Annual Financial Report

RNS Number : 7871S

easyJet PLC

05 December 2012

 

easyJet plc ("the Company")

Annual Report and Accounts 2012

The Company announces that a copy of the Annual Report and Accounts for the year ended 30 September 2012 has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do.

This document is also available to view on the Company's website. The direct link to download the 2012 Annual Report and Accounts is http://2012annualreport.easyjet.com/.

In compliance with DTR 6.3.5, the following information is extracted from the 2012 Annual Report and Accounts and should be read together with the Company's Final Results announcement issued on 20 November 2012 which can be found at http://otp.investis.com/generic/regulatory-story.aspx?cid=2&newsid=292800. Together these constitute the information required to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2012 Annual Report and Accounts.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 62 of the 2012 Annual Report and Accounts and is repeated here solely for the purpose of complying with DTR 6.3.5. The statement relates to the full 2012 Annual Report and Accounts and not the extracted information presented in this announcement or the Final Results announcement:

The Directors are responsible for preparing the Annual Report, the Report on Directors' remuneration and the accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have prepared the Group and Company accounts in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period. In preparing these accounts, the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the accounts;

•     prepare the accounts on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's and the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the accounts and the Report on Directors' remuneration comply with the Companies Act 2006 and, as regards the Group accounts, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on pages 40 and 41 confirm that, to the best of their knowledge:

•     the Group accounts, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

•     the Directors' report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

In accordance with Section 418 of the Companies Act 2006, each Director in office at the date the Directors' report is approved, confirms that:

(a)  so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

(b)  he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

The Annual Report on pages 1 to 62 was approved by the Board of Directors and authorised for issue on 19 November 2012 and signed on behalf of the Board by:

Carolyn McCall OBE   Chief Executive Officer

Chris Kennedy            Chief Financial Officer

PRINCIPAL RISKS AND UNCERTAINTIES

The risks and uncertainties set out below are extracted from the pages 26 to 30 of the 2012 Annual Report and Accounts and are repeated here solely for the purpose of complying with DTR 6.3.5.

The risks and uncertainties described below are considered to have the most significant effect on easyJet's business, financial results and prospects. This list is not intended to be exhaustive.

easyJet carries out a detailed risk management process, to ensure that risks are identified and mitigated where possible, although many remain outside our full control, for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues. A more detailed overview of the risk management process and internal control can be found in our Corporate Governance section on pages 47 and 48.

