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SIX MONTHS RESULTS ANNOUNCEMENT

 

International Consolidated Airlines Group (IAG) today (July 28, 2017) presented Group consolidated results for the six months to June 30, 2017.

 

IAG period highlights on results:

 

·      Second quarter operating profit €805 million before exceptional items (2016: €555 million)

·      Passenger unit revenue for the quarter up 1.5 per cent, up 4.0 per cent at constant currency

·      Non-fuel unit costs before exceptional items for the quarter down 0.3 per cent, up 3.5 per cent at constant currency

·      Fuel unit costs before exceptional items for the quarter down 10.4 per cent, down 13.2 per cent at constant currency

·      Operating profit before exceptional items for the half year €975 million (2016: €710 million), up 37.3 per cent, including the adverse foreign exchange impact for the half year of €44 million

·      Cash of €7,944 million at June 30, 2017 was up €1,516 million on 2016 year end

·      Adjusted net debt to EBITDAR improved by 0.4 to 1.4 times

 

Performance summary:

 

   

Six months to June 30


Financial data € million  

2017

2016

Higher / (lower)

Passenger revenue

9,575

9,539

0.4 %

Total revenue

10,888

10,786

0.9 %

Operating profit before exceptional items

975

710

37.3 %

Exceptional items

(77)

79

nm

Operating profit after exceptional items

898

789

13.8 %

Profit after tax

567

554

2.3 %

Adjusted earnings per share (€ cents)

28.5

22.7

25.6 %

Operating figures  

2017

2016

Higher / (lower)

Available seat kilometres (ASK million)

147,210

142,915

3.0 %

Seat factor (per cent)

80.9

80.0

0.9pts

Passenger unit revenue per ASK (€ cents)

6.50

6.67

(2.6)%

Non-fuel unit costs per ASK (€ cents)

5.21

5.33

(2.1)%

 

June 30,

2017

December 31,

2016

Higher / (lower)

Cash and interest-bearing deposits

7,944

6,428

23.6 %

Adjusted net debt

7,024

8,159

(13.9)%

Adjusted net debt to EBITDAR

1.4

1.8

(0.4pts)

Adjusted gearing

50%

51%

(1pt)

   




Definitions included in Alternative performance measures section.


 

Willie Walsh, IAG Chief Executive Officer, said:

 

"We're reporting a very strong performance in quarter 2 with an operating profit of €805 million before exceptional items which is up from €555 million last year.

 

"The underlying trend in unit revenue improved, benefitting partially from Easter and a weak base last year.

 

"Non-fuel unit costs before exceptional items are up, at constant currency. These costs include the financial impact of the power failure which affected British Airways' customers.

 

"In June, LEVEL started longhaul flights from Barcelona to four destinations. Sales continue to be well ahead of our expectations. We've ordered three additional aircraft and are considering other European bases for the operation."

 

 

 

Trading outlook

 

At current fuel prices and exchange rates, IAG expects its operating profit for 2017 to show a double-digit percentage improvement year-on-year. The Group expects second half passenger unit revenue (passenger revenue per ASK) to show an increase versus last year, at constant currency.

 

 

 

 

 

 

 

 

 

 

 

 

LEI: 959800TZHQRUSH1ESL13

 

 

This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014.

Enrique Dupuy, Chief Financial Officer

 

Forward-looking statements:

Certain statements included in this report are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

 

Forward-looking statements can typically be identified by the use of forward-looking terminology, such as "expects", "may", "will", "could", "should", "intends", "plans", "predicts", "envisages" or "anticipates" and include, without limitation, any projections relating to results of operations and financial conditions of International Consolidated Airlines Group S.A. and its subsidiary undertakings from time to time (the 'Group'), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditures and divestments relating to the Group and discussions of the Group's Business plan. All forward-looking statements in this report are based upon information known to the Group on the date of this report. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

It is not reasonably possible to itemise all of the many factors and specific events that could cause the forward-looking statements in this report to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2016; these documents are available on www.iagshares.com.

 

IAG Investor Relations

Waterside (HAA2),

PO Box 365,

Harmondsworth,

Middlesex,

UB7 0GB

 

Tel: +44 (0)208 564 2900

Investor.relations@iairgroup.com

 

 CONSOLIDATED INCOME STATEMENT

 

  

Six months to June 30


€ million

Before

exceptional

items

2017

Exceptional

items

Total

2017

Before

exceptional

items

2016

Exceptional

items

Total

2016

Higher/

(lower)

  








Passenger revenue

9,575


9,575

9,539


9,539

0.4 %

Cargo revenue

516


516

503


503

2.6 %

Other revenue

797


797

744


744

7.1 %

Total revenue

10,888


10,888

10,786


10,786

0.9 %

  


  

  

  

  

  


Employee costs

2,370

77

2,447

2,467

(51)

2,416

(3.9)%

Fuel, oil costs and emissions charges

2,236


2,236

2,465

(28)

2,437

(9.3)%

Handling, catering and other operating costs

1,357


1,357

1,297


1,297

4.6 %

Landing fees and en-route charges

1,045


1,045

1,044


1,044

0.1 %

Engineering and other aircraft costs

915


915

811


811

12.8 %

Property, IT and other costs

438


438

442


442

(0.9)%

Selling costs

494


494

489


489

1.0 %

Depreciation, amortisation and impairment

603


603

658


658

(8.4)%

Aircraft operating lease costs

446


446

337


337

32.3 %

Currency differences

9


9

66


66

(86.4)%

Total expenditure on operations

9,913

77

9,990

10,076

(79)

9,997

(1.6)%

Operating profit

975

(77)

898

710

79

789

37.3 %

Net non-operating costs

(192)


(192)

(101)


(101)

90.1 %

Profit before tax

783

(77)

706

609

79

688

28.6 %

Tax

(154)

15

(139)

(120)

(14)

(134)

28.3 %

Profit after tax for the period

629

(62)

567

489

65

554

28.6 %

  

  



  




 Operating figures

2017(1)



2016(1)



Higher/

(lower)

Available seat kilometres (ASK million)

147,210



142,915



3.0 %

Revenue passenger kilometres (RPK million)

119,157



114,295



4.3 %

Seat factor (per cent)

80.9



80.0



0.9pts

Cargo tonne kilometres (CTK million)

2,786



2,654



5.0 %

Passenger numbers (thousands)

48,806



46,676



4.6 %

Tonnes of cargo carried (thousands)

330



326



1.2 %

Sectors

342,428



338,804



1.1 %

Block hours (hours)

1,006,319



988,814



1.8 %

Average manpower equivalent

63,240



63,032



0.3 %

Aircraft in service

549



541



1.5 %

Passenger revenue per RPK (€ cents)

8.04



8.35



(3.7)%

Passenger revenue per ASK (€ cents)

6.50



6.67



(2.6)%

Cargo revenue per CTK (€ cents)

18.52



18.95



(2.3)%

Fuel cost per ASK (€ cents)

1.52



1.72



(11.9)%

Non-fuel costs per ASK (€ cents)

5.21



5.33



(2.1)%

Total cost per ASK (€ cents)

6.73



7.05



(4.5)%


  



  




(1)Financial ratios are before exceptional items.

