Interim Results
easyJet PLC
03 May 2006
easyJet Plc
Interim results for the 6 months to 31 March 2006 3 May 2006
RESULTS AHEAD OF EXPECTATIONS; GUIDANCE UPGRADED
• Pre-tax loss of £40m, better than expectations; good first half
performance despite unit fuel costs up 49% (£55m) or £3.01 per seat.
• Cost reduction momentum continues: costs per seat excluding fuel down
6.2% or £1.84 per seat from £29.59 to £27.75.
• Total revenue per seat up 0.8% in the spite of the effect of Easter
falling in the first half in 2005 and the second half in 2006.
• Ancillary revenues significantly improved, up 31% or £0.76 per seat.
• 14.9m passengers carried, up 10.1%.
•Strong balance sheet with cash increasing by £59m to £726m.
•Continued growth in network to 235 routes and 67 airports, utilising 110
aircraft.
•28 new routes and 4 new destinations started operating in the period with
8 further new cities announced for summer 2006.
•Continued strong operating performance with 80% of flights arriving
within 15 minutes of scheduled arrival and 96% arriving within an hour.
Commenting on the results, Andy Harrison, Chief Executive, said:
'easyJet's growth continues unabated, based on our unique and outstanding
customer proposition of the lowest fares, convenient airports and customer care.
We grew our revenues by 14% in the first half, launching 28 new routes and
inaugurating services to our newest base in Milan Malpensa.
'We are encouraged by our first half performance, which is slightly ahead of our
expectations at the time of our AGM in February. Successful cost reduction and
revenue improvements, especially in ancillaries have largely offset the
considerable hike in fuel prices and the effect of Easter moving from the first
half in 2005 to the second half in 2006.
'Our stronger than expected first half performance and a good Easter provide the
basis for an improved full year outlook. We are conscious that we have a big
summer ahead, that the price of oil remains a risk, and we continue to operate
in a highly competitive environment. Notwithstanding these uncertainties, we now
anticipate full year passenger revenue per seat to be broadly in line with 2005,
and expect ancillary revenue to grow at around twenty per cent per seat for the
full year. Our continued cost management should result in a fall of
approximately five per cent per seat excluding fuel. We assume the price of Jet
fuel will stay around current levels and we maintain a neutral view on exchange
rates. Overall, we now expect pre-tax profit to grow by ten to fifteen per cent
compared with 2005.'
For further details please contact:
easyJet plc
Press:
Toby Nicol Corporate Communications +44 (0) 1582 525 339
Analysts:
Julia Collins Investor Relations +44 (0) 1582 525 258
Andrew Barker Investor Relations +44 (0) 1582 525 274
There will be an analyst presentation at 9:00 am on 3 May 2006 at ABN AMRO, 3rd
floor, 250 Bishopsgate, EC2M 4AA. A live webcast of the presentation will be
available at www.easyJet.com.
There will be an analyst and investor conference call at 2:00 pm on 3 May 2006.
For further details, contact Helen Lutman at Financial Dynamics on 020 7269
7153.
Chairman's statement
The twin virtues of optimising revenues and reducing costs have continued to be
the main objectives of easyJet's management team during the first half of this
financial year. The results demonstrate their success with ancillary revenues
increasing by 31% per seat over the same period last year and although passenger
revenue per seat showed a decline of 1.5%, the lucrative Easter period fell
outside the first half of this year but was within it in 2005. Performance on
cost reduction, excluding fuel, was exemplary with the drive from the previous
year being sustained. The previous year saw a reduction of 4.4% but in the first
half of this year, a reduction of 6.2% was achieved.
Our passenger numbers increased by 10% over the same period last year with
customers attracted, as before, by easyJet's winning combination of routes,
frequencies, convenient airports and a young and reliable fleet of aircraft.
This combination gives us confidence to continue expanding the business across
the network and in the creation of new routes.
All of these achievements have been made in the face of tough competition and of
high prices for oil. They reflect much credit on the leadership of easyJet by
the management team and on all of our people. In September 2005, shareholders
voted for the Long Term Incentive Programme, which provides the management team
with targets to double the Company's return on equity from a figure of 7.1% in
2005 to 15% in 2008. These are challenging targets but I am encouraged by the
start that has been made.
During this period, the Board of Directors was strengthened by the appointment
of two non-executive directors, Professor Rigas Doganis and David Michels. Rigas
is something of a legend in aviation, having been visiting professor in Air
Transport Management at Cranfield University with a particular focus on low cost
airlines. He is currently Chairman of the European Aviation Club in Brussels, a
non-executive director of South African Airways and a director of Hyderabad
International Airport Ltd. David, who until recently was Group Chief Executive
at Hilton Group plc, is a non-executive director of The British Land Company plc
and Marks and Spencer Group plc. As the Senior Independent Non-Executive
Director, he brings to the Board unrivalled experience of the travel industry
and considerable expertise in listed companies.
This has been a good start to the year and backed by a strong Board and barring
unforeseen circumstances, I remain confident in the ability of the easyJet team
to continue to enhance shareholder value, during the remainder of the year and
beyond.
Sir Colin Chandler
Chairman
2 May 2006
Chief Executive's review
At the heart of easyJet's success is our outstanding customer proposition,
offering a unique combination of the lowest fares, convenient airports and
customer care. This is augmented by our
• Total commitment to safety
• Simple low fare structure
• Low unit costs
• Strong branding.
There are encouraging early signs in our Interim Results that we are moving
forward more rapidly to deliver our full potential. We have a new leadership
team in place with clear priorities; these are network development, revenue
enhancement, cost reduction and improved efficiency, and continued development
of our people. Our growth is continuing with customers attracted by our low
fares which represent a considerable discount to network carriers. Our strong
customer proposition is highlighted by the near 50% increase in customer visits
to our website in the first half of the year.
We recognise that our strong customer proposition needs to be backed by good
returns to our shareholders. Achieving our goal of 15% Return on Equity means
almost doubling our profit per seat by 2008. The improvement will come from a
combination of factors.
Network
In the first half we continued to expand and improve our network. Our capacity
growth, in available seats, was 13% for the half with our plan for the full year
maintained at 15%. We continued to exploit opportunities to grow our network
throughout Europe, and in March 2006 we opened our 16th base in Milan Malpensa.
This is in addition to strengthening our existing network bases. We have also
announced new routes to non European Union destinations in Croatia (Split and
Rijeka), Morocco (Marrakech), and Turkey (Istanbul). Overall in the period we
added 28 new routes and discontinued 5. We have initiated a detailed route by
route review of the existing network, seeking to maximise our return on assets
and looking for new opportunities.
