Full Year Results
British Airways PLC
18 May 2007
PRELIMINARY FINANCIAL RESULTS 2006-2007
OPERATING AND FINANCIAL STATISTICS (Note 1)
Three months ended Twelve months ended
March 31 Better/ March 31 Better/
2007 2006 (Worse) 2007 2006 (Worse)
Restated Restated
Revenue £m 1,932 2,054 (5.9)% 8,492 8,213 3.4%
Operating profit £m 31 98 (68.4)% 602 694 (13.3)%
Profit before tax £m 27 98 (72.4)% 611 616 (0.8)%
Profit after tax £m (71) 88 nm 438 464 (5.6)%
Loss from discontinued operations £m (53) (5) nm (134) 3 nm
Net assets £m 2,411 2,074 16.2% 2,411 2,074 16.2%
Basic earnings per share p (6.5) 7.5 nm 37.2 40.1 (7.2)%
Three months ended Twelve months ended
March 31 Better/ March 31 Better/
2007 2006 (Worse) 2007 2006 (Worse)
Restated Restated
TOTAL GROUP OPERATIONS
TRAFFIC AND CAPACITY
RPK (m) 26,003 26,351 (1.3)% 112,851 109,713 2.9%
ASK (m) 36,405 35,895 1.4% 148,321 144,194 2.9%
Passenger load factor (%) 71.4 73.4 (2.0)pts 76.1 76.1 -
CTK (m) 1,084 1,238 (12.4)% 4,695 4,929 (4.7)%
RTK (m) 3,728 3,878 (3.9)% 16,112 15,909 1.3%
ATK (m) 5,550 5,635 (1.5)% 22,882 22,719 0.7%
Overall load factor (%) 67.2 68.8 (1.6)pts 70.4 70.0 0.4pts
Passengers carried (000) 7,269 7,470 (2.7)% 33,068 32,432 2.0%
Tonnes of cargo carried (000) 177 202 (12.4)% 762 795 (4.2)%
FINANCIAL
Operating margin (%) 1.6 4.8 (3.2)pts 7.1 8.5 (1.4)pts
Passenger revenue per RPK (p) 6.26 6.48 (3.4)% 6.44 6.31 2.1%
Passenger revenue per ASK (p) 4.47 4.76 (6.1)% 4.90 4.80 2.1%
Cargo revenue per CTK (p) 12.18 12.84 (5.1)% 13.16 12.94 1.7%
Total traffic revenue per RTK (p) 47.21 48.12 (1.9)% 48.91 47.53 2.9%
Total traffic revenue per ATK (p) 31.71 33.11 (4.2)% 34.44 33.28 3.5%
Total expenditure on operations per RTK (p) 52.23 50.44 (3.5)% 49.26 47.26 (4.2)%
Total expenditure on operations per ATK (p) 35.08 34.71 (1.1)% 34.68 33.10 (4.8)%
Average fuel price before hedging
(US cents/US gallon) 198.48 191.59 (3.6)% 209.60 188.22 (11.4)%
TOTAL AIRLINE OPERATIONS (Note 2)
OPERATIONS
Average Manpower Equivalent (MPE) 42,073 43,316 2.9% 42,683 43,814 2.6%
ATKs per MPE (000) 131.9 130.1 1.4% 536.1 518.5 3.4%
Aircraft in service at period end 242 284 (42) 242 284 (42)
nm: Not meaningful
Note 1: Statistics relate to continuing operations unless otherwise stated.
Note 2: Excludes non airline activity companies, principally, Airmiles Travel
Promotions Ltd, BA Holidays Ltd, BA Travel Shops Ltd and Speedbird Insurance
Company Ltd.
SUMMARY
Group Performance
Group profit before tax for the year was £611 million, a decline of 0.8%
compared with £616 million in the previous year. The results include a number
of one-off items including a provision of £350 million for settlement of the
fines and claims in connection with the competition investigations into longhaul
passenger and cargo fuel surcharges and a pension credit of £396 million as a
result of a change to the New Airways Pension Scheme (NAPS).
Operating profit at £602 million, was £92 million worse than last year. The
operating margin of 7.1% was 1.4 points lower than last year. The reduction in
operating profit primarily reflects increased operating costs - up 5.5% -
partially offset by improvements in revenue - up 3.4%.
Turnover
Group revenue for the year was £8,492 million, up 3.4% compared with last year,
on a flying programme 0.7% larger in ATKs.
