FY 2016 Analyst & investor...

FY 2016 Analyst & investor

presentation

Tuesday 15 November 2016

Introduction

Carolyn McCall

Chief Executive Officer

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

Proven business model in all market conditions

• Strong performance in a tough year

• Purposeful and disciplined growth; reinforcing our market

positions

• Revenue and network differentiate easyJet and drive RPS

• Strong cost performance

• Strong balance sheet to support strategy which delivers

dividend.

3

Financial review

Andrew Findlay

Chief Financial Officer

5 5


Financial performance

*Favourable / (adverse)

** Profit before tax at constant currency including balance sheet revaluations

FY 2016 FY 2015 Change* Change*

£ m £ m % % @ CC

Total revenue 4,669 4,686 (0.4%) (0.9%)

Fuel (1,114) (1,199) 7.1% 7.4%

Costs excluding fuel (3,060) (2,801) (9.2%) (5.3%)

Profit before tax 495 686

Profit before tax at constant currency 576 686 **

EBITDAR 770 940 (18.0%) (9.0%)

EBITDAR Margin (%) 16.5% 20.0% (3.5ppt)

Earnings per share (pence) 108.4 139.1 (22.1%)

Dividend per share (pence) 53.8 55.2 (2.5%)

Return on capital employed (%) 14.6% 22.2% (7.6ppt)

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Revenue performance


FY 2016 FY 2015 Change*

Seats flown (m) 79.9 75.0 6.5%

Load factor (%) 91.6% 91.5% +0.1ppt

Passengers (m) 73.1 68.6 6.6%

Average sector length (km) 1,098 1,118 (1.7%)

Total revenue - reported (£m) 4,669 4,686 (0.4%)

Total revenue -constant currency (£m) 4,644 4,686 (0.9%)

Total revenue per seat - reported (£) 58.46 62.48 (6.4%)

Total revenue per seat - constant currency (£) 58.16 62.48 (6.9%)

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c.35% of the decrease in RPS can be attributed to the immediate impact of post terrorist incidents in Sharm el Sheik, Paris, Brussels, Nice and Turkey

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A strong focus on costs

Total cost per seat bridge • Total cost per seat at constant currency: 4.6% decrease

• Cost per seat ex fuel at constant currency: 1.1% decrease

1.32

1.960.09

1.41

0.400.10

0.130.100.59

0.30

0.53

HPT blades Fuel

52.81

Before Mgmt action

Balance sheet

revaluations

Cost post Mgmt

actions

Other savings

including lean

FY 2015 Eurocontrol settlement

54.62

Inflation* Disruption Regulated airports inflation

FY 2015

53.33

FY 2016 P&L FX

A320 mix Reduced sector length

52.26

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

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8 8


Impact of fuel & currency


FY 2016 fuel impact* FY 2016 FY 2015 Change*

Fuel $ per metric tonne

Market rate 415 619 204

Effective price 754 872 118

US dollar rate

Market rate 1.41 1.54 (13 cents)

Effective price 1.57 1.58 (1 cent)

Actual cost of fuel £ per metric tonne 479 553 74

FY 2016 currency impact* EUR CHF USD Other Total

£m

Revenue 8 10 4 2 24

Fuel - - (3) - (3)

Prior year balance sheet revaluations (3) 1 (5) - (7)

Costs excluding fuel and prior year balance sheet revaluations

(84) (13) (3) (2) (102)

Total (79) (2) (7) - (88)

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9 9


Strong cash generation

106

19

6

22586

139

219

99

2235

169

498

Cash and MMD’s @ 30 Sep ’16

969

FX Net interest Restricted cash

Own shares CAPEX Increased borrowings

Cash & MMDs

post div & tax paid

1,345

Ordinary dividend

Tax paid Other operating

Net working capital

Depn & amort

Operating profit

Cash & MMDs at 1 October

2015*

939

*Includes money market deposits but excludes restricted cash

Cash flow bridge • Net cash: £213m (FY15: £435m)

