TIDMWIZZ

RNS Number : 1143P

Wizz Air Holdings PLC

05 June 2020

Wizz Air Holdings Plc

2020 Annual Report

Geneva, 5 June 2020: Wizz Air Holdings Plc ("Wizz Air" or the "Company" and, together with its subsidiaries, the "Group"), the largest low-cost airline in Central and Eastern Europe, announces that it has today published its 2020 Annual Report.

The document listed below will be sent to shareholders and, as required under the UK Listing Rules, will be submitted to the UK Listing Authority for publication through the National Storage Mechanism where they will shortly be available for inspection at www.morningstar.co.uk/uk/nsm .

Documents:

-- Annual Report in respect of the financial year ended 31 March 2020 (the "2020 Annual Report")

The copy of the 2020 Annual Report is also available on the 'Investor Relations' section of the Company's website at https://wizzair.com/en-gb/information-and-services/investor-relations/investors/annual-reports .

In compliance with DTR 6.3.5, the following information is extracted from the 2020 Annual Report and should be read together with the Company's unaudited final results announcement issued on 3 June 2020 which can be found at https://wizzair.com/en-gb/information-and-services/investor-relations/investors/regulatory-news (the "2020 Final Results Announcement") and may contain slight amendments to the audited 2020 Annual Report. Together, these constitute the information required to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2020 Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 79 of the 2020 Annual Report and is repeated herein solely for the purpose of complying with DTR 6.3.5. The statement relates to the full 2020 Annual Report and not the extracted information provided in this announcement or the 2020 Final Results Announcement:

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company Law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and of the profit or loss of the group for that period. In preparing the financial statements, the directors are required to:

   --      select suitable accounting policies and then apply them consistently; 

-- state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

   --      make judgments and accounting estimates that are reasonable and prudent; and 

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business.

The directors are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies (Jersey) Law 1991 and the Directors' Remuneration Report complies with the Companies Act 2006 as if the company were a quoted company under the United Kingdom Companies Act 2006 .

The directors are responsible for the maintenance and integrity of the parent company's website. Legislation in the United Kingdom and Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 36 to 40 confirm that, to the best of their knowledge:

-- the group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group; and

-- the Strategic Report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that it faces.

PRINCIPAL RISKS AND UNCERTAINTIES

This section of the annual report sets out our risk management process and provides an overview of some of the emerging and principal risks that could, if not appropriately dealt with, affect Wizz Air's future success. Risk management is a dynamic and ever-evolving area and the Company is committed to proactively identify and manage risks effectively.

Our risk management process

The Board is responsible for the Company's risk management and it has delegated to the Audit and Sustainability Committee the task of monitoring the adequacy and effectiveness of the Company's risk management systems. The Company has a comprehensive enterprise risk management (ERM) process to support the achievement of business and strategic goals. As part of our ERM process, risks are identified, analysed for likelihood and impact, and quantified. Risk response is determined depending on the risk type and appetite. As part of this process, the internal Risk Council, involving the Company's senior management team and a number of other senior employees, meets regularly, to consider and update the emerging and principal risks identified. The resulting risk report is then reviewed with the Audit and Sustainability Committee and presented to the Board. These risks, many of which have been the subject of regular reporting and discussion between senior management and the Board for some time, are detailed below. The Board is therefore satisfied that it has carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

Risks relating to the Group

Introduction

The key risks identified by the Risk Committee fall into nine broad groupings:

-- information technology and cyber risk, including website availability, protection of our own and our customers' data and ensuring the availability of operations-critical systems;

-- external factors, such as the default of a partner financial institution, fuel cost, foreign exchange rates, competition, general economic trends and geopolitical risk;

-- product development, making sure that we are making the best use of our capacity and ensuring that we have access to the right airport infrastructure at the right price so that we can keep on delivering the superior Wizz Air service at low fares across an expanding network;

-- fleet development, ensuring the Company has the right number of aircraft available at the right time to take advantage of commercial opportunities and grow in a disciplined way;

-- regulatory risk, making sure that we remain compliant with regulations affecting our business and operations;

   --      operations, including safety events and terrorist incidents; 
   --      Black Swan events, including occurrences and threats of epidemics such as COVID-19; 

-- human resources, ensuring we are able to recruit the right quality and the right number of colleagues to support our ambition to grow and, once recruited, that they remain engaged and motivated and that the Company has in place appropriate succession management for key colleagues; and

   --      climate risk. 

