BAE Systems (Military Air) Overseas Limited

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Befreiender Jahresabschluss zum Geschäftsjahr vom 01.01.2023 bis zum 31.12.2023

Annual Report and Financial Statements 31 December 2023

Registered number: 02564455

Contents

Strategic Report

Directors' Report

Directors' Responsibilities Statement

Independent Auditor's Report to the Members of BAE Systems (Military Air) Overseas Limited

Income Statement

Statement of Comprehensive Income

Balance Sheet

Statement of Changes in Equity

Notes to the Financial Statements

Strategic Report for the year ended 31 December 2023

Review of business and principal activities

BAE Systems (Military Air) Overseas Limited (the "Company") is a member of the BAE Systems plc Group ("BAE Systems Group" or "Group") of companies. Its principal activity is the provision of management, technical and support services operating in a number of regions primarily in the UK and Europe.

In the UK, the business is in the process of concluding its repairs business for Typhoon. Sales in Europe and other countries include the provision of programme managers and engineers on overseas placements to support the technical delivery of aircraft through final assembly, and support after delivery to the customer. The branch in Qatar continues to provide functional shared services to other BAE Systems businesses in the Middle East and UK.

Key performance indicators

Key financial performance indicators are shown below:

		Restated
	2023	2022
	£000	£000
Order intake	9,049	45,502
Revenue	13,574	74,125
Operating profit	1,442	11,284

Order intake represents the value of funded orders received from customers in the year. It is a measure of in year performance and supports future years' sales performance. The order intake figure for 2022 has been restated due to a purchase order value being missed from the figure reported in the prior year. This was amended in 2023 and as a result the 2022 figure has been restated to reflect the true order intake for that year.

Revenue represents the amounts derived from the provision of goods and services.

Operating profit is used for internal performance analysis as a measure of operating profitability that is comparable over time.

There has been a reduction in order intake compared to the prior year by £36,453k, due to the military and technical services coming to an end. The last order intake was in the financial year 2022.

The key driver behind the order intake is now the branches in Germany and Qatar providing technical and support services to other parts of BAE Systems Group. This order intake is driven by the number of individuals being employed by the branches of which a number now have funding for two years.

The revenue has decreased by 82% primarily because of the military and technical services. This is because only repairs identified prior to 31 December 2022 are now being repaired under the contract so the volume of case by case repairs is considerably lower.

The reduction in operating profit and the operating profit margin from the prior year can be directly attributed to the conclusion of the military and technical services contract.

Principal risks and uncertainties

The Company's principal risks are identified below:

The Company operates in international markets

Description: International sales and operations are sensitive to: social and political changes impacting the business environment; economic downturns, political instability, armed conflict and civil disturbances; the imposition of capital controls; the introduction of burdensome taxes or tariffs; changes of export control, tax and other government policy and regulations in the UK and all other relevant jurisdictions; and the inability to obtain or maintain the necessary export licences and other trade restrictions.

impact: Any of these factors could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Mitigation: The Company's contracts are often long-term in nature and consequently, it may be able to mitigate these risks over the term of those contracts. Whilst some of the Company's contracts are on a government-to-government basis, for contracts which are not government-to-government, political risk insurance is held where considered appropriate with regard to the level of risk involved. However, as with all insurance, it does not provide full cover against all potential loss scenarios. The BAE Systems Group has a well-established legal and regulatory compliance structure aimed at ensuring adherence to legal and regulatory requirements and identifying restrictions that could adversely impact the Company's activities, including export control requirements.

Currency risk

Description: Given the international nature of its business, the Company is exposed to volatility arising from movements in currency exchange rates, particularly in respect of the Euro, Qatari Rial and South African Rand.

Impact: Significant fluctuations in exchange rates to which the Company is exposed could cause volatility in its financial results reported in pounds sterling and could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.

Mitigation: The Company's policy is to hedge all material firm transactional currency exchange rate exposures.

The Company's business is subject to significant competition in international markets

Description: The international markets in which the Company operates are highly competitive and the Company's business depends upon its ability to win and contract for high-quality new programmes in these markets. Furthermore, the Group's competitors may also develop new technologies or offerings, novel support models or more efficient ways to produce existing products that could cause the Group's existing products or services to become obsolete or that could gain market acceptance before the Group's own products or services.

Impact: If the Group is unable to compete adequately and/or obtain new business in the international markets in which it operates, there may be a material adverse effect on its business, results of operations, financial condition and prospects.

Mitigation: The Company has a track record of delivery on its commitments to its customers and it is deliberately structured and managed to enable it to easily react to the Group's needs, with the ability to quickly expand or contract its operations being a notable strength.

Supply chain

Description: The Company is dependent upon the delivery of materials by suppliers and the assembly of components and subsystems by subcontractors used in its products in a timely and satisfactory manner, on satisfactory commercial terms and in full compliance with applicable terms and conditions. This can be exacerbated where the Company is dependent on either one or a limited number of suppliers. Some of the Company's suppliers or subcontractors may be impacted by the economic environment (including inflationary pressures and material shortages) which could impair their ability to meet their obligations to the Company and to supply on satisfactory commercial terms.

Impact: A failure by one or more of the Company's suppliers to provide the agreed-upon materials, components or products or perform the agreed upon services, on a timely basis, at the agreed price, according to specifications (including compliance with regulatory requirements) or at all may adversely affect the Company's ability to perform its obligations, result in additional costs or delays, require the Company to transition work to other companies (resulting in further additional costs and delay) and/or result in penalties under, or the termination of, customer contracts. This impact is heightened where a supplier is a sole supplier or one of a small number of suppliers. Additionally, the Company could be adversely affected by actions, or issues experienced by, the Company's suppliers which are outside its control, such as misconduct and reputational issues involving the Company's suppliers, which could subject the Company to liability or adversely affect its ability to compete for contracts. Any of the foregoing could have a material adverse effect on the Company's business, results of operations, financial condition, prospects and reputation.

Mitigation: The Company's supply chain function establishes and manages enduring end-to-end integrated supplier arrangements, in partnership with the programmes it supports. In many cases, the Company benefits from long-term programme positions and incumbencies with more stable forward visibility for long-lead items allowing the Company to better manage supplier deliverables against programme requirements. Supply chain management starts with the BAE Systems Group's Global Procurement Policy which defines the requirements to be implemented by each of its sectors for the establishment of procurement controls and the management of supplier-related risk. Risk-based due diligence and audit activity is undertaken for each supplier whom the Company engages. Once a supplier has been approved, and a contract has been executed, the supply chain function continues to monitor that supplier. The supply chain risk management programme is working toward providing an enterprise- wide view of supplier risk, contributing to the continuity of supply and enabling better intelligence of sub-tier supply chain risk. Regular global supply chain meetings are held with senior procurement leaders to ensure that the latest risk data is appropriately shared. The Company seeks to manage inflation risk through its customer contracting arrangements on many of its major programmes, supplier cost management activity and through its long-term supplier agreements.

