18th May 2007 07:01
British Airways PLC18 May 2007 PRELIMINARY FINANCIAL RESULTS 2006-2007 OPERATING AND FINANCIAL STATISTICS (Note 1) Three months ended Twelve months ended March 31 Better/ March 31 Better/ 2007 2006 (Worse) 2007 2006 (Worse) Restated Restated Revenue £m 1,932 2,054 (5.9)% 8,492 8,213 3.4% Operating profit £m 31 98 (68.4)% 602 694 (13.3)% Profit before tax £m 27 98 (72.4)% 611 616 (0.8)% Profit after tax £m (71) 88 nm 438 464 (5.6)% Loss from discontinued operations £m (53) (5) nm (134) 3 nm Net assets £m 2,411 2,074 16.2% 2,411 2,074 16.2% Basic earnings per share p (6.5) 7.5 nm 37.2 40.1 (7.2)% Three months ended Twelve months ended March 31 Better/ March 31 Better/ 2007 2006 (Worse) 2007 2006 (Worse) Restated RestatedTOTAL GROUP OPERATIONS TRAFFIC AND CAPACITY RPK (m) 26,003 26,351 (1.3)% 112,851 109,713 2.9%ASK (m) 36,405 35,895 1.4% 148,321 144,194 2.9%Passenger load factor (%) 71.4 73.4 (2.0)pts 76.1 76.1 -CTK (m) 1,084 1,238 (12.4)% 4,695 4,929 (4.7)%RTK (m) 3,728 3,878 (3.9)% 16,112 15,909 1.3%ATK (m) 5,550 5,635 (1.5)% 22,882 22,719 0.7%Overall load factor (%) 67.2 68.8 (1.6)pts 70.4 70.0 0.4ptsPassengers carried (000) 7,269 7,470 (2.7)% 33,068 32,432 2.0%Tonnes of cargo carried (000) 177 202 (12.4)% 762 795 (4.2)% FINANCIAL Operating margin (%) 1.6 4.8 (3.2)pts 7.1 8.5 (1.4)ptsPassenger revenue per RPK (p) 6.26 6.48 (3.4)% 6.44 6.31 2.1%Passenger revenue per ASK (p) 4.47 4.76 (6.1)% 4.90 4.80 2.1%Cargo revenue per CTK (p) 12.18 12.84 (5.1)% 13.16 12.94 1.7%Total traffic revenue per RTK (p) 47.21 48.12 (1.9)% 48.91 47.53 2.9%Total traffic revenue per ATK (p) 31.71 33.11 (4.2)% 34.44 33.28 3.5%Total expenditure on operations per RTK (p) 52.23 50.44 (3.5)% 49.26 47.26 (4.2)%Total expenditure on operations per ATK (p) 35.08 34.71 (1.1)% 34.68 33.10 (4.8)%Average fuel price before hedging(US cents/US gallon) 198.48 191.59 (3.6)% 209.60 188.22 (11.4)% TOTAL AIRLINE OPERATIONS (Note 2) OPERATIONS Average Manpower Equivalent (MPE) 42,073 43,316 2.9% 42,683 43,814 2.6%ATKs per MPE (000) 131.9 130.1 1.4% 536.1 518.5 3.4% Aircraft in service at period end 242 284 (42) 242 284 (42) nm: Not meaningful Note 1: Statistics relate to continuing operations unless otherwise stated. Note 2: Excludes non airline activity companies, principally, Airmiles TravelPromotions Ltd, BA Holidays Ltd, BA Travel Shops Ltd and Speedbird InsuranceCompany Ltd. SUMMARY Group Performance Group profit before tax for the year was £611 million, a decline of 0.8%compared with £616 million in the previous year. The results include a numberof one-off items including a provision of £350 million for settlement of thefines and claims in connection with the competition investigations into longhaulpassenger and cargo fuel surcharges and a pension credit of £396 million as aresult of a change to the New Airways Pension Scheme (NAPS). Operating profit at £602 million, was £92 million worse than last year. Theoperating margin of 7.1% was 1.4 points lower than last year. The reduction inoperating profit primarily reflects increased operating costs - up 5.5% -partially offset by improvements in revenue - up 3.4%. Turnover Group revenue for the year was £8,492 million, up 3.4% compared with last year,on a flying programme 0.7% larger in ATKs. Passenger revenue was up 4.9% to £7,263 million. This was primarily driven bylonghaul premium and World Traveller Plus. Passenger yields were up 2.1% perRPK, and seat factor was in line with last year at 76.1% on capacity 2.9% higherin ASKs. Cargo revenue at £618 million was down 3.1% in the full year. Cargo volumesmeasured in CTKs were down 4.7% in the full year, with yields up 1.7%. Thedecline in volumes has been driven by a combination of capacity, competitive,market and operational factors. Operational issues in the second half of theyear were a significant factor in the volume decline. Overall load factor for the year was 70.4%, up 0.4 points on last year. For the three month period, Group revenue - - at £1,932 million - - was down5.9% on a flying programme 1.5% smaller in ATKs. Passenger revenue, which was impacted by the threat of industrial action bycabin crew, was down 4.6%. Passenger yields were down 3.4% per RPK; seat factorwas down 2.0 points at 71.4% on capacity 1.4% higher in ASKs. Cargo volumes for the quarter (CTKs) were down 