Interim Results
easyJet PLC
07 May 2008
easyJet plc
Interim results for the six months to 31 March 2008
STRONG REVENUE GROWTH, PROGRESS ON COSTS
BUT FUEL IMPACTS MARGINS
Highlights
• Total revenue up 24% to £892.2 million with underlying pre tax margin
in line with expectations
• Passenger numbers up 15% to 18.9 million
• Load factors at 81% in line with the prior year
• Total revenue per seat (excluding GB Airways and exchange movements)
up 1.5% compared to last year
• Cost per seat (excluding fuel, GB Airways and exchange movements) down
by 0.9% compared to last year
• Unit fuel costs up 24% per seat compared to last year
• Mainland European expansion continued with a new base opened at Paris
Charles de Gaulle and at Lyon
• GB Airways successfully integrated both commercially and operationally
• Forward bookings remain robust
Commenting on the results, Andy Harrison, easyJet Chief Executive said:
'easyJet continues to grow in size and strength. GB Airways was smoothly
integrated and is delivering larger than expected benefits and has made us
number one at Gatwick. We are continuing to grow rapidly in mainland Europe,
especially in Italy and France where we have opened new bases during the first
half of the year. easyJet now operates Europe's number one air transport network
with 280 million Europeans living within an hour's drive of an easyJet flight.
These moves also helped to drive the 15% increase in the number of passengers
carried. Our load factors remain robust and our forward bookings are slightly
ahead of this time last year.
Oil remains the biggest challenge and uncertainty. The price of jet fuel has
risen 35% over the last three months and is now 80% higher than last year.
Nobody knows how much of this increase is driven by short term financial
speculation and how much is a longer term sustainable increase. What is certain
is that if these fuel increases are maintained many of our weaker competitors
will disappear or downsize and easyJet will emerge even stronger reflecting the
combination of our business model, our cost advantage, our new fuel efficient
fleet and the strength of our network.'
Results at a glance
H1 2008 H1 2008 H1 2007
(including (excluding
GB Airways) GB Airways)
Total revenue (£million) 892.2 859.4 719.0
Pre tax loss - underlying (£million) 1 (48.4) (41.4) 2 (17.1)
Pre tax loss - reported (£million) (57.5) n/a (17.1)
Pre tax margin - underlying (%) (5.4) (4.8) (2.4)
EPS - underlying (pence) (8.8) n/a (3.1)
EPS - reported (pence) (10.3) n/a (3.1)
Note 1: Underlying financial performance measures exclude £9.1m of integration
costs associated with the acquisition of GB Airways.
Note 2: Excludes the GB Airways operating loss post acquisition (before fair
value adjustments) and expenditure incurred marketing the routes and
destinations acquired from GB Airways.
For further details please contact:
easyJet plc
Investors and analysts:
Rachel Kentleton Investor Relations +44 (0) 7961 754 468
Media:
Toby Nicol Corporate Communications +44 (0) 1582 525 339
There will be an analyst presentation at 9:30 am on 7 May 2008 at ABN AMRO, 3rd
floor, 250 Bishopsgate, EC2M 4AA. A live webcast of the presentation will be
available at www.easyJet.com. A results interview with Andy Harrison, CEO, and
Jeff Carr, Group FD, is now available in video, audio and text on
www.easyJet.com and www.cantos.com.
easyJet will publish its third quarter interim management statement on 7 August
2008 and will hold a conference call on that day.
Business review
easyJet has continued to develop its business successfully with passenger
numbers increasing by 15% to 18.9 million and total revenue per seat increasing
by 8.1%. The operating environment for the airline industry, however, has become
more demanding in the past six months with unit fuel costs rising to
unprecedented levels.
Total revenue grew by 24% to £892.2 million compared to £719.0 million last
year. Loss before tax for the first half of 2008, in total, amounted to £57.5
million. This includes £9.1 million of one-off costs associated with the
integration of GB Airways. GB Airways' trading loss in the first half was £7.0
million. The underlying easyJet loss was £41.4 million compared to a loss of
£17.1 million in the previous year, driven by higher fuel costs which increased
by £67.0 million.
A major success for easyJet has been the acquisition of GB Airways. The
acquisition has enabled easyJet to improve its position at its largest base,
Gatwick and has enhanced the Group's platform in the north west of England with
the opening of a new base at Manchester. The combined business gives easyJet
around 29% of departing passengers at Gatwick and presents opportunities for
cost reduction and value creation particularly in the area of overheads,
aircraft ownership and airport operating costs.
The integration of GB Airways into the easyJet business was completed smoothly.
GB Airways routes went on sale at easyJet.com on 1 January 2008 and were
supported by a heavyweight marketing campaign; pleasingly there has been no loss
in forward momentum for the summer 2008 programme as a result of the change in
distribution. GB Airways cutover to the easyJet Air Operator's Certificate (AOC)
on 30 March 2008, in doing so easyJet became the first major European airline to
operate under the new European operating certificates.
In the current challenging higher fuel price environment it is crucial that
easyJet continues to focus on its key growth drivers; the development of its
European network, the management of its fleet and crucially, as fuel costs have
increased by £2.18 per seat, continual focus on margins via tough management of
costs and capturing new revenue opportunities.
European network development
easyJet continues to expand its business geographically in mainland Europe,
focusing on expansion at conveniently located airports. Around 30% of easyJet's
flying (measured in seats flown) does not touch the UK, up from 27% in the
comparable period last year and easyJet has grown its share of seats in Europe.
In the second quarter easyJet opened a new base in France at Paris Charles de
Gaulle and subsequently opened a further base at Lyon on 4 April 2008. Low cost
carrier penetration in France is half the European average and the country
represents an exciting opportunity for easyJet. In the last six months 1.6
million easyJet passengers originated in France and currently there are 11
aircraft based in France. Additionally, easyJet added 13 new routes from France
including domestic routes such as Paris to Biarritz and Lyon to Bordeaux.
easyJet has continued the development of its business in Italy with eight
aircraft now based there. Our base at Milan Malpensa now serves 21 destinations
around Europe and performance on domestic routes is particularly strong with
load factors improving.
