Preliminary Results 1999-2000

British Airways PLC 23 May 2000 PRELIMINARY FINANCIAL RESULTS 1999-2000 Three months ended Twelve months ended March 31 Increase/ March 31 Increase/ 2000 1999 (Decrease) 2000 1999 (Decrease) Turnover £m 2,107 2,041 3.2% 8,940 8,892 0.5% Operating (loss)/ profit £m (125) (85) (47.1)% 84 442 (81.0)% (Loss) / profit before tax £m (175) (85) (105.9)% 5 225 (97.8)% Retained(loss)/ profit for the £m (306) (210) (45.7)% (216) 15 nm period Capital and reserves at £m 3,340 3,355 (0.4)% 3,340 3,355 (0.4)% period end Earnings per share Basic p (15.7) (7.1) (121.1)% (2.0) 19.5 (110.3)% Diluted p n/a n/a n/a n/a 19.2 n/a Dividends per p 12.8 12.8 17.9 17.9 share n/a: Not applicable nm : Not meaningful GROUP PROFIT AND LOSS ACCOUNT Three months ended Twelve months ended March 31 Increase/ March 31 Increase/ 2000 £m 1999 £m (Decrease) 2000£m 1999£m (Decrease) Traffic Revenue Scheduled Passenger 1,760 1,687 4.3% 7,465 7,485 (0.3)% Scheduled Cargo 134 127 5.5% 556 539 3.2% Non-scheduled services 8 14 (42.9)% 71 62 14.5% 1,902 1,828 4.0% 8,092 8,086 0.1% Other revenue 205 213 (3.8)% 848 806 5.2% TOTAL TURNOVER 2,107 2,041 3.2% 8,940 8,892 0.5% Employee costs 607 621 (2.3)% 2,481 2,356 5.3% Depreciation 172 152 13.2% 648 619 4.7% Aircraft operating lease costs 52 41 26.8% 190 150 26.7% Fuel and oil costs 219 171 28.1% 804 705 14.0% Engineering and other aircraft costs 141 168 (16.1)% 661 660 0.2% Landing fees and en route charges 157 181 (13.3)% 682 736 (7.3)% Handling charges, catering and other operating costs 333 295 12.9% 1,328 1,278 3.9% Selling costs 319 291 9.6% 1,188 1,195 (0.6)% Accommodation, ground equipment costs and currency differences 232 206 12.6% 874 751 16.4% TOTAL OPERATING EXPENDITURE 2,232 2,126 5.0% 8,856 8,450 4.8% OPERATING (LOSS)/PROFIT (125) (85) (47.1)% 84 442 (81.0)% Share of operating profits in associates 44 34 29.4% 75 62 21.0% TOTAL OPERATING (LOSS) / PROFIT (81) (51) (58.8)% 159 504 (68.5)% INCLUDING ASSOCIATES Other income and charges 4 7 (42.9)% 5 27 (81.5)% (Loss)/profit on sale of fixed assets and investments (2) 33 (106.1)% 249 51 nm Interest Net payable (78) (79) 1.3% (272) (265) (2.6)% Retranslation (charges)/credits on on currency borrowings (18) 5 nm (136) (92) (47.8)% (LOSS)/PROFIT BEFORE TAX (175) (85) (105.9)% 5 225 (97.8)% Taxation 10 12 (16.7)% (15) (19) 21.1% (LOSS)/PROFIT AFTER TAX (165) (73) (126.0)% (10) 206 (104.9)% Non equity minority interest* (3) nm (11) nm (LOSS) / PROFIT FOR THE PERIOD (168) (73) (130.1)% (21) 206 (110.2)% Dividends paid and proposed (138) (137) (0.7)% (195) (191) (2.1)% RETAINED (LOSS)/PROFIT FOR THE PERIOD (306) (210) (45.7)% (216) 15 nm nm: Not meaningful * Fixed Interest Perpetual Preferred Securities OPERATING AND FINANCIAL STATISTICS MAINLINE SCHEDULED Three months ended Twelve months ended SERVICES March 31 Increase/ March 31 Increase/ 2000 1999 (Decrease) 2000 1999 (Decrease) TRAFFIC AND CAPACITY RPK (m) 26,797 27,312 (1.9)% 117,463 118,310 (0.7)% ASK (m) 40,717 40,578 0.3% 168,361 167,265 0.7% Passenger load 65.8 67.3 (1.5)pts 69.8 70.7 (0.9)pts CTK (m) 1,118 1,021 9.5% 4,536 4,277 6.1% RTK (m) 3,802 3,741 1.6% 16,256 16,075 1.1% ATK (m) 5,882 5,839 0.7% 24,400 23,982 1.7% Overall load factor 64.6 64.1 0.5pts 66.6 67.0 (0.4)pts Passengers carried 8,081 8,338 (3.1)% 36,346 37,090 (2.0)% Tonnes of cargo carried (000) 224 206 8.7% 897 855 4.9% FINANCIAL Passenger revenue per RPK (p) 5.91 5.72 3.3% 5.84 5.91 (1.2)% Cargo revenue per 11.81 12.24 (3.5)% 11.99 12.32 (2.7)% Average fuel price before hedging (US cents/US gallon) 93.20 44.09 111.4% 71.46 48.66 46.9% TOTAL GROUP OPERATIONS (including Deutsche BA, Air Liberte,'go' and CityFlyer) TRAFFIC AND CAPACITY RPK (m) 29,328 29,537 (0.7)% 127,425 125,951 1.2% ASK (m) 44,533 43,544 2.3% 183,158 178,820 2.4% RTK (m) 4,041 3,933 2.7% 17,215 