12.4% compared with last year,with yields (revenue/CTK) down 5.1%. The reduction of freighter aircraft fromfour hulls to three accounted for 4% of the capacity decline. The furtherreduction in CTKs was due to a challenging operational environment in thequarter and soft cargo market conditions. Overall load factor for the quarter was down 1.6 points at 67.2%. Costs Unit costs excluding non-recurring items (pence/ATK) in the full year were up4.8% versus last year. This was due to a cost increase of 5.5% on capacity up0.7%. Excluding fuel costs, unit costs in the full year were marginally up at0.4%. For the quarter, unit costs excluding non-recurring items increased by 1.1% onthe same period last year as a result of a cost reduction of 0.5% on capacity1.5% lower in ATKs. The reduction in ATKs was partly due to one less freighterin the third quarter this year versus last. Excluding fuel, unit costs weredown 0.7%. Employee costs in the full year increased by 0.8% compared with last year.Redundancy costs supporting the management restructuring programme announced inDecember 2005, and pension and wage increases were only partially offset by thenon-recurrence of the Employee Reward Plan (ERP), which did not trigger in theyear. Aircraft operating lease costs reduced by 10% compared with last year, primarilydue to lower lease rentals following negotiations on lease extensions, andexchange benefits as a result of a weaker US dollar. Fuel and oil costs, at £1,931 million, increased by 22.1% due to an increase infuel price net of hedging, partially offset by a weaker US dollar. Engineering and other aircraft costs reduced by 6.1% compared with last year.This primarily reflects lower aircraft maintenance sub-contract costs, savingson fleet insurance costs, reduced cargo freighter activity and a favourableexchange impact due to the weaker US dollar. Handling charges, catering and other operating costs increased by £15 million to£930 million. This was due to increases in airport authority and cateringcharges, partially offset by the favourable impact of the weaker US dollar. Selling and marketing costs fell by 0.5% in the full year. This reflected thecontinued impact of savings on commission and the favourable impact of exchangerates, partially offset by an increase in promotional spend. Accommodation, ground equipment and IT costs increased by 6.9% in the full yearcompared with last year. This reflects an increase in IT development spend,higher legal fees, consultancy costs associated with the Group's Sarbanes-Oxleyprogramme, and Terminal 5 consultancy spend. Non Operating Items For the twelve month period, interest expense was £168 million, £46 millionlower than last year due to the impact of lower debt levels. Interest income was£129 million, £37 million higher than last year, reflecting the higher cashbalances. The retranslation of currency borrowings generated a credit of £13million, compared with a charge of £12 million last year. This is primarily dueto the weakening of the US dollar this year versus a strengthening US dollarlast year. Profit on sale of fixed assets and investments was £47 million,mainly reflecting the £48 million profit on sale of the Groups' holding in WorldNetwork Services. Income relating to fixed asset investments of £14 million wasprimarily due to income from The Airline Group. Interest income at £32 million in the quarter was £7 million higher than lastyear reflecting higher cash balances and the impact of changes in interestrates. The profit on sale of fixed assets and investments at £2 million was £25million lower than last year. The £27 million profit last year included £26million from the disposal of the London Eye. Tax The tax charge for the year was £173 million (2006: £152 million) giving aneffective tax rate for the year of 28% (2006: 25%). No tax relief has beenassumed on the £350 million provision against potential settlement of thecompetition investigations and this has added 10% to the effective tax rate.The tax charge benefited from the recognition of Advance Corporation Tax of £74million (2006: £20 million) previously written off. All of the AdvancedCorporation Tax previously written off has now been recognised through theprofit and loss account. The Group paid corporation taxes totalling £128 million during the year (2006:£57 