CONSOLIDATED INCOME STATEMENT

 

 

Three months to June 30


€ million

Before

exceptional

items

2017

Exceptional

items

Total

2017

Before

exceptional

items

2016

Exceptional

items

Total

2016

Higher/

(lower)

 

  



 


  


Passenger revenue

5,296


5,296

5,074


5,074

4.4 %

Cargo revenue

260


260

241


241

7.9 %

Other revenue

398


398

393


393

1.3 %

Total revenue

5,954


5,954

5,708


5,708

4.3 %

  

 



 




Employee costs

1,218

58

1,276

1,241

(51)

1,190

(1.9)%

Fuel, oil costs and emissions charges

1,174


1,174

1,274

(15)

1,259

(7.8)%

Handling, catering and other operating costs

745


745

690


690

8.0 %

Landing fees and en-route charges

569


569

570


570

(0.2)%

Engineering and other aircraft costs

437


437

407


407

7.4 %

Property, IT and other costs

223


223

218


218

2.3 %

Selling costs

242


242

237


237

2.1 %

Depreciation, amortisation and impairment

301


301

320


320

(5.9)%

Aircraft operating lease costs

223


223

149


149

49.7 %

Currency differences

17


17

47


47

(63.8)%

Total expenditure on operations

5,149

58

5,207

5,153

(66)

5,087

(0.1)%

Operating profit

805

(58)

747

555

66

621

45.0 %

Net non-operating costs

(76)


(76)

(57)


(57)

33.3 %

Profit before tax

729

(58)

671

498

66

564

46.4 %

Tax

(142)

11

(131)

(102)

(12)

(114)

39.2 %

Profit after tax for the period

587

(47)

540

396

54

450

48.2 %

 

 



  


  


Operating figures

2017(1)



2016(1)


 

Higher/

(lower)

Available seat kilometres (ASK million)

78,906



76,764


  

2.8 %

Revenue passenger kilometres (RPK million)

65,213



62,073


  

5.1 %

Seat factor (per cent)

82.6



80.9


  

1.7pts

Cargo tonne kilometres (CTK million)

1,419



1,334


  

6.4 %

Passenger numbers (thousands)

27,659



26,307


  

5.1 %

Tonnes of cargo carried (thousands)

168



163


  

3.1 %

Sectors

188,755



186,741


  

1.1 %

Block hours (hours)

545,609



538,686


  

1.3 %

Average manpower equivalent

64,255



64,323


  

(0.1)%

Passenger revenue per RPK (€ cents)

8.12



8.17


  

(0.7)%

Passenger revenue per ASK (€ cents)

6.71



6.61


  

1.5 %

Cargo revenue per CTK (€ cents)

18.32



18.07


  

1.4 %

Fuel cost per ASK (€ cents)

1.49



1.66


  

(10.4)%

Non-fuel costs per ASK (€ cents)

5.04



5.05


  

(0.3)%

Total cost per ASK (€ cents)

6.53



6.71


  

(2.8)%

 

(1)Financial ratios are before exceptional items.


 

Operating profit overview

IAG's operating profit for the six months to June 30, 2017 was €975 million before exceptional items, an improvement of €265 million from last year. British Airways made a profit of €741 million before exceptional items (2016: €631 million); Iberia made a profit of €84 million (2016: loss €6 million); Aer Lingus made a profit of €59 million (2016: €42 million) and Vueling's loss was €6 million (2016: loss €54 million).

 

Strategic overview

On March 17th, IAG launched LEVEL, a new longhaul low cost airline brand that started its operations in June 2017 with flights from Barcelona to Los Angeles, San Francisco, Buenos Aires and Punta Cana. LEVEL is flying two new Airbus A330 aircraft fitted with 293 economy and 21 premium economy seats. LEVEL's trading performance for the period was positive.

 

Operating and market environment

In the first half of 2017 fuel commodity prices rose versus last year however the Group's fuel price net of hedging was positive. Exchange rates were net adverse for the Group. The pound sterling devalued against the euro and the US dollar. The euro was also weaker against the US dollar, although to a lesser extent.

 

Principal risks and uncertainties

We have continued to maintain and operate our structure and processes to identify, assess and manage risks. The principal risks and uncertainties affecting us, detailed on pages 27 to 32 of the December 31, 2016 Annual Report and Accounts, remain relevant for this period and the remaining six months of the year.

 

Basis of presentation

The Group's performance for the six month period to June 30, 2017 includes LEVEL's operations since its inception on March 17, 2017. The comparator period does not include any results for LEVEL.

 

In order to provide additional information on non-operating items included in the Income statement, the Group has included an additional line to separate the unrealised movements on open derivatives from realised gains and losses. Comparative information has been aligned to this format.

                                                                                                                                                                  

Capacity

In the first six months of 2017, IAG capacity (available seat kilometres or ASKs) was higher by 3.0 per cent with increases across all regions. British Airways increased capacity in the Middle East and launched new routes in quarter 1 2017 (Santiago de Chile and Oakland). These were partially offset by lower capacity to Asia Pacific through discontinuation of Chengdu, gauge changes in Japan and the introduction of the Club Europe product in domestic. Iberia grew in Spain in Jerez, Balearics and Canaries and continued to see longhaul increases from routes launched in 2016 with the full year effect of Shanghai, Tokyo and Johannesburg and frequency increases in Mexico and Buenos Aires. Aer Lingus capacity was increased through the annualisation of its expansion across the North Atlantic. Vueling grew in Spain partially reducing its seasonality and strengthening its share. Passenger load factor rose 0.9 pts to 80.9 per cent.

 

Revenue

Passenger revenue increased 0.4 per cent compared to the prior period, excluding currency up 3.7 per cent. Passenger unit revenue (passenger revenue per ASK) was up 0.7 per cent at constant currency ('ccy') with slightly lower yields (passenger revenue/revenue passenger kilometre) more than offset by an increase in volumes. Passenger unit revenues improved throughout the period and were up 4.0 per cent at ccy for quarter 2 benefitting from strong performance across all the regions, in particular Latin America and the Caribbean and Asia Pacific. Our largest markets North America and Europe also performed well and British Airways saw strength in its corporate bookings. Passengers carried by the Group rose 4.6 per cent to 48,806 thousand and seat factor increased 0.9 points to 80.9 per cent.

 

Cargo revenue for the period increased by 2.6 per cent, 2.5 per cent at constant currency. Despite trading conditions remaining challenging in many regions, the result benefits from strong performance in the Asia Pacific region following a weaker performance in the same period last year. Cargo volumes grew 5.0 per cent versus the same period in 2016.

 

Other revenue was up 7.1 per cent, excluding currency up 9.2 per cent. The Group saw higher activity at BA Holidays, and in Iberia's third party maintenance (MRO) and handling businesses. Customer redemption of Avios loyalty points also increased.

 

Costs

Employee costs decreased 3.9 per cent for the period. Excluding currency and on a unit basis, employee unit costs were down 1.0 per cent. Pay increases and a higher pension charge due to lower AA bond yields were more than offset by productivity and efficiency improvements. The average number of employees rose 0.3 per cent for the Group while productivity increased 2.7 per cent, with improvements at British Airways, Iberia and Aer Lingus. Vueling employee unit costs increased as they focus on reducing seasonality and improving operational resilience.


Fuel costs decreased 9.3 per cent, with fuel unit costs down 14.6 per cent at ccy primarily from lower average fuel prices net of hedging. The Group also continued to benefit from the introduction of new fleet and from improved operational procedures.

 

Handling, catering and other operating costs rose 4.6 per cent, excluding currency up 11.2 per cent. The increase includes €65 million (c. 5 points) of additional compensation fees and baggage claims related to operational disruption at British Airways due to a power failure over the second May bank holiday weekend. In addition, the airlines carried 4.6 per cent more passengers and the Group's non-ASK businesses BA Holidays, handling and Avios grew, with related revenues and costs.

 

Landing fees and en-route charges were broadly flat, excluding currency up 2.1 per cent. The increase is from higher activity, with flying hours up 1.8 per cent and sectors flown up 1.1 per cent, partially offset by price reductions in Europe and Africa. The Group has also recognised elements of airport recharges as a cost in the half year, rather than against revenues as in prior years, following a change in contractual arrangements.

 

Engineering and other aircraft costs rose 12.8 per cent, excluding currency up 11.5 per cent. Increases are driven equally by additional third party maintenance activity at Iberia and from higher flying hours, and price escalation on pay as you go engine contracts at British Airways.

 

Property, IT and other costs decreased 0.9 per cent, excluding currency up 4.3 per cent. The increase reflects lower capitalised IT charges reflecting the progress of internal projects and the impact of one-off releases in the base.

 

Selling costs increased 1.0 per cent, excluding currency up 2.6 per cent due to higher volumes.

 

Ownership costs rose 5.4 per cent, excluding currency up 8.3 per cent. Depreciation costs are down primarily due to the retirement of Iberia's Airbus A340-300s, partially offset by IT charges from the new check-in and aircraft boarding system at British Airways. Aircraft operating lease costs are up due to a tax provision release which benefitted the base and from 9 additional Boeing 787-9s and 10 Airbus A330s.

 

At constant currency non-fuel unit costs increased 2.5 per cent. Adjusted for non-airline businesses (such as MRO, handling, BA Holidays) and currency up 1.6 per cent, and on this basis improvements were noted at all carriers except British Airways. British Airways' non-fuel unit costs were adversely impacted by the operational disruption and higher maintenance costs described above.

 

Exceptional items

In 2017, the Group recognised an exceptional charge of €77 million related to the British Airways transformation initiatives.

 

In 2016, the Group made changes to the US PRMB (Post-Retirement Medical Benefits) to bring the level of benefits in line with national trends in the US. These changes resulted in recognition of a one-off gain in employee costs of €51 million during the period.

 

Under the Business combination standard, gains or losses on cash flow hedges acquired should not be recycled to the income statement but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in the before exceptional items column. In 2016, a credit was recognised in the exceptional column reversing the impact of unwinding the cash flow hedges to reach the total Fuel, oil costs and emissions charges.

 

Non-operating items

The total net non-operating charge rose €91 million to €192 million for the six months compared to €101 million last year. The movement on remeasurement of derivatives not qualifying for hedge accounting, realised and unrealised, was €100 million adverse. This was partially offset by a reduction in finance costs of €40 million following a lower debt.

 

Taxation after exceptional items

The tax charge for the six months to June 30, 2017 is €139 million (2016: €134 million charge) with an effective tax rate of 20 per cent (2016: 20 per cent).

 

Profit after tax and exceptional items

The profit after tax for the six month period to June 30 was €567 million (2016: €554 million).

 

 

 

 

 

 

Exchange rates

IAG's results are impacted by exchange rates used for the translation of British Airways' and Avios' financial results from sterling to the Group's reporting currency of euro. For the six months, the net impact of translation exchange on operating profit was €71 million adverse, with a decrease in revenues of €734 million and a decrease in cost of €663 million.

 

From a transactional perspective, the Group's financial performance is impacted by fluctuations in exchange rates, primarily from the US dollar, euro and pound sterling. The net transaction impact on operating profit was positive by €27 million for the period, increasing revenues by €398 million and costs by €371 million.

 

In summary, during the period the devaluation of the pound sterling against the euro was partially offset by the strengthening of the US dollar against both the euro and the pound sterling. The net impact of translation and transaction exchange for the Group was €44 million adverse.

 

Cash

The Group's cash position was €7,944 million up €1,516 million from December 31, 2016. British Airways' cash position was €3,708 million, Iberia €1,317 million, Aer Lingus €1,158 million, Vueling €906 million and the parent and other Group companies €855 million. 

 

Compared to December 31, 2016, the Group's adjusted net debt decreased by €1,135 million to €7,024 million and adjusted net debt to EBITDAR improved 0.4 points. Adjusted gearing improved by one point.


 

 

 

 

 

 

 

 

 

 

 

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

 

Unaudited Condensed Consolidated Interim Financial Statements

January 1, 2017 - June 30, 2017

 

CONSOLIDATED INCOME STATEMENT

 


Six months to June 30

€ million

Before

exceptional

items

2017

Exceptional

items

Total

2017


Before

exceptional

items

2016

Exceptional

items

Total

2016

Passenger revenue

9,575


9,575


9,539


9,539

Cargo revenue

516


516


503


503

Other revenue

797


797


744


744

Total revenue

10,888


10,888


10,786


10,786

Employee costs

2,370

77

2,447


2,467

(51)

2,416

Fuel, oil costs and emissions charges

2,236


2,236


2,465

(28)

2,437

Handling, catering and other operating costs

1,357


1,357


1,297


1,297

Landing fees and en-route charges

1,045


1,045


1,044


1,044

Engineering and other aircraft costs

915


915


811


811

Property, IT and other costs

438


438


442


442

Selling costs

494


494


489


489

Depreciation, amortisation and impairment

603


603


658


658

Aircraft operating lease costs

446


446


337


337

Currency differences

9


9


66


66

Total expenditure on operations

9,913

77

9,990


10,076

(79)

9,997

Operating profit

975

(77)

898


710

79

789









Finance costs

(113)


(113)


(153)


(153)

Finance income

15


15


18


18

(Loss)/profit on sale of property, plant and equipment and investments

(3)


(3)


3


3

Net gain related to available-for-sale financial assets

1


1


3


3

Share of profits in investments accounted for using the equity method

1


1


3


3

Realised (losses)/gains on derivatives not qualifying for hedge accounting

(7)


(7)


9


9

Unrealised (losses)/gains on derivatives not qualifying for hedge accounting

(72)


(72)


12


12

Net financing (charge)/credit relating to pensions

(16)


(16)


8


8

Net currency retranslation credits/(charges)

2


2


(4)


(4)

Profit before tax

783

(77)

706


609

79

688

Tax

(154)

15

(139)


(120)

(14)

(134)

Profit after tax for the period

629

(62)

567


489

65

554









Attributable to:








Equity holders of the parent

619


557


479


544

Non-controlling interest

10


10


10


10


629


567


489


554

















Basic earnings per share (€ cents)

29.3


26.4


23.6


26.8

Diluted earnings per share (€ cents)

28.5


25.7


22.7


25.6

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

 


Six months to June 30

€ million

2017

2016

Items that may be reclassified subsequently to net profit



Cash flow hedges:



   Fair value movements in equity

(470)

(392)

   Reclassified and reported in net profit

7

712

Available-for-sale financial assets:



   Fair value movements in equity

5

1

Currency translation differences

(128)

(468)




Items that will not be reclassified to net profit



Remeasurements of post-employment benefit obligations

184

(1,256)

Total other comprehensive income for the period, net of tax

(402)

(1,403)

Profit after tax for the period

567

554

Total comprehensive income for the period

165

(849)




Total comprehensive income is attributable to:



Equity holders of the parent

155

(859)

Non-controlling interest

10

10


165

(849)


Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.

