2nd Nov 2007 07:00
British Airways PLC02 November 2007 INTERIM MANAGEMENT REPORT Period April 1, 2007 - September 30, 2007 (Unaudited) PROFITS UP ON GOOD RESULTS British Airways today (November 2) presented its interim management report forthe six months ended September 30, 2007. Period highlights: • Operating profit of £556 million (2006: £442 million) • Operating margin 12.5 per cent (2006: 9.8 per cent) • Profit before tax of £593 million (2006: £471 million) • Longhaul fleet order announced • T5 customer trials started September 17, 2007 • Full year fuel costs expected to top £2 billion • 10 per cent operating margin on track British Airways' chief executive Willie Walsh, said: "These are record results which are driven by all the hard work our people putin last year to tackle the cost base of our business. Profits are up some 26per cent and costs are down nearly 4 per cent. Fuel costs remain a majorchallenge and our fuel bill for the year is expected to top £2 billion for thefirst time. We see every possibility of achieving our 10 per cent operatingmargin by March 2008. "Our business plans for the future are gaining real momentum. We announced anorder for 36 new longhaul aircraft that are greener, quieter and technicallymore advanced. Both the Airbus A380 and the Boeing 787 are truly 21st centuryaircraft with huge potential. The Airbus A380 will work well on high densityroutes and the Boeing 787 gives us the flexibility to open new routes and growexisting ones. These aircraft set the gold standard when it comes toenvironmental performance in CO2 emission, local air quality and noise. Theywill contribute significantly to our target of improving fuel efficiency by 25per cent between 2005 and 2025. "Further good news was our welcome return to investment grade which helped usnegotiate the finance for aircraft deliveries until 2011, despite the currentdifficulties in the markets. "Terminal 5 is now only 145 days away. Before its opening on March 27, 2008 ournew home will have undergone trials involving thousands of volunteers. Thefirst major public trials begin this weekend to ensure customers can speedthrough check-in and chill out for the ultimate experience. Our people aredetermined to ensure it will be a national success story Britain can be proudof. "More good news for our customers will be the removal of restrictions onhand-baggage which we expect soon. This will go a long way to relieving thehassle factor of the one bag limit. At the same time we continue to staff up torecord levels in the terminals and have improved our direct baggage performancein recent weeks. This is despite the 15 per cent increase in hold baggage." Financial review Revenue was marginally down by 0.8 per cent. Excluding exchange, revenue was up2 per cent. Passenger revenue fell slightly to some £3.9 billion on capacity up half a percent. Seat factor was down almost 1 point to 78.4 per cent. Yields rose half aper cent due to more premium passengers travelling, although our gains werelargely neutralised by exchange rates, particularly the US dollar. Club World performed strongly, contributing to our overall 2.5 per cent increasein premium traffic. Non-premium traffic has been soft on the North Atlantic andEurope. Lower cargo volumes driven by tougher competition, and lower yields in AsiaPacific, Europe and the UK - plus exchange effects - have led to a disappointingresult in our cargo business. Revenue fell to £290 million. Our cost performance was excellent, helped by the weak US dollar. Total costswere down £150 million with unit costs down 2.6 per cent. Employee costs fell by7.1 per cent to almost £1.1 billion because of reduced pensions costs and lowerseverance costs. Fuel was down 3.5 per cent in the half year helped by the weakUS dollar. We have fewer aircraft on operating leases and have renegotiatedsome existing leases, so costs were down 21.4 per cent. Engineering costs wereup 6.7 per cent because of price rises in maintenance and higher volumes.Handling charges, and other operating costs have risen by 3.4 per cent becauseof the cost of dealing with baggage issues. The financial position of the company remains strong and this has given us theconfidence to order 12 Airbus A380 aircraft, with options for a further 7aircraft, and 24 Boeing 787s with options for a further 18 aircraft. Our cash and net debt were affected by payments into the New Airways PensionScheme (NAPS) and to the US Department of Justice for anti competitive activity.Cash at the end of September was £1.8 billion, £599 million lower than at March2007. Our net debt was £1.4 billion, up £422 million since the year end. Capital expenditure at £297 million was higher than last year because we tookdelivery of three new Airbus A321 aircraft and continue to invest in the newClub World cabin and Terminal 5. The tax rate was 18 per cent and benefited from a one-off credit because of thereduction in the UK corporation tax from 30 per cent to 28 per cent, effectivefrom April 1, 2008. Excluding the one-off credit, the tax rate for the periodwould have been 30 per cent. Business