EasyJet 2010 Annual Report Download - page 87

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Overview Business review Governance Accounts Other information
easyJet plc
Annual report and accounts 2010
85
The maturity profile of financial liabilities based on estimated undiscounted gross cash flows and contractual maturities is as follows:
30 September 2010
Within 1 year
£ million
1–2 years
£ million
2–5 years
£ million
Over 5 years
£ million
Borrowings 148.1 158.6 444.1 572.9
Trade and other payables 398.8 – – –
Derivative contracts – receipts (1,838.0) (368.8) – –
Derivative contracts – payments 1,844.1 390.8 – –
30 September 2009
Within 1 year
£ million
1–2 years
£ million
2–5 years
£ million
Over 5 years
£ million
Borrowings 138.5 150.5 418.9 525.1
Trade and other payables 338.6 – – –
Derivative contracts – receipts (1,482.2) (217.7) – –
Derivative contracts – payments 1,541.3 232.8 – –
The maturity profile has been calculated based on spot rates for the US dollar, euro, Swiss franc and jet fuel at close of business on
30 September each year.
Credit risk management
easyJet is exposed to credit risk arising from liquid funds, derivative financial instruments and trade and other receivables. Credit risk
management aims to reduce the risk of default through setting credit exposure limits to counterparties based on credit ratings, which also
determine the maximum period of investment. Counterparty exposures are regularly reviewed and adjusted as necessary. Accordingly, the
probability of material loss arising in the event of non-performance by counterparties is considered to be low.
Credit risk is limited to the carrying amount recognised at the balance sheet date. Disclosure relating to the credit quality of trade and
other receivables is detailed in note 12. The credit risk for liquid funds and other short-term financial assets is considered negligible, since
the counterparties are reputable banks with external credit ratings. For deposits with financial institutions, internal limits are placed on the
maximum exposure to individual counterparties and a minimum external credit rating of A is required.
Foreign currency risk management
The principal exposure to currency exchange rates arises from fluctuations in both the US dollar and euro rates which impact operating,
financing and investing activities. The aim of foreign currency risk management is to reduce the impact of exchange rate volatility on the
results of easyJet. Foreign exchange exposure arising from transactions in various currencies is reduced through a policy of matching,
as far as possible, receipts and payments in each individual currency. Any remaining significant anticipated exposure is managed through
the use of forward foreign exchange contracts. In addition, easyJet has substantial US dollar balance sheet liabilities, partly offset by holding
US dollar cash; any residual net liability is managed through the use of forward foreign exchange contracts.
Financing and interest rate risk management
Interest rate cash flow risk arises on floating rate borrowings and cash investments.
Interest rate risk management policy aims to provide certainty in a proportion of financing while retaining the opportunity to benefit from
interest rate reductions. Interest rate policy is used to achieve the desired mix of fixed and floating rate debt. All borrowings are at floating
interest rates repricing every three to six months. A significant proportion of US dollar loans by value are matched with US dollar cash,
with the cash being invested to coincide with the repricing of the debt. Operating leases are a mix of fixed and floating rates. Of the
operating leases in place at 30 September 2010 approximately 66% of lease payments were based on fixed interest rates and 34% were
based on floating interest rates (2009: 60% fixed, 40% floating).
All debt is asset related, reflecting the capital intensive nature of the airline industry and the attractiveness of aircraft as security to lenders.
These factors are also reflected in the medium term profile of easyJet’s borrowings and operating leases. During the year nine aircraft were
cash acquired (2009: four aircraft).