14th Nov 2006 07:02
easyJet PLC14 November 2006 easyJet plc Preliminary results for the 12 months to September 2006 EASYJET REPORTS RECORD PROFITS, UP 56% TO £129M • Record profit before tax of £129 million, up 56% from £83 million in 2005. • Passenger numbers rise by 11.5% to 33 million. • Passenger revenues increased by 5.9% or £2.13 per seat, driven by strong summer trading. • Ancillary revenues improved significantly in all areas rising by 34% or £0.86 per seat. • Unit costs excluding fuel fell by 1.5% or £0.42 per seat from £28.78 to £28.36. • Unit fuel costs increased by 33% or £2.48 per seat. • Return on equity increased to 10.1% up 3 percentage points from 7.1% in 2005. • 58 new routes and 11 new destinations were launched, expanding the network to 262 routes and 74 airports in 21 countries. • Fleet grown to 122 aircraft with an average age of 2.2 years, making it one of the most modern and environmentally friendly fleets in Europe. • Further expansion of fleet planned with 52 new A319s ordered, and options secured over a further 75. This brings the total number of aircraft on firm order to 104 worth over $4 billion, with a further 123 unexercised options still available. • Strong balance sheet with cash of £861 million. Commenting on the results, Andy Harrison, easyJet Chief Executive said: "2006 was another year of successful growth with 33 million passengers choosingto fly easyJet, attracted by our winning combination of low cost, with care andconvenience. We have continued to expand our range of destinations with 58 newroutes launched during the year and the successful opening of our new base inMilan Malpensa. "Our profits increased by 56% to a record £129 million, despite the big increasein fuel costs. Our profit growth was driven by a 34% increase in ancillaryrevenues per seat, significant improvements in passenger yields and a continuingreduction in our non fuel unit costs. "Our Airbus order supports both our growth and our environmental credentials.The combination of our modern fleet, with an average age of 2.2 years, and highutilisation means that we emit nearly 30% fewer emissions per passengerkilometre than traditional airlines flying similar routes. We welcome the SternReview, which says that aviation accounts for just 1.6% of global greenhouse gasemissions. We believe the best way forward is to bring aviation into theEuropean Emissions Trading System as soon as possible. "Today's Airbus order underpins our future growth and we expect to increasecapacity in 2007 by 15%. Current trading is in line with our expectations and wesee yields for winter broadly in line with last year. As we look further forwardwe anticipate more pressure on yields in the summer due to continued aggressivecompetition. We remain focused on improving execution and delivery of results byrevenue enhancement, network development and cost reduction. This year has seenan encouraging step towards improved return on equity. The Board remainsconfident that the business will make good progress in the coming years." 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 There will be an analyst presentation at 9:00 am on 14 November 2006 at ABNAMRO, 3rd floor, 250 Bishopsgate, EC2M 4AA. A live webcast of the presentationwill be available at www.easyJet.com. There will be an analyst and investor conference call at 2:00 pm on 14 November2006. For further details, contact Katy Balderston at Financial Dynamics on 0207269 7228. easyJet plc preliminary results 2006 Chairman and Chief Executive's review easyJet has delivered profitable growth during 2006 with profit before taxrising 56% to a record £129 million. This has been driven by our winningcombination of low fares with care and convenience, which in 2006 was chosen by33 million passengers across 21 different European countries. This performance is aligned with our targets and underpins the delivery ofimproved returns to shareholders. We remain focused on improving our return onequity as outlined in the long term incentive plan for management put in placelast year. During 2006 we improved the return on equity by 3 percentage pointsto 10.1% and increased our net profit by 59% to £94m, thus providing confidencethat the targets we have set, while challenging and demanding, are achievable. Key business highlights for the year were as follows: • Record profit before tax of £129 million, up 56% from £83 million in 2005. • Passenger numbers rose by 11.5% to 33 million. • Passenger revenues increased by 5.9% or £2.13 per seat, driven by strong summer trading. • Ancillary revenues improved significantly in all areas, rising by 34% or £0.86 per seat. • Unit costs excluding fuel fell by 1.5% or £0.42 per seat from £28.78 to £28.36. • Unit fuel costs increased by 33% or £2.48 per seat. • 58 new routes and 11 new destinations were launched, expanding the network to 262 routes and 74 airports in 21 countries. • The fleet grew to 122 aircraft with an average age of 2.2 years, making it one of the most modern and environmentally friendly fleets in Europe. • The balance sheet remains strong with cash of £861 million and gearing at 31%. In May, we highlighted network development, revenue enhancement, cost reductionand development of our people as our main areas of focus. These goals remainunchanged. Network 2006 saw the increased presence of easyJet in Italy with the successful launchof our 16th base at Milan Malpensa in March, and the addition of 10 new routesbringing low cost travel to Milan. From Milan we now fly domestically to Naplesand Palermo; offer key city destinations including Berlin, London, Madrid andParis; serve beach and leisure destinations; and have further expansion plannedfor the coming year. Building on the addition of our second Swiss base in Basel during 2005, weincreased our Swiss operations considerably in the year with 16 new routeslaunched in the Swiss market and increased frequencies offered in the winterseason. Our successful expansion since launching the Geneva base in 1999 hasseen easyJet become the largest airline in both Geneva and Basel. During the summer, we expanded into new markets with the introduction of flightsto Croatia, Morocco and Turkey. As a proportion of our network these flights arenot significant, but they indicate the continuing opportunities available bothinside and outside the EU. Overall, our highest rate of growth has been on Intra-European (non-UK) flying,where we have seen revenues grow by 62% year on year. While we continue to seeand take opportunities in the UK, we expect the higher rate of growth in Europeto continue. This has been reflected in our base selections in recent years, andthe announcement of our next base in Madrid, opening in February 2007, continuesthis trend. Additional Airbus Order To sustain the continued growth of easyJet, we will be asking shareholders toapprove the conversion of 52 Airbus purchase rights into firm orders. Incombination with our original order for 120 Airbus and our conversion of 20purchase rights into firm orders in December 2005, this will take our number offirm Airbus A319 orders to 192 aircraft, 87 of which had been delivered by theend of September 2006. The additional 52 firm orders, with a value of $2.3billion at list price, are for A319 aircraft to be delivered mainly during 2009and 2010, and supports our planned growth. In conjunction with this, we haveagreed with Airbus 75 further purchase rights, additional to the 120 purchaserights agreed in 2002. The terms of the additional purchase rights aresubstantially the same as on the original Airbus order. This order ensures thateasyJet will continue to operate a young fleet of modern aircraft secured atvery competitive rates. Environment We take seriously our duty to ensure that we are operating and developing in aresponsible manner. We will further explain our environmental policy in theseparate report on Corporate and Social Responsibility in our annual report,however the fundamentals can be summarised here. The easyJet model is low cost,based on maximising operating efficiencies, achieving high asset utilisation andproviding point to point services between convenient locations, operating inestablished markets whilst avoiding the largest most congested hub airports. Weuse a modern fleet of young, fuel efficient, quiet aircraft, with a high seatdensity configuration and achieve consistently high load factors. Each of thesefactors