Despite broader concerns about the consumer environment easyJet's UK business
continued to deliver a good performance, with particular strength at London
bases where load factors improved compared to last year and performance improved
at Newcastle following competitive retrenchment. The performance at Belfast has
been affected by competitive entry but on key head to head routes easyJet is
delivering higher loads than the competition.
Performance management of the network and improving the quality of the schedule
continue to be the key drivers of easyJet's success with new routes added
including the southern European GB Airways destinations and domestic routes in
France and Italy. In addition, easyJet has culled 11 underperforming routes.
Focus on margins
The pursuit of new revenue streams and the aggressive management of costs are
vital in the current challenging environment and easyJet has again demonstrated
good progress in delivering both.
In the period easyJet introduced a checked bag charge which has been an
important contributor to the increase in total revenue. easyJet has further
developed its successful Speedy Boarding product by introducing Speedy Boarding
Plus which enables passengers to purchase priority check-in at easyJet's top 30
airports. The easyJet plus card was launched at the beginning of March enabling
frequent travellers with easyJet unlimited use of Speedy Boarding for an annual
charge.
The Global Distribution System (GDS) rollout is now complete in the UK, Ireland,
Switzerland, Portugal, Belgium, Spain and Italy. easyJet's inventory is only
available via the GDS for business travellers and progress has been made in
securing adoption of the GDS with major business travel management companies.
The cost environment has proved challenging with significant increases in
airport charges in the period. Despite this easyJet has delivered an improvement
in unit costs excluding fuel on a constant currency basis through tight
management of overheads costs and continued progress on aircraft ownership
costs. A notable achievement is that in the period easyJet has been able to hold
its cost per available seat kilometre excluding fuel, flat compared to the prior
year despite the impact of the strengthening euro. The GB Airways acquisition
will deliver over £20m in synergies from overhead reductions and integration of
supplier contracts. Looking forward easyJet has projects in place to deliver
cost savings over the next two to three years in the areas of crew efficiency,
fuel burn, overheads and aircraft ownership.
easyJet also continues to challenge the unjustifiable increase in BAA charges at
Stansted and Gatwick and to lobby for more effective economic regulation of
airports. In particular, the UK needs to introduce as much competition into the
system as possible by separating the ownership of airport terminals from
runways; allowing differential pricing within airports so that efficient
airlines do not cross-subsidise the high-cost airlines; breaking BAA's monopoly
on airport investment; and developing a much more effective, customer-orientated
regulatory framework to encourage higher levels of operational and capital
efficiency from the airport operator. Only once these issues have been resolved
it is appropriate to talk about breaking up the BAA London airport monopoly, but
it is the last issue to address, not the first.
Fleet
In the past six months easyJet has expanded its fleet with addition of five
Airbus A319 in the period. As a response to the higher fuel price environment
easyJet is targeting further improvement in aircraft ownership costs and the
decision has been taken to accelerate the phasing out of the higher cost Boeing
737 fleet and the rationalisation of the expensive GB Airways sub-fleet.
Additionally, the decision has also been taken in principle to discuss with
Airbus the conversion of some of the Airbus A319 orders to those for A320
aircraft. easyJet will continue to grow over the current summer with a forecast
19% increase in seats flown, including the impact of the GB Airways acquisition,
compared to the previous year.
A significant achievement in the current environment is that easyJet has secured
over US$1billion of aircraft financing at more favourable rates than previously
achieved.
Future
deliveries
(including
exercised
Under Under options) Unexercised
operating finance options
lease lease Changes in
half year (note 1)
Owned Total
Airbus A319 60 46 6 112 5 115 88
Boeing 737-700 - 30 - 30 - - -
GB Airways 5 10 - 15 15 4 -
65 86 6 157 20 119 88
Note 1: Options may be taken as any A320 family aircraft and are valid until
2015
Outlook
easyJet's underlying business remains strong with forward bookings for the
summer slightly ahead of last year. Revenues will continue to benefit from a
strong euro and the integration of the longer sector GB Airways routes. Pressure
on costs will continue, not least from the unjustifiable increase in airport
charges at Gatwick. However, easyJet will continue to work vigorously to deliver
flat underlying costs excluding fuel in the second half, in line with the first
half.
As easyJet disclosed in the 19 March fuel update, the recent dramatic increases
in fuel costs cannot be fully offset in the current financial year and although
easyJet has hedging in place for 40% of fuel requirements in the second half at
US$750 per tonne, with a fuel price of over US$1,000 per tonne, fuel costs in
the second half would increase by around £45m. The fuel price has continued to
be extremely volatile and further movements in the average second half fuel
price would additionally impact easyJet's total fuel bill by £2.5m for every
US$10 movement.
GB Airways is now fully integrated into easyJet's operating model and the
acquisition is expected to be EPS neutral before one-off integration costs of
£12m as additional cost synergies largely offset the impact of increased fuel
costs.
Andrew Harrison
Chief Executive Officer
7 May 2008
Financial Review
2008 2007 Change incl. Change excl.
