13th May 2005 07:00
British Airways PLC13 May 2005 PRELIMINARY FINANCIAL RESULTS 2004-2005 Three months ended Twelve months ended March 31 Better/ March 31 Better/ 2005 2004 (Worse) 2005 2004 (Worse) Turnover £m 1,889 1,854 1.9% 7,813 7,560 3.3% Operating profit £m 40 32 25.0% 540 405 33.3% Operating margin % 2.1 1.7 0.4pts 6.9 5.4 1.5pts Profit before tax £m 5 45 (88.9)% 415 230 80.4% Retained profit forthe period £m 9 12 (25.0)% 251 130 93.1% Net assets at period end £m 2,684 2,397 12.0% 2,684 2,397 12.0% Earnings per shareBasic p 0.9 1.1 (18.2)% 23.4 12.1 93.4%Diluted p 0.9 1.1 (18.2)% 23.0 12.1 90.1% GROUP PROFIT AND LOSS ACCOUNT Three months ended Twelve months ended March 31 Better/ March 31 Better/ 2005 £m 2004 £m (Worse) 2005 £m 2004 £m (Worse)Traffic Revenue*Passenger 1,557 1,580 (1.5)% 6,500 6,490 0.2%Cargo 112 113 (0.9)% 482 463 4.1% 1,669 1,693 (1.4)% 6,982 6,953 0.4%Other revenue 220 161 36.6% 831 607 36.9%TOTAL TURNOVER 1,889 1,854 1.9% 7,813 7,560 3.3%Employee costs 608 595 (2.2)% 2,273 2,180 (4.3)%Depreciation, amortisation and 187 171 (9.4)% 687 679 (1.2)%impairmentAircraft operating leasecosts 25 43 41.9% 106 135 21.5%Fuel and oil costs 269 228 (18.0)% 1,128 922 (22.3)%Engineering and otheraircraft costs 149 134 (11.2)% 502 511 1.8%Landing fees and en routecharges 130 129 (0.8)% 556 549 (1.3)%Handling charges, catering andother operating costs 227 215 (5.6)% 930 934 0.4%Selling costs 114 118 3.4% 488 554 11.9%Accommodation, ground equipmentcosts and currency differences 140 189 25.9% 603 691 12.7%TOTAL OPERATING EXPENDITURE 1,849 1,822 (1.5)% 7,273 7,155 (1.6)% OPERATING PROFIT 40 32 25.0% 540 405 33.3% Share of operating profits in 11 58 (81.0)% 41 58 (29.3)%associatesTOTAL OPERATING PROFIT 51 90 (43.3)% 581 463 25.5%INCLUDING ASSOCIATES Income and charges relating tofixed asset investments 2 nm 3 nmProfit/(loss) on sale offixed assets and investments (13) 6 nm (26) (46) 43.5%InterestNet payable (48) (52) 7.7% (190) (216) 12.0%Retranslation credits on currencyborrowings 7 1 nm 33 16 nmOther finance income and related 6 nm 14 13 7.7%feesPROFIT BEFORE TAX 5 45 (88.9)% 415 230 80.4%Tax 9 (29) nm (149) (85) (75.3)%PROFIT AFTER TAX 14 16 (12.5)% 266 145 83.4%Equity minority interest (1) (1) (1) (1)Non equity minority interest** (4) (3) (33.3)% (14) (14)PROFIT FOR THE PERIOD 9 12 (25.0)% 251 130 93.1%RETAINED PROFIT FOR THE PERIOD 9 12 (25.0)% 251 130 93.1%nm: Not meaningful * Revenue in the prior year included £35 million relating to the release ofprior year provisions. ** Cumulative Preferred Securities OPERATING AND FINANCIAL STATISTICS Three months ended Twelve months ended March 31 Increase/ March 31 Increase/ 2005 2004 (Decrease) 2005 2004 (Decrease) TOTAL AIRLINE OPERATIONS (Note 1) TRAFFIC AND CAPACITY RPK (m) 26,062 24,932 4.5% 107,892 103,092 4.7%ASK (m) 35,677 35,232 1.3% 144,189 141,273 2.1%Passenger load factor (%) 73.0 70.8 2.2pts 74.8 73.0 1.8ptsCTK (m) 1,214 1,148 5.7% 4,954 4,461 11.1%RTK (m) 3,820 3,644 4.8% 15,731 14,771 6.5%ATK (m) 5,598 5,510 1.6% 22,565 21,859 3.2%Overall load factor (%) 68.2 66.1 2.1pts 69.7 67.6 2.1ptsPassengers carried (000) 8,178 8,142 0.4% 35,717 36,103 (1.1)%Tonnes of cargo carried (000) 216 209 3.3% 877 796 10.2% FINANCIAL Passenger revenue per RPK (p) 5.97 6.34 (5.8)% 6.02 6.30 (4.4)%Passenger revenue per ASK (p) 4.36 4.48 (2.7)% 4.51 4.59 (1.7)%Cargo revenue per CTK (p) 9.23 9.84 (6.2)% 9.73 10.38 (6.3)%Total traffic revenue per RTK 43.69 46.46 (6.0)% 44.38 47.07 (5.7)%(p)Total traffic revenue per ATK 29.81 30.73 (3.0)% 30.94 31.81 (2.7)%(p)Average fuel price beforehedging(US cents/US gallon) 143.88 105.30 36.6% 136.44 94.49 44.4% OPERATIONS Average Manpower Equivalent 45,914 46,551 (1.4)% 46,065 47,605 (3.2)%(MPE)ATKs per MPE (000) 121.9 118.4 3.0% 489.9 459.2 6.7%Aircraft in service atperiod end 290 291 (1) 290 291 (1) TOTAL GROUP OPERATIONS FINANCIAL Net operating expenditureper RTK (p) 42.64 45.58 (6.5)% 40.95 44.33 (7.6)%Net operating expenditureper