Information technology and cyber risk

During the 2020 financial year, 92 per cent of bookings were made through wizzair.com and mobile applications. We are therefore dependent on our information technology systems to enable and manage ticket reservations, process payments, check in passengers, manage our traffic network, perform flight operations and engage in other critical business tasks. Our website is our shop window and therefore it is critical that it is functional, reliable and secure. While we outsource the hosting and operation of some of these systems to external IT suppliers, we retain an experienced internal team to oversee the operation of these systems and manage the service level. We will continue to review our business-critical systems to ensure that the appropriate level of back-up and reliable recovery procedures are in place. The Company has employed business continuity processes since its beginning and during the 2020 financial year the Company's business continuity plan was comprehensively reviewed and updated to ensure that it remained appropriate and sufficient for the Company's continued growth. The up-to-date state and the operability of the business continuity plan is ensured through regular testing and maintenance.

Cyber risk is a hugely important consideration for our business and is one of the areas closely monitored by the Board. Our systems could be attacked in a number of ways and with varying outcomes - for example, unavailability of wizzair.com or operations-critical systems or theft of our customers' data that could result in considerable loss of customer confidence. In 2018, leading up to the implementation of the General Data Protection Regulation ("GDPR") we completed a comprehensive review of the Company's data systems architecture and launched a combination of new processes, policies, and technological solutions resulting in an increased data protection at Wizz Air. During the 2020 financial year, we have continued to invest in and strengthen such processes, systems and policies and have engaged a Data Protection Officer. Cyber security is a constantly evolving challenge and one of the key issues related to cyber security is our colleagues' awareness of the risk and of the possible ways in which our business could be attacked and, therefore, a comprehensive and compulsory e-learning training programme for all colleagues is maintained. Our in-house IT security department continues to review emerging threats and the Board will be kept up to date on the actions being taken to safeguard our Company.

External factors

We are an international business and, while we report in Euros, we transact in over 20 currencies. We make a large number of payments in US Dollars. Appreciation of the US Dollar against the Euro may negatively impact results and margins. Therefore, to reduce our exposure to currency fluctuations in respect of costs incurred in US Dollars, we engage in Euro/US Dollar hedging in accordance with the Board-approved hedging policy. In addition, and recognising the importance of the British Pound as accounting for around 14.8 per cent of the Company's total revenues, we also engage in Euro/British Pound hedging, again in accordance with the Board-approved hedging policy. In all cases, hedging transactions are subject to the approval of the Audit and Sustainability Committee.

During the 2020 financial year fuel accounted for 34.5 per cent of our total Group operating costs (each excluding exceptional expenses) and a rise in fuel prices could significantly affect our operating costs. We therefore hedge our aviation fuel cost in accordance with a Board-approved hedging policy. The Audit and Sustainability Committee is involved in and approves each hedging decision.

Financial counterparties. In the past few years, Wizz Air has seen its cash reserves continue to increase. We believe that a strong cash position is a vital foundation for the Company's continued, aggressive growth and its ability to capture commercial opportunities as they arise. Therefore, we actively manage the safeguarding of our financial assets and monitor the viability of our banking and hedging counterparties. In fact, all of the Company's cash is invested in accordance with a Board-approved counterparty risk policy which assigns investment limits to each counterparty based upon its credit rating.

Competition is one of the key risks to our business. Our competitors continuously strive to protect or gain market share in markets in which we operate, perhaps by offering discounted fares or more attractive schedules. Competition can adversely affect our revenues and so we constantly monitor our competitors' actions and the performance of our route network to ensure that we take both reactive and proactive actions in a timely manner. Ultimately, our key competitive strength is our commitment to driving our costs ever lower while delivering a superior service and building a loyal customer base. We firmly believe that in tough market conditions lowest cost ultimately wins and therefore we are relentlessly committed to the strictest cost discipline day in and day out.

We are exposed to global political, economic and epidemic events and trends. An economic downturn affects demand for air travel. Our business extends beyond the borders of the EU and into countries such as Russia and Ukraine and regions including the Caucasus, North Africa and the Middle East. Some of the regions we operate in have in the past experienced, and may also in the future be subject to further potential political and economic instability caused by changes in governments, political deadlock in the legislative process, contested election results, tension and local, regional or international conflicts, corruption among governmental officials, social and ethnic unrest and currency instability. We maintain close relationships with local authorities and, as an organisation, we are able to react quickly to adverse events.

