h1 2017 analyst & investor presentation -...

H1 2017 analyst & investor

presentation

Tuesday 16th May 2017

Introduction

Carolyn McCall

Chief Executive Officer

3 3

Footer box on intersect of lines line h=8.03 9 and v=8.75 with font 10pt Arial not bold

easyJet is in a strong position

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Customer

Balance Sheet

Network

Cost

Digital and data

Purposeful and disciplined growth; strengthening our market positions Improving revenue trend

Strong cost control in H1 delivering flat headline CPS ex fuel (@cc)

Investment grade balance sheet provides flexibility and secures lower funding costs

Continuous investment in customer proposition and lean initiatives

Top ranked LCC in UK, Switzerland and France offering great value and quality service

Financial review

Andrew Findlay

Chief Financial Officer

5 5


Key performance indicators

5

* Favourable /(adverse)

H1 2017 H1 2016 Change*

Seats flown (m) 37.5 34.5 8.4%

Passengers (m) 33.8 31.0 9.0%

Load factor (%) 90.2% 89.7% +0.5ppt

Average sector length (km) 1,058 1,054 0.4%

Revenue per seat - reported currency (£) 48.80 51.29 (4.9%)

Revenue per seat - constant currency (£) 46.32 51.29 (9.7%)

Headline cost per seat incl fuel - reported currency (£) 54.45 51.91 (4.9%)

Headline cost per seat incl fuel - constant currency (£) 49.79 51.91 4.1%

Headline cost per seat excl fuel - reported currency (£) 42.18 38.54 9.5%

Headline cost per seat excl fuel - constant currency (£) 38.54 38.54 0.0%

6 6


Financial performance

* Restated ** Favourable/(adverse)

6

H1 2017 H1 2016* Change**

£ m £ m

Total revenue 1,827 1,771 3.2 %

Headline costs:

Headline costs excluding fuel (1,580) (1,330) (18.7) %

Fuel (459) (462) 0.5 %

Headline loss before tax (212) (21) £(191) m

Headline loss before tax at constant currency (130) (21) £(109) m

Non-headline items:

Sale and leaseback charge (16) - £(16) m

Organisational review (2) - £(2) m

EU Air Operator Certificate (‘AOC’) (1) - £(1) m

Balance sheet foreign exchange (loss)/gain (1) 2 £(3) m

Fair value adjustment (4) 1 £(5) m

Total loss before tax (236) (18) £(218) m

7 7


H1 Revenue performance

Revenue per seat bridge

£51.29

H1 2016 Easter

£1.23

Underlying market conditions

£3.74

Before FX

£46.32

H1 2017

£48.80

FX

£2.48

7

(2.4%)

(7.3%)

4.8%

(9.7%)

(4.9%)

8 8


A strong focus on costs

Headline cost per seat bridge

4.66

2.12

1.130.120.30

0.30

0.240.41

H1 2017 headline

cost per seat

54.45

P&L Fx Fuel H1 headline

cost per seat at constant

currency before fuel

variance

51.91

Lean A320 mix

Inflation* Regulated airports inflation

Ownership costs

Disruption H1 2016 headline

cost per seat (restated)

51.91

Flat headline cost per seat ex fuel variance at constant currency

• Total headline cost per seat at constant currency: 4.1% decrease

• Headline cost per seat ex fuel at constant currency: Remains flat

8

* Operational price increases including unregulated airports, ground handling, navigation and crew costs

9 9


Impact of fuel & currency


9

H1 2017 fuel impact H1 2017 H1 2016 Change*

Fuel $ per metric tonne

Market rate 500 409 (91)

Effective price 662 786 124

US dollar rate

Market rate 1.24 1.48 (24 cents)

Effective price 1.47 1.61 (14 cent)

Difference between market rate and effective rate 0.23 0.13

Actual cost of fuel £ per metric tonne 449 489 40

H1 2017 currency impact on headline PBT* EUR CHF USD Other Total

£m

Revenue 71 14 3 5 93

Fuel (1) - (37) - (38)

Headline costs excluding fuel (96) (19) (16) (6) (137)

Total (26) (5) (50) (1) (82)

10 10


Strong cash generation

9

246302

229

115

214

28

21667

92

220

Cash & MMDs at 1 October

2016*

969

Cash & MMDs at 31 March

2017 *

1,308

FX* Net interest

Own shares CAPEX Increased borrowings

Sale & leaseback proceeds

Cash & MMDs

post div & tax paid

1,287

Ordinary dividend (FY’16)

Tax paid Other operating

Net working capital

Depn & amort

Operating loss

*Includes money market deposits but excludes restricted cash

Cash flow bridge • Net cash: £353m (FY16: £213m)

• Adjusted net debt: £333m (FY16 restated: £424m)

Cash generated from operations

(excluding dividends): £560m Investing and financing

10

11 11


Strong balance sheet

11

Liquidity is supported by the 500 million US dollar Revolving Credit Facility that has no financial covenants or draw-stops

£m 31 March

2017

30 September 2016

(restated)

Goodwill and other intangible assets 533 517

Property, plant and equipment 3,314 3,252

Derivative financial instruments 123 98

Other assets (excluding cash and money market deposits) 367 324

Unearned revenue (1,298) (568)

Other liabilities (excluding debt) (1,052) (1,142)

Capital employed 1,987 2,481

Cash and money market deposits 1,308 969

Debt (955) (756)

Net cash 353 213

Net assets 2,340 2,694

12 12


A321 – delivering cost & revenue benefits

12

• Provides further structural advantage

• Maximises constrained high value,

peak-day flying

• Will deliver an 8-9%* cost per seat

benefit and incremental contribution

per annum compared with A320 NEOs

operating on easyJet’s network

• Maintains a neutral capex commitment

via increased flexibility within the

contract

Capital Discipline

*Based on current fuel price

A319 CEO – 156 seats


A320 NEO – 186 seats


30 A321 NEO’s added to fleet plan

13 13


1. At the end of the relevant Financial Year 2. Based on fleet plan – base case 3. Maximum fleet does not include the purchase rights

13

Mix

of

fle

et

(%)

Fleet up-gauging Delivering CPS savings

easyJet fleet mix

Capital Discipline / Tough on

cost

Up-gauging delivering CPS savings





7% -8% saving

6% -7% saving

8% -9% saving

73% A320 &

A321

51%

43% 37% 34%

27%

20%

19%

28%

31%

49%

45%

43%

1% 6%

11%

12%

21%

1% 3% 9% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY2017 FY2018 FY2019 FY2020 FY2021

A319CEO-156 A320CEO-180 A320CEO-186

A320NEO-186 A321NEO-235

14 14


Prior base plan

Current base plan

Utilising flexibility in fleet planning

14

Air

cra

ft n

um

be

rs

301

312

335

357

279

296

304

327

343

270

280

290

300

310

320

330

340

350

360

370

FY2017 FY2018 FY2019 FY2020 FY2021

Revised base case fleet numbers Up and down side flexibility

279

296

304

327

343

298

316

338

364

279

281

286

270

280

290

300

310

320

330

340

350

360

370

FY2017 FY2018 FY2019 FY2020 FY2021

Current base plan

Current max plan

Current min plan*

* With exercise of deferral options and all operating leases returned at maturity

15 15


FY '17 FY '18 FY '19 FY '20

Maintenance & Other Replacement Growth

Gross capital expenditure

- Assumes base case fleet plan

15

£1,050m £1,100m Prior capex plan:

• Revised Capex spend post

capacity review process

• Profile represents new

schedule based on latest

agreement with Airbus which

includes A321 purchases

• Maintenance capex is

projected to remain stable

over the next 3 years

£800m

£1,050m

£700m

£950m

c. £250m reduction in CAPEX in next 3 years

£650m

Business Review

Carolyn McCall

Chief Executive Officer

17 17


Driving strategic delivery

Purposeful network strategy

Capital Discipline

Tough on cost

50% dividend payout &

Long term shareholder returns

Strong balance sheet

+

+

=

Supported by

Differentiated proposition &

17

18 18


Ruthless capital discipline

18

Strategy supports profitable growth and returns

Build & strengthen No1 positions

Take advantage of growth opportunities

Target specific catchment areas

Invest in lean bases

Capital Discipline

Purposeful growth strategy Capacity

• easyJet undertake a bi-annual, thorough analysis of capacity to reflect the market environment and fuel price

• Disciplined approach to opportunities to reach #1/#2 positions

• Managed by increased flexibility in fleet plans:

• Utilisation / gauge

• Lease renewals

• Sale and leaseback

• A321

19 19


#1 Other #2

easyJet position at airport

Purposeful allocation of capacity

19

• Leverage, build and strengthen

• Strong positions behind legacy carriers

• Lean basing

Highly profitable

Profitable

Returns driven by strong network positions at primary airports….


