Summary results
British Airways PLC
04 August 2006
FIRST QUARTER RESULTS 2006-2007 (unaudited)
OPERATING AND FINANCIAL STATISTICS (unaudited)
Three months ended
June 30 Better/
2006 2005 (Worse)
Restated
Revenue £m 2,317 2,059 12.5%
Operating profit £m 211 176 19.9%
Profit before tax £m 195 124 57.3%
Profit after tax £m 154 90 71.1%
Net assets £m 2,349 1,783 31.7%
Basic earnings per share p 13.2 8.0 65.0%
Three months ended
June 30 Better/
2006 2005 (Worse)
Restated
TOTAL GROUP OPERATIONS
TRAFFIC AND CAPACITY
RPK (m) 29,909 27,768 7.7%
ASK (m) 38,222 36,706 4.1%
Passenger load factor (%) 78.3 75.6 2.7pts
CTK (m) 1,233 1,185 4.1%
RTK (m) 4,212 3,949 6.7%
ATK (m) 5,933 5,722 3.7%
Overall load factor (%) 71.0 69.0 2.0pts
Passengers carried (000) 9,569 9,177 4.3%
Tonnes of cargo carried (000) 198 193 2.6%
FINANCIAL
Operating margin (%) 9.1 8.5 0.6pts
Passenger revenue per RPK (p) 6.71 6.33 6.0%
Passenger revenue per ASK (p) 5.25 4.79 9.6%
Cargo revenue per CTK (p) 13.30 12.41 7.2%
Total traffic revenue per RTK (p) 51.52 48.27 6.7%
Total traffic revenue per ATK (p) 36.58 33.31 9.8%
Total expenditure on operations per RTK (p) 50.00 47.68 (4.9)%
Total expenditure on operations per ATK (p) 35.50 32.91 (7.9)%
Average fuel price before hedging (US cents/US gallon) 213.50 161.81 (31.9)%
TOTAL AIRLINE OPERATIONS (Note 1)
OPERATIONS
Average Manpower Equivalent (MPE) 45,100 46,079 2.1%
ATKs per MPE (000) 131.6 124.2 5.9%
Aircraft in service at period end 284 287 (3)
Note 1: 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 three months to June 30 was £195 million - - £71
million better than last year.
Operating profit - - at £211 million - - was £35 million better than last year.
The improvement reflects strong revenue as a result of record seat factors and
better cabin mix. Revenue improvement has been partially offset by increased
operating costs, in particular fuel up 44.2% and employee costs up 7%. The
operating margin was 9.1%, 0.6 points better than last year.
Cash inflow from operating activities was £475 million for the quarter, with
closing cash, cash equivalents and short term deposits at £2,776 million
representing a £336 million increase versus March 31.
Turnover
For the three month period, Group turnover - - at £2,317 million - - was up
12.5%.
Passenger revenue, including fuel surcharges, was up 14.0% from last year,
mainly as a result of record seat factors and better cabin mix. Seat factors
were up 2.7 points at a record 78.3% on capacity 4.1% higher in ASKs. Passenger
yield (pence per RPK), including fuel surcharges, improved by 6.0% compared with
last year.
Cargo revenue, including fuel surcharges, was up 11.6% compared with last year,
with yields up 7.2% and increased volumes of 4.1%. The flying programme was
3.7% larger in ATKs.
Overall load factors were up 2.0 points at 71.0%.
Costs
For the quarter, group unit costs (pence/ATK) increased by 7.9% on the same
period last year. Capacity was 3.7% higher in ATKs.
Total expenditure on operations was up by 11.8%. Fuel costs increased by 44.2%
due to increases in fuel price, lower hedging profits and the effect of the
strengthening US Dollar against sterling. Employee costs increased by 7.0%,
reflecting increased pension service costs, additional severance, and the effect
of wage awards partially offset by manpower reductions.
Non Operating Items
Interest expense reduced by £20 million from last year to £39 million reflecting
the impact of lower debt. Interest income at £30 million was £9 million higher
than last year reflecting higher cash balances.
Retranslation of currency borrowings generated a credit of £6 million, (prior
year: £9 million charge), due to the retranslation of dollar and yen debt.
