous audits. It was set at 65% to reflect the fact that few misstatements were expected in the current period, but there is an element judgement and estimation in the financial statements. Performance materiality for the parent company financial statements was set at £317k, being 65% of parent FS materiality, for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. We have set it at this amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds parent FS materiality. We judged this level to be appropriate based on our understanding of the company and its financial statements, as updated by our risk assessment procedures and our expectation regarding current period misstatements, including considering experience from previous audits. It was set at 65% to reflect the fact that few misstatements were expected and areas of judgement and estimation are addressed in the subsidiary company audits at lower levels of materiality. Performance materiality used in the audit of the Group’s revenues was £317k in respect of the revenues reported by SRT Marine System Solutions Limited and £153k in respect of the revenues reported by SRT Marine Technology Limited. Material uncertainty related to going concern We draw attention to note 1 in the financial statements. Whilst the directors have prepared cash flow projections to support the adoption of the going concern basis, the timing of future cash flows from contracts secured within the Group’s systems business is uncertain. The events or conditions, along with the other matters as set forth in note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group and parent company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Notwithstanding the above, 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. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included: • • • challenging the assumptions used in the forecasts prepared by management for the financial years ending 2024 and 2025; assessing the appropriateness of the assumptions concerning growth rates and inputs to the discount rate against latest market expectations and macro- economic assumptions; comparing the forecast results to those actually achieved in the 2024 financial period so far; 18 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC • • considering the Group’s funding position and requirements; and considering the sensitivity of the assumptions and reassessing headroom after sensitivity. 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 other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. 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 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 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. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 13, 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 Group’s and 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 group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s 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 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. 19 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC • reviewed the bribery policy to ensure adequacy at preventing instances of bribery occurring within the Group. The senior statutory auditor led a discussion with senior members of the engagement team regarding the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur. The key areas identified as part of this discussion were: • Manipulation of the financial statements through the posting of manual journals • • Valuation of stock and intangible assets where estimates are made by management Incorrect recognition of revenues, especially on the Group’s systems contracts. The procedures we carried out to gain evidence in the above areas included: • • • • Testing a sample of manual journals back to supporting documentation Testing a sample of capitalised development costs back to supporting documentation and confirming that they are capital in nature (see Key Audit Matter regarding Intangible Assets for further detail). Testing the cost and net realisable value of a sample of stock lines to ensure that they are valued correctly. Testing the basis on which revenues have been reported on the Group’s systems contracts, by reference to the requirements of IFRS 15. Overall, the senior statutory auditor was satisfied that the engagement team collectively had the appropriate competence and capabilities to identify or recognise irregularities. In particular, both the senior statutory auditor and the audit manager have a number of years’ experience in dealing with companies in the technology development sector and those with cross-border activities, and also with companies listed on the AIM market of the London Stock Exchange. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditor’s report. 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: We obtain a general understanding of the Group’s legal and regulatory framework through enquiry of management in respect of their understanding of the relevant laws and regulations. We also drew on our existing understanding of the group’s industry and regulation. We understand that the Group complies with requirements of the framework through: • • • The establishment of a testing department to ensure all AIS product approval requirements are met. Engaging external experts to ensure the Group remains in line with regulatory expectations and is aware of any updates to legislation. Given the management structure and reporting lines, any litigation or claims would come to the Directors’ attention and are considered at board meetings. In the context of the audit, we considered those laws and regulations which determine the form and context of the financial statements, which are central to the Group’s ability to conduct its business ,and where failure to comply could result in material penalties. We have identified the following laws and regulations as being of significance in the context of the Group: • • • • The Companies Act 2006 and IFRS in respect of the financial statements; AIM rules and the UK Market Abuse Regulation; Bribery Act 2010; Health and safety regulations. We performed the following specific procedures to gain evidence about compliance with the specific laws and regulations defined above: inspected the monthly board meeting minutes to ensure there are no reports of non-compliance; reviewed legal expense accounts to ensure spend is in line with expectations; inspected health and safety records kept in the year; and • • • 20 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Use of our report This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Carl Deane Senior Statutory Auditor, for and on behalf of CLA Evelyn Partners Limited Statutory Auditor Chartered Accountants Portwall Place, Portwall Lane, Bristol BS1 6NA July 26, 2023 21 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March 2023 Revenue Cost of sales Gross profit Administrative costs Foreign exchange losses Notes 2023 (£) 2 30,506,152 2022 (£) 8,172,900 (19,467,188) (5,500,942) 11,038,964 2,671,958 (10,723,838) (8,721,560) (180,102) (147,754) Total administrative costs and foreign exchange losses (10,903,940) (8,869,314) Operating profit/(loss) Finance expenditure Finance income Loss before tax Income tax credit Profit/(loss) for the year after tax Total comprehensive income/(expense) for the year Earnings/(loss) per share: Basic Diluted 6 5 5 7 23 23 135,024 (6,197,356) (781,547) (615,648) 351 421 (647,172) (6,812,583) 715,692 974,578 69,520 69,520 0.04p 0.04p (5,838,005) (5,838,005) (3.53)p (3.53)p The notes on pages 29-55 form part of these financial statements. 22 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Consolidated Statement of Financial Position as at 31 March 2023 Notes 2023 (£) 2022 (£) Assets Non-current assets Intangible assets Property, plant and equipment Total non-current assets Current assets Inventories Trade and other receivables Current tax recoverable Cash Restricted cash Total current assets Liabilities Current liabilities Trade and other payables Borrowings Current tax liabilities Lease liabilities Total current liabilities Net current (liabilities)/assets Total assets less current liabilities Non current liabilities Borrowings Lease liabilities Total non current liabilities Net assets Shareholders’ equity Share capital Share premium account Retained loss Other reserves Total shareholders’ equity 9 10 13 14 7 12 15 16 7 17 16 17 18 20 20 20 11,756,717 1,256,223 9,368,069 1,328,842 13,012,940 10,696,911 3,465,626 5,828,652 968,607 2,359,922 3,847,735 978,963 2,181,548 5,924,601 949,115 906,245 13,393,548 14,017,466 (7,009,926) (6,459,635) (8,002,500) (7,245,000) (199,126) (237,371) - (201,402) (15,448,923) (13,906,037) (2,055,375) 111,429 10,957,565 10,808,340 - (649,946) (312,500) (703,317) (649,946) (1,015,817) 10,307,619 9,792,523 181,517 180,677 18,213,072 18,067,612 (13,577,566) (13,946,362) 5,490,596 5,490,596 10,307,619 9,792,523 The financial statements were approved by the Board of Directors on July 26, 2023 and were signed on its behalf by: S Tucker, Director The notes on pages 29-55 form part of these financial statements. 23 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Company Statement of Financial Position as at 31 March 2023 Assets Non-current assets Investments in subsidiaries Property, plant and equipment Total non-current assets Current assets Other receivables Cash and cash equivalents Total current assets Liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Total current liabilities Net current liabilities Total assets less current liabilities Non current liabilities Borrowings Lease liabilities Total non current liabilities Net assets Shareholders’ equity Share capital Share premium account Retained loss Other reserves Total shareholders’ equity Notes 2023 (£) 2022 (£) 11 10 20,924,253 20,923,456 445,489 389,109 21,369,742 21,312,565 14 1,174,761 26,135 1,200,896 827,968 1,282,903 2,110,871 15 16 17 16 17 18 20 20 20 (422,050) (526,941) (8,002,500) (7,245,000) (134,241) (98,272) (8,558,791) (7,870,213) (7,357,895) (5,759,342) 14,011,847 15,553,223 - (311,849) (311,849) (312,500) (287,063) (599,563) 13,699,998 14,953,660 181,517 180,677 18,213,072 18,067,612 (4,756,991) (3,357,029) 62,400 62,400 13,699,998 14,953,660 The notes on pages 29-55 form part of these financial statements. The loss for the year ended 31 March 2023 was £1,699,238 (2022: loss £1,414,452). The financial statements were approved by the Board of Directors on July 26, 2023 and were signed on its behalf by: Company’s registered number: 05459678 S Tucker, Director 24 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Consolidated Statement of Cash Flows for the year ended 31 March 2023 Cash generated from operating activities Corporation tax received Notes 22 2023 (£) 778,840 925,174 2022 (£) 1,405,136 789,217 Net cash generated from operating activities 1,704,014 2,194,353 Investing activities Expenditure on product development Purchase of property, plant and equipment Interest received Net cash used in investing activities Financing activities Gross proceeds on issue of shares Costs of issue of shares New loans issued Loan repayments Lease repayments Loan Interest paid Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Net cash and cash equivalents at beginning of year 9 10 (4,795,292) (3,327,011) (199,061) (183,802) 351 421 (4,994,002) (3,510,392) 146,300 4,919,130 - (266,828) 1,695,000 1,000,000 (1,250,000) (1,957,500) (258,835) (742,660) (410,195) (3,700,183) 6,830,846 (267,458) (566,891) 2,860,453 1,544,414 5,286,432 Net cash and cash equivalents at end of year 3,130,663 6,830,846 Reconciliation of liabilities arising from financing activities for the year ended 31 March 2023 and 31 March 2022 2023 (£) Interest (£) New leases (£) Cash flow (£) 2022 (£) Bank loan Loan notes 312,500 67,251 7,690,000 675,409 - - (1,317,251) 1,562,500 1,019,591 5,995,000 Lease liabilities 887,317 38,887 Total 8,889,817 781,547 202,546 202,546 (258,835) 904,719 (556,495) 8,462,219 2022 (£) Interest (£) New leases (£) Cash flow (£) 2021 (£) Bank loan Loan notes 1,562,500 65,101 5,995,000 501,790 Lease liabilities 904,719 48,757 Total 8,462,219 615,648 - - - - (1,002,601) 2,500,000 (521,790) 6,015,000 (267,458) 1,123,420 (1,791,849) 9,638,420 The notes on pages 29-55 form part of these financial statements. 