RNS Number : 4412Y
easyJet PLC
05 December 2017
 

easyJet plc ("the Company")

 

Annual report and accounts 2017

 

The Company announces that a copy of the Annual report and accounts for the year ended 30 September 2017 has been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM .  

 

This document is also available to view on the Company's website. The direct link to download the 2017 Annual report and accounts is http://2017annualreport.easyjet.com/ .

 

PERFORMANCE HIGHLIGHTS FOR FINANCIAL YEAR 2017

 

Investing in number one and number two positions

·     Record number of passengers flown at 80.2 million, up 9.7% year on year, with record load factor at 92.6% (2016: 91.6%)

·     Capacity grew by 8.5% to over 86.7 million seats, as easyJet continued its strategy of purposeful investment with a focus on number one and two market positions

·     Total revenue of £5,047 million, up 8.1%, with revenue per seat broadly flat year-on-year

Rigorous cost control

·     Strong cost control, driven by increasing benefits of scale and stronger network positions, along with Lean savings of £85 million offsetting inflationary pressure in the market

 

Resilient business model

·     Headline profit before tax of £408 million, demonstrating the resilience of easyJet's business model, despite an adverse headline currency impact of £101 million

·     Business model underpinned by strong balance sheet and net cash position of £357 million, with industry leading credit ratings from S&P and Moody's

Focus on emissions

·     easyJet continues its decarbonisation strategy, posting a further reduction in annual CO2 emissions

·     In the 2017 financial year, easyJet's carbon emissions per passenger kilometre (km) were 78.62 grams (g), down from 79.98g per passenger km in the prior financial year

 

Female pilot recruitment

·     In the last twelve months easyJet has selected 49 female new entrant co-pilots - a 48%   increase on the 33 selected last year

·     This takes the proportion of easyJet new entrant female pilots to 13%

 

Continued customer focus

·     In 2017, easyJet carried over 519,000 passengers who needed special assistance; a 14% increase from the prior financial year

·     Customer satisfaction amongst these passengers was 83%

 

UNICEF: A good citizen

·     Since 2012, easyJet has raised over £10 million for its charity partner UNICEF, including over £1.5 million in the 2017 financial year

 

In compliance with DTR 6.3.5, the following information is extracted from the 2017 Annual report and accounts and should be read together with the Company's Final Results announcement issued on 21 November 2017 which can be found at http://otp.investis.com/clients/uk/easyjet1/rns/regulatory-story.aspx?cid=2&newsid=951571

Together these constitute the information required to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2017 Annual report and accounts.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 88 of the 2017 Annual report and accounts and is repeated here solely for the purpose of complying with DTR 6.3.5. The statement relates to the full 2017 Annual report and accounts and not the extracted information presented in this announcement or the Final Results announcement.

 

The Directors are responsible for preparing the Annual report, the Directors' remuneration report and the accounts in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have prepared the Group and Company accounts in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period. In preparing these accounts, the Directors are required to:

 

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the accounts; and

•     prepare the accounts on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the accounts and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group accounts, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of, amongst other things, the financial and corporate governance information provided on the easyJet website ( http://corporate.easyJet.com ). Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

 

The Directors consider that the Annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and the Company's position and performance, business model and strategy.

 

Each of the Directors, whose names and functions are listed on pages 48 and 49 of the Annual report, confirm that, to the best of their knowledge:

 

•    the Group and Company accounts, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and

•     the Strategic report, included in the Annual report, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

In accordance with Section 418 of the Companies Act 2006, each Director in office at the date the Directors' report is approved, confirms that:

 

•    so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

•     he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

The Annual report on pages 1 to 88 was approved by the Board of Directors and authorised for issue on 20 November 2017 and signed on its behalf by:

 

Carolyn McCall DBE

Chief Executive

Andrew Findlay

Chief Financial Officer

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The risks and uncertainties set out below are extracted from the pages 34 to 40 of the 2017 Annual report and accounts and are repeated here solely for the purpose of complying with DTR 6.3.5.

 

The risks and uncertainties described below are considered, at this point in time, to have the greatest effect on easyJet's strategic objectives. This categorised list is not intended to be exhaustive, and the ordering of the risks is not an indication of exposure. Whilst easyJet can monitor risks and prepare for adverse scenarios, the ability to affect the core drivers of many risks is not within the Group's control, for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues.

