2003 Preliminary Results
easyJet PLC
18 November 2003
EMBARGOED UNTIL 07.00
TUESDAY 18 NOVEMBER 2003
easyJet reports full-year trading profits of £96m on revenues of £932m
easyJet plc, Europe's leading low-cost airline, today reported record full-year
results for the financial year ended 30th September 2003, comfortably in line
with expectations.
Highlights of the results include:
•Revenue up 69% to £932m
•Profit before non-trading items, goodwill and tax up 7% to £96m,
supported by a strong second-half performance.
•Profit before tax down 28% to £52 m, reflecting the Iraq conflict in the
first half of the year and a number of one-off costs associated with the DBA
option, the integration of Go and the accelerated depreciation of aircraft
•Passenger numbers up 79% to 20.3m
•Ancillary revenue doubled to £52m
•Strong load factor of 84% maintained
•Cost per ASK reduced by 7.5% (before non-trading items, goodwill and tax)
•Average fare of £43.28, 6.7% lower than previous year
•Faster integration of Go-Fly and at lower cost than expected
•Earnings per share before goodwill amortisation of 12.7p (down from
15.5p)
•£335m cash on balance sheet
•21 new routes introduced into service
•First Airbus A319s successfully introduced into the fleet (21 to be
introduced in the current year)
easyJet Chief Executive, Ray Webster, said:
'This has been a year of two halves. Despite a challenging first half
characterised by extremely high growth and external pressures (the Gulf conflict
and economic uncertainty), we saw a return to strong profits in the second half
as a lower rate of capacity growth and improved economic environment both helped
to produce a profit before non-trading items, goodwill and tax of £96m.
'These are encouraging results, which demonstrate the popularity of our business
model, in one of the most difficult years in our industry with revenues up,
passengers up, profits before non-trading items up and unit costs down.
'In the current financial year, we are planning capacity growth in the order of
20%. Although there remains a degree of uncertainty, the economic environment is
improving and is substantially better than at this time last year. Our business
model, based on low-cost and convenience, has shown its resilience and I am
cautiously optimistic about our performance in the current year.'
ENDS
For further information, please contact
easyJet plc
Toby Nicol (+44) 01582 525 339
Financial Dynamics
Tim Spratt/Ben Foster (+44) 20 7831 3113
A briefing for analysts will be held at 09.30 on Tuesday 18th November at UBS
Ground Floor Conference Centre, 1 Finsbury Avenue, London, EC2M 2PP. For further
details please contact Abigail Forbes at Financial Dynamics on +44 20 7831 3113.
The presentation will be webcast live at 09.30 and will thereafter be available
for view as an archived version at easyJet.com (select 'about us' and then
'investor relations)
There will be a conference call for fund managers and analysts at 14:30 on
Tuesday 18th November. For further details please contact Abigail Forbes at
Financial Dynamics on +44 20 7831 3113.
Chairman's statement
This was an eventful year for easyJet, during which a number of factors
presented major challenges. War in Iraq, economic uncertainty and the SARS
epidemic all adversely affected sentiment about travel, both business and
personal. The Company also substantially completed the assimilation of the
airline Go Fly, decided to order 120 Airbus A319 aircraft and withdrew from the
option to acquire Deutsche BA from British Airways. Throughout, the airline has
continued to grow, itself another challenge. Yet the resilience and
determination of the easyJet team, so ably led by Ray Webster, has enabled a
highly creditable set of results to be produced.
For next year, the emphasis will be on improving margins, as the assimilation of
Go Fly is substantially completed and we start to benefit from the introduction
of the Airbus aircraft into service. A combination of a talented management team
and a supportive board, which is exceptionally well balanced in terms of
experience and expertise, gives me confidence that we will continue easyJet's
admirable record of profitable growth. This has been my first year as Chairman
and the single most impressive aspect of the Company for me has been the spirit
and commitment of easyJet's people. On behalf of the board, I offer them many
thanks and much appreciation for a job very well done.
Sir Colin Chandler
Chairman
17 November 2003
Chief Executive's review
Overview
In the year ended 30 September 2003, easyJet made a profit before tax of £51.5
million, a decrease of 28 per cent on the prior year. The adjusted profit before
tax was £96.3 million (2002: - £90.2 million). Details of adjusting items may be
found in the footnote below.
Earnings per share for the year were 8.24 pence (14.61 pence in 2002), or after
adjusting for the items in the footnote below were 18.01 pence (18.95 pence in
2002).
The year demonstrated the strength of easyJet's business model, particularly
given what has been a challenging environment for the airline industry. Despite
difficult market conditions, easyJet's point-to-point short haul network,
connecting major European airports, has continued to attract business and
leisure travellers alike. This, combined with yield managed low fares, led to
high levels of demand throughout the year, as evidenced by our load factor of
84.1% (2002: 84.8%).
With the load factor and an average fare of £43.28 (£46.37 in 2002) total
revenues grew 69 per cent to £932 million, of which 21 per cent was due to
organic growth and 48 per cent was due to the acquisition of Go Fly. The number
of passengers rose 79.1 per cent to 20.3 million, of which 27 per cent was due
to organic growth and 52 per cent was due to the acquisition of Go Fly.
Over the year, Available Seat Kilometres were 21,024 million (10,769 million in
2002), whilst the average sector length was up 8.0 per cent to 869 km. Revenue
per Available Seat Kilometre was down 13.5 per cent to 4.43 pence.
As planned, the second half of the year had a slower rate of additional capacity
growth, (17 per cent year on year in the second half compared to 38 per cent in
the first half, on a proforma basis, as measured by sectors flown).
In the second half of the year an improved geopolitical background and some
signs of increased confidence in a future economic recovery led to an
improvement in the operating environment. Summer trading resulted in yields
increasing to levels roughly comparable to the second half of the year ended 30
September 2002. With yields decreasing 1.2 per cent year on year in the second
half and load factors averaging 85.7 per cent, a second half profit before
goodwill amortisation, committed contribution to Deutsche BA, write off of
investments, costs of integrating the businesses of Go Fly and easyJet,
accelerated depreciation of certain owned aircraft, and tax of £118 million
(2002: - £82 million) was earned.
Strategy and business model
Our strategy and business model have stood the test of this difficult year. Both
remain unchanged. In a year of tough trading conditions and relatively strong
organic growth (averaging 25.6% in terms of capacity), yields were 6.7 % below
the previous year whilst the load factor was maintained at a level comparable
with the prior year.
Our over-riding commitment is to safety and customer service, rooted in a strong
and dynamic culture that can accommodate our continuing rate of growth. The
business model is:
•Dense point-to-point network
- Linking major airports with large catchment areas
- High levels of frequency
- Attractive to business and leisure travellers
•Strong, visible brand
- Extremely high levels of awareness with consumers
- Supported by innovative and effective advertising
•Dynamic fares
- Simple fare structure; the earlier you book, the less you pay
- Aim to be the lowest fare on the route
- Demand led, with proprietary yield management system
•100% direct sales
- easyJet does not pay commissions to intermediaries
- over 90% of sales are on-line
•Highly utilised fleet
- A large, modern, efficient and relatively environmentally friendly
fleet
- The introduction of Airbus A319 aircraft, combined with the
retirement of 'old generation' Boeing 737 aircraft, will result in a
two-type 'new technology' fleet, which will increase commonality and
lessen complexity
- High levels of asset utilisation reduce unit costs
•Scaleable
- The key to sustaining high levels of growth is the scaleability of
the operations
- This also reduces the marginal cost of incremental growth
- Increasing scale brings valuable economies
Acquisition of Go Fly and the DBA option
The integration of Go Fly, acquired on 31 July 2002, is now substantially
complete. We are very pleased to have achieved a successful integration well
ahead of our original timetable as this means that the costs of integration and
the associated disruption have been minimised and the benefits have started to
accrue earlier. Overall, the integration costs incurred during the year were
£7.9 million, somewhat less than the originally anticipated £14 million. The
first milestone was the creation of a single 'easyJet' brand, with a single
computer reservation system and single yield management system. The second
milestone was the migration to a single UK Air Operator's Certificate (in
addition to the Swiss Air Operator's Certificate). In practice this means that
the airline's UK operations have been run as a single unified entity for most of
the year.