Passenger revenue was up 4.9% to £7,263 million. This was primarily driven by
longhaul premium and World Traveller Plus. Passenger yields were up 2.1% per
RPK, and seat factor was in line with last year at 76.1% on capacity 2.9% higher
in ASKs.
Cargo revenue at £618 million was down 3.1% in the full year. Cargo volumes
measured in CTKs were down 4.7% in the full year, with yields up 1.7%. The
decline in volumes has been driven by a combination of capacity, competitive,
market and operational factors. Operational issues in the second half of the
year were a significant factor in the volume decline.
Overall load factor for the year was 70.4%, up 0.4 points on last year.
For the three month period, Group revenue - - at £1,932 million - - was down
5.9% on a flying programme 1.5% smaller in ATKs.
Passenger revenue, which was impacted by the threat of industrial action by
cabin crew, was down 4.6%. Passenger yields were down 3.4% per RPK; seat factor
was down 2.0 points at 71.4% on capacity 1.4% higher in ASKs.
Cargo volumes for the quarter (CTKs) were down 12.4% compared with last year,
with yields (revenue/CTK) down 5.1%. The reduction of freighter aircraft from
four hulls to three accounted for 4% of the capacity decline. The further
reduction in CTKs was due to a challenging operational environment in the
quarter and soft cargo market conditions.
Overall load factor for the quarter was down 1.6 points at 67.2%.
Costs
Unit costs excluding non-recurring items (pence/ATK) in the full year were up
4.8% versus last year. This was due to a cost increase of 5.5% on capacity up
0.7%. Excluding fuel costs, unit costs in the full year were marginally up at
0.4%.
For the quarter, unit costs excluding non-recurring items increased by 1.1% on
the same period last year as a result of a cost reduction of 0.5% on capacity
1.5% lower in ATKs. The reduction in ATKs was partly due to one less freighter
in the third quarter this year versus last. Excluding fuel, unit costs were
down 0.7%.
Employee costs in the full year increased by 0.8% compared with last year.
Redundancy costs supporting the management restructuring programme announced in
December 2005, and pension and wage increases were only partially offset by the
non-recurrence of the Employee Reward Plan (ERP), which did not trigger in the
year.
Aircraft operating lease costs reduced by 10% compared with last year, primarily
due to lower lease rentals following negotiations on lease extensions, and
exchange benefits as a result of a weaker US dollar.
Fuel and oil costs, at £1,931 million, increased by 22.1% due to an increase in
fuel price net of hedging, partially offset by a weaker US dollar.
Engineering and other aircraft costs reduced by 6.1% compared with last year.
This primarily reflects lower aircraft maintenance sub-contract costs, savings
on fleet insurance costs, reduced cargo freighter activity and a favourable
exchange impact due to the weaker US dollar.
Handling charges, catering and other operating costs increased by £15 million to
£930 million. This was due to increases in airport authority and catering
charges, partially offset by the favourable impact of the weaker US dollar.
Selling and marketing costs fell by 0.5% in the full year. This reflected the
continued impact of savings on commission and the favourable impact of exchange
rates, partially offset by an increase in promotional spend.
Accommodation, ground equipment and IT costs increased by 6.9% in the full year
compared with last year. This reflects an increase in IT development spend,
higher legal fees, consultancy costs associated with the Group's Sarbanes-Oxley
programme, and Terminal 5 consultancy spend.
Non Operating Items
For the twelve month period, interest expense was £168 million, £46 million
lower than last year due to the impact of lower debt levels. Interest income was
£129 million, £37 million higher than last year, reflecting the higher cash
balances. The retranslation of currency borrowings generated a credit of £13
million, compared with a charge of £12 million last year. This is primarily due
to the weakening of the US dollar this year versus a strengthening US dollar
last year. Profit on sale of fixed assets and investments was £47 million,
mainly reflecting the £48 million profit on sale of the Groups' holding in World
Network Services. Income relating to fixed asset investments of £14 million was
primarily due to income from The Airline Group.
Interest income at £32 million in the quarter was £7 million higher than last
year reflecting higher cash balances and the impact of changes in interest
rates. The profit on sale of fixed assets and investments at £2 million was £25
million lower than last year. The £27 million profit last year included £26
million from the disposal of the London Eye.
Tax
The tax charge for the year was £173 million (2006: £152 million) giving an
effective tax rate for the year of 28% (2006: 25%). No tax relief has been
assumed on the £350 million provision against potential settlement of the
competition investigations and this has added 10% to the effective tax rate.