ATK (p) 29.10 30.15 (3.5)% 28.55 29.96 (4.7)% Note 1: Excludes fuel surcharges and non airline activity companies,principally, Airmiles Travel Promotions Ltd, BA Holidays Ltd, BA Travel ShopsLtd, Speedbird Insurance Company Ltd and The London Eye Company Ltd. CHAIRMAN'S STATEMENT Group performance Group profit before tax for the year was £415 million compared with £230 millionin the previous year. Operating profit in the year, at £540 million, was £135 million better than lastyear. The operating margin of 6.9% was 1.5 points better than last year. Theimprovement in operating profit primarily reflects improvements in turnover - up3.3% - partially offset by increased operating costs, in particular fuel.Passenger yields (pence/RPK) for the year were down 4.4%; seat factor was up 1.8points at 74.8% on capacity 2.1% higher in ASKs. Cargo volumes (CTKs) for the full year were up 11.1% compared with last year,with yields down 6.3%. Overall load factor for the full year was up 2.1 pointsat 69.7%. Cash inflow before financing was £1,181 million for the twelve months. Theclosing cash balance of £1,682 million was up £12 million versus last year. Netdebt fell by £1,236 million during the year to £2,922 million. This is thelowest level since March 31, 1993, and is down £3.7 billion from the December2001 peak. Profit before tax for the fourth quarter was £5 million, £40 million lower thanlast year primarily due to the reduction in associate profits following the saleof the Qantas shareholding in September 2004. The operating profit for thequarter was £40 million, £8 million better than last year (which included £35million of one-off revenue credits relating to systems and processimprovements). Group turnover for the quarter was up 1.9% compared with last year - at £1,889million - on capacity 1.6% higher in ATKs. Yield (pence/RPK) was down by 5.8%and seat factor was up 2.2 points to 73.0%, a record for the fourth quarter. For the quarter, cargo volumes were up 5.7% compared with last year, withoverall load factor up 2.1 points at 68.2%, but yields (pence/CTK) down 6.2%. Costs For the twelve months, unit costs (pence/ATK) improved by 4.7% on the sameperiod last year. This reflects a net cost reduction of 1.6% on capacity 3.2%higher in ATKs. For the quarter, unit costs improved by 3.5% on the same period last year. Thisreflects a net cost reduction of 1.9% on capacity 1.6% higher in ATKs. Operating expenditure increased in the quarter, primarily reflecting increasesin employment costs (up 2.2% including the impact of the Employee Reward Plan,which triggered based on a full year operating margin target of 6%, includingthe cost of the scheme), fuel costs (up 18.0% due to increases in the fuel pricenet of hedging) and fleet depreciation (up 9.4% due to the write off associatedwith the planned retirement of the BAe 146 fleet). The cost increases werepartially offset by reductions in aircraft operating lease costs (down 41.9% dueto the non-repetition of costs incurred in the prior year relating to theBritish Airways CitiExpress ATP fleet withdrawal), accommodation and groundequipment costs (down 25.9% due to savings in rent, rates and utilities, as wellas reduced IT spend and favourable exchange impacts) and favourable sellingcosts (down 3.4%). Non-operating items Net interest expense for the year was £190 million, £26 million lower than theprevious year due to the impact of higher interest income and reduced debt.Retranslation of currency borrowings generated a credit of £33 million,including a £31 million credit due to the yen debt, compared to a credit theprevious year of £16 million. The revaluation -- a non cash item required bystandard accounting practice -- resulted from the weakening of the yen againststerling. For the three month period net interest expense was £48 million, down £4 millionon last year. Losses on disposals of fixed assets and investments for the year were £26million, primarily due to the sale of Qantas. This