«As filed with the United States Securities and Exchange Commission on July 26, 2016 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. ...»
Fuel and oil. Ryanair’s fuel and oil costs per passenger decreased by 10.8%, while in absolute terms, these costs decreased by 1.0% from €2,013.1 million in the 2014 fiscal year to €1,992.1 million in the 2015 fiscal year, in each case after giving effect to the Company’s fuel hedging activities. The 1.4% decrease reflected a 4.6% decrease in average fuel prices paid and the impact of a 2.5% increase in the number of hours flown, and a slight increase in fuel burn across the fleet due to the higher load factor. Fuel and oil costs include the direct cost of fuel, the cost of delivering fuel to the aircraft, aircraft de-icing and EU emissions trading costs. The average fuel price paid by Ryanair (calculated by dividing total fuel costs by the number of U.S. gallons of fuel consumed) decreased 4.6% from €2.45 per U.S. gallon in the 2014 fiscal year to €2.34 per U.S. gallon in the 2015 fiscal year, in each case after giving effect to the Company’s fuel hedging activities.
Airport and handling charges. Ryanair’s airport and handling charges per passenger increased 4.1% in the 2015 fiscal year, while route charges per passenger decreased 5.3%. In absolute terms, airport and handling charges increased 15.5%, from €617.2 million in the 2014 fiscal year to €712.8 million in the 2015 fiscal year, reflecting the overall growth in passenger volumes, the mix of new routes and bases launched at primary airports and the strengthening of U.K. pound sterling against the euro.
Route charges. In absolute terms, route charges increased 4.9%, from €522.0 million in the 2014 fiscal year, to €547.4 million in the 2015 fiscal year, primarily as a result of the 3.9% increase in sectors flown and price increases in Germany, France and the U.K.
Staff costs. Ryanair’s staff costs, which consist primarily of salaries, wages and benefits, decreased 2.3% on a per-passenger basis, while in absolute terms, these costs increased 8.5%, from €463.6 million in the 2014 fiscal year to €502.9 million in the 2015 fiscal year. The increase in absolute terms was primarily attributable to the increased level of activity, a pay increase of 2.0% granted in fiscal 2015 and the strength of U.K. pound sterling against the euro.
Depreciation. Ryanair’s depreciation per passenger decreased by 3.2%, while in absolute terms these costs increased 7.4% from €351.8 million in the 2014 fiscal year to €377.7 million in the 2015 fiscal year. The increase was primarily attributable to the increase in the average number of owned aircraft in the fleet in the 2015 fiscal year (250) compared to the 2014 fiscal year (246) 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, increased 9.3% on a per-passenger basis in the 2015 fiscal year, while in absolute terms, these costs increased 21.3%, from €192.8 million in the 2014 fiscal year to €233.9 million in the 2015 fiscal year, with the overall increase primarily reflecting the higher marketing spend to support Ryanair’s “AGB” customer experience program and the launch of new routes and bases.
Maintenance, materials and repairs. Ryanair’s maintenance, materials and repair expenses, which consist primarily of the cost of routine maintenance, provision for leased aircraft and the overhaul of spare parts, increased 4.9% on a per-passenger basis, while in absolute terms these expenses increased by 16.2% from €116.1 million in the 2014 fiscal year to €134.9 million in the 2015 fiscal year. The increase in absolute terms during the fiscal year was partly due to the inclusion in the prior year of a one off credit of €3.7 million arising from the renegotiation of certain maintenance contracts. The remainder of the increase was primarily due to line maintenance costs resulting from the launch of new bases, unscheduled maintenance costs and the strength of U.K. pound sterling to the euro.
Aircraft rentals. Aircraft rental expenses amounted to €109.4 million in the 2015 fiscal year, a 7.9% increase from the €101.5 million reported in the 2014 fiscal year, reflecting short term leases over the summer, offset by the lower average number of leased aircraft in the 2015 fiscal year (51) compared to the 2014 fiscal year (55).
Operating profit. As a result of the factors outlined above, operating profit increased 42.8% on a perpassenger basis in the 2015 fiscal year, and also increased in absolute terms, from €658.6 million in the 2014 fiscal year to €1,042.9 million in the 2015 fiscal year.
