International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to International Airlines Group half-year 2025 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 instructions will follow at that time. I would like to remind all participants that this call is being recorded. I want to hand over to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead.

Thank you very much. Good morning, everyone, and welcome to IAG's half-year results for 2025. As usual, I have Nicolas Cadbury with me, our Chief Financial and Sustainability Officer, as well as other members of the IAG Management Committee. I would like to remind you of the key elements that make IAG a world-class investment case. Firstly, our fundamentals are strong. We have unique strengths in our network, our hubs, and our brands. Our customer base is strong and resilient across all of our areas. And we are growing our earnings opportunity through IAG loyalty and our global partnerships. Secondly, our execution is strong. We are consistently delivering world-class margins through our transformation program powered by our talented employees across the globe. And thirdly, we are creating substantial value for our shareholders through sustainable earnings growth, robust F3 cash flow generation, and significant shareholder returns. We have had a strong first half of 2025. Our new group by 8% reflecting continued strong demand for our network and brands. Operating profit reached almost 1.9 million euros, up 43.5% year on year, with Q2 delivering 1.68 billion euros, an increase of 35.4%. Our transformation program supported a 2.9 percentage point increase in operating margin to 11.8%, as we improve our customer offering and our operations. We are investing in our digital and technology capabilities and our driving efficiency throughout the group. Our balance sheet remains strong with net leverage of 0.7 times giving us flexibility on capital allocation. And we continue to create significant value for our shareholders. We have grown adjusted ETS by 70%. And so far we have announced 1.5 billion euros of cash that we are returning to shareholders I will now pass over to Nicolas for his review of the numbers.

Thank you, Luis. Good morning, everyone. I'm pleased to announce another excellent set of results for the first half of 2025. This slide breaks down the key drivers of our profit improvement, highlighting our strong performance and the benefits from fuel and EPEC tailwinds in addition to our transformation program, which continues to deliver benefits across our businesses. Total revenue grew around 8% to just under €16 billion, reflecting strong demand for our network and brands. Passenger revenue grew 5.6% with capacity up 2.7% and yields up 3.9%, which more than offset the small decline in overall load factors. We delivered good growth in our cargo business, with the IAG cargo team prioritising premium products in high-yield regions such as Asia Pacific and India. Our third party MRO business saw particularly strong revenue growth alongside our growth in loyalty and holidays. The revenue performance more than offset the increase in non-fuel costs, which were as we expected and as previously highlighted, weighted to the first half. We split out the effects in a separate item and you can see we benefited from the depreciation of the US dollar in the first half and the lower effective fuel prices. Putting these together, we increased operating profits by 569 million euros to 1.878 billion euros. Now let's look at how our operating companies performed in more detail. I'm very pleased that most of the operating businesses have delivered improvement in operating profit in the first half. Aer Lingus increased its operating profit by 71 million to 80 million euros, an operating margin by 6 percentage points to 6.8% in the first half. H1's performance was driven by the record second quarter operating profit, with strong unit revenue across long and short haul, disciplined cost control and the benefits of 20 million euros from the annualisation of the pilot strike last year. British Airways operating profit increased £260 million to £824 million, with margins increasing by 3.5 percentage points to 11.7%. This was despite the £50 million impact of the one-day closure of Heathrow in March that we've already mentioned. The improvement in profit was driven by strong demand in the North Atlantic market and lower fuel prices and favourable effects. Iberia continues its excellent trajectory, delivering a €202 million increase in operating profit to €564 million, and a 14.5% margin, which was up 4% percentage points. The strong demand, especially in the South Atlantic, continues, and again we benefited from the lower fuel prices. Welling's operating profit margin was broadly flat in the first half, with the favorable fuel and FX and good leisure demand being offset by the weaker demand in some markets, such as Germany and the Benelux. IAG Loyalty reported £191 million operating profit, broadly flat year on year, but this now reflects the required adoption of HMRC's view of account for VAT on the issuance of Avios, which the group strongly disputes. Excluding this change in treatment, IEG Loyalty would have reported 9% improvement in operating profit to 210 million pounds with an operating margin of just over 17%. Moving on to our regional performance for the quarter in more detail. Overall, we continue seeing strong demand and unit revenue in our core markets during the second quarter. The group capacity by 2.2% and delivered a unit revenue increase of 2.6%. This performance was driven by high yields and helped by a small currency tailwind of 0.4%. If we look at the performance by region, the North Atlantic unit revenue increased by 0.6% in the second quarter on a capacity increase of 1.8%. Although this was lower growth in Q1, we were very pleased with this result given the level of uncertainty in the market and as previously indicated, we also had easier comparisons in Q1 2024. Similar to Q1, our premium cabins performed well and mitigated some softness in US point of sale economy cabin leisure demand. Latin America and Caribbean continues