million). Earnings Per Share The total earnings attributable to shareholders for the year was £290 million,equivalent to 25.5 pence per share, a decline of 36.9% compared with last year'searnings per share of 40.4 pence. For the three month period, the loss attributable to shareholders was £128million, equivalent to an 11.1 pence per share, compared with last year'searnings per share of 7.1 pence. The Board has recommended that no dividend be paid. Net Debt / Total Capital Ratio Borrowings, net of cash and short term loans and deposits, were £991 million atMarch 31, down £650 million since the start of the year. The net debt/totalcapital ratio reduced by 15.1 points from March 31 2006 to 29.1%. The net debt/total capital ratio including operating leases was down 13.4 points from March31 to 39.6%. Cash Flow The net cash inflow from operating activities for the twelve months was £756million, £583 million lower than last year. This was primarily driven by thelower operating profit before non-recurring items, changes in working capitaland the reduction in the pensions deficit as a result of the £240 millionpayment to NAPS in February. Including current interest bearing deposits, thecash position at March 31, 2007 was £2,355 million, a reduction of £85 millioncompared with March 31, 2006. This included £560 million held in escrow for thebenefit of NAPS, which was subsequently paid to the pension fund on April 2,2007. Aircraft Fleet The number of aircraft in service at March 31, 2007 was 242. Future deliveriesinclude orders for four Boeing 777-200 ER aircraft for delivery in late 2008 or2009. Following the disposal of the regional business of BA Connect the Turboprops,Embraer RJ145 and British Aerospace 146 fleets were transferred to Flybe. BA Connect In accordance with IFRS 5, the disposal of BA Connect has been treated asdiscontinued operations. This is due to the fact that BA Connect represented aseparate major line of business and the operations and cashflows could beclearly distinguished for financial reporting purposes. The loss from discontinued operations in the year was £134 million, whichincludes the £106 million impairment charge, £21 million of costs associatedwith the sale and a £28 million loss on disposal. This was partially offset by atax credit of £24 million. Following the disposal aviance UK has been awarded a five year contract byBritish Airways to undertake ground handling at Manchester, Aberdeen, Edinburghand Glasgow airports. BA Cityflyer was launched at London City Airport from the remaining business ofBA Connect. The airline operates 250 services to six UK and Europeandestinations. Iberia The company has not made a final decision about the future of its 10 per centshare holding in Iberia and continues to examine its options including fulldisposal. It has however ruled out further capital investment as part of anyconsortium offer and will not make an independent bid for the airline. Pensions Following the consultation with members and agreement with the trustees toaddress the £2.1 billion actuarial deficit in NAPS, the company agreed to make aone-off cash injection of £800 million into NAPS, of which £240 million was paidin February 2007. A further £560 million held in escrow at the year end, for thebenefit of NAPS, was subsequently paid to the pension fund on April 2, 2007. Changes to the scheme rules, which capped pensionable pay at inflation, resultedin a one-off accounting credit of £396 million. This, together with the £240million payment, has resulted in the deficit reducing from £2.1 billion to £1.6billion. The deficit will reduce further following the £560 million payment. The shared solution has helped secure the pensions of the scheme's members andbring the deficit and ongoing company contributions to an affordable level. Competition Investigations The investigations by the Department of Justice in the USA, the EuropeanCommission and the UK Office of Fair Trading into anti-competitive activity onlong haul passenger and cargo fuel surcharges are continuing. However, BritishAirways has now completed the information gathering required by theseauthorities. BA has a long-standing, clear and comprehensive competition compliance policy.This policy requires all staff to comply with the law at all times. It hasbecome apparent that