1st Quarter Results
British Airways PLC
09 August 2004
FIRST QUARTER RESULTS 2004-2005 (unaudited)
Three months ended Year ended
June 30 Better/ March 31
2004 2003 (Worse) 2004
Turnover £m 1,925 1,832 5.1% 7,560
Operating profit £m 150 40 nm 405
Operating margin % 7.8 2.2 5.6pts 5.4
Profit/(loss) before tax £m 115 (45) nm 230
Retained profit/(loss) for
the period £m 70 (63) nm 130
Net assets £m 2,430 2,206 10.2% 2,397
Earnings/(loss) per share
Basic p 6.5 (5.9) nm 12.1
Diluted p 6.4 (5.9) nm 12.1
nm: Not meaningful
GROUP PROFIT AND LOSS ACCOUNT (unaudited)
Three months ended Year ended
June 30 Better/ March 31
2004 £m 2003 £m (Worse) 2004 £m
Traffic Revenue
Passenger 1,625 1,576 3.1% 6,490
Cargo 118 113 4.4% 463
1,743 1,689 3.2% 6,953
Other revenue 182 143 27.3% 607
TOTAL TURNOVER 1,925 1,832 5.1% 7,560
Employee costs 551 528 (4.4)% 2,180
Depreciation and amortisation 165 164 (0.6)% 679
Aircraft operating lease costs 26 35 25.7% 135
Fuel and oil costs 258 229 (12.7)% 922
Engineering and other
aircraft costs 112 132 15.2% 511
Landing fees and en route
charges 141 141 549
Handling charges, catering and
other operating costs 233 243 4.1% 934
Selling costs 133 155 14.2% 554
Accommodation, ground equipment
costs and currency differences 156 165 5.5% 691
TOTAL OPERATING EXPENDITURE 1,775 1,792 0.9% 7,155
OPERATING PROFIT 150 40 nm 405
Share of operating (losses)/profits
in associates (4) (4) 58
TOTAL OPERATING PROFIT 146 36 nm 463
INCLUDING ASSOCIATES
Other income 13
(Loss) on sale of fixed assets and
investments (6) (72) 91.7% (46)
Interest
Net payable (48) (55) 12.7% (216)
Retranslation credits
on currency borrowings 23 46 (50.0)% 16
PROFIT/(LOSS) BEFORE TAX 115 (45) nm 230
Tax (42) (14) nm (85)
PROFIT/(LOSS) AFTER TAX 73 (59) nm 145
Equity minority interest (1)
Non equity minority interest ** (3) (4) 25.0% (14)
PROFIT/(LOSS) FOR THE PERIOD 70 (63) nm 130
RETAINED PROFIT/(LOSS) FOR THE PERIOD 70 (63) nm 130
nm: Not meaningful
** Cumulative Preferred Securities
OPERATING AND FINANCIAL STATISTICS (unaudited)
Three months ended Year ended
June 30 Increase/ March 31
2004 2003 (Decrease) 2004
TOTAL AIRLINE OPERATIONS (Note 1)
TRAFFIC AND CAPACITY
RPK (m) 27,083 25,102 7.9% 103,092
ASK (m) 36,150 34,962 3.4% 141,273
Passenger load factor (%) 74.9 71.8 3.1pts 73.0
CTK (m) 1,217 1,057 15.1% 4,461
RTK (m) 3,909 3,556 9.9% 14,771
ATK (m) 5,652 5,317 6.3% 21,859
Overall load factor (%) 69.2 66.9 2.3pts 67.6
Passengers carried (000) 9,288 9,769 (4.9)% 36,103
Tonnes of cargo carried (000) 216 190 13.7% 796
FINANCIAL
Passenger revenue per RPK (p) 6.00 6.28 (4.5)% 6.30
Passenger revenue per ASK (p) 4.50 4.51 (0.2)% 4.59
Cargo revenue per CTK (p) 9.70 10.69 (9.3)% 10.38
Total traffic revenue per RTK (p) 44.59 47.50 (6.1)% 47.07
Total traffic revenue per ATK (p) 30.84 31.77 (2.9)% 31.81
Average fuel price before hedging
(US cents/US gallon) 115.52 92.17 25.3% 94.49
OPERATIONS
Average Manpower Equivalent (MPE) 46,280 49,215 (6.0)% 47,605
ATKs per MPE (000) 122.1 108.0 13.1% 459.2
Aircraft in service at
period end 290 314 (24) 291
TOTAL GROUP OPERATIONS
FINANCIAL
Net operating expenditure
per RTK (p) 40.75 46.37 (12.1)% 44.33
Net operating expenditure
per ATK (p) 28.18 31.01 (9.1)% 29.96
Note 1: Excludes non airline activity companies, principally, Airmiles Travel
Promotions Ltd, BA Holidays Ltd, BA Travel Shops Ltd, Speedbird Insurance
Company Ltd and The London Eye Company Ltd.