The sweet spot is being No1 at the airport and No1

on the route

Graph not to scale

56% of H1 growth

38% of H1 growth

6% of H1 growth

20 20


Source : OAG, scheduled data and Internal easyJet projection May 2017. Country capacity growth is based on network touching seats.

Delivering purposeful investment in H1

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H1 2017


H1 seat growth 800k 600k 300k 200k 150k 400k 100k 200k

8%

9%

12%

7%

6%

9%

17%

16%

8% 8%

4%

10%

4% 4%

15%

10%

UK Switzerland France Netherlands Italy Germany Portugal Spain

easyJet Growth Market Growth

21 21


Strong positions in slot constrained airports

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Airport1

Current morning peak utilisation

EZY share @ airport

EZY H1 growth

EZY H2 growth

Airport H2 growth

London Gatwick 47.3% 2.3% 4.3% 2.8%

London Luton 42.5% 17.3% 16.7% 4.8%

Geneva 40.4% 5.9% 9.9% 6.2%

Berlin SXF 38.6% 14.8% 6.7% 6.1%

Manchester 15.0% 27.7% 17.4% 8.0%

Paris Orly 12.3% Flat 2.6% (2.5)%

Lyon 23.0% 17.5% 5.2% 5.4%

Amsterdam Schiphol

11.5% 6.6% 8.6% 8.5%

Lisbon 10.2% 12.3% 15.3% 15.1%

Barcelona 8.2% 19.9% 5.8% 6.7%

Full at peak times

Constrained at peak times


80% of easyJet capacity touches an airport that is slot constrained during peak times

Up-gauging allows easyJet to continue to grow capacity at slot constrained airports

22 22


Source : OAG, scheduled data and Internal easyJet projection for H2 growth. Country capacity growth is based on network touching seats. - Aircraft numbers based on total touching aircraft

Building & strengthening - No1 positions

Airport growth easyJet growth at the airport

22


H2 2017

7.6% 6.0%

Bristol 14 aircraft

5.2% 5.4%

Lyon 8 aircraft

9.9%

6.2%

Geneva 25 aircraft

4.3%

2.8%

Gatwick 62 aircraft

16.7%

4.8%

Luton 23 aircraft

8.6%

8.5%

Schiphol 18 aircraft

15.5%

0.6%

Venice 9 aircraft

7.8%

6.6%

Nice 14 aircraft

23 23


Improving capacity trend on easyJet markets

easyJet market pairs

23

5.8%

8.4% 8.4%

7.6%

8.8%

6.2%

8.2%

4.8%

H2 ‘16 H1 ‘17 Q3 ‘17 Q4 ‘17 H2 ‘16 H1 ‘17 Q3 ‘17 Q4 ‘17

easyJet capacity growth Competitor capacity growth


24 24


Customer focus driving brand and loyalty

24

Differentiated Proposition

London Gatwick North Terminal consolidation

Mobile app

easyJet Plus

c.26% of ecommerce bookings on mobile devices

25 25


Revenue initiatives

25

Differentiated Proposition

Continuing to improve Innovation driving future revenue

New Digital Platform

RMS Optimisation

Network Optimisation

Data Science

26 26


Lean initiatives underpin strong cost control

26

Tough on cost

CPS ex fuel target: flat 2015 vs 2019*

2015 CPS (ex Fuel @ cc)

2019 CPS (ex Fuel @ cc)

Lean programme offsets inflation

Efficient and effective cost base

• Improving long term airports and ground handling deals

• Increased automation, e.g. auto bag drop

• Data science driving long term cost saving

• Seasonal base opening in Palma

• Overhead reduction: Next Generation

• Predictive maintenance to drive further efficiency

• Improved scheduling and roster efficiency

• Young fleet reduces maintenance costs

• Leverages size to drive economies of scale

• Low cost of funding from strong balance sheet

• Investment into 186 A320

• Introduction of A321 NEO into fleet

Utilising structural advantage

Up-gauging and purposeful fleet management

Strong pipeline of LEAN initiatives

*Headline cost per seat at constant currency

* *

27 27


Investing in resilience

27

Actions delivered in H1

Increased number of remote de-icing pads across network

Push notifications live now at 39 airports

London Gatwick North Terminal consolidation

Customer Disruption Program (CDP) initiated

MINIMISE / MANAGE and MONITOR

Ground handling initiatives:

• Improved stand planning and marked equipment bays

• More Walk in Walk out stands

Increased auto bag drop capacity at – STN, LTN

Ongoing resilience investment

Predictive maintenance

• Working with Airbus and leading data science companies to leverage data directly gathered from aircraft

• Expect 20% of technical operational interruption events can be eliminated.

