Interim Results
British Airways PLC
03 November 2006
INTERIM RESULTS 2006-2007 (unaudited)
OPERATING AND FINANCIAL STATISTICS (unaudited)
Three months ended Six months ended
September 30 Better/ September 30 Better/
2006 2005 (Worse) 2006 2005 (Worse)
Restated Restated
Revenue £m 2,313 2,205 4.9% 4,630 4,264 8.6%
Operating profit before
BA Connect impairment £m 240 261 (8.0)% 451 437 3.2%
Operating profit £m 134 261 (48.7)% 345 437 (21.1)%
Profit before tax £m 176 241 (27.0)% 371 365 1.6%
Profit after tax £m 168 171 (1.8)% 322 261 23.4%
Net assets £m 2,378 2,030 17.1% 2,378 2,030 17.1%
Basic earnings per share p 14.5 14.9 (2.7)% 27.8 23.0 20.9%
Three months ended Six months ended
September 30 Better/ September 30 Better/
2006 2005 (Worse) 2006 2005 (Worse)
Restated Restated
TOTAL GROUP OPERATIONS
TRAFFIC AND CAPACITY
RPK (m) 30,872 29,812 3.6% 60,781 57,580 5.6%
ASK (m) 38,727 37,452 3.4% 76,949 74,158 3.8%
Passenger load factor (%) 79.7 79.6 0.1pts 79.0 77.6 1.4pts
CTK (m) 1,170 1,183 (1.1)% 2,403 2,368 1.5%
RTK (m) 4,306 4,162 3.5% 8,518 8,111 5.0%
ATK (m) 5,932 5,847 1.5% 11,865 11,569 2.6%
Overall load factor (%) 72.6 71.2 1.4pts 71.8 70.1 1.7pts
Passengers carried (000) 9,935 9,767 1.7% 19,504 18,944 3.0%
Tonnes of cargo carried (000) 189 189 387 382 1.3%
FINANCIAL
Operating margin before
BA Connect impairment (%) 10.4 11.8 (1.4)pts 9.7 10.2 (0.5)pts
Operating margin (%) 5.8 11.8 (6.0)pts 7.5 10.2 (2.7)pts
Passenger revenue per RPK (p) 6.50 6.36 2.2% 6.60 6.35 3.9%
Passenger revenue per ASK (p) 5.19 5.07 2.4% 5.22 4.93 5.9%
Cargo revenue per CTK (p) 13.68 13.10 4.4% 13.48 12.75 5.7%
Total traffic revenue per RTK (p) 50.35 49.30 2.1% 50.93 48.80 4.4%
Total traffic revenue per ATK (p) 36.55 35.09 4.2% 36.56 34.21 6.9%
Total expenditure on operations
per RTK (p) 50.60 46.71 (8.3)% 50.31 47.18 (6.6)%
Total expenditure on operations
per ATK (p) 36.73 33.25 (10.5)% 36.11 33.08 (9.2)%
Average fuel price before hedging
(US cents/US gallon) 229.19 175.69 (30.5)% 221.36 168.75 (31.2)%
TOTAL AIRLINE OPERATIONS (Note 1)
OPERATIONS
Average Manpower Equivalent (MPE) 45,058 46,144 2.4% 45,079 46,112 2.2%
ATKs per MPE (000) 131.7 126.7 3.9% 263.2 250.9 4.9%
Aircraft in service at
period end 283 288 (5) 283 288 (5)
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 September 30 was £176 million;
this compares with a profit of £241 million last year. The reduction primarily
reflects the impairment charge of £106 million taken this year against the BA
Connect business, revenue weakness following the security-related disruption in
August and fuel costs 30% higher than last year, partially offset by the profit
of £48 million realised on the disposal of the Group's holding in World Network
Services.
Operating profit of £240 million before the impairment of BA Connect was £21
million lower than last year. This resulted in an operating margin of 10.4%, 1.4
points lower than last year. Including the BA Connect impairment, operating
profit was £134 million, giving an operating margin of 5.8%.
The results for the quarter have been significantly impacted as a result of the
new security measures introduced in August. The cost in the quarter is
estimated at some £100 million.
Group profit before tax before the impairment of BA Connect for the six months
to September 30 was £477 million, £112 million better than last year; operating
profit - - at £451 million - - was £14 million better than last year.
Operating margin for the half year - - traditionally the stronger of the two
halves - - was 9.7%, 0.5 points lower than last year. Including the effect of
the BA Connect impairment charge, the operating margin was 7.5%.