CONSOLIDATED BALANCE SHEET

 

€ million

June 30,

2017

December 31,

2016

Non-current assets



Property, plant and equipment

11,725

12,227

Intangible assets

2,990

3,037

Investments accounted for using the equity method

27

29

Available-for-sale financial assets

75

73

Employee benefit assets

989

1,028

Derivative financial instruments

34

169

Deferred tax assets

555

526

Other non-current assets

425

499


16,820

17,588

Current assets



Non-current assets held for sale

23

38

Inventories

449

458

Trade receivables

1,686

1,405

Other current assets

992

899

Current tax receivable

140

228

Derivative financial instruments

79

329

Other current interest-bearing deposits

3,870

3,091

Cash and cash equivalents

4,074

3,337


11,313

9,785

Total assets

28,133

27,373




Shareholders' equity



Issued share capital

1,066

1,066

Share premium

6,105

6,105

Treasury shares

(577)

(96)

Other reserves

(1,839)

(1,719)

Total shareholders' equity

4,755

5,356

Non-controlling interest

308

308

Total equity

5,063

5,664

Non-current liabilities



Interest-bearing long-term borrowings

7,017

7,589

Employee benefit obligations

1,635

2,363

Deferred tax liability

234

176

Provisions for liabilities and charges

1,960

1,987

Derivative financial instruments

107

20

Other long-term liabilities

246

238


11,199

12,373

Current liabilities



Current portion of long-term borrowings

1,007

926

Trade and other payables

4,170

3,305

Deferred revenue on ticket sales

5,726

4,145

Derivative financial instruments

271

88

Current tax payable

48

101

Provisions for liabilities and charges

649

771


11,871

9,336

Total liabilities

23,070

21,709

Total equity and liabilities

28,133

27,373

CONSOLIDATED CASH FLOW STATEMENT


Six months to June 30

€ million

2017

2016

Cash flows from operating activities



Operating profit

898

789

Depreciation, amortisation and impairment

603

658

Movement in working capital

1,731

1,620

Increase in trade and other receivables, prepayments, inventories and current assets

(421)

(739)

Increase in trade and other payables, deferred revenue on ticket sales and current liabilities

2,152

2,359

Payments related to restructuring

(122)

(91)

Employer contributions to pension schemes

(569)

(680)

Pension scheme service costs

117

108

Provision and other non-cash movements

65

66

Interest paid

(63)

(107)

Interest received

17

21

Taxation

18

(104)

Net cash flows from operating activities

2,695

2,280




Cash flows from investing activities



Acquisition of property, plant and equipment and intangible assets

(687)

(1,731)

Sale of property, plant and equipment and intangible assets

236

83

Net proceeds from sale of investments

15

-

Increase in other current interest-bearing deposits

(887)

(861)

Other investing movements

37

(97)

Net cash flows from investing activities

(1,286)

(2,606)




Cash flows from financing activities



Net proceeds from long-term borrowings

92

1,083

Repayment of borrowings

(59)

(74)

Repayment of finance leases

(313)

(259)

Acquisition of treasury shares

(198)

(25)

Distributions made to holders of perpetual securities and other

(10)

(10)

Dividend paid

(43)

(40)

Net cash flows from financing activities

(531)

675




Net increase in cash and cash equivalents

878

349

Net foreign exchange differences

(141)

(190)

Cash and cash equivalents at 1 January

3,337

2,909

Cash and cash equivalents at period end

4,074

3,068




Interest-bearing deposits maturing after more than three months

3,870

3,493




Cash, cash equivalents and other interest-bearing deposits

7,944

6,561

At June 30, 2017 Aer Lingus held €45 million of restricted cash (2016: €48 million) within interest-bearing deposits maturing after more than three months to be used for employee related obligations.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months to June 30, 2017














€ million

Issued share capital

Share premium

Treasury shares

Other reserves(1)

Total shareholders' equity

Non-controlling interest

Total equity

January 1, 2017

1,066

6,105

(96)

(1,719)

5,356

308

5,664









Total comprehensive income for the period (net of tax)

-

-

-

155

155

10

165









Cost of share-based payments

-

-

-

18

18

-

18

Vesting of share-based payment schemes

-

-

19

(31)

(12)

-

(12)

Acquisition of treasury shares

-

-

(500)

-

(500)

-

(500)

Dividend

-

-

-

(262)

(262)

-

(262)

Distributions made to holders of perpetual securities

-

-

-

-

-

(10)

(10)

June 30, 2017

1,066

6,105

(577)

(1,839)

4,755

308

5,063

(1)Closing balance includes retained earnings of €1,418 million (excluding cumulative charge to reserves following amendment to 'Employee benefits' accounting standard: retained earnings of €3,467 million).

 

For the six months to June 30, 2016









€ million

Issued share capital

Share premium

Treasury shares

Other reserves(1)

Total shareholders' equity

Non-controlling interest

Total equity

January 1, 2016

1,020

5,867

(113)

(1,548)

5,226

308

5,534









Total comprehensive income for the period (net of tax)

-

-

-

(859)

(859)

10

(849)









Cost of share-based payments

-

-

-

26

26

-

26

Vesting of share-based payment schemes

-

-

42

(76)

(34)

-

(34)

Acquisition of treasury shares

-

-

(25)

-

(25)

-

(25)

Dividend

-

(106)

-

(106)

(212)

-

(212)

Issue of ordinary shares related to conversion of convertible bond

46

344

-

(33)

357

-

357

Distributions made to holders of perpetual securities

-

-

-

-

-

(10)

(10)

June 30, 2016

1,066

6,105

(96)

(2,596)

4,479

308

4,787

(1)Closing balance includes a retained earnings of €331 million (excluding cumulative charge to reserves following amendment to 'Employee benefits' accounting standard: retained earnings of €2,380 million).


1.      CORPORATE INFORMATION AND BASIS OF PREPARATION

 

International Consolidated Airlines Group S.A. (hereinafter 'International Airlines Group', 'IAG' or the 'Group') is a leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora (hereinafter 'British Airways' and 'Iberia' respectively) completed a merger transaction becoming the first two airlines of the Group. Vueling Airlines S.A. ('Vueling') was acquired on April 26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18, 2015.

 

IAG shares are traded on the London Stock Exchange's main market for listed securities and also on the stock exchanges of Madrid, Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'), through the Spanish Stock Exchanges Interconnection System (Mercado Continuo Español).

 

The condensed consolidated interim financial statements were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on July 27, 2017. The condensed consolidated interim financial statements herein are not the Company's statutory accounts and are unaudited. The Directors consider that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the interim financial statements.

 

The basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2016 have been applied in the preparation of these condensed consolidated interim financial statements. IAG's financial statements for the year to December 31, 2016 have been filed with the Registro Mercantil de Madrid, and are in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and with those of the Standing Interpretations issued by the IFRS Interpretations Committee of the International Accounting Standards Board (IASB). The report of the auditors on those financial statements was unqualified.

 

In order to provide additional information on non-operating items included in the Income statement, the Group has included an additional line to separate the unrealised movements on open derivatives from realised gains and losses.

 

The financial statements for the prior year include reclassifications that were made to conform to the current year presentation.


 

2.      ACCOUNTING POLICIES

 

The Group has not adopted any standard, interpretation or amendment in the six months to June 30, 2017 which has had an impact on its accounting policies and has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The following standards are effective for periods beginning on or after January 1, 2018:

 

IFRS 15 'Revenue from contracts with customers' effective from January 1, 2018. IAG is currently in the process of finalising its accounting policies under the new standard. It is anticipated that the main changes on adoption will be as follows:

 

·      Passenger revenue - revenue associated with ancillary services that is currently recognised when paid, such as change fees, will be deferred to align with the recognition of revenue associated with the related travel.

·      Cargo revenue - interline cargo revenue will be presented gross rather than net of related costs as IAG is considered to be principal rather than agent in these transactions.

·      Other revenue - loyalty revenue associated with the redemption of Avios points with third parties will be presented net of the related costs as IAG is considered to be agent rather than principal in these transactions. In addition, revenue associated with maintenance activities and holiday revenue with performance obligations that are fulfilled over time, will be deferred (with the related costs) and recognised over the performance obligation period.

 

The Group expects to apply the standard on a fully retrospective basis and does not expect a significant change to its financial performance or position on adoption of the standard.

