BAA RESULTS
FOR THE YEAR TO 31 MARCH 2003
* Capital expenditure1 up 25.2% to �774 million (31 March 2002: �618
million). UK airports' capital expenditure up 32.9% to �744 million (�560
million), as investment programme at Heathrow, including Terminal 5,
accelerates.
* Passenger traffic up 4.7% to 127.7 million (121.9 million).
* Net retail income2 up 6.5% to �510 million (�479 million) and net retail
income per passenger2 up 1.5% to �4.01 (�3.95).
* Group operating profit from continuing businesses up 5.2% at �582 million
(�553 million).
* Profit before tax and exceptional items up 3.8% to �524 million (�505
million). Profit before tax �538 million (�318 million).
* Earnings per share (before exceptional items) up 2.4% to 34.0 pence (33.2
pence). Earnings per share 35.3 pence (15.6 pence).
* Full year dividend up 3.8% to 19.0 pence (18.3 pence).
1 See note beneath Summary of Results Table for definition
2 See notes following retail section for definitions
BAA's financial results presentation will be broadcast live on BAA's website -
www.baa.com/results - at 9.30am (British Summer Time) on Tuesday 3 June 2003.
An interview with Mike Clasper, chief executive designate, on BAA's results
2002/03 will follow after the live broadcast.
SUMMARY OF RESULTS
2002/03 2001/02 Change
%
Passenger traffic 127.7m 121.9m 4.7
Revenue* �1,902m �1,855m1 2.5
EBITDA* �840m �802m 4.7
Group operating profit* �582m �553m 5.2
Profit before tax and exceptionals �524m �505m 3.8
Profit before tax �538m �318m 69.2
Earnings per share before 34.0p 33.2p 2.4
exceptionals
Earnings per share 35.3p 15.6p 126.3
Dividend per share 19.0p 18.3p 3.8
Capital expenditure** �774m �618m 25.2
* Continuing operations only and excludes associates, joint ventures and
exceptional items.
** Excludes present value of deferred compensation for purchase of Terminal 5
land of �187 million (�nil) and �31 million (�32 million) capitalised interest.
1 Restated to reclassify �15 million of marketing support costs as a reduction
in revenue, previously reported as an operating cost.
BAA plc, the international airport group, today announced that, for the year to
31 March 2003, revenue from continuing businesses increased by 2.5% to �1,902
million (31 March 2002: �1,855 million restated) on passenger traffic growth of
4.7%.
Group operating profit from continuing businesses was up 5.2% at �582 million
(�553 million), primarily reflecting 6.5% growth in net retail income of �31
million and a 2.0% increase in UK airport and other traffic charges of �13
million, partially offset by additional insurance and security costs as the
Group continues to focus on enhancing security at its airports.
The Group's net interest and finance charges of �67 million (�39 million) have
risen as a result of the increase in net debt, the cost of forward funding the
future capital programme (that is vital to the growth of BAA and the UK
aviation industry) and a �7 million reduction in FRS 17 net finance income.
Profit before tax and exceptional items grew by 3.8% to �524 million (�505
million). After exceptional items, profit before tax grew to �538 million (�318
million), principally as a result of the �190 million loss in the year to 31
March 2002 on the disposal of World Duty Free Americas.
OPERATING AND FINANCIAL REVIEW
UK airports and World Duty Free
In the year to 31 March 2003, traffic was 4.7% above the prior year at 127.7
million (121.9 million) passengers. This led to a 2.9% increase in direct
revenue at UK airports to �1,366 million (�1,327 million restated) and 2.9%
growth in World Duty Free's revenue to �352 million (�342 million). Operating
profit of the UK airports grew by 3.9% to �557 million (�536 million),
including the profit of World Duty Free.
Traffic
The strongest passenger demand in the period was in the domestic and European
scheduled markets, with respective growth of 11.3 % and 5.6%, fuelled by lower
fares from the full-service and low-cost scheduled airlines. These two markets
represented 56.3% of BAA's passengers (up from 54.9%). North Atlantic and other
long haul traffic was up 0.9% and 0.6% respectively. Traffic on all routes was
adversely affected in March by the conflict in Iraq, severe acute respiratory
syndrome (SARS) and comparison with the prior year (due to a much later Easter
in 2003). Taking March and April together, traffic was down 0.8% over the two
months compared to the prior year.
Stansted, Glasgow and Edinburgh benefited from the continued growth of low cost
scheduled airlines. Stansted showed the strongest performance, gaining 18.9% to
16.7 million passengers. 17.5 million (16.1 million) passengers travelled
through the three Scottish airports, Glasgow, Edinburgh and Aberdeen. Glasgow
and Edinburgh experienced significant growth with passengers increasing by 7.7%
to 7.9 million and 13.1% to 7.1 million respectively. Heathrow, up by 4.3% (and
representing 49.3% of BAA's UK passenger traffic), benefited from the transfer
of routes from Gatwick and the general recovery in scheduled traffic. Gatwick,
23.2% of total traffic, was down 2.8%, where new carriers and routes have
partly offset the impact of the transfer of British Airways routes to Heathrow.