Aircraft spare parts inventory

• Invested in additional inventory of critical spares parts that typically cause operational interruption

AOG response aircraft and teams

• Rapid response aircraft and engineering available in Luton and now Malpensa

Schedule resilience

• Schedule firebreaks / standby aircraft availability / invest in wet lease aircraft

Cabin maintenance

• Additional capability and resources to perform preventative maintenance on our cabins

28 28


Self help initiatives deliver operational improvements

28

London Gatwick North Terminal consolidation Improving on time performance

+7 ppts

Q2 improvement in CSAT relating to bag drop experience (vs Q2 2016)

Easter 2016 Easter 2017 Change

Total Sectors 28,380 32,087 +13.1%

Network OTP 76.3% 85.3% +9.0 ppts

LGW OTP 66.7% 84.1% +17.4ppts

Strong operational performance over busy Easter period*

*Includes flying program from 10th April 2017 to 30th April 2017 vs equivalent Easter period in 2016

95%

H1 Arrivals within 60min of schedule

99%

H1 Technical Dispatch Reliability

29 29


90%

83%

58%

77%

44%

32%

18%

31%

53%

93%

82%

57%

77%

46%

34%

22%

34%

55%

Apr May Jun Q3 Jul Aug Sep Q4 H2

Last Year This Year

H2 forward bookings

H2 2017 (April 2017 to September 2017) as at 12 May 2017

H2 bookings ahead of prior year % seats sold*

29

30 30


Outlook in 2017

Capacity (seats flown) • H2 c.+8.5% (before disruption)

• FY c.+8.5% (before disruption)

Revenue per seat at constant currency • Q3 revenue per seat: Low single digit decline

Cost per seat at constant currency (Unchanged) • FY headline cost per seat excluding fuel: up c.1% (assuming normal levels of disruption)

• FY headline cost per seat: down c.4% (assuming normal levels of disruption)

FX (Improved) • H2: c.£20 million adverse movement from foreign exchange rates on headline profit before tax

• FY: c.£100 million adverse movement from foreign exchange rates headline profit before tax

Fuel (Improved) • FY: unit fuel costs £225 million to £235 million favourable

• Expected total fuel cost £1,060 million

• Full year headline PBT expectations are in line with current market consensus

Rates at 2017 £/USD:1.2866; £/EUR: 1.1843 Unit fuel guidance based on Jet fuel trading range of $500/ metric tonne to $580/ metric tonne

30

31 31


Summary

31

• EU AOC on track to be announced this summer

• Strong structural business

• Resilient performance in H1

• Improving RPS trend

• Right actions and right position to benefit in the future

appendix

34 34


Fuel and foreign exchange hedging

As at 31 March2017 34

Fuel requirement US dollar requirement Euro Surplus

Full year ending 30 September 2017

84% @ $612/tonne 82% @ $1.50/£ 91% @ EUR1.35/£

Half year ending 30 September 2018

52% @ $520/tonne 53% @ $1.36/£ 60% @ EUR1.22/£

Full year ending 30 September 2018

60% @ $516/tonne 59% @ $1.40/£ 66% @ EUR1.25/£

Sensitivities

• $10 per tonne change in fuel price will impact the pre-tax result by +/- $2.2 million

• 1 cent movement in the £:$ will impact the pre-tax result by +/-£1.0 million

• 1 euro cent movement will impact the pre-tax result by +/-£0.6 million

35 35


Loss after tax

* Restated

**Favourable/(adverse)

35

£ m H1 2017 H1 2016* Change**

Headline loss before tax (212) (21) (892.3%)

Headline tax charge 40 3 1,183.1%

Headline loss after tax (172) (18) (842.8%)

Total loss before tax (236) (18) (1,214.7%)

Total tax charge 44 3 1,319.5%

Total loss after tax (192) (15) (1,192.7%)

