BAA RESULTS
FOR THE THREE MONTHS TO 30 JUNE 2003
BAA, the international airports group, today reported a lower profit for the
first quarter of the year to 30 June, but said that it had started to see an
improvement in passenger growth and revenues towards the end of the period.
"This has been a challenging quarter for BAA and for the whole aviation
industry, but the outlook is more favourable," said Mike Clasper, BAA Chief
Executive. "We are now almost at the end of the huge investment in
security-related recruitment and expenditure, which followed the tragedy of
September 11, and we are on course to meet our targets for the year."
At the operating level, the UK airports business reported profit of �136
million, a decline of 5.6%. This primarily reflects the investment in an
additional 1,000 security staff recruited between 11 September 2001 and 31
March 2003.
In the quarter, traffic at BAA's UK airports grew by 2.2% to 32.7 million
passengers. A decline of 2.2% at Heathrow was offset by strong growth at
Stansted, Edinburgh, Glasgow and Southampton. This reflects the impact of
global economic weakness, the Iraq War and the SARS epidemic, which depressed
overall levels of traffic growth, and had a disproportionate negative effect
upon long-haul business at Heathrow. BAA said that it was now predicting
passenger traffic growth for the whole year of around 4% at its south-east
airports, although traffic at Heathrow is expected to be flat.
The quarter also included a strong performance from UK airport retailing, which
pushed net retail income 3.2% higher to �130 million. Net retail income per
passenger rose 0.8% to �3.99.
At the pre-tax level, profit was down, year on year, by 11.2% to �127 million,
impacted by the expected effects of the FRS17 accounting standard on pension
costs.
The Terminal 5 project remains on budget and slightly ahead of its timetable.
Capital expenditure in the quarter increased from �162 million to �301 million,
of which �151 million was spent on Terminal 5.
"BAA has come through two difficult external events in the first quarter. We
have made the investment in the business to deal with a tougher security
regime, and continued to invest to improve capacity and service through our
capital expenditure programme. We now view the remainder of the year with
confidence," said Mr Clasper.
For further information on BAA, see website: www.baa.com
An interview with BAA's Chief Executive, Mike Clasper, reviewing BAA's first
quarter is available for viewing from 7.30am (British Summer Time) on BAA's
website - www.baa.com/investor.
SUMMARY OF RESULTS
3 months to 3 months to Change
30 June 2003 30 June 2002 %
Passenger traffic 32.7m 32.0m 2.2
Group revenue �484m �472m1 2.5
Group operating profit �148m �158m (6.3)
Net retail income2 �130m �126m 3.2
Net retail income per passenger2 �3.99 �3.96 0.8
Profit before tax �127m �143m (11.2)
Earnings per share 8.2p 9.3p (11.8)
Capital expenditure �301m �162m 85.8
1 Restated to reclassify �5 million of airline marketing support costs as a
reduction in revenue, previously reported as an operating cost.
2 See notes following UK airports section for definitions
BAA plc, the international airport group, today announced that SARS and the
conflict in Iraq had adversely impacted profit before tax for the first quarter
to 30 June 2003 by an estimated �15 million. These two global events
disproportionately affected Heathrow (which delivers the highest yields), where
traffic was down 2.2%, compared to traffic growth of 2.2% across the seven UK
airports.
The modest revenue growth derived from the 2.2% increase in passenger volumes
was offset by the planned investment in safety and security, and related
airport operating costs, and the �13 million adverse effect of pension costs
accounted for in accordance with FRS17. Consequently profit before tax for the
first quarter was �127 million (30 June 2002: �143 million), a decrease of
11.2%.
Earnings per share decreased by 11.8% to 8.2 pence (9.3 pence).
OPERATING AND FINANCIAL REVIEW
UK airports
In the three months to 30 June 2003, traffic at BAA's UK airports increased by
2.2%, to 32.7 million (32.0 million) passengers. Growth was strongest at
Southampton and Stansted. The start of low fare services from Southampton
increased traffic by 51%. Passenger numbers were 0.35 million (2.2%) lower at
Heathrow, compared to the same period last year, as a result of SARS, on going
Middle Eastern conflict and terrorism and the impact on business travel of the
general economic downturn. Airport charges income was helped by the approved
price rises at Heathrow and Gatwick, but was diluted by the lower proportion of
international passengers at Heathrow. The net effect was a 6.4% increase to �
183 million (�172 million restated) in UK airport and other traffic charges
revenue.
UK airport retailing, including World Duty Free Europe, performed well, despite
the impact of reduced passenger volumes at Heathrow, particularly the high
spending passengers at Terminals 3 and 4. In the first quarter, net retail
income1 was up 3.2% to �130 million (�126 million), with net retail income per
passenger2 up 0.8% to �3.99 (�3.96).