The Company could be negatively impacted by threats to the security of its information technology and operational technology systems

Description: As a major defence, aerospace and security company, it is critical that the Company's information technology and operational technology ("IT & OT") infrastructure, as well as the products and services it sells, are cyber resilient and the proprietary, classified, confidential or otherwise protected information, intellectual property and personal data held and processed on them are appropriately secured. Cyber security threats are continuous and evolving, and vary from attacks common to most industries, including those originating both externally and internally, to those from more advanced and persistent, highly organised adversaries, including nation states. The cyber security threats faced by the Company include (but are not limited to): an attack impacting the availability of the Company's IT & OT infrastructure and systems and/or those of its customers, partners and suppliers; unlawful attempts to gain access to the Company's proprietary, classified, confidential or otherwise protected information, intellectual property and personal data, and that held or generated by the Company on behalf of its customers, partners and suppliers; and compromise of products and services for the purposes of sabotage or to disable or deny their use and/or alter their performance characteristics. The Company might also be exposed to cyber security risks through an attack on the Company's supply chain.

Impact: Given the nature and scope of cyber attacks, it is possible that the Company is unable to defend itself against all cyber-attacks, that unknown vulnerabilities could be exploited or that the Company may otherwise be unable to mitigate customer losses and other potential liabilities (including potential liabilities related to privacy and intellectual property). The Company could potentially be subject to: (a) production downtimes; (b) operational delays; (c) other detrimental impacts to its operations or ability to provide products and services to customers; (d) the compromise, misappropriation, destruction or corruption of the Company's proprietary, classified, confidential or otherwise protected information, intellectual property and personal data, and that held or generated by the Company on behalf of its customers, partners and suppliers; (e) security breaches; (f) other manipulation or improper use of the Company's or third-party systems, networks or products; and/or (g) financial losses from remedial actions, loss of business, or potential liability, penalties, fines and/or damages. Any of these could have a material adverse effect on the Company's business, results of operations, financial condition, prospects and reputation.

Mitigation: The security of the BAE Systems Group's products and services, data, facilities and IT & OT infrastructure is regularly considered by the BAE Systems Group's Board and senior management and underpins the BAE Systems Group's strategy and influences its engineering, technology and digital strategies. Education and awareness to embed a strong cyber security culture across the Company is another vital part of its preventative activities. Employees are subject to mandatory training which, depending on role, covers cyber security, physical security, document marking, security of export-controlled information, and personal data protection. As many cyber-attacks involve email, the Company runs a programme of phishing exercises for all email users across the enterprise. To further increase cyber resilience, the BAE Systems Group's Security Operations Centres perform continual protective monitoring of activity on core networks. The Cyber Incident Response plan feeds into the BAE Systems Group's crisis management plan and regular exercises are conducted across the business to test the Cyber Incident Response plan, including up to the BAE Systems Group's Executive Committee. The BAE Systems Group purchases cyber insurance; however, as with all insurance, it does not provide full cover against all potential loss scenarios. To mitigate the cyber security risk posed by suppliers, the Company includes cyber security-related obligations in its contracts where relevant. Cyber security risk is constantly reviewed and an agile, proactive, approach to mitigating the risk is taken. The BAE Systems Group does this by efficiently leveraging its core internal capabilities in cyber security, including its specialist threat intelligence service, to maintain a managed risk position as it digitally transforms and the threat landscape evolves.

The Company's strategy is dependent on its ability to recruit and retain people with appropriate talent and skills

Description: Competition for the people the Company needs to deliver its strategy, including those with innovative technological capabilities, is high. Competition may be intensified by nationality and regulatory restrictions (including the requirement for security clearances for certain roles), and exacerbated by macroeconomic, industry and labour market conditions more generally.

Impact: The loss of key employees or inability to attract the appropriate people on a timely basis could adversely impact the Company's ability to deliver its strategy, meet its business plan and deliver on its contractual commitments, which accordingly could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.

Mitigation: The Company recognises that its employees are key to delivering its strategy and business plan, and focuses on developing the existing workforce and hiring talented people to meet current and future requirements. The Company has well-established graduate recruitment and apprenticeship programmes and, to maximise the contribution that its workforce can make to the performance of the business, has an effective through career capability development programme. In order to seek to maximise its talent pool, the Company is committed to creating a diverse and inclusive environment for its employees.

The Company is subject to risk from a failure to comply with laws and regulations Description: The Company operates in a highly regulated environment, across many jurisdictions and is therefore subject to a variety of legal, regulatory and litigation risks. These risks relate to (among other things) trade controls, intellectual property rights, data protection and security, contract-related claims, government contracts (including audits and reviews of those contracts), taxes, environmental matters, sanctions, product safety and reliability, health and safety, employment matters, competition laws and laws governing improper business practices (such as money laundering, false accounting, anti-bribery and corruption, and anti-boycott laws). These laws and regulations may be interpreted in different ways, conflict and/or change from time to time (as may any related interpretations and guidance). For example, export restrictions could become more stringent and political factors or changing international circumstances could result in the Company being unable to obtain or maintain necessary export licences.

Impact: Changes in laws and regulations (or the interpretation thereof) could result in higher compliance costs and impact customer or supplier contracts. Uncertainty relating to laws and regulations may also affect how the Company conducts its business and could limit its ability to enforce its rights. A breach of applicable legislation and/or regulations by the Company, its employees, sales representatives, marketing advisers or others working on its behalf could result in significant fines, penalties or other damages and/or the suspension or debarment of the Company from government contracts or the suspension of the Company's export privileges. If customers or other third parties were harmed by the conduct of members of the Company, this may also give rise to legal proceedings, including class actions. Other legal disputes may also arise between members of the Company and third parties relating to matters such as breaches or enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in members of the Company being liable to third parties or may result in rights not being enforced or not being enforced in the manner intended or desired. Any of the foregoing could have a material adverse effect on the Company's business, results of operations, financial condition, prospects and reputation.

Mitigation: The BAE Systems Group has a well-established legal and regulatory compliance structure aimed at ensuring adherence to regulatory requirements and identifying restrictions that could adversely impact the Company's activities. Internal and external market risk assessments form an important element of ongoing corporate development and training processes. A uniform global policy and process for the appointment of advisers engaged in business development is in effect and an export control policy mandates compliance with all applicable trade controls requirements. It is important that the Company maintains a culture in which it focuses on responsible business behaviours and that all employees act in accordance with the requirements of the BAE Systems Group's policies, including the Code of Conduct, at all times. Accordingly, it continues to reinforce the BAE Systems Group's ethics programme globally, supporting employees in making ethical decisions and embedding responsible business practices. The Company's internal legal team and, where appropriate, external counsel manage litigation and advise on the management of associated impacts.