GB Airways % GB Airways %
Key performance indicators
Return on equity (headline) (3.7%) (1.3%) (2.4pp) (2.2pp)
Seats flown (millions) 23.2 20.2 14.7 12.5
Passengers (millions) 18.9 16.4 14.7 12.2
Load factor 81.2% 81.2% - (0.2pp)
Available seat kilometres ('ASK') (millions) 23,442 19,108 22.7 17.5
Revenue passenger kilometres ('RPK') (millions) 19,300 15,790 22.2 17.0
Average sector length (kilometres) 1,009 944 6.9 4.5
Sectors 149,927 131,167 14.3 12.3
Block hours 275,673 233,496 18.1 14.2
Number of aircraft owned/leased at end of period 157 127 23.6 11.8
Average number of aircraft owned/leased during 143.2 122.1 17.3 13.2
period
Number of aircraft operated at end of period 152 125 21.6 9.5
Average number of aircraft operated during 137.8 115.2 19.6 15.3
period
Operated aircraft utilisation (hours per day) 10.9 11.1 (1.5) (1.2)
Number of routes operated at end of period 351 265 32.5 n/a
Number of airports served at end of period 96 71 35.2 n/a
Per seat measures (underlying)
Loss before tax per seat (£) (2.08) (0.85) (146.5) (115.0)
Revenue per seat (£) 38.40 35.51 8.1 6.3
Cost per seat (£) 40.48 36.36 (11.3) (8.8)
Cost per seat excluding fuel (£) 29.12 27.18 (7.1) (4.7)
Per ASK measures (underlying)
Loss before tax per ASK (pence) (0.21) (0.09) (130.5) (105.8)
Revenue per ASK (pence) 3.81 3.76 1.1 1.7
Cost per ASK (pence) 4.01 3.85 (4.2) (4.1)
Cost per ASK excluding fuel (pence) 2.89 2.88 (0.2) (0.2)
There are three major factors impacting key performance measures this period;
firstly, the strengthening of the euro which has moved from an average of 1.49
in 2007 to 1.38 in 2008; secondly, the inclusion of the two months of GB Airways
trading and thirdly, the significant rise in fuel price. The following table
summarises the key measures, highlighting the GB Airways and currency impacts:
2008 2007 Change
£ £ %
Total revenue per seat 38.40 35.51 8.1
Excluding GB Airways 37.73 35.51 6.3
And at constant currency 36.03 35.51 1.5
Cost per seat excl fuel 29.12 27.18 (7.1)
Excluding GB Airways 28.45 27.18 (4.7)
And at constant currency 26.93 27.18 0.9
GB Airways
The acquisition of GB Airways was completed on 31 January 2008 and the business
continued to operate as a British Airways franchise until 29 March 2008.
The acquisition brings into the easyJet business model sectors that are, on
average, more than double that of the existing business whilst aircraft
utilisation remains broadly the same. Consequently the average sector length
grew 6.9% compared to the previous year. To make underlying performance clearer,
summary revenue and cost measures are also presented on a 'per ASK' basis. For
the period to 31 March 2008 total revenue per ASK (RASK) was 3.81p against 3.76p
in 2007 whilst cost per ASK (CASK), excluding fuel, was 2.89p in 2008 against
2.88p in 2007.
While the key performance indicators are broken out for the half year the GB
Airways business will be fully integrated into the easyJet business for the
purposes of reporting full year key performance indicators. The commentary below
focuses principally on the underlying performance of the easyJet business.
Passenger Revenue
Headline passenger revenue grew 17.0% to £751.0 million driven by the
strengthening euro, an increase of 12.5% in easyJet seats flown from 20.2
million to 22.8 million and the acquisition of GB Airways. Load factor dropped
slightly by 0.2pts to 81.0% resulting in passenger numbers increasing 12.2% to
18.5 million. This growth in capacity was supported by an increase in the
average number of easyJet owned aircraft this year compared to last year of
16.1. Most of this growth, continuing the trend demonstrated during the last
financial year, has been into continental Europe, particularly Italy and Spain.
As a consequence of this continued relative growth into Europe together with the
strengthening of the euro year on year, the percentage of revenue in euros has
increased from 33% to 39%.
Average passenger yields rose 2.0% to £32.32 but on a constant currency basis
excluding GB Airways fell by 4.9%, driven by two key factors. Firstly, the year
on year impact of the doubling of APD in the UK to £10 inevitably led to some
yield dilution. Secondly, the introduction of the checked bag charge has, as
expected, resulted in a small decline in passenger revenue per seat.
At 31 March 2008, the easyJet network covered 351 routes and 96 airports
compared to 265 and 71 at the same point last year. During the last six months,
helped by the acquisition of GB Airways, 21 new destinations have been added to
the network including Funchal, Vienna, Jersey, Gibraltar, Malta, Las Palmas,
Heraklion, Corfu and Dalaman.
The 19th base at Paris Charles de Gaulle airport was successfully launched on 7
February this year. The new base is part of a significant investment that will
strengthen easyJet's position as the second largest airline in France. There
will be further development in France in the second half of the year following
the opening of the base in Lyon in April.
Ancillary Revenue
Ancillary revenue has continued to contribute significantly to the performance
of the business, increasing by 82.9% to £141.2 million. After excluding a small
incremental benefit from the acquired GB Airways business the key driver of this
increase has been the introduction of the checked bag charge. On average, 75% of
passengers have checked-in baggage.
Speedy Boarding has continued to perform well and has recently been improved
with the introduction of Speedy Boarding Plus which provides a priority check-in
facility for customers. In November the provision of inflight services was
changed from Alpha to Gate Gourmet and after the expected transition period
performance is improving. This will be significantly enhanced once electronic
point of sale capability is introduced later in the year.
Costs
Cost performance continues to be a key focus of the easyJet business model.
In the first half of this year total unit costs were up £4.12 or 11.3% to £40.48
per seat. The biggest driver of this has been the significant increase in fuel
costs and excluding fuel, unit costs were up £1.94 or 7.1% to £29.12. However,
on a constant currency basis and excluding GB Airways, unit costs excluding fuel
improved by 0.9% which, given the cost pressures being experienced particularly
in airport costs and crew is an excellent result and is testimony to the
continuing direct management of day-to-day costs. Total fuel costs for the
current period are up £78.1 million, or 42.0%, from the previous year; on a per
seat basis this is an increase of £2.18 or 23.8% bringing the unit cost of fuel
to £11.36 per seat. The GB Airways business has added approximately £0.26 on a
per seat basis, due to the significantly longer sector length, so the like for
like increase in unit fuel costs is £1.92 or 20.9%.