 

IFRS 9 'Financial Instruments' effective from January 1, 2018. The standard amends the classification and measurement models for financial assets and adds new requirements to address the impairment of financial assets and hedge accounting. IFRS 9 will allow the Group to hedge specific risk components of its fuel purchases, such as crude oil price risk. It also requires movements in the time value of options (currently recognised in the Income statement) to be recognised in Other comprehensive income. These changes will result in a reduction in the gains and losses on derivatives not qualifying for hedge accounting recognised in the Income statement. The standard also requires the Group to make a policy choice on whether gains and losses on equity instruments measured at fair value should be recognised in the Income statement or Other comprehensive income, with no recycling. The Group is currently in the process of finalising its accounting policies under the new standard. The Group does not expect any significant changes to its financial performance or position or its hedging activities on the adoption of the standard.

 

 

 

 

 

 

2.      ACCOUNTING POLICIES continued

 

IFRS 16 'Leases' (not yet endorsed by the EU) effective from January 1, 2019. The new standard eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee accounting model. The Group is currently assessing the impact of the new standard. Interest-bearing borrowings and non-current assets will increase on implementation of this standard as obligations to make future payments under leases currently classified as operating leases will be recognised on the Balance sheet, along with the related 'right-of-use' asset. There will be a reduction in expenditure on operations and an increase in finance costs as operating lease costs are replaced with depreciation and lease interest expense. Foreign exchange movements on lease obligations, which are predominantly denominated in US dollars, will be remeasured at each balance sheet date, creating volatility in the Income statement.

 

3.      exceptional items

 


Six months to June 30

€ million

2017

2016

Employee costs (1)

77

(51)

Pre-acquisition cash flow hedge impact (2)

-

(28)

Recognised in expenditure on operations

77

(79)

Total exceptional charge/(credit) before tax

77

(79)

Tax on exceptional items

(15)

14

Total exceptional charge/(credit) after tax

62

(65)

 

(1)Employee costs

British Airways has embarked on a series of transformation proposals to develop a more efficient and cost effective structure. The overall costs of the programme principally comprise employee severance costs. Costs incurred in the six months to June 30, 2017 in respect of this programme amount to €77 million, with a related tax credit of €15 million.

 

During the six months to June 30, 2016 the Group made changes to the US PRMB (Post-Retirement Medical Benefits) to further bring the level of benefits in line with national trends seen in the US. This scheme is accounted for in a similar way to a defined benefit plan, so any reduction in benefit results in the recognition of a past service gain when the plan amendment occurs. This change has resulted in a one-off gain in employee costs of €51 million in the period, and a related tax charge of €10 million.

 

In the period to June 30, 2016:

(2)Pre-acquisition cash flow hedge impact

Under IFRS 3 Business combinations, gains or losses on cash flow hedges acquired should not be recycled to the income statement but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in reported fuel expense. For the six months to June 30, 2016, a credit of €28 million was recognised as an exceptional item, reversing the impact of unwinding the cash flow hedges to arrive at the total Fuel, oil costs and emissions charges. A related tax charge of €4 million was also recognised.

 

4.      Seasonality

 

The Group's business is highly seasonal with demand strongest during the summer months. Accordingly higher revenues and operating profits are usually expected in the latter six months of the financial year than in the first six months.

 

5.      Segment INFORMATION

 

a.       Business segments

 

The chief operating decision maker is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the IAG Management Committee (IAG MC).

 

The Group has a number of entities which are managed as individual operating companies including airline and platform functions. Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to optimise consolidated financial results.

 

Based on the way that the Group treats its businesses and the manner in which resource allocation decisions are made the Group has determined its operating segments. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.

 

 

5.      SEGMENT INFORMATION continued

 

a.          Business segments continued

 

The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable operating segments as they either earn revenues only incidental to the activities of the Group or are not reviewed by the IAG MC and are included within Other Group companies.

 

For the six months to June 30, 2017















2017

€ million

British Airways

Iberia

Vueling

Aer

Lingus

Other Group companies

Total

Revenue







External revenue

6,763

2,095

902

839

289

10,888

Inter-segment revenue

225

188

-

-

229

642

Segment revenue

6,988

2,283

902

839

518

11,530








Depreciation, amortisation and impairment

(442)

(92)

(10)

(39)

(20)

(603)








Operating profit/(loss) before exceptional items

741

84

(6)

59

97

975

Exceptional items (note 3)

(77)

-

-

-

-

(77)

Operating profit/(loss) after exceptional items

664

84

(6)

59

97

898

Net non-operating costs






(192)

Profit before tax






706

 

For the six months to June 30, 2016















2016

€ million

British Airways

Iberia

Vueling

Aer Lingus

Other Group companies

Total

Revenue







External revenue

6,875

1,982

857

787

285

10,786

Inter-segment revenue

238

151

-

-

230

619

Segment revenue

7,113

2,133

857

787

515

11,405








Depreciation, amortisation and impairment

(487)

(115)

(9)

(37)

(10)

(658)








Operating profit/(loss) before exceptional items

631

(6)

(54)

42

97

710

Exceptional items (note 3)

51

-

-

-

28

79

Operating profit/(loss) after exceptional items

682

(6)

(54)

42

125

789

Net non-operating costs






(101)

Profit before tax






688 

 

b.       Geographical analysis

 

 

Revenue by area of original sale


Six months to June 30

€ million

2017

2016

UK

3,525

3,854

Spain

1,630

1,659

USA

1,969

1,731

Rest of world

3,764

3,542


10,888

10,786

 

 

 

 

5.      SEGMENT INFORMATION continued

 

b.       Geographical analysis continued

 

Assets by area

 

June 30, 2017



 

€ million

Property, plant

and equipment

Intangible

assets

 

UK

9,020

1,159

 

Spain

1,924

1,230

 

USA

21

9

 

Rest of world

760

592

 


11,725

2,990

 




December 31, 2016



€ million

Property, plant

and equipment

Intangible

assets

UK

9,608

1,196

Spain

1,877

1,236

USA

20

18

Rest of world

722

587


12,227

3,037

 

6.      FINANCE COSTS AND INCOME

 


Six months to June 30

€ million

2017

2016

Finance costs



Interest payable on bank and other loans, finance charges payable under finance leases

(106)

(141)

Unwinding of discount on provisions

(9)

(11)

Capitalised interest on progress payments

3

1

Change in fair value of cross currency swaps

(1)

(2)

Total finance costs

(113)

(153)




Finance income



Interest on other interest-bearing deposits

15

18

Total finance income

15

18

 

7.      TAX

 

The tax charge for the six months to June 30, 2017 is €139 million (2016: €134 million), and the effective tax rate is 20 per cent (2016: 20 per cent).

 

The tax charge is calculated at the domestic rates applicable to profits or losses in the main countries of operation.

 

8.      EARNINGS PER SHARE AND SHARE CAPITAL


Six months to June 30

Millions

2017

2016

Weighted average number of ordinary shares in issue

2,111

2,030

Weighted average number for diluted earnings per share

2,202

2,210





Six months to June 30

€ cents

2017

2016

Basic earnings per share

26.4

26.8

Diluted earnings per share

25.7

25.6

 

8.      EARNINGS PER SHARE AND SHARE CAPITAL continued

 

The number of shares in issue at June 30, 2017 was 2,132,988,743 (December 31, 2016: 2,132,988,743) ordinary shares with a par value of €0.50 each.

 

In February 2017, the Group announced its intention to carry out a share buyback programme of up to €500 million, as part of its corporate finance strategy to return cash to shareholders while reinvesting in the business and managing leverage. The programme started on March 6, 2017 and will complete by December 29, 2017. During the period to June 30, 2017 the Group purchased 31 million shares, amounting to €203 million. The outstanding payment obligation of the share buyback programme totalling €297 million is included in Trade and other payables in the consolidated Balance sheet.