CHAIRMAN'S STATEMENT
Group Performance
Group profit before tax for the three months to June 30 was £115 million; this
compares with a loss of £45 million last year.
Operating profit - - at £150 million - - was £110 million better than last year.
The improvement in operating profit primarily reflects an increase in revenue.
Volumes in the quarter were up significantly on the previous year, which was
depressed due to the impact of SARS and the after-effects of the war in Iraq.
Group unit costs (pence/ATK) improved by 9.1% on capacity (ATKs) 6.3% higher.
Airline operations passenger yield (pence/RPK) for the three months deteriorated
by 4.5% compared with last year. The operating margin was 7.8%, 5.6 points
better than last year.
Cash inflow before financing was £326 million for the quarter, with the closing
cash balance of £1,735 million representing a £65 million increase versus March
31. Net debt fell by £334 million from March 31 to £3,824 million - - its lowest
level since June 1997 and reflecting the impact of £141 million of early
repayment in the quarter.
Turnover
For the three month period, Group turnover - - at £1,925 million - - was up 5.1%
on a flying programme 6.3% larger in ATKs. Passenger yields were down 4.5% per
RPK; seat factor was up 3.1 points at 74.9% on capacity 3.4% higher in ASKs.
Cargo volumes (CTKs) for the quarter were up 15.1% compared with last year, with
yields (pence/CTK) down 9.3%.
Overall load factor was up 2.3 points at 69.2%.
Costs
For the quarter, unit costs (pence/ATK) improved 9.1% on the same period last
year. This reflects the net cost reduction of 3.4% on capacity 6.3% higher in
ATKs.
Total costs were down by 0.9%. Fuel costs increased by 12.7% due to increases in
fuel price net of hedging partially offset by exchange, and employee costs
increased by 4.4% as wage awards and increased pension contributions were only
partially offset by manpower reductions. These cost increases were offset by
reductions in selling costs, down 14.2% due to last year's agents' commission
restructuring and renegotiations in distribution contracts, and engineering and
other aircraft costs, down 15.2% as a result of engine input phasing and the
impact of exchange.
Non Operating Items
Net interest expense reduced by £7 million from last year to £48 million
reflecting the impact on interest payable of lower debt and on interest
receivable of higher cash balances.
Retranslation of currency borrowings generated a credit of £23 million, (prior
year: £46 million), primarily reflecting £24 million which was due to the
retranslation of yen debts. The retranslation - - a non-cash item required by
standard accounting practice - - results from the weakening of the yen against
sterling.
Loss on disposals of fixed assets and investments was £6 million, compared with
£72 million in the prior year when we disposed of dba.
Earnings Per Share
The earnings attributable to shareholders for the three months was equivalent to
6.5 pence per share, compared with last year's loss per share of 5.9 pence.