The outcome of the Brexit vote continues to cause significant uncertainty for our business because there is still overall uncertainty on how the exit from the EU will happen after the end of the transition period on 31 December 2020. To ensure we are able to continue to fly a number of routes from the United Kingdom to destinations outside the EU, as well as to enable the Company to capitalise on any consolidation opportunities that might arise in the United Kingdom, we already established Wizz Air UK, an airline licensed in the United Kingdom. We continue a dialogue with various authorities to ensure that there is a general understanding of the need to maintain access to the liberalised market.

Regardless of the outcome of the transition period, we believe diversification of our network and markets is a key part of a sustainable business strategy and we remain confident that CEE is a large addressable market which will continue to provide opportunities for profitable growth should our UK business be adversely affected.

Product development

We compete not just for customers but also for access to infrastructure. Wizz Air enjoys high growth, but to meet our ambitious growth plans we require additional space in airport terminals and additional take-off, landing and airport slots. Certain airports in which we operate may already be or become congested, meaning we may not be able to secure access to those airports at our preferred times. We are also making sure that, to retain the slots we already have, we maintain close working relationships with the relevant airport authorities and slot co-ordinators and continuously improve our scheduling and slot management systems and processes.

Fleet development

In order to support our growth plans, we require additional aircraft. We put emphasis on new aircraft - we currently operate one of the youngest fleets in Europe with an average age of just 5.4 years. Having a modern and reliable fleet means we can utilise it for over twelve hours a day. For the business it means lower unit operating costs, and for our customers, lower prices. Since early 2019 the Company started to take delivery of the A321neo aircraft and currently operates these narrow body aircraft which are the most efficient technology today and likely to remain that way over the next few years. Our order book with Airbus as at 31 March 2020 comprised 65 A320neo, 183 A321neo and 20 A321XLR aircraft with deliveries scheduled to take place between 2020 and 2026.

A large aircraft order is a significant financial commitment and requires financing. To date, we have financed all of our A320ceo-family aircraft through sale and leaseback arrangements. On the A320neo-family programme the combination of the sale and leaseback, JOLCO and (beyond FY 2020) French Tax Lease financing provides a diversified fleet financing structure at competitive market rates. This will continue to be the case for the upcoming deliveries which are locked in until the end of June 2021. We are confident that, given both the A320 family's desirability as a result of its superior operating economics and Wizz Air's established strong financial track record, finance will be readily available on competitive terms for the foreseeable future.

With the advance of technology, aircraft computer technology intended to make flight operations safer is becoming more sophisticated and may sometimes fail leading to aircraft being grounded. Similarly, design flaws of aircraft components may lead to costly delays of aircraft delivery. We are in constant dialogue with our key suppliers, Airbus and Pratt & Whitney, to ensure we have sufficient capacity to deliver our planned growth and that crews are trained to the highest standard possible and are adept at using the latest aircraft technology innovations in order to avoid such failures and delays.

Regulatory risks

Even in a liberalised air traffic right environment, aviation remains a highly regulated industry. Wizz Air Hungary relies on an air operator's certificate (AOC) and operating licence issued by Hungary and Wizz Air UK relies on an AOC and operating licence issued by the United Kingdom. In each case, the licences allow the airline to operate air services both within Europe and to and from countries with which Europe has liberalised air traffic agreements. Each operating licence requires the Company to be majority owned and effectively controlled by qualifying nationals, which currently means nationals of the European Economic Area and Switzerland. If the Company ceases to be majority owned and effectively controlled by qualifying nationals, then its operating licence - and, so, its right to operate its business - could be at risk. The Company therefore closely monitors the nationality of its Shareholders. The Board has set a limit (permitted maximum) of 49% of its issued Ordinary Shares for ownership by non-qualifying nationals and the Board has the power to take action in relation to non-qualifying Shareholder shareholdings to protect the Company's operating licences. The Board receives a report at each Board meeting of the level of share ownership by non-qualifying nationals.

In view of the consequences of a no-deal Brexit and as the outcome still remains uncertain, Wizz Air has held discussion with the European Commission and with the Hungarian Civil Aviation Authority and established an ownership and control contingency plan based on a specific EU Aviation Regulation published in March 2019.

A stop notice was published by the Company on 17 April 2018 effectively barring any non-Qualifying Nationals (which from 1 January 2021 will include UK nationals) from purchasing ordinary shares in the Company.

On 3 March 2020, following the conversion by Indigo Hungary LP and Indigo Maple Hill, L.P. of an aggregate of 12,453,300 convertible shares of GBP0.0001 each into Ordinary Shares on that date, the share register of the Company showed that ownership of Wizz Air's Ordinary Shares by Non-Qualifying Nationals was 44.4%. As a result, the Company's Board of Directors resolved to remove the 17 April 2018 stop notice with immediate effect.

