Business Context and Reporting Period
Ryanair Holdings plc filed its annual Form 20-F on July 30, 2018, covering the fiscal year ended March 31, 2018. The filing is prepared under IFRS. The requested “2017 Q4” period is not separately presented; the filing provides annual fiscal-year data and selected subsequent-quarter information.
Ryanair operates a European ultra-low-fare, short-haul airline. At March 31, 2018, it operated 431 Boeing 737-800 aircraft, served 216 airports, and had 130.3 million booked passengers and 14,583 team members.
Key Financial Metrics
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Total operating revenue | €7,151.0m | €6,647.8m | +8% |
| Scheduled revenue | €5,134.0m | €4,868.2m | +5% |
| Ancillary revenue | €2,017.0m | €1,779.6m | +13% |
| Operating profit | €1,667.3m | €1,534.0m | +9% |
| Profit before tax | €1,611.3m | €1,470.3m | +10% |
| Profit after tax | €1,450.2m | €1,315.9m | +10% |
| Basic EPS | €1.2151 | €1.0530 | +15% |
| Operating margin | 23% | 23% | Flat |
| Net margin | 20% | 20% | Flat |
Operating expenses increased 7% to €5,483.7 million. Fuel and oil costs declined 1% to €1,902.8 million, while staff costs rose 17% to €738.5 million, depreciation rose 13% to €561.0 million, and marketing, distribution and other expenses increased 27% to €410.4 million. The filing includes €25 million of non-recurring EU261 passenger-compensation costs related to the September and October 2017 cancellations.
- Booked passengers increased 9% to 130.3 million; load factor increased to 95% from 94%.
- Average fare declined 3% to €39.40, while ancillary revenue per passenger increased 4% to €15.48.
- Cost per booked passenger declined 1% to €42.08, primarily because fuel cost per passenger fell 8% to €14.60.
- Fuel represented approximately 35% of operating expenses, compared with 37% in FY2017.
- Net cash from operating activities increased 16% to €2,233.2 million.
- Capital expenditure was €1,470.6 million, and cash used in investing activities was €719.4 million.
- Cash used in financing activities was €1,222.8 million, including €829.1 million of share buybacks and €458.9 million of debt repayments.
Balance Sheet, Debt and Liquidity
| Metric at March 31 | FY2018 | FY2017 |
|---|---|---|
| Cash and cash equivalents | €1,515.0m | €1,224.0m |
| Cash and liquid resources | €3,645.5m | €4,128.5m |
| Total assets | €12,361.8m | €11,989.7m |
| Total debt, including current maturities | €3,963.0m | €4,384.5m |
| Shareholders’ equity | €4,468.9m | €4,423.0m |
| Net debt | €282.9m | €244.2m |
Approximately 80% of debt was fixed-rate after swaps and 20% remained floating-rate. The weighted-average interest rate on borrowings was 1.41%. Management stated that available working capital was sufficient for present needs and anticipated FY2019 capital expenditures and other cash requirements.
Ryanair had €17.4 billion of total contractual obligations, including €13.1 billion of aircraft purchase obligations, €3.6 billion of long-term debt, €326.2 million of finance lease obligations, and €150.3 million of operating lease obligations. Ryanair Holdings had provided €4.1 billion of guarantees for subsidiary obligations.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by 9% passenger growth and higher ancillary revenue, despite a 3% decline in average fares.
- Profit after tax rose 10%, supported by lower hedged fuel costs and operating leverage.
- Staff, depreciation, and marketing-related costs increased materially as the airline expanded its fleet and network.
- Cash and liquid resources declined by approximately €483 million, mainly because of capital expenditures, share buybacks, and debt repayments.
- Debt declined by approximately €422 million, while reported net debt increased modestly because liquid resources declined faster than debt.
- The Company repurchased and cancelled 46.7 million shares for approximately €829.1 million, equal to approximately 3.8% of issued share capital.
- Other comprehensive income declined by €581.6 million, primarily due to adverse changes in the cash-flow hedge reserve; this did not represent a comparable decline in reported profit.
Guidance, Outlook, Commentary and Risks
Management expected FY2019 traffic to increase approximately 7%, based on delivery of 29 additional Boeing 737-800 aircraft, net of lease handbacks. The longer-term plan targeted approximately 585 aircraft and 200 million annual passengers by March 31, 2024. These targets were subject to aircraft deliveries, disposals, demand, financing, and operating conditions.
As of July 19, 2018, approximately 90% of estimated FY2019 fuel requirements were hedged at approximately $583 per metric ton, and approximately 19% of estimated FY2020 requirements were hedged at approximately $690 per metric ton. Fuel prices, the euro/U.S. dollar exchange rate, and the ability to pass higher costs through low fares remain material earnings risks.
- Operational disruption: The September 2017 pilot rostering failure, ATC delays and strikes, weather, and staffing shortages caused significant cancellations and €25 million of EU261-related costs.
- Labor relations: The Company began recognizing trade unions in December 2017. Wage increases, new employment contracts, lower productivity, or industrial action could increase costs or disrupt service.
- Brexit: Approximately 24% of FY2018 revenue came from U.K. operations. Management estimated that a one-pence movement in the euro/sterling exchange rate could affect FY2019 income by approximately €6 million. The Company also faced potential flight-rights, ownership, licensing, and U.K. AOC issues.
- Aircraft commitments: The Company had firm orders for 135 Boeing 737-MAX-200 aircraft and 75 additional options, creating substantial future capital and financing requirements.
- Legal contingencies: Ryanair faced European Commission state-aid investigations and appeals involving several airports. Prior decisions required repayment of approximately €22.5 million, while additional investigations remained unresolved.
- Competition and pricing: Aggressive fare discounting, new entrants, traditional carriers, and alternative transportation could pressure fares and margins.
- Cybersecurity and data protection: The business relies heavily on online reservations and is subject to GDPR-related compliance costs, potential fines, litigation, and reputational damage.
- Fuel, currency and derivatives: At March 31, 2018, the net derivative position was a €391.3 million liability, largely reflecting foreign-currency hedges. Hedge values can materially affect equity and future cash flows.
Subsequent to year-end, Ryanair reported €309.2 million of profit after tax for the quarter ended June 30, 2018, down from €397.1 million in the comparable quarter. Operating profit declined to €370.5 million from €460.2 million, while revenue increased to €2,078.9 million from €1,910.3 million, primarily because of higher fuel and growth-related costs.
Ryanair adopted IFRS 15 from April 1, 2018 using the cumulative-effect method. The adoption reduced opening retained earnings by €274.5 million because certain ancillary revenue recognition was deferred until the flight date.
Important Facts for Investors to Verify
- Confirm that the relevant requested period is FY2018 rather than a standalone fourth quarter of calendar or fiscal 2017, which is not separately reported in this filing.
- Reconcile cash, liquid resources, debt, and net debt using the Company’s definitions, including cash deposits with maturities longer than three months and restricted cash.
- Assess the sustainability of 23% operating margins given higher fuel prices, labor costs, EU emissions costs, airport charges, and fare competition.
- Review the €13.1 billion aircraft purchase commitments, planned fleet growth, financing availability, and delivery assumptions.
- Evaluate the impact of IFRS 15’s €274.5 million opening retained-earnings adjustment on future quarterly revenue and earnings comparisons.
- Monitor Brexit-related traffic rights, ownership restrictions, currency exposure, and the estimated €6 million income sensitivity for each one-pence sterling movement.
- Track the outcome of airport state-aid proceedings and any resulting repayment obligations or effects on the network strategy.
- Verify the effect of union negotiations, pilot and cabin-crew availability, and future disruption-related compensation costs.