Company Announcements

Ryanair Holdings plc and Subsidiaries

MD&A Year Ended March 31, 2021

Introduction

For the purposes of the Management Discussion and Analysis ("MD&A") (with the exception of the balance sheet commentary below) all figures and comments are by reference to the adjusted results excluding the exceptional item referred to below.

European Government travel restrictions/lockdowns as a result of the Covid-19 pandemic means that the Ryanair Group operated a significantly reduced flying schedule in FY21. Therefore, the Group recorded a hedge ineffectiveness charge of €192M (net of tax) in relation to jet fuel hedges and an €8M charge (net of tax) in relation to ineffective currency cashflow hedges arising from delayed aircraft capital expenditure.

Income Statement

Scheduled revenues:    

Scheduled revenues decreased by 81% to €1,036.0M due to an 81% decline in traffic to 27.5M guests as European Governments imposed travel restrictions/lockdowns due to the Covid-19 pandemic. This grounded approx. 99% of the Group's fleet for almost 4 months (from mid-March to late June). The Group operated approximately 26% of its normal twelve months schedule with a 71% load factor.

Ancillary revenues:                                                                                                                              

Ancillary revenues decreased by 80% to €599.8M due to an 81% decline in traffic to 27.5M guests offset somewhat by a solid performance in priority boarding and reserved seating.

Total revenues:

As a result of the above, total revenues decreased by 81% to €1,635.8M.

Operating Expenses:

Depreciation:                                                                                                                      

Depreciation was 24% lower at €571.0M primarily due to lower amortisation as a result of reduced aircraft utilisation.

Fuel and oil:                                                                                                                              

Fuel and oil decreased by 80% to €542.6M due to a 74% reduction in sectors flown, arising from Covid-19 fleet groundings and lower fuel burn.

Staff costs:                                                                                                                            

Staff costs decreased by 57% to €472.2M due to reduced flight hours, Group wide pay cuts and participation in European Government payroll support schemes. Refer to Note 17 for further detail.

Airport and handling charges:                                                                                       

Airport and handling charges decreased by 75% to €287.2M due to lower sectors flown and reduced charges. 

Maintenance, materials and repairs:                                                           

Maintenance, materials and repairs decreased by 19% to €206.7M due to reduced aircraft utilisation, offset by lease hand back charges.

Marketing, distribution and other:                                                                                  

Marketing, distribution and other decreased by 65% to €201.5M due to lower discretionary spending across the Group airlines and fewer flights qualifying for EU261 compensation due to improved (96%) on-time performance.

Route charges:                                                                                                                    

Route charges decreased by 75% to €187.3M due to lower sectors arising from Covid-19 fleet groundings.

Aircraft rentals:               

Aircraft rentals fell by 82% to €6.7M due to 11 fewer leased B737 aircraft in the fleet.

Other expense:                                                                                                                        

Net finance expense increased by €2.3M to €53.8M primarily due to increased debt and lower deposit interest rates, offset by the maturity of more expensive secured debt.

Balance sheet

Gross cash decreased by €657.7M to €3,150.3M at March 31, 2021.

Gross debt increased by €1,215.6M to €5,426.8M, primarily due to a €850M Eurobond issuance in September 2020 and the drawdown of £600M unsecured debt under the HMT and Bank of England CCFF, offset by secured debt and lease liability payments. Net debt, which includes current and non-current maturities of debt and lease liabilities, less restricted cash, financial assets > 3 months and cash and cash equivalents was €2,276.5M at year end.

Shareholders' equity:                                                                                       

Shareholders' equity decreased by €267.9M to €4,646.6M in the year primarily due to a net loss of €1,015.1M offset by a €400.0M equity placing in September 2020, and an unrealised IFRS hedge accounting gain of €322.6M.

Ryanair Holdings plc and Subsidiaries

Notes forming Part of the Condensed Consolidated

Preliminary Financial Statements

1.           Basis of preparation and significant accounting policies

Ryanair Holdings plc (the "Company") is a company domiciled in Ireland. The unaudited condensed consolidated preliminary financial statements of the Company for the year ended March 31, 2021 comprise the Company and its subsidiaries (together referred to as the "Group").

