IAG results presentation Full Year 2018 28 February 2019
2018 Highlights Willie Walsh, Chief Executive Officer
Effective progress against strategic objectives FY 2018 strategic highlights • Strengthen portfolio of world-class brands and operations − LEVEL expansion at Barcelona and roll-out to Paris and Vienna − Further customer proposition enhancements at British Airways and Iberia − British Airways and Iberia Basic Economy fares introduced on long-haul routes − Improved NPS at British Airways but decline at Vueling due to challenging ATC environment • Grow global leadership positions − Passenger unit revenue at constant currency growth of 2.4% on 6.1% capacity growth − 8% capacity growth on North Atlantic, including new routes launched: − Aer Lingus: Dublin to Philadelphia and Seattle − British Airways: Heathrow to Nashville, Gatwick to Las Vegas and Toronto − Iberia: Madrid to San Francisco − LEVEL: Barcelona to Boston, Paris to Montreal and Newark − c.9% growth on Latin American routes by BA, Iberia and LEVEL − c.7% growth on intra-Europe routes, mostly Spain and including new route Dublin to London City for Aer Lingus − 12% growth at Gatwick, facilitated by Monarch acquired slots − Cut Vueling’s growth from 13.0% to 8.9% due to ATC disruption • Enhance IAG’s common integrated platforms − Non-fuel unit cost at constant currency down 0.8% in 2018 – 11.1% down since IAG formation in 2011 − 25 new generation aircraft deliveries: 18 A320/A321 NEOs, 2 A350s and 5 B787s − NDC/API distribution steadily growing and already at 17% of total indirect sales across the group − UK Avios and BA Executive Club programmes merged Further digital transformation initiatives (e.g. 3 rd Hangar 51 programme, Wi-Fi) − 3
Continued strong financial performance FY 2018 financial highlights and FY 2019 guidance • Another strong performance with an operating profit of € 3,230m (13.2% margin, +0.2 pts), 9.5% higher than € 2,950m in 2017 • Better underlying results at all operating companies • Start-up costs at LEVEL Paris and Vienna and higher disruption costs, especially at Vueling • Adjusted EPS (pre-exceptional) growth of +15.1%, ahead of our target • Total dividend per share of 31 € cents, +14.8% vs. 27 € cents for 2017 • Strong operating result driven by positive unit revenue and unit cost ex-fuel trends • Continuation of positive trends in unit passenger revenue of 2.4% at constant currency • Non-fuel unit costs at constant currency continue to reduce (-0.8%) in 2018, in line with our target • Fuel cost headwind of € 673m (+14.6% on +6.1% ASK increase) • RoIC increased to 16.6% from 15.7% in FY 2017, significantly ahead of target of 15% • In 2018, IAG completed our second share buyback for an amount of €500m in respect of 2017. In addition, we will be returning mor e than €1.3bn in respect of 2018, around €260m higher than in 2017; €615m through ordinary dividends and approximately €700m through a spec ial dividend • Balance sheet strength endorsed by investment grade ratings from S&P Global (BBB- Stable) and Moody’s (Baa3 Stable) • On January 24 we announced we will not proceed to make an offer for Norwegian Air Shuttle ASA. IAG’s 3.93% shareholding has b een sold • Guidance for FY 2019: At current fuel prices and exchange rates, IAG expects its 2019 operating profit before exceptional items and impacts of IFRS16 to be in line with € 3,230m reported in 2018. Passenger unit revenue is expected to improve at constant currency and non-fuel unit cost is expected to be flat at constant currency 4
Delivering on our financial targets FY 2018 financial highlights €2.5bn Targeting average p.a sustainable 16.6% 2019-2023 15.7% 2,620 15% 13.1% 1,964 1,801 RoIC Equity free cash flow (€ m) (%) 2016 2017 2018 2016 2017 2018 Targeting EPS Targeting FY growth 12%+ 12%-15% average p.a. 14.2% 14.4% 117.7 12.0% 102.2 88.3 Lease adjusted +15.1% Adjusted EPS margin (€ cents) +15.8% (%) 2016 2017 2018 2016 2017 2018 2017 and 2016 figures have been restated for IFRS 15 and IFRS 9 5
Financial results Enrique Dupuy, Chief Financial Officer
