EasyJet 2010 Annual Report Download - page 29

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Risk description Potential impact Mitigation
Financial risks
Fuel price and currency uctuations
Sudden and signicant increases in jet fuel price and
movements in foreign exchange rates would
signicantly impact fuel costs and other foreign
currency denominated costs.
If not protected against, this would have a material
adverse affect on nancial performance. Policy to hedge within a percentage band for rolling
24 month period.
To provide protection, the Group uses a limited
range of hedging instruments traded in the over
the counter (OTC) markets, principally forward
purchases, with a number of approved
counterparties.
Financing and interest rate risk
All of the Group’s debt is asset related, reecting the
capital intensive nature of the airline industry.
Market conditions could change the cost of nance
which may have an adverse affect on the
nancialperformance.
Group interest rate management policy aims to
provide certainty in a proportion of its nancing.
Operating lease rentals are a mix of xed and
oating rates (currently 66% to 34%).
All on balance sheet debt is oating rate, re-priced
up to six months.
A portion of US dollar mortgage debt is matched
with US dollar money market deposits.
Liquidity risk
The Group continues to hold signicant cash or
liquid funds as a form of insurance.
Lack of sufcient liquid funds could result in business
disruption and have a material adverse affect on
nancialperformance.
Board policy is to maintain an absolute minimum level
of free cash and money marketdeposits.
Allows business to ride out downturns in business
or temporary curtailment of activities (e.g. eet
grounding, security incident, extended industrial
dispute at key supplier).
Committed borrowing facilities of US$0.75 billion
at 30 September 2010.
Credit risk
Surplus funds are invested in high quality short-term
liquid instruments, usually money market funds or
bank deposits.
Possibility of material loss arising in the event
of non-performance of counterparties. Cash is placed on deposit with institutions base
upon credit rating with a maximum exposure of
£100 million for AAA ratings.
Chris Kennedy
Chief Financial OfficerChief Financial Officer
Overview Business review Governance Accounts Other information
27
easyJet plc
Annual report and accounts 2010