Annual Report and Accounts 2013

RNS Number : 8140U

easyJet PLC

05 December 2013

easyJet plc ("the Company")

The Company announces that a copy of the Annual Report and Accounts for the year ended 30 September 2013 has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do.

This document is also available to view on the Company's website. The direct link to download the 2013 Annual Report and Accounts is http://2013annualreport.easyjet.com/.

In compliance with DTR 6.3.5, the following information is extracted from the 2013 Annual Report and Accounts and should be read together with the Company's Final Results announcement issued on 19 November 2013 which can be found at http://otp.investis.com/clients/uk/easyjet/rns/regulatory-story.aspx?cid=2&newsid=379024. Together these constitute the information required to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2013 Annual Report and Accounts.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 90 of the 2013 Annual Report and Accounts and is repeated here solely for the purpose of complying with DTR 6.3.5. The statement relates to the full 2013 Annual Report and Accounts and not the extracted information presented in this announcement or the Final Results announcement:

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

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

• select suitable accounting policies and then apply them consistently;

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

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

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

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

The Directors are responsible for the maintenance and integrity of the financial and corporate governance information as provided on the easyJet website (www.easyJet.com). Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and the Group's performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 60 and 61 confirm that, to the best of their knowledge:

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

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

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

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

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

The Annual Report on pages 1 to 90 was approved by the Board of Directors and authorised for issue on 18 November 2013 and signed on behalf of the Board by:

Carolyn McCall OBE	Chief Executive
Chris Kennedy	Chief Financial Officer

PRINCIPAL RISKS AND UNCERTAINTIES

The risks and uncertainties set out below are extracted from the pages 38 to 43 of the 2013 Annual Report and Accounts and are repeated here solely for the purpose of complying with DTR 6.3.5.

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

easyJet carries out a detailed risk management process to ensure that risks are identified and mitigated where possible. Many risks, however, remain outside easyJet's full control, for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues.

Risk description and potential impact

Current mitigation

SAFETY FIRST

Major safety incident/accident

Failure to prevent a major safety incident (hull loss) or deal with it effectively.

This could adversely affect easyJet's reputation and its operational and financial performance.

Security and terrorist threat or attack

Failure to prevent a major security-related threat or attack, from either internal or external sources, or failure to deal with it effectively.

This could adversely affect easyJet's reputation and its operational and financial performance.

easyJet's number one priority is the safety, including security, of its customers and people.

easyJet operates a Safety Management System (SMS) using a leading software system (SafetyNet). This is used to collect and analyse safety data and enables learning from easyJet and industry events/incidents to be captured and embedded into future risk mitigations. Data collected is also used to project potential areas of risk. A robust incident reporting process and 'Just Culture' (see page 59) are in place. The following also support the SMS:

• a Safety Committee (a Committee of the Board) which provides oversight of the management of easyJet's safety processes and systems;

• a Safety Review Board (at Executive Management Team level) responsible for directing overall safety policy and governance;

• airline and departmental Safety Action Groups responsible for the identification, evaluation and control of safety-related risks; and

• weekly operations meetings, safety reporting and monitoring of fatigue risk management.

easyJet has response systems in place and provides training for crisis management, including the performance of regular crisis management exercises.

Hull (all risks) and liabilities insurance (including spares) is held.

easyJet has been working alongside EASA (European Aviation Safety Agency) and is well placed to meet the new European safety regulations by the required date of October 2014.

easyJet's Director of Safety and Security and Head of Security work with relevant authorities and governments around our network to ensure that security measures are effective and in compliance with all regulatory requirements. A great deal of work is carried out with the aim of enhancing:

• early identification of developing and emerging security risks;

• the active management of security risks;

• the reduction of the impact of any security-related incident; and

• the company security culture and awareness.

Crew are trained within the current safety and security guidelines.

OPERATIONAL RISKS

Impact of mass disruption

A number of factors could lead to widespread disruption to easyJet's network, including forces of nature (extreme weather, volcanic ash, etc), union activity and strike action, acts of terrorism and epidemics/pandemics. Any widespread disruption could adversely affect easyJet's reputation and its operational and financial performance.

If widespread disruption occurred during the peak summer months then easyJet's financial results would be significantly adversely impacted.

