Final Results

RNS Number : 0301G
International Cons Airlines Group
27 February 2015
 



 

FULL YEAR RESULTS ANNOUNCEMENT

 

International Consolidated Airlines Group (IAG) today (February 27, 2015) presented Group consolidated results for the year to December 31, 2014.

 

IAG period highlights on results:

 

·      Fourth quarter operating profit €260 million (2013: operating profit of €113 million) before exceptional items

·      Revenue for the quarter up 9.9 per cent to €5,015 million, up 5.8 per cent at constant currency

·      Non-fuel unit costs for the quarter down 0.8 per cent at constant currency

·      Operating profit for the year to December 31, 2014 of €1,390 million (2013: operating profit of €770 million) before exceptional items

·      Revenue for the year up 8.0 per cent to €20,170 million and passenger unit revenue for the year down 0.4 per cent at constant currency

·      Fuel unit costs for the year down 7.8 per cent also down 7.8 per cent at constant currency.

·      Non-fuel unit costs before exceptional items for the year down 1.9 per cent, down 3.9 per cent at constant currency

·      Cash of €4,944 million at December 31, 2014 was up €1,311 million on 2013 year end

·      Adjusted gearing up 1 point to 51 per cent and adjusted net debt to EBITDAR improved 0.6 to 1.9 times

 

 

Performance summary:

 

  




  

Year to December 31


Financial data € million  

2014 

2013 

Higher / (lower)

Passenger revenue

17,825 

16,264 

9.6 %

Total revenue

20,170 

18,675 

8.0 %

Operating profit before exceptional items

1,390 

770 

80.5 %

Exceptional items

(361)

(243)

48.6 %

Operating profit after exceptional items

1,029 

527 

95.3 %

Profit after tax

1,003 

151 

564.2 %

Basic earnings per share (€ cents)

48.2 

6.4 

41.8pts

Operating figures  

2014 

2013 

Higher / (lower)

Available seat kilometres (ASK million)

251,931 

230,573 

9.3 %

Seat factor (per cent)

80.4 

80.8 

(0.4pts)

Passenger unit revenue per ASK (€ cents)

7.08 

7.05 

0.4 %

Non-fuel unit costs per ASK (€ cents)

5.08 

5.18 

(1.9)%

€ million

December 31,

December 31,

Higher / (lower)

2014

2013

Cash and interest-bearing deposits

4,944 

3,633 

36.1 %

Adjusted net debt(1)

6,081 

5,701 

6.7 %

Adjusted net debt to EBITDAR

1.9 

2.5 

(0.6)

Adjusted gearing(2)

51%

50%

1pt

 

(1) Adjusted net debt is net debt plus capitalised operating aircraft lease costs.

(2) Adjusted gearing is adjusted net debt, divided by adjusted net debt and adjusted equity.

 

 

Willie Walsh, IAG Chief Executive Officer, said:

 

"We're reporting strong full year results with an operating profit before exceptional items of €1,390 million which is up 80.5 per cent. Total revenue was up 8.0 per cent with non-fuel costs up 7.0 per cent and fuel costs up 0.6 per cent on capacity growth of 9.3 per cent.

 

"Iberia made an operating profit of €50 million compared to an operating loss of €166 million last year. The airline's turnaround has been remarkable, both financially and operationally, and we're very proud of its achievement especially its strong cost discipline. In 2013 we said our intention was for Iberia to breakeven in 2014 and it has fulfilled that promise.

 

“British Airways’ operating profit increased to €1,215 million up from €762 million last year which shows significant progress towards its long term targets. Vueling made an operating profit of €141 million, compared to an operating profit of €139 million in 2013, with the airline focusing on flexible growth. 

"We achieved a strong unit cost performance, down 4.1 per cent, through increased productivity, supplier cost savings and lower fuel unit costs. The latter was boosted by the introduction of more efficient aircraft into our fleet and lower fuel prices in the last quarter of the year. However, the positive effect of the oil price reduction has been partly offset by hedging and significant currency impact.

 "In the quarter, we made an operating profit before exceptional items of €260 million which is up from €113 million last year. Revenue for the quarter was up 9.9 per cent. Non-fuel costs were up 10.5 per cent and fuel costs decreased by 0.4 per cent on capacity growth of 5.8 per cent."

 

 

Trading outlook

At current fuel prices and exchange rates, IAG expects in 2015 to generate an operating profit in excess of €2.2 billion, with total fuel costs of around €5.9 billion, based on capacity growth of approximately 5.5 per cent. 

 

 

 

 

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 2013; 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: +44 (0)208 564 2900

Investor.relations@iairgroup.com



 

 CONSOLIDATED INCOME STATEMENT


  




  

  



  




  

Year to December 31


 € million

Before exceptional items

Exceptional items

Total 2014

Before exceptional items

Exceptional items

Total 2013

Higher/ (lower)

2014

2013

  

  



  




 Passenger revenue

17,825 


17,825 

16,264 

(106)

16,158 

9.6 %

 Cargo revenue

992 

 

992 

1,073 

 

1,073 

(7.5)%

 Other revenue

1,353 

 

1,353 

1,338 

 

1,338 

1.1 %

 Total revenue

20,170 

 

20,170 

18,675 

(106)

18,569 

8.0 %

 Employee costs

4,325 

260 

4,585 

4,123 

98 

4,221 

4.9 %

 Fuel, oil costs and emissions charges

5,987 

 

5,987 

5,951 

(6)

5,945 

0.6 %

 Handling, catering and other operating costs

2,063 

 

2,063 

1,932 

 

1,932 

6.8 %

 Landing fees and en-route charges

1,555 

 

1,555 

1,422 

 

1,422 

9.4 %

 Engineering and other aircraft costs

1,276 

 

1,276 

1,237 

15 

1,252 

3.2 %

 Property, IT and other costs

927 

 

927 

922 

927 

0.5 %

 Selling costs

859 

 

859 

785 

 

785 

9.4 %

 Depreciation, amortisation and impairment

1,196 

(79)

1,117 

1,006 

1,014 

18.9 %

 Aircraft operating lease costs

551 

 

551 

482 

17 

499 

14.3 %

 Currency differences

41 

180 

221 

45 

 

45 

(8.9)%

 Total expenditure on operations

18,780 

361 

19,141 

17,905 

137 

18,042 

4.9 %

 Operating profit

1,390 

(361)

1,029 

770 

(243)

527 

80.5 %

 Net non-operating costs

(284)

83 

(201)

(283)

(17)

(300)

0.4 %

 Profit before tax from continuing operations

1,106 

(278)

828 

487 

(260)

227 

127.1 %

 Tax

(238)

413 

175 

(57)

(19)

(76)

317.5 %

 Profit after tax from continuing operations

868 

135 

1,003 

430 

(279)

151 

101.9 %

 Loss after tax from discontinued operations

 

(4)

(4)

-

 Profit after tax for the year

868 

135 

1,003 

430 

(283)

147 

101.9 %

  

  



  




 Operating figures

2014 (1)



2013 (1)



Higher/ (lower)

 Available seat kilometres (ASK million)

251,931 



230,573 



9.3 %

 Revenue passenger kilometres (RPK million)

202,562 



186,304 



8.7 %

 Seat factor (per cent)

80.4 



80.8 



(0.4pts)

 Cargo tonne kilometres (CTK million)

5,453 



5,653 



(3.5)%

 Passenger numbers (thousands)

77,334 



67,224 



15.0 %

 Tonnes of cargo carried (thousands)

897 



928 



(3.3)%

 Sectors (thousands)

599,624 



538,644 



11.3 %

 Block hours (hours)

1,712,506 



1,573,900 



8.8 %

 Average manpower equivalent

59,484 



60,089 



(1.0)%

 Aircraft in service

459 



431 



6.5 %

 Passenger revenue per RPK (€ cents)

8.80 



8.73 



0.8 %

 Passenger unit revenue per ASK (€ cents)

7.08 



7.05 



0.4 %

 Cargo revenue per CTK (€ cents)

18.19 



18.98 



(4.2)%

 Fuel cost per ASK (€ cents)

2.38 



2.58 



(7.8)%

 Non-fuel unit costs per ASK (€ cents)

5.08 



5.18 



(1.9)%

 Total cost per ASK (€ cents)

7.45 



7.77 



(4.1)%

  

  



  




(1)Financial ratios are before exceptional items.



 

 CONSOLIDATED INCOME STATEMENT


  


  


  

Three months to December 31


 € million

Before exceptional items

Exceptional items

Total 2014

Before exceptional items

Exceptional items

Total 2013

Higher/ (lower)

2014 

2013 

 Passenger revenue

4,390 

 

4,390 

3,965 

(106)

3,859 

10.7 %

 Cargo revenue

268 

 

268 

276 

 

276 

(2.9)%

 Other revenue

357 

 

357 

321 

 

321 

11.2 %

 Total revenue

5,015 

 

5,015 

4,562 

(106)

4,456 

9.9 %

 Employee costs

1,143 

260 

1,403 

1,048 

(170)

878 

9.1 %

 Fuel, oil costs and emissions charges

1,470 

 

1,470 

1,476 

(1)

1,475 

(0.4)%

 Handling, catering and other operating costs

521 

 

521 

490 

 

490 

6.3 %

 Landing fees and en-route charges

370 

 

370 

364 

 

364 

1.6 %

 Engineering and other aircraft costs

338 

 

338 

261 

 

261 

29.5 %

 Property, IT and other costs

229 

 

229 

238 

 

238 

(3.8)%

 Selling costs

189 

 

189 

176 

 

176 

7.4 %

 Depreciation, amortisation and impairment

326 

(79)

247 

262 

 

262 

24.4 %

 Aircraft operating lease costs

146 

 

146 

127 

(1)

126 

15.0 %

 Currency differences

23 

98 

121 

 

228.6 %

 Total expenditure on operations

4,755 

279 

5,034 

4,449 

(172)

4,277 

6.9 %

 Operating profit

260 

(279)

(19)

113 

66 

179 

130.1 %

 Net non-operating costs

(106)

53 

(53)

(55)

 

(55)

92.7 %

 Profit before tax from continuing operations

154 

(226)

(72)

58 

66 

124 

165.5 %

 Tax

(16)

397 

381 

(33)

(17)

(50)

(51.5)%

 Profit after tax from continuing operations

138 

171 

309 

25 

49 

74 

452.0 %

 Loss after tax from discontinued operations

 

