Final Results
easyJet PLC
20 November 2007
easyJet plc
Preliminary results for the 12 months to 30 September 2007
20 November 2007
RECORD PRE-TAX PROFIT UP 56% TO £202 MILLION
• Record pre-tax profit of £201.9m, including a £10.6m one-off benefit
of reinstating easyJet's investment in The Airline Group
• Underlying* profit before tax increased 48% to £191.3m and underlying*
earnings per share increased 50% to 34.8p
• Passenger numbers up 13% to 37.2m with consistently high load factors
averaging 84%
• Total revenue increased 11% to £1,797.2m
• Ancillary revenue increased by 30% to £171.2m, a 47p increase per seat
• Unit operating costs (excluding fuel) reduced 6.4% or £1.81 per seat
to £26.55 per seat
• Underlying* return on equity increased by 3.5pp from 10.1% to 13.6%
• 8 new destinations and 46 routes added, expanding the network to 289
routes through 77 airports in 21 countries
• European expansion continued with the opening of our 17th base in
Madrid and a successful first full year of operation at Milan Malpensa
• Delivery of 100th Airbus A319 in April 2007, bringing total fleet to
137 aircraft with average age of just 2.7 years. One of the most modern
and environmentally efficient fleets in Europe
• Agreement to acquire GB Airways announced in October to expand
presence at London Gatwick Airport
Commenting on the results, Andy Harrison, easyJet Chief Executive said:
'This is yet another year of record profit at easyJet which underlines the
strength of our business model. Despite challenging conditions, revenue, profit
and return on equity have all shown strong improvements reflecting the success
of our focus on low cost with care and convenience.
'At the same time as driving the financial performance of the business, our now
well established management has also expanded easyJet's network and fleet, which
carried over 37 million passengers in the year, making the airline the fourth
largest in Europe.'
During 2007 we continued to expand our network in mainland Europe with the
launch of our 17th base in Madrid where we carried over 2 million passengers
during the year, making easyJet Madrid's number one low-fares airline. We
continued to expand our Milan Malpensa base, where we have become the second
largest carrier only one year after the launch of the base and we have agreed to
double our capacity to 15 aircraft by the end of 2008.
In the UK we continue to expand our bases, adding two A319s at Gatwick, one at
Bristol and increasing our presence at Belfast International to six aircraft.
Following the year end we announced the launch of two additional bases in France
in spring 2008, at Paris Charles de Gaulle and Lyon.
We continue to innovate at easyJet. In June 2007 we launched easyJetHolidays.com
which allows our customers to purchase an integrated flight and hotel package.
To supplement our development of the business traveller market, we announced
post year end a unique partnership with Amadeus and Galileo. For the first time
this allows corporate travel agents access to easyJet via the Global
Distribution System ('GDS'). All costs are borne by the user which makes it
completely compatible with the low-cost model.
Looking forward, for this winter we expect total revenue per seat to be broadly
in line with last winter. For summer 2008 we expect the effect of annualising
APD, checked bag charges and growing ancillary revenues to result in total
revenue per seat being ahead of the previous summer. High fuel costs will be
partly offset by the weak US Dollar however we anticipate an overall increase in
Sterling unit fuel costs. Unit costs excluding fuel are anticipated to be
similar to last year. The fuel environment remains challenging; however, we
believe the easyJet business model is resilient and well positioned for success.
Over the past two years we have significantly increased profitability and in the
current financial year the Board anticipates an increase in underlying profit
before tax of around 20%.
The above outlook excludes the proposed acquisition of GB Airways. We anticipate
the acquisition to complete no later than 31 January 2008. Excluding one-off
costs of around £12m we expect the acquisition to be earnings enhancing in the
current financial year.
*Underlying financial performance excludes the effects of the reversal of the
impairment of the Group's investment in The Airline Group of £10.6m.
For further details please contact:
easyJet plc
Press:
Toby Nicol Corporate Communications +44 (0) 1582 525 339
Analysts:
Rachel Kentleton Investor Relations +44 (0) 1582 525 258
There will be an analyst presentation at 9:30 am on 20 November 2007 at ABN
AMRO, 3rd floor, 250 Bishopsgate, EC2M 4AA. A live webcast of the presentation
will be available at www.easyJet.com.
There will be an analyst and investor conference call at 2:00 pm on 20 November
2007. For further details, contact Katie Millett at Financial Dynamics on +44
(0)20 7269 7153.
Chairman's statement
Profitable growth and improved shareholder return
We are proud to report on another great year at easyJet. Our performance has
been excellent and it is very pleasing to announce a 48.1% increase in
underlying pre tax profits, especially coming on top of an increase of 56.4% in
the prior year.
During the year we experienced some significant challenges; not least continued
higher fuel prices and in February, the unexpected doubling of Air Passenger
Duty ('APD') in the UK. However our business model, based on low cost with care
and convenience, continues to prove as successful in continental Europe as it
has been in the UK.
The Board set return on equity as its key financial measure and this year our
shareholders have benefited from an underlying improvement of 3.5 percentage
points to 13.6%, with underlying earnings per share increasing 50.1% to 34.8p.
The environment
We fully recognise the importance of environmental issues in the context of the
value for money services we provide to our customers. We have taken and will
continue to take responsible actions such as continuing to operate one of the
youngest and most environmentally efficient fleets of aircraft in Europe. Our
investment in modern aircraft continues with the confirmation of further orders
for 87 new Airbus A319 aircraft announced during the year.
Looking to the longer term, we are active participants, with both Boeing and
Airbus, in the teams developing the next generation of environmentally efficient
aircraft.
easyJet continues to support the inclusion of aviation in the EU Emissions
Trading Scheme ('ETS'). We have consistently and coherently argued for the
abolition of APD, and its replacement by a method of taxation which is sensibly
related to emissions not passengers. The recognition of our case by all three of
the main political parties in the UK, and in particular by the Chancellor in his
pre-budget report, is most welcome.
