Aer Lingus 2013 Annual Report Download - page 29

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At 31 December 2013, we had sold GBP£56.5 million forward for 2014 at an average rate of GBP£0.84. In addition, we had US$235
million hedged against part of the cost of nine new A350 aircraft due for delivery in the period 2018 to 2020 at an average rate of US$1.39.
The EU emissions trading system (“EU ETS”) became effective for airlines from 1 January 2012 requiring that all flights departing from or
arriving at EU airports attract a charge for a portion of their carbon emissions. This charge is to be met by submission to the EU of “carbon
allowances” and aircraft operators have been provided with a portion of their allowance requirement as a “free” allocation based upon their
share of total EU activity in 2010. On 21 January, 2014 the Transport Committee of the European Parliament voted in favour of extending a
2012 moratorium on the ETS scheme in respect of flights which were not entirely within the EU. Such extension is proposed until 2016 and
requires a further vote by the EU to pass into law. Aer Lingus is compliant with EU ETS derogated requirements for 2013 and has received
free allowances equivalent to approximately 78% of its 2013 requirement. The balance of the 2013 requirement (i.e. approx 22%) was
purchased for €0.9 million.
A portion of the Aer Lingus carbon allowances for 2014 has been purchased already, and assuming a derogated scheme is in place and
associated free allocation, we estimate that the ETS cost of compliance in 2014 would be circa €1.5 million based on carbon prices of €4.85
per tonne at the reporting date.
Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of the parent by the weighted average number of
shares in issue during the year, excluding treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. As at 31 December 2013, dilutive potential ordinary shares relate to share options granted that have
satisfied specific performance conditions as set out in the underlying option agreement. The weighted average number of dilutive potential
ordinary shares in existence for purposes of 2013 diluted EPS was 4.6 million (2012: 0.2 million).
Earnings per share
2013
2012 (as restated)¹
Profit attributable to owners of the parent (€ million)
34.1
33.9
Weighted average number of ordinary shares in issue (‘000s)
531,822
530,093
Dilutive effect of options and long term incentive plan (‘000s)
4,597
158
Weighted average number of ordinary shares for dilutive earnings
per share (000s)
536,419
530,251
Basic and diluted earnings per share
6.4
6.4
¹ The 2012 result is restated for the effect of applying IAS19R (see basis of preparation Note – 2.1). The impact is a reduction in profit of
€175,000.
Capital reduction
In 2011, Aer Lingus commenced a process to create additional distributable reserves in Aer Lingus Group plc with a view to improving
flexibility for the future. At the time, Aer Lingus Group plc could not make a distribution to shareholders in excess of €57.4 million, which
was the total amount of that company’s retained earnings at that time.
As Aer Lingus Group plc is a holding company and does not trade in its own right, it can normally only add to or replenish retained earnings
by means of dividends paid to it from its subsidiary companies. However, Aer Lingus Limited, which is the main operating subsidiary in the
Aer Lingus group of companies, is itself unable to pay dividends due to the level of its accumulated realised losses. This means that Aer
Lingus Limited would be unable to pay dividends to its parent, Aer Lingus Group plc, until it earns sufficient profits to eliminate the deficit
on its retained earnings account, and has accumulated sufficient distributable reserves to finance the payment of dividends.
Irish company law enables a company, subject to shareholder approval and the approval of the High Court (the “Court”), to create
distributable reserves through the cancellation of amounts currently shown as non-distributable reserves in that company’s balance sheet. On
this basis, the directors of Aer Lingus Group commenced a process in 2011 to create additional distributable reserves in Aer Lingus Group
plc’s balance sheet through a capital reduction.
On 4 November 2011, Aer Lingus shareholders approved a special resolution at an EGM to take the necessary steps to seek the approval of
the High Court (the “Court") to create up to €500 million of distributable reserves on the balance sheet.
The matter was heard by the Court in July 2012. Objections were made by both the IASS Trustee and the Trustee of the Pilots’ Scheme.
Following a review of submissions from all parties, on 15 March 2013, the Court approved the creation of distributable reserves as
requested. The effect of the creation of €500 million of distributable reserves has been the corresponding reduction in the capital conversion
reserve fund and the capital redemption reserve fund (in each case reduced to nil), along with a further balancing reduction to the share
premium account. The Court made a condition that no distribution should be made which would leave the remaining aggregated
distributable and non-distributable reserves of Aer Lingus at an amount less than the aggregate of the deficits in the IASS and the Pilots’
Scheme, as relating to current and former Aer Lingus employees, without 28 days prior notice being given by Aer Lingus to the corporate
trustees of each of the IASS and Pilot’s Scheme. The requirement to give notice of distribution does not preclude Aer Lingus from making a
distribution.
Significant balance sheet movements
The Group’s balance sheet remains strong, with distributable reserves increasing in the year through retained earnings and the capital
reduction exercise.