2007/082006/072005/062004/052003/042002/03Key Documents

Jet2 plc Company Reports

Chairman's Statement

It gives me great pleasure to report that the Group delivered a strong trading performance in the year ended 31 March 2014. Operating profit increased by 30% to £49.2m (2013: £37.9m) and pre-tax profit by 4% to £42.1m (2013: £40.5m). Growth in earnings per share was 14% to 24.68p (2013: 21.73p).

We have a progressive dividend policy and in consideration of the Group’s improved trading performance and liquidity, the Board is recommending a final dividend of 2.14p per share (2013: 1.33p) bringing the total proposed dividend to 2.74p per share for the year to 31 March 2014 (2013: 1.87p), an increase of 47%. The final dividend, which is subject to shareholder approval at the Company’s Annual General Meeting on 4 September 2014, will be payable on 17 October 2014 to shareholders on the register at the close of business on 12 September 2014.

The performance in the year reflects the continuing success of the Group’s Leisure Travel businesses.

Jet2holidays, the Group’s package holiday business, almost doubled the number of customers enjoying its great value holidays to 830,019 (2013: 417,390). This growth is a reflection of the successful development of the Jet2holidays product, which offers packages encompassing flights, transfers and accommodation ranging from budget self-catering, to five-star luxury hotels. As a result, Jet2holidays’ operating profit increased by 122% to £14.4m (2013: £6.5m) as turnover increased 103% to £496.2m (2013: £244.8m).

Turnover in Jet2.com, the Group’s Leisure Airline, increased by 16% to £643.1m (2013: £556.2m) as demand for seats, supported by Jet2holidays, resulted in another year of improved load factors and increased net ticket yields. Though operating profit increased by 17% to £31.2m (2013: £26.7m), profit before tax reduced to £23.9m (2013: £29.3m) due to adjustments associated with the revaluation of US dollar cash balances and certain ineffective hedges. The US dollar balance surplus represents the decision taken earlier this year to deliver summer 2014 airline capacity growth by leasing, rather than the original intention of buying, Boeing 737-800 aircraft. Certain hedges were deemed to be ineffective for the purposes of cash flow hedge accounting due to a disparity between the monthly phasing of those transactions and the underlying 2014/15 US dollar and euro requirement being hedged.

Our important and long-established Distribution & Logistics business, Fowler Welch, achieved a profit before tax of £3.3m (2013: £4.4m). This result was attained despite an inconsistent first half to the year when the business was adversely affected by an unexpectedly varied profile of seasonal volumes required by its supermarket customers during late July, August and September, requiring extra resource to uphold service levels.

Net cash flow from operating activities amounted to £130.8m (2013: £150.3m). The Group continues to invest to ensure that it maintains its growth trajectory. Capital expenditure during the year was £83.5m (2013: £79.7m), and principally related to long-term maintenance spend on aircraft and engines, the acquisition of two Boeing 737-300 aircraft for summer 2013 capacity growth, and investment in our new flight crew training centre, incorporating three flight simulators.

As at 31 March 2014, the Group’s cash balances, including money market deposits, had grown by £42.8m (2013: £68.9m) to £263.7m (2013: £220.9m), which included £286m (2013: £253m) of advance payments from customers in respect of their future flights and holidays.

£140.7m (2013: £145.8m) of the Group’s cash and money market deposits is restricted by its merchant acquirers, as collateral against a proportion of forward bookings paid for by credit or debit card, until the respective customers have travelled.

Leisure Travel – Leisure Airline & Package Holidays

Good progress has been made in our Leisure Travel businesses over the year. We added 32 new routes connecting our Northern UK bases with our holiday destinations, primarily popular Mediterranean and Canary Island resorts and great Leisure Cities.

Of our 2.8 million departing customers, over 830,000 purchased a Jet2holidays package, making us the third largest CAA licensed, ATOL bonded holiday company in the UK. The all-inclusive package holiday represents great and dependable value, and is a long-established and popular product, with special attraction for customers on a tight budget in these difficult economic times.

Our low deposit, 22kg baggage allowance and family friendly flight times all contribute to the attraction of our package holidays product. And we ensure that we deliver a holiday that our customers can both look forward to and remember with pleasure - the flights with Jet2.com, carefully organised coach transfers, attractive hotels with good facilities, and friendly representatives in resort.

During the summer of 2013, Jet2.com operated 53 aircraft from its eight Northern UK bases and achieved an improved load factor of 91%. The fleet has grown to 55 for summer 2014 with the addition of 5 leased Boeing 737-800s and a reduction in the number of short-term chartered aircraft. We will continue to increase our fleet conservatively and in line with the healthy demand for our products.

Whilst price is certainly a crucial factor in the choice of a package holiday or holiday flight, the all round product is what is anticipated and remembered. We believe our focus on our product is second to none and that we have a great future in this attractive business.