 

 

 

 

Link to strategy:

 

1         Building and strengthening number 1 and number 2 network positions

2         Maintaining a lean cost advantage

3         Maintaining customer and operational excellence

4         Continuing to leverage data and digital platforms

5         Grow revenue

6         The best people

 

  V           Considered as part of the long-term viability assessment (turn to page 31 [of the Annual report] for further details)

SAFETY FIRST

 

 

Risk description

 

Mitigation

Major safety incident

A major safety incident (such as a hull

loss) could adversely affect easyJet's

reputation and its operational and

financial performance. The impact of

such an incident would be heightened if

easyJet failed to react promptly and deal

with it effectively.

 

Link to strategy:

1  2  3  5  6  V

 

easyJet's number one priority is the safety and security of its customers and people.

 

A Safety Committee (a committee of the Board) provides oversight of the

management of easyJet's safety processes and systems.

 

Turn to page: 57 [of the Annual report] for further details.

 

A Safety Review Board (at Executive Management Team level) is responsible for directing overall safety policy and governance. This is chaired by the Chief Executive.

 

Safety Action Groups from across the airline are responsible for the identification, evaluation and control of safety-related risks.

 

easyJet operates a Safety Management System using a leading software system (SafetyNet). This is used to:

•       collect and analyse safety data (enabling potential areas of risk to be projected); and

•       enable learning from easyJet and industry events/incidents to be captured and embedded into future risk mitigations.

 

A robust incident reporting process and 'Just Culture' are in place.

 

easyJet has an emergency response process and performs regular crisis

management exercises.

 

Hull (all risks) and liabilities insurance (including spares) is held.

 

easyJet has an industry-leading fatigue risk management system and has implemented the European Aviation Safety Agency ("EASA") Flight Time Limitations regulations.

 

Turn to page: 42 [of the Annual report] for further details.

 

Security threat or attack

Failure to identify or prevent a major security-related threat or attack, or react immediately and effectively, could adversely affect easyJet's reputation and its operational and financial performance.

 

Such an incident has the potential to impact upon easyJet's business, regardless of the location or target. The threat of further security-related attacks (regardless of where they may occur) may impact the future demand for air travel.

 

Link to strategy:

1  2  3  5  6

 

A Security Decision Group, comprising the Chairman of the plc Board, Chief

Executive, appropriate members of the Executive Management Team and other senior management, determines whether easyJet should continue to operate in countries or areas affected by security-related incidents or conflict. As part of that process the easyJet security team works to provide the Security Decision Group with the most timely, credible and reliable information upon which to base operational decisions. easyJet adheres to all recommendations and guidelines provided by the authorities.

 

The Director of Safety and Security and the Head of Security work with authorities and governments around easyJet's network to assess whether security measures are effective and in compliance with regulatory requirements. A significant amount of work is carried out with the aim of enhancing:

•       early identification of developing and emerging security risks;

•       the active management of security risks;

•       the methods for reducing the impact of any security-related incident; and

•       the Group's security culture and awareness.

 

COMMERCIAL AND OPERATIONAL

 

 

Risk description

 

Mitigation

Competition, capacity and industry consolidation

The aviation market is highly competitive and easyJet operates in competition with both flag carriers and other low-cost airlines.

 

Excess capacity in the market may arise due to a decrease in demand for air travel and/or additional capacity as a result of low fuel prices. This could have an adverse financial impact.

 

easyJet's key competitive advantages include its network, cost base, brand, digital innovation and efficient and robust capital structure. Failure to retain these advantages or react quickly to competitor changes could have an adverse financial impact.

 

Industry consolidation could also affect the competitive environment in a number of markets. This could cause a loss of market position and erosion of revenue.

 

Link to strategy:

1  2  3  4  5

 

easyJet seeks to have a rapid response to any such activity that may impact

easyJet's ability to grow the business.

 

Competitor and consolidation activity is monitored, enabling strategic decision making on key routes/positions.

 

The Network Development Forum, a cross-functional panel of senior executives, approves new bases and the allocation of assets around the network.

 

Fleet framework arrangements, together with the Group's leasing policy,

provide easyJet with significant flexibility in respect of scaling the fleet according to business requirements.

 

Strong cost control is a key behaviour across the Company, with initiatives to drive cost reduction and improve efficiency in targeted areas.

 

easyJet is developing commercial and digital enhancements that will improve commercial options and enable more rapid changes, thereby conserving as well as increasing its commercial capabilities.