Revenue
Total revenues per seat improved in the first half when compared to last year by
0.8%, despite the fact that Easter has moved to the second half falling in April
2006 compared with March 2005. This performance was supported by an exceptional
improvement in ancillary revenues which increased by 31% per seat, a year on
year increase in absolute terms of £19 million or 47%. Our insurance, car rental
and hotel partner revenues have performed particularly well, partially helped by
the dynamic packaging of some of these products. This makes it easier for
customers to add these items when purchasing their flights and has helped
increase conversion rates. The announcement in February 2006 of our roll out of
internet check-in marks another advance in our customer friendly product and we
will continue to innovate with ideas such as 'speedy boarding'. This is
currently in test and offers customers early boarding and the freedom to select
their seat of preference. We are adding resource to our yield management
processes to ensure we optimise contribution on a route by route basis.
Costs
Only through consistent cost reduction to drive a lower cost base can our low
fare commitment be delivered to our customers. In the first half we continued to
make good progress, with total costs per seat, excluding fuel, down 6.2%
compared to last year. In the period, we saw the benefit of our long term
maintenance contract with SR Technics; a significant reduction in overhead
costs; and further improvement in our unit airport costs. The current high cost
of fuel means we must continue to look for ways to improve our efficiency and
reduce costs while ensuring we never compromise on our commitment to safety.
People
We recognise our people as a key differentiator at easyJet and recognise the
importance of our crew and the value of their commitment, personality and
professionalism in delivering the easyJet experience. We are proud of our
training standards and celebrated the opening of our easyJet Academy in November
2005, a world class training facility for our crew. In terms of the easyJet
management team, we have made some changes over the past year and the new team
are settling in, working together, delivering innovations and new solutions,
whilst continuing to drive and improve the business.
Key business highlights
• Pre-tax loss of £40 million was better than expectations; good first
half performance despite unit fuel costs increasing by £55 million (49%) or
£3.01 per seat.
• Cost reduction continues: costs per seat excluding fuel fell by 6.2% or
£1.84 per seat from £29.59 to £27.75.
• Total revenue per seat was up 0.8% in spite of the effect of Easter
falling in the first half in 2005 and the second half in 2006.
• Ancillary revenues showed a significant improvement year on year rising
31% on a per seat basis equating to an extra £0.76 per seat.
• 14.9 million passengers were carried, an increase of 10.1%.
• 28 new routes have started operating, with a total of 235 routes at 31
March 2006. This includes the addition of four new destinations (Bournemouth
, Bremen, Doncaster and Lisbon). Eight further new cities have been
announced for the summer (Bordeaux, Istanbul, Marrakech, Palermo, Rijeka,
Rimini, La Rochelle, Split), increasing the easyJet network to 75 airports
in 21 European countries.
• Our operating performance continues to be strong, with 80% of flights
arriving within 15 minutes of scheduled arrival (2005: 80%) and 96% of
flights arriving within an hour (2005: 95%).
• The balance sheet was further strengthened in the period: at 31 March
2006, we held £726 million of cash on the balance sheet, £59 million more
than at 30 September 2005.
Outlook
Our stronger than expected first half performance and a good Easter provide the
basis for an improved full year outlook. We are conscious that we have a big
summer ahead, that the price of oil remains a risk, and we continue to operate
in a highly competitive environment. Notwithstanding these uncertainties, we now
anticipate full year passenger revenue per seat to be broadly in line with 2005,
and expect ancillary revenue to grow at around twenty percent per seat for the
full year. Our continued cost management should result in a fall of
approximately five percent per seat excluding fuel. We assume that the price of
jet fuel will stay around current levels and we maintain a neutral view on
exchange rates. Overall, we now expect pre-tax profit to grow by ten to fifteen
percent compared with 2005.
Andy Harrison
Chief Executive
2 May 2006
Selected consolidated financial and operating Six months ended 31 Change
data March
(unaudited) 2006 2005 %
Financial performance measures
Revenues, £million 629.5 553.3 13.8
Operating costs, £million (602.2) (519.6) (15.9)
EBITDAR (1), £million 27.3 33.7 (18.9)
Finance and ownership costs (2), £million (67.6) (55.3) (22.0)
Loss before tax, £million (40.3) (21.6) 85.9
Loss after tax, £million (28.9) (15.4) 87.3
Net assets, £million 856.6 783.0 9.4
Loss per share (basic), pence (7.17) (3.86) 85.8
Key performance indicators
Return on equity (3) (3.4%) (2.0%) (1.4)pp
Loss before tax per seat, £ (4) 2.22 1.34 65.2
Revenue per seat, £ (5) 34.67 34.38 0.8
Cost per seat, £ (6) 36.89 35.72 3.3
Cost per seat excluding fuel, £ (7) 27.75 29.59 (6.2)
Seats flown (millions) (8) 18.2 16.1 12.8
Output measures
Passengers (millions)(9) 14.9 13.5 10.1
Number of aircraft owned/leased at end of
period(10) 114 103 10.7
Average number of aircraft owned/leased
during period(11) 110.5 96.1 15.0
Number of aircraft operated at end of
period(12) 107.0 92.0 16.3
Average number of aircraft operated
during period(13) 100.8 88.0 14.5
Sectors(14) 118,782 106,705 11.3
Block hours(15) 207,779 184,426 12.7
Number of routes operated at end of
period 235 187 25.7
Number of airports served at end of
period 67 57 17.5
Other performance measures
Load factor(16) 81.8% 83.8% (2.0)pp
Operated aircraft utilisation (hours per
day)(17) 11.3 11.4 (0.8)
Owned/leased aircraft utilisation (hours
per day)(18) 10.3 10.6 (2.9)
Available seat kilometres ('ASK')
(millions) (19) 16,672 14,526 14.8
Revenue passenger kilometres
('RPK')(millions)(20) 13,642 12,150 12.8
Average sector length (kilometres) 918 903 1.7
Average fare (£)(21) 38.45 38.08 1.0
Revenue per ASK (pence)(22) 3.78 3.81 (0.9)
Cost per ASK (pence)(23) 4.02 3.96 1.5
Footnote references are defined below
Footnotes
(1) EBITDAR is 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'.
(2) Finance and ownership represents depreciation, amortisation of intangibles,
aircraft dry lease costs, share of profit after tax of associates and
financing income.
(3) Return on equity represents the loss after tax divided by the average
shareholders' funds
(4) Loss per seat represents loss before tax divided by the number of flown
seats available for passengers
(5) Revenue per seat represents total revenues divided by the number of seats
flown available for passengers
(6) Cost per seat represents total revenues plus loss before tax, divided by
the number of seats flown available for passengers
(7) Cost per seat excluding fuel represents total revenues less loss before
tax plus fuel costs, divided by the number of seats flown available
for passengers
(8) Represents the number of seats flown available for passengers
(9) Represents the number of earned seats flown by easyJet. Earned seats
include seats that are flown whether or not the passenger turns up,
because easyJet is generally a no-refund airline and once a flight has
departed a no-show customer is generally not entitled to change flights or
seek a refund. Earned seats also include seats provided for promotional
purposes and to easyJet staff for business travel.
