3rd Nov 2006 07:01
British Airways PLC03 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 beforeBA 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 1.4ptsCTK (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 1.7ptsPassengers 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 beforeBA Connect impairment (%) 10.4 11.8 (1.4)pts 9.7 10.2 (0.5)ptsOperating margin (%) 5.8 11.8 (6.0)pts 7.5 10.2 (2.7)ptsPassenger 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 operationsper RTK (p) 50.60 46.71 (8.3)% 50.31 47.18 (6.6)%Total expenditure on operationsper 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 atperiod end 283 288 (5) 283 288 (5) Note 1: Excludes non airline activity companies, principally, Airmiles TravelPromotions 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 primarilyreflects the impairment charge of £106 million taken this year against the BAConnect business, revenue weakness following the security-related disruption inAugust and fuel costs 30% higher than last year, partially offset by the profitof £48 million realised on the disposal of the Group's holding in World NetworkServices. Operating profit of £240 million before the impairment of BA Connect was £21million lower than last year. This resulted in an operating margin of 10.4%, 1.4points lower than last year. Including the BA Connect impairment, operatingprofit was £134 million, giving an operating margin of 5.8%. The results for the quarter have been significantly impacted as a result of thenew security measures introduced in August. The cost in the quarter isestimated at some £100 million. Group profit before tax before the impairment of BA Connect for the six monthsto September 30 was £477 million, £112 million better than last year; operatingprofit - - at £451 million - - was £14 million better than last year. Operating margin for the half year - - traditionally the stronger of the twohalves - - was 9.7%, 0.5 points lower than last year. Including the effect ofthe BA Connect impairment charge, the operating margin was 7.5%. Cash inflow from operating activities was £439 million for the six months, withthe closing cash, cash equivalents and short term deposits at £2,633 millionrepresenting 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 factorwas up 0.1 point at 79.7% on capacity 3.4% higher in ASKs. Cargo revenue was up3.2%. Cargo volumes for the three month period (CTKs) were down 1.1% comparedwith 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%, andfor 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 aflying 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. Cargovolumes were up 1.5%, with yields up 5.7%. Costs For the three month period, group unit costs (pence/ATK) increased by 10.5% onthe same period last year. Excluding the BA Connect impairment charge and fuelcosts, 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 theimpairment charge). Fuel costs for the quarter, rose by 30.2% due to theincrease in fuel price net of hedging. For the six month period, unit costs (pence/ATK) increased by 9.2% on the sameperiod last year. This reflects a total operating cost increase of 12.0% oncapacity 2.6% higher in ATKs. Excluding the BA Connect impairment charge, theunit cost increase was 6.5%. BA Connect BA Connect's operating loss was £6 million for the six month period. As thisrepresents an on-going significant worsening against plan, an impairment reviewof the BA Connect business has been carried out as at September 30, 2006. Thishas resulted in an impairment charge of £106 million within the operatingresults of the Group for the quarter. Subsequent to September 30, 2006, we have reached agreement in principle to sellthe 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 lastyear to £35 million reflecting the impact of lower debt and the £15 millionrelease of a provision no longer required in respect of interest on previouslydisputed overseas tax and social security charges. Interest income at £33million was £11 million higher than last year reflecting higher cash balances. Profit on sale of fixed assets and investments was £49 million, £48 millionhigher than last year, reflecting the disposal for proceeds of £52 million ofthe Group's holding in World Network Services. Income relating to fixed asset investments was £12 million, reflecting therecognition of income from the Group's investment in NATS (National Air TrafficServices Limited) through The Airline Group. For the six month period, interest expense was £74 million, £39 million lowerthan 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 offixed assets and investments was £49 million, compared with a loss of £2 millionlast year. Tax The tax charge for the three month period was £8 million, giving an effectiverate of 5%. The charge for the six month period was £49 million, with aneffective rate of 13%. The tax rate in the three month period has benefitedfrom the recognition of an advance corporation tax asset of £29 million whichwas previously written off and from one-off