 

9.      Dividends

 

The Directors do not propose a dividend for the six months to June 30, 2017 (June 30, 2016: nil).

 

The final dividend of 12.5 € cents per share for the year to December 31, 2016 was approved at the annual general meeting on June 15, 2017. This final dividend, amounting to €262 million, has been recognised as a liability at June 30, 2017 and was paid from July 3, 2017.

 

10.    property, plant and equipment and intaNgible assets

 

€ million

Property, plant

and equipment

Intangible assets

Net book value at January 1, 2017

12,227

3,037

Additions

654

77

Disposals

(235)

(16)

Depreciation, amortisation and impairment

(543)

(60)

Exchange movements

(378)

(48)

Net book value at June 30, 2017

11,725

2,990

 

€ million

Property, plant

and equipment

Intangible

assets

Net book value at January 1, 2016

13,672

3,246

Additions

1,685

70

Acquired through Business combination

58

(51)

Disposals

(101)

(18)

Reclassifications

(25)

11

Depreciation, amortisation and impairment

(609)

(49)

Exchange movements

(1,441)

(171)

Net book value at June 30, 2016

13,239

3,038

 

Capital expenditure authorised and contracted for but not provided for in the accounts amounts to €12,876 million (December 31, 2016: €14,022 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to changes in exchange rates.

 

11.    IMPAIRMENT REVIEW

 

Goodwill and intangible assets with indefinite lives are tested for impairment annually (in the fourth quarter) and when circumstances indicate the carrying value may be impaired. The key assumptions used to determine the recoverable amount for the different cash generating units are disclosed in the Annual Report and Accounts for the year to December 31, 2016. For the six months to June 30, 2017 there are no indicators that the carrying value may exceed the recoverable amount.

 

12.    NON-CURRENT ASSETS HELD FOR SALE

 

The non-current assets held for sale of €23 million represent five Airbus A340-300 aircraft. These are presented within the Iberia operating segment and will exit the business by December 31, 2017.

 

Assets held for sale with a net book value of €15 million were disposed of during the six months to June 30, 2017, related to the sale of the Group's investment in Propius Holdings Limited ('Propius'), resulting in no gain or loss.

 

 

12.    NON-CURRENT ASSETS HELD FOR SALE continued

 

At December 31, 2016 the non-current assets held for sale of €38 million represented €15 million for the Group's investment in Propius and €23 million for five Airbus A340-300 aircraft. These were presented within the Aer Lingus and Iberia operating segments respectively.

 

13.    financial instruments

 

a.       Financial assets and liabilities by category

 

The detail of the Group's financial instruments at June 30, 2017 and December 31, 2016 by nature and classification for measurement purposes is as follows:

 

June 30, 2017













Financial assets



 € million

Loans and

receivables

Derivatives

used for

hedging

Available-for-

sale

Non-financial

assets

Total

carrying

amount by

balance sheet

item

 Non-current assets






 Available-for-sale financial assets

-

-

75

-

75

 Derivative financial instruments

-

34

-

-

34

 Other non-current assets

274

-

-

151

425

   






 Current assets






 Trade receivables

1,686

-

-

-

1,686

 Other current assets

364

-

-

628

992

 Non-current assets held for sale

-

-

-

23

23

 Derivative financial instruments

-

79

-

-

79

 Other current interest-bearing deposits

3,870

-

-

-

3,870

 Cash and cash equivalents

4,074

-

-

-

4,074

 

   


Financial liabilities



 € million


Loans and

payables

Derivatives

used for

hedging

Non-

financial

liabilities

Total

carrying

amount by

balance sheet

item

 Non-current liabilities






 Interest-bearing long-term borrowings

7,017

-

-

7,017

 Derivative financial instruments


-

107

-

107

 Other long-term liabilities


10

-

236

246

   






 Current liabilities






 Current portion of long-term borrowings

1,007

-

-

1,007

 Trade and other payables


3,833

-

337

4,170

 Derivative financial instruments


-

271

-

271

 

 

 

 

 

 

 

 

13.    financial instruments continued

 

a.       Financial assets and liabilities by category continued

 

December 31, 2016






 







Financial assets



 € million

Loans and receivables

Derivatives used for hedging

Available-for-sale

Non-financial assets

Total carrying amount by balance sheet item

 Non-current assets






 Available-for-sale financial assets

-

-

73

-

73

 Derivative financial instruments

-

169

-

-

169

 Other non-current assets

267

-

-

232

499

   






 Current assets






 Trade receivables

1,405

-

-

-

1,405

 Other current assets

304

-

-

595

899

 Non-current assets held for sale

-

-

-

38

38

 Derivative financial instruments

-

329

-

-

329

 Other current interest-bearing deposits

3,091

-

-

-

3,091

 Cash and cash equivalents

3,337

-

-

-

3,337

 

   


Financial liabilities



 € million


Loans and

payables

Derivatives

used for

hedging

Non-

financial

liabilities

Total

carrying

amount by

balance sheet

item

 Non-current liabilities






 Interest-bearing long-term borrowings


7,589

-

-

7,589

 Derivative financial instruments


-

20

-

20

 Other long-term liabilities


16

-

222

238

   






 Current liabilities






 Current portion of long-term borrowings


926

-

-

926

 Trade and other payables


3,049

-

256

3,305

 Derivative financial instruments


-

88

-

88

 

b.       Fair value of financial assets and financial liabilities

 

The fair values of the Group's financial instruments are disclosed in hierarchy levels depending on the nature of the inputs used in determining the fair values as follows:

 

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices present actual and regularly occurring market transactions on an arm's length basis;

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates; and

               

Level 3: Inputs for the asset or liability that are not based on observable market data.

 

The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets and trade and other payables approximate their carrying value largely due to the short-term maturities of these instruments.

 

 

13.    financial instruments continued

 

b.       Fair value of financial assets and financial liabilities continued

 

The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:

 

Level 1: The fair value of listed asset investments classified as available-for-sale and listed interest-bearing borrowings is based on market value at the balance sheet date.

 

Level 2: The fair value of derivatives and other interest-bearing borrowings is determined as follows:

 

·      Forward currency transactions and over-the-counter fuel derivatives are measured at the market value of instruments with similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is deemed to be not significant.

 

·      The fair value of the Group's interest-bearing borrowings including leases is determined by discounting the remaining contractual cash flows at the relevant market interest rates at the balance sheet date.

 

Level 3: Unlisted investments are predominantly measured at historic cost less accumulated impairment losses.

 

The carrying amounts and fair values of the Group's financial assets and liabilities at June 30, 2017 are as follows:

 


Fair value


Carrying

value

€ million

Level 1

Level 2

Level 3

Total


Total

Financial assets







Available-for-sale financial assets

19

-

56

75


75

Derivatives

-

113

-

113


113








Financial liabilities







Interest-bearing borrowings

1,088

7,060

-

8,148


8,024

Derivatives

-

378

-

378


378

 

The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2016 are as follows:

 


Fair value


Carrying value

€ million

Level 1

Level 2

Level 3

Total


 

Total

Financial assets







Available-for-sale financial assets

15

-

58

73


73

Derivatives

-

498

-

498


498








Financial liabilities







Interest-bearing borrowings

1,020

7,656

-

8,676


8,515

Derivatives

-

108

-

108


108

 

There have been no transfers between levels of fair value hierarchy during the period.

 

The financial instruments listed in the previous table are measured at fair value for reporting purposes with the exception of the interest-bearing borrowings.

