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Easyjet boss Dame Carolyn McCall is presenting her last set of annual results this morning – before she leaves the budget airline for broadcaster ITV. So this is the last time she will have to endure aeronautical puns and metaphors in every single report of the company’s numbers. That said, with some reports suggesting she’s heading to the departure gate with £5m in salary and shares, she may not mind that at all. So, Opening Quote is happy to offer both treatments/(final) approaches.
In the full-year to September 30, easyJet’s revenues increased/soared by 8 per cent to £5bn – better than/cruising at an altitude just above UBS analysts’ estimate of £4.8bn. Much of this improvement/rate of climb reflected a similar 8 per cent increase in capacity, to 86.7 million seats, as the airline invested in further expansion and benefited from rivals’ demise.
EasyJet is now anticipating/scheduling an “encouraging” start to its new financial year, “primarily as a result of some [competitors’] capacity leaving the market”.
However, adjusted pre-tax profit for the full year came in at £408m, down/descending 17 per cent on the year before – although in line with/on the glide path suggested by Liberum analysts’ estimate of £410m.
It is a result that partly demonstrates the conditions/stiff headwinds of the first-half, when the low-cost carrier posted its worst interim loss in six years after being weighed down by/carrying the excess baggage of a weak pound and a late Easter. Since then, easyJet has agreed to buy/landed €40m of aircraft, staff and slots from the now defunct Air Berlin and experienced strong passenger growth of its own – which led it to guide to full year profits/steer analysts onto a heading of £405m-£410m. Passenger numbers hit a record level of 80 million, up 10 per cent year-on-year.
Statutory pre-tax profit was £385m – some £23m lower than the headline number, mainly due to sale and leaseback charges.
Competition and overcapacity in the European budget airline sector has forced many to cut prices, and easyJet has not been immune/avoided the turbulence. Still, its revenue per seat fell by only 0.4 per cent over the year, to £58.23, as currency benefit, ancillary revenues and efficiencies alleviated downward pressure on ticket prices. Importantly, easyJet has been able to add/board more passengers while improving its planes’ load factor. This rose to 92.6 per cent, from 91.6 per cent before, thanks to “easyJet’s strong network positions and customer proposition”.
And the outlook/cockpit visibility is improving. Analysts expect profitability to recover/take off again in 2018 and 2019, as easyJet benefits from the Air Berlin deal and may also acquire/secure a late booking for assets from Alitalia. In addition, easyJet plans to grow its own capacity by around 6 per cent for the 2018 financial year, excluding Air Berlin. Revenue per seat growth at constant currency is expected to be in the low to mid-single digits in the first quarter.
That just leaves two large blips on the radar: a Brexit deal and founder Stelios Haji-Ioannou – both of which are critical, but in different and non-aeronautical senses. Analysts at Investec note that easyJet is the airline most at risk if Brexit negotiations go wrong.
Still, Dame Carolyn need not worry. She will leave/disembark next month and Johan Lundgren will start/push back from the terminal. At least as a former deputy CEO of tour operator Tui, he’ll be used the awful puns.
Household appliance retailer AO World is finding a push into Europe much less profitable, however. Although sales have risen, the Bolton based company has said full-year earnings are likely to be towards the “lower end” of market expectations.
This morning, AO reported that sales grew by 13 per cent to £368m, in the six months to September 30, with the UK “resilient against a weaker macro-economic environment”. However, the group said it made an adjusted operating loss of £12m in the six months to September 30, down from a £2.8m loss at the same point last year. Earnings before interest and tax almost halved to £7.4m in the UK, because of higher marketing costs. Losses also grew in Europe as expansion continued.
Chief executive Steve Caunce said:
Our outlook for the full year remains within the range of market expectations for adjusted earnings before interest, tax, depreciation and amortisation towards the lower end, reflecting the continuing momentum in our UK business despite challenging market conditions and the adverse impact of foreign exchange rates on the translation of our European operations’ reported performance.
And, finally, catering group Compass is finding that overseas conditions are improving. This morning, the company reported a 15 per cent increase in full-year pre-tax profit, thanks to signs of a reversal in the slowdown at its commodities-linked offshore business.
For the year to September, revenues rose to £22.9bn from £19.9bn the previous year. Pre-tax profits increased to £1.6bn from £1.3bn.
Compass’s North American division, where it caters for big companies including Google and Twitter, was responsible for much of the good performance. Meanwhile, at its offshore business, which does catering and cleaning at remote oil and gas extraction and mining sites, revenues fell 14 per cent – although “the rate of decline has slowed in recent months”.
This was the last set of financial results that Compass’ departing chief executive Richard Cousins will present, having deliver an 840 per cent return for shareholders since he took the job in 2006. He will leave in March to be replaced by internal candidate Dominic Blakemore.
Today’s Lombard column focuses on Centrica’s promise to scrap its most expensive home energy tariff:
Centrica’s shares carry a 7.4 per cent dividend yield for a reason. Those dividends are covered only 1.4 times by earnings for a reason, too. Political unanimity in seeking to cap “rip-off” energy bills after a collapse in the oil price has halved the valuation of the British Gas owner in five years, just as its earnings have cooled by 36 per cent.
So shareholders can only have shuddered at the prime minister’s latest vow to “fix” an apparently free market. What, then, should they make of Monday’s pre-emptive tariff changes from Centrica? It is time to de-ice The Lombard Disambiguator™, and fire it up to interpret the announcement.
Read the rest of today’s Lombard column here.
FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.