review Our key business objectives focus on four themes, the first of which is BringingTerminal 5 Alive. T5 will open on March 27, on time and on budget. Anexhaustive six month trial of all the new processes and equipment is underway toensure T5 will be a flagship for the UK and a showcase to welcome the 2012Olympics. Our second theme redefines our customer promise under the banner of BA Basicsand Brilliance - ensuring consistent high quality service 24 /7 and brilliancewhere it counts. Punctuality and baggage performance remain a challenge atHeathrow where facilities are old and overstretched. Heathrow was designed tohandle 45 million passengers but today looks after 67 million passengers peryear. Both these key areas will be improved significantly when we move to ournew home in T5 but, in the meantime, we remain focused on improving our currentperformance. Our recent longhaul fleet order is fundamental to our third theme of Investingin Growth. The order for 12 Airbus A380 aircraft and 24 Boeing 787 aircraft andoptions for a further seven A380s and 18 B787s, allows for replacement of olderaircraft and sustainable, profitable growth. A key factor in our choice of theseaircraft was their environmental performance and they score highly on everymeasure. They are cleaner, quieter and more fuel efficient. We have announced we are ending our franchise agreements in the UK with GBAirways and Loganair. The franchise model has outlived its purpose in the UK,although this decision does not affect our overseas franchisees which continueto provide valuable feed traffic and brand exposure in areas we cannot serve. Our environmental credentials are being scrutinised as never before. We havetaken climate change very seriously for a long time. More than a decade ago wewere the first airline to set a target for improving fuel efficiency and we ledthe way in advocating carbon trading. We have set a new target to improve our aircraft fuel efficiency by 25 per centby 2025. We have also made improvements to the accessibility of our onlinepassenger carbon offset scheme on ba.com and will announce further improvementsin the coming weeks. On waste minimisation we aim to recycle half of our wasteand phase out use of landfill by 2010. To cut emissions and save fuel, nearly half our aircraft now taxi to theterminal with one engine shut down. In readiness for the move to Terminal 5, wehave taken delivery of 38 new airport buses, which comply with the latest Euro 5exhaust emission standards. We are committed to ensuring our people and our processes reflect ourresponsibility to the environment. To support our commitment we have appointedSilla Maizey, former Head of Procurement, as our new Head of Corporate SocialResponsibility. Our final and most enduring theme in recent years has been achieving acompetitive cost base. Improving cost efficiency and eliminating waste in ourbusiness is key to delivering our target of a 10 per cent operating margin,which we are on track to achieve by March 2008. Principal risks and uncertainties The principal risks and uncertainties affecting the Group remain those detailedon page 27 of the March 31, 2007 Annual Report & Accounts, with the exception ofthe following additional item: Heathrow Operational Constraints Heathrow has no spare runway capacity and operates on the same two runways ithad when it opened 60 years ago. As a result the company is vulnerable toshort-term operational disruption and there is little it can do to mitigateagainst this. The UK government is expected to announce shortly a publicconsultation on full utilisation of the two runways and on the construction of ashort third runway. This would create extra capacity and reduce delays. Ending stacking beforelanding and queuing on taxiways would cut Heathrow's CO2 emissions by 500,000tonnes a year. An increase in runway capacity would create more take-off andlanding slots and enable Heathrow to rival European hubs like Paris, Amsterdamand Frankfurt. Related parties Related party disclosures are given in Note 18 to the condensed consolidatedfinancial information. Trading Outlook We have revised our revenue guidance to around 3 to 3.5 per cent because of thecontinued weakness of the US dollar. Premium traffic continues to be strong, supporting our earlier decision to makemore premium capacity available. The North Atlantic non-premium market is stillsoft but other non-premium markets are more encouraging. We have also revised our guidance for costs, excluding fuel, which previouslywas flat. We now expect costs to be down by £100 million because of the weakdollar. Our fuel costs are expected to be up by £100 million on last year, £20 millionlower than our previous guidance. 