In August 2002 easyJet signed an option agreement to purchase the German airline
Deutsche BA. This represented a potentially attractive opportunity to enter the
German domestic market. This option was terminated in March 2003 after it became
apparent that the rigidity of German labour laws would prevent us from operating
our low cost model and the domestic German market had further deteriorated. The
total costs relating to this option in the financial year were £9.1 million.
Network
The network has continued to develop well over the year and has readily absorbed
the integration of both Go Fly and the 25.6% growth in new capacity, measured by
sectors operated, added to the fleet. At 30 September 2003, the easyJet network
covered 105 routes, 35 cities and 38 airports.
Our first priority continues to be increasing frequency on existing routes as
this brings economies in terms of the operations and increases the
attractiveness of easyJet's service to consumers - particularly in the business
sector. It is also the lowest risk route to growth and in the year to September
2003 this accounted for approximately two thirds of the net growth in capacity.
Our second priority is to add flights between existing destinations, known as
joining the dots, which benefits from synergies with existing operations and
customer relationships at each destination. Our third priority is to add new
destinations to the network. These collectively accounted for the other one
third of the net growth in capacity in 2003.
During the year 21 new routes were added across Europe. A number of new routes
have linked UK airports to European cities and leisure destinations, with
additions particularly occurring at Newcastle and London Gatwick.
In Europe we have strengthened our presence in Paris with approximately 7,500
new slots at Orly. This has enabled us to commence five new non-UK routes
linking Paris Orly to Barcelona, Milan, Marseille, Toulouse and Nice. This has
provided a substantial presence at this major airport and we expect to grow our
presence here in the future. We have been very pleased with the initial uptake
on these new routes and their exciting future potential.
Following the year end we have also added some important new routes to London
Gatwick, linking it to Bilbao, Marseille and Toulouse from 26 October. During
the year we also entered into a competitive tendering process in order to
encourage European airports to come to us with proposals for establishing low
cost operations to their cities. This resulted in over 80 tenders, from which a
shortlist of less than ten was selected for further negotiations. The selection
criteria are based on both the attractiveness and convenience of the airport's
catchment area as well as the willingness and ability of the airport to
accommodate easyJet's low cost ethos and work practices. We announced on 5
November 2003 that Berlin Schoenefeld will become a new base for easyJet, with
11 new routes commencing before September 2004.
Recently, there has been speculation that the outcome of the European
Commission's impending decision on Ryanair's relationship with Charleroi airport
could impact on easyJet's business.
Our business model does not rely on the smaller publicly owned airports that
Ryanair has made its bases in continental Europe. By contrast, easyJet serves
the major airports in the major cities and while we negotiate excellent deals at
these airports, we only aim for long term sustainable deals which provide
shareholder value for both the airline and the airport.
This means working hard with our airport partners to reduce costs by making our
joint businesses more efficient by applying well proven easyJet business
processes. This does not mean that we don't negotiate hard, we do. But we don't
believe that anything apart from a win:win for both parties is sustainable in
the long term. We certainly don't expect any other party (the state, the airport
or the community) to pay for our operation. We achieve low cost by design.
Fleet
At the end of the financial year the fleet comprised 73 Boeing 737s and one
Airbus 319, up from the 64 Boeing 737s at the start of the year. The Boeing
fleet consists of 26 new 737-700s and 12 new 737-300s which have been sourced to
our own specifications, and 35 variant 737-300s, many of which were former Go
Fly aircraft. One new Airbus 319 was delivered in the second half of September
2003 and commenced flying after the year end.
The planned delivery stream underpins our anticipated long term capacity growth
rate. Some capacity was brought forward to take advantage of specific
opportunities at Paris Orly.
During the next four years a further six Boeing 737-700s and 119 Airbus 319s
will be delivered and non-standard Boeing 737-300s will be retired. This will
give us a modern fleet of aircraft that will underpin our high levels of asset
utilisation, increase our operational efficiency and reduce our unit cost base.
Planned fleet changes - additions/(retirements):
New Airbus 319s New Boeing 737-700s Variant
and 737-300s Boeing 737-300s
At 30 September 2002 - 30 34
Year ending 30
September
2003 1 8 1
Year ending 30
September
2004 22 6 (10)
Year ending 30
September
2005 32 - (9)
Year ending 30
September
2006 34 - (10)
Year ending 30
September
2007 31 - (6)
_____ _____ _____
At 30 September 2007 120 44 -
Whilst we are very confident that we will successfully grow the business at this
rate, we retain considerable flexibility to moderate, or accelerate, our
capacity growth should the external environment necessitate any changes.
The first five Airbus aircraft have been introduced into Geneva which will
quickly become a dedicated Airbus base, enabling us to establish and test
operations with the new type of aircraft before rolling out the subsequent
deliveries to other bases when the main delivery stream begins. Although Airbus
is assisting with some of the costs of introducing the new aircraft, easyJet
will also incur some additional costs. In 2004 financial year, this additional
impost is expected to be in the order of £5 million, primarily due to the need
to hire extra crew during the training period.
The new Airbus 319 aircraft have 156 seats, whereas the existing Boeing aircraft
have either 149 or 148 seats.
Aircraft financing
During the year, easyJet took delivery of 9 new aircraft from either Boeing or
Airbus. One was financed by debt, while seven were sold to lessors and leased
back under operating leases. The remaining aircraft was purchased and refinanced
early in the 2004 financial year, with an operating lease. A further older
Boeing aircraft was leased.
At the year end, 12 aircraft were owned and 62 were under operating lease.
Debt finance has been arranged for the four Airbus deliveries in October 2003,
and sale and lease back transactions have been arranged for the remaining six
Boeing deliveries. These leases will be operating leases.
Operations
Your management has continued to pursue opportunities to reduce the unit costs
of the airline, in order to maximise our ability to compete with the high cost
airlines and to optimise our returns for shareholders. We have been forced to
accept some cost increases in areas such as air navigation charges, airport
charges and ground handling, where reduced volumes post 11 September 2001 have
led to the service providers fixed costs being spread less thinly.
Management's actions have served to reduce unit costs and overall there has been
a reduction of 7.5 per cent over the year. Notable successes have resulted from
the increased scale post the Go Fly acquisition and include the areas of
maintenance charges and insurance costs. A further benefit has come from the
closure of the Stansted call centre, most of which will first be seen in the
next financial year, which was in turn facilitated by our ongoing programme of
innovation which has increased functionality of our website and enabled it to
take on an increasing proportion of the call centre's business. In addition, the
Airbus deal, combined with continued favourable financing terms, should ensure
that we drive unit cost savings of up to 10 per cent as the new aircraft are
progressively introduced.
The major operational challenge in the year ahead will be the smooth integration
of the new aircraft. In addition, a number of projects are under way to maintain
the downward pressure on costs and increase ancillary revenues.
Our people
At 30 September 2003 there were 3,372 employees in easyJet.
