«Chief Executive‟s Report 9 Summary Operating and Financial Overview Directors‟ Report 15 Corporate Governance Report Report of the Remuneration ...»
The (gains)/losses on the aircraft firm commitments are recognised as part of the capitalised cost of aircraft additions, within property, plant and equipment. The (gains)/losses on interest rate swaps, commodity forward contracts and forward currency contracts (excluding aircraft firm commitments) are recognised in the income statement when the hedged transaction occurs.
The following tables indicate the periods in which cash flows associated with derivatives that are
designated as cash-flow hedges were expected to occur, as of March 31, 2014, 2013 and 2012:
Derivative transactions entered into by the Company with a particular counterparty are not settled net and there are no provisions within these agreements to off-set similar transactions.
The Company entered into a series of interest rate swaps to hedge against fluctuations in interest rates for certain floating rate financing of certain aircraft. Cash deposits are required to be set aside as collateral for certain historic interest rate swaps to mitigate the counterparty‘s exposure to fluctuations in the underlying interest rate swaps. The following table sets out the carrying amounts of recognised financial instruments that
are subject to the above agreements:
In the view of the directors, there are no material differences between the net realisable value of inventories and the balance sheet amounts.
All amounts fall due within one year.
There has been no change to the allowance for impairment during the year (2013: Nil; 2012: Nil).
There were no bad debt write-offs in the year (2013: Nil; 2012: Nil).
No individual customer accounted for more than 10% of our accounts receivable at March 31, 2014, at March 31, 2013 or at March 31, 2012.
At March 31, 2014, €1.4 million (2013: €1.1 million; 2012: €1.0 million) of our total accounts receivable balance were past due, of which €0.1 million (2013: €0.1 million; 2012: €0.1 million) was impaired and provided for and €1.3 million (2013: €1.0 million; 2012: €0.9 million) was considered past due but not impaired.
9 Restricted cash Restricted cash consists of €13.3 million (2013: €24.7 million; 2012: €35.1 million) placed on deposit as collateral for certain derivative financial instruments and other financing arrangements entered into by the Company.
11 Financial instruments and financial risk management The Company utilises financial instruments to reduce exposures to market risks throughout its business. Borrowings, cash and cash equivalents and liquid investments are used to finance the Company‘s operations. Derivative financial instruments are contractual agreements with a value that reflects price movements in an underlying asset. The Company uses derivative financial instruments, principally jet fuel derivatives, interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts to manage commodity risks, interest rate risks and currency exposures and to achieve the desired profile of fixed and variable rate borrowings and leases in appropriate currencies. It is the Company‘s policy that no speculative trading in financial instruments shall take place.
The main risks attaching to the Company‘s financial instruments, the Company‘s strategy and approach to managing these risks, and the details of the derivatives employed to hedge against these risks have been disclosed in Note 5 to the consolidated financial statements.
Financial assets and financial liabilities – fair values (a) The carrying value and fair value of the Company‘s financial assets by class and measurement category
at March 31, 2014, 2013 and 2012 were as follows:
The Company has not disclosed the fair value of the financial instruments: cash and cash equivalents, financial assets: cash 3 months, restricted cash, trade receivables and other assets because their carrying amounts are a reasonable approximation of their fair values due to the short term nature of the instruments.
The carrying values and fair values of the Company‘s financial liabilities by class and category were as follows:
Estimation of fair values Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The following methods and assumptions were
used to estimate the fair value of each material class of the Company‘s financial instruments:
Financial instruments measured at fair value Available-for- sale: The fair value of available-for-sale financial assets is their quoted market bid price at the balance sheet date. (Level 1) Derivatives – interest rate swaps: Discounted cash-flow analyses have been used to determine the fair value, taking into account current market inputs and rates. (Level 2) Derivatives – currency forwards, aircraft fuel contracts and carbon swaps: A comparison of the contracted rate to the market rate for contracts providing a similar risk profile at March 31, 2014 has been used to establish fair value. (Level 2) Financial instruments not measured at fair value Fixed-rate long-term debt: The repayments which Ryanair is committed to make have been discounted at the relevant market rates of interest applicable (including credit spreads) at the relevant reporting year end date to arrive at a fair value representing the amount payable to a third party to assume the obligations.
There were no significant changes in the business or economic circumstances during the year to March 31, 2014 that affect the fair value of the Company‘s Financial Assets and Financial Liabilities.
The table below analyses financial instruments carried at fair value in the balance sheet categorised by the type
of valuation method used. The different valuation levels are defined as follows:
Level 1: Inputs are based on unadjusted quoted prices in active markets for identical instruments.
Level 2: Inputs are based on quoted prices for identical or similar instruments in markets that are not active, quoted prices for similar instruments in active markets, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3: Inputs for the asset or liability are not based on observable market data.
During the year ended March 31, 2012, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurement.
(b) Commodity risk The Company‘s exposure to price risk in this regard is primarily for jet fuel used in the normal course of operations.
At the year-end, the Company had the following jet fuel and carbon arrangements in place:
All of the above commodity contracts mature within the year and are matched against highly probable forecast commodity cash flows.