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. ends Note to Editors: This is the first Interim Management Report that British Airways has releasedunder the European Union Transparency Directive. The new rules apply for allaccounting periods beginning on or after January 20, 2007. In addition there will be a webcast of an analyst conference call and slidepresentation at 2pm (GMT) available through our website www.bashares.com. INTERIM RESULTS 2007-2008 (unaudited)OPERATING AND FINANCIAL STATISTICS (Note 1) Six months ended September 30 Better/ 2007 2006 (Worse) Restated (Note 1) Revenue £m 4,456 4,492 (0.8)% Operating profit £m 556 442 25.8% Profit before tax £m 593 471 25.9% Profit after tax £m 487 402 21.1% Loss from discontinued operations £m (2) (80) 97.5% Basic earnings per share p 41.7 34.8 19.8% Six months ended September 30 Better/ 2007 2006 (Worse)TOTAL GROUP OPERATIONS Restated TRAFFIC AND CAPACITY RPK (m) 59,336 59,775 (0.7)%ASK (m) 75,705 75,353 0.5%Passenger load factor (%) 78.4 79.3 (0.9)ptsCTK (m) 2,366 2,403 (1.5)%RTK (m) 8,340 8,427 (1.0)%ATK (m) 11,573 11,703 (1.1)%Overall load factor (%) 72.1 72.0 0.1ptsPassengers carried (000) 17,854 17,921 (0.4)%Tonnes of cargo carried (000) 380 387 (1.8)% FINANCIAL Operating margin (%) 12.5 9.8 2.7ptsPassenger revenue per RPK (p) 6.52 6.49 0.5%Passenger revenue per ASK (p) 5.11 5.15 (0.8)%Cargo revenue per CTK (p) 12.26 13.23 (7.3)%Total traffic revenue per RTK (p) 49.89 49.78 0.2%Total traffic revenue per ATK (p) 35.95 35.85 0.3%Total expenditure on operations per RTK (p) 46.76 48.06 2.7%Total expenditure on operations per ATK (p) 33.70 34.61 2.6%Average fuel price before hedging (US cents/US gallon) 216.96 221.36 2.0% TOTAL AIRLINE OPERATIONS (Note 2) OPERATIONS Average Manpower Equivalent (MPE) 42,024 43,224 2.8%ATKs per MPE (000) 275.4 270.8 1.7%Aircraft in service at period end (Note 3) 245 283 (38) Note 1: The financial information for the comparative period has been restatedto disclose discontinued operations separate from continuing operations.Operating and financial statistics relate to continuing operations unlessotherwise stated. Note 2: Excludes non-airline activity companies, principally, Airmiles TravelPromotions Ltd, BA Holidays Ltd and Speedbird Insurance Company Ltd. Note 3: Aircraft numbers for last year include the BA Connect aircraft. CONSOLIDATED INCOME STATEMENT (unaudited) Six months ended September 30 Better/ 2007 £m 2006 £m (Worse) RestatedTraffic RevenuePassenger 3,871 3,877 (0.2)%Cargo 290 318 (8.8)% 4,161 4,195 (0.8)%Other revenue 295 297 (0.7)%REVENUE 4,456 4,492 (0.8)%Employee costs 1,069 1,151 7.1 %Depreciation, amortisation and impairment 351 356 1.4 %Aircraft operating lease costs 33 42 21.4 %Fuel and oil costs 983 1,019 3.5 %Engineering and other aircraft costs 222 208 (6.7)%Landing fees and en route charges 269 274 1.8 %Handling charges, catering and other operating costs 492 476 (3.4)%Selling costs 183 199 8.0 %Currency differences (2) 23 nmAccommodation, ground equipment and IT costs 300 302 0.7 % TOTAL EXPENDITURE ON OPERATIONS 3,900 4,050 3.7 % OPERATING PROFIT 556 442 25.8 % Fuel derivative gains/(losses) 15 (25) nmFinance costs (81) (71) (14.1)%Finance income 56 63 (11.1)%Financing income and expense relating to pensions 26 (8) nmRetranslation credits on currency borrowings 1 9 (88.9)%Profit on sale of property, plant and equipment and investments 13 49 (73.5)%Share of post-tax profits in associates accounted for usingthe equity method 5 nmIncome relating to fixed asset investments 2 12 (83.3)% PROFIT BEFORE TAX 593 471 25.9 % Tax (106) (69) (53.6)% PROFIT AFTER TAX FROM CONTINUING OPERATIONS 487 402 21.1 % Loss from discontinued operations (after tax) (2) (80) 97.5 % PROFIT AFTER TAX 485 322 50.6 % Attributable to:Equity holders of the parent 478 315 51.7 %Minority interest 7 7 485 322 50.6 % EARNINGS PER SHAREContinuing operations:Basic 41.7p 34.8p 19.8 %Fully diluted 41.3p 34.4p 20.1 % Discontinued operations:Basic (0.1)p (7.0)p (98.6)%Fully diluted (0.1)p (7.0)p (98.6)% Total:Basic 41.6p 27.8p 49.6 %Fully diluted 41.2p 27.4p 50.4 % nm: Not meaningful CONSOLIDATED BALANCE SHEET (unaudited) September 30 March 31 2007 £m 2007 £mNON-CURRENT ASSETSProperty, plant and equipmentFleet 6,067 6,153Property 959 932Equipment 277 272 7,303 7,357 Goodwill 40 40Landing rights 152 139Software 29 33 221 212 Investments in associates 130 125Other investments 95 107Employee benefit assets 109 116Other financial assets 40 28 TOTAL NON-CURRENT ASSETS 7,898 7,945 NON-CURRENT ASSETS HELD FOR SALE 8 CURRENT ASSETS AND RECEIVABLESInventories 86 76Trade receivables 647 654Other current assets 427 346 Other current interest bearing deposits 1,490 1,642Cash and cash equivalents 266 713 1,756 2,355 TOTAL CURRENT ASSETS AND RECEIVABLES 2,916 3,431 TOTAL ASSETS 10,814 11,384 SHAREHOLDERS' EQUITY AND LIABILITIESSHAREHOLDERS' EQUITYIssued share capital 288 288Share Premium 935 933Investment in own shares (9) (10)Other reserves 1,520 1,000 TOTAL SHAREHOLDERS' EQUITY 2,734 2,211 MINORITY INTEREST 200 200 TOTAL EQUITY 2,934 2,411 NON-CURRENT LIABILITIESInterest bearing long-term borrowings 2,767 2,929Employee benefit obligations 478 1,142Provisions for deferred tax 1,032 930Other provisions 243 153Other long-term liabilities 188 194 TOTAL NON-CURRENT LIABILITIES 4,708 5,348 CURRENT LIABILITIESCurrent portion of long-term borrowings 402 417Trade and other payables 2,588 2,744Current tax payable 21 54Short-term