UK airport operating profit, excluding World Duty Free Europe, was down 5.6% to
�136 million (�144 million). This reflects primarily the anticipated investment
in security (as part of the continuing significant recruitment of security
staff), additional maintenance costs (focused on safety and improving passenger
facilities), depreciation and insurance.
World Duty Free Europe's operating profit was �5 million (�5 million), a strong
performance given the reduction in volume of Far East passengers in the quarter
due to the SARS epidemic.
1 UK 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.
2 Net retail income per passenger is net retail income divided by the number of
passengers (excluding helicopter passengers)
International airports
BAA's interests in 12 international airports generated revenue of �16 million
(�19 million) and operating profit of �3 million (�3 million). The revenue
reduction reflects the disposal during 2002/03 of the Naples airport ground
handling business.
Heathrow Express
Heathrow Express' operating profit was �2 million (�2 million) on revenue of �
16 million (�16 million). Heathrow Express passenger numbers for the three
months were down 6.9%, reflecting the reduced passenger numbers at Heathrow
airport and the closure of the service over the Easter period for Network Rail
maintenance of the Paddington main line.
BAA Lynton
BAA Lynton's operating profit was down �1 million to �4 million on revenue of �
4 million (�5 million) as a result of reduced rental income following the
property sales last year, in line with Lynton's strategy.
Interest and finance charges
The Group's net interest charge for the three months, excluding joint ventures
but before capitalised interest, was �36 million (�31 million). Capitalised
interest was �15 million (�5 million) as a result of the capitalisation of
interest on all Terminal 5 expenditure from 1 December 2002. No finance charge
or income (finance income of �11 million) was recorded, in line with FRS17.
Taxation
Based on an estimated tax rate of 31% (31%) for the year, the tax charge for
the three months was �39 million (�44 million).
Cashflow and borrowings
The overall cash outflow (before use of liquid resources and financing)
amounted to �132 million (�18 million), mainly reflecting the increased capital
investment.
Capital expenditure
Group capital expenditure for the three months, excluding capitalised interest,
was �301 million (�162 million) of which �151 million was in respect of
Terminal 5. At Heathrow, we continued to make very good progress on the
Terminal 5 site. Other current airport projects include the segregation of
piers as an enhanced security measure at Gatwick South Terminal and Heathrow
Terminal 3.
COMMENT BY BAA CHIEF EXECUTIVE, MIKE CLASPER
Outlook
"Despite the modest traffic growth during the first three months of the current
year, the Company expects overall passenger traffic to grow by approximately 4%
during the year. At the south east airports, traffic at Heathrow is expected to
be flat compared to the prior year, at Gatwick to grow by around 3 to 4% and at
Stansted to increase by over 10%. The 7% increase in operating expenditure
reflects primarily the additional investment in security and maintenance needed
not only to meet security standards but also to provide an improved quality of
service to passengers. Most of the additional security staff required for the
summer season are now in place.
"I set out in BAA's annual report the three key challenges I see facing the
business in the years ahead. These are managing our capital investment
programme wisely, securing the framework for the longer-term expansion of our
UK airports and responding to customer expectations. We have made progress on
all of these:
Capital investment programme
"The dry summer weather has enabled us to press ahead with Terminal 5, our
largest capital project. Both bores of the tunnel connecting the site with the
existing central terminal area were completed in June, and we have now started
work on the main above ground structures. We continue to be slightly ahead of
our programme and costs remain on budget.
Future airport capacity
"The consultation period for the government's plans for future airport capacity
ended on 30 June 2003. BAA submitted its views on 12 May. The government has
received around 200,000 responses to its consultation; it is now using these to
develop its policy and has promised a White Paper before the end of the year.
The consensus seems to be behind Alistair Darling's, Secretary of State for
Transport, statement that "doing nothing is not an option". However, local
communities are understandably concerned about impacts of future runways.
Our customers
"Day to day, we have to continue to deliver quality, service and value to our
airline customers and the passengers who use our airports. Safety and security
are always paramount. The immediate priority of our management teams at the
airports is to improve the smoothness of security checks, deliver the capacity
and quality of facilities our customers need and continue to provide the
services that underpin our excellent retail results."
