EasyJet 2008 Annual Report Download

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Annual report and accounts 2008

Table of contents

  • Page 1
    Annual report and accounts 2008

  • Page 2

  • Page 3
    ... 26 Executive management team 28 Corporate governance 32 General information Report on Directors' remuneration 35 Report on Directors' remuneration Financial information 42 Statement of Directors' responsibilities 43 Independent auditors' report to the members of easyJet plc 44 Consolidated income...

  • Page 4
    easyJet plc Annual report and accounts 2008 easyJet at a glance Strong revenue growth has meant that easyJet was able to offset over half the impact of higher fuel costs and deliver pre-tax profits of £123m*. easyJet is financially strong with significant cash holdings and low gearing. Financial...

  • Page 5
    easyJet plc Annual report and accounts 2008 By building strong positions at the major airports in key markets such as London, Milan Malpensa, Geneva and Paris easyJet has developed Europe's premier air transport network. Over 50 million seats flown Seats flown 28.8 34.7 2005 38.9 44.5 51.9 ...

  • Page 6
    ... in capacity exiting the market. Strong revenue growth has meant that easyJet was able to offset over half the impact of higher fuel costs and deliver underlying pre tax profits of £123 million1 and underlying return on equity of 7.6%1, down from 13.6%1 last year. GB Airways was smoothly integrated...

  • Page 7
    ... Directors' report Total revenue per seat up 12.6% (7.3% at constant currency) for the full year and 15.2% (9.3% at constant currency) for the second half, driven by improved ancillary revenue performance and increased sector length associated with the acquisition of GB Airways on 31 January 2008

  • Page 8
    ... and by building strong positions at the major airports in key markets such as London, Milan, Geneva and Paris easyJet has developed Europe's premier air transport network when measured both by consumer reach and presence on the top 100 routes. The network ensures easyJet has a broad appeal across...

  • Page 9
    ... market for easyJet where it holds the leading position at Basel and Geneva. 07 Other information Financial information Report on Directors' remuneration A key element of revenue enhancement is the continued development of easyJet's ancillary revenue stream. The checked bag charge, introduced...

  • Page 10
    easyJet plc Annual report and accounts 2008 Business review continued Fleet easyJet benefits from its young fuel efficient fleet and the low ownership costs negotiated as part of the ongoing relationship with Airbus. In the year, easyJet took delivery of 13 A319 aircraft under the terms of the ...

  • Page 11
    easyJet plc Annual report and accounts 2008 Financial review Key performance indicators 2008 2007 Change Return on equity (reported) Return on equity (underlying)* 6.8% 7.6% 14.3% 13.6% (7.5)pp (6.0)pp 16.8 17.3 0.4pp 28.0 29.0 9.6 15.7 21.7 Jeff Carr Group Finance Director Seats flown (...

  • Page 12
    ... in aircraft at Gatwick through the acquisition of GB Airways, which accounts for almost all of the growth in London capacity, most of the growth, continuing the trend seen in the past two years, has been into continental Europe, particularly in France, Italy and Spain. Average passenger yields...

  • Page 13
    ...constant currency basis fell by 3.7%. 11 Other information Financial information Report on Directors' remuneration Directors' report Ground handling charges Airport charges Fuel Navigation charges Crew costs Maintenance Advertising Merchant fees and commissions Aircraft and passenger insurance...

  • Page 14
    ...2008 easyJet completed a review of head office activities and as part of its ongoing drive to improve cost efficiency and to react to the changing external economic climate, made 60 people redundant. The financial benefit of this will be seen in 2009. Profit before tax and return on equity Reported...

  • Page 15
    easyJet plc Annual report and accounts 2008 Financial review continued The increase in other non-current assets is predominately due to the fair value of Gatwick landing rights of £72.4 million, an intangible asset arising from the GB Airways acquisition and goodwill arising of £50.2 million ...

  • Page 16
    ...may lead to changes in the economic regulation of increases to UK airport charges. easyJet's number one priority is the safety of customers and people. easyJet operates a strong safety management system through Fatigue Risk Management System Incident reporting Safety Review Board Safety Audit Group...