Cash inflow from operating activities was £439 million for the six months, with
the closing cash, cash equivalents and short term deposits at £2,633 million
representing a £193 million increase versus March 31, 2006. Net debt fell by
£516 million from March 31, 2006 to £1,125 million.
Turnover
For the three month period, group turnover - - at £2,313 million - - was up 4.9%
on a flying programme 1.5% larger in ATKs. Passenger revenue increased by 5.9%,
primarily reflecting the impact of increased volumes and fuel surcharges.
Passenger yields per RPK (including fuel surcharges) were up 2.2%; seat factor
was up 0.1 point at 79.7% on capacity 3.4% higher in ASKs. Cargo revenue was up
3.2%. Cargo volumes for the three month period (CTKs) were down 1.1% compared
with last year, with yields (revenue/CTK) up 4.4%.
Overall load factor for the three month period was up 1.4 points at 72.6%, and
for the half year up 1.7 points at 71.8%.
For the six month period, turnover improved by 8.6% to £4,630 million on a
flying programme 2.6% larger in ATKs. Passenger yields per RPK were up 3.9%
with seat factor up 1.4 points at 79.0% on capacity 3.8% higher in ASKs. Cargo
volumes were up 1.5%, with yields up 5.7%.
Costs
For the three month period, group unit costs (pence/ATK) increased by 10.5% on
the same period last year. Excluding the BA Connect impairment charge and fuel
costs, unit costs fell by 1.1%. Capacity was 1.5% higher in ATKs.
Total expenditure from operations was up 12.1% (up 0.3% excluding fuel and the
impairment charge). Fuel costs for the quarter, rose by 30.2% due to the
increase in fuel price net of hedging.
For the six month period, unit costs (pence/ATK) increased by 9.2% on the same
period last year. This reflects a total operating cost increase of 12.0% on
capacity 2.6% higher in ATKs. Excluding the BA Connect impairment charge, the
unit cost increase was 6.5%.
BA Connect
BA Connect's operating loss was £6 million for the six month period. As this
represents an on-going significant worsening against plan, an impairment review
of the BA Connect business has been carried out as at September 30, 2006. This
has resulted in an impairment charge of £106 million within the operating
results of the Group for the quarter.
Subsequent to September 30, 2006, we have reached agreement in principle to sell
the regional business of BA Connect to Flybe, subject to due diligence.
Non Operating Items
Interest expense for the three month period reduced by £19 million from last
year to £35 million reflecting the impact of lower debt and the £15 million
release of a provision no longer required in respect of interest on previously
disputed overseas tax and social security charges. Interest income at £33
million was £11 million higher than last year reflecting higher cash balances.
Profit on sale of fixed assets and investments was £49 million, £48 million
higher than last year, reflecting the disposal for proceeds of £52 million of
the Group's holding in World Network Services.
Income relating to fixed asset investments was £12 million, reflecting the
recognition of income from the Group's investment in NATS (National Air Traffic
Services Limited) through The Airline Group.
For the six month period, interest expense was £74 million, £39 million lower
than last year. The retranslation of currency borrowings generated a credit of
£9 million, compared with a charge of £10 million last year. Profit on sale of
fixed assets and investments was £49 million, compared with a loss of £2 million
last year.
Tax
The tax charge for the three month period was £8 million, giving an effective
rate of 5%. The charge for the six month period was £49 million, with an
effective rate of 13%. The tax rate in the three month period has benefited
from the recognition of an advance corporation tax asset of £29 million which
was previously written off and from one-off releases totalling £15 million of
which £8 million is overseas tax on which interest previously charged has been
released. UK corporation tax payments in the quarter totalled £29 million and
in the six month period £56 million.
Earnings Per Share
The earnings attributable to shareholders for the three months were equivalent
to 14.5 pence per share, compared with last year's earnings per share of 14.9
pence.
For the six month period, the profit attributable to shareholders was £315
million, equivalent to 27.8 pence per share, compared with earnings of 23.0
pence per share last year.
The Board has decided that no interim dividend should be paid.
Net Debt / Total Capital Ratio
Borrowings, net of cash and short term loans and deposits, were £1,125 million
at September 30, down £516 million since the start of the year. The net debt/
total capital ratio reduced by 12.1 points from March 31 to 32.1%. The net debt/
total capital ratio including operating leases was down 9.9 points from March 31
to 43.1%.