25 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Company Statement of Cash Flows for the year ended 31 March 2023 Cash used in operating activities Investing activities Purchase of property, plant and equipment Investment in subsidiaries Interest received Net cash used in investing activities Financing activities Gross proceeds on issue of shares Costs of issue of shares New loans issued Loan repayments Lease repayments Loan Interest paid Net cash (used in)/generated from financing activities Net decrease in cash and cash equivalents Net cash and cash equivalents at beginning of year Net cash and cash equivalents at end of year Notes 22 10 2023 (£) (953,777) 2022 (£) (1,644,279) (63,777) (18,261) - 275 (1,726,053) 61 (63,502) (1,744,253) 146,300 4,919,130 - (266,828) 1,695,000 1,000,000 (1,250,000) (1,957,500) (156,156) (674,633) (239,489) (1,256,768) (164,330) (559,541) 2,970,931 (417,601) 1,282,903 1,700,504 26,135 1,282,903 Reconciliation of liabilities arising from financing activities for the year ended 31 March 2023 and 31 March 2022 2023 (£) Interest (£) New leases (£) Cash flow (£) 2022 (£) Bank loan Loan notes 312,500 67,251 7,690,000 675,409 - - (1,317,251) 1,562,500 1,019,591 5,995,000 Lease liabilities 446,090 14,365 Total 8,448,590 757,025 202,546 202,546 (156,156) 385,335 (453,816) 7,942,835 2022 (£) Interest (£) New leases (£) Cash flow (£) 2021 (£) Bank loan Loan notes 1,562,500 65,101 5,995,000 501,790 Lease liabilities 385,335 20,308 Total 7,942,835 587,199 - - - - (1,002,601) 2,500,000 (521,790) 6,015,000 (164,330) 529,357 (1,688,721) 9,044,357 The notes on pages 29-55 form part of these financial statements. 26 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Consolidated Statement of Changes in Equity for the year ended 31 March 202 At 31 March 2021 164,252 13,431,735 (8,362,800) 5,490,596 10,723,783 Share capital (£) Share premium (£) Retained earnings (£) Other reserves (£) Total (£) Total comprehensive expense for the year - - (5,838,005) Transactions with owners Issue of equity share capital 16,425 4,902,705 Cost of issue of equity share capital Share based payment charge - - (266,828) - 254,443 - - - - (5,838,005) 4,919,130 (266,828) 254,443 - - At 31 March 2022 180,677 18,067,612 (13,946,362) 5,490,596 9,792,523 Total comprehensive income for the year - - 69,520 Transactions with owners Issue of equity share capital Share based payment charge 840 - 145,460 - - 299,276 - - - 69,520 146,300 299,276 At 31 March 2023 181,517 18,213,072 (13,577,566) 5,490,596 10,307,619 The notes on pages 29-55 form part of these financial statements. 27 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Company Statement of Changes in Equity for the year ended 31 March 2023 At 31 March 2021 164,252 13,431,735 (2,197,020) 62,400 11,461,367 Share capital (£) Share premium (£) Retained earnings (£) Other reserves (£) Total (£) Total comprehensive expense for the year - - (1,414,452) Transactions with owners Issue of equity share capital 16,425 4,902,705 Cost of issue of equity share capital Share based payment charge - - (266,828) - 254,443 - - - - (1,414,452 4,919,130 (266,828) 254,443 - - At 31 March 2022 180,677 18,067,612 (3,357,029) 62,400 14,953,660 Total comprehensive expense for the year - - (1,699,238) Transactions with owners Issue of equity share capital Share based payment charge 840 - 145,460 - - 299,276 - - - (1,699,238) 146,300 299,276 At 31 March 2023 181,517 18,213,072 (4,756,991) 62,400 13,699,998 The notes on pages 29-55 form part of these financial statements. 28 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Notes to the Accounts for the year ended 31 March 2023 1. Accounting policies SRT Marine Systems plc is a public limited Company, limited by shares, incorporated in England and Wales. It is listed on the AIM. The address of the registered office is Wireless House, Westfield Industrial Estate, Midsomer Norton, Bath BA3 4BS. The nature of the Group’s operations and its principal activities are noted in the Chairman’s Statement and Strategic Report. The principal accounting policies are summarised below. They have all been applied consistently throughout the period covered by these financial statements. Basis of preparation The financial statements have been prepared in accordance with UK-adopted international accounting standards. The financial statements have been prepared under the historical cost convention. Basis of consolidation The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company prepared to 31 March each year. An investor controls an investee if the investee has all of the following: power over the investee; exposure or rights to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. All intra-Group transactions and balances and any unrealised gains and losses arising from intra-Group transactions are eliminated in preparing the consolidated financial statements. Going concern and material uncertainties The Group’s business activities, together with the key factors likely to affect its future development, profitability, cash flows, liquidity position, borrowing facilities and financial position are outlined within the Chairman’s Statement, Strategic Report and the financial statements. The directors have prepared the financial statements on the going concern basis, which assumes that the systems business will generate sufficient future recoverable income. The level of future income to be generated is uncertain and is highly dependent on the timing of the awarding and execution of contracts and cash receipts from the Group’s systems business. A number of significant systems contracts and opportunities in the Middle East and South East Asia are expected to generate material cash receipts in the next 12 months although the Directors recognise that it is very difficult to predict the timing of these cash receipts and in order to mitigate the potential impact on cash flows, the Group completed a financing exercise subsequent to the year end and increased the capacity on its loan note programme. The scale of these systems contracts and opportunities, and associated working capital potential requirements, are expected to necessitate project financing. Furthermore, the Group’s projections have allowed for delays in its revenues and specifically cash receipts and its projections have allowed for a range of possible outcomes on trading performance. That said, whilst the directors consider that they have used a reasonable basis to forecast the timing of these types of cash receipts, they do recognise that the nature of these systems’ customers does mean that the timing of cash receipts from these contracts and opportunities can be unpredictable, difficult to forecast and subject to change. These circumstances represent a material uncertainty that may cast significant doubt upon the Group’s and the Company’s ability to continue as a going concern. Notwithstanding this matter, after making due enquiries and considering the uncertainty described above, the Directors believe they have a reasonable basis to conclude that the Group and Company have adequate resources to continue in operational existence for the foreseeable future and, for this reason, the directors continue to adopt the going concern basis in preparing the financial statements. The financial statements do not include any adjustments that would result if the company was unable to continue as a going concern. Business combinations and goodwill Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent 29 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in the business combination are measured initially at their fair values at the acquisition date. Critical accounting judgements and key sources of estimation uncertainty The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the year-end date and the reported amounts of revenues and expenses during the year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Judgements • • • • • Development costs capitalised as intangible assets Management exercises judgement in determining whether the costs can be capitalised, and this is done by reference to a number of criteria as set out in these accounting policies. During the year, the Group has capitalised development costs of £4,795,292 (2022: £3,327,011). Determination of performance obligations For the purposes of recognising revenue, management has exercised judgement in considering the performance obligations in its long-term contracts to be building a monitoring system, delivering and installing transceivers, and providing services such as data, training, warranty and support. Allocation of transaction price The allocation of the total price to performance obligations is done, where possible, on the basis of relative stand-alone selling prices, which may need to be estimated as some performance obligations are never, in practice, sold on their own. Management exercises judgement to determine the best approach for allocating the transaction price to performance obligations where relative stand-alone prices are not readily available as some of the contracts are highly bespoke. The residual method of allocation of the transaction price is used when stand-alone prices are not available. Revenue recognition method for performance obligations where satisfaction is over time The Group uses either output methods or input methods to measure the progress towards completion of a performance obligation satisfied over time, 30 depending on which method is considered to depict the entity’s performance. Output methods recognise revenue on the basis of