The tax charge benefited from the recognition of Advance Corporation Tax of £74
million (2006: £20 million) previously written off. All of the Advanced
Corporation Tax previously written off has now been recognised through the
profit and loss account.
The Group paid corporation taxes totalling £128 million during the year (2006:
£57 million).
Earnings Per Share
The total earnings attributable to shareholders for the year was £290 million,
equivalent to 25.5 pence per share, a decline of 36.9% compared with last year's
earnings per share of 40.4 pence.
For the three month period, the loss attributable to shareholders was £128
million, equivalent to an 11.1 pence per share, compared with last year's
earnings per share of 7.1 pence.
The Board has recommended that no dividend be paid.
Net Debt / Total Capital Ratio
Borrowings, net of cash and short term loans and deposits, were £991 million at
March 31, down £650 million since the start of the year. The net debt/total
capital ratio reduced by 15.1 points from March 31 2006 to 29.1%. The net debt/
total capital ratio including operating leases was down 13.4 points from March
31 to 39.6%.
Cash Flow
The net cash inflow from operating activities for the twelve months was £756
million, £583 million lower than last year. This was primarily driven by the
lower operating profit before non-recurring items, changes in working capital
and the reduction in the pensions deficit as a result of the £240 million
payment to NAPS in February. Including current interest bearing deposits, the
cash position at March 31, 2007 was £2,355 million, a reduction of £85 million
compared with March 31, 2006. This included £560 million held in escrow for the
benefit of NAPS, which was subsequently paid to the pension fund on April 2,
2007.
Aircraft Fleet
The number of aircraft in service at March 31, 2007 was 242. Future deliveries
include orders for four Boeing 777-200 ER aircraft for delivery in late 2008 or
2009.
Following the disposal of the regional business of BA Connect the Turboprops,
Embraer RJ145 and British Aerospace 146 fleets were transferred to Flybe.
BA Connect
In accordance with IFRS 5, the disposal of BA Connect has been treated as
discontinued operations. This is due to the fact that BA Connect represented a
separate major line of business and the operations and cashflows could be
clearly distinguished for financial reporting purposes.
The loss from discontinued operations in the year was £134 million, which
includes the £106 million impairment charge, £21 million of costs associated
with the sale and a £28 million loss on disposal. This was partially offset by a
tax credit of £24 million.
Following the disposal aviance UK has been awarded a five year contract by
British Airways to undertake ground handling at Manchester, Aberdeen, Edinburgh
and Glasgow airports.
BA Cityflyer was launched at London City Airport from the remaining business of
BA Connect. The airline operates 250 services to six UK and European
destinations.
Iberia
The company has not made a final decision about the future of its 10 per cent
share holding in Iberia and continues to examine its options including full
disposal. It has however ruled out further capital investment as part of any
consortium offer and will not make an independent bid for the airline.
Pensions
Following the consultation with members and agreement with the trustees to
address the £2.1 billion actuarial deficit in NAPS, the company agreed to make a
one-off cash injection of £800 million into NAPS, of which £240 million was paid
in February 2007. A further £560 million held in escrow at the year end, for the
benefit of NAPS, was subsequently paid to the pension fund on April 2, 2007.
Changes to the scheme rules, which capped pensionable pay at inflation, resulted
in a one-off accounting credit of £396 million. This, together with the £240
million payment, has resulted in the deficit reducing from £2.1 billion to £1.6
billion. The deficit will reduce further following the £560 million payment.
The shared solution has helped secure the pensions of the scheme's members and
bring the deficit and ongoing company contributions to an affordable level.
Competition Investigations
The investigations by the Department of Justice in the USA, the European
Commission and the UK Office of Fair Trading into anti-competitive activity on
long haul passenger and cargo fuel surcharges are continuing. However, British
Airways has now completed the information gathering required by these
authorities.
BA has a long-standing, clear and comprehensive competition compliance policy.
This policy requires all staff to comply with the law at all times. It has
become apparent that there have been breaches of this policy in relation to
discussions about these surcharges with competitors.
As a result it is now appropriate for the company to make a provision of £350
million in its full year accounts, which represents the company's best estimate
of the amounts that could be required to settle all known claims in relation to
these matters.
The provision relates to potential Government fines in a number of countries in
respect of competition investigations into long haul passenger and cargo fuel
surcharges. It also relates to civil claims in the USA, Australia and Canada.
