Final Results
easyJet PLC
14 November 2006
easyJet plc
Preliminary results for the 12 months to September 2006
EASYJET REPORTS RECORD PROFITS, UP 56% TO £129M
• Record profit before tax of £129 million, up 56% from £83 million in
2005.
• Passenger numbers rise by 11.5% to 33 million.
• Passenger revenues increased by 5.9% or £2.13 per seat, driven by strong
summer trading.
• Ancillary revenues improved significantly in all areas rising by 34% or
£0.86 per seat.
• Unit costs excluding fuel fell by 1.5% or £0.42 per seat from £28.78 to
£28.36.
• Unit fuel costs increased by 33% or £2.48 per seat.
• Return on equity increased to 10.1% up 3 percentage points from 7.1% in
2005.
• 58 new routes and 11 new destinations were launched, expanding the
network to 262 routes and 74 airports in 21 countries.
• Fleet grown to 122 aircraft with an average age of 2.2 years, making it
one of the most modern and environmentally friendly fleets in Europe.
• Further expansion of fleet planned with 52 new A319s ordered, and options
secured over a further 75. This brings the total number of aircraft on firm
order to 104 worth over $4 billion, with a further 123 unexercised options
still available.
• Strong balance sheet with cash of £861 million.
Commenting on the results, Andy Harrison, easyJet Chief Executive said:
'2006 was another year of successful growth with 33 million passengers choosing
to fly easyJet, attracted by our winning combination of low cost, with care and
convenience. We have continued to expand our range of destinations with 58 new
routes launched during the year and the successful opening of our new base in
Milan Malpensa.
'Our profits increased by 56% to a record £129 million, despite the big increase
in fuel costs. Our profit growth was driven by a 34% increase in ancillary
revenues per seat, significant improvements in passenger yields and a continuing
reduction in our non fuel unit costs.
'Our Airbus order supports both our growth and our environmental credentials.
The combination of our modern fleet, with an average age of 2.2 years, and high
utilisation means that we emit nearly 30% fewer emissions per passenger
kilometre than traditional airlines flying similar routes. We welcome the Stern
Review, which says that aviation accounts for just 1.6% of global greenhouse gas
emissions. We believe the best way forward is to bring aviation into the
European Emissions Trading System as soon as possible.
'Today's Airbus order underpins our future growth and we expect to increase
capacity in 2007 by 15%. Current trading is in line with our expectations and we
see yields for winter broadly in line with last year. As we look further forward
we anticipate more pressure on yields in the summer due to continued aggressive
competition. We remain focused on improving execution and delivery of results by
revenue enhancement, network development and cost reduction. This year has seen
an encouraging step towards improved return on equity. The Board remains
confident that the business will make good progress in the coming years.'
For further details please contact:
easyJet plc
Press:
Toby Nicol Corporate Communications +44 (0) 1582 525 339
Analysts:
Julia Collins Investor Relations +44 (0) 1582 525 258
There will be an analyst presentation at 9:00 am on 14 November 2006 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 14 November
2006. For further details, contact Katy Balderston at Financial Dynamics on 020
7269 7228.
easyJet plc preliminary results 2006
Chairman and Chief Executive's review
easyJet has delivered profitable growth during 2006 with profit before tax
rising 56% to a record £129 million. This has been driven by our winning
combination of low fares with care and convenience, which in 2006 was chosen by
33 million passengers across 21 different European countries.
This performance is aligned with our targets and underpins the delivery of
improved returns to shareholders. We remain focused on improving our return on
equity as outlined in the long term incentive plan for management put in place
last year. During 2006 we improved the return on equity by 3 percentage points
to 10.1% and increased our net profit by 59% to £94m, thus providing confidence
that the targets we have set, while challenging and demanding, are achievable.
Key business highlights for the year were as follows:
• Record profit before tax of £129 million, up 56% from £83 million in
2005.
• Passenger numbers rose by 11.5% to 33 million.
• Passenger revenues increased by 5.9% or £2.13 per seat, driven by strong
summer trading.
• Ancillary revenues improved significantly in all areas, rising by 34% or
£0.86 per seat.
• Unit costs excluding fuel fell by 1.5% or £0.42 per seat from £28.78 to
£28.36.
• Unit fuel costs increased by 33% or £2.48 per seat.
• 58 new routes and 11 new destinations were launched, expanding the
network to 262 routes and 74 airports in 21 countries.
• The fleet grew to 122 aircraft with an average age of 2.2 years, making
it one of the most modern and environmentally friendly fleets in Europe.
• The balance sheet remains strong with cash of £861 million and gearing at
31%.
In May, we highlighted network development, revenue enhancement, cost reduction
and development of our people as our main areas of focus. These goals remain
unchanged.
Network
2006 saw the increased presence of easyJet in Italy with the successful launch
of our 16th base at Milan Malpensa in March, and the addition of 10 new routes
bringing low cost travel to Milan. From Milan we now fly domestically to Naples
and Palermo; offer key city destinations including Berlin, London, Madrid and
Paris; serve beach and leisure destinations; and have further expansion planned
for the coming year.
Building on the addition of our second Swiss base in Basel during 2005, we
increased our Swiss operations considerably in the year with 16 new routes
launched in the Swiss market and increased frequencies offered in the winter
season. Our successful expansion since launching the Geneva base in 1999 has
seen easyJet become the largest airline in both Geneva and Basel.
During the summer, we expanded into new markets with the introduction of flights
to Croatia, Morocco and Turkey. As a proportion of our network these flights are
not significant, but they indicate the continuing opportunities available both
inside and outside the EU.
Overall, our highest rate of growth has been on Intra-European (non-UK) flying,
where we have seen revenues grow by 62% year on year. While we continue to see
and take opportunities in the UK, we expect the higher rate of growth in Europe
to continue. This has been reflected in our base selections in recent years, and
the announcement of our next base in Madrid, opening in February 2007, continues
this trend.
Additional Airbus Order
To sustain the continued growth of easyJet, we will be asking shareholders to
approve the conversion of 52 Airbus purchase rights into firm orders. In
combination with our original order for 120 Airbus and our conversion of 20
purchase rights into firm orders in December 2005, this will take our number of
firm Airbus A319 orders to 192 aircraft, 87 of which had been delivered by the
end of September 2006. The additional 52 firm orders, with a value of $2.3
billion at list price, are for A319 aircraft to be delivered mainly during 2009
and 2010, and supports our planned growth. In conjunction with this, we have
agreed with Airbus 75 further purchase rights, additional to the 120 purchase
rights agreed in 2002. The terms of the additional purchase rights are
substantially the same as on the original Airbus order. This order ensures that
easyJet will continue to operate a young fleet of modern aircraft secured at
very competitive rates.
Environment
We take seriously our duty to ensure that we are operating and developing in a
responsible manner. We will further explain our environmental policy in the
separate report on Corporate and Social Responsibility in our annual report,
however the fundamentals can be summarised here. The easyJet model is low cost,
based on maximising operating efficiencies, achieving high asset utilisation and
providing point to point services between convenient locations, operating in
established markets whilst avoiding the largest most congested hub airports. We
use a modern fleet of young, fuel efficient, quiet aircraft, with a high seat
density configuration and achieve consistently high load factors. Each of these
factors helps make easyJet the environmentally friendly way to fly.
We have set ourselves the target of being a leading environmentally efficient
and responsible airline, striving to be efficient in the air, efficient on the
ground, and to lead the way in shaping a greener future for aviation.
Revenue
Passenger revenue per seat was down by 1.5% in the first half of the year, but
rose 11.2% in the second half. The very strong performance in the second half
was helped by the timing of Easter, but also reflected buoyant market conditions
and good revenue management across the network.