Tax
The tax charge for the quarter was £41 million giving an effective rate of 21%.
The tax rate has benefited from the recognition of an advance corporation tax
asset of £18 milllion which was previously written off. UK corporation tax
payments in the quarter totalled £27 million.
Earnings Per Share
The earnings attributable to shareholders for the three months was equivalent to
13.2 pence per share, compared with last year's earnings per share of 8.0 pence.
Net Debt / Total Capital Ratio
Borrowings, net of cash and short term loans and deposits, were £1,149 million
at June 30 - - down £492 million since March. The net debt/total capital ratio
reduced by 11.3 points from March 31 to 32.9%. The net debt/total capital ratio
including operating leases was 44.3%, an 8.7 point reduction from March 31.
Pensions
The Company continues to make progress in its consultation with the trustees
regarding its proposed changes to the New Airways Pension Scheme.
Cash Flow
During the quarter the Group generated a positive cash flow from operating
activities of £475 million, £126 million higher than last year. Including
current interest bearing deposits, the cash position at June 30, 2006 was £2.8
billion, an increase of £336 million compared with March 31, 2006.
Aircraft Fleet
During the quarter there were no changes in the Group's aircraft fleet.
Fit for 5
Preparations ahead of our move to Terminal 5 continue on track and we have made
good progress towards a common set of working agreements with our trade unions.
Five groups covering aircraft movements, equipment services, ground transport
services, dispatchers and loaders have agreed changes that will deliver
significant savings and efficiencies.
Outlook
Strong revenue is expected to continue, supported by significant promotional
activity driving seat factors in all cabins. For the year to March 2007, total
revenue is expected to improve by 6 - 7%, up from previous guidance of 5 - 6%
due to the impact of record seat factors and better cabin mix. Capacity growth
in the first half of the year is expected to be about 4% slowing in the second
half of the year to achieve a full year increase of 2.5 - 3%.
Fuel costs for the year are now expected to be £550 - £600 million up on last
year. Costs excluding fuel which were previously forecast flat, are now
expected to be slightly higher this year as pension costs are driving employee
costs up.
We continue to focus on our move to Terminal 5 in 2008, investing in products
for our customers and driving a competitive cost base to make our company fit
for growth.
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 2006.
CONSOLIDATED INCOME STATEMENT (unaudited)
Three months ended
June 30 Better/
2006 £m 2005 £m (Worse)
Restated
Traffic Revenue*
Passenger 2,006 1,759 14.0%
Cargo 164 147 11.6%
2,170 1,906 13.9%
Other revenue 147 153 (3.9)%
REVENUE 2,317 2,059 12.5%
Employee costs 610 570 (7.0)%
Depreciation, amortisation and impairment 186 178 (4.5)%
Aircraft operating lease costs 23 25 8.0%
Fuel and oil costs 512 355 (44.2)%
Engineering and other aircraft costs 113 117 3.4%
Landing fees and en route charges 146 142 (2.8)%
Handling charges, catering and other operating costs 239 234 (2.1)%
Selling costs 106 108 1.9%
Currency differences 21 (5) nm
Accommodation, ground equipment and IT costs 150 159 5.7%
TOTAL EXPENDITURE ON OPERATIONS 2,106 1,883 (11.8)%
OPERATING PROFIT 211 176 19.9%
Fuel derivative (losses)/gains** (6) 1 nm
Finance costs (39) (59) 33.9%
Finance income 30 21 42.9%
Financing income and expense relating to pensions (4) (4)
Retranslation credits/(charges) on currency borrowings 6 (9) nm
Loss on sale of fixed assets and investments (3) nm
Share of losses in associates (3) (1) nm
Income relating to fixed asset investments 2 nm
PROFIT BEFORE TAX 195 124 57.3%
Tax (41) (34) (20.6)%
PROFIT AFTER TAX 154 90 71.1%
Attributable to:
Equity holders of the parent 150 87 72.4%
Minority interest 4 3 33.3%
154 90 71.1%
Earnings per share:
Basic 13.2p 8.0p 65.0%
Fully diluted 13.1p 7.8p 67.9%
nm: Not meaningful
* Fuel surcharges of £98 million previously presented within 'other revenue'
in the June 2005 income statement, have been reclassified and included within
traffic revenue.