To support our growth and the infrastructure needed to deliver our package holidays we entered into a lease, in March 2013, for 72,000 square feet of high grade office space, near the centre of Leeds, to house our commercial and administrative teams together with our large call centre. Our operational teams remain at Leeds Bradford International Airport – close to the action and to the customer.

In September 2013 we purchased premises in nearby Bradford to develop a flight simulator centre for pilot and cabin crew training. Hitherto, we have used third party providers for the simulator training which pilots have to undertake prior to flying an aircraft type and biannually thereafter. This has been a £9.2 million investment which will ensure high professional standards for our nearly 600 pilots. Pilot training commenced at the centre in May 2014. At the same time, we have expanded our pilot and engineering apprentice schemes – taking 30 apprentices yearly – a great investment in the future of Jet2.com.

In January 2014 we were pleased to renew our agreement with Royal Mail for the operation of six night mail flights, every weekday, from our operational bases. We utilise our Boeing 737-300 QC (“Quick Change”) aircraft which are converted from passenger to freighter configuration in less than 40 minutes. They then fly UK domestic freight services to enable Royal Mail to achieve their next day delivery targets.

There has been considerable interest in an appeal hearing before the Court of Appeal relating to a claim for compensation, made by Mr Ronald Huzar, under EU Regulation 261 in respect of a Jet2.com flight which was delayed due to a technical defect. In line with guidance published by the UK Civil Aviation Authority and other European National Enforcement Bodies, Jet2.com maintained that the technical defect was an “extraordinary circumstance” which relieved it of the obligation to pay compensation. In a judgment given on 11 June 2014, the Court of Appeal held that the technical defect was not an extraordinary circumstance and that compensation is payable. Jet2.com is not leaving the matter there and is seeking ultimate resolution by appealing to the Supreme Court, which may involve, instead or in addition, reference to the Court of Justice of the European Union.

Mr Huzar and his family were delayed on return from their holiday near Malaga in Spain, in October 2011. A replacement aircraft was positioned to Malaga to ensure our customers returned home as soon as possible. During the delay, Jet2.com fully met its duty of care obligations, providing food and hotel accommodation to all customers on the effected flight.

Distribution & Logistics

Our distribution business Fowler Welch is a leading provider of supply chain logistics, particularly temperature controlled, to retailers and their suppliers, growers, importers and manufacturers.

The Company operates from nine UK distribution sites, with major operations in the key produce growing and importing areas of Spalding in Lincolnshire, Teynham in Kent and Hilsea near Portsmouth. Fowler Welch also operates a 500,000 square foot ambient (nontemperature controlled) consolidation and distribution centre near Bury, Greater Manchester.

The Company’s mission is to ensure that by close co-operation with its supermarket customers and their suppliers, the retailer’s shelves are continually supplied with fast moving produce and prepared foods, whatever the levels of variability in demand. These levels often vary considerably on a daily basis and may be influenced by many factors, including sporting and social events, such as the World Cup, public holidays and weather suitable for BBQs!

There is a wealth of experience and expertise within Fowler Welch that ensures the mission is achieved and this has been recognised by its customers, including recently, when it was awarded “Carrier of The Year” by Asda for the third year in succession.

During the past year there has been significant growth in the Company’s sales pipeline with revenues progressively coming onstream during the current financial year. While existing business is being vigorously developed we are particularly pleased to announce that Fowler Welch has recently entered into a Memorandum of Understanding for a joint venture to store, ripen and pack stone-fruit, and exotic and organic fruits, at its Teynham facility. Our partner in this venture is a leading supplier of fruit, from the UK and around the world, to the multiple retailers.

Following processing and packing, the fruit will be delivered to Fowler Welch’s customers through its distribution network.

The overall effect is to widen the scope of our business in Kent. In anticipation of the growth potential at Teynham, which is close to the port of Dover and the Channel Tunnel freight terminal, and therefore situated not only in Kent, “The Garden of England”, but on a main artery for imported fruits and produce to the UK, Fowler Welch has obtained planning permission for the substantial development and expansion of the site, which is anticipated to take place in the coming year.

We are pleased that the many business initiatives laid in place by the vigorous management of the Distribution Division are now coming to fruition. Given these developments we believe there is a bright, interesting and profitable future ahead.


(as stated in our preliminary announcement dated 26 June 2014) Taking people on holiday, whether through the sale of a flight or a full holiday package, and the distribution of produce and prepared foods sold by supermarkets, are much-needed, high-potential businesses. Our scale, experience and competitiveness in each sector gives us optimism in our outlook for the long-term growth of the Group.

In relation to the current financial year, we are finding demand for leisure travel, this summer, to the markets we serve, less buoyant than we would have hoped for and market pricing weak. This may be due to the weather, the World Cup, or because the financial recovery hasn’t yet taken hold in our home territory, the North of the UK.

Unfortunately, therefore, in view of the current visibility we have of our remaining summer 2014 forward bookings, we now expect the current year operating profit outturn to be lower than previous market expectations.

Philip Meeson
22 July 2014