The euro and swiss franc currencies have strengthened significantly compared to
the same period last year with the euro, on average, 7.3% stronger and the swiss
franc 5.0% stronger. With significant portions of the cost base denominated in
these currencies (airport and ground handling costs, navigation costs and some
staff and crew costs) unit costs have been impacted.
Ground handling and airport costs combined on a per seat basis were up £0.89 or
8.7% compared to the previous year to £11.14. On a constant currency basis,
excluding GB Airways, the underlying unit cost increase was £0.28 or 2.7%.
Approximately 52% of ground handling and airport costs are denominated in euro.
The driver of these cost increases has been over-inflationary airport price
rises experienced across a number of airports in the network including Stansted,
Gatwick, Luton, Basel and Paris Charles de Gaulle. In response to the
significant increase in prices at Gatwick easyJet has informed the UK Civil
Aviation Authority of its intention to seek a judicial review of its decision
and will continue to lobby for effective price regulation to deliver better
value and service standards for customers.
Crew costs on a per seat basis were up £0.53 or 11.2%, compared to 2007, to
£5.25. Underlying unit costs on a constant currency basis, excluding GB Airways,
were £0.39 or 8.3%. Improvement in crew productivity has taken longer than
expected, however, crew staffing has returned to planned levels for the current
summer programme. Crew costs remain a key opportunity for efficiency improvement
as the GB Airways crews are consolidated, as more varied and complex flying
patterns are introduced and investment is made in crew support systems. Material
improvement in these costs should be delivered going forward.
Maintenance costs on a per seat basis were up £0.22 or 9.5%, compared to 2007,
to £2.53. On a constant currency basis, excluding GB Airways, the underlying
unit costs were up £0.19 or 8.2%. This reflects the increase in support costs as
the average age of components increases offset by the ongoing benefit of the new
engine maintenance deal with GE that was agreed in June 2007. During the period
the insourcing of the maintenance planning function was completed and this has
incurred some one-off costs. This will help drive improved engineering
efficiency going forward.
Insurance cost per seat improved significantly by £0.14 or 42.9%, compared to
2007, to £0.19 and this simply reflects the benefit from a new contract achieved
through increasing scale and negotiation.
Overhead cost per seat, including marketing, advertising, sales and distribution
costs was up £0.23 or 6.1%, compared to 2007, to £3.95. Excluding the effect of
the GB Airways acquisition and the impact of foreign exchange underlying unit
costs were better by 17.3%.
Ownership costs, on a per seat basis including the benefit of interest
receivable, showed an improvement of £0.24 or 8.6% to £2.56. Again, on a
constant currency basis, excluding GB Airways, the underlying improvement was
£0.37 or 13.3%. The two key factors of this improvement are the increasing
average cash balances driving interest receivable although the cash outflow on
the acquisition of GB Airways will be felt in the second half. The benefit from
the continued introduction of lower cost A319 aircraft into the fleet continues
to improve the underlying per seat unit costs.
Summary balance sheet (unaudited)
31 March 30 September 2007
2008 £million Change
£million £million
Property, plant and equipment 1,132.9 935.8 197.1
Other non-current assets 550.2 414.2 136.0
1,683.1 1,350.0 333.1
Net working capital (510.6) (326.9) (183.7)
Cash and cash equivalents 649.4 719.1 (69.7)
Money market deposits 200.3 193.4 6.9
Borrowings (566.4) (519.1) (47.3)
Other non-current liabilities (292.5) (264.1) (28.4)
Net assets 1,163.3 1,152.4 10.9
Share capital and premium 743.0 738.7 4.3
Reserves 420.3 413.7 6.6
Shareholders' funds 1,163.3 1,152.4 10.9
Shareholders' funds increased by £10.9 million in the six months to 31 March
2008. The loss after tax of £43.3 million is offset by a significant credit to
reserves arising from the mark to market valuation of the Group's derivative
portfolio. This credit is principally due to jet fuel forward contracts and
options where the hedge rate is significantly below current market rate. Cash
flow hedge accounting rules permit mark to market valuations to be recognised in
reserves and recycled to the income statement when the underlying transactions
occur.
Property, plant and equipment increased by £197.1 million following delivery of
five new owned A319 aircraft in the period and the addition of five owned GB
Airways A321 aircraft, four of which were owned at acquisition and one was
delivered post acquisition in February 2008. Pre-delivery deposits included in
the value of property, plant and equipment have also increased in the period
reflecting future deliveries.
Other non-current assets have increased by £136.0 million largely due to the
valuation of the landing rights at Gatwick and goodwill which arose on the
acquisition of GB Airways. Acquisition accounting requires a fair value to be
attributed to all assets and liabilities acquired including intangible fixed
assets and the excess of consideration paid over the fair value of assets and
liabilities acquired is recorded in the Group balance sheet as goodwill. The GB
Airways goodwill is in addition to the goodwill previously recognised on the
acquisitions of Go Fly and TEA Basel. Additional detail on the fair value of
assets and liabilities acquired is detailed in note 11 to the condensed
financial information.
Net working capital increased principally due to the cyclical nature of the
business which means there are significantly more sales in advance at 31 March
compared to 30 September each year.
The total of cash and cash equivalents and money market deposits decreased by
£62.8 million. Significant cash received from sales in advance was used to
invest in aircraft and the acquisition of GB Airways. Excluding the GB Airways
purchase the Group generated surplus cash in the period.
Cash and cash equivalents exclude £103.2 million of restricted cash which is
included in other non-current assets and net working capital. These amounts
relate principally to sales in advance, customer payments for holidays and
operating lease deposits. Restricted cash has increased from £48.8 million at
September 2007 due to GB Airways' agreement with British Airways which has now
expired.
The increase in other non-current liabilities is due to additional deferred tax
liabilities arising principally on the landing rights acquired through GB
Airways.
Borrowings have increased due to the acquisition of GB Airways, the 4 aircraft
owned at acquisition are debt financed, the remainder of additions in the period
were cash acquired.