Section 172(1) statement

This statement contains an overview of how the directors have performed their duty to promote the success of the Company as set out in Section 172(1) of the UK's Companies Act 2006. That section requires a director of a company to act in the way he considers, in good faith, would most likely promote the success of the company for the benefit of its shareholders. In doing this, the director must have regard, amongst other matters, to:

a)	the likely consequences of any decision in the long term,
b)	the interests of the Company's employees,
c)	the need to foster the Company's business relationships with suppliers, customers and others,
d)	the impact of the Company's operations on the community and the environment,
e)	the desirability of the Company maintaining a reputation for high standards of business conduct, and
f)	the need to act fairly as between members of the Company.

Decision making

The BAE Systems Group Operational Framework sets out the principles of good governance to which BAE Systems Group subsidiaries are required to adhere, together with BAE Systems Group's values, policies and processes. Decisions affecting a subsidiary are required to be taken in line with the Operational Framework, including in accordance with applicable delegations of authority.

Pursuant to the Operational Framework, the Groups' businesses each produce a strategic plan, a financial forecast for the current year and financial projections for the next five years. The directors of the Company contribute towards this process for the respective businesses of the Group for which they are responsible and are also responsible for identifying and managing principal and emerging risks in such businesses. In so doing the directors have regard to a variety of matters including the interests of various stakeholders, the consequences of their decisions in the long term and the long-term reputation of the Company and the Group.

The Company's operations are managed in accordance with the strategy set by the Group's Air sector.

The Board has not during the year been required to make any key decisions which warranted consideration of the Company's stakeholders for the purposes of s.172 of the Companies Act 2006.

Employees

The safety, wellbeing, skills, capabilities and commitment of the Company's people are critical to ensuring the long-term sustainability of the Company's business and delivering the innovation needed to solve the Company's customers' complex challenges.

Effective engagement enables our employees to contribute to improving business performance and helps the Company to create an environment in which everyone is safe, valued and can fulfil their potential.

The Company used a range of channels to engage with employees throughout the year, as well as keeping employees informed about the performance, developments and prospects of the business and the BAE Systems Group. This included surveys and insight sessions; in-person and virtual meetings, briefings, conferences , events and listening forums at all levels; regular leadership updates through videos and events throughout the year (including in relation to financial and business performance); and engagement through the BAE Systems Group's Employee App, intranet, email and TV systems.

The Company operates an Employee Incentive Scheme which entitles all employees to a financial benefit against the achievement of a set of business and programme milestones. This ensures that all employees feel connected with, and are invested in, the Company's achievements.

These engagement activities form part of the Company's implementation of the BAE Systems group-wide employee engagement processes and policies which are described on pages 24 and 56 of BAE Systems plc's 2023 Annual Report (available at: www.baesystems.com/investors).

Pursuant to the Group's People Policy, directors and employees are required to contribute to creating an engaged and inclusive work environment, where individuals are respected and where the value of a diverse workforce is recognised. Also, pursuant to the Policy, employees are to be provided with the means to give their views and feedback.

Through the implementation by the Company of these processes and policies, the directors have regard to the interests of the Company's employees.

Fostering business relationships with suppliers, customers and others

The directors recognise that fostering business relationships with key stakeholders, such as customers and suppliers, is essential to the Company's success. The Company has close relationships with its customers, suppliers and industry partners which help us to create best-in-class, cost-effective equipment, goods, services and solutions.

Our primary customers are other Group businesses and commercial businesses in overseas locations. Strong and collaborative relationships with our principal customers help us to identify their requirements and to help position the Company as a trusted provider. The directors are in regular contact with the principal customers of the Company.

The Company through its supply chain function, works with its suppliers and their supply chains to provide goods and services that meet its customers' requirements. The Company's supplier relationships are often long-term due to the length of the product life-cycles and meetings are held with key suppliers to foster deeper relationships with business in the supply chain and develop strategic relationships with key suppliers. The Group's supply chain function continues to actively manage supply lead times against demand requirements. In addition the Company utilises locally sourced contractors and service providers to support its overseas placements as required.

The community and the environment

The directors recognise the importance of leading a company that not only generates value for shareholders but also contributes to wider society. The Company implements the requirements of the BAE Systems Group's Community Investment Policy, which is mandated through the Operational Framework and looks to ensure that we build and nurture mutually beneficial relationships between our business, our people and local stakeholders. Giving back to the communities in which we operate, and to charities that have meaning to our business, is vitally important to our Company and our employees, allowing us to make a positive difference and have an impact where it counts.

The Company recognises that its operations have an impact on the environment - from the energy and resources it uses, to the products it manufactures and the waste that it generates. As an organisation, the BAE Systems Group is committed to reducing the environmental impact of its operations and products, minimising its environmental footprint and, in turn, decreasing its operational costs. Through the Operational Framework, the Company implements the requirements of the BAE Systems Group's Environmental Policy, which details our commitment to high standards of environmental management. In particular, the Company is supporting the Group's target of achieving net zero greenhouse gas emissions across the Group's operations (scope 1 and 2) by 2030 and its target of working towards a net zero value chain by 2050.

All the above activities form part of the Company's implementation of the BAE Systems Group-wide community and environment processes and policies and the BAE Systems Group's impacts thereon which are described on pages 48 to 55 of BAE Systems plc's 2023 Annual Report (available at: www.baesystems.com/investors).

Maintaining a reputation for high standards of business conduct

The BAE Systems Group aims to be a recognised leader in business conduct which helps us to earn and maintain stakeholder trust and sustain business success. The directors consider it fundamental to maintain a culture focused on embedding responsible business behaviours. All employees of the Company are expected to act in accordance with the requirements of BAE Systems Group policies, including the Code of Conduct, at all times. As well as being the right thing to do, this reduces the risk of compliance failure and supports the Company in attracting and retaining high-calibre employees.

Detailed information on the BAE Systems Group-wide business conduct processes and policies is described on pages 62 to 65 in BAE Systems plc's 2023 Annual Report (available at: www.annualreport.baesystems.com/2023).

Approved by the Board and signed on its behalf by:

Date: 9 July 2024

L M Gregson, Director

Directors' Report

Company registration

BAE Systems (Military Air) Overseas Limited (the "Company") is a private company, limited by shares and registered in England and Wales with the registered number 02564455.

Results and dividends

The Company's profit for the financial year is £1,369k (2022: £11,161k). The directors propose a dividend of £1,000k (2022: £10,000k).

The dividend proposed per share is £1,000 (2022: £10,000).