Cash Flow
During the six months the Group generated a positive cash flow from operating
activities of £439 million, £91 million lower than last year. Including current
interest bearing deposits, the cash position at September 30, 2006 was £2,633
million, an increase of £193 million compared with March 31, 2006.
Aircraft Fleet
During the three month period one DHC - 8 aircraft was returned to lessor.
On October 17, the company launched a competition for new longhaul aircraft by
issuing tender documents to aircraft and engine manufacturers.
The competition, called a request for proposal (RFP), is the first step in a
lengthy process before the airline makes a decision to expand and renew its
longhaul fleet for the next decade.
Pensions
An actuarial valuation of the Group's two main pension schemes, the Airways
Pension Scheme (APS) and the New Airways Pension Scheme (NAPS) has been carried
out. The actuarial deficit has risen from £928 million in March 2003 to £2,062
million in March 2006, mainly due to longer life expectancy and a lower discount
rate. If no changes are made to the scheme and the deficit was spread over ten
years the Group's annual cash contributions would need to be £497 million. The
company published its proposals to tackle pension funding earlier this year,
which included changes to future benefits. When accepted, the airline will make
a one-off contribution of £500 million to the scheme. In the meantime the
trustees appointed PriceWaterhouseCoopers to provide independent advice on the
company's financial ability to support the scheme. On the basis of this advice,
the trustees stated that benefit changes will be necessary, plus higher annual
company contributions and a higher lump sum than the £500 million proposed, as
part of the funding plan for NAPS. Negotiations with the trustees and
consultation with the unions continue.
Competition Investigations
Martin George, Commercial Director, and Iain Burns, British Airways' Head of
Communications resigned their positions with the airline on October 9. They had
been on leave of absence since June 2006 when the Office of Fair Trading and the
US Department of Justice began an investigation focused on long-haul passenger
fuel surcharges.
The investigations continue.
Fit for 5
Baggage handlers at Heathrow are the latest group of workers to agree changes to
working practices ahead of the airline's move to Terminal 5. Staff voted by
ballot convincingly in favour of the changes. This comes on top of agreements
negotiated with other staff sections including loading, ground transport
services, aircraft movements, equipment services and aircraft dispatch.
Outlook
Overall market conditions are broadly unchanged. Longhaul premium transfer and
shorthaul premium traffic, although recovering, continue to be affected by the
tighter security arrangements currently in place. As a result, total revenue is
now expected to be 4.5 per cent to 5 per cent higher than last year, down half a
per cent from our previous guidance. We welcome the government announcement
yesterday on the re-introduction of liquids in cabin baggage which brings the UK
into line with the EU. We continue to support the BAA as they work to further
improve the efficiency of the security process across London's airports.
We expect that total costs, excluding fuel, will be flat compared to last year.
Total fuel costs net of hedging for the year are expected to be some £400
million higher than last year, based on current prices and sterling dollar
exchange rates.
Our focus on costs will continue as we move towards achieving our 10% operating
margin target.
Note:
Copies of the summary Interim Statement will be made available to all
shareholders through the medium of the British Airways Investor magazine. Copies
of the full Interim report are available from the company's registered office
and on the Internet at www.bashares.com.
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.
The estimated cost of the new security measures introduced in August reflects
the direct cost of the measures and the estimated revenue impacts, both direct
and indirect. The estimate of £100 million is based on assumptions the company
considers reasonable, but are judgemental.
