REG - Ryanair Holdings PLC - Annual Financial Report <Origin Href="QuoteRef">RYA.I</Origin> - Part 12
06/09/2014 22:39
- Part 12: For the preceding part double click ID:nRSd7552Nk
fittings......................................................................................................................... 20%
Motor vehicles................................................................................................................................. 33.3%
Aircraft are depreciated on a straight-line basis over their estimated useful lives to estimated residual values. The
estimates of useful lives and residual values at year-end are:
Aircraft Type Number of Owned Aircraft Useful Life Residual Value
at March 31, 2014
Boeing 737-800s 246(a) 23 years from date of 15% of current market value of new
manufacture aircraft, determined periodically
(a) The Company operated 297 aircraft as of March 31, 2014, of which 51 were leased.
The Company's estimate of the recoverable amount of aircraft residual values is 15% of current market value of new
aircraft, determined periodically, based on independent valuations and actual aircraft disposals during prior periods.
An element of the cost of an acquired aircraft is attributed on acquisition to its service potential, reflecting the
maintenance condition of its engines and airframe. This cost, which can equate to a substantial element of the total
aircraft cost, is amortised over the shorter of the period to the next maintenance check (usually between 8 and 12 years
for Boeing 737-800 aircraft) or the remaining life of the aircraft. The costs of subsequent major airframe and engine
maintenance checks are capitalised and amortised over the shorter of the period to the next check or the remaining life of
the aircraft.
Advance and option payments made in respect of aircraft purchase commitments and options to acquire aircraft are recorded
at cost and separately disclosed within property, plant and equipment. On acquisition of the related aircraft, these
payments are included as part of the cost of aircraft and are depreciated from that date.
Rotable spare parts held by the Company are classified as property, plant and equipment if they are expected to be used
over more than one period.
Gains and losses on disposal of items of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment, and are recognised on a net basis within other
income/(expenses) in profit or loss.
Aircraft maintenance costs
The accounting for the cost of providing major airframe and certain engine maintenance checks for owned aircraft is
described in the accounting policy for property, plant and equipment.
For aircraft held under operating lease agreements, Ryanair is contractually committed to either return the aircraft in a
certain condition or to compensate the lessor based on the actual condition of the airframe, engines and life-limited parts
upon return. In order to fulfill such conditions of the lease, maintenance, in the form of major airframe overhaul, engine
maintenance checks, and restitution of major life-limited parts, is required to be performed during the period of the lease
and upon return of the aircraft to the lessor. The estimated airframe and engine maintenance costs and the costs associated
with the restitution of major life-limited parts, are accrued and charged to profit or loss over the lease term for this
contractual obligation, based on the present value of the estimated future cost of the major airframe overhaul, engine
maintenance checks, and restitution of major life-limited parts, calculated by reference to the number of hours flown or
cycles operated during the year.
Ryanair's aircraft operating lease agreements typically have a term of seven years, which closely correlates with the
timing of heavy maintenance checks. The contractual obligation to maintain and replenish aircraft held under operating
lease exists independently of any future actions within the control of Ryanair. While Ryanair may, in very limited
circumstances, sub-lease its aircraft, it remains fully liable to perform all of its contractual obligations under the
'head lease' notwithstanding any such sub-leasing.
All other maintenance costs, other than major airframe overhaul, engine maintenance checks, and restitution of major
life-limited parts costs associated with leased aircraft, are expensed as incurred.
Intangible assets - landing rights
Intangible assets acquired are recognised to the extent it is considered probable that expected future benefits will flow
to the Company and the associated costs can be measured reliably. Landing rights acquired as part of a business combination
are capitalised at fair value at that date and are not amortised, where those rights are considered to be indefinite. The
carrying values of those rights are reviewed for impairment at each reporting date and are subject to impairment testing
when events or changes in circumstances indicate that carrying values may not be recoverable. No impairment to the carrying
values of the Company's intangible assets has been recorded to date.
Available-for-sale securities
The Company holds certain equity securities, which are classified as available-for-sale, and are measured at fair value,
less incremental direct costs, on initial recognition. Such securities are classified as available-for-sale, rather than as
an investment in an associate if the Company does not have the power to exercise significant influence over the investee.
Subsequent to initial recognition they are measured at fair value and changes therein, other than impairment losses, are
recognised in other comprehensive income and reflected in shareholders' equity in the consolidated balance sheet. Fair
value losses, subsequent to any impairments are recognised in other comprehensive income against net cumulative gains in
the reserve. Fair value losses below the impaired value are recognised in the income statement. The fair values of
available-for-sale securities are determined by reference to quoted prices in active markets at each reporting date. When
an investment is de-recognised the cumulative gain or loss in other comprehensive income is transferred to the income
statement.