Passengers at Southampton fell by 5.5%. However, new routes by low cost
carriers are providing new capacity for the summer season.
Airport charges
The 4.7% growth in traffic generated net UK airport charges revenue of �665
million (�652 million restated). This represents an increase of 2.0%. The
volume improvement was partly offset by lower average yields as a result of
reduced aircraft parking income at Gatwick and increased marketing support at
Stansted and in Scotland.
Retail
UK airport retailing, including the operations of World Duty Free, performed
well, with net retail income1 increasing by 6.5% to �510 million (�479 million)
and net retail income per passenger2 rising by 1.5% to �4.01 (�3.95).
In March 2003 the Heathrow Terminal 3 departures lounge redevelopment was
completed and there are now over 50 new stores, including Pringle, Paul Smith
and Gucci. Completion of the latest phase of the terminal extension at Stansted
in April 2002 has also provided additional retail space. These developments
have contributed to the strong performance of airside shops and catering. Car
parking has benefited from the changing passenger mix at Gatwick and the
opening of the new multi-storey car park in Glasgow. Advertising income at �29
million was unchanged from last year, a strong performance in a difficult year
and increasing our share of the outdoor advertising market.
World Duty Free operating profit increased to �22 million (�18 million), driven
by a 3% uplift in sales alongside improved margins and continued cost control.
Legislation to ban tobacco advertising was passed in February and has reduced
tobacco sales in line with our expectations.
In the fourth quarter net retail income grew by 0.9% to �109.5m (�108.5m). This
is despite the impact of the build up to the conflict in Iraq, SARS and the
timing of the Easter holiday. However, the resulting changes during the fourth
quarter in passenger profiles and airline routes affected net retail income per
passenger, which fell to �4.02 (�4.14).
1UK airports net retail income is defined as the revenues received directly
from third party retail operators, the concession fee paid to the airports by
World Duty Free and World Duty Free's operating profit from duty free retail
operations across the seven UK airports.
2Net retail income per passenger is net retail income divided by the number of
passengers (excluding helicopter passengers)
International airports
BAA has interests in 12 international airports. From each of our interests, we
either earn a profit share or a management fee (or in certain instances, both
types of profit contribution). Together, these interests have contributed �9
million (�6 million) to BAA's operating profit. With five years remaining on
the initial Pittsburgh retail contract, BAA was awarded a ten year extension to
2017. GESAC, the management company of Naples airport and in which BAA has a
majority interest, was in March 2003 granted a new 40-year full management
licence by the Italian government. BAA continues to seek international
opportunities to use its expertise and experience gained in operating the UK's
leading airports.
Heathrow Express
Heathrow Express carried 5.0 million passengers (4.8 million), a growth of
4.4%. Revenue increased by 10.3% to �64 million (�58 million) as a result of
the growth in passengers and the increase in standard class fares from
September 2002. Operating profit grew to �9 million (�7 million).
BAA Lynton
BAA Lynton generated operating profit of �19 million (�21 million) from its
continuing activities. Its focus has remained on investing in airport related
property development and realising profits when market conditions appear
favourable. Consequently, rental income fell by �4 million. Sales of trading
properties contributed �4 million (�2 million) to operating profit. Exceptional
profits of �14 million were generated from the sale of 1 City Place Gatwick and
Heathrow South Cargo Centre 1.
BAA McArthurGlen
BAA's joint venture with McArthurGlen, a developer and operator of designer
outlet centres in the UK and Europe, was dissolved in September 2002 and BAA
substantially disposed of its remaining interests in March 2003. During the
period from dissolution until disposal in March, those assets in which BAA had
a controlling interest were managed by BAA Lynton, and contributed a profit of
�5 million, shown as discontinued operations. The Group's interest in Ashford
was sold on 2 April 2003 and the small residual interest in Swindon will be
disposed of in due course thereby completing the Group's strategy of exiting
its non-core businesses.
Net interest and finance charge
The Group's net interest cost, excluding joint ventures and associates,
increased to �108 million (�87 million), net of �31 million (�32 million)
capitalised interest and �60 million (�33 million) of interest receivable. This
primarily reflected the increase in net debt, the cost of forward funding the
Group's capital investment programme and the lower cost of recent borrowings
applied to capitalised interest. Capitalised interest increased in the fourth
quarter as a result of the capitalisation of interest on the total Terminal 5
construction and other related costs, from 1 December 2002.
FRS 17 net finance income fell by �7 million to �41 million (�48 million).