Business review and principal activities

The Company has entered the final phase of its contracts for its repair services for the Typhoon aircraft (see Overview paragraph in the Strategic Report). The follow on contracts for this work have been contracted by another Group company. The Company will now focus on providing technical and support services through its branch offices.

Looking forward

There are a number of current opportunities for Group companies to secure future export sales where technical and support services in overseas locations are required, and which the Company may be contracted to provide.

Going concern

After making due enquiries, considering the forward looking forecasts of the business and any potential challenges in relation to end of current programmes, the directors have a reasonable expectation that the Company has adequate resources to continue operational existence for at least 12 months from the date of approval of the financial statements. The directors expect profitability to continue in the future. The Company has net current assets of £270k, made a profit of £1,369k and received orders in the year to the value of £9,049k. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Energy and carbon reporting exemption

The Company has taken advantage of the exemption granted under The Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 as this information is disclosed on pages 232-235 of BAE Systems plc's 2023 Annual Report:

(available at www.annualreport.baesystems.com/2023.

Financial risk

The applicable financial risk management policies and exposure to financial risks including price, credit, liquidity and cash flow risks are discussed in detail within the BAE Systems Group accounts.

Overseas branch offices

The Company has overseas branch offices in the following countries:

	Germany
	Germany
	Italy
	South Africa
	Spain
	Qatar
	Belgium

Directors and their interests

The directors who served throughout the year and up to the date of this Directors' Report, unless otherwise stated, were as follows:

S D Wood	(resigned 13 December 2023)
A J Thompson	(resigned 13 December 2023)
L M Gregson	(appointed 13 December 2023)
R A Hussey	(appointed 13 December 2023)

The Board is not aware of any contract of significance in relation to the Company in which any director has, or has had, a material interest.

Post balance sheet events

There have been no significant events affecting the Company since the year end.

Disclosure of information to auditor

The directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each director has taken all the steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Auditor

The auditor, Deloitte LLP, has indicated its willingness to continue in office and, in accordance with Section 487(2) of the Companies Act 2006, has been re-appointed.

Approved by the Board and signed on its behalf by:

Date: 9 July 2024

L M Gregson, Director

Registered office:

BAE Systems (Military Air) Overseas Limited

Victory Point

Lyon Way

Frimley

Camberley

Surrey

GU16 7EX

England

United Kingdom

Directors' Responsibilities Statement

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

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 ("FRS 101") Reduced Disclosure Framework.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the directors are required to:

•	select suitable accounting policies and then apply them consistently;
•	make judgements and accounting estimates that are reasonable and prudent;
•	state whether applicable UK 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.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Independent Auditor's Report to the Members of BAE Systems (Military Air) Overseas Limited

Report on the audit of the financial statements

Opinion

In our opinion the financial statements of BAE Systems (Military Air) Overseas Limited (the "Company"):

•	give a true and fair view of the state of the Company's affairs as at 31 December 2023 and of its profit for the year then ended;
•	have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 "Reduced Disclosure Framework"; and
•	have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise:

•	the Income Statement;
•	the Statement of Comprehensive Income;
•	the Balance Sheet;
•	the Statement of Changes in Equity; and
•	the related notes 1 to 21.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 "Reduced Disclosure Framework" (United Kingdom Generally Accepted Accounting Practice).

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 Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the "FRC's") Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

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.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Extent to which the audit was considered capable of detecting irregularities, including fraud

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 considered the nature of the company's industry and its control environment, and reviewed the company's documentation of their policies and procedures relating to fraud and compliance with laws and regulations. We also enquired of management about their own identification and assessment of the risks of irregularities, including those that are specific to the Company's business sector.

We obtained an understanding of the legal and regulatory framework that the company operates in, and identified the key laws and regulations that:

•	had a direct effect on the determination of material amounts and disclosures in the financial statements. These included the UK Companies Act, pensions legislation, tax legislation; and
•	do not have a direct effect on the financial statements but compliance with which may be fundamental to the company's ability to operate or to avoid a material penalty.

We discussed among the audit engagement team regarding the opportunities and incentives that may exist within the organisation for fraud and how and where fraud might occur in the financial statements.

As a result of performing the above, we identified the greatest potential for fraud to be in relation to revenue and margin recognition on long term contracts. The specific procedures we performed to respond to this risk included:

•	examining external evidence to support contract status and estimation of variable consideration (including associated recoverability of contract balances) such as customer correspondence; and
•	analysing historical contract performance and testing the underlying calculations used in contract assessments for accuracy and completeness.

In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. In addressing the risk of fraud through management override of controls, we tested the appropriateness of journal entries and other adjustments; assessed whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business.

In addition to the above, our procedures to respond to the risks identified included the following:

•	reviewing financial statement disclosures by testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;
•	performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
•	enquiring of management and in-house legal counsel concerning actual and potential litigation and claims, and instances of non-compliance with laws and regulations; and
•	reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with relevant regulatory authorities.

Report on other legal and regulatory requirements

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.

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors' Report.

Matters on which we are required to report by exception

Under the Companies Act 2006 we are required to report in respect of the following matters if, in our opinion:

•	adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
•	the financial statements are not in agreement with the accounting records and returns; or
•	certain disclosures of directors' remuneration specified by law are not made; or
•	we have not received all the information and explanations we require for our audit.

We have nothing to report in respect of these matters.

Use of our report

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

Manchester, United Kingdom, 9 July 2024

Jonathan Crompton, Senior statutory auditor

For and on behalf of Deloitte LLP

Statutory Auditor

Income Statement for the year ended 31 December 2023

		2023	2022
	Note	£000	£000
Revenue	3	13,574	74,125
Operating costs	4	(12,132)	(62,841)
Operating profit		1,442	11,284
Financial income	5	12	-
Financial expense	6	(2)	(3)
Profit before tax		1,452	11,281
Tax	8	(83)	(120)
Profit for the financial year		1,369	11,161

The notes on pages 22 to 44 form part of these financial statements.

Statement of Comprehensive Income for the year ended 31 December 2023

		2023	2022
	Note	£000	£000
Profit for the financial year		1,369	11,161
Other comprehensive income:
Items that will not be reclassified to the Income Statement:
Remeasurements on end of service benefits		(27)	-
Items that may be reclassified to the Income Statement:
Currency translation on foreign currency branches	18	(73)	133
Cumulative fair value loss on hedging instruments reclassified to the Income Statement	18	25	415
Fair value (loss)/gain arising on hedging instruments during the year	18	(240)	844
Tax on items that may be reclassified to the Income Statement	8	54	(239)
Total other comprehensive (expense)/income for the year (net of tax)		(261)	1,153
Total comprehensive income for the year		1,108	12,314

The results for 2023 and 2022 arise from continuing activities.

The notes on pages 22 to 44 form part of these financial statements.