there have been breaches of this policy in relation todiscussions about these surcharges with competitors. As a result it is now appropriate for the company to make a provision of £350million in its full year accounts, which represents the company's best estimateof the amounts that could be required to settle all known claims in relation tothese matters. The provision relates to potential Government fines in a number of countries inrespect of competition investigations into long haul passenger and cargo fuelsurcharges. It also relates to civil claims in the USA, Australia and Canada.Under IAS 37 the provision represents the estimate of the amount to settlecompetition authority and civil claims at the Balance Sheet date, but recognisesthat the final amount that would be required to pay all claims and potentialfines is subject to uncertainty. A detailed breakdown of the claim is not presented as it may seriously prejudicethe position of the company in the regulatory investigations and in itspotential litigation. Terminal 5 The opening of Terminal 5 is just 313 days away and tickets are now availablefor sale. We remain on schedule to begin operational testing in September of this year. Industrial Relations Over two thirds of Heathrow Customer Service staff have been balloted and agreedto work practice changes in advance of the company's move to Terminal 5. Wehave agreed the changes with staff in ground transport services, aircraftmovements, equipment services, baggage handling, loading and aircraft dispatch. We expect to conclude changes with the remaining staff group who handlepassenger services imminently. Outlook In terms of current performance, we have seen some weakness in non-premiumsegments notably on the North Atlantic. To some degree, complete visibility ishampered by the ongoing baggage restrictions which impact all cabins butparticularly premium. Our revenue guidance of 5-6% increase is unchanged but wenow expect to be at the lower of end of this range. Cost control remains a key focus and full year costs, excluding fuel, are stillexpected to be some £50 million higher than the year just reported. Our full year fuel bill is still expected to be up some £100 million at justover £2 billion. Our goal to achieve a 10 per cent operating margin by March 2008 remains ontrack, although year over year improvements are likely to be deliveredpredominantly in the second half as we cycle against record results in theperiod to 10th August last year. 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. Fuller information onsome factors which could result in material difference to the results isavailable in the company's Annual Report for the year ended 31 March 2007, whichis available on www.bashareholders.com. CONSOLIDATED INCOME STATEMENT Three months ended Twelve months ended March 31 Better/ March 31 Better/ 2007 £m 2006 £m (Worse) 2007 £m 2006 £m (Worse) Restated RestatedTraffic Revenue*Passenger 1,628 1,707 (4.6)% 7,263 6,924 4.9%Cargo 132 159 (17.0)% 618 638 (3.1)% 1,760 1,866 (5.7)% 7,881 7,562 4.2%Other revenue 172 188 (8.5)% 611 651 (6.1)% TOTAL REVENUE 1,932 2,054 (5.9)% 8,492 8,213 3.4% Employee costs 560 611 8.3% 2,277 2,260 (0.8)%Depreciation, amortisation and impairment 184 180 (2.2)% 714 715 0.1%Aircraft operating lease costs 20 24 16.7% 81 90 10.0%Fuel and oil costs 455 431 (5.6)% 1,931 1,581 (22.1)%Engineering and other aircraft costs 105 112 6.3% 414 441 6.1%Landing fees and en route charges 120 126 4.8% 517 520 0.6%Handling charges, catering andother operating costs 222 218 (1.8)% 930 915 (1.6)%Selling costs 131 120 (9.2)% 436 438 0.5%Currency differences (5) (4) 25.0% 18 (19) nmAccommodation, ground equipment and IT costs 155 138 (12.3)% 618 578 (6.9)% TOTAL EXPENDITURE ON OPERATIONSBEFORE NON-RECURRING ITEMS 1,947 1,956 0.5% 7,936 7,519 (5.5)% OPERATING (LOSS)/PROFITBEFORE NON-RECURRING ITEMS (15) 98 nm 556 694 (19.9)% Credit arising on changes to pension scheme 396 nm 396 nmProvision for settlement ofcompetition investigations (350) nm (350) nm OPERATING PROFIT 31 98 (68.4)% 602 694 (13.3)% Fuel derivative gains/(losses) 18 10 80.0% (12) 19 nmFinance costs (51) (55) 7.3% (168) (214) 21.5%Finance income 32 25 28.0% 129 92 40.2%Net financing expense relating to pensions (7) (6) (16.7)% (19) (18) (5.6)%Retranslation credits/(charges)on