 

Following the announcement in October that easyJet will purchase parts of Air Berlin, subject to anti-trust and regulatory approvals, there is now an additional programme risk relating to the integration of Air Berlin operations.

 

 

 

Significant network disruption

Widespread disruption to easyJet's network may be caused by a single event or factors which occur for a sustained period. Examples include forces of nature (extreme weather,

volcanic ash, etc.), terrorism, air traffic management issues, epidemics/pandemics or the closure of a key airport.

 

Significant disruption to the network could adversely affect easyJet's reputation and its operational and financial performance including the payment of EU 261 claims.

 

Link to strategy:

1  2  3  4  5  6

 

There are processes in place, and clear roles and responsibilities within teams across the business, to plan for and manage significant disruption.

 

A business disruption team, which includes senior management from relevant business areas, determines and initiates required action.

 

Board policy is to maintain a liquidity buffer which allows the Group to better manage the impact of downturns in business or temporary curtailment of activities.

 

In addition, easyJet holds business disruption insurance which provides some cover for some of these very significant shock events such as extreme weather, air traffic management issues and loss of access to key airports.

 

 

 

Continuity of services

easyJet is dependent on a number of key IT systems and processes. A loss of critical systems or access to facilities, including the website, may lead to significant disruption to operations and could have an adverse reputational and financial impact.

 

Link to strategy:

2  3

 

Critical systems are hosted either across two data centres, or at third-party provider locations. Recovery arrangements, including failover between the two data centres, are in place for all locations holding critical systems.

 

An IT incident management team is in place to respond rapidly to any unforeseen incidents that may arise.

 

IT disaster recovery plans are tested regularly to identify opportunities for

improved resilience.

 

Business continuity plans ensure easyJet is prepared in the event of loss of facilities, including alternative sites for the relocation of critical staff.

 

Third party service providers

easyJet has entered into agreements with third party service providers for services covering a significant proportion of its operational and cost base.

 

Failure to adequately manage third party performance may adversely affect easyJet's reputation and its operational and financial performance.

 

Link to strategy:

2  3  4  5  6

 

 

There is a defined procurement process, led by a centralised procurement team, which ensures a competitive and robust selection of suppliers. As part of the process, alternative service providers are identified and assessed against a balanced evaluation criteria within the major markets in which easyJet operates.

 

Any specific supplier risks are identified and assessed during the procurement process and controls and risk mitigations are included in the contracts entered into with the supplier.

 

Contracts are managed according to easyJet's supplier relationship management framework, with key principles covering defined ownership and accountability, a governance framework and effective communication. Supplier performance is monitored through regular business reviews, including achievement of service level agreements and key performance indicators.

 

Robust transition plans are agreed in the event of switching suppliers to enable an acceptable level of service to be maintained.

 

Industrial action

easyJet, and the aviation industry in general, has a significant number of employees who are members of trade unions. Industrial action taken by easyJet employees, or by the employees of key third party service providers, could impact on easyJet's ability to maintain its flight schedules.

 

This could adversely affect easyJet's reputation and its operational and financial performance.

 

Link to strategy:

2  3  6

 

 

As easyJet operates across Europe, its crew are members of 20 unions and 11 representative bodies across eight countries. easyJet seeks to maintain positive working relationships with all trade unions and other representative bodies.

 

Each of the countries in which easyJet operates has localised employment terms and conditions. This mitigates the risk of large-scale internal industrial action occurring at the same time.

 

Processes are in place to adapt to disruptions as a result of industrial action.

Single fleet risk

easyJet is dependent on Airbus as its sole supplier for aircraft.

 

There are significant cost and efficiency advantages of a single fleet, however there are two main associated risks:

•       technical or mechanical issues that could ground the full fleet, or part of the fleet, which could cause negative perception; and

•       valuation risks which crystallise when aircraft exit the fleet. The main exposure at this time is with the ageing A319 fleet, where easyJet is reliant on the future demand for second-hand aircraft.

 

Link to strategy:

2  3  V

 

 

The Board considers that the efficiencies achieved by operating a single fleet type outweigh the risks associated with easyJet's single fleet strategy.

 

The Airbus A320 family (which includes the A319 and A321) is one of the two primary fleets used for short-haul travel, the other being the Boeing B737 family. There 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 strategy

The 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 talent

easyJet'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 exit

The 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

 


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