(4)

(4)

-

 Profit after tax for the period

138 

171 

309 

25 

45 

70 

452.0 %

  

  



  


  


  

  



  


  


 Operating figures

2014 



2013 


  

Higher/ (lower)

 Available seat kilometres (ASK million)

61,697  



58,339  


  

5.8 %

 Revenue passenger kilometres (RPK million)

49,025  



46,084  


  

6.4 %

 Seat factor (per cent)

79.5  



79.0  


  

0.5pts

 Cargo tonne kilometres (CTK million)

1,430  



1,503  


  

(4.9)%

 Passenger numbers (thousands)

18,427  



16,770  


  

9.9 %

 Tonnes of cargo carried (thousands)

236  



245  


  

(3.7)%

 Sectors (thousands)

143,987  



135,619  


  

6.2 %

 Block hours (hours)

413,669  



396,554  


  

4.3 %

 Average manpower equivalent

58,814  



59,026  


  

(0.4)%

 Passenger revenue per RPK (€ cents)

8.95  



8.60  


  

4.1 %

 Passenger unit revenue per ASK (€ cents)

7.12  



6.80  


  

4.7 %

 Cargo revenue per CTK (€ cents)

18.74  



18.36  


  

2.1 %

 Fuel cost per ASK (€ cents)

2.38  



2.53  


  

(5.9)%

 Non-fuel unit costs per ASK (€ cents)

5.32  



5.10  


  

4.3 %

 Total cost per ASK (€ cents)

7.71  



7.63  


  

1.0 %

  

  



  


  


  

  



  


  




 

 

Financial review:

IATA market growth

In 2014 industry passenger load factor reached 79.7 per cent supported by stronger growth in demand rather than capacity increases. International load factors have displayed a downward trend throughout the year, particularly as a result of solid capacity expansion in Asia Pacific carriers. In addition, there has been a gradual easing in business confidence towards the end of 2014 which has weighed on some international travel in certain markets.

 

Year to December 31, 2014


Capacity ASKs


Traffic RPKs


Passenger load factor


Higher/ (lower)

International


6.4%


6.1%


79.2


(0.1) pts

Domestic


4.3%


5.4%


80.6


+0.7 pts

Total market


5.6%


5.9%


79.7


+0.2 pts

 

 

IAG capacity

IAG increased capacity in 2014, measured in available seat kilometres (ASKs), by 9.3 per cent. The increase was across all regions, reflecting the full year impact of Vueling, the restoration of routes as part of Iberia's Plan de Futuro and changes to the British Airways network including up gauging related to new fleet and additional flying from more efficient replacement aircraft. Across the network, passenger load factor for the year was 80.4 per cent; although a decrease of 0.4 points compared to last year, it remains higher than IATA industry average of 79.7 per cent.

Year to December 31, 2014


% of total network in ASKs


ASKs higher/(lower)


Passenger load factor


Higher/ (lower)

Domestic


6.8%


+21.6%


77.3


+1.6 pts

Europe


22.1%


+18.6%


78.1


+0.5 pts

North America


29.2%


+6.0%


83.1


(1.5) pts

Latin America and Caribbean


17.4%


+4.1%


81.4


(1.2) pts

Africa, Middle East and South Asia


15.8%


+5.3%


77.9


+0.4 pts

Asia Pacific


8.7%


+8.1%


82.1


+0.7 pts

Total network


100.0%


+9.3%


80.4


(0.4) pts

 

 

Market segments

In 2014, the IAG Domestic and European market capacity increases reflect:

 

·      Full year impact of Vueling forming part of the IAG Group and its year-over-year network growth;

·      Additional frequencies and new destinations for Iberia as part of the Plan de Futuro; and

·      More efficient replacement aircraft for British Airways at London Gatwick and London City, increasing frequencies and introducing new routes.

 

While the Domestic and European markets were very competitive our passenger load factors improved in both regions, but remain lower than the European average reported by IATA, influenced by the growing presence of the low cost carriers.

 

North America continues to represent the largest part of the IAG network and with the highest passenger load factor. At British Airways, capacity increased primarily from up gauging aircraft with the Airbus A380 flying to Washington D.C. and Los Angeles, and the Boeing 787 on routes such as Newark, Philadelphia and Toronto. At Iberia the increased capacity reflects additional frequencies to Chicago and New York. IAG passenger load factor for North America was down 1.5 points, consistent with the year-over-year decrease reported by IATA. Despite the decrease in volume our unit revenues improved.

 

Latin America and Caribbean capacity increase reflects additional frequencies to Brazil and Mexico by both British Airways and Iberia. As part of the Plan de Futuro Iberia has also restored routes such as Santo Domingo and Montevideo and increased frequencies to Panama. Passenger load factor in this region decreased but overall remains high at 81.4 per cent. 

 

Africa, Middle East and South Asia capacity increase primarily reflects the up gauging of aircraft to the Airbus A380 on the Johannesburg route and additional frequencies to Accra. Flying has been reduced in North and West Africa by British Airways and Iberia due to weakening demand resulting from the Ebola crisis and political unrest. Passenger load factor improved 0.4 points.

 

In Asia Pacific, the capacity increase is driven by the full year impact of routes added last year and the introduction of the Airbus A380 to Hong Kong. In 2014, the Hyderabad and Chennai routes see more capacity reflecting the up gauge to the Boeing 787. Passenger load factors increased to 82.1, the second highest region on the IAG network.

  

Acquisitions

The 2014 performance includes Vueling for the full year, however the comparative period only includes Vueling results from the acquisition date April 26, 2013.

 

Revenue

Passenger revenue

Passenger revenue for the Group increased 9.6 per cent for the year on a capacity increase of 9.3 per cent. At constant currency the increase was 8.7 per cent, with a unit revenue decrease of just 0.4 per cent. The Group carried 77 million passengers, up 15 per cent from 2013.

 

At the Group level passenger revenue performance was based on flat passenger yields (passenger revenue/revenue passenger kilometre) at constant currency and a marginal decrease in load factor of 0.4 points. The passenger yield performance was stronger out of London, up 1.6 per cent benefitting from the continued recovery of the UK economy, which grew by 2.6 per cent. Passenger yields in Madrid and Barcelona were down by approximately 3 per cent for the year, but with improvements in the fourth quarter as Spain's economy started to strengthen.

 

From a market perspective, our revenue performance was strongest in North America reflecting consumer confidence. Meanwhile Europe and Domestic markets saw marginal declines in unit revenues reflecting competition and IAG capacity changes. The World Cup, political unrest, Ebola and the redeployment of Venezuela capacity had a mildly dilutive effect on Latin America and Africa and Middle East revenues.

 

Cargo revenue

In April 2014, IAG Cargo exited its longhaul freighter business and formed a partnership with Qatar Airways to purchase capacity on its air cargo freighters. While the new operating model reduces total cargo revenue reported, it is more flexible and generates better margins whilst maintaining the key trade lane between Hong Kong and Europe. Cargo revenue for the year was down 7.5 per cent or 6.6 per cent at constant currency. Excluding the longhaul freighter business, volume measured in cargo tonne kilometres (CTK) is up 6.7 per cent but with excess capacity in the market the underlying yield per CTK is down 3.2 per cent at constant currency.

 

Other revenue

Other revenue includes the BA Holidays programme, third party maintenance and handling revenues, and aspects of the Avios customer loyalty programme. Excluding the adverse impact on the Group's handling and maintenance revenues due to the consolidation of Vueling, other revenue increases approximately 10 per cent. Half of this improvement is related to growth at BA Holidays, with the remainder primarily from recovery of Iberia's maintenance and handling activities. The Avios customer loyalty programme performance is also increasing, benefitting from the increase in the fair value of a point and an underlying improvement. A €67 million one-off charge was recorded in the fourth quarter of 2013 at the total revenue level.

 

Expenditure before exceptional items

Employee costs

Employee costs are up 4.9 per cent. At constant currency, total employee costs are up 2.2 per cent and down 6.7 per cent on a unit basis. On average the Group employed 59,484 people (measured in average manpower equivalents 'MPE') a decrease of 1.0 per cent versus last year driven by headcount reductions flowing through from the Mediation Agreement reached by Iberia last year.

 

In 2014, Iberia reached further long-term labour agreements with all its employee groups, resulting in an additional employee restructuring charge of €260 million included as an exceptional item. The new agreement allows 1,427 exits, in addition to the original 3,141 from the Mediation Agreement. At British Airways efficiency initiatives were implemented, including mixed fleet and other productivity improvements. Vueling has increased productivity through its growth however has incurred certain unit cost increases, such as overnight expenses on international routes and salary inflation under its new crew collective agreement. Productivity increased 10.4 per cent for the Group, with improvements at each airline.

 

Fuel, oil and emissions costs

Total fuel costs are up 0.6 per cent and up 0.9 per cent at constant currency, on a 9.3 per cent capacity increase. Fuel unit costs are down 7.8 per cent at constant currency (ccy), benefitting from more efficient aircraft, improved operating procedures and lower fuel prices net of hedging.

 

Lower fuel consumption per ASK has contributed to half of the unit cost improvement for the year. This was driven by the fleet replacement programme with the more efficient fleet types, such as the Airbus A380, A320 family and Boeing 787. In addition, British Airways and Iberia have implemented procedures during take-off and landing which has lowered fuel consumption.

 

The US dollar foreign exchange impact on fuel costs net of hedging for the first nine months has been positive for the Group against the sterling and the euro. However, the strengthening of the US dollar towards the end of the year has resulted in a net adverse foreign currency impact on fuel for the fourth quarter.

  

Supplier costs

Total supplier costs for the year have increased by 6.0 per cent. At constant currency and on a unit basis supplier costs were reduced by 4.4 per cent. This is due to two main factors, productivity and efficiency improvements across the Group, and the final effects of consolidating Vueling in the Group (c. 2 points).

 

The Group's supplier unit cost performance was solid with improvements at British Airways and Iberia, while Vueling was flat. Through cost initiatives, joint procurement and the continued benefit of the synergies programme, savings have been achieved, including catering costs, lounge synergies and maintenance.

 

By supplier cost category:

Handling, catering and other operating costs increased 6.8 per cent, with 1.5 points of adverse currency. The discontinuation of the Cargo freighters reduced current year costs by c. 1.5 points. The BA Holidays business raised costs by c. 3 points with improvements in Other revenues. The underlying increase is related to the additional capacity.

