*After eliminating inter company trading of AED 280.2 million in 2001-02 (2000-01: AED 236.9 million), comprising operating income / expense of AED 277.8 million (2000-01: AED 232.5 million) and interest income / expense of AED 2.4 million (2000-01: AED 4.4 million).

The financial year of Emirates Group is from 1 April to 31 March. Throughout this report all figures are in UAE Dirhams (AED) unless otherwise stated. The exchange rate of Dirham to the US Dollar is fixed at 3.67.

The percentage change has been based on the exact figures before rounding in respect of the two financial years.

Income
Group operating profit for 2001-02 was marginally lower by 0.9% at AED 739 million (2000-01: AED 745 million). Group operating margin was lower at 9.6% (2000-01: 10.9%) reflecting the tough trading conditions.

Group profit net of minority interest and before tax increased by AED 75 million (13.8%) to AED 616 million.

After provision for taxation payable to overseas governments, group net profit registered a 13.5% increase to AED 603 million from AED 531 million last year.

Return on shareholders’ funds declined to 18.9% as compared with 20.6% in 2000-01.

At a company level, Emirates and Dnata achieved operating profit margins of 8.8% (AED 626 million) and 14.1% (AED 113 million) respectively.

Emirates’ profit net of minority interest and before tax increased by AED 49 million (11.4%) to AED 482 million and net profit by AED 46 million (11%) to AED 468 million. Dnata’s profit before and after tax increased by 23% to AED 135 million.

Emirates’ cash profit from operations (or EBITDA) was AED 1,126 million as compared with AED 1,176 million in 2000-01.

Revenue
Total Group revenue in 2001-02 was AED 7,815 million, an increase of AED 893 million (12.9%) over the previous year. Group revenue consisted of operating revenue of AED 7,437 million and other income of AED 377 million (2000-01: AED 6,613 million and AED 309 million).

All inter company trading between Emirates and Dnata has been eliminated in computing Group revenue.

Emirates operating revenue rose by AED 782 million (12.7%) to AED 6,925 million. Other income for the year increased to AED 349 million up 27.4% from AED 274 million in 2000-01 reflecting improved results from associated companies.

Passenger revenue at AED 5,261 million was 12.9% higher than last year, while cargo and related revenue grew by 8.7% to AED 1,147 million. Passenger and cargo revenue (including courier, mail and excess baggage) constituted 93.6% of Emirates’ total operating revenue.

Dnata’s operating revenue increased by 12.5% over last year to AED 790 million. Other income for the year was AED 30 million as compared to AED 39 million in 2000-01.

Expenditure
Group operating costs at AED 6,919 million were AED 827 million (13.6%) up over last year.
Total expenditure including financing costs and taxation was AED 7,189 million, a rise of AED 824 million (12.9%) over last year.
The increase in costs came mainly from higher aircraft operating lease costs (up AED 169 million or 31.8%), employee costs (up AED 187 million or 12.2%), aviation fuel (up AED 63 million or 8.2%), other direct operating costs (up AED 190 million or 15.5%) and corporate overheads (up AED 112 million or 15.7%) including insurance costs for the year which increased by AED 64 million mainly due to the impact of September 11.

Capital expenditure
Group capital expenditure for 2001-02 was AED 1,945 million, 216.3% higher than the previous year’s level of AED 615 million. Aircraft, spares and spare engines comprised 78% of the total capital spend. This included disbursements for aircraft deliveries during the year and progress payments for future deliveries.

Financial position
At 31 March 2002, the Group’s financial position showed significant improvement with liquid funds almost doubling (up 97.8%) to AED 3,401 million (2000-01: AED 1,720 million), even though, for the first time Emirates financed one new A330-200 aircraft from internal cash resources, which along with other Group capital expenditure outflows and pre-delivery payments during the year amounted to AED 914 million (2000-01: AED 289 million). Group shareholders’ funds at 31 March 2002 were AED 3,549 million, up AED 733 million (26%) from 31 March 2001.

The highlight of the year was the runaway success of Emirates’ maiden bond issue in July 2001. The bond was initially launched for AED 750 million, was over-subscribed by more than two and a half times and closed for an amount of AED 1,500 million (USD 408 million). This landmark bond was the first to be issued by an UAE corporation and to be listed on the Dubai Financial Market. The bond represented the development of an important new source of funding for Emirates and an important milestone in the development of financial markets in Dubai.