Detailed route performance reviews and a strengthened yield management team
helped ensure that suitable interventions were made in the revenue system to
optimise contribution on flights. High impact marketing also helped increase
awareness and stimulate demand. The spring saw the launch of our 'objects'
marketing campaign, featuring iconic images associated with destinations on our
network and the low fares we offer to fly to them - reinforcing our simple
message of low fares with care and convenience. We also launched a business
traveller campaign raising awareness of the frequency and flexibility of our
services and the quality of our schedule on primary routes in specific markets.
Improvements to the easyJet.com website and a continued focus on non-ticket
revenues allowed easyJet to deliver another year of high growth in ancillary
revenues. Simple and direct delivery of insurance and car hire has helped
increase conversion rates and income from partner revenues. Improved consistent
application of charges has also driven increases across the other areas of
ancillary revenue.
Costs and operational performance
Our focus on the cost base has continued throughout the year with particular
progress coming from lower maintenance, improved ownership costs and reduced
ground handling rates in Spain.
Maintenance costs benefited from lower rates as a result of our contract for
Airbus airframe maintenance with SR Technics. The fleet mix has improved with
the retirement of the Boeing 737-300s, only 3 of which remained in the fleet at
30 September, all of which are due for return by December 2006. Ownership costs
have improved as our financing margin has reduced, we have saved money through
better management of end of lease aircraft returns, and we have increased the
proportion of owned aircraft. The effect of increasing US interest rates during
the year, however, offset these improvements, so that total ownership costs have
remained largely flat on a per seat basis compared with 2005.
Ground handling improvements have come with dedication and persistence which
overcame a number of hurdles. As a result, we are now either self-handling or
have re-negotiated our agreements with existing suppliers in seven airports in
Spain which were among the most expensive in our network. This has resulted in
more competitive costs in this area, ensuring the future growth of these
destinations.
Overall, we have seen a reduction in unit costs excluding fuel of 1.5% for the
year. The improvements in unit costs were largely accomplished in the first
half, with the impact of wet leasing and disruption impacting the second half.
Set against this, the effect of increasing fuel costs has continued, and
including fuel, total costs per available seat flown rose by 5.7%. As we go into
the 2007 financial year, we have hedged 59% of our fuel requirement. 28% is
hedged using forwards with an average rate of $659 per metric tonne, and 31% is
hedged using collars with average floor and ceiling rates of $687 and $753 per
metric tonne respectively.
The August 10th security alert caused easyJet to cancel nearly 500 flights and
resulted in additional costs of approximately £4m. The introduction of greater
restrictions to carry-on items, and the inadequate resources of airports to cope
with additional security procedures, resulted in pressures on passengers and
operations. This led to reduced punctuality, and the proportion of our flights
arriving within 15 minutes of scheduled arrival fell from 80.2% in 2005 to 75.6%
in 2006. In addition, easyJet experienced some crew shortages in the summer
resulting in low levels of standby crew. To minimise disruption to passengers,
easyJet wet leased approximately three and a half lines of flying during the
summer to help deliver the scheduled network flights. Disappointingly for all
concerned, some disruption to the schedule was still experienced. At easyJet we
are committed to delivering an excellent service and we can assure our
passengers that recruitment and planning measures are now in place to ensure
that the company delivers the highest standard of service with care and
convenience.
People
In November 2005, we opened the easyJet Academy. Based in a low cost building
close to our Luton headquarters, the Academy provides first class training
facilities including a cabin simulator and aircraft slides. It provides the
location for pilot, cabin crew and call centre training as well as housing the
recruitment and training departments. Meanwhile, we are preparing to move our
easyLand headquarters, taking up low cost office space inside our new
maintenance hangar at our Luton base. This move should take place in early 2007.
We recognise and appreciate the extra effort many of our people have made this
year and extend our thanks to all our people for their continued dedication and
hard work.
Board
Andrew Harrison joined easyJet as Chief Executive in December 2005. During the
year David Bennett and Professor Rigas Doganis were also appointed to the Board
as Non-Executive Directors, and Sir David Michels was appointed as the Senior
Independent Non-Executive Director. The appointments in the year have brought a
good balance of expertise and experience to the Board and these will be
invaluable as easyJet continues to grow. We thank all the members of the Board
for their commitment and contributions in the year.
Outlook
Today's Airbus order underpins our future growth and we expect to increase
capacity in 2007 by 15%. Current trading is in line with our expectations and we
see yields for winter broadly in line with last year. As we look further forward
we anticipate more pressure on yields in the summer due to continued aggressive
competition. We remain focused on improving execution and delivery of results by
revenue enhancement, network development and cost reduction. This year has seen
an encouraging step towards improved return on equity. The Board remains
confident that the business will make good progress in the coming years.
Sir Colin Chandler Andrew Harrison
Chairman Chief Executive
13 November 2006
Operational and financial reiew
Strategy and business model
easyJet is Europe's leading low fares airline. Formed in 1995 by Sir Stelios H
aji-Ioannou, it has grown rapidly to become Europe's fourth largest airline by
passengers carried. easyJet keeps costs low by eliminating the unnecessary costs
and frills which characterise traditional airlines. This is done in a number of
ways:
• The internet is used to reduce distribution costs. easyJet was one of the
first airlines to embrace the opportunity of the internet when it sold its
first seat online in April 1998. Now over 95% of all seats are sold on line,
making easyJet one of Europe's biggest internet retailers;
• Maximising the utilisation of substantial assets. We fly our aircraft
intensively, with swift turnaround times each time we land. This gives us a
very low unit cost;
• Ticketless travel. Passengers receive booking details via an e-mail
rather than paper. This helps to significantly reduce the cost of issuing,
distributing, processing and reconciling millions of transactions each year;
• No 'free lunch'. We eliminate unnecessary services which are complex to
manage such as free catering, pre-assigned seats, interline connections and
cargo services. This allows us to keep our total cost of production low; and
• Efficient use of airports. easyJet flies to main destination airports
throughout Europe, but gains efficiencies compared to traditional carriers
with rapid turnaround times, and progressive landing charge agreements with
airports.
Many have tried to imitate easyJet's business model, but few have succeeded. In
addition to all the factors above, our customer proposition is defined by 'low
cost with care and convenience'. This means that whilst we are committed to
keeping our costs low, we will provide our customers with a quality product and
good service; we fly to main European destinations from convenient local
airports; and provide friendly on board service. People are a key point of
difference at easyJet and are integral to our success. This allows us to attract
the widest range of customers to use our services - both business and leisure.
We have a powerful business model, with a strong well-recognised brand across
Europe. With a strong market presence and scale, we are well positioned to take
advantage of growth opportunities in the European low cost market. easyJet still
has only 6% of the total European market, which is forecast to grow by 5% to 6%
per annum. On this basis we have targeted an annual growth rate of 15% over the
medium term. We will do this by reinforcing our presence on our key routes,
whilst identifying new route development opportunities where the product
offering meets our goals.
Competitors
The markets in which easyJet operates are highly competitive, both from
traditional 'flag carrier' airlines such as British Airways, Air France/KLM,
Iberia and Swiss and from other low cost carriers such as Ryanair, Air Berlin
and Vueling. We face competition from other airlines on same city-pair routes,
from indirect flights, from charter services and also from other forms of
transport, such as rail. There are virtually no routes where we have no
competition. The level of intensity of the competition varies on a route by
route basis, and depends on the nature of the competitors. However, most of the
competitors we encounter have significantly higher unit costs than us. As a
result, whilst these competitors can on occasion offer lower fares than easyJet,
they cannot compete with our fares every day without an adverse financial
effect.