To maintain the rate of growth, particularly whilst dealing with a difficult
operating environment, the undertaking of a major merger and a number of other
significant challenges, and still keep the downward pressure on our unit costs,
is testament to all of our staff and the corporate culture that they live and
espouse.
It has not been an easy year for many of easyJet's people and I am grateful to
them for their continued professionalism and dedication to our values. Our
continued success is rooted in them and their ability to adapt, innovate and
act, and we look forward to many more years of continued growth.
Trading outlook
In the current financial year, we are planning capacity growth in the order of
20%. Although there remains a degree of uncertainty, the economic environment is
improving and is substantially better than at this time last year. Our business
model, based on low cost and convenience, has shown its resilience and I am
cautiously optimistic about our performance in the current year.
Ray Webster
Chief Executive
17 November 2003
Footnote
The adjusting items are goodwill amortisation charge of £17.6 million (2002:
£3.1 million), the committed contribution to Deutsche BA of £1.3 million (2002:
- £1.4 million), the write off of investments: - in 2003, Deutsche BA totalling
£7.8 million (2002: - The Airline Group totalling £7.1 million), costs of
integrating the businesses of Go Fly and easyJet of £7.9 million (2002: - £7.0
million) and accelerated depreciation of certain owned aircraft of £10.2 million
(2002: - £nil).
Operational and financial review
The following tables set forth certain consolidated operating and profit and
loss account data. The data for the year ended 30 September 2002 includes the
results of Go Fly for the two months commencing 1 August 2002, following its
acquisition by easyJet.
Selected consolidated operating data Year ended 30 September
(unaudited) 2003 2002
Number of aircraft owned/leased at end of year(1) 74 64
Average number of aircraft owned/leased during
year(2) 67.8 35.2
Number of aircraft operated at end of year(3) 71 63
Average number of aircraft operated during year(4) 66.0 34.2
Sectors(5) 162,758 89,939
Block hours(6) 274,567 142,348
Number of routes operated at end of year 105 83
Number of airports served at end of year 38 35
Owned/leased aircraft utilisation (hours per day)(7) 11.1 11.1
Operated aircraft utilisation (hours per day)(8) 11.4 11.4
Available seat kilometres ('ASK')(millions)(9) 21,024 10,769
Passengers (millions)(10) 20.3 11.4
Load factor(11) 84.1% 84.8%
Revenue passenger kilometres ('RPK')(millions)(12) 17,735 9,218
Average internet sales percentage during the
year(13) 93.8% 90.9%
Internet sales percentage during final month of
financial year(14) 96.3% 89.9%
Average sector length (kilometres) 869 804
Average fare(15) £43.28 £46.37
Revenue per ASK (pence)(16) 4.43 5.12
Cost per ASK (pence)(17) 4.19 4.46
Cost per ASK before goodwill and non-recurring items
(pence)(18) 3.97 4.29
Footnotes can be found at the end of this section.
Proforma economic data, on the basis that would have been reported had the
acquisition of Go Fly by easyJet had occurred on 1 October 2001, may be found at
the end of this section.
Operational and financial review (continued)
Results of operations Year ended 30 September
(unaudited) 2003 2002 Year on year
change
£ million % £ million % %
Passenger revenue 880.0 94.4 526.3 95.4 67.2
Non ticket revenue(19) 51.8 5.6 25.5 4.6 103.1
-------- ------
Revenue(20) 931.8 100.0 551.8 100.0 68.9
Ground handling charges,
including (95.2) 10.2 (48.8) 8.8 95.3
salaries
Airport charges (149.3) 16.0 (73.5) 13.3 103.1
Fuel (120.6) 12.9 (55.2) 10.0 118.4
Navigation charges (72.0) 7.7 (37.8) 6.8 90.5
Crew costs, including (96.8) 10.4 (57.8) 10.5 67.4
training
Maintenance (89.1) 9.6 (52.5) 9.5 69.7
Advertising (27.7) 3.0 (19.4) 3.5 43.2
Merchant fees & incentive (13.7) 1.5 (9.1) 1.6 50.3
pay
Costs of integrating
businesses of (7.9) 0.8 (7.1) 1.3 11.9
easyJet and Go Fly
Other costs(21) (78.6) 8.3 (58.2) 10.7 34.7
-------- ------
EBITDAR(22) 180.9 19.4 132.4 24.0 36.7
Depreciation (19.9) 2.2 (18.7) 3.4 6.5
Accelerated depreciation
of older (10.2) 1.1 - - -
Boeing 737-300 aircraft
Goodwill amortisation (17.6) 1.9 (3.1) 0.6 469.3
Aircraft dry lease costs (82.7) 8.8 (41.0) 7.4 101.4
Aircraft long-term wet (2.1) 0.2 - - -
lease costs -------- ------
Group operating profit 48.4 5.2 69.6 12.6 (30.4)
(EBIT)
Net interest receivable/ 12.2 1.3 10.5 1.9 15.7
(payable)
Committed contribution to
Deutsche (1.3) 0.1 (1.4) 0.2 (2.2)
BA
Amounts written off (7.8) 0.9 (7.1) 1.3 8.6
investments -------- ------
Income before tax 51.5 5.5 71.6 13.0 (28.0)
Tax (19.1) 2.0 (22.6) 4.1 (15.3)
-------- ------
Retained profit for the 32.4 3.5 49.0 8.9 (33.9)
year ======== ======
Earnings per share
(pence)
Basic 8.24 14.61 (43.6)
Diluted 8.04 13.89 (42.2)
Basic, before goodwill 12.72 15.53 (18.1)
amortisation
Diluted, before goodwill
amortisation 12.40 14.78 (16.1)
Basic, before goodwill
amortisation,
committed contribution to
Deutsche
BA, amounts written off
investments,
costs of integrating
businesses of
easyJet and Go Fly and
accelerated
depreciation of certain
owned
aircraft 18.01 18.95 (4.9)
Diluted, before goodwill
amortisation, committed
contribution
to Deutsche BA, amounts
written off
investments, costs of
integrating
businesses of easyJet and
Go Fly and
accelerated depreciation
of certain
owned aircraft 17.56 18.02 (2.5)
Footnotes can be found at the end of this section.
Financial year 2003 compared with financial year 2002
Revenue
easyJet's revenue increased 68.9 per cent from £551.8 million to £931.8 million,
from financial year 2002 to financial year 2003, driven by a 79 per cent growth
in passenger numbers from 11.4 million to 20.3 million, partly offset by a 6.7
per cent decline in average fares. The number of passengers carried reflected an
increase in the size of the easyJet fleet in operation from an average of 34.2
aircraft to an average of 66.0 aircraft set off by a small decline in the
average load factor achieved from 84.8 per cent to 84.1 per cent.
Revenue from non-ticket sources, within ongoing operations, includes in-flight
sales of food and beverages, excess baggage charges, change fees, credit card
booking fees and commissions received from products and services sold such as
hotel and car hire bookings and travel insurance. In financial year 2003, £51.8
million was earned from non-ticket sources, up 103 per cent from the prior year.
Ground handling charges, including salaries
easyJet's ground handling charges increased by 95.3 per cent from £48.8 million
to £95.2 million, from financial year 2002 to financial year 2003. The increase
in third-party ground handling charges reflects the increase in the number of
sectors flown, the higher rates charged at certain primary airports where much
of easyJet's organic growth was centred in 2003, and the mix effect of the rates
charged for ground handling at airports of the old Go Fly network. Ground
handling at Geneva and Luton grew less than the level of passenger increase
reflecting the continued improvements in efficiency of self-handling at these
airports.