provisions 161 410 TOTAL CURRENT LIABILITIES 3,172 3,625 TOTAL EQUITY AND LIABILITIES 10,814 11,384 CONSOLIDATED CASHFLOW STATEMENT (unaudited) Six months ended September 30 Better/ 2007 £m 2006 £m (Worse) RestatedCASH FLOWS FROM OPERATING ACTIVITIESOperating profit 556 442 114Operating loss from discontinued operations (97) 97Depreciation, amortisation and impairment 351 470 (119)Operating cash flow before working capital changes 907 815 92Increase in inventories, trade and other receivables (25) (12) (13)Decrease in trade and other payables and provisions (249) (220) (29)Payment to the DOJ for part settlement of competition investigation (149) (149)Cash payment to NAPS pension scheme (560) (560)Other non-cash movements 3 3 Cash generated from operations (73) 586 (659)Interest paid (91) (91)Taxation (51) (56) 5 NET CASH FLOW FROM OPERATING ACTIVITIES (215) 439 (654) CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (280) (139) (141)Purchase of intangible assets (17) (7) (10)Proceeds from sale of other investments 52 (52)Proceeds from sale of property, plant and equipment 10 4 6Proceeds from sale of associated companies 3 (3)Interest received 60 41 19Interest income from other investments 4 (4)Dividends received 2 2Decrease in interest bearing deposits 148 10 138 NET CASH FLOW FROM INVESTING ACTIVITIES (77) (30) (47) CASH FLOWS FROM FINANCING ACTIVITIESProceeds from long-term borrowings 79 79Repayment of borrowings (23) (41) 18Payment of finance lease liabilities (206) (174) (32)Exercise of share options 2 30 (28)Distributions made to holders of perpetual securities (7) (7) NET CASH FLOW FROM FINANCING ACTIVITIES (155) (192) 37 Net (decrease)/increase in cash and cash equivalents (447) 217 (664)Net foreign exchange difference (6) 6Cash and cash equivalents at April 1 713 398 315 CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 266 609 (343) STATEMENT OF CHANGES IN EQUITY (unaudited)For the period ended September 30, 2007 Invest- Total ment Share- Share Share in own Other holders' Minority Total capital premium shares reserves equity interest equity£ million At April 1, 2007 288 933 (10) 1,000 2,211 200 2,411 Profit for the period 478 478 478Exchange differencesand other movements 5 5 5Net movement on cashflow hedges 40 40 40Cost of share basedpayment 3 3 3Tax effect of shareoptions (4) (4) (4) Total income andexpense for the period 522 522 522Exercise of shareoptions 1 (1)Issue of shares 2 2 2Net losses onavailable-for-salefinancial assets (1) (1) (1) At September 30, 2007 288 935 (9) 1,520 2,734 200 2,934 For the period ended September 30, 2006 Invest- Total ment Share- Share Share in own Other holders' Minority Total capital premium shares reserves equity interest equity£ million At April 1, 2006 283 888 690 1,861 213 2,074 Profit for the period 315 315 315Exchange differencesand other movements (4) (4) (2) (6)Net movement on cashflow hedges (31) (31) (31)Cost of share basedpayment 5 5 5Tax effect of shareoptions 8 8 8Share of other (7) (7) (7)movements in reservesof associates Total income andexpense for the period 286 286 (2) 284Exercise of shareoptions (1) (1) (1)Issue of shares 3 22 25 25Net losses onavailable-for-salefinancial assets (4) (4) (4) At September 30, 2006 286 910 971 2,167 211 2,378 NOTES TO THE ACCOUNTS (unaudited)For the period ended September 30, 2007 1 CORPORATE INFORMATION The Group's interim condensed consolidated financial statements for the sixmonths ended September 30, 2007 were authorised for issue by the Board ofDirectors on November 1, 2007. British Airways Plc (the Company) is a publiclimited company incorporated and domiciled in England and Wales. The Company'sordinary shares are traded on the London Stock Exchange. 2 BASIS OF PREPARATION The basis of preparation and accounting policies set out in the Annual Reportand Accounts for the year ended March 31, 2007 have been applied in thepreparation of these summary financial statements. These are in accordance withthe recognition and measurement criteria of International Financial ReportingStandards (IFRSs)* as adopted by the European Union (EU) and with those of theStanding Interpretations issued by the International Financial ReportingInterpretations Committee (IFRIC) of the International Accounting StandardsBoard (IASB). References to 'IFRS' hereafter should be construed as referencesto IFRSs as adopted by the EU. These interim financial statements have beenprepared in accordance with the Disclosure and Transparency Rules (DTR) of theFinancial Services Authority and with International Accounting Standard (IAS)34, 'Interim Reporting'. * For the purposes of these statements IFRS also include InternationalAccounting Standards. 