(10) Represents the number of aircraft owned plus those held on lease
arrangements of more than one month's duration at the end of the relevant
period.
(11) Represents the average number of aircraft owned plus those held on lease
arrangements of more than one month's duration during the relevant period.
(12) Represents the number of owned/leased aircraft in service at the end of
the relevant period. Owned/leased aircraft in service exclude those
in maintenance and those which have been delivered but have not yet
entered service or those out of service prior to disposal or return.
(13) Represents the average number of owned/leased aircraft in service during
the relevant period. Owned/leased aircraft in service exclude those in
maintenance and those, which have been delivered but have not yet entered
service or those out of service prior to disposal or return.
(14) Represents the number of one-way revenue flights.
(15) 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.
(16) 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.
(17) Represents the average number of block hours per day per aircraft operated
during the relevant period.
(18) Represents the average number of block hours per day per aircraft owned /
leased during the relevant period.
(19) Represents the sum by route of seats available for passengers multiplied
by the number of kilometres those seats were flown.
(20) Represents the sum by route of passengers multiplied by the number of
kilometres those passengers were flown.
(21) Represents the passenger revenue divided by the number of passengers
carried.
(22) Represents the total revenue divided by the total number of ASK's.
(23) Represents the difference between total revenue and profit before tax,
divided by the total number of ASK's.
Consolidated income statement
(unaudited)
Notes Six months ended 31 March Year ended 30
September
2006 2005 2005
£million £million £million
Passenger
revenue 571.0 513.6 1254.2
Ancillary
revenue 58.5 39.7 87.2
---------------- ----- ---------- ---------- ----------
Revenue 629.5 553.3 1341.4
Ground handling
charges,
including
salaries (71.2) (62.8) (130.5)
Airport charges (115.7) (105.3) (230.1)
Fuel (165.9) (98.6) (260.2)
Navigation
charges (54.6) (49.9) (108.6)
Crew costs,
including
training (75.2) (66.6) (136.2)
Maintenance (51.4) (57.9) (119.2)
Advertising (17.4) (18.7) (32.8)
Merchant fees
and incentive
pay (8.6) (7.5) (15.6)
Aircraft and
passenger
insurance (8.2) (9.6) (19.3)
Other costs (34.0) (42.7) (82.4)
---------------- ----- ---------- ---------- ----------
EBITDAR* 27.3 33.7 206.5
Depreciation (10.4) (8.4) (15.8)
Amortisation of
intangible
assets (0.4) (0.4) (0.8)
Aircraft dry
lease costs (63.5) (58.5) (123.7)
---------------- ----- ---------- ---------- ----------
Group operating
(loss) / profit
(EBIT) (47.0) (33.6) 66.2
Share of profit
after tax of
associate 0.1 0.1 0.1
Interest and
other finance
income 15.6 12.0 27.2
Interest and
other finance
charges (9.0) (0.1) (10.9)
---------------- ----- ---------- ---------- ----------
Net financing
income 6.6 11.9 16.3
---------------- ----- ---------- ---------- ----------
(Loss) / profit
before tax (40.3) (21.6) 82.6
Tax 4 11.4 6.2 (23.6)
---------------- ----- ---------- ---------- ----------
(Loss) / profit
after tax (28.9) (15.4) 59.0
================ ===== ========== ========== ==========
(Loss) /
earnings per
share (pence) 3
Basic (7.17) (3.86) 14.78
Diluted N/A N/A 14.43
* EBITDAR is defined as earnings before Net financing income, Tax, Depreciation,
Amortisation and Lease payments (excluding the maintenance reserve component of
operating lease payments).
Consolidated balance sheet (unaudited)
Notes 31 March 2006 31 March 2005 30 September
2005
£million £million £million
Goodwill 309.6 309.6 309.6
Intangible assets 1.1 1.2 1.4
Property, plant
and equipment 502.5 301.7 398.6
Financial assets -
cash on deposit 47.6 16.2 22.4
Other long term
assets 6.0 12.6 6.7
Investments
accounted for
using the equity
method 0.3 0.3 0.2
---------------- ------ ---------- ---------- ----------
Non-current assets 867.1 641.6 738.9
Trade and other
receivables 244.8 212.7 210.7
Asset held for
sale - - 7.1
Financial assets:
Cash on deposit - 16.2 6.1
Derivative
financial
instruments 2 13.0 - -
Cash and cash
equivalents 726.1 604.5 667.0
---------------- ------ ---------- ---------- ----------
Current assets 983.9 833.4 890.9
Borrowings (16.5) (10.0) (16.3)
Finance lease
borrowings (1.7) - -
Trade and other
payables (493.8) (403.1) (342.9)
Current tax
liabilities (39.3) (12.5) (38.9)
Provisions (10.9) (8.5) (16.4)
---------------- ------ ---------- ---------- ----------
Current
liabilities (562.2) (434.1) (414.5)
---------------- ------ ---------- ---------- ----------
Net current assets 421.7 399.3 476.4
Borrowings >1 year (207.7) (118.8) (201.0)
Finance lease
borrowings > 1
year (72.8) - -
Other non-current
liabilities (79.7) (63.5) (75.1)
Provisions (59.3) (51.7) (53.6)
Deferred tax
liabilities (12.7) (23.9) (22.2)
---------------- ------ ---------- ---------- ----------
Non-current
liabilities (432.2) (257.9) (351.9)
---------------- ------ ---------- ---------- ----------
Net assets 856.6 783.0 863.4
================ ====== ========== ========== ==========
Ordinary shares 7 101.6 99.8 100.1
Share premium 7 579.2 554.2 557.2
Retained earnings 7 170.3 127.7 206.0
Other reserves 7 5.5 1.3 0.1
---------------- ------ ---------- ---------- ----------
Shareholders'
funds - equity 856.6 783.0 863.4
================ ====== ========== ========== ==========
Consolidated statement of cashflows (unaudited)
Six months ended 31 March Year ended
Notes 2006 2005 30 September
2005
£million £million £million
Cashflows from operating
activities
Cash generated from operations 6 90.6 155.0 221.0
Interest received 13.7 12.0 28.8
Interest paid (5.4) (1.5) (5.7)
Tax paid (0.5) 3.4 2.9
---------------------- ----- -------- -------- --------
Net cash from operating activities 98.4 168.9 247.0
Cashflows from investing
activities
Proceeds from sale of property,
plant and equipment 29.1 42.9 75.5
Purchase of property, plant and
equipment (143.3) (99.5) (237.0)
Proceeds from sale of asset held
for 7.1 - -
resale
Purchase of intangible fixed (0.1) (0.6) (1.4)
assets
Dividend received from joint - - 0.2
venture
---------------------- ----- -------- -------- --------
Net cash used in investing
activities (107.2) (57.2) (162.7)
Cashflows from financing
activities
Net proceeds from issue of
ordinary 10.8 - 2.0
share capital
Purchase of shares held by (0.1) - -
trustees
Net proceeds from drawdown of new
bank loans 24.4 36.5 146.2
Repayment of bank loans (21.3) (21.9) (46.9)
Net proceeds from sale and finance
leasebacks 74.5 - -
Management of liquid resources (19.6) (18.1) (14.2)
---------------------- ----- -------- -------- --------
Net cash inflow / (used) in
financing activities 68.7 (3.5) 87.1
Effects of exchange rate changes (0.8) 0.3 (0.4)
--------------------- ----- -------- -------- --------
Net increase in cash and cash
equivalents 59.1 108.5 171.0
Cash and cash equivalents at
beginning of period 667.0 496.0 496.0
---------------------- ----- -------- -------- --------
Cash and cash equivalents at end
of 726.1 604.5 667.0
period ===== ======== ======== ========
======================
Consolidated statement of recognised income and expense (unaudited)
Notes Six months ended 31 March Year ended
2006 2005 30 September
2005
£million £million £million
Cash flow hedges
Fair value losses in period,
net of tax (3.3) - -
Transfers to net profit (2.0) - -
Translation differences on
foreign currency net
investments (0.1) 1.3 0.1
--------------- -------- ---------- ---------- ----------
Income / (expense) recognised
directly in equity (5.4) 1.3 0.1
(Loss) / profit for the
period (28.9) (15.4) 59.0
--------------- -------- ---------- ---------- ----------
Total recognised income /
(expense) for the period
attributable to shareholders
of the Company (34.3) (14.1) 59.1
Adoption of IAS 32 and IAS 39 2 13.3 - -
--------------- -------- ---------- ---------- ----------
Total recognised income and
expense (21.0) (14.1) 59.1
=============== ======== ========== ========== ==========
Operational and Financial Review
Half year 2006 compared with half year 2005
Revenue
easyJet's revenue increased by 13.8% from £553.3 million to £629.5 million, from
half year 2005 to half year 2006. Total revenue per seat increased by 0.8% from
£34.38 to £34.67.
