Final Results

RNS Number : 0301G

International Cons Airlines Group

27 February 2015

FULL YEAR RESULTS ANNOUNCEMENT

International Consolidated Airlines Group (IAG) today (February 27, 2015) presented Group consolidated results for the year to December 31, 2014.

IAG period highlights on results:

· Fourth quarter operating profit €260 million (2013: operating profit of €113 million) before exceptional items

· Revenue for the quarter up 9.9 per cent to €5,015 million, up 5.8 per cent at constant currency

· Non-fuel unit costs for the quarter down 0.8 per cent at constant currency

· Operating profit for the year to December 31, 2014 of €1,390 million (2013: operating profit of €770 million) before exceptional items

· Revenue for the year up 8.0 per cent to €20,170 million and passenger unit revenue for the year down 0.4 per cent at constant currency

· Fuel unit costs for the year down 7.8 per cent also down 7.8 per cent at constant currency.

· Non-fuel unit costs before exceptional items for the year down 1.9 per cent, down 3.9 per cent at constant currency

· Cash of €4,944 million at December 31, 2014 was up €1,311 million on 2013 year end

· Adjusted gearing up 1 point to 51 per cent and adjusted net debt to EBITDAR improved 0.6 to 1.9 times

Performance summary:


	Year to December 31
Financial data € million	2014	2013	Higher / (lower)
Financial data € million	2014	2013	Higher / (lower)
Passenger revenue	17,825	16,264	9.6 %
Total revenue	20,170	18,675	8.0 %
Operating profit before exceptional items	1,390	770	80.5 %
Exceptional items	(361)	(243)	48.6 %
Operating profit after exceptional items	1,029	527	95.3 %
Profit after tax	1,003	151	564.2 %
Basic earnings per share (€ cents)	48.2	6.4	41.8pts
Operating figures	2014	2013	Higher / (lower)
Operating figures	2014	2013	Higher / (lower)
Available seat kilometres (ASK million)	251,931	230,573	9.3 %
Seat factor (per cent)	80.4	80.8	(0.4pts)
Passenger unit revenue per ASK (€ cents)	7.08	7.05	0.4 %
Non-fuel unit costs per ASK (€ cents)	5.08	5.18	(1.9)%
€ million	December 31,	December 31,	Higher / (lower)
€ million	2014	2013	Higher / (lower)
Cash and interest-bearing deposits	4,944	3,633	36.1 %
Adjusted net debt⁽¹⁾	6,081	5,701	6.7 %
Adjusted net debt to EBITDAR	1.9	2.5	(0.6)
Adjusted gearing⁽²⁾	51%	50%	1pt

⁽¹⁾Adjusted net debt is net debt plus capitalised operating aircraft lease costs.

⁽²⁾Adjusted gearing is adjusted net debt, divided by adjusted net debt and adjusted equity.

Willie Walsh, IAG Chief Executive Officer, said:

"We're reporting strong full year results with an operating profit before exceptional items of €1,390 million which is up 80.5 per cent. Total revenue was up 8.0 per cent with non-fuel costs up 7.0 per cent and fuel costs up 0.6 per cent on capacity growth of 9.3 per cent.

"Iberia made an operating profit of €50 million compared to an operating loss of €166 million last year. The airline's turnaround has been remarkable, both financially and operationally, and we're very proud of its achievement especially its strong cost discipline. In 2013 we said our intention was for Iberia to breakeven in 2014 and it has fulfilled that promise.

“British Airways’ operating profit increased to €1,215 million up from €762 million last year which shows significant progress towards its long term targets. Vueling made an operating profit of €141 million, compared to an operating profit of €139 million in 2013, with the airline focusing on flexible growth.

"We achieved a strong unit cost performance, down 4.1 per cent, through increased productivity, supplier cost savings and lower fuel unit costs. The latter was boosted by the introduction of more efficient aircraft into our fleet and lower fuel prices in the last quarter of the year. However, the positive effect of the oil price reduction has been partly offset by hedging and significant currency impact.

"In the quarter, we made an operating profit before exceptional items of €260 million which is up from €113 million last year. Revenue for the quarter was up 9.9 per cent. Non-fuel costs were up 10.5 per cent and fuel costs decreased by 0.4 per cent on capacity growth of 5.8 per cent."

Trading outlook

At current fuel prices and exchange rates, IAG expects in 2015 to generate an operating profit in excess of €2.2 billion, with total fuel costs of around €5.9 billion, based on capacity growth of approximately 5.5 per cent.