The Company's Board of Directors will continue to monitor the ownership level of Ordinary Shares by Non-Qualifying Nationals and will take actions to re-impose the restriction under the Articles at any time if deemed necessary.

In addition, an investor relations programme aimed at moving the Company's Shareholder base to the EU (excluding the UK) has been initiated. Finally, to the extent the increase of Qualifying Nationals' shareholding would remain insufficient, the Company would implement the disenfranchisement of the voting rights of certain Non-Qualifying National holders of Ordinary Shares, such that, Non-Qualifying Nationals would hold fewer than 49% of those ordinary shares to which voting rights are attached.

Operational risks

An accident or incident, or terrorist attack, can adversely affect an airline's reputation and customers' willingness to travel with that airline.

At Wizz Air, our number one priority is the safety of our passengers and crew. Our aircraft fleet is young and reliable, we use the services of world-class maintenance organisations and we have a strong safety culture. A cross-functional safety council meets four times a year, involving both senior management as well as operational staff, and reviews any issues which have arisen in the previous three months and the actions taken as a consequence. In addition to this, we collect detailed data from all aspects of our operation in order to identify trends, and relevant personnel from our Operations department meet twice a year to discuss any trends identified in their area of operation and how they are being dealt with. We also operate an anonymous safety reporting system, to enable our flight and cabin crew to report safety issues which are a concern to them. The entry standards for our operating crew are high and our own Approved Training Organisation (ATO) ensures that all of our pilots are trained to the highest standards. Wizz Air is a registered International Air Transport Association's Operational Safety Audit (IOSA) programme operator, which helps us to ensure that we have best-in-class airline safety management and control systems and processes.

Our experienced security team has an ongoing programme to ensure that the security of our operations and the airports which we serve meet high standards. Our security team also maintains close contact with relevant authorities in order to assess any potential security or other threats to our operations. Any serious threat will be escalated to senior management. We have in the past suspended operations to destinations where the safety of our passengers, crew, and aircraft could not be guaranteed.

Wizz Air Hungary Ltd. is classified as a company of strategic importance by the Hungarian Parliament and, as such, the Company now enjoys enhanced security information and protection under the auspices of the Hungarian Constitution Protection Office. Wizz Air has also joined the campaign launched by the European Union Aviation Safety Agency's (EASA) aiming to reduce the number of unruly passengers on all European flights and protect the passenger's right to a peaceful travel experience.

In October 2018, Wizz Air was awarded the highest 7-star safety ranking from the world's only one-stop airline safety and product rating agency AirlineRatings.com.

In September 2019, Wizz Air was named The Best Low-Cost Carrier of the Year in 2019. The award was handed over at the Aviation Industry Awards Europe gala, part of Air Convention Europe 2019 in Vilnius on 17 September. The award is among the most important and prestigious prizes in the aviation industry. Over 150,000 people cast their votes for commercial airlines in the world. Wizz Air's excellent performance was recognised by awarding the airline with The Best Low-Cost Carrier of the Year prize.

In November 2019, Wizz Air was named the Best Low Cost Airline - Europe 2020 in the annual ranking of AirlineRatings.com, the world's only safety and product rating website. This rating is considered one of the most important and respected in the world of aviation, with outstanding airlines amongst past winners.

Black Swan events, including epidemics

An epidemic or the perception that an epidemic could occur can have a material adverse effect on demand for travel and airlines' operations given restrictions imposed by states, ultimately impacting operating results, financial performance and liquidity. See Going concern and Viability on pages 74-75.

Since February 2020, the worldwide COVID-19 coronavirus epidemic has strongly and negatively impacted not only the airline industry but also the global economy. The Company's crisis management centre has been activated since February 2020. The epidemic was characterized as a pandemic by the World Health Organization on 11 March 2020. The situation has been followed up on a daily basis by senior management and the Company's Board of Directors has been receiving a daily update on the operational, commercial and financial situation of the Company. In addition, extraordinary Board of Directors meetings have been organized monthly since February 2020. Structural measures have been taken by the Company to ensure the health and safety of its passengers and staff and to protect liquidity (including cost savings, workforce cost reductions and working capital interventions). In April the Company's operations were reduced by more than 95%. Since 1 May, 2020 the Company has resumed operations from a number of bases, supported by a new health and safety protocol aiming at minimizing the risk of infection of customers, staff and partners.