Finance expense. Ryanair’s interest and similar charges decreased 10.8%, from €83.2 million in the 2014 fiscal year to €74.2 million in the 2015 fiscal year, primarily due to lower interest rates in the 2015 fiscal year compared to the 2014 fiscal year. These costs are expected to increase in future periods as Ryanair further expands its fleet.
Finance income. Ryanair’s interest and similar income increased 8.5%, from €16.5 million in the 2014 fiscal year to €17.9 million in the 2015 fiscal year, reflecting higher cash balances in the 2015 fiscal year.
Foreign exchange gains/losses. Ryanair recorded foreign exchange losses of €4.2 million in the 2015 fiscal year, as compared with foreign exchange losses of €0.5 million in the 2014 fiscal year, with the different result being primarily due to the negative impact of changes in the euro exchange rate against the U.S. dollar.
Taxation. The effective tax rate for the 2015 fiscal year was 11.8%, as compared to an effective tax rate of 11.6% in the 2014 fiscal year. The effective tax rate reflects the statutory rate of Irish corporation tax of 12.5%. Ryanair recorded an income tax provision of €115.7 million in the 2015 fiscal year, compared with a tax provision of €68.6 million in the 2014 fiscal year, with the increase primarily reflecting higher pre-tax profits. The determination regarding the recoverability of the deferred tax asset was based on future income forecasts, which demonstrated that it was more likely than not that future profits would be available in order to utilize the deferred tax asset. A deferred tax asset’s recoverability is not dependent on material improvements over historical levels of pre-tax income, material changes in the present relationship between income reported for financial and tax purposes, or material asset sales or other non-routine transactions.
The Company’s results of operations have varied significantly from quarter to quarter, and management expects these variations to continue. Among the factors causing these variations are the airline industry’s sensitivity to general economic conditions and the seasonal nature of air travel. Ryanair typically records higher revenues and income in the first half of each fiscal year ended March 31 than the second half of such year.
Please see Note 1 to the consolidated financial statements included in Item 18 for information on recently issued accounting standards that are material to the Company.
Liquidity. The Company finances its working capital requirements through a combination of cash generated from operations, debt capital market issuances and bank loans for the acquisition of aircraft. See “Item 3. Key Information—Risk Factors—Risks Related to the Company—The Company Will Incur Significant Costs Acquiring New Aircraft and Any Instability in the Credit and Capital Markets Could Negatively Impact Ryanair’s Ability to Obtain Financing on Acceptable Terms” for more information about risks relating to liquidity and capital resources.
The Company had cash and liquid resources at March 31, 2016 and 2015 of €4,321.5 million and €4,789.2 million, respectively. The decrease at March 31, 2016 primarily reflects net capital expenditure of €1,217.7 million, shareholder returns of €1,104.0 million (including a €398 million return via a B share scheme following the sale of Aer Lingus) and debt repayments of €384.9 million while the sale of the 29.8% shareholding in Aer Lingus generated €398.1 million in cash.
The Company’s net cash inflows from operating activities in the 2016 and 2015 fiscal years amounted to €1,846.3 million and €1,689.4 million, respectively. The €156.9 million increase in net cash flows from operating activities for fiscal year 2016 compared to fiscal year 2015 was principally due to an increase in profit after tax of €692.4 million offset by the gain on disposal of available for sale financial asset of €317.5 million and a lower increase in accrued expenses compared to the prior year. The movement which primarily relates to cash received in advance for flights, receipts for other receivables and increases in other payables balances, generated €135.6 million in cash in 2016 compared with €407.0 million in 2015. The decrease in net cash generated from working capital of €271.4 million, or approximately 67%, was primarily due to a one-time benefit in the prior year comparative arising from the earlier loading of schedules.