 

c.       Level 3 financial assets reconciliation  

 

The following table summarises key movements in Level 3 financial assets:                                                                                                                             

€ million

June 30, 2017

December 31, 2016

Opening balance for the period

58

65

Exchange movements

(2)

(7)

Closing balance for the period

56

58

 

 

13.    financial instruments continued

 

c.       Level 3 financial assets reconciliation continued

 

The fair value of Level 3 financial assets cannot be measured reliably; as such these assets are stated at historic cost less accumulated impairment losses with the exception of the Group's investment in The Airline Group Limited. This unlisted investment had previously been valued at nil, since the fair value could not be reasonably calculated. During the year to December 31, 2014 other shareholders disposed of a combined holding of 49.9 per cent providing a market reference from which to determine a fair value. The investment remains classified as a Level 3 financial asset due to the valuation criteria applied not being observable.

 

14.    borrowings

€ million

June 30,

2017

December 31,

2016

Current



Bank and other loans

136

149

Finance leases

871

777


1,007

926

Non-current



Bank and other loans

1,714

1,764

Finance leases

5,303

5,825


7,017

7,589

 

15.    SHARE BASED PAYMENTS

 

During the period 5,518,776 nil-cost options were awarded under the Group's Performance Share Plan (PSP) to key senior executives and selected members of the wider management team. No payment is due upon the vesting of the shares. The fair value of equity-settled share awards granted is estimated at the date of the award using the Monte-Carlo model, taking into account the terms and conditions upon which the options were awarded, or based on the share price at the date of grant, dependent on the performance criteria attached. The following are the inputs to the model for the PSP awards granted in the period:

Expected share price volatility: 35 per cent

Expected life of options: 4.6 years

Weighted average share price (£): £5.46

 

The Group also made awards under the Group's Incentive Award Deferral Plan during the period, under which 673,054 conditional shares were awarded.

 

16.    EMPLOYEE BENEFIT OBLIGATIONS

 

The principal funded defined benefit pension schemes within the Group are the Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), both of which are in the UK and are closed to new members.

 

  

June 30, 2017

€ million

APS

NAPS

Other

Total

Scheme assets at fair value

9,165

18,330

432

27,927

Present value of scheme liabilities

(7,628)

(19,639)

(742)

(28,009)

Net pension asset/(liability)

1,537

(1,309)

(310)

(82)

Effect of the asset ceiling

(554)

-

-

(554)

Other employee benefit obligations

-

-

(10)

(10)

June 30, 2017

983

(1,309)

(320)

(646)



Represented by:



 


Employee benefit assets



 

989

Employee benefit obligations



 

(1,635)

  



 

(646)

 

 

 

 

 

 

 

16.    EMPLOYEE BENEFIT OBLIGATIONS continued

 

  

December 31, 2016

€ million

APS

NAPS

Other

Total

Scheme assets at fair value

9,637

18,366

445

28,448

Present value of scheme liabilities

(8,036)

(20,376)

(781)

(29,193)

Net pension asset/(liability)

1,601

(2,010)

(336)

(745)

Effect of the asset ceiling

(580)

-

-

(580)

Other employee benefit obligations

-

-

(10)

(10)

December 31, 2016

1,021

(2,010)

(346)

(1,335)



Represented by:



 


Employee benefit assets



 

1,028

Employee benefit obligations



 

(2,363)

  



 

(1,335)

 

At June 30, 2017, the assumptions used to determine the obligations under the APS and NAPS were reviewed and updated to reflect market conditions at that date. The change in assumptions has resulted in a credit to Other comprehensive income of €184 million (net of tax). Key assumptions were as follows: 

  

APS

NAPS

Per cent per annum

June 30,    2017

December 31, 2016

June 30,

 2017

December 31, 2016

Inflation (CPI)

2.05

2.10

2.05

2.10

Inflation (RPI)

3.15

3.20

3.15

3.20

Salary increases (as RPI)

3.15

3.20

3.15

3.20

Discount rate

2.55

2.60

2.65

2.70

 

Further information on the basis of the assumptions is included in note 32 of the IAG Annual Report and Accounts for the year to December 31, 2016.

 

Pension contributions for APS and NAPS were determined by actuarial valuations made as at March 31, 2012 and March 31, 2015 respectively using assumptions and methodologies agreed between the Group and the Trustees of each scheme.

 

The triennial valuation as at March 31, 2015 for APS was deferred as a result of legal proceedings (note 18).

 

17.    pROVISIONS FOR LIABILITIES AND CHARGES








€ million

Restoration and handback provisions

Restructuring provisions

Employee leaving indemnities and other employee related provisions

Legal claims provisions

Other provisions

Total

Net book value January 1, 2017

1,201

692

593

189

83

2,758

Provisions recorded during the period

177

87

10

36

104

414

Utilised during the period

(128)

(122)

(12)

(122)

(61)

(445)

Release of unused amounts

(10)

(10)

(3)

(11)

(7)

(41)

Unwinding of discount

1

1

7

-

-

9

Exchange differences

(80)

(4)

-

2

(4)

(86)

Net book value June 30, 2017

1,161

644

595

94

115

2,609

Analysis:







Current

214

261

58

39

77

649

Non-current

947

383

537

55

38

1,960


1,161

644

595

94

115

2,609

 

During the period the Group recognised a provision in relation to the restructuring plans at British Airways (note 3).

 

The legal claims provision includes the payment of €104 million for the reissued fine in March 2017 against British Airways, related to investigations by a number of competition authorities in connection with alleged anti-competitive activity concerning the Group's passenger and cargo businesses (note 18).

 

Other provisions includes a €65 million provision recognised during the period on additional compensation fees and baggage claims related to operational disruption at British Airways due to a power failure in quarter 2, 2017.

 

 

18.    CONTINGENT LIABILITIES

 

Cargo

The Group is party to a number of legal proceedings in the English courts relating to a decision by the European Commission in 2010 which fined British Airways and ten other airline groups for participating in a cartel in respect of air cargo prices. The decision was partially annulled against British Airways but in full against other carriers and the fine was refunded in full. British Airways has appealed the partial annulment judgment and the appeal decision is awaited. In March 2017 the European Commission adopted a new decision and reissued the fine against British Airways for the same amount, being €104 million. British Airways subsequently repaid the fine which had been recognised as a provision. The new decision has been appealed.

 

Pensions

The Trustees of the Airways Pension Scheme (APS) have proposed an additional discretionary increase above CPI for pensions in payment for the year to March 31, 2014. British Airways has challenged the decision, as it considers the Trustees have no power to grant such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the legal proceedings was issued in May 2017, which concluded the Trustees do have the power to grant discretionary increases, whilst reiterating they must take into consideration all relevant factors, and ignore irrelevant factors. The Group has appealed the judgment and await an appeal hearing, currently expected to be mid-2018. Payment of the 2013/14 discretionary increase is subject to an injunction as a result of British Airways appeal. The delayed 2015 triennial valuation will now resume. The discretionary increase has not been reflected in the accounting assumptions used, as the outcome is uncertain.

 

Fuel surcharges on loyalty programme redemption tickets

British Airways is the defendant in a case filed in the United States of America in respect of fuel surcharges on loyalty programme redemption tickets. The class has been certified. British Airways intends to vigorously defend the claim and the outcome of the proceedings is uncertain.

 

There were no other significant movements in contingent liabilities and guarantees occurring during the period.

 

19.    RELATED PARTY TRANSACTIONS

 

The Group had the following transactions in the ordinary course of business with related parties.

 

Sales and purchases of goods and services:


Six months to June 30

€ million

2017

2016

Sales of goods and services



Sales to associates

3

4

Sales to significant shareholders

24

18




Purchases of goods and services



Purchases from associates

24

23

Purchases from significant shareholders

42

29

 

Period end balances arising from sales and purchases of goods and services:

 

€ million

June 30,

2017

December 31,

2016

Receivables from related parties



Amounts owed by associates

1

2

Amounts owed by significant shareholders

1

1




Payables to related parties



Amounts owed to associates

3

4

Amounts owed to significant shareholders

1

-

 

For the six months to June 30, 2017 the Group has not made any provision for doubtful debts arising relating to amounts owed by related parties (2016: nil).

