20th Nov 2007 07:01
easyJet PLC20 November 2007 easyJet plcPreliminary results for the 12 months to 30 September 2007 20 November 2007 RECORD PRE-TAX PROFIT UP 56% TO £202 MILLION • Record pre-tax profit of £201.9m, including a £10.6m one-off benefit of reinstating easyJet's investment in The Airline Group • Underlying* profit before tax increased 48% to £191.3m and underlying* earnings per share increased 50% to 34.8p • Passenger numbers up 13% to 37.2m with consistently high load factors averaging 84% • Total revenue increased 11% to £1,797.2m • Ancillary revenue increased by 30% to £171.2m, a 47p increase per seat • Unit operating costs (excluding fuel) reduced 6.4% or £1.81 per seat to £26.55 per seat • Underlying* return on equity increased by 3.5pp from 10.1% to 13.6% • 8 new destinations and 46 routes added, expanding the network to 289 routes through 77 airports in 21 countries • European expansion continued with the opening of our 17th base in Madrid and a successful first full year of operation at Milan Malpensa • Delivery of 100th Airbus A319 in April 2007, bringing total fleet to 137 aircraft with average age of just 2.7 years. One of the most modern and environmentally efficient fleets in Europe • Agreement to acquire GB Airways announced in October to expand presence at London Gatwick Airport Commenting on the results, Andy Harrison, easyJet Chief Executive said: "This is yet another year of record profit at easyJet which underlines thestrength of our business model. Despite challenging conditions, revenue, profitand return on equity have all shown strong improvements reflecting the successof our focus on low cost with care and convenience. "At the same time as driving the financial performance of the business, our nowwell established management has also expanded easyJet's network and fleet, whichcarried over 37 million passengers in the year, making the airline the fourthlargest in Europe." During 2007 we continued to expand our network in mainland Europe with thelaunch of our 17th base in Madrid where we carried over 2 million passengersduring the year, making easyJet Madrid's number one low-fares airline. Wecontinued to expand our Milan Malpensa base, where we have become the secondlargest carrier only one year after the launch of the base and we have agreed todouble our capacity to 15 aircraft by the end of 2008. In the UK we continue to expand our bases, adding two A319s at Gatwick, one atBristol and increasing our presence at Belfast International to six aircraft.Following the year end we announced the launch of two additional bases in Francein spring 2008, at Paris Charles de Gaulle and Lyon. We continue to innovate at easyJet. In June 2007 we launched easyJetHolidays.comwhich allows our customers to purchase an integrated flight and hotel package.To supplement our development of the business traveller market, we announcedpost year end a unique partnership with Amadeus and Galileo. For the first timethis allows corporate travel agents access to easyJet via the GlobalDistribution System ("GDS"). All costs are borne by the user which makes itcompletely compatible with the low-cost model. Looking forward, for this winter we expect total revenue per seat to be broadlyin line with last winter. For summer 2008 we expect the effect of annualisingAPD, checked bag charges and growing ancillary revenues to result in totalrevenue per seat being ahead of the previous summer. High fuel costs will bepartly offset by the weak US Dollar however we anticipate an overall increase inSterling unit fuel costs. Unit costs excluding fuel are anticipated to besimilar to last year. The fuel environment remains challenging; however, webelieve the easyJet business model is resilient and well positioned for success.Over the past two years we have significantly increased profitability and in thecurrent financial year the Board anticipates an increase in underlying profitbefore tax of around 20%. The above outlook excludes the proposed acquisition of GB Airways. We anticipatethe acquisition to complete no later than 31 January 2008. Excluding one-offcosts of around £12m we expect the acquisition to be earnings enhancing in thecurrent financial year. *Underlying financial performance excludes the effects of the reversal of theimpairment of the Group's investment in The Airline Group of £10.6m. For further details please contact: easyJet plc Press:Toby Nicol Corporate Communications +44 (0) 1582 525 339 Analysts:Rachel Kentleton Investor Relations +44 (0) 1582 525 258 There will be an analyst presentation at 9:30 am on 20 November 2007 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 20 November2007. For further details, contact Katie Millett at Financial Dynamics on +44(0)20 7269 7153. Chairman's statement Profitable growth and improved shareholder return We are proud to report on another great year at easyJet. Our performance hasbeen excellent and it is very pleasing to announce a 48.1% increase inunderlying pre tax profits, especially coming on top of an increase of 56.4% inthe prior year. During the year we experienced some significant challenges; not least continuedhigher fuel prices and in February, the unexpected doubling of Air PassengerDuty ("APD") in the UK. However our business model, based on low cost with careand convenience, continues to prove as successful in continental Europe as ithas been in the UK. The Board set return on equity as its key financial measure and this year ourshareholders have benefited from an underlying improvement of 3.5 percentagepoints to 13.6%, with underlying earnings per share increasing 50.1% to 34.8p. The environment We fully recognise the importance of environmental issues in the context of thevalue for money services we provide to our customers. We have taken and willcontinue to take responsible actions such as continuing to operate one of theyoungest and most environmentally efficient fleets of aircraft in Europe. Ourinvestment in modern aircraft continues with the confirmation of further ordersfor 87 new Airbus A319 aircraft announced during the year. Looking to the longer term, we are active participants, with both Boeing andAirbus, in the teams developing the next generation of environmentally efficientaircraft. easyJet