Network
We have continued to develop the network during the year in a manner that
absorbed the 12.1% growth in new capacity. At 30 September 2006, the easyJet
network covered 262 routes and 74 airports, compared to 212 and 64 at the same
time last year.
During the year, we have added 11 new cities to the easyJet network: Bordeaux,
Bournemouth, Bremen, Istanbul, Lisbon, Marrakesh, Palermo, Rijeka, Rimini, La
Rochelle and Split. A new base was opened at Milan Malpensa during the year, and
a further base has been announced at Madrid Barajas for the coming financial
year.
Resources and relationships
Fleet
At the end of September 2006, the fleet comprised 35 Boeing 737s and 87 Airbus
A319s, giving a total of 122 aircraft, up from the 54 Boeing 737s and 55 Airbus
A319s at the start of the financial year. Details of the fleet at 30 September
2006 are as follows:
Future
deliveries
Under Under (including Unexercised
operating finance Changes exercised options
Owned lease lease Total in year options) (note 1)
Airbus A319s 38 43 6 87 32 53 100
Boeing 737-700s - 32 - 32 - - -
Boeing 737-300s - 3 - 3 (19) - -
---------- ------- ------- ------- ------ ------ ------ -------
38 78 6 122 13 53 100
========== ======= ======= ======= ====== ====== ====== =======
Notes:
1. Options may be taken as any Airbus A320 family aircraft and are valid until
2012.
A further 53 Airbus A319 aircraft are planned to be delivered through to
September 2009. This will give us a modern fleet of aircraft that will underpin
our high levels of asset utilisation and increase our operational efficiency.
The average fleet age is currently 2.2 years (2005: 3.0 years).
During the year, 20 aircraft which had been under option at 30 September 2005
were converted into firm future deliveries.
On 13 November 2006, easyJet agreed that, subject to shareholder approval, it
had converted a further 52 of its Airbus option aircraft to firm deliveries in
2008, 2009 and 2010; furthermore an additional 75 purchase rights had been
obtained for aircraft which could be delivered during the period to 2015.
Fleet changes:
The total fleet over the period to 30 September 2009 based on contractual
commitments, excluding the order pending shareholder approval, 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 - 137
At 30 September 2008 120 29 - 149
At 30 September 2009 140 18 - 158
Whilst we are very confident of growing the business at this rate, we have
contractual rights with Airbus that allow us to moderate or accelerate our
capacity growth within certain constraints.
Aircraft financing
Of the 32 aircraft that were delivered to easyJet during the year, 16 were
mortgage financed through US dollar or sterling loans, 2 were temporarily cash
acquired with mortgage finance drawn after year-end, 6 were sold to lessors and
leased back under operating leases, 5 were financed through sale and finance
leasebacks, and 3 were cash acquired supported by a Standby Facility. In
addition, one previously delivered mortgage financed aircraft was restructured
into sale and finance leaseback funding in the year.
During the year, we continued to secure financing for the Airbus delivery
stream. We have now committed facilities available for 18 of the remaining 53
Airbus aircraft yet to be delivered. 3 of these aircraft will be subject to sale
and leaseback, 8 will be financed through mortgage finance, and a further 7
aircraft will be supported by the Standby Facility.
Our people
At 30 September 2006 there were 4,859 employees in easyJet, an increase of 17.0%
during the year from 4,152 at 30 September 2005. Whilst this was in excess of
the growth of the business, the principal reason for this was the commencement
of self handling at some of our Spanish airports (Alicante, Almeria, Asturias,
Palma and Malaga), which has added 204 employees during the year. After allowing
for this change, the rate of increase was 12.1%, in line with the rate of growth
of the business, and indicative of management's focus on cost control.
Our people are integral to differentiating easyJet from our competitors and
allowing us to deliver low cost with care and convenience. In the Corporate and
Social Responsibility report in the annual report and accounts 2006, we comment
in detail on the way in which easyJet values and manages its people.
Relationship with our customers
easyJet has a strong and consistent brand positioning. easyJet is the smarter
choice for both business and leisure travel because it allows customers the
chance to travel with low fares, convenience and the care they deserve. People
travel with easyJet out of choice rather than compromise.
easyJet offers consistently low prices.
Central to it's core philosophy, easyJet offers:
• Safety first approach
• New reliable fleet
• Friendly attentive cabin crew trained in the easyJet way at our own
accredited training academy
• A customer service programme which listens to all customer queries and
complaints in an honest and reasonable manner
• Attractive in-flight refreshment and gift service
easyJet strives to offer a convenient service to its passengers. easyJet offers:
• Flights to and from major airports
• Multiple daily flights on major routes
• Flexibility to take earlier or later flights
• Easy to use website
• On line check in
• Hand baggage only check in
• Speedy boarding
Suppliers
We aim to have partnership agreements with our suppliers, which stress the
importance of strong suppliers aligned to the success of easyJet as a business.
We are committed to payment of suppliers within agreed terms. Many of our supply
agreements are unique and tailored to the needs of our business, to make sure
that our suppliers are rewarded appropriately for delivering services which meet
pre-agreed performance targets and align with easyJet's own internal performance
goals.
Selected consolidated financial and operating Year ended 30 September Change
data
(unaudited) 2006 2005 %
Key performance indicators
Return on equity (1) 10.1% 7.1% 3.0pp
Profit before tax per seat, £ (2) 3.32 2.38 39.6
Revenue per seat, £ (3) 41.66 38.66 7.8
Cost per seat, £ (4) 38.34 36.28 5.7
Cost per seat excluding fuel, £ (5) 28.36 28.78 (1.5)
Seats flown (millions) (6) 38.9 34.7 12.1
Output measures
Passengers (millions)(7) 33.0 29.6 11.5
Number of aircraft owned/leased at end of period(8) 122.0 109.0 11.9
Average number of aircraft owned/leased
during period(9) 115.2 102.6 12.3
Number of aircraft operated at end of period(10) 118.0 103.0 14.6
Average number of aircraft operated during
period(11) 107.0 94.0 13.8
Sectors(12) 253,548 229,068 10.7
Block hours(13) 454,823 401,588 13.3
Number of routes operated at end of period 262 212 23.6
Number of airports served at end of period 74 64 15.6
Other performance measures
Load factor(14) 84.8% 85.2% (0.4)pp
Operated aircraft utilisation (hours per day)(15) 11.6 11.7 (0.5)
Owned/leased aircraft utilisation (hours
per day)(16) 10.8 10.7 0.8
Available seat kilometres ('ASK') (millions) (17) 37,088 32,141 15.4
Revenue passenger kilometres ('RPK')(millions)(18) 31,621 27,448 15.2
Average sector length (kilometres) 954 926 3.0
Average fare (£)(19) 45.17 42.43 6.4
Revenue per ASK (pence)(20) 4.37 4.17 4.6
Cost per ASK (pence)(21) 4.02 3.92 2.6
Footnotes
1 Represents the profit after tax divided by the average of opening and closing
shareholders' funds
2 Represents profit before tax divided by the number of flown seats available
for passengers
3 Revenue per seat represents total revenues divided by the number of seats
flown available for passengers
4 Represents total revenues less profit before tax, divided by the number of
seats flown available for passengers
5 Represents total revenues less profit before tax plus fuel costs, divided by
the number of seats flown available for passengers
6 Represents the number of seats flown available for passengers
7 Represents the number of earned seats flown by easyJet. Earned seats include
seats that are flown whether or not the passenger turns up, because easyJet is
generally a no-refund airline and once a flight has departed a no-show
customer is generally not entitled to change flights or seek a refund. Earned
seats also include seats provided for promotional purposes and to easyJet
staff for business travel.
