9th May 2007 07:01
easyJet PLC09 May 2007 easyJet plc Interim results for the 6 months to March 2007 EASYJET IMPROVES MARGIN - SEASONAL FIRST HALF LOSS SIGNIFICANTLY REDUCED • Winter margin improved by 4 percentage points to -2.4% from -6.4%. • Loss before tax, reflecting seasonality of business, down 58% to £17m from £40m. • Total revenue grew by 14% to £719 million. • Return on equity for the rolling twelve month period increased to 11.9%, up over 6 percentage points from 5.6% in March 2006. • Full year guidance maintained: pre-tax profit for the year to September 2007 expected to be 40% to 50% higher than record profits in 2006. • Passenger numbers up 11% to 16.4 million. • Unit passenger revenues increased by 0.8% or £0.26 per seat to £31.70 per seat. • Ancillary revenues improved by 18% or £0.58 per seat to £3.81 per seat with partner revenues from insurance and car hire driving the growth. • Unit costs excluding fuel reduced by 2.1% or £0.57 per seat from £27.75 to £27.18. • 16 new routes launched. Network now covers 292 routes and 75 airports in 20 countries. • Madrid base launched with 4 new Airbus A319s in February 2007. 9 new routes launched doubling the number of routes serving Madrid to 18 including Spanish domestic routes and routes to the UK, France, Italy, Switzerland, Germany and Morocco. • easyJet's fleet reinforced as one of the most modern and environmentally friendly fleets in Europe. Average age of fleet only 2.3 years following delivery of 10 new Airbus A319s during the period. Commenting on the results, Andy Harrison, easyJet Chief Executive said: "The first half of our financial year has seen growth in all areas. Our winningcombination of low cost with care and convenience on a network now covering 75airports in 20 countries on nearly 300 routes continues to attract newcustomers. In the six months to March 2007, we flew over 16 million passengers,up 11%. "Our interim results show continued improvements with our margin rising by 4.0percentage points from minus 6.4% to minus 2.4%. We have grown our total revenueper seat by 84 pence per seat and reduced our costs excluding fuel by 57 penceper seat, allowing us to more than halve our seasonal loss from £40m to £17m. "We continue to introduce new Airbus aircraft into our fleet, therebymaintaining one of Europe's cleanest and greenest aircraft fleets, and in Aprilwe collected our 100th Airbus A319. Through our investment in modern fuelefficient aircraft we have reduced our emissions of CO2 per passenger kilometreby 18% since 2000. "Looking forward, our growth measured in available seats will accelerate duringthe summer months leading to approximately 15% growth for the full year toSeptember 2007. As we stated last winter, we continue to see pressure on yieldsin the summer against high comparatives from last year and due to continuedcompetition. Low fares underpin our growth and in the second half we havereduced many of our lead-in fares and increased our promotional activity tosustain high load factors in weaker market conditions. Our low fares aresupported by maintaining focus on ancillary revenues and our cost base. Weanticipate further progress on unit cost reductions, excluding fuel, in thesecond half and for the full year we anticipate unit fuel costs to be slightlydown year on year. Our guidance remains unchanged, for the full year toSeptember 2007 we expect pre-tax profit growth of 40% to 50%." 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 9 May 2007 at ABN AMRO, 3rdfloor, 250 Bishopsgate, EC2M 4AA. A live webcast of the presentation will beavailable at www.easyJet.com. There will be an analyst and investor conference call at 2:00 pm on 9 May 2007.For further details, contact Katie Millett at Financial Dynamics on 020 72697153. Interim Report 2007 easyJet plc Chairman's and Chief Executive's Review In its eleventh year of growth, easyJet is currently the fourth largest airlinewithin Europe and flew more than 130,000 flights and 16 million passengers inthe six months from October 2006 through March 2007. This compares with slightlyless than 120,000 flights and 15 million passengers respectively in the firsthalf of last year. This achievement is based on our proven model offering pointto point flying, at low cost, with care and convenience, across a growingnetwork of European bases and airports - a model on which we remain focused. Inthe half year our results are marked by an improved margin. We have more thanhalved our loss in the winter half, and reduced our loss margin by 4.0percentage points from 6.4% to 2.4%. In absolute terms, the loss before tax forthe period has been reduced from £40m to £17m compared with the same period lastyear. This improvement results from a continued focus on growth in revenue,particularly ancillary revenues, and on managing the cost base. Key business highlights for the six months were as follows: • Winter margin improved by 4 percentage points to -2.4%. • Loss before tax of £17 million, down 58% from £40 million in 2006. • Total revenue grew by 14% to £719 million. • Passenger numbers rose by 11% to 16.4 million. • Unit passenger revenues increase by 0.8% or £0.26 to £31.70 per seat. • Ancillary revenues improved with partner revenues continuing to drive growth, rising by 18% or £0.58 per seat. • Unit costs excluding fuel fell by 2.1% or £0.57 per seat from £27.75 to £27.18. • Unit fuel costs were largely flat for the period year on year. • 16 new routes were launched bringing the network to 265 routes and 71 airports in 19 countries. • Our 17th base was launched in Madrid in February with 4 new Airbus A319 aircraft. • Fleet grew to 127 aircraft comprising of 97 Airbus A319s and 30 Boeing 737-700s. • Shareholders approved our order for a further 52 Airbus A319s for delivery during 2008 - 2010. • Balance sheet remains strong with cash of £905 million and gearing at 21%. • Return on equity for the rolling 12 month period rose to 11.9% up from 5.6% in March 2006 and 10.1% in September 2006. Our principal areas of focus remain development of our network, revenueenhancement, cost reduction and development of our people. Key developments inthese areas are outlined below. Network In February we launched our newest base in Madrid. Over the period we doubledthe number of routes serving Madrid from 9 to 18, and now provide direct flightsbetween Madrid and the UK, France, Switzerland, Italy, Morocco and Germany, aswell as some domestic Spanish destinations. In the last 12 months we have flown1.3 million passengers in and out of Madrid, and with our increased capacitythere we look forward to flying well over