  • Page 17
    ... US dollar cash deposits. Report on Directors' remuneration Fuel price and currency fluctuations: Sudden and significant increases in jet fuel price or changes in foreign exchange rates. If not protected against, this would have a material adverse effect on the financial performance. Policy to...

  • Page 18
    ... Action Groups, the Director of Safety and Security makes Climate Change, "Because carbon dioxide has a long atmospheric an independent report to the Board of easyJet plc. All safety risks are residence time (≈100 years) and so becomes well mixed throughout therefore managed through this process...

  • Page 19
    ...) by 2011. B. Efficient use of aircraft Conventional airlines operate networks based on a "hub and spoke" system. In these networks, the majority of passengers will take two flights to reach their destination, connecting through the hub. easyJet always flies direct, or "point to point", and does not...

  • Page 20
    ... for the next flight before boarding Many of easyJet's passengers are using easyJet to fly to specific destinations. passengers and their baggage. This process includes safety checks, A proportion of easyJet's passengers have a choice of holiday destination. cleaning the aircraft cabin and on most...

  • Page 21
    ... governments to work together. It will require step changes in efficiency, through new technologies, and the right policies from governments. The executive body with overall responsibility for climate change policy within easyJet is the Environment Management Group, which currently meets fortnightly...

  • Page 22
    ... plc Annual report and accounts 2008 Corporate and social responsibility continued C. Shaping European policy on making ATM more efficient easyJet supports the ACARE ATM target to save 5% to 10% of the fuel consumed by European aviation through radical changes to the air traffic management system...

  • Page 23
    ... which helps to inform all employees across Europe about business achievements and goals. The publication "Fresh" is a good example of this. Each year all employees are given a copy of "Flight Plan" - the business strategy. easyJet is continuing to develop its on-line employee communication systems...

  • Page 24
    ... in order to deliver a business briefing and to promote open discussions between cabin crew, pilots and the executive team. This has been positively received and will continue throughout the next financial year. Where a cascade of information was more appropriate, easyJet developed and introduced...

  • Page 25
    easyJet plc Annual report and accounts 2008 Corporate and social responsibility continued Staff travel Staff travel continues to be a very popular employee benefit with 78,552 bookings made by employees with 129,248 seats flown. This equates to a year on year increase on both bookings (by 10.2%) ...

  • Page 26
    ... as good expansion in business services, winning large contracts. The successful integration of Lex and RAC resulted in a strong rise in profits and a tripling of the share price during Andrew's tenure as Chief Executive. Andrew was a Non Executive Director at Emap plc between 2000 and 2008 where...

  • Page 27
    ... of books on aviation economics and management. 25 Other information Financial information Dawn Airey Independent Non Executive Director Dawn (48) joined easyJet in April 2004. She is currently Chair and Chief Executive of Channel Five . Prior to this, she was Managing Director of Global Content...

  • Page 28
    easyJet plc Annual report and accounts 2008 Executive management team From left to right Saad Hammad, Mike Campbell, Cor Vrieswijk, Andrew Harrison, Toby Nicol, Jeff Carr, Neil Mills, Tim Newing 26

  • Page 29
    ... plc Annual report and accounts 2008 Executive management team continued Saad Hammad Chief Commercial Officer Saad (46) joined easyJet in November 2005, bringing considerable commercial experience in international consumer-focused businesses. Saad has held senior positions in brand management...

  • Page 30
    ... Board practice. Separately, the Board has taken advice during the year from expert management search and development consultants with a view to both enhancing its development of key managers and reviewing its succession planning for the top executive roles in the Company. Directors and officers...

  • Page 31
    ...who are currently members of this Committee are those who are best able to contribute to the Committee's objectives. Shareholders are required to approve all new long-term incentive plans. Further details of these plans can be found in the Report on Directors' remuneration. Audit Committee The Audit...

  • Page 32
    ...are currently members of this Committee are those who are best able to contribute to the Committee's objectives. David Bennett has served as the Chairman of the Committee during the year. David is currently an Executive Director of Abbey National plc prior to which he was Chief Executive Officer and...

  • Page 33
    ... of the year. A formal audit charter is in place. Role of Internal Audit The Internal Audit department reviews the extent to which systems of internal control: • are effective; • are adequate to manage easyJet's significant risks; • safeguard the Company's assets. The key objectives are to...