Of the six newly delivered Airbus A330-200s during the current financial year, two aircraft were financed using Japanese operating leases which were denominated in US Dollars. Two aircraft were also financed using a combination of export credit and Islamic financing. This innovative financing opens yet another new source of funding and represents an important diversification of funding for Emirates. One A330-200 was inducted into the fleet on operating lease from International Lease Finance Corporation. At the same time, Emirates phased out three A310 / A300 aircraft during the current year, of which two were on operating lease.

Emirates cash balance at 31 March 2002 of AED 2,938 million (2000-01: AED 1,378 million), represents more than one year’s debt obligations and lease rentals. This more than adequately covers our benchmark of maintaining cash balances of at least six months debt obligations and lease rentals. The Group’s cash management policy ensures that the Group has sufficient liquidity to meet its day-to-day needs and to fund its capital investment programme. At the same time, the Group places substantial cash in liquidity funds (with a minimum AAA rating) in order to generate a premium on yield.

Emirates has maintained a balanced portfolio approach towards managing its interest rate and currency exposure, where appropriate, by structuring aircraft financing leases in currencies in which revenues are generated to form a natural hedge, or, by entering into strategic forward foreign exchange contracts or interest rate / currency swaps. The balanced strategy has allowed Emirates to keep its exposure to movements in interest rates and currency at manageable levels and optimise the related impact on the income statement.

At 31 March 2002, Emirates has financed four A330-200 aircraft in Sterling and Euro denominated operating leases, which form a natural hedge against revenues generated in those currencies. This along with matching of payments with receipts and forward foreign exchange contracts / swaps that Emirates has entered into, resulted in an effective hedge at 31 March 2002 of an average of 67%
(2000-01: 64%) of Sterling and Euro inflows.

Emirates long term debt (net of cash) amounts to AED 2,169 million at 31 March 2002, an increase of AED 338 million over 31 March 2001, of which 43% is on fixed rate basis with the balance 57% at floating rates. The increase is mainly on account of financing for new aircraft inducted into the fleet during the year.

At 31 March 2002, Emirates long term debt on a fixed interest rate basis carried a weighted average rate of 6.2% (2000-01: 6.2%).

At 31 March 2002, Emirates net long term debt / shareholders’ funds ratio is 74% (2000-01: 80%).

Shareholder's funds

Value added

Value added is a measure of wealth created. This statement shows the value added by the Group over the past five years and its distribution by way of payments to employees, governments and to providers of capital. It also indicates the portion of wealth retained in the business.

	2001-02	2000-01	1999-00	1998-99	1997-98
	AED’000	AED’000	AED’000	AED’000	AED’000
Group operating revenue	7,437,127	6,612,761	5,406,980	4,679,264	4,361,528
Less: Purchase of goods and services	4,590,960	3,995,112	3,078,810	2,643,568	2,494,002
	2,846,167	2,617,649	2,328,170	2,035,696	1,867,526
Add:   Other operating income	219,746	173,021	108,514	48,636	28,735
Investment income	98,822	91,956	59,075	32,238	38,306
Profit on sale of investments	-	-	-	61,558	-
Profit on sale of fixed assets	712	50,998	14,561	3,036	5,322
Share of profit / (loss) of associated companies	58,142	(7,325)	(8,159)	2,735	2,304
Total value added by the Group	3,223,589	2,926,299	2,502,161	2,183,899	1,942,193
Distribution of value added:
To employees – salaries and other employee costs	1,724,489	1,537,339	1,305,537	1,117,199	990,665
To overseas governments -
Corporation and other taxes	13,302	10,272	7,079	12,237	8,115
To suppliers of Capital -
Dividends	140,000	140,000	40,000	40,000	40,000
Interest	256,602	263,149	233,298	187,725	186,413
Retained for re-investment and future growth -
Depreciation and amortisation	626,198	584,186	527,929	437,757	385,790
Retained profits	462,998	391,353	388,318	388,981	331,210
Total distribution of value added	3,223,589	2,926,299	2,502,161	2,183,899	1,942,193

In 2001-02, the total ‘value added’ of the Group increased by AED 297 million (10.2%) to AED 3,224 million (2000-01: AED 2,926 million). The increase came mainly from increased operating revenue
(AED 824 million) and other operating income (AED 47 million) while the cost of purchases of goods and services increased by AED 596 million.

Employees received AED 1,724 million (53.5% of the total value added) in the form of salaries and other related costs including a profit share whilst distributions as taxation, interest and dividends were
AED 410 million (12.7%).

The amount retained in the business for future growth was AED 1,089 million (33.8%).

Value added