Passenger revenue, the largest component, comprises the price paid for the seat
less government taxes such as Air Passenger Duty and VAT. It increased by 11.2%
from £513.6 million to £571.0 million, driven by a 12.8% growth in seats flown
from 16.1 million to 18.2 million, offset by a 1.5% reduction in passenger
revenue per seat from £31.91 to £31.44.
Revenue from ancillary sources, within ongoing operations, includes in-flight
sales of food and beverages, excess baggage and sporting good 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 half
year 2006, £58.5 million was earned from ancillary sources, up 47.2% from the
prior half year. The ancillary revenue per seat increased by £0.76 per seat to
£3.23, an increase of 31%.
The average sector length increased by 2% to 918 kilometres.
Ground handling charges, including salaries
easyJet's ground handling charges increased by 13.4% from £62.8 million to £71.2
million, from half year 2005 to half year 2006. The increase in third-party
ground handling charges reflects the increase in the number of sectors flown.
Additional costs of £2 million were also incurred in de-icing charges as a
result of an unusually cold winter across Europe. Despite this, the ground
handling cost per seat increased by only 1% to £3.92.
Airport charges
easyJet's external airport charges increased by 9.8% from £105.3 million to
£115.7 million from half year 2005 to half year 2006. This increase was
attributable to the increase in the number of sectors flown. On a per seat
basis, costs fell by 3% from £6.55 to £6.37.
Fuel
easyJet's fuel costs increased by 68.2% from £98.6 million to £165.9 million
from half year 2005 to half year 2006. There has been a 41.2% increase in
easyJet's effective average unit US dollar fuel cost, compared with the previous
year, resulting in additional costs to easyJet of £45.1 million. The weakening
of the value of sterling against the US dollar, the currency in which fuel
prices are denominated, over the course of half year 2006 provided an additional
cost of £11.1 million. Increased flying resulted in £12.5m additional fuel
costs. Set against this were the benefits of a more fuel efficient fleet of
aircraft, which provided a benefit of £1.4 million. On a per seat basis, costs
increased by 49% from £6.13 to £9.14.
Navigation charges
easyJet's navigation charges increased by 9.4% from £49.9 million to £54.6
million from half year 2005 to half year 2006. This increase was principally
attributable to the increased number of ASKs flown. Cost savings were derived
from lower unit charges and a weaker Euro, but were partially offset by on
average heavier aircraft. On a per seat basis, costs reduced by 3% from £3.10 to
£3.01.
Operational and financial review (continued)
Crew costs, including training
easyJet's crew costs increased by 12.9% from £66.6 million to £75.2 million from
half year 2005 to half year 2006. The increase in crew costs resulted from an
increase in headcount during the half year 2006 to service the additional
sectors and aircraft operated by easyJet during the period.
Maintenance
Maintenance expenses decreased by 11.3% from £57.9 million to £51.4 million from
half year 2005 to half year 2006. easyJet's maintenance expenses consist
primarily of the cost of routine maintenance and spare parts and provisions for
the estimated future cost of heavy maintenance and engine overhauls on aircraft
operated by easyJet pursuant to dry operating leases. The extent of the required
annual maintenance reserve charges is determined by reference to the number of
flight hours and cycles permitted between each engine shop visit and heavy
maintenance overhaul on aircraft airframes. The decrease in maintenance costs
was largely due to the benefits of new contractual arrangements being negotiated
with lower prices, such as with SR Technics set off by the additional costs of a
11.3% increase in the number of sectors flown. On a per seat basis, costs
reduced by 21% from £3.60 to £2.83.
Advertising
Advertising costs decreased by 7.0% from £18.7 million to £17.4 million from
half year 2005 to half year 2006. In half year 2005, there were additional costs
incurred redesigning the easyJet brand in 2005 with a new 'Come on, let's fly'
campaign, for which there was no comparable spend in 2006. As a result, the
advertising cost per seat fell by 18% from £1.16 to £0.96.
Merchant fees and incentive pay
Merchant fees and incentive pay increased by 14.0% from £7.5 million to £8.6
million from half year 2005 to half year 2006. 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. The increase is
reflective of a larger volume of transactions in line with the growth of the
business.
Aircraft and passenger insurance
Aircraft and passenger insurance costs decreased by 14.6% from £9.6 million to
£8.2 million from half year 2005 to half year 2006. The decrease is due
primarily to renegotiation of insurance contracts offset against an increase in
both aircraft and passenger numbers.
Other costs
Other costs decreased by 20.3% from £42.7 million to £34.0 million from half
year 2005 to half year 2006. Items in this cost category include administrative
and operational costs (not included elsewhere) including some salary expenses.
Also this cost category includes compensation paid to passengers, currency
exchange gains and losses and the profit or loss on the disposal of fixed
assets. The principal reason for the decrease is management action to increase
the efficiency of the administration function. On a per seat basis, costs fell
by 29% from £2.65 to £1.87.
