Ryanair 3rd Quarter Results

Ryanair Holdings PLC 31 January 2005 RYANAIR BEATS ITS EXPECTATIONS. Q3 NET PROFIT OF €35m - TRAFFIC GROWS 13% TO 6.9M Ryanair, Europe's No.1 low fares airline today (Monday, 31st January 2005) announced a Net Profit after tax of €35.0m for the 3rd Quarter ended 31 Dec 2004. Passenger volumes grew by 13% to 6.9m whilst yields were in line with the same Quarter last year, and as a result, total revenues rose by 15% to €294.4m. Unit costs rose by 26% due to the increase in the level of activity and in particular higher fuel and route charges. During the Quarter, maintenance provisions of €4.5m (net of tax) were released to the profit and loss due to the earlier than scheduled return of 6 leased 737-300's. As a result Q3 net profit declined by 26% and the Q3 profit margin after tax declined by 7 points to 12%. Summary Table of Results (Irish GAAP) - in Euro Quarter Ended Dec 31, Dec 31, % 2003 2004 Increase Passengers 6.1m 6.9m +13% Revenue €255.0m €294.4m +15% Profit after tax €47.5m €35.0m - 26% (Note 1) Basic EPS (Euro €6.27c €4.61c - 26% Cents) (Note 1) Note 1:Adjusted profit after tax and EPS excludes the exceptional costs of €6m (net of tax) arising from the earlier than planned retirement of 6 Boeing 737-200 aircraft during the Quarter to 31 December 2003, and a goodwill charge of €0.6m in 2003 and €0.5m in 2004. Announcing these results Ryanair's Chief Executive, Michael O'Leary, said: 'These quarterly results are a testimony to the strength of the Ryanair 'lowest cost' model which - even during the most difficult trading conditions (including record fuel prices and intense competition) - delivers strong passenger growth and profits. We continue, like Southwest, to maintain our record of 31 consecutive quarters of unbroken profitability (before exceptionals) since we floated in May 1997. 'As predicted, casualties continue in the European industry, most notably Volare, VBird and Air Polonia. Hapag Lloyd Express, MyTravel Lite and Basiq Air have announced significant reversals of capacity back into their charter operations, while many of Europe's flag carriers (most notably Alitalia and SAS) have announced record losses. This is not a temporary phenomenon resulting from high oil prices, but a permanent market shift towards low cost air travel, led by Ryanair. Only the lowest cost airlines like Southwest in the US and Ryanair in Europe will prosper over the medium term and we expect further casualties, cut backs and withdrawals among our loss making competitors. 'Despite intense competition, yields were similar to those achieved last year and better than our previous guidance of a decline of between 5% to 10%. We believe this is due to capacity removals by competitors and the continuing impact of multiple fuel surcharges imposed by many of our high fare competitors, which have made Ryanair's low fares even more attractive to European consumers. 'Fuel prices remain high and will continue to impact our future guidance. Our fuel hedges expired at the end of October 2004 and we were unhedged during November, however as forward prices fell, we restarted our hedging programme for this Winter season. We are almost 100% hedged at an average of $41 per barrel for Brent crude for the 4th Quarter and are unhedged thereafter. Lower than expected fuel prices also had a positive impact on our Quarter 3 results when fuel costs were €4m better than our previous guidance. We expect our Q4 fuel costs to be €5m lower than the previous guidance. We still see value in hedging to remove uncertainty from our business and will continue to review our hedging policy as forward oil prices return to more 'normal' levels. 'Advance bookings for Q4 indicate that traffic growth is in line with expectations. With some 50% of the seats sold (and assuming no adverse movement in exchange rates) we expect yields may now rise by up to 5% for the Quarter. We would caution investors that this upturn in yield is more a reflection of the precipitous 22% decline in the comparable Q4 yields last year, slower capacity growth and an earlier Easter, rather than some significant current price recovery. As we review Q4 of last year, it appears to have been an exceptional result with yields collapsing due to the combined effect of the war in Iraq, the threat of terrorism, high oil prices, our own enormous capacity growth (+50%) and the market entry of many irrational low fare (but not low cost) airlines in Europe, many of whom have disappeared as quickly as they entered. 