Strategic impact	Risk description and potential impact	Current mitigation
SAFETY FIRST	Major safety incident / accident Failure to prevent a major safety incident or deal with it effectively. This could adversely affect our reputation, operational and financial performance.	Our number one priority is the safety, including security, of our customers and people. We operate a strong safety management system through: •       Fatigue Risk Management System. •       Incident reporting. •       Safety Review Board. •       Safety Action Group. •       Management and control system for our operations including weekly operations meetings and reporting. •       Regular review by the Board of Directors. We have response systems in place and provide training for crisis management; combined with full crisis management exercises performed regularly. Insurance is held which is believed to be in line with other airlines. We constantly ensure that regulations required by relevant Governments are enforced. Crew are trained within the current guidelines.
	Security and terrorist threat or attack A major security related threat or attack from either internal or external sources occurs and we fail to deal with it effectively. This could adversely affect our reputation, operational and financial performance.
OPERATIONAL EXCELLENCE	Impact of mass disruption in peak seasonal months A number of factors can lead to widespread disruption to our network, including epidemics / pandemics, forces of nature (extreme weather, volcanic ash, etc), acts of terrorism, union activity and strike action. Any widespread disruption could adversely affect our reputation, operation and financial performance. If the widespread disruption occurred during our peak summer months then easyJet's financial results would be significantly impacted. As load factors are also higher during this period, it would potentially take longer to recover from any significant disruption.	Processes in place to adapt to widespread disruption. A full crisis management exercise is performed at least three times a year and a business continuity programme is in place. Significant analysis and senior management focus has resulted in additional crewing solutions being put into place to further recognise the external factors and volatility that impact the airline industry. easyJet has a strong financial balance sheet allowing us to be in a strong position to withstand potential events that result in periods of reduced revenues.
	Single fleet risk easyJet is dependent on Airbus as its sole supplier for aircraft, with two aircraft types (A319 and A320).    There are significant cost and efficiency advantages in a single fleet, however there are two main associated risks: •       Technical or mechanical issues that could ground the full fleet or part of the fleet which could cause negative perception by the flying public •       Valuation risks which crystallise on the ownership exit of the aircraft. The main exposure is with the A319 fleet, where we are reliant on the future demand for second-hand aircraft	The efficiencies achieved by operating a single fleet type are believed to outweigh the risks associated with the Company's single fleet strategy. Rigorous established maintenance programme is followed. easyJet constantly reviews the second-hand market and has a number of different options when looking at fleet exit strategies, e.g. easyJet's targeted fleet mix is a 70:30 split between owned and leased. This facilitates the exit strategy of older A319s, protects residual values as well as increasing flexibility in managing the fleet size.
	IT system failure easyJet is currently dependent on a number of key IT systems and processes operated at London Luton airport and other key facilities. A loss of systems and access to facilities including the website, could lead to significant disruption and have an operational, reputational and financial impact.	Key systems are hosted in multiple datacentres in two distinct locations with failover arrangements between them. A business continuity programme including disaster recovery arrangements is in place. This is being refined to ensure continued alignment to operational requirements. Alternative sites are available should there be a need to relocate critical staff at short notice due to a loss of facilities.
	Dependence on third-party service providers easyJet has entered into agreements with third-party service providers for services covering a significant proportion of its operation and cost base. Failure to adequately manage third-party performance would affect our reputation, operation and financial performance. Loss of these contracts, inability to renew or negotiate favourable replacement contracts could have a material adverse effect on future operating costs.	Processes are in place to manage third-party service provider performance. Centralised procurement department that negotiates key contracts. Most developed markets have suitable alternative service providers.
	Industrial action Large parts of the easyJet workforce are unionised. Similar issues exist at our key third-party service providers. If any action was taken this could impact on easyJet's ability to maintain its flight schedule. This could adversely affect our reputation, operation and financial performance.	Employee and union engagement takes place on a regular basis. Significant analysis and senior management focus has resulted in additional crewing solutions being put into place that recognises the external factors and volatility that impact the airline industry.
EFFICIENT ASSET UTILISATION	Asset allocation easyJet has a leading presence on the top 100 routes in Europe and positions at primary airports that are attractive to time sensitive consumers. easyJet manages the performance of its network by careful allocation of aircraft to routes and optimisation of its flying schedule. If we fail to continue to optimise our network and fleet plan this will have a major impact on easyJet's ability to grow and gain the required yield. In addition, poor planning of the correct number of aircraft to fly the schedule would have a critical impact on easyJet's costs and reputation.	A Network Portfolio Management Strategy is in place which looks to take a balanced approach to the route portfolio that we fly to ensure that we optimise each aircraft to get the best return for each time of day, each day of the week. Route performance is monitored on a regular basis and operating decisions are made to improve performances where required.
STRONG BALANCE SHEET	Exposure to fuel price fluctuations and other macroeconomic shifts Sudden and significant increases in jet fuel price and movements in foreign exchange rates would significantly impact fuel and other costs. Increases in fuel costs have a direct impact on the financial performance of the company. If not protected against, this would have a material adverse effect on financial performance. easyJet's business can also be affected by macroeconomic issues outside of our control such as weakening consumer confidence, inflationary pressure or instability of the Euro. This could give rise to adverse pressure on revenue, load factors and residual values of aircraft.	Board approved hedging (jet fuel and currency) in place that is consistently applied. Policy is to hedge within a percentage band for rolling 24 month period. To provide protection, the Group uses a limited range of hedging instruments traded in the over the counter (OTC) markets, principally forward purchases, with a number of approved counterparties. A strong balance sheet supports the business through fluctuations in the economic conditions for the sector. Regular monitoring of markets and route performance by our network and fleet management teams.
