Chairmans Statement
British Airways PLC
03 February 2006
THIRD QUARTER RESULTS 2005-2006 (unaudited)
OPERATING AND FINANCIAL STATISTICS (unaudited)
Three months ended Nine months ended
December 31 Better/ December 31 Better/
2005 2004 (Worse) 2005 2004 (Worse)
Revenue £m 2,129 1,957 8.8% 6,393 5,897 8.4%
Operating profit £m 175 136 28.7% 612 510 20.0%
Profit before tax £m 164 151 8.6% 529 519 1.9%
Profit after tax £m 123 118 4.2% 384 386 (0.5)%
Net assets £m 1,953 1,387 40.8% 1,953 1,387 40.8%
Basic earnings per share p 10.3 10.7 (3.7)% 33.4 35.1 (4.8)%
Three months ended Nine months ended
December 31 Better/ December 31 Better/
2005 2004 (Worse) 2005 2004 (Worse)
TOTAL GROUP OPERATIONS
TRAFFIC AND CAPACITY
RPK (m) 27,499 25,999 5.8% 85,079 81,831 4.0%
ASK (m) 37,119 35,723 3.9% 111,277 108,512 2.5%
Passenger load factor (%) 74.1 72.8 1.3pts 76.5 75.4 1.1pts
CTK (m) 1,325 1,321 0.3% 3,693 3,740 (1.3)%
RTK (m) 4,076 3,921 4.0% 12,187 11,910 2.3%
ATK (m) 5,815 5,607 3.7% 17,384 16,968 2.5%
Overall load factor (%) 70.1 69.9 0.2pts 70.1 70.2 (0.1)pts
Passengers carried (000) 8,530 8,428 1.2% 27,474 27,538 (0.2)%
Tonnes of cargo carried (000) 211 232 (9.1)% 593 661 (10.3)%
FINANCIAL
Operating margin (%) 8.2 6.9 1.3pts 9.6 8.6 1.0pts
Passenger revenue per RPK (p) 6.11 6.20 (1.5)% 6.07 6.04 0.5%
Passenger revenue per ASK (p) 4.53 4.52 0.2% 4.64 4.56 1.8%
Cargo revenue per CTK (p) 10.19 10.14 0.5% 10.13 9.89 2.4%
Total traffic revenue per RTK (p) 44.53 44.55 (0.0)% 45.43 44.61 1.8%
Total traffic revenue per ATK (p) 31.21 31.16 0.2% 31.85 31.31 1.7%
Net operating expenditure
per RTK (p) 40.24 41.09 2.1% 40.40 40.33 (0.2)%
Net operating expenditure
per ATK (p) 28.20 28.73 1.8% 28.32 28.31 (0.0)%
Average fuel price before hedging
(US cents/US gallon) 200.47 156.57 (28.0)% 187.73 134.08 (40.0)%
TOTAL AIRLINE OPERATIONS (Note 1)
OPERATIONS
Average Manpower Equivalent (MPE) 45,624 45,888 0.6% 45,949 46,116 0.4%
ATKs per MPE (000) 127.5 122.2 4.3% 378.3 367.9 2.8%
Aircraft in service at
period end 289 293 (4) 289 293 (4)
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 December 31 was £164 million;
this compares with a profit of £151 million last year.
Operating profit - - at £175 million - - was £39 million better than last year.
The operating margin of 8.2% was 1.3 points higher than last year. The
improvement in operating profit primarily reflects improvements in revenue,
partially offset by increased fuel costs (up 28% in the quarter).
Group profit before tax for the nine months to December 31 was £529 million, £10
million better than last year; operating profit - - at £612 million - - was up
£102 million on the same period a year ago. The improvement in operating profit
primarily reflects improvements in turnover, including fuel surcharges,
partially offset by higher costs, mainly fuel.
Cash inflow from operating activities was £809 million for the nine months, with
the closing cash, cash equivalents and short-term deposits at £2,109 million
representing a £427 million increase versus March 31, 2005. Net debt fell by
£744 million from March 31, 2005 to £2,178 million.
