Ryanair Holdings plc and Subsidiaries

Notes forming Part of the Condensed Consolidated

Interim 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 interim financial statements of the Company for the nine months ended December 31, 2020 comprise the Company and its subsidiaries (together referred to as the "Group").

These unaudited condensed consolidated interim financial statements ("the interim financial statements"), which should be read in conjunction with our 2020 Annual Report for the year ended March 31, 2020, have been prepared 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 December 31, 2020 figures and the December 31, 2019 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 interim financial statements for the nine months ended December 31, 2020 on January 29, 2021.

Except as stated otherwise below, this period'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 recognised in the income statement on a systematic basis in the periods in which the related expenses are recognised.

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 interim 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 January 1, 2020)

The Group has evaluated the extent to which its cashflow hedging relationships are subject to uncertainty driven by IBOR reform as at December 31, 2020. 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 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 adoption of these new or amended standards did not have a material impact on the Group's financial position or results from operations in the quarter ended December 31, 2020.

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 17 (effective for fiscal periods beginning on or after January 1, 2023)

·    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)

Statement of Cash Flows restatement

Operating cash inflows and investing cash outflows for the nine month period ended December 31, 2019 have been reclassified. They both have been reduced by €0.9bn to reflect accrued supplier payables which had previously been presented as capital expenditure in the consolidated cash flows.

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 (jet kerosene) 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 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 December 31, 2020, a net liability of €263M (2019 net asset €128M) was recognised on balance sheet in respect of the Group's jet fuel derivative instruments and a net asset of €68M (2019 net asset €334M) 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 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.

At March 31, 2020 the Group expected to operate much of its normal Winter 2020/2021 schedule. The Group now believes it will operate approximately 20% of its Winter 2020/2021 schedule.

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 FAA rescinded the order that grounded the aircraft, and published an Airworthiness Directive specifying design changes that must be made before the aircraft returns to service, issued a Continued Airworthiness Notification to the International Community (CANIC), and published the MAX training requirements. The first Ryanair Boeing 737-8200 was due to deliver in April 2019. However, due to the global grounding of the MAX aircraft by EASA and the FAA in March 2019, the first delivery is now expected to be in Q4 FY21.

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 nine-months ended December 31, 2020 was 7.9% (December 31, 2019: 7.5%).  The tax credit for the nine-months ended December 31, 2020 of €63.5M (December 31, 2019 charge: €100.6M) comprises a current tax charge of €10.7M and a deferred tax credit of €74.2M primarily relating to the temporary differences for property, plant and equipment and net operating losses.

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 €3.1M in the nine months ended December 31, 2020 (December 31, 2019: €5.9M) is the fair value of options granted in prior periods, which is being recognised within the income statement in accordance with employee services rendered.  During the period 3.0M ordinary shares were issued at a strike price between €6.25 and €6.74 per share following the exercise of vested 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 December 31, 2020 the Group had an operating fleet of 428 (2019: 445) Boeing 737 and 29 (2019: 23) 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 first Ryanair Boeing 737-8200 was due to deliver in April 2019. However, due to the global grounding of the MAX aircraft by EASA and the FAA in March 2019, the first delivery is now expected to be in Q4 FY21.

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).

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 ("Ryanair") is a reportable segment for financial reporting purposes. Buzz, Lauda and Malta Air do not exceed the quantitative thresholds for reporting purposes and accordingly have been presented on an aggregate basis in the table below.

There are varying levels of integration between the operating segments. Inter-segment revenue is not material and thus not subject to separate disclosure.

8.            Analysis of operating segment - continued

Reportable segment information is presented as follows:

9.            Earnings per share

The weighted average number of shares includes weighted average share options assumed to be converted of 9.3M (2019: 5.3M).

10.          Property, plant and equipment

Acquisitions and disposals

Net capital additions for the nine-months ended December 31, 2020 amounted to a credit of €0.5bn, principally reflecting the reversal of certain aircraft pre-delivery trade payables, supplier reimbursements of €0.3bn offset by capital expenditure €0.2bn. 

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 nine months ended December 31, 2020.

12.          Derivative financial instruments

As a result of the widespread grounding of aircraft due to the Covid-19 pandemic, the Group expects to operate a significantly reduced flying schedule for the year ending March 31, 2021 compared to what was originally expected. Accordingly, as at December 31, 2020, 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 €229M (net of tax) was recognised within the income statement for the nine months ended December 31, 2020, comprising a charge of €183M (net of tax) in respect of jet fuel exposures and a charge of €46M (net of tax), primarily associated with ineffective currency cash-flow hedges for FY21 jet fuel and delayed capital expenditure.

A net loss of €15M (net of tax) was recognised within the income statement for the quarter ended December 31, 2020, comprising a charge of €18M (net of tax) in respect of jet fuel exposures and a gain of €3M (net of tax), primarily associated with ineffective currency cash-flow hedges for fiscal year 2021 jet fuel and delayed capital expenditure. As of December 31, 2020, €129M (loss) is recognised in the cash flow reserve in respect of continuing hedges and €86M (gain) in respect of hedging relationships for which hedge accounting is no longer applied. The balance on the hedging reserve as of December 31, 2020 is a loss of €43M.

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 interim 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 December 31, 2020 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 quarter ended December 31, 2020, 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 December 31, 2020 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 quarter ended December 31, 2020 that affect the fair value of our 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: