International Consolidated Airlines Group Sa · LSE:IAG
International Consolidated Airlines Group Sa — H1 2020 Earnings Presentation
43 slides from International Consolidated Airlines Group Sa's earnings presentation, Jul 31, 2020
Slide 1: Proposed Capital Increase and 1H results
Proposed Capital Increase and 1H results 31 July 2020
Slide 2: Disclaimer
Disclaimer Disclaimer relating to capital increase: The securities offered as part of the capital increase referred to in this document will not be registered under the U.S. Securities Act of 1933, amended and may not be offered or sold in the United States (including its territories and possessions
Slide 3: Agenda
Agenda 1. Executive summary Willie Walsh IAG CEO 2. Successful track record Willie Walsh IAG CEO 3. First half 2020 results Steve Gunning IAG CFO 4. Response to COVID-19 Steve Gunning IAG CFO 5. Positioning IAG for the future Luis Gallego IAG CEO Designate 6. Proposed Capital Increase Steve Gunning
Slide 4: 1. Executive summary
1. Executive summary IAG INTERNATIONAL, ROUP
Slide 5: IAG plans to emerge from COVID-19 in a strong position
IAG plans to emerge from COVID-19 in a strong position • IAG was in a strong position both strategically and financially going into the COVID-19 crisis • COVID-19 has caused substantial losses for the global industry and IAG (1H 2020 pre-exceptional operating loss of €1.9 billion) • IAG acted quickl
Slide 6: Proposed Capital Increase to further strengthen IAG's financial and strategic position
Proposed Capital Increase to further strengthen IAG’s financial and strategic position • Proposed capital increase of up to €2.75bn, fully supported by IAG’s largest shareholder, Qatar Airways (25.1% holding), allows the company to strengthen its balance sheet and reduce leverage Resilience • Enhanc
Slide 7: 2. Successful track record
2. Successful track record IAG INTERNATIONAL, ROUP
Slide 8: A proven and successful business model
A proven and successful business model 8
Slide 9: Excellent record of consolidation
Excellent record of consolidation Acquisitions and joint business agreements, 2011-2020 Monarch Initial 5% stake in IAG bmi Vueling Aer Lingus Proposed slot Norwegian but decided formed acquisition acquisition acquisition acquisition purchase not to proceed 2011 2012 2013 2014 2015 2016 2017 2018 20
Slide 10: Track record of improving profitability and returns on invested capital
Track record of improving profitability and returns on invested capital Operating result and lease adjusted margin Return on invested capital (RoIC) Lease adjusted margin (%) 16.9% 14.4% 16.0% Operating result (€m) 12.9% 3,485 Target from 14.7% 14.4% 3,285 2016 15% 13.6% 3,015 12.3% 12.7% 11.2% Targ
Slide 11: Strong financial position entering the crisis
Strong financial position entering the crisis Financial leverage - Adjusted net debt / EBITDA(R) Liquidity - Cash and undrawn facilities / Revenue (%) 43% 3.6x Cash + 39% 39% 39% 36% 38% facilities 34% 34% 32% 17% 10% 9% 2.5x 15% 2.3x Facilities 13% 20% 9% 7% 1.9x 1.9x 1.8x IAG 15% treasury 1.5x 1.4
Slide 12: Substantial cash returned to shareholders since 2015
Substantial cash returned to shareholders since 2015 Cash returns to shareholders 2015-2019 €4.1bn €1,310m €1,083m €1,018m 695 500 500 €445m 295 327 262 212 €203m 233 256 288 288 203 2015 2016 2017 2018 2019 Final dividend Interim dividend Share buyback / Special dividend Chart shows shareholder ret
Slide 13: Leading the airline industry to tackle climate change
Leading the airline industry to tackle climate change Aviation industry CO2 targets 2050 - 50% emissions 2010 – 2020 1.5% pa fuel efficiency 2020 Carbon neutral growth from 2020 (2005 base) climate targets 2025 80gCO2/pkm 2030 22 Net MT CO2 2015 – 2020 1.7% pa efficiency gain 2020 87.3 gCO2/pkm 2050
Slide 14: 3. 1H 2020 results
3. 1H 2020 results
Slide 15: Unprecedented collapse in global passenger demand and revenue as a result of government lockdowns
Unprecedented collapse in global passenger demand and revenue as a result of government lockdowns and travel restrictions Global passenger revenue forecast by region of airline base Global passenger demand (RPKs bn/month) 2020 vs 2019 ($bn) 900 Passenger revenue ($bn) 0 800 (50) 700 (100) 600 (113)
Slide 16: Substantial operating loss due to COVID-19