SEGMENTAL SUMMARY
Excluding joint ventures
Revenue Revenue* Operating Operating
to to profit to profit to
30 June 30 June 30 June 30 June
2003 2002 2003 2002
�m �m �m �m
Airports - UK and overseas 375 363 138 146
World Duty Free Europe - UK 87 86 5 5
airports
Rail - Heathrow Express 16 16 2 2
BAA Lynton 4 5 4 5
Other 2 2 (1) ---
Total - continuing operations 484 472 148 158
Discontinued operations --- --- --- ---
TOTAL 484 472 148 158
* restated to reclassify �5 million of airline marketing support costs as a
reduction in revenue, previously reported as an operating cost
BAA plc RESULTS FOR THREE MONTHS ENDED 30 JUNE 2003
Consolidated profit and loss account for the three months ended 30 June 2003
Year 30 June 30 June
ended
31 March 2003 2002
2003 restated
(see note
5)
�m �m �m
(unaudited)
1,911 Continuing operations 486 474
22 Discontinued operations - 15
1,933 Revenue - group and share of joint ventures 486 489
(9) Less share of joint venture revenue - continuing (2) (2)
operations
(15) Less share of joint venture revenue - discontinued - (15)
operations
1,909 Group revenue 484 472
(1,322) Operating costs (336) (314)
582 Continuing operations 148 158
5 Discontinued operations - -
587 Group operating profit 148 158
3 Share of operating profit in joint ventures - 1 1
continuing operations
7 Share of operating profit in joint ventures - - 2
discontinued operations
1 Share of operating profit in associates - - -
continuing operations
598 Total operating profit 149 161
14 Profit on the sale of fixed assets in continuing - -
operations - exceptional item
612 Profit on ordinary activities before interest 149 161
1 Income from other fixed asset investments - -
(108) Net interest payable - group (21) (26)
(7) Net interest payable - joint ventures (1) (3)
(1) Net interest payable - associates - -
41 Other finance income - group - 11
538 Profit on ordinary activities before taxation 127 143
(162) Tax on profit on ordinary activities (39) (44)
376 Profit on ordinary activities after taxation 88 99
(2) Equity minority interests (1) (1)
374 Profit for the period attributable to shareholders 87 98
(202) Equity dividends - -
172 Retained profit for the group and its share of 87 98
joint ventures and associates
35.3p Earnings per share 8.2p 9.3p
34.0p Earnings per share before exceptionals 8.2p 9.3p
34.0p Diluted earnings per share 7.9p 8.9p
Statement of total recognised gains and losses for the three months ended 30
June 2003
Year 30 June 30 June
ended
31 March 2003 2002
2003 �m �m
�m (unaudited)
374 Profit for the period attributable to shareholders * 87 98
156 Unrealised surplus on revaluation of investment - -
properties
(7) Reversal of revaluation surplus on investment - -
property transferred to operational assets
(1) Share of associate's unrealised deficit on - -
revaluation of investment properties
5 Revaluation of assets previously held within joint - -
ventures at cost, net of deferred tax
(722) Actuarial gain/(loss) relating to net pension 20 (226)
liability/asset
217 Deferred tax associated with actuarial (gain)/loss (6) 68
relating to net pension liability/asset
1 Currency translation differences on foreign currency 2 (1)
net investments
23 Total recognised gains and losses relating to the 103 (61)
period
* Including joint ventures and associates of �nil (30 June 2002: �nil; 31 March
2003: profit of �3m).
Consolidated balance sheet as at 30 June 2003
31 March 30 June 30 June
2003 2003 2002
restated
(see note 8)
�m �m �m
(unaudited)
Fixed assets
10 Intangible assets 10 10
7,802 Tangible assets 8,052 7,078
Investments in joint ventures:
75 Share of gross assets 64 52
(72) Share of gross liabilities (54) (40)
30 Loans 20 31
33 30 43
7 Investments in associates 7 6
142 Other investments 143 79
7,994 8,242 7,216
Current assets
27 Stocks 28 35
218 Debtors 282 248
876 Short-term investments 887 1,253
280 Cash at bank and in hand 140 157
1,401 1,337 1,693
(812) Creditors: amounts falling due within one year (897) (738)
589 Net current assets 440 955
8,583 Total assets less current liabilities 8,682 8,171
Creditors: amounts falling due after more than
one year
(2,299) Other creditors (2,289) (2,326)
(730) Convertible debt (731) (729)
(3,029) (3,020) (3,055)
Provisions for liabilities and charges
Investments in joint ventures:
- Share of gross assets - 170
- Share of gross liabilities - (214)
- - (44)
(552) Deferred tax (565) (510)
(198) Other provisions (196) (8)
(750) (761) (562)
(8) Equity minority interests (8) (7)
4,796 Net assets excluding pension asset and pension 4,893 4,547
and other post retirement liabilities
- Pension asset - 140
(221) Pension and other post retirement liabilities (214) (10)
4,575 Net assets including pension asset and pension 4,679 4,677
and other post retirement liabilities
1,070 Share capital 1,070 1,066
3,505 Reserves 3,609 3,611
4,575 Equity shareholders' funds 4,679 4,677
�4.28 Net asset value per share �4.37 �4.39