Forward-looking statements:

Certain statements included in this report are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Forward-looking statements can typically be identified by the use of forward-looking terminology, such as "expects", "may", "will", "could", "should", "intends", "plans", "predicts", "envisages" or "anticipates" and include, without limitation, any projections relating to results of operations and financial conditions of International Consolidated Airlines Group S.A. and its subsidiary undertakings from time to time (the 'Group'), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditures and divestments relating to the Group and discussions of the Group's Business plan. All forward-looking statements in this report are based upon information known to the Group on the date of this report. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the forward-looking statements in this report to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2013; these documents are available on www.iagshares.com.

IAG Investor Relations

2 World Business Centre Heathrow

Newall Road, London Heathrow Airport

HOUNSLOW TW6 2SF

Tel: +44 (0)208 564 2900

Investor.relations@iairgroup.com

CONSOLIDATED INCOME STATEMENT

	Year to December 31
€ million	Before exceptional items	Exceptional items	Total 2014	Before exceptional items	Exceptional items	Total 2013	Higher/ (lower)
€ million	2014	Exceptional items	Total 2014	2013	Exceptional items	Total 2013	Higher/ (lower)

Passenger revenue	17,825		17,825	16,264	(106)	16,158	9.6 %
Cargo revenue	992		992	1,073		1,073	(7.5)%
Other revenue	1,353		1,353	1,338		1,338	1.1 %
Total revenue	20,170		20,170	18,675	(106)	18,569	8.0 %
Employee costs	4,325	260	4,585	4,123	98	4,221	4.9 %
Fuel, oil costs and emissions charges	5,987		5,987	5,951	(6)	5,945	0.6 %
Handling, catering and other operating costs	2,063		2,063	1,932		1,932	6.8 %
Landing fees and en-route charges	1,555		1,555	1,422		1,422	9.4 %
Engineering and other aircraft costs	1,276		1,276	1,237	15	1,252	3.2 %
Property, IT and other costs	927		927	922	5	927	0.5 %
Selling costs	859		859	785		785	9.4 %
Depreciation, amortisation and impairment	1,196	(79)	1,117	1,006	8	1,014	18.9 %
Aircraft operating lease costs	551		551	482	17	499	14.3 %
Currency differences	41	180	221	45		45	(8.9)%
Total expenditure on operations	18,780	361	19,141	17,905	137	18,042	4.9 %
Operating profit	1,390	(361)	1,029	770	(243)	527	80.5 %
Net non-operating costs	(284)	83	(201)	(283)	(17)	(300)	0.4 %
Profit before tax from continuing operations	1,106	(278)	828	487	(260)	227	127.1 %
Tax	(238)	413	175	(57)	(19)	(76)	317.5 %
Profit after tax from continuing operations	868	135	1,003	430	(279)	151	101.9 %
Loss after tax from discontinued operations	-		-	-	(4)	(4)	-
Profit after tax for the year	868	135	1,003	430	(283)	147	101.9 %

Operating figures	2014 ⁽¹⁾			2013 ⁽¹⁾			Higher/ (lower)
Available seat kilometres (ASK million)	251,931			230,573			9.3 %
Revenue passenger kilometres (RPK million)	202,562			186,304			8.7 %
Seat factor (per cent)	80.4			80.8			(0.4pts)
Cargo tonne kilometres (CTK million)	5,453			5,653			(3.5)%
Passenger numbers (thousands)	77,334			67,224			15.0 %
Tonnes of cargo carried (thousands)	897			928			(3.3)%
Sectors (thousands)	599,624			538,644			11.3 %
Block hours (hours)	1,712,506			1,573,900			8.8 %
Average manpower equivalent	59,484			60,089			(1.0)%
Aircraft in service	459			431			6.5 %
Passenger revenue per RPK (€ cents)	8.80			8.73			0.8 %
Passenger unit revenue per ASK (€ cents)	7.08			7.05			0.4 %
Cargo revenue per CTK (€ cents)	18.19			18.98			(4.2)%
Fuel cost per ASK (€ cents)	2.38			2.58			(7.8)%
Non-fuel unit costs per ASK (€ cents)	5.08			5.18			(1.9)%
Total cost per ASK (€ cents)	7.45			7.77			(4.1)%

⁽¹⁾Financial ratios are before exceptional items.