Operational and financial review (continued)
Depreciation and amortisation of intangibles
Depreciation charges increased by 23.9% from £8.4 million to £10.4 million from
half year 2005 to half year 2006. The depreciation charge reflects depreciation
on owned or finance leased aircraft and capitalised aircraft maintenance
charges, and also includes depreciation on computer hardware and other assets.
easyJet has owned or leased under a finance lease an average of 22.3 A319
aircraft during the half year 2006 (half year 2005: 6.0 B737-300 aircraft and
7.3 A319 aircraft). The increase in depreciation reflects the additional number
of owned aircraft, the strength of the US dollar which has increased the cost of
aircraft acquired, and the additional depreciation of other assets such as
spares and leasehold improvements.
Amortisation of intangibles remained unchanged at £0.4 million for both half
year 2005 and half year 2006. The amortisation charge reflects amortisation on
purchased computer software.
Aircraft dry lease costs
easyJet's aircraft dry lease costs comprise the lease payments paid by easyJet
in respect of those aircraft in its fleet operated pursuant to dry operating
leases and end of operating lease return costs. Aircraft dry lease costs
increased by 8.4% from £58.5 million to £63.5 million from half year 2005 to
half year 2006. This increase was principally due to new aircraft being
introduced to the fleet during the period under operating lease. During the
period 5 new leased aircraft were added to the fleet and 8 were retired. Over
the period, easyJet has been impacted by the weakening of the value of sterling
against the US dollar, the currency in which lease costs are denominated, and
rising dollar interest rates.
Share of profit after tax of associate
The Big Orange Handling Company Limited is a company owned by Menzies Aviation
Limited and easyJet. It was set up in January 2004 to provide ground handling
services at London Luton Airport. The share of operating profit after tax in
both half year 2005 and half year 2006 is similar at £0.1 million.
Interest and other finance income
Interest and other finance income represents interest received or receivable by
easyJet, offset by the revaluation of financing assets and liabilities.
easyJet's financing income increased from £12.0 million in half year 2005 to
£15.6 million in half year 2006. This was primarily due to the increase in cash
and cash on deposit held, from £636.9 million at 31 March 2005 to £773.7 million
at 31 March 2006.
Interest and other finance charges
Interest and other finance charges represents interest paid or payable by
easyJet, offset by the revaluation of financing assets and liabilities. Finance
charges relate predominantly to easyJet's borrowings through either loans or
finance leases. The average number of aircraft held under these arrangements
increased by 67.5% from 13.3 in half year 2005 to 22.3 in half year 2006.
Interest and other finance charges increased from £0.1 million in half year 2005
to £9.0 million in half year 2006. The increase is attributable to the increase
in number of aircraft financed, the impact of rising US dollar interest rates,
and the effect of foreign exchange revaluations which produced a credit of £2.0
million during half year 2005.
Taxation
In half year 2006, easyJet recognised a tax credit of £11.4 million (half year
2005 - tax credit of £6.2 million). The increase in the tax credit recognised is
due to the increase in pre-tax losses.
Operational and financial review (continued)
Retained profit for the year
For the reasons described above, easyJet's retained loss after interest and
taxes increased by 87.3% from £15.4 million in half year 2005 to £28.9 million
in half year 2006.
Loss per share
The basic loss per share increased by 85.8% from 3.86 pence in the half year
2005 to 7.17 pence in half year 2006.
Notes to the financial statements
For the six months ended 31 March 2006 (unaudited)
1. Basis of preparation
easyJet plc ('easyJet' or the 'Group' or the 'Company') has historically
prepared its audited annual financial statements and unaudited interim results
under UK Generally Accepted Accounting Practice ('GAAP'). In the current year,
easyJet has adopted International Financial Reporting Standards ('IFRS') for the
first time as the Group is required to present its annual consolidated financial
statements in accordance with accounting standards adopted for use in the
European Union (EU). The interim financial information has been prepared under
the Group's IFRS accounting policies, details of which were made available on 20
January 2006 in the document entitled 'Explanation of the financial impact
following adoption of International Financial Reporting Standards'. This
document contains reconciliations of easyJet's equity and results from UK GAAP
to IFRS at the date of transition to IFRS, 1 October 2004, and for the year
ended 30 September 2005. Reconciliations of easyJet's balance sheet and income
statements for the six months ended 31 March 2005 are detailed below.
As at the date of this Interim Report, not all International Financial Reporting
Standards ('IFRSs'), including interpretations of both the Standing
Interpretations Committee and the International Financial Reporting
Interpretations Committee ('IFRIC'), issued by the International Accounting
Standards Board have been endorsed by the European Commission. These standards
are subject to ongoing review and endorsement by the European Commission, whilst
the application of the standards continues to be subject to interpretation by
IFRIC as well as emerging industry consensus. As a consequence, further
adjustments to the accounting policies and treatments may need to be made to the
information presented in this document before it is published as comparative
information for the Group's full year results for the year ending 30 September
2006.
easyJet has adopted IAS 32, Financial Instruments: Disclosure and Presentation
and IAS 39 Financial Instruments: Recognition and Measurement from 1 October
2005 and applied the exemption not to restate its comparative information for
the impact of these standards. The Group's accounting policies for these
standards are included in the document 'Explanation of the financial impact
following adoption of International Financial Reporting Standards', which can be
viewed under the financial information section of our website, easyJet.com. The
Group has chosen to recognise the fair value of all financial Instruments as
current assets and liabilities on the balance sheet. The Group's accounting
policies for Financial Instruments in the periods to 30 September 2005 are
included in the Group's annual report for the year ended 30 September 2005. The
impact of adopting IAS 32 and IAS 39 is explained below.
easyJet has chosen not to adopt IAS 34 'Interim Financial Statements' in
preparing its 2005 interim statement, and therefore this interim financial
information is not in full compliance with the presentational and disclosure
requirements of IFRS.
The financial information included in this statement does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The financial information for the year ended 30 September 2005 included in this
Interim Report is based upon easyJet's consolidated financial statements for
that year, restated for the adoption of IFRS. Those financial statements were
reported on by easyJet's auditors at that time and have been delivered to the
Registrar of Companies. The report of the auditors was unqualified and did not
contain a statement under section 237 (2) or (3) of the Companies Act 1985.
2. Adoption of IAS 32 and IAS 39
As permitted by IFRS 1, IAS 32 and IAS 39 have been adopted prospectively from 1
October 2005 and as a consequence the fair value of certain financial
instruments have been measured and adjustments have been made to the Balance
Sheet at that date.
At 1 October 2005, easyJet has met the criteria to adopt hedge accounting for
foreign exchange and fuel derivative instruments. These instruments comprise
forwards and zero cost collars. As a result of applying hedge accounting, at 1
October 2005 the fair value of the financial instruments has been recognised as
a financial asset on the balance sheet, with the intrinsic value of the
instruments at that date being recognised in reserves, and the time value
portion being an adjustment to retained earnings.