Balance Sheet as at 31 December 2023

		2023	2022
	Note	£000	£000
Non-current assets
Intangible assets	9	46	78
Property, plant and equipment	10	67	111
Right-of-use assets	11	216	134
Other receivables	12	3,431	8,677
Other financial assets	13	9	196
Deferred tax assets	15	70	-
		3,839	9,196
Current assets
Trade, contract and other receivables	12	29,227	49,619
Other financial assets	13	25	206
Current tax		57	6
Cash and cash equivalents		1,447	1,517
		30,756	51,348
Total assets		34,595	60,544
Non-current liabilities
Lease liabilities	11	(102)	(37)
Deferred tax liabilities	15	-	(32)
End of service benefits	14	(67)	(32)
		(169)	(101)
Current liabilities
Lease liabilities	11	(109)	(95)
Trade, contract and other payables	16	(30,281)	(47,050)
Other financial liabilities	13	(78)	(232)
Current tax		(18)	(47)
		(30,486)	(47,424)
Total liabilities		(30,655)	(47,525)
Net assets		3,940	13,019
Capital and reserves
Issued share capital	18	1	1
Other reserves	18	(128)	293
Retained earnings		4,067	12,725
Total equity		3,940	13,019

Approved by the Board on 9 July 2024 and signed on its behalf by:

L M Gregson, Director

Statement of Changes in Equity for the year ended 31 December 2023

	Issued share capital	Other reserves	Retained earnings	Total equity
	£000	£000	£000	£000
At 1 January 2022	1	(1,196)	8,564	7,369
Profit for the year	-	-	11,161	11,161
Other comprehensive income for the year	-	1,153	-	1,153
Dividends paid in the year (note 19)	-	-	(7,000)	(7.000)
Cumulative fair value loss on hedging instruments reclassified to the balance sheet	-	336	-	336
At 31 December 2022	1	293	12,725	13,019
Profit for the year	-	-	1,369	1,369
Other comprehensive expense for the year	-	(234)	(27)	(261)
Dividends paid in the year (note 19)	-	-	(10,000)	(10,000)
Cumulative fair value gain on hedging instruments reclassified to the balance sheet	-	(187)	-	(187)
At 31 December 2023	1	(128)	4,067	3,940

The notes on pages 22 to 44 form part of these financial statements.

Other reserves are defined in note 18.

Notes to the Financial Statements

1. General information

BAE Systems (Military Air) Overseas Limited (the "Company") is a private company, limited by shares, and registered in England and Wales and incorporated in the United Kingdom. Its ultimate controlling party is disclosed in note 21. The address of the Company's registered office is shown on page 11.

The principal activity of the Company is set out in the Strategic Report on page 1. These financial statements, which have been prepared in accordance with the Companies Act 2006, are presented in pounds sterling and, unless otherwise stated, rounded to the nearest thousand.

Foreign operations are included in accordance with the policies set out in note 2.9.

2. Accounting policies

2.1 Basis of preparation

These financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 "Reduced Disclosure Framework". The financial statements have been prepared under the historical cost convention, as modified by the revaluation of relevant financial assets and financial liabilities (including derivative instruments), and in accordance with the Companies Act 2006. Advantage has been taken of the FRS 101 disclosure exemptions as set out below:

•

the requirements of IFRS 7 Financial Instruments: Disclosures;

•

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

•

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

•

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

―	paragraph 79(a)(iv) of IAS 1 Presentation of Financial Statements;
―	paragraph 73(e) of IAS 16 Property, Plant and Equipment; and
―	paragraph 118(e) of IAS 38 Intangible Assets;

•

the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1 Presentation of Financial Statements;

•

the requirements of IAS 7 Statement of Cash Flows;

•

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

•

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

•

the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and

•

the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)-134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets.

The Company intends to continue to prepare its financial statements in accordance with FRS 101.

These financial statements have been prepared using the going concern basis of accounting, as discussed in the Director's Report (page 9).

Key sources of estimation uncertainty

There were no significant accounting policies that are considered by the directors to be critical because of the level of complexity and estimation uncertainty involved in their application and their impact on the financial statements.

Critical accounting judgements

In the course of preparing the financial statements, no judgements have been made in the process of applying the Company's accounting policies, that have had a significant effect on the amounts recognised in the financial statements.

Changes in accounting policies

The following standards, interpretations and amendments to existing standards became effective on 1 January 2023 and have not had a material impact on the Company:

•	IFRS 17: Insurance Contracts, effective from 1 January 2023;
•	Amendments to IAS 1: Presentation of Financial Statements, effective from 1 January 2023;
•	Amendments to IFRS Practice Statement 2: Disclosure of Accounting Policies, effective from 1 January 2023;
•	Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors, effective from 1 January 2023; and
•	Amendments to IAS 12: Income Taxes, effective from 1 January 2023.

The following other standards, interpretations and amendments to existing standards have been issued but were not mandatory for accounting periods beginning on 1 January 2023. These either have been, or are expected to be endorsed by the UK Endorsement Board and are not expected to have a material impact on the Company:

•	Amendments to IAS 1: Classification of Liabilities as Current or Non-current, effective from 1 January 2024;
•	Amendments to IAS 1: Non-Current Liabilities with Covenants, effective from 1 January 2024;
•	Amendments to IAS 7 and IFRS 7: Supplier Finance Arrangements, effective from 1 January 2024;
•	Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture; and
•	Amendments to IFRS 16: Lease Liability in a Sale and Leaseback, effective from 1 January 2024; and
•	IFRS 18 Presentation and Disclosure in Financial Statements, effective from 1 January 2027.

Material accounting policies

The material accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated. The directors believe that the financial statements reflect appropriate judgements and estimates, and provide a true and fair view of the Company's financial performance and position.

2.2 Revenue and profit recognition

Under IFRS 15, revenue represents income derived from contracts for the provision of services by the Company to customers in exchange for consideration in the ordinary course of the Company's activities.

Performance obligations

Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct service or a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Services that are distinct are accounted for as separate performance obligations in the contract if the customer can benefit from them either on their own or together with other resources that are readily available to the customer and they are separately identifiable in the contract.

Transaction price

At the start of the contract, the total transaction price is estimated as the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised services to the customer, excluding sales taxes. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative stand-alone selling prices.

Revenue and profit recognition

Revenue is recognised as performance obligations are satisfied as services are delivered to the customer. For each performance obligation within a contract, the Company determines whether it is satisfied over time or at a point in time. The Company has determined that most of its contracts satisfy the over time criteria because the customer simultaneously receives and consumes the benefits provided by the Company's performance as it is performed (typical with services or support contracts).

The Company recognises revenue using an input method, based on costs incurred in the period. Revenue and attributable margin are calculated by reference to reliable estimates of transaction price and total expected costs. Revenue and associated margin are therefore recognised progressively as costs are incurred. The Company has determined that this method faithfully depicts the Company's performance in delivering services to the customer.