Taxation
The tax charge, before the impact of exceptional items, of �162 million (�152
million) represents an effective rate of 31% (30%).
Dividend
The recommended final dividend for the year is 12.7 pence (12.2 pence) giving a
dividend for the year of 19.0 pence (18.3 pence). This reflects the directors'
confidence in the long-term outlook for the business notwithstanding the
uncertain short-term environment for aviation.
Earnings per share
Earnings per share before exceptional items increased by 2.4% to 34.0 pence
(33.2 pence). Earnings per share increased from 15.6 pence to 35.3 pence.
Balance sheet
At 31 March 2003, BAA had net assets of �4,575 million (�4,737 million -
restated for a prior year adjustment of �70 million arising from the
understatement of the opening deferred tax provision on the implementation of
FRS 19 in the year to 31 March 2002). The fall in net assets is principally the
result of the movement of the pension scheme surplus to a deficit. Tangible
fixed assets were �7,802 million (�6,975 million).
Pensions
Included in net assets at 31 March 2003 was a pension scheme deficit, net of
deferred tax, of �209 million (surplus �299 million) as required to be recorded
under FRS 17. The deficit primarily reflected the significant fall in the value
of the scheme's assets due to the falling value of worldwide stock markets and
an increase in the scheme's liabilities, resulting from changes in the
underlying economic and demographic assumptions.
During April 2003, the Group's actuaries concluded their calculation of the FRS
17 operating charge for pensions and net finance income for 2003/4. This
indicates a net �50 million adverse movement in 2003/4 (charge to profit)
compared to 2002/3. In 2003/04 the service cost is to increase to �57 million
(�49 million), the interest cost will rise to �82 million (�75 million) and the
expected return on assets will fall to �81 million (�116 million).
The triennial actuarial valuation, as at 30 September 2002, which applies
different assumptions to those underlying the FRS 17 valuation, was completed
in March 2003. This indicates that the scheme had an actuarial deficit of only
�5 million at 30 September 2002. The company has resumed contributing to the
pension scheme from 1 April 2003 at a rate of 14% of pensionable salary, giving
an annual cash cost of approximately �40 million.
Capital expenditure
Group capital expenditure, excluding capitalised interest, was �774 million (�
618 million). In addition, a further �187 million has been capitalised in
respect of the present value of deferred compensation payable to the vendor of
land acquired for Terminal 5. The majority of investment was at Heathrow. Total
spend for the year on Terminal 5 was �332 million (excluding the capitalised
deferred cost of land acquired), predominantly on site preparation, building
foundations, logistics and alterations to the airfield layout. Overall good
progress on the Terminal 5 development has been made in the second half of the
year. In line with the Group's strategy of focusing on quality of service
provided to its customers, a further �315 million was spent on other projects
at Heathrow, including extensions to Terminal 1 and Terminal 3, refurbishment
of the southern runway and an upgrade to the Terminal 4 baggage system.
Investment at Gatwick focused on segregation of the existing piers for improved
security. Projects at Stansted included the completion of Satellite 3 and
improved slip roads from the M11. Investment continued at the Scottish airports
and included the completion of a new multi storey car park at Glasgow.
Cashflow and borrowings
Net borrowings increased by �267 million to �1,918 million (�1,651 million)
reflecting the net cash outflow over the year, primarily driven by increased
capital investment. Gross debt was �3,074 million. However, the Group held cash
and other short-term deposits of �1,156 million and had committed undrawn
facilities of �606 million. It is the Group's policy to maintain sufficient
cash and committed undrawn facilities to meet anticipated funding requirements
for a minimum rolling 18 month period. Gearing was 42% (35% restated at 31
March 2002).
CHIEF EXECUTIVE'S COMMENT
Reviewing the financial year 2002/3, BAA's retiring chief executive, Mike
Hodgkinson, said:
"This continued to be a challenging year for the aviation industry. Up until
March 2003, we saw traffic growth in all markets, with domestic and European
scheduled routes particularly strong. Long haul routes saw gradual, but more
modest, recovery. However, the conflict in Iraq in March, combined with the
late Easter holiday, saw traffic levels decline that month (compared to March
2002). This contrasted with growth in April, when the timing of Easter
compensated for the adverse effect of the SARS virus during that month. Whilst
it is difficult to predict the short term pace of growth and the financial
consequences of the Iraq conflict, current global terrorist threats and SARS,
we remain confident about the medium to long term.
"Our retail business has performed well despite these difficulties. We opened
new facilities at Heathrow Terminal 3 and Stansted, designed like all our
retail developments to enhance the traveller experience.
"Stringent safety and security continues to be our top priority, and we
employed an additional 700 security staff in 2002/3 and aim to recruit a
further 700 before this coming summer season at an additional cost this current
year of approximately �12 million.