** Fuel derivative (losses)/gains reflect the ineffective portion of
unrealised gains and losses on fuel derivative hedges required to be recognised
through the income statement under IAS 39.
CONSOLIDATED BALANCE SHEET (unaudited)
June 30 June 30 March 31
2006 £m 2005 £m 2006 £m
NON-CURRENT ASSETS Restated
Property, plant and equipment
Fleet 6,520 6,843 6,606
Property 949 985 974
Equipment 295 378 302
7,764 8,206 7,882
Goodwill 72 72 72
Landing rights 116 121 115
Other intangible assets 43 55 46
231 248 233
Investments in associates 120 120 131
Other investments 81 33 33
Employee benefit assets 133 137 137
Other financial assets 87 107 89
TOTAL NON-CURRENT ASSETS 8,416 8,851 8,505
NON-CURRENT ASSETS HELD FOR SALE 8 3 3
CURRENT ASSETS AND RECEIVABLES
Expendable spares and other inventories 80 86 83
Trade receivables 625 738 685
Other current assets 509 567 458
Other current interest bearing deposits 1,856 903 1,533
Cash and cash equivalents 920 1,033 907
2,776 1,936 2,440
TOTAL CURRENT ASSETS AND RECEIVABLES 3,990 3,327 3,666
TOTAL ASSETS 12,414 12,181 12,174
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Issued share capital 284 283 283
Share Premium 898 888 888
Investment in own shares (24)
Other reserves 955 424 690
TOTAL SHAREHOLDERS' EQUITY 2,137 1,571 1,861
MINORITY INTEREST 212 212 213
TOTAL EQUITY 2,349 1,783 2,074
NON-CURRENT LIABILITIES
Interest bearing long-term borrowings 3,424 4,016 3,602
Employee benefit obligations 1,813 1,816 1,803
Provisions for deferred tax 909 906 896
Other provisions 138 114 135
Other long-term liabilities 223 208 232
TOTAL NON-CURRENT LIABILITIES 6,507 7,060 6,668
CURRENT LIABILITIES
Current portion of long-term borrowings 501 447 479
Trade and other payables 2,893 2,795 2,822
Current tax payable 102 57 75
Short-term provisions 62 39 56
TOTAL CURRENT LIABILITIES 3,558 3,338 3,432
TOTAL EQUITY AND LIABILITIES 12,414 12,181 12,174
CONSOLIDATED CASHFLOW STATEMENT (unaudited)
Three months ended
June 30 Better/
2006 £m 2005 £m (Worse)
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit 211 176 35
Depreciation, amortisation and impairment 186 178 8
Operating cash flow before working capital changes 397 354 43
Decrease/(increase) in inventories and other receivables 50 (66) 116
Increase in trade and other payables and provisions 92 111 (19)
Other non-cash movements 3 2 1
Cash generated from operations 542 401 141
Interest paid (40) (48) 8
Taxation (27) (4) (23)
NET CASH FLOW FROM OPERATING ACTIVITIES 475 349 126
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (65) (40) (25)
Purchase of intangible assets (5) (5)
Proceeds from partial disposal of associated companies 3 3
Proceeds from sale of property, plant and equipment 2 4 (2)
Interest received 18 18
Dividends received 1 2 (1)
(Increase)/decrease in interest bearing deposits (326) 233 (559)
NET CASH FLOW FROM INVESTING ACTIVITIES (372) 217 (589)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings (26) (12) (14)
Payment of finance lease liabilities (68) (69) 1
Exercise of share options 11 1 10
Distributions made to holders of perpetual securities (4) (3) (1)
NET CASH FLOW FROM FINANCING ACTIVITIES (87) (83) (4)
Net increase in cash and cash equivalents 16 483 (467)
Net foreign exchange difference (3) 2 (5)
Cash and cash equivalents at April 1 907 548 359
CASH AND CASH EQUIVALENTS AT JUNE 30 920 1,033 (113)
These summary financial statements were approved by the Directors on August 3,
2006.