continues to support the inclusion of aviation in the EU EmissionsTrading Scheme ("ETS"). We have consistently and coherently argued for theabolition of APD, and its replacement by a method of taxation which is sensiblyrelated to emissions not passengers. The recognition of our case by all three ofthe main political parties in the UK, and in particular by the Chancellor in hispre-budget report, is most welcome. In addition we are encouraging our passengers to contribute to the mitigation ofclimate change through our carbon offsetting programme which provides forcredits only in projects certified by the United Nations. People Our people are a major asset to the Company and enabling them to work in amodern and efficient environment was the objective of the move from ourtraditional home at easyLand to Hangar 89 at London Luton Airport. Staff andvisitors alike have praised the much improved working conditions of thisfacility. Investment in the recruitment and retention of both flight deck and cabin crewhas enabled us to match the growth in our network with quality people. Thisdemonstrates our commitment to sustaining easyJet's well deserved reputation forgood service. My fellow directors and I continue to be very grateful for the commitment of ourpeople to maintaining easyJet's standards and we extend a warm welcome to thosewho have joined us during the year. In October we announced an agreement to purchase GB Airways, this is subject tonormal regulatory approval and we anticipate a completion date no later than 31January 2008. Over the next few months we will be planning the integration of GBAirways into the easyJet family. This acquisition will help us to grow and be astronger airline, and we welcome the GB Airways team which I am sure will be apositive addition to easyJet. The Board Stability in the structure of the Board and the senior management team hasconsiderably helped the achievement of this year's results. We have acombination of experience, expertise and talent which has served us well and onwhich we can continue to build the Company's future. I was delighted that John Browett accepted our invitation to join the Board as aNon Executive Director after an extensive search. John's experience andachievements at Tesco plc, together with his forthcoming position as ChiefExecutive of DSG international plc, will enhance the present board structure andaligns with the future direction of the Company. Sadly, we will lose the services of Diederik Karsten who will step down afterthe Annual General Meeting in February 2008. Diederik has been an outstandingcontributor to the Board since the Company was listed on the London StockExchange in November 2000. We will very much miss his contribution of soundjudgement, experience and expertise. Conclusion We have come a long way to become Europe's fourth largest airline in just 12years, and there is much more to come. The continuous growth of easyJet since its inception is testament to thesoundness of the basic business model. Our policy of striving for continuousimprovement to the model gives me confidence that growth will be sustained as wego forward. Investors can be assured that our focus will stay firmly on enhancing revenueand on the efficient management of the cost base, in order to continue toimprove shareholder value. Sir Colin ChandlerChairman 19 November 2007 Business review Strategy and business model At the centre of easyJet's established customer proposition is "low cost withcare and convenience". We continue to eliminate the unnecessary cost and frillswhich characterise traditional airlines, but provide a friendly on-boardservice, flying to Europe's principal business and leisure destinations,ensuring our passengers use us again and again. A customer satisfaction study inJanuary 2007 reported that 92% of our customers would recommend other people tofly with easyJet. The key elements of our business model remain unchanged: • Internet sales through easyJet.com • Investment in new aircraft and high asset utilisation • Low cost ticketless travel • No frills and no "free lunch" • Efficient use of airports • Full engagement of all our people Safety is at the heart of our business model and as always remains our numberone priority. We continue to promote an open safety reporting culture and investthe necessary resources to ensure our safety management systems are in line withindustry best practice. We have stated our targets of growing capacity at an annual rate of 15% withimproved operating margins and return on equity. This will be achieved through acombination of network development and optimisation, ancillary revenue growthand tough cost control. The results for the year speak for themselves. Highlights of the year The doubling of Air Passenger Duty ("APD") on UK departing customers andcontinued high fuel prices represented challenges in the year. However, ourpeople rose to the challenge to deliver an excellent performance. Key business highlights were as follows: • Profit before tax increased 56.3% to £201.9m. Excluding the one-off benefit of reinstating easyJet's investment in The Airline Group underlying* profit before tax increased 48.1% to £191.3m • Passenger numbers increased by 13.0% to 37.2m with consistently high load factors • Total revenue increased 11.0% to £1,797.2m • Ancillary revenue increased by 47p per seat or 30.4% to £171.2m • Unit operating costs (excluding fuel) reduced by an excellent 6.4% or £1.81 per seat to £26.55 per seat • Underlying* return on equity increased to 13.6% and underlying* earnings per share increased 50.1% to 34.8p • European expansion continued with the opening of our 17th base in Madrid in February 2007 • Successful full year of operation at Milan Malpensa • In April 2007 we took delivery of our 100th Airbus A319 • During the year we added 8 new destinations and 46 routes, and as at 30 September 2007 we were flying 289 routes through 77 airports in 21 countries • On 25 October 2007 we announced an agreement to acquire GB Airways * Underlying financial performance excludes the effect of the reversal of the impairment of the Group's investment in The Airline Group of £10.6m. Market and network development During 2007 we continued to expand our network in mainland Europe. In 2007 weincreased the capacity deployed at our European bases by 29.9%, which nowaccount for 30.3% of our total available seats. In February 2007 we launched our 17th base at Madrid's Barajas Airport creatingover 200 jobs. During the year we carried over 2 million passengers throughMadrid, making easyJet Madrid's number one low cost carrier. We continued to expand our Milan Malpensa base, where we have become the secondlargest carrier only one year after the launch of the base and we have agreed todouble our capacity to 15 aircraft by the end of 2008. In 2007 we continued to establish easyJet as Switzerland's largest short haulcarrier increasing capacity in Switzerland by 22.4% growing at both our bases inBasel and Geneva. 