Substantial operating loss due to COVID-19 Pre exceptional operating results, 2Q 2020 and 1H 2020 €m 2Q 2020 2Q 2019 vly 1H 2020 1H 2019 vly Passenger revenue 198 5,963 -96.7% 4,151 10,586 -60.8% Cargo revenue 369 281 +31.3% 615 556 +10.6% Other revenue 174 487 -64.3% 560 884 -36.7% Total revenue 74
Slide 17: €2.1 billion of exceptional charges in the first half
€2.1 billion of exceptional charges in the first half 1H 2020 exceptional items • Net ‘over-hedging’ loss of €1,307 million • A fuel ‘over-hedging’ loss of €1,269 million based on forward jet fuel prices and foreign currency rates as of the end of June • Positive impact from the increase in fuel pri
Slide 18: Net debt increased by €2.9bn in 1H 2020 but liquidity remained strong
Net debt increased by €2.9bn in 1H 2020 but liquidity remained strong Leverage and cash liquidity €m 30 June 2020 31 March 2020 31 December 2019 Gross debt 16,479 14,453 14,254 Cash, cash equivalents and interest-bearing deposits 6,016 6,945 6,683 Net debt 10,463 7,508 7,571 Net debt / EBITDA 4.2x 1
Slide 19: 4. Response to COVID-19
4. Response to COVID-19
Slide 20: IAG acted quickly to respond to the pandemic
IAG acted quickly to respond to the pandemic • Cash operating expenses reduced from €440m in Q1 to €205m per week in Q2 Operating cost • 95% reduction in passenger capacity in 2Q with 1,875 cargo-only flights using passenger aircraft in Q2 reductions • Furlough of staff with support from government
Slide 21: Significant reduction in capacity and operating costs
Significant reduction in capacity and operating costs Actual operating cash costs per week – 2Q Management actions Regular flying • 95% passenger capacity reduction in 2Q programme €440m (effective reduction of 87% including 1,875 -56% cargo-driven flights) Post management actions €193m €205m • Furl
Slide 22: Planned capex halved over the next 3 years
Planned capex halved over the next 3 years Capex Plan 2020-2022 Management actions €14.2bn 2020 €5.7bn • Gross capex reduction of €1.5bn to €2.7bn (of which €1.34bn spent in 1H), €300m greater 13% reduction than previous estimate in May €4.2bn €4.3bn €7.0bn • All 2020 fleet capex covered by committe
Slide 23: Fleet deliveries significantly reduced
Fleet deliveries significantly reduced Fleet deliveries Management actions SH LH SH • Total fleet deliveries to be reduced by 68 aircraft between 2020 and 2022 143 LH 57 • Further fleet reduction has been implemented including retirement of 53 Long Haul aircraft (15 A340-600s, 32 B747-400s, 4 A330-2
Slide 24: Proactive working capital management
Proactive working capital management Key working capital movements, 1H 2020 Management actions Trade receivables (€m) Deferred revenue (€m)* • Net working capital cash inflow of €447m in 1H 2020 • Collection of outstanding revenue from customer and agency billing due from 2019 31 Dec 19 2,255 31 Dec
Slide 25: Actions to bolster liquidity
Actions to bolster liquidity Management actions Liquidity position Pre 30 June • $1.38bn British Airways RCF extended in March €10.0bn • €337m final dividend for 2019 cancelled in April €9.5bn €8.6bn €8.1bn • £0.3bn UK CCFF drawn in April 2.5 3.6 • €1.0bn of term loans 70% guaranteed by the ICO in S
Slide 26: 5. Positioning IAG for the future
5. Positioning IAG for the future
Slide 27: A compelling investment case
A compelling investment case • Disciplined capital allocation • Active portfolio management approach Unique structure • Flexibility and rapid decision making • Platform with centralised functions to enable scale and plug & play • Operationally focused companies Portfolio of world- • Distinct brands
Slide 28: Encouraging customers to fly again
Encouraging customers to fly again Pre-travel At the airport Onboard the aircraft • Promotions targeting demand to fly to holiday destinations • Encourage self-service check-in and boarding • Strict cleaning procedures every night and before • Temperature screening for arrivals and every flight • Fl
Slide 29: Early signs of demand recovery, especially domestic and short-haul
Early signs of demand recovery, especially domestic and short-haul Weekly new passenger booking intake vs last year (January-July 2020) Weekly total booking intakes (% of last year) Spain domestic International short haul Long haul 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 29