Such securities are considered to be impaired if there is objective evidence which indicates that events have occurred that
can reasonably be expected to adversely affect the future cash flows of the securities, such that the future cash flows do
not support the current fair value of the securities. This includes where there is a significant or prolonged decline in
the fair value below its cost. All impairment losses are recognised in the income statement and any cumulative loss in
respect of an available-for-sale asset recognised previously in other comprehensive income is also transferred to the
income statement.
Other financial assets
Other financial assets (other than available-for-sale financial assets) comprise cash deposits of greater than three
months' maturity. All amounts are categorised as loans and receivables and are carried initially at fair value and then
subsequently at amortised cost, using the effective interest method in the balance sheet.
Derivative financial instruments
Ryanair is exposed to market risks relating to fluctuations in commodity prices, interest rates and currency exchange
rates. The objective of financial risk management at Ryanair is to minimise the impact of commodity price, interest rate
and foreign exchange rate fluctuations on the Company's earnings, cash flows and equity.
To manage these risks, Ryanair uses various derivative financial instruments, including interest rate swaps, foreign
currency forward contracts and commodity contracts. These derivative financial instruments are generally held to maturity.
The Company enters into these arrangements with the goal of hedging its operational and balance sheet risk. However,
Ryanair's exposure to commodity price, interest rate and currency exchange rate fluctuations cannot be neutralised
completely.
Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative
financial instruments continue to be re-measured to fair value, and changes therein are accounted for as described below.
The fair value of interest rate swaps is computed by discounting the projected cash flows on the Company's swap
arrangements to present value using an appropriate market rate of interest. The fair value of forward foreign exchange
contracts and commodity contracts is determined based on the present value of the quoted forward price. Recognition of any
resultant gain or loss depends on the nature of the item being hedged.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or
liability or a highly probable forecasted transaction, the effective part of any gain or loss on the derivative financial
instrument is recognised in other comprehensive income (in the cash flow hedging reserve on the balance sheet). When the
hedged forecasted transaction results in the recognition of a non-financial asset or liability, the cumulative gain or loss
is removed from other comprehensive income and included in the initial measurement of that asset or liability. Otherwise
the cumulative gain or loss is removed from other comprehensive income and recognised in the income statement at the same
time as the hedged transaction. The ineffective part of any hedging transaction and the gain or loss thereon is recognised
in the income statement immediately.
When a hedging instrument or hedge relationship is terminated but the underlying hedged transaction is still expected to
occur, the cumulative gain or loss at that point remains in other comprehensive income and is recognised in accordance with
the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative
unrealised gain or loss recognised in other comprehensive income is recognised in the income statement immediately.
Where a derivative financial instrument hedges the changes in fair value of a recognised asset or liability or an
unrecognised firm commitment, any gain or loss on the hedging instrument is recognised in the income statement. The hedged
item is also stated at fair value in respect of the risk being hedged, with any gain or loss also being recognised in the
income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on invoiced price on an average basis
for all stock categories. Net realisable value is calculated as the estimated selling price arising in the ordinary course
of business, net of estimated selling costs.
Trade and other receivables and payables
Trade and other receivables and payables are stated on initial recognition at fair value plus any incremental direct costs
and subsequently at amortised cost, net (in the case of receivables) of any impairment losses, which approximates fair
value given the short-dated nature of these assets and liabilities.
Cash and cash equivalents
Cash represents cash held at banks and available on demand, and is categorised for measurement purposes as "loans and
receivables."
Cash equivalents are current asset investments (other than cash) that are readily convertible into known amounts of cash,
typically cash deposits of more than one day but less than three months at the date of purchase. Deposits with maturities
greater than three months are recognised as short-term investments, are categorised as loans and receivables and are
carried initially at fair value and then subsequently at amortised cost, using the effective-interest method.
Interest-bearing loans and borrowings
All loans and borrowings are initially recorded at fair value, being the fair value of the consideration received, net of
attributable transaction costs. Subsequent to initial recognition, non-current interest-bearing loans are measured at
amortised cost, using the effective interest yield methodology.
Leases
Leases under which the Company assumes substantially all of the risks and rewards of ownership are classified as finance
leases. Assets held under finance leases are capitalised in the balance sheet, at an amount equal to the lower of their
fair value and the present value of the minimum lease payments, and are depreciated over their estimated useful lives. The
present values of the future lease payments are recorded as obligations under finance leases and the interest element of a
lease obligation is charged to the income statement over the period of the lease in proportion to the balances
outstanding.
Other leases are operating leases and the associated leased assets are not recognised on the Company's balance sheet.