Consolidated cash flow statement for the three months ended 30 June 2003
Year ended 30 June 30 June
31 March 2003 2002
2003 �m �m
�m (unaudited)
Operating activities:
587 Operating profit 148 158
257 Depreciation 65 63
1 Amortisation - -
11 (Increase)/decrease in stocks (1) (1)
(29) Increase in debtors (66) (60)
5 Increase in creditors 14 11
(1) Decrease in provisions (1) -
48 Increase/decrease in net pension liability/ 10 13
asset
879 Net cash inflow from operating activities 169 184
2 Dividends received from joint ventures - -
Returns on investments and servicing of
finance:
(211) Interest paid (39) (50)
70 Interest received 16 14
1 Dividends received from other fixed asset - -
investments
(2) Dividends paid to minority interests - -
(142) (23) (36)
(144) Tax paid (24) (32)
Capital expenditure and financial investment:
(680) Additions to operational assets (265) (139)
- Additions to investment properties (1) (5)
9 Sale of operational assets 1 1
63 Sale of investment properties - -
(54) Net reductions in/(additions to) long-term 1 9
investments
(662) (264) (134)
Acquisitions and disposals:
8 Dissolution of joint venture - -
41 Disposal of joint venture 11 -
118 Disposal of subsidiary undertakings (1) -
(5) Net cash disposed of with subsidiary - -
undertakings
162 10 -
(196) Equity dividends paid - -
(101) Cash outflow before use of liquid resources (132) (18)
and financing
Management of liquid resources:
48 Cash (placed on)/returned from deposit (4) (199)
(84) Purchase of commercial paper (7) (214)
(36) (11) (413)
Financing:
17 Issue of shares 1 1
298 Net increase in debt 4 488
315 5 489
178 (Decrease)/increase in cash in the period (138) 58
NOTES
1. This statement has been prepared in accordance with the accounting policies
applied in the 2002/03 annual report.
2. The interest charge is shown net of capitalised interest in respect of the
Group of �15m (30 June 2002: �5m; 31 March 2003: �31m).
3. The taxation charge for the three months ended 30 June 2003 has been based
on the estimated effective rate for the full year before exceptionals of
31% (30 June 2002: 31%; 31 March 2003: 31%).
4. The Group's investment properties are included at 31 March 2003 valuations
as adjusted for additions and disposals since that date.
5. The accounting policy for the treatment of marketing support, used to
promote new routes at Stansted Airport, was amended in the final quarter of
2002/03. 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 for the first
quarter have been restated to reflect this change resulting in a reduction
in Stansted's revenue by �5m. There is no impact on group operating profit.
6. Airport fixed assets in the course of construction (excluding capitalised
interest) include �1,040m in respect of Terminal 5 at Heathrow Airport (30
June 2002: �415m; 31 March 2003: �896m). The operational assets employed by
the vendor of land at Terminal 5 have to be relocated and the present value
of the estimated deferred payments to be made over the next 35 years to the
vendor in compensation for relocation of �180m (30 June 2002: �nil; 31
March 2003: �187m), is included within fixed assets and other provisions in
the balance sheet.
7. Liabilities include net borrowings of �2,051m (30 June 2002: �1,668m; 31
March 2003: �1,918m).
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 final quarter of 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 was accordingly also treated as a prior
year adjustment. As a result, the balance sheet at 30 June 2002 has been
restated as follows:
Deferred tax Reserves
provision
�m �m
30 June 2002 - as previously (440) 3,681
reported
Prior year adjustment (70) (70)
30 June 2002 restated (510) 3,611
This adjustment has not resulted in a change to the reported retained profit
for the Group in the three months ended 30 June 2002.
9. Pension and other post retirement liabilities comprise a deficit on the
main pension scheme of �202m (30 June 2002: surplus �140m; 31 March 2003:
deficit �209m) and provision for unfunded pension obligations and post
retirement medical benefits of �12m (30 June 2002: �10m; 31 March 2003: �
12m). Both amounts are net of deferred tax. At 30 June 2002 the main scheme
was in surplus and was consequently separately disclosed as a pension
asset.
10. Holders of US$105m 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$105m 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 information shown for the year ended 31 March 2003 does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act
1985 and has been extracted from the full financial statements for the year
ended 31 March 2003, which have been filed with the Registrar of Companies.
The auditors have reported on those financial statements; their report was
unqualified and did not contain statements under Section 237(2) or (3) of
the Companies Act 1985.
By order of the Board of BAA plc
Rachel Rowson
Company Secretary
25 July 2003
END