16,831 2.3% ATK (m) 6,253 6,130 2.0% 25,840 25,114 2.9% Passengers carried 10,778 10,285 4.8% 46,578 45,049 3.4% FINANCIAL Total traffic revenue per RTK (p) 47.07 46.47 1.3% 47.01 48.04 (2.1)% Total traffic revenue per ATK (p) 30.42 29.82 2.0% 31.32 32.20 (2.7)% Net operating expenditure per RTK (p) 0.16 48.63 3.1% 46.52 45.41 2.4% Net operating expenditure per ATK (p) 2.42 31.21 3.9% 30.99 30.44 1.8% OPERATIONS Average Manpower Equivalent (MPE) 64,874 64,213 1.0% 65,640 64,051 2.5% ATKs per MPE (000) 96.4 95.5 0.9% 393.7 392.1 0.4% Aircraft in service at period end 366 335 31 366 335 31 PRELIMINARY STATEMENT Group Performance Last year's results are disappointing. Group profits before tax for the year were £5 million; at an operating level profits were £84 million. Operating results were adversely affected by excess industry capacity, particularly on the North Atlantic and from the growth of low-cost carriers in Europe. This led to high levels of price discounting in the industry. In line with our fleet and network strategy, we partly offset the impact of discounting by increasing our mix of premium passengers and improving the mix of fare types within cabins. In the fourth quarter, BA's yields were up on a year ago for the second successive quarter. Cost efficiencies have continued despite higher spending on products, including the new 'flying-bed' in Club World. The Business Efficiency Programme (BEP) delivered improvements worth £1.1 billion over the last 3 years - - well over target thanks to additional profit improvement actions in the year just ended. Mainline capacity was only slightly up on a year ago, in line with current strategy. For the three months ended March 31, 2000, pre tax losses were £175 million - £90 million worse than a year ago. On 1st May, 2000, Rod Eddington became Chief Executive following the resignation of Bob Ayling. His immediate task is to motivate all employees to deliver high and sustained levels of customer service, including the programme of new product launches which will cover all cabins and set new standards on the ground and in the air. Turnover For the twelve month period, Group turnover -- at £8,940 million -- was up half a point on a flying programme 2.9% larger in available tonne kilometres (ATKs). Turnover for the three months was up 3.2% -- at £2,107 million -- on a flying programme just 2% bigger. Mainline yields (pence per revenue passenger kilometre - RPK) were up 3.3%, primarily due to a higher proportion of premium traffic. Premium traffic grew 8.4%; non premium traffic fell 3.8%. Mainline passenger seat factor was down 1.5 points at 65.8%. In the three month period, Cargo revenue increased by 5.5% compared with last year, on tonnage up 8.7%. Unit Costs For the twelve month period, unit costs (pence per ATK) were 1.8% higher than a year ago, inflated by higher fuel prices, increased restructuring costs (a provision for £88 million) and product improvements. The overall increase occurred despite substantial improvements in cost efficiency. Unit costs for the three months were 3.9% higher than the same quarter last year. Excluding increases in fuel prices and product related costs, they would have been unchanged year on year. Non Operating Items Profits on disposals of fixed assets and investments were £249 million in the year. This included £149 million from the disposal of our remaining shares in Galileo International Inc. and £58 million from the further disposal of part of our share holding in Equant. Net interest expense for the year was £408 million. This was up on last year primarily because of book charges of £126 million relating to the revaluation of yen debts used to fund aircraft acquisitions. The revaluation results from the strengthening of the yen by 15% over the year. This charge does not represent cash lost to the