8 Represents the number of aircraft owned plus those held on lease arrangements
of more than one month's duration at the end of the relevant period.
9 Represents the average number of aircraft owned plus those held on lease
arrangements of more than one month's duration during the relevant period.
10 Represents the number of owned/leased aircraft in service at the end of the
relevant period.
11 Represents the average number of owned/leased aircraft in service during the
relevant period.
12 Represents the number of one-way revenue flights.
13 Represents the number of hours that aircraft are in actual service, measured
from the time that each aircraft leaves the terminal at the departure airport
to the time that such aircraft arrives at the terminal at the arrival
airport.
14 Represents the number of passengers as a proportion of the number of seats
available for passengers. No weighting of the load factor is carried out to
recognise the effect of varying flight (or 'stage') lengths.
15 Represents the average number of block hours per day per aircraft operated
during the relevant period.
16 Represents the average number of block hours per day per aircraft owned /
leased during the relevant period.
17 Represents the sum by route of seats available for passengers multiplied by
the number of kilometres those seats were flown.
18 Represents the sum by route of passengers multiplied by the number of
kilometres those passengers were flown.
19 Represents the passenger revenue divided by the number of passengers carried.
20 Represents the total revenue divided by the total number of ASK's.
21 Represents the difference between total revenue and profit before tax,
divided by the total number of ASK's.
22 Includes credit card fees, excess baggage charges, extra bag charges,
sporting equipment fees, speedy boarding fees, infant fees, changes fees and
change fees, profit share from in-flight sale of food, beverages and boutique
items, commissions received from products and services sold such as hotel
bookings, car hire bookings and travel insurance, less chargebacks.
23 Includes revenue from ticket sales and ancillary revenue.
24 Includes principally administrative costs and operational costs not included
elsewhere, including some salary expenses, compensation paid to passengers
and certain other items such as currency exchange gains and losses and the
profit or loss on the disposal of fixed assets.
25 EBITDAR is defined by the Group as earnings before interest, taxes,
depreciation, amortisation, share of profits of associates and lease payments
(excluding the maintenance reserve component of operating lease payments).
Maintenance reserve costs are charged to the cost heading 'maintenance'.
Consolidated income statement
Notes Year ended 30 September
2006 2005
£million £million
Passenger revenue 1,488.4 1,254.2
Ancillary revenue(23) 131.3 87.2
-------------------------- ----- --------- ---------
Revenue (24) 1,619.7 1,341.4
Ground handling charges, including salaries (144.1) (130.5)
Airport charges (258.4) (230.1)
Fuel (387.8) (260.2)
Navigation charges (121.2) (108.6)
Crew costs, including training (160.0) (136.2)
Maintenance (109.5) (119.2)
Advertising (38.2) (32.8)
Merchant fees and incentive pay (17.9) (15.6)
Aircraft and passenger insurance (15.8) (19.3)
Other costs(25) (88.3) (82.4)
-------------------------- ----- --------- ---------
EBITDAR (26) 278.5 206.5
Depreciation (27.4) (15.8)
Amortisation of intangible assets (0.8) (0.8)
Aircraft dry lease costs (122.9) (123.7)
Aircraft long-term wet lease costs (9.6) -
-------------------------- ----- --------- ---------
Group operating profit (EBIT)
117.8 66.2
Interest and other finance income 35.4 27.2
Interest and other finance charges (24.1) (10.9)
-------------------------- ----- --------- ---------
Net financing income 11.3 16.3
Share of profit after tax of associate 0.1 0.1
-------------------------- ----- --------- ---------
Profit before tax 129.2 82.6
Tax 4 (35.1) (23.6)
-------------------------- ----- --------- ---------
Profit after tax 94.1 59.0
========================== ===== ========= =========
Earnings per share (pence) 3
Basic 23.18 14.78
Diluted 22.64 14.43
Consolidated balance sheet
Notes 30 September
2006 2005
£million £million
Goodwill 309.6 309.6
Other Intangible assets 1.1 1.4
Property, plant and equipment 6 695.7 398.6
Financial instruments
Restricted cash 26.1 22.4
Derivative financial instruments 2 0.4 -
Other non-current assets 2.9 6.7
Investments accounted for using the equity 0.3 0.2
method
Deferred tax assets 0.3 -
---------------------- ------ ---------- ----------
Non-current assets 1,036.4 738.9
Trade and other receivables 213.3 210.7
Asset held for sale - 7.1
Financial instruments
Restricted cash 12.2 6.1
Derivative financial instruments 2 1.0 -
Cash and cash equivalents 860.7 667.0
---------------------- ------ ---------- ----------
Current assets 1,087.2 890.9
Trade and other payables 7 (414.1) (342.9)
Borrowings 8 (32.8) (16.3)
Derivative financial instruments (15.3) -
Current tax liabilities (46.8) (38.9)
Provisions - (16.4)
---------------------- ------ ---------- ----------
Current liabilities (509.0) (414.5)
---------------------- ------ ---------- ----------
Net current assets 578.2 476.4
Borrowings greater than one year 8 (446.9) (201.0)
Derivative financial instruments (4.8) -
Other non-current liabilities 9 (74.8) (75.1)
Provisions (73.2) (53.6)
Deferred tax liabilities (32.0) (22.2)
---------------------- ------ ---------- ----------
Non-current liabilities (631.7) (351.9)
---------------------- ------ ---------- ----------
Net assets 982.9 863.4
====================== ====== ========== ==========
Ordinary shares 11 102.6 100.1
Share premium 11 591.4 557.2
Retained earnings 11 298.4 206.0
Other reserves 11 (9.5) 0.1
---------------------- ------ ---------- ----------
Shareholders' funds - equity 982.9 863.4
====================== ====== ========== ==========
Consolidated statement of cashflows
Year ended 30 September
Notes 2006 2005
£million £million
Cashflows from operating activities
Cash generated from operations 10 221.6 221.0
Interest received 32.5 28.8
Interest paid (24.4) (5.7)
Tax (paid) / received (4.5) 2.9
------------------------- ----- --------- ---------
Net cash from operating activities 225.2 247.0
Cashflows from investing activities
Proceeds from sale of property, plant and
equipment 87.4 75.5
Purchase of property, plant and equipment (408.3) (237.0)
Proceeds from sale of asset held for resale 7.1 -
Purchase of other intangible assets (0.5) (1.4)
Dividend received from joint venture - 0.2
------------------------- ----- --------- ---------
Net cash used in investing activities (314.3) (162.7)
Cashflows from financing activities
Net proceeds from issue of ordinary share capital 17.9 2.0
Purchase of shares for employee share schemes (0.6) -
Net proceeds from drawdown of new bank loans 201.2 146.2
Net proceeds from sale and finance leasebacks 108.6 -
Repayment of bank loans (30.4) (46.9)
Repayment of capital elements of finance leases (1.0) -
Management of liquid resources (11.2) (14.2)
------------------------- ----- --------- ---------
Net cash inflow / (used) in financing activities 284.5 87.1
Effects of exchange rate changes (1.7) (0.4)
------------------------- ----- --------- ---------
Net increase in cash and cash equivalents 193.7 171.0
Cash and cash equivalents at beginning of period 667.0 496.0
------------------------- ----- --------- ---------
Cash and cash equivalents at end of period 860.7 667.0
========================= ===== ========= =========
Consolidated statement of recognised income and expense
Notes Year ended 30
September
2006 2005
£million £million
Cash flow hedges
Fair value losses in period, net of tax (17.6) -
Transfers to net profit (2.7) -
Translation differences on foreign currency
net investments - 0.1
------------------------- ----- --------- ---------
Income / (expense) recognised directly in
equity (20.3) 0.1
Profit for the period 94.1 59.0
------------------------- ----- --------- ---------
Total recognised income / (expense) for the
period attributable to shareholders of the
Company 73.8 59.1
On adoption of IAS 32 and IAS 39 2 13.3 -
------------------------- ----- --------- ---------
87.1 59.1
========================= ===== ========= =========
Financial year 2006 compared with financial year 2005
Key Performance Indicators
Return on equity
The Board has set return on equity as the key financial measure at easyJet,
since it best represents the return for the year attributable to the equity
shareholders.