  • Page 34
    ... 2008 include 96,853 investment shares purchased under the 2006 and 2007 Long Term Incentive Plans and 838 partnership shares under the Share Incentive Plan (Buy As You Earn). Jeff Carr's shares at 30 September 2008 include 5,240 investment shares purchased under the 2007 Long Term Incentive Plan...

  • Page 35
    easyJet plc Annual report and accounts 2008 General information continued The trustee of the easyJet Employee Share Trust (the Trust), which is used in connection with the easyJet Long Term Incentive Plan, has the power to vote or not vote at its discretion in respect of any shares in the Company ...

  • Page 36
    easyJet plc Annual report and accounts 2008 General information continued One of the biggest costs for the business is fuel.The main suppliers are Shell, Air BP , Exxon and Q8. easyJet's IT systems include agreements with AIMS, who provide crew, aircraft and flight management control and operation...

  • Page 37
    ...value of the individual and their role • Reflects skills and experience Annual bonus • Incentivise year-on-year delivery of short-term performance goals Long Term Incentive Plan • Aligned to Business Plan • Incentivise long-term growth in easyJet's return on equity • Reviewed annually...

  • Page 38
    ... with easyJet's vision and values.The performance targets that will apply to Executive Directors' annual bonus opportunities in 2009 are currently under review. It is anticipated that they will be broadly similar to those in 2008. Full details will be included in next year's report. In line with...

  • Page 39
    ...the current financial year. As a minimum, any revised targets will be fully disclosed in next year's Report on Directors' remuneration. All employee share plan participation easyJet encourages share ownership throughout the Company by the use of a Share Incentive Plan and a Sharesave Plan. Executive...

  • Page 40
    ... until he secures commensurate employment, an amount equal to base salary, pension and bonus earned in the previous year. Jeff Carr's notice period is six months.There are no other provisions for compensation for loss of office. The Company's relationship with its Non Executive Directors is governed...

  • Page 41
    ...) Details of emoluments, paid or payable by Group companies to the Directors of easyJet plc who served in the current financial year are as follows: Salary/fees 2008 £000 Bonus 2008 £000 Total 2008 £000 Total 2007 £000 Pension contributions 2008 £000 2007 £000 Executive Andrew Harrison Jeff...

  • Page 42
    easyJet plc Annual report and accounts 2008 Report on Directors' remuneration continued Directors' share awards (audited) Details of share options and share awards under the schemes described above granted to the Directors of the Company and any movements during the year are shown in the following...

  • Page 43
    ... years ended September 2006, 2007 and 2008.The first two tranches will vest in their entirety, but none of the shares in the third tranche will vest. The returns on equity shown for the February 2008 grant relate to awards in excess of 100% of basic salary. Chief Executive Officer Recruitment Award...

  • Page 44
    easyJet plc Annual report and accounts 2008 Statement of Directors' responsibilities The Directors are responsible for preparing the annual report and financial statements in accordance with applicable United Kingdom law, being the Companies Act 1985 and International Financial Reporting Standards...

  • Page 45
    ... information in the financial statements and the part of the Report on Directors' remuneration to be audited. Overview We have audited the Group and parent company financial statements (the "financial statements'') of easyJet plc for the year ended 30 September 2008 which comprise the Consolidated...

  • Page 46
    easyJet plc Annual report and accounts 2008 Consolidated income statement Notes Year ended 30 September 2008 £million Year ended 30 September 2007 £million Passenger revenue Ancillary revenue Total revenue Ground handling charges Airport charges Fuel Navigation charges Crew costs Maintenance...

  • Page 47
    easyJet plc Annual report and accounts 2008 Consolidated balance sheet Notes 30 September 2008 £million 30 September 2007 £million Non-current assets Goodwill Other intangible assets Property, plant and equipment Derivative financial instruments Loan notes - The Airline Group Limited ...

  • Page 48
    easyJet plc Annual report and accounts 2008 Consolidated cash flow statement Notes Year ended 30 September 2008 £million Year ended 30 September 2007 £million Cash flows from operating activities Cash generated from operations Interest received Interest paid Tax paid 21 Net cash generated ...