CONSOLIDATED INCOME STATEMENT
	Three months to December 31
€ million	Before exceptional items	Exceptional items	Total 2014	Before exceptional items	Exceptional items	Total 2013	Higher/ (lower)
€ million	2014	Exceptional items	Total 2014	2013	Exceptional items	Total 2013	Higher/ (lower)
Passenger revenue	4,390		4,390	3,965	(106)	3,859	10.7 %
Cargo revenue	268		268	276		276	(2.9)%
Other revenue	357		357	321		321	11.2 %
Total revenue	5,015		5,015	4,562	(106)	4,456	9.9 %
Employee costs	1,143	260	1,403	1,048	(170)	878	9.1 %
Fuel, oil costs and emissions charges	1,470		1,470	1,476	(1)	1,475	(0.4)%
Handling, catering and other operating costs	521		521	490		490	6.3 %
Landing fees and en-route charges	370		370	364		364	1.6 %
Engineering and other aircraft costs	338		338	261		261	29.5 %
Property, IT and other costs	229		229	238		238	(3.8)%
Selling costs	189		189	176		176	7.4 %
Depreciation, amortisation and impairment	326	(79)	247	262		262	24.4 %
Aircraft operating lease costs	146		146	127	(1)	126	15.0 %
Currency differences	23	98	121	7		7	228.6 %
Total expenditure on operations	4,755	279	5,034	4,449	(172)	4,277	6.9 %
Operating profit	260	(279)	(19)	113	66	179	130.1 %
Net non-operating costs	(106)	53	(53)	(55)		(55)	92.7 %
Profit before tax from continuing operations	154	(226)	(72)	58	66	124	165.5 %
Tax	(16)	397	381	(33)	(17)	(50)	(51.5)%
Profit after tax from continuing operations	138	171	309	25	49	74	452.0 %
Loss after tax from discontinued operations	-		-	-	(4)	(4)	-
Profit after tax for the period	138	171	309	25	45	70	452.0 %


Operating figures	2014			2013			Higher/ (lower)
Available seat kilometres (ASK million)	61,697			58,339			5.8 %
Revenue passenger kilometres (RPK million)	49,025			46,084			6.4 %
Seat factor (per cent)	79.5			79.0			0.5pts
Cargo tonne kilometres (CTK million)	1,430			1,503			(4.9)%
Passenger numbers (thousands)	18,427			16,770			9.9 %
Tonnes of cargo carried (thousands)	236			245			(3.7)%
Sectors (thousands)	143,987			135,619			6.2 %
Block hours (hours)	413,669			396,554			4.3 %
Average manpower equivalent	58,814			59,026			(0.4)%
Passenger revenue per RPK (€ cents)	8.95			8.60			4.1 %
Passenger unit revenue per ASK (€ cents)	7.12			6.80			4.7 %
Cargo revenue per CTK (€ cents)	18.74			18.36			2.1 %
Fuel cost per ASK (€ cents)	2.38			2.53			(5.9)%
Non-fuel unit costs per ASK (€ cents)	5.32			5.10			4.3 %
Total cost per ASK (€ cents)	7.71			7.63			1.0 %

Financial review:

IATA market growth

In 2014 industry passenger load factor reached 79.7 per cent supported by stronger growth in demand rather than capacity increases. International load factors have displayed a downward trend throughout the year, particularly as a result of solid capacity expansion in Asia Pacific carriers. In addition, there has been a gradual easing in business confidence towards the end of 2014 which has weighed on some international travel in certain markets.

Year to December 31, 2014	Capacity ASKs	Traffic RPKs	Passenger load factor	Higher/ (lower)
International	6.4%	6.1%	79.2	(0.1) pts
Domestic	4.3%	5.4%	80.6	+0.7 pts
Total market	5.6%	5.9%	79.7	+0.2 pts

IAG capacity

IAG increased capacity in 2014, measured in available seat kilometres (ASKs), by 9.3 per cent. The increase was across all regions, reflecting the full year impact of Vueling, the restoration of routes as part of Iberia's Plan de Futuro and changes to the British Airways network including up gauging related to new fleet and additional flying from more efficient replacement aircraft. Across the network, passenger load factor for the year was 80.4 per cent; although a decrease of 0.4 points compared to last year, it remains higher than IATA industry average of 79.7 per cent.

