REG - easyJet PLC - Final Results <Origin Href="QuoteRef">EZJ.L</Origin> - Part 3
21/11/2017 07:06
- Part 3: For the preceding part double click ID:nRSU0404Xb
reported amounts
of income and expenses during the reporting period. Although these amounts are based on management's best estimates, events
or actions may mean that actual results ultimately differ from those estimates, and these differences may be material. The
estimates and the underlying assumptions are reviewed regularly.
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below),
that the Directors have made in the process of applying the Group's accounting policies and that have the most significant
effect on the amounts recognised and presented in the financial statements.
Classification of operating and financing leases
Management exercises judgement in determining the classification of leases as either finance or operating leases in nature
at inception of the lease. Management considers the likelihood of exercising break clauses or extension options in
determining the lease term. Where the lease term constitutes substantially all of the economic life of the asset, or where
the present value of minimum lease payments amount to substantially all of the fair value of the aircraft, the lease is
classified as a finance lease. All other leases are classified as operating leases.
Classification of income or expenses between headline and non-headline items
The Group seeks to present a measure of underlying performance which is not impacted by material non-recurring items or
items which are not considered to be reflective of the trading performance of the business. This measure of profit is
described as 'headline' and is used by the Directors to measure and monitor performance. The excluded items are referred to
as 'non-headline' items.
Non-headline items may include impairments, amounts relating to acquisitions and disposals, expenditure on major
restructuring programmes, litigation and insurance settlements, balance sheet exchange gains or losses, the income or
expense resulting from the initial recognition of sale and lease back transactions, fair value adjustments on financial
instruments and other particularly significant or unusual non-recurring items. Items relating to the normal trading
performance of the business will always be included within the headline performance.
Judgement is required in determining the classification of items between headline and non-headline.
Consolidation of easyJet Switzerland
Judgement has been applied in consolidating easyJet Switzerland S.A. as a subsidiary on the basis that the Company
exercises a dominant influence over the undertaking. A non-controlling interest has not been reflected in the consolidated
accounts on the basis that holders of the remaining 51% of the shares have no entitlement to any dividends from that
holding and the Company has an option to acquire those shares for a pre-determined minimal consideration.
The following three critical accounting estimates involve a higher degree of judgement or complexity, or are areas where
assumptions are significant to the financial statements:
Aircraft maintenance provisions - £284 million
easyJet incurs liabilities for maintenance costs in respect of aircraft leased under operating leases during the term of
the lease. These arise from legal and constructive contractual obligations relating to the condition of the aircraft when
it is returned to the lessor. To discharge these obligations, easyJet will also normally need to carry out one heavy
maintenance check on each of the engines and the airframe during the lease term.
A charge is made in the income statement, based on hours or cycles flown, to provide for the cost of these obligations. The
most critical estimates required are considered to be the utilisation of the aircraft, the expected costs of the heavy
maintenance checks at the time which they are expected to occur, the condition of the aircraft, the lifespan of
life-limited parts and the rate used to discount the provision.
The bases of all estimates are reviewed annually, and also when information becomes available that is capable of causing a
material change to an estimate, such as renegotiation of end of lease return conditions, increased or decreased
utilisation, or changes in the cost of heavy maintenance services.
Other provisions - £38 million
easyJet incurs liabilities for amounts payable to customers who make claims in respect of flight delays and cancellations,
and refunds of air passenger duty or similar charges. Estimates include passenger claim rates, the value of claims made and
the period of time over which claims will be made. The bases of all estimates are reviewed at least annually and also when
information becomes available that is capable of causing a material change to the estimate.
Goodwill and landing rights - £459 million
Goodwill and landing rights are tested for impairment at least annually. easyJet has one cash-generating unit, being its
route network. In making this assessment, easyJet has considered the manner in which the business is managed including the
centralised nature of its operations and the ability to open or close routes and redeploy aircraft and crew across the
whole route network.