Effect of changes on consolidated balance sheet at 1 October 2005:
At 30 September Impact of At 1 October
2005 adoption IAS 32 2005
and 39
£million £million £million
Non-current
assets 738.9 - 738.9
Financial
assets -
derivative
financial
instruments - 21.0 21.0
Other current
assets 890.9 (1.4) 889.5
------------------- --------- --------- ---------
Current assets 890.9 19.6 910.5
Current
liabilities (414.5) - (414.5)
Deferred
taxation (22.2) (6.3) (28.5)
Other
non-current
liabilities (329.7) - (329.7)
------------------- --------- --------- ---------
Non-current
liabilities (351.9) (6.3) (358.2)
------------------- --------- --------- ---------
Net assets 863.4 13.3 876.7
=================== ========= ========= =========
Share capital
and share
premium 657.3 - 657.3
Retained
earnings 206.0 2.5 208.5
Other reserves 0.1 10.8 10.9
------------------- --------- --------- ---------
Shareholders'
equity 863.4 13.3 876.7
=================== ========= ========= =========
In the six months ended 31 March 2006, the movement in the intrinsic value of
financial instruments has been taken to reserves and the time value portion has
been taken to the income statement, causing an additional expense of £0.9
million before taxes, or a net impact of £0.6 million after taxes. Since
easyJet's hedging instruments predominantly comprise zero cost collars, the
income statement impact of the time value of instruments will be zero over the
full life of the instrument.
3. Earnings per share
The earnings per share are based on the following:
Six months Year ended 30
ended 31 March
2006 2005 September 2005
(Loss)/profit for the period
retained for equity shareholders
(£million) (28.9) (15.4) 59.0
Number Number Number
Weighted average number of
ordinary shares in issue during
the period used to calculate
basic earnings per share
(millions) 403.4 399.1 399.3
Weighted average number of
dilutive share options used to
calculate dilutive earnings per
share (millions) N/A N/A 9.6
There is no diluted earnings per share for the six months ended 31 March 2005
and 2006 as the impact of share options on the basic earnings per share is
antidilutive.
4. Taxation
The taxation charge is made up as follows:
Six months ended 31 March Year ended
2006 2005 30 September
2005
£million £million £million
Current taxation: 0.9 (8.9) 18.2
Deferred taxation (12.3) 2.7 5.4
------------------- --------- --------- ---------
Total taxation (credit)/charge (11.4) (6.2) 23.6
=================== ========= ========= =========
Effective tax rate 28.2% 28.5% 28.6%
Tax on items charged to equity comprises:
Six months ended 31 March Year ended
2006 2005 30 September
2005
£million £million £million
Deferred tax credit on stock options 1.3 3.3 8.0
Deferred tax credit on fair value
movements of cashflow hedges 1.4 - -
The effective tax rate in the six months ended 31 March 2006 is different from
the standard rate of tax principally due to overseas profits having been taxed
at lower effective tax rates in those countries. Due to the loss making position
of the Group, a tax credit has been recognised, as these losses are expected to
be more than matched by profits in the second half of the year ending 30
September 2006.
5. Dividends
No dividends have been paid or proposed in the period ended 31 March 2006 or
during the comparative accounting periods.
6. Reconciliation of net (loss) / profit to net cash inflow from operating
activities
Six months ended 31 March Year ended
2006 2005 30 September
2005
£million £million £million
Net (loss) / profit (28.9) (15.4) 59.0
Adjustments for:
Tax (credit) / charge (11.4) (6.2) 23.6
Depreciation charge 10.4 8.4 15.8
(Profit) / loss on disposal of
property, plant and equipment (0.9) 0.3 2.4
Amortisation of intangibles 0.4 0.4 0.8
Share based payments charge 2.3 1.6 2.0
Interest income (15.6) (12.0) (27.2)
Interest expense 8.9 2.1 8.2
Financial instruments - time value 0.9 - -
Share of results of joint ventures
after taxation (0.1) (0.1) (0.1)
Foreign exchange 1.1 (0.8) 5.3
Changes in working capital:
(Increase)/decrease in trade and
other receivables (33.0) 23.5 21.1
Increase in payables 147.9 115.7 43.3
Increase in provisions 0.2 17.5 27.2
Decrease in other non-current assets 3.5 4.2 12.2
Decrease in financial instruments 0.3 - -
Increase in other non-current
liabilities 4.6 15.8 27.4
------------------- --------- --------- ---------
Cash generated from operations 90.6 155.0 221.0
=================== ========= ========= =========
7. Consolidated reconciliation of movements in shareholders' equity
Share capital Share premium Other reserves Retained Total
earnings
£million £million £million £million £million
At 30
September 2005 100.1 557.2 0.1 206.0 863.4
Adoption of
IAS 32 and IAS
39 (note 2) - - 10.8 2.5 13.3
----------------- ------- ------- ------- ------- -------
At 1 October
2005 100.1 557.2 10.9 208.5 876.7
Loss for the
period - - - (28.9) (28.9)
Cashflow hedges
Fair value
gains in
period, net of
deferred tax - - (3.3) - (3.3)
Transfers to
net profit,
net of tax - - (2.0) - (2.0)
Translation
differences on
foreign
currency net
investments - - (0.1) - (0.1)
Share options
Proceeds from
shares issued 1.5 22.0 - - 23.5
Value of
employee
services - - 3.5 3.5
Movement in
shares held by
trustees - - - (0.1) (0.1)
Movement in
reserves for
options
exercised - - - (12.7) (12.7)
---------------- ------- ------- ------- ------- -------
At 31 March
2006 101.6 579.2 5.5 170.3 856.6
================ ======= ======= ======= ======= =======
8. Contingent liabilities
The Group is involved in a number of disputes or litigation in the normal course
of business. Whilst the results of such disputes cannot be predicted with
certainty, easyJet believes that the ultimate resolution of these disputes will
not have a material effect on the Group's financial position or results.