Effective tax rate 18.7% 17.3% (1.4ppt)

No update to the last version we sent you, however this isn’t reflected in your master slide deck

36 36


Revenue per seat


36

£ per seat H1 2017 H1 2016 Change*

Seat revenue 47.82 50.39 (5.1%)

Non-seat revenue 0.98 0.90 8.7%

Total revenue 48.80 51.29 (4.9%)

37 37


Headline cost per seat excluding fuel – key drivers

*Favourable /(adverse)

37

Cost per seat excluding

fuel £

Variance at constant currency*

£

Variance at constant currency*

%

Weighted variance at constant currency*

%

Drivers

Navigation 4.25 0.14 3.5% 0.4% • Price benefits in France and Germany

Maintenance 3.39 0.16 4.9% 0.4%

• Upgauging of fleet from A319s to A320s • Engineering and maintenance savings such as the component supply contract

Crew 7.82 (0.03) (0.5%) (0.1%)

• Pay increases • Increase in average sector length • Offset by efficiencies from up-guaging of the fleet

Overheads 5.84 (0.04) (0.8%) (0.1%) • Higher disruption costs • Offset by volume benfit from increased capacity

Airports and ground handling 16.66 0.01 0.1% 0.0%

• Annualised increases in charges at regulated airports • Offset by savings from volume deals and renegotiated airport and ground handling contracts

Ownership 4.22 (0.24) (6.2%) (0.6%)

• Increase in depreciation due to new aircraft purchased • Increase in interest payable due to the bond issues • Partially offset by decreasing lease costs due to a favourable lease mix

Total Headline CPS excluding fuel 42.18 0.00 (0.0%) 0.0%


38 38


Increasing proportion of A320’s

38

H1 2017 FY 2016 Change

A319 (operating lease) 55 45 10

A319 (owned / finance lease) 89 99 (10)

A319 Total 144 144 0

A320 (operating lease) 18 18 0

A320 (owned / finance lease) 104 95 9

A320 Total 122 113 9

Total fleet 266 257 9

Operating lease 27% 25% (2ppt)

Number unencumbered 188 156 32

Percentage of A320s in fleet 46% 44% 2ppt

Average seats per aircraft 167 166 1%


39 39


Non-headline costs

39

Sale and Leaseback charge Income statement impact • £10m loss on disposal of aircraft (reflecting the transfer of the residual value risk)

• £6m maintenance catch-up provision (reflecting the fact that the aircraft have to be returned to the lessor at the end of the lease in a particular maintenance condition).

Change in accounting policy: maintenance catch-up charge Previously: deferred on balance sheet and amortised to income statement over the life of the lease.

Now: charged immediately to the income statement.

Why: Better matches the economics of the transaction in both the income statement and balance sheet.

Organisational review • £2m recognised in the period for the programme, which involves redundancy costs and third party advisor fees

EU Air Operator Certificate (‘AOC’) • £1m recognised to date for the set-up costs of establishing an AOC in another EU member state following the

UK’s referendum vote to leave the European Union (‘EU’)

Balance sheet foreign exchange (gain)/loss • £1m charge recognised for the foreign exchange loss arising from the retranslation of monetary assets and

liabilities held in the statement of financial position

Fair value adjustment • £4m loss for the period recognised for the fair value adjustment that arises from the ineffective portion of the

cross currency interest rate swaps elected into fair value hedge relationships with the €500 million Eurobond issued 9 February 2016


40 40


Currency impact

Average effective Euro rate for revenue for H1’17 was €1.21 (H1’16: €1.32) Average effective Euro rate for costs for H1’17 was €1.16 (H1’16: €1.34)

40

Currency split – total revenue Currency split – total costs

Sterling, 45%

Euro, 43%

USD, 1%

Swiss Franc, 9%

Other, 2%

Sterling, 33%

Euro, 36%

USD, 23%

Swiss Franc 6%

Other, 2%

41 41


Currency impact

41

Revenue Costs

H1 2017 H1 2016 H1 2017 H1 2016

Sterling 45% 47% 33% 29%

Euro 43% 41% 36% 33%

US dollar 1% 1% 23% 32%

Other (principally Swiss franc) 11% 11% 8% 6%

Average effective Euro rate for revenue for H1’17 was €1.2050 (H1’16: €1.3241) Average effective Euro rate for costs for H1’17 was €1.1565 (H1’16: €1.3403)

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