two million in the coming year. We continued our growth in Switzerland with capacity increases on a number ofroutes serving our Geneva and Basel bases. In the six months to March, our Swisscapacity increased by 17%. easyJet now flies a total of 28 daily flights betweenthe three London airports (Gatwick, Luton, Stansted) and Geneva and Basel andoffers 49 routes in and out of Switzerland connecting with 11 UK airports, 6Spanish airports, 4 in France and in Italy, and 9 further cities around Europe. Elsewhere in the network we developed the winter schedule to include growth notonly in terms of new routes but also in improved frequencies and schedulequality on certain routes. Revenue Total revenue grew by 14% to £719m up from £630m in the previous year. On a perseat basis, total revenues rose by 2.4% in the first half driven by 18% growthper seat in ancillary revenue and a slight increase of 0.8% in passenger revenueper seat. The growth in passenger revenues was achieved despite continued competitivepressures and the doubling of Air Passenger Duty ("APD") on all UK departingflights from February 2007. Passenger revenue growth was greatest in continentalEurope where revenues from intra-European (non-UK) flying increased by £62m or48% from £130m to £192m in the half. The growth of our network in Switzerland aswell as in our other European bases, in particular Milan Malpensa and Madrid,supported this rise. Ancillary revenues continued to grow with partner revenues through products suchas insurance, car hire and hotels leading the way, as well as innovations suchas our speedy boarding product which allows customers to be among the first toboard the aircraft for a small fee (between £2.50 and £7.50 per flight). Environment The doubling of APD was introduced as an environmental measure but it is a taxon passengers rather than on emissions. At easyJet we support the inclusion ofaviation into the European Emissions Trading System ("ETS") and feel this is amore appropriate way of encouraging airlines across Europe to improve theirenvironmental efficiency rather than by levying a national tax unconnected toactual emissions. easyJet takes its environmental responsibilities seriously and we are activelyengaged in monitoring our own performance and seeking effective and responsiblemeasures to minimise our environmental impact in the future. Our model ofproviding direct point to point services, using a modern fleet of aircraft,configured for a high seat density and flown with load factors averaging over80%, makes easyJet one of the most environmentally friendly ways to fly. Thecombination of our seat configuration and high load factors alone means thatcompared to easyJet, the typical European airline operating an A319 would burn27% more fuel per passenger. In addition, our continued investment in modernaircraft and engines have helped us to reduce our own unit CO2 emissions (CO2per passenger kilometre) by 18% since 2000, and to bring over 91% of our fleetto conform with the stringent "Chapter 4" noise standards (from 0% in 2000). In our 2006 annual report we published our environmental code which outlines ourkey priorities of being efficient in the air, efficient on the ground, and tolead the way in shaping a greener future for aviation. Costs and operational performance In the first half we have seen unit costs excluding fuel fall by 2.1% year onyear. This is driven by further improvements in the areas of maintenance andownership. We returned our last Boeing 737-300s in the period and efficienciesare coming through from a streamlined fleet consisting only of Airbus A319s andBoeing 737-700s, as well as some benefit from a weaker US dollar compared to thesame period last year. We continue to manage our airport costs through mix, effective negotiation withour partners, and by focusing on the related costs of ground handling. In thehalf year to March we saw airport and handling costs fall slightly withcontinued benefits coming through from ground handling savings in Spain. Setagainst this, we continue to operate a large number of aircraft from regulatedairports typified by an inflationary environment. Looking to the full year, weface significant increases in charges at Stansted airport from April 2007 as itlifts its pricing up to the regulatory cap. Fuel remains the largest single item in our cost base and we have seen continuedvolatility in prices; nevertheless, unit fuel costs were broadly flat for thesix months to March 2007 compared with the same period in the prior year. Our crew costs have increased ahead of our capacity growth under the jointimpacts of the pay deals agreed last year and increased crew numbers asdescribed below. People We have recruited extensively for cabin crew and flight crew over the last sixmonths. In the period, we have recruited in excess of 400 pilots and 900 cabincrew. This increase, of both operational and training personnel, should ensurewe are adequately resourced over the busy summer months ahead. In March 2007, we moved over the road in Luton Airport from easyLand to Hangar89. Hangar 89 provides us with maintenance facilities for our Luton base, ourlargest Boeing base in the network, with 17 aircraft permanently based there. Atthe front of the hangar, we have made highly effective use of the office spacealready in place, turning this into a more permanent and modern low cost officefacility for easyJet today. In the short term we retain the core of our oldeasyLand offices from which our call centre operates. We are in the process ofreviewing options on how to take the call centre forward and expect to make adecision in the second half of this year. In January 2007, Cor Vrieswijk joined easyJet as Operations Director. Cor hasover 20 years of aviation experience. Prior to joining easyJet, Cor served asChief Operating Officer at Transavia.com, a Dutch based airline, from 1997, andprior to that he held a number of positions at Transavia and KLM. Cor bringsexcellent skills and background to his role at easyJet and we are pleased tohave him on board. Cor's appointment completes the management team at Luton,which is well placed to take the company forward. easyJet's people remain a vital asset for sustaining the delivery of outstandingperformance. To all of our people, we extend our thanks and appreciation fortheir significant contributions to the Company's results. Outlook Growth measured in available seats will accelerate during the summer monthsleading to approximately 15% growth for the full year to September 2007. As westated last winter, we continue to see pressure on yields in the summer