Airport charges
easyJet's external airport charges increased by 103.1 per cent from £73.5
million to £149.3 million from financial year 2002 to financial year 2003. This
increase was attributable to the increase in the number of sectors flown,
increases in charges at certain airports following tightening of security, the
higher rates charged at certain primary airports where much of easyJet's organic
growth was centred in 2003, and the mix effect of the rates charged for ground
handling at airports of the old Go Fly network.
Fuel
easyJet's fuel costs increased by 118.4 per cent from £55.2 million to £120.6
million from financial year 2002 to financial year 2003. The increase was
considerably higher than the 93 per cent increase in number of block hours
flown. This change is due to the 8 per cent increase in average sector length
and an approximately 26 per cent increase in easyJet's average unit US dollar
fuel cost, compared with the previous year, resulting in additional costs to
easyJet of approximately £27 million. The increases in fuel costs were partly
driven by the response of the market to events leading up to the Gulf War. The
strengthening of the value of sterling against the US dollar, the currency in
which fuel prices are denominated, over the course of financial year 2003
provided a set off benefit of approximately £11 million.
Navigation charges
easyJet's navigation charges increased by 90.5 per cent from £37.8 million to
£72.0 million from financial year 2002 to financial year 2003. This increase was
principally attributable to the increased number of sectors flown in financial
year 2003 as well as an increase in unit charges following the events of 11
September 2001. The increase was also due to a 8 per cent increase in the
average sector length to 869 kilometres (2002: 804 kilometres).
Crew costs, including training
easyJet's crew costs increased by 67.4 per cent from £57.8 million to £96.8
million from financial year 2002 to financial year 2003. The increase in crew
costs resulted from an increase in headcount during the financial year 2003 to
service the additional sectors and aircraft operated by easyJet during the year
and the recruitment and training necessary for aircraft not yet delivered.
Maintenance
Maintenance expenses increased by 69.7 per cent from £52.5 million to £89.1
million from financial year 2002 to financial year 2003. 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 increase in
maintenance costs was largely due to the addition of further leased aircraft to
the fleet during the year.
Aircraft financed by operating lease incur reserves for maintenance, while the
corresponding maintenance effect for owned aircraft is dealt with through a
depreciation charge under aircraft ownership.
Advertising
Advertising costs increased by 43.2 per cent per cent from £19.4 million to
£27.7 million from financial year 2002 to financial year 2003. Spend per
passenger was approximately 21 per cent lower than the previous year which is
principally due to market maturation and the synergistic benefits of the
integration of the businesses of Go Fly and easyJet. It is also due to the fact
that in 2002, easyJet entered the Paris market, with a resultant increase in
expenditure. In 2003, the majority of organic growth during the period came from
starting new routes linking cities already served by easyJet and increasing
frequencies on existing routes. This focus on developing network density
resulted in lower advertising than was required to establish new markets.
Merchant fees and incentive pay
Merchant fees and incentive pay increased by 50.3 per cent from £9.1 million to
£13.7 million from financial year 2002 to financial year 2003. Merchant fees and
incentive pay includes the costs of processing fees paid to credit card
companies on 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. In
financial year 2003, approximately 75 per cent of bookings were made using
credit cards compared with 82 per cent in financial year 2002. Incentive pay
paid to telesales personnel remained flat year-on-year due to the rise in
initial sales made over the internet, from 90.9 per cent of initial seats sold
during financial year 2002 to 93.8 per cent of initial seats sold during
financial year 2003.
Cost of integrating businesses of easyJet and Go Fly
Costs of integrating the businesses of Go Fly and easyJet were £7.9 million in
financial year 2003 (2002: - £7.1 million). Included within these costs are £1.2
million (2002: - £5.1 million) in respect of costs of the Management Combination
Incentive Plan (the 'Combination Plan'). The Combination Plan is designed to
reward key participants in the process of combining the businesses of easyJet
and Go Fly with free shares if performance milestones are met within certain
periods. There were three key performance milestones of single brand, single AOC
and combination completion. The milestones of single brand and single Air
Operator's Certificate ('AOC') were met in January 2003. The final milestone of
combination completion is yet to be achieved, however transformation is now
substantially complete. Other costs have been incurred in respect of staff
restructuring, systems, property and consultancy costs.
Other costs
Other costs increased by 34.7 per cent from £58.2 million to £78.6 million from
financial year 2002 to financial year 2003. Items in this cost category include
administrative and operational costs (not included elsewhere) including some
salary expenses. Also this cost category includes short-term aircraft wet
leases, compensation paid to passengers, certain other items, such as currency
exchange gains and losses and the profit or loss on the disposal of fixed
assets. The major influence of this category of costs was the growth in the
scope of the operation.
The increase is significantly less than the growth in capacity. This was partly
as a result of lower insurance costs, as lower rates have been negotiated.
Aircraft insurance costs rose from £16.7 million in financial year 2002 to £21.4
million in financial year 2003.
Depreciation
Depreciation charges increased by 6.5 per cent from £18.7 million to £19.9
million from financial year 2002 to financial year 2003. The depreciation charge
reflects depreciation on owned aircraft and capitalised aircraft maintenance
charges, and also includes depreciation on computer systems and other assets.
easyJet has owned an average of 10 B737-300 aircraft and 0.02 A319 aircraft
during the financial year 2003 (2002: 10 B737-300 aircraft). The increase in
depreciation reflects the additional number of owned aircraft set off against
the 8 per cent improvement in the value of sterling against the US dollar, the
currency in which the majority of easyJet's assets are denominated, and the
additional depreciation of other assets such as spares and leasehold
improvements.
Accelerated depreciation of older 737-300 aircraft
easyJet has reviewed the carrying and residual value of its 12 owned aircraft at
30 September 2003 and has concluded that the four oldest owned Boeing 737-300
aircraft required an acceleration in depreciation. The aircraft are due to be
retired in 2004, earlier than originally planned, and given the distressed
nature of the second hand aircraft market, the residual values have been
reassessed. As a result, management has provided £10.2 million additional
depreciation during the year.
Goodwill amortisation
Goodwill amortisation charges increased from £3.1 million to £17.6 million from
financial year 2002 to financial year 2003. This increase reflects the charge of
the goodwill arising on the acquisition of Go Fly for a full year, compared to
two months in financial year 2002.
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. Aircraft dry lease costs increased by 101 per cent from £41.0 million to
£82.7 million from financial year 2002 to financial year 2003. This increase was
principally due to all but two of the aircraft introduced to the fleet during
the period being under operating lease. During the period 8 new Boeing 737-700
aircraft, one new Airbus A319 aircraft and one leased Boeing 737-300 aircraft
were added to the fleet. Over the period, easyJet has benefited from the
strengthening of the value of sterling against the US dollar, the currency in
which lease costs are denominated, and low dollar interest rates. As a
consequence, easyJet has seen its average leasing cost per aircraft fall by
around 13 per cent, year-on-year.
Aircraft long-term wet lease costs
easyJet's aircraft wet lease costs comprise the lease payments paid by easyJet
in respect of those aircraft in its fleet operated pursuant to 'ACMI' leases
(that is, leases of an aircraft plus crew, maintenance and insurance) of a
duration of more than one month. The £2.1 million charge in financial year 2003
relates to the costs incurred leasing two aircraft for 2.5 months under wet
leases for part of the summer 2003 season. One aircraft was in order to be able
to commence new routes from Paris Orly earlier than would otherwise have been
possible. The other aircraft was to cover for the long term unavailability of an
aircraft which was subject to hail damage.
