EasyJet 2010 Annual Report Download - page 86

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easyJet plc
Annual report and accounts 2010
Notes to the accounts
continued
84
22 Financial instruments continued
Amounts recorded in the income statement in respect of revaluation of monetary assets and liabilities and the gains and losses on
derivatives designated as held for trading are as follows:
2010
£ million
2009
£ million
Operating profit (in “other costs”)
Unrealised revaluation gains on non-derivative financial instruments 8.5 30.9
Unrealised revaluation losses on other monetary assets and liabilities (3.0) (25.9)
Realised foreign exchange gains / (losses) on financial instruments 1.5 (16.4)
Unrealised (losses) / gains on derivatives (2.5) 1.3
Realised gains on derivatives 3.9 16.6
8.4 6.5
Net finance charges
Unrealised revaluation (losses) / gains on non-derivative financial instruments (16.1) 12.8
Unrealised (losses) / gains on derivatives (11.5) 10.1
Realised gains / (losses) on derivatives 20.4 (18.8)
(7.2) 4.1
Net gains 1.2 10.6
23 Financial risk and capital management
easyJet is exposed to financial risks including fluctuations in exchange rates, jet fuel prices and interest rates. Financial risk management
aims to limit these market risks with selected derivative hedging instruments being used for this purpose. easyJet policy is not to trade
in derivatives but to use the instruments to hedge anticipated exposure. Gains and losses arising on derivative financial instruments
designated as hedging instruments are offset by the outcome of the underlying exposure being hedged. In addition to market risks, easyJet
is exposed to credit and liquidity risk.
The Board is responsible for setting financial risk and capital management policy and objectives which are implemented by the treasury
function on a day-to-day basis. The policy outlines the approach to risk management and also states the instruments and time periods
which the treasury function is authorised to use in managing financial risks. The policy is regularly reviewed to ensure best practice,
however there have been no significant changes during the current year.
Capital management
The objective of capital management is to ensure that easyJet is able to continue as a going concern whilst delivering shareholder
expectations of a strong capital base as well as returning benefits for other stakeholders and optimising the cost of capital.
easyJet manages its capital structure in response to changes in both economic conditions and strategic objectives. The cash and net debt
position, together with the maturity profile of existing debt, is monitored to ensure the continuity of funding. During the year funding
totalling $837 million was put in place of which $333 million was utilised during the year.
The principal measure used by easyJet to manage capital risk is the gearing ratio of debt (defined as debt plus seven times aircraft
operating lease payments less cash, including money market deposits and restricted cash) to shareholders’ equity. Gearing decreased in the
year from 38% to 32%, principally due to the strong operating cash flow.
Liquidity risk management
The objective of liquidity risk management is to ensure sufficient cash resources and the availability of funding as required. easyJet holds
financial assets either for which there is a liquid market or which are expected to generate cash inflows that are available to meet liquidity
needs.
easyJet continues to hold significant cash and liquid funds to mitigate the impact of potential business disruption events with policy stating
an absolute minimum level of liquidity that must be maintained at all times. Total cash (including restricted cash) and money market
deposits at 30 September 2010 was £1,227.5 million (2009: £1,147.2 million). Surplus funds are invested in high quality short-term
liquid instruments, usually money market funds or bank deposits.
In addition, easyJet has committed undrawn bank facilities of $754 million (2009: $528 million), comprising a $250 million revolving credit
facility and $504 million of mortgage and finance lease facilities available to finance a significant proportion of the aircraft due to be
delivered during the next eighteen months. Since the year end further funding totalling $237 million has been arranged.