EasyJet 2012 Annual Report Download - page 96

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Accounts & other information
Notes to the accounts
continued
22 Financial risk and capital management continued
The percentage of operating leased aircrafts at 30 September 2012 was 26% (2011: 30%). Board policy is to hold around 30% of the
fleet under operating lease arrangements to provide an appropriate degree of flexibility in fleet size and partially mitigate the residual
value risk associated with a single fleet type.
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.
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 remained
stable at 29% (2011: 28%).
Liquidity risk management
The objective of easyJet’s 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 Board
approved policy stating a target level of liquidity of £4 million per aircraft in the fleet. Total cash (excluding restricted cash) and money
market deposits at 30 September 2012 was £883 million (2011: £1,400 million). Surplus funds are invested in high quality short-term liquid
instruments, usually money market funds or bank deposits.
The maturity profile of financial liabilities based on undiscounted gross cash flows and contractual maturities is as follows:
At 30 September 2012
Within
1 year
£ million
1–2 years
£ million
2–5 years
£ million
Over
5 years
£ million
Borrowings 146 140 467 288
Trade and other payables 454 – – –
Derivative contracts – receipts (2,943) (1,821) – –
Derivative contracts – payments 2,874 1,790 – –
At 30 September 2011
Within
1 year
£ million
1–2 years
£ million
2–5 years
£ million
Over
5 years
£ million
Borrowings 177 169 584 493
Trade and other payables 375 – – –
Derivative contracts – receipts (2,887) (1,041) – –
Derivative contracts – payments 2,843 1,031 – –
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 cash and money market deposits, derivative financial instruments and trade and other
receivables. Credit risk management aims to reduce the risk of default by setting limits on credit exposure to counterparties based on
their respective credit ratings. Credit ratings also determine the maximum period of investment when placing funds on deposit. Credit
risk is limited to the carrying amount in the statement of financial position at each year end.
Counterparties for cash investments, currency forward contracts and jet fuel forward contracts are required to have a credit rating
of A or better at contract inception and credit limits differentiate between A, AA and AAA rated counterparties. Exposures to those
counterparties are regularly reviewed and, when the market view of a counterparty’s credit quality changes, adjusted as considered
appropriate. Accordingly in normal market conditions, the probability of material loss due to non-performance by counterparties is
considered to be low.
Disclosure relating to the credit quality of trade and other receivables is given in note 11 to the accounts.
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
easyJet plc
Annual report and accounts 2012
94