(c) Maturity and interest rate risk profile of financial assets and financial liabilities At March 31, 2014, the Company had total borrowings of €3,083.6 million (2013: €3,498.3 million;
2012: €3,625.2 million) from various financial institutions, provided primarily on the basis of guarantees granted by the Export-Import Bank of the United States to finance the acquisition of 210 Boeing 737-800 ―next generation‖ aircraft (2013: 210; 2012: 199). The guarantees are secured with a first fixed mortgage on the
delivered aircraft. The remaining long-term debt relates to 30 aircraft held under finance leases (2013: 30; 2012:
30), 6 aircraft financed by way of other commercial debt (2013: 6; 2012: 6) and aircraft simulators.
Interest rate re-pricing Floating interest rates on financial liabilities are generally referenced to European inter-bank interest rates (EURIBOR). Secured long-term debt and interest rate swaps typically re-price on a quarterly basis with finance leases re-pricing on a semi-annual basis. We use current interest rate settings on existing floating rate debt at each year-end to calculate contractual cash flows.
Fixed interest rates on financial liabilities are fixed for the duration of the underlying structures (typically between 10 and 12 years).
The Company holds significant cash balances that are invested on a short-term basis. At March 31, 2014, all of the Company‘s cash and liquid resources had a maturity of one year or less and attracted a weighted average interest rate of 0.37% (2013: 0.39%; 2012: 1.07%).
Interest rates on cash and liquid resources are generally based on the appropriate EURIBOR, LIBOR or bank rates dependant on the principal amounts on deposit.
The Company has exposure to various foreign currencies (principally U.K. pounds sterling and U.S.
dollars) due to the international nature of its operations. The Company manages this risk by matching U.K.
pound sterling revenues against U.K. pound sterling costs. Any remaining unmatched U.K. pound sterling revenues are used to fund U.S. dollar currency exposures that arise in relation to fuel, maintenance, aviation insurance and capital expenditure costs or are sold for euro. The Company also sells euro forward to cover certain U.S. dollar costs. Further details of the hedging activity carried out by the Company are disclosed in Note 5 to the consolidated financial statements.
The following table shows the net amount of monetary assets of the Company that are not denominated in euro at March 31, 2014, 2013 and 2012. Such amounts have been translated using the following year-end
foreign currency rates in 2014: €/£: 0.8282; €/$: 1.3788 (2013: €/£: 0.8456; €/$: 1.2805; 2012: €/£: 0.8339; €/$:
The following table shows the net amount of monetary liabilities of the Company that are not denominated in euro at March 31, 2014, 2013 and 2012. Such amounts have been translated using the following year-end foreign currency rates in 2014: €/$: 1.3788.
The Company has entered into cross currency interest rate swap arrangements to manage exposures to fluctuations in foreign exchange rates on these 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. The fair value of these cross currency interest rate swap instruments at March 31, 2014 was €8.5 million, (2013: €5.2 million; 2012: €7.4 million) which has been classified within current liabilities, specifically derivative liabilities falling due within one year (see Note 5 to the consolidated financial statements).
(e) Equity risk The Company has exposure to equity price risk primarily in relation to its 29.8% investment in Aer Lingus. The Company does not have significant influence over Aer Lingus and accordingly, this investment is classified as an available-for-sale financial asset rather than an investment in an associate. Additional information in relation to the available-for-sale financial asset can be found in Note 4 to the consolidated financial statements.
(f) Credit risk The Company holds significant cash balances, which are invested on a short-term basis and are classified as either cash equivalents or liquid investments. These deposits and other financial instruments (principally certain derivatives and loans as identified above) give rise to credit risk on amounts due from counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty through regular review of counterparties‘ market-based ratings, Tier 1 capital level and credit default swap rates and by taking into account bank counterparties‘ systemic importance to the financial systems of their home countries. The Company typically enters into deposits and derivative contracts with parties that have a long term Standard and Poors ―A‖ category rating or equivalent credit rating. The maximum exposure arising in the event of default on the part of the counterparty is the carrying value of the relevant financial instrument. The Company is authorised to place funds on deposit for periods up to 18 months. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders on an ongoing basis.
The Company‘s revenues derive principally from airline travel on scheduled services, internet income and in-flight and related sales. Revenue is primarily derived from European routes. No individual customer accounts for a significant portion of total revenue.
At March 31, 2014, €1.4 million (2013: €1.1 million; 2012: €1.0 million) of our total accounts receivable balance were past due, of which €0.1 million (2013: €0.1 million; 2012: €0.1 million) was impaired and provided for and €1.3 million (2013: €1.0 million; 2012: €0.9 million) was past due but not impaired. See Note 8 to the consolidated financial statements.
(g) Liquidity and capital management The Company‘s cash and liquid resources comprise cash and cash equivalents, short-term investments and restricted cash. The Company defines the capital that it manages as the Company‘s long-term debt and equity. The Company‘s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to maintain sufficient financial resources to mitigate against risks and unforeseen events.
The Company finances its working capital requirements through a combination of cash generated from operations, bank loans and debt capital market issuances for the acquisition of aircraft. The Company had cash and liquid resources at March 31, 2014 of €3,241.7 million (2013: €3,559.0 million; 2012: €3,515.6 million).