Net interest
Net interest reflects interest paid or payable by easyJet net of interest
received or receivable by easyJet. easyJet's net interest receivable increased
from £10.5 million in financial year 2002 to £12.2 million in financial year
2003.
Committed contribution to result of Deutsche BA
In August 2002, easyJet and British Airways entered into an Option agreement
under which the group was granted an option to acquire 100 per cent of the share
capital of British Airways' wholly owned subsidiary Deutsche BA Holding GmbH
('Deutsche BA'). The group was obliged to make monthly capital contributions to
British Airways whilst the option remained unexercised. Although the decision to
terminate the option was made in March 2003, a total of EUR3.0 million (£1.9
million) was paid. After a release of accruals made in 2002 not required,
Deutsche BA related costs were £1.3 million in 2003 (2002: - £1.4 million).
Amounts written off investments
In the financial year 2003, easyJet wrote off its investment in Deutsche BA
after deciding not to exercise its option to purchase. The total amount written
off of £7.8 million included £3.1 million for the cost of the option, plus £4.7
million of related professional costs.
In the financial year 2002, easyJet wrote off its investment in The Airline
Group Limited of £7.2 million.
Taxation
In financial year 2003, easyJet incurred a tax charge of £19.1 million, an
effective tax rate of 37 per cent (2002: - £22.6 million charge, being 31.5 per
cent effective tax rate). The effective tax rate is higher than the UK standard
rate of tax which is principally due to purchased goodwill not being tax
deductible. A more detailed explanation may be found in note 3 below.
Retained profit for the year
For the reasons described above, easyJet's retained profit after interest and
taxes decreased by 33.9 per cent from £49.0 million in financial year 2002 to
£32.4 million in financial year 2003.
Earnings per share
The basic earnings per share reduced by 44 per cent from 14.61 pence in the
financial year 2002 to 8.24 pence in the financial year 2003.
The basic earnings per share, before goodwill amortisation, reduced by 18 per
cent from 15.53 pence in the financial year 2002 to 12.72 pence in the financial
year 2003.
The basic earnings per share, before goodwill amortisation, committed
contribution to Deutsche BA, amounts written off investments, costs of
integrating the businesses of easyJet and Go Fly, and accelerated depreciation
of certain owned aircraft reduced by 4.9 per cent from 18.95 pence in the
financial year 2002 to 18.01 pence in the financial year.
The proforma results of the economic business, being the results of the combined
businesses of Go Fly and easyJet assuming that the acquisition of Go Fly by
easyJet had occurred on 1 October 2001, are as set out below. No adjustment has
been made to goodwill other than adding the results of the two businesses
together:
Proforma selected consolidated operating data Year ended 30 September
(unaudited) 2003 2002
Proforma
Number of aircraft owned/leased at end of year(1) 74 64
Average number of aircraft owned/leased during
year(2) 67.8 53.4
Number of aircraft operated at end of year(3) 71 63
Average number of aircraft operated during year(4) 66.0 52.1
Sectors(5) 162,758 129,624
Block hours(6) 274,567 208,203
Owned/leased aircraft utilisation (hours per day)(7) 11.1 10.7
Operated aircraft utilisation (hours per day)(8) 11.4 10.9
Available seat kilometres ('ASK')(millions)(9) 21,024 15,877
Passengers (millions)(10) 20.3 16.0
Load factor(11) 84.1% 83.0%
Revenue passenger kilometres ('RPK')(millions)(12) 17,735 13,492
Average internet sales percentage during the
year(13) 93.8% 88.1%
Internet sales percentage during final month of
financial year(14) 96.3% 89.9%
Average sector length (kilometres) 869 824
Average fare (£)(15) 43.28 45.74
Revenue per ASK (pence)(16) 4.43 4.84
Proforma results of operations Year ended 30 September
(unaudited) 2003 2002
Proforma
£ million % £ million %
Passenger revenue(19) 880.0 94.4 731.7 95.2
Non ticket revenue(19) 51.8 5.6 37.1 4.8
-------- --------
Revenue(20) 931.8 100.0 768.8 100.0
Ground handling charges, including (95.2) 10.2 (67.1) 8.7
salaries
Airport charges (149.3) 16.0 (104.6) 13.6
Fuel (120.6) 12.9 (86.2) 11.2
Navigation charges (72.0) 7.7 (48.3) 6.3
Crew costs, including training (96.8) 10.4 (76.9) 10.0
Maintenance (89.1) 9.6 (79.1) 10.3
Advertising (27.7) 3.0 (31.6) 4.1
Merchant fees & incentive pay (13.7) 1.5 (12.2) 1.6
Costs of integrating businesses of
easyJet (7.9) 0.8 (7.1) 0.9
and Go Fly
Other costs(21) (78.6) 8.3 (77.3) 10.1
-------- --------
EBITDAR(22) 180.9 19.4 178.4 23.2
Depreciation (19.9) 2.2 (20.9) 2.7
Accelerated depreciation of older
Boeing (10.2) 1.1 - -
737-300 aircraft
Goodwill amortisation (17.6) 1.9 (3.1) 0.4
Aircraft dry lease costs (82.7) 8.8 (72.2) 9.4
Aircraft long-term wet lease costs (2.1) 0.2 - -
-------- --------
Group operating profit (EBIT) 48.4 5.2 82.2 10.7
Footnotes
(1) Represents the number of aircraft owned (including those held on lease
arrangements of more than one month's duration) at the end of the relevant
financial year.
(2) Represents the average number of aircraft owned (including those held on
lease arrangements of more than one month's duration) during the relevant
financial year.
(3) Represents the number of owned/leased aircraft in service at the end of the
relevant financial year. Owned/leased aircraft in service exclude those in
maintenance and those which have been delivered but have not yet entered
service.
(4) Represents the average number of owned/leased aircraft in service during the
relevant financial year. Owned/leased aircraft in service exclude those in
maintenance and those, which have been delivered but have not yet entered
service.
(5) Represents the number of one-way revenue flights.
(6) 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.
(7) Represents the average number of block hours per day per aircraft owned/
leased during the relevant financial year.
(8) Represents the average number of block hours per day per aircraft operated
during the relevant financial year.
(9) Represents the sum by route of seats available for passengers multiplied by
the number of kilometres those seats were flown.
(10) Represents the number of earned seats flown by easyJet. Earned seats
include seats that are flown whether or not the passenger turns up (except for
those passengers which have purchased flexible fare seats), 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. For those passengers, which have purchased flexible fare seats,
the seat is only recognised on the earlier of the date the passenger flies and
the date on which the flexible fare expires.
(11) 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.
(12) Represents the sum by route of passengers multiplied by the number of
kilometres those passengers were flown.
(13) Represents the number of seats initially sold over the internet divided by
the total number of seats initially sold, during the relevant financial year.
Sales that are originally made via the internet, but are later amended by phone,
are included.
(14) Represents the number of seats initially sold over the internet divided by
the total number of seats initially sold, during the final month of the relevant
financial year. Sales that are originally made via the internet, but are later
amended by phone, are included.
(15) Represents the passenger revenue divided by the number of passengers
carried.
(16) Represents the total revenue divided by the total number of ASK's.
(17) Represents the difference between total revenue and profit before tax,
divided by the total number of ASK's.
(18) Represents the difference between total revenue and profit before tax less
the amounts charged in respect of goodwill amortisation, committed contribution
to Deutsche BA, amounts written off investments, costs of integrating the
businesses of easyJet and Go Fly and accelerated depreciation of owned aircraft.