Expenditure arising under operating leases is charged to the income statement as incurred. The Company also enters into
sale-and-leaseback transactions whereby it sells the rights to an aircraft to an external party and subsequently leases the
aircraft back, by way of an operating lease. Any profit or loss on the disposal where the price achieved is not considered
to be at fair value is spread over the period during which the asset is expected to be used. The profit or loss amount
deferred is included within "other creditors" and divided into components of greater than and less than one year.
Provisions and contingencies
A provision is recognised in the balance sheet when there is a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefit will be required to settle the obligation. If the effect
is material, provisions are determined by discounting the expected future outflow at a pre-tax rate that reflects current
market assessments of the time value of money and, when appropriate, the risks specific to the liability.
The Company assesses the likelihood of any adverse outcomes to contingencies, including legal matters, as well as probable
losses. We record provisions for such contingencies when it is probable that a liability will be incurred and the amount of
the loss can be reasonably estimated. A contingent liability is disclosed where the existence of the obligation will only
be confirmed by future events, or where the amount of the obligation cannot be measured with reasonable reliability.
Provisions are re-measured at each balance sheet date based on the best estimate of the settlement amount.
In relation to legal matters, we develop estimates in consultation with internal and external legal counsel taking into
account the relevant facts and circumstances known to us. The factors that we consider in developing our legal provisions
include the merits and jurisdiction of the litigation, the nature and number of other similar current and past litigation
cases, the nature of the subject matter of the litigation, the likelihood of settlement and current state of settlement
discussions, if any.
Segment reporting
Operating segments are reported in a manner consistent with the internal organisational and management structure and the
internal reporting information provided to the chief operating decision maker, who is responsible for allocating resources
and assessing performance of operating segments. The Company is managed as a single business unit that provides low fares
airline-related services, including scheduled services, and ancillary services including car hire services, and internet
and other related services to third parties, across a European route network.
Income statement classification and presentation
Individual income statement captions have been presented on the face of the income statement, together with additional line
items, headings and sub-totals, where it is determined that such presentation is relevant to an understanding of our
financial performance, in accordance with IAS 1, "Presentation of Financial Statements".
Expenses are classified and presented in accordance with the nature-of-expenses method. We disclose separately on the face
of the income statement, within other income and expense, losses on the impairment of available-for-sale financial assets
and gains or losses on disposal of property, plant and equipment. The nature of the Company's available-for-sale asset is
that of a financial investment; accordingly any impairment of the investment is categorised as finance expense and included
in other income/(expense) as a separate line item. The presentation of gains or losses on the disposal of property, plant
and equipment within other income/(expense) accords with industry practice.
Revenues
Scheduled revenues comprise the invoiced value of airline and other services, net of government taxes. Revenue from the
sale of flight seats is recognised in the period in which the service is provided. Unearned revenue represents flight seats
sold but not yet flown and a provision for government tax refund claims attributable to unused tickets, and is included in
accrued expenses and other liabilities. Revenue, net of government taxes, is released to the income statement as passengers
fly. Unused tickets are recognised as revenue on a systematic basis, such that twelve months of time expired revenues are
recognised in revenue in each fiscal year. Miscellaneous fees charged for any changes to flight tickets are recognised in
revenue immediately.
During the year ended March 31, 2012, changes in estimates relating to the timing of revenue recognition for unused
passenger tickets were made, resulting in increased revenue of E65.3 million (fiscal year 2014:Nil, 2013:Nil). This change
reflects more accurate and timely data obtained through system enhancements.
Ancillary revenues are recognised in the income statement in the period the ancillary services are provided.
Share-based payments
The Company engages in equity-settled, share-based payment transactions in respect of services received from certain of its
employees. The fair value of the services received is measured by reference to the fair value of the share options on the
date of the grant. The grant measurement date is the date that a shared understanding of the terms of the award is
established between the Company and the employee. The cost of the employee services received in respect of the share
options granted is recognised in the income statement over the period that the services are received, which is the vesting
period, with a corresponding increase in equity. To the extent that service is provided prior to the grant measurement
date, the fair value of the share options is initially estimated and re-measured at each balance sheet date until the grant
measurement date is achieved. The fair value of the options granted is determined using a binomial lattice option-pricing
model, which takes into account the exercise price of the option, the current share price, the risk-free interest rate, the
expected volatility of the Ryanair Holdings plc share price over the life of the option and other relevant factors.
Non-market vesting conditions are taken into account by adjusting the number of shares or share options included in the
measurement of the cost of employee services so that ultimately, the amount recognised in the income statement reflects the
number of vested shares or share options.
Pensions and other post-retirement obligations
The Company provides certain employees with post-retirement benefits in the form of pensions. The Company currently
operates a number of defined contribution schemes and a small defined benefit pension scheme in the U.K.