releases totalling £15 million ofwhich £8 million is overseas tax on which interest previously charged has beenreleased. UK corporation tax payments in the quarter totalled £29 million andin the six month period £56 million. Earnings Per Share The earnings attributable to shareholders for the three months were equivalentto 14.5 pence per share, compared with last year's earnings per share of 14.9pence. For the six month period, the profit attributable to shareholders was £315million, equivalent to 27.8 pence per share, compared with earnings of 23.0pence 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 millionat 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 31to 43.1%. Cash Flow During the six months the Group generated a positive cash flow from operatingactivities of £439 million, £91 million lower than last year. Including currentinterest bearing deposits, the cash position at September 30, 2006 was £2,633million, 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 byissuing tender documents to aircraft and engine manufacturers. The competition, called a request for proposal (RFP), is the first step in alengthy process before the airline makes a decision to expand and renew itslonghaul fleet for the next decade. Pensions An actuarial valuation of the Group's two main pension schemes, the AirwaysPension Scheme (APS) and the New Airways Pension Scheme (NAPS) has been carriedout. The actuarial deficit has risen from £928 million in March 2003 to £2,062million in March 2006, mainly due to longer life expectancy and a lower discountrate. If no changes are made to the scheme and the deficit was spread over tenyears the Group's annual cash contributions would need to be £497 million. Thecompany published its proposals to tackle pension funding earlier this year,which included changes to future benefits. When accepted, the airline will makea one-off contribution of £500 million to the scheme. In the meantime thetrustees appointed PriceWaterhouseCoopers to provide independent advice on thecompany's financial ability to support the scheme. On the basis of this advice,the trustees stated that benefit changes will be necessary, plus higher annualcompany contributions and a higher lump sum than the £500 million proposed, aspart of the funding plan for NAPS. Negotiations with the trustees andconsultation with the unions continue. Competition Investigations Martin George, Commercial Director, and Iain Burns, British Airways' Head ofCommunications resigned their positions with the airline on October 9. They hadbeen on leave of absence since June 2006 when the Office of Fair Trading and theUS Department of Justice began an investigation focused on long-haul passengerfuel surcharges. The investigations continue. Fit for 5 Baggage handlers at Heathrow are the latest group of workers to agree changes toworking practices ahead of the airline's move to Terminal 5. Staff voted byballot convincingly in favour of the changes. This comes on top of agreementsnegotiated with other staff sections including loading, ground transportservices, aircraft movements, equipment services and aircraft dispatch. Outlook Overall market conditions are broadly unchanged. Longhaul premium transfer andshorthaul premium traffic, although recovering, continue to be affected by thetighter security arrangements currently in place. As a result, total revenue isnow expected to be 4.5 per cent to 5 per cent higher than last year, down half aper cent from our previous guidance. We welcome the government announcementyesterday on the re-introduction of liquids in cabin baggage which brings the UKinto line with the EU. We continue to support the BAA as they work to furtherimprove 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 £400million higher than last year, based on current prices and sterling dollarexchange rates. Our focus on costs will continue as we move towards achieving our 10% operatingmargin target. Note: Copies of the summary Interim Statement will be made available to allshareholders through the medium of the British Airways Investor magazine. Copiesof the full Interim report are available from the company's registered officeand on the Internet at www.bashares.com. 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 2006. The estimated cost of the new security measures introduced in August reflectsthe direct cost of the measures and the estimated revenue impacts, both directand indirect. The estimate of £100 million is based on assumptions the companyconsiders 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 RestatedTraffic 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 andother 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) nmAccommodation, ground equipmentand IT costs 154 145 (6.2)% 304 304 Total expenditure beforeBA 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 nmFinance costs (35) (54) 35.2% (74) (113) 34.5%Finance income 33 22 50.0% 63 43 46.5%Financing income and expenserelating to pensions (4) (4) (8) (8)Retranslation credits/(charges)on