againsthigh comparatives from last year and due to continued competition. Low faresunderpin our growth and in the second half we have reduced many of our lead-infares and increased our promotional activity to sustain high load factors inweaker market conditions. Our low fares are supported by maintaining focus onancillary revenues and our cost base. We anticipate further progress on unitcost reductions, excluding fuel, in the second half and for the full year weanticipate unit fuel costs to be slightly down year on year. Our guidanceremains unchanged, for the full year to September 2007 we expect pre-tax profitgrowth of 40% to 50%. Sir Colin Chandler Andrew HarrisonChairman Chief Executive 8 May 2007 Consolidated financial and operating data Selected consolidated financial and operating Six monthsdata ended 31 March (unaudited) 2007 2006 % Revenues, £million 719.0 629.5 14.2Operating costs, £million (679.5) (602.2) (12.8)EBITDAR (i), £million 39.5 27.3 44.5Finance and ownership costs (ii), £million (56.6) (67.6) 16.3Loss before tax, £million (17.1) (40.3) 57.5Loss after tax, £million (12.7) (28.9) 56.1Net assets, £million 990.5 856.6 15.6Loss per share (basic), pence (3.06) (7.17) 57.4 Key performance indicatorsReturn on equity (iii) (1.3%) (3.4%) 2.1ppLoss before tax per seat, £ (iv) (0.85) (2.22) 61.9Revenue per seat, £ (v) 35.51 34.67 2.4Cost per seat, £ (vi) 36.36 36.89 (1.4)Cost per seat excluding fuel, £ (vii) 27.18 27.75 (2.1)Seats flown (millions) (viii) 20.2 18.2 11.5 Output measuresPassengers (millions)(ix) 16.4 14.9 10.7Number of aircraft owned/leased at end of period (x) 127 114 11.4Average number of aircraft owned/leased duringperiod(xi) 122.1 110.5 10.5Number of aircraft operated at end of period(xii) 125 107 16.8Average number of aircraft operated duringperiod(xiii) 115.2 100.8 14.3Sectors(xiv) 131,167 118,782 10.4Block hours(xv) 233,496 207,779 12.4Number of routes operated at end of period 265 235 12.8Number of airports served at end of period 71 67 6.0 Other performance measuresLoad factor(xvi) 81.2% 81.8% (0.6)ppOperated aircraft utilisation (hours per day) 11.1 11.3 (1.7)(xvii)Owned/leased aircraft utilisation (hours perday)(xviii) 10.4 10.3 1.7Available seat kilometres ("ASK") (millions) 19,108 16,672 14.6(xix)Revenue passenger kilometres ("RPK")(millions) 15,790 13,642 15.7(xx)Average sector length (kilometres) 944 918 2.8Average fare (£)(xxi) 39.03 38.45 1.5Revenue per ASK (pence)(xxii) 3.76 3.78 (0.3)Cost per ASK (pence)(xxiii) 3.85 4.02 (4.1) Footnote references are defined on page 16. Consolidated income statement (unaudited) Notes Six months Year ended ended 31 March 30 September 2007 2006 2006 £million £million £million Passenger revenue 641.8 571.0 1,488.4Ancillary revenue (xxiv) 77.2 58.5 131.3_______________________________________________________________________________Revenue 719.0 629.5 1,619.7 Ground handling charges (76.1) (71.2) (144.1)Airport charges (131.4) (115.7) (258.4)Fuel (185.9) (165.9) (387.8)Navigation charges (61.7) (54.6) (121.2)Crew costs (95.5) (75.2) (160.0)Maintenance (46.8) (51.4) (109.5)Advertising (18.9) (17.4) (38.2)Merchant fees and incentive pay (9.4) (8.6) (17.9)Aircraft and passenger insurance (6.7) (8.2) (15.8)Other costs (xxv) (47.1) (34.0) (88.3)_______________________________________________________________________________EBITDAR (i) 39.5 27.3 278.5 Depreciation (16.7) (10.4) (27.4)Amortisation of intangible assets (0.4) (0.4) (0.8)Aircraft dry lease costs (45.9) (63.5) (122.9)Aircraft long-term wetlease costs (1.0) - (9.6)_______________________________________________________________________________Group operating (loss)/profit (24.5) (47.0) 117.8 Interest and other financingincome 23.9 15.6 35.4Interest and other financingcharges (16.6) (9.0) (24.1)_______________________________________________________________________________Net financing income 7.3 6.6 11.3 Share of profit after tax ofassociate 0.1 0.1 0.1_______________________________________________________________________________(Loss)/profit before tax (17.1) (40.3) 129.2 Tax 3 4.4 11.4 (35.1)_______________________________________________________________________________(Loss)/profit after tax (12.7) (28.9) 94.1=============================================================================== (Loss)/earnings per share (pence)Basic 2 (3.06) (7.17) 23.18Diluted 2 N/A N/A 22.64 Consolidated balance sheet (unaudited) Notes 31 March 31 March 30 September 2007 2006 2006 £million £million £million Goodwill 309.6 309.6 309.6Other intangible assets 0.9 1.1 1.1Property, plant and equipment 808.3 502.5 695.7Financial instrumentsRestricted cash 28.8 47.6 26.1Derivative financialinstruments 3.3 - 0.4Other non-current assets 2.7 6.0 2.9Investments accounted forusing the equity method 0.2 0.3 0.3Deferred tax assets 0.7 - 0.3_______________________________________________________________________________Non-current assets 1,154.5 867.1 1,036.4 Trade and other receivables 241.8 244.8 213.3Financial instrumentsRestricted cash 36.3 - 12.2Derivative financialinstruments 5.6 13.0 1.0Cash and cash equivalents 904.5 726.1 860.7_______________________________________________________________________________Current assets 1,188.2 983.9 1,087.2 Trade and other payables (592.6) (493.8) (414.1)Borrowings (35.9) (18.2) (32.8)Derivative financial instruments (18.8) - (15.3)Current tax liabilities (44.4) (39.3) (46.8)Provisions - (10.9) -_______________________________________________________________________________Current liabilities (691.7) (562.2) (509.0)_______________________________________________________________________________Net current assets 496.5 421.7 578.2 Borrowings greater than one year (456.9) (280.5) (446.9)Derivative financial instruments (5.0) - (4.8)Other non-current liabilities (93.6) (79.7) (74.8)Provisions (79.7) (59.3) (73.2)Deferred tax liabilities (25.3) (12.7) (32.0)_______________________________________________________________________________Non-current liabilities (660.5) (432.2) (631.7)_______________________________________________________________________________Net assets 990.5 856.6 982.9=============================================================================== Ordinary shares 5 104.7 101.6 102.6Share premium 5 632.9 579.2 591.4Retained earnings 5 262.3 170.3 298.4Other reserves 5 (9.4) 5.5 (9.5)_______________________________________________________________________________Shareholders' funds - equity 990.5 856.6 982.9=============================================================================== Consolidated statement of cash flows (unaudited) Six months Year ended ended 31 March 30 