business, but is required by standard accounting practice. Last year the revaluation of yen debts resulted in a book charge of £94 million. Earnings Per Share For the twelve month period, losses attributable to shareholders were £21 million, equivalent to losses of 2 pence per share, compared with earnings of 19.5 pence last year. The loss attributable to shareholders for the three months was equivalent to 15.7 pence per share, compared with last year's losses of 7.1 pence. Dividends Shareholders will be asked to approve a final dividend of 12.8 pence per share, giving a total for the year of 17.9 pence, unchanged from last year. The final dividend will be paid on July 31, 2000 to shareholders registered on June 5, 2000. The ex-dividend date will be May 30, 2000. Net Debt / Total Capital Ratio Borrowings, net of cash and short term loans and deposits, amounted to £5,916 million at March 31, 2000 -- an increase of £390 million since March 31 1999 -- due primarily to the acquisition of aircraft. The net debt/total capital ratio now stands at 64%. Aircraft Fleet The Group fleet increased during the year from 335 to 366 aircraft. In the longhaul fleet the continuation of the revised fleet strategy saw the addition of 4 Boeing 747-400 and 11 Boeing 777 (including four of the new Rolls-Royce powered extended range variants). Disposals during the year consisted of the 9 remaining Boeing 747-100 and 1 Boeing 747-200. The mainline shorthaul fleet changed with the delivery of 6 Airbus A319, 2 Boeing 757 and 2 Embraer RJ145 operated by Brymon. Disposals comprised 8 Boeing 737-200 and 1 Boeing 767-300; 1 Boeing 737-300 returned to DBA. Within the subsidiaries, the acquisition of CityFlyer Express brought 8 Avro RJ100, 7 ATR 72 and 5 ATR 42 into the Group. 'go' built up its fleet by 5 Boeing 737-300 on operating leases. Deutsche BA acquired 1 Boeing 737-300 returned from mainline and Air Liberte obtained 1 additional MD82 and disposed of 1 ATR 42. Subsidiaries and Associates Acquisitions during the year included the purchase of CityFlyer Express based at Gatwick; an 18.3% stake in Comair, our franchise partner in Southern Africa; and a 9% holding in Iberia. Since year end, Air Liberte has been sold to Taitbout Antibes. Alliance Development The oneworld alliance continued to grow with the addition of Finnair and Iberia in September 1999; Aer Lingus and LAN Chile will join in June 2000. Canadian Airlines, a founder member of oneworld, has been purchased by Air Canada and will consequently leave the alliance in June 2000. On a bi-lateral basis, we have finalised our investment in Iberia and co-operation, including behind and beyond codeshares, has already started. In addition, we have implemented bi-lateral agreements during the year with JAL, Aer Lingus, LAN Chile and Crossair. A request for codeshare with American Airlines has been filed and is awaiting approval. Outlook Economic conditions have improved generally and the outlook for summer trading is better than last year. Competition and the strength of sterling against the euro will continue to exert pressure on yields. The implementation of the fleet and network strategy supported by the introduction of new products is expected to contribute to yield and margin improvements in 2000/01. Low capacity growth will support seat factors. We continue to focus on unit costs. Fuel remains above $250 per tonne and despite successful hedging our fuel bill will be considerably higher next year. Future cost efficiencies will be delivered through e- commerce and e-procurement innovations, improved aircraft utilisation, reductions in selling and distribution costs and improved manpower productivity. These gains will partially offset the costs associated with new aircraft and new products. The Annual General Meeting will be held at the Barbican Centre