currency borrowings 1 nm 13 (12) nmProfit on sale of property, plant andequipment and investments 2 27 (92.6)% 47 27 74.1%Share of post tax profits in associatesaccounted for using the equity method 1 nm 5 28 (82.1)%Income/(expense) relating to otherinvestments 1 (2) nm 14 nm PROFIT BEFORE TAX 27 98 (72.4)% 611 616 (0.8)% Tax (98) (10) nm (173) (152) (13.8)% (LOSS)/PROFIT AFTER TAX FROM CONTINUINGOPERATIONS (71) 88 nm 438 464 (5.6)% (Loss)/profit from discontinued operations(after tax) (53) (5) nm (134) 3 nm (LOSS)/PROFIT AFTER TAX (124) 83 nm 304 467 (34.9)% Attributable to:Equity holders of the parent (128) 80 nm 290 451 (35.7)%Minority interest 4 3 33.3% 14 16 (12.5)% (124) 83 nm 304 467 (34.9)% EARNINGS PER SHAREContinuing operations:Basic (6.5)p 7.5p nm 37.2p 40.1p (7.2)%Fully diluted (6.5)p 7.4p nm 36.8p 39.5p (6.8)% Discontinuing operations:Basic (4.6)p (0.4)p nm (11.7)p 0.3p nmFully diluted (4.6)p (0.4)p nm (11.7)p 0.3p nm Total:Basic (11.1)p 7.1p nm 25.5p 40.4p (36.9)%Fully diluted (11.1)p 7.0p nm 25.2p 39.8p (36.7)% nm: Not meaningful * Fuel surcharges of £145 million for the quarter and £519 million for thetwelve months previously presented within 'other revenue' in the March 2006income statement, have been reclassified and included within 'traffic revenue'. CONSOLIDATED BALANCE SHEET March 31 March 31 2007 £m 2006 £mNON-CURRENT ASSETS RestatedProperty, plant and equipmentFleet 6,153 6,606Property 932 974Equipment 272 302 7,357 7,882 Goodwill 40 72Landing rights 139 115Other intangible assets 33 46 212 233 Investments in associates 125 131Other investments 107 33Employee benefit assets 116 137Other financial assets 28 89 TOTAL NON-CURRENT ASSETS 7,945 8,505 NON-CURRENT ASSETS HELD FOR SALE 8 3 CURRENT ASSETS AND RECEIVABLESExpendable spares and other inventories 76 83Trade receivables 654 685Other current assets 346 458 Other current interest bearing deposits 1,642 2,042Cash and cash equivalents 713 398 2,355 2,440 TOTAL CURRENT ASSETS AND RECEIVABLES 3,431 3,666 TOTAL ASSETS 11,384 12,174 SHAREHOLDERS' EQUITY AND LIABILITIESSHAREHOLDERS' EQUITYIssued share capital 288 283Share premium 933 888Investment in own shares (10)Other reserves 1,000 690 TOTAL SHAREHOLDERS' EQUITY 2,211 1,861 MINORITY INTEREST 200 213 TOTAL EQUITY 2,411 2,074 NON-CURRENT LIABILITIESInterest bearing long-term borrowings 2,929 3,602Employee benefit obligations 1,142 1,803Provisions for deferred tax 930 896Other provisions 153 135Other long-term liabilities 194 232 TOTAL NON-CURRENT LIABILITIES 5,348 6,668 CURRENT LIABILITIESCurrent portion of long-term borrowings 417 479Trade and other payables 2,744 2,822Current tax payable 54 75Short-term provisions 410 56 TOTAL CURRENT LIABILITIES 3,625 3,432 TOTAL EQUITY AND LIABILITIES 11,384 12,174 CONSOLIDATED CASHFLOW STATEMENT Twelve months ended March 31 Better/ 2007 £m 2006 £m (Worse) RestatedCASH FLOWS FROM OPERATING ACTIVITIESOperating profit 602 694 (92)Operating (loss)/profit from discontinued operations (122) 11 (133)Credit arising from changes to pension scheme (396) (396)Depreciation, amortisation and impairment(includes £120 million (2006: £2 million) from discontinued operations) 834 717 117 Operating cash flow before working capital changes 918 1,422 (504) Decrease in inventories, trade and other receivables 61 23 38(Decrease)/increase in trade and other payables and provisions (15) 150 (165)Cash payment to NAPS pension scheme (240) (240)Provision for settlement of competition investigation 350 350Other non-cash movements (2) 12 (14) Cash generated from operations 1,072 1,607 (535) Interest paid (188) (211) 23Taxation (128) (57) (71) NET CASH FLOW FROM OPERATING ACTIVITIES 756 1,339 (583) CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (331) (275) (56)Purchase of intangible assets (36) (8) (28)Purchase of interest in associate (5) 5Purchase of minority interest (13) (13)Purchase of other investments (2) 2Proceeds from sale of associated companies 3 3Proceeds from sale of other investments 52 1 51Proceeds from sale of property, plant and equipment 7 9 (2)Cash outflow from disposal of subsidiary company (149) (6) (143)Proceeds from sale of interest in the London Eye Company Ltd 78 (78)Interest received 113 78 35Dividends received 1 22 (21)Decrease/(increase) in interest bearing deposits 389 (911) 1,300 NET CASH FLOW