September Notes 2007 2006 2006 £million £million £million Cash flows from operatingactivitiesCash generated from operations 6 158.3 90.6 221.6Interest received 23.6 13.7 32.5Interest paid (18.0) (5.4) (24.4)Tax paid (2.1) (0.5) (4.5)_______________________________________________________________________________Net cash from operating activities 161.8 98.4 225.2 Cash flows from investingactivitiesProceeds from sale of property,plant and equipment 27.0 29.1 87.4Purchase of property, plant andequipment (154.8) (143.3) (408.3)Proceeds from sale of asset heldfor resale - 7.1 7.1Purchase of other intangible assets (0.2) (0.1) (0.5)Dividends received from associate 0.2 - -_______________________________________________________________________________Net cash used in investingactivities (127.8) (107.2) (314.3) Cash flows from financingactivitiesNet proceeds from issue ofordinary share capital 15.8 10.8 17.9Purchase of shares for employeeshare schemes (4.3) (0.1) (0.6)Net proceeds from drawdown of newbank loans 46.7 24.4 201.2Net proceeds from sale and financeleasebacks - 74.5 108.6Repayment of bank loans (14.8) (21.3) (30.4)Repayment of capital elements offinance leases (1.3) - (1.0)Management of liquid resources (28.1) (19.6) (11.2)_______________________________________________________________________________Net cash generated in financingactivities 14.0 68.7 284.5 Effects of exchange rate changes (4.2) (0.8) (1.7)_______________________________________________________________________________Net increase in cash and cashequivalents 43.8 59.1 193.7 Cash and cash equivalents atbeginning of period 860.7 667.0 667.0_______________________________________________________________________________Cash and cash equivalents at endof period 904.5 726.1 860.7=============================================================================== Consolidated statement of recognised income and expense (unaudited) Six months Year ended ended 31 March 30 September 2007 2006 2006 £million £million £million Cash flow hedgesFair value losses in period, net oftax (13.9) (3.3) (17.6)Transfers to net profit 14.0 (2.0) (2.7)Translation differences on foreigncurrency net investments - (0.1) -_______________________________________________________________________________Income and expense recogniseddirectly in equity 0.1 (5.4) (20.3) (Loss)/profit for the period (12.7) (28.9) 94.1_______________________________________________________________________________Total recognised income and expensefor the period attributable toshareholders of the Company (12.6) (34.3) 73.8=============================================================================== Operating and financial review Half year 2007 compared with half year 2006 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 attributable to the equity shareholders. Return on equity for the half year ended 31 March 2007 was (1.3)%, improved from(3.4)% for the half year ended 31 March 2006. This was driven by a significantreduction in the loss for the period partially offset by an increase in otherequity components, principally £15.8 million relating to the exercise ofemployee share options. Return on equity for the year to 31 March 2007 was 11.9%, improved from 5.6% forthe year to 31 March 2006. Management is incentivised through the Long Term Incentive Plan to deliverincreases in return on equity to 15% by 2008. Loss before tax per seat, revenue per seat and cost per seat Loss before tax per seat is a measure used internally to allow all our people tounderstand 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. Loss before tax per seat improved in half year 2007 by 61.9% from£2.22 to £0.85 as a result of a 2.4% increase in revenue per seat from £34.67 to£35.51 (explained in more detail in 'Revenue' below), and a decrease in cost perseat of 1.4% from £36.89 to £36.36. Cost per seat, excluding fuel Even after the mitigation provided by easyJet's hedging activities, there issignificant volatility in fuel costs which is largely dictated by externaleconomic and political factors, we consider that the movement in cost per seatexcluding fuel is the best indicator of management's performance in keeping unitcosts low. Cost per seat excluding fuel decreased by 2.1% from £27.75 in half year 2006 to£27.18 in half year 2007. This was mainly a result of direct management actionto control overheads, in addition to the benefit from weaker US dollar and Euroforeign exchange rates. Seats flown Seats flown is considered by management to be the best measure of output unitsof production. The number of seats flown in half year 2006 increased by 11.5%from 18.2 million in half year 2006 to 20.2 million in half year 2007, as aresult of the introduction of new aircraft into the fleet. Income statement Revenue easyJet's revenue increased 14.2% from £629.5 million to £719.0 million, fromhalf year 2006 to half year 2007. Revenue per seat increased 2.4% from £34.67 to£35.51. Passenger revenue, the largest component, comprises the price paid for the seatless government taxes, such as Air Passenger Duty and VAT. It increased by 12.4%from £571.0 million to £641.8 million, driven by a 10.7% growth in passengernumbers from 14.9 million to 16.4 million, and a 0.8% increase in passengerrevenue per seat. This was despite the effect of the UK Government's decision todouble Air Passenger Duty with effect from 1 February 2007, which resulted inadditional taxes of £12.4 million. The number of passengers carried reflected a14.3% increase in the size of the easyJet fleet in operation from an average of100.8 aircraft to an average of 115.2 aircraft offset by a small decrease in theaverage load factor achieved from 81.8% to 81.2%. Growth was particularly strong in continental Europe, with intra-Europeanrevenues growing by 47.7%. Ancillary revenue includes fees and charges (including credit card fees, excessbaggage charges, speedy boarding, sporting equipment fees, infant fees, changefees and rescue fees), profit share from in-flight sales (including food,beverages, and boutique items), and commissions received from products andservices sold (such as hotel bookings, car hire bookings and travel insurance),less chargebacks from credit cards. In half year 2007, £77.2 million was earnedfrom ancillary revenues, up 32.0% from half year 2006. This has been driven bythe 10.7% growth in passengers carried, the positive effect of changes inarrangements for car hire, insurance and in flight catering and increases inrates for change fees and credit card fees. It was also driven by theintroduction of speedy boarding as a new product. Ancillary revenue per