3 ACCOUNTING POLICIES The accounting policies and methods of calculation adopted are consistent withthose of the annual financial statements for the year ended March 31, 2007, asdescribed in those annual financial statements. The income statement for the comparative period has been restated to disclosediscontinued operations separate from continuing operations. The comparativeinformation on the consolidated cash flow statement for the half year endedSeptember 30, 2006 has been restated to reflect a reduction of £499 million incash and cash equivalents, with an offset to other current interest bearingdeposits, due to a change in accounting policies. Prior to the year ended March31, 2007 accounts, the Group classified deposits with a qualifying financialinstitution maturing within three months of the balance sheet date as cash andcash equivalents. The Group now only classifies deposits maturing within three months of theacquisition date as cash and cash equivalents. Additionally, our financialstatements for the prior period include reclassifications that were made toconform to the current period presentation. Those reclassifications did notimpact our reported profit after tax or shareholders' equity. The following new standards, amendments to standards, or interpretations aremandatory for the first time for the financial year ending March 31, 2008: * IAS 1 Amendment, 'Presentation of Financial Statements', effective forannual periods beginning on or after January 1, 2007, which requires additionaldisclosures on the Company's objectives, policies and processes for managingcapital. As this interim report contains only condensed financial statements,disclosures required by IAS 1 will be given in the annual financial statements. * IFRIC 8, 'Scope of IFRS 2 - Group and treasury share transactions',effective for annual periods beginning on or after May 1, 2006. Management doesnot expect this interpretation to impact the Group. * IFRIC 9, 'Reassessment of embedded derivatives', effective for annualperiods beginning on or after January 1, 2007, which states that the date toassess the existence of an embedded derivative is the date that an entity firstbecomes party to the contract, with reassessment only if there is a change tothe contract that significantly modifies the cash flows. Management does notexpect this interpretation to impact the Group. * IFRIC 10, ' Interims and impairment', effective for annual periods beginningon or after November 1, 2006. This interpretation has not had any impact on thetiming or recognition of impairment losses as the Group already accounted forsuch amounts using principles consistent with IFRIC 10. * IFRIC 11, ' IFRS 2 - Group and treasury share transactions', effective forannual periods beginning on or after March 1, 2007. Management does not expectthis interpretation to impact the Group. * IFRS 7, 'Financial instruments: Disclosures', effective for annual periodsbeginning on or after January 1, 2007. As this interim report contains onlycondensed financial statements, full IFRS 7 disclosures are not required at thisstage. The full IFRS 7 disclosures, including the sensitivity analysis tomarket risk and capital disclosures required by IFRS 7, will be given in theMarch 31, 2008 financial statements. The following new standards, amendments to standards and interpretations havebeen issued, but are not effective for the financial year ending March 31, 2008: * IFRIC 12, 'Service concession arrangements', effective for annual periodsbeginning on or after January 1, 2008. Management does not expect thisinterpretation to impact the Group. * IFRIC 13, 'Customer Loyalty Programmes', effective for annual periodsbeginning on or after July 1, 2008. IFRIC 13 addresses accounting by entitiesthat operate or otherwise participate in customer loyalty programmes for theircustomers. IFRIC 13 applies to sales transactions in which the entities granttheir customers award credits that, subject to meeting any further qualifyingconditions, the customers can redeem in the future for free or discounted goodsor services. The interpretation requires that an entity recognise credits thatit awards to customers as a separately identifiable component of revenue, whichwould be deferred at the date of the initial sale. IFRIC 13 will becomemandatory for the Group's consolidated financial statements beginning April 1,2009, with earlier application permitted. Management has not yet determined thepotential effect of this interpretation. * IFRIC 14, 'IAS 19 The limit on a defined benefit asset, minimum fundingrequirement and their interaction', effective for annual periods beginning on orafter July 1, 2008. Management has not yet determined the potential effect ofthis interpretation. * IFRS 8, 'Operating segments', effective for annual periods beginning on orafter January 1, 2009, subject to EU endorsement. Management does not currentlyforesee any significant changes to the Group's business segments. 4 SEASONALITY OF OPERATIONS Due to the seasonal nature of the airline industry, higher revenues andoperating profits are usually expected in the first half of the financial yearthan in the latter six months. Higher revenues during the first six months aremainly attributed to the increased demand for travel during the holiday season. 