(19) Includes revenue from in flight sales, excess baggage charges, booking
charge fees, credit card booking fees and commissions received from products and
services sold such as hotel and car hire bookings and travel insurance.
(20) When easyJet makes refunds to customers, it records refunds made in the
pre-flight period as reductions in revenue and any refunds made post-flight as
marketing expenses, included in 'Other costs', above.
(21) Includes principally administrative and operational costs not included
elsewhere, the costs associated with short-term aircraft wet leases, insurance
and any post-flight refunds, together with certain other items, such as currency
exchange gains and losses and profit or loss on the disposal of fixed assets.
(22) EBITDAR is defined by the company as earnings before interest, taxes,
depreciation, amortisation and lease payments (excluding the maintenance reserve
component of operating lease payments). Maintenance reserve costs are charged to
the cost heading, 'Maintenance'.
Consolidated profit and loss account
for the year ended 30 September
Notes 2003 2002
£000 £000
Turnover 2 931,845 551,844
Cost of sales (774,989) (413,209)
------- -------
Gross profit 156,856 138,635
Distribution and marketing expenses (60,985) (40,634)
Administrative expenses (47,422) (28,429)
------- -------
Group operating profit 48,449 69,572
Loss from interest in associated undertaking:
- committed contribution to Deutsche BA (1,329) (1,359)
------- -------
Total operating profit: group and share of 47,120 68,213
associate
Amounts written off investments 7 (7,777) (7,159)
Interest receivable and similar income 13,729 15,751
Interest payable (1,549) (5,228)
------- -------
Profit on ordinary activities before taxation 51,523 71,577
Tax on profit on ordinary activities 3 (19,121) (22,568)
------- -------
Retained profit for the financial year 32,402 49,009
======= =======
Pence Pence
Earnings per share
Basic 4 8.24 14.61
Diluted 4 8.04 13.89
Basic, before goodwill amortisation 4 12.72 15.53
Diluted, before goodwill amortisation 4 12.40 14.78
Basic, before goodwill amortisation, committed 4 18.01 18.95
contribution to Deutsche BA, amounts written off
investments, costs of integrating the businesses
of
easyJet and Go Fly, and accelerated depreciation
of
certain owned aircraft
Diluted, before goodwill amortisation, committed
contribution to Deutsche BA, amounts written off
investments, costs of integrating the businesses
of
easyJet and Go Fly, and accelerated depreciation
of
certain owned aircraft 4 17.56 18.02
======= =======
All activities relate to continuing operations in the current and previous year.
Consolidated balance sheet
as at 30 September
Notes 2003 2002
£000 £000 £000 £000
Fixed assets
Intangible assets 5 329,836 349,685
Tangible assets 6 320,772 185,098
Investments 7 - 6,624
------- -------
650,608 541,407
Current assets
Debtors 141,564 96,005
Cash at bank and in hand 335,405 427,894
------- -------
476,969 523,899
Creditors: amounts falling 8 (260,925) (260,614)
due
within one year
------- -------
Net current assets 216,044 263,285
------- -------
Total assets less current 866,652 804,692
liabilities
Creditors: amounts falling 9 (65,322) (48,600)
due after more than one
year
Provisions for liabilities 10 (42,869) (28,388)
and charges
------- -------
Net assets 758,461 727,704
======= ========
Capital and reserves
Called up share capital 98,485 97,919
Share premium account 11 539,632 533,263
Profit and loss account 11 120,344 96,522
------- -------
Shareholders' funds - 758,461 727,704
equity
======= =======
Cash flow information
for the year ended 30 September
Reconciliation of operating profit to net cash flows from operating activities
Notes 2003 2002
£000 £000
Group operating profit 48,449 69,572
Goodwill amortisation 17,598 3,091
Depreciation of tangible fixed assets 30,090 18,677
Loss on sale of assets 15 834
Increase in debtors (43,374) (16,615)
Increase in creditors and provisions 24,453 8,672
-------------- --------------
Cash flow from operating activities 77,231 84,231
============== ==============
Consolidated cash flow statement
2003 2002
£000 £000
Cash flow from operating activities 77,231 84,231
Committed contribution to associate (1,929) (759)
Returns on investments and servicing
of finance 13 11,852 10,703
Taxation (16,520) 489
Capital expenditure 13 (175,343) (3,392)
Acquisitions and disposals 13 1,098 (267,233)
-------------- --------------
Cash outflow before management of (103,611) (175,961)
liquid resources and financing
Management of liquid resources 68,623 (72,712)
Financing 13 11,122 359,420
-------------- --------------
(Decrease)/increase in cash in the year (23,866) 110,747
============== ==============
Financing cash flow in 2003 includes £3.8 million in respect of the exercise of
employee share options. In 2002, financing cash flow included £70.1 million (net
of issuing costs) for an Open Offer of new shares in October 2001, £23.8 million
(net of issuing costs) for the issue of new shares following a Placing in
November 2001, £271.9 million (net of issuing costs) for the issue of new shares
in connection with the purchase of the entire issued share capital of Newgo1
Limited in July 2002, the holding company of the business of Go Fly, and £1.9
million in respect of the exercise of employee share options. Total cash inflow
from the issue of shares during the year, net of issuing costs, was £3.8 million
(2002 - £367.7 million).
Cash flow information (continued)
Reconciliation of net cash flow to movements in net funds
Notes 2003 2002
£000 £000
(Decrease)/increase in cash in the year (23,866) 110,747
Cash (inflow)/outflow from the (increase)/ decrease
in 13 (7,287) 8,293
debt
Cash (inflow)/outflow for increase in liquid (68,623) 72,712
resources
------- -------
Change in net funds resulting from cash flows (99,776) 191,752
Exchange difference on loans 4,181 5,289
------- -------
(Decrease)/increase in net funds for the year (95,595) 197,041
Net funds at the start of the year 358,195 161,154
------- -------
Net funds at the end of the year 262,600 358,195
======= =======
Net funds at the end of the year comprises:
2003 2002
£000 £000
Cash at bank and in hand 335,405 427,894
Bank loans (72,805) (69,699)
------- -------
262,600 358,195
======= =======
£19.1 million (2002 - £87.7 million) of the cash at bank and in hand is subject
to restrictions governing its use.
Consolidated statement of total recognised gains and losses
for the year ended 30 September
2003 2002
£000 £000
Retained profit for the year 32,402 49,009
Foreign currency translation differences (5,480) (5,509)
-------------- -------------
Total recognised gains and losses for the year 26,922 43,500
============= =============
Consolidated reconciliation of movements in shareholders' funds
for the year ended 30 September
2003 2002
£000 £000
Retained profit for the year 32,402 49,009
Foreign currency translation differences (5,480) (5,509)
Shares issued by easyJet plc 6,935 369,436
Movement in reserves for employee share scheme (3,100) (1,723)
-------------- -------------
Net addition to shareholders' funds 30,757 411,213
Opening shareholders' funds 727,704 316,491
-------------- --------------
Closing shareholders' funds 758,461 727,704
============== ==============
Notes
1 Accounting policies
The financial information set out does not constitute the statutory accounts for
easyJet plc (easyJet) for the years ended 30 September 2003 and 2002 but is
derived from those accounts. Statutory accounts for 2002 have been delivered to
the registrar of companies, and those for 2003 will be delivered following
easyJet's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain a statement under section 237
(3) of the Companies Act 1985.
The consolidated financial statements comply with applicable accounting
standards (UK GAAP) and have been prepared on the basis of accounting policies
set out in easyJet's Annual Report and Accounts.