'Ryanair continues to grow strongly and profitably in spite of adverse market conditions. The airline is now carrying 74% more traffic than it did just two years ago (in Q3 of 2002). Ryanair is the No.1 or No.2 airline in terms of market share in over 90% of our markets and we continue to maintain world record profit margins despite significantly higher oil prices and route charges. Our new bases in Luton, Liverpool and Shannon are booking well for 2005, and we believe that our 21 new Spanish routes will also perform strongly, particularly during the Summer months. We have (last week) announced six new routes from Dublin to Biarritz and Carcassonne in France, Frankfurt in Germany, Eindhoven in Holland, Doncaster in the UK and Rome in Italy as a foretaste of what is on offer from Dublin if we get a second competing terminal. Once again, we strongly urge the Taoiseach to press ahead with the second terminal at Dublin airport. In addition, this morning Ryanair will unveil its first 3 Italian domestic routes. The destinations and fares will be announced at a press conference in Rome, which will herald the end of Alitalia's domestic high fare monopoly in Italy. 'We support the development of a second runway at Stansted Airport, but are united with all other Stansted users in opposing the £4bn. folly being advocated by the BAA. The fact that price sensitive consumers are being asked to cross subsidise almost £2bn. worth of unnecessary rail links and motorways demonstrates how completely out of touch the BAA airport monopoly has become. Ryanair and other Stansted users support the type of low cost, second terminal and runway facilities developed by Manchester at a cost of some £400m. But only a regulated monopoly like the BAA could possibly propose spending ten times this sum on gold plating facilities that our passengers neither need nor want. We call on the UK Government to break up the BAA airport monopoly, which is now the world's most profitable airport operator, because passengers need competition between the London airports if British consumers and visitors are to continue to enjoy the lowest cost air travel in Europe. 'The initial trial of our inflight entertainment system has been disappointing. Whilst the trial period was hampered by the lack of content in non-English languages, the uptake among passengers has been lower than expected. We have now resolved these service issues with the content provider, but unless we see a significant improvement in customer take up, we will not roll out the system across the entire fleet as planned. We remain believers in the potential of inflight entertainment however, as initially with CD's and the IPod, it may take some time for the travelling public in Europe to catch on to the technology. Should we decide to discontinue with IFE at the end of our extended trial period, Ryanair will suffer no financial loss whatsoever. 'We continue our cautious outlook for Quarter 4 and the full year outturn. Whilst yields and fuel prices are now somewhat better than originally forecast, Sterling has weakened appreciably and this will have a downward impact on yields. In Quarter 4 last year we suffered a 22% collapse in average fares, however based on current booking trends we now expect that Q4 yields this year might be as much as 5% higher than last year. Despite higher route and fuel charges, we continue to deliver the highest net margins in the industry and we therefore believe that Ryanair's lowest cost model will continue to grow and prosper across Europe to the benefit of our passengers, people and our shareholders'. ENDS. Monday, 31st January 2005 For results and further Howard Millar Pauline McAlester information please contact: Ryanair Holdings Plc Murray Consultants www.Ryanair.com Tel: 353-1-8121212 Tel:353-1-4980300 Certain of the information included in this release is forward looking and is subject to important risks and uncertainties that could cause actual results to differ materially. It is not reasonably possible to itemise all of the many factors and specific events that could affect the outlook and results of an airline operating in the European economy. Among the factors that are subject to change and could significantly impact Ryanair's expected results are the airline pricing environment, fuel costs, competition from new and existing carriers, market prices for replacement aircraft, costs associated