1st Quarter Results

RNS Number : 3969E

International Cons Airlines Group

10 May 2013

 



THREE MONTHS RESULTS ANNOUNCEMENT

International Consolidated Airlines Group (IAG) today (May 10, 2013) presented Group consolidated results for the three months to March 31, 2013.

IAG period highlights:

§  First quarter operating loss of €278 million, before exceptional items (2012: €249 million loss)

§  There was an exceptional charge of €311 million in the quarter, principally relating to restructuring at Iberia (2012: €37 million exceptional
  credit)

§  Revenue for the quarter up 0.5 per cent to €3,939 million (2012: €3,919 million), including €46 million or 1.2 per cent of unfavourable
  currency impact. Passenger unit revenue for the quarter up 3.9 per cent (5.3 per cent at constant currency), on capacity decreases of 
  2.1 per cent

§  Fuel costs for the quarter down 3.4 per cent to €1,361 million (2012: €1,409 million). Fuel unit costs were down 1.5 per cent

§  Non-fuel costs before exceptional items for the quarter up 3.5 per cent at €2,856 million, including €24 million or 0.9 per cent of adverse
  currency impact. Non-fuel unit costs up 5.8 per cent, or 4.9 per cent at constant currency

§  Cash of €2,833 million at quarter end was down €76 million and Group net debt down €157 million in the quarter to €1,732 million

Performance summary:

	Consolidated Three months to March 31
Financial data € million	2013	2012 (restated)(1)	Higher /  (lower)
Passenger revenue	3,346	3,290	1.7 %
Total revenue	3,939	3,919	0.5 %
Operating loss before exceptional items	(278)	(249)
Exceptional items	(311)	37
Operating loss after exceptional items	(589)	(212)
Loss after tax	(630)	(129)
Basic loss per share (€ cents)	(34.3)	(7.2)
Operating figures	2013	2012	Higher /  (lower)
Available seat kilometres (ASK million)	50,359	51,447	(2.1)%
Revenue passenger kilometres (RPK million)	38,975	39,157	(0.5)%
Seat factor (per cent)	77.4	76.1	1.3pts
Passenger yield per RPK (€ cents)	8.58	8.40	2.1 %
Passenger unit revenue per ASK (€ cents)	6.64	6.39	3.9 %
Non-fuel unit costs per ASK (€ cents)	5.67	5.36	5.8 %
€ million	At March 31,  2013	At December 31, 2012	Higher / (lower)
Cash and interest bearing deposits	2,833	2,909	(2.6)%
Net debt	1,732	1,889	(8.3)%
Adjusted equity(2)	4,383	5,055	(13.3)%
Adjusted gearing(3)	52%	51%	1pt

(1)    Restated for amendment to IAS 19 'Employee Benefits' accounting standard.

(2)    Equity is adjusted for the revaluation of pension assets and pension liabilities associated with the Employee benefit accounting.

(3)    Adjusted gearing is net debt plus capitalised operating aircraft lease costs, divided by net debt plus capitalised operating aircraft lease costs and adjusted equity.

Willie Walsh, IAG chief executive, said: "We're reporting an operating loss of €278 million this quarter before exceptional items, which at constant currency was €38 million better than last year.  Total revenue was up 0.5 per cent and costs up 1.2 per cent. These results are encouraging with underlying revenue strength in strategic markets however while the first step towards restructuring Iberia has been taken, there is more work to be done.

"We are adapting capacity to demand and are reporting a strong group passenger unit revenue performance, despite 10 days of Iberia industrial action and the weak economic situation in Spain.

"Non-fuel unit costs have risen due to two short term activities which will benefit the group in the long term. Iberia cut capacity in the quarter however its reduction in headcount and labour costs began in earnest in April. British Airways has increased its headcount in advance of the new aircraft arriving this year. 

"Following acceptance of the mediator's proposal, we have provided a further €265 million of employee restructuring costs together with fleet stand-down costs within the exceptional items.

 "Since our last results, IAG acquired an additional 44.66 per cent in Vueling bringing the group's total shareholding to 90.51 per cent of the airline.

"We have also placed firm orders for 18 Airbus A350 and plan to convert 18 Boeing 787 options into firm orders for British Airways.  Delivery slots for A350 and/ or Boeing 787s have also been secured for Iberia and these will be converted into firm orders once the airline has restructured and can grow profitably.

"The CAA has announced its initial price proposals at London airports for five years from 2014. A proposed charge of RPI -1.3 per cent at Heathrow means an actual increase of between six and 10 per cent over five years at a time when Heathrow is cutting investment by 25 per cent. There should be a real term cut in charges otherwise the CAA is rewarding Heathrow, already the world's most expensive hub airport, for its inefficiency to the detriment of passengers".

Trading outlook:

"In light of the requirement for the Group to seek shareholder approval for its previously announced BA fleet replacement orders and the consequent requirement to report on any outstanding profit forecast as part of that process, IAG is no longer giving guidance at the operating profit level for 2013. However, it provides the following statement on the outlook:

Current trading is in line with our expectations. For 2013, excluding Vueling, we expect to reduce Group capacity by 1.8%, and keep non-fuel unit cost flat versus last year."

Forward-looking statements:

Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and International Consolidated Airlines Group S.A. (the 'Group') plans and objectives for future operations, including, without limitation, discussions of the Company's Business Plan, expected future revenues, financing plans and expected expenditures and divestments. All forward-looking statements in this report are based upon information known to the Company on the date of this report. The Company 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 Company's forward-looking statements 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 2012; these documents are available on www.iagshares.com.

IAG Investor Relations

2 World Business Centre Heathrow

Newall Road, London Heathrow Airport

HOUNSLOW TW6 2SF

Tel: [phone]

[e-mail]

CONSOLIDATED INCOME STATEMENT
	Three months to March 31, 2013				Three months to March 31, 2012 (restated)(1)
€ million	Before exceptional items	Exceptional items	Total		Before exceptional items	Exceptional items	Total	Higher / (lower) (1)
Passenger revenue	3,346		3,346		3,290		3,290	1.7 %
Cargo revenue	270		270		291		291	(7.2)%
Other revenue	323		323		338		338	(4.4)%
Total revenue	3,939		3,939		3,919		3,919	0.5 %
Employee costs	1,031	268	1,299		994		994	3.7 %
Fuel, oil costs and emissions charges	1,361		1,361		1,409		1,409	(3.4)%
Handling, catering and other operating costs	446		446		395		395	12.9 %
Landing fees and en-route charges	291		291		287		287	1.4 %
Engineering and other aircraft costs	307	15	322		301		301	2.0 %
Property, IT and other costs	218		218		235	(35)	200	(7.2)%
Selling costs	186		186		203		203	(8.4)%
Depreciation, amortisation and impairment	248	8	256		252		252	(1.6)%
Aircraft operating lease costs	95	20	115		99	(2)	97	(4.0)%
Currency differences	34		34		(7)		(7)
Total expenditure on operations	4,217	311	4,528		4,168	(37)	4,131	1.2 %
Operating loss	(278)	(311)	(589)		(249)	37	(212)	11.6 %
Net non-operating costs	(81)		(81)		(35)		(35)
Loss before tax	(359)	(311)	(670)		(284)	37	(247)
Tax	40		40		118		118
Loss after tax	(319)	(311)	(630)		(166)	37	(129)
Operating figures	2013 (2)				2012 (2)			Higher / (lower) (1)
Available seat kilometres (ASK million)	50,359				51,447			(2.1)%
Revenue passenger kilometres (RPK million)	38,975				39,157			(0.5)%
Seat factor (per cent)	77.4				76.1			1.3pts
Passenger numbers (thousands)	11,772				11,383			3.4 %
Cargo tonne kilometres (CTK million)	1,364				1,482			(8.0)%
Passenger yield per RPK	8.58				8.40			2.1 %
Passenger unit revenue per ASK	6.64				6.39			3.9 %
Cargo yield per CTK	19.79				19.64			0.8 %
Total cost per ASK	8.37				8.10			3.3 %
Fuel cost per ASK	2.70				2.74			(1.5)%
Total cost excluding fuel per ASK	5.67				5.36			5.8 %
Aircraft in service	365				349			4.6 %
Average employee number	58,065				56,532			2.7 %

(1)    Restated for amendment to IAS 19 'Employee Benefits' accounting standard.

(2)    Financial ratios are before exceptional items.

Financial review:

Revenue for the quarter rose by 0.5 per cent to €3,939 million (2012: €3,919 million). Passenger revenue was up 1.7 per cent on a capacity decrease (ASKs) of 2.1 per cent and improved unit passenger revenues (€cents per ASK) of 3.9 per cent. At constant exchange rates total revenue was up 1.7 per cent or €66 million with passenger revenue up 3.0 per cent and unit passenger revenues up 5.3 per cent.

Cargo revenue for the quarter was down 7.2 per cent with yield up 0.8 per cent and volume down 8.0 per cent.

Operating costs before exceptional items for the quarter were up 1.2 per cent to €4,217 million (2012: €4,168 million), with fuel costs down 3.4 per cent due to reductions in capacity and lower fuel prices net of hedging.

Non-fuel costs before exceptional items are up 3.5 per cent; non-fuel unit costs (€/ASK) are up 5.8 per cent (4.9 per cent at constant exchange rates). The increases in non-fuel unit costs are due in part to capacity cuts at Iberia in advance of labour cost reductions and bmi not being included in the base.  The remaining non-fuel unit cost increases reflect increased passenger numbers, additional labour costs at British Airways in advance of new aircraft arriving later this year and the marginal impact of leap year in the base.

Employee restructuring costs associated with the Transformation plan of Iberia were recorded in 2012, calculated based on Management's expectation and taking into consideration the labour laws in Spain. Following acceptance of the mediator proposal in March, additional employee restructuring provisions of €265 million were recognised. Restructuring costs of €47 million associated with the return of leased aircraft and standing down owned aircraft have also been recorded. These costs have been classified as exceptional during the period. The prior period exceptional credit relates primarily to the release of an over provision from the settlement of a fine.