Processes are in place to manage widespread disruption.

Crisis management exercises are performed regularly and a business continuity programme is also in place.

easyJet has a strong financial balance sheet. Board policy is to maintain target liquidity at £4 million per aircraft. This allows the business to better manage the impact of downturns in business or temporary curtailment of activities (e.g. fleet grounding, security incident, extended industrial dispute at key supplier).

Single fleet risk

easyJet is dependent on Airbus as its sole supplier for aircraft, with two aircraft types (A319 and A320).

There are significant cost and efficiency advantages of a single fleet, however there are two main associated risks:

• technical or mechanical issues that could ground the full fleet or part of the fleet which could cause negative perception by the flying public; and

• valuation risks which crystallise on the ownership exit of the aircraft. The main exposure at this time is with the ageing A319 fleet, where easyJet is reliant on the future demand for second-hand aircraft.

The efficiencies achieved by operating a single fleet type are believed to outweigh the risks associated with easyJet's single fleet strategy. The risks/rewards of a single fleet were considered again during the recent fleet decision process.

The Airbus A320 family (which includes the A319) and Boeing 737 family are the two primary fleets used for short-haul travel. There are approximately 5,000 of each fleet operating globally with a proven track record for reliability.

easyJet operates a rigorous established aircraft maintenance programme.

To mitigate the potential valuation risks, easyJet constantly reviews the second-hand market and has a number of different options when looking at fleet exit strategies. easyJet's targeted fleet mix is a 70:30 split between owned and leased. This facilitates the exit strategy of older A319s and protects residual values, as well as providing flexibility in managing the fleet size.

IT system failure

easyJet is dependent on a number of key IT systems and processes operated at London Luton airport and other key facilities.

A loss of systems and access to facilities, including the website, could lead to significant disruption and could have an adverse operational, reputational and financial impact.

Key systems are hosted across two data centres in two distinct locations with failover arrangements between them.

A business continuity programme, including disaster recovery arrangements, is in place. This is reviewed continuously to identify areas for improvement and to ensure that arrangements are adequate and appropriate.

An experienced IT team are in place to respond rapidly to any unforeseen incidents that may arise.

Alternative sites are available should there be a need to relocate critical staff at short notice due to a loss of facilities.

Scalability and flexibility of key IT systems

The rapid growth of easyJet over recent years, through the introduction of new sales channels and initiatives, creates additional complexity in IT systems. If not managed effectively, the core applications could lose their flexibility and create issues of scalability, which could increase cost and cause delays when implementing required business change.

Enterprise architecture is reviewed continuously and improvements are made where opportunities arise.

Structured testing is in place for key systems where required.

easyJet is a member of relevant system user groups, providing contact with other users and the ability to share any issues and review system assessments.

easyJet holds periodic meetings with third party system management.

Dependence on third party service providers

easyJet has entered into agreements with third party service providers for services covering a significant proportion of its operation and cost base. Failure to adequately manage third party performance could affect easyJet's reputation and its operational and financial performance. Loss of these contracts or inability to renew or negotiate favourable replacement contracts could have an adverse effect on future operating costs.

Processes are in place to manage third party service provider performance.

easyJet has a centralised procurement department that negotiates key contracts.

In the major markets in which easyJet operates there are alternative service providers.

Industrial action

The aviation industry has a significant number of employees in unions. Within the easyJet workforce, large parts (90% of crew) are unionised. If any action was taken by easyJet employees or by key third party service providers, this could impact on easyJet's ability to maintain its flight schedule.

This could adversely affect easyJet's reputation and its operational and financial performance.

Employee and union engagement takes place on a regular basis.

As easyJet operates across Europe there are multiple unions of which crew are members (eight for cabin crew and six for pilots). Each of the countries have localised employment terms and conditions which mitigates the risk of large scale internal industrial action occurring at the same time.

Processes are in place to adapt to disruptions as a result of industrial action.

The level of standby crew cover in place recognises the external factors and volatility that impact the airline industry.

CAPITAL DISCIPLINE

Asset allocation

easyJet has a leading presence on the top 100 routes in Europe and positions at primary airports that are attractive to time sensitive consumers. easyJet manages the performance of its network by careful allocation of aircraft to routes and optimisation of its flying schedule.