with environmental, safety and security measures, actions of the Irish, U.K., European Union ('EU') and other governments and their respective regulatory agencies, fluctuations in currency exchange rates and interest rates, airport access and charges, labour relations, the economic environment of the airline industry, the general economic environment in Ireland, the UK and Continental Europe, the general willingness of passengers to travel and other economics, social and political factors. Ryanair is Europe's largest low fares airline with 217 low fare routes across 19 countries. Ryanair operates a fleet of 79 aircraft, and firm orders for up to a further 85 new 737-800's which will be delivered over the next 5 years. Ryanair currently employs a team of 2,600 people and expect to carry approximately 27.5 million scheduled passengers in the current year. Ryanair Holdings plc and Subsidiaries Consolidated Profit and Loss Accounts in accordance with UK and Irish GAAP (unaudited) Quarter Quarter Nine months Nine months ended ended Ended ended Dec 31, 2004 Dec 31, 2003 Dec-31, 2004 Dec-31, 2003 €'000 €'000 €'000 €'000 Operating Revenues Scheduled revenues 246,712 216,424 864,356 739,964 Ancillary revenues 47,732 38,575 151,180 111,409 Total operating revenues -continuing operations 294,444 254,999 1,015,536 851,373 Operating expenses Staff costs 34,824 29,506 104,083 90,984 Depreciation and amortisation 26,056 25,009 70,960 71,728 Other operating expenses Fuel & Oil 72,486 43,128 186,236 127,474 Maintenance, materials and repairs 2,323 8,796 27,221 30,983 Marketing and distribution costs 2,625 1,045 13,400 11,028 Aircraft rentals 7,400 2,730 23,636 6,450 Route charges 33,389 27,442 101,315 80,331 Airport and Handling charges 44,243 38,123 134,565 110,202 Other 22,428 19,083 69,933 58,769 Total operating expenses 245,774 194,862 731,349 587,949 Operating profit before exceptional costs, and goodwill 48,670 60,137 284,187 263,424 Aircraft retirement costs - (6,773) - (9,491) Buzz re-organisation costs - - - (3,012) Amortisation of goodwill (530) (586) (1,702) (1,757) (530) (7,359) (1,702) (14,260) Operating profit after exceptional costs, and goodwill 48,140 52,778 282,485 249,164 Other income/ (expenses) Foreign exchange (losses)/gains (2,076) (581) (2,835) 852 Gain/(loss) on disposal of fixed assets - - 6 (8) Interest receivable and similar income 7,379 5,115 20,197 17,642 Interest payable and similar charges (15,071) (12,499) (40,992) (35,302) Total other income/ (9,768) (7,965) (23,624) (16,816) (expenses) Profit before taxation 38,372 44,813 258,861 232,348 Tax on profit on ordinary activities (3,877) (3,852) (24,257) (22,446) Profit for the period 34,495 40,961 234,604 209,902 Earnings per ordinary share -Basic(Eurocent) 4.54 5.40 30.89 27.72 -Diluted(Euro cent) 4.51 5.33 30.70 27.41 Adjusted earnings per ordinary share* -Basic(Euro 4.61 6.27 31.11 29.46 cent) -Diluted(Euro cent) 4.58 6.19 30.92 29.13 Number of ordinary shares (in 000's) -Basic 759,775 758,608 759,499 757,143 -Diluted 764,438 767,928 764,127 765,779 * Calculated on Profit for the period before exceptional costs (net of tax), and Goodwill. Page 1 Ryanair Holdings plc and Subsidiaries Consolidated Balance Sheets in accordance with UK and Irish GAAP (unaudited) Dec 31, March 31, 2004 2004 €'000 €'000 Fixed assets Intangible Assets 30,872 44,499 Tangible assets 1,845,452 1,576,526 Total fixed assets 1,876,324 1,621,025 Current assets Cash and liquid resources 1,447,850 1,257,350 Accounts receivable 14,467 14,932 Other assets 18,608 19,251 Inventories 27,160 26,440 Total current assets 1,508,085 1,317,973 Total assets 3,384,409 2,938,998 Current liabilities Accounts payable 89,439 67,936 Accrued expenses and other liabilities 317,049 338,208 Current maturities of long term debt 106,841 80,337 Short term borrowings 2,325 345 Total current liabilities 515,654 486,826 Other liabilities Provisions for liabilities and charges 107,741 94,192 Other creditors 22,958 30,047 Long term debt 1,046,546 872,645 Total other liabilities 1,177,245 996,884 Shareholders' funds - equity Called - up share capital 9,652 9,643 Share premium account 562,015 560,406 Profit and loss account 1,119,843 885,239 Shareholders' funds - equity 1,691,510 1,455,288 Total liabilities and shareholders' funds 3,384,409 2,938,998 Page 2. Ryanair Holdings plc and Subsidiaries Consolidated Cashflow Statements in accordance with UK and Irish GAAP (unaudited) Nine months Nine months