Ryanair Holdings plc and Subsidiaries

MD&A Quarter Ended June 30, 2021

Introduction

The Ryanair Group's fleet was effectively grounded due to European Governments travel restrictions/ lockdowns during the prior year comparative (quarter ended June 30, 2020).  Sectors (up sevenfold) and traffic (+7.6M) are therefore significantly higher in the quarter ended June 30, 2021 (although still below pre Covid-19 levels) and the following discussion should be read in that context.

Income Statement

Scheduled revenues:    

Scheduled revenues increased 91% to €192M due to a 7.6M increase in traffic, from 0.5M to 8.1M. While traffic increased significantly, the cancellation of most Easter flights and the delayed relaxation of Government travel restrictions across the EU and the UK into May and June meant that fares required significant price stimulation. 

Ancillary revenues:                                                                                                                              

Ancillary revenues increased to €179M due to a 7.6M rebound in traffic and a solid performance in priority boarding and reserved seating.

Total revenues:

As a result of the above, total revenues increased 196% to €371M.

Operating Expenses:

Depreciation:                                                                                                                      

Depreciation was flat at €134M primarily due to the sale of 7 older B737 aircraft and 11 B737 lease handbacks over the past year, offset by the delivery of 3 B737-8200 ("Gamechanger") aircraft in June and increased amortisation as schedules and cycles increased.

Fuel and oil:                                                                                                                              

Fuel and oil increased by €148M to €157M due to a sevenfold increase in sectors flown.

Staff costs:                                                                                                                            

Staff costs increased by €43M to €111M due to significantly higher sectors.

Airport and handling charges:                                                                                       

Airport and handling charges rose by €69M to €87M due to increased sectors and passengers, offset by reduced charges.

Maintenance, materials and repairs:                                                           

Maintenance, materials and repairs increased by €26M to €62M due to higher aircraft utilisation.

Marketing, distribution and other:                                                                                  

Marketing, distribution and other increased by €30M to €72M due to higher activity and reduced discretionary spending across the Group.

Route charges:                                                                                                                    

Route charges increased by €50M to €52M due to significantly higher sectors.

Aircraft rentals:               

Aircraft rentals dropped to zero due to no longer having B737 aircraft on lease.

Other expense:                                                                                                                        

The absence of hedge ineffectiveness in the quarter was offset by a €12M increase in finance expenses due to higher gross debt and negative average interest rates on euro deposits.

Balance sheet

Gross cash increased by €906M to €4,056M at June 30, 2021.

Gross debt increased by €291M to €5,718M, primarily due to a €1,200M Eurobond issuance in May 2021 offset by a €850M (2014) Eurobond maturity repayment in June 2021 in addition to €61M secured debt and lease liability payments in the quarter.

Net debt was €1,661M at June 30, 2021. This is a €615M reduction from €2,277M at March 31, 2021.

Shareholders' equity:                                                                                       

Shareholders' equity decreased by €177M to €4,469M in the quarter primarily due to a €273M net loss.

 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 quarter ended June 30, 2021 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, 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 year ended March 31, 2020, are available at http://investor.ryanair.com/.

The June 30, 2021 figures and the June 30, 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 Interim financial statements for the quarter ended June 30, 2021 on July 23, 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).

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, 2021 and therefore have been applied by the Group in these condensed consolidated Interim financial statements:

·    Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 19 (effective for fiscal periods beginning on or after January 1, 2021).

·    Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2 (effective for fiscal periods beginning on or after January 1, 2021).

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

 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 quarter ended June 30, 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:

·    Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (effective for fiscal periods beginning on or after January 1, 2022).

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

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

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

·    Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for fiscal periods beginning on or after January 1, 2023).*

·    Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (effective for fiscal periods beginning on or after January 1, 2023).*

·    Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (effective for fiscal periods beginning on or after January 1, 2023).*

·    Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current (effective for fiscal periods beginning on or after January 1, 2023).*

·    IFRS 17 Insurance Contracts (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 quarter ended June 30, 2020 have been reclassified. They both have been reduced by approximately €103M 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 quarter ended.

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.

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 quarter ended June 30, 2021 was a credit of 16.0% (June 30, 2020: 11.9%). The Group's accounting tax credit for the quarter ended June 30, 2021 of approximately €52M (June 30, 2020: €25M); comprising of a deferred tax credit of €56M primarily relating to net operating losses and the temporary differences for property, plant and equipment, offset by a Group current tax charge of approximately €4M.

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 €2.4M in the quarter ended June 30, 2021 (June 30, 2020: €1.0M) is the fair value of share options granted in prior periods and a conditional share grant under LTIP 2019, in the current quarter, to over 80 managers across the Group (the Executive and Non-Executive Directors were not included in this LTIP 2019 grant). The charge is recognised within the income statement in accordance with employee services rendered. During the quarter ended June 30, 2021, 0.5M ordinary shares were issued at strike prices between €6.25 and €6.74 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

As of June 30, 2021, the Ryanair Group had a fleet of 422 owned Boeing 737s, including 3 "Gamechanger" B737-8200s. In addition, the Group had 29 leased 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 and in June 2021, the Group took delivery of the first of these aircraft. The remaining aircraft are due to deliver before the end of fiscal year 2025.

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 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:

9.            Loss per share

10.          Property, plant and equipment

Acquisitions and disposals

Net capital additions for the quarter ended June 30, 2021 amounted to €157M, principally reflecting aircraft pre-delivery deposits, and 3 aircraft deliveries offset by supplier reimbursements of €114M.

11.          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 period.

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 June 30, 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 quarter ended June 30, 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 June 30, 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 the quarter ended June 30, 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:

11.          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.

11.          Financial instruments and financial risk management (continued)

The Group issued senior, unsecured bonds with a fair value of €1,200M in May 2021. The bond has a coupon of 0.875% and a maturity date of June 2026. During the quarter the Group repaid the maturing €850M (2014) Eurobond issued at a coupon of 1.875%.

12.         Shareholders equity and shareholder returns

During the quarter ended June 30, 2021, 0.5M ordinary shares were issued at strike prices between €6.25 and €6.74 per share following the exercise of vested share options. There were no shareholder returns during the quarter ended June 30, 2021 or in the prior year comparative.

13.          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 quarter ended June 30, 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.

14.         Government grants and assistance

During the quarter ended June 30, 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 €22M 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 June 30, 2021.

15.        Post balance sheet events

There were no significant post balance sheet events.

16.          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 €4bn cash at June 30, 2021, a €0.62bn reduction in net debt in the quarter 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 almost 90% of its B737 fleet unencumbered;

4.    The Group's access to the debt capital markets. In May 2021, the Group raised a €1.2bn, 5 year unsecured Eurobond at a low coupon of 0.875%;

5.    Ongoing cost reductions across the Group;

6.    The widespread rollout of Covid-19 vaccines in Europe, with it reported that the vast majority of the European adult population will be vaccinated before the end of September 2021;

7.    Increased bookings; and

8.    The Group's flexibility to react quickly to improved customer demand following vaccine rollouts, the launch of EU Digital Covid Certificates, the relaxation of quarantine requirements for vaccinated arrivals to the UK from mid-July, and the (expected) further easing of European Governments travel restrictions/lockdowns over the coming months.