In addition we are encouraging our passengers to contribute to the mitigation of
climate change through our carbon offsetting programme which provides for
credits only in projects certified by the United Nations.
People
Our people are a major asset to the Company and enabling them to work in a
modern and efficient environment was the objective of the move from our
traditional home at easyLand to Hangar 89 at London Luton Airport. Staff and
visitors alike have praised the much improved working conditions of this
facility.
Investment in the recruitment and retention of both flight deck and cabin crew
has enabled us to match the growth in our network with quality people. This
demonstrates our commitment to sustaining easyJet's well deserved reputation for
good service.
My fellow directors and I continue to be very grateful for the commitment of our
people to maintaining easyJet's standards and we extend a warm welcome to those
who have joined us during the year.
In October we announced an agreement to purchase GB Airways, this is subject to
normal regulatory approval and we anticipate a completion date no later than 31
January 2008. Over the next few months we will be planning the integration of GB
Airways into the easyJet family. This acquisition will help us to grow and be a
stronger airline, and we welcome the GB Airways team which I am sure will be a
positive addition to easyJet.
The Board
Stability in the structure of the Board and the senior management team has
considerably helped the achievement of this year's results. We have a
combination of experience, expertise and talent which has served us well and on
which we can continue to build the Company's future.
I was delighted that John Browett accepted our invitation to join the Board as a
Non Executive Director after an extensive search. John's experience and
achievements at Tesco plc, together with his forthcoming position as Chief
Executive of DSG international plc, will enhance the present board structure and
aligns with the future direction of the Company.
Sadly, we will lose the services of Diederik Karsten who will step down after
the Annual General Meeting in February 2008. Diederik has been an outstanding
contributor to the Board since the Company was listed on the London Stock
Exchange in November 2000. We will very much miss his contribution of sound
judgement, experience and expertise.
Conclusion
We have come a long way to become Europe's fourth largest airline in just 12
years, and there is much more to come.
The continuous growth of easyJet since its inception is testament to the
soundness of the basic business model. Our policy of striving for continuous
improvement to the model gives me confidence that growth will be sustained as we
go forward.
Investors can be assured that our focus will stay firmly on enhancing revenue
and on the efficient management of the cost base, in order to continue to
improve shareholder value.
Sir Colin Chandler
Chairman
19 November 2007
Business review
Strategy and business model
At the centre of easyJet's established customer proposition is 'low cost with
care and convenience'. We continue to eliminate the unnecessary cost and frills
which characterise traditional airlines, but provide a friendly on-board
service, flying to Europe's principal business and leisure destinations,
ensuring our passengers use us again and again. A customer satisfaction study in
January 2007 reported that 92% of our customers would recommend other people to
fly with easyJet.
The key elements of our business model remain unchanged:
• Internet sales through easyJet.com
• Investment in new aircraft and high asset utilisation
• Low cost ticketless travel
• No frills and no 'free lunch'
• Efficient use of airports
• Full engagement of all our people
Safety is at the heart of our business model and as always remains our number
one priority. We continue to promote an open safety reporting culture and invest
the necessary resources to ensure our safety management systems are in line with
industry best practice.
We have stated our targets of growing capacity at an annual rate of 15% with
improved operating margins and return on equity. This will be achieved through a
combination of network development and optimisation, ancillary revenue growth
and tough cost control. The results for the year speak for themselves.
Highlights of the year
The doubling of Air Passenger Duty ('APD') on UK departing customers and
continued high fuel prices represented challenges in the year. However, our
people rose to the challenge to deliver an excellent performance.
Key business highlights were as follows:
• Profit before tax increased 56.3% to £201.9m. Excluding the one-off
benefit of reinstating easyJet's investment in The Airline Group underlying*
profit before tax increased 48.1% to £191.3m
• Passenger numbers increased by 13.0% to 37.2m with consistently high
load factors
• Total revenue increased 11.0% to £1,797.2m
• Ancillary revenue increased by 47p per seat or 30.4% to £171.2m
• Unit operating costs (excluding fuel) reduced by an excellent 6.4% or
£1.81 per seat to £26.55 per seat
• Underlying* return on equity increased to 13.6% and underlying*
earnings per share increased 50.1% to 34.8p
• European expansion continued with the opening of our 17th base in
Madrid in February 2007
• Successful full year of operation at Milan Malpensa
• In April 2007 we took delivery of our 100th Airbus A319
• During the year we added 8 new destinations and 46 routes, and as at
30 September 2007 we were flying 289 routes through 77 airports in 21
countries
• On 25 October 2007 we announced an agreement to acquire GB Airways
* Underlying financial performance excludes the effect of the reversal of the
impairment of the Group's investment in The Airline Group of £10.6m.
Market and network development
During 2007 we continued to expand our network in mainland Europe. In 2007 we
increased the capacity deployed at our European bases by 29.9%, which now
account for 30.3% of our total available seats.
In February 2007 we launched our 17th base at Madrid's Barajas Airport creating
over 200 jobs. During the year we carried over 2 million passengers through
Madrid, making easyJet Madrid's number one low cost carrier.
We continued to expand our Milan Malpensa base, where we have become the second
largest carrier only one year after the launch of the base and we have agreed to
double our capacity to 15 aircraft by the end of 2008.
In 2007 we continued to establish easyJet as Switzerland's largest short haul
carrier increasing capacity in Switzerland by 22.4% growing at both our bases in
Basel and Geneva.
2007 saw easyJet expand its network further into eastern Europe with routes
launched to Romania and further focus on the Polish market. Flying will commence
to Bulgaria in November 2008.
Following the year end we announced the launch of two additional bases in
France, at Paris Charles de Gaulle and Lyon. Initially five additional aircraft
will be located in France, starting in spring 2008, creating significant numbers
of jobs and reinforcing easyJet's position as France's number two airline.