ended ended Dec 31, Dec 31, 2004 2003 €'000 €'000 Net cash inflow from operating activities 346,724 295,459 Returns on investments and servicing of (19,266) (17,086) finance Taxation 3,418 207 Capital expenditure (including aircraft (342,161) (338,329) deposits) Acquisitions including onerous lease (2,218) (20,795) payments Net cash (outflow) before financing and management of liquid resources (13,503) (80,544) Financing 202,023 141,859 (Increase) in liquid resources (190,822) (108,139) (Decrease) in cash (2,302) (46,824) Analysis of movement in liquid resources At beginning of year 1,231,572 982,352 Increase in period 190,822 108,139 At end of period 1,422,394 1,090,491 Analysis of movement in cash At beginning of year 25,433 76,550 Net cash (outflow) during period (2,302) (46,824) At end of period 23,131 29,726 Page 3. Ryanair Holdings plc and Subsidiaries Consolidated Statement of Changes in Shareholders' Funds - Equity in accordance with UK and Irish GAAP (unaudited) Share Profit Ordinary premium and loss shares account account Total €'000 €'000 €'000 €'000 Balance at 9,643 560,406 885,239 1,455,288 April 1, 2004 Issue of ordinary equity 9 1,609 - 1,618 shares Profit for the - - 234,604 234,604 period Balance at Dec 9,652 562,015 1,119,843 1,691,510 31, 2004 Reconciliation of adjusted earnings per share (unaudited) Quarter Quarter Nine months Nine months ended ended ended ended Dec 31, Dec 31, Dec 31, Dec 31, 2004 2003 2004 2003 €'000 €'000 €'000 €'000 Profit for the period under UK 34,495 40,961 234,604 209,902 and Irish GAAP Adjustments Aircraft - 6,773 - 9,491 retirement costs Buzz - - - 3,012 re-organisation costs Amortisation of 530 586 1,702 1,757 goodwill Taxation - (779) - (1,084) adjustment for above Adjusted profit under UK and 35,025 47,541 236,306 223,078 Irish GAAP Number of ordinary shares (in 000's) -Basic 759,775 758,608 759,499 757,143 -Diluted 764,438 767,928 764,127 765,779 Adusted earnings per ordinary share -Basic(€ cent) 4.61 6.27 31.11 29.46 -Diluted(€ cent) 4.58 6.19 30.92 29.13 Page 4 Ryanair Holdings plc and Subsidiaries Consolidated Profit and Loss Accounts in accordance with US GAAP (unaudited) Quarter Quarter Nine months Nine months ended ended ended ended Dec 31, 2004 Dec 31, 2003 Dec-31, 2004 Dec-31, 2003 €'000 €'000 €'000 €'000 Operating Revenues Scheduled 246,712 216,424 864,356 739,964 revenues Ancillary 47,732 38,575 151,180 111,409 revenues Total operating revenues -continuing operations 294,444 254,999 1,015,536 851,373 Operating expenses Staff costs 34,784 29,286 103,963 90,344 Depreciation and amortisation 26,857 25,009 72,539 71,728 Other operating expenses •Fuel & 72,486 43,128 186,236 127,474 Oil Maintenance, materials and 2,323 8,796 27,221 30,983 repairs Marketing and 2,625 1,045 13,400 11,028 distribution costs •Aircraft 7,400 2,730 23,636 6,450 rentals •Route 33,389 27,442 101,315 80,331 charges •Airport and 44,243 38,123 134,565 110,202 Handling charges •Other 22,406 19,061 69,867 58,703 Total operating expenses 246,513 194,620 732,742 587,243 Operating profit before exceptional 47,931 60,379 282,794 264,130 items Aircraft retirement costs - (6,773) - (9,491) Buzz re-organisation costs - - - (3,012) Operating profit after exceptional items 47,931 53,606 282,794 251,627 Other income/ (expenses) Foreign exchange (losses)/gains (2,076) (581) (2,835) 852 Gain/(loss) on disposal of fixed assets - - 6 (8) Interest receivable and similar income 7,379 5,115 20,197 17,642 Interest payable and similar charges (12,972) (10,493) (35,057) (29,605) Total other income/(expenses) (7,669) (5,959) (17,689) (11,119) Profit on ordinary activities before taxation 40,262 47,647 265,105 240,508 Tax on profit on ordinary activities (4,145) (4,130) (25,014) (23,238) Net income 36,117 43,517 240,091 217,270 Net income per ADS -Basic(Euro cent) 23.77 28.68 158.06 143.48 -Diluted(Euro cent) 23.62 28.33 157.10 141.86 Adjusted net income per ADS * -Basic(Euro cent) 23.77 32.63 158.06 151.02 -Diluted(Euro cent) 23.62 32.24 157.10 149.32 Weighted Average number of shares -Basic 759,775 758,608 759,499 757,143 -Diluted 764,438 767,928 764,127 765,779 * Calculated on Net Income before non-recurring items (net of tax). Page 5 Ryanair Holdings plc and Subsidiaries Summary of significant differences between UK, Irish and US generally accepted accounting principles (unaudited) (A) Net income under US GAAP Quarter ended Nine months ended Dec 31, Dec 31, Dec 31, Dec 31, 2004 2003 2004 