• Adjusted net debt: £508m (FY15: £363m) Cash generated from operations

(excluding dividends): £724m

Investing and financing

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Strong balance sheet

£m FY 2016 FY 2015

Goodwill and other intangible assets 517 492

Property, plant and equipment 3,252 2,877

Derivative financial instruments 98 (297)

Other assets (excluding cash and money market deposits) 324 348

Unearned revenue (568) (619)

Other liabilities (excluding debt) (1,124) (987)

Capital employed 2,499 1,814

Cash and money market deposits 969 939

Debt (756) (504)

Net cash 213 435

Net assets 2,712 2,249

10

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

11 11


Gross capital expenditure

- Figures in graph quoted in millions

- Assumes base case fleet plan

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£1,050

FY19 FY18

£1,100

FY17

£650

FY16

£600

Replacement Maintenance/other Retrofit Growth

• Incremental capex in FY18 &

FY19 driven by replacement

expenditure

• Unit cost savings of 13-14% are

anticipated from up-gauging

to 186 seat A320 Neo’s

• Maintenance capex is

projected to remain stable

over the next 3 years

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257

301

312

335

357

279

302

331

345

358

257

239 234

222

175

200

225

250

275

300

325

350

375

FY16 FY17 FY18 FY19 FY20 FY21

Base Case

Contracted Max

Contracted Min

Fleet flexibility

Extra aircraft allows greater flexibility in fleet planning

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Business Review

Carolyn McCall

Chief Executive Officer

14 14


easyJet delivers returns in all market conditions

Purposeful network strategy

Capital Discipline

Tough on cost

50% dividend payout &

Long term shareholder returns

Strong balance sheet

+

+

=

Supported by

Differentiated proposition &

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Strong underlying demand in our markets

Passenger forecasting undertaken at city level and aggregated up to countries

3.6%

Expected passenger growth CAGR, 2016-21

United Kingdom

France

Germany

Switzerland

Italy

3.2%

3.2%

Spain & Portugal

2.4%

3.8%

3.1%

3.5%

Netherlands

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16 16


Purposeful growth with a significant opportunity to secure long term returns

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Purposeful Growth

Opportunities to support profitable growth of up to 9% per annum

Purposeful growth

Disciplined capital allocation

UK, Switzerland

• Portfolio management: sustained short term returns & investment for future

• Allocating aircraft and churning routes to maximise returns

• Leverage lean bases to access markets cost-efficiently

Build & strengthen No1 positions

Take advantage of growth opportunities

Target specific catchment areas

Invest in lean bases

France

Eg: Amsterdam, Venice, Berlin

Eg: Barcelona

17 17


#1 Other #2

easyJet position at airport

Purposeful allocation of capacity

17

• Leverage, build and strengthen

• Strong positions behind legacy carriers

• Build or churn • Lean basing

Highly profitable

Profitable

Returns driven by strong network positions at primary airports….

Purposeful Growth

The sweet spot is being No1 at the airport and No1

on the route

Graph not to scale

18 18


Source : easyJet internal plan for 2017 data. Departing capacity 18

easyJet’s 2016 capacity split

▪ 98% of capacity touches a number 1 or number 2 position airport.

▪ easyJet has a high share of capacity at number 1 positions driving premium returns

Focused investment to drive the highest returns

▪ Focussed capacity deployment in FY17 to invest in number 1 positions

▪ Purposeful investment to develop other airports to become no 1 or 2

Purposeful Growth

2017 new capacity growth

- 5.5 million seats into No 1 positions

- 1.6 million seats into No 2 positions

- Flat seat growth in other

83%

15%

Number 1

Number 2

Other

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Strong positions in slot constrained airports