Turnover
For the three month period, Group turnover - - at £2,129 million - - was up 8.8%
on a flying programme 3.7% larger in ATKs. The improvement in ATKs includes a 2
point increase due to temporary reductions in the flying programme in Quarter 3
last year. Passenger yields were down 1.5% per RPK; seat factor was up 1.3
points at 74.1% on capacity 3.9% higher in ASKs.
For the nine month period, turnover improved by 8.4% to £6,393 million on a
flying programme 2.5% larger in ATKs. Passenger yields were up 0.5% per RPK with
seat factor up 1.1 points at 76.5% on capacity 2.5% higher in ASKs.
Cargo volumes for the quarter (CTKs) were up 0.3% compared with last year, with
yields (revenue/CTK) up 0.5%. For the nine month period, cargo volumes were down
1.3%, with yields up 2.4%.
Overall load factor for the quarter was up 0.2 points at 70.1%, and for the nine
months down 0.1 points at 70.1%.
Costs
For the quarter, unit costs (pence/ATK) reduced by 1.8% on the same period last
year as a result of a net cost increase of 1.8% on capacity 3.7% higher in ATKs.
Operating expenditure in the quarter increased by 7.3%. Fuel costs increased by
28.2% due to the increase in fuel price net of hedging, a larger flying
programme and a stronger US dollar. Employee costs increased by 8.3% as wage
awards and increased pension service costs were only partially offset by
manpower reductions. In addition, a £10 million restructuring provision was
included in the quarter to support the first phase of the management
restructuring programme announced in December 2005. Selling costs were up 7.8%
due to additional promotional spend as a result of the expansion of flights to
India, the timing of marketing campaigns this year versus last year and an
adverse exchange impact. Engineering spend was up 20.4% in the quarter primarily
driven by the non-recurrence of one-off recoveries last year, additional
maintenance costs due to the timing of minor overhauls versus last year and an
adverse exchange impact.
For the nine months, unit costs (pence/ATK) were unchanged versus last year.
This reflects a net cost increase of 2.5% on capacity 2.5% higher in ATKs.
Non Operating Items
Interest expense for the quarter reduced by £7 million from last year to £51
million reflecting the impact of lower debt. Interest income at £24 million was
£9 million higher than last year, reflecting higher cash balances. The
retranslation of currency borrowings generated a charge of £3 million, compared
with a credit of £59 million last year. The movement results from changes in
accounting treatment following the adoption of IAS39 whereby unhedged currency
borrowings are now hedged against future cash flows. The share of profits in
associates at £25 million was £24 million higher than last year due to our share
of Iberia's profit on its disposal of its investment in Amadeus.
For the nine month period, interest expense was £164 million, £28 million lower
than last year due to the impact of lower debt levels. The retranslation of
currency borrowings generated a charge of £13 million, compared with a credit of
£70 million last year. This is due to the changes in accounting treatment as
above. Profit on sale of fixed assets and investments was £82 million lower than
last year, reflecting the non-recurrence of the £86 million profit on disposal
of our investment in Qantas last year. The share of profits in associates
includes our share of Iberia's profit on its disposal of its investment in
Amadeus.
Earnings Per Share
The earnings attributable to shareholders for the three months was equivalent to
10.3 pence per share, compared with last year's earnings per share of 10.7
pence.
For the nine month period, the profit attributable to shareholders was £371
million, equivalent to 33.4 pence per share, compared with earnings of 35.1
pence per share last year.
Net Debt / Total Capital Ratio
Borrowings, net of cash and short term loans and deposits, were £2,178 million
at December 31, down £744 million since the start of the year, partly due to the
conversion of the £112 million of bonds from debt to equity. The net debt/total
capital ratio reduced by 15.0 points from March 31 to 52.7%. The net debt/total
capital ratio including operating leases was down 12.5 points from March 31 to
59.9%.
Cash Flow
During the nine months we generated a positive cash flow from operating
activities of £809 million, £126 million higher than last year. Including
current interest bearing deposits, the cash position at December 31, 2005 was
£2,109 million, an increase of £427 million compared with March 31, 2005.
Aircraft Fleet
Compared to September 30, 2005, the Group fleet in service increased by 1
aircraft to 289.
Subsidiaries
In a major drive to improve profitability we are re-launching our regional
subsidiary, British Airways CitiExpress, under the new name of BA Connect. BA
Connect will bring significant benefits to regional air travellers by offering
more choice, greater business traveller benefits and even lower fares with
prices reduced by up to 40%.
Pensions
Tackling our pension deficit continues to be a key driver in making our cost
base competitive for the future. We have come to the end of a staff awareness
programme on the implications of the significant deficit and we are reviewing
the feedback before starting consultations with the trades unions and trustees
by the end of March.
Outlook
Some yield improvement is still expected for this financial year. Consequently,
revenue is now expected to grow by more than 8%.
Despite the improved revenue outlook, market conditions remain broadly unchanged
as significant promotional activity is required to maintain seat factors.
Underlying costs excluding fuel are now expected to be some 1% higher than the
guidance we gave at the beginning of the year, which was flat.
Fuel costs continue to be a challenge for the industry, but our guidance is
unchanged with total fuel costs expected to be up by £525 million this year.
Our focus remains on preparing for the move to Terminal 5 in 2008, investing in
products for our customers and continuing to drive simplification to deliver a
competitive cost base.
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 2005.
CONSOLIDATED INCOME STATEMENT (unaudited)
Three months ended Nine months ended
December 31 Better/ December 31 Better/
2005 £m 2004 £m (Worse) 2005 £m 2004 £m (Worse)
Traffic Revenue
Passenger 1,680 1,613 4.2% 5,162 4,943 4.4%
Cargo 135 134 0.7% 374 370 1.1%
1,815 1,747 3.9% 5,536 5,313 4.2%
Other revenue 314 210 49.5% 857 584 46.7%
TOTAL REVENUE 2,129 1,957 8.8% 6,393 5,897 8.4%
Employee costs 576 532 (8.3)% 1,714 1,623 (5.6)%
Depreciation and amortisation 184 183 (0.5)% 533 542 1.7%
Aircraft operating lease costs 26 28 7.1% 82 81 (1.2)%
Fuel and oil costs 423 330 (28.2)% 1,188 859 (38.3)%
Engineering and other aircraft costs 118 98 (20.4)% 353 309 (14.2)%
Landing fees and en route charges 139 140 0.7% 426 426
Handling charges, catering and
other operating costs 247 231 (6.9)% 729 701 (4.0)%
Selling costs 110 102 (7.8)% 324 375 13.6%
Currency differences (12) 28 nm (15) 16 nm
Accommodation, ground equipment
and IT costs 143 149 4.0% 447 455 1.8%
TOTAL EXPENDITURE FROM OPERATIONS 1,954 1,821 (7.3)% 5,781 5,387 (7.3)%
OPERATING PROFIT 175 136 28.7% 612 510 20.0%
Fuel derivative (losses)/gains* (4) nm 9 nm
Interest expense (51) (58) 12.1% (164) (192) 14.6%
Interest income 24 15 60.0% 67 55 21.8%
Other financing income 8 nm 8 nm
Financing income and expense
relating to pensions (4) (11) 63.6% (12) (33) 63.6%
Retranslation (charges)/credits
on currency borrowings (3) 59 nm (13) 70 nm
Profit on sale of fixed
assets and investments 2 1 100.0% 82 nm
Share of profits in associates 25 1 nm 28 18 55.6%
Income relating to fixed asset
investments nm 2 1 100.0%
PROFIT BEFORE TAX 164 151 8.6% 529 519 1.9%
Tax (41) (33) (24.2)% (145) (133) (9.0)%
PROFIT AFTER TAX 123 118 4.2% 384 386 (0.5)%
Attributable to:
Equity holders of the parent 117 115 371 376
Minority interest 6 3 13 10
123 118 4.2% 384 386 (0.5)%
Earnings per share:
Basic 10.3 10.7 (3.7)% 33.4 35.1 (4.8)%
Fully diluted 10.3 10.4 (1.0)% 32.8 34.1 (3.8)%
nm: Not meaningful
* Fuel derivative gains and losses 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)
December 31 December 31 March 31
2005 £m 2004 £m 2005 £m
NON-CURRENT ASSETS
Property, plant and equipment
Fleet 6,703 7,056 6,944
Property 949 1,021 1,000
Equipment 366 414 385
8,018 8,491 8,329
Goodwill 72 72 72
Landing rights 117 104 122
Other intangible assets 48 47 60
Investments in associates 130 122 126
Long term investments 29 30 30
Available-for-sale financial assets 4
Employee benefit assets 138 125 137
Other financial assets 105 44 38
TOTAL NON-CURRENT ASSETS 8,661 9,035 8,914
NON-CURRENT ASSETS HELD FOR SALE 1 4 5
CURRENT ASSETS AND RECEIVABLES
Expendable spares and other inventories 98 95 84
Trade receivables 589 586 685
Other current assets 480 312 301
Other current interest bearing deposits 1,164 1,408 1,134
Cash and cash equivalents 945 406 548
2,109 1,814 1,682
TOTAL CURRENT ASSETS AND RECEIVABLES 3,276 2,807 2,752
TOTAL ASSETS 11,938 11,846 11,671
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Issued share capital 283 271 271
Treasury shares (2) (27) (26)
Other reserves 1,459 932 940
TOTAL SHAREHOLDERS' EQUITY 1,740 1,176 1,185
MINORITY INTEREST 213
TOTAL EQUITY 1,953
Equity minority interest 11 12
Non-equity minority interest 200 200
MINORITY INTERESTS 211 212
PROVISIONS
Employee benefit obligations 1,808 1,828 1,820
Provisions for deferred tax 912 845 816
Other provisions 39 35 34
TOTAL PROVISIONS 2,759 2,708 2,670
NON-CURRENT LIABILITIES
Interest bearing long-term borrowings 3,794 4,405 4,045
Other long term liabilities 364 307 306
TOTAL LONG-TERM LIABILITIES 4,158 4,712 4,351
CURRENT LIABILITIES
Current portion of long-term borrowings 493 491 447
Convertible long-term borrowings 112 112
Trade and other payables 2,498 2,409 2,658
Current tax payable 77 27 36
TOTAL CURRENT LIABILITIES 3,068 3,039 3,253
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 11,938 11,846 11,671
CONSOLIDATED CASHFLOW STATEMENT (unaudited)
Nine months ended
December 31 Better/
2005 £m 2004 £m (Worse)
CASHFLOWS FROM OPERATING ACTIVITIES
Operating profit 612 510 102
Depreciation and amortisation 533 542 (9)
Operating cashflow before working capital changes 1,145 1,052 93
Decrease in inventories and other receivables 52 15 37
Decrease in trade and other payables and provisions (208) (210) 2
Other non-cash movements 9 6 3
Cash generated from operations 998 863 135
Interest paid (149) (181) 32
Taxation (40) 1 (41)
NET CASHFLOW FROM OPERATING ACTIVITIES 809 683 126
CASHFLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (184) (312) 128
Purchase of intangible assets (3) (13) 10
Purchase of interest in associated undertakings (5) (5)
Proceeds from sale of associated undertaking 427 (427)
Proceeds from sale of trade investment 1 1
Proceeds from sale of property, plant and equipment 9 56 (47)
Costs of disposal of subsidiary undertakings (6) (11) 5
Interest received 55 54 1
Dividends received 22 20 2
Increase in interest bearing deposits (29) (770) 741
NET CASHFLOW FROM INVESTING ACTIVITIES (140) (549) 409
CASHFLOWS FROM FINANCING ACTIVITIES
Proceeds from long term borrowings 47 (47)
Repayment of borrowings (40) (104) 64
Payment of finance lease liabilities (241) (688) 447
Exercise of share options 18 4 14
Distributions made to holders of perpetual securities (10) (6) (4)
NET CASH USED IN FINANCING ACTIVITIES (273) (747) 474
Net increase/(decrease) in cash and cash equivalents 396 (613) 1,009
Net foreign exchange difference 1 (8) 9
Cash and cash equivalents at March 31 548 1,027 (479)
CASH AND CASH EQUIVALENTS AT DECEMBER 31 945 406 539
These summary financial statements were approved by the Directors on February 2, 2006.