Gearing
The combined impact of cash acquiring GB Airways and the additional net debt
assumed has resulted in gearing increasing from 20.4% at 30 September 2007 to
29.0% at 31 March 2008.
Summary cash flow (unaudited)
Six months Six months
ended ended
31 March 31 March
2008 2007 Change
£million £million £million
Cash generated from operations 196.5 161.8 34.7
Acquisition of GB Airways (net of cash acquired) (96.2) - (96.2)
Net capital expenditure (134.9) (127.8) (7.1)
Net (decrease) / increase in loan finance (21.2) 30.6 (51.8)
Net increase in money market deposits (1.5) - (1.5)
Other (12.4) (20.8) 8.4
Net (decrease) / increase in cash and cash equivalents (69.7) 43.8 (113.5)
Cash and cash equivalents at beginning of period 719.1 860.7 (141.6)
Cash and cash equivalents at end of period 649.4 904.5 (255.1)
Despite a net loss in the period significant cash was generated from operations
due to cash received from sales in advance in the period.
Cash paid to purchase GB Airways including acquisition expenses totalled £107.9
million, cash acquired net of overdrafts totalled £11.7 million giving a net
outflow on acquisition of £96.2 million.
Net capital expenditure includes the purchase of five additional A319 and one
A321 aircraft and pre-delivery deposits on future aircraft.
No new loans were drawn down in the period, £21.2m of loan and finance lease
balances were repaid in the period. All additional aircraft in the period were
cash acquired.
At 31 March the Group had US$1,187 million of undrawn financing in place. In
addition to the US$250 million revolving credit facility, the Group completed
its financing arrangements in respect of future aircraft deliveries in December
2007 providing US$937 million of additional finance.
Principal risks and uncertainties
This section describes the principal risks and uncertainties which may affect
easyJet's business and financial results and prospects.
Demand for air travel
easyJet is dependent on the demand for european air travel and its business can
be affected by macro issues outside its control, such as global (or even local)
economic conditions, the continued acceptance of the low cost model, and the
willingness of potential customers to fly. Changes in any of these will affect
the demand for our services and could have a material effect on the financial
results of the business.
Competition
easyJet operates in competitive marketplaces against both flag carriers and
other low cost airlines (some of which are owned by flag carriers). An increase
in competition from any of these sources could result in an adverse effect on
easyJet's performance.
Terrorism or catastrophic loss
The attacks and attempted terrorist attacks on the aviation industry of 11
September 2001 in the United States and 10 August 2006 in the UK show that
easyJet's business is exposed to potential terrorist attacks, even if easyJet is
not a direct target and even if an attack is not successful. easyJet's business
can be affected in a number of ways, including loss of key national
infrastructure (which may have a knock on effect), loss of restricted access to
the airport infrastructure which easyJet uses, increased security costs,
potential restriction or removal of insurance cover, and a reduction in the
propensity of customers to fly. Any one of these issues could have a material
adverse effect on the business.
Fleet grounding
easyJet operates the following types of aircraft, the Boeing 737-700, the Airbus
A319, A320, and A321. Were there an accident or discovered defect on these
aircraft types, even if related to another airline elsewhere in the world, this
could result in some or all of easyJet's aircraft fleet being grounded for an
indeterminable period of time.
Fuel price fluctuations
Fuel is a significant cost to easyJet, being 27.8% of the cost base during the
half year. During the last ten years, the price of fuel has been subject to
significant volatility. Whilst the easyJet's hedging activities can provide some
degree of protection against short term price volatility, easyJet is exposed to
fuel price movements over longer time periods, which could be material to the
cost base.
Currency fluctuations
easyJet has significant US dollar denominated costs relating to the purchase
price of an aircraft, aircraft financing costs, maintenance reserve payments,
engine maintenance costs and fuel purchases. The US dollar is subject to
significant volatility against sterling. Whilst the group's hedging activities
can provide some degree of protection against short term exchange rate
movements, easyJet is exposed over longer time periods, which could be material
to the cost base.
Landing charges and airport access
Many of the airports which easyJet fly to are regulated, and charges are levied
by way of regulatory decision rather than by commercial negotiation. As such,
easyJet has little influence in the future level and even the basis of charges,
which may result in costs increasing at beyond the level of inflation.
Airport access
The availability of suitable landing slots at airports is key to easyJet's
continued growth. Many airports are slot constrained and are subject to
regulation. This means that there is a risk that slots may not become available.
Furthermore, environmental regulation such as noise restrictions and curfews may
further restrict availability.