Human resources

Wizz Air is a people business. We know our people are the backbone of our business and it is their dedication, day in, day out, that allows us to deliver our low-cost, quality service. We also know we cannot take our people for granted and that competition for the high quality people we seek is keen and may become even more so.

From time to time, pilots and other personnel can be in short supply. We invest a huge amount of time in recruiting pilots and also training them to maintain our high standards. In November 2018, the opening of our new 3,800-square metre state-of-the-art training centre in Budapest reaffirmed our commitment to training excellence.

We are proud that, to date, we have maintained a good relationship with our employees and we have not experienced industrial unrest. We strive to make sure this will remain the case, but we realise that there can be no guarantee. We know we need to ensure we continue to motivate our colleagues. Feedback is an essential part of this process - both giving and receiving - and we consider direct communication between senior management and other employees as the best way of listening to our employees' concerns. The Wizz Air People Council, established in 2018, regularly brings together employees representing all areas of the business and is designed to facilitate an effective two-way communication between the management and employees and to support the decision-making process on matters that affect all of us within the Company, so that Wizz Air can continue to improve both as an airline and as an employer. This effective two-way communication is also facilitated by regular base visits, which are occasions for senior management to spend quality time with employees, both formally and informally.

Our success to date has been driven also by our key personnel. Our continuing success will depend on having the right people in those key positions. While, in the past, we have successfully recruited for those positions, we recognise that we have a pool of talent within the Company and, during the 2020 financial year, we continued to build on the talent management programme rolled-out across the Company's office functions in 2019. Succession of key personnel is a matter which we take extremely seriously and we shall continue to develop our succession planning processes to ensure that we have colleagues of the right calibre to lead the Company in the future.

Climate risk

As an airline, we recognise the risk related to oil consumption and CO2 emissions, which are considered a cause of climate change.

Greenhouse gas emissions and their potential impacts relating to climate change are under increasing global regulatory focus. Aviation is already included in the EU Emissions Trading System (EU ETS) and the Company expects to be part of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) when effective. In October 2016, the International Civil Aviation Organisation (ICAO) adopted CORSIA with the intention to create a single global market-based measure to achieve carbon-neutral growth for international aviation after 2020, which can be achieved through airline purchases of carbon offset credits. CORSIA is expected to increase operating costs for airlines that operate internationally.

While the precise impacts of climate-related requirements continue to evolve, the Company takes its responsibility towards the climate very seriously and is undertaking various measures that are expected to help reduce its CO2 emissions over time, such as improving fuel efficiency through operational measures and fleet renewal.

In June 2019, Wizz Air announced that it operated at the lowest CO2 emissions per passenger amongst all competitor airlines. With 57.2g CO2 per passenger/km in financial year 2020, Wizz Air was the airline with the smallest environmental footprint per passenger. Wizz Air took a proactive step to include the emissions figure into its monthly statistics, adding transparency to allow passengers to have all the necessary information to make responsible choices. Wizz Air's CO2 per passenger/kilometre emissions figure have been on a continuously declining trend over the past years, dropping by 2.2% in financial year 2020 compared to the previous year. With more than 250 Airbus A321NEO aircraft on order, Wizz Air will continue to drive efficiency and improvement in this area with its environmental footprint further decreasing by 1/3 for every passenger over the next decade.

Until new environmental regulations come into force and/or until pending regulations are finalized, future costs to comply with such regulations remain uncertain but are likely to have a significant financial impact on our operating costs and on the aviation industry as a whole over time. We continue to monitor these developments. However, the precise nature of future requirements and their applicability to the Company are hard to predict.

- Ends -

ABOUT WIZZ AIR

Wizz Air, the largest low-cost airline in Central and Eastern Europe, operates a fleet of 122 Airbus A320 and A321 aircraft. A team of dedicated aviation professionals delivers superior service and very low fares, making Wizz Air the preferred choice of 40 million passengers in the last 12 months. Wizz Air is listed on the London Stock Exchange under the ticker WIZZ. The company was recently named one of the world's top ten safest airlines by airlineratings.com, the world's only safety and product rating agency, and 2020 Airline of the Year by ATW, the most coveted honour an airline or individual can receive, recognizing individuals and organizations that have distinguished themselves through outstanding performance, innovation, and superior service.

 
 For more information: 
 Investors:    Evelin Horvath, Wizz Air                            +41 22 555 9863 
 
 Media:        Tamara Vallois, Wizz Air:                           +36 1 777 9324 
  Edward Bridges / Jonathan Neilan, FTI Consulting 
   LLP:                                                            +44 20 3727 1017 
 

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