Year to December 31, 2014	% of total network in ASKs	ASKs higher/(lower)	Passenger load factor	Higher/ (lower)
Domestic	6.8%	+21.6%	77.3	+1.6 pts
Europe	22.1%	+18.6%	78.1	+0.5 pts
North America	29.2%	+6.0%	83.1	(1.5) pts
Latin America and Caribbean	17.4%	+4.1%	81.4	(1.2) pts
Africa, Middle East and South Asia	15.8%	+5.3%	77.9	+0.4 pts
Asia Pacific	8.7%	+8.1%	82.1	+0.7 pts
Total network	100.0%	+9.3%	80.4	(0.4) pts

Market segments

In 2014, the IAG Domestic and European market capacity increases reflect:

· Full year impact of Vueling forming part of the IAG Group and its year-over-year network growth;

· Additional frequencies and new destinations for Iberia as part of the Plan de Futuro; and

· More efficient replacement aircraft for British Airways at London Gatwick and London City, increasing frequencies and introducing new routes.

While the Domestic and European markets were very competitive our passenger load factors improved in both regions, but remain lower than the European average reported by IATA, influenced by the growing presence of the low cost carriers.

North America continues to represent the largest part of the IAG network and with the highest passenger load factor. At British Airways, capacity increased primarily from up gauging aircraft with the Airbus A380 flying to Washington D.C. and Los Angeles, and the Boeing 787 on routes such as Newark, Philadelphia and Toronto. At Iberia the increased capacity reflects additional frequencies to Chicago and New York. IAG passenger load factor for North America was down 1.5 points, consistent with the year-over-year decrease reported by IATA. Despite the decrease in volume our unit revenues improved.

Latin America and Caribbean capacity increase reflects additional frequencies to Brazil and Mexico by both British Airways and Iberia. As part of the Plan de Futuro Iberia has also restored routes such as Santo Domingo and Montevideo and increased frequencies to Panama. Passenger load factor in this region decreased but overall remains high at 81.4 per cent.

Africa, Middle East and South Asia capacity increase primarily reflects the up gauging of aircraft to the Airbus A380 on the Johannesburg route and additional frequencies to Accra. Flying has been reduced in North and West Africa by British Airways and Iberia due to weakening demand resulting from the Ebola crisis and political unrest. Passenger load factor improved 0.4 points.

In Asia Pacific, the capacity increase is driven by the full year impact of routes added last year and the introduction of the Airbus A380 to Hong Kong. In 2014, the Hyderabad and Chennai routes see more capacity reflecting the up gauge to the Boeing 787. Passenger load factors increased to 82.1, the second highest region on the IAG network.

Acquisitions

The 2014 performance includes Vueling for the full year, however the comparative period only includes Vueling results from the acquisition date April 26, 2013.

Revenue

Passenger revenue

Passenger revenue for the Group increased 9.6 per cent for the year on a capacity increase of 9.3 per cent. At constant currency the increase was 8.7 per cent, with a unit revenue decrease of just 0.4 per cent. The Group carried 77 million passengers, up 15 per cent from 2013.

At the Group level passenger revenue performance was based on flat passenger yields (passenger revenue/revenue passenger kilometre) at constant currency and a marginal decrease in load factor of 0.4 points. The passenger yield performance was stronger out of London, up 1.6 per cent benefitting from the continued recovery of the UK economy, which grew by 2.6 per cent. Passenger yields in Madrid and Barcelona were down by approximately 3 per cent for the year, but with improvements in the fourth quarter as Spain's economy started to strengthen.

From a market perspective, our revenue performance was strongest in North America reflecting consumer confidence. Meanwhile Europe and Domestic markets saw marginal declines in unit revenues reflecting competition and IAG capacity changes. The World Cup, political unrest, Ebola and the redeployment of Venezuela capacity had a mildly dilutive effect on Latin America and Africa and Middle East revenues.

Cargo revenue

In April 2014, IAG Cargo exited its longhaul freighter business and formed a partnership with Qatar Airways to purchase capacity on its air cargo freighters. While the new operating model reduces total cargo revenue reported, it is more flexible and generates better margins whilst maintaining the key trade lane between Hong Kong and Europe. Cargo revenue for the year was down 7.5 per cent or 6.6 per cent at constant currency. Excluding the longhaul freighter business, volume measured in cargo tonne kilometres (CTK) is up 6.7 per cent but with excess capacity in the market the underlying yield per CTK is down 3.2 per cent at constant currency.

Other revenue

Other revenue includes the BA Holidays programme, third party maintenance and handling revenues, and aspects of the Avios customer loyalty programme. Excluding the adverse impact on the Group's handling and maintenance revenues due to the consolidation of Vueling, other revenue increases approximately 10 per cent. Half of this improvement is related to growth at BA Holidays, with the remainder primarily from recovery of Iberia's maintenance and handling activities. The Avios customer loyalty programme performance is also increasing, benefitting from the increase in the fair value of a point and an underlying improvement. A €67 million one-off charge was recorded in the fourth quarter of 2013 at the total revenue level.

