International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to International Airlines Group All Year 2024 results. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session through the phone lines, and the instructions will follow at that time. We would like to remind all participants that this call is being recorded. I want to hand over to Louis Gallego, Chief Executive Officer, to open the presentation. Please go ahead.

Good morning, everyone, and welcome to our full year 2024 results. As usual, I am here with Nicolas Cadbury, our Chief Financial and Sustainability Officer, as well as other members of the IAG Management Committee. I'm going to start today by reminding you of the key elements of our investment case. Our fundamentals are very strong. We have a unique strong core proposition. We have the best network in the world and the best hubs. Our brands in those hubs are incredibly strong. Think Iberian Madrid or Air Lingus in Dublin. Our customer base is highly attractive. Think BA in London. And we have propositions that bring together the markets, the brands, and the hubs. Think Welling in Barcelona. We are also executing well. Our transformation program is delivering world-class margins. through revenue, cost, and operations across the group. Transformation is also designed to make this a more resilient, sustainable business that can perform well through the cycle. And this is delivered by a talented team of over 74,000 employees around the world. If you put those two elements together, it means we are creating significant value for our shareholders. We are delivering sustainable earnings growth. We are delivering a strong free cash flow after investing in the business. And we are delivering significant cash returns to our shareholders. Our strategy is simple. Firstly, we want to make the core of the business stronger. We are getting even stronger in those attractive markets and hubs that I have just mentioned by adding destinations and frequencies and improving our schedules. and we are strengthening our portfolio of attractive brands through improving the offering and operations at each of our airlines. Secondly, we want to grow our asset-light, higher-margin businesses. IAG loyalty continues to deliver very strong performance, expanding the ways it can create value, and it is now our third-largest operating company by profit. We can also expand by leveraging our partnerships to our customers. our customers can fly on the best network of flights globally. Secondly, we want to ensure this is a business that can continue to offer its customers, employees, and shareholders a long-term future. Financially and for society, as aviation has a clear role to play in connecting people and businesses, as well as providing jobs and economic growth. These strategic imperatives are designed to deliver sustainable, resilient profitability as well as secretive growth. And we set some targets out at our capital market day in 2023 for what we wanted to achieve. Decreasing margins of between 12% and 15%, return on invested capital between 13% and 16%, and leverage of less than 1.9% through the cycle. So if you look at those targets, you can see that our strategy is now very much delivering with a set of results that are the best in this company's history, one billion more than in 2018 on a pro forma basis. It is delivering for all of our stakeholders, but in particular for our shareholders. We grew revenue by 9% while growing operating profits by 27%. And we have achieved a 13.8% margin, securing return on investment capital of 17.3%. This is exceptional performance for any business. I am determined that this is not the peak, but the start of a more sustained level of profit. Our disciplined capital allocation framework means that we generated almost 3.6 billion euros of pre-cut flow after investing 2.8 billion euros in the business. Our balance sheet is strong, and Nicolas will tell you in a minute how we are going to maintain that stress. And we are rewarding our shareholders with an ordinary dividend that we intend to be sustainable through the cycle, with a sell-by-back program of €350 million that we announced in November, and with confidence in our ability to deliver sustainable, strong free cash flow We are pleased to announce the return of up to 1 billion of excess capital to shareholders in up to the next 12 months. I will now hand you over to Nicolas to take you through the numbers.

Thank you, Luis, and good morning, everyone. I'm pleased to be presenting our strong financial results for the year. This slide shows the key metric trend and demonstrates our delivery of a world-class performance during 2024. The revenue increased to 32 billion euros driven by our strong networks and brands, and would deliver an operating profit of 4.4 billion euros, almost 1 billion euros. Our transformation programme has secured a step-up in operating margins to an industry-leading 13.8%, which in turn helped us deliver significant free cash flow and adjusted earnings per share growth of just over 12%. We believe these metrics represent a best-in-class financial performance, not just in Europe, Moving on to how our year-on-year operating profit growth was delivered, increase was mainly delivered on the back of strong passenger revenue growth, reflecting the power of our hunt, improvements we were making in our networks, and the investments in our customer proposition. On the right, you can see the impact of our transformation programme around the group. British Airways delivered a post-pandemic profit catch-up that the other airlines had already achieved, and we secured further profit growth from our Spanish businesses. Likewise, IAG loyalty continues to deliver high double-digit margin and asset-like earnings growth. Now let's look at the performance of our operating companies in more detail. I'm very pleased that almost all our businesses delivered world-class operating margins in their own right. Ellingus, despite the summer where it faced significant industrial action, as well as strong competition at its Dublin hub, still delivered incredible financial performance with operating and an operating margin of nearly 9%. The fairway's profits increased 50% in the year to over £2 billion, and our operating margin increased by over 4% to 14.2%. This has helped by strong demand in the core North Atlantic market, coupled with the benefit we're delivering from this transformation programme. The barrier built on the strong margin introduced in 2023, delivering a 9% increase in profits. This was the first time in the history that it has generated over €1 billion in operating profit, and it continues to sustain a high operating margin of 13.6%. Welling's margins remain strong, investing class over 12%, generating €400 million in profit. IAG Loyalty continues to deliver double-digit profit growth and to achieve £420 million of profit. The Loyalty Group now includes the BA holiday business, where we see tremendous growth potential in the future. Moving on to our recent performance and more details. Overall, we saw strong demand and unit revenue in all of our core markets during 2024. We entered the year