9.5% growth in full year operating profit, despite fuel and FX headwinds FY 2018 financial summary OPERATING PROFIT TOTAL UNIT REVENUE PAX UNIT REVENUE €3,230m +2.9% +2.4% (reported before exceptional) (constant currency) (constant currency) +€409m +0.6% (constant currency change) +0.1% (reported) +€280m (€183m translation drag) (reported) (€389m transaction headwind) (reported change) TRAFFIC/CAPACITY TOTAL UNIT COST NON-FUEL UNIT COST -0.8% +2.3% ASKs: +6.1% (constant currency) (reported) (constant currency) -2.5% +0.2% (constant FX, net of other revenue gain) RPKs: +7.1% (reported) (reported) (€163m translation benefit) -2.2% (€280m transaction tailwind) (reported) ‘Translation’ = drag/benefit from translation of British Airways and Avios financial results from GBP into EUR; ‘Transaction’ = FX headwind/tailwind at company level 2017 figures have been restated for IFRS 15 7 7
19.1% increase in 4Q operating profit 4Q 2018 financial summary OPERATING PROFIT TOTAL UNIT REVENUE PAX UNIT REVENUE €655m +3.5% +1.5% (reported before exceptional) (constant currency) (constant currency) +€114m +3.7% (constant currency change) +1.6% (reported) +€105m (€2m translation benefit) (reported) (€8m transaction tailwind) (reported change) TRAFFIC/CAPACITY TOTAL UNIT COST NON-FUEL UNIT COST +0.5% +2.6% ASKs: +7.6% (constant currency) (reported) (constant currency) -3.8% +2.9% (constant FX, net of other revenue gain) RPKs: +7.4% (reported) (reported) (€2m translation drag) +0.9% (€17m transaction headwind) (reported) ‘Translation’ = drag/benefit from translation of British Airways and Avios financial results from GBP into EUR; ‘Transaction’ = FX headwind/tailwind at company level 2017 figures have been restated for IFRS 15 8
Positive revenue performance offsetting fuel headwind 4Q 2018 operating profit contribution drivers 129 (113) (21) 77 655 42 550 (9) Operating FX ASK growth Passenger Non-passenger Fuel cost Non-fuel cost Operating profit Q4-17 revenue revenue profit Q4-18 Passenger revenue contribution includes price and mix effects. Fuel cost contribution includes price and efficiency. Non-fuel contribution includes inflation and efficiency. 2017 figures have been restated for IFRS 15 9
Strong revenue in core markets: Europe, North and Latin America 4Q 2018 revenue performance by region Domestic Domestic +9.4% +6.4% North America North America +0.0% Europe +8.2% Europe +2.1% +6.8% ASK RASK +7.6% +1.5% Asia Asia Pacific Pacific Latin America +2.2% +0.9% & Caribbean Latin America AMESA -6.5% AMESA & Caribbean +0.6% +2.7% +15.8% Data in the chart represents flown passenger revenue in unit terms at constant currency before transfer payments, Avios redemption and ancillaries 2017 figures have been restated for IFRS 15 10 10
Strong non-fuel unit cost performance 4Q 2018 unit cost performance 4Q 2017 4Q 2018 % vly % vly reported unit costs reported unit costs reported constant currency ( € cents) ( € cents) 1.53 1.68 +9.5% +9.2% Fuel Employee 1.58 1.52 -3.5% -3.6% Supplier 2.74 2.83 +3.5% +3.0% 0.68 0.69 +0.6% -0.0% Ownership -3.8% net of other revenue Non-fuel 5.00 5.04 +0.9% +0.5% gain TOTAL 6.53 6.72 +2.9% +2.6% 2017 figures have been restated for IFRS 15 11
Fuel headwind continues in 2019 Fuel scenario: detailed modelling in appendix $660 Key: Jet fuel price ($/MT) Effective blended price spot price $620/MT post fuel and FX hedging €+13.1% $640 €+6.8% current year €+17.6% €+6.8% fuel price headwind $+0.8% $+5.3% $620 Effective blended $+6.9% price post fuel $-6.7% $-6.5% and FX hedging $+10.4% previous year $600 fuel price tailwind € -6.2% € -6.1% Effective blended price $580 post fuel and FX hedging current year $560 hedge ratio FX sensitivity in 2019 fuel bill: EURUSD 98% 86% 79% 69% 56% 47% ± 10% = ± 5% fuel cost $540 at current hedging Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 2019 fuel bill scenario - €6.1bn (at $620/MT and 1.14$/€) 12
Higher RoIC at all airlines, except slightly down at Vueling Financial target tracker: profitability trend by airline Op. margin: 4Q 2018 12.0% Op. margin trend vly +0.6pts Nml. margin: last 4Qs 14.1% RoIC: last 4Qs 16.6% 6% 11% Op. margin: 4Q 2018 7.1% Op. margin: 4Q 2018 6.8% Op. margin trend vly +1.3pts Op. margin trend vly -3.6pts 19% Nml. margin: last 4Qs 9.9% Nml. margin: last 4Qs 16.1% RoIC: last 4Qs 13.2% RoIC: last 4Qs 26.8% 3% Other 61% Op. margin: 4Q 2018 15.3% Op. margin: 4Q 2018 5.1% Op. margin trend vly +1.9pts Op. margin trend vly +1.1pts IAG capital allocation 4Q 2018 Nml. margin: last 4Qs 14.8% Nml. margin: last 4Qs 12.3% RoIC: last 4Qs 17.3% RoIC: last 4Qs 13.3% 2017 figures have been restated for IFRS 15 Op margin : Reported margin, lease adjusted Iberia excludes LEVEL Nml. Margin: As above, adjusted for inflation, for comparability with Invested Capital 13 Invested Capital: Tangible fixed assets NBV, fleet inflation and lease adjusted
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