Chairman's speech at easyJet Capital Markets Day
31 January 2012
Chairman of easyJet, Sir Michael Rake's speech at the airline's Capital Markets Day
Thank you Carolyn, very much indeed and welcome everybody.
I want to say a few words before this day's seminar starts and I wanted to start by saying the Board and myself are 100% behind this management team that Carolyn and Chris have led and we believe they have made enormous and significant progress in the last 20 months on every front and at every level. This includes our on time performance which has dramatically improved, our customer satisfaction ratings which have improved, and our staff engagement and co-operation with our cabin crew and pilots.
This together with many other initiatives has resulted in much improved financial performance for the company, both in terms of its operating profits, its yields and its Return On Capital Employed. This of course has all resulted in us being able to pay a dividend for the year just ended, and also a special dividend which we believe to be appropriate under these circumstances.
In addition, during the period that Carolyn has been Chief Executive we renegotiated the brand licence agreement to ensure the company has the right to control the brand on a day to day basis in return for a fair royalty to easyGroup.
We have also refreshed the board to ensure that we have a fresh independent view, with three new and effective, experienced Directors.
However, in spite of all this for 12 months now, Stelios and easyGroup have chosen to continuously attack the company in various different ways and increasingly personalise those attacks on individuals in the company. We have at all times, as you know, refrained from entering that level of debate.
We have continuously, and on numerous occasions, offered to meet with Stelios to discuss any concerns that he might have, to explain our rationale and to ensure that we do listen to him as the founder of the airline and as an individual owning 15% of the shares and being able to vote up to 37% of the shares.
This he has continuously refused to do with the exception of one meeting that was held on Saturday morning with Charles Gurassa, our new deputy chairman and Keith Hamill who are both members of the Remuneration Committee. As you know he came to his conclusions on remuneration before that meeting and has repeated his assertions since.
Whilst today I do not want to get into a detailed blow by blow account of the numerous inaccuracies and attacks on individuals in the company or the style or methodologies that have been used for that I do think there are a number of key facts that I do have to be clear upon today. Today's presentations will also demonstrate these facts.
First of all let me deal with the question of aircraft. The facts are these, in simple terms, all aircraft since 2002 were bought under an umbrella agreement, a master agreement that set the price and conditions for the purchase of aircraft.
This was an excellent deal, and much commented on by Stelios himself at the time who was personally involved in the negotiations. The last order placed prior to 2010 was in 2007 where 35 aircraft were ordered and 24 options were taken. This, of course, was when Stelios was on the board.
In January 2011 we the current board and management converted 15 of those 24 options to buy Airbus A320 aircraft and we converted another 20 aircraft from A319s to A320s. In conclusion we did not buy 35 aircraft - we ordered 15 and we converted 20.
I would like to make two factual comments in relation to these to clarify some of the comments that have been made.
In relation to the 15 aircraft, on December 14th 2010 Carolyn, Chris and I visited Stelios at his house in London to explain to him what we were going to announce on the 15 aircraft option conversions and the 20 conversions to A320s. He raised no objections.
In relation to the cost of these aircraft it is repeatedly said that these aircraft committed the company to $1.5 billion of expenditure. Whilst as you well know the conditions of the Airbus contract are confidential, all I can tell you is the actual amount involved is substantially less than a half of this figure. And these facts should be clear from the original umbrella agreement and the various positive changes that have been made by management since 2002.
The next issue that continuously comes up, in a very difficult environment for remuneration, and therefore gets a lot of attention, is the question of the Return On Capital Employed.
As you all know, as a result of the capital structure review we agreed it was better to move to a Return On Capital Employed figure. We took substantial advice on this area, including from two investment banks, and we linked it to the strategy that Carolyn unveiled in November 2010, which was about having flexible growth but with flexibility to adjust according to economic circumstances.
That's why we picked on the ROCE that could be most easily measured from the audited accounts and excluded the leases and off balance sheet items in that calculation. However, whichever calculation you use, whether its ROCE or whether its ROCE with leases on an NPV or multiple basis, the company has (A) significantly improved its return on capital, and (B) has outperformed most of its traditional competitors in terms of those returns.
As we've always said, as the accounting rules become clearer on what is a quite complex calculation we would move to bring those leases on balance sheet and measure return on capital on that basis.
It is now quite clear, and frankly this is because of the complexity of it, that these accounting rules are going to be delayed beyond 2013, so today we are going to show clearly the Return On Capital Employed on all three bases. We will continue to do so and we will continue to review the targets.
The third inaccuracy which has been put about that I really need to clarify is in relation to shares issued by the company. The "£7 million" of shares have been awarded to the top 10 management people and will only vest in full in 2015 if the company achieves 13% ROCE over those three years which is a very significant challenge.
There have also been references to £180 million of shares having been issued over the past ten years. Let me tell you that we will publish detailed information showing that 75% of these shares were pre-flotation shares that were allocated whilst Stelios was Chairman. These share options were exercised in the period 2000 to 2010.
The remaining 25% were issued between 2003 to 2010. All of these shares were issued to a broad range of staff including pilots and admin staff under SAYE and other schemes in the normal way. We believe such schemes are important for the motivation and retention of our staff.
In summary, I believe this is a fantastic company, I believe Stelios' idea and concept was brilliant, I believe Carolyn and the team have done an enormous job to move this forward and we would still welcome constructive, private engagement with any shareholder on areas where we could continue to improve our financial performance and improve the challenge to our management.
It is of course critical that we allow the company to move forward and continue to make progress. We are extremely conscious of the volatile conditions that exist in the market place which is why we said some time ago that we would cap the fleet at 204 aircraft for two winters whilst working on yield and working on maturing our routes.
I think you will see we've really started to do this in a successful way in the first and second quarters of this year. This is not to say there aren't challenges that we have to manage such as fuel, strikes and potential consumer demand issues.
We are confident that if we can continue with the strategy that Carolyn has adopted and vigorously implement it, with an enthusiastic and motivated workforce we can continue to deliver value for our shareholders and I hope today you will see the evidence of that.
Thank you.
For further information please contact easyJet plc:
Institutional investors and analysts:
Rachel Kentleton +44(0) 7961 754468
Tom Oliver +44(0) 7950 996262
Media
Paul Moore +44(0)7860794444
Edward Simpkins RLM Finsbury +44(0)7947 740551
This information is provided by RNS
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