REG - easyJet PLC - Annual Financial Report <Origin Href="QuoteRef">EZJ.L</Origin> - Part 2
05/12/2017 12:12
- Part 2: For the preceding part double click ID:nRSE4412Ya
are approximately
7,400 A320 family aircraft operating with a proven track record for safety and reliability. The introduction of the A320neo during the year in part mitigates this risk as
the aircraft is equipped with a different engine type. easyJet operates a rigorous established aircraft maintenance programme. To mitigate the potential valuation risks,
easyJet regularly reviews the second-hand market and has a number of different options when looking at fleet exit strategies. Sale and leaseback facilitates the exit of
A319 aircraft from the fleet by transferring residual value risk, and also provides flexibility in managing the fleet size.
FINANCIAL
Risk description Mitigation
Financial risk easyJet is exposed to a variety of financial risks which could give rise to adverse pressure on the financial performance of the Group, e.g. costs, revenue and cash flow.• Market risks - significant/sudden increases in jet fuel prices, currency fluctuations or interest rates which have not been adequately protected through hedging.• Counterparty risk - non-performance of counterparties used for depositing surplus funds (e.g. money market funds, bank deposits) and hedging.• Liquidity risk - misjudgment in the level of liquidity resulting in inability to meet contractual/contingent financial obligations or the inability to fund the business when needed. Link to strategy:2 V The Finance Committee (a committee of the Board) oversees the Group's treasury and funding policies and activities. Turn to page: 63 [of the Annual report] for further
details. This includes:• maintaining a treasury policy setting out Board approved strategies for foreign exchange and fuel hedging, along with liquidity, interest
rate management, counterparties' limits; and• reviewing and reporting on compliance with Board treasury policies. The policy is to hedge revenue and costs within a
percentage band for a rolling 24-month period. Board policy is to maintain a liquidity buffer including cash and a $500 million revolving credit facility provided by a
group of 12 relationship banks. This allows the Group to better manage the impact of downturns in business or temporary curtailment of activities. The basis for the
liquidity policy was revised in 2016. The policy is to maintain a minimum liquidity buffer at £2.6 million per 100 seats (previously £4 million per aircraft). A strong
balance sheet supports the business through fluctuations in economic conditions and the Group has access to diverse sources of funding to support liquidity requirements.
Delivery of projects supporting the business strategyThe business is undertaking a number of key projects and programmes to deliver key elements of the strategy. Following the announcement in October that easyJet will purchase parts of Air Berlin, a large scale complex programme is underway to implement the Air Berlin operation. Failure to deliver the planned business benefits and cost savings from these projects may result in under achievement of easyJet's planned financial results. Link to strategy:1 2 3 4 5 6 The easyJet Change Board meets monthly to review progress made on the portfolio of programmes and solve issues that require escalation. Key IT projects or programmes have
additional oversight through the IT Governance and Oversight Committee (a committee of the Board). Turn to page: 63 [of the Annual report] for further details. Each
project or programme has its own steering group which provides challenge to the project, monitors progress and ensures that decisions are made at the appropriate level. A
portfolio management office is in place to oversee delivery of projects and programmes, and track budgets and realisation of benefits. A project management framework,
which sets out the governance requirements, key processes and controls, is followed by all projects and programmes. Lessons learnt reviews are undertaken to ensure
continuous improvement to this approach.
PEOPLE
Risk description Mitigation
Attraction and retention of talenteasyJet's current and future success is reliant on having the right people with the right capabilities. Increased competition in the recruitment market may impact easyJet's ability to attract and retain key talent. This could adversely affect the delivery of strategic objectives. Link to strategy:6 There is a recruitment strategy for pilots and cabin crew. This includes pilot sponsorship and the Amy Johnston flying initiative to attract more female pilots. In
addition, easyJet has developed a coherent employment brand to attract and retain top talent. easyJet also this year opened recruitment for 14 engineering apprentices and
sought to encourage more women to apply for these roles. easyJet's aim is to develop talent from within. There are several talent development programmes in place for
individuals who have been identified for fast-tracking into more senior roles as vacancies arise. Alongside this, there is an annual succession planning process to ensure
there are clear successors for all key business roles.
COMPLIANCE AND REGULATORY
Risk description Mitigation
Impact of EU exitThe UK government is in the process of negotiating the UK's exit from the European Union although details of the future relationship still remain uncertain. If easyJet is unable to continue to fly its UK-EU network this would have a significant operational and financial impact. Link to strategy:1 2 3 4 5 6 V easyJet has put in place in Austria a third AOC; easyJet Europe. This will ensure easyJet can retain its intra-EU flying rights. We continue to actively engage with the
European Commission, EU Member States and the UK government to ensure that there is an EU/UK agreement in place to maintain flying rights between the UK and the EU. An
internal working group has been established to manage all aspects of easyJet's operations and structure with relation to the EU exit and the implementation of the third
AOC.