Net Debt / Total Capital Ratio
Borrowings, net of cash and short term loans and deposits, were £3,824 million
at June 30 - - down £334 million since the start of the year and £2.8 billion
from the December 2001 peak. This reflects cash inflow more than offsetting
movements in gross debt, partially offset by exchange movements of £11 million.
The net debt/total capital ratio reduced by 2.6 points from March 31 to 51.5%.
The net debt/total capital ratio including operating leases was 56.2%, a 2.2
point reduction from March 31.
Cash Flow
During the quarter we generated a positive cash flow from operations of £356
million. After disposal proceeds, capital expenditure and interest payments on
our existing debt, but before financing, cash inflow was £326 million. This
represents a £164 million improvement on last year, primarily due to the
increase in operating cash flow (£128 million) and in disposal proceeds,
together with savings in capital expenditure.
Performance Improvement Programmes
Work continues to ensure delivery of the 2004/06 Business Plan programmes
including the target of £300 million saving in employment costs, together with
the continuing delivery of last year's Business Plan programmes. Delivery of the
£300 million employment cost saving as planned remains a challenge, in
particular given the current Industrial Relations environment.
Aircraft Fleet
During the quarter the Group fleet in service reduced by one to 290 aircraft, as
one Boeing 737-400 aircraft was returned to lessor.
Alliances and Franchises
An agreement has been signed to terminate the Alliance Agreement with Swiss
International Air Lines following Swiss's decision not to proceed with the
integration of the airlines' frequent flyer programmes. British Airways and
Swiss will continue to code-share on the London Heathrow-Geneva route for three
years, but all other code-sharing will cease at the end of this summer season
and Swiss will not join oneworld. The slots exchange agreement with Swiss
remains in place.
British Airways has agreed to benefit sharing with Iberia on the London routes
to Madrid, Barcelona and Bilbao. Implementation is anticipated by this winter.
British Mediterranean added London-Khartoum to the network in April and
London-Ekaterinburg in May. GB Airways introduced new services in April between
London Gatwick and Ibiza and Bastia. Regional Air has added Nairobi-Lilongwe to
their network, bringing Malawi back on to the British Airways network.
Industrial Relations
Notice of industrial action ballots on pay has been received from the TGWU
covering ground support services staff and from the TGWU and GMB covering
administration and terminal staff. This follows the Company's offer of a rise in
pensionable pay over three years of some 8.5% or some 10.5% increase in
non-pensionable pay. The conciliation service ACAS are facilitating talks with
the trades unions aimed at finding a solution acceptable to both sides. British
Airways has proposed to the unions that the issue be settled by formal binding
arbitration.
Outlook
Market conditions remain unchanged since our last report. Long-haul premium
volumes are recovering steadily, while short-haul premium travel remains at
lower levels. The non-premium markets are very price sensitive. We continue to
forecast a revenue improvement of 2-3 per cent in the current year. Yield
declines over the full year are expected to be more than offset by increased
volume. Fuel costs are now expected to be £225 million higher than last year, an
increase of £75 million on previous estimates. Strategies to curb controllable
costs remain the key to achieving long-term, sustainable profitability.
Certain information included in these statements is forward-looking and involves
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by the forward looking statements.
Forward-looking statements include, without limitation, projections relating to
results of operations and financial conditions and the Company's plans and
objectives for future operations, including, without limitation, discussions of
the Company's Business Plan programs, expected future revenues, financing plans
and expected expenditures and divestments. All forward-looking statements in
this report are based upon information known to the Company on the date of this
report. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
It is not reasonably possible to itemize all of the many factors and specific
events that could cause the Company's forward looking statements to be incorrect
or that could otherwise have a material adverse effect on the future operations
or results of an airline operating in the global economy. Information on some
factors which could result in material difference to the results is available in
the Company's SEC filings, including, without limitation the Company's Report on
Form 20-F for the year ended March 2004.