helps make easyJet the environmentally friendly way to fly. We have set ourselves the target of being a leading environmentally efficientand responsible airline, striving to be efficient in the air, efficient on theground, and to lead the way in shaping a greener future for aviation. Revenue Passenger revenue per seat was down by 1.5% in the first half of the year, butrose 11.2% in the second half. The very strong performance in the second halfwas helped by the timing of Easter, but also reflected buoyant market conditionsand good revenue management across the network. Detailed route performance reviews and a strengthened yield management teamhelped ensure that suitable interventions were made in the revenue system tooptimise contribution on flights. High impact marketing also helped increaseawareness and stimulate demand. The spring saw the launch of our 'objects'marketing campaign, featuring iconic images associated with destinations on ournetwork and the low fares we offer to fly to them - reinforcing our simplemessage of low fares with care and convenience. We also launched a businesstraveller campaign raising awareness of the frequency and flexibility of ourservices and the quality of our schedule on primary routes in specific markets. Improvements to the easyJet.com website and a continued focus on non-ticketrevenues allowed easyJet to deliver another year of high growth in ancillaryrevenues. Simple and direct delivery of insurance and car hire has helpedincrease conversion rates and income from partner revenues. Improved consistentapplication of charges has also driven increases across the other areas ofancillary revenue. Costs and operational performance Our focus on the cost base has continued throughout the year with particularprogress coming from lower maintenance, improved ownership costs and reducedground handling rates in Spain. Maintenance costs benefited from lower rates as a result of our contract forAirbus airframe maintenance with SR Technics. The fleet mix has improved withthe retirement of the Boeing 737-300s, only 3 of which remained in the fleet at30 September, all of which are due for return by December 2006. Ownership costshave improved as our financing margin has reduced, we have saved money throughbetter management of end of lease aircraft returns, and we have increased theproportion of owned aircraft. The effect of increasing US interest rates duringthe year, however, offset these improvements, so that total ownership costs haveremained largely flat on a per seat basis compared with 2005. Ground handling improvements have come with dedication and persistence whichovercame a number of hurdles. As a result, we are now either self-handling orhave re-negotiated our agreements with existing suppliers in seven airports inSpain which were among the most expensive in our network. This has resulted inmore competitive costs in this area, ensuring the future growth of thesedestinations. Overall, we have seen a reduction in unit costs excluding fuel of 1.5% for theyear. The improvements in unit costs were largely accomplished in the firsthalf, with the impact of wet leasing and disruption impacting the second half.Set against this, the effect of increasing fuel costs has continued, andincluding fuel, total costs per available seat flown rose by 5.7%. As we go intothe 2007 financial year, we have hedged 59% of our fuel requirement. 28% ishedged using forwards with an average rate of $659 per metric tonne, and 31% ishedged using collars with average floor and ceiling rates of $687 and $753 permetric tonne respectively. The August 10th security alert caused easyJet to cancel nearly 500 flights andresulted in additional costs of approximately £4m. The introduction of greaterrestrictions to carry-on items, and the inadequate resources of airports to copewith additional security procedures, resulted in pressures on passengers andoperations. This led to reduced punctuality, and the proportion of our flightsarriving within 15 minutes of scheduled arrival fell from 80.2% in 2005 to 75.6%in 2006. In addition, easyJet experienced some crew shortages in the summerresulting in low levels of standby crew. To minimise disruption to passengers,easyJet wet leased approximately three and a half lines of flying during thesummer to help deliver the scheduled network flights. Disappointingly for allconcerned, some disruption to the schedule was still experienced. At easyJet weare committed to delivering an excellent service and we can assure ourpassengers that recruitment and planning measures are now in place to ensurethat the company delivers the highest standard of service with care andconvenience. People In November 2005, we opened the easyJet Academy. Based in a low cost buildingclose to our Luton headquarters, the Academy provides first class trainingfacilities including a cabin simulator and aircraft slides. It provides thelocation for pilot, cabin crew and call centre training as well as housing therecruitment and training departments. Meanwhile, we are preparing to move oureasyLand headquarters, taking up low cost office space inside our newmaintenance hangar at our Luton base. This move should take place in early 2007. We recognise and appreciate the extra effort many of our people have made thisyear and extend our thanks to all our people for their continued dedication andhard work. Board Andrew Harrison joined easyJet as Chief Executive in December 2005. During theyear David Bennett and Professor Rigas Doganis were also appointed to the Boardas Non-Executive Directors, and Sir David Michels was appointed as the SeniorIndependent Non-Executive Director. The appointments in the year have brought agood balance of expertise and experience to the Board and these will beinvaluable as easyJet continues to grow. We thank all the members of the Boardfor their commitment and contributions in the year. Outlook Today's Airbus order underpins our future growth and we expect to increasecapacity in 2007 by 15%. Current trading is in line with our expectations and wesee yields for winter broadly in line with last year. As we look further forwardwe anticipate more pressure on yields in the summer due to continued aggressivecompetition. We remain focused on improving execution and delivery of results byrevenue enhancement, network development and cost reduction. This year has seenan encouraging step towards improved return on equity. The Board remainsconfident that the business will make good progress in the coming years. Sir Colin Chandler Andrew Harrison Chairman Chief Executive 13 November 2006 Operational and financial reiew Strategy and business model easyJet is Europe's leading low fares airline. Formed in 1995 by Sir Stelios Haji-Ioannou, it has grown rapidly to become Europe's fourth largest airline bypassengers carried. easyJet keeps costs low by eliminating the unnecessary costsand frills which characterise traditional airlines. This is done in a number ofways: • The internet is used to reduce distribution costs. easyJet was one of the first airlines to embrace the opportunity of the internet when it sold its first seat online in April 1998. Now over 95% of all seats are sold on line, making easyJet one of Europe's biggest internet retailers; • Maximising the utilisation of substantial assets. We fly our aircraft intensively, with swift turnaround times each time we land. This gives us a very low unit cost; • Ticketless travel. Passengers receive booking details via an e-mail rather than paper. This helps to significantly reduce the cost of issuing, distributing, processing and reconciling millions of transactions each year; • No 'free lunch'. We eliminate unnecessary services which are complex to manage such as free catering, pre-assigned seats, interline connections and cargo services. This allows us to keep our total cost of production low; and • Efficient use of airports. easyJet flies to main destination airports throughout Europe, but gains efficiencies compared to traditional carriers with rapid turnaround times, and progressive landing charge agreements with airports. Many have tried to imitate easyJet's business model, but few have succeeded. Inaddition to all the factors above, our customer proposition is defined by 'lowcost with care and convenience'. This means that whilst we are committed tokeeping our costs low, we will provide our customers with a quality product andgood service; we