CONSOLIDATED INCOME STATEMENT (unaudited)
Three months ended Six months ended
September 30 Better/ September 30 Better/
2006 £m 2005 £m (Worse) 2006 £m 2005 £m (Worse)
Restated Restated
Traffic Revenue*
Passenger 2,008 1,897 5.9% 4,014 3,656 9.8%
Cargo 160 155 3.2% 324 302 7.3%
2,168 2,052 5.7% 4,338 3,958 9.6%
Other revenue 145 153 (5.2)% 292 306 (4.6)%
TOTAL REVENUE 2,313 2,205 4.9% 4,630 4,264 8.6%
Employee costs 576 568 (1.4)% 1,186 1,138 (4.2)%
Depreciation,amortisation and impairment 178 171 (4.1)% 364 349 (4.3)%
Aircraft operating lease costs 26 31 16.1% 49 56 12.5%
Fuel and oil costs 534 410 (30.2)% 1,046 765 (36.7)%
Engineering and other aircraft costs 110 118 6.8% 223 235 5.1%
Landing fees and en route charges 145 145 291 287 (1.4)%
Handling charges, catering and
other operating costs 250 248 (0.8)% 489 482 (1.5)%
Selling costs 98 106 7.5% 204 214 4.7%
Currency differences 2 2 23 (3) nm
Accommodation, ground equipment
and IT costs 154 145 (6.2)% 304 304
Total expenditure before
BA Connect impairment 2,073 1,944 (6.6)% 4,179 3,827 (9.2)%
Impairment loss on BA Connect 106 nm 106 nm
TOTAL EXPENDITURE ON OPERATIONS 2,179 1,944 (12.1)% 4,285 3,827 (12.0)%
Operating Profit before
BA Connect impairment 240 261 (8.0)% 451 437 3.2%
Impairment loss on BA Connect 106 nm 106 nm
OPERATING PROFIT 134 261 (48.7)% 345 437 (21.1)%
Fuel derivative (losses)/gains** (19) 12 nm (25) 13 nm
Finance costs (35) (54) 35.2% (74) (113) 34.5%
Finance income 33 22 50.0% 63 43 46.5%
Financing income and expense
relating to pensions (4) (4) (8) (8)
Retranslation credits/(charges)
on currency borrowings 3 (1) nm 9 (10) nm
Profit/(loss) on sale of fixed assets
and investments 49 1 nm 49 (2) nm
Share of profits in associates 3 4 (25.0)% 3 nm
Income relating to fixed asset
investments 12 nm 12 2 nm
PROFIT BEFORE TAX 176 241 (27.0)% 371 365 1.6%
Tax (8) (70) 88.6% (49) (104) 52.9%
PROFIT AFTER TAX 168 171 (1.8)% 322 261 23.4%
Attributable to:
Equity holders of the parent 165 167 (1.2)% 315 254 24.0%
Minority interest 3 4 (25.0)% 7 7
168 171 (1.8)% 322 261 23.4%
Earnings per share:
Basic 14.5p 14.9p (2.7)% 27.8p 23.0p 20.9%
Fully diluted 14.3p 14.8p (3.4)% 27.4p 22.6p 21.2%
nm: Not meaningful
* Fuel surcharges of £139 million for the quarter and £237 million for the six
months previously presented within 'other revenue' in the September 2005 income
statement, have been reclassified and included within traffic revenue.
** Fuel derivative 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)
September 30 September 30 March 31
2006 £m 2005 £m 2006 £m
NON-CURRENT ASSETS Restated
Property, plant and equipment
Fleet 6,357 6,783 6,606
Property 946 970 974
Equipment 290 372 302
7,593 8,125 7,882
Goodwill 40 72 72
Landing rights 120 119 115
Other intangible assets 39 51 46
199 242 233
Investments in associates 103 115 131
Other investments 48 33 33
Employee benefit assets 128 138 137
Other financial assets 57 117 89
TOTAL NON-CURRENT ASSETS 8,128 8,770 8,505
NON-CURRENT ASSETS HELD FOR SALE 7 1 3
CURRENT ASSETS AND RECEIVABLES
Expendable spares and other inventories 97 92 83
Trade receivables 692 785 685
Other current assets 374 690 458
Other current interest bearing deposits 1,525 947 1,533
Cash and cash equivalents 1,108 978 907
2,633 1,925 2,440
TOTAL CURRENT ASSETS AND RECEIVABLES 3,796 3,492 3,666
TOTAL ASSETS 11,931 12,263 12,174
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Issued share capital 286 283 283
Share Premium 910 888 888
Investment in own shares (11)
Other reserves 971 659 690
TOTAL SHAREHOLDERS' EQUITY 2,167 1,819 1,861
MINORITY INTEREST 211 211 213
TOTAL EQUITY 2,378 2,030 2,074
NON-CURRENT LIABILITIES
Interest bearing long-term borrowings 3,253 3,902 3,602
Employee benefit obligations 1,821 1,813 1,803
Provisions for deferred tax 820 987 896
Other provisions 146 118 135
Other long-term liabilities 227 228 232
TOTAL NON-CURRENT LIABILITIES 6,267 7,048 6,668
CURRENT LIABILITIES
Current portion of long-term borrowings 505 440 479
Trade and other payables 2,618 2,643 2,822
Current tax payable 122 62 75
Short-term provisions 41 40 56
TOTAL CURRENT LIABILITIES 3,286 3,185 3,432
TOTAL EQUITY AND LIABILITIES 11,931 12,263 12,174