The value in use of the cash-generating unit is determined by discounting future cash flows to their present value. When
applying this method, easyJet relies on a number of key estimates including its ability to meet its strategic plans, future
fuel prices and exchange rates, long-term economic growth rates for the principal countries in which it operates, and its
pre-tax weighted average cost of capital. Both fuel price and exchange rates are volatile in nature, and the assumptions
used are sensitive to significant changes in these rates.
3. Net finance charges 2017 2016
£ million £ million
Interest receivable and other financing income
Interest income (6) (4)
Dividend income (2) (3)
Net exchange gains on monetary assets and liabilities (2) (3)
(10) (10)
Interest payable and other financing charges
Interest payable on bank and other borrowings 20 8
Interest payable on finance lease obligations 4 4
Other interest payable 5 1
29 13
Net finance charges 19 3
4. Non-headline items
An analysis of the amounts presented as non-headline is given below:
Year ended Year ended
30 September 2017 30 September 2016
£ million £ million
Sale and leaseback charge 16 -
Organisational review 6 1
Air Operator Certificate (AOC) 2 1
Maintenance reserves discounting - (8)
Recognised in operating profit 24 (6)
Balance sheet foreign exchange gain (2) (3)
Fair value adjustment 1 (4)
Total non-headline charge/(credit) before tax 23 (13)
Tax (credit)/charge on non-headline items (3) 3
Total non-headline charge/(credit) after tax 20 (10)
Sale and leaseback charge
The sale and leaseback of the Group's 10 oldest A319 aircraft resulted in a loss on disposal of the assets of £10 million,
recognised within other costs in the income statement, and a £6 million maintenance provision catch-up charged immediately
to the income statement upon entering the lease, within maintenance costs.
Organisational review
The implementation of an organisational review has resulted in costs of £6 million, which have been recognised in other
costs within the income statement. This programme, which involves redundancy costs and associated third party adviser fees,
is considered a material non-recurring item by virtue of the estimated size of the whole programme.
Air Operator Certificate (AOC)
Following the UK's referendum vote to leave the European Union (EU), easyJet is in the process of establishing a multi-AOC
post-Brexit structure, which included the set-up of European AOC, based in Austria, in July 2017. The EU AOC helps secure
future flying rights for the 30% of easyJet's network which remains wholly within and between EU member states. For the
year ended 30 September 2017 the Group incurred £2 million, primarily comprising set up costs; which has been recognised in
other costs within the income statement.
Maintenance reserves discounting
In the year ended 30 September 2016 the maintenance provision was discounted for the first time, reflecting the time value
of money. The discount applied generated a cumulative one-off non-headline income statement credit of £8 million. In the
year ended 30 September 2017 and for future periods the impact of discounting will be reported as a headline item.
Balance sheet foreign exchange gain
Foreign exchange gains or losses arising from the retranslation of foreign currency monetary assets and liabilities held in
the statement of financial position resulted in a gain of £2 million, recognised within interest in the income statement.
Fair value adjustment
A £1 million charge was recognised relating to fair value adjustments associated with the cross-currency interest rate
swaps put in place to hedge the bond issued in February 2016.
5. Tax charge
Tax on profit on ordinary activities
2017 2016 (restated)
£ million £ million
Current tax
United Kingdom corporation tax 67 79
Foreign tax 5 4
Prior year adjustments - (2)
Total current tax charge 72 81
Deferred tax
Temporary differences relating to property, plant and equipment 6 23
Other temporary differences - (1)
Prior year adjustments 3 3
Change in tax rate from financial year 2018 to 19% (2016: 20%) - (14)
Change in tax rate from financial year 2020 to 17% - (22)
Attributable to rates other than the standard UK rate (1) -
Total deferred tax charge / (credit) 8 (11)
Total tax charge 80 70
Effective tax rate 20.8% 13.8%
Current tax payable at 30 September 2017 amounted to £35 million (2016 (restated): £16 million. See note 1.). This related
to £38 million (2016 (restated): £19 million) of tax payable in the UK and £3 million (2016: £3 million) to tax recoverable
in other European countries.
During the year ended 30 September 2017, net cash tax paid amounted to £51 million (2016: £99 million).
Tax on items recognised directly in other comprehensive income or shareholders' equity
2017 2016
£ million £ million
Charge to other comprehensive income
Deferred tax on change in fair value of cash flow hedges (4) (66)
Credit/(Charge) to shareholders' equity
Current tax credit on share-based payments - 1
Deferred tax charge on share-based payments - (6)
- (5)
6. Earnings per share
Basic earnings per share has been calculated by dividing the profit for the year by the weighted average number of shares
in issue during the year after adjusting for shares held in employee benefit trusts.
To calculate diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all dilutive potential shares. Share options granted to employees where the exercise price is less than the
average market price of the Company's ordinary shares during the year are considered to be dilutive potential shares. Where
share options are exercisable based on performance criteria and those performance criteria have been met during the year,
these options are included in the calculation of dilutive potential shares.
Headline basic and diluted earnings per share are also presented, based on headline profit for the year.
Earnings per share is based on:
2017 2016(restated)
£ million £ million
Headline profit for the year 325 427
Total profit for the year 305 437
2017 2016
million million
Weighted average number of ordinary shares used to calculate basic earnings per share 394 394
Weighted average number of dilutive potential shares 3 3
Weighted average number of ordinary shares used to calculate diluted earnings per share 397 397
2017 2016(restated)
Earnings per share pence pence
Basic 77.4 110.9
Diluted 76.8 110.1
2017 2016
Headline earnings per share pence pence
Basic 82.5 108.4
Diluted 81.9 107.6
7. Dividends
An ordinary dividend in respect of the year ended 30 September 2017 of 40.9 pence per share, or £162 million based on
headline profit after tax, is to be proposed at the forthcoming Annual General Meeting. These accounts do not reflect this
proposed dividend.
An ordinary dividend of 53.8 pence per share, or £214 million, in respect of the year ended 30 September 2016 was paid in
the year ending 30 September 2017. An ordinary dividend of 55.2 pence per share, or £219 million, in respect of the year
ended 30 September 2015 was paid in the year ended 30 September 2016.
8. Property, plant and equipment
Aircraft and spares Other Total
£ million £ million £ million
Cost
At 1 October 2016 3,971 63 4,034
Additions 584 2 586
Aircraft sold and leased back under operating leases (186) - (186)
Transfer to maintenance provision (6) - (6)
Disposals (18) (5) (23)
At 30 September 2017 4,345 60 4,405
Depreciation
At 30 September 2017 763 19 782
Charge for the year 176 5 181
Aircraft sold and leased back under operating leases (61) - (61)
Disposals (17) (5) (22)
At 30 September 2017 861 19 880
Net book value
At 30 September 2017 3,484 41 3,525
At 1 October 2016 3,208 44 3,252
The net book value of aircraft includes £300 million (2016: £280 million) relating to advance and option payments for
future deliveries. This amount is not depreciated.
Aircraft with a net book value of £nil million (2016: £381 million) are mortgaged to lenders as loan security.
Aircraft with a net book value of £77 million (2016: £76 million) are held under finance leases.
easyJet is contractually committed to the acquisition of 143 (2016: 166) Airbus A320 family aircraft, with a total list
price of US$14.0 billion (2016: US$14.8 billion) before escalations and discounts for delivery in financial years 2018 (36
aircraft), in 2019 (21 aircraft), in 2020 (23 aircraft), in 2021 (35 aircraft) and in 2022 (28 aircraft).
The 'Other' category mainly comprises leasehold improvements, computer hardware, and fixtures, fittings and equipment.