fly to main European destinations from convenient localairports; and provide friendly on board service. People are a key point ofdifference at easyJet and are integral to our success. This allows us to attractthe widest range of customers to use our services - both business and leisure. We have a powerful business model, with a strong well-recognised brand acrossEurope. With a strong market presence and scale, we are well positioned to takeadvantage of growth opportunities in the European low cost market. easyJet stillhas only 6% of the total European market, which is forecast to grow by 5% to 6%per annum. On this basis we have targeted an annual growth rate of 15% over themedium term. We will do this by reinforcing our presence on our key routes,whilst identifying new route development opportunities where the productoffering meets our goals. Competitors The markets in which easyJet operates are highly competitive, both fromtraditional 'flag carrier' airlines such as British Airways, Air France/KLM,Iberia and Swiss and from other low cost carriers such as Ryanair, Air Berlinand Vueling. We face competition from other airlines on same city-pair routes,from indirect flights, from charter services and also from other forms oftransport, such as rail. There are virtually no routes where we have nocompetition. The level of intensity of the competition varies on a route byroute basis, and depends on the nature of the competitors. However, most of thecompetitors we encounter have significantly higher unit costs than us. As aresult, whilst these competitors can on occasion offer lower fares than easyJet,they cannot compete with our fares every day without an adverse financialeffect. Network We have continued to develop the network during the year in a manner thatabsorbed the 12.1% growth in new capacity. At 30 September 2006, the easyJetnetwork covered 262 routes and 74 airports, compared to 212 and 64 at the sametime last year. During the year, we have added 11 new cities to the easyJet network: Bordeaux,Bournemouth, Bremen, Istanbul, Lisbon, Marrakesh, Palermo, Rijeka, Rimini, LaRochelle and Split. A new base was opened at Milan Malpensa during the year, anda further base has been announced at Madrid Barajas for the coming financialyear. Resources and relationships Fleet At the end of September 2006, the fleet comprised 35 Boeing 737s and 87 AirbusA319s, giving a total of 122 aircraft, up from the 54 Boeing 737s and 55 AirbusA319s at the start of the financial year. Details of the fleet at 30 September2006 are as follows: Future deliveries Under Under (including Unexercised operating finance Changes exercised options Owned lease lease Total in year options) (note 1) Airbus A319s 38 43 6 87 32 53 100Boeing 737-700s - 32 - 32 - - -Boeing 737-300s - 3 - 3 (19) - ----------- ------- ------- ------- ------ ------ ------ ------- 38 78 6 122 13 53 100========== ======= ======= ======= ====== ====== ====== ======= Notes: 1. Options may be taken as any Airbus A320 family aircraft and are valid until2012. A further 53 Airbus A319 aircraft are planned to be delivered through toSeptember 2009. This will give us a modern fleet of aircraft that will underpinour high levels of asset utilisation and increase our operational efficiency.The average fleet age is currently 2.2 years (2005: 3.0 years). During the year, 20 aircraft which had been under option at 30 September 2005were converted into firm future deliveries. On 13 November 2006, easyJet agreed that, subject to shareholder approval, ithad converted a further 52 of its Airbus option aircraft to firm deliveries in2008, 2009 and 2010; furthermore an additional 75 purchase rights had beenobtained for aircraft which could be delivered during the period to 2015. Fleet changes: The total fleet over the period to 30 September 2009 based on contractualcommitments, excluding the order pending shareholder approval, is as follows: Airbus A319s Boeing 737-700s Boeing 737-300s Total aircraft At 30 September 2005 55 32 22 109At 30 September 2006 87 32 3 122 At 30 September 2007 107 30 - 137At 30 September 2008 120 29 - 149At 30 September 2009 140 18 - 158 Whilst we are very confident of growing the business at this rate, we havecontractual rights with Airbus that allow us to moderate or accelerate ourcapacity growth within certain constraints. Aircraft financing Of the 32 aircraft that were delivered to easyJet during the year, 16 weremortgage financed through US dollar or sterling loans, 2 were temporarily cashacquired with mortgage finance drawn after year-end, 6 were sold to lessors andleased back under operating leases, 5 were financed through sale and financeleasebacks, and 3 were cash acquired supported by a Standby Facility. Inaddition, one previously delivered mortgage financed aircraft was restructuredinto sale and finance leaseback funding in the year. During the year, we continued to secure financing for the Airbus deliverystream. We have now committed facilities available for 18 of the remaining 53Airbus aircraft yet to be delivered. 3 of these aircraft will be subject to saleand leaseback, 8 will be financed through mortgage finance, and a further 7aircraft will be supported by the Standby Facility. Our people At 30 September 2006 there were 4,859 employees in easyJet, an increase of 17.0%during the year from 4,152 at 30 September 2005. Whilst this was in excess ofthe growth of the business, the principal reason for this was the commencementof self handling at some of our Spanish airports (Alicante, Almeria, Asturias,Palma and Malaga), which has added 204 employees during the year. After allowingfor this change, the rate of increase was 12.1%, in line with the rate of growthof the business, and indicative of management's focus on cost control. Our people are integral to differentiating easyJet from our competitors andallowing us to deliver low cost with care and convenience. In the Corporate andSocial Responsibility report in the annual report and accounts 2006, we commentin detail on the way in which easyJet values and manages its people. Relationship with our customers easyJet has a strong and consistent brand positioning. easyJet is the smarterchoice for both business and leisure travel because it allows customers thechance to travel with low fares, convenience and the care they deserve. Peopletravel with easyJet out of choice rather than compromise. easyJet offers consistently low prices. Central to it's core philosophy, easyJet offers: • Safety first approach • New reliable fleet • Friendly attentive cabin crew trained in the easyJet way at our own accredited training academy • A customer service programme which listens to all customer queries and complaints in an honest and reasonable manner • Attractive in-flight refreshment and gift service easyJet strives to offer a convenient service to its passengers. easyJet offers: • Flights to and from major airports • Multiple daily flights on major routes • Flexibility to take earlier or later flights • Easy to use website • On line check in • Hand baggage only check in • Speedy boarding Suppliers We aim to have partnership agreements with our suppliers, which stress theimportance of strong suppliers aligned to the success of easyJet as a business.We are committed to payment of suppliers within agreed terms. Many of our supplyagreements are unique and tailored to the needs of our business, to make surethat our suppliers are rewarded appropriately for delivering services which meetpre-agreed performance targets and align with easyJet's own internal performancegoals. Selected consolidated financial and operating Year ended 30 September Changedata (unaudited) 2006 2005 % Key performance indicatorsReturn on equity (1) 10.1% 7.1% 3.0ppProfit before tax per seat, £ (2) 3.32 2.38 39.6Revenue per seat, £ (3) 41.66 38.66 7.8Cost per seat, £ (4) 38.34 36.28 5.7Cost per seat excluding fuel, £ (5) 28.36 28.78 (1.5)Seats flown (millions) (6) 38.9 34.7 12.1 Output measuresPassengers (millions)(7) 33.0 29.6 11.5Number of aircraft owned/leased at end of period(8) 122.0 109.0 11.9Average number of aircraft owned/leasedduring period(9) 115.2 102.6 12.3Number of aircraft operated at end of period(10) 118.0 103.0 14.6Average number of aircraft operated during period(11) 107.0 94.0 13.8Sectors(12) 253,548 229,068 10.7Block hours(13) 454,823 401,588 13.3Number of routes operated at end of period 262 212 23.6Number of airports served at end of period 74 64 15.6 Other performance measuresLoad factor(14) 84.8% 85.2% (0.4)ppOperated aircraft utilisation (hours per day)(15) 11.6 11.7 (0.5)Owned/leased aircraft utilisation (hoursper day)(16) 10.8 10.7 0.8Available seat kilometres ("ASK") (millions) (17) 37,088 32,141 15.4Revenue passenger kilometres ("RPK")(millions)(18) 31,621 27,448 15.2Average sector length (kilometres) 954 926 3.0Average fare (£)(19) 45.17 42.43 6.4Revenue per ASK (pence)(20) 4.37 4.17 4.6Cost per ASK (pence)(21) 4.02 3.92 2.6 Footnotes 1 Represents the profit after tax divided by the average of opening and closing shareholders' funds 2 Represents profit before tax divided by the number of flown seats available for passengers 3 Revenue per seat represents total revenues divided by the number of seats flown available for passengers 4 Represents total revenues less profit before tax, divided by the number of seats flown available for passengers 5 Represents total revenues less profit before tax plus fuel costs, divided by the number of seats flown available for passengers 6 Represents the number of seats flown available for passengers 7 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. 