 

Board of Directors and Management Committee remuneration

 

Compensation received by the Group's key management personnel is as follows:


Six months to June 30

€ million

2017

2016

Base salary, fees and benefits



Board of Directors' remuneration

2

2

Management Committee remuneration

3

3

19.    RELATED PARTY TRANSACTIONS continued

 

At June 30, 2017 the Board of Directors includes remuneration for two Executive Directors (June 30, 2016: two Executive Directors). The Management Committee includes remuneration for ten members (June 30, 2016: nine members).

 

The Company provides life insurance for all Executive Directors and the Management Committee. For the six months to June 30, 2017 the Company's obligation was €16,000 (2016: €25,000).

 

At June 30, 2017 the transfer value of accrued pensions covered under defined benefit obligation schemes, relating to the Management Committee totalled €4 million (2016: €4 million).

 

No loans were outstanding with Directors or officers of the Group at June 30, 2017 (2016: nil).

 

20.    POST BALANCE SHEET EVENTS

 

There are no post balance sheet events.


STATEMENT OF DIRECTORS' RESPONSIBILITIES

               

LIABILITY STATEMENT OF COMPANY DIRECTORS FOR THE PURPOSES ENVISAGED UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF 19 OCTOBER (REAL DECRETO 1362/2007).

 

At a meeting held on July 27, 2017, the Directors of International Consolidated Airlines Group, S.A. (the "Company") state that, to the best of their knowledge, the condensed consolidated financial statements for the six months to June 30, 2017, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and of the companies that fall within the consolidated group taken as a whole, and that the interim management report includes a fair review of the information required.

 

July 27, 2017

 

 




Antonio Vázquez Romero

Chairman


William Matthew Walsh

Chief Executive Officer




Marc Jan Bolland


Patrick Jean Pierre Cescau




Enrique Dupuy de Lôme Chávarri


James Arthur Lawrence




María Fernanda Mejía Campuzano


Kieran Charles Poynter




Emilio Saracho Rodríguez de Torres


Marjorie Morris Scardino




Alberto Terol Esteban




ALTERNATIVE PERFORMANCE MEASURES

 

The performance of the Group is assessed using a number of Alternative Performance Measures (APMs). The Group's results are presented both before and after exceptional items. Exceptional items are those that in management's view need to be separately disclosed by virtue of their size and incidence. Exceptional items are disclosed in note 3 of the unaudited condensed consolidated interim financial statements. In addition, the Group's results are described using certain measures that are not defined under IFRS and are therefore considered to be APMs. These measures have been used to identify the Group's long-term planning goals on 'Profitability', 'Efficient growth' and 'Balance sheet and cash flow', and to monitor performance towards these goals. The definition of each APM presented in this report, together with a reconciliation to the nearest measure prepared in accordance with IFRS is presented below.

 

Adjusted earnings per share

 

Earnings are based on results before exceptional items after tax and adjusted for earnings attributable to equity holders and interest on convertible bonds, divided by the weighted average number of ordinary shares, adjusted for the dilutive impact of the assumed conversion of the bonds and employee share schemes outstanding.

 

€ million

June 30,

2017

June 30,

2016

Earnings attributable to equity holders of the parent

557

544

Exceptional items

62

(65)

Earnings attributable to equity holders of the parent before exceptional items

619

479

Interest expense on convertible bonds

9

22

Adjusted earnings

 

628

501




Weighted average number of shares used for diluted earnings per share (million)

2,202

2,210

Weighted average number of shares used for basic earnings per share (million)

2,111

2,030




Adjusted earnings per share (€ cents)

28.5

22.7

Basic earnings per share before exceptional items (€ cents)

29.3

23.6

 

EBITDAR

 

EBITDAR is calculated as the rolling four quarter operating profit before exceptional items, depreciation, amortisation and impairment and aircraft operating lease costs.


June 30,

2017

December 31,

2016

June 30,

2016

€ million

Operating profit before exceptional items

2,800

2,535

2,490

Depreciation, amortisation and impairment

1,232

1,287

1,345

Aircraft operating lease costs

868

759

691

EBITDAR

4,900

4,581

4,526

 

Adjusted net debt to EBITDAR

 

Adjusted net debt is calculated as long-term borrowings, less cash and cash equivalents and other current interest-bearing deposits, plus annual aircraft operating lease costs multiplied by 8. This is divided by EBITDAR to arrive at adjusted net debt to EBITDAR. June 2016 has been adjusted to include annualised results from Aer Lingus.

 

€ million

June 30,

2017

December 31,

2016

June 30,

2016

Interest-bearing long-term borrowings

8,024

8,515

8,819

Cash and cash equivalents

(4,074)

(3,337)

(3,068)

Other current interest-bearing deposits

(3,870)

(3,091)

(3,493)

Net debt

80

2,087

2,258

Aircraft operating lease costs multiplied by 8

6,944

6,072

5,632

Adjusted net debt

7,024

8,159

7,890





EBITDAR

4,900

4,581

4,636





Adjusted net debt to EBITDAR

1.4

1.8

1.7

 

 

 

 

ALTERNATIVE PERFORMANCE MEASURES continued

 

Adjusted gearing

 

Adjusted gearing is defined as adjusted net debt divided by adjusted net debt and adjusted equity and is expressed as a percentage. Adjusted equity is reported equity adjusted for the cumulative charge to reserves following the amendment to IAS 19 'Employee benefits' accounting standard, up to €2,077 million, representing the adjustment to equity on adoption of the amendment to the standard.

 

€ million

June 30,

2017

December 31,

2016

June 30,

2016

Adjusted net debt

7,024

8,159

7,890





Equity

5,063

5,664

4,787

IAS 19 cumulative charge to reserves (post-tax)

2,077

2,077

2,077

Adjusted equity

7,140

7,741

6,864





Adjusted net debt plus adjusted equity

14,164

15,900

14,754





Adjusted gearing

50%

51%

53%


AIRCRAFT FLEET

 

  

Number in service with Group companies




  










  

On

balance

sheet fixed

assets

Off

balance

sheet

operating

leases

Total

June 30,

2017

Total

December 31, 2016


Changes since

December 31,

2016


Future

deliveries

Options

  










Airbus A318

2

-

2

2


-


-

-

Airbus A319

22

43

65

65


-


-

-

Airbus A320

69

153

222

227


(5)


92

128

Airbus A321

26

25

51

47


4


20

-

Airbus A330-200

7

9

16

14


2


2

4

Airbus A330-300

5

10

15

14


1


1

-

Airbus A340-600

7

10

17

17


-


-

-

Airbus A350

-

-

-

-


-


43

52

Airbus A380

12

-

12

12


-


-

7

Boeing 747-400

36

-

36

37


(1)


-

-

Boeing 757-200

1

2

3

3


-


-

-

Boeing 767-300

8

-

8

8


-


-

-

Boeing 777-200

41

5

46

46


-


-

-

Boeing 777-300

9

3

12

12


-


-

-

Boeing 787-8

8

-

8

8


-


4

-

Boeing 787-9

7

9

16

16


-


2

18

Boeing 787-10

-

-

-

-


-


12

-

Embraer E170

6

-

6

6


-


-

-

Embraer E190

9

5

14

14


-


-

-

Group total

275

274

549

548


1


176

209

  










As well as those aircraft in service the Group also holds 6 aircraft (2016: 9) not in service.