compares to losses of £46million last year (which included the loss on disposal of dba of £83 million). Losses on disposal for the quarter were £13 million, compared with profits of £6million last year. Other finance income and related fees were £14 million (compared with £13million last year). Earnings per share For the twelve month period, profits attributable to shareholders were £251million, equivalent to earnings of 23.4 pence per share, compared with earningsof 12.1 pence per share last year. The profit attributable to shareholders forthe fourth quarter was equivalent to 0.9 pence per share, compared with earningsof 1.1 pence last year. The Board has recommended that no dividend be paid. Geographical analysis Operating results improved in each area. For longhaul this reflected increasedturnover partially offset by rising costs, in particular fuel. In Europe, lossescontinued to fall due to continued focus on cost reductions - the total loss of£26 million (£60 million last year) includes an impairment charge of £16 milliondue to the planned retirement of the BAe 146 fleet. Net Debt / Total Capital ratio The year-end net debt/total capital ratio was 42.7 per cent, an 11.4 pointreduction from last year. The net debt/total capital ratio including operatingleases was 48.2 per cent, a 10.2 point reduction from last year. Pension Deficit Under FRS 17, the pension deficit after deferred tax increased by £205 millionto £1.4 billion (due mainly to lower long term interest rates), despite thedoubling of company contributions to £250 million. The deficit is notconsolidated into the accounts as we continue to report under SSAP 24. Nextyear, under International Financial Reporting Standards (IAS 19), the pensiondeficit will be included in the balance sheet - this will have a significantadverse impact on reserves (in particular distributable reserves). Cash flow Net cash inflow from operating activities totalled £1,192 million, up £99million from last year. The net cash flow before management of liquid resourcesand financing was £1,181 million, an increase of £307 million from last year,primarily due to the sale proceeds of £427 million from Qantas. Performance improvement programmes Against a target of £450 million of savings announced in the 2003/5 BusinessPlan (including the £300 million of external spend savings) £457 million wasrealised. The £300 million employee cost savings announced in the 2004/6Business Plan will be delivered by March 2007 through efficiencies, includingworking practice changes. Aircraft fleet changes The number of aircraft in service at March 31, 2005 was 290, a reduction of 1 onthe prior year. Aircraft returns to lessors comprised two Boeing 737-400aircraft and one de Havilland Canada DHC-8. In addition, a Boeing 737-400aircraft was stood-down pending return to the lessor. An Airbus A320 wassub-leased to GB Airways and two Boeing 737-400 aircraft were sub-leased to AirOne, an Italian carrier operating Italian domestic routes. Deliveries comprisedsix Airbus A321 aircraft. British Airways CitiExpress British Airways is continuing to simplify and strengthen its UK regionaloperation. During 2004/05 British Airways CitiExpress benefited from steps takenduring the latter part of 2003/04 to reduce the number of aircraft, aircrafttypes and bases. In March 2005, British Airways CitiExpress announced that itwould exit its fleet of five ageing BAe 146 aircraft during 2005/06. As a resultof these changes, British Airways CitiExpress will operate a fleet of 52aircraft and three types by March 2006, down from 92 aircraft and nine types in2001. As a consequence of simplification, operational performance is morerobust, costs have fallen and financial results have improved. Further costreductions are targeted in 2005/06. Alliance developments The British Airways / Iberia Joint Business Agreement, covering flights betweenHeathrow and Madrid and Barcelona, was signed in December 2004. British Airwaysand Iberia began