	Financing and interest rate risk All of the Group's debt is asset related, reflecting the capital intensive nature of the airline industry. Market conditions could change the cost of finance which may have an adverse effect on our financial performance.	Group interest rate management policy aims to provide certainty in a proportion of its financing. Operating lease rentals are a mix of fixed and floating rates. All on balance sheet debt is floating rate, re-priced up to six months. None of the agreements contain financial covenants to be met. A portion of US dollar mortgage debt is matched with US dollar money market deposits.
	Liquidity risk The Group continues to hold significant cash or liquid funds as a form of insurance. Lack of sufficient liquid funds could result in business disruption and have a material adverse effect on our financial performance.	Board policy is to maintain a targeted level of free cash and money market deposits. This allows the business to ride out downturns in business or temporary curtailment of activities (e.g. fleet grounding, security incident, extended industrial dispute at a key supplier).
	Credit risk Surplus funds are invested in high quality short-term liquid instruments, usually money market funds or bank deposits. Possibility of material loss arising in the event of non-performance of counterparties.	Cash is placed on deposit with institutions based upon credit rating with a maximum exposure of £150 million for AAA counterparty money market funds.
REPUTATIONAL RISKS	Major shareholder / investor relationship issues easyJet has a major shareholder (easyGroup Holdings Limited) controlling over 25% of ordinary shares. Shareholder activism could adversely impact the reputation of the Company and cause a distraction to management. easyJet does not own its company name or branding which is licensed from easyGroup IP Licensing. As for all brand licensees, the easyJet brand could be impacted through actions of the easyGroup or other easyGroup licensees.	We have a very active shareholder engagement programme led by our Investor Relations team. We seek to engage with easyGroup Holdings Limited on a regular basis alongside all our other major shareholders as part of that programme with a view to ensuring the Board and management team are kept aware of the views of all shareholders. A team of individuals from the Board and senior management take responsibility for addressing issues arising from the activist approach adopted by the major shareholder. The objective is to address issues when they arise as effectively as possible in order to minimise the disruptive effect on day-to-day management of the Company's operation and to anticipate and plan for potential future activism.
	Ineffective or non-delivery of the business strategy A number of key projects have been set up to deliver key elements of the strategy. If these projects do not deliver the benefits and cost savings planned we could fall short of our planned financial results.	Programme management office (PMO) and experienced project teams have been set up to oversee delivery and track the budget and benefits realisation of all projects. Steering Group set up with key senior management on it to ensure monitoring, challenge and key decisions are being made at the appropriate level.
	Information security easyJet faces external and internal information security risks. The Company receives most of its revenue through credit card transactions and operates as an e-commerce business. A security breach could result in a material adverse impact for the business and reputational damage.	Systems are secured and monitored against unauthorised access. This will receive continued focus. Information security controls are being further enhanced in key areas including third parties, governance, HR, physical security and IT / technical. The security of internal systems and easyJet.com are reviewed quarterly through penetration testing. Employee security sessions are run periodically to maintain staff awareness. Scanning software for fraudulent customer activity is monitored and controlled by the Revenue Protection team.
	Bribery Act The Bribery Act came into force in July 2011. To date there are no precedents set in respect of how this will be enforced with respect to corporations. As with all companies, if we were found to be in breach of the Act this could adversely affect us financially and reputationally.	easyJet has a strong ethical tone from the top. Risks assessments have been completed and appropriate actions taken where necessary. General awareness training has been provided, with additional targeted training given to higher risk groups.
	New offerings add complexity to customer experience easyJet has the ability to deliver value to the customer by ensuring the end to end customer proposition continues to make travel easy. There is a risk that as easyJet continues to grow we could add additional complexity into our business model.	Rigorous change governance process in place. The customer experience is at the heart of all changes or new offerings considered by easyJet.
EXTERNAL RISKS	Competition and industry consolidation easyJet operates in competitive marketplaces against both flag carriers and other low-cost airlines. One of easyJet's key competitive advantages is its strong cost base. If we lost sight of this or relaxed our stance over cost control this could significantly reduce any competitive advantage and impact profitability. Industry consolidation will also affect the competitive environment in a number of markets. This could cause a loss of market share and erosion of revenue.	Regular monitoring of competitor activity and potential impact of any consolidation activity. Rapid response in anticipation of and to changes. Strong cost control across the company. "easyJet Lean" drives cost reduction and efficiency into targeted areas.
	Regulator intervention The airline industry is currently heavily regulated, with expected increased regulator intervention. This includes environmental, security and airport regulation which have charges levied by regulatory decision rather than by commercial negotiation. easyJet is exposed to various regulators across our network, which will increase as the Company grows geographically. This could have an adverse impact to our reputation, cost base and market share. An inadequate knowledge or misinterpretation of local regulations could result in fines or enforcement orders.	easyJet has a key role in influencing the future state of regulations. A Regulatory Affairs Group coordinates the work and effort in this area.

End

5 December 2012

For further details please contact easyJet plc:

Institutional investors and sale side analysts:

Rachel Kentleton        Investor Relations                   [phone]

Tom Oliver                  Investor Relations                   [phone]

Media:

Paul Moore                  Corporate Communications   [phone]

 

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