2.3 Leases

The Company as lessee

All leases in which the Company is lessee (except as noted below) are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between repayment of the lease liability and finance cost. The finance cost is charged to the Income Statement over the lease term to produce a constant periodic rate of interest on the lease liability. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

The lease liability is initially measured as the present value of future lease payments, discounted using the interest rate implicit in the lease. Where this rate is not determinable, the Company's incremental borrowing rate is used, which is the interest rate the Company would have to pay to borrow the amount necessary to obtain an asset of similar value, in a similar economic environment with similar terms and conditions.

The right-of-use asset is initially measured at cost, comprising the initial value of the lease liability, any lease payments made (net of any incentives received from the lessor) before the commencement of the lease, any initial direct costs and any restoration costs.

The carrying amounts of the Company's right-of-use assets are reviewed at each Balance Sheet date to determine whether there is any indication of impairment.

Payments in respect of short-term leases, low-value leases and leases of intangible assets are charged to the Income Statement on a straight-line basis over the lease term.

2.4 Interest income and borrowing costs

Interest income and borrowing costs are recognised in the Income Statement in the period in which they are incurred.

2.5 Dividends

Equity dividends paid on ordinary share capital are recognised as a liability in the period in which they are declared.

2.6 Intangible assets

Intangible assets are carried at cost, less accumulated amortisation and impairment losses.

Software includes:

•	Computer software licences acquired for use within the Company which are capitalised as an intangible asset on the basis of the costs incurred to acquire and bring to use the specific software.

Amortisation

Amortisation on intangible assets, is charged to the Income Statement on a straight-line basis over their estimated useful lives. The estimated useful lives are as follows:

Computer software licenses acquired

- 2 to 5 years.

2.7 Property, plant and equipment

Cost

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation

Depreciation is provided, normally on a straight-line basis, to write off the cost of property, plant and equipment over their estimated useful lives to any estimated residual value, using the following rates:

Fixtures and fittings (including computing and other equipment)	- 5 to 10 years
Fixtures and fittings (low value assets)	- 1 year

The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each Balance Sheet date.

2.8 Impairment

The carrying amounts of the Company's intangible assets are reviewed at each Balance Sheet date to determine whether there is any indication of impairment as required by IAS 36, Impairment of Assets. If any such indication exists, the asset's recoverable amount is estimated. For intangible assets that are not yet available for use, impairment testing is performed annually.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

The recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using an appropriate pre-tax discount rate. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Impairment losses are recognised in the Income Statement.

An impairment loss in respect of other intangible assets, property, plant and equipment and investment property is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised or if there has been a change in the estimate used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.9 Foreign currencies

Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the Balance Sheet date. These exchange differences are recognised in the Income Statement.

The assets and liabilities of foreign currency branches are translated at the exchange rates ruling at the Balance Sheet date. The Income Statements of these branches are translated at average rates of exchange during the year. All resulting exchange differences are recognised in the foreign translation reserve. The foreign translation reserve is included within other reserves on the Balance Sheet.

2.10 Trade, contract and other receivables

Trade, contract and other receivables are stated at amortised cost including a provision for expected credit losses. The Company measures the provision at an amount equal to lifetime expected credit losses, estimated by reference to past experience and relevant forward-looking factors.

Contract receivables represent amounts for which the Company has an unconditional right to consideration in respect of unbilled revenue recognised at the Balance Sheet date and comprise costs incurred plus attributable margin.

The Company writes off a trade receivable when there is objective evidence that the debtor is in significant financial difficulty and there is no realistic prospect of recovery, for example, when a debtor enters bankruptcy or financial reorganisation.

2.11 Cash and cash equivalents

Cash and cash equivalents includes cash in hand, call and term deposits, and other short-term liquid investments with original maturities of three months or less and which are subject to an insignificant risk of change in value.

2.12 Trade, contract and other payables

Trade and other payables are stated at amortised cost.

Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or consideration is due, from the customer.

2.13 Tax

Tax expense comprises current and deferred tax. Current and deferred tax is recognised in the Income Statement except to the extent that it relates to a business combination or items recognised directly in equity or in other comprehensive income.

Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is not recognised for temporary differences:

•	on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
•	related to investments in subsidiaries and equity accounted investments to the extent that it is probable that they will not reverse in the foreseeable future; and
•	arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to corporate income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

2.14 Retired benefit obligations

Defined contribution pension schemes

A defined contribution pension scheme is a post-employment benefit plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.

Obligations for contributions are recognised as an expense in the Income Statement as incurred.

Defined benefit pension schemes

A defined benefit pension scheme is a post-employment benefit plan under which the employee receives a pension based on their employment for which there is an ongoing legal obligation for the Company. The cost of providing benefits is determined periodically by independent actuaries and charged to the Income Statement in the period in which those benefits were earned by the employees.

Employees are seconded to the Company for a fixed term from their employing entity. The Company pays the secondees pension contributions and recognises them as an expense in the Income Statement as incurred.

Under IAS19 Employee Benefits, the pension deficit has been allocated to the employing entities only, and they receive a share of the assets and liabilities of the scheme. The Company does not receive a share because it cannot be split out for employees on assignment and so a share of the pension deficit has not been recognised in this Company.

In the event that an employer who participates in the Group's pension schemes fails or cannot be compelled to fulfil its obligations as a participating employer, the remaining participating employers are obliged to collectively take on its obligations. The Group considers the likelihood of this event arising as remote.

2.15 End of service benefits

An end of service gratuity is provided for where there is a statutory requirement for the Company to make payment to an employee at the completion of an employee's employment which forms part of their contract of employment. The gratuity is calculated based on the employee's salary and accumulated period of service.

2.16 Financial instruments

Derivative financial instruments and hedging activities

The international nature of the Company's business means that it is exposed to volatility in currency exchange rates. In order to protect itself against currency fluctuations, the Company's policy is to hedge all material firm transactional exposures.

In accordance with its treasury policy, the Company does not hold derivative financial instruments for trading purposes.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, such instruments are stated at fair value at the Balance Sheet date. Fair values are estimated by discounting expected future cash flows based on reputable third party forecast data, and then adjusting for credit risk, including the Company's own credit risk, and market risk.

Fair value through profit or loss

Gains and losses on derivative financial instruments that are not designated as cash flow hedges are recognised in the Income Statement for the year.

Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the exposure to variability in cash flows relating to a highly probable forecast transaction (income or expense), or recognised asset or liability, the effective portion of any change in the fair value of the instrument is recognised in other comprehensive income and presented in the hedging reserve in equity. Amounts recognised in equity are removed from the hedging reserve and included in the cost of the underlying transaction or reclassified to the Income Statement when the underlying transaction affects profit or loss. The ineffective portion of any change in the fair value of the instrument is recognised in the Income Statement immediately. The Company treats the foreign currency basis element of the designated foreign exchange derivative hedging instrument as a cost of hedging and as such it is excluded from the hedge designation.