8 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. 9 Represents the average number of aircraft owned plus those held on lease arrangements of more than one month's duration during the relevant period. 10 Represents the number of owned/leased aircraft in service at the end of the relevant period. 11 Represents the average number of owned/leased aircraft in service during the relevant period. 12 Represents the number of one-way revenue flights. 13 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. 14 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. 15 Represents the average number of block hours per day per aircraft operated during the relevant period. 16 Represents the average number of block hours per day per aircraft owned / leased during the relevant period. 17 Represents the sum by route of seats available for passengers multiplied by the number of kilometres those seats were flown. 18 Represents the sum by route of passengers multiplied by the number of kilometres those passengers were flown. 19 Represents the passenger revenue divided by the number of passengers carried. 20 Represents the total revenue divided by the total number of ASK's. 21 Represents the difference between total revenue and profit before tax, divided by the total number of ASK's. 22 Includes credit card fees, excess baggage charges, extra bag charges, sporting equipment fees, speedy boarding fees, infant fees, changes fees and change fees, profit share from in-flight sale of food, beverages and boutique items, commissions received from products and services sold such as hotel bookings, car hire bookings and travel insurance, less chargebacks. 23 Includes revenue from ticket sales and ancillary revenue. 24 Includes principally administrative costs and operational costs not included elsewhere, including some salary expenses, compensation paid to passengers and certain other items such as currency exchange gains and losses and the profit or loss on the disposal of fixed assets. 25 EBITDAR is defined by the Group as earnings before interest, taxes, depreciation, amortisation, share of profits of associates and lease payments (excluding the maintenance reserve component of operating lease payments). Maintenance reserve costs are charged to the cost heading "maintenance". Consolidated income statement Notes Year ended 30 September 2006 2005 £million £million Passenger revenue 1,488.4 1,254.2Ancillary revenue(23) 131.3 87.2-------------------------- ----- --------- ---------Revenue (24) 1,619.7 1,341.4 Ground handling charges, including salaries (144.1) (130.5)Airport charges (258.4) (230.1)Fuel (387.8) (260.2)Navigation charges (121.2) (108.6)Crew costs, including training (160.0) (136.2)Maintenance (109.5) (119.2)Advertising (38.2) (32.8)Merchant fees and incentive pay (17.9) (15.6)Aircraft and passenger insurance (15.8) (19.3)Other costs(25) (88.3) (82.4)-------------------------- ----- --------- ---------EBITDAR (26) 278.5 206.5 Depreciation (27.4) (15.8)Amortisation of intangible assets (0.8) (0.8)Aircraft dry lease costs (122.9) (123.7)Aircraft long-term wet lease costs (9.6) --------------------------- ----- --------- ---------Group operating profit (EBIT) 117.8 66.2 Interest and other finance income 35.4 27.2Interest and other finance charges (24.1) (10.9)-------------------------- ----- --------- ---------Net financing income 11.3 16.3 Share of profit after tax of associate 0.1 0.1-------------------------- ----- --------- ---------Profit before tax 129.2 82.6 Tax 4 (35.1) (23.6)-------------------------- ----- --------- ---------Profit after tax 94.1 59.0========================== ===== ========= ========= Earnings per share (pence) 3Basic 23.18 14.78Diluted 22.64 14.43 Consolidated balance sheet Notes 30 September 2006 2005 £million £million Goodwill 309.6 309.6Other Intangible assets 1.1 1.4Property, plant and equipment 6 695.7 398.6Financial instrumentsRestricted cash 26.1 22.4Derivative financial instruments 2 0.4 -Other non-current assets 2.9 6.7Investments accounted for using the equity 0.3 0.2methodDeferred tax assets 0.3 ----------------------- ------ ---------- ----------Non-current assets 1,036.4 738.9 Trade and other receivables 213.3 210.7Asset held for sale - 7.1Financial instrumentsRestricted cash 12.2 6.1Derivative financial instruments 2 1.0 -Cash and cash equivalents 860.7 667.0---------------------- ------ ---------- ----------Current assets 1,087.2 890.9 Trade and other payables 7 (414.1) (342.9)Borrowings 8 (32.8) (16.3)Derivative financial instruments (15.3) -Current tax liabilities (46.8) (38.9)Provisions - (16.4)---------------------- ------ ---------- ----------Current liabilities (509.0) (414.5)---------------------- ------ ---------- ----------Net current assets 578.2 476.4 Borrowings greater than one year 8 (446.9) (201.0)Derivative financial instruments (4.8) -Other non-current liabilities 9 (74.8) (75.1)Provisions (73.2) (53.6)Deferred tax liabilities (32.0) (22.2)---------------------- ------ ---------- ----------Non-current liabilities (631.7) (351.9)---------------------- ------ ---------- ----------Net assets 982.9 863.4====================== ====== ========== ========== Ordinary shares 11 102.6 100.1Share premium 11 591.4 557.2Retained earnings 11 298.4 206.0Other reserves 11 (9.5) 0.1---------------------- ------ ---------- ----------Shareholders' funds - equity 982.9 863.4====================== ====== ========== ========== Consolidated statement of cashflows Year ended 30 September Notes 2006 2005 £million £million Cashflows from operating activitiesCash generated from operations 10 221.6 221.0Interest received 32.5 28.8Interest paid (24.4) (5.7)Tax (paid) / received (4.5) 2.9------------------------- ----- --------- ---------Net cash from operating activities 225.2 247.0 Cashflows from investing activitiesProceeds from sale of property, plant andequipment 87.4 75.5Purchase of property, plant and equipment (408.3) (237.0)Proceeds from sale of asset held for resale 7.1 -Purchase of other intangible assets (0.5) (1.4)Dividend received from joint venture - 0.2------------------------- ----- --------- ---------Net cash used in investing activities (314.3) (162.7) Cashflows from financing activitiesNet proceeds from issue of ordinary share capital 17.9 2.0Purchase of shares for employee share schemes (0.6) -Net proceeds from drawdown of new bank loans 201.2 146.2Net proceeds from sale and finance leasebacks 108.6 -Repayment of bank loans (30.4) (46.9)Repayment of capital elements of finance leases (1.0) -Management of liquid resources (11.2) (14.2)------------------------- ----- --------- ---------Net cash inflow / (used) in financing activities 284.5 87.1 Effects of exchange rate changes (1.7) (0.4)------------------------- ----- --------- ---------Net increase in cash and cash equivalents 193.7 171.0 Cash and cash equivalents at beginning of period 667.0 496.0------------------------- ----- --------- ---------Cash and cash equivalents at end of period 860.7 667.0========================= ===== ========= ========= Consolidated statement of recognised income and expense Notes Year ended 30 September 2006 2005 £million £million Cash flow hedgesFair value losses in period, net of tax (17.6) -Transfers to net profit (2.7) -Translation differences on foreign currencynet investments - 0.1------------------------- ----- --------- ---------Income / (expense) recognised directly inequity (20.3) 0.1 Profit for the period 94.1 59.0------------------------- ----- --------- ---------Total recognised income / (expense) for theperiod attributable to shareholders of theCompany 73.8 59.1 On adoption of IAS 32 and IAS 39 2 13.3 -------------------------- ----- --------- --------- 87.1 59.1========================= ===== ========= ========= Financial year 2006 compared with financial year 2005 Key Performance Indicators Return on equity The Board has set return on equity as the key financial measure at easyJet,since it best represents the return for the year attributable to the equityshareholders. Return on equity for financial year 2006 was 10.1% up from 7.1% in financialyear 2005. This was driven by a significant improvement in profit before tax andthe effective tax rate of the business, but was partially offset by theintroduction of new assets of £13.3 million relating to the value of financialinstruments on adoption of IAS39 on 1 October 2005, and £17.9 million relatingto the exercise of employee share options. Management is incentivised through the Long Term Incentive Plan to deliverincreases in return on equity to 15% by 2008. Profit before tax per seat, revenue per seat and cost per seat Profit before tax per seat is a measure used internally to allow all our peopleto understand and focus on the return on equity target, since the measures areclosely related. It is the difference between revenue per seat and cost perseat, which are important measures that are used to monitor certain areas of thebusiness. Profit before tax per seat increased in financial year 2006 by 39.6%from £2.38 to £3.32 as a result of a 7.8% increase in revenue seat from £38.66to £41.66 (explained in more detail in 'Revenue' below), set off against anincrease in cost per seat of 5.7% from £36.28 to £38.34. Cost per seat, excluding fuel Since the significant volatility in easyJet's fuel cost is largely dictated byexternal economic and political factors, we consider that the movement in costper seat excluding fuel is the best indicator of management's performance inkeeping unit costs low. Cost per seat excluding fuel reduced by 1.5% from £28.78 to £28.36 in financialyear 2006. This was as a result of direct management action to controloverheads, despite cost increases resulting from disruption. Seats flown Seats flown is considered by management to be the best measure of output unitsof production. The number of seats flown in financial year 2006 increased by12.1% from 34.7 million to 38.9 million, as a result of the introduction of newaircraft into the fleet. Income statement Revenue easyJet's revenue increased 20.7% from £1,341.4 million to £1,619.7 million,from financial year 2005 to financial year 2006. Revenue per seat increased 7.8%from £38.66 to £41.66. Passenger revenue, the largest component, comprises the price paid for the seatless government taxes, such as Air Passenger Duty and VAT. It increased by 18.7%from £1,254.2 million to £1,488.4 million, driven by an 11.5% growth inpassenger numbers from 29.6 million to 33.0 million, and a 6.4% increase inaverage fares. The number of passengers carried reflected a 13.8% increase inthe size of the easyJet fleet in operation from an average of 94.0 aircraft toan average of 107.0 aircraft offset by a small decrease in the average loadfactor achieved from 85.2% to 84.8%. Growth was particularly strong in continental Europe, with intra-Europeanrevenues growing by 61.7%. The performance at our German bases and the successesof our new bases at Basel and Milan Malpensa were the key drivers to thisgrowth. Ancillary revenue includes fees and charges (including credit card fees, excessbaggage charges, sporting equipment fees, infant fees, change fees and rescuefees), profit share from in-flight sales (including food, beverages, andboutique items), and commissions received from products and services sold (suchas hotel bookings, car hire bookings and travel insurance), less chargebacksfrom credit cards. In 2006, £131.3 million was earned from ancillary revenues,up 50.6% from 2005. This has been driven by the 11.5% growth in passengerscarried, the positive effect of changes in arrangements for car hire, insuranceand in flight catering and increases in rates for change fees and credit cardfees. Ground handling charges, including salaries easyJet's ground handling charges increased by 10.4% from £130.5 million to£144.1 million, from financial year 2005 to financial year 2006. The increase inground handling charges reflects the 10.7% increase in the number of sectorsflown, alongside mix costs as a result of network expansion decisions. Costsavings were achieved as a result of self-handling and renegotiated third-partyhandling in Spain. As a result, ground handling cost per seat decreased by 1.5%from £3.76 to £3.71. Airport charges easyJet's external airport charges increased by 12.3% from £230.1 million to£258.4 million from financial year 2005 to financial year 2006. This increasewas attributable to the growth in passengers carried of 11.5% and inflationarycost increases at regulated airports. On a per seat basis, costs increased by0.2% from £6.63 to £6.65. Fuel easyJet's fuel costs increased by 49.0% from £260.2 million to £387.8 millionfrom financial year 2005 to financial year 2006. This change is primarily due toa 22.9% increase in easyJet's average US dollar fuel cost per tonne (excludinghedging), compared with the previous year, resulting in additional costs toeasyJet of £69.4 million. The weakening of the value of sterling against the USdollar, the currency in which fuel prices are denominated, provided anadditional cost of approximately £11.5 million. The impact of a significantincrease in flying and our hedging activities amounted to £52.5 million. Setagainst this was the more fuel efficient fleet of aircraft which provided abenefit of £5.8 million. On a per seat basis, costs increased by 33.0% from£7.50 to £9.98. Navigation charges easyJet's navigation charges increased by 11.6% from £108.6 million to £121.2million from financial year 2005 to financial year 2006. This increase wasprincipally attributable to a 15.4% increase in the ASKs flown in financial year2006. Cost savings were derived from lower unit charges and a weaker Euro. On aper seat basis, costs decreased by 0.4% from £3.13 to £3.12. Crew costs easyJet's crew costs increased by 17.5% from £136.2 million to £160.0 millionfrom financial year 2005 to financial year 2006. The increase in crew costsresulted from an increase in headcount during the financial year 2006 to servicethe additional sectors and aircraft operated by easyJet during the year, theincrease in salaries, following a new pay deal agreed with our flight crew andcabin crew employees, and the costs of recruitment. On a per seat basis, costsincreased by 4.9% from £3.92 to £4.12. Maintenance Maintenance expenses decreased by 8.2% from £119.2 million to £109.5 millionfrom financial year 2005 to financial year 2006. easyJet's maintenance expensesconsist primarily of the cost of routine maintenance and spare parts andprovisions for the estimated future cost of heavy maintenance and engineoverhauls on aircraft operated by easyJet pursuant to dry operating leases. Theextent of the required annual maintenance reserve charges is determined byreference to the number of flight hours and cycles permitted between each engineshop visit and heavy maintenance overhaul on aircraft airframes. The decrease in maintenance costs was largely due to the benefits of new contractualarrangements being negotiated with lower prices, such as with SR Technics,offset by the additional cost of a 10.7% increase in the number of sectorsflown. On a per seat basis, costs reduced by 18.1% from £3.44 to £2.82. Advertising easyJet continues to advertise to consolidate the awareness of the brand and itslow fares philosophy. Advertising costs increased by 16.4% from £32.8 million to£38.2 million from financial year 2005 to financial year 2006. Advertising costper seat increased by 3.9% from £0.94 to £0.98 principally due to the effect ofentering new markets such as Milan during the year. Merchant fees and incentive pay Merchant fees and incentive pay increased by 14.5% from £15.6 million