to be one of the star performers in the network. Unit revenue growth increased 5.1% on broadly flat capacity. Roots to Argentina, Peru, Colombia, and Ecuador performed particularly well. Europe unit revenue performed well for tourist and leisure destinations. And I've already mentioned that we saw some weakness in Northern Europe markets overall. And to finish off, Africa, Middle East, and South Asia also performed well despite the impact of the conflict in the Middle East. As noted last quarter, we guided that the increase in our non-fuel unit costs for this year will be weighted to the first half of the year. Non-fuel unit costs increased by 6.6% in H1 with the 4.6% increase in Q2 in line with our expectations. Three factors contributed to the increase. Firstly, approximately 0.6 percentage points, which were attributable to the negative impact of foreign exchange, primarily caused by the strength of sterling against the euro. Secondly, approximately three percentage points was driven by the non-airline business of the group, particularly MRO, but also loyalty and holidays. And in particular, you can see the related revenue benefit for MRO in the increase in our other revenue. And thirdly, about 0.5 percentage points was due to the negative impact of the one-day closure of Heathrow in March. So this leaves an underlying airline non-fuel cost increase of around 2.5 percentage points. Fuel union costs reduced by approximately 10% driven by lower commodity prices and we continue to benefit from the fuel efficient new generation aircraft that we're purchasing. We now expect non-fuel costs to increase around 3% compared to previous guidance of 4%. We have a small increase in underlying costs compared to our previous guidance due to low capacity growth and slightly higher resilience costs. with FX now expected to be a small tailwind in the second half as current exchange rates. On fuel, we have approximately 77% hedge for the remainder of the year and now expect fuel costs to be around 7.1 billion euros. That's $700 million, $700 per metric ton. This slide shows our financial results down to net profit. Pre-exceptional profit after tax increased approximately 60% to 1.3 billion in the first half, which, in addition to the lower share count from our share buyback program, drove a 70% increase in adjusted earnings per share. The 60% increase in profit after tax was driven by an operating profit increase of approximately 44%, as well as lower net finance costs primarily due to the reduction in gross debt as well as FX retranslation benefits. This was partially offset by the increase in tax, which has now broadly normalised this year against the credit that we received last year, stemming from the Spanish Constitutional Court decision. We generated 2.1 billion euros in free cash in H1. Operating cash flow was 3.8 billion in the first half. Although this was incredibly strong, this was a decrease compared to the first half of last year. Whilst we generated 560 million more in operating profit, there was a reduction of 427 million working capital, mainly due to foreign exchange impact on the ongoing and due to the impact of the ongoing impact of VAT payments on our loyalty program. CapEx was 1.7 million euros, an increase compared to H1 2024, but in line with our guidance, reflecting the delivery of 13 new aircraft. We also made a net €447 million payment to HMRC to appeal the VAT ruling in ASU Loyalty, which again, as we say, we strongly dispute. I'm pleased to report that our balance sheet continues to stretch from gross debt reduced €2.5 million compared to the end of last year, benefiting from €577 million bond buyback in January, and the maturity of €500 million of unsecured bond in March 2025. And we also benefited from the FX benefits of about €1.3 billion. Gross leverage reduced to two times. Net debt has decreased to €5.5 billion, down from €7.5 billion at year-end. with net leverage now at 0.7 times, benefiting from the strong results and the seasonal working capital inflow, which we expect to predominantly unwind by the year end. We still plan to keep approximately two thirds of our 25 expected aircraft deliveries this year unencumbered. And just to note, the BA NAPS defined benefit per annual valuation has now been agreed on the pension fund. with the scheme having a surplus of 1.7 billion pounds, an improvement from the deficit of 1.6 billion in 2021, which confirms we do not have to make any deficit reduction payments. As a reminder, ensuring the business is approximately invested in is a priority for us. This slide shows our CapEx guidance for the year, which remains at around 3.7 billion euros. We now expect to take 25 new aircraft deliveries this year, one aircraft fewer compared to the 26 deliveries we expected at quarter one, with one A321 XLR delivery slipping into next year. And as a reminder, this is our gross CapEx expenditure before any sale of these back transactions. And finally, for me, I just want to remind you about how we think about our capital allocation, which, as you know, is core to creating value for all of our shareholders. Our first priority is to maintain our balance sheet strength, targeting net leverage below 1.8 through the cycle, which is a proxy for investment grade. Our second priority is to invest in the long-term strength of the business, with a focus on rebuilding our fleet, improving our customer experience, enhancing our digital capabilities, and advancing our sustainability agenda. And of course, we've committed to a sustainable shareholder return. Firstly, through ordinary dividends, which has been set to be sustainable through this cycle, with the interim dividend announcement moving back to our historic quarter three cadence. And secondly, by returning excess cash to shareholders. We started to do this with 350 million euro share buyback program that we launched in November last year. and we are approximately two-thirds the way through our €1 billion share buyback programme we announced in February of this year, which is expected to be prepared to complete this November. And on that positive net point, I will now hand back to Luis.