International Consolidated Airlines Group S.A.

Good morning. This is Antonio Vazquez. Welcome to the result presentation of AIG. I will give you a few words of introduction before handing over to Willy. This has been certainly the worst quarterly result in our history, and COVID-19 has been the worst event to have affected the aviation industry. This morning, we announced the planned capital increase of up to 2.75 billion euros, which the management team will take you through. This will be my last result meeting as IAG chairman. Following a very thorough and robust succession planning, I intend to share the board for the remainder of 2020 and then retire early in January. After nine years as a chairman of IG and two years before as a CEO and chairman of Iberia, it is time to hand over the reins. The new chairman will be Javier Ferran, currently a non-executive director of IG and also chairman of Viaggio. Javier and I have worked together over the last year, and I have every confidence that he is in the right person to take the group forward. It has been for me a privilege to have led the IG board since the group was formed from the merger of British Airways and Iberia in January 2011, and I'm fully confident that our previous achievement put us in a very good position to face the industry's current crisis. Before I hand over to the management, I would like to thank Willy for all the year who has been leading the management team and specifically for delaying his retirement to enable the IAG management team to remain in their roles to deal with the initial impacts of the COVID-19 crisis. I look forward to welcoming Luis Gallego as CEO from September. His proven track record in transforming business and his great leadership will certainly drive the group to a new era. With that in mind, I will hand over to Willie. Thank you.

Thank you, Antonio, and good morning, everybody, and allow me to take this opportunity to thank Antonio for the job he has done as chairman of IAG and in supporting me in my role as the chief executive since we created IAG. I very much appreciate his support and his guidance and thank him for everything he has done and congratulate him on an excellent career. It's clear that we went into this crisis in a strong position both strategically and financially. However, the COVID-19 events has caused substantial damage and losses for the global industry and for us within the industry. With today our first half pre-exceptional operating loss that we reported of €1.9 billion. We acted quickly to offset the negative impacts of the downturn. We've taken all responsible actions to bolster our liquidity and to protect the long-term future of the business. Like most in the industry now, and I think consistent with the latest forecast, we believe it will take probably until 2023 or 2024 So at least 2023 before we see passenger demand recover to 2019. We have a clear path for returning to service. We're clear in terms of what we need to do to right-size the business and to restructure the airlines to do what's right as that demand gradually returns. And based on our current capacity planning scenario, we would reach break-even in terms of net cash flows from operating activities during the fourth quarter of this year. And as the chairman has said, in addition to all of the actions we've taken to date, we are proposing a capital increase of up to 2.75 billion euros, which will further strengthen our financial and strategic position. So if we look at this proposed increase, we believe it will improve our resilience. It's fully supported by our largest shareholder, Qatar Airways, and it will allow us to strengthen our balance sheet and reduce leverage. Clearly enhances our liquidity and helps us to withstand a prolonged extended downturn in air travel. And we've sized this increase on a commercial downside case, looking at a stressed recovery that Steve will take you through later on. It will give us additional flexibility provide us the opportunity to take advantages of any opportunities that present themselves as the demand recovers, and enable us to continue to invest to improve the performance of the business and exploit any new innovation. Important to remind you, and I think this is where we have an excellent track record, that we will selectively distribute capital to the operating companies based on our clearly defined capital allocation disciplines. And this will enable us to focus on long-term value drivers for the airline as we come through this crisis. So this is all designed to help us to capitalize on our strengths and to enable us not just to survive this immediate downturn, but more importantly, to ensure that we have a business that's