International Consolidated Airlines Group S.A.

good day and thank you for standing by welcome to the half year 2023 international airlines group earnings conference call at this time all participants are in the listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 1 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star 1 1 again Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Luis Gallego, CEO. Please go ahead.

Thank you very much. Good morning, everybody, and thank you for joining the IAG results presentations for the first half of 2023. With me today, I have Nicolas Cadbury, our CFO, as well as members of our management committee, including the CEOs of our main airlines. We have had a strong start to the year, reflecting that our airlines are based in large markets with good demand for our services. We have recorded a record profit both for the half year and the second quarter, with operating profit for the first six months of 1.26 billion, which is also a big increase compared to this time last year. Specifically, our Spanish businesses are performing very well, with a record profit at Iberia. Iberia's margin in the second quarter was just under 18%, compared to 8.7% in second quarter 2019. At the same time, we are continuing to invest in our customers and operational performance, where the operating environment is currently challenging. Bookings are looking strong for third quarter, due in particular to a strong leisure demand. And financially, we expect net debt and leverage to continue to come down as we generate more profit and positive pre-cash flow this year. I will now hand over to Nicolas to talk you through the financial results for the period.

Thank you, Luis, and good morning, everybody. I'll just start with the profit bridge for the first half of the year, highlighting both the drivers of the improvement in profit since last year and then the results by each operating company. On the left of the slide, you can see that the increase in revenue has been the biggest driver, combining the restoration of capacity with strong unit revenue growth. That is slightly offset by cargo revenue, where yields are actually still 20% higher than 2019 levels, but there is a significant supply and demand imbalance across the market. The other revenue growth came from across our loyalty, our MRO, and our BA holiday businesses. Non-fuel and fuel absolute costs reflect the higher level of flying activity and also the higher hedged fuel prices in the half. You can see on the right that all of our airlines have significantly improved their profit year on year, which I will come back to later. This slide shows the key operational and financial metrics for the half, and at the bottom of each box is the Q2 variance versus 2022. The 31% increase in ASKs compared to H1 2022 was driven by a recovery in all airlines, especially in the first quarter when we were annualizing the Omnicron constraints, and a 20% improvement in ASKs in Q2. Passenger RASC was up 18% in the half and up 14% in Q2 versus last year, with very good growth in unit revenues across all of our IAG airlines, reflecting the strong demand Fuel cask was up 5.7%. Fuel spot commodity prices were actually lower year on year, but we benefited last year from hedges put in place before the Ukraine war sent prices higher. Non-fuel cask for the half was in line with our guidance, down 7% year on year. In the quarter, non-fuel cask was down only 2.5% lower, lower than our full year run rate expectations due to additional disruption costs and investments we made in resilience. These added around 2-3% to our CASC. Despite this, we're still comfortable with our previous guidance for the full year of non-fuel costs being down 6-8% on 2022. As a result of these metrics, we've delivered a record operating profit in the half at £1.3 billion, and a margin of 9.3% in the half, and a margin of 16.3% in the last quarter. With this good profit performance and a strong inflow in working capital, our net debt has come down again to 7.6 billion euros, and leverage is now 1.5 times significantly lower than this time last year. Moving on to the summary of our operating units for the half, you can see It has been a good financial half for all of our businesses. Aer Lingus has returned to a profit after a loss-making first quarter, reflecting the more seasonal aspects to its activities. British Airways has made a big step up in profit comparisons to last year, driving both revenue and unit cost benefits year on year. Iberia has had an exceptional start to the year, making a record profit of £372 million and an 11% margin, following strong demand across the South Atlantic. The increase in non-fuel cask year-on-year largely related to the MRO and handling business. Like Aer Lingus, the Vueling result is also more seasonal, but they perform very well with £96 million profit for the half. And finally, we've given you more detail on the loyalty business again, and you can see how it makes an important contribution to the group's profit at a good margin of 25%. This next slide just shows you how our operating profit of 1.3 billion reconciles to our statutory post-tax profit of 921 million euros. I'll just draw your attention to the fact that we are now starting to get much better financial income on our cash, where we're earning around 3.5% in Q2 at an increasing rate compared to our current average cost of financial debt of around about 5%. Moving on to our cash flow, We've generated a net 2.4 billion cash flow inflow in the half. You can see that this has been achieved by the 2.2 billion EBITDA and a positive deferred income of just under 2.4 billion as we built strong Q2 revenue. Offsetting this is our continued investment in our fleet, customer propositions and IT programs with 1.3 billion of CAPEX and 225 million of ETSs purchased in the period. As mentioned earlier, our net debt at 30 June was £7.6 billion. We expect to continue to benefit from the positive EBITDA across the year, with a large proportion of the working capital unwinding in the second half, in line with normal seasonal trends. We maintain our previous capital guidance of around about £4 billion for the year, with 19 more aircraft expected to be delivered in the second half compared to 11 in the first half. Given the recovery of the business and our strong liquidity, we're starting to focus on reducing our gross debt, and in July, we repaid a €500 million unsecured bond. At the year-end results, we gave guidance that net debt would be flat year on year. At this point, we gave this guidance, consensus operating profit was around about €2 billion. As we said at the Q1 results, we expect net debt to reduce in line with any operating profit improvements above this level. We show in the next slide at results in February to remind you of the manageable debt maturity profile over the next few years. And as mentioned, we may look for opportunities to repay some of our gross debt in the second half if the markets are favourable. Moving on to our fuel hedging position, we're around about 67% hedged for the remainder of this year and just over 40% for 2024. Again, as the commodity price has been so volatile over the last year and the last few months even, we've shown some scenarios of our total fuel bill at different levels. Turning to recent trading, this slide shows the Q2 ASKs and PRAS growth across all of our regions compared to 2022. I won't go through these individually, but you can see our core markets of South and North America and Europe are showing a strong performance overall. We've shown very large ASK growth in Asia Pacific, reflecting that the markets were substantially closed last year, And we've now opened up flying to China, Japan, Singapore, and Australia. And lastly, for me, what does that mean for the rest of the year? We continue to see strong demand in the third quarter, which is 80% booked. We have less visibility into the fourth quarter, which is very typical for this time of year. And so far for Q4, we're seeing no sign of weakness. And our booking curves are actually slightly ahead of normal years. This is due to the strong leisure demand that books further out, although with a higher mix of corporates in Q4, we expect this to normalise as we go through the rest of the year. Our capacity expectations for the year are unchanged at 97% of 2019 ASKs, with the main area of shortfall coming from BA's Asia network, with growth at each of the other airlines. Our non-fuel cask expectations continue to be in the range of 6-10%, as previously guided, And finally, as mentioned a couple of slides ago, we expect net debt to continue to reduce year on year. On that note, I will now pass you back to Luis.