9. Effect of the change to IFRS (continued)
a) Reconciliation of the income statement for the six months ended 31 March 2005
Adjustments - see note 10
(a)(ii) (b) (c) (d) (e) (f) (g)
UK GAAP S'ware Forex Share options G'will Eee bens Tax Assoc IFRS
£m
Passenger
revenue 513.6 513.6
Ancillary
revenue 39.7 39.7
-------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Group revenue 553.3 553.3
Ground
handling
charges (62.8) (62.8)
Airport charges (105.3) (105.3)
Fuel (98.6) (98.6)
Navigation
charges (49.9) (49.9)
Crew costs (66.6) (66.6)
Maintenance (57.9) (57.9)
Advertising (18.7) (18.7)
Merchant fees
& incentive
pay (7.5) (7.5)
Aircraft and
pax insurance (9.6) (9.6)
Other costs (39.1) (2.4) (1.6) 0.4 (42.7)
-------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
EBITDAR 37.3 - (2.4) (1.6) - 0.4 - - 33.7
Depreciation (8.5) 0.4 (0.3) (8.4)
Accelerated
depreciation
of 737-300
aircraft (2.7) 2.7 -
Goodwill
amortisation (8.8) 8.8 -
Amortisation
of intangible
assets - (0.4) (0.4)
Aircraft dry
lease costs (58.5) (58.5)
-------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Group
operating loss (41.2) - - (1.6) 8.8 0.4 - - (33.6)
Share of
profit after
tax of
associate 0.1 0.1
Interest
receivable and
other income 12.0 12.0
Interest
payable and
other charges (2.1) 2.0 (0.1)
-------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net financing
income 9.9 - 2.0 - - - - - 11.9
-------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Loss before tax (31.2) - 2.0 (1.6) 8.8 0.4 - - (21.6)
Tax 8.9 (2.7) 6.2
-------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Retained loss
for the year (22.3) - 2.0 (1.6) 8.8 0.4 (2.7) - (15.4)
============== ===== ===== ===== ===== ===== ===== ===== ===== =====
9. Effect of the change to IFRS (continued)
b) Reconciliation of presentation of the Balance sheet as at 31 March 2005
UK GAAP Presentation adjustments - see note 10 UK GAAP
UK GAAP £m (i) (ii) (iii) (iv) (v) (vi) £m IFRS
presentation
G'will S'ware LT Assets Cash Prov'ns Forex
300.8 300.8 Goodwill
Intangible
assets 300.8 (300.8) 1.2 1.2 Intangible
assets
Tangible 335.1 (1.2) 333.9 Property,
assets plant and
equipment
16.2 16.2 Financial
assets -
deposits
7.6 7.6 Other long
term assets
Other
investments 0.3 0.3 Investments
accounted for
using the
equity method
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Fixed assets 636.2 - - 7.6 16.2 - 660.0 Non-current
assets
Debtors 174.1 (7.6) 166.5 Trade and
other
recievables
Financial
assets -
deposits 16.2 16.2 Financial
assets -
deposits
Cash at bank
and in hand 636.9 (32.4) 604.5 Cash and cash
equivalents
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Current 811.0 - - (7.6) (16.2) - 787.2 Current assets
assets
Bank loans 10.0 10.0 Borrowings
Trade and
other 403.1 403.1 Trade and
payables other payables
Corporation 12.5 12.5 Current tax
tax liabilities
8.5 8.5 Provisions
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Creditors:
due
within one 425.6 - - - - 8.5 434.1 Current
year liabilities
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Net current
assets 385.4 - - (7.6) (16.2) (8.5) 353.1 Net current
assets
Bank loans 118.8 118.8 Borrowings >1
year
Accruals and
deferred
income 63.5 63.5 Other
non-current
liabilities
51.7 51.7 Provisions
20.2 20.2 Deferred tax
liabilities
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Creditors:
due 182.3 - - - - 71.9 254.2 Non-current
after one liabilities
year
Provisions
for
liabilties 80.4 - - - - (80.4) -
and
charges
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Net assets 758.9 - - - - - 758.9 Net assets
=========== ===== ===== ===== ===== ===== ===== ===== ===== =============
Called up
share capital 99.8 99.8 Ordinary
shares
Share premium
account 554.2 554.2 Share premium
Profit and
loss account 104.9 (1.3) 103.6 Retained
earnings
1.3 1.3 Other reserves
----------- ----- ----- ----- ----- ----- ----- ----- ----- -------------
Shareholders'
funds - 758.9 - - - - - - 758.9 Shareholders'
equity ===== ===== ===== ===== ===== ===== ===== ===== funds - equity
=========== =============
9. Effect of the change to IFRS (continued)
c) Reconciliation of impact of adopting IFRS on the Balance sheet as at 31 March
2005
UK GAAP IFRS adjustments - see note 10 IFRS
UK GAAP £m (b) (c) (d) (e) (f) £m
Forex Share options G'will Eee bens Tax
Goodwill 300.8 8.8 309.6
Intangible assets 1.2 1.2
Property, plant and
equipment 333.9 (32.2) 301.7
Financial assets -
deposits 16.2 16.2
Other long term 7.6 5.0 12.6
assets
Investments accounted
for using the equity
method 0.3 0.3
-------------------- ----- ----- ----- ----- ----- ----- -----
Non-current assets 660.0 (27.2) - 8.8 - - 641.6
46.2 212.7
Trade and other
recievables 166.5 16.2
Financial assets -
deposits 16.2 604.5
Cash and cash
equivalents 604.5
-------------------- ----- ----- ----- ----- ----- ----- -----
Current assets 787.2 46.2 - - - - 833.4
Borrowings 10.0 10.0
Trade and other
payables 403.1 - 403.1
Current tax
liabilities 12.5 12.5
Provisions 8.5 8.5
-------------------- ----- ----- ----- ----- ----- ----- -----
Current liabilities 434.1 - - - - - 434.1
-------------------- ----- ----- ----- ----- ----- ----- -----
Net current assets 353.1 46.2 - - - - 399.3
Borrowings >1 year 118.8 118.8
Other non-current
liabilities 63.5 63.5
Provisions 51.7 51.7
Deferred tax
liabilities 20.2 3.7 23.9
-------------------- ----- ----- ----- ----- ----- ----- -----
Non-current
liabilities 254.2 - - - - 3.7 257.9
-
-------------------- ----- ----- ----- ----- ----- ----- -----
Net assets 758.9 19.0 - 8.8 - (3.7) 783.0
==================== ===== ===== ===== ===== ===== ===== =====
Ordinary shares 99.8 99.8
Share premium 554.2 554.2
Retained earnings 103.6 19.0 - 8.8 - (3.7) 127.7
Other reserves 1.3 1.3
-------------------- ----- ----- ----- ----- ----- ----- -----
Shareholders' funds -
equity 758.9 19.0 - 8.8 - (3.7) 783.0
==================== ===== ===== ===== ===== ===== ===== =====
10. Explanation of principal changes under IFRS
a) Presentation adjustments
Note 9 contains reconciliations to assist in understanding the nature and value
of the differences between UK GAAP and IFRS.
The financial information is in IFRS format, and reflects a number of
differences in presentation between UK GAAP and IFRS as follows;
i) The disclosure of goodwill as separate from intangible assets on the
balance sheet;
ii) The classification of software that is not an integral part of operating
hardware as an intangible asset separate from property plant and equipment
on the balance sheet, and the classification of the related depreciation
as amortisation;
iii) The classification of long term assets previously included in current
assets;
iv) The reclassification of cash on deposit with a maturity of greater than
one year or between three months and one year, previously classified as
liquid resources in the cashflow statement, as a long term or current
financial asset;
v) The reclassification of provisions as current or non-current liabilities;
vi) The reclassification of foreign exchange reserves arising on the
retranslation of subsidiaries with a functional currency other than
Sterling from retained earnings to other reserves; and
vii) The format of the income statement is substantially similar to that of the
results of operations included in the Operating and Financial Review in
the Group's previous UK GAAP financial statements. The Companies Act
Schedule 4 format of the Profit and Loss account is no longer required to
be used under IFRS and use of this alternative format is more relevant to
how the business is managed;
b) IAS 21 - The Effects of Changes in Foreign Exchange Rates, and IFRS 1 -
First Time Adoption of IFRS
Under UK GAAP, certain US Dollar denominated assets and liabilities are treated
as a foreign operation (branch) with the US Dollar as their functional currency.