fit for purpose as we come out of this crisis. And we have a successful, improved business model. And you've seen this chart many times before. We believe we have a portfolio of world-class brands and operations. We have leadership positions in key markets. And we have a common platform, an integrated platform that we continue to build on that delivers significant synergies to the operating companies. Our airlines give an unrivaled customer proposition. They have clear track records of efficiency and innovation. And we look at pursuing sustainable value accretive growth and all of it underpinned by our continuing commitment to environmental sustainability. And if you look at our track record in terms of consolidation since IAG was formed in 2001, the excellent acquisition of BMI to strengthen our position at Heathrow, Vueling in 2013, Erlingus in 2015, the slot acquisition from Monarch in 2017, and then more importantly, where we explored an option to acquire Norwegian and having investigated it, walked away when we were clear that we could not generate the value that shareholders would expect. So we are not driven to consolidate. We will only consolidate where we believe that that consolidation will make sense for our shareholders. And that is the case with Air Europa where the strategic argument remains strong and the synergies remain very encouraging. We've also helped in consolidation through the creation of joint businesses. And while our industry is prevented from genuine cross-border consolidation, we have been able to pursue a number of attractive joint businesses, starting with the exploitation of the transatlantic joint business, which we signed in October 2010, the creation of the Siberian joint business with JAL in 2012, Finnair's addition in 2013 to both the Transatlantic and then in 2014 to the Siberian one, Qatar joint business in 2016, and most recently a joint business with China Surgeon in China. And all of this, don't forget, helped to deliver synergies that went well in excess of the targeted synergies for the business, achieving 860 million of annual synergies by 2015 through the BAE. Iberia merger. We have a track record of delivering strong and improving profitability with targeted margins between 12% and 15%. And those targets remain relevant for the business going forward. And I know Louise will have an opportunity to comment on that later on. Our initial target of 12% changed in 2016 to 15%. And again, we believe that these are relevant to the medium term targets for the business. So we have a strong track record. Delivering on those targets helps to improve our financial position as we went into this crisis with our adjusted net debt to EBIT at very respectable levels, as you can see from the chart on the left-hand side. And very important as we've stressed throughout this crisis, our cash position was absolutely critical. So entering into the crisis above our cash target, which is a policy of holding 20% of, traditionally we look at the trailing 12 months revenue. So in 2019, in December 2019, we have 26% of trailing 12 months revenue in cash terms with additional facilities bringing total liquidity at 34%. So we believe this is an important buffer. It clearly stood the test of time and enables us to take the actions that have been required in the short term and most importantly, to continue to put us in a position where our liquidity remains healthy today. And we've been pleased to fulfill the ambition that we expressed when we created IAG. to reward our shareholders. And we believe that this is a fundamental principle and a requirement of any business to ensure that shareholders get rewarded for the money, the capital that they invest in the business. And we have a strong track record. And I know that the board and management remain absolutely committed to reintroducing dividend payments at the right time for the business going forward. And we will not walk away from our commitments on environmental performance. We've led the industry in tackling climate change. Our actions through this crisis reinforce that. Some of the painful measures that we've had to take will help us to achieve these carbon efficiency targets. And we believe it's absolutely critical that We in the industry and the industry collectively demonstrate our commitment to addressing the environmental impact of aviation and to do everything we can. So our targets are ambitious, getting to net zero by 2050, fully aligned with government's ambition and fully committed to achieving those targets despite the crisis that we're going through at the moment. I'll now hand over to Steve to take you through the formal results presentation and we'll talk to you later on.