to £17.9million from financial year 2005 to financial year 2006. Merchant fees andincentive pay includes the costs of processing fees paid for all of easyJet'scredit and debit card sales and the per-seat sold/transferred commission paid asincentive pay to easyJet's telesales staff. The increase is reflective of alarger volume of transactions in line with the growth of the business. On a perseat basis, costs increased by 2.2% from £0.45 to £0.46. Aircraft insurance Aircraft insurance costs reduced by 18.0% from £19.3 million in financial year2005 to £15.8 million in financial year 2006, despite a 11.5% increase inpassenger numbers. This was as a result of lower rates being negotiated offsetby the effect of the weakening of sterling against the US dollar. On a per seatbasis, costs decreased by 26.8% from £0.56 to £0.41. Other costs Other costs increased by 7.1% from £82.4 million to £88.3 million from financialyear 2005 to financial year 2006. Items in this cost category includeadministrative costs and operational costs not included elsewhere including somesalary expenses. This cost category also includes compensation paid topassengers and other related disruption costs, the cost of share option schemesand management bonuses. Depreciation Depreciation charges increased by 73.4% from £15.8 million to £27.4 million fromfinancial year 2005 to financial year 2006. The depreciation charge reflectsdepreciation on owned aircraft and capitalised aircraft maintenance charges, andalso includes depreciation on computer hardware and other assets. easyJet hasowned an average of 29.2 Airbus A319 aircraft during the financial year 2006(2005: 4.1 Boeing 737-300 aircraft and 10.6 Airbus A319 aircraft). The increasein depreciation reflects the introduction of new owned Airbus aircraft, and aweakening in the average value of sterling against the US dollar. Aircraft arepurchased in US dollars, and a stronger dollar will mean higher depreciationcharges over the life of the asset. On a per seat basis, depreciation increasedby 54.7% from £0.46 to £0.71. Aircraft dry lease costs easyJet's aircraft dry lease costs comprise the lease payments paid by easyJetin respect of those aircraft in its fleet operated pursuant to dry operatingleases and end of operating lease return costs. Aircraft dry lease costsdecreased by 0.6% from £123.7 million to £122.9 million from financial year 2005to financial year 2006. During the period 6 new Airbus A319 aircraft were addedto the fleet on lease agreements and 19 Boeing 737-300s were retired. Theaverage number of leased aircraft during the year decreased by 2.2% to 86.0.Year over year, easyJet has been impacted by the weakening of the value ofsterling against the US dollar, the currency in which lease costs aredenominated and rising dollar interest rates.Despite this, easyJet has seen its average leasing cost per aircraft decrease byaround 1.7% year-on-year. On a per seat basis aircraft dry lease costs decreasedby 11.3% from £3.56 to £3.16. Aircraft long-term wet lease costs easyJet's aircraft wet lease costs comprise the lease payments paid by easyJetin respect of aircraft pursuant to wet leases (that is, leases of aircraft pluscrew, maintenance, and insurance) of a duration of one month or more. The £9.6million charge in 2006 relates to the costs incurred of leasing aircraft for thesummer 2006 season in order to deliver three and a half lines of flying in thelight of crew shortages. Wet leased aircraft are not included in fleet numbersdiscussed elsewhere in the operating and financial review. Interest and other finance income Interest and other finance income represents interest received or receivable byeasyJet offset by the revaluation of financing assets and liabilities. Interestand other finance income increased by 30.1% from £27.2 million in 2005 to £35.4million in 2006. This reflects an increase in the cash and restricted cashbalances during the year from £695.5 million to £899.0 million. Interest and other finance charges Interest and other finance charges represents interest paid or payable byeasyJet offset by the revaluation of financing assets and liabilities. Financecharges relate predominantly to easyJet borrowings through either loans or saleand finance leasebacks. The average number of aircraft held under thesearrangements increased by 82.3% from 14.7 in 2005 to 26.8 in 2006. Interest andother finance charges increased 120.9% from £10.9 million in 2005 to £24.1million in 2006. This primarily reflects an increase in bank loans from £217.3million to £479.7 million due to the financing of new Airbus aircraft. Inaddition there was an increase in US dollar and sterling interest rates. Foreignexchange revaluations on financing items produced a net expense of £ 1.4 millionduring 2006. Share of profit after tax of The Big Orange Handling Company The Big Orange Handling Company Limited is a joint venture company owned byMenzies Aviation Limited and easyJet. It was set up in January 2004 to provideground handling services at London Luton airport. During the financial year2006, the share (26%) of the profit after tax attributable to easyJet was £0.1million (2005: £0.1 million). Taxation In financial year 2006, easyJet incurred a tax charge of £35.1 million, aneffective tax rate of 27.2% (2005: £23.6 million charge, being 28.6% effectivetax rate). The effective tax rate is lower than the UK standard rate of taxprincipally due to some of the Group's income being taxed in otherjurisdictions, where lower tax rates apply. A more detailed explanation may befound in note 4 to the financial information. The net deferred tax liability increased by £9.5 million from £22.2 million to£31.7 million, primarily due to capital allowances taken being in excess ofdepreciation charges. Profit after tax For the reasons described above, easyJet's profit after tax increased by 59.4%from £59.0 million in financial year 2005 to £94.1 million in financial year2006. Earnings per share The basic earnings per share increased by 56.8% from 14.78 pence in thefinancial year 2005 to 23.18 pence in the financial year 2006. Balance sheet Goodwill Goodwill relates to the purchases of TEA Basel and Go Fly. No impairment wasmade to the carrying value of either asset in either the current or previousfinancial year. Property, plant and equipment Tangible fixed assets comprise principally owned aircraft, spares and depositspaid to Airbus in respect of the delivery of future aircraft which are not to befinanced according to sale and leaseback arrangements. The net book amountattributable to tangible fixed assets increased from £398.6 million at 30September 2005 to £695.7 million at 30 September 2006. The increase is due tocapital expenditure of £413.2 million, set out in more detail in 'capitalexpenditure' below, set off against disposals of £88.7 million and depreciationof £27.4 million. Other non-current assets Other non-current assets comprise principally capitalised software and softwaredevelopment costs, restricted cash, deposits paid in respect of Airbus aircraftto be financed by sale and leaseback which deliver in more than one year. Thetotal of other non-current assets has increased from £30.7 million at 30September 2005 to £31.1 million at 30 September 2006. Cash and cash equivalents Cash and cash equivalents, excluding restricted cash, has increased by 29.0%from £667.0 million to £860.7 million. Other current assets Other current assets comprise trade and other receivables, restricted cash,derivative financial instruments and assets held for sale. Other current assetsincreased by 1.2% from £223.9 million at 30 September 2005 to £226.5 million at30 September 2006. Trade and other receivables comprise principally trade receivables, amounts duefrom credit card companies in respect of seat sales, supplier and lease depositsand prepayments. Trade and other receivables have increased by 1.2% from £210.7million at 30 September 2005 to £213.3 million at 30 September 2006, principallydue to the growth of the business. Current liabilities Current liabilities have increased by 22.8% from £414.5 million at 30 September2005 to £509.0 million at 30 September 2006, principally due to the growth ofthe business Non-current borrowings Non-current borrowings all relate to debt related to owned aircraft. The amountincreased by 122.3% from £201.0 million at 30 September 2005 to £446.9 millionat 30 September 2006, due to the acquisition