in London at 1100 hours on July 11, 2000. The full Report and Accounts and Summary Financial Statement will be distributed as appropriate to shareholders in the week beginning June 12, 2000; from then copies will be available to members of the public at the Company's registered office. GROUP BALANCE SHEET March 31 2000 £m 1999 £m FIXED ASSETS Intangible Assets 62 Tangible Assets 10,294 9,839 Investments 567 402 10,923 10,241 CURRENT ASSETS Stocks 78 84 Debtors 1,368 1,336 Cash, short-term loans and deposits 1,146 1,163 2,592 2,583 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (3,366) (3,048) NET CURRENT LIABILITIES (774) (465) TOTAL ASSETS LESS CURRENT LIABILITIES 10,149 9,776 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Borrowings and other creditors (6,615) (6,230) Convertible Capital Bonds 2005 (113) (126) (6,728) (6,356) PROVISIONS FOR LIABILITIES AND CHARGES (81) (65) 3,340 3,355 CAPITAL AND RESERVES Called up share capital 270 268 Reserves 2,877 3,087 Total equity shareholders' funds 3,147 3,355 Minority interest 16 Non equity minority interest 177 3,340 3,355 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Twelve months ended March 31 2000£m 1999£m (Loss)/profit for the year (21) 206 Other recognised gains and losses relating to the year Exchange and other movements (20) (82) Total gains and losses recognised since the last (41) 124 annual report These summary financial statements were approved by the Directors on May 23, 2000. GROUP CASH FLOW STATEMENT Twelve months ended March 31 2000 £m 1999 £m CASH INFLOW FROM OPERATING ACTIVITIES 1,186 1,241 DIVIDENDS RECEIVED FROM ASSOCIATES 44 11 RETURNS ON INVESTMENTS AND SERVICING OF (315) (309) TAXATION (2) (40) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (146) (118) ACQUISITIONS AND DISPOSALS (218) (6) EQUITY DIVIDENDS PAID (242) (113) Net cash inflow before management of liquid resources and financing 307 666 MANAGEMENT OF LIQUID RESOURCES 9 (363) FINANCING (319) (235) (Decrease)/increase in cash in the year (3) 68 GROUP FINANCING REQUIREMENT Net cash inflow before management of liquid resources and financing 307 666 Acquisitions under loans, finance leases and hire purchase arrangements (659) (1,470) Total financing requirement for the year (352) (804) Total tangible fixed asset expenditure, net of progress payment refunds 1,291 1,807 NOTES TO THE ACCOUNTS For the period ended March 31, 2000 1 ACCOUNTING CONVENTION The accounts have been prepared on the basis of the accounting policies set out in the Report and Accounts for the year ended March 31, 2000 in accordance with all applicable United Kingdom accounting standards and the Companies Act 1985 and are consistent with those applied in the previous year. During the year the Group implemented the new accounting standards: FRS 15- Tangible Fixed Assets and FRS 16- Current Tax. The adoption of the standards did not have a significant effect on the financial statements. Twelve months ended March 31 2000 £m 1999 £m 2 RECONCILIATION OF OPERATING PROFIT TO CASH INFLOW FROMOPERATING ACTIVITIES Group operating profit 84 442 Depreciation and amortisation 648 619 Other items not involving the movement of cash 39 21 Decrease in stocks and debtors 4 60 Increase in creditors 411 99 Cash inflow from operating activities 1,186 1,241 3 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash during the year (3) 68 Cash outflow from decrease in debt and lease financing 516 300 Cash (inflow)/outflow from liquid resources (9) 363 Change in net debt resulting from cash flows 504 731 New loans and finance leases taken out and hire purchase arrangements made (659) (1,470) Assumed from subsidiary undertakings acquired during the year (42) Conversion of Convertible Capital Bonds 13 24 Exchange movements (206) (208) Movement in net debt during the year (390) (923) Net