NOTES TO THE ACCOUNTS (unaudited)
For the period ended June 30, 2006
1 BASIS OF PREPARATION
The basis of preparation and accounting policies set out in the Report and
Accounts for the year ended March 31, 2006 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 ended June 30, 2005 has
been restated to reflect fuel surcharges of £98 million, previously presented
within 'other revenue', reclassified and included within 'traffic revenue'.
In accordance with the Group's first full IFRS financial statements for the
year ending March 31, 2006, certain presentational changes have been made to the
comparative information for the quarter ending June 30, 2005. Provisions with a
value of £23 million, previously shown within 'other provisions' have been
re-presented in 'short-term provisions'. In addition, £96 million and £16
million of accruals have been reclassified from other long-term liabilities to
other provisions and trade and other payables to short term provisions
respectively. The presentation of the euro perpetual securities has been
classified from other reserves to minority interests (£200 million) on the
balance sheet and the distributions presented within minority interests in the
income statement. As a result, earnings per share attributable to equity holders
has been reduced by 0.3 and 0.1 pence per share on a basic and diluted basis
respectively.
* For the purposes of these statements IFRS also include International
Accounting Standards (IAS).
2 FINANCE COSTS / INCOME
Three months ended
June 30
2006 £m 2005 £m
FINANCE COSTS
Interest payable on bank and other loans and
finance charges payable under finance leases and
hire purchase contracts 40 59
Interest capitalised (1)
Total finance costs 39 59
FINANCE INCOME
Bank interest receivable 30 21
Total finance income 30 21
FINANCING INCOME AND EXPENSE RELATING TO PENSIONS
Financing income and expense relating to pensions 4 4
Amortisation of actuarial (gains)/losses on pensions
Total financing income and expense relating to pensions 4 4
Retranslation credits/(charges) on currency borrowings 6 (9)
3 LOSS ON SALE OF FIXED ASSETS AND INVESTMENTS
Three months ended
June 30
2006 £m 2005 £m
Net profit/(loss) on the disposal of property, plant and equipment 1 (3)
Net (loss) on disposal of investments (1)
(3)
4 TAX
The tax charge for the quarter is £41 million, £54 million of which represents
current tax payable in the UK and £(13) million represents deferred tax. The tax
charge has benefited from the recognition of £18 million of Advance Corporation
Tax that was previously written off.
5 EARNINGS PER SHARE
Basic earnings per share for the quarter ended June 30, 2006 are calculated on a
weighted average of 1,133,118,000 ordinary shares (June 2005: 1,080,074,000;
March 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 June 30, 2006 are calculated on a
weighted average of 1,146,754,000 ordinary shares (June 2005: 1,128,239,000;
March 2006: 1,138,545,000).
The number of shares in issue at June 30, 2006 was 1,135,849,000 (June 30, 2005:
1,130,882,000;
March 31, 2006: 1,130,882,000) ordinary shares of 25 pence each.
6 RECONCILIATION OF MOVEMENT IN NET DEBT TO CHANGES IN CASH FLOWS
Three months ended
June 30
2006 £m 2005 £m
Increase in cash and cash equivalents during the quarter 16 483
Net cash used in repayment of long-term borrowings 94 81
Increase/(decrease) in interest bearing deposits 326 (233)
Change in net debt resulting from cash flows 436 331
New finance leases taken out and hire
purchase arrangements made (1) (2)
Conversion of Convertible Capital Bonds 2005 112
Exchange and other non cash movements 57 (46)
Movement in net debt during the quarter 492 395
Net debt at April 1 (1,641) (2,922)
Net debt at quarter end (1,149) (2,527)
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.