direct measurement of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The output method used by the Group is based on milestones reached. Input methods recognise revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. The input method used by the Group is based on costs incurred to date relative to total expected costs, which requires significant judgement. Contracts can be highly bespoke and hence historical cost information is not always useful in estimating future costs. The Group’s policies for the recognition of revenue and profit are set out in the revenue recognition policy below. Determination of the lease term Rental contracts are typically made for fixed periods but may have extension options. In these cases, significant judgement is required to ascertain the correct lease term. When assessing whether the Group is reasonably certain to exercise the option to extend the lease, the directors consider all relevant facts and circumstances (both monetary and non- monetary) that create an economic incentive for them to exercise or not exercise that option. They also include any expected changes in facts and circumstances from the commencement date until the exercise date of that option. Key sources of estimation uncertainty • Impairment of property, plant and equipment Management tests property, plant and equipment for impairment if and when indicators of impairment arise. Where such an indication exists, management estimates the fair value less costs to sell of the assets based on the net present value of future cash flows. The directors have considered whether there are any indicators of impairment to the carrying amount of property, plant and equipment of £1,256,223 (2022: £1,328,842). The unpredictability of cash flows in the Group’s system business has resulted in the existence of an impairment indicator which has been considered by the directors. Whilst recognising the challenges in forecasting these cash flows, the directors consider that they have used a reasonable basis to forecast the timing of these cash receipts. • Impairment of intangible assets Management tests intangible assets for impairment if and when indicators of impairment arise. Where such an indication exists, management estimates the fair www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC value less costs to sell of the assets based on the net present value of future cash flows. The directors have considered whether there are any indicators of impairment to the carrying amount of intangible assets of £11,756,717 (2022: £9,368,069), including goodwill of £633,645 (2022: £633,645). The variability of trading conditions in the Group’s system business has resulted in the existence of an impairment indicator which has been considered by the directors. The recoverability of these assets is dependent on significant contracts being signed, delivered and cash collected within the projects arm of the Group, the timing of which is not certain. Included in the above are £4.0m of pre-revenue products in the transceivers business where, as a result, these uncertainties are heightened. Whilst recognising the challenges in forecasting these cash flows, the directors consider that they have used a reasonable basis to forecast the timing of these cash receipts. Valuation of inventory Inventory is held at the lower of cost and net realisable value and is held for the Group’s transceiver business (£2,810,080) and its systems business (£655,546). If transceiver inventory is held for a long period of time or relates to a product line that is superseded, then the net realisable value is brought into question. Management perform a review of any such inventory and provides accordingly thereby seeking to ensure that the value at which inventories are held is appropriate. Systems inventory is reviewed for provision based on the assessment of sales patterns, which can be unpredictable in their timing and hence difficult to forecast. The total provision at 31 March 2023 amounted to £764,271 (2022: £717,098). Amortisation of development costs Management consider the amortisation period of each development cost asset based on the revenue generating life of each asset, currently considered to be five years. Where an asset is not ready for use at the year end and therefore has not been amortised, management perform impairment reviews based upon anticipated future cash flows, as detailed in the going concern section of this note. Investments The company accounts include an investment in subsidiaries balance of £20,924,523 (2022: £20,923,456) and inter-company receivable balances of £973,983 (2022: £636,594). Management tests investments for impairment if and when indicators of impairment arise. The unpredictability of cash flows in the Group’s system business has resulted in the existence of an impairment indicator, which has been considered by the directors. Whilst • • • recognising the challenges in forecasting these cash flows, the directors consider that they have used a reasonable basis to forecast the timing of these cash receipts. When undertaking this assessment, the directors have adopted a post-tax discount rate of 15% and a terminal growth rate of 2%. Research and development Research expenditure is written off to profit or loss in the year in which it is incurred. Development expenditure is capitalised and amortised over the period during which the Company is expected to benefit, currently considered to be five years. This cost is included as part of administrative expenses within profit or loss. Development expenditure capitalised represents time spent by Company employees, sub-contractor costs, and any other directly attributable costs incurred in creating the asset for the purposes intended by management, valued at cost. In recognising such development costs as assets, consideration is given to each of the following: • • • • • The technological feasibility of completing the asset so that it may be used or sold The intention and ability to use or sell the asset How the asset will generate future probable economic benefits, for example, by demonstrating that there is a market for the asset’s output Availability of adequate technical, financial and other resources to complete the development and to use the asset The ability to measure reliably the expenditure on the asset during its development. Once management is satisfied that the above criteria are met, the development costs are carried as assets. The amortisation periods of each of the assets is five years, as this is considered to be the revenue generating life of each asset. This period is subject to annual review by management. The AIS technology assets have between 3 and 60 months of amortisation remaining. Revenue recognition Revenue is recognised in accordance with the transfer of promised goods or services to customers (i.e. when the customer gains control of the good/service) and is measured as the consideration which the Group expects to be entitled to in exchange for those goods or services. Consideration is typically fixed on the agreement of a contract. Payment terms are agreed on a contract-by- contract basis. 31 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Contracts include promises to transfer goods and/or services to a customer (i.e. ‘performance obligations’), which are typically indistinct and hence are accounted for together in a single performance obligation. Where multiple performance obligations exist within one contract, the transaction price is allocated between each performance obligation on the basis of past experience, with reference to stand-alone selling prices of each component and, where appropriate, by using the residual method approach. A good or service is distinct if the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Group recognises revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer. A performance obligation is satisfied over time when the vendor’s performance creates an asset under the control of the customer and the customer has an obligation to pay the vendor for performance to date, or when the customer simultaneously receives and consumes the benefits from the performance obligation. The Group recognises revenue from the sale of support services, maintenance and training over the time period to which the services provided relate, as this is considered the best indicator of when the customer receives and consumes the benefit of the service. The Group recognises revenue from the sale of maritime system solutions over the time as the monitoring system and transceivers are installed on the customer’s territory and therefore the asset is deemed under the customer’s control. The Group uses either output methods or input methods to measure the progress towards completion of a performance obligation satisfied over time, depending on which method is considered to faithfully depict the entity’s performance. Output methods recognise revenue on the basis of direct measurement of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The output method used by the Group companies is based on milestones reached. Input methods recognise revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. The input method used by the Group is based on costs incurred to date. 32 If revenue is recognised over a period of time, the Group presents as a contract asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. Progress billings not yet paid by customers and retentions are included within ‘trade and other receivables’. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). Contract asset and liability balances fluctuate due to the timing and mix of contracts held across the Group. The Group recognises revenue from the sale of goods and licenses at the point in time that goods are transferred to a customer, which is the point in time that the customer gains control of the goods. This is due to the nature of goods being fairly standardised and hence specific contract accounting does not apply. Contracts are deemed to be complete, and hence performance obligations fully satisfied, post customer acceptance of the goods. Amounts disclosed as current deferred income reflect revenue that will be recognised on performance obligations that will be satisfied within a year. The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the reporting period is £3,829,403 (2022: £6,358,920). This amount will be recognised over the remaining life of the contract. Property, plant and equipment All property, plant and equipment are valued at net book value, being the cost less accumulated depreciation and any impairment losses where there is an impairment recognised. Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets concerned. Annual lives of 3-4 years are used for owned plant and equipment. All right of use assets are depreciated in equal instalments over the remaining term of the lease. Taxation Where an income tax credit arises, this represents the sum of the tax currently receivable and deferred tax. Current tax is based on taxable profits for the year using tax rates and laws that have been enacted or substantively enacted by the statement of financial position date. Deferred tax is provided for on a full-provision basis on all temporary differences, which have arisen but not reversed at the statement of financial position date. Temporary differences represent the accumulated differences between the carrying amounts of assets and liabilities in www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax is calculated at the tax rates that are expected to apply when the related deferred tax balance is settled. Deferred tax is charged or credited to profit or loss, 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 are recognised to the extent that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted. Pension costs Contributions to defined contribution schemes are recognised on an accrual basis in accordance with the rules of the scheme. Foreign currencies Transactions denominated in a foreign currency are translated into sterling at the rate of exchange ruling at the date of the transaction. At the statement of financial position date, monetary assets and liabilities denominated in foreign currency are translated at the rate ruling at that date. All exchange differences are dealt with in profit or loss. Inventories Inventories and work in progress are stated at the lower of cost and net realisable value. Cost comprises direct materials and other subcontracted manufacturing costs. The costs of finished products are expensed to profit or loss to match against the corresponding revenues from those products. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made against slow moving and obsolete inventories to ensure the value at which inventories are held in the statement of financial position is reflective of anticipated future sales patterns. The cumulative expense recognised for equity-settled transactions at each reporting date, until the vesting date, reflects the extent to which the vesting period has expired and the Directors’ best estimate of the number of equity instruments that will ultimately vest. In making this judgement, consideration must be made as to the likely number of shares that will vest, and the fair value of each award granted. The fair value is determined using a valuation model, which is dependent on further estimates, including the Group’s future dividend policy, employee turnover, the timing with which options will be exercised, and the future volatility in the price of the Group’s shares. Such assumptions are based on publicly available information and reflect market expectations. Financial instruments Trade receivables and contract assets Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss. Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short-term nature. A provision for impairment is established based on 12-month expected credit losses, unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in profit or loss. Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short-term bond deposits with an original maturity of three months or less. Share-based payments Borrowings The Group operates an equity settled share-based compensation plan whereby the Company grants share options to employees of all Group companies. The fair values of the options granted under this plan are calculated using an appropriate valuation model, which takes into account assumptions about future events and market conditions. Further details are provided in note 19. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service condition are fulfilled, ending on the date on which the relevant employees become fully entitled to the award. Interest-bearing loans and overdrafts are recorded initially when the proceeds are received. Finance charges are accounted for at amortised cost using the effective interest rate method. Trade payables Trade payables are non-interest bearing and are initially measured at their fair value and subsequently at their amortised cost. 33 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC Leases A right of use asset and lease liability has been recognised for all leases. The right of use asset has been measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of the costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date. The Group will depreciate the right of use assets on a straight line basis from the lease commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. Where impairment indicators exist, the right of use asset will be assessed for impairment. The lease liabilities are measured at the present value of the lease payments due to the lessor over the lease term, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s cost of capital. After initial measurement, any payments made will reduce the liability and the interest accrued will increase it. Any reassessment or modification will lead to a remeasurement of the liability. In such cases, the corresponding adjustment will be reflected in the right of use asset, or profit or loss if the right of use asset is already reduced to zero. On the statement of financial position, right of use assets have been included in property, plant and equipment. Changes in accounting policies and disclosures New and amended standards adopted by the Group The new and amended standards and interpretations applicable to the group for the first time this year have not had a material impact on the disclosure, or the amounts reported in the financial statements. New standards and interpretations not yet adopted During the next financial year, there will be amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in relation to the definition of material. The amendments are likely to require some reduced disclosures in the financial statements. The directors have considered the other new and amended standards and interpretations effect next year and are satisfied that these will not have a material impact on the Group. 34 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 2. Revenue and segment information Included within revenue are three customers (2022: one customer) with an amount exceeding 10% of the Group’s total revenue. In the current year, the largest customer was from the Middle East, with sales amounting to £12,401,520; the second largest was from the Philippines with sales of £5,560,413; and the third largest from Belgium with sales of £4,144,748. All sales were within the Marine technology business segment. In the previous year, the only customer with sales in excess of 10% was from Belgium with sales of £2,087,127 – also within the Marine technology business segment. Revenue from the Group’s customers in the Middle East and the Philippines is recognised over time, whilst all other revenue is recognised at a point in time. Business and geographical segments The directors have given due consideration to the requirements of IFRS 8 and the components of the Group, which management use to make decisions about operating matters and internal reports that are regularly reviewed by the chief operating decision maker, which is considered to be the Board of Directors. As in previous years, it has been concluded by management and the Board that the organisation is structured as a single business segment, the Marine technology business. The Marine technology business is the segment that provides solutions to solve the problem of maritime domain awareness, both products and systems, and which reflects the results presented in the primary statements. Individual contracts are specifically considered by management and the board if their magnitude is considered significantly large to warrant such consideration. From a geographical perspective, the Group earns revenue from a number of countries as set out below: Revenue by geographical destination 2023 (£) 2022 (£) Europe 8,488,539 4,990,488 Middle East 12,682,611 North America UK South East Asia Other 1,307,170 596,306 6,167,879 1,263,647 181,529 842,645 494,617 734,251 929,370 30,506,152 8,172,900 35 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 3. Directors’ emoluments The remuneration of the individual Directors was as follows: Year ended 31 March 2023 Salary (£) Bonus (£) Pension (£) Total (£) Executive Directors S Tucker N Peniket R Hurd JF Bonnin Non Executive Directors K Finn S Barrell S Rogers Total 225,000 150,000 110,000 120,639 50,000 36,000 20,000 711,639 - - - - - - - - - 7,500 5,500 - - - - 225,000 157,500 115,500 120,639 50,000 36,000 20,000 13,000 724,639 Year ended 31 March 2022 Salary (£) Bonus (£) Pension (£) Total (£) Executive Directors S Tucker N Peniket R Hurd JF Bonnin (appointed February 2022) Non Executive Directors K Finn S Barrell S Rogers Total 225,000 150,000 110,000 9,725 50,000 36,000 20,000 600,725 - - - - - - - - - 7,500 5,500 - - - - 225,000 157,500 115,500 9,725 50,000 36,000 20,000 13,000 613,725 36 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Share options at 31 March 2023 and 31 March 2022 Total options Exercise price Expiry date Executive Directors S Tucker S Tucker N Peniket N Peniket R Hurd R Hurd JF Bonnin Executive Directors K Finn S Barrell 1,500,000 2,500,000 1,200,000 750,000 600,000 450,000 500,000 1,000,000 300,000 0.1p 8 August 2026 0.1p 3 March 2032 0.1p 22 May 2030 0.1p 8 August 2026 0.1p 22 May 2030 0.1p 8 August 2026 0.1p 22 May 2030 32.5p 27 May 2030 32.5p 27 May 2030 Options expiring August 2026 Options expiring May 2032 During the year, 2,500,000 options were granted to S Tucker at an exercise price of 0.1p and an expiry date of May 2032. These options vest in five equal tranches dependent on the Company’s share price exceeding £1.25, £1.50, £2.00, £2.50 and £3.00. The vesting criteria have not been met and as such those options have not yet vested and are not exercisable. Exercise of options during the year During the year, R Hurd exercised 500,000 options at an exercise price of 20p. An insurance premium of £28,000 (2022: £28,000) was paid in respect of directors’ and officers’ liability. Retirement benefits are accruing to two directors (2022: two) under the money purchase pension scheme. Those options granted to S Tucker, N Peniket and R Hurd at an exercise price of 0.1p and an expiry date of August 2026,vest in three equal tranches dependent on the Company’s share price. The first tranche vests when the share price has exceeded 50p. This occurred during the year ended 31 March 2017 and so the first tranche has vested and is exercisable. The second and third tranches vest on the same basis, but with thresholds of 75p and £1.25, which have not yet been met and as such are not exercisable. Options expiring May 2030 Those options granted to N Peniket, R Hurd and JF Bonnin at an exercise price of 0.1p and an expiry date of May 2030, vest based on four equal tranches dependent on the Company’s share price exceeding 75p, £1.25, £1.50 and £2.00. Irrespective of these share price targets, 10% vest after 2 years and a further 25% after 5 years from the date of grant. Furthermore, options were granted to K Finn and S Barrell with the same vesting criteria but with an exercise price of 32.5p. As at year end, the 2 year vesting criteria has been met and therefore 10% of those options have vested and are exercisable. No other vesting criteria has been met and as such the remaining 90% of those options have not yet vested and are not exercisable. 