 

Landing fees and en-route charges were higher by 9.4 per cent, with 1 point of adverse currency. The inflationary increase was on average 2.5 per cent across the Group while the discontinuation of Cargo freighters improved costs by c. 1 point. The remaining increase is driven by higher capacity.

 

Engineering and other aircraft costs were up 3.2 per cent, with 1 point of adverse currency. The discontinuation of freighters and the effect of Vueling consolidation improved the costs by c. 8 points. In the fourth quarter a €28 million (c. 2 points) provision for the obsolescence of spare parts was recorded. The remaining underlying increase reflects more aircraft and higher flying hours, increases in third party maintenance and inflation.

 

Property, IT and other costs are up 0.5 per cent but are down excluding currency reflecting the Group's commitment to cost control. Selling costs increased 9.4 per cent, with 1 point of adverse currency impact, primarily from a higher number of passenger bookings.

 

Ownership costs

The Group's ownership costs were up 17.4 per cent, with 3 points of adverse currency. The increase is related to a higher depreciation charge related to the Boeing 747s due to a reduction in estimated useful life, with a year-over-year impact of €81 million (c. 6 points). The underlying rise in ownership costs reflects inflation and an increase in owned and leased aircraft, up 6.5 per cent.

 

Operating result

The Group's operating profit, before exceptional items, for the year was €1,390 million, a €620 million improvement from last year. This improvement reflects the Group's approach to dealing with significant capacity increases related to the delivery of new aircraft and market opportunities, with a minimal negative impact on unit revenues (at ccy) while benefitting from productivity improvements, non-fuel cost savings and fuel cost reductions net of hedging.

 

Non-operating costs

Net non-operating costs after exceptional items were €201 million, down from €300 million last year. The decrease is related to:

·      Lower net finance costs since the conversion of the £350 million bond, reducing costs by €60 million;

·      Reduction in net finance charges for pensions of €49 million, due to lower deficit;

·      Increase in gain on the sale of the available for sale financial assets of €91 million, primarily Amadeus;

 

Offset by: 

·      Losses not qualifying for hedges and retranslation charges on borrowings, a swing of €131 million over the prior year's credit position.

 

Taxation

The majority of the Group's operations are taxed in the UK or Spain. In 2014, the corporate tax rate in the UK decreased to 21 per cent (2013: decreased from 24 to 23 per cent) while the corporate tax rate in Spain was 30 per cent (2013: 30 per cent). 

 

Excluding the impact of the tax rate change in Spain and the recognition of a deferred tax asset related to prior period losses, the Group's effective tax rate for the year is 22 per cent (2013: 8 per cent). The tax credit was €175 million (2013: €76 million charge).

 

Profit after tax and earnings per share

The Group's profit after tax and after exceptional items was €1,003 million (2013: €147 million), with earnings of 48.2 euro cents per share (2013: 6.4) and 46.4 euro cents per fully diluted share (2013: 6.3). 

 

Exceptional items

For a full list of exceptional items, refer to note 3. Below is a summary of the significant exceptional items recorded.

 

In 2014, net exceptional charges at the operating profit level were €361 million (2013: €243 million). The exceptional charges for the year include €260 million employee restructuring costs related to Iberia's labour agreements, currency differences charge of €180 million related to funds held in Venezuela, partially offset by the reversal of the Iberia Brand impairment of €79 million. 

 

A non-operating exceptional item was recognised on the gain on sale of Amadeus of €83 million and for the recognition of deferred tax assets, net of all other tax impacts on exceptional items, of €413 million.

 

In 2013, exceptional charges included employee restructuring costs at Iberia of €268 million, partially offset by reduced US employee benefit obligations at British Airways of €170 million. Iberia also recorded restructuring costs for aircraft of €44 million. The Group recognised net business combination credits of €5 million related to Iberia and Vueling. In addition, there was a charge to revenue of €106 million for the timing of the recognition of deferred revenue. A non-operating loss on acquisition was recognised of €17 million.

 

Exchange rates

Exchange rate movements are calculated by retranslating current year results as though they had been generated at prior year exchange rates. The reported results are impacted by translation currency from converting British Airways' results from sterling to the Group's reporting currency of euro. British Airways represents approximately 70 per cent of the Group's revenues and operating expenses which causes a significant variation year-over-year. From a transaction perspective, the Group performance is impacted by the fluctuation of exchange rates; primarily sterling, euro and US dollar. The Group exchange rates used and the estimated impact of translation and transaction exchange rates on operating profit before exceptional items are set out as follows. At constant currency, the Group's operating profit before exceptional items would have been €1,459 million, €69 million higher than the reported operating profit.

 

Exchange impact before exceptional items

 

€ million



Higher/(lower)

Reported revenue




Translation impact



688

Transaction impact



(523)

Total exchange impact on revenue



165





Reported operating expenditure




Translation impact



(612)

Transaction impact



378

Total exchange impact on operating expenditures


(234)





Reported operating profit




Translation impact



76

Transaction impact



(145)

Total exchange impact on operating profit


(69)

 


2014


Higher/ (lower)

Translation




£ to €

1.27


6.7%

Transaction




£ to €

1.24


5.1%

€ to $

1.34


0.8%

£ to $

1.65


5.8%

 

  

 

Financial performance by Brand

British Airways operating profit was £975 million, a £324 million improvement over prior year. British Airways continued its fleet replacement programme, with the delivery of five additional Airbus A380s and four Boeing 787s. The increase in gauge of these aircrafts is contributing in part to the 5.9 per cent rise in capacity for the year. British Airways' strong result is based on increasing revenues and a strong cost performance.

 

Iberia operating profit was €50 million, a €216 million improvement over prior year. Iberia has made significant progress during the year, resuming services and launching new routes. Capacity for the year was up 3.6 per cent with a flat revenue performance reflecting the competitiveness of the market. On the cost side, Iberia has reduced costs in employee, fuel and supplier reflecting the progress of its Plan de Futuro with its 30 initiatives across all key areas.

 

Vueling operating profit was €141 million, a €2 million improvement over prior year. Vueling's focus in 2014 was on flexible growth with capacity up 24 per cent, new bases in Brussels and Rome, and a new collective agreement with crew. Vueling introduced 20 additional aircraft by year end with a total fleet of 88. Revenue was up 22.0 per cent and operating margin was 8.2 per cent.

 



British Airways


Iberia


Vueling



£ million


€ million


€ million



2014


Higher/ (lower)


2014


Higher/ (lower)


2014


Higher/

(lower)

ASKs


170,917


5.9%


54,328


3.6%


26,686


24.2%

Seat factor (per cent)


81.0


(0.3) pts


78.6


(0.5) pts


80.4


0.8 pts

Passenger revenue


10,452


3.2%


3,178


(0.7)%


1,725


22.0%

Cargo revenue


598


(13.2)%


253


(3.1)%


-


-

Other revenue


669


10.9%


837


8.3%


-


-

Total revenue


11,719


2.6%


4,268


0.8%


1,725


22.0%

Fuel, oil costs and emissions charges


3,515


(6.4)%


1,156


(4.8)%


488


20.5%

Employee costs


2,461


2.9%


1,035


(9.9)%


156


31.1%

Supplier costs


3,857


1.1%


1,575


(1.1)%


755


23.8%

EBITDAR


1,886


29.4%


502


80.6%


326


16.4%

Ownership costs


911


12.9%


452


1.8%


185


31.2%

Operating profit before exceptional items


975


49.8%


50


130.1%


141


1.4%

Passenger yield (pence or cents/RPK)


7.55


(2.1)%


7.45


(3.4)%


8.04


(2.8)%

Unit passenger revenue (pence or cents/ASK)


6.12


(2.4)%


5.85


(4.1)%


6.46


(1.8)%

Total unit revenue (pence or cents/ASK)


6.86


(3.0)%


7.86


(2.7)%


6.46


(1.8)%

Fuel unit cost (pence or cents/ASK)


2.06


(11.6)%


2.13


(8.2)%


1.83


(2.9)%

Non-fuel unit costs (pence or cents/ASK)


4.23


(2.7)%


5.64


(7.2)%


4.11


1.3%

Total unit cost (pence or cents/ASK)


6.29


(5.7)%


7.76


(7.5)%


5.94


-

 

 

  

 

 

Balance sheet

Property, plant and equipment and intangible assets

The increase in property, plant and equipment in 2014 is mostly related to the Group's investment in aircraft. On balance sheet fleet includes:

 

·      Delivery of 15 new aircraft, including five Airbus A380s, four Boeing B787s, two Boeing B777-300s, three Airbus A320s and one Embraer E190s;

·      Pre-delivery payments related to future deliveries;

·      Positive translation exchange; offset by

·      The sale and leaseback of three aircraft; and

·      Depreciation.

 

The intangible asset increase is primarily related to software additions and the reversal of the Brand impairment.

 

Other non-current assets

British Airways' defined benefit pension plan assets increased by €400 million from higher interest rates, offset by the sale of Iberia's investment in Amadeus.

 

Shareholders' equity

In 2014, shareholders' equity decreased €424 million from movements in other reserves. Profit after tax for the Group was €1,003 million offset by adverse movements in the fair value of cash flow hedges of approximately €1,235 million primarily related to lower fuel prices, a net decrease mainly related to the sale of Amadeus recycled to the income statement, an increase in post-employment obligations of €400 million from a decrease in corporate bond rates and a currency translation benefit of €168 million from the weaker euro.

 

Other non-current liabilities

Non-current liabilities are up due to the increase in the British Airways defined benefit obligation, higher net derivative liabilities from lower fuel prices and an increase in provisions for Iberia's current year restructuring charge. These impacts were partially offset by a reduction in the deferred tax liability balance from the recognition of Iberia's deferred tax asset.

 

In respect of cash, cash equivalents and interest-bearing deposits and interest-bearing long-term borrowings, see Liquidity and capital resources.

Liquidity and capital resources

The primary source of the Group's liquidity over the past two years has been cash generated from operations.

 

In 2014 cash generated from operations increased to €1,862 million from €1,218 million. The improvement in the year is proportionate to the increase in operating results achieved by the Group. The cash flows generated from operating activities is after payments made to pension schemes of €409 million, and after interest and tax payments of €277 million.