GROUP BALANCE SHEET (unaudited)
June 30 March 31
2004 £m 2003 £m 2004 £m
Restated Restated
FIXED ASSETS
Intangible assets 165 161 168
Tangible assets 8,472 9,304 8,637
Investments 504 511 531
9,141 9,976 9,336
CURRENT ASSETS
Stocks 73 82 76
Debtors 1,066 1,101 1,019
Cash, short-term loans and deposits 1,735 1,723 1,670
2,874 2,906 2,765
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR (3,116) (3,106) (2,996)
NET CURRENT LIABILITIES (242) (200) (231)
TOTAL ASSETS LESS CURRENT LIABILITIES 8,899 9,776 9,105
CREDITORS: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR
Borrowings and other creditors (5,083) (6,289) (5,374)
Convertible Capital Bonds 2005 (112) (112) (112)
(5,195) (6,401) (5,486)
PROVISION FOR DEFERRED TAX (1,178) (1,076) (1,137)
PROVISIONS FOR LIABILITIES AND CHARGES (96) (93) (85)
2,430 2,206 2,397
CAPITAL AND RESERVES
Called up share capital 271 271 271
Reserves 1,948 1,718 1,916
2,219 1,989 2,187
MINORITY INTERESTS
Equity minority interest 10 10 10
Non equity minority interest 201 207 200
211 217 210
2,430 2,206 2,397
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES(unaudited)
2004 £m 2003 £m 2004 £m
Profit/(loss) for the period 70 (63) 130
Other recognised gains and losses
relating to the period:
Exchange and other movements (38) 13 16
Total recognised gains and losses 32 (50) 146
These summary financial statements were approved by the Directors on August 9, 2004.
GROUP CASH FLOW STATEMENT (unaudited)
Three months
ended Year ended
June 30 March 31
2004 £m 2003 £m 2004 £m
CASH INFLOW FROM OPERATING ACTIVITIES 356 228 1,093
DIVIDENDS RECEIVED FROM ASSOCIATES 5 10 25
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (44) (46) (209)
TAX 1 (4)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 16 (20) 42
ACQUISITIONS AND DISPOSALS (8) (10) (73)
Cash inflow before management of liquid
resources and financing 326 162 874
MANAGEMENT OF LIQUID RESOURCES (78) (247) (198)
FINANCING (250) (78) (834)
Decrease in cash in the period (2) (163) (158)
NOTES TO THE ACCOUNTS
For the period ended June 30, 2004
1 ACCOUNTING CONVENTION
The accounts have been prepared on the basis of the accounting policies set out
in the Report and Accounts for the year ended March 31, 2004 in accordance with
all applicable United Kingdom accounting standards and the Companies Act 1985.
Effective from April 1, 2004 the group applied the provisions of UITF Abstract
38 - 'Accounting for ESOP Trusts' and, as a result, the group's investment in
own shares held for the purpose of employee share ownership plans has been
reclassified from fixed asset investments and is now recorded as a reduction in
shareholders' equity. Comparative periods have been restated to reflect the
adoption of UITF 38.