During the last two fiscal years, Ryanair’s primary cash requirements have been for operating expenses, additional aircraft, including advance payments in respect of new Boeing 737 aircraft and related flight equipment, payments on related indebtedness and payments of corporation tax, as well as share buy-backs of €706.1 million and a return of €398 million to shareholders via a B share scheme. Cash generated from operations and the issuance of €850.0 million in 1.875% unsecured Eurobonds with a 7 year tenor in June 2014 and €850.0 million in 1.125% unsecured Eurobonds with an 8 year tenor in March 2015 have been the principal source for these cash requirements.
The Company’s net cash inflows from operating activities in the 2015 and 2014 fiscal years amounted to €1,689.4 million and €1,044.6 million, respectively. The €644.8 million increase in net cash flows from operating activities for fiscal year 2015 compared to fiscal year 2014 was principally due to an increase in profit after tax of €343.9 million and an increase in accrued expenses of €364.4 million. This movement, which primarily relates to cash received in advance for flights, and receipt of other receivables and increases in other payables balances, generated €407.0 million in cash in 2015, compared with €133.9 million in 2014. This increase in net cash generated from working capital of €273.1 million, or approximately 204%, was primarily due to an increase in cash receipts from advance bookings.
The Company’s net cash used in investing activities in fiscal year 2016 totaled €283.6 million, primarily reflecting the Company’s capital expenditures, the disposal of the available for sale asset and the decreased investment in cash with maturities of greater than three months, as described in more detail below.
The Company’s net cash from investing activities in fiscal year 2015 totaled €2,888.2 million, primarily reflecting, as compared to fiscal year 2014, the Company’s higher profitability and increased investment of cash within maturities of greater than 3 months.
Net cash used in financing activities totaled €1,488.1 million in the 2016 fiscal year, largely reflecting shareholder returns of €1,104.0 million (including a €398 million return via a B share scheme following the sale of the 29.8% stake in Aer Lingus) and repayments of long term borrowings of €384.9 million.
Net cash from financing activities totaled €653.3 million in the 2015 fiscal year, largely reflecting the issuance of €850.0 million unsecured Eurobonds in both June 2014 and March 2015 offset by a special dividend of €520.3 million, repayments of long-term borrowings of €419.7 million and shares purchased under a share buy-back program of €112.0 million.
Net cash used in finance activities totaled €856.1 million in the 2014 fiscal year, largely reflecting the repayments of long-term borrowings of €390.8 million and shares purchased under a share buy-back program of €481.7 million, offset in part by shares issued of €16.4 million.
Capital Expenditures. The Company’s net cash outflows for capital expenditures in fiscal years 2016 and 2015 were €1,217.7 million and €788.5 million respectively. Ryanair has funded a significant portion of its acquisition of new Boeing 737-800 aircraft and related equipment through borrowings under facilities provided by international financial institutions on the basis of guarantees issued by the Export-Import Bank of the United States (“Ex-Im Bank”).
At March 31, 2016, Ryanair had a fleet of 341 Boeing 737-800 aircraft, 194 of which were funded by Ex-Im Bankguaranteed financing. Other sources of on-balance-sheet aircraft financing utilized by Ryanair are Japanese Operating Leases with Call Options (“JOLCOs”), which are treated as finance leases (26 of the aircraft in the fleet as of March 31, 2016) and commercial debt financing (6 of the aircraft in the fleet as of March 31, 2016). Of Ryanair’s total fleet of 341 Boeing 737-800 aircraft at March 31, 2016 there were 43 aircraft which were financed through operating lease arrangements, 52 aircraft were financed from Ryanair’s own resources on an unsecured basis and the remaining 20 aircraft have no outstanding debt remaining. Ryanair has generally been able to generate sufficient funds from operations to meet its non-aircraft acquisition-related working capital requirements. Management believes that the working capital available to the Company is sufficient for its present requirements and will be sufficient to meet its anticipated requirements for capital expenditures and other cash requirements for the 2017 fiscal year.
The following table sets forth the dates on which and the number of aircraft that will be delivered to the
Company pursuant to the 2013 and 2014 Boeing Contracts:
Capital Resources. Ryanair’s long-term debt (including current maturities) totaled €4,023.0 million at March 31, 2016 and €4,431.6 million at March 31, 2015, with the change being primarily attributable to debt repayments.