NOTES TO THE ACCOUNTS (unaudited)
For the period ended December 31, 2005
1 BASIS OF PREPARATION
These summary financial statements have been prepared 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 with the
exception of the disclosure requirements of IAS 34 - 'Interim Reporting'.
The accounting policies and basis of preparation differ from those set out in
the Report and Accounts for the year ended March 31, 2005 which were prepared in
accordance with United Kingdom accounting standards and the Companies Act 1985
(UK GAAP).
A summary of the significant accounting policies used in the preparation of
these financial statements under IFRS and a summary of the impact of the change
from UK GAAP to IFRS on comparative periods as required by IFRS 1 - 'First-time
adoption of International Financial Reporting Standards' were included in the
group's 'Release of financial information for 2004/05 under International
Financial Reporting Standards' published on July 4, 2005. The release included
the quarterly results for quarters ended June 30, 2004, September 30, 2004,
December 31, 2004 and March 31, 2005 restated under the recognition and
measurement rules of IFRS and a summary of the significant differences to UK
GAAP. The release also included restated balance sheets at those dates in
addition to the restated balance sheet at April 1, 2004, the group's transition
date to IFRS.
As permitted under IFRS 1, the group elected to apply the requirements of IAS 32
- 'Financial Instruments - Disclosure and Presentation' and IAS 39 - 'Financial
Instruments - Recognition and Measurement' from April 1, 2005. As a consequence
certain assets and liabilities are required to be recognised and measured at
fair value. As a result of the application of IAS 39 the opening net assets of
the group increased by £183 million at April 1, 2005. The increase represents
the fair value of financial instruments and available for sale financial assets
(£193 million, net of deferred tax), partially offset by the impact of the
group's share of the opening reserves adjustments of associated undertakings
(£10 million). The adoption of IAS 32 had no impact on the reserves or net
assets of the group except for minor presentational differences. The £200
million Euro Perpetual Preferred securities, issued by British Airways Finance
(Jersey) L.P. in 1999, (in which the general partner is British Airways Holdings
Limited, a wholly owned subsidiary of British Airways Plc) have been classified
as Minority Interest. In previous quarters this has been shown within other
reserves.
Under IAS 39, financial instruments are recorded initially at fair value.
Subsequent measurement of those instruments at the balance sheet date reflects
the designation of the financial instrument.
Listed investments (other than interests in associates) are designated as
available-for-sale assets and are recorded at fair value. Any change in the fair
value is reported in reserves until the investment is sold when the cumulative
reserves movement is recognised in income.
Any provisions for impairment of the carrying value are reflected in income when
they arise.
Exchange gains and losses on monetary items are taken to income unless the item
has been designated as a hedging instrument. Exchange gains and losses on
non-monetary investments are reflected in reserves until the investment is sold
when the balance is recognised in income.
Derivative financial instruments, comprising interest rate swap agreements,
foreign exchange derivatives and fuel hedging derivatives (including options,
swaps and collars) are measured at fair value on the group balance sheet.
Changes in the fair value are reported through operating income or financing
according to the nature of the derivative financial instrument unless the
derivative financial instrument has been designated as a hedge of a highly
probable expected future cashflow. Gains and losses on forward exchange
contracts to hedge capital expenditure commitments are recognised as part of the
total sterling carrying cost of the relevant tangible asset as the contracts
mature or are closed out. Gains and losses on derivative financial instruments
designated as hedging instruments that are expected to be highly effective at
inception and were highly effective for the period are taken to reserves and
reflected in the income statement when the cashflow either occurs or ceases to
be highly probable.
Certain loan repayment instalments denominated in US dollars and Japanese yen
are designated as hedges of highly probable future foreign currency revenues.
Exchange differences arising from the translation of these loan repayment
instalments are taken to reserves until the future revenue occurs when the
cumulative exchange difference is recognised in income.
The hedging relationships are tested for effectiveness in accordance with IAS 39
- 'Financial Instruments'.
Long term borrowings, finance leases and hire purchase agreements are recorded
at amortised cost. Certain leases contain interest rate swaps that are closely
related to the underlying financing and, as such, are not accounted for as an
embedded derivative. The carrying value of the interest rate swap is reflected
within the carrying value of the long-term borrowing.