Costs arising in respect of the Company's defined contribution pension schemes (where fixed contributions are paid into the
scheme and there is no legal or constructive obligation to pay further amounts) are charged to the income statement in the
period in which they are incurred. Any contributions unpaid at the balance sheet date are included as a liability.
A defined benefit plan is a post-employment benefit plan other than a defined-contribution plan. The liabilities and costs
associated with the Company's defined benefit pension scheme are assessed on the basis of the projected unit credit method
by professionally qualified actuaries and are arrived at using actuarial assumptions based on market expectations at the
balance sheet date. The net obligation in respect of defined benefit schemes is calculated separately for each plan by
estimating the amount of future benefits that employees have earned in return for their service in the current and prior
periods. That benefit is discounted to determine its present value and the fair value of any plan asset is deducted. The
discount rates employed in determining the present value of each scheme's liabilities are determined by reference to market
yields at the balance sheet date of high quality corporate bonds in the same currency and term that is consistent with
those of the associated pension obligations. The net surplus or deficit arising on the Company's defined-benefit scheme is
shown within non-current assets or liabilities on the balance sheet. The deferred tax impact of any such amount is
disclosed separately within deferred tax.
Re-measurements, comprising actuarial gains and losses and the return on plan assets (excluding net interest), are
recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other
comprehensive income in the period in which they occur.
Taxation
Income tax on the profit or loss for a year comprises current and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items recognised in other comprehensive income (such as certain hedging
derivative financial instruments, available-for-sale assets, pensions and other post-retirement obligations). Current tax
payable on taxable profits is recognised as an expense in the period in which the profits arise using tax rates enacted or
substantively enacted at the balance sheet date.
Deferred income tax is provided in full, using the balance sheet liability method, on temporary differences arising from
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred
income tax is determined using tax rates and legislation enacted or substantively enacted by the balance sheet date and
expected to apply when the temporary differences reverse.
The following temporary differences are not provided for: (i) the initial recognition of assets and liabilities that effect
neither accounting nor taxable profit and (ii) differences relating to investments in subsidiaries to the extent that it is
probable they will not reverse in the future.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against
which temporary differences can be utilised. The carrying amounts of deferred tax assets are reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that a sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be realised.
Social insurance, passenger taxes and sales taxes are recorded as a liability based on laws enacted in the jurisdictions to
which they relate. Liabilities are recorded when an obligation has been incurred.
Tax liabilities are based on the best estimate of the likely obligation at each reporting period. These estimates are
subject to revision based on the outcome of tax audits and discussions with revenue authorities that can take several years
to conclude.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and
share options are recognised as a deduction from equity, net of any tax effects. When share capital recognised as equity is
repurchased, the amount of consideration paid, which includes any directly attributable costs, net of any tax effects, is
recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a
deduction from total equity, until they are cancelled.
Prospective accounting changes, new standards and interpretations not yet adopted
The following new or revised IFRS standards and IFRIC interpretations will be adopted from their effective dates for the
purposes of the preparation of future financial statements, where applicable. We do not anticipate that the adoption of
these new or revised standards and interpretations will have a material impact on our financial position or results from
operations.
· IAS 32 (amendment), "Financial instruments: Presentation-offsetting financial assets and financial liabilities"
(effective for fiscal periods beginning on or after January 1, 2014).*
· IAS 39 (amendment), "Novation of Derivatives and Continuation of Hedge Accounting" (effective for fiscal periods
beginning on or after January 1, 2014).*
· IAS 19 (amendment), "Defined Benefit Plans: Employee Contributions" (effective for fiscal periods beginning on or
after July 1, 2014).
· IFRIC 21, "Levies" (effective for fiscal periods beginning on or after January 1, 2014).*
· IFRS 9, "Financial Instruments" (2009, as amended in 2011 and 2013) (effective date to be determined).
· "Improvements to IFRSs". 2010-2012 Cycle (effective for fiscal periods beginning on or after July 1, 2014).
· "Improvements to IFRSs". 2011-2013 Cycle (effective for fiscal periods beginning on or after July 1, 2014).
· IFRS 14, "Regulators Deferral Accounts" (effective for fiscal periods beginning on or after January 1, 2016).
· Amendments to IAS 16 and IAS 38: "Clarification of Acceptable Methods of Depreciation and Amortisation" (effective for
fiscal periods beginning on or after January 1, 2016).
· Amendments to IFRS 11: "Accounting for Acquisitions of Interests in Joint Operations" (effective for fiscal periods
beginning on or after January 1, 2016).
· Amendments to IAS 16 and IAS 41: "Agriculture: Bearer Plants" (effective for fiscal periods beginning on or after
January 1, 2016).