Thanks, Wendy. Good morning, everyone. I'll now take you through the half-time results and also our response to COVID-19. We thought it would be useful to set the context for the results. So to do that, we've borrowed two slides from IARFA. The graph on the left shows passenger demand since the year 2000. And as you can see, lots of people like to use the word unprecedented, but this truly is an unprecedented event. You'll have to squint to see the global financial crisis or SARS or many of the other crises that we've faced since 2000, but you won't need to do any squinting to see the COVID-19 events. So these really are unprecedented times. The graph on the right shows that airlines registered in Europe have also been very heavily impacted. Only Asia Pacific has had a greater impact. And I think that Europe, this is partly due to the modest level of domestic flying and the higher level of flying across international boundaries. And hence, government restrictions and travel advisories can have a disproportionate effect. So that's the context. Let's turn to the numbers. In quarter two, you'll see that passenger revenue was down 96.7% at $198 million. That's consistent with the ASK reduction of about 95%. You'll see that cargo revenue has actually been strong in the quarter and actually recorded a record level of revenue, despite volumes being down about 37.5%. And so overall, revenue was down 89%. If we look at the costs, despite all of the hard work that we've done on costs and continue to do on costs, not just temporary but restructuring the cost base, at the moment our costs reduced about 63.5%. So all in all, for Q2, we generated a pre-exceptional operating loss of 1.365. And if we add that to the minus 5.35 in Q1, we get a half-year pre-exceptional operating loss of $1.9 billion. I say that's pre-exceptional, so let's turn and talk about the exceptional charges. Three items in the exceptional charges for the first half. You'll recall, I believe, the Q1 results that I took you through in quite a lot of detail, the nature of the fuel over-hedging loss, which at the time was at $1.325 billion. And we explained that actually that over hedging loss could actually increase when we mark to market our excess hedge book at the end of April using the latest forward curve. At that point, it looked like the hedge loss could go up as high as 1.5 billion. There have been three factors that have moved that number during the course of quarter two. The actual commodity price has increased, which is actually helpful in this scenario. The ramp up of our capacity has been slower, which means we've had to de-designate more hedges. And the FX rates have been somewhat favorable. So overall, that 1.325 at the end of Q1 has come down to 1.269 for the half year. We also do hedge some of our overseas currencies for revenue purposes, and we are over-hedged on some of those. And so we've had to take an over-hedge loss of $38 million. in the half as well. And so overall, our over-hedging losses or over-hedging charge in half one is 1307. In Q2, as we trailed in the Q1 results, we did decide to impair the 32 747-400 aircraft that we have. That's the entire fleet, remaining fleet. We also impaired the entire remaining fleet of the A340-600s as well and a number of other aircraft. So all in all, impairing those aircraft and the related inventory has led to an impairment charge of 808 million euros. And finally, in terms of exceptional charges in the first half, as you know, we received a notice of intent to fine from the Information Commissioner's Office in July 2019 for the sum of 183 million sterling. We've now booked a provision for what we expect the outcome to be which is a provision of 20 million sterling. So moving on from the exceptional charges, let's turn to debt and liquidity. As you'll see, since March, our debt has increased by 2 billion up to 16.5 billion. Some of the key items in there are clearly we have received loans in Spain for both Vueling and Iberia that are backed by the Spanish government under the ECO program. That was about 1 billion of loans. As you know, we also tapped the commercial paper program in the UK, the CCFF, for 0.3 billion euros as well. And we have taken in aircraft deliveries, which have also added to the debt. So overall, gross debt has increased 2 billion. Cash has reduced 0.9 billion, and hence net debt. has gone up 2.9 billion. Debt debt to EBITDA is 4.2 times. If I look at cash, the cash position is 6 billion at the end of June, which represents 24% of 2019 revenues. We came into the year at 26%. So I think we've done a very good job maintaining the cash position. And similarly, liquidity is at 8.1 billion, as Willie mentioned earlier, which represents 32% of 2019 revenues. We came into 2020 at 34%. So we continue to maintain a strong liquidity position despite the challenges of Q2. Liquidity is a nice lead-in to the response to COVID-19 because a lot of our focus has been how to optimize liquidity during the course of the crisis. The way we've looked at this exercise is to break it into a number of work streams, and we've just given you an overview of those work streams on this slide. Clearly, operating cost reductions are key, reducing the levels of fixed cost, restructuring the business, and also reducing capacity to the optimal level. Clearly, reducing capex to the minimum is key. Reducing fleet deliveries and fleet delivery payments has been a big exercise. I'll take you through more of that in a moment. Working capital management, increasing the focus on this to make sure we maintain the cash position. And also all the other activities to bolster liquidity, mainly treasury activities, but other activities on top of that. I'll now take you through a slide on each of those work streams to give you a bit more of a flavour of what we've been doing. If we turn to operating cost cash burn, at Q1, we said for April and May that a regular flying