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«Chief Executive‟s Report 9 Summary Operating and Financial Overview Directors‟ Report 15 Corporate Governance Report Report of the Remuneration ...»

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In estimating the lives and expected residual values of its aircraft, Ryanair has primarily relied on its own and industry experience, recommendations from Boeing, the manufacturer of all of the Company‘s aircraft, valuations from appraisers and other available marketplace information. Subsequent revisions to these estimates, which can be significant, could be caused by changes to Ryanair‘s maintenance program, changes in utilization of the aircraft, governmental regulations on aging of aircraft, changes in new aircraft technology, changes in governmental and environmental taxes, changes in new aircraft fuel efficiency and changing market prices for new and used aircraft of the same or similar types. Ryanair evaluates its estimates and assumptions in each reporting period, and, when warranted, adjusts these assumptions. Generally, these adjustments are accounted for on a prospective basis, through depreciation expense.

Ryanair periodically evaluates its long-lived assets for impairment. Factors that would indicate potential impairment would include, but are not limited to, significant decreases in the market value of an aircraft, a significant change in an aircraft‘s physical condition and operating or cash flow losses associated with the use of the aircraft. While the airline industry as a whole has experienced many of these factors from time to time, Ryanair has not yet been seriously impacted and continues to record positive cash flows from these longlived assets. Consequently, Ryanair has not yet identified any impairments related to its existing aircraft fleet.

The Company will continue to monitor its long-lived assets and the general airline operating environment.

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. Aircraft are depreciated over a useful life of 23 years from the date of manufacture to residual value.

Heavy Maintenance An element of the cost of an acquired aircraft is attributed, on acquisition, to its service potential, reflecting the maintenance condition of the engines and airframe.

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 lifelimited 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.

Both of these elements of accounting policies involve the use of estimates in determining the quantum of both the initial maintenance asset and/or the amount of provisions to be recorded and the respective periods over which such amounts are charged to income. In making such estimates, Ryanair has primarily relied on its own and industry experience, industry regulations and recommendations from Boeing; however, these estimates can be subject to revision, depending on a number of factors, such as the timing of the planned maintenance, the ultimate utilization of the aircraft, changes to government regulations and increases or decreases in estimated costs. Ryanair evaluates its estimates and assumptions in each reporting period and, when warranted, adjusts its assumptions, which generally impact maintenance and depreciation expense in the income statement on a prospective basis.

Tax Audits

Income tax on the profit or loss for the year comprises current and deferred tax. 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 tax is provided in full, using the balance sheet liability method on temporary differences arising from the tax basis of assets and liabilities and their carrying amount in the consolidated financial statements.

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.

Ryanair reviews its tax obligations by jurisdiction regularly. There are many complexities and judgements in determining tax obligations due to the inherent complexity of tax law, the manner in which airline businesses are carried out whereby operations can begin and end in different jurisdictions and assumptions made about the timing and amount of individual balances to be included in financial statements and tax returns.

Ryanair has an internal tax group and takes professional advice on more complex matters in estimating its tax liabilities. Ryanair also deals extensively with revenue authorities in each jurisdiction in which it operates. 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.

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The following table sets forth certain income statement data (calculated under IFRS) for Ryanair

expressed as a percentage of Ryanair‘s total revenues for each of the periods indicated:

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Profit after taxation. Ryanair recorded a profit on ordinary activities after taxation of €522.8 million in the 2014 fiscal year, as compared with a profit of €569.3 million in the 2013 fiscal year. This 8.2% decrease was primarily attributable to an increase in total operating expenses of 5.1%, and a 3.7% reduction in average fares, offset, in part, by strong ancillary revenues and increased traffic.

Scheduled revenues. Ryanair‘s scheduled passenger revenues decreased 0.8%, from €3,819.8 million in the 2013 fiscal year, to €3,789.5 million in the 2014 fiscal year, primarily reflecting a decrease of 3.7% in average fares. The number of passengers booked increased 3.0%, from 79.3 million to 81.7 million, reflecting increased passenger volumes on existing routes and the successful launch of new bases at Athens, Thessaloniki, Brussels (Zaventem), Lisbon, Rome (Fiumicino), Catania, Lamezia and Palermo in the 2014 fiscal year.

Booked passenger load factors increased to 83% in fiscal 2014 compared with 82% in fiscal 2013.

Passenger capacity during the 2014 fiscal year increased by 2.4% due to an increase in the average number of aircraft in the fleet. Scheduled passenger revenues accounted for 75.2 % of Ryanair‘s total revenues for the 2014 fiscal year, compared with 78.2% of total revenues in the 2013 fiscal year.