"A major uncertainty for BAA, and the industry as a whole, was removed with
confirmation from our regulator in February of the price control formula for
the five years from 1 April 2003. The price rises - the first in real terms
since privatisation - will bring Heathrow's charges, in 10 years' time, in line
with other major European hubs and enable BAA to proceed with its investment
programme to meet our airline customers' requirements and provide the high
quality infrastructure the country needs.
"Confirmation of the regulatory regime has allowed us to press ahead with our
significant capital programme, in particular Terminal 5. We have now secured
all the relevant planning permissions and, thanks to some significant periods
of dry weather through the Spring, have been able to press ahead with work on
the site. In the short term, the main focus for our investment will remain at
Heathrow with the development of Terminal 5, improvements at the existing four
terminals, as we seek to improve service quality, and on the airfield, to
accommodate the new 550 seater Airbus A380 aircraft. But we also have planning
permissions in place to develop both Gatwick and Stansted to meet demand for
the medium term. These have been successfully achieved through legal agreements
with the local planning authorities and neighbouring communities, avoiding for
all parties the need for costly and time consuming public inquiries.
"In September we confirmed the dissolution of our joint venture partnership in
designer outlet malls with McArthur Glen. Since then we have sold all but a
very small element of our remaining interests. This has been a profitable
venture for BAA over the life of the joint venture but is not part of our
current strategy.
"In March, we confirmed our investment of �65 million in NATS Group (NATS), the
UK's national air traffic services provider, alongside an identical investment
in NATS by the UK Government. This combined investment of �130 million was used
to reduce NATS' existing debt and assist in its financial restructuring. A safe
and secure air traffic system is critical to BAA's ability to grow. NATS'
financial robustness is, therefore, of significant relevance to the delivery of
BAA's strategy.
"In May this year, the European Court of Justice ruled that the UK Government
had to release its "golden share" in BAA. The golden share allowed the
Government to block an investor holding more than 15% of the company's shares
and mandated Government approval for a disposal of an airport. The European
Court's ruling should have no effect on the way that we manage our
relationships with Government, investors and all other stakeholders.
"During my tenure as Chief Executive we have faced a number of challenges.
First, we had to recover from the abolition of duty-free in the EU in 1999. The
terrible events of 11 September saw passenger numbers fall, followed by only
gradual recovery in an uncertain geopolitical and economic climate. And just as
the aviation industry believed real recovery was in sight, we were faced with
conflict in the Middle East and the SARS epidemic. Staff and passengers have
had to adapt to unprecedented levels of security. But these challenges have
shown what a resilient business BAA is. My successor, Mike Clasper, has worked
alongside me for the last two years and he is the right man to take the company
forward. I believe we have a solid and resilient platform for growth in the
longer term."
CHIEF EXECUTIVE DESIGNATE'S COMMENT
Mike Clasper takes over as Chief Executive on 9 June 2003. Looking forward, Mr
Clasper said:
"Current performance continues to be adversely affected by the recent SARS
virus, conflict in Iraq and continuing terrorist threats around the globe.
However, anticipated traffic growth in the medium term and the Terminal 5
development at Heathrow give us confidence in the future of the business.
"The Group's prospects over the next ten years are significantly influenced by
price regulation, traffic growth and capital investment. Now that price caps
are in place for the next five years, and recommended for the subsequent five
year period, we have the confidence required to undertake our investment
programme.
"Looking further ahead, the Government's consultation on future runways in the
UK concludes at the end of June. In May 2003, BAA submitted its response on
options for the south east and Scotland to enable other stakeholders to see our
professional assessment. As requested by Government, we evaluated each of the
ten runway options put forward on the basis of their operational aspects, and
their social, environmental and economic impacts. We recommend that six options
should not be pursued on the basis of technical and financial feasibility and
are recommending four options from which the Government should choose three: a
short runway at Heathrow for use by short-haul aircraft; a second runway at
Gatwick and up to two additional runways at Stansted. Government will consult
with many other interested parties and make the choices only Government can
make. Demand for air travel is growing in Scotland but there is no immediate
need to predict the precise split of growth between Edinburgh and Glasgow. We
therefore recommend that land is safeguarded at both Glasgow and Edinburgh,
giving flexibility for the future.
"We hope that firm decisions will be made before the end of the year, enabling
us to press ahead with the responsible development of the UK's airport
infrastructure. By responsible development, we mean an approach which balances
economic, social and environmental concerns. We are committed to working with
the Government and with our local communities to understand fully the detailed
issues surrounding air pollution and noise disturbance and to work with all our
stakeholders to control, mitigate or compensate for these and other impacts.
"I am confident about the long-term prospects for the business. Our priority is
to grow capacity and sustain service quality at all of our airports. Our
capital programme provides for this, particularly at Heathrow in the critical
period before Terminal 5 opens. Delivering Terminal 5 on time, and within
budget, is essential for BAA, and for all Heathrow's customers. For the longer
term, we will be working with the Government and all our stakeholders to ensure
that a responsible aviation strategy for the UK is in place as soon as
possible."