FROM INVESTING ACTIVITIES 36 (1,019) 1,055 CASH FLOWS FROM FINANCING ACTIVITIESRepayments of borrowings (97) (64) (33)Capital elements of finance leases and hire purchase arrangements repaid (388) (415) 27Exercise of share options 50 21 29Purchase of own shares (12) (12)Distributions made to holders of perpetual securities (14) (14) NET CASH FLOW FROM FINANCING ACTIVITIES (461) (472) 11 Net increase/(decrease) in cash and cash equivalents 331 (152) 483Net foreign exchange difference (16) 1 (17)Cash and cash equivalents at April 1 398 549 (151) CASH AND CASH EQUIVALENTS AT MARCH 31 713 398 315 These summary financial statements were approved by the Directors on May 17, 2007. NOTES TO THE ACCOUNTS For the period ended March 31, 2007 1 BASIS OF PREPARATION The basis of preparation and accounting policies set out in the Report andAccounts for the year ended March 31, 2007 have been applied in the preparationof these summary financial statements. These are in accordance with therecognition and measurement criteria of International Financial ReportingStandards (IFRS)* issued by the International Accounting Standards Board (IASB)and with those of the Standing Interpretations issued by the InternationalFinancial Reporting Interpretations Committee (IFRIC) of the IASB. These interimfinancial statements have not been prepared in accordance with IAS 34 - 'InterimReporting' as permitted under IFRS. The comparative information presented for the quarter and twelve months endedMarch 31, 2006 has been restated to reclassify the operations of BA Connect as adiscontinued operation. In addition, fuel surcharges of £145 million for thequarter and £519 million for the twelve months previously presented within'other revenue' in the March 2006 income statement, have been reclassified andincluded within 'traffic revenue'. In addition, cash and cash equivalents hasbeen restated to reflect a reduction of £509 million, with an offset to othercurrent interest bearing deposits, due to a change in accounting policies.Previously the Group classified deposits with a qualifying financial institutionmaturing within three months of the balance sheet date as cash and cashequivalents. The Group now only classifies deposits maturing within three monthsof the acquisition date as cash and cash equivalents. * For the purposes of these statements IFRS also include InternationalAccounting Standards (IAS). 2 FINANCE COSTS / INCOME Three months ended Twelve months ended March 31 March 31 2007 £m 2006 £m 2007 £m 2006 £m FINANCE COSTS Interest payable on bank and other loans and finance charges payable under finance leases and hire purchase contracts 53 56 188 215 Release of prior year provisions (15) Interest capitalised (2) (1) (5) (1) Total finance costs 51 55 168 214 FINANCE INCOME Bank interest receivable 32 25 129 92 Total finance income 32 25 129 92 NET FINANCING EXPENSE RELATING TO PENSIONS Net financing expense relating to pensions 6 18 17 Amortisation of actuarial losses on pensions 1 1 1 Net financing expense relating to pensions 7 6 19 18 Retranslation credits/(charges) on currency borrowings 1 13 (12) 3 PROFIT ON SALE OF PROPERTY, PLANT AND EQUIPMENT AND INVESTMENTS Three months ended Twelve months ended March 31 March 31 2007 £m 2006 £m 2007 £m 2006 £m Net profit on the disposal of investment in WNS 48 Net profit on disposal of the investment in The London Eye Company Ltd 26 26 Net profit/(loss) on sale of other investments 5 (1) 5 Net profit/(loss) on the disposal of property, plant and equipment 2 (4) (4) 2 27 47 27 4 TAX The tax charge for the year on profits from continuing operations is £173million made up of a current tax charge of £121 million and £52 million by wayof deferred taxes in the UK. The current tax charge comprises UK corporation taxof £144 million, after offset of Advance Corporation Tax previously written offof £(22) million, overseas tax of £1 million and prior tax credits totalling £(24) million. The deferred taxes amount includes the benefit of £(52) million ofAdvance Corporation Tax previously written off. There is a total tax credit of£(24) million in respect of the losses arising from discontinued operationsduring the year. In addition, a tax credit of £(18) million was crediteddirectly to equity. The current tax provision amounts to £54 million at March31, 2007 (March 31, 2006: £75 million). The deferred tax provision amounts to£930 million at March 31, 2007 (March 31, 2006: £896 million). The tax chargefor the quarter on profits from continuing operations is £98 million, whichcomprises £(18) million of current tax credit and a deferred tax charge of £116million. There is a total tax credit of £(3) million in respect of the resultsarising from discontinued operations during the quarter. 