Ancillary revenues. Ryanair‘s ancillary revenues, which comprise revenues from non-flight scheduled operations, in-flight sales and Internet-related services, increased 17.2%, from €1,064.2 million in the 2013 fiscal year to €1,247.2 million in the 2014 fiscal year, while ancillary revenues per booked passenger increased to €15.27 from €13.43. Revenues from non-flight scheduled operations, including revenues from excess baggage charges, administration/credit card fees, sales of rail and bus tickets, priority boarding, reserved seating, accommodation, travel insurance and car rental increased 21.6% to €1,012.4 million from €832.9 million in the 2013 fiscal year. Revenues from in-flight sales increased 6.8%, to €117.3 million from €109.8 million in the 2013 fiscal year. Revenues from Internet-related services, primarily commissions received from products sold on Ryanair.com or linked websites, decreased 3.3%, from €121.5 million in the 2013 fiscal year to €117.5 million in the 2014 fiscal year, reflecting a combination of factors including an improved product mix and the implementation of a reserved seating system across the network. The rate of increase in ancillary revenues exceeded that of the increase in overall passengers booked.

The following table sets forth the components of ancillary revenues earned by Ryanair and each

component expressed as a percentage of total ancillary revenues for each of the periods indicated:

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Operating expenses. As a percentage of total revenues, Ryanair‘s operating expenses increased from 85.3% in the 2013 fiscal year to 86.9% in the 2014 fiscal year. Total revenues increased by 3.1%, slower than the 5.1% increase in operating expenses. In absolute terms, total operating expenses increased 5.1%, from €4,165.8 million in the 2013 fiscal year to €4,378.1 million in the 2014 fiscal year, principally as a result of a 6.8% increase in fuel and oil costs from €1,885.6 million in the 2013 fiscal year to €2,013.1 million in the 2014 fiscal year, partially offset by the weakening of the U.K. pound sterling to the euro. Airport and handling charges, maintenance, materials and repairs and marketing, distribution and other costs decreased as a percentage of total revenues, while staff costs, depreciation, route charges and fuel and oil expenses increased and aircraft rental expenses stayed constant. Total operating expenses per passenger increased by 2.0%, with the increase reflecting, principally, the increase in passenger capacity during the 2014 fiscal year and the impact of the higher fuel costs.

The Company‘s decision to ground aircraft did not have a material impact on the results of the Company for the year ended March 31, 2014 and, at present, is not anticipated to have a material impact on future operations. The Company anticipates that any revenues which could have been generated had the Company operated the grounded aircraft would have been lower than the operating costs associated with operating these aircraft, due to significantly higher fuel costs, airport charges and taxes. The Company does not anticipate that any material staff costs will be incurred during future periods of the grounding of aircraft, as the relevant staff can be furloughed under the terms of their contracts without compensation and the maintenance costs associated with the grounded aircraft will be minimal. However, the Company will still incur aircraft ownership costs comprised of depreciation and amortization costs, lease rentals costs and financing costs.

The following table sets forth the amounts in euro cent of, and percentage changes in, Ryanair‘s operating expenses (on a per-passenger basis) for the fiscal years ended March 31, 2014 and March 31, 2013 under IFRS. These data are calculated by dividing the relevant expense amount (as shown in the consolidated financial statements) by the number of booked passengers in the relevant year as shown in the table of ―Selected Operating and Other Data‖ in Item 3 and rounding to the nearest euro cent; the percentage change is calculated on the basis of the relevant figures before rounding.

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Airport and handling charges and route charges. Ryanair‘s airport and handling charges per passenger decreased 2.1% in the 2014 fiscal year, while route charges per passenger increased 4.1%. In absolute terms, airport and handling charges increased 0.9%, from €611.6 million in the 2013 fiscal year to €617.2 million in the 2014 fiscal year, reflecting the overall growth in passenger volumes, increased charges in Spain, and a quadrupling of ATC charges in Italy during the summer, partially offset by the mix of new route and bases launched and the weakening of U.K. pound sterling against the euro. In absolute terms, route charges increased 7.3%, from €486.6 million in the 2013 fiscal year, to €522.0 million in the 2014 fiscal year, primarily as a result of the 2% increase in sectors flown.

Staff costs. Ryanair‘s staff costs, which consist primarily of salaries, wages and benefits, increased 3.3% on a per-passenger basis, while in absolute terms, these costs increased 6.4%, from €435.6 million in the 2013 fiscal year to €463.6 million in the 2014 fiscal year. The increase in absolute terms was primarily attributable to a 7.6% increase in hours flown and a pay increase of 2.0% granted in fiscal 2014, partially offset by the weakening of U.K. pound sterling against the euro.

Depreciation. Ryanair‘s depreciation per passenger increased by 3.6%, while in absolute terms these costs increased 6.7% from €329.6 million in the 2013 fiscal year to €351.8 million in the 2014 fiscal year. The increase was primarily attributable to the increase in the average number of owned aircraft in the fleet in the 2014 fiscal year (246) compared to the 2013 fiscal year (242) and spare engines purchased during the year. See ―—Critical Accounting Policies—Long-lived Assets‖ above.

Marketing, distribution and other expenses. Ryanair‘s marketing, distribution and other operating expenses, including those applicable to the generation of ancillary revenues, decreased 5.5% on a per-passenger basis in the 2014 fiscal year, while in absolute terms, these costs decreased 2.6%, from €197.9 million in the 2013 fiscal year to €192.8 million in the 2014 fiscal year, with the overall decrease primarily reflecting the reduced marketing spend per passenger and lower ancillary revenue costs.

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