Under IAS 37 the provision represents the estimate of the amount to settle
competition authority and civil claims at the Balance Sheet date, but recognises
that the final amount that would be required to pay all claims and potential
fines is subject to uncertainty.
A detailed breakdown of the claim is not presented as it may seriously prejudice
the position of the company in the regulatory investigations and in its
potential litigation.
Terminal 5
The opening of Terminal 5 is just 313 days away and tickets are now available
for sale.
We remain on schedule to begin operational testing in September of this year.
Industrial Relations
Over two thirds of Heathrow Customer Service staff have been balloted and agreed
to work practice changes in advance of the company's move to Terminal 5. We
have agreed the changes with staff in ground transport services, aircraft
movements, equipment services, baggage handling, loading and aircraft dispatch.
We expect to conclude changes with the remaining staff group who handle
passenger services imminently.
Outlook
In terms of current performance, we have seen some weakness in non-premium
segments notably on the North Atlantic. To some degree, complete visibility is
hampered by the ongoing baggage restrictions which impact all cabins but
particularly premium. Our revenue guidance of 5-6% increase is unchanged but we
now expect to be at the lower of end of this range.
Cost control remains a key focus and full year costs, excluding fuel, are still
expected to be some £50 million higher than the year just reported.
Our full year fuel bill is still expected to be up some £100 million at just
over £2 billion.
Our goal to achieve a 10 per cent operating margin by March 2008 remains on
track, although year over year improvements are likely to be delivered
predominantly in the second half as we cycle against record results in the
period to 10th August last year.
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. Fuller information on
some factors which could result in material difference to the results is
available in the company's Annual Report for the year ended 31 March 2007, which
is available on www.bashareholders.com.
CONSOLIDATED INCOME STATEMENT
Three months ended Twelve months ended
March 31 Better/ March 31 Better/
2007 £m 2006 £m (Worse) 2007 £m 2006 £m (Worse)
Restated Restated
Traffic Revenue*
Passenger 1,628 1,707 (4.6)% 7,263 6,924 4.9%
Cargo 132 159 (17.0)% 618 638 (3.1)%
1,760 1,866 (5.7)% 7,881 7,562 4.2%
Other revenue 172 188 (8.5)% 611 651 (6.1)%
TOTAL REVENUE 1,932 2,054 (5.9)% 8,492 8,213 3.4%
Employee costs 560 611 8.3% 2,277 2,260 (0.8)%
Depreciation, amortisation and impairment 184 180 (2.2)% 714 715 0.1%
Aircraft operating lease costs 20 24 16.7% 81 90 10.0%
Fuel and oil costs 455 431 (5.6)% 1,931 1,581 (22.1)%
Engineering and other aircraft costs 105 112 6.3% 414 441 6.1%
Landing fees and en route charges 120 126 4.8% 517 520 0.6%
Handling charges, catering and
other operating costs 222 218 (1.8)% 930 915 (1.6)%
Selling costs 131 120 (9.2)% 436 438 0.5%
Currency differences (5) (4) 25.0% 18 (19) nm
Accommodation, ground equipment and IT costs 155 138 (12.3)% 618 578 (6.9)%
TOTAL EXPENDITURE ON OPERATIONS
BEFORE NON-RECURRING ITEMS 1,947 1,956 0.5% 7,936 7,519 (5.5)%
OPERATING (LOSS)/PROFIT
BEFORE NON-RECURRING ITEMS (15) 98 nm 556 694 (19.9)%
Credit arising on changes to pension scheme 396 nm 396 nm
Provision for settlement of
competition investigations (350) nm (350) nm
OPERATING PROFIT 31 98 (68.4)% 602 694 (13.3)%
Fuel derivative gains/(losses) 18 10 80.0% (12) 19 nm
Finance costs (51) (55) 7.3% (168) (214) 21.5%
Finance income 32 25 28.0% 129 92 40.2%
Net financing expense relating to pensions (7) (6) (16.7)% (19) (18) (5.6)%
Retranslation credits/(charges)
on currency borrowings 1 nm 13 (12) nm
Profit on sale of property, plant and
equipment and investments 2 27 (92.6)% 47 27 74.1%
Share of post tax profits in associates
accounted for using the equity method 1 nm 5 28 (82.1)%
Income/(expense) relating to other
investments 1 (2) nm 14 nm
PROFIT BEFORE TAX 27 98 (72.4)% 611 616 (0.8)%
Tax (98) (10) nm (173) (152) (13.8)%
(LOSS)/PROFIT AFTER TAX FROM CONTINUING
OPERATIONS (71) 88 nm 438 464 (5.6)%
(Loss)/profit from discontinued operations
(after tax) (53) (5) nm (134) 3 nm
(LOSS)/PROFIT AFTER TAX (124) 83 nm 304 467 (34.9)%
Attributable to:
Equity holders of the parent (128) 80 nm 290 451 (35.7)%