Legislative and regulatory risks The airline industry is heavily regulated and there is a continual need to keep well informed and adapt to (as required) any legislative or regulatory changes across the jurisdictions in which easyJet operates. Failure to comply with legislative and regulatory requirements (or interpretations thereof), such as local consumer laws, legal decisions or policy changes in relation to passenger compensation, environmental and airport regulation, in the jurisdictions in which easyJet operates, could have an adverse reputational and financial impact. Link to strategy:2 3 5 6 easyJet has an in-house legal and compliance team to advise on legal issues and developments, and to monitor compliance with formal regulatory requirements. It also has a
panel of external legal advisers, both in the UK and in key easyJet markets, who are briefed to keep easyJet informed of any changes or new legislation and to assist
easyJet in developing appropriate responses to such legislation. The Regulatory Affairs Group co-ordinates easyJet's role in influencing future and existing policy and
regulations which affect the airline industry and will work with industry bodies to assist in this, as appropriate. Country Review Boards are established for easyJet's
main markets, raising awareness of in-country issues, and providing a forum in which to highlight any potential legislative changes and impacts in the different
countries.
REPUTATIONAL
Risk description Mitigation
Major shareholder and brand owner relationship easyJet has two major shareholders (easyGroup Holdings Limited and Polys Holding Limited) which, as a concert party, control approximately 33% of its ordinary shares. Shareholder activism on their part could adversely impact the reputation of easyJet and cause a distraction to management. Regulations surrounding easyJet's share ownership and control may be affected by the outcome of negotiations relating to Britain's exit from the EU. easyJet does not own its company name or branding, which is licensed from easyGroup Ltd. The licence includes certain minimum service levels that easyJet must meet in order to retain the right to use the name and brand. The easyJet brand could also be impacted through the actions of easyGroup or other easyGroup licensees. Link to strategy:2 5 easyJet has an active shareholder engagement programme led by its investor relations team. As part of that programme easyJet engages with easyGroup Holdings Limited on a
regular basis alongside its other major shareholders. In addition, the Company has a relationship agreement with easyGroup and Polys Holdings in line with the controlling
shareholder regime as set out in the Financial Conduct Authority's Listing Rules. Representatives from the Board and senior management take collective responsibility for
addressing issues arising from any activist approach adopted by the major shareholder. The objective is to address issues when they arise and anticipate and plan for
potential future activism. easyJet has a number of initiatives in place to ensure that its shares are held by relevant shareholders in order to comply with European Union
regulations. easyJet's current ownership by EU-relevant, non-UK shareholders is close to 50%. The brand licence agreement with easyGroup Ltd provides for the regular
meeting of senior representatives from both sides, attended by the Chief Financial Officer and General Counsel, to actively manage brand-related issues as they arise.
Such meetings occur on a quarterly basis and have proven effective. easyJet also monitors compliance with brand licence service levels and has a right to take steps to
remedy any instance of non-compliance.
Cyber threat and information security easyJet faces both external cyber threats and internal risks to its data and systems. A security breach may have an adverse customer, operational or financial impact which adversely affects easyJet's reputation. Link to strategy:2 3 4 6 An Information Security Steering Group, chaired by the General Counsel, oversees any developments in data threats and controls, and determines whether actions taken in
response are appropriate. There are dedicated information security teams that monitor threats and ensure that the design, implementation and operation of easyJet systems
are secure. This is through the following: • achieving secure by design through a dedicated security architecture capability;• monitoring of secure systems
for unauthorised access;• reviewing the security of external and internal systems, including easyJet.com, through periodic vulnerability scanning;•
considering information security risks within procurement processes and the introduction of new systems and IT services;• ensuring payment card security with data
encryption and a dedicated team to monitor and control access;• reviewing and refreshing information acceptable use policies; and• maintaining staff security
awareness and education through a Security Champions network, on-line training materials and periodic awareness campaigns. Given the nature of this risk, the
appropriateness of mitigation activity is continuously reviewed under the governance of an information security programme. This programme is subject to independent
programme assurance on an at least annual basis.
End
5 December 2017
For further details please contact easyJet plc:
Institutional investors and sell side analysts:
Stuart Morgan Investor Relations +44 (0) 7989 665 484
Michael Barker Investor Relations +44 (0) 7985 890 939
Media:
Paul Moore Corporate Communications +44 (0) 7860 794 444
Edward Simpkins RLM Finsbury +44 (0) 207 251 3801
+44 (0) 7947 740 551
This information is provided by RNS
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