benefit sharing on these routes on January 1, 2005 and haveannounced improvements to the 2005 summer schedules. On February 8, 2005, the Australian Competition and Consumer Commission (ACCC)issued a final determination re-authorising the British Airways and Qantas JointServices Agreement for a further five year period from March 1, 2005. International Financial Reporting Standards British Airways will report consolidated financial statements for the yearending March 31, 2006, under International Financial Reporting Standards (IFRS).An IFRS convergence project team was established in 2003 and reports to theAudit Committee quarterly. Progress continues in accordance with the projectplan, and the project is on track. IFRS-compliant information for the 2004/05accounts will be communicated during July. Outlook Market conditions remain broadly unchanged. For the year to March 2006, totalrevenue is expected to improve by 4 - 5%, up from 3 - 4% due to the impact ofthe latest fuel surcharges. Capacity and volumes are expected to increase byabout 3% with total yield flat. Fuel costs, net of hedging, are now expected to be about £400 million more thanlast year (up from £300 million due to recent price rises). As announced in our latest Business Plan, our focus is on preparing for the moveto Terminal 5 in 2008, investing in products for our customers and continuing todrive simplification to deliver a competitive cost base. Certain information included in these statements is forward-looking and involvesrisks and uncertainties that could cause actual results to differ materiallyfrom those expressed or implied by the forward looking statements. Forward-looking statements include, without limitation, projections relating toresults of operations and financial conditions and the company's plans andobjectives for future operations, including, without limitation, discussions ofthe company's Business Plan programs, expected future revenues, financing plansand expected expenditures and divestments. All forward-looking statements inthis report are based upon information known to the company on the date of thisreport. The company undertakes no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, future eventsor otherwise. It is not reasonably possible to itemize all of the many factors and specificevents that could cause the company's forward looking statements to be incorrector that could otherwise have a material adverse effect on the future operationsor results of an airline operating in the global economy. Information on somefactors which could result in material difference to the results is available inthe company's SEC filings, including, without limitation the company's Report onForm 20-F for the year ended March 2004. GROUP BALANCE SHEET March 31 2005 £m 2004 £m RestatedFIXED ASSETSIntangible assets 190 168Tangible assets 8,152 8,637Investments 150 531 8,492 9,336 CURRENT ASSETSStocks 84 76Debtors 1,078 1,019Cash, short-term loans and deposits 1,682 1,670 2,844 2,765CREDITORS: AMOUNTS FALLING DUEWITHIN ONE YEARBorrowings and other creditors (2,868) (2,996)Convertible Capital Bonds 2005 (112) (2,980) (2,996)NET CURRENT LIABILITIES (136) (231) TOTAL ASSETS LESS CURRENT LIABILITIES 8,356 9,105 CREDITORS: AMOUNTS FALLING DUE AFTER MORETHAN ONE YEARBorrowings and other creditors (4,346) (5,374)Convertible Capital Bonds 2005 (112) (4,346) (5,486)PROVISION FOR DEFERRED TAX (1,243) (1,137)PROVISIONS FOR LIABILITIES AND CHARGES (83) (85) 2,684 2,397 CAPITAL AND RESERVESCalled up share capital 271 271Reserves 2,194 1,916 2,465 2,187MINORITY INTERESTEquity minority interest 12 10Non equity minority interest 207 200 219 210 2,684 2,397 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Twelve months ended March 31 2005 £m 2004 £m Profit for the period 251 130Other recognised gains and lossesrelating to the period:Exchange and other movements (37) 16 Total recognised gains and losses 214 146 These summary financial statements were approved