For further information on BAA's results, visit website: www.baa.com/results
Segmental summary
Revenue* Revenue* Operating Operating
to to profit * to profit * to
31 March 31 March 31 March 31 March
2003 2002 2003 2002
(restated)
�m �m �m �m
Airports - UK and overseas 1,429 1,387 541 522
World Duty Free - UK airports 352 342 22 18
Heathrow Express 64 58 9 7
BAA Lynton 46 35 19 21
Other1 11 33 (9) (15)
Total - continuing operations 1,902 1,855 582 553
Discontinued operations 7 117 5 (3)
GROUP 1,909 1,972 587 550
* Excludes associates, joint ventures and exceptional items.
1 Other includes World Duty Free terminated overseas airport contracts -
revenue �nil (�21 million) and operating loss �nil (�4 million).
Results by quarter (2002/03)
1st % 2nd % 3rd % 4th %
change change change change
quarter from quarter from quarter from quarter from
2001/02 2001/02 2001/02 2001/02
Revenue �477m (1.0) �542m 3.0 �484m 11.8 �399m (3.6)
(restated)*
Operating �158m (3.1) �199m 3.6 �138m 23.2 �87m 1.2
profit*
Profit before �143m (4.7) �183m (0.5) �122m 19.6 �76m 10.1
tax and
exceptionals
Earnings per 9.3p (5.1) 11.9p (0.8) 7.9p 16.2 4.9p 6.5
share before
exceptional
items
* Excludes discontinued activities and associates, joint ventures and
exceptional items.
BAA plc RESULTS FOR YEAR ENDED 31 MARCH 2003
Consolidated profit and loss account for the year ended 31 March 2003
31 March 31 March
2003 2002 restated (see note 5)
Before Exceptional Total Before Exceptional Total
Exceptional Items Exceptional Items
Items Items
�M �M �M �M �M �M
Continuing operations 1,911 - 1,911 1,859 - 1,859
Discontinued operations 22 - 22 130 - 130
Revenue - Group and share of 1,933 - 1,933 1,989 - 1,989
joint ventures
Less share of joint venture (9) - (9) (4) - (4)
revenue - continuing
operations
Less share of joint venture (15) - (15) (13) - (13)
revenue - discontinued
operations
Group revenue 1,909 - 1,909 1,972 - 1,972
Operating costs (1,322) - (1,322) (1,422) - (1,422)
Continuing operations 582 - 582 553 - 553
Discontinued operations 5 - 5 (3) - (3)
Group operating profit 587 - 587 550 - 550
Share of operating profit in 3 - 3 2 - 2
joint ventures - continuing
operations
Share of operating profit in 7 - 7 3 (15) (12)
joint ventures - discontinued
operations
Share of operating profit in 1 - 1 1 - 1
associates - continuing
operations
Total operating profit 598 - 598 556 (15) 541
Loss on disposal of - - - - (190) (190)
discontinued operations
Add release of prior - - - - 2 2
year provision
Profit on the sale of fixed - 14 14 - 16 16
assets in continuing
operations
Profit on ordinary activities 598 14 612 556 (187) 369
before interest
Income from other fixed asset 1 - 1 1 - 1
investments
Net interest payable - group (108) - (108) (87) - (87)
Net interest payable - joint (7) - (7) (12) - (12)
ventures
Net interest payable - (1) - (1) (1) - (1)
associates
Other finance income - group 41 - 41 48 - 48
Profit on ordinary activities 524 14 538 505 (187) 318
before taxation
Tax on profit on ordinary (162) - (162) (152) 1 (151)
activities
Profit on ordinary activities 362 14 376 353 (186) 167
after taxation
Equity minority interests (2) - (2) (2) - (2)
Profit for the year 360 14 374 351 (186) 165
attributable to shareholders
Equity dividends (202) - (202) (194) - (194)
Retained profit/(loss) for the 158 14 172 157 (186) (29)
financial year transferred to/
(from) reserves
Earnings per share 34.0p 1.3p 35.3p 33.2p (17.6p) 15.6p
Diluted earnings per share 34.0p 15.9p
Statement of total recognised gains and losses for the year ended 31 March 2003
31 March 31 March
2003 2002
�M �M
Profit for the financial year attributable to 374 165
shareholders *
Unrealised surplus on revaluation of investment 156 74
properties
Reversal of revaluation surplus on investment (7) -
property transferred to operational assets
Share of associate's unrealised deficit on (1) -
revaluation of investment properties
Revaluation of assets previously held within joint 5 -
ventures at cost, net of deferred tax
Currency translation differences on foreign 1 2
currency net investments
Actuarial loss relating to net pension liability/ (722) (124)
asset
Deferred tax associated with actuarial loss 217 37
relating to net pension liability/asset
Total recognised gains and losses relating to the 23 154
year
Prior year adjustment - deferred tax (note 8) (70)
Total recognised gains and losses recognised since (47)
the last annual report
* Including joint ventures and associates profit of �3 million (31 March 2002:
loss of �22 million).