· IAS 15, "Revenue from Contracts with Customers" (effective for fiscal periods beginning on or after January 1,
2017).
* Adopted by the EU (IASB effective date in brackets).
2 Property, plant and equipment
Aircraft Hangar and Buildings Plant and Equipment Fixtures and Fittings Motor Vehicles Total
EM EM EM EM EM EM
Year ended March 31, 2014
Cost
At March 31, 2013....................... 6,409.6 58.8 23.2 33.2 2.3 6,527.1
Additions in year.......................... 490.5 8.5 3.4 3.3 0.1 505.8
Disposals in year.......................... (84.4) - - - - (84.4)
At March 31, 2014....................... 6,815.7 67.3 26.6 36.5 2.4 6,948.5
Depreciation
At March 31, 2013....................... 1,555.1 15.7 19.3 28.6 2.1 1,620.8
Charge for year............................. 343.9 2.6 2.2 3.0 0.1 351.8
Eliminated on disposal.................. (84.4) - - - - (84.4)
At March 31, 2014....................... 1,814.6 18.3 21.5 31.6 2.2 1,888.2
Net book value
At March 31, 2014....................... 5,001.1 49.0 5.1 4.9 0.2 5,060.3
18.3
21.5
31.6
2.2
1,888.2
Net book value
At March 31, 2014.......................
5,001.1
49.0
5.1
4.9
0.2
5,060.3
Aircraft Hangar and Plant and Fixtures and Motor Total
Buildings Equipment Fittings Vehicles
EM EM EM EM EM EM
Year ended March 31, 2013
Cost
At March 31, 2012....................... 6,158.3 46.8 20.8 30.5 2.3 6,258.7
Additions in year.......................... 293.4 12.0 2.4 2.8 0.1 310.7
Disposals in year.......................... (42.1) - - (0.1) (0.1) (42.3)
At March 31, 2013....................... 6,409.6 58.8 23.2 33.2 2.3 6,527.1
Depreciation
At March 31, 2012....................... 1,275.9 13.4 17.1 25.0 2.1 1,333.5
Charge for year............................. 321.3 2.3 2.2 3.7 0.1 329.6
Eliminated on disposal.................. (42.1) - - (0.1) (0.1) (42.3)
At March 31, 2013....................... 1,555.1 15.7 19.3 28.6 2.1 1,620.8
Net book value
At March 31, 2013....................... 4,854.5 43.1 3.9 4.6 0.2 4,906.3
Aircraft Hangar and Plant and Fixtures and Motor Total
Buildings Equipment Fittings Vehicles
EM EM EM EM EM EM
Year ended March 31, 2012
Cost
At March 31, 2011....................... 5,953.2 46.6 19.1 27.2 2.2 6,048.3
Additions in year.......................... 312.3 0.2 1.7 3.3 0.1 317.6
Disposals in year.......................... (107.2) - - - - (107.2)
At March 31, 2012....................... 6,158.3 46.8 20.8 30.5 2.3 6,258.7
Depreciation
At March 31, 2011....................... 1,065.1 11.1 14.8 21.6 2.0 1,114.6
Charge for year............................. 301.1 2.3 2.3 3.4 0.1 309.2
Eliminated on disposal.................. (90.3) - - - - (90.3)
At March 31, 2012....................... 1,275.9 13.4 17.1 25.0 2.1 1,333.5
Net book value
At March 31, 2012....................... 4,882.4 33.4 3.7 5.5 0.2 4,925.2
2.3
3.4
0.1
309.2
Eliminated on disposal..................
(90.3)
-
-
-
-
(90.3)
At March 31, 2012.......................
1,275.9
13.4
17.1
25.0
2.1
1,333.5
Net book value
At March 31, 2012.......................
4,882.4
33.4
3.7
5.5
0.2
4,925.2
At March 31, 2014, aircraft with a net book value of E4,471.1 million (2013: E4,663.0 million; 2012: E4,856.0 million) were
mortgaged to lenders as security for loans. Under the security arrangements for the Company's new Boeing 737-800 "next
generation" aircraft, the Company does not hold legal title to those aircraft while these loan amounts remain outstanding.
At March 31, 2014, the cost and net book value of aircraft included advance payments on aircraft of E282.1 million (2013:
Nil; 2012: E110.5 million). Such amounts, where present, are not depreciated. The cost and net book value also includes
capitalised aircraft maintenance, aircraft simulators and the stock of rotable spare parts.
The net book value of assets held under finance leases at March 31, 2014, 2013 and 2012 was E559.0 million, E582.9 million,
and E607.5 million respectively.