by the Directors on May 12,2005. GROUP CASH FLOW STATEMENT Twelve months ended March 31 2005 £m 2004 £m CASH INFLOW FROM OPERATING ACTIVITIES 1,192 1,093 DIVIDENDS RECEIVED FROM ASSOCIATES 20 25 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (170) (209) TAX (4) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (276) 42 ACQUISITIONS AND DISPOSALS 415 (73) Cash inflow before management of liquid 1,181 874resources and financing MANAGEMENT OF LIQUID RESOURCES (16) (198) FINANCING (1,151) (834) Increase/(decrease) in cash in the period 14 (158) NOTES TO THE ACCOUNTSFor the period ended March 31, 2005 1 ACCOUNTING CONVENTION The accounts have been prepared on the basis of the accounting policies set outin the Report and Accounts for the year ended March 31, 2005 in accordance withall applicable United Kingdom accounting standards and the Companies Act 1985. Effective from April 1, 2004 the group applied the provisions of 'UITF Abstract38 - Accounting for ESOP Trusts' and, as a result, the group's investment in ownshares held for the purpose of employee share ownership plans has beenreclassified from fixed asset investments and is now recorded as a reduction inshareholders' equity. Comparative periods have been restated to reflect theadoption of UITF 38. Twelve months ended March 31 2005 £m 2004 £m2 RECONCILIATION OF OPERATING PROFIT TOCASH INFLOW FROM OPERATING ACTIVITIESGroup operating profit 540 405Depreciation, amortisation and impairment 687 679Other items not involving the movement of cash 11(Increase)/decrease in stocks (5) 8Increase in debtors (68) (31)Increase in creditors 40 43Decrease in provisions for liabilities and (2) (22)chargesCash inflow from operating activities 1,192 1,093 3 RECONCILIATION OF NET CASHFLOW TOMOVEMENT IN NET DEBTIncrease/(decrease) in cash during the period 14 (158)Net cash outflow from decrease in debt andlease financing 1,155 834Cash outflow from liquid resources 16 198Change in net debt resulting from cash flows 1,185 874New finance leases taken out and hirepurchase arrangements made (12) (97)Non cash refinancing 9 32Exchange 54 182Movement in net debt during the period 1,236 991Net debt at April 1 (4,158) (5,149)Net debt at period end (2,922) (4,158) Three months ended Twelve months ended March 31 March 31 2005 £m 2004 £m 2005 £m 2004 £m 4 INCOME AND CHARGES RELATING TO FIXED ASSET INVESTMENTSOther 2 3 2 3 Income and charges representedby:Group 2 3 2 3 NOTES TO THE ACCOUNTS (Continued)For the period ended March 31, 2005 Three months ended Twelve months ended March 31 March 31 2005 £m 2004 £m 2005 £m 2004 £m5 (LOSS)/PROFIT ON SALE OF FIXED ASSETS ANDINVESTMENTSNet loss on disposal of dba (83)Net loss on sale of investment in Qantas (note 1) (11)Net (loss)/profit on disposal of otherfixed assets and investments (13) 6 (15) 37 (13) 6 (26) (46) Represented by:Group (14) 6 (32) (47)Associates 1 6 1 (13) 6 (26) (46) Note 1: On September 9, 2004, the group completed the sale of its 18.25% holding inQantas Airways Limited through a book build sale of the shares. The salerealised gross proceeds of £427 million (A$1.1 billion) before tax. The loss ondisposal of £11 million includes the write-back of goodwill of £59 millionpreviously set off against reserves. 6 INTERESTNet payable:Interest payable less amount capitalised 70 69 273 279Interest receivable (22) (17) (83) (63) 48 52 190 216Retranslation credits on currencyborrowings (7) (1) (33) (16)Other finance income and related fees (6) (14) (13) 35 51 143 187 Net interest payable represented by:Group 32 46 135 179Associates 3 5 8 8 35 51 143 187 7 TAX The tax charge for the year is £149 million made up of a current tax charge of£43 million representing share of associates tax of £13 million, overseas tax of£29 million and a prior year tax charge of £1 million; and £106 million by wayof deferred taxes in the UK. The overseas tax includes £14 million in respectof the sale of Qantas. The deferred tax provision is included on balance