program would have had an operating cost cash burn of $440 million. And we were confident we'd reduce that to $200 million for April and May. Actually, for quarter two, we've reduced that down to $193 million. So we overachieved on what we were expecting. attempting to do, but we did say we were not content with 200. We're showing 205 here because one of the key characteristics of Q2 has been a very strong cargo demand. We've run 1,800, nearly 1,900 additional rotations that are cargo-driven, and we hadn't factored in the operating costs related to those flights when we came up with our estimates for April and May. I must add, just for clarity, these numbers do not net off the cargo revenue. These are purely cost numbers. The revenue sits outside of these numbers. So we think it was very worthwhile in carrying those additional operating costs to generate that additional cargo revenue. If we look to the months of July and August, once again, we would have expected to have a regular flying program cost of about $455. We think we will... postal management actions have a cash burn of about 205 million per week during those two months. It's worth highlighting the fact that all of these numbers are per week rather than per month. So 205 million, pretty much the same as Q2, but do bear in mind our planning scenario at the moment is to fly 10 points more capacity in these months than we did in Q2. So we think that's an improvement in performance. Once again, these are not static pictures. We continue to work on how to minimize the operating cost cash burn. We move to the next slide. Let's talk about capital expenditure. And what we presented at Capital Markets Day in November 2019 was that the three years, 2021 and 22, a CAPEX bill at a gross level of 14.2 billion. Due to our discussions, negotiations, and contracting with the OEMs, and also looking internally at the non-fleet CAPEX, we've now reduced that to 7 billion across the three years. So we've gone from an average of 4.8 million per annum to about 2.3 million per annum. We think that's a significant improvement. What's changed since we spoke at the end of Q1 is those positions are now contracted with the OEMs rather than under discussion. So that's good progress. The other thing I'm pleased to say is we indicated at the quarter one results that we'd had about half of the fleet capex covered by committed financing at that time, and we were still working at committing and covering the fleet capex costs for 2020 fully. And I'm pleased to say we've now done that. So there will not be a cash drain on the business in 2020 due to the aircraft deliveries. So I think that's good progress there. All of this continues to move, but I think that's good progress. If we look at the next slide, it shows you the fleet delivery program. This is consistent with what we said at Q1, albeit it's now contracted. Secondly, we've now firmed up the impairments that I touched on earlier. And thirdly, we continue to have the fleet flexibility related to the leases expiring both this year and in the next two years And it's still our intention to go ahead and let 20 of the leases expire and not be renewed. So that's CapEx. Let's turn to working capital management. Two things to focus on. I don't know if you recall, but when we went through the full year results in the end of February, I did mention then I was a little disappointed with our level of receivables at the end of December. I thought they were too high. I think the team has done a very good job over the last six months to drive the receivables down to the lowest level possible and to get the cash in. And we've seen really good progress there. And that particularly helps our liquidity in Q1. The other area we've clearly been thinking and putting a lot of focus on has been the deferred revenue, including the sales in advance of carriage. And as you can see, that's come down only 862 million. So the level of working capital unwind there has been minimized quite effectively. We haven't put the split here between what relates to the loyalty program and what relates to sales in advance of carriage. But what I would say is the loyalty program has been relatively stable and most of that reduction, most of that working capital unwind has been in relation to sales in advance of carriage. But given the amount of drop in revenue given the, and therefore the reduced bookings, and also given the level of refunds, for that to have only unwound by 862 million, I think is a good outcome. We then turn to liquidity again. As I said, the liquidity at the end of June is 8.1 billion, 2.1 of facilities, and 6 billion of cash. As I say, we've entered into the CCFF and the ICO during the course of Q2, we also entered into some bridge facilities in order to finance aircraft as well. After June, so subsequent to the 8.1, we've had two other significant developments which will improve our liquidity further. One of them is signing the deals with American Express, and so we will be receiving payments of 750 million sterling in due course. And also we had five aircraft that we'd received by the 30th of June, which we needed to complete the financing on. And we've successfully completed those in July. In fact, we've actually received the cash in at the end of July. And that's for $400 million. We've had to be patient with the sale and leaseback market because at certain points the market was very dysfunctional and some of the rates being offered by lessors were particularly unattractive. So we've had to be patient and wait for the right moment to go back into the market to finance these aircraft. And I'm very comfortable with the rates we've achieved on those aircraft. So that takes you through what the half one results at a high level. It also takes you through some of the actions we've been taking to optimize liquidity during half one. I'll now hand you over to Luis Gallego to talk about positioning IAG for the future.