seatincreased by 18.2% from £3.23 to £3.81. Ground handling charges easyJet's ground handling charges include the salaries of self handling staff inSpain. These costs increased by 6.8% from £71.2 million to £76.1 million, fromhalf year 2006 to half year 2007. The increase in ground handling chargesreflects the 10.4% increase in the number of sectors flown, alongside mix costsas a result of network expansion decisions. Cost savings were achieved as aresult of self-handling and renegotiated third-party handling in Spain. As aresult, ground handling cost per seat decreased by 4.3% from £3.92 to £3.76. Airport charges easyJet's external airport charges increased by 13.6% from £115.7 million to£131.4 million from half year 2006 to half year 2007. This increase wasattributable to the growth in passengers carried of 10.7% and inflationary costincreases at regulated airports. On a per seat basis, costs increased by 1.8%from £6.37 to £6.49. Fuel easyJet's fuel costs increased by 12.1% from £165.9 million to £185.9 millionfrom half year 2006 to half year 2007. A 2.7% decrease in easyJet's average USdollar fuel cost per tonne (excluding hedging) resulted in reduced costs toeasyJet of £4.7 million. The strengthening of the value of sterling against theUS dollar, the currency in which fuel prices are denominated, over the course ofhalf year 2007 reduced costs by approximately £17.9 million. The impact of asignificant increase in flying and our hedging activities amounted to £42.6million additional fuel costs. On a per seat basis, costs increased by 0.5% from£9.14 to £9.18. Navigation charges easyJet's navigation charges increased by 13.0% from £54.6 million to £61.7million from half year 2006 to half year 2007. This increase was principallyattributable to a 14.6% increase in the ASKs flown in half year 2007. Costsavings were derived from a weaker Euro. On a per seat basis, costs increased by1.3% from £3.01 to £3.05. Crew costs easyJet's crew costs increased by 26.9% from £75.2 million to £95.5 million fromhalf year 2006 to half year 2007. The increase in crew costs resulted from anincrease in headcount during the half year 2007 to service the additionalsectors and aircraft operated by easyJet during the half year, the increase insalaries, following a new pay deal agreed with our flight crew and cabin crewemployees, and the subsequent costs of recruitment and training. In addition,investments in crew have been made to ensure that the crew shortages experiencedin summer 2006 are not repeated. Encouragingly, the business has experiencedsignificantly less attrition compared to half year 2006. On a per seat basis,costs increased by 13.8% from £4.14 to £4.71. Maintenance Maintenance expenses decreased by 8.8% from £51.4 million to £46.8 million fromhalf year 2006 to half year 2007. easyJet's maintenance expenses consistprimarily of the cost of routine maintenance and spare parts and provisions forthe estimated future cost of heavy maintenance and engine overhauls on aircraftoperated by easyJet pursuant to dry operating leases. The extent of the requiredannual maintenance reserve charges is determined by reference to the number offlight hours and cycles permitted between each engine shop visit and heavymaintenance overhaul on aircraft airframes. The decrease in maintenance costswas largely due to the exit of the Boeing 737-300 fleet and the benefits of newcontractual arrangements being negotiated with lower prices, offset by theadditional cost of a 10.4% increase in the number of sectors flown. On a perseat basis, costs reduced by 18.3% from £2.83 to £2.31. Advertising easyJet continues to advertise to consolidate the awareness of the brand and itslow fares philosophy. Advertising costs increased by 8.9% from £17.4 million to£18.9 million from half year 2006 to half year 2007. Advertising cost per seatdecreased by 2.3% from £0.96 to £0.94. Merchant fees and incentive pay Merchant fees and incentive pay increased by 8.8% from £8.6 million to £9.4million from half year 2006 to half year 2007. Merchant fees and incentive payincludes the costs of processing fees paid for all of easyJet's credit and debitcard sales and the per-seat sold/transferred commission paid as incentive pay toeasyJet's telesales staff. The increase is reflective of a larger volume oftransactions but on a per seat basis, costs have reduced marginally by 2.4% from£0.47 to £0.46. Aircraft and passenger insurance Aircraft and passenger insurance costs reduced by 18.4% from £8.2 million inhalf year 2006 to £6.7 million in half year 2007, despite a 10.7% increase inpassenger numbers. This was as a result of lower rates being negotiated and theeffect of the strengthening of sterling against the US dollar. On a per seatbasis, costs reduced by 26.8% from £0.45 to £0.33. Other costs Other costs increased by 38.5% from £34.0 million to £47.1 million from halfyear 2006 to half year 2007. Items in this cost category include administrativecosts and operational costs not included elsewhere including some salaryexpenses. This cost category also includes compensation paid to passengers andother related disruption costs, the cost of share option schemes and managementbonuses. On a per seat basis, costs increased by 24.2% from £1.87 to £2.33. Depreciation Depreciation charges increased by 60.5% from £10.4 million to £16.7 million fromhalf year 2006 to half year 2007. The depreciation charge reflects depreciationon owned and finance leased aircraft and capitalised aircraft maintenancecharges, and also includes depreciation on computer hardware and other assets.easyJet has owned or leased under a finance lease an average of 47.2 Airbus A319aircraft during the half year 2007 (half year 2006: 22.3 Airbus A319 aircraft).The increase in depreciation reflects the introduction of new owned Airbusaircraft. On a per seat basis, depreciation increased by 44.6% from £0.57 to£0.82. 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 27.9% from £63.5 million to £45.9 million from half year 2006 tohalf year 2007. During the period 2 new Airbus A319 aircraft were added to thefleet on lease agreements, 2 Boeing 737-700s and 3 Boeing 737-300s were retired.The average number of leased aircraft in half year 2007 decreased by 15.1% to74.9 by comparison to half year 2006. Half year over half year, easyJet hasbenefited from the strengthening of the value of sterling against the US dollar,the currency in which lease costs are denominated set off against rising dollarinterest rates. There was also a reduction in the costs of lease returns.easyJet has seen its average leasing cost per aircraft decrease by around 15.0%half-year on half-year. On a per seat basis aircraft dry lease costs decreasedby 35.3% from £3.49 to £2.26. 