5 SEGMENT INFORMATION a Business segments For the period ended September 30, 2007 Continuing Operations Non- Airline airline Un- Disc £ million business business allocated Total Ops * Total Revenue Sales to external customers 4,360 96 4,456 4,456 Inter-segment sales 17 17 17 Segment revenue 4,377 96 4,473 4,473 Segment result 551 5 556 556 Unallocated and other non- operating income/(expense) 17 17 17 Profit before tax and finance costs 551 5 17 573 573 Net finance costs 2 2 2 Profit/(loss) on sale of 13 (2) 11 assets 13 Share of associates' profit 5 5 5 Income tax expense (106) (106) (106) Profit/(loss) after tax 487 (2) 485 Assets and liabilities Segment assets 10,561 123 10,684 10,684 Investment in associates 130 130 130 Total assets 10,561 123 130 10,814 10,814 Segment liabilities 3,322 336 3,658 3,658 Unallocated liabilities 4,222 4,222 4,222 Total liabilities 3,322 336 4,222 7,880 7,880 Other segment information Tangible assets - additions 276 276 276 Intangible assets - additions 24 24 24 Depreciation, amortisation and impairment 350 1 351 351 * Discontinued Operations For the period ended September 30, 2006 Continuing Operations Non- Airline airline Un- Disc £ million business business allocated Total Ops * Total Revenue Sales to external customers 4,386 106 4,492 138 4,630 Inter-segment sales 20 1 21 1 22 Segment revenue 4,406 107 4,513 139 4,652 Segment result 410 32 442 (97) 345 Unallocated and other non- operating income/(expense) (13) (13) (13) Profit/(loss) before tax and finance costs 410 19 429 (97) 332 Net finance costs (7) (7) (3) (10) Profit on sale of assets 49 49 49 Income tax (expense)/credit (69) (69) 20 (49) Profit/(loss) after tax 402 (80) 322 Assets and liabilities Segment assets 11,717 111 11,828 11,828 Investment in associates 103 103 103 Total assets 11,717 111 103 11,931 11,931 Segment liabilities 4,520 333 4,853 4,853 Unallocated liabilities 4,700 4,700 4,700 Total liabilities 4,520 333 4,700 9,553 9,553 Other segment information Tangible assets - additions 128 1 129 129 Intangible assets - additions 13 13 13 Depreciation, amortisation and impairment 355 1 356 114 470 Exceptional items 32 32 32 * Discontinued Operations b Geographical segments - by area of original sale Continuing Discontinued Total Operations Operations £ million 2007 £m 2006 £m 2007 £m 2006 £m 2007 £m 2006 £m Europe 2,747 2,666 133 2,747 2,799 United Kingdom 2,139 2,050 109 2,139 2,159 Continental Europe 608 616 24 608 640 The Americas 942 992 4 942 996 Africa, Middle East and Indian sub-continent 419 457 1 419 458 Far East and Australasia 348 377 348 377 Revenue 4,456 4,492 138 4,456 4,630 6 OPERATING PROFIT There were no items of an unusual nature that have been charged to operating profit during the six month period (2006: restructuring provision £32 million). 7 FINANCE COSTS / INCOME Six months ended September 30 2007 £m 2006 £m FINANCE COSTS Interest payable on bank and other loans and finance charges payable under finance leases and hire purchase contracts 87 88 Release of prior year provisions (15) Interest capitalised (6) (2) Total finance costs 81 71 FINANCE INCOME Bank interest receivable 56 63 Total finance income 56 63 FINANCING INCOME AND EXPENSE RELATING TO PENSIONS Financing income and expense relating to pensions 26 (8) Total financing income and expense relating to pensions 26 (8) Retranslation credits on currency borrowings 1 9 8 PROFIT/(LOSS) ON SALE OF FIXED ASSETS AND INVESTMENTS Six months ended September 30 2007 £m 2006 £m Net profit on the disposal of WNS 48 Net profit on the disposal of property, plant and equipment 13 2 Net loss on disposal of interest in associates (1) 13 49 Included in the net profit on the disposal of property, plant and equipment isa £12 million gain resulting from the release of certain guarantees that wereprovided for relating to the previous sale of 6 Boeing 767 aircraft. 9 TAX The tax charge for the half year is £106 million, which is a rate of 18% onthe profit before tax. The current tax payable on the half year profits is £18million and deferred tax is £88 million. The deferred tax charge has benefitedfrom a one-off credit of £72 million arising from the reduction in the UKcorporation tax from 30% to 28% which is effective from April 1, 2008. Excludingthe one-off credit, the tax rate for the period would have been 30%. 10 EARNINGS PER SHARE Basic earnings per share for the six months ended September 30, 2007 arecalculated on a weighted average of 1,150,012,000 ordinary shares (September 30,2006: 1,135,788,000; March 31, 2007: 1,141,133,000) as adjusted for shares heldfor the purposes of employee share ownership plans including the Long-TermIncentive Plan. Diluted earnings per share for the quarter ended September 30,2007 are calculated on a weighted average of 1,160,048,000 ordinary shares(September 30, 2006: 1,148,626,000; March 31, 2007: 1,151,943,000). The number of shares in issue at September 30, 2007 was 1,152,593,000(September 30, 2006: 1,141,379,000; March 31, 2007: 1,151,575,000) ordinaryshares of 25 pence each. 11 PROPERTY, PLANT AND EQUIPMENT During the six months ended September 30, 2007, the Group acquired assets with a cost of £276 million (September 30, 2006: £129 million). Assets with a net book value of £9 million were disposed of by the Groupduring the six months ended September 30, 2007 (September 30, 2006: £2 million)resulting in a net gain on disposal of £1 million (September 30, 2006: £2million). 