2003 €000 €000 €'000 €'000 Profit as reported in the consolidated profit and loss accounts in accordance with UK and Irish GAAP 34,495 40,961 234,604 209,902 Adjustments Pension 40 220 120 640 Amortisation of goodwill 530 586 1,702 1,757 Capitalised interest (net of amortisation) regarding aircraft acquisition programme 1,298 2,006 4,356 5,697 Darley Investments 22 22 66 66 Limited Taxation- effect of (268) (278) (757) (792) above adjustments Net income under US GAAP 36,117 43,517 240,091 217,270 (B) Consolidated Cashflow Statements in accordance with US GAAP Nine months ended Dec 31, Dec 31, 2004 2003 €'000 €'000 Cashflow from operating activities 330,876 278,580 Cash (outflow) from investing activities (178,961) (932,690) Cash inflow from financial activities 204,003 144,997 Increase/(decrease) in cash and cash equivalents 355,918 (509,113) Cash and cash equivalents at beginning of year 744,605 537,476 Cash and cash equivalents at end of period 1,100,523 28,363 Cash and cash equivalents under US GAAP 1,100,523 28,363 Restricted cash 204,040 198,300 Deposits with a maturity of between three and six months 143,287 898,008 Cash and liquid resources under UK and 1,447,850 1,124,671 Irish GAAP Ryanair Holdings plc and Subsidiaries Summary of significant differences between UK, Irish and US generally accepted accounting principles(unaudited) (C) Shareholders' funds - equity Dec 31, Dec 31, 2004 2003 €'000 €'000 Shareholders' equity as reported in the consolidated balance sheets (UK and Irish GAAP) 1,691,510 1,457,884 Adjustments: Pension 3,320 3,751 Amortisation of goodwill 4,044 1,757 Capitalised interest (net of amortisation) regarding 21,858 15,986 aircraft acquisition programme Darley Investments Limited (85) (173) Minimum pension liability (net of tax) (2,631) (2,656) Unrealised losses on derivative financial instruments (150,700) (54,968) (net of tax) Tax effect of adjustments (excluding pension & derivative adjustments) (3,345) (2,467) Shareholders' equity as adjusted to accord with US 1,563,971 1,419,114 GAAP Opening shareholders' equity under US GAAP 1,356,281 1,177,187 Comprehensive Income Unrealised (losses)/gains on derivative financial (34,019) 18,403 instruments(net of tax) Net income in accordance with US GAAP 240,091 217,270 Total Comprehensive Income 206,072 235,673 Stock issued for cash 1,618 6,254 Closing shareholders' equity under US GAAP 1,563,971 1,419,114 Ryanair Holdings plc Management Discussion and Analysis of Results Introduction For the purposes of the MD&A all figures and comments are by reference to the adjusted profit and loss account excluding the exceptional costs and goodwill referred to below. Exceptional costs in the quarter ended December 31, 2003 consisted of €5.5m in lease costs and additional depreciation of €0.6m arising from the earlier than planned retirement of a sixth aircraft necessitated by the 'scribing' of these aircraft (Note 4). Goodwill of €0.5m was amortised in the quarter compared to €0.6m in the quarter ended December 31, 2003. Profit after tax decreased by 16% to €34.5m during the quarter compared to the same period last year. The adjusted profit for the quarter, excluding exceptional costs and goodwill, decreased by 26% to €35.0m. Summary Quarter ended December 31, 2004 Profit after tax decreased by 26% to €35.0m, compared to €47.5m in the previous quarter ended Dec 31, 2003. Total operating revenues increased by 15% to €294.4m, which was faster than the 13% growth in passenger volumes, as fares were almost in line with last year and a continuation of the strong growth in ancillary revenues. Total revenue per passenger has as a result increased by 2%, whilst the successful launch of new routes and the slower rate of growth resulted in load factors increasing from 83% to 84% during the period. Total operating expenses increased by 26% to €245.8m, due to the increased level of activity, and the increased costs, primarily fuel, route charges and airport & handling costs associated with the growth of the airline. Fuel, our largest cost item, increased by 68% due to substantial increases in the US$ cost per gallon, partially offset by the strengthening of the Euro to the Dollar. Operating margins declined 7 points to 17%, which in turn resulted in Operating profit decreasing by 19% to €48.7m. Excluding fuel costs operating margins would have remained constant in both quarters. Profit before tax has declined by 25%, greater than the decline in operating