Minority interest 4 3 33.3% 14 16 (12.5)%
(124) 83 nm 304 467 (34.9)%
EARNINGS PER SHARE
Continuing operations:
Basic (6.5)p 7.5p nm 37.2p 40.1p (7.2)%
Fully diluted (6.5)p 7.4p nm 36.8p 39.5p (6.8)%
Discontinuing operations:
Basic (4.6)p (0.4)p nm (11.7)p 0.3p nm
Fully diluted (4.6)p (0.4)p nm (11.7)p 0.3p nm
Total:
Basic (11.1)p 7.1p nm 25.5p 40.4p (36.9)%
Fully diluted (11.1)p 7.0p nm 25.2p 39.8p (36.7)%
nm: Not meaningful
* Fuel surcharges of £145 million for the quarter and £519 million for the
twelve months previously presented within 'other revenue' in the March 2006
income statement, have been reclassified and included within 'traffic revenue'.
CONSOLIDATED BALANCE SHEET
March 31 March 31
2007 £m 2006 £m
NON-CURRENT ASSETS Restated
Property, plant and equipment
Fleet 6,153 6,606
Property 932 974
Equipment 272 302
7,357 7,882
Goodwill 40 72
Landing rights 139 115
Other intangible assets 33 46
212 233
Investments in associates 125 131
Other investments 107 33
Employee benefit assets 116 137
Other financial assets 28 89
TOTAL NON-CURRENT ASSETS 7,945 8,505
NON-CURRENT ASSETS HELD FOR SALE 8 3
CURRENT ASSETS AND RECEIVABLES
Expendable spares and other inventories 76 83
Trade receivables 654 685
Other current assets 346 458
Other current interest bearing deposits 1,642 2,042
Cash and cash equivalents 713 398
2,355 2,440
TOTAL CURRENT ASSETS AND RECEIVABLES 3,431 3,666
TOTAL ASSETS 11,384 12,174
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Issued share capital 288 283
Share premium 933 888
Investment in own shares (10)
Other reserves 1,000 690
TOTAL SHAREHOLDERS' EQUITY 2,211 1,861
MINORITY INTEREST 200 213
TOTAL EQUITY 2,411 2,074
NON-CURRENT LIABILITIES
Interest bearing long-term borrowings 2,929 3,602
Employee benefit obligations 1,142 1,803
Provisions for deferred tax 930 896
Other provisions 153 135
Other long-term liabilities 194 232
TOTAL NON-CURRENT LIABILITIES 5,348 6,668
CURRENT LIABILITIES
Current portion of long-term borrowings 417 479
Trade and other payables 2,744 2,822
Current tax payable 54 75
Short-term provisions 410 56
TOTAL CURRENT LIABILITIES 3,625 3,432
TOTAL EQUITY AND LIABILITIES 11,384 12,174
CONSOLIDATED CASHFLOW STATEMENT
Twelve months ended
March 31 Better/
2007 £m 2006 £m (Worse)
Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit 602 694 (92)
Operating (loss)/profit from discontinued operations (122) 11 (133)
Credit arising from changes to pension scheme (396) (396)
Depreciation, amortisation and impairment
(includes £120 million (2006: £2 million) from discontinued operations) 834 717 117
Operating cash flow before working capital changes 918 1,422 (504)
Decrease in inventories, trade and other receivables 61 23 38
(Decrease)/increase in trade and other payables and provisions (15) 150 (165)
Cash payment to NAPS pension scheme (240) (240)
Provision for settlement of competition investigation 350 350
Other non-cash movements (2) 12 (14)
Cash generated from operations 1,072 1,607 (535)
Interest paid (188) (211) 23
Taxation (128) (57) (71)
NET CASH FLOW FROM OPERATING ACTIVITIES 756 1,339 (583)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (331) (275) (56)
Purchase of intangible assets (36) (8) (28)
Purchase of interest in associate (5) 5
Purchase of minority interest (13) (13)
Purchase of other investments (2) 2
Proceeds from sale of associated companies 3 3
Proceeds from sale of other investments 52 1 51
Proceeds from sale of property, plant and equipment 7 9 (2)
Cash outflow from disposal of subsidiary company (149) (6) (143)
Proceeds from sale of interest in the London Eye Company Ltd 78 (78)
Interest received 113 78 35
Dividends received 1 22 (21)
Decrease/(increase) in interest bearing deposits 389 (911) 1,300
NET CASH FLOW FROM INVESTING ACTIVITIES 36 (1,019) 1,055
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings (97) (64) (33)
Capital elements of finance leases and hire purchase arrangements repaid (388) (415) 27
Exercise of share options 50 21 29
Purchase of own shares (12) (12)
Distributions made to holders of perpetual securities (14) (14)
NET CASH FLOW FROM FINANCING ACTIVITIES (461) (472) 11
Net increase/(decrease) in cash and cash equivalents 331 (152) 483
Net foreign exchange difference (16) 1 (17)
Cash and cash equivalents at April 1 398 549 (151)
CASH AND CASH EQUIVALENTS AT MARCH 31 713 398 315
These summary financial statements were approved by the Directors on May 17, 2007.