Expenditure before exceptional items

Employee costs

Employee costs are up 4.9 per cent. At constant currency, total employee costs are up 2.2 per cent and down 6.7 per cent on a unit basis. On average the Group employed 59,484 people (measured in average manpower equivalents 'MPE') a decrease of 1.0 per cent versus last year driven by headcount reductions flowing through from the Mediation Agreement reached by Iberia last year.

In 2014, Iberia reached further long-term labour agreements with all its employee groups, resulting in an additional employee restructuring charge of €260 million included as an exceptional item. The new agreement allows 1,427 exits, in addition to the original 3,141 from the Mediation Agreement. At British Airways efficiency initiatives were implemented, including mixed fleet and other productivity improvements. Vueling has increased productivity through its growth however has incurred certain unit cost increases, such as overnight expenses on international routes and salary inflation under its new crew collective agreement. Productivity increased 10.4 per cent for the Group, with improvements at each airline.

Fuel, oil and emissions costs

Total fuel costs are up 0.6 per cent and up 0.9 per cent at constant currency, on a 9.3 per cent capacity increase. Fuel unit costs are down 7.8 per cent at constant currency (ccy), benefitting from more efficient aircraft, improved operating procedures and lower fuel prices net of hedging.

Lower fuel consumption per ASK has contributed to half of the unit cost improvement for the year. This was driven by the fleet replacement programme with the more efficient fleet types, such as the Airbus A380, A320 family and Boeing 787. In addition, British Airways and Iberia have implemented procedures during take-off and landing which has lowered fuel consumption.

The US dollar foreign exchange impact on fuel costs net of hedging for the first nine months has been positive for the Group against the sterling and the euro. However, the strengthening of the US dollar towards the end of the year has resulted in a net adverse foreign currency impact on fuel for the fourth quarter.

Supplier costs

Total supplier costs for the year have increased by 6.0 per cent. At constant currency and on a unit basis supplier costs were reduced by 4.4 per cent. This is due to two main factors, productivity and efficiency improvements across the Group, and the final effects of consolidating Vueling in the Group (c. 2 points).

The Group's supplier unit cost performance was solid with improvements at British Airways and Iberia, while Vueling was flat. Through cost initiatives, joint procurement and the continued benefit of the synergies programme, savings have been achieved, including catering costs, lounge synergies and maintenance.

By supplier cost category:

Handling, catering and other operating costs increased 6.8 per cent, with 1.5 points of adverse currency. The discontinuation of the Cargo freighters reduced current year costs by c. 1.5 points. The BA Holidays business raised costs by c. 3 points with improvements in Other revenues. The underlying increase is related to the additional capacity.

Landing fees and en-route charges were higher by 9.4 per cent, with 1 point of adverse currency. The inflationary increase was on average 2.5 per cent across the Group while the discontinuation of Cargo freighters improved costs by c. 1 point. The remaining increase is driven by higher capacity.

Engineering and other aircraft costs were up 3.2 per cent, with 1 point of adverse currency. The discontinuation of freighters and the effect of Vueling consolidation improved the costs by c. 8 points. In the fourth quarter a €28 million (c. 2 points) provision for the obsolescence of spare parts was recorded. The remaining underlying increase reflects more aircraft and higher flying hours, increases in third party maintenance and inflation.

Property, IT and other costs are up 0.5 per cent but are down excluding currency reflecting the Group's commitment to cost control. Selling costs increased 9.4 per cent, with 1 point of adverse currency impact, primarily from a higher number of passenger bookings.

Ownership costs

The Group's ownership costs were up 17.4 per cent, with 3 points of adverse currency. The increase is related to a higher depreciation charge related to the Boeing 747s due to a reduction in estimated useful life, with a year-over-year impact of €81 million (c. 6 points). The underlying rise in ownership costs reflects inflation and an increase in owned and leased aircraft, up 6.5 per cent.

Operating result

The Group's operating profit, before exceptional items, for the year was €1,390 million, a €620 million improvement from last year. This improvement reflects the Group's approach to dealing with significant capacity increases related to the delivery of new aircraft and market opportunities, with a minimal negative impact on unit revenues (at ccy) while benefitting from productivity improvements, non-fuel cost savings and fuel cost reductions net of hedging.