Slide 30: Disciplined return to service
Disciplined return to service 2020 current capacity planning scenario (ASKs) Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20e Aug-20e Sep-20e Oct-20e Nov-20e Dec-20e 1.4% 2.9% -33.5% TBD % -85.1% -95.2% -95.8% -95.0% 1Q-20 2Q-20 3Q-20 4Q-20 -10.5% -95.3% -74% -46% FY-20 -59% 30
Slide 31: Right sizing the business for the future: Managing our resources
Right sizing the business for the future: Managing our resources Airline Network Fleet People • 250 headcount reduction (excluding pilots) out of 4,500 total • 6 wet leases returned (4 B757,2 RJ85s) • Pilots salary reductions in 2020-2021 • Most reduction on short-haul, less on • Grounding of 6 A320
Slide 32: Air Europa: Strategically attractive and revised terms under discussion
Air Europa: Strategically attractive and revised terms under discussion • Notwithstanding the unprecedented impact that the COVID-19 pandemic has had on the airline industry, the IAG Board continues to believe that the acquisition of Air Europa has considerable strategic and financial benefits for I
Slide 33: 6. Proposed Capital Increase
6. Proposed Capital Increase
Slide 34: Announcement of proposed Capital Increase
Announcement of proposed Capital Increase • Proposed Capital Increase of up to €2.75bn to be executed by a Rights Issue • General Meeting to seek shareholder approval on 8 September 2020 • Qatar Airways, IAG's largest shareholder (25.1%) has irrevocably committed to support the Capital Increase • Th
Slide 35: Proposed Capital Increase to further strengthen IAG's financial and strategic position
Proposed Capital Increase to further strengthen IAG’s financial and strategic position • Proposed capital increase of up to €2.75bn, fully supported by IAG’s largest shareholder, Qatar Airways (25.1% holding), allows the company to strengthen its balance sheet and reduce leverage Resilience • Enhanc
Slide 36: Capital Increase sized to deliver resilience and flexibility in the downside scenario
Capital Increase sized to deliver resilience and flexibility in the downside scenario Sizing Capital Increase Downside scenario assumptions • Capacity (ASKs) Resilience • 2020: Prolonged grounding of aircraft (-66% vs 2019) • 2021: Slower recovery vs current capacity planning scenario (-35% • Enhanc
Slide 37: 7. Conclusions
7. Conclusions IAG INTERNATIONAL, ROUP
Slide 38: Emerging from COVID-19 in a strong position
Emerging from COVID-19 in a strong position • IAG was in a strong position both strategically and financially going into the COVID-19 crisis • COVID-19 has caused substantial losses for the global industry and IAG (1H 2020 pre-exceptional operating loss of €1.9 billion) • IAG acted quickly to mitiga
Slide 39: Appendix
Appendix INTERNATIONAL AIRLINE S GROUP
Slide 40: Substantial losses for all airlines despite proactive mitigating actions
Substantial losses for all airlines despite proactive mitigating actions Financial performance at airline level, 2Q 2020 2Q 2020 2Q 2020 2Q 2020 2Q 2020 vly vly vly vly (€m) (£m) (€m) (€m) Revenue 72 -88.2% 361 -89.6% 278 -80.7% 6 -99.1% Cost 170 -65.6% 1,073 -63.4% 555 -57.5% 188 -69.5% Operating r
Slide 41: Pre-exceptional loss per share of 99 € cents in 1H 2020
Pre-exceptional loss per share of 99 € cents in 1H 2020 Below the operating line €m 1H 2020 1H 2019 Operating result (pre-exceptional) -1,900 1,095 Net finance income/(costs) -319 -259 Net financing credit relating to pensions 3 13 Net currency retranslation credits /(charges) 97 138 Other non-opera
Slide 42: 2Q 2020 and YTD 2020 traffic and capacity statistics
2Q 2020 and YTD 2020 traffic and capacity statistics Group performance Quarter Year to date Q2 2020 Q2 2019 vLY 2020 2019 vLY Passengers carried ('000s) 508 31,504 -98.4% 20,385 55,886 -63.5% Domestic (UK & Spain) 254 7,454 -96.6% 5,277 13,375 -60.5% Europe 147 16,906 -99.1% 9,729 29,312 -66.8% Nort
Slide 43: 2Q 2020 and YTD 2020 traffic and capacity statistics
2Q 2020 and YTD 2020 traffic and capacity statistics Performance by airline Quarter Year to date Q2 2020 Q2 2019 vLY 2020 2019 vLY Passengers carried ('000s) 60 3,255 -98.2% 1,729 5,451 -68.3% Revenue passenger km (m) 77 6,996 -98.9% 3,415 11,251 -69.6% Available seat km (m) 836 8,394 -90.0% 6,113 1
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