These unaudited condensed consolidated preliminary financial statements ("the preliminary financial statements"), which should be read in conjunction with our 2020 Annual Report for the year ended March 31, 2020, have been prepared to include information equivalent to that required for condensed interim financial statements in accordance with International Accounting Standard No. 34 "Interim Financial Reporting" as adopted by the EU ("IAS 34"). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the most recent published consolidated financial statements of the Group. The consolidated financial statements of the Group as at and for the year ended March 31, 2020, are available at http://investor.ryanair.com/.

The March 31, 2021 figures and the March 31, 2020 comparative figures do not constitute statutory financial statements of the Group within the meaning of the Companies Act, 2014. The consolidated financial statements of the Group for the year ended March 31, 2020, together with the independent auditor's report thereon, were filed with the Irish Registrar of Companies following the Company's Annual General Meeting and are also available on the Company's Website. The auditor's report on those financial statements was unqualified.

The Audit Committee, upon delegation of authority by the Board of Directors, approved the condensed consolidated preliminary financial statements for the year ended March 31, 2021 on May 14, 2021.

Except as stated otherwise below, this year's financial information has been prepared in accordance with the accounting policies set out in the Group's most recent published consolidated financial statements, which were prepared in accordance with IFRS as adopted by the EU and also in compliance with IFRS as issued by the International Accounting Standards Board (IASB).

Government grants

Grants that compensate the Group for related expenses incurred are recognized in the income statement on a systematic basis in the periods in which the related expenses are recognized in staff costs.

New IFRS standards and amendments adopted during the year

The following new and amended IFRS standards, amendments and IFRIC interpretations, have been issued by the IASB, and have also been endorsed by the EU. These standards are effective for the first time for the Group's financial year beginning on April 1, 2020 and therefore have been applied by the Group in these condensed consolidated preliminary financial statements:

·    Amendments to References to the Conceptual Framework in IFRS Standards (effective for fiscal periods beginning on or after January 1, 2020)

·    Amendments to IFRS 3 - Definition of a Business (effective for fiscal periods beginning on or after January 1, 2020)

·    Amendments to IAS 1 and IAS 8 - Definition of Material (effective for fiscal periods beginning on or after January 1, 2020)

·    Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform (effective for fiscal periods beginning on or after January 1, 2020)

·    Amendment to IFRS 16 - Covid-19-Related Rent Concessions (effective for fiscal periods beginning on or after June 1, 2020)

The calculation methodology of EURIBOR changed during 2019. In July 2019, the Belgian Financial Services and Markets Authority granted authorisation with respect to EURIBOR under the European Union Benchmarks regulation. This allows market participants to continue to use EURIBOR for both existing and new contracts and the Group expects that EURIBOR will continue to exist as a benchmark for the foreseeable future.

The Group has evaluated the extent to which its cashflow hedging relationships are subject to uncertainty driven by IBOR reform as at March 31, 2021. The Group's hedged items and hedging instruments continue to be indexed to EURIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual.

The adoption of these new or amended standards as listed above did not have a material impact on the Group's financial position or results from operations in the year ended March 31, 2021.

New IFRS standards and amendments issued but not yet effective

The following new or revised IFRS standards and IFRIC interpretations will be adopted for the purposes of the preparation of future financial statements, where applicable.  While under review, we do not anticipate that the adoption of the other new or revised standards and interpretations will have a material impact on our financial position or results from operations:

·    IFRS 17 - Insurance Contracts (effective for fiscal periods beginning on or after January 1, 2023)*

·    Amendments to IAS 1 - Classification of Liabilities as Current or Non-Current (effective for fiscal periods beginning on or after January 1, 2023)*

·    Amendments to IFRS 3 - Reference to the Conceptual Framework (effective for fiscal periods beginning on or after January 1, 2022)*

·    Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use (effective for fiscal periods beginning on or after January 1, 2022)*

·    Amendments to IAS 37 - Onerous Contracts - Costs of Fulfilling a Contract (effective for fiscal periods beginning on or after January 1, 2022)*

·    Annual Improvements to IFRS Standards 2018-2020 (effective for fiscal periods beginning on or after January 1, 2022)*

·    Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest Rate Benchmark Reform (effective for fiscal periods beginning on or after January 1, 2021)

·    Amendments to IFRS 16 - Covid-19 Related Rent Concessions Beyond June 30, 2021 (effective for fiscal periods beginning or after April 1, 2021)*

·    Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies (effective for fiscal periods beginning on or after January 1, 2023)*

·    Amendments to IAS 8 - Definition of Accounting Estimates (effective for fiscal periods beginning on or after January 1, 2023)*

* These standards or amendments to standards are not as of yet EU endorsed

Statement of Cash Flows restatement

Operating cash inflows and investing cash outflows for the year ended March 31, 2020 have been reclassified. They both have been reduced by €617M to address accrued supplier payables which had previously been presented as a capital expenditure cash outflow in investing activities and as a movement in working capital in operating activities. As no actual cash flows arose and the payable is not working capital related, both line items required adjustments.