In the UK we continue to build our bases, adding two A319s at Gatwick, one at
Bristol and increasing our presence at Belfast International to a total of six
aircraft.
Gatwick, our largest base, offers an attractive catchment area in the South East
of England with easy access to London. With this in mind we recently announced
an agreement to acquire GB Airways which operates 15 A320 family aircraft. GB
Airways is predominately based at Gatwick but also flies from Heathrow and
Manchester. We look forward to welcoming the GB team to easyJet, confident that
together we will be able to deliver an unbeatable product to customers in the
South East of England.
The markets in which easyJet operates are highly competitive, both from
traditional flag carriers and other low cost carriers who seek to replicate the
easyJet model. Low costs, improving margins, prime slots at major European
airports and access to low cost aircraft mean we are confident in our growth
plans and we continue to target an organic capacity growth rate of 15% in the
medium term.
Innovation
We continue to change and innovate at easyJet. In June 2007 we launched
easyJetHolidays.com which allows our customers to purchase an integrated flight
and hotel package through easyJet.com. We are optimistic that this will enhance
the customer experience and contribute to increasing ancillary revenues.
In September 2007 we announced an agreement with our new in-flight partner, Gate
Gourmet. We believe this is a partner who will support our growth plans in this
area allowing us to maximise on-board ancillary revenue.
To supplement our development of the business traveller market, we announced
post year end a unique partnership with Amadeus and Galileo. For the first time
this allows corporate travel agents access to easyJet via the Global
Distribution System ('GDS') with all cost borne by the user.
Overall we continue to maximise the benefits of easyJet.com which is the UK's
largest travel website receiving an average 12 million unique visitors per
month.
Fleet
We continued to develop our fleet in 2007 with the delivery of 20 additional
Airbus A319s, conversion of 87 options to firm orders and the securing of a
further 75 options on A320 family aircraft. In April 2007 we took delivery of
our 100th A319. On average we have introduced a new A319 to the fleet every 13
days since 2004.
We completed the return of our last 737-300s and returned two 737-700s to
lessors. At 30 September 2007 the fleet totalled 137 aircraft with confirmed
future deliveries of 120 and 88 unexercised options over additional aircraft.
Owned Under Under Total Changes Future Unexercised
operating finance in year deliveries options
lease lease (including
exercised (note 1)
options)
(note 2)
Airbus A319s 55 46 6 107 +20 120 88
Boeing 737-700s - 30 - 30 -2 - -
Boeing 737-300s - - - - -3 - -
55 76 6 137 +15 120 88
Notes:
1. Options may be taken as any A320 family aircraft and are valid until
2015.
2. A further 120 Airbus A319 aircraft are planned to be delivered through
to April 2012.
Our investment in a modern fleet underpins our high levels of asset utilisation,
increased operational efficiency and is complementary to our goal of being
environmentally responsible. The average age of our fleet is 2.7 years, one of
the youngest in Europe. This leaves easyJet well positioned to fulfil its growth
plans.
The total fleet over the period to 30 September 2010 based on contractual
commitments is as follows:
Airbus A319s Boeing 737-700s Boeing 737-300s Total aircraft
At 30 September 2005 55 32 22 109
At 30 September 2006 87 32 3 122
At 30 September 2007 107 30 0 137
At 30 September 2008 120 29 0 149
At 30 September 2009 156 18 0 174
At 30 September 2010 188 12 0 200
People
In February easyJet moved, from its original home easyLand, over the road at
Luton Airport, to our maintenance location, Hangar 89. This provides a modern,
low cost, open plan working environment. Rather than causing a distraction, the
move was seamless and a credit to all those involved in it. During the year our
team grew from 4,859 to 5,674 at 30 September 2007; much of this growth was in
pilots and cabin crew as we corrected the shortages experienced in summer 2006
which resulted in some wet leasing during that time.
After several years we decided to change our crew uniform and in October 2007 we
introduced a new uniform, designed in-house by our crew at no extra cost to the
previous design.
We are committed to delivering high quality customer support and in August 2007
we announced the outsourcing of the easyJet Customer Services Centre ('CSC').
The CSC has served us well from the early days before easyJet.com, however the
time is right to make a step change in the service and support we provide to our
nearly 40 million annual customers throughout our network.
Our 'Pulse' survey of employee satisfaction and engagement produced some
positive results. 74% of employees responded by completing the survey. Our
people differentiate easyJet from our competitors and we have a very pleasing
82% satisfaction level. This translated into a substantially higher crew
retention rate.
Outlook
Looking forward, for this winter we expect total revenue per seat to be broadly
in line with last winter. For summer 2008 we expect the effect of annualising
APD, checked bag charges and growing ancillary revenues to result in total
revenue per seat being ahead of the previous summer. High fuel costs will be
partly offset by the weak US Dollar however we anticipate an overall increase in
Sterling unit fuel costs. Unit costs excluding fuel are anticipated to be
similar to last year. The fuel environment remains challenging; however, we
believe the easyJet business model is resilient and well positioned for success.
Over the past two years we have significantly increased profitability and in the
current financial year the Board anticipates an increase in underlying profit
before tax of around 20%.
The above outlook excludes the proposed acquisition of GB Airways. We anticipate
the acquisition to complete no later than 31 January 2008. Excluding one-off
costs of around £12m we expect the acquisition to be earnings enhancing in the
current financial year.
Financial review
Consolidated financial and operating data
(unaudited) 2007 2006 Change %
Key performance indicators
Return on equity (headline) 14.3% 10.1% 4.2pp
Return on equity (underlying*) 13.6% 10.1% 3.5pp
Profit before tax per seat (headline), £ 4.54 3.32 36.7
Profit before tax per seat (underlying*), £ 4.30 3.32 29.5
Revenue per seat, £ 40.42 41.66 (3.0)
Cost per seat, £ 36.12 38.34 (5.8)
Cost per seat excluding fuel, £ 26.55 28.36 (6.4)
Output measures
Seats flown (millions) 44.5 38.9 14.4
Passengers (millions) 37.2 33.0 13.0
Number of aircraft owned/leased at end of period 137 122 12.3
Sectors 287,952 253,548 13.6
Block hours 518,410 454,823 14.0
Number of routes operated at end of period 289 262 10.3
Number of airports served at end of period 77 74 4.1
Other performance measures
Load factor 83.7% 84.8% (1.1)pp
Operated aircraft utilisation (hours per day) 11.6 11.6 -
Available seat kilometres ('ASK') (millions) 43,501 37,088 17.3
Revenue passenger kilometres ('RPK') (millions) 36,976 31,621 16.9
Average sector length (kilometres) 978 954 2.5
Average fare (£) 43.68 45.17 (3.3)
Revenue per ASK (pence) 4.13 4.37 (5.5)
Cost per ASK (pence) 3.67 4.02 (8.7)
Summary income statement
Year ended 30 September
2007 2006 Change
£ million £ million %
Passenger revenue 1,626.0 1,488.4 9.2
Ancillary revenue 171.2 131.3 30.4
1,797.2 1,619.7 11.0
Operating costs (1,499.0) (1,341.2) (11.8)
EBITDAR 298.2 278.5 7.1
Ownership costs (106.9) (149.3) 28.4
Underlying* profit before tax 191.3 129.2 48.1
Reversal of prior year impairment losses on financial 10.6 - N/A
assets
Profit before tax 201.9 129.2 56.3
Taxation (49.6) (35.1) (41.3)
Profit for the year 152.3 94.1 61.8
Effective tax rate 24.6% 27.2% (2.6)pp
Earnings per share
Basic 36.62 23.18 58.0
Basic underlying* 34.79 23.18 50.1
* Underlying financial performance excludes the effect of the reversal of the
impairment of the Group's investment in The Airline Group of £10.6m.
Passenger revenue
Passenger revenue grew 9.2% to £1,626.0 million, largely as a result of an
increase in seats flown from 38.9 million to 44.5 million. A small reduction in
load factor from 84.8% in 2006 to 83.7% meant that total passengers increased by
13.0% to 37.2 million. The growth in passengers was supported by the addition of
20 new aircraft in the year. The majority of this growth was in continental
Europe where we grew capacity by 29.9%.
As a consequence of this European growth our non-Sterling revenues increased to
41.4% of total, predominantly being Euros and Swiss Francs.
Average passenger yields in the year declined by 4.5% per seat to £36.57 or 3.3%
per passenger to £43.68. This was partly market driven following high per seat
revenues in 2006 and partly the result of the initial passenger reaction to the
surprise doubling of APD in the UK from £5 per departing passenger to £10. To
compensate for this easyJet increased its promotional programme in the early
summer to ensure demand remained strong.
While we are committed to offering our customers the lowest fares and best
value, we also continue to actively manage our network to ensure revenues and
shareholder value are optimised. To that end we discontinued 19 poorly
performing routes in the year and launched 46 new routes. In addition we made
significant improvements to the quality of our schedule by increasing frequency
by more than 15% on 58 routes and improving the timing on 65 routes.
Ancillary revenues
Ancillary revenues have continued to contribute significantly to our profit
improvement. Total ancillary revenues increased by 30.4% to £171.2 million, or
47p to £3.85 per seat. The biggest contributor to this improvement was the
introduction of our speedy boarding product which allows customers to priority
board the aircraft for a charge of between £2.50 and £7.50. This great value
product has resulted in very high levels of repeat business.
In addition our web partners continue to contribute positively with 19.3% unit
growth, primarily coming from increased insurance and car rental sales.
Costs
At easyJet a key part of our financial strategy is to continue to aggressively
manage our cost base; cost management and efficiency improvement are a passion
second only to our attention to safety.
Our cost performance this year has been impressive with total unit costs
improving by £2.22 or 5.8% to £36.12 per seat. We focus particularly on unit
costs excluding fuel because the significant volatility in easyJet's fuel cost
is largely dictated by external economic and political factors, and therefore we
consider unit costs, excluding fuel, are a better indicator of underlying
performance. On this basis, unit costs excluding fuel improved by £1.81 or 6.4%
to £26.55.
These cost performance results are a tremendous achievement and reflect both
continuing direct management of our day to day costs together with more
strategic step change initiatives.
Our cost of aircraft ownership, on a per seat basis, has improved by £1.44 or
37.5%, compared to 2006. This significant improvement results from three key
drivers. Firstly, at the beginning of the year we completed the return of all of
our Boeing 737-300 aircraft. This programme, which has resulted in 22 Boeing
737-300s being returned over the last 2 years, generates a step change in
ownership costs as they are replaced by lower cost Airbus A319s. Additionally,
these aircraft were returned with considerably less 'one-off' end of lease costs
than previously anticipated. Secondly, as most of our lease costs are payable in
US Dollars we have benefited from the continued weakness of the US Dollar versus
Sterling. Thirdly, we continue to look to minimise our financing costs,
resulting in the percentage of owned aircraft increasing from 36% to 45% over
the last year. Of our 55 owned aircraft at the year end, 13 have been purchased
out of cash.
In addition we saw a benefit in 2007 compared to our costs in 2006 due to the
fact that we did not have to take on any short-term wet leased aircraft. This
was done in 2006 to enable us to continue to provide our customers with the
flights we had promised them whilst we experienced some short-term crew
shortages.
Over the next four years our Boeing 737-700 fleet is due to be returned to
lessors and we expect to see continued improvement in our unit aircraft
ownership costs as we move more to an A320 family fleet which enables us to
reflect the full benefit of the purchase deal we signed with Airbus in 2002.
Engineering costs per seat have improved by £0.61 or 21.7%, compared to 2006. A
major driver of this improvement was our new engine maintenance deal with GE
Aviation that we agreed at the end of June 2007. This guarantees the provision
of efficient, low cost maintenance services with the world's leading engine
maintenance supplier. The 10 year agreement with GE Aviation covers maintenance
and overhaul of our CFM56 engines, which power our fleet of Airbus and Boeing
aircraft. The agreement, which covers as many as 340 shop visits, was valued at
around $1 billion and will enable us to further reduce our ongoing engineering
cost per seat. In addition to ongoing annual cost reductions we benefited during
the current financial year from a one-off adjustment to maintenance provisions.
Two other specific areas of significant unit cost improvement are in our ground
handling and insurance costs. Our ground handling cost per seat improved by
£0.19 or 5.2%, compared to 2006. This reflects tight management of our contracts
with our suppliers, benefits from a slightly weaker Euro to Sterling exchange
rate and the implementation of self-handling at some of our Spanish airports.
Our insurance cost per seat improved by £0.14 or 33.2%, compared to 2006,
reflecting our successful recent renewal. This was driven by the improving
perception by the insurance market of easyJet, the weakening of the US Dollar
and the underlying recent low loss record for the aviation insurance market.
The two cost areas where we experienced inflationary pressures during 2007 were
in our crew costs and airport charges. Crew costs on a per seat basis increased
by £0.47 or 11.5%, compared to 2006. During the summer in 2006 we experienced
crew shortages which required us to take on wet leased aircraft with the
associated incremental costs being recorded in aircraft lease costs. A key
priority in this financial year has been to address these crew shortages and it
is pleasing to be able to say that we have successfully achieved both the
recovery from the shortages and have also been able to fully resource our
current year growth without any significant disruptions to our flying programme.
During the year we recruited some 400 pilots and 1,000 cabin crew which, after
taking account of leavers, resulted in a 20% net increase in our crew
complement.
Airport costs on a per seat basis increased in the year by £0.23 or 3.5%,
compared to 2006. The key driver of this increase related to BAA's decision to
increase Stansted's charges to the regulatory cap. The effect of this has been a
doubling of Stansted airport costs from April 2007. We continue to monitor the
impact of this rate increase and will make future asset allocation decisions
accordingly.
Fuel costs for the year totalled £425.5m up 9.7% from £387.8m in 2006. On a per
seat basis our fuel costs were £9.57, down 4.1% from last year's £9.98. Our
average cost per metric tonne increased 4.4% from $659 to $688, however this
rise was more than offset by the weakening of the US Dollar against Sterling.
For 2008 we anticipate increasing jet fuel prices; we currently have 40% of our
jet fuel requirements hedged using a mix of forward contracts and caps with a
maximum price of $735 per metric tonne.
Offsetting the impact of fuel price increases will be the effect of a continued
weak US Dollar. Our average effective exchange rate in 2007 was 1.89 and we
expect our 2008 rate to be significantly higher. We have 68% of US Dollar
exposure covered at an average rate of 1.95. Around 40% of our cost base is
denominated in US Dollars.
As a result of our target to grow capacity on average by 15% per annum we would
expect our underlying overhead cost per seat to show significant year over year
improvements as we necessarily invest to some degree to support the growth but
benefit from continuing economies of scale and are able to spread those costs
over the increased capacity. For 2007 our overhead cost per seat improved 4.0%
from £2.27 in 2006 to £2.18 in 2007.
Profit before tax and return on equity
Profit before tax for 2007 amounted to £201.9m; after excluding the one-off
benefit of £10.6m relating to the reinstatement of our investment in The Airline
Group, underlying* profit before tax was £191.3m. This is a 48.1% increase over
2006 and equates to a profit per seat of £4.30 compared to £3.32 in the previous
year.
With total revenue per seat falling by 3.0% but total cost per seat improving by
5.8% our profit margin increased by 2.7 percentage points from 8.0% in 2006 to
10.7% in 2007.
The effective tax rate for the year was 24.6% (2006: 27.2%). The decrease year
on year is primarily due to amendments made in relation to earlier years of
£5.5m and a one off benefit due to a reduction in the tax rate at which deferred
tax liabilities will crystallise of £3.3m. For 2008 the expected effective tax
rate is estimated to be 25%.
In terms of our core financial performance measure, return on equity, the
headline result for the year was 14.3%. This does include the benefit of The
Airline Group one-off and after excluding this underlying return on equity for
the year was 13.6%. This represents a very pleasing improvement of 3.5
percentage points from 10.1% in 2006 and means that over the last two financial
years we have increased the return on equity for our shareholders by 6.5
percentage points. The Board has set return on equity as its key financial
measure as it best represents the return attributable to equity shareholders.
Summary balance sheet
2007 2006 Change
£ million £ million £ million
(re-presented)*
Property, plant and equipment 935.8 695.7 240.1
Other non-current assets 414.2 392.6 21.6
1,350.0 1,088.3 261.7
Net working capital (326.9) (249.7) (77.2)
Cash and cash equivalents 719.1 860.7 (141.6)
Money market deposits 193.4 - 193.4
Borrowings (519.1) (479.7) (39.4)
Other non-current liabilities (264.1) (236.7) (27.4)
Net assets 1,152.4 982.9 169.5
Share capital and premium 738.7 694.0 44.7
Reserves 413.7 288.9 124.8
1,152.4 982.9 169.5
*Recoverable supplemental rent which was offset against aircraft maintenance
provisions in prior accounting periods has been re-presented gross to provide
additional information. There is no effect on net assets or profit of this
reclassification.
Balance sheet highlights
• Net assets increased by 17.2% to £1,152.4 million
• Property, plant and equipment increased by £240.1m due to the delivery
of a further 17 owned A319 aircraft and some capital expenditure incurred on the
refit of easyJet's new Luton head office
• Other non-current assets increased largely due to the reinstatement of
easyJet's investment in The Airline Group
• Net working capital increased as a result of additional unearned
revenue as a consequence of increased flight capacity, and tax payable
increasing on higher profits
• The total of cash and cash equivalents and money market deposits is
£912.5m; an increase of £51.8m on the prior year. During the year US dollar cash
balances were increased in order to match US dollar denominated borrowings. This
cash was invested for 90 days or more in order to match the interest rate
re-pricing of these borrowings. These amounts are disclosed as money market
deposits and amount to £193.4m. The overall increase in cash and money market
deposits was small compared to the profit for the year as cash generated from
operations was invested in the fleet
• Cash and cash equivalents exclude £48.8m of restricted cash which is
disclosed in other non-current assets and net working capital. These amounts
relate principally to customer payments for packaged holidays and operating
lease deposits
• Borrowings increased by £39.4m as a result of additional mortgage
finance for 7 aircraft delivered in the year. 10 additional aircraft were
purchased for cash
The notional debt related to aircraft held under operating leases reduced
substantially, principally due to the weakness of the US dollar against
Sterling, therefore gearing reduced to 20.4% at 30 September 2007 from 31.0% in
2006.
Shareholders expect us to retain a prudent cash balance, yet also manage the
balance sheet efficiently. Accordingly, the Board has decided to seek
shareholder approval at the Annual General Meeting to be held on 21 February
2008 to purchase up to 10% of our issued share capital in the market. This is a
normal authority for a public company and we would expect to renew it annually.
Summary cash flow
2007 2006 Change
£ million £ million £ million
Cash generated from operations 270.8 225.2 45.6
Net capital expenditure (272.1) (314.3) 42.2
Net increase in loan finance 69.1 278.4 (209.3)
Net increase in money market deposits (197.3) - (197.3)
Other (12.1) 4.4 (16.5)
(Decrease) / increase in cash and cash equivalents (141.6) 193.7 (335.3)
Cash and cash equivalents at beginning of year 860.7 667.0 193.7
Cash and cash equivalents at end of year 719.1 860.7 141.6
We continue to generate strong annual cash flow and our cashflow from operations
increased 20.2% to £270.8m. Our cash was principally used to invest in aircraft.
Out of 20 additional aircraft delivered in the year 7 were mortgage financed and
10 were cash acquired. In total 13 aircraft were owned outright at 30 September
2007.
Of the 49 Airbus aircraft to be delivered through to 2009 eleven have committed
financing in place at 30 September 2007 (2006: 18 of 53). The Group has
commenced a process for arranging further financing of future deliveries and
this is expected to be concluded by December 2007.
Investment in the fleet and information technology will continue in 2008 and is
expected to total approximately £280 million.
Andrew Harrison Jeff Carr
Chief Executive Officer Group Finance
Director
19 November 2007
Consolidated income statement
Year ended Year ended
Notes 30 September 30 September
2007 2006
£million £million
Passenger revenue 1,626.0 1,488.4
Ancillary revenue 171.2 131.3
Revenue 1,797.2 1,619.7
Ground handling charges, including salaries (156.1) (144.1)
Airport charges (305.8) (258.4)
Fuel (425.5) (387.8)
Navigation charges (141.8) (121.2)
Crew costs, including training (204.1) (160.0)
Maintenance (98.1) (109.5)
Advertising (38.0) (38.2)
Merchant fees and incentive pay (20.6) (17.9)
Aircraft and passenger insurance (12.1) (15.8)
Other costs (96.9) (88.3)
EBITDAR 298.2 278.5
Depreciation (33.3) (27.4)
Amortisation of intangible assets (0.9) (0.8)
Aircraft dry lease costs (91.0) (122.9)
Aircraft long-term wet lease costs (1.0) (9.6)
Group operating profit - EBIT 172.0 117.8
Interest receivable and other financing income 54.6 35.4
Reversal of prior year impairment losses on financial 2 10.6 -
assets
Interest payable and other financing charges (35.4) (24.1)
Net finance income 29.8 11.3
Share of profit after tax of associate 0.1 0.1
Profit before tax 201.9 129.2
Tax 3 (49.6) (35.1)
Profit for the year 152.3 94.1
Earnings per share, pence 4
Basic 36.62 23.18
Diluted 35.58 22.64
Consolidated balance sheet
Notes 30 September 30 September
2007 2006
£million £million
(re-presented)
(note 6)
Non-current assets
Goodwill 309.6 309.6
Other intangible assets 1.8 1.1
Property, plant and equipment 7 935.8 695.7
Financial assets
Loan notes 11.1 -
Restricted cash 32.9 26.1
Derivative financial instruments 0.4
-
Other non-current assets 58.1 54.8
Investments accounted for using the 0.3 0.3
equity method
Deferred tax assets 0.4 0.3
1,350.0 1,088.3
Current assets
Trade and other receivables 223.6 227.2
Financial assets
Money market deposits 193.4 -
Restricted cash 15.9 12.2
Derivative financial instruments 14.4 1.0
Cash and cash equivalents 719.1 860.7
1,166.4 1,101.1
Current liabilities
Trade and other payables (461.7) (414.1)
Financial liabilities
Borrowings 8 (40.5) (32.8)
Derivative financial instruments (26.6) (15.3)
Current tax liabilities (89.7) (46.8)
Maintenance provisions (2.8) (13.9)
(621.3) (522.9)
Net current assets 545.1 578.2
Non-current liabilities
Financial liabilities
Borrowings 8 (478.6) (446.9)
Derivative financial instruments (6.3) (4.8)
Other non-current liabilities (86.8) (74.8)
Maintenance provisions (136.0) (125.1)
Deferred tax liabilities (35.0) (32.0)
(742.7) (683.6)
Net assets 1,152.4 982.9
Shareholders' funds
Ordinary shares 9 104.8 102.6
Share premium 9 633.9 591.4
Hedging reserve 9 (13.7) (9.5)
Retained earnings 9 427.4 298.4
1,152.4 982.9
Consolidated statement of cashflows
Year ended Year ended
Notes 30 September 30 September
2007 2006
£million £million
Cash flows from operating activities
Cash generated from operations 10 260.8 221.6
Interest received 48.9 32.5
Interest paid (36.9) (24.4)
Tax paid (2.0) (4.5)
Net cash from operating activities 270.8 225.2
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 3.3 3.7
Purchase of property, plant and equipment (273.9) (324.6)
Proceeds from sale of asset held for resale - 7.1
Purchase of other intangible assets (1.6) (0.5)
Dividend received from associate 0.1 -
Net cash used in investing activities (272.1) (314.3)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 16.5 17.9
Purchase of shares for employee share schemes (4.6) (0.6)
Net proceeds from drawdown of new bank loans 103.2 201.2
Net proceeds from sale and finance leasebacks - 108.6
Repayment of bank loans (31.7) (30.4)
Repayment of capital elements of finance leases (2.4) (1.0)
Increase in money market deposits (197.3) -
Increase in restricted cash (12.6) (11.2)
Net cash (used by) / generated from financing (128.9) 284.5
activities
Effects of exchange rate changes (11.4) (1.7)
Net (decrease) / increase in cash and cash (141.6) 193.7
equivalents
Cash and cash equivalents at beginning of year 860.7 667.0
Cash and cash equivalents at end of year 719.1 860.7
Consolidated statement of recognised income and expense
2007 2006
£million £million
Cash flow hedges
Fair value losses in year (39.7) (25.2)
Transfers to income statement 34.6 (3.8)
Transfers to property, plant and equipment 1.1 -
Related taxation (0.2) 8.7
Net expenses recognised directly in equity (4.2) (20.3)
Profit for the year 152.3 94.1
Total recognised income and expense for the year
attributable to shareholders of the company 148.1 73.8
Notes to the financial information
1. Basis of preparation
This consolidated financial information has been prepared in accordance with the
Listing Rules of the Financial Services Authority and uses accounting policies
consistent with those described in the annual report and accounts for 2006.
The financial information set out in this document does not constitute statutory
accounts for easyJet plc for the two years ended 30 September 2007 but is
derived from the 2007 annual report and accounts.
The annual report and accounts for 2006 have been delivered to the Registrar of
Companies. The annual report and accounts for 2007 will be delivered to the
Registrar of Companies in due course. The auditors have reported on those
accounts and have given an unqualified report that does not contain a statement
under section 237(2) or (3) of the Companies Act 1985.
2. Reversal of impairment losses on financial assets
In March 2001, easyJet in consortium with six other UK airlines formed The
Airline Group Limited in order to acquire a minority interest in NATS, the
company that owns the UK air traffic control system. At 30 September 2001,
easyJet's investment totalled £7.2 million. This comprised equity of £10,080,
loan notes of £6.8 million, bid costs of £0.1 million and accrued interest of
£0.3 million. The loan notes are of two classes bearing interest at fixed rates
of 8% and 11%. The blended interest rate is 8.07%.
During the year ended 30 September 2002 the carrying value of the investment was
impaired to zero. This impairment was taken due to uncertainty over the timing
of returns to easyJet following the events of 11 September 2001.
On 28 June 2007, NATS reported its results for the year ended 31 March 2007
showing a fourth consecutive year of profits, and announced that it would
recommence paying dividends in July 2007. As a consequence the present value of
estimated future cash flows from easyJet's investment in the loan notes exceeds
their carrying value, and the impairment was reversed in July.
The impairment reversal relating to prior years comprises:
£million
Reinstatement of original loan notes and acquisition costs 6.9
Interest earned to 30 September 2006 3.7
10.6
The impairment reversal relating to prior years is separately disclosed on the
face of the income statement as it is a significant one-off item. A further
£0.6m of interest earned from October 2006 to July 2007 is included within
interest receivable and other financing income.
3. Taxation
a) Tax on profit on ordinary activities
2007 2006
£million £million
Current taxation 52.2 17.3
Deferred taxation (2.6) 17.8
Total taxation charge 49.6 35.1
Effective tax rate 24.6% 27.2%
b) Tax on items charged to equity
2007 2006
£million £million
Deferred tax (charge) / credit on share options (5.3) 5.9
Deferred tax (charge) / credit on fair value movements (0.2) 8.7
of cash flow hedges
Current tax credit on share options 7.3 4.9
Tax credit reported directly in reserves 1.8 19.5
c) Reconciliation of the total taxation charge
2007 2006
£million £million
Profit on ordinary activities before tax 201.9 129.2
Tax charge at 30% 60.6 38.8
Attributable to rates other than standard UK rate (6.7) (6.4)
Income not chargeable for tax purposes (0.9) -
Expenses not deductible for tax purposes 0.7 2.0
Share based payments 5.1 (0.3)
Adjustments in respect of prior periods - current (0.7) 1.6
taxation
Adjustments in respect of prior periods - deferred (4.8) (0.6)
taxation
Change in tax rate (3.7) -
Total taxation 49.6 35.1
4. Earnings per share
Basic earnings per share has been calculated by dividing the profit for the year
retained for equity shareholders by the weighted average number of shares in
issue during the year after adjusting for shares held by the Group in employee
share option trusts.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential shares.
Share options granted to employees where the exercise price is less than the
average market price of the Company's ordinary shares during the year are
considered to be dilutive potential shares. Where share options are exercisable
based on performance criteria and those performance criteria have been met
during the year, these options are included in the calculation of dilutive
potential shares.