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 £1.0million charge in 2007 relates to the costs incurred of leasing aircraft for theend of the summer 2006 season. Wet leased aircraft are not included in fleetnumbers discussed elsewhere in the interim report. Interest and other finance income Interest and other finance income represents interest received or receivable byeasyJet. Interest and other finance income increased by 52.9% from £15.6 millionin half year 2006 to £23.9 million in half year 2007. This reflects an increasein the cash and restricted cash balances from £773.7 million at 31 March 2006 to£969.6 million at 31 March 2007. 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. Interest and other finance charges increased by 84.4%from £9.0 million in half year 2006 to £16.6 million in half year 2007. Thisprimarily reflects an increase in borrowings from £298.7 million at 31 March2006 to £492.8 million at 31 March 2007 due to the financing of new Airbusaircraft. In addition there was an increase in US dollar and sterling interestrates. Foreign exchange revaluations on financing items produced net income of£1.0 million during half year 2007. Share of profit after tax of The Big Orange Handling Company The Big Orange Handling Company Limited is a company owned by Menzies AviationLimited and easyJet. It was set up in January 2004 to provide ground handlingservices at London Luton airport. During the half year 2007, the share (26%) ofthe profit after tax attributable to easyJet was £0.1 million (2006: £0.1million). Taxation In half year 2007, easyJet recognised a tax credit of £4.4 million (half year2006 - tax credit of £11.4 million). The decrease in tax credit recognised isdue to the decrease in pre-tax losses. The net deferred tax liability decreased by £7.1 million from £31.7 million at30 September 2006 to £24.6 million at 31 March 2007, primarily due to capitalallowances taken being in excess of depreciation charges. Loss after tax For the reasons described above, easyJet's loss after tax decreased by 56.1%from £28.9 million in half year 2006 to £12.7 million in half year 2007. Loss per share The basic loss per share decreased by 57.4% from 7.17 pence in the half year2006 to 3.06 pence in the half year 2007. Balance sheet Goodwill Goodwill relates to the purchases of TEA Basel and Go Fly. Property, plant and equipment Property, plant and equipment comprises principally owned aircraft, spares anddeposits paid to Airbus in respect of the delivery of future aircraft which arenot to be financed according to sale and leaseback arrangements. The net bookamount attributable to property, plant and equipment increased from £695.7million at 30 September 2006 to £808.3 million at 31 March 2007. The increase isdue to capital expenditure of £156.1 million, set out in more detail in 'capitalexpenditure' below, set off against disposals of £26.8 million and depreciationof £16.7 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 £31.1 million at 30September 2006 to £36.6 million at 31 March 2007. Cash and cash equivalents Cash and cash equivalents, excluding restricted cash, has increased by 5.1% from£860.7 million to £904.5 million. Other current assets Other current assets comprise trade and other receivables, restricted cash andderivative financial instruments. Other current assets increased by 25.3% from£226.5 million at 30 September 2006 to £283.7 million at 31 March 2007. 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 13.4% from £213.3million at 30 September 2006 to £241.8 million at 31 March 2007, principally dueto the growth of the business. Current liabilities Current liabilities have increased by 35.9% from £509.0 million at 30 September2006 to £691.7 million at 30 September 2007, principally due to growth and thecyclicality of the business, which means there are more sales in advance at 31March compared with 30 September each year. Non-current borrowings Non-current borrowings all relate to debt related to owned aircraft and aircraftsold to lessors and leased back under finance leases. The amount increased by2.2% from £446.9 million at 30 September 2006 to £456.9 million at 31 March2007, due to the acquisition of more owned aircraft subject to debt financearrangements, set off against the weakening of the US dollar compared tosterling. Other non-current liabilities Other non-current liabilities include provisions for maintenance liabilities,deferred surpluses on the sale and leaseback of aircraft, derivative financialinstruments and deferred tax liabilities. The amount increased by 10.2% from£184.8 million at 30 September 2006 to £203.6 million at 31 March 2007. Thedeferred tax provision decreased by £6.7 million, the deferred surplus on saleand leaseback reduced due to the small number of aircraft taken under sale andleaseback during half year 2007, offset by increases in maintenance provisionsand other maintenance liabilities. Cash flow Capital expenditure Group capital expenditure on property, plant and equipment is summarised asfollows: 2007 2006 £million £million Aircraft 107.2 111.0Prepayments on account - aircraft deposits 39.5 30.8Leasehold improvements 4.8 0.8Fixtures, fittings and equipment 3.3 0.7_______________________________________________________________________________Total cash capital expenditure 154.8 143.3 Aircraft spares received free of charge (non-cashcapital expenditure) 1.3 1.9_______________________________________________________________________________Total capital expenditure 156.1 145.2=============================================================================== As a result of a purchase agreement approved by shareholders in March 2003 andthe Class 1 circular approved by shareholders in December 2006, the Group iscontractually committed to the acquisition of a further 95 new Airbus A319aircraft with a list price of approximately US$4.2 billion, being approximately£2.1 billion (before escalations, discounts and deposits already paid). Inrespect of those aircraft deposit payments amounting to US$181.4 million or£97.3 million had been made as at 31 March 2007 (30 September 2006 US$164.3million, £90.9 million) for commitments for acquisition of Airbus A319 aircraft.It is intended that these aircraft will be financed partly by cash holdings andinternal cash flow and partly through external financing including committedfacilities arranged prior to delivery. In addition certain of the aircraft willbe sold and leased back under operating