CONSOLIDATED CASHFLOW STATEMENT (unaudited)
Six months ended
September 30 Better/
2006 £m 2005 £m (Worse)
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit 345 437 (92)
Depreciation, amortisation and impairment 470 349 121
Operating cashflow before working capital changes 815 786 29
Increase in inventories and other receivables (12) (97) 85
Decrease in trade and other payables and provisions (220) (31) (189)
Other non-cash movements 3 5 (2)
Cash generated from operations 586 663 (77)
Interest paid (91) (110) 19
Taxation (56) (23) (33)
NET CASH FLOW FROM OPERATING ACTIVITIES 439 530 (91)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (139) (125) (14)
Purchase of intangible assets (7) (1) (6)
Purchase of interest in associates (5) 5
Proceeds from sale of other investments 52 1 51
Proceeds from sale of property, plant and equipment 4 4
Costs of disposal of subsidiary companies (6) 6
Proceeds from disposal of interests in associates 3 3
Interest received 41 35 6
Interest income from other investments 4 4
Dividends received 2 20 (18)
Decrease in interest bearing deposits 189 (189)
NET CASH FLOW FROM INVESTING ACTIVITIES (40) 112 (152)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings (41) (28) (13)
Payment of finance lease liabilities (174) (190) 16
Exercise of share options 30 11 19
Distributions made to holders of perpetual securities (7) (7)
NET CASH FLOW FROM FINANCING ACTIVITIES (192) (214) 22
Net increase in cash and cash equivalents 207 428 (221)
Net foreign exchange difference (6) 2 (8)
Cash and cash equivalents at April 1 907 548 359
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 1,108 978 130
These summary financial statements were approved by the Directors on November 2, 2006.
NOTES TO THE ACCOUNTS (unaudited)
For the period ended September 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 and six months ended
September 30, 2005 has been restated to reflect fuel surcharges of £139 million
and £237 million respectively, 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
ended March 31, 2006, certain presentational changes have been made to the
comparative information for the quarter and six months ended September 30, 2005.
Provisions with a value of £24 million, previously shown within 'other
provisions' have been re-presented in 'short-term provisions'. In addition,
£106 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 0.4 and 0.4 pence per share on a basic and
diluted basis respectively for the quarter and by 0.7 and 0.5 pence per share
for the six months.
* For the purposes of these statements IFRS also include International
Accounting Standards (IAS).
2 IMPAIRMENT LOSS ON BA CONNECT
At September 30, 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 experienced through the half year. This has
resulted in an impairment charge of £106 million, representing goodwill of £32
million and fleet assets of £74 million.
An assessment of value in use has been made based on a revised operating plan.
This includes the stand down of four BAe 146 aircraft, which have, as a result,
been written down to estimated net realisable value. In respect of the
remaining assets, cash flows over a 12 year period, being the average remaining
useful life of the relevant aircraft, have been projected forward using the
estimated long-term growth rate for the UK and discounted at a pre-tax rate of
8.9%. The pre-tax impairment charge gives rise to a deferred tax credit of £22
million which has been recognised in the income statement.
Since the balance sheet date, British Airways and Flybe have agreed in principle
that the regional business of BA Connect will be acquired by Flybe. The
proposed acquisition by Flybe will exclude the London City Airport routes and
the BA Connect-operated service from Manchester to New York. It is expected
that the sale will be completed during the current financial year.
The business to be sold comprises the majority of the 'Regional airline
business' segment as disclosed in the financial statements for the year ended
March 31, 2006.
In accordance with IFRS5, the BA Connect business which is the subject of the
proposed sale, has not been classified, at the balance sheet date, as a disposal
group held for sale.