  • Page 49
    easyJet plc Annual report and accounts 2008 Consolidated statement of recognised income and expense Notes Year ended 30 September 2008 £million Year ended 30 September 2007 £million 20 Net income/(expense) recognised directly in shareholders' funds Profit for the year (4.2) 152.3 Total ...

  • Page 50
    ..., the Company relies on a number of estimates including strategic plans, pre tax weighted average cost of capital, fuel prices, exchange rates and the long-term growth rate assumption applicable to the sector. Assets held for sale (note 11) When an aircraft is held for sale, the carrying value of...

  • Page 51
    ...their cost, less estimated residual value, on a straight-line basis over their expected useful lives. Expected useful lives are reviewed annually. Expected useful life 49 Other information Financial information Report on Directors' remuneration Computer software Contractual rights 3 years Over...

  • Page 52
    ...length of period benefiting from these enhancements. All other maintenance costs are charged to the income statement as incurred. The cost of new aircraft comprises the invoiced price of the aircraft from the supplier less the estimated value of other assets received by easyJet for nil consideration...

  • Page 53
    ... financial instruments designated as cash flow hedges are used to mitigate operating and investing transaction exposures to movements in jet fuel prices and currency exchange rates. Hedge accounting is applied to these instruments. Changes in intrinsic fair value are recognised in shareholders...

  • Page 54
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 1 Accounting policies (continued) Aircraft maintenance provisions The accounting for the cost of providing major airframe and certain engine maintenance checks for owned and finance leased aircraft is described...

  • Page 55
    ... by the European Union. Applies to periods beginning after International Accounting Standards Board New and revised standards Overview Other information Financial information Report on Directors' remuneration Directors' report IAS 27 Consolidated and Separate Financial Statements (Revised) IFRS...

  • Page 56
    ... average number of persons employed by the Group was: 2008 2007 Flight and ground operations Sales, marketing and administration Employee costs for the Group were: 5,985 390 5,062 431 6,375 2008 £million 5,493 2007 £million Wages and salaries Social security costs Pension costs Share-based...

  • Page 57
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued Key management compensation was: 2008 £million 2007 £million Short-term employee benefits Pension costs Payments for loss of office Share-based payments The members of the Executive Management Team are ...

  • Page 58
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 5 Tax (continued) Reconciliation of the total tax charge The tax for the year is lower than the standard rate of corporation tax in the UK. 2008 £million 2007 £million Profit on ordinary activities before ...

  • Page 59
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued Earnings per share is based on: 2008 £million 2007 £million million million Weighted average number of ordinary shares in issue during the year used to calculate basic earnings per share Weighted average ...

  • Page 60
    ... are the discount rate, fuel price and exchange rates for the US dollar and euro. Rights at Heathrow were not operated by easyJet after 29 March 2008 and were sold for proceeds of £30.0 million before the year end.They were classified at acquisition as assets held for sale and are not included...

  • Page 61
    ... Total £million Directors' report Cost At 1 October 2007 Acquisition of GB Airways (note 22) Additions Transfer to assets held for sale Disposals At 30 September 2008 Depreciation At 1 October 2007 Charge for the year Transfer to assets held for sale Disposals At 30 September 2008 Net book value...

  • Page 62
    ... 11 Assets held for sale Seven Airbus A321 and five Airbus A319, measured at carrying value, are classified as assets held for sale at 30 September 2008.These aircraft are to be sold as part of management's strategy to manage capacity growth during the coming year.They were classified as assets held...

  • Page 63
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 12 Trade and other receivables 2008 £million 2007 £million Trade receivables Less: provision for impairment of trade receivables Other receivables Recoverable supplemental rent on leased aircraft (pledged as...

  • Page 64
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 13 Cash and money market deposits 2008 £million 2007 £million Cash and cash equivalents (original maturity less than three months) Money market deposits (original maturity over three months) Current ...

  • Page 65
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 16 Other non-current liabilities 2008 £million 2007 £million Deferred income 68.8 86.8 Deferred income principally represents the non-current excess of sale price over fair value of aircraft that were ...

  • Page 66
    ... UK payroll may save under similar terms and conditions, albeit without tax benefits. Share incentive plan The share incentive plan is open to all employees on the UK payroll. Participants may invest up to £1,500 of their pre tax salary each year to purchase partnership shares in easyJet. For each...