2007 saw easyJet expand its network further into eastern Europe with routeslaunched to Romania and further focus on the Polish market. Flying will commenceto Bulgaria in November 2008. Following the year end we announced the launch of two additional bases inFrance, at Paris Charles de Gaulle and Lyon. Initially five additional aircraftwill be located in France, starting in spring 2008, creating significant numbersof jobs and reinforcing easyJet's position as France's number two airline. In the UK we continue to build our bases, adding two A319s at Gatwick, one atBristol and increasing our presence at Belfast International to a total of sixaircraft. Gatwick, our largest base, offers an attractive catchment area in the South Eastof England with easy access to London. With this in mind we recently announcedan agreement to acquire GB Airways which operates 15 A320 family aircraft. GBAirways is predominately based at Gatwick but also flies from Heathrow andManchester. We look forward to welcoming the GB team to easyJet, confident thattogether we will be able to deliver an unbeatable product to customers in theSouth East of England. The markets in which easyJet operates are highly competitive, both fromtraditional flag carriers and other low cost carriers who seek to replicate theeasyJet model. Low costs, improving margins, prime slots at major Europeanairports and access to low cost aircraft mean we are confident in our growthplans and we continue to target an organic capacity growth rate of 15% in themedium term. Innovation We continue to change and innovate at easyJet. In June 2007 we launchedeasyJetHolidays.com which allows our customers to purchase an integrated flightand hotel package through easyJet.com. We are optimistic that this will enhancethe customer experience and contribute to increasing ancillary revenues. In September 2007 we announced an agreement with our new in-flight partner, GateGourmet. We believe this is a partner who will support our growth plans in thisarea allowing us to maximise on-board ancillary revenue. To supplement our development of the business traveller market, we announcedpost year end a unique partnership with Amadeus and Galileo. For the first timethis allows corporate travel agents access to easyJet via the GlobalDistribution System ("GDS") with all cost borne by the user. Overall we continue to maximise the benefits of easyJet.com which is the UK'slargest travel website receiving an average 12 million unique visitors permonth. Fleet We continued to develop our fleet in 2007 with the delivery of 20 additionalAirbus A319s, conversion of 87 options to firm orders and the securing of afurther 75 options on A320 family aircraft. In April 2007 we took delivery ofour 100th A319. On average we have introduced a new A319 to the fleet every 13days since 2004. We completed the return of our last 737-300s and returned two 737-700s tolessors. At 30 September 2007 the fleet totalled 137 aircraft with confirmedfuture deliveries of 120 and 88 unexercised options over additional aircraft. Owned Under Under Total Changes Future Unexercised operating finance in year deliveries options lease lease (including exercised (note 1) options) (note 2)Airbus A319s 55 46 6 107 +20 120 88Boeing 737-700s - 30 - 30 -2 - -Boeing 737-300s - - - - -3 - - 55 76 6 137 +15 120 88 Notes: 1. Options may be taken as any A320 family aircraft and are valid until 2015. 2. A further 120 Airbus A319 aircraft are planned to be delivered through to April 2012. Our investment in a modern fleet underpins our high levels of asset utilisation,increased operational efficiency and is complementary to our goal of beingenvironmentally responsible. The average age of our fleet is 2.7 years, one ofthe youngest in Europe. This leaves easyJet well positioned to fulfil its growthplans. The total fleet over the period to 30 September 2010 based on contractualcommitments 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 122At 30 September 2007 107 30 0 137At 30 September 2008 120 29 0 149At 30 September 2009 156 18 0 174At 30 September 2010 188 12 0 200 People In February easyJet moved, from its original home easyLand, over the road atLuton Airport, to our maintenance location, Hangar 89. This provides a modern,low cost, open plan working environment. Rather than causing a distraction, themove was seamless and a credit to all those involved in it. During the year ourteam grew from 4,859 to 5,674 at 30 September 2007; much of this growth was inpilots and cabin crew as we corrected the shortages experienced in summer 2006which resulted in some wet leasing during that time. After several years we decided to change our crew uniform and in October 2007 weintroduced a new uniform, designed in-house by our crew at no extra cost to theprevious design. We are committed to delivering high quality customer support and in August 2007we announced the outsourcing of the easyJet Customer Services Centre ("CSC").The CSC has served us well from the early days before easyJet.com, however thetime is right to make a step change in the service and support we provide to ournearly 40 million annual customers throughout our network. Our 'Pulse' survey of employee satisfaction and engagement produced somepositive results. 