leases. Working capital At 31 March 2007, net current assets were £496.5 million, down £81.7 millionfrom £578.2 million at 30 September 2006. This change principally reflects anincrease in cash, an increase in debtors due to increased sales volumes offsetby an increase in creditors. The increased sales volumes are due to thecyclicality of the business and growth. Unearned revenue increased from £179.4 million to £356.0 million due toincreased sales volumes. Cash flow Net cash inflow from operating activities totalled £161.8 million, an increaseof £63.4 million from £98.4 million in half year 2006 primarily due to changesin working capital Financing arrangements The following table sets out the movements in financing for the two half yearsended 31 March 2007 and 31 March 2006: 2007 2006 £million £million Balance at 1 October 479.7 217.3New loans and finance leases raised 46.7 98.9Capital repayments of loans and finance leases (16.1) (21.3)Effect of exchange rates (17.4) 3.8Effect of deferred financing fees (0.1) -_______________________________________________________________________________Balance at 31 March 492.8 298.7=============================================================================== Of the 10 Airbus A319s that were delivered during the period, two were financedthrough US Dollar or sterling mortgage loans, one was temporarily cash acquiredwith mortgage finance drawn after year-end, two were sold to lessors and leasedback under operating leases, and five were cash acquired. Share capital The number of shares allotted, called up and fully paid on 31 March 2007 was418.8 million (30 September 2006: - 410.5 million). During half year 2007, 8.3million shares were issued on exercise of options under employee share optionschemes (half year 2006: 6.5 million). Fleet At the end of March 2007, the fleet comprised 30 Boeing 737s and 97 AirbusA319s, giving a total of 127 aircraft, up from the 35 Boeing 737s and 87 AirbusA319s at the start of the financial year. Details of the fleet at 31 March 2007are as follows: Future Changes deliveries Under Under in (including Unexercised operating finance half exercised options Owned lease lease Total year options) (note 1) Airbus A319s 46 45 6 97 10 95 123Boeing 737-700s - 30 - 30 (2) - -Boeing 737-300s - - - - (3) - -_________________________________________________________________________________________________ 46 75 6 127 5 95 123================================================================================================= Notes: 1. Options may be taken as any Airbus A320 family aircraft and are valid until2015. A further 95 Airbus A319 aircraft are planned to be delivered through toDecember 2010. 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 2.3 years (30 September 2006: 2.2 years). Footnotes i) Earnings before interest, taxes, depreciation,amortisation, share of profits of associates and lease payments (excluding themaintenance reserve component of operating lease payments). Maintenance reservecosts are charged to the cost heading "maintenance". ii) Represents depreciation, amortisation of intangibleassets, aircraft dry lease costs, aircraft long-term wet lease costs, share ofprofit after tax of associates and net financing income. iii) Represents the loss after tax divided by the average ofopening and closing shareholders' funds iv) Represents loss before tax divided by the number of flownseats available for passengers v) Represents total revenues divided by the number of seatsflown available for passengers vi) Represents total revenues less loss before tax, divided bythe number of seats flown available for passengers vii) Represents total revenues less loss before tax plus fuelcosts, divided by the number of seats flown available for passengers viii) Represents the number of seats flown available forpassengers ix) 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 departeda 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 easyJetstaff for business travel. x) Represents the number of aircraft owned plus those held onlease arrangements of more than one month's duration at the end of the relevantperiod. xi) Represents the average number of aircraft owned plus thoseheld on lease arrangements of more than one month's duration during the relevantperiod. xii) Represents the number of owned/leased aircraft in serviceat the end of the relevant period. xiii) Represents the average number of owned/leased aircraft inservice during the relevant period. xiv) Represents the number of one-way revenue flights. xv) Represents the number of hours that aircraft are in actualservice, measured from the time that each aircraft leaves the terminal at thedeparture airport to the time that such aircraft arrives at the terminal at thearrival airport. xvi) Represents the number of passengers as a proportion of thenumber of seats available for passengers. No weighting of the load factor iscarried out to recognise the effect of varying flight (or "stage") lengths. xvii) Represents the average number of block hours per day peraircraft operated during the relevant period. xviii) Represents the average number of block hours per day peraircraft owned / leased during the relevant period. xix) Represents the sum by route of seats available for passengersmultiplied by the number of kilometres those seats were flown. xx) Represents the sum by route of passengers multiplied by thenumber of kilometres those passengers were flown. xxi) Represents the passenger revenue divided by the number ofpassengers carried. xxii) Represents the total revenue divided by the total number ofASK's. xxiii) Represents the difference between total revenue and lossbefore tax, divided by the total number of ASK's. xxiv) Includes credit card fees, excess baggage charges, extra bagcharges, sporting equipment fees, speedy boarding fees, infant fees, changesfees, profit share from in-flight sale of food, beverages and boutique items,commissions received from products and services sold such as hotel bookings, carhire bookings and travel insurance, less chargebacks. xxv) Includes principally administrative costs and operational costsnot included elsewhere, including some salary expenses, compensation paid topassengers and certain other items such as currency exchange gains and lossesand the profit or loss on the disposal of fixed assets. Notes to the financial statementsFor the six months ended 31 March 2007 (unaudited) 1. Basis of preparation The unaudited financial information included in this statement has been preparedin accordance with the FSA listing rules, accounting policies, methods ofcomputation and presentation set out in the Annual Report and Accounts for theyear ended 30 September 2006. These accounting policies are in accordance withInternational Financial Reporting Standards (IFRS). As permitted under IFRS, easyJet has chosen not to adopt IAS 34 "InterimFinancial Statements" in preparing its 2007 interim statement, and thereforethis interim financial information is not in full compliance with thepresentational and disclosure requirements of IFRS. The financial information included in this statement does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985.The financial information for the year ended 30 September 2006 included in thisInterim Report is based upon easyJet's consolidated financial statements forthat year. Those financial statements were reported on by easyJet's auditors andhave been delivered to the Registrar of Companies. The report of the auditorswas unqualified and did not contain a statement under section 237 (2) or (3) ofthe Companies Act 1985. 