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Annual report and accounts 2016

2 Financial highlights

2 Financial highlights Delivering good results towards our long-term goals Despite the challenging environment, we have made good progress toward achieving our long-term goal. Our unique Group structure has supported our group performance while promoting the value of our brands. We have been able to leverage our brands effectively in different market segments. We will build on our progress and continue to invest while reaping further benefits from the IAG platform. Equity Free Cash Flow (€m) Total dividend per share 1 (€) +€574 million vly +17.5% vly 2,500 Goal 2,500 0.30 Targeting sustainable dividends 2,000 1,500 1,481 2,055 0.25 0.20 0.200 0.235 0.15 1,000 0.10 500 128 0.05 0 0.00 2014 2015 2016 Long-term goals 2014 2015 2016 Long-term goals RoIC 2 13.5% +1.8pts 23.1% +11.1pts 9.0% -0.7pts 7.3% -6.4pts ASK: 2.6% ASK: 9.6% ASK: 4.0% ASK: 11.2% IAG Platform INTERNATIONAL AIRLINES GROUP INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016 13.6% +0.9pts 1 2016 includes recommended final dividend of € 12.5 cent per share. 2 Definition included in Alternative performance measures section. The comparison to 2015 includes the annualised results of Aer Lingus.

3 Chairman’s letter A firm focus on long-term growth and sustainable returns 2016 was a challenging year for our business but one where once again we proved that the IAG business model continues to be resilient and highly effective. Our airlines carried over 100 million people last year, double the number of passengers we carried when British Airways and Iberia merged six years ago. Although our results were hit by the Brexit vote and the subsequent sharp fall in the pound, we were still able to report an impressive operating profit of €2.5 billion on revenues of €22.6 billion. On the morning after the UK Referendum we updated the market on the likely short-term impact on our results. Despite the significant impact our share price suffered, we were able to reassure the financial community at our Capital Markets Day in November that our long-term financial targets remain largely unchanged – an investment grade message that was well received. I believe investors understand that this business is being carefully and skilfully managed to achieve its promises on long-term growth and sustainable shareholder returns. We were delighted once again this year to honour our commitment to pay dividends. In addition, we intend to carry out a share buyback of €500 million during the course of 2017, further increasing cash returns to our shareholders. We are a cyclical industry where volatility – fuel price, terrorism, weather, politics – is a fact of life. I am so proud that IAG is managing these challenges so well that it can commit to a sustainable dividend policy as companies in more stable sectors do. Brexit has so far provided few certainties. We expect the button will be pushed on Article 50 in March, commencing twoyears of divorce negotiations. Beyond that very little is visible. For our industry the big question is the future of the single market for aviation in Europe. I trust that geography, safety, security, consumers’ interests, and those of our whole society to cut emissions, will prevail over politics or shortterm interests. Consolidation is in our DNA. Controls on foreign investment and competition regulations means that acquisition opportunities are relatively rare. But we have the resources and a uniquely flexible ‘plug-in and play’ system to fit new independent airline brands into our existing hub of equities, with the promise of huge and proven cost synergies when they do. Alliances and joint business arrangements are also very important and we’re delighted that British Airways and Qatar have launched a joint business while a similar tie up between Latam, Iberia and British Airways is awaiting clearance. They will provide great opportunities in the Middle East and South America. “A very warm welcome to our sixth Annual Report which charts the start of a new phase in our journey to secure a sustainable and profitable future for our airlines and for International Airlines Group as a whole.” Antonio Vázquez Chairman 2016 also saw our industry sign up to the world’s first truly global carbon offsetting scheme at the 39 th International Civil Aviation Organisation assembly – something we have long campaigned for. Our industry – which contributes about 2 per cent of global CO 2 emissions –has agreed to halve emissions by 2050 and to grow in a carbon neutral way from 2020, despite expected strong growth in passenger traffic. It’s a huge challenge, but one IAG intends to lead on. At the end of an eventful year I would like to thank people across the Group who work every day to make IAG such a successful business. I also thank shareholders for their continued support. I hope after reading this report you will all share my strong conviction that the Group is very well placed to achieve sustainable profitable growth in the years to come. These are complex but very exciting times. Antonio Vázquez Chairman Strategic report Corporate governance Financial statements Additional information www.iairgroup.com

  • Page 1 and 2: INTERNATIONAL AIRLINES GROUP The be
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    “2016 has really tested the Group

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    55 I think we can be very proud tha

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    57 James Lawrence Non-Executive Dir

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    59 The Group operating companies Av

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    61 The Board Secretary is Álvaro L

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    63 Induction programme New director

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    65 Other statutory information Dire

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    67 The significant shareholders of

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    69 Report of the Audit and Complian

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    71 ICFR, which is a Spanish Corpora

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    73 The Committee’s responsibiliti

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    75 Report of the Safety Committee D

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    77 Despite a growth in share price

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    79 The table below summarises the m

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    81 Malus and Clawback Provisions Th

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    83 Service contracts and exit payme

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    85 Annual Remuneration Report Commi

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    87 Additional explanations in respe

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    89 IAG PSP Award 2014 The IAG PSP a

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    91 Statement of Voting The table be

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    93 IAG’s total shareholder return

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    95 The second performance condition

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    97 Incentive Award Deferral Plan Th

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    Strategic Financial Statements Repo

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    101 Consolidated statement of other

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    103 Consolidated cash flow statemen

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    105 Consolidated statement of chang

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    107 the Income statement. All other

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    109 b Other interest-bearing deposi

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    111 Employee leaving indemnities an

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    113 IAG has initiated a project to

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    115 For the year to December 31, 20

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    117 7 Auditors’ remuneration The

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    119 For the year to December 31, 20

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    121 c Reconciliation of the total t

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    123 13 Property, plant and equipmen

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    125 16 Intangible assets and impair

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    127 Basis for calculating recoverab

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    129 19 Trade and other receivables

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    131 2 Floating rate euro mortgage l

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    133 depending on whether the employ

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    135 At December 31, 2016 the Group

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    137 27 Financial instruments a Fina

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    139 The carrying amounts and fair v

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    141 December 31, 2015 Financial ins

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    143 31 Other reserves and non-contr

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    145 Defined benefit schemes i. APS

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    147 d Fair value of scheme assets A

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    149 e Present value of scheme liabi

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    151 33 Contingent liabilities and g

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    Spanish corporate governance report

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    155 Indicate the most significant m

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    157 Explain any significant changes

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    159 B. SHAREHOLDERS’ MEETING B.1

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    161 C.1.3 Complete the following ta

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    163 Individual or corporate name of

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    165 When reviewing board appointmen

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    169 Selection of directors In ident

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    171 C.1.20 ter List any business re

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    173 C.1.31 Indicate whether the con

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    175 C.1.36 No Outgoing auditor Indi

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    179 C.2 Board committees C.2.1 Give

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    181 f. To establish the appropriate

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    183 F. Other responsibilities: a. T

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    185 c) Steps taken during the year:

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    187 C.2.2 b) Functions The main fun

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    189 D.4 List any relevant transacti

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    191 E.2 Identify the bodies respons

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    193 Main risk Government interventi

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    195 Audit and Compliance Committee

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    199 F.3.2 Internal control policies

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    211 IAG Remuneration Policy complie

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    213 Director Enrique Dupuy de Lôme

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    215 Strategic Report Corporate Gove

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    221 Strategic Report Corporate Gove

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    223 Operating margin Overall load f

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    225 In 2015, the definition of inve

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    227 Sustainability indicators Indic

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    Shareholder information Registered

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