74% of employees responded by completing the survey. Ourpeople differentiate easyJet from our competitors and we have a very pleasing82% satisfaction level. This translated into a substantially higher crewretention rate. Outlook Looking forward, for this winter we expect total revenue per seat to be broadlyin line with last winter. For summer 2008 we expect the effect of annualisingAPD, checked bag charges and growing ancillary revenues to result in totalrevenue per seat being ahead of the previous summer. High fuel costs will bepartly offset by the weak US Dollar however we anticipate an overall increase inSterling unit fuel costs. Unit costs excluding fuel are anticipated to besimilar to last year. The fuel environment remains challenging; however, webelieve the easyJet business model is resilient and well positioned for success.Over the past two years we have significantly increased profitability and in thecurrent financial year the Board anticipates an increase in underlying profitbefore tax of around 20%. The above outlook excludes the proposed acquisition of GB Airways. We anticipatethe acquisition to complete no later than 31 January 2008. Excluding one-offcosts of around £12m we expect the acquisition to be earnings enhancing in thecurrent financial year. Financial review Consolidated financial and operating data(unaudited) 2007 2006 Change % Key performance indicatorsReturn on equity (headline) 14.3% 10.1% 4.2ppReturn on equity (underlying*) 13.6% 10.1% 3.5ppProfit before tax per seat (headline), £ 4.54 3.32 36.7Profit before tax per seat (underlying*), £ 4.30 3.32 29.5Revenue per seat, £ 40.42 41.66 (3.0)Cost per seat, £ 36.12 38.34 (5.8)Cost per seat excluding fuel, £ 26.55 28.36 (6.4) Output measuresSeats flown (millions) 44.5 38.9 14.4Passengers (millions) 37.2 33.0 13.0Number of aircraft owned/leased at end of period 137 122 12.3Sectors 287,952 253,548 13.6Block hours 518,410 454,823 14.0Number of routes operated at end of period 289 262 10.3Number of airports served at end of period 77 74 4.1 Other performance measuresLoad factor 83.7% 84.8% (1.1)ppOperated aircraft utilisation (hours per day) 11.6 11.6 -Available seat kilometres ("ASK") (millions) 43,501 37,088 17.3Revenue passenger kilometres ("RPK") (millions) 36,976 31,621 16.9Average sector length (kilometres) 978 954 2.5Average fare (£) 43.68 45.17 (3.3)Revenue per ASK (pence) 4.13 4.37 (5.5)Cost per ASK (pence) 3.67 4.02 (8.7) Summary income statement Year ended 30 September 2007 2006 Change £ million £ million % Passenger revenue 1,626.0 1,488.4 9.2Ancillary revenue 171.2 131.3 30.4 1,797.2 1,619.7 11.0Operating costs (1,499.0) (1,341.2) (11.8)EBITDAR 298.2 278.5 7.1Ownership costs (106.9) (149.3) 28.4Underlying* profit before tax 191.3 129.2 48.1Reversal of prior year impairment losses on financial 10.6 - N/AassetsProfit before tax 201.9 129.2 56.3Taxation (49.6) (35.1) (41.3)Profit for the year 152.3 94.1 61.8 Effective tax rate 24.6% 27.2% (2.6)pp Earnings per shareBasic 36.62 23.18 58.0Basic underlying* 34.79 23.18 50.1 * Underlying financial performance excludes the effect of the reversal of theimpairment of the Group's investment in The Airline Group of £10.6m. Passenger revenue Passenger revenue grew 9.2% to £1,626.0 million, largely as a result of anincrease in seats flown from 38.9 million to 44.5 million. A small reduction inload factor from 84.8% in 2006 to 83.7% meant that total passengers increased by13.0% to 37.2 million. The growth in passengers was supported by the addition of20 new aircraft in the year. The majority of this growth was in continentalEurope where we grew capacity by 29.9%. As a consequence of this European growth our non-Sterling revenues increased to41.4% of total, predominantly being Euros and Swiss Francs. Average passenger yields in the year declined by 4.5% per seat to £36.57 or 3.3%per passenger to £43.68. This was partly market driven following high per seatrevenues in 2006 and partly the result of the initial passenger reaction to thesurprise doubling of APD in the UK from £5 per departing passenger to £10. Tocompensate for this easyJet increased its promotional programme in the earlysummer to ensure demand remained strong. While we are committed to offering our customers the lowest fares and bestvalue, we also continue to actively manage our network to ensure revenues andshareholder value are optimised. To that end we discontinued 19 poorlyperforming routes in the year and launched 46 new routes. In addition we madesignificant improvements to the quality of our schedule by increasing frequencyby more than 15% on 58 routes and improving the timing on 65 routes. Ancillary revenues Ancillary revenues have continued to contribute significantly to our profitimprovement. Total ancillary revenues increased by 30.4% to £171.2 million, or47p to £3.85 per seat. The biggest contributor to this improvement was theintroduction of our speedy boarding product which allows customers to priorityboard the aircraft for a charge of between £2.50 and £7.50. This great valueproduct has resulted in very high levels of repeat business. In addition our web partners continue to contribute positively with 19.3% unitgrowth, primarily coming from increased insurance and car rental sales. Costs At easyJet a key part of our financial strategy is to continue to aggressivelymanage our cost base; cost management and efficiency improvement are a passionsecond only to our attention to safety. Our cost performance this year has been impressive with total unit costsimproving by £2.22 or 5.8% to £36.12 per seat. We focus particularly on unitcosts excluding fuel because the significant volatility in easyJet's fuel costis largely dictated by external economic and political factors, and therefore weconsider unit costs, excluding fuel, are a better indicator of underlyingperformance. On this basis, unit costs excluding fuel improved by £1.81 or 6.4%to £26.55. These cost performance results are a tremendous achievement and reflect bothcontinuing direct management of our day to day costs together with morestrategic step change initiatives. Our cost of aircraft ownership, on a per seat basis, has improved by £1.44 or37.5%, compared to 2006. This significant improvement results from three keydrivers. Firstly, at the beginning of the year we completed the return of all ofour Boeing 737-300 aircraft. This programme, which has resulted in 22 Boeing737-300s being returned over the last 2 years, generates a step change inownership costs as they are replaced by lower cost Airbus