profit due to the higher net interest charge arising from the increased level of debt, and foreign exchange losses which arose from the translation of sterling and US$ bank balances to euro at the period end exchange rates. As a result, Net Margins declined by 7 points to 12% for the reasons outlined above. Adjusted earnings per share have also declined by 26% to 4.61 cent for the period. Balance Sheet The Company continues to generate strong cashflow from operations and year to date amounted to €346.7m. This cashflow part funded twelve aircraft deliveries (six in the current quarter), additional aircraft deposits, and the balance remaining is in turn reflected in the €190.5m increase in Cash and Liquid Resources since March 31, 2004. Capital expenditure amounted to €342.2m during the period whilst Long Term Debt, net of repayments, increased by €200.4m. Shareholders' Funds at Dec 31, 2004 have increased by €236.2m to €1,691.5m, compared to March 31, 2004. Detailed Discussion and Analysis Quarter Ended December 31, 2004 Profit after tax, decreased by 26% to €35.0m due to fuel costs increasing by 68% reflecting the higher US$ cost per gallon, which was partially offset by stable fares and strong growth in passenger volumes. Operating margins, in turn, have fallen by 7 points to 17% during the quarter, which has resulted in Operating profit decreasing by €11.5m to €48.7m compared to quarter ended December 31, 2003. Total operating revenues increased by 15% to €294.4m whilst passenger volumes increased by 13% to 6.9m. Total revenue per passenger has increased by 2% in the quarter due to a combination of higher average fares and strong ancillary revenue growth. Scheduled passenger revenues increased by 14% to €246.7m due to a combination of a 1% improvement in average fares, increased passenger volumes on existing routes, and the success of new bases at Rome-Ciampino and Barcelona-Girona. The slower growth in seat capacity is also reflected in improved load factors, which rose by 1% to 84% in the quarter. Ancillary revenues increased 24% to €47.7m, a faster rate of growth than passenger volumes, reflecting a strong performance in non-flight scheduled revenues, car hire and other ancillary products. Ancillary revenues now account for 16% of total revenues compared to 15% for the same period last year. Total operating expenses increased by 26% to €245.8m due to the increased level of activity, and the increased costs primarily fuel, aircraft rentals, route charges, and airport and handling costs associated with the growth of the airline. Total operating costs were also adversely impacted by a 9% increase in the average sector length whilst higher US$ fuel prices were partly offset by the strength of the euro exchange rate against the US$. Staff costs have increased by 18% to €34.8m primarily due to a 13% increase in average employee numbers to 2,671 and the impact of pay increases of 3% granted during the period. Depreciation and amortisation increased by 4% to €26.1m. Depreciation charges increased due to an increase in the size of the 737-800 fleet from 41 to 53 ('owned' fleet rose from 61 to 64), offset by lower amortisation charges due to the retirement of 737-200 aircraft and the positive impact of a new engine maintenance agreement on the cost of amortisation of 737-800 aircraft. The strengthening of the euro to US$ also had a positive impact on the depreciation and amortisation charge. Fuel costs rose by 68% to €72.5m due to an increase in the number of sectors flown, a 9% increase in the average sector length, and a significantly higher average US$ cost per gallon of fuel partially offset by the positive impact of the strengthening of the Euro to the US dollar during the period. Fuel costs were also positively impacted by the recommencement of the Company's hedging strategy for December and lower than expected fuel prices which resulted in a saving of €4m. Maintenance costs decreased by 74% to €2.3m reflecting the improved reliability arising from the higher proportion of 737-800's operated and a lower level of maintenance costs incurred due to the return of four BAE 146 aircraft to KLM and the release of maintenance overhaul provisions of €5.2m during the quarter associated with the earlier than scheduled return of six leased 737-300's. Marketing and distribution costs increased by €1.5m to €2.6m due to increases in expenditure arising from the higher level of activity during the quarter. Aircraft