Jeff Carr
Group Finance Director
7 May 2008
Consolidated income statement (unaudited)
Six months Six months
ended 31 ended 31
March March
2008 2007
£million £million
Notes
Passenger revenue 751.0 641.8
Ancillary revenue 141.2 77.2
Total revenue 892.2 719.0
Ground handling charges, including salaries (97.7) (76.1)
Airport charges (161.2) (131.4)
Fuel (264.0) (185.9)
Navigation charges (81.3) (61.7)
Crew costs, including training (122.0) (95.5)
Maintenance (58.8) (46.8)
Advertising (24.2) (18.9)
Merchant fees and incentive pay (15.2) (9.4)
Aircraft and passenger insurance (4.4) (6.7)
Other costs (52.4) (47.1)
GB Airways integration costs (9.1) -
EBITDAR 1.9 39.5
Depreciation (19.9) (16.7)
Amortisation of other intangible assets (0.7) (0.4)
Aircraft dry lease costs (53.3) (45.9)
Aircraft long-term wet lease costs - (1.0)
Operating loss (72.0) (24.5)
Interest receivable and other financing income 32.7 23.9
Interest payable and other financing charges (18.2) (16.6)
Net financing income 14.5 7.3
Share of profit of associate - 0.1
Loss before tax (57.5) (17.1)
Tax 3 14.2 4.4
Loss for the period (43.3) (12.7)
Loss per share, pence
Basic 4 10.3 3.1
Consolidated balance sheet (unaudited)
31 March 2008 30 September
2007
£million £million
Notes
Non-current assets
Goodwill 6 354.5 309.6
Other intangible assets 6 77.6 1.8
Property, plant and equipment 6 1,132.9 935.8
Financial assets
Loan notes 11.6 11.1
Restricted cash 38.3 32.9
Derivative financial instruments 10.7 -
Other non-current assets 57.1 58.1
Investments in associates - 0.3
Deferred tax assets 0.4 0.4
1,683.1 1,350.0
Current assets
Trade and other receivables 271.6 223.6
Assets held for sale 30.0 -
Financial assets
Money market deposits 200.3 193.4
Restricted cash 64.9 15.9
Derivative financial instruments 56.7 14.4
Cash and cash equivalents 649.4 719.1
1,272.9 1,166.4
Current liabilities
Trade and other payables (815.9) (461.7)
Financial liabilities
Borrowings 7 (48.9) (40.5)
Derivative financial instruments (7.0) (26.6)
Current tax liabilities (93.3) (89.7)
Maintenance provisions (17.6) (2.8)
(982.7) (621.3)
Net current assets 290.2 545.1
Non-current liabilities
Financial liabilities
Borrowings 7 (517.5) (478.6)
Derivative financial instruments (1.2) (6.3)
Other non-current liabilities (77.4) (86.8)
Maintenance provisions (150.1) (136.0)
Deferred tax liabilities (63.8) (35.0)
(810.0) (742.7)
Net assets 1,163.3 1,152.4
Shareholders' funds
Ordinary shares 8 105.3 104.8
Share premium 9 637.7 633.9
Hedging reserve 9 41.4 (13.7)
Translation reserve 9 0.3 -
Retained earnings 9 378.6 427.4
1,163.3 1,152.4
Consolidated cash flow statement (unaudited)
Six months Six months
ended 31 ended 31
March March
2008 2007
£million £million
Notes
Cash flows from operating activities
Cash generated from operations 10 191.1 158.3
Interest received 28.1 23.6
Interest paid (17.6) (18.0)
Tax paid (5.1) (2.1)
Net cash generated from operating activities 196.5 161.8
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired 11 (96.2) -
Purchase of property, plant and equipment (134.0) (154.8)
Proceeds from sale of property, plant and equipment 0.4 27.0
Purchase of other intangible assets (1.6) (0.2)
Proceeds from sale of investment in associate 13 0.3 -
Dividends received from associate - 0.2
Net cash used by investing activities (231.1) (127.8)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 4.0 15.8
Purchase of own shares for employee share schemes (4.4) (4.3)
Net proceeds from drawdown of bank loans - 46.7
Repayment of bank loans (19.8) (14.8)
Repayment of capital elements of finance leases (1.4) (1.3)
Increase in money market deposits (1.5) -
Increase in restricted cash (23.0) (28.1)
Net cash (used by) / generated from financing activities (46.1) 14.0
Effects of exchange rate changes 11.0 (4.2)
Net (decrease) / increase in cash and cash equivalents (69.7) 43.8
Cash and cash equivalents at beginning of period 719.1 860.7
Cash and cash equivalents at end of period 649.4 904.5
Consolidated statement of recognised income and expense (unaudited)
Six months Six months
ended ended
31 March 31 March
2008 2007
£million £million
Notes
Cash flow hedges
Fair value gains / (losses) in period 9 81.0 (19.4)
Transfers to income statement 9 (7.5) 21.2
Transfers to property, plant and equipment 9 1.5 -
Related taxation (19.9) (1.7)
Translation differences on foreign currency net 9 0.3 -
investments
Net income recognised directly in equity 55.4 0.1
Loss for the period (43.3) (12.7)
Total recognised income and expense attributable to 12.1 (12.6)
shareholders of the company
Notes to the condensed financial information (unaudited)
1 Accounting policies
Basis of preparation
The condensed financial information has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Services Authority and with
IAS 34 'Interim Financial Reporting'. It should be read in conjunction with the
annual report and accounts for the year ended 30 September 2007, which were
prepared in accordance with International Financial Reporting Standards as
adopted by the European Union.
The condensed financial information does not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985. Statutory accounts
for the year ended 30 September 2007 were approved by the board of directors on
19 November 2007, and have been delivered to the Registrar of Companies. The
report of the auditors was unqualified, and did not contain either an emphasis
of matter paragraph or any statement made under section 237 of the Companies Act
1985.
The accounting polices adopted are consistent with those described in the annual
report and accounts for the year ended 30 September 2007. The following
standards, amendments to standards or interpretations are required to be
implemented for the year ended 30 September 2008:
IFRS 7 Financial Instruments: Disclosure
IAS 1 Presentation of Financial Statements - Amendment: Capital
Disclosures
IFRIC 10 Interims and Impairment (IAS 34)
IFRIC 11 Group and Treasury Share Transactions (IFRS 2)
The disclosures required by IFRS 7 and the amendment to IAS 1 will be given in
the next annual report and accounts. The adoption of IFRIC 10 and IFRIC 11 has
had no impact on this condensed financial information.
2 Seasonality
The airline industry is highly seasonal, and demand is significantly higher
during the summer. Accordingly revenue and profitability are higher in the
second half of the year. Historically, easyJet has reported a loss for the first
half of the year and a profit in the second half.