The financial information presented has been prepared on the basis of those
Standards and Interpretations of the International Financial Reporting
Interpretations Committee (IFRIC).
NOTES TO THE ACCOUNTS (unaudited) (Continued)
For the period ended December 31, 2005
BASIS OF PREPARATION (continued)
and Standard Interpretations Committee (SIC) that are expected to be applicable
to 2005/06 financial reporting. These are subject to ongoing review and
endorsement by the European Commission, whilst the application of the Standards
continues to be subject to interpretation by IFRIC as well as emerging industry
consensus. As a consequence, further adjustments to the accounting policies and
treatments may need to be made in the first complete set of IFRS financial
statements for 2005/06 for the year ending March 31, 2006.
These financial statements have been prepared on a historical cost convention
except for certain financial assets and liabilities, including derivative
financial instruments and available-for-sale financial assets, that are measured
at fair value. The carrying value of recognised assets and liabilities that are
hedged are adjusted to record changes in the fair values attributable to the
risks that are being hedged.
• For the purposes of these statements IFRS also include International
Accounting Standards (IAS).
2 FINANCE COSTS / INCOME
Three months ended Nine months ended
December 31 December 31
2005 £m 2004 £m 2005 £m 2004 £m
FINANCE COSTS
Interest payable on bank and other loans and
finance charges payable under finance leases and
hire purchase contracts 51 58 164 192
Interest capitalised
Total finance costs 51 58 164 192
FINANCE INCOME
Bank interest receivable 24 15 67 55
Total finance income 24 15 67 55
FINANCING INCOME AND EXPENSE RELATING TO PENSIONS
Net financing expense/(income) relating to pensions 4 11 12 33
Amortisation of actuarial (gains)/losses on pensions
Total financing income and expense relating to pensions 4 11 12 33
Retranslation (charges)/credits on currency borrowings (3) 59 (13) 70
3 PROFIT/(LOSS) ON SALE OF FIXED ASSETS AND INVESTMENTS
Three months ended Nine months ended
December 31 December 31
2005 £m 2004 £m 2005 £m 2004 £m
Net profit on disposal of investment in Qantas 86
Net profit/(loss) on the disposal of property, plant
and equipment 2 1 (4)
2 1 82
4 TAX
The tax charge for the quarter is £41 million of which £11 million represents
deferred tax in the UK and £30 million current UK tax.
5 EARNINGS/(LOSS) PER SHARE
Basic earnings per share for the quarter ended December 31, 2005 are calculated
on a weighted average of 1,128,475,000 ordinary shares (December 2004:
1,071,112,000; March 2005: 1,071,126,000) 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 December 31, 2005 are
calculated on a weighted average of 1,138,143,000 ordinary shares (December
2004: 1,119,111,000; March 2005: 1,126,485,000).
The number of shares in issue at December 31, 2005 was 1,130,882,000 (December
31, 2004: 1,082,903,000; March 31, 2005: 1,082,903,000) ordinary shares of 25
pence each.
NOTES TO THE ACCOUNTS (unaudited) (Continued)
For the period ended December 31, 2005
6 RECONCILIATION OF MOVEMENT IN NET DEBT TO CHANGES IN CASH FLOWS
Nine months ended
December 31
2005 £m 2004 £m
Increase/(decrease) in cash and cash equivalents during the period 396 (613)
Net cash used in repayment of long-term borrowings 281 745
Increase in interest bearing deposits 29 770
Change in net debt resulting from cash flows 706 902
New finance leases taken out and hire
purchase arrangements made (7) (8)
Conversion of Convertible Capital Bonds 2005 112
Exchange movements (67) 70
Movement in net debt during the period 744 964
Net debt at April 1 (2,922) (4,158)
Net debt at period end (2,178) (3,194)
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-bearingshort-term deposits.