rental costs increased by €4.7m to €7.4m reflecting the increased costs arising from the lease of thirteen 737-800 aircraft, of which three were delivered in the current quarter, offset by the return of four BAE 146s to KLM earlier in the year and the return of six leased 737-800 aircraft during the period. Route charges increased by 22% to €33.4m due to an increase in the number sectors flown, an increase in the average sector length and an increase in the weight of the aircraft operated (which incur a higher charge). Airport and handling charges increased by 16% to €44.2m, faster than the increase in passenger volumes due to increased costs at certain existing airports offset by lower costs at new airports, and the adverse impact of the strength of the sterling exchange rate against the euro during the period. Other expenses increased by 18% to €22.4m, which is less than the growth in ancillary revenues due to improved margins on some new and existing products, and cost reductions achieved on indirect costs. Operating margins have declined by 7 points to 17%. Due to the reasons outlined above operating profits decreased by €11.5m to €48.7m during the quarter. Interest receivable has increased by €2.3m due to the combined impact of higher levels of cash and liquid resources and an improvement in average deposit interest rates earned in the quarter compared to last year. Interest payable increased by €2.6m due to the drawdown of debt to part fund the purchase of new aircraft. Detailed Discussion and Analysis for Nine months ended December 31, 2004 Profit after tax, increased by 6% to €236.3m driven by strong growth in passenger volumes, whilst revenues per passenger were unchanged. This was offset by higher costs specifically fuel (our largest cost item) which increased by 46%. Operating profit increased by €20.8m to €284.2m compared to the nine months ended December 31, 2003 despite Operating margins declining by 3 points to 28% during the period. Total operating revenues increased by 19% to €1,015.5m whilst passenger volumes increased by 20% to 20.9m. Total revenue per passenger was unchanged compared with the same period last year. Scheduled passenger revenues increased by 17% to €864.4m due to a combination of increased passenger volumes on existing routes, the successful launch of new bases at Rome-Ciampino and Barcelona-Girona, and the commencement of 20 new routes during the period, partly offset by a 2% reduction in average fares. The strong growth in passenger volumes is also reflected in the improvement in the load factor achieved, which rose from 83% to 86% during the period. Ancillary revenues continue to perform strongly with revenues growing by 36% to €151.2m in the period. This performance reflects the strong growth in non-flight scheduled revenues, car hire and other ancillary products. Ancillary revenues continue to grow at a faster rate than passenger volumes and now account for 15% of total revenues compared to 13% last year. Total operating expenses increased by 24% to €731.3m due to the increased level of activity, and the increased costs primarily fuel, aircraft rentals, route charges and airport and handling costs associated with the growth of the airline. The increase in total operating expenses was also due to the strengthening of the Sterling to Euro exchange rate partly offset by a stronger Euro to US$ exchange rate. Staff costs have increased by 14% to €104.1m. This increase primarily reflects a 13% increase in average employee numbers to 2,578 and the impact of 3% pay increases granted during the period. Depreciation and amortisation declined by 1% to €71.0m. An additional twelve 737-800 aircraft were purchased during the period, however during the same period the company retired 10 737-200 aircraft. The resultant higher depreciation charge was offset by a combination of a lower amortisation charge due to the retirement of 737-200 aircraft and the positive impact of a new engine maintenance agreement on the cost of amortisation of 737-800 aircraft. The strengthening of the euro to US$ also had a positive impact on both the depreciation and amortisation charge. Fuel costs rose by 46% to €186.2m due to a 21% increase in the number of hours flown, a significant increase in the average US$ cost per gallon of fuel partly offset by the positive impact of the strengthening of the Euro to the US$ during the period. Maintenance costs decreased by 12% to €27.2m reflecting an increase