Return on equity for financial year 2006 was 10.1% up from 7.1% in financial
year 2005. This was driven by a significant improvement in profit before tax and
the effective tax rate of the business, but was partially offset by the
introduction of new assets of £13.3 million relating to the value of financial
instruments on adoption of IAS39 on 1 October 2005, and £17.9 million relating
to the exercise of employee share options.
Management is incentivised through the Long Term Incentive Plan to deliver
increases in return on equity to 15% by 2008.
Profit before tax per seat, revenue per seat and cost per seat
Profit before tax per seat is a measure used internally to allow all our people
to understand and focus on the return on equity target, since the measures are
closely related. It is the difference between revenue per seat and cost per
seat, which are important measures that are used to monitor certain areas of the
business. Profit before tax per seat increased in financial year 2006 by 39.6%
from £2.38 to £3.32 as a result of a 7.8% increase in revenue seat from £38.66
to £41.66 (explained in more detail in 'Revenue' below), set off against an
increase in cost per seat of 5.7% from £36.28 to £38.34.
Cost per seat, excluding fuel
Since the significant volatility in easyJet's fuel cost is largely dictated by
external economic and political factors, we consider that the movement in cost
per seat excluding fuel is the best indicator of management's performance in
keeping unit costs low.
Cost per seat excluding fuel reduced by 1.5% from £28.78 to £28.36 in financial
year 2006. This was as a result of direct management action to control
overheads, despite cost increases resulting from disruption.
Seats flown
Seats flown is considered by management to be the best measure of output units
of production. The number of seats flown in financial year 2006 increased by
12.1% from 34.7 million to 38.9 million, as a result of the introduction of new
aircraft into the fleet.
Income statement
Revenue
easyJet's revenue increased 20.7% from £1,341.4 million to £1,619.7 million,
from financial year 2005 to financial year 2006. Revenue per seat increased 7.8%
from £38.66 to £41.66.
Passenger revenue, the largest component, comprises the price paid for the seat
less government taxes, such as Air Passenger Duty and VAT. It increased by 18.7%
from £1,254.2 million to £1,488.4 million, driven by an 11.5% growth in
passenger numbers from 29.6 million to 33.0 million, and a 6.4% increase in
average fares. The number of passengers carried reflected a 13.8% increase in
the size of the easyJet fleet in operation from an average of 94.0 aircraft to
an average of 107.0 aircraft offset by a small decrease in the average load
factor achieved from 85.2% to 84.8%.
Growth was particularly strong in continental Europe, with intra-European
revenues growing by 61.7%. The performance at our German bases and the successes
of our new bases at Basel and Milan Malpensa were the key drivers to this
growth.
Ancillary revenue includes fees and charges (including credit card fees, excess
baggage charges, sporting equipment fees, infant fees, change fees and rescue
fees), profit share from in-flight sales (including food, beverages, and
boutique items), and commissions received from products and services sold (such
as hotel bookings, car hire bookings and travel insurance), less chargebacks
from credit cards. In 2006, £131.3 million was earned from ancillary revenues,
up 50.6% from 2005. This has been driven by the 11.5% growth in passengers
carried, the positive effect of changes in arrangements for car hire, insurance
and in flight catering and increases in rates for change fees and credit card
fees.
Ground handling charges, including salaries
easyJet's ground handling charges increased by 10.4% from £130.5 million to
£144.1 million, from financial year 2005 to financial year 2006. The increase in
ground handling charges reflects the 10.7% increase in the number of sectors
flown, alongside mix costs as a result of network expansion decisions. Cost
savings were achieved as a result of self-handling and renegotiated third-party
handling in Spain. As a result, ground handling cost per seat decreased by 1.5%
from £3.76 to £3.71.
Airport charges
easyJet's external airport charges increased by 12.3% from £230.1 million to
£258.4 million from financial year 2005 to financial year 2006. This increase
was attributable to the growth in passengers carried of 11.5% and inflationary
cost increases at regulated airports. On a per seat basis, costs increased by
0.2% from £6.63 to £6.65.
Fuel
easyJet's fuel costs increased by 49.0% from £260.2 million to £387.8 million
from financial year 2005 to financial year 2006. This change is primarily due to
a 22.9% increase in easyJet's average US dollar fuel cost per tonne (excluding
hedging), compared with the previous year, resulting in additional costs to
easyJet of £69.4 million. The weakening of the value of sterling against the US
dollar, the currency in which fuel prices are denominated, provided an
additional cost of approximately £11.5 million. The impact of a significant
increase in flying and our hedging activities amounted to £52.5 million. Set
against this was the more fuel efficient fleet of aircraft which provided a
benefit of £5.8 million. On a per seat basis, costs increased by 33.0% from
£7.50 to £9.98.
Navigation charges
easyJet's navigation charges increased by 11.6% from £108.6 million to £121.2
million from financial year 2005 to financial year 2006. This increase was
principally attributable to a 15.4% increase in the ASKs flown in financial year
2006. Cost savings were derived from lower unit charges and a weaker Euro. On a
per seat basis, costs decreased by 0.4% from £3.13 to £3.12.
Crew costs
easyJet's crew costs increased by 17.5% from £136.2 million to £160.0 million
from financial year 2005 to financial year 2006. The increase in crew costs
resulted from an increase in headcount during the financial year 2006 to service
the additional sectors and aircraft operated by easyJet during the year, the
increase in salaries, following a new pay deal agreed with our flight crew and
cabin crew employees, and the costs of recruitment. On a per seat basis, costs
increased by 4.9% from £3.92 to £4.12.
Maintenance
Maintenance expenses decreased by 8.2% from £119.2 million to £109.5 million
from financial year 2005 to financial year 2006. easyJet's maintenance expenses
consist primarily of the cost of routine maintenance and spare parts and
provisions for the estimated future cost of heavy maintenance and engine
overhauls on aircraft operated by easyJet pursuant to dry operating leases. The
extent of the required annual maintenance reserve charges is determined by
reference to the number of flight hours and cycles permitted between each engine
shop visit and heavy maintenance overhaul on aircraft airframes. The decrease in
maintenance costs was largely due to the benefits of new contractual
arrangements being negotiated with lower prices, such as with SR Technics,
offset by the additional cost of a 10.7% increase in the number of sectors
flown. On a per seat basis, costs reduced by 18.1% from £3.44 to £2.82.
Advertising
easyJet continues to advertise to consolidate the awareness of the brand and its
low fares philosophy. Advertising costs increased by 16.4% from £32.8 million to
£38.2 million from financial year 2005 to financial year 2006. Advertising cost
per seat increased by 3.9% from £0.94 to £0.98 principally due to the effect of
entering new markets such as Milan during the year.
Merchant fees and incentive pay
Merchant fees and incentive pay increased by 14.5% from £15.6 million to £17.9
million from financial year 2005 to financial year 2006. Merchant fees and
incentive pay includes the costs of processing fees paid for all of easyJet's
credit and debit card sales and the per-seat sold/transferred commission paid as
incentive pay to easyJet's telesales staff. The increase is reflective of a
larger volume of transactions in line with the growth of the business. On a per
seat basis, costs increased by 2.2% from £0.45 to £0.46.