NOTES TO THE ACCOUNTS
For the period ended March 31, 2007
1 BASIS OF PREPARATION
The basis of preparation and accounting policies set out in the Report and
Accounts for the year ended March 31, 2007 have been applied in the preparation
of these summary financial statements. These are in accordance with the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS)* issued by the International Accounting Standards Board (IASB)
and with those of the Standing Interpretations issued by the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB. These interim
financial statements have not been prepared in accordance with IAS 34 - 'Interim
Reporting' as permitted under IFRS.
The comparative information presented for the quarter and twelve months ended
March 31, 2006 has been restated to reclassify the operations of BA Connect as a
discontinued operation. In addition, fuel surcharges of £145 million for the
quarter and £519 million for the twelve months previously presented within
'other revenue' in the March 2006 income statement, have been reclassified and
included within 'traffic revenue'. In addition, cash and cash equivalents has
been restated to reflect a reduction of £509 million, with an offset to other
current interest bearing deposits, due to a change in accounting policies.
Previously the Group classified deposits with a qualifying financial institution
maturing within three months of the balance sheet date as cash and cash
equivalents. The Group now only classifies deposits maturing within three months
of the acquisition date as cash and cash equivalents.
* For the purposes of these statements IFRS also include International
Accounting Standards (IAS).
2 FINANCE COSTS / INCOME
Three months ended Twelve months ended
March 31 March 31
2007 £m 2006 £m 2007 £m 2006 £m
FINANCE COSTS
Interest payable on bank and other loans and
finance charges payable under finance leases and
hire purchase contracts 53 56 188 215
Release of prior year provisions (15)
Interest capitalised (2) (1) (5) (1)
Total finance costs 51 55 168 214
FINANCE INCOME
Bank interest receivable 32 25 129 92
Total finance income 32 25 129 92
NET FINANCING EXPENSE RELATING TO PENSIONS
Net financing expense relating to pensions 6 18 17
Amortisation of actuarial losses on pensions 1 1 1
Net financing expense relating to pensions 7 6 19 18
Retranslation credits/(charges) on currency borrowings 1 13 (12)
3 PROFIT ON SALE OF PROPERTY, PLANT AND EQUIPMENT AND INVESTMENTS
Three months ended Twelve months ended
March 31 March 31
2007 £m 2006 £m 2007 £m 2006 £m
Net profit on the disposal of investment in WNS 48
Net profit on disposal of the investment in
The London Eye Company Ltd 26 26
Net profit/(loss) on sale of other investments 5 (1) 5
Net profit/(loss) on the disposal of property, plant and
equipment 2 (4) (4)
2 27 47 27
4 TAX
The tax charge for the year on profits from continuing operations is £173
million made up of a current tax charge of £121 million and £52 million by way
of deferred taxes in the UK. The current tax charge comprises UK corporation tax
of £144 million, after offset of Advance Corporation Tax previously written off
of £(22) million, overseas tax of £1 million and prior tax credits totalling £
(24) million. The deferred taxes amount includes the benefit of £(52) million of
Advance Corporation Tax previously written off. There is a total tax credit of
£(24) million in respect of the losses arising from discontinued operations
during the year. In addition, a tax credit of £(18) million was credited
directly to equity. The current tax provision amounts to £54 million at March
31, 2007 (March 31, 2006: £75 million). The deferred tax provision amounts to
£930 million at March 31, 2007 (March 31, 2006: £896 million). The tax charge
for the quarter on profits from continuing operations is £98 million, which
comprises £(18) million of current tax credit and a deferred tax charge of £116
million. There is a total tax credit of £(3) million in respect of the results
arising from discontinued operations during the quarter.