37 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 4. Employee information The average number of persons, including directors, employed by the Group during the year was: Technical Administration, sales and other Staff costs for the above persons were: Wages and salaries Social security costs Pension costs - defined contributions 2023 (£) 2022 (£) 65 25 90 60 23 83 2023 (£) 3,852,779 408,284 136,155 2022 (£) 3,086,208 303,040 112,972 4,397,218 3,502,220 Total amounts payable for wages and salaries exclude costs capitalised as development expenditure within intangible assets, amounting to £2,787,122 ( 2022: £2,216,420). Total amounts payable for wages and salaries include an amount of £299,276 (2022: £255,443) in respect of share-based payment charges. The Company employed an average of 7 persons within administration, sales and other (2022: 7) with total wages and salaries of £895,124, (2022: £844,470), including social security costs of £28,414 (2022: £26,257) and pension costs of £9,932 (2022: £9,660). The wages and salaries of the Company also include an amount of £299,276 (2022: £255,443) in respect of share-based payment charges. 5. Finance income and expenditure Group Bank interest payable Interest on lease liabilities Loan note interest payable Total interest payable Bank interest receivable 2023 (£) 2022 (£) 67,251 38,887 675,409 781,547 (351) 65,101 48,757 501,790 615,648 (421) 38 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 6. Operating profit/(loss) Operating profit/(loss) for the year is stated after charging: Inventories recognised as an expense Amortisation of intangible assets (included in administrative costs) Depreciation 2023 (£) 7,590,959 2,406,644 474,226 2022 (£) 4,258,381 2,233,112 543,472 Auditors’ remuneration – fees payable to the company’s auditor for the audit of the parent company’s accounts 35,000 27,000 Fees payable to the company’s auditor for other services: - audit of the company’s subsidiaries - audit-related assurance services Exchange loss Research and development costs not capitalised 96,000 4,300 180,102 305,626 61,000 4,200 147,754 161,544 39 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 7. Taxation Income tax credit UK corporation tax at 19% (2022: 19%): Adjustments in respect of prior periods Foreign taxation Deferred tax credit Total tax credit for the year Factors affecting tax credit for the year Loss before tax Loss before tax multiplied by standard rate of corporation tax in the UK 19% (2022: 19%) Effects of: Expenses not deductible for tax purposes Other differences 2023 (£) 2022 (£) (968,607) - 53,789 (789,217) 199,126 - - (185,361) (715,692) (974,578) (646,172) (6,812,583) (124,850) (1,294,391) 111,195 2,173 3,490 (16,855) Deduction for R&D expenditure and loss surrenders (1,312,009) 525,519 Adjustment to tax charge in previous periods Impact of change in tax rates Foreign tax Temporary differences in relation to share options Deferred tax not recognised Tax credit for the year Losses carried forward Movement in deferred tax asset At 1 April, 2022 Deferred tax credit Reclassified as current asset At 31 March, 2023 Deferred tax asset Fixed asset temporary differences Losses and other deductions Deferred tax asset 113,131 (787,595) 66,705 (343,972) 199,126 - - 10,999 227,520 929,544 (715,692) (974,578) 22,431,836 20,995,938 - - - - 793,602 185,361 (978,963) - (2,843,186) (1,849,030) 2,843,186 1,849,030 - - 40 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC Current tax recoverable At 1 April, 2022 Reclassified from deferred tax asset Recovered during the year Adjustment to prior period R&D tax credit asset At 31 March, 2023 Current tax liabilities At 1 April, 2022 Foreign tax At 31 March, 2023 Unprovided deferred tax Fixed asset temporary differences Short term temporary differences Losses and other deductions Unprovided deferred tax asset 2023 (£) 2022 (£) 978,963 - - 978,963 (925,174) (53,789) 968,607 - - - 968,607 978,963 - 199,126 199,126 - - - - (486,143) 199,147 58,039 1,561,554 1,572,873 1,760,701 1,144,769 The Finance Bill includes legislation to increase the main rate of corporation tax from 19% to 25% from April 1, 2023. Accordingly, unrecognised deferred tax assets and liabilities have been calculated at 25% (2022: 25%). 41 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 8. Company loss for the financial year The Company has taken advantage of the exemption under Section 408 of the Companies Act 2006 not to publish its individual income statement. The loss for the year ended 31 March 2023, dealt with in the financial statements of the Company, was £1,699,238 (2022: loss £1,414,452). The Company made no gains or losses which would be reported in other comprehensive income in the years ended 31 March 2023 and 2022, and therefore the Company has not published its individual Statement of Comprehensive Income. 9. Intangible assets Cost At 1 April 2021 Additions At 31 March 2022 Additions At 31 March 2023 Amortisation At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2023 At 31 March 2022 At 1 April 2021 Patent (£) Development costs (£) Goodwill (£) Total (£) 54,160 23,802,088 633,645 24,489,893 - 3,327,011 - 3,327,011 54,160 27,129,099 633,645 27,816,904 - 4,795,292 - 4,795,292 54,160 31,924,391 633,645 32,612,196 54,160 16,161,563 - 2,233,112 54,160 18,394,675 - 2,406,644 54,160 20,801,319 - - - - - 16,215,723 2,233,112 18,448,835 2,406,644 20,855,479 - - - 11,123,072 633,645 11,756,717 8,734,424 7,640,525 633,645 633,645 9,368,069 8,274,170 Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination identified according to operating segments. The carrying amount of goodwill has been allocated to the Marine CGU. The main assumption in the cash flow projections is the budgeted sales, which have been determined using in- house estimates based upon detailed discussions with the Group’s customers and risk discounts applied where necessary. The recoverable amount of the goodwill has been determined based on a value in use calculation. That calculation uses cash flow projections covering a five-year period, a terminal growth rate of 2% and a post- tax discount rate of 15%. Management estimated the discount rate using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the market in which the Marine CGU operates. Management have concluded, based on its forecasts and the net present value of its forecast future cash flows, that there is no recognised impairment. None of the goodwill is expected to be tax deductible. Development costs in respect of assets not in use are subject to an impairment review. 42 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 10. Property, plant and equipment Group Cost At 1 April 2021 Additions At 31 March 2022 Additions At 31 March 2023 Depreciation At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2023 At 31 March 2022 At 1 April 2021 Plant & equipment Land & buildings Owned assets (£) Right of use assets (£) Right of use assets (£) 2,108,949 183,802 2,292,751 199,061 2,491,812 1,356,481 318,890 1,675,371 266,031 1,941,402 550,410 617,380 752,468 310,389 - 310,389 202,546 512,935 188,902 109,017 297,919 92,630 390,549 122,386 12,470 121,487 1,308,373 - 1,308,373 - 1,308,373 493,816 115,565 609,381 115,565 724,946 583,427 698,992 814,557 Company Plant & equipment Land & buildings Cost Owned assets (£) Right of use assets (£) Right of use assets (£) At 1 April 2021 Additions At 31 March 2022 Additions At 31 March 2023 Depreciation At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Net book value At 31 March 2023 At 31 March 2022 At 1 April 2021 592,854 18,261 611,115 63,777 674,892 379,686 93,549 473,235 81,940 555,175 119,717 137,880 213,168 310,389 - 310,389 202,546 512,935 188,902 109,018 297,920 92,631 390,551 122,384 12,469 121,487 495,206 - 495,206 - 495,206 221,074 35,372 256,446 35,372 291,818 203,388 238,760 274,132 The corresponding leases in respect of the above right of use assets are disclosed in note 17. Total (£) 3,727,711 183,802 3,911,513 401,607 4,313,120 2,039,199 543,472 2,582,671 474,226 3,056,897 1,256,223 1,328,842 1,688,512 Total (£) 1,398,449 18,261 1,416,710 266,323 1,683,033 789,662 237,939 1,027,601 209,943 1,237,544 445,489 389,109 608,787 43 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 11. Investments in subsidiaries - Company Cost - shares in group undertakings At 31 March 2021 Additions Provision for impairment At 31 March 2022 Additions At 31 March 2023 £ 932,593 24,316,976 (4,326,113) 20,923,456 797 20,924,253 The additions during the year consist of the incorporation of a 100% subsidiary, Em-trak Marine Electronics USA inc. with the issue of 1,000 ordinary shares of $1 each. The provision for impairment was previously held against intercompany receivables but has now been reported within investments following the capitalisation of the intercompany receivable balances. The Company holds more than 20% of the share capital of the following companies: Subsidiary SRT Marine Technology Limited (a) Em-trak Marine Electronics Limited (a) SRT Marine System Solutions Limited (a) Em-trak Marine Electronics Ireland Limited (a) SRT Marine Technology Ireland Limited (a) Em-trak Marine Electronics USA Inc (b) SRT Marine Systems SAS (b) Software Radio Technology Limited (b) SRT Software Development (India) Private Limited(b) Notes (a) The principal activity of these subsidiaries is the sales and development of maritime communication products and systems. (b) Non-trading entities. (c) The above of the address entities is the same as the Registered Office of the parent Company, SRT Marine Systems plc, as given on page 2, except for: SRT Marine Systems SAS whose address is SNCF Station, 14 Rue de Dunkerque, 75010 Paris, France; the two Irish 44 Country of incorporation Class Shares held UK Ordinary UK Ordinary UK Ordinary Ireland Ordinary Ireland Ordinary USA Ordinary France Ordinary UK Ordinary India Ordinary % 100 100 100 100 100 100 100 100 100 subsidiaries whose address is 51 Northumberland Road, Dublin 4, Ireland; and Em-trak Marine Electronics USA Inc whose address is 252 Little Falls Drive, Wilmington, Delaware 19808 USA. Furthermore, during the year, the Company opened and operated a branch office in Saudi Arabia: SRT Marine System Solutions, 8092 King Fahd Road, Al Olaya District, Unit No 8174, Riyadh 12313 3735, Saudi Arabia. www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 12. Restricted cash As at 31 March 2023, the Group had a balance of £949,115 (2022: £906,245) which was held in a restricted bank account by the Group’s bankers. This balance is being held as security against any possible liability arising from a performance bond issued by the bank to the Group’s customer on one of its systems projects. The Group does not expect any liabilities to arise on this project and thus the cash to be returned on completion in the year ended 31 March 2025. 