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Purposeful Growth

Airport1 Current morning peak utilisation1,2,3

London Gatwick

Milan MXP

London Luton

Geneva

Berlin SXF

Paris CDG

Manchester

Edinburgh

Pais Orly

Lyon

Amsterdam Schipol

Nice

Lisbon

Barcelona

Full at peak times

Constrained at peak times

Less 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

A network that is difficult to replicate

1) easyJet airports that are part of the top 30 European airports, where easyJet is present (therefore excludes Heathrow, Frankfurt, Istanbul and Dublin); 2) Based on theoretical max runway capacity at airport 3) Peak = first wave departures (before 8.30am) on weekdays in IATA Summer season or at other time of day. For leisure destinations may also include weekend peak demand periods e.g. Saturday in Geneva in ski season;

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easyJet

Non-LCC P2P Non-LCC transfer

Other LCC

Significant opportunities within the current network

High return opportunities at easyJet’s top 20 airports

77m seats

Capacity split at easyJet’s top 20 airports

20

Purposeful Growth

63m seats at

airports where easyJet hold a No1 or No2 position

14m Other

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c.9% easyJet capacity growth in 2017

UK

France

Italy

Switzerland

Germany

Country capacity growth is schedule on schedule, based on network touching seats.

Investment in the network in 2017 to capture market opportunities

Netherlands

Purposeful Growth

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4.1m

2.4m

0.5m

0.6m

1.4m

1.4m

Build & strengthen No1 positions

Take advantage of growth opportunities

Target specific catchment areas

Invest in lean bases

Spain

1.7m

xx 2017 growth – seats, millions

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Track record of driving returns

Contribution per block hour by route (FY16)

Capital Discipline

Mature routes (> 3 years)

Maturing routes (< 3 years)

Not operated in FY12

14%

Outside top 25% then

40%

In top 25 % then 46%

54% of our top 25% of routes were not in our top

25% in FY2012

Development of our top 25% routes

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WACC = 8%

Graph not to scale

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The easyJet brand is strongest in our most profitable markets

#1/2 airport positions % pax1

% returning pax1

First choice airline

(vs LCC) 2 Value

perceptions2 Digital

demand3 Top rated

airline app4

14 45 79 #1 #1 #1 #1

6 14 68 #1 #1 #2 #1

2 11 82 #1 #1 #1 #1

Strong network and digital offering

Compelling value proposition

First choice airline for a growing, loyal and valuable customer

base

+

1. Source: easyjet customer database 2. Source: Millward Brown easyJet brand tracker 3. Source: Google searches last 12 months, Google Analytics 4. Source: iTunes

Differentiated Proposition

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Digital offering that drives ticket sales

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1. easyJet.com

• Web visits now totalling over 350M

• 84% passengers check in online – repeat visit


2. Mobile - Industry leading app

• 4.5* UK Apple app rating (example Ryanair 1.5*)

• Highly used mobile boarding passes + 63% YOY

• 168M visits and 20.3% of all e commerce bookings now made on mobile + 38% YOY

3. Balanced approach with GDS/Aggregator/Direct API capability

• Market leading 3rd Party API capability (12.5% of total seats)

• Over 300 TMC relationships to support the corporate customer

Digital distribution strategy is built on three commercially mature channels

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Driving growth in non-ticket revenue

Digital offering that drives ancillary revenue

Inflight revenue +31% v FY15

• Premium in flight range to match customer profile

• Increased penetration and spend per head

• Improved supplier terms/waste reduction

Non ticket seat revenue +9% v FY15

• Allocated seating conversion uplift

• >40% growth in eJ+ revenue

• Flight club launch and roll out

Partner Ancillaries +6% v FY15

• New media sales initiatives

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Data is driving customer insight and loyalty

Source easyJet database FY16

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Source: easyJet database

Customer insight Driving loyalty

• 26.3M marketable customers – an increase of 5% YOY

• easyjet Plus has increased 40% YOY • Our email programme drives incremental value:

• 30% more customers in the programme make a booking (versus non marketable).