currency borrowings 3 (1) nm 9 (10) nmProfit/(loss) on sale of fixed assetsand investments 49 1 nm 49 (2) nmShare of profits in associates 3 4 (25.0)% 3 nmIncome relating to fixed assetinvestments 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 sixmonths previously presented within 'other revenue' in the September 2005 incomestatement, have been reclassified and included within traffic revenue. ** Fuel derivative gains reflect the ineffective portion of unrealised gainsand losses on fuel derivative hedges required to be recognised through theincome statement under IAS 39. CONSOLIDATED BALANCE SHEET (unaudited) September 30 September 30 March 31 2006 £m 2005 £m 2006 £mNON-CURRENT ASSETS RestatedProperty, plant and equipmentFleet 6,357 6,783 6,606Property 946 970 974Equipment 290 372 302 7,593 8,125 7,882 Goodwill 40 72 72Landing rights 120 119 115Other intangible assets 39 51 46 199 242 233 Investments in associates 103 115 131Other investments 48 33 33Employee benefit assets 128 138 137Other 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 RECEIVABLESExpendable spares and other inventories 97 92 83Trade receivables 692 785 685Other current assets 374 690 458 Other current interest bearing deposits 1,525 947 1,533Cash 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 LIABILITIESSHAREHOLDERS' EQUITYIssued share capital 286 283 283Share Premium 910 888 888Investment 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 LIABILITIESInterest bearing long-term borrowings 3,253 3,902 3,602Employee benefit obligations 1,821 1,813 1,803Provisions for deferred tax 820 987 896Other provisions 146 118 135Other long-term liabilities 227 228 232 TOTAL NON-CURRENT LIABILITIES 6,267 7,048 6,668 CURRENT LIABILITIESCurrent portion of long-term borrowings 505 440 479Trade and other payables 2,618 2,643 2,822Current tax payable 122 62 75Short-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 ACTIVITIESOperating profit 345 437 (92)Depreciation, amortisation and impairment 470 349 121Operating cashflow before working capital changes 815 786 29Increase in inventories and other receivables (12) (97) 85Decrease 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) 19Taxation (56) (23) (33) NET CASH FLOW FROM OPERATING ACTIVITIES 439 530 (91) CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (139) (125) (14)Purchase of intangible assets (7) (1) (6)Purchase of interest in associates (5) 5Proceeds from sale of other investments 52 1 51Proceeds from sale of property, plant and equipment 4 4Costs of disposal of subsidiary companies (6) 6Proceeds from disposal of interests in associates 3 3Interest received 41 35 6Interest income from other investments 4 4Dividends received 2 20 (18)Decrease in interest bearing deposits 189 (189) NET CASH FLOW FROM INVESTING ACTIVITIES (40) 112 (152) CASH FLOWS FROM FINANCING ACTIVITIESRepayment of borrowings (41) (28) (13)Payment of finance lease liabilities (174) (190) 16Exercise of share options 30 11 19Distributions 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 andAccounts for the year ended March 31, 2006 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 six months endedSeptember 30, 2005 has been restated to reflect fuel surcharges of £139 millionand £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 yearended March 31, 2006, certain presentational changes have been made to thecomparative information for the quarter and six months ended September 30, 2005.Provisions with a value of £24 million, previously shown within 'otherprovisions' have been re-presented in 'short-term provisions'. In addition,£106 million and £16 million of accruals have been reclassified from otherlong-term liabilities to other provisions and trade and other payables toshort-term provisions respectively. The presentation of the euro perpetualsecurities has been classified from other reserves to minority interests (£200million) on the balance sheet and the distributions presented within minorityinterests in the income statement. As a result, earnings per share attributableto equity holders has been reduced by 0.4 and 0.4 pence per share on a basic anddiluted basis respectively for the quarter and by 0.7 and 0.5 pence per sharefor the six months. * For the purposes of these statements IFRS also include InternationalAccounting Standards (IAS). 