13. Inventories Group Raw materials and consumables Finished goods 2023 (£) 1,861,477 1,604,149 3,465,626 2022 (£) 1,500,706 859,216 2,359,922 14. Trade and other receivables Group Trade receivables Other receivables Prepayments and accrued income 2023 (£) 1,817,606 526,924 3,484,122 5,828,652 2022 (£) 528,116 214,949 3,104,670 3,847,735 As at 31 March 2023 and 31 March 2022 the following movements in the provision account for credit losses were recognised during the year: Group Balance at 1 April Amounts written off during the year Provision made during the year Balance at 31 March 2023 (£) 9,802 (1,647) - 8,155 2022 (£) 9,802 - - 9,802 45 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC As at 31 March 2023, trade receivables and contract asset balances of £380,070 (2022: £35,366) were past due but not impaired. The provision for bad and doubtful debts includes estimated potential credit losses. The ageing analysis of these trade receivables is set out below. Group Up to 3 months past due 3 to 6 months past due Over 6 months past due Company Current Prepayments and accrued income Amounts owed by group undertakings Other receivables 2023 (£) 359,239 20,831 - 380,070 2022 (£) 29,705 3,379 2,282 35,366 2023 (£) 2022 (£) 152,055 973,983 48,723 1,174,761 126,367 636,594 65,007 827,968 15. Trade and other payables Group Trade payables Other tax and social security payable Other payables 2023 (£) 2022 (£) 2,466,200 1,483,842 197,992 23,176 155,556 30,237 Accruals and deferred income 4,322,558 4,790,000 Company Trade payables Other tax and social security payable Other payables Accruals and deferred income 7,009,926 6,459,635 2023 (£) 320,172 7,480 - 94,398 422,050 2022 (£) 414,935 7,531 1,447 103,028 526,941 46 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 16. Borrowings Group and Company Less than one year Bank loan Loan notes More than one year Bank loan Loan notes 2023 (£) 2022 (£) 312,500 1,250,000 7,690,000 5,995,000 8,002,500 7,245,000 - - - 312,500 - 312,500 The bank loan was drawn down in April 2020 as a one-year loan provided under the UK government Coronavirus Business Interruption Loan Scheme (CBILS) at an interest rate of 0%. During the previous year, the renewal of this facility was agreed with quarterly repayments commencing in July 2021 through to April 2023 at an interest rate of 2.59% above base rate. Loan notes relate to drawdowns on a secured note programme, which has been arranged by LGB Capital Markets. The loan note liabilities are secured by a floating charge over the Group’s assets. The loan notes have terms of up to 3 years and an interest rate of 8%–12%. The loan notes have maturity dates as follows: May 2023 June 2024 December 2024 March 2025 April 2025 March 2026 £ 1,660,000 415,000 2,140,000 2,540,000 445,000 490,000 7,690,000 47 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC The loan notes are subject to covenants relating to gearing and debt service cover. During the year ended 31 March 2023, the covenants in relation to debt service cover and gearing were breached and a waiver from loan note holders was obtained subsequent to the year end on 2 May 2023. Due to the waiver not being received prior to the year end and the covenants being retested on 30 September 2023, IAS 1 requires that the loans are all classified as being repayable in less than one year, despite their maturity dates. There are no material differences between the fair value of all borrowings and their actual book value. 17. Lease liabilities Group Lease liabilities Current Non current Company Lease liabilities Current Non current 2023 (£) 2022 (£) 237,371 649,946 887,317 201,402 703,317 904,719 2023 (£) 2022 (£) 134,241 311,849 446,090 98,272 287,063 385,335 The group has long-term property leases with a total value of £727,849 and with maturity dates varying between 3 and 6 years. Furthermore, it has leases on office equipment with a value of £159,468, with maturity dates varying between less than 1 year and 3 years. The company has long-term property leases with a total value of £286,622 and with a maturity date of 6 years. Furthermore, it has leases on office equipment with a value of £159,468 with maturity dates varying between less than 1 year and 3 years. 48 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 18. Called up share capital Allotted: Ordinary shares of 0.1p each 2023 2022 Number of shares allotted 181,516,939 180,676,939 Value of shares allotted Reconciliation of movements in share capital Shares outstanding as at 31 March 2021 Share placing March 2022 (a) Exercise of share options (b) Shares outstanding as at 31 March 2022 Exercise of share options (c) Exercise of share options (d) Exercise of share options (e) £ £ 181,517 180,677 No. 164,251,939 16,365,000 60,000 180,676,939 210,000 530,000 100,000 Shares outstanding as at 31 March 2023 181,516,939 Notes (a) The placing in March 2022 took place at 30p per share raising gross proceeds of £4,909,500 before costs of £266,828. (b) 30,000 share options were exercised at a price of 32p in September 2021 and a further 30,000 at a price of 0.1p in January 2022. (c) 150,000 share options were exercised at a price of 18p in November 2022 and a further 60,000 at a price of 23p in the same month. (d) 500,000 share options were exercised at a price of 20p in December 2022 and a further 30,000 at a price of 18p in the same month. (e) 100,000 share options were exercised at a price of 0.1p in February 2023. 49 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 19. Share-based payment The Company operates an Enterprise Management Incentive share option scheme and a Non-Enterprise Management Incentive scheme for directors and employees. The general terms of the schemes are that awards are made once an employee has completed a minimum of six months’ service with the Group. The awards made to employees are at the discretion of the Management Team and those to the directors at the discretion of the Remuneration Committee. The options are expected to vest over a period of up to 4 years and the maximum exercise period for the options is 10 years from the date of grant. Upon vesting the options are equity settled. Details of the share options outstanding during the year and previous year are as follows: No. of options Weighted average exercise price Balance at 1 April 2021 Granted during the year Exercised during the year Lapsed during the year Balance at 31 March 2022 Granted during the year Exercised during the year Lapsed during the year Balance at 31 March 2023 Balance exercisable at 31 March 2023 Balance exercisable at 31 March 2022 9,089,000 40,000 (60,000) (220,000) 8,849,000 4,100,000 (840,000) (232,000) 11,877,000 2,220,000 2,419,000 7.7p 31.5p 16.1p 8.3p 7.6p 0.1p 17.4p 2.0p 4.4p 6.3p 10.2p The value of the options granted during the year have been measured by using the Black Scholes pricing model as adjusted where applicable for market-based performance criteria. The inputs into the Black Scholes model included expected lives of up to 4 years, as well as the relevant share price, exercise price, volatility and risk-free rate at the date of grant. The options granted during the year had exercise prices of 0.1p and a share price on the date of issue ranging from 26p-47p. Expected volatility was determined by referencing volatility data received and using historical data for similar sized companies over the previous 5 years and amounted to approximately 70% for the grants made during the year. Risk-free rates were determined using government bonds and amounted to between 1.5% and 4.1%. The expected dividend yield was 0%. 50 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC For share options outstanding at the year end, vesting criteria and dates and expiry dates are as set out below. Vesting date/criteria Number issued Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately 156,000 50,000 160,000 900,000 195,000 20,000 100,000 Exercise price Expiry date 25p 29p 26p 0.1p 0.1p 0.1p 0.1p Dec 2023 Feb 2025 May 2025 Aug 2026 Dec 2026 Feb 2027 May 2028 Vested and exercisable immediately 40,000 31.5p Dec 2029 Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Vested and exercisable immediately Share price criteria not met Share price/retention criteria not met 314,000 130,000 40,000 75,000 40,000 0.1p May 2030 32.5p 31.5p May 2030 Dec 2030 0.1p Dec 2030 31.5p Dec 2031 1,800,000 2,682,000 0.1p 0.1p Aug 2026 May 2030 Share price/retention criteria not met 1,170,000 32.5p May 2030 Share price/retention criteria not met Share price criteria not met Share price/retention criteria not met Not exercisable before: Dec 2024 Dec 2024 Total outstanding options 300,000 2,500,000 930,000 75,000 200,000 11,877,000 0.1p 0.1p 0.1p 0.1p 0.1p April 2032 May 2032 Feb 2033 Dec 2030 Sept 2032 51 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 20. Reserves Reserves for the Group and Company are set out in the Statement of Changes in Equity on pages 27 and 28 respectively. Other reserves consist of a capital redemption reserve, warrant reserve and a merger reserve as set out below: Capital redemption reserve (£) Warrant reserve (£) Merger reserve (£) Total (£) At 31 March 2021, 2022, 2023 2,857 62,400 5,425,339 5,490,596 The capital redemption reserve arose on 8 March 2005 when 285,714 deferred 1p shares, with an aggregate nominal value of £2,857, were repurchased by Software Radio Technology (UK) Limited for the aggregate consideration of 1p. The merger reserve arose on 19 October 2005 when SRT Marine Systems plc acquired the entire share capital of Software Radio Technology (UK) Limited by means of a share-for-share exchange. The warrant reserve arose on Software Radio Technology plc listing on the London Alternative Investment Market in November 2005 when for every one share issued one warrant was also issued. This reserve represents the other reserve within the Company. Retained earnings represent the profits that the Group and Company has earned to date less dividends paid to shareholders and credits arising from capital reductions. Share premium represents the difference between the subscription and issue price of shares and their nominal value less any associated costs. 