There is no impact on the Group's net cash flows, consolidated balance sheet, consolidated income and basic and diluted earnings per share for the year ended March 31, 2020.

2.            Judgements and estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements and key sources of estimation uncertainty were the same as those that applied in the most recent published consolidated financial statements.

Derivative financial instruments

The Group uses various derivative financial instruments to manage its exposure to market risks, including the risks relating to fluctuations in commodity prices and currency exchange rates. Ryanair uses forward contracts for the purchase of its jet fuel requirements to reduce its exposure to commodity price risk. It also uses foreign currency forward contracts to reduce its exposure to risks related to foreign currencies, principally the U.S. dollar exposure associated with the purchase of new Boeing 737-8200 aircraft and the U.S. dollar exposure associated with the purchase of jet fuel.

The Group recognises all derivative instruments as either assets or liabilities in its consolidated balance sheet and measures them at fair value. At March 31, 2021, a net liability of €46M (2020: net liability €1,228M) was recognised on-balance sheet in respect of the Group's jet fuel derivative instruments and a net asset of €171M (2020: net asset €486M) was recognised in respect of its foreign currency derivative instruments associated with future aircraft purchases.

In determining the hedge effectiveness of derivative instruments used to hedge Ryanair's fuel requirements, there is significant judgement involved in assessing whether the volumes of jet fuel hedged are still expected to be highly probable forecast transactions. Specifically, significant judgement is required in respect of the assumptions related to the timing of the full removal of flight restrictions imposed by European Governments relating to the Covid-19 pandemic, the expected recovery of passenger demand and the subsequent flight schedules. All of these assumptions impact upon forecast fuel consumption, and minor changes to these assumptions could have a significant effect on the assessment of hedge effectiveness.

In respect of foreign currency hedge effectiveness for future aircraft purchases, there is a high degree of judgement involved in assessing whether the future aircraft payments are still considered highly probable of occurring, and the timing of these future payments for aircraft. The timing of future payments for aircraft is dependent on the aircraft manufacturer's ability to meet forecast aircraft delivery schedules.

The Boeing 737-MAX was grounded in 2019. In November 2020 the Federal Aviation Administration (FAA) rescinded the order that grounded the Boeing-MAX aircraft in the U.S.A. The European Union Aviation Safety Agency (EASA) similarly ungrounded the Boeing-MAX aircraft in Europe in late January 2021. In April 2021, both the FAA and EASA certified the Boeing 737-8200 aircraft.

3.          Seasonality of operations

The Group'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.  Accordingly, the first half-year typically results in higher revenues and results.

4.             Income tax expense

The Group's consolidated effective tax rate in respect of operations for the year ended March 31, 2021 was a credit of 8.4% (March 31, 2020: a charge of 3.2%).  The tax credit for the year ended March 31, 2021 of €93.6M (March 31, 2020: charge of €21.6M) comprises a deferred tax credit of €99.1M primarily relating to net operating losses and the temporary differences for property, plant and equipment, offset by a current tax charge of €5.5M.

5.             Share based payments

The terms and conditions of the Group's share based remuneration programmes are disclosed in the most recent, published, consolidated financial statements. The charge of €3.6M in the year ended March 31, 2021 (March 31, 2020: €7.0M) is the fair value of share options granted in prior periods, which is being recognised within the income statement in accordance with employee services rendered.  During the year ended March 31, 2021, 3.6M ordinary shares were issued at a strike price between €6.25 and €11.38 per share following the exercise of vested share options.

6.            Contingencies

The Group is engaged in litigation arising in the ordinary course of its business.  The Group does not believe that any such litigation will individually, or in aggregate, have a material adverse effect on the financial condition of the Group.  Should the Group be unsuccessful in these litigation actions, management believes the possible liabilities then arising cannot be determined but are not expected to materially adversely affect the Group's results of operations or financial position.

7.            Capital commitments

At March 31, 2021 the Group had an operating fleet of 422 (2020: 440) Boeing 737 and 29 (2020: 26) Airbus A320 aircraft.