 

Net cash flow from investing activities

The Group invested €2.6 billion in fixed assets during the year, primarily represented by fleet transactions and increased its current interest-bearing deposits by €1.4 billion. The sale of Iberia's investment in Amadeus generated net proceeds of €572 million.

 

Net cash flow from financing activities

The Group's proceeds from long term borrowings relates to aircraft delivery in the year, and includes $431 million drawn down from the Enhanced Equipment Trust Certificates (EETC) issued in 2013. In addition, debt repayments of €1 billion were made during the year.

 

Cash, cash equivalents and interest-bearing deposits

At December 31 the Group's cash position improved by €1,311 million, generated from the Group's operating activities and the sale of Amadeus. The net cash flows from operations covered the repayment of borrowings including finance leases; funded the acquisition of some fleet and all non-fleet assets; and contributed to the current year increase in cash.

 

Liquidity risk management

Adequate cash levels are maintained by each operating company. The cash balance at December 31, 2014 comprised €3,206 million held by British Airways, €870 million held by Iberia, €651 million held by Vueling and €217 million held by the parent and other Group companies.

 

In addition, the Group had undrawn general and committed aircraft financing facilities (primarily available in US dollars) in euro equivalent of €2,975 million (2013: €3,686 million). The Group also had undrawn overdraft facilities of €13 million (2013: €12 million) and undrawn uncommitted money market lines of €32 million (2013: €30 million).

  

Capital risk management

IAG's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, to maintain an optimal capital structure in order to reduce the cost of capital, and to prepare the Group to provide future returns to shareholders. The Group monitors capital using the adjusted gearing and adjusted net debt to EBITDAR.

 

The Group's cash increased €1,311 million during the year due to improved cash flows from operations. Net financing was up €1,000 million and reflects the draw down on the remaining EETC and refinancing of the Iberbond. Including adverse exchange and other non-cash movements of €495 million, the Group's net debt was €184 million higher. Adjusted net debt was up €380 million reflecting the increase in net debt and the additional off balance sheet operating leases.

 

Excluding the remeasurement of employment benefit obligations, IAG's total adjusted shareholders equity for the year was broadly flat, with the profit after tax offset by the fair value movements on cash flow hedges. Combined with the increase in adjusted net debt, this drives adjusted gearing up 1 point to 51 per cent.  Adjusted net debt to EBITDAR improves 0.6 to 1.9 times.

 

Net debt

€ million

2014


2013


Higher / (lower)

Decrease in cash and cash equivalents during the year  (excluding Business combination)

(13)


(114)


101

 Increase in other current interest-bearing deposits

1,324


532


792

 Net funds acquired through Business combination

-


306


(306)

 Increase in cash net of exchange

1,311


724


587

 Net cash outflow from repayments of debt and lease financing

1,009


677


332

 New borrowings and finance leases

(2,009)


(1,529)


(480)

 Increase in net debt resulting from financing cash flows

(1,000)


(852)


(148)

 Exchange movements and other non-cash movements

(495)


528


(1,023)

 (Increase)/decrease in net debt during the year

(184)


400


(584)

 Net debt at January 1

(1,489)


(1,889)


400

 Net debt at December 31

(1,673)


(1,489)


(184)

 

 

Capital commitments and off balance sheet arrangements

Capital expenditure authorised and contracted for amounted to €9,027 million (2013: €8,745 million) for the Group. The majority of this is in US dollars and includes commitments until 2021 for 88 aircraft from the Airbus A320 family, 34 Boeing 787s, 26 Airbus A350s, eight Airbus A330s and four Airbus A380s.

 

IAG does not have any other off-balance sheet financing arrangements that currently have or are reasonably likely to have a material future effect on the Group's financial condition, changes in financial condition, results of operations, liquidity, capital expenditure or capital resources.

  

 

Strategic framework

Our mission is to be the leading international airline Group. This means we will:

 

·      Win the customer through service and value across our global network;

·      Deliver higher returns to our shareholders through leveraging cost and revenue opportunities across the Group;

·      Attract and develop the best people in the industry;

·      Provide a platform for quality international airlines, leaders in their markets, to participate in consolidation;

·      Retain the distinct cultures and brands of individual airlines.

 

By accomplishing our mission, IAG will help to shape the future of the industry, set new standards of excellence and provide sustainability, security and growth.

 

IAG's six core strategic objectives are:

 

·      Leadership in IAG's main cities;

·      Leadership across the Atlantic;

·      Stronger Europe-to-Asia position in critical markets;

·      Grow share of Europe-to-Africa routes;

·      Stronger intra-Europe profitability; and

·      Competitive cost positions across our businesses.

 

Principal risks and uncertainties

The 2013 Annual Report and Accounts refers to a risk of retaliatory action from Non-EU governments should the EU extend their Emissions Trading Scheme (EU ETS) from just intra EU flights to all flights through EU airspace.  This risk was mitigated in 2014 by the EU's restriction of EU ETS to intra-European flights until the end of 2016.  This EU move was in response to progress made by the International Civil Aviation Organisation (ICAO) in developing a roadmap for a global market based mechanism to tackle aviation emissions.

 

The 2013 Annual Report and Accounts refers to residual Iberia Transformation risks related to receiving union general assembly approval of negotiated agreements and the refinancing of 16 Airbus A320 aircraft. During 2014 the required union approval was obtained and the aircraft refinancing successfully executed.

 

Iberia continues to experience problems in repatriating cash balances held in Venezuela with all balances relating to 2013 receipts and seven months of 2014 receipts being trapped in Venezuela. An exceptional charge has been recognised in the year revaluing the cash balance to better reflect the economic reality, and is explained in note 3.

 

 



                                                                                                                                   

 

 

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

 

Unaudited Full year Condensed Consolidated Financial Statements

January 1, 2014 - December 31, 2014

 

 


CONSOLIDATED INCOME STATEMENT









Year to December 31

€ million

Before exceptional items                  2014

Exceptional items

Total 2014


Before exceptional items                     2013

Exceptional items

Total 2013

Passenger revenue

17,825 


17,825 


16,264 

(106)

16,158 

Cargo revenue

992 


992 


1,073 


1,073 

Other revenue

1,353 


1,353 


1,338 


1,338 

Total revenue

20,170 


20,170 


18,675 

(106)

18,569 

Employee costs

4,325 

260 

4,585 


4,123 

98 

4,221 

Fuel, oil costs and emissions charges

5,987 


5,987 


5,951 

(6)

5,945 

Handling, catering and other operating costs

2,063 


2,063 


1,932 


1,932 

Landing fees and en-route charges

1,555 


1,555 


1,422 


1,422 

Engineering and other aircraft costs

1,276 


1,276 


1,237 

15 

1,252 

Property, IT and other costs

927 


927 


922 

927 

Selling costs

859 


859 


785 


785 

Depreciation, amortisation and impairment

1,196 

(79)

1,117 


1,006 

1,014 

Aircraft operating lease costs

551 


551 


482 

17 

499 

Currency differences

41 

180 

221 


45 


45 

Total expenditure on operations

18,780 

361 

19,141 


17,905 

137 

18,042 

Operating profit

1,390 

(361)

1,029 


770 

(243)

527 









Finance costs

(237)


(237)


(301)


(301)

Finance income

32 


32 


31 


31 

Retranslation (charges)/credits on currency borrowings

(27)


(27)


12 


12 

(Losses)/gains on derivatives not qualifying for hedge accounting

(49)


(49)


43 


43 

Net gain related to available-for-sale financial assets

10 

83 

93 



Share of post-tax profits/(losses) in associates



(8)


(8)

Loss on sale of property, plant and equipment and investments

(11)


(11)


(9)

(17)

(26)

Net financing charge relating to pensions

(4)


(4)


(53)


(53)

Profit before tax from continuing operations

1,106 

(278)

828 


487 

(260)

227 

Tax

(238)

413 

175 


(57)

(19)

(76)

Profit after tax from continuing operations

868 

135 

1,003 


430 

(279)

151 

Loss after tax from discontinued operations



(4)

(4)

Profit after tax for the year

868 

135 

1,003 


430 

(283)

147 









Attributable to:








Equity holders of the parent

847 


982 


405 


122 

Non-controlling interest

21 


21 


25 


25 


868 


1,003 


430 


147 

















Basic earnings per share (€ cents)








From continuing operations

41.6


48.2 


21.3


6.6 

From discontinued operations

-



-


(0.2)

From profit for the year

41.6


48.2 


21.3


6.4 

Diluted earnings per share (€ cents)








From continuing operations

40.2


46.4 


 20.8


6.5 

From discontinued operations

-



-


(0.2)

From profit for the year

40.2


46.4 


20.8


6.3 


CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME










Year to December 31

€ million

2014 

2013 

Items that may be reclassified subsequently to net profit



Cash flow hedges:



   Fair value movements in equity

(1,235)

(203)

   Reclassified and reported in net profit

357 

36 

Available-for-sale financial assets:



   Fair value movements in equity

29 

297 

   Reclassified and reported in net profit

(359)

(3)

Currency translation differences

168 

(20)




Items that will not be reclassified to net profit



Remeasurements of post-employment benefit obligations

(394)

521 

Total other comprehensive income for the year, net of tax

(1,434)

628 

Profit after tax for the year

1,003 

147 

Total comprehensive income for the year

(431)

775 




Total comprehensive income is attributable to:



Equity holders of the parent

(452)

750 

Non-controlling interest

21 

25 


(431)

775 

Total comprehensive income attributable to equity shareholders arises from:



Continuing operations

(452)

754 

Discontinued operations

(4)


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


CONSOLIDATED BALANCE SHEET



€ million

December 31, 2014

December 31, 2013

Non-current assets



Property, plant and equipment

11,784 

10,228 

Intangible assets

2,438 

2,196 

Investments in associates

27 

25 

Available-for-sale financial assets

84 

1,092 

Employee benefit assets

855 

485 

Derivative financial instruments

80 

35 

Deferred tax assets

769 

501 

Other non-current assets

188 

197 


16,225 

14,759 

Current assets



Non-current assets held for sale

18 

12 

Inventories

424 

411 

Trade receivables

1,252 

1,196 

Other current assets

611 

631 

Derivative financial instruments

178 

135 

Other current interest-bearing deposits

3,416 

2,092 

Cash and cash equivalents

1,528 

1,541 


7,427 

6,018 

Total assets

23,652 

20,777 




Shareholders' equity



Issued share capital

1,020 

1,020 

Share premium

5,867 

5,867 

Treasury shares

(6)