3 FINANCE COSTS / INCOME
Three months ended Six months ended
September 30 September 30
2006 £m 2005 £m 2006 £m 2005 £m
FINANCE COSTS
Interest payable on bank & other loans and finance charges
payable under finance leases & hire purchase contracts 51 54 91 113
Release of prior year provisions (15) (15)
Interest capitalised (1) (2)
Total finance costs 35 54 74 113
FINANCE INCOME
Bank interest receivable 33 22 63 43
Total finance income 33 22 63 43
FINANCING INCOME AND EXPENSE RELATING TO PENSIONS
Financing income and expense relating to pensions 4 4 8 8
Amortisation of actuarial (gains)/losses on pensions
Total financing income and expense relating to pensions 4 4 8 8
Retranslation credits/(charges) on currency borrowings 3 (1) 9 (10)
4 PROFIT/(LOSS) ON SALE OF FIXED ASSETS AND INVESTMENTS
Three months ended Six months ended
September 30 September 30
2006 £m 2005 £m 2006 £m 2005 £m
Net profit on the disposal of WNS 48 48
Net profit/(loss) on the disposal of property, plant and
equipment 1 1 2 (2)
Net loss on disposal of interest in associates (1)
49 1 49 (2)
5 TAX
The tax charge for the quarter is £8 million, £49 million of which represents
current tax payable in the UK and £(41) million represents deferred tax. The tax
charge has benefited from one-off releases primarily relating to overseas tax
balances totalling £15 million and the recognition of £29 million of Advance
Corporation Tax that was previously written off.
6 EARNINGS PER SHARE
Basic earnings per share for the quarter ended September 30, 2006 are calculated
on a weighted average of 1,138,428,000 ordinary shares (September 2005:
1,123,454,000; 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 September 30, 2006 are
calculated on a weighted average of 1,152,446,000 ordinary shares (September
2005: 1,131,566,000; March 2006: 1,138,545,000).
The number of shares in issue at September 30, 2006 was 1,141,379,000 (September
30, 2005: 1,130,882,000; 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
Six months ended
September 30
2006 £m 2005 £m
Increase in cash and cash equivalents during the period 207 428
Net cash used in repayment of long-term borrowings 215 218
Decrease in interest bearing deposits (189)
Change in net debt resulting from cash flows 422 457
New finance leases taken out and hire purchase arrangements made (5) (5)
Conversion of Convertible Capital Bonds 2005 112
Exchange and other non cash movements 99 (59)
Movement in net debt during the period 516 505
Net debt at April 1 (1,641) (2,922)
Net debt at 30 September (1,125) (2,417)
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
September 30 September 30 March 31
2006 £m 2005 £m 2006 £m
Interest bearing long-term borrowings comprise:
Loans 984 1,090 1,030
Finance Leases 1,328 1,471 1,418
Hire purchase arrangements 941 1,341 1,154
3,253 3,902 3,602
Current portion of long-term borrowings comprise:
Loans 81 61 86
Finance Leases 98 103 105
Hire purchase arrangements 326 276 288
505 440 479
9 RESERVES September 30 September 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 period 315 254 451
Exchange and other movements (34) 70 (96)
971 659 690
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 three months and six months ended September 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 which 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 and six months ended September 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 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 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 preceeding 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
and six months ended September 30, 2006.
Ernst & Young LLP
London
November 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. Comparative information for the quarter and six months ended September
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 Six months ended
September 30 September 30
2006 £m 2005 £m 2006 £m 2005 £m
Restated Restated
Profit for the period attributable to equity holders of
the parent as reported in the Group income statement 165 167 315 254
US GAAP adjustments (46) (68) (96) (127)
Net income as so adjusted to
accord with US GAAP 119 99 219 127
Net income per Ordinary Share
as so adjusted
Basic 10.5p 8.8p 19.3p 11.5p
Diluted 10.3p 8.7p 19.1p 11.4p
Net income per American Depositary Share
as so adjusted
Basic 105p 88p 193p 115p
Diluted 103p 87p 191p 114p
September 30 March 31
2006 £m 2005 £m 2006 £m
Restated
Shareholders' equity
as reported in the Group balance sheet 2,167 1,819 1,861
US GAAP adjustments 311 478 445
Shareholders' equity
as so adjusted to accord with US GAAP 2,478 2,297 2,306
AIRCRAFT FLEET
(unaudited and outwith the scope of the Independent Review)
Number in service with Group companies at September 30, 2006
On Balance Off Balance Total Changes Future Options
Sheet aircraft Sheet Aircraft September Since June deliveries
2006 2006
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 6
Airbus A321 7 7 4
Boeing 737-300 5 5
Boeing 737-400 19 19
Boeing 737-500 9 9
Turboprops (Note 3) 7 7 (1)
Embraer RJ145 16 12 28
Avro RJ100 (Note 4) 10 10
British Aerospace 146 4 4
GROUP TOTAL 207 76 283 (1) 10 32
Notes:
1. Includes those operated by British Airways Plc and BA Connect.
2. Certain future deliveries and options include reserved delivery positions,
and may be taken as any A320 family aircraft.
3. Comprises 7 de Havilland Canada DHC-8s. Excludes 2 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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