3. Revenue

Revenue by location:

	2023	2022
	£000	£000
Middle East	1,691	941
United Kingdom	7,028	67,196
Rest of Europe	4,712	4,585
Africa, Central and South America	143	1,403
	13,574	74,125

Revenue by category:

	2023	2022
	£000	£000
Engineering and support services	6,542	7,012
Military and technical services	7,032	67,113
	13,574	74,125

4. Operating costs

	2023	2022
	£000	£000
Inventory recognised as an expense	5,745	55,676
Staff costs (note 7)	4,724	5,229
Depreciation of right-of-use assets (note 11)	108	98
Amortisation of intangible assets (note 9)	30	30
Depreciation of property, plant and equipment (note 10)	52	52
Short-term and low-value lease expense (note 11)	181	133
Other operating charges	1,292	1,623
	12,132	62,841

The remuneration of the auditor for the year ended 31 December 2023 for auditing of the financial statements was £18,300 (2022: £18,018) and £nil (2022: £nil) in respect of non-audit work.

Total research and development expenditure was £-nil (2022: £-nil), of which £-nil (2022: £-nil) was funded by the Company.

5. Financial income

	2023	2022
	£000	£000
Interest income	12	-

6. Financial expense

	2023	2022
	£000	£000
Bank interest payable	-	2
Interest expense on lease liabilities (note 11)	2	1
	2	3

7. Employees

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

	2023	2022
	No.	No.
Secondees	12	25
Local employees	27	19
	39	44

The aggregate staff costs of Company employees were as follows:

	2023	2022
	£000	£000
Wages and salaries	4,070	4,630
Social security costs	455	583
Other pension costs (see note 17)	164	(5)
End of service benefits (see note 14)	35	21
	4,724	5,229

None of the directors received any emoluments from the Company during the year. All directors who served during the year were employed by BAE Systems (Operations) Limited and were remunerated through that company. The directors did not provide any material qualifying services to the Company.

8. Tax

	2023	2022
	£000	£000
Current tax
UK:
Current tax	(74)	(76)
Double tax relief	74	76
	-	-
Overseas:
Current tax	(91)	(114)
Adjustments in respect of prior years	8	(6)
	(83)	(120)
Tax result	(83)	(120)

The Company has not provided for UK current tax on its profit for the year as any taxable profits will be partially covered by the surrender of tax losses from fellow group companies, in respect of which no payment will be made, and the tax expense arising on the remaining profits will be offset by overseas tax suffered.

Reconciliation of tax result

The following reconciles the expected tax result, using the UK corporation tax rate, to the reported tax result:

	2023	2022
	£000	£000
Result before tax	1,452	11,281
UK corporation tax rate	23.52%	19.00%
Expected tax expense on result	(342)	(2,143)
Expenses not tax effected	-	(16)
Property, plant and equipment	(2)	(2)
Provisions and accruals	(9)	(3)
Imputed interest income	(389)	(107)
Effect of tax rates in foreign jurisdictions	(17)	(40)
Losses received from group companies	668	2,197
Adjustments in respect of prior years	8	(6)
Tax result	(83)	(120)

Tax recognised in other comprehensive income

	2023			2022
	Tax			Tax
	Before tax	benefit/ (expense)	Net of tax	Before tax	benefit/ (expense)	Net of tax
	£000	£000	£000	£000	£000	£000
Items that may be reclassified to the Income Statement:
Currency translation on foreign currency branches Amounts	(73)	-	(73)	133	-	133
(charged)/credited to hedging reserve	(215)	54	(161)	1,259	(239)	1,020
	(288)	54	(234)	1,392	(239)	1,153

	2023			2022
	Other reserves	Retained earnings	Total	Other reserves	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
Deferred tax Financial instruments	54	-	54	(239)	-	(239)
Tax on other comprehensive income	54	-	54	(239)	-	(239)

The Government announced in 2021 that from 1 April 2023 the UK corporation tax rate would increase from 19% to 25%. The deferred tax asset at each Balance Sheet date has been calculated at the tax rates, enacted at that date, expected to apply to the temporary differences when they reverse.

On 20 June 2023, Finance (No. 2) Act 2023 was substantively enacted in the UK, including legislation to implement the OECD Pillar Two income taxes rules. The Company, as part of the wider BAE Group is within the scope of the rules and the first period for which a Pillar Two tax return will be required for the BAE Group is the accounting period ending on 31 December 2024.

9. Intangible assets

	Computer software
	£000
Cost
At 1 January 2023	173
Foreign exchange movement	(4)
At 31 December 2023	169
Amortisation
At 1 January 2023	95
Amortisation charge for the year	30
Foreign exchange movement	(2)
At 31 December 2023	123
Net book value
At 31 December 2023	46
At 31 December 2022	78

10. Property, plant and equipment

	Fixtures and fittings
	£000
Cost
At 1 January 2023	293
Additions	10
Foreign exchange movement	(7)
At 31 December 2023	296
Depreciation
At 1 January 2023	182
Depreciation charge for the year	52
Foreign exchange movement	(5)
At 31 December 2023	229
Net book value
At 31 December 2023	67
At 31 December 2022	111

11. Leases

The Company leases buildings, vehicles and equipment under non-cancellable lease arrangements. There are no terms that represent unusual arrangements or create material onerous or beneficial rights or obligations.

	2023
	Land and buildings	Plant and machinery	Total
	£000	£000	£000
Net book value as at 01 January	55	79	134
Additions during the year	118	75	193
Disposals during the year	(221)	(43)	(264)
Foreign exchange movement	(2)	(1)	(3)
Depreciation expense for the year	(59)	(49)	(108)
Depreciation eliminated on disposal	221	43	264
Net book value as 31 December	112	104	216

	2022
	Land and buildings	Plant and machinery	Total
	£000	£000	£000
Net book value as at 01 January	94	73	167
Additions during the year	14	43	57
Disposals during the year	-	(14)	(14)
Foreign exchange movement	4	4	8
Depreciation expense for the year	(57)	(41)	(98)
Depreciation eliminated on disposal	-	14	14
Net book value as 31 December	55	79	134

Lease liabilities

A maturity analysis of the future undiscounted lease payments in respect of the Company's lease liabilities is presented in the table below.

	2023	2022
	£000	£000
Payments due:
Within one year	113	95
Between one and five years	103	37
	216	132
Impact of discounting	(5)	-
Total discounted lease liability	211	132

The total cash outflow for leases recognised on the Balance Sheet in the year ended 31 December 2023, amounted to £113k (2022: £98k).