2 Segmental information
All revenues derive from the group's principal activity as an airline and
include scheduled services, in-flight and related sales. Substantially all of
the group's external revenues are earned by companies incorporated in the United
Kingdom.
The geographical analysis of turnover is as follows:
2003 2002
£000 £000
Within the United Kingdom 206,314 120,453
Between the United Kingdom and the Rest of Europe 646,086 388,877
Within the Rest of Europe 79,445 42,514
-------------- -------------
931,845 551,844
============== =============
All the group's operating profit arises from airline-related activities.
The only revenue earning assets of the group are its aircraft fleet. Since the
group's aircraft fleet is employed flexibly across its route network, there is
no suitable basis of allocating such assets and related liabilities to
geographical segments.
3 Taxation
The taxation charge is made up as follows:
2003 2002
£000 £000
Current taxation:
UK corporation tax 11,783 15,155
Overseas taxation 463 312
-------------- --------------
Total current taxation 12,246 15,467
Deferred taxation
Capital allowances in advance of depreciation 6,854 (1,241)
Future credits not taxable (1,783) -
Other fixed asset timing differences 1,804 6,149
Utilisation of prior year losses - 2,193
-------------- --------------
Total deferred taxation 6,875 7,101
-------------- --------------
Total taxation 19,121 22,568
=========== ==============
Effective tax rate 37.1% 31.5%
The standard rate of current tax for the year, based on the UK standard rate of
corporation tax is 30%. The actual current tax charge for the current and the
previous year differs from the standard rate for the reasons set out in the
following reconciliation:
2003 2002
£000 £000
Profit on ordinary activities before tax 51,523 71,577
============== ==============
Tax charge at 30% (2002 - 30%) 15,457 21,473
Expenses not deductible for tax purposes - 2,502
Income not taxable (1,650) -
Lower tax rates in certain overseas jurisdictions (3,526) (2,137)
Movement in share option scheme deduction 2,097 2,695
Losses incurred in previous years used in period 3 (5,574)
Purchased goodwill not deductible 5,313 927
Fixed asset timing differences (6,421) (4,419)
Capital gains in excess of profit realised 3,761 -
Adjustments in respect of prior periods (2,788) -
-------------- ------------
Total current taxation 12,246 15,467
Deferred tax 6,875 7,101
-------------- ------------
Total taxation 19,121 22,568
============== ==============
The following tax losses were estimated to be available to offset against
profits in future periods:
At 30 September At 30 September
2003 2002
£000 £000
United Kingdom - -
Overseas 26 21
-------------- --------------
26 21
=========== ==============
Share options
A deduction is available for the difference between the market value of the
shares at the date of exercise of the share option (or the market value at 30
September 2003 if the options remain unexercised) and the option price for UK
employees. This deduction has only been available since 22 November 2000, the
date that easyJet plc's shares were first admitted to the Official List of the
London Stock Exchange.
If the share price increases between 30 September 2003 and the date of exercise
of the outstanding options, then a further tax deduction will be recognised in
subsequent financial years. However, if the share price falls, then there will
be a tax charge. Given the number of options outstanding, movements in the share
price could potentially cause a significant variation in the tax charge and the
effective tax rate in future years.
For Swiss employees, a similar tax deduction is available, but only when the
share options have been exercised.
The effect of a one penny movement in the share price is £0.2 million (2002 -
£0.2 million).
The closing price at 30 September 2003 was £2.1975 (2002: £2.60).
easyJet Switzerland, a group member, has the benefit of an exemption from
communal and cantonal taxes in Switzerland until 1 January 2008, subject to
meeting certain conditions. The effective tax rate in Switzerland at present is
7.6%, but will rise to 27.5% from 1 January 2008 assuming that tax rates remain
unchanged.
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 changes to the capital structure of
the group.
The calculation for diluted earnings per share uses the weighted average number
of ordinary shares in issue adjusted by the effects of all dilutive potential
ordinary shares. The dilution effect is calculated on the full exercise of all
ordinary share options granted by the group including other share schemes, which
the group considers to have been earned. The calculation compares the difference
between the exercise price of exercisable share options, weighted for the period
over which they were outstanding during the year, with the average daily
mid-market closing price over the period when they were in existence as options.
The earnings per share are based on the following:
Year ended Year ended
30 September 30 September
2003 2002
Profit for the year retained for equity
shareholders (£000's) 32,402 49,009
====== ======
Number Number
Weighted average number of ordinary shares in
issue during the year used to calculate basic
earnings per share (000's) 393,165 335,493
======= =======
Weighted average number of dilutive share
options used to calculate dilutive earnings per
share (000's) 10,087 17,232
====== ======
The derivation of profit for the calculation of adjusted EPS before goodwill
amortisation is as follows. This measure has been chosen to show the performance
excluding goodwill amortisation, which is a significant non cash balance in the
profit and loss account:
Year ended Year ended
30 September 30 September
2003 2002
£000 £000
Profit for the year retained for equity
shareholders 32,402 49,009
Add back: goodwill amortisation 17,598 3,091
------ ------
50,000 52,100
====== ======
The derivation of profit for the calculation of adjusted EPS before goodwill
amortisation, committed to contribution to Deutsche BA, amounts written off
investments and costs of integrating the businesses of easyJet and Go Fly is as
follows. This measure has been chosen because it removes the effects of
non-recurring items, significant non-cash items and items which have had a
disproportional effect on the earnings of the business during the year:
Year ended 30 September 2003:
Pre-tax Tax effect Post-tax
amount amount
£000 £000 £000
Profit for the year retained for equity
shareholders 51,523 (19,121) 32,402
Add back:
Goodwill amortisation 17,598 - 17,598
Committed contribution to Deutsche BA 1,329 - 1,329
Amounts written off investments 7,777 (947) 6,830
Costs of integrating the businesses of
easyJet and Go Fly 7,900 (2,370) 5,530
Accelerated depreciation of certain owned
aircraft 10,194 (3,058) 7,136
------ ------ ------
96,321 (25,496) 70,825
====== ====== ======
Year ended 30 September 2002:
Pre-tax Tax effect Post-tax
amount amount
£000 £000 £000
Profit for the year retained for equity
shareholders 71,577 (22,568) 49,009
Add back:
Goodwill amortisation 3,091 - 3,091
Committed contribution to Deutsche BA 1,359 - 1,359
Amounts written off investments 7,159 (2,057) 5,102
Costs of integrating the businesses of
easyJet and Go Fly 7,057 (2,057) 5,000
------ ------- ------
90,243 (26,682) 63,561
====== ======= ======
5 Intangible fixed assets
Goodwill
£000
Cost
At 1 October 2002 353,179
Additions - adjustments to purchase consideration (see below) (2,251)
--------------
At 30 September 2003 350,928
--------------
Amortisation
At 1 October 2002 3,494
Charge for the year 17,598
--------------
At 30 September 2003 21,092
--------------
Net book value
At 30 September 2003 329,836
==============
At 30 September 2002 349,685
==============
Goodwill, which arose on the initial investment in easyJet Switzerland SA and
the subsequent acquisition of that undertaking, is amortised to the consolidated
profit and loss account over its estimated useful life of 20 years.
On 31 July 2002, the group acquired Newgo1 Limited, the ultimate holding company
of Go Fly Limited, an operator of low cost airline services. Adjustment has been
made to the goodwill arising on the basis that additional cashflows occurred
during the year relating to the acquisition of Go Fly which had not been
provided for at 30 September 2002. In particular, £2.6 million of retention
monies were received, reducing the cost of the investment. In addition, a
further £0.3 million of acquisition costs were paid. The fair value of the net
assets acquired has not changed. Goodwill on this acquisition is amortised to
the consolidated profit and loss account over its estimated useful life of 20
years.