5 DISCONTINUED OPERATIONS
On November 3, 2006, the Group announced that it had reached an agreement in
principle to sell the regional operation of its subsidiary airline BA Connect to
Flybe. The acquisition of BA Connect by Flybe excluded the London City Airport
routes and the BA Connect-operated service from Manchester to New York. The
disposal was completed on March 5, 2007. The business sold comprised the
majority of the Regional airline business segment as disclosed in the Group's
financial statements for the year ended March 31, 2006. The Group paid Flybe
£129 million, and has taken a 15 per cent investment in Flybe Group Limited,
valued at £49 million at March 31, 2007.
Following the sale of the regional business of BA Connect to Flybe in March
2007, the Group has agreed contractual terms to transfer its regional ground
handling to aviance UK. The restructuring provision included in discontinued
operations relates to costs associated with the reduction in staff at the
regional airports, whose employment was attributed to the BA Connect operations
and third party flights.
Prior to the sale and transfer of the operations to discontinued operations, an
impairment review was carried out on the assets, including goodwill, of the BA
Connect business, prompted by the ongoing deterioration in trading performance
against plan. This resulted in an impairment charge of £106 million,
representing goodwill of £32 million and fleet assets of £74 million. The
pre-tax impairment charge gave rise to a deferred tax credit of £22 million
which has been recognised in the income statement (now presented in discontinued
operations).
Results from discontinued operations
The results from discontinued operations, which have been included in the
consolidated income statement, are as follows:
Three months ended Twelve months ended
March 31 March 31
2007 £m 2006 £m 2007 £m 2006 £m
Revenue 36 66 233 302
Operating expenses (41) (71) (231) (291)
Impairment (106)
Restructuring costs (18) (18)
Operating (loss)/profit (23) (5) (122) 11
Disposal transaction costs (3) (3)
Loss arising on disposal of net assets (28) (28)
Net finance costs (2) (2) (5) (7)
(Loss)/profit before tax (56) (7) (158) 4
Tax
UK Corporation tax credit 4 2 3 3
Tax arising from disposal of discontinued operations (4) (4)
Total current income tax credit (discontinued operations) 2 (1) 3
Deferred tax credit/(charge) 3 25 (4)
Total tax credit/(charge) 3 2 24 (1)
(Loss)/profit from discontinued operations (53) (5) (134) 3
Assets and liabilities of the discontinued operations at the date of disposal
The major classes of assets and liabilities of the discontinued operations at
the date of disposal were as follows:
£m
Tangible assets 78
Intangible assets 1
Deferred tax asset 8
Other non-current assets 4
Expendable spares and other inventories 3
Trade receivables 23
Cash and cash equivalents 129
Other provisions (43)
Other long-term liabilities (85)
Trade payables (41)
Total net assets disposed of 77
Investment in Flybe (consideration) 49
Loss arising on disposal of net assets (28)
Cash and cash equivalents in BA Connect on disposal (129)
Settlement of trade receivable with the Company (17)
Transaction costs (3)
Cash outflow from disposal of BA Connect (149)
The cash flows relating to the discontinued operations to the date of
disposal were as follows:
Twelve months ended
March 31
2007 £m 2006 £m
Operating cash flows 16 21
Investing cash flows (2) (1)
Financing cash flows (20) (18)
Excludes £149 million cash outflow from disposal of BA Connect.
6 EARNINGS PER SHARE
Basic earnings per share for the quarter ended March 31, 2007 are calculated on
a weighted average of 1,148,880,000 ordinary shares (March 31, 2006:
1,130,106,000) and for the twelve months ended March 31, 2007, on a weighted
average of 1,141,133,000 ordinary shares (March 31, 2006: 1,116,178,000) as
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 March 31, 2007 are calculated on a weighted average of
1,161,940,000 ordinary shares (March 31, 2006: 1,145,055,000) and for the twelve
months ended March 31, 2007 on a weighted average of 1,151,943,000 ordinary
shares (March 31, 2006: 1,138,545,000).
The number of shares in issue at March 31, 2007 was 1,151,575,000 (March 31,
2006: 1,130,882,000) ordinary shares of 25 pence each.