strongly with quarter four seeing the largest quarterly unit revenue increase of 2024 with a 6% increase. On a portfolio basis, unit revenue across the group increased by 3.1%, helping to drive the overall revenue growth 9%. North America is our largest and most profitable market, accounting for a third of our capacity, with unit revenue increasing by 6.2%. Quarter 4 was incredibly strong, with unit revenue increasing by 14%. Strong performance was widespread, however you measure it, with our main transatlantic airline seeing unit revenue increase by double-digit percentages. Europe continues to be one of our best-performing markets, with high single-digit revenue growth, Quarter 4 was again strong with British Airways and Aer Lingus in particular. Aer Lingus extended the seasonality of some of its strongly performing surgeries, and British Airways saw good growth in both business and late traffic. North America and the Caribbean is our third biggest market, accounting for 20% of our capacity. Unit revenue fell by just over 2% during the year, but in the context of a 12% capacity growth, this shows the strong demand for our offering in the region. will be particularly strong for both Iberia and British Airways. Africa, Middle East and South Asia learned positive in quarter four as we started to cycle over the Middle East conflict. The Asia-Pacific is our smallest market and is the only market that hasn't recovered to pre-pandemic capacity, with capacity of 27% as we started flying Madrid to Tokyo with Iberia and resumed flights to Bangkok with British Airways. Overall, we saw strong demand, particularly across our core markets, and we continue to see, which we are continuing to see, although still early in the year. And we plan to grow capacity around 3% in 2025, again focusing on our core market. Our margins are supported by our cost transformation program. Our total non-fuel unit cost increased by 2.6% in 2024. slightly higher than our previous guidance, driven by a larger than expected negative ethics impact in quarter four. Our employee unit costs increased just over 7%, driven by pay deals, investments in resilience, ethics, and please say performance-related pay linked to our strong financial results. Supply unit costs reduced as our transformation initiatives offset general inflation pressures and costs increasing related to customer experience and IT investment. unit costs increased in terms of new aircraft delivery and investments in operations. 2025, we expect similar trends on overall unit costs together with additional foreign exchange translation. This slide shows our financial results at the net profit level. Profit after tax and exceptional items with 2.6 billion euros. There are three things I just wanted to highlight here. Firstly, our net interest costs reduced by €200 million in 2024, mainly due to the lower gross debt resulting from the early repayment in the second half of 2023 of expensive government-supported debt. Secondly, we've recognised an exceptional charge of €160 million relating to the employee restructuring in Iberia's grand handling subsidiary, and an exceptional charge of €50 million to terminate the agreement to acquire the remaining 80% of the value rate. And lastly, our P&L tax charge normalised in 2024 at an effective rate of 23% compared to a rate of 13% in 2023, which was reduced by the recognition of prior year tax losses, notably in the group Spanish and business. Ultimately, we're a business that generates significant free cash flow. In a robust trading environment, that we are currently enjoying. During 2024, we generated just over 6.4 billion euros of net cash from operating activities, an increase of almost 1.8 billion. This allowed us to invest 2.8 billion into the business. In 2025, we expect to continue to generate significant spring cash flow at a lower level than in 2024 due to two specific things. Firstly, whilst we are confident in our legal position, We're required to pay €557 million of VAT to HMRC, the years going back to 2018, pending the outcome of a legal appeal in respect of our loyalty business that we disclosed last year. Secondly, we expect TAPEX to step up to around €3.7 billion as we take delivery of more aircraft and continue to invest in our business as we execute our long-term strategies. Heading now to our balance sheet performance, I'm pleased that our balance sheet continues to strengthen with a reduction not only in net debt but also our gross and net leverage. Our net debt reduced by over €1.7 billion compared to last year and is down almost €3 billion compared to December 2022. Our gross and net leverage reduced to 2.5 times and 1.1 times respectively. This is well below our net leverage target of 1.8 times. We do want to further reduce our gross leverage to give us more resilience, a process we began last month with a buyback of €577 million of our 2027 and 2029 senior unsecured IAG bonds. We also intend to redeem over €500 million of our 2025 IAG bond next month and keep around two-thirds of the 26 expected aircraft deliveries this year unencumbered. This slide shows our maturity of our non-aircraft air. You can see the impact of the bond buybacks that we've just done, and that once we receive our 2025 bond for cash, we'll have almost no non-lease debts to repay until 2025. As a reminder, ensuring the business is appropriately invested, it is a priority for us. This slide shows our updated capex guidance for the year and 2025. Starting with last year, capex came in a little lower than the $3.1 billion we previously expected. This was driven by the reprofiling of pre-delivery payments for future aircraft deliveries and supply chain constraints, which delayed our onboard cabin refrigerator fits and property maintenance programs. Looking forward, we expect to take on 26 new aircraft deliveries this year, 14 short-haul aircraft, two wide-body long-haul aircraft, and 10 321 XLRs. As I mentioned earlier, we expect to spend about 3.7 billion on CapEx and around the same in 2026. As a reminder, this is our gross CapEx expenditure before sales and leaseback transactions. And finally, for me, I want to remind you about how we think about our capital allocation, which is core to creating value for our shareholders. Our first priority is to maintain our balance sheet strength, targeting net leverage below 1.89 through the cycle, which is a property for investment-grade data. My second priority is to invest in the long-term strength of the business with a focus on rebuilding our fleet, improving our customer experience and enhancing our digital capabilities and advancing the sustainability agenda. And of course, we're committed to a sustainable shareholder of terms. Firstly, through ordinary dividends, which is is below 1.2 times to 1.5 times depending on commitment from the outlook. We started to do this with a 350 million euro buyback programme last year and as Lewis mentioned earlier pleased that given our cash flow profile and confidence in the outlook we can confirm this commitment by an intention to return an additional 1 billion euros excess cash over the next 12 months. On that positive note I will now hand back to Lewis.