3 Intangible assets
At March 31,
2014 2013 2012
EM EM EM
Landing rights...................................................................................... 46.8 46.8 46.8
46.8
46.8
46.8
Landing slots were acquired with the acquisition of Buzz Stansted Limited in April 2003. As these landing slots have no
expiry date and are expected to be used in perpetuity, they are considered to be of indefinite life and accordingly are not
amortised. The Company also considers that there has been no impairment of the value of these rights to date. The
recoverable amount of these rights has been determined on a value-in-use basis, using discounted cash-flow projections for
a twenty-year period for each route that has an individual landing right. The calculation of value-in-use is most sensitive
to the operating margin and discount rate assumptions. Operating margins are based on the existing margins generated from
these routes and adjusted for any known trading conditions. The trading environment is subject to both regulatory and
competitive pressures that can have a material effect on the operating performance of the business. Foreseeable events,
however, are unlikely to result in a change of projections of a significant nature so as to result in the landing rights'
carrying amounts exceeding their recoverable amounts. These projections have been discounted based on the estimated
discount rate applicable to the asset of 5.3% for 2014, 7.0% for 2013, and 7.7% for 2012.
4 Available-for-sale financial assets
At March 31,
2014 2013 2012
EM EM EM
Investment in Aer Lingus............................................................ 260.3 221.2 149.7
260.3
221.2
149.7
As at March 31, 2014 Ryanair's total percentage shareholding in Aer Lingus was 29.8% (2013: 29.8%; 2012: 29.8%). The
balance sheet value of E260.3 million (2013: E221.2 million; 2012: E149.7 million) reflects the market value of this
investment as at March 31, 2014. In accordance with the Company's accounting policy, this asset is held at fair value with
a corresponding adjustment to other comprehensive income following initial acquisition. Any impairment losses that arise
are recognised in the income statement and are not subsequently reversed. Any cumulative loss previously recognised in
other comprehensive income is transferred to the income statement once an impairment is considered to have occurred.
The movement on the available for sale financial asset from E221.2 million at March 31, 2013 to E260.3 million at March 31,
2014 is comprised of a gain of E39.1 million, recognised through other comprehensive income, reflecting the increase in the
share price of Aer Lingus from E1.39 per share at March 31, 2013 to approximately E1.64 per share at March 31, 2014.
This investment is classified as available-for-sale, rather than as an investment in an associate, because the Company does
not have control or the power to exercise "material influence" over the entity. The Company's determination that it does
not have control, or even exercise a "significant influence" over Aer Lingus through its minority shareholding has been
based on the following factors, in particular:
· Ryanair does not have any representation on the Aer Lingus Board of Directors, nor does it have a right to appoint a
director;
· Ryanair does not participate in Aer Lingus' policy-making decisions, nor does it have a right to participate in such
policy-making decisions;
· There are no material transactions between Ryanair and Aer Lingus, there is no interchange of personnel between the
two companies and there is no sharing of technical information between the companies;
· Aer Lingus and its significant shareholder (the Irish government: 25.1%) have openly opposed Ryanair's investment or
participation in the company;
· In August 2007, September 2007 and November/December 2011, Aer Lingus refused Ryanair's attempt to assert its
statutory right to requisition a general meeting (a legal right of any 10% shareholder under Irish law);
· On April 15, 2011, the High Court in Dublin ruled that Aer Lingus was not obliged to accede to Ryanair's request
that two additional resolutions (on the payment of a dividend and on payments to pension schemes) be put to vote at Aer
Lingus' annual general meeting;
· The European Commission has formally found that Ryanair's shareholding in Aer Lingus does not grant Ryanair "de jure
or de facto control of Aer Lingus" and that "Ryanair's rights as a minority shareholder are associated exclusively to
rights related to the protection of minority shareholders" (Commission Decision Case No. COMP/M.4439 dated October 11,
2007). The European Commission's finding has been confirmed by the European Union's General Court which issued a decision
on July 6, 2010 that the European Commission was justified to use the required legal and factual standard in its refusal to
order Ryanair to divest its minority shareholding in Aer Lingus and that, as part of that decision, Ryanair's shareholding
did not confer control of Aer Lingus (Judgment of the General Court (Third Chamber) Case No. T-411/07 dated July 6, 2010);
and
· On February 27, 2013 the European Commission prohibited Ryanair's bid made on June 19, 2012, to acquire the entire
share capital of Aer Lingus on the claimed basis that it would be incompatible with the EU internal market. Ryanair
appealed this decision to the EU General Court on May 8, 2013. The judgment of the EU General Court is expected in 2015 and
may affirm or annul the decision of the European Commission.