If easyJet fails to continue to optimise its network and fleet plan, this will have a major impact on easyJet's ability to grow and gain the required yield. In addition, poor planning of the correct number of aircraft to fly the schedule would have a critical impact on easyJet's costs and reputation.

A network portfolio management strategy is in place which looks to take a balanced approach to the route portfolio that easyJet flies, to ensure that it optimises each aircraft to get the best return for each time of day and each day of the week.

Route performance is monitored on a regular basis and operating decisions are made to improve performance where required.

The fleet framework arrangements in place, together with our leasing policy, provide easyJet with significant flexibility in respect of scaling the fleet according to business requirements.

Exposure to fuel price fluctuations and other macroeconomic shifts

Sudden and significant increases in jet fuel price and movements in foreign exchange rates would significantly impact fuel and other costs. Increases in fuel costs would have an adverse effect on the financial performance of easyJet if not protected against.

easyJet's business can also be affected by macroeconomic issues outside of its control such as weakening consumer confidence, inflationary pressure or instability of the euro. This could give rise to adverse pressure on revenue, load factors and residual values of aircraft.

A Board approved hedging policy (fuel and currency) is in place that is consistently applied. The policy is to hedge within a percentage band for a rolling 24 month period.

To provide protection, easyJet uses a limited range of hedging instruments traded in the over-the-counter (OTC) markets. These are principally forward purchases with a number of approved counterparties.

A strong balance sheet supports the business through fluctuations in the economic conditions for the sector.

Regular monitoring of markets and route performance is undertaken by easyJet's network and fleet management teams.

Financing and interest rate risk

All of easyJet's debt is asset-related, reflecting the capital intensive nature of the airline industry.

Market conditions could change the cost of finance which may have an adverse effect on easyJet's financial performance.

easyJet presently finances its fleet through a mix of sale and leaseback transactions, internal resources, cash flow and bank borrowing. In the future easyJet may use forms of debt, sale and leaseback transactions or other financing structures, which may include the sale or securitisation of aircraft or public debt offers where the Board considers these sources of financing more favourable.

easyJet's interest rate management policy is based on a natural hedge with cash deposits mirroring floating debt.

None of the agreements contain financial covenants.

A portion of US dollar mortgage debt is matched with US dollar money market deposits.

Operating lease rentals are a mix of fixed and floating rates.

Liquidity risk

easyJet continues to hold significant cash or liquid funds as a form of insurance.

A misjudgement in the level of liquidity required could result in business disruption and have an adverse effect on easyJet's financial performance.

Board policy is to maintain target liquidity at £4 million per aircraft. This allows the business to better manage the impact of downturns in business or temporary curtailment of activities (e.g. fleet grounding, security incident, extended industrial dispute at key supplier).

Counterparty risk

Surplus funds are invested in high quality short-term liquid instruments, usually money market funds or bank deposits.

There is a possibility of loss arising in the event of non-performance of counterparties.

Cash is placed on deposit with institutions based upon their credit rating with a maximum exposure of £200 million for any individual AAA counterparty money market fund.

REPUTATIONAL RISKS

Major shareholder and brand owner relationship

easyJet has a major shareholder (easyGroup Holdings Limited) controlling approximately 26% of its ordinary shares. Shareholder activism could adversely impact the reputation of easyJet and cause a distraction to management.

easyJet does not own its company name or branding, which is licensed from easyGroup IP Licensing Limited. The licence includes certain minimum service levels that easyJet must meet in order to retain the right to use the name and brand.The easyJet brand could also be impacted through the actions of easyGroup or other easyGroup licensees.

easyJet has a very active shareholder engagement programme led by its investor relations team. As part of that programme easyJet seeks to engage with easyGroup Holdings Limited on a regular basis alongside all its other major shareholders. This is to ensure that the Board and management team are kept aware of the views of all shareholders.

A team of individuals from the Board and senior management take responsibility for addressing issues arising from any activist approach adopted by the major shareholder. The objective is to address issues when they arise, as effectively as possible, in order to minimise the disruptive effect on the day-to-day management of easyJet's operation and to anticipate and plan for potential future activism.

easyJet's brand licence with easyGroup IP Licensing Limited contains terms agreed between the parties for the regular meeting of senior representatives from both sides to actively manage brand-related issues as they arise. Such meetings occur on a quarterly basis and have, to date, proven an effective way of managing brand-related issues. Separately, easyJet monitors its compliance with brand licence service levels and has a right to take steps to remedy any instance of non-compliance.