In September 2014, the Group agreed to purchase up to 200 (100 firm and 100 options) Boeing 737-8200 aircraft, subsequently increased to 210 (135 firm and 75 options). In December 2020, the Group increased its firm orders from 135 to 210 Boeing 737-8200 aircraft. The Ryanair Group hopes to take delivery of its first aircraft in advance of peak summer 2021.

8.            Analysis of operating segment

The Group determines and presents operating segments based on the information that internally is provided to the Group CEO, who is the Company's Chief Operating Decision Maker (CODM).

8.           Analysis of operating segment - continued

The CODM assesses the performance of the business based on the profit/(loss) after tax of each airline for the reporting period. Resource allocation decisions for all airlines are based on airline performance for the relevant period, with the objective in making these resource allocation decisions being to optimize consolidated financial results.

Ryanair DAC and Malta Air are reportable segments for financial reporting purposes. Buzz and Lauda do not exceed the quantitative thresholds for reporting purposes and accordingly have been presented on an aggregate basis in the table below.

Reportable segment information is presented as follows:

(i)         Adjusted loss after tax in the financial year ended March 31, 2021, excludes a charge of €200M (March 31,2020: €353M), attributable to a hedge ineffectiveness charge on jet fuel derivative instruments, foreign currency derivative instruments related to jet fuel, and aircraft delivery delays.

9.            Earnings per share

10.          Property, plant and equipment

Acquisitions and disposals

Net capital additions for the year ended March 31, 2021 amounted to a credit of approximately €575M, principally reflecting the reversal of certain aircraft pre-delivery trade payables, supplier reimbursements of just under €380M offset by capital expenditure of approximately €300M.

11.          Assets held for sale

In August 2019, the Company entered into an agreement to sell 10 Boeing 737NG aircraft for delivery in FY20 and FY21. 3 of these aircraft were sold in the year ended March 31, 2020. The remaining 7 aircraft were sold during the year ended March 31, 2021. The gains on disposal are disclosed in net finance expense on the condensed consolidated preliminary Income Statement.

12.          Derivative financial instruments

As a result of the widespread grounding of aircraft due to the Covid-19 pandemic, the Group operated a significantly reduced flying schedule for the year ended March 31, 2021 compared to what was originally expected. Accordingly, during the year ended March 31, 2021, the Group's exposures for jet fuel and foreign currency were significantly reduced, causing a proportion of derivative financial instruments which previously qualified for hedge accounting to become ineffective, resulting in the discontinuance of certain cash-flow hedge arrangements. A net expense of €200M (net of tax) was recognised within the income statement for the year ended March 31, 2021 (2020: €353M), comprising a charge of €192M (net of tax) in respect of jet fuel exposures (2020: €392M) and a charge of €8M (net of tax), primarily associated with ineffective currency cash-flow hedges for FY21 jet fuel and delayed aircraft deliveries (2020: gain of €39M).

As of March 31 2021, a €109M gain is recognised in the cash flow reserve in respect of continuing hedges and €102M gain in respect of hedging relationships for which hedge accounting is no longer applied. The balance on the hedging reserve as of March 31, 2021 is a gain of €211M.

13.           Financial instruments and financial risk management

The Group is exposed to various financial risks arising in the normal course of business. The Group's financial risk exposures are predominantly related to commodity price, foreign exchange and interest rate risks. The Group uses financial instruments to manage exposures arising from these risks.  

These preliminary financial statements do not include all financial risk management information and disclosures required in the annual financial statements and should be read in conjunction with the 2020 Annual Report. There have been no changes in our risk management policies in the year.

Fair value hierarchy

Financial instruments measured at fair value in the balance sheet are categorised by the type of valuation method used. The different valuation levels are defined as follows:

·    Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

·    Level 2: inputs other than quoted prices included within Level 1 that are observable for that asset or liability, either directly or indirectly.

·    Level 3: significant unobservable inputs for the asset or liability.

Fair value estimation

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 Group's financial instruments:

Financial instruments measured at fair value

·    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 EUA contracts: A comparison of the contracted rate to the market rate for contracts providing a similar risk profile at March 31, 2021 has been used to establish fair value. (Level 2)

The Group policy is to recognise any transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer occurred. During the year ended March 31, 2021, there were no reclassifications of financial instruments and no transfers between levels of the fair value hierarchy used in measuring the fair value of financial instruments.