Following the European Commission's decision to prohibit its offer for Aer Lingus, Ryanair actively engaged with the
Competition Commission's investigation of the minority stake. On August 28, 2013, the UK Competition Commission (UKCC)
issued its final decision in which it found that Ryanair's shareholding "gave it the ability to exercise material influence
over Aer Lingus" and "had led, or may be expected to lead, to a substantial lessening of competition in the markets for air
passenger services between Great Britain and Ireland". As a result of its findings, the UKCC ordered Ryanair to reduce its
shareholding in Aer Lingus to below 5 per cent of Aer Lingus' issued ordinary shares. Ryanair appealed the UKCC's final
decision to the Competition Appeal Tribunal (CAT) on September 23, 2013. The CAT rejected Ryanair's appeal on March 7,
2014. On April 3, 2014, Ryanair applied for permission to appeal the CAT's judgment to the UK Court of Appeal. Should
Ryanair's permission to appeal, the appeal itself or any subsequent appeal to the UK Supreme Court be refused, Ryanair
could suffer losses due to the negative impact on market prices of the forced sale of such a significant portion of Aer
Lingus' shares. Ryanair believes that the enforcement of any such decision should be delayed until the outcome of Ryanair's
appeal against the European Commission's February 2013 prohibition decision of Ryanair's 2012 offer for Aer Lingus, and the
conclusion of any appeals against the UKCC's decision in the UK courts. However, it is possible that the UKCC will seek to
enforce any such sell-down remedy at an earlier date.
5 Derivative financial instruments
The Audit Committee of the Board of Directors has responsibility for monitoring the treasury policies and objectives of the
Company, which include controls over the procedures used to manage the main financial risks arising from the Company's
operations. Such risks comprise commodity price, foreign exchange and interest rate risks. The Company uses financial
instruments to manage exposures arising from these risks. These instruments include borrowings, cash deposits and
derivatives (principally jet fuel derivatives, interest rate swaps, cross-currency interest rate swaps and forward foreign
exchange contracts). It is the Company's policy that no speculative trading in financial instruments takes place.
The Company's historical fuel risk management policy has been to hedge between 70% and 90% of the forecast rolling annual
volumes required to ensure that the future cost per gallon of fuel is locked in. This policy was adopted to prevent the
Company being exposed, in the short term, to adverse movements in global jet fuel prices. However, when deemed to be in the
best interests of the Company, it may deviate from this policy. At March 31, 2014, the Company had hedged approximately 90%
of its estimated fuel exposure for the year ending March 31, 2015. At March 31, 2013, the Company had hedged approximately
90% of its estimated fuel exposure for the year ending March 31, 2014. At March 31, 2012, the Company had hedged
approximately 90% of its estimated fuel exposure for the year ending March 31, 2013.
Foreign currency risk in relation to the Company's trading operations largely arises in relation to non-euro currencies.
These currencies are primarily U.K. pounds sterling and the U.S. dollar. The Company manages this risk by matching U.K.
pounds sterling revenues against U.K. pounds sterling costs. Surplus U.K. pounds sterling revenues are sometimes used to
fund forward foreign exchange contracts to hedge U.S. dollar currency exposures that arise in relation to fuel,
maintenance, aviation insurance, and capital expenditure costs and excess U.K. pounds sterling are converted into euro.
Additionally, the Company swaps euro for U.S. dollars using forward currency contracts to cover any expected U.S. dollar
outflows for these costs. From time to time, the Company also swaps euro for U.K. pounds sterling using forward currency
contracts to hedge expected future surplus U.K. pounds sterling. From time to time the Company also enters into
cross-currency interest rate swaps to hedge against fluctuations in foreign exchange rates and interest rates in respect of
U.S. dollar denominated borrowings.
The Company's objective for interest rate risk management is to reduce interest-rate risk through a combination of
financial instruments, which lock in interest rates on debt and by matching a proportion of floating rate assets with
floating rate liabilities. In addition, the Company aims to achieve the best available return on investments of surplus
cash - subject to credit risk and liquidity constraints. Credit risk is managed by limiting the aggregate amount and
duration of exposure to any one counterparty based on third-party market-based ratings. In line with the above interest
rate risk management strategy, the Company has entered into a series of interest rate swaps to hedge against fluctuations
in interest rates for certain floating rate financial arrangements and certain other obligations. The Company has also
entered into floating rate financing for certain aircraft, which is matched with floating rate deposits. Additionally,
certain cash deposits have been set aside as collateral for the counterparty's exposure to risk of fluctuations on certain
derivative and other financing arrangements with Ryanair (restricted cash). At March 31, 2014, such restricted cash
amounted to E13.3 million (2013: E24.7 million; 2012: E35.1 million). Additional numerical information on these swaps and
on other derivatives held by the Company is set out below and in Note 11 to the consolidated financial statements.