12 RECONCILIATION OF MOVEMENT IN NET DEBT TO CHANGES IN CASH FLOWS Six months ended September 30 2007 £m 2006 £m (Decrease)/increase in cash and cash equivalents during the period (447) 217 Net cash used in repayment of long-term borrowings 229 215 Decrease in interest bearing deposits (148) (10) Change in net debt resulting from cash flows (366) 422 New finance leases taken out and hire purchase arrangements made (79) Exchange and other non cash movements 23 94 Movement in net debt during the period (422) 516 Net debt at April 1 (991) (1,641) Net debt at September 30 (1,413) (1,125) Net debt comprises the current and non-current portions of long-termborrowings, convertible long-term borrowings and overdrafts, less cash and cashequivalents plus interest-bearing short-term deposits. 13 SHARE OPTIONS During the period, the Group awarded a new performance share plan for itssenior executives. 1,443,888 options over shares were awarded. No payment isdue upon exercise of the options. The fair value of options granted during thesix months ended September 30, 2007 was estimated on the date of grant using thefollowing assumptions: Expected volatility (%) 24 Expected life (years) 3 Weighted average share price (£) 4.025 14 ANALYSIS OF LONG-TERM BORROWINGS September 30 March 31 2007 £m 2007 £m Interest bearing long-term borrowings comprise: Loans 789 878 Finance Leases 1,307 1,275 Hire purchase arrangements 671 776 2,767 2,929 Current portion of long-term borrowings comprise: Loans 131 68 Finance Leases 61 80 Hire purchase arrangements 210 269 402 417 Total borrowings 3,169 3,346 15 DISCONTINUED OPERATIONS The £2 million loss from discontinued operations is attributed to theresolution of certain uncertainties that arose from the terms of the disposaltransaction, primarily purchase price adjustments and adjustments to therestructuring provision previously reported within discontinued operations. 16 CONTINGENT LIABILITIES There were contingent liabilities at September 30, 2007 in respect ofguarantees and indemnities entered into as part of, and claims arising from, theordinary course of business, upon which no material losses are likely to arise.A number of other lawsuits and regulatory proceedings are pending, the outcomeof which in the aggregate is not expected to have a material effect on theGroup's financial position or results of operations. The Group has guaranteed certain borrowings, liabilities and commitments whichat September 30, 2007 amounted to £166 million (March 31, 2007: £168 million). 17 COMPETITION INVESTIGATION The Company has settled US$300 million (£149 million) in respect of allinvestigations into its cargo and passenger business in the US with theDepartment of Justice. It has agreed a settlement of £121.5 million with theOffice of Fair Trading in respect of longhaul passenger surcharges. There are on-going investigations into the Company's cargo surcharges by theEuropean Commission and other jurisdictions. These investigations are likely tocontinue for some time. The Company is also subject to related class actionclaims. The final amount required to pay the remaining claims and fines issubject to uncertainty. A detailed breakdown of the remaining provision is notpresented as it may seriously prejudice the position of the Company in theseregulatory investigations and potential litigation. 18 RELATED PARTY TRANSACTIONS The Group has had transactions in the ordinary course of business during the year under review with related parties. Six months ended September 30 2007 £m 2006 £m Associates: Sales to associates 23 26 Purchases from associates 24 78 September 30 March 31 2007 £m 2007 £m Associates: Amounts owed to associates 1 1 Amounts owed by associates 2 As is common practice in the airline industry, the Company and Iberia fromtime to time carry each other's passengers travelling on the other airlines'tickets. The settlement between related carriers is actioned through the IATAClearing House, of which the airlines are members. These transactions have notbeen disclosed as sales or purchases between related parties above. * Associates Iberia, Lineas Aereas de Espana, S.A. ('Iberia') A wholly owned subsidiary in the Group has a 9.95% investment in Iberia.Areas of opportunity for co-operation have been identified, and work continuesto pursue and implement these. Sales and purchases between related parties aremade at normal market prices and outstanding balances are unsecured, interestfree and cash settlement is expected within the standard settlement termsspecified by the IATA Clearing House. As at September 30, 2007, the net trading balance owed from Iberia to theGroup amounted to £1.6 million (March 31, 2007 amounts owed to Iberia: £0.4million). * Directors' and officers' loans and transactions No loans or credit transactions were outstanding with directors or officers ofthe Group at the end of September 2007 or arose during the period that need tobe disclosed in accordance with the requirements of Schedule 6 to the CompaniesAct 1985. In addition to the above, the Group also has transactions with related partieswhich are conducted in the normal course of airline business. These include theprovision of airline and related services. The Group has not provided or benefited from any guarantees for any relatedparty receivables or payables. During the period ended September 30, 2007 theGroup has not made any provision for doubtful debts relating to amounts owed byrelated parties (September 30, 2006: £nil). 