Financial instruments not measured at fair value

·          Long-term debt: The repayments which the Group is committed to make have been discounted at the relevant market rates of interest applicable (including credit spreads) at March 31, 2021 to arrive at a fair value representing the amount payable to a third party to assume the obligations.

While there have been significant changes in business and economic circumstances during fiscal year 2021, the future outlook for the business is such that there has been no material change to the fair values of financial assets and financial liabilities.

The fair value of financial assets and financial liabilities, together with the carrying amounts in the condensed consolidated financial balance sheet, are as follows:

13.          Financial instruments and financial risk management (continued)

*The fair value of these financial instruments approximate their carrying values due to the short-term nature of the instruments.

13.          Financial instruments and financial risk management (continued)

In April 2020, the Group raised £600M unsecured debt for general corporate purposes under the HMT and Bank of England CCFF. This was subsequently extended in March 2021 for a further 12 months. Refer to Note 17 for further information.

The Group issued senior, unsecured bonds with a face value of €850M in September 2020. The bond has a coupon rate of 2.875% and a maturity date of September 2025.

14.          Trade payables

In December 2020, the Group increased its firm order for Boeing 737-8200 aircraft by 75 (from 135 to 210 units). Taking account of the revised aircraft delivery schedule and changes in the contracted timing of aircraft pre-delivery payments, certain aircraft pre-delivery payables were reduced with an offset in Property, plant and equipment. In accordance with the revised delivery schedule, €179.9M of trade payables are now due after 1 year.

15.          Shareholders equity and shareholder returns

In September 2020, 35.2M ordinary shares were issued via an ordinary share placing at a price of €11.35 per share generating €400M proceeds.

During the period 3.6M ordinary shares were issued at a strike price between €6.25 and €11.38 per share following the exercise of vested share options.

There were no shareholder returns during the year ended March 31, 2021.

In FY20 the Company bought back 47.2M shares at a total cost of €580.5M. This buyback was equivalent to approximately 4.2% of the Company's issued share capital at March 31, 2020.  All of these repurchased ordinary shares were cancelled at March 31, 2020. 

As a result of the share buybacks in the year ended March 31, 2020, share capital decreased by 47.2M ordinary shares with a nominal value of €580.5M and the other undenominated capital reserve increased by a corresponding €0.3M. The other undenominated capital reserve is required to be created under Irish law to preserve permanent capital in the Parent Company.

16.          Related party transactions

The Company's related parties comprise its subsidiaries, Directors and senior key management personnel. All transactions with subsidiaries eliminate on consolidation and are not disclosed.

There were no related party transactions in the year ended March 31, 2021 that materially affected the financial position or the performance of the Company during that period and there were no changes in the related party transactions described in the 2020 Annual Report that could have a material effect on the financial position or performance of the Company in the same period.

17.            Government grants and assistance

During the year ended March 31, 2021, many European countries in which the Ryanair Group operates made available payroll support schemes. The Group utilised a number of these employment retention schemes to protect jobs within the Group. These schemes were a mix of short term Covid-19 specific programmes and long term schemes linked to social security that existed pre Covid-19. The total amount of payroll supports received by the Group under the various schemes amounted to approximately €84M and are offset against staff costs in the Consolidated Income Statement.

In April 2020, the Group raised £600M unsecured debt for general corporate purposes under the HMT and Bank of England CCFF. The 0.44% interest rate was the prevailing rate for strong BBB rated companies. This debt was subsequently extended in March 2021 for a further 12 months at a 0.46% interest rate.

There are no unfulfilled conditions attaching to government assistance at March 31, 2021.

18.          Post balance sheet events

There were no significant post balance sheet events.

19.          Going concern

The Board are satisfied that it remains appropriate to adopt the going concern concept. In arriving at this decision, the Board considered, among other things:

1.    The Ryanair Group's liquidity with over €3.15bn cash at March 31 2021 and the Group's continued focus on cash management;

2.    The Group's solid BBB credit ratings (from both S&P and Fitch Ratings);

3.    The Group's strong balance sheet with over 85% of its B737 fleet unencumbered;

4.    Ongoing cost reductions across the Group;

5.    The widespread rollout of Covid-19 vaccines in Europe, with it widely reported that 80% of the adult population will be vaccinated in Europe before the end of June 2021; and

6.    The Group's flexibility to react quickly to improved customer demand following vaccine rollouts and the gradual easing of European Governments travel restrictions/lockdowns over the course of the next 12 months.