A319s. Additionally,these aircraft were returned with considerably less 'one-off' end of lease coststhan previously anticipated. Secondly, as most of our lease costs are payable inUS Dollars we have benefited from the continued weakness of the US Dollar versusSterling. Thirdly, we continue to look to minimise our financing costs,resulting in the percentage of owned aircraft increasing from 36% to 45% overthe last year. Of our 55 owned aircraft at the year end, 13 have been purchasedout of cash. In addition we saw a benefit in 2007 compared to our costs in 2006 due to thefact that we did not have to take on any short-term wet leased aircraft. Thiswas done in 2006 to enable us to continue to provide our customers with theflights we had promised them whilst we experienced some short-term crewshortages. Over the next four years our Boeing 737-700 fleet is due to be returned tolessors and we expect to see continued improvement in our unit aircraftownership costs as we move more to an A320 family fleet which enables us toreflect the full benefit of the purchase deal we signed with Airbus in 2002. Engineering costs per seat have improved by £0.61 or 21.7%, compared to 2006. Amajor driver of this improvement was our new engine maintenance deal with GEAviation that we agreed at the end of June 2007. This guarantees the provisionof efficient, low cost maintenance services with the world's leading enginemaintenance supplier. The 10 year agreement with GE Aviation covers maintenanceand overhaul of our CFM56 engines, which power our fleet of Airbus and Boeingaircraft. The agreement, which covers as many as 340 shop visits, was valued ataround $1 billion and will enable us to further reduce our ongoing engineeringcost per seat. In addition to ongoing annual cost reductions we benefited duringthe current financial year from a one-off adjustment to maintenance provisions. Two other specific areas of significant unit cost improvement are in our groundhandling and insurance costs. Our ground handling cost per seat improved by£0.19 or 5.2%, compared to 2006. This reflects tight management of our contractswith our suppliers, benefits from a slightly weaker Euro to Sterling exchangerate and the implementation of self-handling at some of our Spanish airports. Our insurance cost per seat improved by £0.14 or 33.2%, compared to 2006,reflecting our successful recent renewal. This was driven by the improvingperception by the insurance market of easyJet, the weakening of the US Dollarand the underlying recent low loss record for the aviation insurance market. The two cost areas where we experienced inflationary pressures during 2007 werein our crew costs and airport charges. Crew costs on a per seat basis increasedby £0.47 or 11.5%, compared to 2006. During the summer in 2006 we experiencedcrew shortages which required us to take on wet leased aircraft with theassociated incremental costs being recorded in aircraft lease costs. A keypriority in this financial year has been to address these crew shortages and itis pleasing to be able to say that we have successfully achieved both therecovery from the shortages and have also been able to fully resource ourcurrent year growth without any significant disruptions to our flying programme.During the year we recruited some 400 pilots and 1,000 cabin crew which, aftertaking account of leavers, resulted in a 20% net increase in our crewcomplement. Airport costs on a per seat basis increased in the year by £0.23 or 3.5%,compared to 2006. The key driver of this increase related to BAA's decision toincrease Stansted's charges to the regulatory cap. The effect of this has been adoubling of Stansted airport costs from April 2007. We continue to monitor theimpact of this rate increase and will make future asset allocation decisionsaccordingly. Fuel costs for the year totalled £425.5m up 9.7% from £387.8m in 2006. On a perseat basis our fuel costs were £9.57, down 4.1% from last year's £9.98. Ouraverage cost per metric tonne increased 4.4% from $659 to $688, however thisrise was more than offset by the weakening of the US Dollar against Sterling. For 2008 we anticipate increasing jet fuel prices; we currently have 40% of ourjet fuel requirements hedged using a mix of forward contracts and caps with amaximum price of $735 per metric tonne. Offsetting the impact of fuel price increases will be the effect of a continuedweak US Dollar. Our average effective exchange rate in 2007 was 1.89 and weexpect our 2008 rate to be significantly higher. We have 68% of US Dollarexposure covered at an average rate of 1.95. Around 40% of our cost base isdenominated in US Dollars. As a result of our target to grow capacity on average by 15% per annum we wouldexpect our underlying overhead cost per seat to show significant year over yearimprovements as we necessarily invest to some degree to support the growth butbenefit from continuing economies of scale and are able to spread those costsover the increased capacity. For 2007 our overhead cost per seat improved 4.0%from £2.27 in 2006 to £2.18 in 2007. Profit before tax and return on equity Profit before tax for 2007 amounted to £201.9m; after excluding the one-offbenefit of £10.6m relating to the reinstatement of our investment in The AirlineGroup, underlying* profit before tax was £191.3m. This is a 48.1% increase over2006 and equates to a profit per seat of £4.30 compared to £3.32 in the previousyear. With total revenue per seat falling by 3.0% but total cost per seat improving by5.8% our profit margin increased by 2.7 percentage points from 8.0% in 2006 to10.7% in 2007. The effective tax rate for the year was 24.6% (2006: 27.2%). The decrease yearon year is primarily due to amendments made in relation to earlier years of£5.5m and a one off benefit due to a reduction in the tax rate at which deferredtax liabilities will crystallise of £3.3m. For 2008 the expected effective taxrate is estimated to be 25%. In terms of our core financial performance measure, return on equity, theheadline result for the year was 14.3%. This does include the benefit of TheAirline Group one-off and after excluding this underlying return on equity forthe year was 13.6%. This represents a very pleasing improvement of 3.5percentage points from 10.1% in 