5 DISCONTINUED OPERATIONS On November 3, 2006, the Group announced that it had reached an agreement inprinciple to sell the regional operation of its subsidiary airline BA Connect toFlybe. The acquisition of BA Connect by Flybe excluded the London City Airportroutes and the BA Connect-operated service from Manchester to New York. Thedisposal was completed on March 5, 2007. The business sold comprised themajority of the Regional airline business segment as disclosed in the Group'sfinancial statements for the year ended March 31, 2006. The Group paid Flybe£129 million, and has taken a 15 per cent investment in Flybe Group Limited,valued at £49 million at March 31, 2007. Following the sale of the regional business of BA Connect to Flybe in March2007, the Group has agreed contractual terms to transfer its regional groundhandling to aviance UK. The restructuring provision included in discontinuedoperations relates to costs associated with the reduction in staff at theregional airports, whose employment was attributed to the BA Connect operationsand third party flights. Prior to the sale and transfer of the operations to discontinued operations, animpairment review was carried out on the assets, including goodwill, of the BAConnect business, prompted by the ongoing deterioration in trading performanceagainst plan. This resulted in an impairment charge of £106 million,representing goodwill of £32 million and fleet assets of £74 million. Thepre-tax impairment charge gave rise to a deferred tax credit of £22 millionwhich has been recognised in the income statement (now presented in discontinuedoperations). Results from discontinued operations The results from discontinued operations, which have been included in theconsolidated income statement, are as follows: Three months ended Twelve months ended March 31 March 31 2007 £m 2006 £m 2007 £m 2006 £m Revenue 36 66 233 302 Operating expenses (41) (71) (231) (291) Impairment (106) Restructuring costs (18) (18) Operating (loss)/profit (23) (5) (122) 11 Disposal transaction costs (3) (3) Loss arising on disposal of net assets (28) (28) Net finance costs (2) (2) (5) (7) (Loss)/profit before tax (56) (7) (158) 4 Tax UK Corporation tax credit 4 2 3 3 Tax arising from disposal of discontinued operations (4) (4) Total current income tax credit (discontinued operations) 2 (1) 3 Deferred tax credit/(charge) 3 25 (4) Total tax credit/(charge) 3 2 24 (1) (Loss)/profit from discontinued operations (53) (5) (134) 3 Assets and liabilities of the discontinued operations at the date of disposal The major classes of assets and liabilities of the discontinued operations atthe date of disposal were as follows: £m Tangible assets 78 Intangible assets 1 Deferred tax asset 8 Other non-current assets 4 Expendable spares and other inventories 3 Trade receivables 23 Cash and cash equivalents 129 Other provisions (43) Other long-term liabilities (85) Trade payables (41) Total net assets disposed of 77 Investment in Flybe (consideration) 49 Loss arising on disposal of net assets (28) Cash and cash equivalents in BA Connect on disposal (129) Settlement of trade receivable with the Company (17) Transaction costs (3) Cash outflow from disposal of BA Connect (149) The cash flows relating to the discontinued operations to the date of disposal were as follows: Twelve months ended March 31 2007 £m 2006 £m Operating cash flows 16 21 Investing cash flows (2) (1) Financing cash flows (20) (18) Excludes £149 million cash outflow from disposal of BA Connect. 