Non-operating costs were €81 million for the quarter compared to €35 million in 2012. The previously reported prior year charge of €41 million has been restated by €6 million to reflect the adoption of the amendments to IAS 19 'Employee Benefits'. The increase in non-operating costs is due to retranslation charges on currency borrowings, lower finance income and lower gains on derivatives not qualifying for hedge accounting.

The loss before tax for the quarter was €670 million (2012: €247 million loss).

During the period deferred tax assets related to Iberia's current period losses have not been recognised. The recognition of these deferred tax assets will be reviewed in the second half of the year as part of the annual Business planning process. Excluding this impact, the tax credit for the quarter of €40 million reflects an effective rate for the Group of 29 per cent.

The Group's cash position is €2,833 million down €76 million from December 31, 2012. British Airways' cash position was €1,963 million, Iberia €732 million and ICAG and Veloz Holdco (the group acquisition company of non-previously owned shares of Vueling) combined €138 million. The net debt of the Group has fallen by €157 million to €1,732 million compared to December 31, 2012. Adjusted gearing at March 31, 2013 increased by 1 point to 52 per cent.

Subsequent event

On April 23, 2013, the majority of Vueling Airlines, S.A.'s (Vueling) shareholders accepted IAG's cash tender offer for the acquisition of the remaining shares of the airline. IAG indirectly owns 45.85 per cent of Vueling and 82.48 per cent of the remaining shareholders have accepted IAG's offer of €9.25 per share. Therefore, the IAG Group will own 90.51 per cent of Vueling from the acquisition completion date of April 26, 2013. The cost of purchasing the Vueling shares is €123.5 million.

Prior period restatement - Adoption of IAS 19 'Employee Benefits' accounting standard

The Group has adopted amendments to IAS 19 'Employee Benefits' from January 1, 2013 and has retrospectively applied these changes to the comparative information.

The revised standard has eliminated the use of the corridor approach. This has resulted in recognition of all re-measurements of the defined benefit liability or asset including gains and losses in Other comprehensive income. At December 31, 2012 the net pensions liability has been increased to reflect these re-measurements, being an increase in the net liability of €2,697 million, partially offset by an increase in the related deferred tax asset of €620 million. Total equity is restated at December 31, 2012 to reduce equity by €2,077 million to €2,978 million.

The amended standard also requires the Group to determine the net interest expense or income for the year on the net defined benefit liability or asset by applying the discount rate used at the beginning of the period to measure the defined benefit obligation to the net defined benefit liability or asset at the beginning of the year. It takes into account any changes in the net defined benefit liability or asset during the year as a result of contributions and benefit payments. Previously, the Group determined interest income on plan assets based on their long-term rate of expected return. Before adopting the amendment, the Group had a finance charge or income in relation to amortisation of actuarial losses in excess of the corridor and the effect of the APS asset ceiling; following the adoption of the amended standard, all actuarial losses and gains have been recognised immediately in Other comprehensive income, as are changes in the APS asset ceiling.

The effect of the prior period restatement is a decrease in the net pensions finance charge for the 3 months to March 31, 2012 of €16 million; €11 million for the elimination of financing charges for the amortisation of actuarial losses in excess of the corridor and €5 million due to a reduction in the net financing income relating to pensions.

Actuarial re-measurements will occur at each year end, resulting in no such adjustment for the three months to March 31, 2012. In addition, the impact of changes in substantively enacted tax rates on deferred tax assets relating to pensions results in a charge of €18 million for the three months to March 31, 2012, with a reduction in the substantively enacted tax rate from 25 per cent to 24 per cent occurring in this period, resulting in a reduction in the valuation of the deferred tax assets.

Unrecognised cumulative gains of €3 million in relation to APS are now recognised as these represent the difference between the net pension asset recognised and the APS asset ceiling restriction at December 31, 2011. At December 31, 2011 the net pensions liability has been increased to reflect these re-measurements, being an increase in the net liability of €1,834 million, partially offset by an increase in the related deferred tax asset of €460 million. Total equity is restated at December 31, 2011 to reduce equity by €1,374 million to €4,312 million.

Three months to March 31, 2012		Changes to financing income and expense relating to pensions
	As previously stated	Finance (expense)/income calculation	Corridor accounting	APS asset ceiling	As restated
Operating loss	(212)				(212)
Net financing (expense)/income relating to pensions	(21)	5	11		(5)
Other non-operating income and expenditure	(30)				(30)
Loss before tax from continuing operations	(263)	5	11	-	(247)
Tax	117	3	(2)		118
Loss after tax	(146)	8	9	-	(129)
Attributable to:
Equity holders of the parent	(151)	8	9	-	(134)
Non-controlling interest	5				5
Loss after tax	(146)	8	9	-	(129)

 

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