7 RECONCILIATION OF MOVEMENT IN NET DEBT TO CHANGES IN CASH FLOWS
Twelve months ended
March 31
2007 £m 2006 £m
Increase/(decrease) in cash and cash equivalents during the period 331 (152)
Net cash outflow from decrease in debt and lease financing 485 479
(Decrease)/increase in current interest bearing deposits maturing after 3 months (389) 911
Reduction in finance leases and loans due to disposal of BA Connect 85
Change in net debt resulting from cash flows 512 1,238
New finance leases taken out and hire purchase arrangements made (9) (11)
Conversion of Convertible Capital Bonds 112
Exchange and other non cash movements 147 (58)
Movement in net debt during the period 650 1,281
Net debt at April 1 (1,641) (2,922)
Net debt at March 31 (991) (1,641)
Net debt comprises the current and non-current portions of long-term borrowings,
convertible long-term borrowings and overdrafts, less cash and cash equivalents
plus interest-bearing short-term deposits.
8 ANALYSIS OF LONG-TERM BORROWINGS
March 31 March 31
2007 £m 2006 £m
Interest bearing long-term borrowings comprise:
Loans 878 1,030
Finance Leases 1,275 1,418
Hire purchase arrangements 776 1,154
2,929 3,602
Current portion of long-term borrowings comprise:
Loans 68 86
Finance Leases 80 105
Hire purchase arrangements 269 288
417 479
9 RESERVES
March 31 March 31
2007 £m 2006 £m
Balance at April 1 690 152
Transitional effects from the adoption of IAS 39 and IAS 32 183
Profit for the year 290 451
Exchange and other movements 20 (96)
1,000 690
10 PROVISION FOR SETTLEMENT OF COMPETITION INVESTIGATIONS
The £350 million provision in respect of competition investigations relates to
potential government fines in the following jurisdictions in relation to cargo
fuel surcharges: USA, Europe, Australia, Canada, New Zealand and South Africa
and, in relation to long haul passenger fuel surcharges: USA and the UK. It also
relates to civil claims in the USA, Australia and Canada. The provision
represents the estimate of the amount to settle competition authority and civil
claims at March 31, 2007, but recognises that the final amount required to pay
all claims and fines is subject to uncertainty. A detailed breakdown of the
claim is not presented as it may seriously prejudice the position of the Company
in the regulatory investigations and in its potential litigation.
11 The figures for the three months ended March 31, 2007 are unaudited and do
not constitute full accounts within the meaning of Section 240 of the Companies
Act 1985. The figures for the twelve months ended March 31, 2007 form part of
the Annual Report and Accounts and were approved by the Board of Directors but
have not been delivered to the Registrar of Companies; the report of the
auditors on the accounts is unqualified.
AIRCRAFT FLEET
(for information only)
Number in service with Group companies at March 31, 2007
On Balance Off Balance Total March Changes Since Future Options
Sheet Sheet 2007 March 2006 Deliveries
Aircraft Aircraft
(Note 6) (Note 7)
AIRLINE OPERATIONS (Note 1)
Boeing 747-400 57 57
Boeing 777 40 3 43 4 4
Boeing 767-300 21 21
Boeing 757-200 13 13
Airbus A319 21 12 33
Airbus A320 (Note 2) 8 18 26 (1) 10 28
Airbus A321 7 7 4
Boeing 737-300 5 5
Boeing 737-400 19 19
Boeing 737-500 9 9
Turboprops (Note 3) (8)
Embraer RJ145 (Note 3) (28)
Avro RJ100 (Note 4) 9 9 (1)
British Aerospace 146 (Note 3) (4)
GROUP TOTAL (Note 5) 186 56 242 (42) 18 32
Notes:
1. Includes those operated by British Airways Plc and BA Cityflyer.
2. Certain future deliveries and options include reserved delivery positions,
and may be taken as any A320 family aircraft.
3. Aircraft disposed of as part of the sale of BA Connect.
4. Excludes one Avro RJ100 stood down pending return to lessor and six Avro
RJ100 sub-leased to Swiss International Airlines.
5. Excludes two British Aerospace ATPs stood down pending return to lessor, and
12 Jetstream 41s sub-leased to Eastern Airways.
6. Future year deliveries have increased by four to 18 to include four Boeing
777-200ER deliveries.
7. Options have increased by four to 32 to include four Boeing 777-200ER
aircraft.
This information is provided by RNS
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