Reconciliation of movements in shareholders' funds for the year ended 31 March
2003
31 March 31 March
2003 2002
restated
(see note 8)
�M �M
Profit for the financial year attributable 374 165
to shareholders
Equity dividends (202) (194)
Retained profit/(loss) for the financial 172 (29)
year
Other net recognised gains and losses (351) (11)
relating to the year
New share capital subscribed 17 21
Net reduction in shareholders' funds (162) (19)
Opening shareholders' funds (Originally � 4,737 4,756
4,807 million before deducting prior period
adjustment of �70 million)
Closing shareholders' funds 4,575 4,737
Consolidated balance sheet as at 31 March 2003
31 March 31 March
2003 2002
restated
(see note 8)
�M �M
Fixed assets
Intangible assets 10 10
Tangible assets 7,802 6,975
Investments in joint ventures:
Share of gross assets 75 51
Share of gross liabilities (72) (39)
Loans 30 39
33 51
Investments in associates 7 6
Other investments 142 80
7,994 7,122
Current assets
Stocks 27 34
Debtors 218 183
Short-term investments 876 840
Cash at bank and in hand 280 99
1,401 1,156
Creditors: amounts falling due within one (812) (701)
year
Net current assets 589 455
Total assets less current liabilities 8,583 7,577
Creditors: amounts falling due after more
than one year
Other creditors (2,299) (2,256)
Convertible debt (730) (311)
(3,029) (2,567)
Provisions for liabilities and charges
Investments in joint ventures:
Share of gross assets - 180
Share of gross liabilities - (224)
- (44)
Deferred tax (552) (504)
Other provisions (198) (8)
(750) (556)
Equity minority interests (8) (6)
Net assets excluding pension asset and 4,796 4,448
pension and other post retirement
liabilities
Pension asset - 299
Pension and other post retirement (221) (10)
liabilities
Net assets including pension asset and 4,575 4,737
pension and other post retirement
liabilities
Share capital 1,070 1,066
Reserves 3,505 3,671
Equity shareholders' funds 4,575 4,737
Net asset value per share �4.28 �4.45
Consolidated cash flow statement for the year ended 31 March 2003
31 March 31 March
2003 2002
�M �M
Operating activities:
Operating profit 587 550
Depreciation 257 250
Amortisation 1 7
Fixed assets written off - 6
Decrease/(increase) in stocks 11 (1)
Increase in debtors (29) (4)
Increase in creditors 5 6
Decrease in provisions (1) (2)
Increase/decrease in net pension liability/asset 48 46
Net cash inflow from operating activities 879 858
Dividends received from joint ventures 2 18
Returns on investments and servicing of finance:
Interest paid (211) (118)
Interest received 70 30
Dividends received from other fixed asset 1 1
investments
Dividends paid to minority interests (2) (3)
(142) (90)
Tax paid (144) (135)
Capital expenditure and financial investment:
Additions to operational assets (680) (628)
Additions to investment properties - (3)
Sale of operational assets 9 1
Sale of investment properties 63 48
Net additions to long-term investments (54) (55)
Sale of current asset investments - 2
(662) (635)
Acquisitions and disposals:
Deferred consideration paid in respect of a - (1)
subsidiary undertaking acquired in a prior year
Acquisition of joint ventures - (21)
Dissolution of joint venture 8 -
Disposal of joint venture 41 -
Disposal of subsidiary undertakings 118 11
Net cash disposed of with subsidiary undertakings (5) (12)
162 (23)
Equity dividends paid (196) (188)
Cash outflow before use of liquid resources and (101) (195)
financing
Management of liquid resources:
Cash returned from/(placed on) deposit 48 (532)
Purchase of commercial paper (84) (46)
(36) (578)
Financing:
Issue of shares 17 21
Net increase in debt 298 731
315 752
Increase/(decrease) in cash in the year 178 (21)
Reconciliation of net cash flow to movement in net debt
31 March 31 March
2003 2002
�M �M
Increase/(decrease) in cash in the year 178 (21)
Cash inflow from increase in debt (298) (731)
Cash outflow from use of liquid resources 36 578
Foreign exchange translation differences (3) 5
Disposal of operations - 80
Dissolution of joint venture (180) -
Other non-cash movements - 14
Increase in net debt in the year (267) (75)
Opening net debt (1,651) (1,576)
Closing net debt (1,918) (1,651)
Segmental information for the year ended 31 March 2003
Revenue
31 March 31 March
2003 2002
restated
(see note 5)
�M �M
Airports
Heathrow 787 760
Gatwick 277 286
Stansted 132 117
Total UK regulated airports 1,196 1,163
Glasgow 69 67
Edinburgh 60 56
Aberdeen 27 27
Southampton 14 14
Total UK non-regulated airports 170 164