3 Taxation
a) Tax on profit on ordinary activities:
2008 2007
£million £million
Current taxation 4.7 (0.3)
Deferred taxation (18.9) (4.1)
(14.2) (4.4)
Effective tax rate 24.7% 25.7%
The effective tax rate is lower than the standard rate of corporation tax in the
United Kingdom (28%) principally due to overseas profits being subject to tax at
lower rates.
b) Tax on items charged to equity comprises:
2008 2007
£million £million
Deferred tax (charge) / credit on share options (3.8) 4.7
Deferred tax charge on fair value movements of cash flow hedges (19.9) (1.7)
(23.7) 3.0
4 Loss per share
2008 2007
£million £million
Loss for the period (43.3) (12.7)
GB Airways integration costs 9.1 -
Related taxation (2.5) -
Underlying loss for the period (36.7) (12.7)
2008 2007
million million
Weighted average number of ordinary shares in issue during the 418.9 414.1
period
2008 2007
pence pence
Loss per share 10.3 3.1
Underlying loss per share (non-GAAP measure) 8.8 3.1
Diluted loss per share for the six months ended 31 March 2008 and 2007 is not
presented as the impact of potential ordinary shares is antidilutive.
Underlying loss and underlying loss per share are based on the loss for the
period after adjusting for costs relating to the integration of the operations
acquired from GB Airways. The adjustment has been made on the grounds that these
costs with not recur.
5 Dividends
No dividends have been paid or proposed during the period ended 31 March 2008 or
during the comparative period.
6 Intangible assets and property, plant and equipment
Other Property,
intangible plant and
assets equipment
Goodwill £million £million Total
£million £million
At 1 October 2007 309.6 1.8 935.8 1,247.2
Acquisition of GB Airways 44.9 74.9 83.4 203.2
Additions - 1.6 134.0 135.6
Disposals - - (0.4) (0.4)
Depreciation and amortisation - (0.7) (19.9) (20.6)
At 31 March 2008 354.5 77.6 1,132.9 1,565.0
Other Property,
intangible plant and
assets equipment
Goodwill £million £million Total
£million £million
At 1 October 2006 309.6 1.1 695.7 1,006.4
Additions - 0.2 129.6 129.8
Disposals - - (0.3) (0.3)
Depreciation and amortisation - (0.4) (16.7) (17.1)
At 31 March 2007 309.6 0.9 808.3 1,118.8
At 31 March 2008 easyJet is contractually committed to the acquisition of 119
Airbus A320 family aircraft, with a list price of approximately US$ 5.4 billion
(£2.8 billion) before escalations and discounts. Deposits paid against these
aircraft at 31 March 2008 totalled £156.6 million.
7 Borrowings
2008 2007
£million £million
At 1 October 519.1 479.7
Acquisition of GB Airways 59.1 -
Foreign exchange adjustments 8.9 (17.4)
Net proceeds from drawdown of bank loans - 46.7
Movement in issue costs 0.5 (0.1)
Repayments (21.2) (16.1)
At 31 March 566.4 492.8
Current 48.9 35.9
Non-current 517.5 456.9
566.4 492.8
8 Share capital
Number Number Value Value
2008 2007 2008 2007
million million £million £million
At 1 October 419.1 410.5 104.8 102.6
Issued under share option schemes 2.1 8.4 0.5 2.1
At 31 March 421.2 418.9 105.3 104.7
9 Consolidated reconciliation of movements in shareholders' equity
Share Share Hedging Translation Retained
capital premium reserve reserve earnings
£million £million £million Total
£million £million £million
At 1 October 2007 104.8 633.9 (13.7) - 427.4 1,152.4
Loss for the period - - - - (43.3) (43.3)
Cash flow hedges
Fair value gains - - 81.0 - - 81.0
Transfers to income - - (7.5) - - (7.5)
statement
Transfers to property, - - 1.5 - - 1.5
plant and equipment
Related taxation (note 3) - - (19.9) - - (19.9)
Currency translation - - - 0.3 - 0.3
differences
Share options
Proceeds from shares 0.5 3.8 - - (0.2) 4.1
issued
Value of employee - - - - 2.9 2.9
services
Related taxation (note - - - - (3.8) (3.8)
3)
Shares purchased for - - - - (4.4) (4.4)
employee schemes
At 31 March 2008 105.3 637.7 41.4 0.3 378.6 1,163.3
In December 2007 easyJet awarded free shares to all staff employed at 30
September 2007 who accepted the award. In connection with this award, easyJet's
Share Incentive Plan acquired 642,910 shares at a cost of £3.9 million, which
has been deducted from retained earnings.
The hedging reserve comprises the effective portion of the cumulative net change
in fair value of cash flow hedging instruments relating to hedging transactions
extant at the period end.
Share Share Hedging Retained
capital premium reserve earnings
£million £million Total
£million £million £million
At 1 October 2006 102.6 591.4 (9.5) 298.4 982.9
Loss for the period - - - (12.7) (12.7)
Cash flow hedges
Fair value losses - - (19.4) - (19.4)
Transfers to income - - 21.2 - 21.2
statement
Related taxation (note 3) - - (1.7) - (1.7)
Share options
Proceeds from shares 2.1 41.5 - (27.8) 15.8
issued
Value of employee - - - 4.0 4.0
services
Related taxation (note 3) - - - 4.7 4.7
Shares purchased for - - - (4.3) (4.3)
employee schemes
At 31 March 2007 104.7 632.9 (9.4) 262.3 990.5
10 Reconciliation of loss for the period to cash generated from operations
2008 2007
£million £million
Cash generated from operations
Loss for the period (43.3) (12.7)
Adjustments for:
Tax credit (14.2) (4.4)
Depreciation charge 19.9 16.7
Profit on disposal of property, plant and equipment - (0.2)
Amortisation of other intangibles 0.7 0.4
Interest income (27.6) (23.9)
Interest expense 18.2 17.6
Share based payments 2.9 4.0
Share of results of associates - (0.1)
Financial instruments - time value 3.1 (3.0)
Foreign exchange 11.3 (13.7)
Changes in working capital:
Increase in trade and other receivables (17.1) (29.4)
Increase in trade and other payables 223.6 181.5
Increase in provisions 22.4 6.5
Decrease / (increase) in other non-current assets 3.7 (0.3)
(Increase) / decrease in financial instruments (3.1) 0.5
(Decrease) / increase in other non-current (9.4) 18.8
liabilities
191.1 158.3
11 Acquisition of GB Airways
On 25 October 2007, easyJet announced that, subject to regulatory clearance, it
had agreed to acquire 100% of the share capital of and voting rights in GB
Airways. The acquisition has been unconditionally cleared and completion
occurred on 31 January 2008. The assets and liabilities acquired and their
provisional fair values are as follows:
Carrying Provisional
amount fair value
£million £million
Landing rights - 72.4
Other intangible assets - 2.5
Property, plant and equipment 85.0 83.4
Other non-current assets 6.2 2.7
Assets held for sale - 30.0
Current assets excluding cash and cash equivalents 59.7 59.7
Cash and cash equivalents 15.4 15.4
Current liabilities, excluding borrowings and (85.5) (89.4)
overdrafts
Overdrafts (3.7) (3.7)
Borrowings (59.1) (59.1)
Deferred tax liabilities - (24.1)
Maintenance provisions (3.3) (5.2)
Net assets acquired 14.7 84.6
Goodwill - 44.9
14.7 129.5
Purchase consideration
Cash paid 103.5
Deferred consideration 21.6
Direct acquisition costs 4.4
129.5
Cash and cash equivalents acquired (15.4)
Overdrafts acquired 3.7
Deferred consideration (21.6)
Cash outflow on acquisition 96.2
Carrying amounts represent the assets and liabilities of GB Airways at
completion determined in accordance with IFRS. Provisional fair values are
stated after accounting policy alignments and fair value adjustments.