(42)

Other reserves

(3,396)

(2,936)

Total shareholders' equity

3,485 

3,909 

Non-controlling interest

308 

307 

Total equity

3,793 

4,216 

Non-current liabilities



Interest-bearing long-term borrowings

5,904 

4,535 

Employee benefit obligations

1,324 

738 

Deferred tax liability

278 

884 

Provisions for liabilities and charges

1,967 

1,796 

Derivative financial instruments

359 

66 

Other long-term liabilities

226 

225 


10,058 

8,244 

Current liabilities



Current portion of long-term borrowings

713 

587 

Trade and other payables

3,281 

3,297 

Deferred revenue on ticket sales

3,933 

3,496 

Derivative financial instruments

1,313 

528 

Current tax payable

57 

11 

Provisions for liabilities and charges

504 

398 


9,801 

8,317 

Total liabilities

19,859 

16,561 

Total equity and liabilities

23,652 

20,777 


 CONSOLIDATED CASH FLOW STATEMENT


   

Year to December 31

 € million

2014 


2013 

 Cash flows from operating activities




 Operating profit(1)

1,029 


527 

 Depreciation, amortisation and impairment

1,117 


1,014 

 Movement in working capital and other non-cash movements(1)

426 


320 

 Settlement of competition investigation

(9)


(32)

 Employer contributions to pension schemes

(612)


(577)

 Pension scheme service costs

203 


205 

 Interest paid

(159)


(163)

 Taxation

(118)


(34)

 Net cash flows from operating activities from continuing operations

1,877 


1,260 

 Net cash flows used in operating activities from discontinued operations

(15)


(42)

 Net cash flows from operating activities

1,862 


1,218 

   




 Cash flows from investing activities




 Acquisition of property, plant and equipment and intangible assets

(2,622)


(2,196)

 Sale of property, plant and equipment and intangible assets

404 


525 

 Net proceeds from sale of investments

589 


 Cash acquired on Business combination (net of consideration)


293 

 Interest received

37 


27 

 Increase in other current interest-bearing deposits

(1,352)


(593)

 Dividends received


 Other investing movements

12 


 Net cash flows from investing activities

(2,930)


(1,935)

   




 Cash flows from financing activities




 Proceeds from long-term borrowings

2,009 


1,529 

 Proceeds from equity portion of convertible bond issued


72 

 Repayment of borrowings

(223)


(275)

 Repayment of finance leases

(786)


(402)

 Acquisition of treasury shares

(23)


(42)

 Acquisition of non-controlling interest


(24)

 Distributions made to holders of perpetual securities

(20)


(20)

 Net cash flows from financing activities

957 


838 

   




 Net (decrease)/increase in cash and cash equivalents

(111)


121 

 Net foreign exchange differences

98 


58 

 Cash and cash equivalents at 1 January

1,541 


1,362 

 Cash and cash equivalents at year end

1,528 


1,541 

   




 Interest-bearing deposits maturing after more than three months(1)

3,416 


2,092 

   




 Cash, cash equivalents and other interest-bearing deposits

4,944 


3,633 

   




(1)A charge of €180 million has been recorded in the year related to Venezuela funds (note 3).


 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY




   




  




 For the year to December 31, 2014


  




   




  




   

Issued share capital

Share premium

Treasury shares

Other reserves(1)

Total shareholders' equity

Non-controlling interest

Total equity

   

 € million  

January 1, 2014

1,020 

5,867 

(42)

(2,936)

3,909 

307 

4,216 

   




  




Total comprehensive income for the year (net of tax)

(452)

(452)

21 

(431)

   




  




Cost of share-based payments

38 

38 

38 

Vesting of share-based payment   schemes

59 

(46)

13 

13 

Acquisition of treasury shares

(23)

(23)

(23)

Distributions made to holders of perpetual securities

(20)

(20)

 December 31, 2014

1,020 

5,867 

(6)

(3,396)

3,485 

308 

3,793 

   




  




(1)Closing balance includes a retained deficit of €234 million (excluding pensions restatement: retained earnings of €1,815 million).

   




  




 For the year to December 31, 2013


  




   

Issued share capital

Share premium

Treasury shares

Other reserves(1)

Total shareholders' equity

Non-controlling interest

Total equity

   

 € million

January 1, 2013

928 

5,280 

(17)

(1,436)

4,755 

300 

5,055 

Restatement

(2,077)

(2,077)

(2,077)

January 1, 2013 (restated)

928 

5,280 

(17)

(3,513)

2,678 

300 

2,978 

   




  




Total comprehensive income for the year (net of tax)

750 

750 

25 

775 

   




  




Cost of share-based payments

30 

30 

30 

Exercise of share options

17 

(9)

Acquisition of treasury shares

(42)

(42)

(42)

Equity portion of convertible bond issued

72 

72 

72 

Non-controlling interest arising on Business combination

26 

26 

Acquisition of non-controlling interest

(24)

(24)

Issue of ordinary shares related to conversion of convertible bond

92 

587 

(266)

413 

413 

Distributions made to holders of perpetual securities

(20)

(20)

December 31, 2013

1,020 

5,867 

(42)

(2,936)

3,909 

307 

4,216 

   




  




(1)Closing balance includes a retained deficit of €814 million (excluding pensions restatement: retained earnings of €1,235 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.

 

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 Group's full year condensed consolidated financial statements for the year to December 31, 2014 were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on February 26, 2015. The condensed 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 condensed financial statements.

 

The basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2013 have been applied in the preparation of these condensed consolidated financial statements, except as disclosed in note 2. IAG's financial statements for the year to December 31, 2013 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 International Financial Reporting Interpretations Committee (IFRIC) of the International Accounting Standards Board (IASB). The report of the auditors on those financial statements was unqualified.


 

2.             Accounting Policies

 

The Group has adopted the following standards, interpretations and amendments for the first time in the year to December 31, 2014:

 

IFRS 10 'Consolidated financial statements', IFRS 11 'Joint arrangements' and IFRS 12 'Disclosure of interest in other entities'; effective for periods beginning on or after January 1, 2014. IFRS 10 replaces the guidance on control and consolidation in IAS 27 and SIC 12 'Consolidation-special purpose entities'. IFRS 11 requires joint arrangements to be accounted for as a joint operation or as a joint venture depending on the rights and obligations of each party to the arrangement. IFRS 12 requires enhanced disclosure of the nature, risk and the financial effects associated with the Group's interest in subsidiaries, associates, joint arrangements and unconsolidated structured entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they were a single entity remains unchanged, as do the mechanics of consolidation. The application of these standards have no impact on the Group's net result or net assets.

IAS 32 (Amendment) 'Financial instruments: Presentation'; effective for periods beginning on or after January 1, 2014. The amendment clarifies some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The application of this standard has no significant impact on the Group's net result or net assets.

IAS 36 (Amendment) 'Impairment of assets'; effective for periods beginning on or after January 1, 2014. The amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The standard requires a change in the presentation of the Group's notes to the financial statements but has no impact on the Group's net result or net assets.

 

IAS 39 (Amendment) 'Financial instruments: Recognition and measurement'; effective for periods beginning on or after January 1, 2014. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counterparty meets specific criteria. The application of this standard has no impact on the Group's net result or net assets.

 

Other amendments resulting from improvements to IFRSs did not have any impact on the accounting policies, financial position or performance of the Group. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.


 

 

 

 

 

 

 

 

 

3.             Exceptional items


  


Year to December 31


€ million


2014 

2013 


Foreign currency loss(1)


180 


Restructuring costs - employee(2)


260 

268 


Restructuring costs - aircraft(2)


44 


Reversal of Iberia Brand impairment(3)


(79)


Business combination costs(4)



Pre-acquisition cash flow hedge impact(5)


(10)


Revision in US past service cost benefits(6)


(170)


Customer loyalty programme change in estimate(7)


106 


Recognised in expenditure on operations


361 

243 


Gain on sale of available-for-sale asset(8)


(83)


Loss on step acquisition(9)


17 


Total exceptional charge before tax


278 

260 


  





Loss on discontinued operations(10)



Tax on exceptional items


(144)

19 


Net deferred tax credit(11)


(269)


Total exceptional (credit)/charge after tax


(135)

283 

 

(1)        Foreign currency loss

Since December 2012 repatriation of funds from Venezuela has been limited. Throughout 2013, Iberia recognised net sales at 6.3 bolívares (CADIVI) to the US dollar. The unrepatriated cash at the end of 2013 was €184 million.

From February to October 2014, Iberia recognised net sales at 11 bolívares to the US dollar (SICAD I) since this was the official rate at which Iberia was authorised by the Venezuelan government to repatriate cash. In the third quarter of 2014, Iberia received funds for February to June 2014 at SICAD I and given the ongoing negotiations, the €184 million of unrepatriated funds from 2013 and January 2014 were also revalued to SICAD I. An exceptional charge of €82 million was recognised.

Iberia has been unable to repatriate any further funds earned prior to February 2014 or subsequent to June 2014. Given this and combined with the lack of liquidity in Venezuela, the decrease in the Brent barrel price and a government recognised inflation rate of 65 per cent, Iberia has determined that SICAD I can no longer be considered available in practice, for the repatriation of the funds. The next alternative rate available at December 31, 2014 was the SICAD II rate of 50 bolívares to the US dollar which Iberia considers to better reflect the economic reality. This rate has been applied since November 2014. All remaining funds, which approximately amount to Bs 1.7 billion were revalued to SICAD II resulting in an additional exceptional charge of €98 million. The cash balance at December 31, 2014 is €18 million.

In February 2015 the Venuezuelan government has approved changes to the country's currency exchange systems through new foreign exchange regulations. These changes include replacing SICAD II with SIMADI, a new mechanism to trade US dollars through private brokers that is expected to compete with the illegal parallel market. Using the new SIMADI rates would represent a further write down. Iberia has not used SIMADI rates since these were not available at the balance sheet date.

 

A related tax credit of €54 million was recognised.

 

(2)        Restructuring costs

In the year to December 31, 2014, a restructuring expense of €260 million has been recognised in relation to the Iberia Transformation Plan and the agreement on collective redundancies for pilots and ground staff. A related tax credit of €78 million was recognised.

