8 months ago

Annual report and accounts 2016

44 Financial review

44 Financial review continued Net debt, adjusted net debt and adjusted gearing Net debt € million 2016 2015 Higher/ (lower) Debt (8,630) (6,617) (2,013) Cash and cash equivalents and interest bearing deposits 5,856 4,944 912 Net debt at January 1 (2,774) (1,673) (1,101) Increase in cash net of exchange 572 – 572 Net cash outflow from repayments of debt and lease financing 1,130 1,026 104 New borrowings and finance leases (1,317) (905) (412) (Increase)/decrease (187) 121 (308) in net debt from regular financing Debt – (406) 406 Cash and cash equivalents and interest bearing deposits – 913 (913) Net debt through acquisition – 507 (507) Financing raised through acquisition – (1,087) 1,087 Exchange and other non-cash movements 302 (642) 944 Net debt at December 31 (2,087) (2,774) 687 Capitalised aircraft lease costs (6,072) (5,736) (336) Adjusted net debt at December 31 (8,159) (8,510) 351 Net debt at December 31, 2016 was €2,087 million, a reduction of €687 million in the year from the stronger cash position. Net debt from regular financing activities increased €187 million, with new borrowings slightly exceeding the current year’s regular debt and lease repayments. The level of 2016 new borrowings and finance leases reflected the timing of fleet deliveries for the Group. In 2015, the Group’s Net debt through acquisition was €507 million from the addition of Aer Lingus. The improvement reflected Aer Lingus’ strong cash position and mix of operating versus financing leases. Also related to the 2015 Aer Lingus acquisition, IAG launched two tranches of convertible bonds totalling €1 billion. Capitalised aircraft lease costs rose during the year from the full year impact of Aer Lingus and from an increase in leased aircraft at British Airways as part of the regular fleet renewal programme. Capital commitments and off balance sheet arrangements Capital expenditure authorised and contracted for amounted to €14,022 million (2015: €16,091 million) for the Group. The majority of this is in US dollars and includes commitments until 2022 for 106 aircraft from the Airbus A320 family, 18 Boeing 787s, 43 Airbus A350s, and 5 Airbus A330s. Expected fleet deliveries in each of 2017 and 2022 is nine aircraft, compared to an average of 38 aircraft for each of 2018, 2019, 2020 and 2021. The expected net capital expenditure by year follows the pattern of the fleet deliveries. Overall, the Group maintains flexibility in its fleet plans through the use of deferrals, options and its renewal terms. IAG does not have any other off-balance sheet financing arrangements. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

45 Sustainability Committed to our sustainability goals We remain committed to our ambition to make IAG the world’s leading airline group on sustainability and we continue to develop our environmental and corporate responsibility programmes to support that goal. It’s been an important and eventful year in this regard. The historic agreement at the 39 th ICAO General Assembly to create a global market-based measure to address airline carbon emissions was a very significant milestone for our industry, backed by really ambitious targets to halve emissions by 2050 and to grow in a carbon neutral way from 2020. It will take a huge effort to achieve these targets, but the ambition is clearly there and shared internationally. We were also delighted to see the UK Government recognise the importance of sustainable alternative aviation fuels by including them in their policy considerations for the first time. There are many challenges to overcome with the use of these fuels but we are convinced they will play an important part in improving the environmental performance of our industry. We’ve advocated for these two significant developments for a very long time and are pleased to see such good progress. We’ve also been busy internally. During 2016 we established new programmes and governance systems to ensure our sustainability strategy is more closely matched up with our core business strategy. Sustainability is now highlighted as a central part of IAG’s business model with a focus on creating value in a sustainable way and on responsible environmental, social and corporate governance. The IAG business model (page 11) describes how we create value for all our stakeholders and it provides the anchor for all our sustainability work throughout the business. Sustainability is also embedded in our Enterprise Risk Framework and is now supported by an improved governance structure. In addition we are now linking our programme to the UN’s Sustainable Development Goals. “We are proud to have played a part in the historic agreement at the International Civil Aviation Organisation (ICAO) securing the world’s first carbon offsetting scheme.” Antonio Vázquez Chairman On an operational level we continue to make real progress reducing our carbon and noise impacts, greatly helped by new operating procedures and the arrival of 37 new aircraft in our fleet which on average produce 20% less CO 2 and are 50% quieter than the planes they replace. In the year ahead we will continue this work – supporting the implementation of the global market based scheme for our industry, pressing ahead with our sustainable alternative fuels project in the UK and taking action to make sure we have a consistent approach to environmental management across all of our operating companies. Antonio Vázquez Chairman Strategic report Corporate governance Financial statements Additional information See pages 11 - 13 for more about our Business model and strategy

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