sheetand amounts to £1,243 million at March 31, 2005 (March 31, 2004: £1,137 million) 8 EARNINGS PER SHARE Basic earnings per share for the quarter ended March 31, 2005 are calculated ona weighted average of 1,072,055,000 ordinary shares (March 31, 2004:1,070,099,000) and for the twelve months ended March 31, 2005, on a weightedaverage of 1,071,126,000 ordinary shares (March 31, 2004: 1,070,077,000) asadjusted for shares held for the purposes of employee share ownership plansincluding the Long Term Incentive Plan. Diluted earnings per share for thequarter ended March 31, 2005 are calculated on a weighted average of1,072,055,000 ordinary shares (March 31, 2004: 1,070,117,000) and for the twelvemonths ended March 31, 2005 on a weighted average of 1,126,485,000 ordinaryshares (March 31, 2004: 1,070,077,000). The number of shares in issue at March 31, 2005 was 1,082,903,000 (March 31,2004: 1,082,845,000) ordinary shares of 25 pence each. NOTES TO THE ACCOUNTS (Continued)For the period ended March 31, 2005 March 31 2005 £m 2004 £m Restated9 INTANGIBLE ASSETSGoodwill 88 93Landing rights 102 75 190 168 10 TANGIBLE ASSETSFleet 6,748 7,104Property 959 1,042Equipment 445 491 8,152 8,637 11 INVESTMENTSAssociated undertakings 120 501Trade investments 30 30 150 531 12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONEYEARLoans 63 102Finance Leases 96 119Hire Purchase Arrangements 288 461 447 682Corporate tax 36 6Other creditors and accruals 2,385 2,308 2,868 2,996 13 BORROWINGS AND OTHER CREDITORS FALLING DUEAFTERMORE THAN ONE YEARLoans 1,105 1,123Finance Leases 1,493 1,978Hire Purchase Arrangements 1,447 1,933 4,045 5,034Other creditors and accruals 301 340 4,346 5,374 14 RESERVESBalance at April 1 1,916 1,756Retained profit for the period 251 130Exchange and other movements (37) 16Goodwill written back on disposals 59 14Employee share option exercise through 5investment in own shares 2,194 1,916 15 The figures for the three months ended March 31, 2005 are unaudited and donot constitute full accounts within the meaning of Section 240 of the CompaniesAct 1985. The figures for the twelve months ended March 31, 2005 form part ofthe Annual Report and Accounts and were approved by the Board of Directors todaybut have not been delivered to the Registrar of Companies; the report of theauditors on the accounts is unqualified. The figures for the year ended March 31, 2004 have been extracted with certainminor presentational changes from the full accounts for that year, which havebeen delivered to the Registrar of Companies and on which the auditors haveissued an unqualified audit report. AIRCRAFT FLEET Number in service with Group companies at March 31, 2005 On Balance Off Balance Total Changes Sheet Sheet Since Operating Mar 2005 Mar 2004 Future Options Aircraft Leases deliveriesAIRLINE OPERATIONS (Note 1) Boeing 747-400 57 57Boeing 777 40 3 43Boeing 767-300 21 21Boeing 757-200 13 13Airbus A319 (Note 2) 21 12 33 3 47Airbus A320 (Note 3) 9 17 26 (1) 3Airbus A321 6 6 6 1Boeing 737-300 5 5Boeing 737-400 (Note 4) 18 18 (5)Boeing 737-500 10 10Turboprops (Note 5) 9 9 (1)Embraer RJ145 16 12 28 17Avro RJ100 16 16British Aerospace 146 (Note 6) 5 5GROUP TOTAL 206 84 290 (1) 7 64 Notes: 1. Includes those operated by British Airways Plc and British AirwaysCitiExpress Ltd. 2. Certain future deliveries and options include reserved delivery positions,and may be taken as any A320 family aircraft. 3. Excludes 1 Airbus A320 sub-leased to GB Airways. 4. Excludes 2 Boeing 737-400s sub-leased to Air One and 1 Boeing 737-400 stooddown pending return to lessor. 5. Comprises 9 de Havilland Canada DHC-8s. Excludes 2 British Aerospace ATPsstood down pending return to lessor, 3 British Aerospace ATPs sub-leased toLoganair and 12 Jetstream 41s sub-leased to Eastern Airways. 6. The British Aerospace 146 fleet will be retired from service during 2005/06. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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