19 CAPITAL EXPENDITURE COMMITMENTS Capital expenditure authorised and contracted for but not provided for in theaccounts amounts to £635 million (March 31, 2007: £554 million). The outstanding commitments include £565 million for the acquisition of fourBoeing 777 aircraft scheduled for delivery in 2009 and 21 Airbus A320 and A321family aircraft scheduled for delivery over the next three years, but excludethe recent announcement of the selection of 12 Airbus A380 and 24 Boeing 787aircraft, which have been authorised but not yet contracted for. 20 EVENTS AFTER THE BALANCE SHEET DATE On October 25, 2007, the Group announced that it will end its franchiseagreements with both GB Airways and Loganair. The Group will end itsrelationship with GB Airways in March 2008 and with Loganair from October 2008.After October 2008, the Group will begin a codeshare arrangement with Loganair. On October 26, 2007, the Group signed a US$1.7 billion secured aircraftfinancing facility with a 15 year term. The facility will serve as financingfor the Gatwick and Heathrow fleet replacement programmes. 21 OTHER INFORMATION The figures for the six months ended September 30, 2007 and 2006 are unauditedand do not constitute full accounts within the meaning of Section 240 of theCompanies Act 1985. The financial statements for the year ended March 31, 2007which have been delivered to the Registrar of Companies and on which theauditors have issued an unqualified audit report, did not contain a statementunder Section 237 of the Companies Act 1985. STATEMENT OF DIRECTORS' RESPONSIBILITIES The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The directors of British Airways Plc are listed in the Group's Annual Report forthe year ended March 31, 2007. By order of the Board Willie WalshChief Executive Keith WilliamsChief Financial Officer November 1, 2007 INDEPENDENT REVIEW REPORT TO BRITISH AIRWAYS PLC We have been engaged by the Group to review the condensed set of financialstatements in the half-yearly financial report for the six months endedSeptember 30, 2007 which comprises the Consolidated Income Statement,Consolidated Balance Sheet, Consolidated Cash Flow Statement, ConsolidatedStatement of Change in Shareholders' Equity and the related notes 1 to 21. Wehave read the other information contained in the half-yearly financial reportand considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. This report is made solely to the Group in accordance with guidance contained inISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed bythe Independent Auditor of the Entity' issued by the Auditing Practices Board.To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Group, for our work, for this report, orfor the conclusions we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority As disclosed in Note 2, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, 'Interim Financial Reporting', as adopted by the European Union. Our Responsibility Our responsibility is to express to the Group a conclusion on the condensed setof financial statements in the half-yearly financial report based on our review Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410,'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended September 30, 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. Ernst & Young LLPLondon November 1, 2007 AIRCRAFT FLEET(unaudited and outwith the scope of the Independent Review) Number in service with Group companies at September 30, 2007 On balance Off balance Total Changes sheet since sheet operating leases Sept 2007 March 2007 Future Options deliveries fixed assets (Note 5) (Note 6)Airline Operations (Note 1) Boeing 747-400 57 57Boeing 787 24 18Boeing 777 40 3 43 4Boeing 767-300 21 21Boeing 757-200 13 13Airbus A319 21 12 33Airbus A320 (Note 2) 7 18 25 (1) 20 32Airbus A321 10 10 3 1Airbus A380 12 7Boeing 737-300 5 5Boeing 737-400 19 19Boeing 737-500 9 9Avro RJ100 (Note 3) 10 10 1 Group Total (Note 4) 188 57 245 3 61 57 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. Excludes six Avro RJ100 aircraft sub-leased to Swiss International Airlines. 4. Excludes two British Aerospace ATP's stood down pending sale, and 10Jetstream 41s sub-leased to Eastern Airways. 5. Future year deliveries of aircraft have increased by 12 Airbus A380 and 24Boeing 787 as part of the longhaul replacement programme and capacity growth. 6. Future year options have increased by seven Airbus A380 and 18 Boeing 787aircraft. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
International Airlines