debt at April 1 (5,526) (4,603) Net debt at year end (5,916) (5,526) Three months ended Twelve months ended March 31 March 31 2000£m 1999 £m 2000 £m 1999 £m 4 OTHER INCOME AND CHARGES Income from trade investments 1 1 3 4 Other 3 6 2 23 4 7 5 27 Other income and charges represented by: Group 4 6 5 26 Associates 1 1 4 7 5 27 NOTES TO THE ACCOUNTS (continued) For the period ended March 31, 2000 Three months ended Twelve months ended March 31 March 31 2000£m 1999 £m 2000£m 1999 £m 5 PROFIT ON SALE OF FIXED ASSETS AND INVESTMENTS Net profit on disposal of investment in Galileo International Inc. 149 Net profit on part disposal of investment in Equant 8 48 70 48 Net profit on disposal of other fixed assets and investments (10) (15) 30 3 (2) 33 249 51 Represented by: Group (10) 33 237 51 Associates (all relating to the part disposal of investment in 8 12 Equant) (2) 33 249 51 6 NET INTEREST PAYABLE Interest payable less amount capitalised 96 93 357 336 Interest receivable (18) (14) (85) (71) 78 79 272 265 Retranslation charges/(credits) on currency borrowings 18 (5) 136 92 96 74 408 357 Net interest payable represented by: Group 89 67 396 345 Associates 7 7 12 12 96 74 408 357 7 TAXATION No tax has arisen in the UK on operating results, as adjusted for taxation. Profit on sale of investments in the year being covered by tax losses. The tax charge for the year is attributable to tax on overseas investments. 8 DIVIDENDS PAID AND PROPOSED The Board recommends a final dividend of 12.8p per share, giving a total dividend for the year of 17.9p, unchanged from last year. The amount charged to the profit and loss account includes £1 million in relation to 1998-99 final dividends paid to Convertible Capital Bond holders(1997-98: £1 million), who converted their bonds in June 1999, in accordance with the terms of the bonds. 9 EARNINGS PER SHARE Basic earnings per share are calculated on a weighted average of 1,074,823,000 ordinary shares (March 1999: 1,054,543,000)as adjusted for shares held for the purposes of employee share ownership plans including the Long Term Incentive Plan. Diluted earnings per share are calculated on a weighted average of 1,124,287,000 ordinary shares (March 1999: 1,120,800,000) after allowing for the conversion rights attaching to the Convertible Capital Bonds and for adjustments to income to eliminate interest payable on the Convertible Capital Bonds. The number of shares in issue at March 31, 2000 was 1,081,515,000 (March 31, 1999: 1,073,167,000)ordinary shares of 25 pence each. NOTES TO THE ACCOUNTS (Continued) For the period ended March 31, 2000 March 31 2000 £m 1999 £m 10 TANGIBLE ASSETS Fleet 8,437 8,207 Property 1,488 1,331 Equipment 369 301 10,294 9,839 11 INVESTMENTS Associated undertakings 507 323 Trade investments 35 68 Investment in own shares 25 11 567 402 12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Loans 140 202 Finance Leases 120 91 Hire Purchase Arrangements 288 264 548 557 Overdrafts - unsecured 5 11 Corporate taxation 18 25 Other creditors and accruals 2,795 2,455 3,366 3,048 13 BORROWINGS AND OTHER CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR Loans 903 940 Finance Leases 1,768 1,244 Hire Purchase Arrangements 3,725 3,811 6,396 5,995 Other creditors and accruals 219 235 6,615 6,230 14 RESERVES Balance at April 1 3,087 3,061 Retained (loss)/profit for the year (216) 15 Exchange and other adjustments (20) (82) Reduction in reserves resulting from shares issued to a Qualifying Employee Share Ownership Trust in relation to the 1993 Share Save Scheme (2) (21) Goodwill written back on disposal 7 Premium arising from issue of ordinary share capital 21 114 2,877 3,087 15 The figures for the three months and year ended March 31, 2000 and three months ended March 31, 1999 are unaudited and do not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. The Annual Report and Accounts for the year ended March 31, 2000 were approved by the Board of Directors today but have not yet been delivered to the Registrar of Companies; the report of the auditors on the accounts is unqualified. The figures for the year ended March 31, 1999 have been extracted from the full accounts with certain minor presentational changes for that year, which have been delivered to the Registrar of Companies and on which the auditors have issued an unqualified audit report. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) INFORMATION The accounts have been prepared in accordance with accounting principles accepted in the United Kingdom which differ in certain respects from those generally accepted in the United States. The significant differences are the same as those set out in the Report and Accounts for the year ended March 31, 2000. The adjusted net income and shareholders' equity applying US GAAP are set out below: Three months ended Twelve months ended March 31 March 31 2000 £m 1999 £m 2000 £m 1999 £m (Loss) / profit for the period as reported in the Group profit and loss account (168) (73) (21) 206 US GAAP adjustments (296) (18) (391) (91) Net income as so adjusted to accord with US GAAP (464) (91) (412) 115 Net income per Ordinary Share as so adjusted Basic (43.1)p (8.7)p (38.3)p 10.9p Diluted n/a n/a n/a n/a Net income per American Depositary Share as so adjusted Basic (431)p (87)p (383)p 109p Diluted n/a n/a n/a n/a March 31 2000 £m 1999 £m Shareholders' equity as reported in the Group balance sheet 3,147 3,355 US GAAP adjustments (719) (198) Shareholders' equity as so adjusted to accord with US GAAP 2,428 3,157 Under UK GAAP, the profit relating to the sale of frequent flyer airmiles to companies participating in the Airmiles programme is recognised at the time of sale. From December 1999 under US GAAP, revenue relating to the sale of airmiles is deferred until redemption. This has resulted in a one-off cumulative adjustment of £136m in the current period. AIRCRAFT FLEET Number in service with Group companies at March 31, 2000 Operating On leases off Movements balance balance sheet since MAINLINE sheet March Future (Notes 1 & 6) Aircraft Extendible Other Total 31,1999 deliveries Options Concorde 7 7 Boeing 747-100 (9) Boeing 747-200 12 3 15 (1) Boeing 747-400 57 57 4 Boeing 777 33 33 11 12 16 Boeing 767-300 27 27 (1) Boeing 757-200 47 3 3 53 2 Airbus A318 12 12 Airbus A319 (Note 6 6 6 33 125 5) Airbus A320 10 10 20 Boeing 737-200 13 13 (8) Boeing 737-300 7 7 (1) Boeing 737-400 22 12 34 Turbo Props (Note 3) 2 17 19 Embraer RJ145 2 2 2 5 14 Sub total 217 12 54 283 5 82 167 DEUTSCHE BA, AIR LIBERTE, 'go' and CITYFLYER (Notes 2 & 7) McDonnell Douglas DC-10-30 3 3 McDonnell Douglas MD82 1 1 1 McDonnell Douglas MD83 3 7 10 Boeing 737-300 31 31 6 Fokker 100 4 7 11 Fokker F28 4 4 Avro RJ100 8 8 8 2 Turbo Props (Note 1 12 2 15 11 Sub total 12 27 44 83 26 2 GROUP TOTAL 229 39 98 366 31 84 167 Notes: 1Includes those operated by British Airways Plc, British Airways (European Operations at Gatwick) Ltd and Brymon Airways Ltd. 2Excludes 4 ATR 72s, 7 ATR 42s, 2 Embraer subleased to other carriers. 3Includes 2 de Havilland Canada DHC-7-100s and 17 de Havilland Canada DHC-8s. 4Excluding 1 ATR 72 and 1 ATR 42, stood down out of service. Including 7 ATR 72s and 5 ATR 42s for Cityflyer and 1 ATR 72 and 2 ATR 72s for Air Liberte. 5Options include reserved delivery positions and, if taken, may be A319, A320 or A321. 6Excludes 2 McDonnell Douglas DC-10-30s, 1 Boeing 737-200 and 1 Boeing 767-300 stood down pending disposal or return to lessor and 3 Boeing 737-500s delivered but not yet in service. 7Net increase includes 8 Avro RJ100s, 7 ATR 72s and 5 ATR 42s through the acquisition of CityFlyer.

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