Total international airports 63 60
Total airports 1,429 1,387
World Duty Free
Continuing operations 352 363
Discontinued operations - 117
Total World Duty Free 352 480
BAA Lynton
Continuing operations 46 35
Discontinued operations 7 -
Total BAA Lynton 53 35
Rail 64 58
Other operations 11 12
Group 1,909 1,972
Share of joint ventures
Continuing operations 9 4
Discontinued operations 15 13
Total share of joint ventures 24 17
Group and share of joint ventures 1,933 1,989
Analysed between:
United Kingdom - continuing operations 1,837 1,769
United Kingdom - discontinued operations 22 8
Europe - continuing operations 33 34
Europe - discontinued operations - 5
North America - continuing operations 30 28
North America - discontinued operations - 117
Other - continuing operations 11 28
1,933 1,989
Segmental information for the year ended 31 March 2003
Operating profit
31 March 31 March
2003 2002
�M �M
Airports
Heathrow 340 320
Gatwick 93 103
Stansted 43 37
Total UK regulated airports 476 460
Glasgow 24 25
Edinburgh 22 20
Aberdeen 10 10
Southampton 3 3
Total UK non-regulated airports 59 58
Total international airports 6 4
Total airports 541 522
World Duty Free
Continuing operations 22 17
Discontinued operations - (3)
Total World Duty Free 22 14
BAA Lynton
Continuing operations 19 21
Discontinued operations 5 -
Total BAA Lynton 24 21
Rail 9 7
Other operations (9) (14)
Group 587 550
Share of joint ventures and associates
Continuing operations 4 3
Discontinued operations 7 3
Discontinued operations - exceptional item - (15)
Total share of joint ventures and associates 11 (9)
Group and share of joint ventures and associates 598 541
Analysed between:
United Kingdom - continuing operations 577 553
United Kingdom - discontinued operations 10 5
United Kingdom - discontinued operations exceptional - (15)
item
Europe - continuing operations 5 -
Europe - discontinued operations 2 (2)
North America - continuing operations 1 1
North America - discontinued operations - (3)
Other - continuing operations 3 2
598 541
Segmental information for the year ended 31 March 2003
Net assets
31 March 31 March
2003 2002
restated
(see note 8)
�M �M
Airports
Heathrow 3,317 2,748
Gatwick 1,058 1,043
Stansted 1,016 950
Total UK regulated airports 5,391 4,741
Glasgow 189 199
Edinburgh 163 159
Aberdeen 70 67
Southampton 53 53
Total UK non-regulated airports 475 478
Total international airports 40 26
Total airports 5,906 5,245
World Duty Free 13 12
BAA Lynton
Continuing operations 266 311
Discontinued operations 2 -
Total BAA Lynton 268 311
Rail 549 559
Other operations (62) (41)
Group 6,674 6,086
Share of joint ventures and associates
Continuing operations 35 30
Discontinued operations 5 (17)
Total share of joint ventures and associates 40 13
Group and share of joint ventures and associates 6,714 6,099
Analysed between:
United Kingdom - continuing operations 6,598 6,023
United Kingdom - discontinued operations 7 (6)
Europe - continuing operations 33 20
Europe - discontinued operations - (11)
North America - continuing operations 7 5
North America - discontinued operations - -
Other - continuing operations 69 68
6,714 6,099
Net debt (1,918) (1,651)
Pension asset and pension and other post retirement (221) 289
liabilities
Net assets 4,575 4,737
Discontinued operations represent World Duty Free's export division and World
Duty Free Americas, Inc., whose operations were sold in the prior year, and the
operations of BAA McArthurGlen held by the Group in joint venture and
subsidiary entities which were disposed of on 31 March 2003 and 2 April 2003.
NOTES
1. This statement has been prepared in accordance with the accounting policies
applied in the 2001/02 annual report with the exception of the changes
described in Note 5.
2. The interest charge is shown net of capitalised interest in respect of the
Group of �31m (31 March 2002: �32m).
3. The taxation charge for the year ended 31 March 2003 has been based on the
estimated effective rate for the full year before exceptional items of 31%
(31 March 2002: 30%).
4. The financial statements of the Group have been prepared under the
historical cost convention modified by the inclusion of investment
properties at open market valuation. Certain of the Group's investment
properties have been valued on this basis by Drivers Jonas, Chartered
Surveyors, at �1,956m. The Group's remaining investment properties are
shown at a Directors' valuation of �857m, which has been reviewed by
Drivers Jonas.