As a result, exchange movements on retranslation of assets and liabilities are
taken to reserves rather than through the income statement. IAS 21 provides
additional criteria to allow the functional currency of a foreign operation to
be determined. Certain aircraft owning companies within the Group have now
ceased to be classified as US Dollar branches under IAS 21, and now have a
Sterling functional currency. On implementing IAS 21, non monetary assets have
been restated at historic exchange rates, with no translation differences
arising subsequent to their purchase. Exchange differences on retranslation of
monetary items are taken to the income statement. This has resulted in an
additional £0.5 million gain being recognised during the six months ended 31
March 2005.
The net book value of the Airbus fixed assets was restated to remove the impact
of historic foreign exchange differences recognised on retranslation of the US
Dollar denominated assets into Sterling under UK GAAP. Depreciation has also
been restated to take into account the new cost base of the aircraft fixed
assets. This resulted in an increase in the net book value of fixed assets of
£18.8 million at 31 March 2005. As a result of these changes to the cost of
Airbus aircraft fixed assets, depreciation increased by £0.4 million in the six
months ended 31 March 2005.
Under the exemptions allowed by IFRS 1, the fair value at 1 October 2004 of the
Boeing 737-300 aircraft has been taken as their deemed cost. This has resulted
in a one off valuation decrease in property, plant and equipment of £6.5 million
at 31 March 2005, a decrease in accelerated depreciation of £2.7 million and a
decrease in depreciation of £0.2 million for the six months ended 31 March 2005,
and an increase in the loss on disposal of fixed assets of £0.9 million for the
six months ended 31 March 2005.
Certain payments on account made prior to delivery of aircraft are monetary
assets, as the aircraft that will be delivered as a result of these payments are
expected to be sold to lessors and leased back under operating leases on the
basis of commercial arrangements in place. These pre delivery deposits have been
classified separately on the balance sheet, resulting in a decrease in the book
value of fixed assets of £44.3 million at 31 March 2005.
Adoption of IAS 21 may cause additional volatility in the income statement due
to changes in foreign exchange rates. This risk will be managed through a
mixture of drawing down loans in Sterling, holding cash and cash equivalents in
US Dollars and entering into foreign exchange derivative instruments.
c) IFRS 2 - Share-based Payment
IFRS 2 requires a charge to be made to the income statement for the cost of
providing share options to employees. The expense is calculated as the fair
value of the award on the date of grant, and is recognised over the vesting
period of the scheme. A binomial model has been used to calculate the fair value
of options on their grant date. easyJet has applied the provisions of IFRS 2
only to awards made after 7 November 2002, an exemption allowed on transition by
IFRS 1. There was no net impact on the balance sheet at 1 October 2004 as a
result of adopting IFRS 2.
In the six months ended 31 March 2005, the application of IFRS 2 results in a
pre tax charge to the income statement of £0.4 million.
d) IFRS 3 - Business Combinations
Under UK GAAP, goodwill arising on business combinations is amortised over a
period not exceeding 20 years. Under IFRS 3, regular amortisation of goodwill is
prohibited. Instead, an annual impairment test is required to support the
carrying value of goodwill.
Amortisation of goodwill arising on the purchase of TEA Basel AG (now easyJet
Switzerland) and Newgo 1 Limited, the parent company of Go Fly ceased on 1
October 2004, resulting in an increase of pre tax profits of £8.8 million in the
six months ended 31 March 2005.
e) IAS 19 - Employee Benefits
Under UK GAAP, no provision is made for annual leave accrued. Under IAS 19, the
expected cost of compensated short term absences should be recognised at the
time the related service is provided. As a result, on transition, a provision of
£0.4 million was recognised. A £nil provision is required at 31 March 2005,
therefore there was a £0.4 million benefit in the six months ended 31 March
2005.
f) IAS 12 - Income taxes
Under UK GAAP, deferred tax was provided on timing differences that had
originated, but had not reversed, before the balance sheet date. Under IAS 12,
deferred tax is provided on temporary differences based upon the future recovery
or settlement of assets and liabilities recognised in the balance sheet.
As a result of other accounting policy changes resulting from the implementation
of IFRS, and the implementation of IAS 12, a total additional deferred tax
liability of £3.7 million has been provided at 31 March 2005, and the tax credit
under IFRS has been reduced by £2.7 million in the six months ended 31 March
2005 by comparison to UK GAAP. These changes are a result of the following
items:
• No deferred tax on share options was recognised on transition as the
market value of an easyJet share on 30 September 2004 was £1.27, less than the
exercise price of all the options which were issued after 7 November 2002 and
which are accounted for under IFRS 2. A deferred tax asset of £0.3 million has
been recognised on transition in respect of share options issued prior to 7
November 2002. At 31 March 2005, a deferred tax asset of £3.3 million was
recognised on all options. This caused a £3.3 million increase in equity. The
increase in the deferred tax asset partly reflects the increase in the share
price at 31 March 2005 to £2.16, above the exercise price for the majority of
the options in issue on that date; and
• Other adjustments as a result of changes in asset bases and changes in
accounting policies resulted in the recognition of an additional deferred tax
liability at 31 March 2005 of £7.0 million and a reduction in the tax credit of
£2.7 million.
g) IAS 28 - Investments in Associates
Associated undertakings are equity accounted for under both IAS 28 and UK GAAP.
The only difference between the treatment of associates under IFRS compared to
UK GAAP is the disclosures in the income statement. easyJet's share of the post
tax profits of its associate are shown on a single line in the income statement
under IFRS, whereas under UK GAAP easyJet's share of the pre tax profits of its
associate were separately disclosed, with associate's the tax charge included in
the Group's tax charge. This has no impact on the result for the six months
ended 31 March 2005.
Independent review report to easyJet plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 March 2006 which comprises consolidated income
statement, consolidated balance sheet, consolidated statement of cash flows,
consolidated statement of recognised income and expense and related notes. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with International Financial Reporting Standards as
adopted by the European Union. This interim report has been prepared in
accordance with the basis set out in note 1.
The accounting policies are consistent with those that the Directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the Directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with International Financial Reporting Standards as adopted by the
European Union. The IFRS standards and IFRIC interpretations that will be
applicable and adopted by the European Union at 30 September 2006 are not known
with certainty at the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2006.
PricewaterhouseCoopers LLP
St Albans
2 May 2006
Notes:
(a) The maintenance and integrity of the easyJet web site is the responsibility
of the Directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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