2. Earnings per share The earnings per share are based on the following: Six months Year ended 30 ended 31 March 2007 2006 September 2006 (Loss)/profit for the periodretained for equity shareholders(£million) (12.7) (28.9) 94.1 Number Number Number Weighted average number ofordinary shares in issue duringthe period used to calculatebasic earnings per share(millions) 414.1 403.4 405.7 Weighted average number ofdilutive share options used tocalculate diluted earnings pershare (millions) N/A N/A 9.7 There are no diluted earnings per share for the six months ended 31 March 2006and 2007 as the impact of share options on the basic earnings per share isantidilutive. 3. Taxation a) Tax on profit on ordinary activities The taxation charge is made up as follows: Six months Year ended ended 31 March 30 September 2007 2006 2006 £million £million £million Current taxation (0.3) 0.9 17.3 Deferred taxation (4.1) (12.3) 17.8______________________________________________________________________________Total taxation (credit)/charge (4.4) (11.4) 35.1============================================================================== Effective tax rate 25.7% 28.2% 27.2% 3. Taxation (continued) The charge for deferred taxation has been calculated at a rate of 30% whichrepresents the current UK rate of tax since the timing differences almostexclusively relate to UK capital allowances. In the 2007 budget, the Chancellorannounced the rate of UK corporation tax would reduce to 28%. The deferred taxprovision will be recalculated on the lower rate once Royal Assent has beenachieved for the Finance Act. This is expected to be before September 2007. The effective tax rate in the six months ended 31 March 2007 is different fromthe standard rate of tax principally due to overseas profits having been taxedat lower effective tax rates in those countries (2%), and the release ofaccruals from prior years following agreement of tax computations (2%). Due tothe loss making position of the Group, a tax credit has been recognised, asthese losses are expected to be more than matched by profits in the second halfof the year ending 30 September 2007. b) Tax on items charged to equity comprises: Six months Year ended ended 31 March 30 September 2007 2006 2006 £million £million £million Deferred tax credit on share options 4.7 1.3 5.9Deferred tax (charge) / credit onfair value movements of cash flowhedges (1.7) 2.3 8.7 Current tax - - 4.9_______________________________________________________________________________Tax credit reported directly inreserves 3.0 3.6 19.5=============================================================================== 4. Dividends No dividends have been paid or proposed in the period ended 31 March 2007 orduring the comparative accounting periods. 5. Consolidated reconciliation of movements in shareholders' funds - equity Ordinary Share Other Retained Total shares premium reserves earnings £million £million £million £million £million At 1 October 2006 102.6 591.4 (9.5) 298.4 982.9 Loss for the period - - - (12.7) (12.7)Cash flow hedgesFair value gains inperiod, net ofdeferred tax - - (13.9) - (13.9)Transfers to net profit,net of tax - - 14.0 - 14.0Share optionsProceeds from shares issued 2.1 41.5 - (27.8) 15.8Value of employeeservices, net of deferred tax - - - 8.7 8.7Employee share schemes -purchase of shares - - - (4.3) (4.3)____________________________________________________________________________________At 31 March 2007 104.7 632.9 (9.4) 262.3 990.5==================================================================================== 6. Reconciliation of net (loss) / profit to net cash inflow from operatingactivities Six months ended 31 March Year ended 2007 2006 30 September 2006 £million £million £million (Loss) / profit after tax (12.7) (28.9) 94.1 Adjustments for:Tax (credit) / charge (4.4) (11.4) 35.1Depreciation charge 16.7 10.4 27.4Profit on disposal of property, plantand equipment (0.2) (0.9) (1.3)Amortisation of other intangibles 0.4 0.4 0.8Interest income (23.9) (15.6) (35.4)Interest expense 17.6 8.9 22.7Share based payments 4.0 2.3 4.7Share of results of associate aftertaxation (0.1) (0.1) (0.1)Financial instruments - time value(gains) / losses (3.0) 0.9 9.8Foreign exchange (gains) / losses (13.7) 1.1 (17.3) Changes in working capital:Increase in trade and otherreceivables (29.4) (33.0) (6.9)Increase in payables 181.5 147.9 79.0Increase in provisions 6.5 0.2 3.2(Increase) / decrease in othernon-current assets (0.3) 3.5 5.7Decrease in financial instruments 0.5 0.3 0.4Increase / (decrease) in othernon-current liabilities 18.8 4.6 (0.3)______________________________________________________________________________Cash generated from operations 158.3 90.6 221.6============================================================================== 7. 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. Independent review report from PricewaterhouseCoopers LLP Independent review report to easyJet plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2007 which comprises consolidated incomestatement, consolidated balance sheet, consolidated statement of cash flows,consolidated statement of recognised income and expense and related notes. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the London Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of easyJet plc management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2007. PricewaterhouseCoopers LLPChartered AccountantsSt Albans8 May 2007 Notes: (a) The maintenance and integrity of the easyJet plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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