Three months
ended Year ended
June 30 March 31
2004 £m 2003 £m 2004 £m
2 RECONCILIATION OF OPERATING PROFIT TO
CASH INFLOW FROM OPERATING ACTIVITIES
Group operating profit 150 40 405
Depreciation and amortisation 165 164 679
Other items not involving the movement of cash 11
(Increase) in stocks and debtors (55) (127) (23)
Increase in creditors 85 165 43
Increase/(decrease) in provisions for liabilities
and charges 11 (14) (22)
Cash inflow from operating activities 356 228 1,093
3 RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
(Decrease) in cash during the period (2) (163) (158)
Net cash outflow from decrease in debt and
lease financing 250 78 834
Cash outflow from liquid resources 78 247 198
Change in net debt resulting from cash flows 326 162 874
New finance leases taken out and hire
purchase arrangements made (3) (33) (97)
Non cash refinancing 32
Exchange movements 11 97 182
Movement in net debt during 334 226 991
the period
Net debt at April 1 (4,158) (5,149) (5,149)
Net debt at period end (3,824) (4,923) (4,158)
4 OTHER INCOME
Other income 13
13
Other income represented by:
Group 13
13
NOTES TO THE ACCOUNTS (Continued)
For the period ended June 30, 2004
Three months
ended Year ended
June 30 March 31
2004 £m 2003 £m 2004 £m
5 (LOSS)/PROFIT ON SALE OF FIXED ASSETS AND INVESTMENTS
Net loss on disposal of dba (79) (83)
Net (loss)/profit on disposal of other fixed
assets and investments (6) 7 37
(6) (72) (46)
Represented by:
Group (6) (72) (47)
Associates 1
(6) (72) (46)
6 INTEREST
Net payable:
Interest payable less amount capitalised 66 69 279
Interest receivable (18) (14) (63)
48 55 216
Retranslation on currency
borrowings (23) (46) (16)
25 9 200
Net interest payable
represented by:
Group 25 9 192
Associates 8
25 9 200
7 TAX
The tax charge for the quarter is £42 million, £41 million of which represents
deferred tax in the UK, and £1 million represents overseas tax.
8 EARNINGS/(LOSS) PER SHARE
Basic earnings per share for the quarter ended June 30, 2004 are calculated on a
weighted average of 1,070,112,000 ordinary shares (June 2003: 1,069,886,000;
March 2004: 1,070,099,000) adjusted for shares held for the purposes of employee
share ownership plans including the Long Term Incentive Plan. Diluted earnings
per share for the quarter ended June 30, 2004 are calculated on a weighted
average of 1,118,145,000 ordinary shares (June 2003: 1,069,886,000; March 2004:
1,070,117,000).
The number of shares in issue at June 30, 2004 was 1,082,903,000 (June 30, 2003:
1,082,795,000; March 31, 2004: 1,082,845,000) ordinary shares of 25 pence each.
NOTES TO THE ACCOUNTS (Continued)
For the period ended June 30, 2004
June 30 March 31
2004 £m 2003 £m 2004 £m
Restated Restated
9 INTANGIBLE ASSETS
Goodwill 92 97 93
Landing rights 73 64 75
165 161 168
10 TANGIBLE ASSETS
Fleet 6,953 7,674 7,104
Property 1,039 1,202 1,042
Equipment 480 428 491
8,472 9,304 8,637
11 INVESTMENTS
Associated undertakings 474 479 501
Trade investments 30 32 30
504 511 531
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Loans 100 74 102
Finance Leases 137 125 119
Hire purchase arrangements 452 370 461
689 569 682
Corporate tax 8 20 6
Other creditors and accruals 2,419 2,517 2,308
3,116 3,106 2,996
13 BORROWINGS AND OTHER CREDITORS FALLING DUE AFTER
MORE THAN ONE YEAR
Loans 1,103 1,251 1,123
Finance Leases 1,938 2,398 1,978
Hire purchase arrangements 1,717 2,316 1,933
4,758 5,965 5,034
Other creditors and accruals 325 324 340
5,083 6,289 5,374
14 RESERVES
Balance at April 1 1,916 1,756 1,756
Retained profit/(loss) for the period 70 (63) 130
Exchange and other movements (38) 13 16
Goodwill written back on disposals 12 14
1,948 1,718 1,916
15 The figures for the three months ended June 30, 2004 and 2003 are
unaudited and do not constitute full accounts within the meaning of Section 240
of the Companies Act 1985. The figures for the year ended March 31, 2004 have
been extracted from the full accounts for that year, which have been delivered
to the Registrar of Companies and on which the auditors have issued an
unqualified audit report.