Amounts recognised in the Income Statement

	2023	2022
	£000	£000
Included in operating costs:
Depreciation on right-of-use assets	108	98
Short-term lease expense and low-value lease expense	181	133
	289	231
Included in net finance costs:
Interest expense on lease liabilities	2	1

12. Trade, contract and other receivables

	2023	2022
	£000	£000
Non-current
Amounts owed by BAE Systems plc	3,431	8,677
	3,431	8,677
Current
Contract receivables	-	8,416
Trade receivables	3,673	12
Amounts owed by BAE Systems plc	23,977	39,230
Amounts owed by BAE Systems plc subsidiaries	483	483
Amounts owed by BAE Systems plc equity accounted investments (note 20)	488	-
Prepayments	50	41
Accrued income	335	620
Other receivables	221	817
	29,227	49,619

Amounts owed by BAE Systems plc and its subsidiaries are payable on demand and are expected to be settled in the Company's usual operating cycle of 12 months or less. No interest is applied to amounts owed and they are unsecured.

The impact of discounting non-current amounts owed by BAE Systems plc and its subsidiaries is not material given that the amounts are repayable on demand and therefore the contractual period over which these loans could be recalled is one day after the end of the reporting period, so has not been applied.

13. Other financial assets and liabilities

	2023	2022
	£000	£000
Financial assets
Non-current
Cash flow hedges - foreign exchange contracts	9	196
Current
Cash flow hedges - foreign exchange contracts	25	206
Financial liabilities
Current Cash flow hedges - foreign exchange contracts	(78)	(232)

14. End of service benefits

For the Company, the payment of an end of service gratuity is required to be provided for as a statutory obligation for its Qatar branch. The gratuity is calculated based on the employee's basic salary and length of service. The Company recognises the cost as an expense in the Income Statement.

	2023	2022
	£000	£000
At 1 January	32	11
Charge for the year	35	21
At 31 December	67	32

15. Deferred tax

Deferred tax assets/(liabilities)

	Deferred tax assets		Deferred tax liabilities		Net balance at 31 December
	2023	2022	2023	2022	2023	2022
	£000	£000	£000	£000	£000	£000
Financial instruments	70	44	-	(76)	70	(32)
Deferred tax assets/(liabilities)	70	44	-	(76)	70	(32)

Movement in temporary differences during the year

	At 1 January 2023	Recognised in equity	At 31 December 2023
	£000	£000	£000
Financial instruments	(32)	102	70
	(32)	102	70

	At 1 January 2022	Recognised in equity	At 31 December 2022
	£000	£000	£000
Financial instruments	286	(318)	(32)
	286	(318)	(32)

The deferred tax asset, which has not been recognised in the financial statements, is made up as follows:

	2023	2022
	£000	£000
Unrelieved foreign taxes	417	409
Property, plant and equipment	23	21
Provisions and accruals	20.460	68.498

This asset has not been recognised on the basis that there is insufficient evidence that the asset will be recoverable. The asset would only become recoverable if corporate income tax rates in certain overseas countries (primarily Germany and Italy) were reduced to levels below that of the UK. This is not expected to occur in the foreseeable future.

16. Trade, contract and other payables

	2023	2022
	£000	£000
Current
Contract liabilities	2,760	-
Trade payables	10	19
Amounts owed to BAE Systems plc	-	36
Amounts owed to BAE Systems ple subsidiaries	166	382
Amounts owed to BAE Systems plc equity accounted investments (note 20)	54	215
Other taxes and social security costs	115	163
Accruals	27,052	45,804
Deferred income	124	350
Other payables	-	81
	30,281	47,050

Amounts owed to BAE Systems plc and its subsidiaries are payable on demand and are unsecured. No interest is applied to amounts owed.

17. Retirement benefit obligations

In South Africa and Germany the Company operates defined contribution pension schemes for local employees. Each scheme is a post-employment benefit plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions are recognised as an expense in the Income Statement as incurred.

For all other employees, the Company participates in a number of multi-employer schemes administered by its ultimate parent company, BAE Systems plc. Employees are seconded to the Company for a fixed term from their employing entity. The Company pays all secondees' pension contributions and recognises them as an expense in the Income Statement as incurred.

	2023	2022
	£000	£000
Secondee pension costs	69	134
Local employee pension costs	95	(139)
	164	(5)

Under IAS19 Employee Benefits, the pension deficit has been allocated to the employing entities only. This Company is not an employing entity for this purpose and therefore has no obligation under these arrangements.

18. Share capital and other reserves

Share capital

	£1	Nominal
	Ordinary	value
Issued and fully paid	shares	£
At 1 January 2022, 31 December 2022 and 31 December 2023	1,000	1,000

Other reserves

	Foreign translation reserves	Hedging reserve	Total
	£000	£000	£000
At 1 January 2022	22	(1,218)	(1,196)
Currency translation on foreign currency branches	133	-	133
Amounts credited to hedging reserve (net of tax)	-	1,356	1,356
At 31 December 2022	155	138	293
Currency translation on foreign currency branches	(73)	-	(73)
Amounts debited to hedging reserve (net of tax)	-	(348)	(348)
At 31 December 2023	82	(210)	(128)

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Foreign translation reserve

The foreign translation reserve comprises all foreign currency differences arising from the translation of the results and financial position of foreign operations.

19. Dividends

	2023	2022
	£000	£000
Final dividend of £10,000 (2022: £7,000) per ordinary share proposed and paid during the year relating to the previous year's results	10,000	7,000

The directors are proposing a final dividend of £1,000 (2022: £10,000) per share totalling £1,000k (2022: £10,000k).

This dividend has not been accrued in the Balance Sheet.

20. Related party transactions

	2023	2023	2023	2023
	Sales	Debtors	Purchases	Creditors
	£000	£000	£000	£000
Eurofighter Jagdflugzeug GmbH	-	360	24,264	54
BAE Systems Strategic Aerospace Services WLL	117	128	-	-
	117	488	24,264	54

	2022	2022	2022	2022
	Sales	Debtors	Purchases	Creditors
	£000	£000	£000	£000
Eurofighter Jagdflugzeug GmbH	-	-	39,041	215
BAE Systems Strategic Aerospace Services WLL	216	-	-	-
	216	-	39,041	215

21. Controlling parties

The immediate parent company is BAE Systems (Holdings) Limited and the ultimate parent company and controlling party is BAE Systems plc, which is both the smallest and largest parent company preparing consolidated Group financial statements. Both companies are incorporated in the United Kingdom and registered in England and Wales.

The consolidated financial statements of BAE Systems plc are available to the public and may be obtained from its registered address:

6 Carlton Gardens

London

SW1Y 5AD

Website: www.baesystems.com