EasyJet 2008 Annual Report Download - page 17

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easyJet plc
Annual report and accounts 2008
Financial review
continued
OverviewDirectors’ reportReport on Directors’ remunerationFinancial informationOther information
15
Operational risks (continued)
Risk description Potential impact Mitigation
IT security and fraud risk: easyJet A security breach could result in material Systems are secured and monitored
receives most of its revenues through adverse effect for the business and severe against unauthorised access.
credit cards and as an e-commerce reputational damage.
business, faces external and internal IT Scanning software for fraudulent
security risks. activity that is monitored and controlled
by Revenue Protection team.
Industrial action: Large parts of the If there is a breakdown in this process, Collective bargaining takes place
easyJet workforce are unionised. The same then operations could be disrupted with on a regular basis.
applies to the business’s key third-party a resultant adverse effect on the business.
service providers, where similar issues exist.
Regulation and oversight across Lack of awareness of local regulations Country oversight boards are being established
Europe: Retaining control and oversight or management issues could have for the main markets easyJet operates in.
of local regulatory and management adverse operational, reputational
issues across the network as the business and financial consequences.
grows geographically.
Financial risks
Risk description Potential impact Mitigation
Fuel price and currency fluctuations: If not protected against, this would Policy to hedge within a percentage band
Sudden and significant increases in have a material adverse effect on for rolling 24 months.
jet fuel price or changes in foreign the financial performance.
exchange rates. To provide protection, easyJet uses a limited
range of hedging instruments traded in over the
counter markets, principally forward purchases,
with a number of approved counterparties.
Financing and interest rate risk: Market conditions could change the cost Group interest rate management policy aims to
All of easyJet’s debt is asset related, of finance which may have an adverse provide certainty in a proportion of its financing.
reflecting the capital intensive nature effect to the financial performance.
of the airline industry. Operating lease rentals are a mix of fixed
and floating rates (at 30 September 2008,
60% fixed, 40% floating).
All on balance sheet debt floating rate,
re-priced up to six months.
Significant proportion of US dollar mortgage
debt is matched with US dollar cash deposits.
Liquidity and investment risk: A lack of liquid funds could result in Committed undrawn facilities were
easyJet continues to hold significant the business being unable to meet its $1,135 million at 30 September 2008
cash and liquid investments to mitigate debts and aircraft financing commitments comprising $885 million of aircraft financing
the risk of business disruption events. as they fall due. This would have a and a $250 million standby facility.
significant impact on business and financial
performance and restrict future growth. Board policy requires an absolute minimum
level of free cash and deposits. Cash and money
market deposits totalled £863 million
at 30 September 2008, excluding restricted
cash of £66 million.
Surplus funds are invested in high quality short-
term liquid investments usually money market
funds and bank deposits. Cash is placed with
counterparties based on credit ratings with
a maximum exposure of £100 million for
AAA ratings.