of more owned aircraft subject todebt finance arrangements, set off against the weakening of the US dollarcompared to sterling. Other non-current liabilities Other non-current liabilities include provisions for maintenance liabilities,deferred surpluses on the sale and leaseback of aircraft and deferred taxprovisions. The amount increased by 22.5% from £150.9 million at 30 September2005 to £184.8 million at 30 September 2006. Whilst the deferred tax provisionincreased by £9.8 million, the deferred surplus on sale and leaseback reduceddue to the small number of aircraft taken under sale and leaseback during 2006,whilst the maintenance provisions reduced due to the weakening of the US dollar,the currency in which much of the provision is denominated. Cashflow Capital expenditure Group capital expenditure on property, plant and equipment is set out in note 9to the financial statements, and is summarised as follows: 2006 2005 £million £million Aircraft 353.7 162.3Prepayments on account - aircraft deposits 49.8 71.3Leasehold improvements 0.9 2.0Fixtures, fittings and equipment 3.9 1.4---------------------------- --------- ---------Total cash capital expenditure 408.3 237.0 Aircraft spares received free of charge (non-cashcapital expenditure) 4.9 8.5---------------------------- --------- ---------Total capital expenditure 413.2 245.5============================ ========= ========= As a result of a purchase agreement approved by shareholders in March 2003, theGroup is contractually committed to the acquisition of a further 53 Airbus A319aircraft with a list price of approximately US$2.3 billion, being approximately£1.3 billion (before escalations, discounts and deposits already paid). Inrespect of those aircraft deposit payments amounting to US$164.3 million or£90.9 million (2005: US$262.0 million, £145.5 million) had been made as at 30September 2006 for commitments for acquisition of Airbus A319s. It is intendedthat these aircraft will be financed partly by cash holdings and internal cashflow and partly through external financing including committed facilitiesarranged prior to delivery. In addition certain of the aircraft will be sold andleased back under operating leases. Working capital At 30 September 2006, net current assets were £578.2 million, up £101.8 millionfrom £476.4 million at 30 September 2005. This change principally reflects anincrease in cash, an increase in debtors due to increased sales volumes offsetby an increase in creditors. Unearned revenue increased from £160.3 million to £179.3 million due toincreased volumes. Cash flow Net cash inflow from operating activities totalled £225.2 million, a decrease of£21.8 million from £247.0 million in 2005 primarily due to changes in workingcapital Financing arrangements The following table sets out the movements in financing for the two years ended30 September 2006: 2006 2005 £million £million Balance at 1 October 217.3 119.8New loans and finance leases raised 309.8 146.2Capital repayments of loans and finance leases (31.4) (46.9)Effect of exchange rates (12.9) 1.4Effect of deferred financing fees (3.1) (3.2)---------------------------- --------- ---------Balance at 30 September 479.7 217.3============================ ========= ========= Of the 32 Airbus A319s that were delivered during the year, 16 were financedthrough US Dollar or sterling mortgage loans, 2 were temporarily cash acquiredwith mortgage finance drawn after year-end, 6 were sold to lessors and leasedback under operating leases, 5 were sold to lessors and leased back underfinance leases, and 3 were cash acquired supported by a Standby Facility. Inaddition, 1 previously delivered mortgage financed aircraft was restructuredinto sale and finance leaseback funding in the year. Share capital The number of shares allotted, called up and fully paid on 30 September 2006 was410.5 million (2005: - 400.4 million). During 2006, 10.1 million shares wereissued on exercise of options under employee share option schemes (2005: 1.2million). easyJet plc preliminary results 2006 Notes to the financial information 1. Basis of preparation The financial information set out in this document does not constitute thestatutory accounts for easyJet plc for the two years ended 30 September 2006 butis derived from those accounts. easyJet plc ("easyJet" or the "Group" or the "Company") has historicallyprepared its audited annual financial statements under UK Generally AcceptedAccounting Practice (UK GAAP). In the current year, easyJet has adoptedInternational Financial Reporting Standards (IFRS) for the first time as theGroup is required to present its annual consolidated financial statements inaccordance with accounting standards adopted for use in the European Union (EU).The financial information has been prepared under the Group's IFRS accountingpolicies, details of which were made available on 20 January 2006 in thedocument entitled "Explanation of the financial impact following adoption ofInternational Financial Reporting Standards", except for as noted below. Thatdocument contains reconciliations of easyJet's equity and results from UK GAAPto IFRS at the date of transition to IFRS, 1 October 2004, and for the yearended 30 September 2005. easyJet has adopted IAS 32, Financial Instruments: Disclosure and Presentationand IAS 39 Financial Instruments: Recognition and Measurement from 1 October2005 and applied the exemption not to restate its comparative information forthe impact of these standards. The Group's accounting policies for thesestandards are included in the document "Explanation of the financial impactfollowing adoption of International Financial Reporting Standards", which can beviewed under the financial information section of our website, easyJet.com. TheGroup has chosen to recognise the fair value of all financial Instruments ascurrent assets and liabilities on the balance sheet. The Group's accountingpolicies for Financial Instruments in the periods to 30 September 2005 areincluded in the Group's annual report and accounts for the year ended 30September 2005. The impact of adopting IAS 32 and IAS 39 is explained below. During the year ended 30 September 2006, the Group revised the period over whichit depreciates Airbus A319 aircraft. Aircraft that the Group holds are expectedto have an operational life of 20 - 30 years. Prior to September 2006 the Groupdepreciated its aircraft over seven years, which was the period that it expectedto hold those assets for. The Group now holds aircraft over any period of up tothe end of their operational life as deemed appropriate. Therefore the assetsare depreciated to their residual value over a period of 23 years, which isestimated to be the operational life of an Airbus A319. Previously, the Groupexpected to hold aircraft for a period of approximately seven years beforeselling them. This change in estimate of useful economic life did not have amaterial impact on depreciation in the year ended 30 September 2006, and is notexpected to have a material impact going forwards. The financial information for the year ended 30 September 2005 included in thisdocument is based upon easyJet's consolidated financial statements for thatyear, restated for the adoption of IFRS. Those financial statements werereported on by easyJet's auditors at that time and have been delivered to theRegistrar of Companies. The statutory accounts for 2006 will be delivered to theRegistrar of companies following easyJet's annual general meeting. The auditorshave reported on those accounts: their report was unqualified and did notcontain 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 1October 2005 and as a consequence the fair value of certain financialinstruments have been measured and adjustments have been made to the BalanceSheet at that date. At 1 October 2005, easyJet has met the criteria to adopt hedge accounting forforeign exchange and fuel derivative instruments. These instruments compriseforwards and zero cost collars. As a result of applying hedge accounting, at 1October 2005 the fair value of the financial instruments has been recognised asa financial asset on the balance sheet, with the intrinsic value of theinstruments at that date being recognised in reserves, and the time valueportion being an adjustment to retained earnings. Effect of changes on consolidated balance sheet at 1 October 2005: At 30 Impact of September adoption IAS 32 At 1 October 2005 and 39 