 

In the year to December 31, 2013, a restructuring expense of €312 million was recognised in relation to the Iberia Transformation Plan. €265 million of additional employee restructuring costs were charged to reflect the increased cost of the severance as proposed by the mediator agreement. Restructuring costs of €47 million associated with the return of leased aircraft and standing down owned aircraft were also recorded in the comparative period. No deferred tax was recognised.

 

(3)        Reversal of Iberia Brand impairment

In 2014 the partial impairment of the Iberia Brand of €79 million was reversed (note 12). This follows Iberia's return to profitability and the approval of Iberia's Business plan. A related tax charge of €24 million was recognised.

 

(4)        Business combination costs

Transaction expenses of €5 million were recognised in relation to the Vueling Business combination in the year to December 31, 2013.

 

 

 

3.             EXCEPTIONAL ITEMS continued

 

(5)        Derivatives and financial instruments

On January 21, 2011, Iberia had a portfolio of cash flow hedges with a net mark-to-market charge of €67 million recorded within Other reserves on the Balance sheet. On April 26, 2013, Vueling had a portfolio of cash flow hedges with a net mark-to-market charge which rounds to nil recorded within Other reserves in the Balance sheet. As these cash flow hedge positions unwind, Iberia and Vueling will recycle the impact from Other reserves through their respective Income statement.

 

The Group does not recognise the pre-acquisition cash flow hedge net position on the Balance sheet, resulting in fuel and aircraft operating lease costs being gross of the pre-acquisition cash flow hedge positions. For the year to December 31, 2013 this resulted in a decrease in reported aircraft operating lease costs of €4 million, a decrease in reported fuel expense of €6 million and a related €3 million tax charge.

 

(6)        Revision in US past service cost benefits

The Group made changes to the US PRMB (Post-Retirement Medical Benefits) during 2013 to bring the level of benefits in line with national trends in the US. This scheme is accounted for in a similar way to a defined benefit plan. Any reduction in benefits provided would result in a recognition of a past service gain when the plan amendment occurs. This change resulted in a recognition of a one-off gain in employee costs of €170 million during the year to December 31, 2013, and a related deferred tax charge of €39 million.

 

(7)        Customer loyalty programme change in estimate

During 2013, management revised estimates relating to the customer loyalty programme revenue, recognised on redemption. Historically, management information systems have provided a constraint on the reliability of revenue recognition at the point of departure. As part of a Group-wide exercise to review the existing customer loyalty programmes, reporting has been developed to better estimate the revenue that should be deferred to departure and so this new management information was adopted during the year to December 31, 2013 giving rise to a reduction in passenger revenue of €106 million, and a related tax credit of €23 million.

 

(8)        Gain on sale of available-for-sale asset

During the third quarter of 2014, Iberia entered into an agreement to settle its hedging transaction over its ownership interest in Amadeus IT Holding S.A. ('Amadeus') and sell its entire shareholding. The derivative transaction comprised a collar arrangement on Iberia's Amadeus shareholding of 33,562,331 ordinary shares.

 

The settlement of the derivative contract commenced in August 2014 and the Group's shareholding in Amadeus has been sold in equal instalments over a 100 trading day period. At December 31, 2014 Iberia had settled 99 per cent of the transaction and the resulting €83 million gain was recognised in the Net gain related to available-for-sale financial assets line. A related €36 million tax credit was also recognised.

 

(9)        Loss on step acquisition

As a result of Iberia's initial investment in Vueling, the Business combination was achieved in stages. The Group revalued its initial investment in Vueling to fair value at the acquisition date resulting in a non-cash loss of €17 million recognised in the Loss on sale of property, plant and equipment and investments line in the year to December 31, 2013.

 

(10)      Loss on discontinued operations

The loss after tax from discontinued operations of bmibaby and bmi regional was €4 million for the year to December 31, 2013.

 

(11)      Net deferred tax credit

In the year, the Group recognised a €306 million deferred tax asset relating to losses incurred by Iberia from 2013 and 2012. Recognition is based on Management's expectation of the recoverability of these losses against future profits. Recoverability was based on the improved operating performance in the current year and from the projections included within the Business plan.

During 2014, the Spanish government enacted a number of changes as part of the Spanish Tax Reform, including the phased reduction of corporation tax rate from 30 per cent to 25 per cent and a change in loss utilisation rules. A related tax charge of €37 million was also recognised.

4.             Discontinued operations

In 2014, there was no revenue and no expenditure on operations relating to discontinued operations (2013: total expenditure on operations of €4 million, related to additional costs incurred in handing back bmibaby aircraft to lessors) 

5.             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.

 

6.             SEGMENT INFORMATION

 

a.             Business segments

 

British Airways, Iberia and Vueling are managed as individual operating companies. Each airline operates its network operations as a single business unit. 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. The IAG Management Committee makes resource allocation decisions 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. Therefore, based on the way the Group treats its businesses, and the manner in which resource allocation decisions are made, the Group has three (2013: three) reportable operating segments for financial reporting purposes, reported as British Airways, Iberia and Vueling.

 


 For the year to December 31, 2014

2014 


 € million

British Airways

Iberia

Vueling

Other Group companies

Total


 Revenue







 External revenue

14,456 

3,989 

1,725 

20,170 


 Inter-segment revenue

37 

279 

107 

423 


 Segment revenue

14,493 

4,268 

1,725 

107 

20,593 


   







 Depreciation, amortisation and impairment

(1,027)

(76)

(11)

(3)

(1,117)


   







 Operating profit/(loss) before exceptional items

1,215 

50 

141 

(16)

1,390 


   







 Exceptional items (note 3)

(361)

(361)


 Operating profit/(loss) after exceptional items

1,215 

(311)

141 

(16)

1,029 


   







 Net non-operating costs





(201)


 Profit before tax from continuing operations





828 




   







 For the year to December 31, 2013

2013 


 € million

British Airways

Iberia

Vueling

Other Group companies

Total


 Revenue







 External revenue

13,337 

4,102 

1,130 

18,569 


 Inter-segment revenue

18 

128 

84 

233 


 Segment revenue

13,355 

4,230 

1,133 

84 

18,802 


   







 Depreciation, amortisation and impairment

(851)

(154)

(5)

(4)

(1,014)


   







 Operating profit/(loss) before exceptional items

762 

(166)

168 

770 


   







 Exceptional items (note 3)

68 

(316)


 Operating profit/(loss) after exceptional items

830 

(482)

168 

11 


   







 Net non-operating costs






 Profit before tax from continuing operations





227 




6.             SEGMENT INFORMATION continued

 

b.             Geographical analysis

 


Revenue by area of original sale






Year to December 31


€ million

2014 

2013 


UK

6,931 

6,085 


Spain

3,203 

2,839 


USA

2,893 

2,677 


Rest of world

7,143 

6,968 



20,170 

18,569 

 


Assets by area







December 31, 2014




€ million

Property, plant and equipment

Intangible assets


UK

10,131 

1,184 


Spain

1,624 

1,218 


USA

24 

12 


Rest of world

24 


Total

11,784 

2,438 






December 31, 2013








€ million

Property, plant and equipment

Intangible assets


UK

8,891 

1,022 


Spain

1,296 

1,138 


USA

34 


Rest of world

31 


Total

10,228 

2,196 

 

7.             FINANCE COSTS AND INCOME

 



Year to December 31


€ million

2014 

2013 


Finance costs




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

(211)

(237)


Unwinding of discount on provisions

(39)

(51)


Capitalised interest on progress payments


Change in fair value of cross currency swaps

(5)

(7)


Currency credits/(charges) on financial fixed assets

16 

(10)


Total finance costs

(237)

(301)


Finance income




Interest on other interest-bearing deposits

32 

31 


Total finance income

32 

31 


Net charge relating to pensions




Net financing charge relating to pensions

(4)

(53)


Net financing charge relating to pensions

(4)

(53)


 

 

 

 

 

8.             Tax

 

The tax credit for the year to December 31, 2014 is €175 million (2013: €76 million charge).

 

In quarter 4 2014, €306 million of deferred tax assets were recognised relating to losses incurred by Iberia in 2013 and 2012. A tax charge of €37 million was also recognised in relation to the phased reduction in the corporation tax rate in Spain from 30 per cent to 25 per cent.

 

Excluding the effect of deferred tax assets recognised in the year, the impact of the tax rate reductions and tax on the exceptional items totalling a credit of €413 million, the effective tax rate for the year to December 31, 2014 was 22 per cent.


 

9.             EARNINGS PER SHARE

 

The number of shares in issue at December 31, 2014 and 2013 was 2,040,078,523 ordinary shares with a par value of €0.50 each.

 



Year to December 31


Millions

2014 

2013 


Weighted average number of ordinary shares outstanding

2,036 

1,906 


Weighted average number for diluted earnings per share

2,162 

1,945 







Year to December 31


€ cents

2014 

2013 


Basic earnings per share

48.2 

6.4 


Diluted earnings per share

46.4 

6.3 


 

10.           DIVIDENDS

 

The Directors propose that no dividend be paid for the year to December 31, 2014 (December 31, 2013: nil).


 

11.           PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

 


€ million

Property, plant and equipment

Intangible assets


Net book value at January 1, 2014

10,228 

2,196 


Additions

2,499 

138 


Disposals

(404)


Depreciation, amortisation and impairment

(1,152)

(44)


Impairment reversal

79 


Exchange movements

613 

69 


Net book value at December 31, 2014

11,784 

2,438 






€ million

Property, plant and equipment

Intangible assets


Net book value at January 1, 2013

9,926 

1,965 


Additions

2,057 

150 


Acquired through Business combination

168 


Disposals

(523)

(27)


Reclassifications

(15)


Depreciation, amortisation and impairment

(982)

(32)


Exchange movements

(238)

(28)


Net book value at December 31, 2013

10,228 

2,196 

 

Capital expenditure authorised and contracted but not provided for in the accounts amounts to €9,027 million (December 31, 2013: €8,745 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to changes in exchange rates 

 

 

 

 

12.           IMPAIRMENT REVIEW

 

The carrying amounts of intangible assets with indefinite life and goodwill for the three cash generating units of the Group are:

 


€ million

Goodwill

Brand

Customer loyalty programmes

Landing rights

Total


2014 







Iberia







January 1, 2014

227 

253 

423 

903 


Impairment reversal

79 

79 


December 31, 2014

306 

253 

423 

982 









British Airways







January 1, 2014

48 

789 

837 


Additions


Exchange movements

50 

53 


December 31, 2014

51 

840 

891 









Vueling







January 1, 2014

28 

35 

89 

152 


December 31, 2014

28 

35 

89 

152 









December 31, 2014

79 

341 

253 

1,352 

2,025 









€ million

Goodwill

Brand

Customer loyalty programmes

Landing rights

Total


2013 







Iberia







January 1, 2013

227 

253 

423 

903 


December 31, 2013

227 

253 

423 

903 









British Airways







January 1, 2013

49 

796 

845 


Additions

15 

15 


Exchange movements

(1)

(22)

(23)


December 31, 2013

48 

789 

837 









Vueling







January 1, 2013


Additions due to Business combination

28 

35 

89 

152 


December 31, 2013

28 

35 

89 

152 









December 31, 2013

76 

262 

253 

1,301 

1,892 

 

Basis for calculating recoverable amount

Goodwill, Brand and the customer loyalty programme recoverable amounts have been measured based on their value-in-use.