9. Reconciliation of operating profit to cash generated from operations
2017 2016(restated)
£ million £ million
Operating profit 404 510
Adjustments for non-cash items:
Depreciation 181 157
Loss on disposal of property, plant and equipment 4 3
Loss on sale and leaseback 10 -
Amortisation of intangible assets 14 12
Share-based payments 13 19
Other (2) -
Changes in working capital and other items of an operating nature:
(Increase) / decrease in trade and other receivables (74) 8
Increase in trade and other payables 147 44
Increase / (decrease) in unearned revenue 159 (51)
Increase in provisions 44 44
Decrease / (increase) in other non-current assets 38 (3)
Increase / (decrease) in derivative financial instruments 22 (7)
Decrease in non-current deferred income (11) (12)
Cash generated from operations 949 724
10. Reconciliation of net cash flow to movement in net cash
1 October 2016 Fair value and foreign exchange Loan issue costs capitalised Loan issue costs amortised Net cash flow Net cash flow
£ million £ million £ million £ million £ million £ million
Cash and cash equivalents 714 (2) - - (1) 711
Money market deposits 255 (1) - - 363 617
969 (3) - - 362 1,328
Eurobond (435) 10 8 (2) (451) (870)
Bank loans (210) (10) - - 220 -
Finance lease obligations (111) 3 - - 7 (101)
(756) 3 8 (2) (224) (971)
Net cash 213 - 8 (2) 138 357
11. Related party transactions
The Company licenses the easyJet brand from easyGroup Limited ('easyGroup'), a wholly owned subsidiary of easyGroup
Holdings Limited, an entity in which easyJet's founder, Sir Stelios Haji-Ioannou, holds a beneficial controlling interest.
The Haji-Ioannou family concert party shareholding (being easyGroup Holdings Limited and Polys Holding Limited) holds, in
total, approximately 33% of the issued share capital of easyJet plc as at 30 September 2017.
Under the Amended Brand Licence signed in October 2010 and approved by the shareholders of easyJet Plc in December 2010, an
annual royalty of 0.25% of total revenue is payable by easyJet to easyGroup for a minimum term of 10 years. The full term
of agreement is 50 years.
easyJet and easyGroup established a fund to meet the annual costs of protecting the 'easy' (and related marks) and the
'easyJet' brands. easyJet contributes up to £1 million per annum to this fund and easyGroup contributes £100,000 per annum.
Beyond the first £1.1 million of costs, easyJet can commit up to an aggregate £5.5 million annually to meet brand
protection costs, with easyGroup continuing to meet its share of costs on a 10:1 ratio. easyJet must meet 100% of any brand
protection costs it wishes to incur above this limit.
A side letter to the Brand Licence was entered with easyGroup, dated 29 September 2016, under which, in return for
easyGroup consenting to easyJet acquiring a portion of the equity share capital in Founders Factory Limited, easyJet made a
payment of £1.
The amounts included in the income statement, within Other Costs, for these items were as follows:
2017 2016
£ million £ million
Annual royalty 13 12
Brand protection (legal fees paid through easyGroup to third parties) 1 1
14 13
At 30 September 2017, £1 million (2016: £nil) of the above aggregate amount was included in trade and other payables.
12. Events after the reporting period
On 27 October easyJet signed an agreement with Air Berlin's administrators, as part of which it will enter into leases for
up to 25 A320 aircraft at Berlin Tegel airport, offer employment to former Air Berlin flying crews and take over other
assets including slots for a purchase consideration of E40 million. Completion of the transaction is subject to regulatory
approvals and the transaction is expected to close in December 2017.
easyJet completed the sale and leaseback of 10 A319 aircraft in November 2017. Cash proceeds were $137 million; due to the
age of the selected aircraft at the time of this transaction and easyJet's maintenance provision accounting policy, a
one-off, non-cash charge of approximately £20 million (of which £12 million relates to the loss on disposal and £8 million
relates to the maintenance provision catch-up) will be recognised in the first half of the 2018 financial year as a
non-headline item.
This information is provided by RNS
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