• They book more frequently and spend more each time they book: • 50% more flight revenue • 47% more ancillary revenue

We understand our 73.1m passengers: • 55% passengers originate from outside of the UK

• 20% travel for business purposes, 51% travel for

occasional leisure purposes and 17% are high-frequency leisure travellers

• 50% easyJet’s customers are AB, and our most

frequent and valuable customers come from the highest UK socio-economic group (Business Elite) • Managers, professionals and directors • High earnings • Strong internet and smartphone usage

Socio-economic profile (UK)

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Investment in business driving higher yielding growth

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12.5m passengers

travelled

Record 1.3m passengers in

September

Over 300 corporate

agreements

14% increase in Business

Fares

Award Winning B2B program

GDS contracts renewed

On track to deliver increased business passengers of 25% over next 3 years

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On-going digital momentum

Source easyJet database FY16

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Live or imminently going live initiatives • Inflight vouchers (live) • Earlier flight (live) • easyJet holidays (live) • Disruption portal & self service initiatives (live) • Personalised ancillary upsell at check-in (live) • Inflight pre-order (December) • EPOS on board (January) • Tours and excursions (February ‘17)

Future Commercial Platform • Hybris e-commerce platform in build • Personalised Sitecore platform rolling out • Will be an industry leading merchandising capability

and the platform for deeper ancillary integration • Programme on track for delivery in FY18

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Increasing cost advantage

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Tough on cost

Cost advantage over non LCC carriers

Market share on easyJet’s network

*Capacity on easyJet airport to airport pairs (FY 2016)

4.1%

2.9%

1.4%

4.8%

Norwegian Airberlin easyJet Ryanair

Stage length adjusted CASK ex fuel cagr growth, 2011 - 2016

easyJet cost performance vs LCC’s

9.78.6

6.0

3.5

AF-KLM Lufthansa IAG easyJet

Stage length adjusted CASK ex fuel, pence

Source: Airline Analyst. Note: CASK covers last 12 months to 30 June 2016 for peers (unless otherwise noted) & FY16 for easyJet. Peer cask translated to pence using average rate for FY16.

easyJet

easyJet Air France KLM Vueling

BA Ryanair Alitalia Thomson

TAP Monarch Thomas Cook Other

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Proven delivery of sustainable savings

30

Tough on cost

Up-gauging: A structural advantage

156 seats 186 seats

Current generation

A319

New generation A320neo

13% -14%

Lean delivers sustainable savings

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4332

46

95

315

58

Y2015 Y2014 Y2013 Y2012 Y2011 Y2017 Y2011-16 Y2016

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

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Lean initiatives will continue to deliver

31

Tough on cost

FY 2017 CPS

Cost saving initiatives

Inflation (inc. regulated airport increases)

Investment

• Up-guaging • Airport and Ground handling contract

negotiations and efficiencies • Crew productivity initiatives including

seasonal basing and positioning • Engineering and maintenance efficiencies

and contract savings • Improved disruption mitigation and

management • Contact centre savings through increased

self service and process improvements

• Resilience • Fleet expansion • Funding • Projects / development • Data science e.g. predictive maintenance

2.0%

c.(2.0%)

c.1.0%

c. 1.0%

2018-19 CPS

2.0%

(2%) - (3%)

0% - 2%

c. Flat

easyJet Lean

Figures are excluding fuel at constant currency

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The operational environment has dramatically changed

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Airport congestion

European short haul capacity has increased by over 100m seats in the past 2 years

London capacity has increased by 15m seats in the past 2 years

ATC issues

French ATC strikes in March and June causing over 1,000 cancellations

Brest airspace control systems upgrade

Greek islands – Heavily congested during the summer with dated systems unable to cope

London TMA

Delays due to London TMA congestion tripled from 2015 to 2016

Operating in primary slot constrained airports

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

Gatwick airport currently have 57 days per year of more than 900 movements compared to 5 days in 2014

External factors

There is a direct link between on time performance and delays that are not in easyJet’s control