  • Page 67
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued Long term incentive plan The plan is open, by invitation, to Executive Directors and senior management, and provides for annual awards of performance shares worth up to 200% of salary each year and matching ...

  • Page 68
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 20 Shareholders' funds Share capital £million Share premium £million Hedging reserve £million Translation reserve £million Retained earnings £million Total £million At 1 October 2007 Profit for the year ...

  • Page 69
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued The amounts recognised in the current and prior years are as follows: 2008 £million 2007 £million Option price - paid by option holder Spread - paid by employing subsidiary 6.9 0.3 16.5 28.2 7.2 44.7 ...

  • Page 70
    ...aircraft ordered by GB Airways for delivery during 2009. Goodwill is attributable to the anticipated future operating synergies derived from improved yield, cost economies of scale and additional network destinations. Prior to the acquisition, GB Airways commenced an arbitration action in the London...

  • Page 71
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 23 Financial instruments Carrying value and fair value of financial assets and financial liabilities The fair values of financial assets and liabilities, together with the carrying value at each reporting date ...

  • Page 72
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 23 Financial instruments (continued) Financial instruments are revalued based on exchange rates at the period end date. Amounts recorded in the income statement are as follows: 2008 £million 2007 £million ...

  • Page 73
    ... Financial information Report on Directors' remuneration 18.7 19.5 38.2 27.6 Total £million At 30 September 2007 Hedges of transaction currency risk Hedges of jet fuel price risk Related deferred tax Net losses The amount deferred and recognised in shareholders' funds during each financial year...

  • Page 74
    ... to use in managing financial risks.The policy is under ongoing review to ensure best practice in light of developments in the financial markets. Foreign currency risk management The principal exposure to currency exchange rates arises from fluctuations in both the US dollar and euro rates which...

  • Page 75
    ... reflects the impact on profit or loss after tax and shareholders' funds on financial instruments held at the reporting date. It does not reflect changes in revenue or costs that may result from changing currency rates, interest rates or fuel prices. Each sensitivity is calculated based on all other...

  • Page 76
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued 24 Financial risk and capital management (continued) Market risk sensitivity analysis (continued) The interest rate analysis assumes a 1% change in interest rates over the reporting year applied to end of year ...

  • Page 77
    easyJet plc Annual report and accounts 2008 Notes to the financial statements continued Commitments under finance leases 2008 £million 2007 £million Minimum lease payments fall due as follows: Not later than one year Later than one year but not more than five years More than five years Future ...

  • Page 78
    easyJet plc Annual report and accounts 2008 Company balance sheet Notes 30 September 2008 £million 30 September 2007 £million Non-current assets Investments in subsidiary undertakings Loans due from subsidiary undertakings Current assets Amounts due from subsidiary undertakings Current ...

  • Page 79
    easyJet plc Annual report and accounts 2008 Company cash flow statement Notes Year ended 30 September 2008 £million Year ended 30 September 2007 £million Cash flows from operating activities Cash used by operations Interest received Net cash used by operating activities Cash flows from ...

  • Page 80
    ... Company's profit for the year was £15.2 million (2007: loss of £1.7 million).The Company recognised no other income or expenses in either the current or prior year. The Company has seven employees.These are the Non Executive Directors of easyJet plc; their remuneration is paid by easyJet Airline...

  • Page 81
    easyJet plc Annual report and accounts 2008 Notes to the Company balance sheet and cash flow statement continued d) Reconciliation of net loss to net cash flow from operating activities 2008 £million 2007 £million Cash generated from operations Profit/(loss) for the year Adjustments for: ...

  • Page 82
    easyJet plc Annual report and accounts 2008 Five year summary Year end to 30 September 2008 £million 2007 £million 2006 £million (represented) 2005 £million 2004 £million Income statement Revenue EBITDAR Group operating profit (EBIT) Profit before tax Profit for the year Earnings per ...

  • Page 83
    ... Operated aircraft utilisation Other costs Passengers Profit before tax per seat Return on equity Revenue Revenue passenger kilometres (RPK) Revenue per ASK Revenue per seat Seats flown Sector Shareholder information Financial calendar Financial year end Annual General Meeting Announcement of 2009...

  • Page 84
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