Ineffective or non-delivery of the business strategy

A number of key projects have been set up to deliver key elements of the strategy. If these projects do not deliver the benefits and cost savings planned, easyJet could fall short of its planned financial results.

A programme management office and experienced project teams are in place to oversee delivery and track the budget and benefits realisation of all projects.

A Steering Group, consisting of key senior management, provides challenge to the project teams, monitors progress and ensures that key decisions are being made at the appropriate level.

Information security

easyJet faces external and internal information security risks.

easyJet receives most of its revenue through credit card transactions and operates as an e-commerce business.

A security breach could result in an adverse impact for the business and reputational damage.

easyJet continues to focus on the protection of information. Appropriate controls are in place including:

• an effective information security incident management process to identify, report and ensure appropriate management of security incidents;

• systems which are secured and monitored against unauthorised access;

• quarterly review of the security of internal systems and easyJet.com through penetration testing;

• pre-employment screening checks performed for all new employees;

• enhanced physical security at head office buildings;

• periodic mandatory employee security training to maintain staff awareness;

• consideration of information security risks within procurement processes; and

• monitoring and control of scanning software for fraudulent customer activity by the Revenue Protection team.

Bribery Act

The Bribery Act came into force in July 2011. To date, there have only been a few precedents set in respect to how this will be enforced with respect to corporations (although no corporate prosecutions have been made as at 30 September 2013). As with all companies, if easyJet were found to be in breach of the Act, this could adversely affect easyJet's reputation and financial performance.

easyJet has a strong ethical tone from the top.

The adoption of appropriate anti-bribery controls has been a key point of focus for the legal compliance programme at easyJet. These have included:

• completion of risk assessments to determine specific compliance needs;

• introduction of new policies, including an anti-bribery and corruption policy;

• development of an online training module and mandatory training for all managers and administrative employees in the UK and across the easyJet network;

• targeted face-to-face training for employee groups perceived as higher risk; and

• the adoption of standard anti-bribery clauses for inclusion in supplier contracts.

In addition, as part of easyJet's evaluation of the new generation of short-haul engine technology, additional controls and monitoring have been implemented including a more restrictive gifts and hospitality policy, enhanced recording of contact with potential suppliers, assurance visits to assess standards of anti-bribery controls of potential suppliers and close monitoring of the completion of mandatory compliance training. These extra controls have been the subject of monitoring by an independent third party auditor.

EXTERNAL RISKS

Competition and industry consolidation

easyJet operates in competitive market places against both flag carriers and other low-cost airlines.

One of easyJet's key competitive advantages is its strong cost base. If easyJet lost sight of this or relaxed its stance over cost control this could significantly reduce any competitive advantage and impact profitability.

Industry consolidation will also affect the competitive environment in a number of markets. This could cause a loss of market share and erosion of revenue.

Regular monitoring of competitor and consolidation activity, enabling key routes/positions to be readily defended.

easyJet seeks to have a rapid response to any such activity that may impact easyJet's ability to grow the business.

Strong cost control across the Company. 'easyJet lean' drives cost reduction and efficiency into targeted areas.

Political and regulatory risks

Political decisions, particularly at a national and European level, can have a significant impact on the airline industry, for example increasing Air Passenger Duty in the UK.

The airline industry is currently heavily regulated, with expected increased regulator intervention. This includes environmental, security and airport regulation which have charges levied by regulatory decision rather than by commercial negotiation.

easyJet is exposed to various regulators across its network, which will increase as easyJet grows geographically.

This could adversely affect easyJet's reputation, cost base and market share. An inadequate knowledge or misinterpretation of local regulations could result in fines or enforcement orders.

easyJet seeks to have a key role in influencing the future state of regulations and decisions made.

A Regulatory Affairs Group coordinates the work and effort in this area.

Country oversight boards are established for easyJet's main markets, raising awareness of potential changes and impacts in different countries.

End

5 December 2013

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