Landing rights recoverable amount has been measured by reference to market transactions of similar assets less costs to sell, or through value-in-use.

Value-in-use is calculated using a discounted cash flow model. Cash flow projections are based on the Business plan approved by the Board covering a five year period. Cash flows extrapolated beyond the five year period are projected to increase on long-term growth rates. Cash flow projections are discounted using the cash generating unit's (CGU) pre-tax discount rate.

 

12.           IMPAIRMENT REVIEW continued

 

Annually the Group prepares and approves five year Business plans. Business plans were approved in the fourth quarter of the year. The Iberia Business plan cash flows used in the value-in-use calculations reflect all restructuring of the business that has been approved by the Board and which can be executed by Management under existing agreements reached with the unions.

Key assumptions

The key assumptions used in the value-in-use calculations for each of the CGU's are as follows. In addition, where there has been an impairment loss in a CGU, the recoverable amount is also disclosed.

 


  

2014 


  

British Airways

Iberia

Vueling


Long-term growth rate (per cent)(1)

2.5

2.2

2.2


Pre-tax discount rate (per cent)(2)

10.0

10.2

12.5


Recoverable amount of the CGU (million)

n/a

€6,400

n/a


  





  

2013 


  

British Airways

Iberia

Vueling


Long-term growth rate (per cent)(1)

2.5 


Pre-tax discount rate (per cent)(2)

10.0 

12.2 

12.4 

 

(1) The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market using gross domestic product (GDP). This is amended from time-to-time to reflect specific market risk. This was last the case in 2013, when Management assessed the outlook for the economic environment in Spain as challenging following two years of negative GDP.

 

(2) Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline industry, the Group and its CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by airline investors and the cost of debt is broadly based on the Group's interest-bearing borrowings. CGU specific risk is incorporated by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects the timing of future tax flows.

 

Summary of results

In 2014, Management reviewed the recoverable amount of each of the CGUs and concluded the recoverable amounts exceeded the carrying values.

 

Following the impairment review of the Iberia CGU in 2012, goodwill and a franchise agreement were impaired by their full carrying amounts and the Iberia Brand was written down by €79 million. The impairment of goodwill cannot be reversed and the franchise agreement has since expired. The original impairment of the Iberia Brand has been reassessed in the current year given the excess of the Iberia CGU recoverable amount over its carrying value. The reassessment included testing the Iberia Brand recoverable amount using the royalty methodology, with a royalty rate of 0.60 per cent (2013: 0.60 per cent). Individually and in combination, the value-in-use tests of the Iberia CGU and of the Iberia Brand support the reversal of the original €79 million impairment. This has been recorded as an exceptional credit within Depreciation, amortisation and impairment in the Income statement.

 

Sensitivities

For the Iberia cash generating unit, additional sensitivities have been considered at the overall CGU level. A 16 point increase in the post-tax discount rate would reduce the recoverable amount to the carrying amount. A 7 point reduction in the operating margin in each year of the Business plan, and extrapolated beyond the plan would reduce the recoverable amount to the carrying amount.

 

No reasonable possible change in the key assumptions for the British Airways or Vueling CGUs would cause the carrying amounts of goodwill to exceed the recoverable amounts.

  


13.           NON-CURRENT ASSETS HELD FOR SALE

 

The non-current assets held for sale of €18 million (2013: €12 million) represent €11 million for the remaining investment of 0.075 per cent in Amadeus representing one settlement day outstanding, and €7 million representing six Boeing 737 engines (2013: four Boeing 737s and one Boeing 767 aircraft stood down). These are presented within the Iberia and British Airways operating segments respectively and will exit the business within 12 months of December 31, 2014.

 

Assets held for sale with a net book value of €3 million were disposed of by the Group during the year to December 31, 2014 resulting in a loss of €2 million on disposal (2013: property with a net book value of €3 million disposed of at no gain or loss).


 

14.           FINANCIAL INSTRUMENTS

 

a.             Financial assets and liabilities by category

 

The detail of the Group's financial instruments at December 31, 2014 and December 31, 2013 by nature and classification for measurement purposes is as follows:

 


December 31, 2014

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

 -  

 -  

84  

 -  

84 


Derivative financial instruments

 -  

80  

 -  

 -  

80 


Other non-current assets

167  

 -  

 -  

21  

188 









Current assets







Trade receivables

1,252  

 -  

 -  

 -  

1,252 


Other current assets

244  

 -  

 -  

367  

611 


Non-current assets held for sale

 -  

 -  

11  

7  

18 


Derivative financial instruments

 -  

178  

 -  

 -  

178 


Other current interest-bearing deposits

3,416  

 -  

 -  

 -  

3,416 


Cash and cash equivalents

1,528  

 -  

 -  

 -  

1,528 











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

5,904  

 -  

 -  

5,904 


Derivative financial instruments


 -  

359  

 -  

359 


Other long-term liabilities


7  

 -  

219  

226 









Current liabilities







Current portion of long-term borrowings

713  

 -  

 -  

713 


Trade and other payables


3,017  

 -  

264  

3,281 


Deferred revenue on ticket sales


-  

 -  

3,933  

3,933 


Derivative financial instruments


 -  

1,313  

 -  

1,313 

 

  

 

 

 

14.           FINANCIAL INSTRUMENTS continued









December 31, 2013

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

 -  

 -  

1,092  

 -  

1,092 


Derivative financial instruments

 -  

35  

 -  

 -  

35 


Other non-current assets

182  

 -  

 -  

15  

197 









Current assets







Trade receivables

1,196  

 -  

 -  

 -  

1,196 


Other current assets

270  

 -  

 -  

361  

631 


Derivative financial instruments

 -  

135  

 -  

 -  

135 


Other current interest-bearing deposits

2,092  

 -  

 -  

 -  

2,092 


Cash and cash equivalents

1,541  

 -  

 -  

 -  

1,541 








 




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


4,535  

 -  

 -  

4,535 


Derivative financial instruments


 -  

66  

 -  

66 


Other long-term liabilities


7  

 -  

218  

225 









Current liabilities







Current portion of long-term borrowings


587  

 -  

 -  

587 


Trade and other payables


2,971  

 -  

326  

3,297 


Deferred revenue on ticket sales


-  

 -  

3,496  

3,496 


Derivative financial instruments


 -  

528  

 -  

528 








 

b.             Fair value of financial assets and financial liabilities

 

The fair values of the Group's financial instruments are disclosed in hierarchy levels based 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 represent 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, trade and other payables and deferred revenue on ticket sales approximate their carrying value largely due to the short-term maturities of those instruments.

 

  

 

14.           FINANCIAL INSTRUMENTS continued

 

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

 

Instruments included in Level 1 comprise listed asset investments classified as available-for-sale and interest-bearing borrowings which are stated at market value at the balance sheet date.

 

Instruments included in Level 2 include derivatives and interest-bearing borrowings.

 

Forward currency transactions and over-the-counter fuel derivatives are entered into with various counterparties, principally financial institutions with investment grade ratings. These 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 hedge of the available-for-sale asset takes the form of an equity collar. The valuation of this collar is based on a Black Scholes valuation model using share price spot rate, strike price, stock volatility and the euro interest rate curve.

 

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

 

All resulting fair value estimates are included in Level 2 except for certain investments which are classified as Level 3.

 

The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2014 are set as follows:

 


   








   

Fair value


Carrying value


 € million

Level 1

Level 2

Level 3

Total


Total


 Financial assets








 Available-for-sale financial assets

19 

65 

84 


84 


 Derivatives(1)

258 

258 


258 


   








 Financial liabilities








 Interest-bearing borrowings

892 

6,256 

7,148 


6,617 


 Derivatives(2)

1,672 

1,672 


1,672 


   








(1)Current portion of derivative financial assets is €178 million.


(2)Current portion of derivative financial liabilities is €1,313 million.

 


 December 31, 2013:


   

Fair value


Carrying value


 € million

Level 1

Level 2

Level 3

Total


Total


 Financial assets








 Available-for-sale financial assets

1,070 

22 

1,092 


1,092 


 Derivatives(1)

170 

170 


170 


   








 Financial liabilities








 Interest-bearing borrowings

802 

4,658 

5,460 


5,122 


 Derivatives(2)

594 

594 


594 


   








(1)Current portion of derivative financial assets is €135 million.


(2)Current portion of derivative financial liabilities is €528 million.

 

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

 

Out of the financial instruments listed in the previous table, only the interest-bearing borrowings are not measured at fair value on a recurring basis.

 

 

 

 

14.           FINANCIAL INSTRUMENTS continued

 

c.

 Level 3 financial assets reconciliation




   




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




 € million

December 31, 2014

December 31, 2013


 Opening balance for the year

22 

29 


 Gains recognised in the Income statement(1)


 Gains recognised in Other comprehensive income(2)

48 


 Sales

(2)


 Settlements

(7)

(6)


 Exchange movements


 Closing balance for the year

65 

22 


   




(1)Included in Net credit relating to available-for sale-financial assets in the consolidated Income statement.


(2)Included in Available-for-sale financial assets - Fair value movements in equity in the consolidated Statement of other comprehensive income.


   




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 revaluation resulted in a gain of €48 million recognised in Other comprehensive income. The investment remains classified as a Level 3 financial asset due to the valuation criteria applied not being observable, with the resultant fair value uplift being non-recurring in nature.