7 ANALYSIS OF LONG-TERM BORROWINGS
December 31 December 31 March 31
2005 £m 2004 £m 2005 £m
Interest bearing long-term borrowings comprise:
Loans 1,081 1,064 1,105
Finance Leases 1,452 1,762 1,493
Hire purchase arrangements 1,261 1,579 1,447
3,794 4,405 4,045
Current portion of long-term borrowings comprise:
Loans 62 95 63
Finance Leases 121 105 96
Hire purchase arrangements 310 291 288
493 491 447
8 RESERVES
December 31 December 31 March 31
2005 £m 2004 £m 2005 £m
Balance at April 1 940 557 557
Transitional effects from the adoption of IAS 39 and IAS 32 183
Profit for the period 384 386 392
Distributions to perpetual preferred security holders (10) (10) (14)
Conversion of Convertible Capital Bonds 2005 100
Exchange and other movements (138) (1) 5
1,459 932 940
9 The figures for the three months and nine months ended December 31, 2005 and
2004 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, 2005 have been delivered to the Registrar of Companies and on
which the auditors have issued an unqualified audit report and 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 and nine months ended December 31, 2005, which comprises the
Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash
Flow Statement and Notes to the Accounts. We have read the other information
contained in the interim 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 interim 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 interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with those IFRSs adopted for use by the European
Union.
The accounting policies are consistent with those that the directors intend to
use in the next financial statements. There is, however, a possibility that the
directors may determine that some changes to these policies are necessary when
preparing the full annual financial statements for the first time in accordance
with those IFRS adopted for use by the European Union.
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 have been applied. 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
and nine months ended December 31, 2005.
Ernst & Young LLP
London
February 2, 2006
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) INFORMATION
(unaudited and for information only)
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.
The comparatives have been restated to recognise the adoption of IFRS by the
group.
The adjusted net income/(loss) and shareholders' equity applying US GAAP are set
out below:
Three months ended Nine months ended
December 31 December 31
2005 £m 2004 £m 2005 £m 2004 £m
Profit for the period attributable to equity
holders of the parent as reported in the
Group income statement 117 115 371 376
US GAAP adjustments (130) (132) (257) (150)
Net income/(loss) as so adjusted to
accord with US GAAP (13) (17) 114 226
Net income/(loss) per Ordinary Share
as so adjusted
Basic (1.2)p (1.6)p 10.3p 21.1p
Diluted (1.2)p (1.6)p 10.2p 20.7p
Net income/(loss) per American Depositary Share
as so adjusted
Basic (12)p (16)p 103p 211p
Diluted (12)p (16)p 102p 207p
December 31 March 31
2005 £m 2004 £m 2005 £m
Shareholders' equity
as reported in the Group balance sheet 1,740 1,176 1,185
US GAAP adjustments 436 852 759
Shareholders' equity
as so adjusted to accord with US GAAP 2,176 2,028 1,944
Net income for the three months ended December 31, 2004 and the nine months
ended December 31, 2004, as reported under US GAAP, has been adjusted by
approximately £(2) million and £16 million respectively, to reflect the
quarterly impact of adjustments made during the 4th quarter of the year.
Shareholders' equity as at December 31, 2004 as reported under US GAAP has been
adjusted by £16 million which reflects the cumulative impact of the adjustments.
AIRCRAFT FLEET
(unaudited and for information only)
Number in service with Group companies at December 31, 2005
On Balance Sheet Off Balance Total Changes Since Future Options
aircraft Sheet Aircraft December September 2005 deliveries
2005
AIRLINE OPERATIONS (Note 1) (Note 7)
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 36
Airbus A320 (Note 3) 9 18 27 1 7
Airbus A321 7 7 3
Boeing 737-300 5 5
Boeing 737-400 (Note 4) 19 19 1
Boeing 737-500 9 9
Turboprops (Note 5) 8 8
Embraer RJ145 16 12 28
Avro RJ100 (Note 6) 15 15 (1)
British Aerospace 146 4 4
GROUP TOTAL 207 82 289 1 10 36
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. Includes 1 Airbus A320 returned to service from sub-lease to GB Airways.
4. Includes 1 Boeing 737-400 returned to service from sub-lease to Air One.
5. 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.
6. Excludes 1 Avro RJ100 sub-leased to Swiss.
7. Future deliveries have increased by 4 to 10 to replace 10 A320 aircraft due
to leave the fleet from 2007.
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