6 Tangible fixed assets
Aircraft Payments on Leasehold Fixtures, Total
account-aircraft improvements fittings
deposits -buildings and
equipment
£000 £000 £000 £000 £000
Cost
At 1 October
2002 191,545 49,123 2,827 10,236 253,731
Exchange
differences (6,870) (5,993) - - (12,863)
Additions 58,172 171,615 724 3,394 233,905
Disposals (20,857) (37,944) - (925) (59,726)
------- -------- ------ ------- -------
At 30
September 2003 221,990 176,801 3,551 12,705 415,047
------- -------- ------ ------- -------
Depreciation
At 1 October
2002 62,351 - 952 5,330 68,633
Exchange
differences (3,300) - - (3,300)
Charge for
year 26,317 - 841 2,932 30,090
Disposals (372) - - (776) (1,148)
------- -------- ------ ------- -------
At 30
September 2003 84,996 - 1,793 7,486 94,275
------- -------- ------ ------- -------
Net book
value
At 30
September 2003 136,994 176,801 1,758 5,219 320,772
------- -------- ------ ------- -------
At 30
September 2002 129,194 49,123 1,875 4,906 185,098
======= ======= ====== ======= =======
At 30 September 2003, aircraft with a net book value of £74.4 million (2002:
£79.6 million) were mortgaged to lenders as security for loans.
easyJet has reviewed the carrying and residual value of its 12 owned aircraft at
30 September 2003 and has concluded that the four oldest owned Boeing 737-300
aircraft required an acceleration in depreciation. The aircraft are due to be
retired in 2004, earlier than originally planned, and given the distressed
nature of the second hand aircraft market, the residual values have been
reassessed. As a result, management has provided £10.2 million additional
depreciation during the year.
7 Investments
The Airline Group Deutsche BA Total
£000 £000 £000
Cost
At 1 October 2002 7,159 6,624 13,783
Additional investments made - 1,153 1,153
Disposal of investment - (7,777) (7,777)
----- ----- -----
At 30 September 2003 7,159 - 7,159
----- ----- -----
Provisions made
At 1 October 2002 (7,159) - (7,159)
Charge for the year - - -
----- ----- -----
At 30 September 2003 (7,159) - (7,159)
----- ----- -----
Net book value
At 30 September 2003 - - -
===== ===== =====
At 30 September 2002 - 6,624 6,624
===== ===== =====
The Airline Group
easyJet Airline Company Limited, a subsidiary of easyJet plc, is one of the
seven shareholders in the Airline Group, which is a consortium of airlines set
up to bid for the partial ownership of the UK air traffic control system (NATS).
Following the success of the bid in March 2001, easyJet invested £7.2 million
(including £0.3 million legal and consultancy fees) as its investment to provide
the Airline Group with the initial capital base needed for the purchase. This
investment was written off during the year ended 30 September 2002. The amount
written off includes loan notes of £6.6 million. The accrued interest on the
loan notes (including that which has been internally capitalised within the
Airline Group) is £1.5 million (2002: £0.8 million). This accrued interest has
not been recognised since its recovery is uncertain.
Deutsche BA
In August 2002, easyJet and British Airways Plc ('British Airways') entered into
an agreement under which the group was granted an option to acquire from British
Airways its 100 per cent holding in Deutsche BA Holding GmbH ('DBA'). The option
was terminated in March 2003 and the investment has been written off as a
result. During the year £1.2 million was incurred in respect of the investment,
principally professional costs.
8 Creditors: amounts falling due within one year
2003 2002
£000 £000
Bank loans 7,483 21,099
Trade creditors 20,642 26,900
Other taxes and social security 2,807 2,748
Other creditors 7,055 9,793
Corporation tax 13,846 18,053
Unearned revenue (including Government taxes) 104,979 94,266
Accruals 104,113 87,755
---------------- ----------------
260,925 260,614
================ ================
9 Creditors: amounts falling due after more than one year
2003 2002
£000 £000
Bank loans:
Due within one to two years 5,944 3,842
Due in two to five years 25,313 13,058
Due after five years 34,065 31,700
---------------- ----------------
65,322 48,600
================ ================
The bank loans financed the acquisition of certain aircraft by the group. The
aircraft acquired with the loans are provided as security against the
borrowings. The bank loans are subject to certain financial and operating
covenants.
An arrangement with a consortium headed by Fortis Bank, one of the group's debt
providers allowed the consortium at its own option to require the entire loan
balance to be repaid on 19 August 2003. As a result in 2002, £14.3 million of
debt was reclassified from long term to being due within one year. The
consortium did not elect to exercise its option, and accordingly the debt has
been reclassified as long term.
10 Provisions for liabilities and charges
2003 2002
£000 £000
Maintenance liabilities 31,624 25,801
Deferred taxation 11,245 2,587
---------------- ----------------
42,869 28,388
================ ================
11 Share capital and reserves
Share Share Profit and Total
capital premium loss
account
£000 £000 £000 £000
At 1 October 2002 97,919 533,263 96,522 727,704
Issue of ordinary share capital:
Share option schemes 566 6,369 - 6,935
Movement in profit and loss account
for - - (3,100) (3,100)
employee share schemes
Retained profit for the year - - 32,402 32,402
Foreign currency translation
differences - - (5,480) (5,480)
------ ------- ------- -------
At 30 September 2003 98,485 539,632 120,344 758,461
====== ======= ======= =======
12 Contingent liabilities
The group is involved in various disputes or litigation in the normal course of
business. Whilst the result of such disputes cannot be predicted with certainty,
the company believes that the ultimate resolution of these disputes will not
have a material affect on the group's financial position or results.
In 2002, Navitaire Inc. ('Navitaire'), a former supplier to easyJet Airline
Company Limited, a group company, of airline reservation software, issued
proceedings against that group company alleging copyright infringement in
relation to airline reservations software. The court case has begun and is
expected to continue into 2004. easyJet Airline Company Limited is vigorously
defending the claims. The directors consider that, in the event of Navitaire
being successful in any claim, any award of damages is unlikely to be material
to the group.
13 Notes to the cash flow statement
Analysis of amounts summarised in the cash flow statement
2003 2002
£000 £000
Returns on investment and servicing of finance
Interest received 13,327 15,747
Interest paid on bank and all other loans (1,475) (5,044)
------ ------
Net cash inflow from returns on investment and servicing
of 11,852 10,703
finance
====== ======
Capital expenditure
Purchase of tangible fixed assets (233,905) (75,101)
Sale of tangible fixed assets 58,562 71,709
------- ------
Net cash outflow for capital expenditure (175,343) (3,392)
======= ======
Acquisitions and disposals
Purchase of subsidiary undertaking 2,251 (387,140)
Net cash acquired with subsidiary - 126,531
Investment in Deutsche BA (1,153) (6,624)
------- ------
Net cash inflow/(outflow) for acquisitions 1,098 (267,233)
======= ======
Financing
New loans taken out 13,906 -
Decrease in loans (6,619) (8,293)
Issue of share capital, net of issue costs of £nil (2002:
£8.3million) 3,835 367,713
------- ------
Net cash inflow from financing 11,122 359,420
======= ======
14 Post balance sheet events
Since 30 September 2003,the group has committed to forward purchases of US
dollars amounting to 85% of expected usage during the period ending 31 March
2004 at exchange rates between $1.643 and $1.668.
END
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