2006 and means that over the last two financialyears we have increased the return on equity for our shareholders by 6.5percentage points. The Board has set return on equity as its key financialmeasure as it best represents the return attributable to equity shareholders. Summary balance sheet 2007 2006 Change £ million £ million £ million (re-presented)* Property, plant and equipment 935.8 695.7 240.1Other non-current assets 414.2 392.6 21.6 1,350.0 1,088.3 261.7Net working capital (326.9) (249.7) (77.2)Cash and cash equivalents 719.1 860.7 (141.6)Money market deposits 193.4 - 193.4Borrowings (519.1) (479.7) (39.4)Other non-current liabilities (264.1) (236.7) (27.4)Net assets 1,152.4 982.9 169.5 Share capital and premium 738.7 694.0 44.7Reserves 413.7 288.9 124.8 1,152.4 982.9 169.5 *Recoverable supplemental rent which was offset against aircraft maintenanceprovisions in prior accounting periods has been re-presented gross to provideadditional information. There is no effect on net assets or profit of thisreclassification. Balance sheet highlights • Net assets increased by 17.2% to £1,152.4 million • Property, plant and equipment increased by £240.1m due to the deliveryof a further 17 owned A319 aircraft and some capital expenditure incurred on therefit of easyJet's new Luton head office • Other non-current assets increased largely due to the reinstatement ofeasyJet's investment in The Airline Group • Net working capital increased as a result of additional unearnedrevenue as a consequence of increased flight capacity, and tax payableincreasing on higher profits • The total of cash and cash equivalents and money market deposits is£912.5m; an increase of £51.8m on the prior year. During the year US dollar cashbalances were increased in order to match US dollar denominated borrowings. Thiscash was invested for 90 days or more in order to match the interest ratere-pricing of these borrowings. These amounts are disclosed as money marketdeposits and amount to £193.4m. The overall increase in cash and money marketdeposits was small compared to the profit for the year as cash generated fromoperations was invested in the fleet • Cash and cash equivalents exclude £48.8m of restricted cash which isdisclosed in other non-current assets and net working capital. These amountsrelate principally to customer payments for packaged holidays and operatinglease deposits • Borrowings increased by £39.4m as a result of additional mortgagefinance for 7 aircraft delivered in the year. 10 additional aircraft werepurchased for cash The notional debt related to aircraft held under operating leases reducedsubstantially, principally due to the weakness of the US dollar againstSterling, therefore gearing reduced to 20.4% at 30 September 2007 from 31.0% in2006. Shareholders expect us to retain a prudent cash balance, yet also manage thebalance sheet efficiently. Accordingly, the Board has decided to seekshareholder approval at the Annual General Meeting to be held on 21 February2008 to purchase up to 10% of our issued share capital in the market. This is anormal authority for a public company and we would expect to renew it annually. Summary cash flow 2007 2006 Change £ million £ million £ million Cash generated from operations 270.8 225.2 45.6Net capital expenditure (272.1) (314.3) 42.2Net increase in loan finance 69.1 278.4 (209.3)Net increase in money market deposits (197.3) - (197.3)Other (12.1) 4.4 (16.5)(Decrease) / increase in cash and cash equivalents (141.6) 193.7 (335.3) Cash and cash equivalents at beginning of year 860.7 667.0 193.7 Cash and cash equivalents at end of year 719.1 860.7 141.6 We continue to generate strong annual cash flow and our cashflow from operationsincreased 20.2% to £270.8m. Our cash was principally used to invest in aircraft.Out of 20 additional aircraft delivered in the year 7 were mortgage financed and10 were cash acquired. In total 13 aircraft were owned outright at 30 September2007. Of the 49 Airbus aircraft to be delivered through to 2009 eleven have committedfinancing in place at 30 September 2007 (2006: 18 of 53). The Group hascommenced a process for arranging further financing of future deliveries andthis is expected to be concluded by December 2007. Investment in the fleet and information technology will continue in 2008 and isexpected to total approximately £280 million. Andrew Harrison Jeff Carr Chief Executive Officer Group FinanceDirector 19 November 2007 Consolidated income statement Year ended Year ended Notes 30 September 30 September 2007 2006 £million £millionPassenger revenue 1,626.0 1,488.4Ancillary revenue 171.2 131.3 Revenue 1,797.2 1,619.7 Ground handling charges, including salaries (156.1) (144.1)Airport charges (305.8) (258.4)Fuel (425.5) (387.8)Navigation charges (141.8) (121.2)Crew costs, including training (204.1) (160.0)Maintenance (98.1) (109.5)Advertising (38.0) (38.2)Merchant fees and incentive pay (20.6) (17.9)Aircraft and passenger insurance (12.1) (15.8)Other costs (96.9) (88.3) EBITDAR 298.2 278.5 Depreciation (33.3) (27.4)Amortisation of intangible assets (0.9) (0.8)Aircraft dry lease costs (91.0) (122.9)Aircraft long-term wet lease costs (1.0) (9.6) Group operating profit - EBIT 172.0 117.8 Interest receivable and other financing income 54.6 35.4Reversal of prior year impairment losses on financial 2 10.6 -assetsInterest payable and other financing charges (35.4) (24.1) Net finance income 29.8 11.3 Share of profit after tax of associate 0.1 0.1 Profit before tax 201.9 129.2 Tax 3 (49.6) (35.1) Profit for the year 152.3 94.1 Earnings per share, pence 4Basic 36.62 23.18Diluted 35.58 22.64 Consolidated balance sheet Notes 30 September 30 September 2007 2006 £million £million (re-presented) (note 6)Non-current assetsGoodwill 309.6 309.6Other intangible assets 1.8 1.1Property, plant and equipment 7 935.8 695.7Financial assetsLoan notes 11.1 -Restricted cash 32.9 26.1Derivative financial instruments 0.4 -Other non-current assets 58.1 54.8Investments accounted for using the 0.3 0.3equity methodDeferred tax assets 0.4 0.3 1,350.0 1,088.3 Current assetsTrade and other receivables 223.6 227.2Financial assetsMoney market deposits 193.4 -Restricted cash 15.9 12.2Derivative financial instruments 14.4 1.0Cash and cash equivalents 719.1 