0

100

200

300

400

500

0%

20%

40%

60%

80%

100%

De

lay

Co

un

t

On

-Tim

e P

erf

orm

an

ce

Impact of ATC delays through summer

Delay Count Arr 15 Minute OTP %

When ATC delays are below 100 a day easyJet’s OTP was above 80%

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easyJet is investing in resilience

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• Aircraft availability

• Leased business jet to deliver engineers and parts rapidly to where they are needed

• Predictive maintenance programme to increase reliability

• Crew

• Investing in recruitment and training

• Schedule and rostering

• End to end planning to improve delivery of operational performance

• Forging closer relationships with crew to ensure sustainability

34 34


Brexit – No impact on model or strategy

• EU AOC process on schedule

• Extensive process to define criteria for best location

• Process close to completion

• Formal application expected in early 2017

• Will secure intra-European flying rights

34

Confident that easyJet’s network will not be affected

Flows % of current capacity

Flying rights (AOC) Flying rights at April 2019?

Domestic UK 10% UK Yes

UK – EU 40% UK, EU Yes

EU – EU 30% EU Yes

CH – EU/UK 15% UK, EU, CH Yes

Other 5% UK, EU, CH Yes

35 35


Outlook in 2017

Capacity (seats flown) • H1 c.+9% (before disruption)

• FY c.+9% (before disruption)

Revenue per seat at constant currency • H1 revenue per seat: down mid to high single digits

Cost per seat at constant currency • FY cost per seat: down c. 3% (assuming normal levels of disruption)

• FY cost per seat excluding fuel: up c. 1% (assuming normal levels of disruption)

FX • H1: c.£70 million adverse movement from foreign exchange rates

• FY: c.£90 million adverse movement from foreign exchange rates

Fuel • H1: unit fuel costs £85 million to £95 million favourable

• FY: unit fuel costs £245 million to £275 million favourable

• Expected total fuel cost £1,050 million

Rates at 14 November 2016 £/USD:1.2601; £/EUR: 1.1604 Unit fuel guidance based on Jet fuel trading range of $400 / metric tonne to $520 / metric tonne

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easyJet is a structural winner

• Purposeful future growth plans

• Significant opportunities for profitable growth

• Best customer proposition with constant innovation to

drive demand and loyalty

• Cost plan to deliver flat CPS ex-fuel

• 50% profit after tax pay-out ratio

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appendix

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Fuel and foreign exchange hedging

Sensitivities – FY17

• $10 per tonne change in fuel price will impact the full year pre-tax result by +/- $2.8 million

• One cent movement in the £/$ will impact the full year pre-tax result by +/- £2.0 million

• One cent movement in the £/€ will impact the full year pre-tax result by +/- £0.4 million

• One cent movement in the £/CHF will impact the full year pre-tax result by +/- 0.3 million

Fuel

requirement US dollar

requirement Euro surplus CHF surplus

Six months ending 31 March 2017

83% at $664/ metric tonne

79% at $1.53/£ 78% at €1.36/£ 73% at CHF1.42/£

Full year ending 30 September 2017

81% at $617/ metric tonne

74% at $1.52/£ 82% at €1.35/£ 71% at CHF1.41/£

Full year ending 30 September 2018

47% at $510 / metric tonne

50% at $1.43/£ 47% at €1.27/£ 47% at CHF1.35/£

As at 14 November 2016 39

40 40


H1 forward bookings

H1 2017 (October 2016 to March 2017) as at 12 November 2016

H1 bookings in line with prior year

% seats sold*

40

93%

50%

90%

49%

Oct Nov Dec Jan Feb Mar H1

Winter 2016 Winter 2017

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Profit after tax


£ m FY 2016 FY 2015 Change*

Profit before tax 495 686 (27.9%)

Tax charge (68) (138) 51.1%

Profit after tax 427 548 (22.0%)

Effective tax rate 13.7% 20.1% 6.4ppt

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Revenue per seat


£ per seat FY 2016 FY 2015 Change*

Seat revenue 57.43 61.54 (6.7%)