Earnings per share is based on:
2007 2006
£million £million
Profit for the year 152.3 94.1
Reversal of prior year impairment losses on financial (10.6) -
assets
Related deferred taxation 3.0 -
Underlying profit for the year 144.7 94.1
million million
Weighted average number of ordinary shares in issue 416.0 405.7
during the period used to calculate basic earnings per
share
Weighted average number of dilutive share options used 12.2 9.7
to calculate dilutive earnings per share
Earnings per share
2007 2006
pence pence
Basic 36.62 23.18
Diluted 35.58 22.64
Underlying earnings per share (non-GAAP measure)
2007 2006
pence Pence
Basic 34.79 23.18
Diluted 33.80 22.64
Underlying profit and earnings per share are based on the profit for the year
after adding back the reversal of impairment on financial assets and related
taxation. The adjustment has been made on the grounds that the credit relates to
several prior years and will not recur. Further details are given in note 2.
5. Dividends
No dividends have been paid or proposed in the year ended 30 September 2007 or
during the comparative accounting period.
6. Re-presentation of balance sheet comparatives
In previous accounting periods, recoverable supplemental rent paid to lessors of
aircraft was offset against the related maintenance provisions as this properly
reflects the commercial substance of the lease agreements. To provide additional
information, recoverable supplemental rent is now reported gross within either
current or non-current assets according to when the refund is expected to be
received. Comparative figures have been adjusted as follows:
Non-current assets increased by £51.9 million
Current assets increased by £13.9 million
Maintenance provisions increased by £65.8 million
7. Property, plant and equipment
Leasehold
improvements -
buildings Fixtures
Aircraft and Total
fittings
£million £million £million £million
Cost
At 1 October 2006 729.3 6.9 15.9 752.1
Additions 264.0 5.3 6.5 275.8
Disposals (5.5) - - (5.5)
At 30 September 2007 987.8 12.2 22.4 1,022.4
Depreciation
At 1 October 2006 39.8 4.9 11.7 56.4
Charge for the year 31.5 0.7 1.1 33.3
Disposals (3.1) - - (3.1)
At 30 September 2007 68.2 5.6 12.8 86.6
Net book value
At 30 September 2007 919.6 6.6 9.6 935.8
At 1 October 2006 689.5 2.0 4.2 695.7
The net book value of aircraft at 30 September 2007 includes £116.0 million
(2006: £81.2 million) relating to advance payments and option payments for
future deliveries of aircraft. This amount is not depreciated.
The net book value of aircraft held under finance leases was £77.8 million
(2006: £80.9 million). £3.3 million of the related accumulated depreciation was
charged in the year ended 30 September 2007 (2006: £1.8 million).
At 30 September 2007, aircraft with a net book value of £517.5 million (2006:
£418.0 million) were mortgaged to lenders as security for loans.
Aircraft spares with a value of £1.9 million (2006: £4.9 million) were received
free of charge during the year.
8. Borrowings
The maturity of borrowings is as follows:
30 September 2007 Bank loans Finance Total
leases
£million £million £million
Within one year 37.9 2.6 40.5
Between one and two years 39.8 2.8 42.6
Between two and five years 165.6 9.5 175.1
After five years 184.2 76.7 260.9
427.5 91.6 519.1
30 September 2006 Bank loans Finance Total
leases
£million £million £million
Within one year 30.2 2.6 32.8
Between one and two years 31.7 2.8 34.5
Between two and five years 131.1 9.7 140.8
After five years 184.1 87.5 271.6
377.1 102.6 479.7
The bank loans financed the acquisition of certain of the Group's aircraft. The
aircraft purchased with the loans are provided as security against the
borrowings. Bank loans are denominated in either US Dollars or Sterling and bear
interest based upon LIBOR. Finance lease obligations are secured against certain
of the Group's aircraft.
9. Equity
Share Share Hedging Retained
capital premium reserve earnings Total
£million £million £million £million £million
At 1 October 2006 102.6 591.4 (9.5) 298.4 982.9
Profit for the year - - - 152.3 152.3
Cash flow hedges
Fair value losses - - (39.7) - (39.7)
Transfers to income - - 34.6 - 34.6
statement
Transfers to property, plant - - 1.1 - 1.1
and equipment
Related taxation - - (0.2) - (0.2)
Share options
Proceeds from shares issued 2.2 42.5 - (28.2) 16.5
Value of employee services - - - 7.5 7.5
Related taxation - - - 2.0 2.0
Employee share schemes - - - - (4.6) (4.6)
purchase of shares
At 30 September 2007 104.8 633.9 (13.7) 427.4 1,152.4
10. Reconciliation of net profit to net cash inflow from operating activities
2007 2006
£million £million
Profit for the year 152.3 94.1
Adjustments for:
Tax charge 49.6 35.1
Depreciation charge 33.3 27.4
Profit on disposal of property, plant and equipment (0.9) (1.3)
Amortisation of other intangibles 0.9 0.8
Reversal of prior year impairment losses on financial (10.6) -
assets
Interest income (53.0) (35.4)
Interest expense 35.4 22.7
Share based payments 7.5 4.7
Share of results of associates (0.1) (0.1)
Financial instruments - time value (4.5) 9.8
Foreign exchange (15.4) (17.3)
Changes in working capital:
Increase / (decrease) in trade and other receivables 6.0 (6.9)
Increase in trade and other payables 51.9 79.0
(Decrease) / increase in provisions (0.2) 3.2
(Increase) / decrease in other non-current assets (3.8) 5.7
Decrease in financial instruments 0.4 0.4
Increase / (decrease) in other non-current liabilities 12.0 (0.3)
Cash generated from continuing operations 260.8 221.6
11. Contingent liabilities
The Group is involved in various disputes or litigation in the normal course of
business. Whilst the results of such disputes cannot be predicted with
certainty, the Company believes that the ultimate resolution of these disputes
will not have a material effect on the Group's financial position or results.
12. Post balance sheet events
On 25 October 2007, easyJet announced that it had agreed to acquire GB Airways
Limited, excluding its slots at Heathrow Airport, for cash consideration of
£103.5 million. Completion is subject to clearance from the regulatory
authorities and is expected to occur no later than 31 January 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
Monday, 20th May 2024
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