Aircraft insurance
Aircraft insurance costs reduced by 18.0% from £19.3 million in financial year
2005 to £15.8 million in financial year 2006, despite a 11.5% increase in
passenger numbers. This was as a result of lower rates being negotiated offset
by the effect of the weakening of sterling against the US dollar. On a per seat
basis, costs decreased by 26.8% from £0.56 to £0.41.
Other costs
Other costs increased by 7.1% from £82.4 million to £88.3 million from financial
year 2005 to financial year 2006. Items in this cost category include
administrative costs and operational costs not included elsewhere including some
salary expenses. This cost category also includes compensation paid to
passengers and other related disruption costs, the cost of share option schemes
and management bonuses.
Depreciation
Depreciation charges increased by 73.4% from £15.8 million to £27.4 million from
financial year 2005 to financial year 2006. The depreciation charge reflects
depreciation on owned aircraft and capitalised aircraft maintenance charges, and
also includes depreciation on computer hardware and other assets. easyJet has
owned an average of 29.2 Airbus A319 aircraft during the financial year 2006
(2005: 4.1 Boeing 737-300 aircraft and 10.6 Airbus A319 aircraft). The increase
in depreciation reflects the introduction of new owned Airbus aircraft, and a
weakening in the average value of sterling against the US dollar. Aircraft are
purchased in US dollars, and a stronger dollar will mean higher depreciation
charges over the life of the asset. On a per seat basis, depreciation increased
by 54.7% from £0.46 to £0.71.
Aircraft dry lease costs
easyJet's aircraft dry lease costs comprise the lease payments paid by easyJet
in respect of those aircraft in its fleet operated pursuant to dry operating
leases and end of operating lease return costs. Aircraft dry lease costs
decreased by 0.6% from £123.7 million to £122.9 million from financial year 2005
to financial year 2006. During the period 6 new Airbus A319 aircraft were added
to the fleet on lease agreements and 19 Boeing 737-300s were retired. The
average number of leased aircraft during the year decreased by 2.2% to 86.0.
Year over year, easyJet has been impacted by the weakening of the value of
sterling against the US dollar, the currency in which lease costs are
denominated and rising dollar interest rates.
Despite this, easyJet has seen its average leasing cost per aircraft decrease by
around 1.7% year-on-year. On a per seat basis aircraft dry lease costs decreased
by 11.3% from £3.56 to £3.16.
Aircraft long-term wet lease costs
easyJet's aircraft wet lease costs comprise the lease payments paid by easyJet
in respect of aircraft pursuant to wet leases (that is, leases of aircraft plus
crew, maintenance, and insurance) of a duration of one month or more. The £9.6
million charge in 2006 relates to the costs incurred of leasing aircraft for the
summer 2006 season in order to deliver three and a half lines of flying in the
light of crew shortages. Wet leased aircraft are not included in fleet numbers
discussed elsewhere in the operating and financial review.
Interest and other finance income
Interest and other finance income represents interest received or receivable by
easyJet offset by the revaluation of financing assets and liabilities. Interest
and other finance income increased by 30.1% from £27.2 million in 2005 to £35.4
million in 2006. This reflects an increase in the cash and restricted cash
balances during the year from £695.5 million to £899.0 million.
Interest and other finance charges
Interest and other finance charges represents interest paid or payable by
easyJet offset by the revaluation of financing assets and liabilities. Finance
charges relate predominantly to easyJet borrowings through either loans or sale
and finance leasebacks. The average number of aircraft held under these
arrangements increased by 82.3% from 14.7 in 2005 to 26.8 in 2006. Interest and
other finance charges increased 120.9% from £10.9 million in 2005 to £24.1
million in 2006. This primarily reflects an increase in bank loans from £217.3
million to £479.7 million due to the financing of new Airbus aircraft. In
addition there was an increase in US dollar and sterling interest rates. Foreign
exchange revaluations on financing items produced a net expense of £ 1.4 million
during 2006.
Share of profit after tax of The Big Orange Handling Company
The Big Orange Handling Company Limited is a joint venture company owned by
Menzies Aviation Limited and easyJet. It was set up in January 2004 to provide
ground handling services at London Luton airport. During the financial year
2006, the share (26%) of the profit after tax attributable to easyJet was £0.1
million (2005: £0.1 million).
Taxation
In financial year 2006, easyJet incurred a tax charge of £35.1 million, an
effective tax rate of 27.2% (2005: £23.6 million charge, being 28.6% effective
tax rate). The effective tax rate is lower than the UK standard rate of tax
principally due to some of the Group's income being taxed in other
jurisdictions, where lower tax rates apply. A more detailed explanation may be
found in note 4 to the financial information.
The net deferred tax liability increased by £9.5 million from £22.2 million to
£31.7 million, primarily due to capital allowances taken being in excess of
depreciation charges.
Profit after tax
For the reasons described above, easyJet's profit after tax increased by 59.4%
from £59.0 million in financial year 2005 to £94.1 million in financial year
2006.
Earnings per share
The basic earnings per share increased by 56.8% from 14.78 pence in the
financial year 2005 to 23.18 pence in the financial year 2006.
Balance sheet
Goodwill
Goodwill relates to the purchases of TEA Basel and Go Fly. No impairment was
made to the carrying value of either asset in either the current or previous
financial year.
Property, plant and equipment
Tangible fixed assets comprise principally owned aircraft, spares and deposits
paid to Airbus in respect of the delivery of future aircraft which are not to be
financed according to sale and leaseback arrangements. The net book amount
attributable to tangible fixed assets increased from £398.6 million at 30
September 2005 to £695.7 million at 30 September 2006. The increase is due to
capital expenditure of £413.2 million, set out in more detail in 'capital
expenditure' below, set off against disposals of £88.7 million and depreciation
of £27.4 million.
Other non-current assets
Other non-current assets comprise principally capitalised software and software
development costs, restricted cash, deposits paid in respect of Airbus aircraft
to be financed by sale and leaseback which deliver in more than one year. The
total of other non-current assets has increased from £30.7 million at 30
September 2005 to £31.1 million at 30 September 2006.
Cash and cash equivalents
Cash and cash equivalents, excluding restricted cash, has increased by 29.0%
from £667.0 million to £860.7 million.
Other current assets
Other current assets comprise trade and other receivables, restricted cash,
derivative financial instruments and assets held for sale. Other current assets
increased by 1.2% from £223.9 million at 30 September 2005 to £226.5 million at
30 September 2006.
Trade and other receivables comprise principally trade receivables, amounts due
from credit card companies in respect of seat sales, supplier and lease deposits
and prepayments. Trade and other receivables have increased by 1.2% from £210.7
million at 30 September 2005 to £213.3 million at 30 September 2006, principally
due to the growth of the business.
Current liabilities
Current liabilities have increased by 22.8% from £414.5 million at 30 September
2005 to £509.0 million at 30 September 2006, principally due to the growth of
the business
Non-current borrowings
Non-current borrowings all relate to debt related to owned aircraft. The amount
increased by 122.3% from £201.0 million at 30 September 2005 to £446.9 million
at 30 September 2006, due to the acquisition of more owned aircraft subject to
debt finance arrangements, set off against the weakening of the US dollar
compared to sterling.
Other non-current liabilities
Other non-current liabilities include provisions for maintenance liabilities,
deferred surpluses on the sale and leaseback of aircraft and deferred tax
provisions. The amount increased by 22.5% from £150.9 million at 30 September
2005 to £184.8 million at 30 September 2006. Whilst the deferred tax provision
increased by £9.8 million, the deferred surplus on sale and leaseback reduced
due to the small number of aircraft taken under sale and leaseback during 2006,
whilst the maintenance provisions reduced due to the weakening of the US dollar,
the currency in which much of the provision is denominated.