7 ANALYSIS OF LONG-TERM BORROWINGS
June 30 June 30 March 31
2006 £m 2005 £m 2006 £m
Interest bearing long-term borrowings comprise:
Loans 1,000 1,102 1,030
Finance Leases 1,360 1,488 1,418
Hire purchase arrangements 1,064 1,426 1,154
3,424 4,016 3,602
Current portion of long-term borrowings comprise:
Loans 83 62 86
Finance Leases 99 100 105
Hire purchase arrangements 319 285 288
501 447 479
8 RESERVES
June 30 June 30 March 31
2006 £m 2005 £m 2006 £m
Restated
Balance at April 1 690 152 152
Transitional effects from the adoption of IAS 39 and IAS 32 183 183
Profit for the quarter 150 87 451
Exchange and other movements 115 2 (96)
955 424 690
9 EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
On July 25, 2006, WNS (Holdings) Limited launched an Initial Public Offering on
the New York Stock Exchange. The Group, which held 14.6% of the shares in WNS
(Holdings) Limited, has sold 100% of its holding for estimated net proceeds of
£52 million. The carrying value of the WNS investment, disclosed within 'Other
investments', has been uplifted at the balance sheet date from £4 million to £52
million.
10 COMPETITION INVESTIGATIONS
Investigations by competition authorities in the USA, Europe, Canada and New
Zealand into alleged anti-competitive activity in relation to the cargo
business, and in the UK and USA into alleged anti-competitive activity in
relation to passenger transportation pricing, including longhaul fuel
surcharges, are ongoing. As these investigations have not been completed, it is
not possible to assess the outcome and, as a result, no provision has been made.
11 The figures for the quarter ended June 30, 2006 and 2005 are unaudited and do
not constitute full accounts within the meaning of Section 240 of the Companies
Act 1985. The financial statements for the year ended March 31, 2006 have been
delivered to the Registrar of Companies and on which the auditors have issued an
unqualified audit report did not contain a statement under Section 237 of the
Companies Act 1985.
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, 2006, which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement and the
related notes 1 to 11. 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
directors are responsible for preparing the First Quarter Results in accordance
with the Listing Rules of the Financial Services Authority which 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
'Review of interim financial information' 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 International Standards on Auditing (UK and Ireland) 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, 2006.
Ernst & Young LLP
London
August 3, 2006
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) INFORMATION
(unaudited and outwith the scope of the Independent Review)
The accounts have been prepared in accordance with the measurement and
recognition requirements of International Financial Reporting Standards (IFRS)
which differ in certain respects from those generally accepted in the United
States. Comparative information for the quarter ended June 30, 2005 has been
restated and reflects the changes described in Note 1 to the accounts above.
The adjusted net income and shareholders' equity applying US GAAP are set out
below:
Three months ended
June 30
2006 £m 2005 £m
Restated
Profit for the quarter attributable to equity holders of the parent
as reported in the Group income statement 150 87
US GAAP adjustments (50) (59)
Net income as so adjusted to
accord with US GAAP 100 28
Net income per Ordinary Share
as so adjusted
Basic 8.8p 2.6p
Diluted 8.7p 2.6p
Net income per American Depositary Share
as so adjusted
Basic 88p 26p
Diluted 87p 26p
June 30 June 30 March 31
2006 £m 2005 £m 2006 £m
Restated
Shareholders' equity
as reported in the Group balance sheet 2,137 1,571 1,861
US GAAP adjustments 344 530 445
Shareholders' equity
as so adjusted to accord with US GAAP 2,481 2,101 2,306
AIRCRAFT FLEET
(unaudited and outwith the scope of the Independent Review)
Number in service with Group companies at June 30, 2006
On Balance Sheet Off Balance Sheet Total Changes Since Future
Aircraft Aircraft June 2006 March 2006 deliveries Options
(Note 5)
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 32
Airbus A320 9 18 27 7
Airbus A321 7 7 3
Boeing 737-300 5 5
Boeing 737-400 19 19
Boeing 737-500 9 9
Turboprops (Note 3) 8 8
Embraer RJ145 16 12 28
Avro RJ100 (Note 4) 10 10
British Aerospace 146 4 4
GROUP TOTAL 207 77 284 10 32
Notes:
1 Includes those operated by British Airways Plc and BA Connect.
2 Certain options include reserved delivery positions, and may be taken as any
A320 family aircraft.
3 Comprises 8 de Havilland Canada DHC-8s. Excludes 5 British Aerospace ATPs
stood down pending return to lessor and 12 Jetstream 41s sub-leased to Eastern
Airways.
4 Excludes 6 Avro RJ100s sub-leased to Swiss International Air Lines.
5 Excludes secured delivery positions on 10 Boeing 777 aircraft.
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