in the size of the fleet operated, and an increase in the number of hours flown offset by maintenance savings due to improved reliability arising from the higher proportion of 737-800 operated. Four BAE 146 aircraft, which incurred higher maintenance charges per aircraft operated compared to the remainder of the fleet, were returned to KLM earlier this year. During the last quarter, six leased 737-300 aircraft were returned earlier than scheduled, which in turn enabled the company to release maintenance overhaul provisions of €5.2m. Marketing and distribution costs increased by 22% to €13.4m due to higher spend on promoting new routes and an increase in the level of activity during the period. Aircraft rental costs increased by €17.2m to €23.6m reflecting the increased costs associated with the lease of thirteen 737-800 aircraft since December 31,2003 offset by the return to KLM of four BAE 146 aircraft earlier this year. Six leased 737-300 aircraft were also returned to the lessor during quarter the 3rd quarter. Route charges increased by 26% to €101.3m due to an increase in the number of sectors flown, an increase in the average sector length, an increase in the weight of the aircraft operated, (which incur a higher charge), and the negative impact of the strengthening of sterling against the Euro during the period. Airport and handling charges increased by 22% to €134.6m, slightly more than the increase in passenger volumes due to increased costs at certain existing airports offset by lower costs at new airports, and the adverse impact of the strength of the sterling exchange rate against the euro during the period. Other expenses increased by 19% to €69.9m, which is less than the growth in ancillary revenues due to improved margins on some new and existing products, and cost reductions achieved on indirect costs. Operating margins have declined by 3% to 28% for the period reflecting the substantial higher fuel prices increased and due to the reasons outlined above operating profits increased by 8% to €284.2m. Interest receivable has increased by 14% to €20.2m due to an increase in the level of cash and liquid resources and an improvement in deposit interest rates earned during the period compared to last year. Interest payable increased by €5.7m due to the drawdown of debt to part fund the purchase of new aircraft during the period. The Company's Balance Sheet continues to strengthen due to the growth in profits during the period. Capital expenditure amounted to €342.2m part funded by cash generated from operating activities, whilst the excess cash of €190.5m is reflected in the increase in cash and liquid resources to €1,447.9m at 31 December 2004. Long term Debt, net of repayments increased by €200.4m, which was drawn down to part fund aircraft deliveries during the period. Shareholders' Funds at December 31, 2004 have increased to €1,691.5m compared to €1,455.3m at March 31, 2004. Notes to the Financial Statements 1. •Accounting Policies The accounting policies followed in the preparation of these consolidated financial statements for the nine months ended December 31, 2004 are consistent with those set out in the financial statements for the year ended March 31, 2004. 2. •Approval of the Financial Statements The Audit Committee approved the consolidated financial statements for the Nine months ended December 31, 2004 on January 28th, 2005. 3. •Generally Accepted Accounting Policies The Management Discussion and Analysis of Results for the Quarter and Nine months ended December 31, 2004 are based on the results reported under Irish and UK GAAP. 4. •Aircraft retirement costs Six aircraft were retired earlier than projected in 2003 due to the detection of scratch marks ('scribing') that occurred during an aircraft painting programme on these aircraft in 1995. It had been determined that the cost of repairing these aircraft was uneconomic due to the short remaining life of the aircraft. Accordingly the Company had determined that the residual value of US$1m(€794k) for these aircraft was excessive and as a result reduced it to €250k per aircraft. The cost of this adjustment charge for five aircraft was reflected in the results for the quarter ended September 30,2003, and the charge for a sixth aircraft is expensed in quarter ended December 31, 2003. This information is provided by RNS The company news service from the London Stock Exchange

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