2 IMPAIRMENT LOSS ON BA CONNECT At September 30, an impairment review was carried out on the assets, includinggoodwill, of the BA Connect business, prompted by the ongoing deterioration intrading performance against plan experienced through the half year. This hasresulted in an impairment charge of £106 million, representing goodwill of £32million 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 theremaining assets, cash flows over a 12 year period, being the average remaininguseful life of the relevant aircraft, have been projected forward using theestimated long-term growth rate for the UK and discounted at a pre-tax rate of8.9%. The pre-tax impairment charge gives rise to a deferred tax credit of £22million which has been recognised in the income statement. Since the balance sheet date, British Airways and Flybe have agreed in principlethat the regional business of BA Connect will be acquired by Flybe. Theproposed acquisition by Flybe will exclude the London City Airport routes andthe BA Connect-operated service from Manchester to New York. It is expectedthat the sale will be completed during the current financial year. The business to be sold comprises the majority of the "Regional airlinebusiness" segment as disclosed in the financial statements for the year endedMarch 31, 2006. In accordance with IFRS5, the BA Connect business which is the subject of theproposed sale, has not been classified, at the balance sheet date, as a disposalgroup 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 representscurrent tax payable in the UK and £(41) million represents deferred tax. The taxcharge has benefited from one-off releases primarily relating to overseas taxbalances totalling £15 million and the recognition of £29 million of AdvanceCorporation Tax that was previously written off. 6 EARNINGS PER SHARE Basic earnings per share for the quarter ended September 30, 2006 are calculatedon 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 thepurposes of employee share ownership plans including the Long Term-IncentivePlan. Diluted earnings per share for the quarter ended September 30, 2006 arecalculated on a weighted average of 1,152,446,000 ordinary shares (September2005: 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 (September30, 2005: 1,130,882,000; March 31, 2006: 1,130,882,000) ordinary shares of 25pence 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 equivalentsplus 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 NewZealand into alleged anti-competitive activity in relation to the cargobusiness, and in the UK and USA into alleged anti-competitive activity inrelation to passenger transportation pricing, including longhaul fuelsurcharges, are ongoing. As these investigations have not been completed, it isnot 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, 2006and 2005 are unaudited and do not constitute full accounts within the meaning ofSection 240 of the Companies Act 1985. The financial statements for the yearended March 31, 2006 which have been delivered to the Registrar of Companies andon which the auditors have issued an unqualified audit report, did not contain astatement 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 forthe three months and six months ended September 30, 2006, which comprises theConsolidated Income Statement, Consolidated Balance Sheet, Consolidated CashFlow Statement and the related notes 1 to 11. We have read the otherinformation contained in the Interim Results and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of Interim Financial Information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept 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, isthe responsibility of, and has been approved by the directors. The directorsare responsible for preparing the Interim Results in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceeding annual accounts except where anychanges, 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 Boardfor use in the United Kingdom. A review consists principally of makingenquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies and presentation have beenconsistently applied, unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsand six months ended September 30, 2006. Ernst & Young LLPLondon 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 andrecognition requirements of International Financial Reporting Standards (IFRS)which differ in certain respects from those generally accepted in the UnitedStates. Comparative information for the quarter and six months ended September30, 2005 has been restated and reflects the changes described in Note 1 to theaccounts above. The adjusted net income and shareholders' equity applying US GAAP are set outbelow: 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 ofthe parent as reported in the Group income statement 165 167 315 254US GAAP adjustments (46) (68) (96) (127)Net income as so adjusted toaccord with US GAAP 119 99 219 127 Net income per Ordinary Shareas so adjustedBasic 10.5p 8.8p 19.3p 11.5pDiluted 10.3p 8.7p 19.1p 11.4p Net income per American Depositary Shareas so adjustedBasic 105p 88p 193p 115pDiluted 103p 87p 191p 114p September 30 March 31 2006 £m 2005 £m 2006 £m RestatedShareholders' equityas reported in the Group balance sheet 2,167 1,819 1,861US GAAP adjustments 311 478 445Shareholders' equityas 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 2006AIRLINE 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 32Airbus A320 9 18 27 6Airbus A321 7 7 4Boeing 737-300 5 5Boeing 737-400 19 19Boeing 737-500 9 9Turboprops (Note 3) 7 7 (1)Embraer RJ145 16 12 28Avro RJ100 (Note 4) 10 10British Aerospace 146 4 4GROUP 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
International Airlines