21. Related party transactions Key management are those persons having authority and responsibility for planning, controlling and directing the activities of the Group. In the opinion of the Board, the Group’s key management are the directors of SRT Marine Systems plc. The compensation of the directors of SRT Marine Systems plc is disclosed in note 3. In addition, a total share-based payment expenses of £142,212 (2022: £149,239) was recognised during the year in respect of share options granted to directors, together with an aggregate charge relating to directors’ employer’s national insurance contributions of £36,769 (2022: £35,026). During the year, there were expenses charged from the Company to its subsidiaries which are related parties for services provided. These transactions amounted to £1,079,082 (2022: £1,037,153). As at 31 March 2023, the Company had an outstanding receivables balance from SRT Marine Technology Ltd of £920,181 (2022: £504,231) and an outstanding receivables balance with SRT Marine System Solutions Ltd of £71,578 (2022: £149,341). 52 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 22. Cash generated from operations Group Operating profit/(loss) 2023 (£) 2022 (£) 135,024 (6,197,356) Depreciation of property, plant and equipment 474,226 543,472 Amortisation of intangible fixed assets 2,406,644 2,233,112 Share based payment charge 299,276 254,443 (Increase)/decrease in inventories (1,105,704) 8,361 Increase in trade and other receivables (1,980,917) (247,548) Increase in trade and other payables Company Operating loss Depreciation of property, plant and equipment Share based payment charge Increase in trade and other receivables 550,291 4,810,652 778,840 1,405,136 2023 (£) 2022 (£) (1,010,515) (834,661) 209,943 299,276 (9,404) 237,939 254,443 (48,136) Increase in amounts owed by/to group undertakings (338,186) (1,469,577) (Decrease)/increase in trade and other payables (104,891) 215,713 (953,777) (1,644,279) 23. Basic and diluted earnings/(loss) per share The basic earnings per share has been calculated on the profit after taxation of £69,520 (2022: loss £5,838,005) divided by the weighted number of ordinary shares in issue of 180,961,021 (2022: 165,167,407). During the year, the calculation of diluted earnings per share has been calculated on profit after taxation of £69,520. It assumes conversion of all potentially dilutive ordinary shares, all of which arise from share options. A calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of subscription rights to outstanding share options. The number of dilutive shares under option was 1,958,724, and the weighted average number of ordinary shares for the purposes of dilutive earnings per share was 182,919,745. During the previous year, the Group incurred a loss after taxation and therefore there is no dilution of the impact of the share options granted. 53 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC 24. Financial instruments Financial instruments Interest rate risk The Group and Company’s financial instruments comprise cash and cash equivalents, borrowings, lease liabilities and items such as trade payables and trade receivables, which arise directly from its operations. The main purpose of these financial instruments is to provide finance for the Group and Company’s operations. The Group and Company have interest-bearing assets and liabilities, which comprise of cash and cash equivalents and short and medium term loans (note 16) and lease liabilities (note 17), which earn or incur interest at a fixed rate. The Group and Company have not entered into any derivative transactions during the period under review. The Group and Company’s operations expose it to a variety of financial risks, including credit risk, interest rate risk and foreign currency exchange rate risk. Given the size of the Group and 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 Group’s finance department. Credit risk The Group’s credit risk is primarily attributable to its trade receivables and accrued income balances. The Company had no trade receivables at 31 March 2023 (2023: £nil). The Group has implemented policies that require appropriate credit checks on potential customers before sales are made. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by each subsidiary’s management team. The carrying amount of financial assets represents the maximum credit exposure. At 31 March 2023, the Group’s largest customer (note 2) had an accrued income balance outstanding of £2,457,321. The overdue receivable and contract asset balances are shown in note 14 and the maximum credit exposure as at the reporting date was: Trade receivables and accrued income 2023 (£) 2022 (£) 4,274,927 1,135,231 Cash and cash equivalents 3,130,663 6,830,846 7,405,590 7,966,077 The Company has cash and cash equivalents of £26,135 (2022: £1,282,903) and no trade receivables. The Group and Company’s cash and cash equivalents earned interest at a variable rate totalling £351 (2022: £421) during the year. Interest payable on the short and medium-term loans at a variable rate amounted to £742,660 (2022: £566,891) for the Group and Company together with interest on lease liabilities of £38,887 (2022: £48,757). Liquidity risk The Group maintains a mixture of long-term and short-term debt finance that is designed to ensure it has sufficient available funds for operations and future expansion opportunities. The Group monitors its levels of working capital to ensure that is can meet its debt repayments as they fall due. Debt maturity is disclosed in note 16. Foreign currency exchange rate risk The Group is exposed to foreign currency exchange rate risk as a result of trade payables and trade receivables, which will be settled in US Dollars, Euros, Saudi Riyal and Philippine Peso. The Company had no material exposure to foreign exchange risk. During the year, the Group did not enter into any arrangements to hedge this risk, as the directors did not consider the exposure to be significant. The Group will review this policy as appropriate in the future. The Group’s currency exposure comprises monetary assets and liabilities that are denoted in currencies other than sterling, principally those denominated in US Dollars, Euro, Saudi Riyals and Philippine Peso. Such transactions give rise to net currency gains and losses recognised in profit or loss. At the year end, this exposure comprised £1,843,107 (2022: £1,207,739) of assets denominated in US Dollars, £415,529 (2022: £237,658) of assets denominated in Euros, and £1,253,209 (2022: £4,156,669) of assets denominated in Philippine Peso, and £3,451,384 of assets denominated in Saudi Riyal. Furthermore, the Group at year end had £975,524 (2022: £82,951) of liabilities denominated in US Dollars, £78,976 (2022: £108,077) of liabilities denominated in Euros, £75,095 (2022: £4,315,949) of liabilities denominated in Philippine Peso, and £3,804,665 of liabilities denominated in Saudi Riyal. 54 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC 27. Subsequent events On 2 May 2023, the Group increased the capacity on the secured note programme from £20 million to £40 million. On 17 May 2023, the Group signed a US$ 180 million contract to supply an integrated maritime surveillance and intelligence system to a national coastguard. On 26 June 2023, the Group completed a placing of 10,720,000 new ordinary shares at an issue price of 50p per share, raising gross proceeds of £5,360,000. The table below illustrates the hypothetical sensitivity of the Group’s reported profits and equity to a 10% increase and decrease in the US dollar/Sterling, Euro/Sterling and Philippine Peso/Sterling exchange rates at the year-end date assuming all other variables remain unchanged. The sensitivity rate of 10% represents the Directors assessment of a reasonable possible change. Positive figures represent an increase in profit and equity. Year-end exchange rates applied in the analysis below are US Dollar 1.24 (2022: 1.31), Euro 1.14 (2022: 1.18), Saudi Riyal 4.64 and Philippine Peso 67.15 (2022: 68.23). Sterling strengthens by 10% 2023 (£) 2022 (£) US Dollar Euro Saudi Riyal (78,871) (102,253) (30,596) (11,780) 32,116 - Philippine Peso (107,101) 14,480 Sterling weakens by 10% 2023 (£) 2022 (£) US Dollar Euro Saudi Riyal 86,758 112,479 33,655 12,958 (35,328) - Philippine Peso 117,811 (15,928) 25. Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders. The Group defines capital as being share capital plus reserves. The Group is not subject to any externally imposed capital requirements, except as disclosed in note 16. 26. Financial commitments As at 31 March 2023, the Group had financial purchase order commitments amounting to £1,438,843 (2022: £594,168). 55 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC This document is important and requires your immediate attention. If you are in any doubt about the action you should take, you should immediately consult your stockbroker, bank manager, solicitor, accountant or other independent financial adviser duly authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your ordinary shares in the Company, please forward this document to the purchaser or transferee or to the stockbroker, bank or other person through whom the sale or transfer was effected for transmission to the purchaser or transferee. Notice of Annual General Meeting NOTICE is hereby given that the Annual General Meeting of SRT Marine Systems plc (the ‘Company’) will be held at the Centurion Hotel, Charlton Lane, Radstock, England BA3 4BD at 11.00 a.m. on 19 September 2023 for the purpose of considering and, if thought fit, passing the following ordinary resolutions (in the case of resolutions 1 to 6 inclusive) and special resolution (in the case of resolution 7): Ordinary resolutions 1. To receive the audited annual accounts and reports of the Company for the financial year ended 31 March 2023. 2. To reappoint CLA Evelyn Partners Limited as the auditors of the Company, to hold office until the conclusion of the next Annual General Meeting of the Company. 3. To authorise the directors to determine CLA Evelyn Partners Limited’s remuneration as the auditors of the Company. 4. To re-elect Simon Tucker as a director of the Company. 5. To re-elect Kevin Finn as a director of the Company. 