6 EARNINGS PER SHARE Basic earnings per share for the quarter ended March 31, 2007 are calculated ona weighted average of 1,148,880,000 ordinary shares (March 31, 2006:1,130,106,000) and for the twelve months ended March 31, 2007, on a weightedaverage of 1,141,133,000 ordinary shares (March 31, 2006: 1,116,178,000) 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, 2007 are calculated on a weighted average of1,161,940,000 ordinary shares (March 31, 2006: 1,145,055,000) and for the twelvemonths ended March 31, 2007 on a weighted average of 1,151,943,000 ordinaryshares (March 31, 2006: 1,138,545,000). The number of shares in issue at March 31, 2007 was 1,151,575,000 (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 Twelve months ended March 31 2007 £m 2006 £m Increase/(decrease) in cash and cash equivalents during the period 331 (152) Net cash outflow from decrease in debt and lease financing 485 479 (Decrease)/increase in current interest bearing deposits maturing after 3 months (389) 911 Reduction in finance leases and loans due to disposal of BA Connect 85 Change in net debt resulting from cash flows 512 1,238 New finance leases taken out and hire purchase arrangements made (9) (11) Conversion of Convertible Capital Bonds 112 Exchange and other non cash movements 147 (58) Movement in net debt during the period 650 1,281 Net debt at April 1 (1,641) (2,922) Net debt at March 31 (991) (1,641) Net debt comprises the current and non-current portions of long-term borrowings,convertible long-term borrowings and overdrafts, less cash and cash equivalentsplus interest-bearing short-term deposits. 8 ANALYSIS OF LONG-TERM BORROWINGS March 31 March 31 2007 £m 2006 £m Interest bearing long-term borrowings comprise: Loans 878 1,030 Finance Leases 1,275 1,418 Hire purchase arrangements 776 1,154 2,929 3,602 Current portion of long-term borrowings comprise: Loans 68 86 Finance Leases 80 105 Hire purchase arrangements 269 288 417 479 9 RESERVES March 31 March 31 2007 £m 2006 £m Balance at April 1 690 152 Transitional effects from the adoption of IAS 39 and IAS 32 183 Profit for the year 290 451 Exchange and other movements 20 (96) 1,000 690 10 PROVISION FOR SETTLEMENT OF COMPETITION INVESTIGATIONS The £350 million provision in respect of competition investigations relates topotential government fines in the following jurisdictions in relation to cargofuel surcharges: USA, Europe, Australia, Canada, New Zealand and South Africaand, in relation to long haul passenger fuel surcharges: USA and the UK. It alsorelates to civil claims in the USA, Australia and Canada. The provisionrepresents the estimate of the amount to settle competition authority and civilclaims at March 31, 2007, but recognises that the final amount required to payall claims and fines is subject to uncertainty. A detailed breakdown of theclaim is not presented as it may seriously prejudice the position of the Companyin the regulatory investigations and in its potential litigation. 11 The figures for the three months ended March 31, 2007 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, 2007 form part ofthe Annual Report and Accounts and were approved by the Board of Directors buthave not been delivered to the Registrar of Companies; the report of theauditors on the accounts is unqualified. AIRCRAFT FLEET(for information only) Number in service with Group companies at March 31, 2007 On Balance Off Balance Total March Changes Since Future Options Sheet Sheet 2007 March 2006 Deliveries Aircraft Aircraft (Note 6) (Note 7)AIRLINE OPERATIONS (Note 1) Boeing 747-400 57 57Boeing 777 40 3 43 4 4Boeing 767-300 21 21Boeing 757-200 13 13Airbus A319 21 12 33Airbus A320 (Note 2) 8 18 26 (1) 10 28Airbus A321 7 7 4Boeing 737-300 5 5Boeing 737-400 19 19Boeing 737-500 9 9Turboprops (Note 3) (8)Embraer RJ145 (Note 3) (28)Avro RJ100 (Note 4) 9 9 (1)British Aerospace 146 (Note 3) (4)GROUP TOTAL (Note 5) 186 56 242 (42) 18 32 Notes: 1. Includes those operated by British Airways Plc and BA Cityflyer. 2. Certain future deliveries and options include reserved delivery positions, and may be taken as any A320 family aircraft. 3. Aircraft disposed of as part of the sale of BA Connect. 4. Excludes one Avro RJ100 stood down pending return to lessor and six Avro RJ100 sub-leased to Swiss International Airlines. 5. Excludes two British Aerospace ATPs stood down pending return to lessor, and 12 Jetstream 41s sub-leased to Eastern Airways. 6. Future year deliveries have increased by four to 18 to include four Boeing 777-200ER deliveries. 7. Options have increased by four to 32 to include four Boeing 777-200ER aircraft. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
International Airlines