860.7 1,166.4 1,101.1Current liabilitiesTrade and other payables (461.7) (414.1)Financial liabilitiesBorrowings 8 (40.5) (32.8)Derivative financial instruments (26.6) (15.3)Current tax liabilities (89.7) (46.8)Maintenance provisions (2.8) (13.9) (621.3) (522.9) Net current assets 545.1 578.2 Non-current liabilitiesFinancial liabilitiesBorrowings 8 (478.6) (446.9)Derivative financial instruments (6.3) (4.8)Other non-current liabilities (86.8) (74.8)Maintenance provisions (136.0) (125.1)Deferred tax liabilities (35.0) (32.0) (742.7) (683.6) Net assets 1,152.4 982.9 Shareholders' fundsOrdinary shares 9 104.8 102.6Share premium 9 633.9 591.4Hedging reserve 9 (13.7) (9.5)Retained earnings 9 427.4 298.4 1,152.4 982.9 Consolidated statement of cashflows Year ended Year ended Notes 30 September 30 September 2007 2006 £million £millionCash flows from operating activitiesCash generated from operations 10 260.8 221.6Interest received 48.9 32.5Interest paid (36.9) (24.4)Tax paid (2.0) (4.5) Net cash from operating activities 270.8 225.2 Cash flows from investing activitiesProceeds from sale of property, plant and equipment 3.3 3.7Purchase of property, plant and equipment (273.9) (324.6)Proceeds from sale of asset held for resale - 7.1Purchase of other intangible assets (1.6) (0.5)Dividend received from associate 0.1 - Net cash used in investing activities (272.1) (314.3) Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 16.5 17.9Purchase of shares for employee share schemes (4.6) (0.6)Net proceeds from drawdown of new bank loans 103.2 201.2Net proceeds from sale and finance leasebacks - 108.6Repayment of bank loans (31.7) (30.4)Repayment of capital elements of finance leases (2.4) (1.0)Increase in money market deposits (197.3) -Increase in restricted cash (12.6) (11.2) Net cash (used by) / generated from financing (128.9) 284.5activities Effects of exchange rate changes (11.4) (1.7) Net (decrease) / increase in cash and cash (141.6) 193.7equivalents Cash and cash equivalents at beginning of year 860.7 667.0 Cash and cash equivalents at end of year 719.1 860.7 Consolidated statement of recognised income and expense 2007 2006 £million £millionCash flow hedges Fair value losses in year (39.7) (25.2) Transfers to income statement 34.6 (3.8) Transfers to property, plant and equipment 1.1 - Related taxation (0.2) 8.7 Net expenses recognised directly in equity (4.2) (20.3) Profit for the year 152.3 94.1 Total recognised income and expense for the yearattributable to shareholders of the company 148.1 73.8 Notes to the financial information 1. Basis of preparation This consolidated financial information has been prepared in accordance with theListing Rules of the Financial Services Authority and uses accounting policiesconsistent with those described in the annual report and accounts for 2006. The financial information set out in this document does not constitute statutoryaccounts for easyJet plc for the two years ended 30 September 2007 but isderived from the 2007 annual report and accounts. The annual report and accounts for 2006 have been delivered to the Registrar ofCompanies. The annual report and accounts for 2007 will be delivered to theRegistrar of Companies in due course. The auditors have reported on thoseaccounts and have given an unqualified report that does not contain a statementunder section 237(2) or (3) of the Companies Act 1985. 2. Reversal of impairment losses on financial assets In March 2001, easyJet in consortium with six other UK airlines formed TheAirline Group Limited in order to acquire a minority interest in NATS, thecompany that owns the UK air traffic control system. At 30 September 2001,easyJet's investment totalled £7.2 million. This comprised equity of £10,080,loan notes of £6.8 million, bid costs of £0.1 million and accrued interest of£0.3 million. The loan notes are of two classes bearing interest at fixed ratesof 8% and 11%. The blended interest rate is 8.07%. During the year ended 30 September 2002 the carrying value of the investment wasimpaired to zero. This impairment was taken due to uncertainty over the timingof returns to easyJet following the events of 11 September 2001. On 28 June 2007, NATS reported its results for the year ended 31 March 2007showing a fourth consecutive year of profits, and announced that it wouldrecommence paying dividends in July 2007. As a consequence the present value ofestimated future cash flows from easyJet's investment in the loan notes exceedstheir carrying value, and the impairment was reversed in July. The impairment reversal relating to prior years comprises: £million Reinstatement of original loan notes and acquisition costs 6.9Interest earned to 30 September 2006 3.7 10.6 The impairment reversal relating to prior years is separately disclosed on theface of the income statement as it is a significant one-off item. A further£0.6m of interest earned from October 2006 to July 2007 is included withininterest receivable and other financing income. 3. Taxation a) Tax on profit on ordinary activities 2007 2006 £million £million Current taxation 52.2 17.3Deferred taxation (2.6) 17.8 Total taxation charge 49.6 35.1 Effective tax rate 24.6% 27.2% b) Tax on items charged to equity 2007 2006 £million £million Deferred tax (charge) / credit on share options (5.3) 5.9Deferred tax (charge) / credit on fair value movements (0.2) 8.7of cash flow hedgesCurrent tax credit on share options 7.3 4.9 Tax credit reported directly in reserves 1.8 19.5 c) Reconciliation of the total taxation charge 2007 2006 £million £million Profit on ordinary activities before tax 201.9 129.2 Tax charge at 30% 60.6 38.8 Attributable to rates other than standard UK rate (6.7) (6.4)Income not chargeable for tax purposes (0.9) -Expenses not deductible for tax purposes 0.7 2.0Share based payments 5.1 (0.3)Adjustments in respect of prior periods - current (0.7) 1.6taxationAdjustments in respect of prior periods - deferred (4.8) (0.6)taxationChange in tax rate (3.7) - Total taxation 49.6 35.1 4. Earnings per share Basic earnings per share has been calculated by dividing the profit for the yearretained for equity shareholders by the weighted average number of shares inissue during the year after adjusting for shares held by the Group in employeeshare option trusts. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential shares.Share options granted to employees where the exercise price is less than theaverage market price of the Company's ordinary shares during the year areconsidered to be dilutive potential shares. Where share options are exercisablebased on performance criteria and those performance criteria have been metduring the year, these options are included in the calculation of dilutivepotential shares. Earnings per share is based on: 2007 2006 £million £million Profit for the year 152.3 94.1Reversal of prior year impairment losses on financial (10.6) -assetsRelated deferred taxation 3.0 - Underlying profit for the year 144.7 94.1 million million Weighted average number of ordinary shares in issue 416.0 405.7during the period used to calculate basic earnings pershare Weighted average number of dilutive share options used 12.2 9.7to calculate dilutive earnings per share Earnings per share 2007 2006 pence pence Basic 36.62 23.18Diluted 35.58 22.64 Underlying earnings per share (non-GAAP measure) 2007 2006 pence Pence Basic 34.79 23.18Diluted 33.80 22.64 Underlying profit and earnings per share are based on the profit for the yearafter adding back the reversal of impairment on financial assets and relatedtaxation. The adjustment has been made on the grounds that the credit relates toseveral prior years and will not recur. Further details are given in note 2. 5. Dividends No dividends have been paid or proposed in the year ended 30 September 2007 orduring the comparative accounting period. 6. Re-presentation of balance sheet comparatives In previous accounting periods, recoverable supplemental rent paid to lessors ofaircraft was offset against the related maintenance provisions as this properlyreflects the commercial substance of the lease agreements. To provide additionalinformation, recoverable supplemental rent is now reported gross within eithercurrent or non-current assets according to when the refund is expected to bereceived. Comparative figures have been adjusted as follows: Non-current assets increased by £51.9 millionCurrent assets increased by £13.9 millionMaintenance provisions increased by £65.8 million 7. Property, plant and equipment Leasehold improvements - buildings Fixtures Aircraft and Total fittings £million £million £million £millionCostAt 1 October 2006 729.3 6.9 15.9 752.1Additions 264.0 5.3 6.5 275.8Disposals (5.5) - - (5.5)At 30 September 2007 987.8 12.2 22.4 1,022.4 DepreciationAt 1 October 2006 39.8 4.9 11.7 56.4Charge for the year 31.5 0.7 1.1 33.3Disposals (3.1) - - (3.1)At 30 September 2007 68.2 5.6 12.8 86.6 Net book valueAt 30 September 2007 919.6 6.6 9.6 935.8At 1 October 2006 689.5 2.0 4.2 695.7 The net book value of aircraft at 30 September 2007 includes £116.0 million(2006: £81.2 million) relating to advance payments and option payments forfuture deliveries of aircraft. This amount is not depreciated. The net book value of aircraft held under finance leases was £77.8 million(2006: £80.9 million). £3.3 million of the related accumulated depreciation wascharged in the year ended 30 September 2007 (2006: £1.8 million). At 30 September 2007, aircraft with a net book value of £517.5 million (2006:£418.0 million) were mortgaged to lenders as security for loans. Aircraft spares with a value of £1.9 million (2006: £4.9 million) were receivedfree of charge during the year. 8. Borrowings The maturity of borrowings is as follows: 30 September 2007 Bank loans Finance Total leases £million £million £million Within one year 37.9 2.6 40.5Between one and two years 39.8 2.8 42.6Between two and five years 165.6 9.5 175.1After five years 184.2 76.7 260.9 427.5 91.6 519.1 30 September 2006 Bank loans Finance Total leases £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 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 LIBOR. Finance lease obligations are secured against certainof the Group's aircraft. 9. Equity Share Share Hedging Retained capital premium reserve earnings Total £million £million £million £million £million At 1 October 2006 102.6 591.4 (9.5) 298.4 982.9 Profit for the year - - - 152.3 152.3Cash flow hedgesFair value losses - - (39.7) - (39.7)Transfers to income - - 34.6 - 34.6statementTransfers to property, plant - - 1.1 - 1.1and equipmentRelated taxation - - (0.2) - (0.2)Share optionsProceeds from shares issued 2.2 42.5 - (28.2) 16.5Value of employee services - - - 7.5 7.5Related taxation - - - 2.0 2.0Employee share schemes - - - - (4.6) (4.6)purchase of shares At 30 September 2007 104.8 633.9 (13.7) 427.4 1,152.4 10. Reconciliation of net profit to net cash inflow from operating activities 2007 2006 £million £million Profit for the year 152.3 94.1 Adjustments for:Tax charge 49.6 35.1Depreciation charge 33.3 27.4Profit on disposal of property, plant and equipment (0.9) (1.3)Amortisation of other intangibles 0.9 0.8Reversal of prior year impairment losses on financial (10.6) -assetsInterest income (53.0) (35.4)Interest expense 35.4 22.7Share based payments 7.5 4.7Share of results of associates (0.1) (0.1)Financial instruments - time value (4.5) 9.8Foreign exchange (15.4) (17.3) Changes in working capital:Increase / (decrease) in trade and other receivables 6.0 (6.9)Increase in trade and other payables 51.9 79.0(Decrease) / increase in provisions (0.2) 3.2(Increase) / decrease in other non-current assets (3.8) 5.7Decrease in financial instruments 0.4 0.4Increase / (decrease) in other non-current liabilities 12.0 (0.3) Cash generated from continuing operations 260.8 221.6 11. Contingent liabilities The Group is involved in various disputes or litigation in the normal course ofbusiness. Whilst the results of such disputes cannot be predicted withcertainty, the Company believes that the ultimate resolution of these disputeswill not have a material effect on the Group's financial position or results. 12. Post balance sheet events On 25 October 2007, easyJet announced that it had agreed to acquire GB AirwaysLimited, excluding its slots at Heathrow Airport, for cash consideration of£103.5 million. Completion is subject to clearance from the regulatoryauthorities and is expected to occur no later than 31 January 2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
easyJet