6. THAT the directors be generally and unconditionally authorised to exercise all powers of the Company to allot shares and to grant rights to subscribe for or to convert any security into shares up to an aggregate nominal amount of £64,087, provided that this authority shall expire (unless previously varied as to duration, revoked or renewed by the Company in general meeting) on the date falling 15 months after the passing of this resolution or, if earlier, at the conclusion of the Annual General Meeting in 2024, except that the Company may before such expiry make any offer or agreement which would or might require shares to be allotted or such rights to be granted after such expiry and the directors may allot shares or grant such rights in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired, and this authority shall be in substitution of any such previous authorities. Special resolution 7. THAT subject to the passing of resolution 6, the directors be empowered pursuant to section 570 of the Companies Act 2006 to allot equity securities (as defined in section 560 of that Act) for cash pursuant to the general authority conferred on them by resolution 6 above and/or to sell equity securities held by the Company as treasury shares for cash pursuant to section 727 of the Companies Act 2006, in each case as if section 561 of that Act did not apply to any such allotment or sale, provided that this power shall be limited to: (a) any such allotment and/or sale of equity securities in connection with an offer by way of rights issue or other pre-emptive offer or issue, open for acceptance for a period fixed by the directors, made to holders of ordinary shares (other than the Company) on the register on any record date fixed by the directors in 56 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC proportion (as nearly as may be) to the respective number of ordinary shares deemed to be held by them, subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements, legal or practical problems arising in any overseas territory, the requirements of any regulatory body or stock exchange or any other matter whatsoever; and share or shares held by that shareholder. A proxy does not need to be a shareholder of the Company. If you are appointing more than one proxy you will need to state clearly on each form of proxy the number of shares in relation to which the proxy is appointed, and ensure that, taken together, the numbers of shares stated on the forms of proxy do not exceed your holding. (b) any such allotment and/or sale, otherwise than pursuant to sub-paragraph (a) above, of equity securities having, in the case of ordinary shares, an aggregate nominal value or, in the case of other equity securities, giving the right to subscribe for or convert into ordinary shares having an aggregate nominal value, not exceeding the sum of £19,226. This authority shall expire, unless previously revoked or renewed by the Company in general meeting, at such time as the general authority conferred on the directors by resolution 6 above expires, except that the Company may before such expiry make any offer or agreement which would or might require equity securities to be allotted or equity securities held as treasury shares to be sold after such expiry and the directors may allot equity securities and/or sell equity securities held as treasury shares in pursuance of such an offer or agreement as if the power conferred by this resolution had not expired. The directors believe that the proposed resolutions to be put to the meeting are in the best interests of shareholders as a whole and recommend that shareholders vote in favour of all the resolutions, as they intend to do in respect of their own beneficial shareholdings in the Company. On behalf of the Board Richard Hurd Company Secretary 26 July 2023 Registered Office: Wireless House, Westfield Industrial Estate, Midsomer Norton, Bath BA3 4BS Registered in England and Wales No. 05459678 Notes 1. A shareholder is entitled to appoint another person as that shareholder’s proxy to exercise all or any of that shareholder’s rights to attend and to speak and vote at the Annual General Meeting. A shareholder may appoint more than one proxy in relation to the Annual General Meeting, provided that each proxy is appointed to exercise the rights attached to a different 2. A form of proxy for use in connection with the Annual General Meeting is enclosed with the document of which this notice forms part. Completion and return of a form of proxy will not prevent a shareholder from attending and voting at the Annual General Meeting. Addresses (including electronic addresses) in this document are included strictly for the purposes specified and not for any other purpose. 3. To appoint a valid proxy or proxies shareholders must complete: (a) a form of proxy, sign it and return it, together with the power of attorney or any other authority under which it is signed, or a notarially certified copy of such authority, to the Company Secretary at the Company’s offices, or (b) a CREST Proxy Instruction (see note 4 below), and in each case no later than 48 hours before the time fixed for holding the meeting or any adjournment thereof. 4. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual General Meeting and any adjournment(s) of the meeting by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members and those CREST members who have appointed any voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & International Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Company’s agent by the latest time for receipt of proxy appointments set out in paragraph 3 above. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied 57 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC to the message by the CREST Applications Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK and International Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed any voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as is necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 5. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), only those shareholders included in the register of members of the Company at 6.00 p.m. on 15 September 2023 or, if the meeting is adjourned, in the register of members at 6.00 p.m. on the day which is two days before the day of any adjourned meeting, excluding any part of a day which is not a working day, will be entitled to attend and to vote at the Annual General Meeting in respect of the number of shares registered in their names at that time. Changes to entries on the share register after 6.00 p.m. on 15 September 2023 or, if the meeting is adjourned, in the register of members after 6.00 p.m. on the day, which is two days before the day of any adjourned meeting, excluding any part of a day which is not a working day, will be disregarded in determining the rights of any person to attend or vote at the Annual General Meeting. 6. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that: (a) if a corporate shareholder has appointed the chairman of the meeting as its corporate representative with instructions to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the chairman and the chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (b) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. 7. As at 26 July 2023, being the latest practicable date prior to the publication of this document, the Company’s issued share capital consists of 192,259,939 ordinary shares of 0.1 pence each with each share carrying the right to one vote. Explanatory notes for shareholders The notice of the Annual General Meeting of the Company to be held at 11.00 a.m. on 19 September 2023 is set out on pages 56-57 of the annual report and accounts. The following notes provide an explanation as to why the resolutions set out in the notice are to be put to shareholders. Resolutions 1 to 6 are ordinary resolutions. These resolutions will be passed if more than 50% of the votes cast for or against are in favour. Resolution 1 – Directors’ report and audited accounts for year ended 31 March 2023 The directors are required by the Companies Act 2006 to present to the shareholders of the Company at a general meeting the audited accounts and the reports of the directors and auditors for the year ended 31 March 2023. The report of the directors and the audited accounts have been approved by the directors, and the report of the auditors has been approved by the auditors, and both reports are contained in the Company’s Annual Report and Accounts. Resolution 2 – Reappointment of auditors The Companies Act 2006 requires that auditors be appointed at each general meeting at which accounts are laid, to hold office until the next such meeting. This resolution seeks shareholder approval for the reappointment of CLA Evelyn Partners Limited. The Audit Committee keeps under review the independence and objectivity of the external auditors. After considering relevant information the Audit Committee recommended to 58 www.srt-marine.com31 March 2023Annual Report and Financial Statements | 2023SRT Marine Systems PLC the board of directors that CLA Evelyn Partners Limited be reappointed. This resolution proposes the reappointment of CLA Evelyn Partners Limited as auditors of the Company. legal, regulatory or practical problems that may arise on a rights or other pre-emptive offer or issue. If passed, this authority will expire at the same time as the authority to allot shares given pursuant to resolution 6. The Company does not at present hold any shares in treasury. Resolution 3 – Auditors’ remuneration This resolution gives authority to the directors to determine the remuneration of CLA Evelyn Partners Limited as auditors of the Company. Resolutions 4 & 5 – Directors’ re-election Simon Tucker and Kevin Finn will retire at this year’s Annual General Meeting and offer themselves for re-election. Resolution 6 – Authority to allot shares The Companies Act 2006 provides that the directors may only allot shares or grant rights to subscribe for or to convert any security into shares if authorised by shareholders to do so. Resolution 6 will, if passed, authorise the directors to allot shares up to a maximum nominal amount of £64,087. It is accordingly proposed that the directors be granted general authority at any time prior to the date falling 15 months after the passing of the resolution or, if earlier, at the conclusion of the Annual General Meeting in 2024, to allot shares up to an aggregate nominal amount of £64,087, which represents an amount which is approximately equal to one-third of the issued ordinary share capital of the Company as at the date of the notice of Annual General Meeting. Passing this resolution will give the directors flexibility to act in the best interests of shareholders, when opportunities arise, by issuing new shares. The directors have no current plans to make use of this authority. Resolution 7 is a special resolution. This resolution will be passed if not less than 75% of the votes cast for and against are in favour. Resolution 7 – Disapplication of pre-emption rights The Companies Act 2006 requires that, if the Company issues new shares, or grants rights to subscribe for or to convert any security into shares, for cash or sells any treasury shares, it must first offer them to existing shareholders in proportion to their current holdings. If passed, resolution 7 will authorise the directors to issue shares for cash and/or sell shares from treasury (if any are so held) up to an aggregate nominal amount of £19,226 (representing approximately 10% of the Company’s issued share capital as at the date of the notice of Annual General Meeting) without offering them to shareholders first, and will also modify statutory pre-emption rights to deal with 59 31 March 2023www.srt-marine.comAnnual Report and Financial Statements | 2023SRT Marine Systems PLC SRT Marine Systems Plc Contact Wireless House +44 (0)1761 409 500 Westfield Industrial Estate +44 (0)1761 410 093 Midsomer Norton info@srt-marine.com Bath, BA3 4BS England, UK Registered Number: 05459678