Non-seat revenue 1.03 0.94 9.7%

Total revenue 58.46 62.48 (6.4%)

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H2 Performance


Reported £m H2 2016 H2 2015 Change*

Total revenue 2,898 2,919 (0.8%)

Fuel (652) (683) 4.5%

Operating costs excluding fuel (1,587) (1,426) (11.1%)

EBITDAR 659 810 (18.5%)

Ownership costs (140) (131) (8.5%)

Profit before tax 519 679 (23.6%)

PBT margin 17.9% 23.3% (5.4ppt)

Seats (m) 45.3 42.8 5.8%

Constant currency £ per seat H2 2016 H2 2015 Change*

Total revenue 62.38 68.16 (8.5%)

Fuel (14.22) (15.94) 10.8%

Operating costs excluding fuel (32.42) (33.32) 2.8%

EBITDAR 15.74 18.90 (16.7%)

Ownership costs (3.12) (3.10) (1.2%)

Profit before tax excluding prior year revaluations 12.62 15.80 (20.2%)

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Cost per seat excluding fuel – key drivers


Cost per seat excluding

fuel £

Variance at constant currency*

£

Variance at constant currency*

%

Weighted variance at constant currency*

£ Drivers

Navigation 4.21 0.19 4.7% 0.5% • Decrease in average sector length • Price benefits in France and Germany

Maintenance 2.97 0.17 5.3% 0.5% • Reduction in number of leased aircraft in the fleet combined with savings from new maintenance contract

Crew 6.78 0.15 2.2% 0.4%

• Efficiency gained from upgauging our fleet • Decrease in average sector length • Improved crew scheduling • Offset by pay increases

Overheads 5.04 0.14 2.8% 0.4%

• Small absolute increase in cost diluted by 6.1% capacity increase • Lower levels of selling expenses and wet leasing • Offset by higher disruption costs

Airports and ground handling 15.86 (0.22) (1.5%) (0.6%)

• Increases in airport and ground handling costs at Gatwick • Regulated airports price increases • Offset by savings from renegotiated airport and ground handling contracts

Ownership ex revaluations* 3.50 (0.03) (0.7%) (0.1%)

• Increase in depreciation due to new aircraft purchased • Offset against decreasing lease costs due to a decrease in the number of leased aircraft

38.36 0.40 1.1% 1.1%

Net exchange (gains)/losses (0.05)

Total CPS excluding fuel 38.31

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Increasing proportion of A320’s

FY 2016 FY 2015 Change

A319 (operating lease) 45 49 (4)

A319 (owned / finance lease) 99 99 0

A319 Total 144 148 (4)

A320 (operating lease) 18 18 0

A320 (owned / finance lease) 95 75 20

A320 Total 113 93 20

Total fleet 257 241 16

Operating lease 25% 28% (3ppt)

Number unencumbered 156 114 42

Percentage of A320s in fleet 44% 39% 5ppt

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Currency impact

Average effective Euro rate for revenue for FY 2016 was €1.28 (FY 2015: €1.29)

Average effective Euro rate for costs for FY 2016 was €1.27 (FY 2015: €1.35)

Revenue Costs

FY 2016 FY 2015 FY 2016 FY 2015

Sterling 50% 49% 27% 27%

Euro 39% 40% 35% 32%

US dollar 1% 1% 32% 35%

Other (principally Swiss franc) 10% 10% 6% 6%

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ROCE calculation – including 7x lease adjustment

Reported £m FY 2016 FY 2015

Earnings before interest and tax – reported 498 688

Interest element of operating lease payments 34 38

Earnings before interest and tax - adjusted 532 726

Tax 20% 20%

Normalised operating profit after tax (NOPAT) 426 581

Average shareholders’ equity – reported 2,481 2,211

Average net cash – reported (324) (429)

Average capitalised leases 759 833

Average capital employed 2,916 2,615

Return on capital employed – 7x basis 14.6% 22.2%

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