 

15.           Borrowings

 



December 31,

December 31,



2014 

2013 


Current




Bank and other loans

164 

183 


Finance leases

549 

404 



713 

587 


Non-current




Bank and other loans

1,069 

1,169 


Finance leases

4,835 

3,366 



5,904 

4,535 

 

The Group's finance lease for one Airbus A340-600 is subject to financial covenants which are tested annually. The lease is part of a syndicate family. The Group has informed the syndicate that it had failed to meet the covenants for the year to December 31, 2014. As a result of these covenant breaches, the finance lease has technically become repayable on demand and $79 million (€65 million) has been classified as current. The institutions formally waived the breach on February 25, 2015.

 

Three of the Group's Airbus A340-600 operating leases are also subject to financial covenants which are tested annually. The Group has informed the syndicate that it had failed to meet the covenants for the year to December 31, 2014. The remaining operating lease payments of $156 million (€128 million) will technically fall due within one year. The institutions have provided positive feedback and are expected to formally waive the breach in March 2015. 

 

16.           SHARE BASED PAYMENTS

 

During the year 5,717,197 conditional shares 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 schemes 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. The following are the inputs to the model for the PSP options granted in the year:

 

Expected share price volatility: 35 per cent

Expected life of options: 3 years

Weighted average share price: £4.35

 

The Group also made awards related to the 2013 performance year for qualifying employees under the Incentive Award Deferral Plan (IADP) during the year, under which 2,079,780 conditional shares were awarded.


 

17.           EMPLOYEE BENEFIT OBLIGATIONS

 


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



At December 31, 2014


€ million

APS

NAPS

Other

Total








Scheme assets at fair value

9,542 

16,201 

424 

26,167 


Present value of scheme liabilities

(8,191)

(17,134)

(795)

(26,120)


Net pension asset/(liability)

1,351 

(933)

(371)

47 


Effect of the asset ceiling

(502)

 - 

 - 

(502)


Other employee benefit obligations

 - 

 - 

(14)

(14)


December 31, 2014

849

(933)

(385)

(469)








Represented by:






Employee benefit asset




855 


Employee benefit obligation




(1,324)






(469)













At December 31, 2013


€ million

APS

NAPS

Other

Total








Scheme assets at fair value

8,250 

13,847 

384 

22,481 


Present value of scheme liabilities

(7,535)

(14,342)

(608)

(22,485)


Net pension asset/(liability)

715 

(495)

(224)

(4)


Effect of the asset ceiling

(236)

- 

- 

(236)


Other employee benefit obligations

 - 

 - 

(13)

(13)


December 31, 2013

479 

(495)

(237)

(253)








Represented by:






Employee benefit asset




485 


Employee benefit obligation




(738)






(253)


 

 

 

 





 

  

 

  

17.           EMPLOYEE BENEFIT OBLIGATIONS continued

               


The accounting valuation was performed after updating key assumptions at December 31, 2014 as follows:









APS

NAPS


Per cent per annum

December 31, 2014

December 31, 2013

December 31, 2014

December 31, 2013








Inflation (CPI)

1.85 

2.50 

1.95 

2.55 


Inflation (RPI)

2.85 

3.25 

2.95 

3.30 


Salary increases (as RPI)

2.85 

3.25 

2.95 

3.30 


Discount rate

3.45 

4.40 

3.80 

4.70 





Pension contributions for APS and NAPS were determined by actuarial valuation made as at March 31, 2012 using assumptions and methodologies agreed with the Trustees of each scheme.







18.           PROVISIONS FOR LIABILITIES AND CHARGES

 


€ million

Employee leaving indemnities and other employee related provisions

Restructuring

Legal claims provisions

Restoration and handback provisions

Other provisions

Total


Net book value at January 1, 2014

592 

682 

101 

684 

135 

2,194 


Provisions recorded during the year

14 

313 

56 

236 

48 

667 


Utilised during the year

(17)

(137)

(31)

(176)

(49)

(410)


Release of unused amounts and other movements

(52)

25 

              5

(27)

(26)

(75)


Unwinding of discount

14 

11 

39 


Exchange differences

45 

56 


Net book value at December 31, 2014

552 

895 

135 

771 

118 

2,471 


Analysis:








Current

26 

219 

183 

72 

504 


Non-current

526 

676 

131 

588 

46 

1,967 


 

19.           CONTINGENT LIABILITIES

 

There were contingent liabilities at December 31, 2014 in respect of guarantees and indemnities entered into as part of the ordinary course of the Group's business. No material losses are likely to arise from such contingent liabilities and guarantees. The Group also had the following claims:

 

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 European Commission's decision is currently the subject of appeal, but has led to a large number of claimants seeking, in proceedings brought in the English courts and elsewhere, to recover damages from British Airways and the other airlines which they claim arise from the alleged cartel activity. It is not possible at this stage to predict the outcome of the proceedings, which British Airways will vigorously defend. British Airways has, or will, join in to the proceedings the other airlines alleged to have participated in cartel activity to obtain a contribution to such damages, if any, awarded.

 

The Group is also party to similar litigation in a number of other jurisdictions, including Germany, the Netherlands, Israel and Canada, together with a number of other airlines. At present, the outcome of the proceedings is unknown. In each case, the precise effect, if any, of the alleged cartelising activity on the claimants will need to be assessed.

 

On the basis of latest information obtained and advice from legal counsel, we are currently unable to determine whether the Group has an existing obligation as a result of the past event.

 

A number of other lawsuits and regulatory proceedings are pending, the outcome of which in the aggregate is not expected to have a material effect on the Group's financial position or results of operations.

 

The Group has certain contingent liabilities and guarantees, which at December 31, 2014 amounted to €138 million (December 31, 2013: €124 million).


20.           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:





Year to December 31


€ million

2014 

2013 


Sales of goods and services




Sales to associates

16 

78 


Sales to significant shareholders






Purchases of goods and services




Purchases from associates

59 

61 


Purchases from significant shareholders






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


€ million

December 31, 2014

December 31, 2013


Receivables from related parties




Amounts owed by associates


Amounts owed by significant shareholders






Payables to related parties




Amounts owed to associates


Amounts owed to significant shareholders






For the year to December 31, 2014 the Group has not made any provision for doubtful debts arising relating to amounts owed by related parties (2013: nil).



In 2012 the Group entered into a hedging transaction at arm's length with Nomura International Plc, a related party to IAG as there is a common Non-Executive Board member. The transaction was a risk management exercise to protect the value of the 33,562,331 ordinary shares that the Group holds in Amadeus. During the third quarter of 2014, the Group entered into an agreement to settle the hedging transaction over its ownership interest in Amadeus and sell its entire shareholding. At December 31, 2014 the Group had settled 99 per cent of the transaction.

 

On January 30, 2015 Qatar Airways announced that it has acquired a 9.99 per cent shareholding in IAG.

 

Board of Directors and Management Committee remuneration

 

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

 



Year to December 31


€ million

2014

2013


Base salary, fees and benefits




Board of Directors' remuneration

13

16 


Management Committee remuneration

18

 

The Board of Directors includes remuneration for two Executive Directors (2013: four Executive Directors).

 

The Management Committee includes remuneration for eight members (2013: six members).

 

The Company provides life insurance for all Executive Directors and the Management Committee. For the year to December 31, 2014 the Company's obligation was €48,000 (2013: €37,000).

 

At December 31, 2014 the transfer value of accrued pensions covered under defined benefit pension obligation schemes relating to the Management Committee totalled €7 million (2013: €5 million).

 

No loans or credit transactions were outstanding with Directors or officers of the Group at December 31, 2014 (2013: nil).

 


 

 

21.           POST BALANCE SHEET EVENTS

On January 27, 2015 IAG submitted a proposal to make an offer for Aer Lingus Group plc of €2.55 per share, structured as a cash payment of €2.50 per share, payable upon completion, in addition to an ordinary dividend of €0.05 per share. The proposal is subject to certain pre-conditions.


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 February 26, 2015, the Directors of International Consolidated Airlines Group, S.A. confirmed that to the best of their knowledge the Condensed Consolidated Financial Statements for the year to December 31, 2014 were prepared in accordance with IAS 34 as adopted by the European Union, offer a true and fair view of the assets, liabilities, financial situation, cash flows and the results of International Consolidated Airlines Group, S.A. and of the companies that fall within the consolidated group taken as a whole, and the Condensed Consolidated Management Report includes an accurate analysis of the required information also in accordance with the Financial Conduct Authority's DTR 4.2.7R and DTR 4.2.8R (English regulation) including an indication of important events in the year, a description of the principal risks and uncertainties and a list of material related party transactions.

 

February 26, 2015

 






Antonio Vázquez Romero

Chairman

 


Martin Faulkner Broughton

Deputy Chairman

 






William Matthew Walsh

Chief Executive Officer

 


César Alierta Izuel






Patrick Jean Pierre Cescau


Enrique Dupuy de Lôme Chávarri






Denise Patricia Kingsmill


James Arthur Lawrence






María Fernanda Mejía Campuzano


José Pedro Pérez-Llorca y Rodrigo






Kieran Charles Poynter


Marjorie Morris Scardino






Alberto Terol Esteban




AIRCRAFT FLEET

 

 

  










  

Number in service with Group companies




  










  

On balance sheet fixed assets

Off balance sheet operating leases

Total

December 31,

Total

December 31,


Changes since December 31,


Future deliveries

Options

  

2014 

2013 


2013 


  










 Airbus A318



 Airbus A319

34 

27 

61 

61 



 Airbus A320

49 

123 

172 

140 


32 


75 

182 

 Airbus A321

25 

11 

36 

35 



17 

 Airbus A330



14 

 Airbus A340-300



 Airbus A340-600

13 

17 

17 



 Airbus A350



26 

60 

 Airbus A380



 Boeing 737-400

15 


(10)


 Boeing 747-400

43 

43 

51 


(8)


 Boeing 757-200



 Boeing 767-300

14 

14 

20 


(6)


 Boeing 777-200

41 

46 

46 



 Boeing 777-300

12 



 Boeing 787



34 

28 

 Embraer E170



 Embraer E190

11 



15 

 Group total

265 

194 

459 

431 


28 


165 

306 

  










 As well as those aircraft in service the Group also holds 20 aircraft (2013: 36) not in service.

  










 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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