The principal fair value adjustments were the recognition of landing rights
('slots') at Gatwick and Heathrow at fair value, and related deferred taxation
provisions. The Heathrow landing rights are shown as assets held for sale as
these will not be operated by easyJet after 29 March 2008. In accordance with
the acquisition agreement the net proceeds from disposal of these landing rights
will be remitted to the vendors, and an estimate of this amount is shown as
deferred consideration.
Goodwill is attributable to the anticipated future operating synergies derived
from improved yield, cost economies of scale and additional network
destinations.
In view of the short period of time since the acquisition was completed, the
fair values in the table are provisional.
GB Airways recorded a loss before tax of £2.9 million for the period from 1
February to 29 March 2008; this loss has been provided for in the fair value
adjustments as the final two months of operations under the British Airways
franchise agreement represented an onerous contract.
With effect from 30 March 2008 the GB Airways operations were merged into the
existing easyJet business, and separate disclosure of revenue and profit after
that date is impracticable.
Had the acquisition occurred on 1 October 2007, the group's consolidated revenue
and loss before tax for the six months ended 31 March 2008 would have been
£963.2 million and £57.9 million respectively.
12 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.
13 Related party transactions
On 14 December 2007, easyJet's 26% share in the Big Orange Handling Company
Limited was sold to the majority shareholder, Menzies Aviation Limited, for cash
consideration of £320,000. No profit or loss was recognised on this transaction.
Statement of directors' responsibilities
The directors confirm that these condensed financial statements have been
prepared in accordance with the Disclosure and Transparency Rules of the UK
Financial Services Authority and IAS 34. The accounting policies applied are
consistent with those described in the Annual Report 2007 and give a true and
fair view of the assets, liabilities, financial position and profit of the
Group.
This interim management report includes a fair review of the business and
important events impacting it, as well as a description of the principal risks
and uncertainties that the business faces for the remainder of the year.
This interim management report includes a fair review of the related party
disclosure requirements.
Approved by the Board and authorised for issue on 6 May 2008.
Andrew Harrison Jeff Carr
Chief Executive Officer Group Finance Director
Glossary
Aircraft owned/leased at end of period Number of aircraft owned or on lease arrangements of
over one month's duration at the end of the period.
Ancillary revenue Includes credit card fees, baggage charges, speedy
boarding fees, sporting equipment fees, infant fees,
change fees and rescue fees, profit share from in
flight sales and commissions earned on products and
services sold, less chargebacks.
Available seat kilometres (ASK) Seats flown multiplied by the number of kilometres
flown.
Average fare Passenger and ancillary revenue divided by
passengers.
Block hours Hours of service for aircraft, measured from the
time that the aircraft leaves the terminal at the
departure airport to the time that it arrives at the
terminal at the destination airport.
Cost per ASK Revenue less profit before tax, divided by available
seat kilometres.
Cost per seat Revenue less profit before tax, divided by seats
flown.
Cost per seat, excluding fuel Revenue, less profit before tax, plus fuel costs,
divided by seats flown.
EBITDAR Earnings before interest, taxes, depreciation,
amortisation, dry lease and long-term wet lease
costs, and the share of profit after tax of
associates.
Load factor Number of passengers as a percentage of number of
seats flown. The load factor is not weighted for the
effect of varying sector lengths.
Loss before tax per seat Loss before tax divided by seats flown.
Operated aircraft utilisation Average number of block hours per day per aircraft
operated.
Other costs Administrative and operational costs not reported
elsewhere, including some employee costs,
compensation paid to passengers, exchange gains and
losses and the profit or loss on the disposal of
property plant and equipment.
Passengers Number of earned seats flown. Earned seats comprises
seats sold to passengers (including no-shows), seats
provided for promotional purposes and seats provided
to staff for business travel.
Return on equity Profit for the year divided by the average of
opening and closing shareholders' funds.
Revenue The sum of revenue from ticket sales and ancillary
revenue.
Revenue passenger kilometres (RPK) Number of passengers multiplied by the number of
kilometres those passengers were flown.
Revenue per ASK Revenue divided by available seat kilometres.
Revenue per seat Revenue divided by seats flown.
Seats flown Seats available for passengers.
Sector A one-way revenue flight.
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 1 day ago IntegraFin Holding
- 1 day ago Spirent Communications
- 1 day ago CRH (CDI)
- 1 day ago Bezant Resources
- 1 day ago EJF Investments Ltd NPV