5. During the year the accounting policy for the treatment of marketing
support, used to promote new routes at Stansted Airport, has been amended.
Marketing support has, in the current year, been accounted for as a
reduction in revenue, having been previously treated as an operating cost.
In the directors' opinion this accounting treatment more fairly reflects
the nature of these transactions. Prior year figures have been restated to
reflect this change resulting in a reduction in Stansted's revenue by �15m.
There is no impact on group operating profit.
In addition, the depreciation policy for railway rolling stock has been
amended. The asset has been split into components which are treated as separate
capital assets and depreciated over their expected useful lives being, eight
years for interior soft furnishings, 15-20 years for the interior structure,
power and electronics and 40 years for the body structure. Previously the
rolling stock was depreciated as a single asset over 30 years. This change has
not had a material impact on the current year or prior period results.
6. Airport fixed assets in the course of construction (excluding capitalised
interest) include �896m (31 March 2002: �377m) in respect of Terminal 5 at
Heathrow Airport for which planning consent was given in November 2001. The
Board formally approved this project to proceed on 27 March 2003. Included
within the additional Terminal 5 capital expenditure of �519m during the
year is �187m for the acquisition of land for the construction of Terminal
5. The operational assets employed by the vendor of this land have to be
relocated and the acquisition cost represents the present value of the
estimated deferred payments to be made over the next 35 years to the vendor
in compensation for relocation. The present value of deferred consideration
is included within other provisions in the balance sheet. As a result of
this and other movements in capital creditors, the capital expenditure of
the Group recorded in the period has exceeded the cash expended by �281m.
7. Net borrowings amount to �1,918m (31 March 2002: �1,651m).
8. FRS 19 "Deferred Tax" was adopted in the year ended 31 March 2002, which
required a change to the accounting treatment of deferred tax. This
resulted in a prior year adjustment recorded in that year, whereby �404m of
deferred tax liabilities were recognised, which had not previously been
recorded. During the year ended 31 March 2003, improved interrogation of
the fixed asset registers led to the Group identifying that the prior year
adjustment for deferred tax was understated by �70m. In the accounts for
the year ended 31 March 2003, the recognition of this element of
understatement has accordingly also been treated as a prior year
adjustment. As a result, the balance sheet at 31 March 2002 has been
restated as follows:
Deferred tax Reserves
provision
�m �m
31 March 2002 - as previously (434) 3,741
reported
Prior year adjustment (70) (70)
31 March 2002 restated (504) 3,671
This adjustment has not resulted in a change to the reported retained loss for
the Group in the year ended 31 March 2002.
9. Pension and other post retirement liabilities comprise a deficit on the
main pension scheme of �209m (31 March 2002: surplus �299m) and provision
for unfunded pension obligations and post retirement medical benefits of �
12m (31 March 2002: �10m). Both amounts are net of deferred tax. At 31
March 2002 the main scheme was in surplus and was consequently separately
disclosed as a pension asset.
10. Holders of US$105,000,000 of Loan Notes of World Duty Free Americas, Inc.
(now known as WDFA Inc.), which was sold by BAA in October 2001, have
issued proceedings against BAA, World Duty Free plc and the purchaser of
WDFA Inc., for US$105,000,000 and punitive damages, claiming they conspired
to convey the assets of WDFA Inc. with the intent of impairing the holders'
rights as creditors under the Loan Notes and also that BAA guaranteed the
Loan Notes. BAA denies the allegations and appropriate legal advice has
confirmed that the claim has no merit. The case is progressing and is
expected to be tried this autumn.
11. The above financial information does not constitute the statutory accounts
within the meaning of Section 240 of the Companies Act 1985 for the years
ended 31 March 2003 or 2002, but it is derived from those accounts after
restatement of the results for the year ended 31 March 2002 for the items
described in notes 5 and 8. Statutory accounts for 2002 have been delivered
to the Registrar of Companies, and those for 2003 will be delivered
shortly. The auditors have reported on those accounts; their reports were
unqualified and did not contain statements under section 237(2) or (3) of
the Companies Act 1985. Shareholders who prefer to receive the accounts in
shorter form will receive a copy of the Annual Review which contains a
Summary Financial Statement.
12. Subject to approval at the Annual General Meeting, the recommended final
dividend of 12.7p per ordinary share will be paid on 14 August 2003 to
shareholders on the register on 13 June 2003. This will bring the total
dividend for the year to 19.0p per share, an increase of 3.8%.
ANNUAL GENERAL MEETING
The 2003 Annual General Meeting of BAA plc will be held in The Queen Elizabeth
II Conference Centre, Broad Sanctuary, Westminster, London SW1 on 18 July 2003
at 11:15 hours.
By order of the Board of BAA plc
Rachel Rowson
Company Secretary
2 June 2003
END