Cashflow
Capital expenditure
Group capital expenditure on property, plant and equipment is set out in note 9
to the financial statements, and is summarised as follows:
2006 2005
£million £million
Aircraft 353.7 162.3
Prepayments on account - aircraft deposits 49.8 71.3
Leasehold improvements 0.9 2.0
Fixtures, fittings and equipment 3.9 1.4
---------------------------- --------- ---------
Total cash capital expenditure 408.3 237.0
Aircraft spares received free of charge (non-cash
capital expenditure) 4.9 8.5
---------------------------- --------- ---------
Total capital expenditure 413.2 245.5
============================ ========= =========
As a result of a purchase agreement approved by shareholders in March 2003, the
Group is contractually committed to the acquisition of a further 53 Airbus A319
aircraft with a list price of approximately US$2.3 billion, being approximately
£1.3 billion (before escalations, discounts and deposits already paid). In
respect of those aircraft deposit payments amounting to US$164.3 million or
£90.9 million (2005: US$262.0 million, £145.5 million) had been made as at 30
September 2006 for commitments for acquisition of Airbus A319s. It is intended
that these aircraft will be financed partly by cash holdings and internal cash
flow and partly through external financing including committed facilities
arranged prior to delivery. In addition certain of the aircraft will be sold and
leased back under operating leases.
Working capital
At 30 September 2006, net current assets were £578.2 million, up £101.8 million
from £476.4 million at 30 September 2005. This change principally reflects an
increase in cash, an increase in debtors due to increased sales volumes offset
by an increase in creditors.
Unearned revenue increased from £160.3 million to £179.3 million due to
increased volumes.
Cash flow
Net cash inflow from operating activities totalled £225.2 million, a decrease of
£21.8 million from £247.0 million in 2005 primarily due to changes in working
capital
Financing arrangements
The following table sets out the movements in financing for the two years ended
30 September 2006:
2006 2005
£million £million
Balance at 1 October 217.3 119.8
New loans and finance leases raised 309.8 146.2
Capital repayments of loans and finance leases (31.4) (46.9)
Effect of exchange rates (12.9) 1.4
Effect of deferred financing fees (3.1) (3.2)
---------------------------- --------- ---------
Balance at 30 September 479.7 217.3
============================ ========= =========
Of the 32 Airbus A319s that were delivered during the year, 16 were financed
through US Dollar or sterling mortgage loans, 2 were temporarily cash acquired
with mortgage finance drawn after year-end, 6 were sold to lessors and leased
back under operating leases, 5 were sold to lessors and leased back under
finance leases, and 3 were cash acquired supported by a Standby Facility. In
addition, 1 previously delivered mortgage financed aircraft was restructured
into sale and finance leaseback funding in the year.
Share capital
The number of shares allotted, called up and fully paid on 30 September 2006 was
410.5 million (2005: - 400.4 million). During 2006, 10.1 million shares were
issued on exercise of options under employee share option schemes (2005: 1.2
million).
easyJet plc preliminary results 2006
Notes to the financial information
1. Basis of preparation
The financial information set out in this document does not constitute the
statutory accounts for easyJet plc for the two years ended 30 September 2006 but
is derived from those accounts.
easyJet plc ('easyJet' or the 'Group' or the 'Company') has historically
prepared its audited annual financial statements under UK Generally Accepted
Accounting Practice (UK GAAP). In the current year, easyJet has adopted
International Financial Reporting Standards (IFRS) for the first time as the
Group is required to present its annual consolidated financial statements in
accordance with accounting standards adopted for use in the European Union (EU).
The financial information has been prepared under the Group's IFRS accounting
policies, details of which were made available on 20 January 2006 in the
document entitled 'Explanation of the financial impact following adoption of
International Financial Reporting Standards', except for as noted below. That
document contains reconciliations of easyJet's equity and results from UK GAAP
to IFRS at the date of transition to IFRS, 1 October 2004, and for the year
ended 30 September 2005.
easyJet has adopted IAS 32, Financial Instruments: Disclosure and Presentation
and IAS 39 Financial Instruments: Recognition and Measurement from 1 October
2005 and applied the exemption not to restate its comparative information for
the impact of these standards. The Group's accounting policies for these
standards are included in the document 'Explanation of the financial impact
following adoption of International Financial Reporting Standards', which can be
viewed under the financial information section of our website, easyJet.com. The
Group has chosen to recognise the fair value of all financial Instruments as
current assets and liabilities on the balance sheet. The Group's accounting
policies for Financial Instruments in the periods to 30 September 2005 are
included in the Group's annual report and accounts for the year ended 30
September 2005. The impact of adopting IAS 32 and IAS 39 is explained below.
During the year ended 30 September 2006, the Group revised the period over which
it depreciates Airbus A319 aircraft. Aircraft that the Group holds are expected
to have an operational life of 20 - 30 years. Prior to September 2006 the Group
depreciated its aircraft over seven years, which was the period that it expected
to hold those assets for. The Group now holds aircraft over any period of up to
the end of their operational life as deemed appropriate. Therefore the assets
are depreciated to their residual value over a period of 23 years, which is
estimated to be the operational life of an Airbus A319. Previously, the Group
expected to hold aircraft for a period of approximately seven years before
selling them. This change in estimate of useful economic life did not have a
material impact on depreciation in the year ended 30 September 2006, and is not
expected to have a material impact going forwards.
The financial information for the year ended 30 September 2005 included in this
document is based upon easyJet's consolidated financial statements for that
year, restated for the adoption of IFRS. Those financial statements were
reported on by easyJet's auditors at that time and have been delivered to the
Registrar of Companies. The statutory accounts for 2006 will be delivered to the
Registrar of companies following easyJet's annual general meeting. The auditors
have reported on those accounts: their report was unqualified and did not
contain a statement under section 237 (2) or (3) of the Companies Act 1985.
2. Adoption of IAS 32 and IAS 39
As permitted by IFRS 1, IAS 32 and IAS 39 have been adopted prospectively from 1
October 2005 and as a consequence the fair value of certain financial
instruments have been measured and adjustments have been made to the Balance
Sheet at that date.
At 1 October 2005, easyJet has met the criteria to adopt hedge accounting for
foreign exchange and fuel derivative instruments. These instruments comprise
forwards and zero cost collars. As a result of applying hedge accounting, at 1
October 2005 the fair value of the financial instruments has been recognised as
a financial asset on the balance sheet, with the intrinsic value of the
instruments at that date being recognised in reserves, and the time value
portion being an adjustment to retained earnings.