The Company utilises a range of derivatives designed to mitigate these risks. All of the above derivatives have been
accounted for at fair value in the Company's balance sheet and have been utilised to hedge against these particular risks
arising in the normal course of the Company's business. All have been designated as hedging derivatives for the purposes of
IAS 39 and are fully set out below.
Derivative financial instruments, all of which have been recognised at fair value in the Company's balance sheet, are
analysed as follows:
At March 31,
2014 2013 2012
EM EM EM
Non-current assets
Gains on cash-flow hedging instruments - maturing within one year............................................... 0.4 5.1 3.3
0.4 5.1 3.3
Current assets
Gains on cash flow hedging instruments - maturing after one year.................................................. 16.7 78.1 231.9
16.7 78.1 231.9
Total derivative assets.................................................................................................................... 17.1 83.2 235.2
Current liabilities
Losses on cash flow hedging instruments - maturing within one year............................................. (95.4) (31.8) (28.2)
(95.4) (31.8) (28.2)
Non-current liabilities
Losses on cash flow hedging instruments - maturing after one year................................................ (43.2) (50.1) (53.6)
(43.2) (50.1) (53.6)
Total derivative liabilities............................................................................................................. (138.6) (81.9) (81.8)
Net derivative financial instrument position at year-end ........................................................ ........................................................................................................................................................... (121.5) 1.3 153.4
(43.2)
(50.1)
(53.6)
Total derivative
liabilities.............................................................................................................
(138.6)
(81.9)
(81.8)
Net derivative financial instrument position at year-end ........................................................
...........................................................................................................................................................
(121.5)
1.3
153.4
All of the above gains and losses were unrealised at the period-end.
The table above includes the following derivative arrangements:
Fair value Fair value Fair value
2014 2013 2012
EM EM EM
Interest rate swaps (a)
Less than one year (b)...……………………………………………….. (31.0) (31.8) (26.7)
Between one and five years…………………………………………… (40.9) (49.9) (53.8)
After five years…………………………………………………..……. (0.5) (0.2) 0.2
(72.4) (81.9) (80.3)
Foreign currency forward contracts (a)
Less than one year………………………………………..……………. (64.4) 42.3 86.1
Between one and five years………………………………...………….. (0.7) 5.1 3.0
After five years……………………………………………………...…. (1.1) - 0.3
(66.2) 47.4 89.4
Commodity forward contracts (c)
Less than one year………………………………………..……………. 16.7 35.8 144.3
Between one and five years………………………………...………….. 0.4 - -
17.1 35.8 144.3
Net derivative position at year end…………..……………………… (121.5) 1.3 153.4
-
17.1
35.8
144.3
Net derivative position at year end…………..………………………
(121.5)
1.3
153.4
(a) Additional information in relation to the above interest rate swaps and forward currency contracts (i.e. notional
value and weighted average interest rates) can be found in Note 11 to the consolidated financial statements.
(b) E31.0 million interest rate swap financial liabilities falling due within one year, includes E8.5 million
derivative financial liabilities, falling due within one year, in respect of cross currency interest rate swaps (see Note
11 to the consolidated financial statements).
(c) E17.1 million commodity forward contracts relate solely to jet fuel derivative financial assets (see Note 11 of the
consolidated financial statements).
Interest rate swaps are primarily used to convert a portion of the Company's floating rate exposures on borrowings and
operating leases into fixed rate exposures and are set so as to match exactly the critical terms of the underlying debt or
lease being hedged (i.e. notional principal, interest rate settings, re-pricing dates). These are all designated in
cash-flow hedges of the forecasted variable interest payments and rentals due on the Company's underlying debt and
operating leases and have been determined to be highly effective in achieving offsetting cash flows. Accordingly, no
ineffectiveness has been recorded in the income statement relating to these hedges in the current and preceding years.
The Company also utilises cross currency interest rate swaps to manage exposures to fluctuations in foreign exchange rates
of U.S. dollar denominated floating rate borrowings, together with managing the exposures to fluctuations in interest rates
on these U.S. dollar denominated floating rate borrowings. Cross currency interest rate swaps are primarily used to convert
a portion of the Company's U.S. dollar denominated debt to euro and floating rate interest exposures into fixed rate
exposures and are set so as to match exactly the critical terms of the underlying debt being hedged (i.e. notional
principal, interest rate settings, re-pricing dates). These are all designated in cash-flow hedges of the forecasted U.S.
dollar variable interest payments on the Company's underlying debt and have been determined to be highly effective in
achieving offsetting cash flows. Accordingly, no ineffectiveness has been recorded in the income statement relating to
these hedges in the current year.
Foreign currency forward contracts may be utilised in a number of ways: forecast U.K. pounds sterling and euro revenue
receipts are converted into U.S. dollars to hedge against forecasted U.S. dollar payments principally for jet fuel,
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