2005 £million £million £million Non-current assets 738.9 - 738.9 Financial assets - derivativefinancial instruments - 21.0 21.0Other 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 sharepremium 657.3 - 657.3Retained earnings 206.0 2.5 208.5Other reserves 0.1 10.8 10.9------------------- --------- --------- ---------Shareholders' equity 863.4 13.3 876.7=================== ========= ========= ========= 3. Earnings per share The earnings per share are based on the following: Year ended 30 September 2006 2005 £million £million Profit for the period retained for equity shareholders 94.1 59.0 million million Weighted average number of ordinary shares in issueduring the period used to calculate basic earningsper share 405.7 399.3 Weighted average number of dilutive share optionsused to calculate dilutive earnings per share 9.7 9.6 4. Taxation a) Tax on profit on ordinary activities Year ended 30 September 2006 2005 £million £million Current taxation: 17.3 18.2 Deferred taxation 17.8 5.4------------------------- --------- ---------Total taxation charge 35.1 23.6========================= ========= ========= Effective tax rate 27.2% 28.6% b) Tax on items charged to equity Year ended 30 September 2006 2005 £million £million Deferred tax credit on stock options 5.9 7.7Deferred tax credit on fair value movements ofcashflow hedges 8.7 - Current taxation 4.9 0.3------------------------- --------- ---------Total taxation credit / (charge) recognised in equity 19.5 8.0========================= ========= ========= c) Reconciliation of the total taxation charge Year ended 30 September 2006 2005 £million £million Profit on ordinary activities before tax 129.2 82.6 Tax charge at 30% (2005: 30%) 38.8 24.8 Attributable to rate other than 30% (6.4) (3.4)Expenses not deductible for tax purposes 2.0 4.1Share based payments (0.3) -Adjustments in respect of prior periods - currenttaxation 1.6 2.9Adjustments in respect of prior periods - deferredtaxation (0.6) (4.8)------------------------- --------- ---------Total taxation 35.1 23.6========================= ========= ========= 5. Dividends No dividends have been paid or proposed in the period ended 30 September 2006 orduring the comparative accounting periods. 6. Property, plant and equipment Aircraft Payments on Leasehold Fixtures, Total account - impr'ments - fittings and aircraft buildings equipment deposits £million £million £million £million £million CostAt 1 October2005 299.3 117.7 6.0 12.8 435.8Additions 358.6 49.8 0.9 3.9 413.2Disposals (9.8) (83.7) - (0.8) (94.3)Transfers toothernon-currentassets - (2.6) - - (2.6)------------ ------- ------- ------- ------- -------At 30 September 2006 648.1 81.2 6.9 15.9 752.1------------ ------- ------- ------- ------- ------- DepreciationAt 1 October2005 23.5 - 3.0 10.7 37.2Charge forthe year 23.9 - 1.9 1.6 27.4Disposals (7.6) - - (0.6) (8.2)------------ ------- ------- ------- ------- -------At 30 September 2006 39.8 - 4.9 11.7 56.4------------ ------- ------- ------- ------- ------- Net book value ------------ ------- ------- ------- ------- -------At 30 September 2006 608.3 81.2 2.0 4.2 695.7------------ ------- ------- ------- ------- -------At 1 October2005 275.8 117.7 3.0 2.1 398.6------------ ------- ------- ------- ------- ------- The net book value of aircraft held under finance leases was £80.9 million (2005£nil). £1.8 million of the related accumulated depreciation was charged in theyear ended 30 September 2006. At 30 September 2006, aircraft with a net book value of £418.0 million (2005:£228.8 million) were mortgaged to lenders as security for loans. Aircraft spares totalling £4.9 million (2005 £8.5 million) were received free ofcharge during the year. 7. Trade and other payables Year ended 30 September 2006 2005 £million £million Trade payables 31.5 6.6Other taxes and social security 4.3 3.7Other creditors 12.8 16.9Unearned revenue (including Government taxes) 179.4 160.3Accruals and deferred income 186.1 155.4------------------------- --------- --------- 414.1 342.9========================= ========= ========= 8. Financial liabilities - Borrowings Maturity of financial liabilities is as follows 30 September 2006 Bank loans Finance leases Total £million £million £million Within one year 30.2 2.6 32.8Between one and two years 31.7 2.8 34.5Between two and five years 131.1 9.7 140.8After five years 184.1 87.5 271.6---------------------- -------- -------- -------- 377.1 102.6 479.7====================== ======== ======== ======== 30 September 2005 Bank loans Finance leases Total £million £million £million Within one year 16.3 - 16.3Between one and two years 17.0 - 17.0Between two and five years 68.4 - 68.4After five years 115.6 - 115.6---------------------- -------- -------- -------- 217.3 - 217.3====================== ======== ======== ======== The bank loans financed the acquisition of certain of the Group's aircraft. Theaircraft purchased with the loans are provided as security against theborrowings. Bank loans are denominated in either US Dollars or Sterling and bearinterest based upon the relevant national LIBOR equivalent. Finance lease obligations are secured against certain of the Group's aircraft.See note 6. 9. Other non-current liabilities Year ended 30 September 2006 2005 £million £million Accruals and deferred income 74.8 75.1------------------------- --------- --------- 74.8 75.1========================= ========= ========= Accruals and deferred income includes the non-current excess of sale price overfair value of certain assets that were subject to sale and operating lease backtransactions. These amounts will be released to the income statement over therespective asset's lease term. 10. Reconciliation of net profit to net cash inflow from operating activities Year ended 30 September 2006 2005 £million £million Profit after tax 94.1 59.0 Adjustments for:Tax charge 35.1 23.6Depreciation charge 27.4 15.8(Profit) / loss on disposal of property, plant andequipment (1.3) 2.4Amortisation of other intangibles 0.8 0.8Interest income (35.4) (27.2)Interest expense 22.7 8.2Share based payments charge 4.7 2.0Share of results of joint ventures after taxation (0.1) (0.1)Financial instruments - time value 9.8 -Foreign exchange (17.3) 5.3 Changes in working capital:(Increase)/decrease in trade and other receivables (6.9) 21.1Increase in payables 79.0 43.3Increase in provisions 3.2 27.2Decrease in other non-current assets 5.7 12.2Decrease in financial instruments 0.4 -(Decrease)/Increase in other non-current liabilities (0.3) 27.4------------------------- --------- ---------Cash generated from continuing operations 221.6 221.0========================= ========= ========= 11. Consolidated reconciliation of movements in shareholders' equity Share Share Other Other Retained Total capital premium reserves reserves earnings - hedging - trans'n £million £million £million £million £million £million At 30 September 2005 100.1 557.2 - 0.1 206.0 863.4Adoption ofIAS 32 andIAS 39 (note 2) - - 10.8 - 2.5 13.3------------ ------- ------- ------- ------- ------- -------At 1 October2005 100.1 557.2 10.8 0.1 208.5 876.7 Profit forthe period - - - - 94.1 94.1Cashflow hedgesFair value losses in period, netof deferred tax - - (17.6) - - (17.6)Transfers tonet profit,net of tax - - (2.7) - - (2.7)Translationdifferenceson foreigncurrency net investments - - - (0.1) - (0.1)Share optionsProceeds fromshares issued 2.5 34.2 - - (18.8) 17.9Value ofemployeeservices netof deferred tax - - - - 15.2 15.2Employee shareschemes -purchase of shares - - - - (0.6) (0.6)------------ ------- ------- ------- ------- ------- -------At 30 September 2006 102.6 591.4 (9.5) - 298.4 982.9============ ======= ======= ======= ======= ======= ======= 12. Contingent liabilities The Group is involved in a number of disputes or litigation in the normal courseof business. Whilst the results of such disputes cannot be predicted withcertainty, easyJet believes that the ultimate resolution of these disputes willnot have a material effect on the Group's financial position or results. 13. Post balance sheet events On 13 November 2006, easyJet agreed that, subject to shareholder approval, ithad converted a further 52 of its Airbus option aircraft to firm deliveries in2008, 2009 and 2010; furthermore an additional 75 purchase rights had beenobtained for aircraft which could be delivered during the period to 2015. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
easyJet