Effect of changes on consolidated balance sheet at 1 October 2005:
At 30 Impact of
September adoption IAS 32 At 1 October
2005 and 39 2005
£million £million £million
Non-current assets 738.9 - 738.9
Financial assets - derivative
financial instruments - 21.0 21.0
Other current assets 890.9 (1.4) 889.5
------------------- --------- --------- ---------
Current assets 890.9 19.6 910.5
Current liabilities (414.5) - (414.5)
Deferred taxation (22.2) (6.3) (28.5)
Other non-current liabilities (329.7) - (329.7)
------------------- --------- --------- ---------
Non-current liabilities (351.9) (6.3) (358.2)
------------------- --------- --------- ---------
Net assets 863.4 13.3 876.7
=================== ========= ========= =========
Share capital and share
premium 657.3 - 657.3
Retained earnings 206.0 2.5 208.5
Other reserves 0.1 10.8 10.9
------------------- --------- --------- ---------
Shareholders' equity 863.4 13.3 876.7
=================== ========= ========= =========
3. Earnings per share
The earnings per share are based on the following:
Year ended 30 September
2006 2005
£million £million
Profit for the period retained for equity shareholders 94.1 59.0
million million
Weighted average number of ordinary shares in issue
during the period used to calculate basic earnings
per share 405.7 399.3
Weighted average number of dilutive share options
used to calculate dilutive earnings per share 9.7 9.6
4. Taxation
a) Tax on profit on ordinary activities
Year ended 30 September
2006 2005
£million £million
Current taxation: 17.3 18.2
Deferred taxation 17.8 5.4
------------------------- --------- ---------
Total taxation charge 35.1 23.6
========================= ========= =========
Effective tax rate 27.2% 28.6%
b) Tax on items charged to equity
Year ended 30 September
2006 2005
£million £million
Deferred tax credit on stock options 5.9 7.7
Deferred tax credit on fair value movements of
cashflow hedges 8.7 -
Current taxation 4.9 0.3
------------------------- --------- ---------
Total taxation credit / (charge) recognised in equity 19.5 8.0
========================= ========= =========
c) Reconciliation of the total taxation charge
Year ended 30 September
2006 2005
£million £million
Profit on ordinary activities before tax 129.2 82.6
Tax charge at 30% (2005: 30%) 38.8 24.8
Attributable to rate other than 30% (6.4) (3.4)
Expenses not deductible for tax purposes 2.0 4.1
Share based payments (0.3) -
Adjustments in respect of prior periods - current
taxation 1.6 2.9
Adjustments in respect of prior periods - deferred
taxation (0.6) (4.8)
------------------------- --------- ---------
Total taxation 35.1 23.6
========================= ========= =========
5. Dividends
No dividends have been paid or proposed in the period ended 30 September 2006 or
during the comparative accounting periods.
6. Property, plant and equipment
Aircraft Payments on Leasehold Fixtures, Total
account - impr'ments - fittings and
aircraft buildings equipment
deposits
£million £million £million £million £million
Cost
At 1 October
2005 299.3 117.7 6.0 12.8 435.8
Additions 358.6 49.8 0.9 3.9 413.2
Disposals (9.8) (83.7) - (0.8) (94.3)
Transfers to
other
non-current
assets - (2.6) - - (2.6)
------------ ------- ------- ------- ------- -------
At 30 September
2006 648.1 81.2 6.9 15.9 752.1
------------ ------- ------- ------- ------- -------
Depreciation
At 1 October
2005 23.5 - 3.0 10.7 37.2
Charge for
the year 23.9 - 1.9 1.6 27.4
Disposals (7.6) - - (0.6) (8.2)
------------ ------- ------- ------- ------- -------
At 30 September
2006 39.8 - 4.9 11.7 56.4
------------ ------- ------- ------- ------- -------
Net book value
------------ ------- ------- ------- ------- -------
At 30 September
2006 608.3 81.2 2.0 4.2 695.7
------------ ------- ------- ------- ------- -------
At 1 October
2005 275.8 117.7 3.0 2.1 398.6
------------ ------- ------- ------- ------- -------
The net book value of aircraft held under finance leases was £80.9 million (2005
£nil). £1.8 million of the related accumulated depreciation was charged in the
year ended 30 September 2006.
At 30 September 2006, aircraft with a net book value of £418.0 million (2005:
£228.8 million) were mortgaged to lenders as security for loans.
Aircraft spares totalling £4.9 million (2005 £8.5 million) were received free of
charge during the year.
7. Trade and other payables
Year ended 30 September
2006 2005
£million £million
Trade payables 31.5 6.6
Other taxes and social security 4.3 3.7
Other creditors 12.8 16.9
Unearned revenue (including Government taxes) 179.4 160.3
Accruals and deferred income 186.1 155.4
------------------------- --------- ---------
414.1 342.9
========================= ========= =========
8. Financial liabilities - Borrowings
Maturity of financial liabilities is as follows
30 September 2006 Bank loans Finance leases Total
£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
====================== ======== ======== ========
30 September 2005 Bank loans Finance leases Total
£million £million £million
Within one year 16.3 - 16.3
Between one and two years 17.0 - 17.0
Between two and five years 68.4 - 68.4
After five years 115.6 - 115.6
---------------------- -------- -------- --------
217.3 - 217.3
====================== ======== ======== ========
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 the relevant national LIBOR equivalent.
Finance lease obligations are secured against certain of the Group's aircraft.
See note 6.
9. Other non-current liabilities
Year ended 30 September
2006 2005
£million £million
Accruals and deferred income 74.8 75.1
------------------------- --------- ---------
74.8 75.1
========================= ========= =========
Accruals and deferred income includes the non-current excess of sale price over
fair value of certain assets that were subject to sale and operating lease back
transactions. These amounts will be released to the income statement over the
respective asset's lease term.
10. Reconciliation of net profit to net cash inflow from operating activities
Year ended 30 September
2006 2005
£million £million
Profit after tax 94.1 59.0
Adjustments for:
Tax charge 35.1 23.6
Depreciation charge 27.4 15.8
(Profit) / loss on disposal of property, plant and
equipment (1.3) 2.4
Amortisation of other intangibles 0.8 0.8
Interest income (35.4) (27.2)
Interest expense 22.7 8.2
Share based payments charge 4.7 2.0
Share of results of joint ventures after taxation (0.1) (0.1)
Financial instruments - time value 9.8 -
Foreign exchange (17.3) 5.3
Changes in working capital:
(Increase)/decrease in trade and other receivables (6.9) 21.1
Increase in payables 79.0 43.3
Increase in provisions 3.2 27.2
Decrease in other non-current assets 5.7 12.2
Decrease in financial instruments 0.4 -
(Decrease)/Increase in other non-current liabilities (0.3) 27.4
------------------------- --------- ---------
Cash generated from continuing operations 221.6 221.0
========================= ========= =========
11. Consolidated reconciliation of movements in shareholders' equity
Share Share Other Other Retained Total
capital premium reserves reserves earnings
- hedging - trans'n
£million £million £million £million £million £million
At 30 September
2005 100.1 557.2 - 0.1 206.0 863.4
Adoption of
IAS 32 and
IAS 39 (note 2) - - 10.8 - 2.5 13.3
------------ ------- ------- ------- ------- ------- -------
At 1 October
2005 100.1 557.2 10.8 0.1 208.5 876.7
Profit for
the period - - - - 94.1 94.1
Cashflow hedges
Fair value losses
in period, net
of deferred tax - - (17.6) - - (17.6)
Transfers to
net profit,
net of tax - - (2.7) - - (2.7)
Translation
differences
on foreign
currency net
investments - - - (0.1) - (0.1)
Share options
Proceeds from
shares issued 2.5 34.2 - - (18.8) 17.9
Value of
employee
services net
of deferred tax - - - - 15.2 15.2
Employee share
schemes -
purchase of
shares - - - - (0.6) (0.6)
------------ ------- ------- ------- ------- ------- -------
At 30 September
2006 102.6 591.4 (9.5) - 298.4 982.9
============ ======= ======= ======= ======= ======= =======
12. Contingent liabilities
The Group is involved in a number of disputes or litigation in the normal course
of business. Whilst the results of such disputes cannot be predicted with
certainty, easyJet believes that the ultimate resolution of these disputes will
not have a material effect on the Group's financial position or results.
13. Post balance sheet events
On 13 November 2006, easyJet agreed that, subject to shareholder approval, it
had converted a further 52 of its Airbus option aircraft to firm deliveries in
2008, 2009 and 2010; furthermore an additional 75 purchase rights had been
obtained for aircraft which could be delivered during the period to 2015.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 31st May 2024
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