INDEPENDENT REVIEW REPORT TO BRITISH AIRWAYS Plc
Introduction
We have been instructed by the Company to review the financial information for
the three months ended June 30, 2004, which comprises the Group Profit and Loss
Account, Group Balance Sheet, Group Cash Flow Statement, Group Statement of
Recognised Gains and Losses and Notes to the Accounts and we have read the other
information contained in the first quarter results and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of Interim Financial Information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The first quarter results, including the financial information contained
therein, is the responsibility of, and has been approved by the directors. The
Listing Rules of the Financial Services Authority require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the three months
ended June 30, 2004.
Ernst & Young LLP
London
August 9, 2004
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) INFORMATION
The accounts have been prepared in accordance with accounting principles
accepted in the United Kingdom which differ in certain respects from those
generally accepted in the United States. The significant differences are the
same as those set out in the company's report on Form 20-F for the year ended
March 31, 2004 filed with the SEC. The comparatives have been restated to
recognise the excess of the pension accumulated benefit obligation over the fair
value of the related plan assets, and the implementation of FASB Interpretation
No. 46 - Consolidation of Variable Interest Entities (FIN 46) and UITF Abstract
38. FIN 46 was implemented after the comparative quarter end and resulted in The
London Eye Company Limited, in which the group is a primary beneficiary, being
consolidated as a variable interest entity. In addition, certain leases which
had been treated as operating leases under US GAAP were reclassified as capital
leases.
Under UK GAAP the group adopted UITF Abstract 38 - 'Accounting for ESOP Trusts'
effective from April 1, 2004 which resulted in the group's investment in own
shares being reclassified from fixed asset investments to a deduction from
shareholders' equity. Under US GAAP such shares were previously accounted for as
a deduction from shareholders' equity.
The adjusted net income and shareholders' equity applying US GAAP are set out
below:
Three months
ended Year ended
June 30 March 31
2004 £m 2003 £m 2004 £m
Restated
Profit/(loss) for the period as reported in the
Group profit and loss account 70 (63) 130
US GAAP adjustments (30) 75 266
Net income as so adjusted to
accord with US GAAP 40 12 396
Net income per Ordinary Share
as so adjusted
Basic 3.7p 1.1p 37.0p
Diluted 3.7p 1.1p 36.1p
Net income per American Depositary Share
as so adjusted
Basic 37p 11p 370p
Diluted 37p 11p 361p
June 30 March 31
2004 £m 2003 £m 2004 £m
Restated Restated
Shareholders' equity as reported in the Group
balance sheet 2,219 1,989 2,187
US GAAP adjustments (440) (334) (413)
Shareholders' equity as so adjusted to accord with
US GAAP 1,779 1,655 1,774
AIRCRAFT FLEET
Number in service with Group companies
at June 30, 2004
Off Balance
On Balance Sheet Sheet Total Changes Since
Aircraft Aircraft June 2004 March 2004 Future
deliveries Options
AIRLINE OPERATIONS
(Note 1)
Boeing 747-400 57 57
Boeing 777 40 3 43
Boeing 767-300 21 21
Boeing 757-200 13 13
Airbus A319 (Note 2) 21 12 33 3 51
Airbus A320 9 18 27 3
Airbus A321 10
Boeing 737-300 5 5
Boeing 737-400 19 3 22 (1)
Boeing 737-500 10 10
Turboprops (Note 3) 10 10
Embraer RJ145 16 12 28 17
Avro RJ100 16 16
British Aerospace 146 5 5
GROUP TOTAL 201 89 290 (1) 16 68
Notes:
1. Includes those operated by British Airways Plc and British Airways
CitiExpress Ltd.
2. Certain future deliveries and options include reserved delivery positions,
and may be taken as any A320 family aircraft.
3. Comprises 10 de Havilland Canada DHC-8s. Excludes 4 British Aerospace ATPs
stood down pending return to lessor, 3 British Aerospace ATPs sub-leased to
Loganair and 12 Jetstream 41s sub-leased to Eastern Airways.
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