Non-operating costs

Net non-operating costs after exceptional items were €201 million, down from €300 million last year. The decrease is related to:

· Lower net finance costs since the conversion of the £350 million bond, reducing costs by €60 million;

· Reduction in net finance charges for pensions of €49 million, due to lower deficit;

· Increase in gain on the sale of the available for sale financial assets of €91 million, primarily Amadeus;

Offset by:

· Losses not qualifying for hedges and retranslation charges on borrowings, a swing of €131 million over the prior year's credit position.

Taxation

The majority of the Group's operations are taxed in the UK or Spain. In 2014, the corporate tax rate in the UK decreased to 21 per cent (2013: decreased from 24 to 23 per cent) while the corporate tax rate in Spain was 30 per cent (2013: 30 per cent).

Excluding the impact of the tax rate change in Spain and the recognition of a deferred tax asset related to prior period losses, the Group's effective tax rate for the year is 22 per cent (2013: 8 per cent). The tax credit was €175 million (2013: €76 million charge).

Profit after tax and earnings per share

The Group's profit after tax and after exceptional items was €1,003 million (2013: €147 million), with earnings of 48.2 euro cents per share (2013: 6.4) and 46.4 euro cents per fully diluted share (2013: 6.3).

Exceptional items

For a full list of exceptional items, refer to note 3. Below is a summary of the significant exceptional items recorded.

In 2014, net exceptional charges at the operating profit level were €361 million (2013: €243 million). The exceptional charges for the year include €260 million employee restructuring costs related to Iberia's labour agreements, currency differences charge of €180 million related to funds held in Venezuela, partially offset by the reversal of the Iberia Brand impairment of €79 million.

A non-operating exceptional item was recognised on the gain on sale of Amadeus of €83 million and for the recognition of deferred tax assets, net of all other tax impacts on exceptional items, of €413 million.

In 2013, exceptional charges included employee restructuring costs at Iberia of €268 million, partially offset by reduced US employee benefit obligations at British Airways of €170 million. Iberia also recorded restructuring costs for aircraft of €44 million. The Group recognised net business combination credits of €5 million related to Iberia and Vueling. In addition, there was a charge to revenue of €106 million for the timing of the recognition of deferred revenue. A non-operating loss on acquisition was recognised of €17 million.

Exchange rates

Exchange rate movements are calculated by retranslating current year results as though they had been generated at prior year exchange rates. The reported results are impacted by translation currency from converting British Airways' results from sterling to the Group's reporting currency of euro. British Airways represents approximately 70 per cent of the Group's revenues and operating expenses which causes a significant variation year-over-year. From a transaction perspective, the Group performance is impacted by the fluctuation of exchange rates; primarily sterling, euro and US dollar. The Group exchange rates used and the estimated impact of translation and transaction exchange rates on operating profit before exceptional items are set out as follows. At constant currency, the Group's operating profit before exceptional items would have been €1,459 million, €69 million higher than the reported operating profit.

Exchange impact before exceptional items

€ million			Higher/(lower)
Reported revenue
Translation impact			688
Transaction impact			(523)
Total exchange impact on revenue			165

Reported operating expenditure
Translation impact			(612)
Transaction impact			378
Total exchange impact on operating expenditures			(234)

Reported operating profit
Translation impact			76
Transaction impact			(145)
Total exchange impact on operating profit			(69)

	2014	Higher/ (lower)
Translation
£ to €	1.27	6.7%
Transaction
£ to €	1.24	5.1%
€ to $	1.34	0.8%
£ to $	1.65	5.8%

Financial performance by Brand

British Airways operating profit was £975 million, a £324 million improvement over prior year. British Airways continued its fleet replacement programme, with the delivery of five additional Airbus A380s and four Boeing 787s. The increase in gauge of these aircrafts is contributing in part to the 5.9 per cent rise in capacity for the year. British Airways' strong result is based on increasing revenues and a strong cost performance.

Iberia operating profit was €50 million, a €216 million improvement over prior year. Iberia has made significant progress during the year, resuming services and launching new routes. Capacity for the year was up 3.6 per cent with a flat revenue performance reflecting the competitiveness of the market. On the cost side, Iberia has reduced costs in employee, fuel and supplier reflecting the progress of its Plan de Futuro with its 30 initiatives across all key areas.

Vueling operating profit was €141 million, a €2 million improvement over prior year. Vueling's focus in 2014 was on flexible growth with capacity up 24 per cent, new bases in Brussels and Rome, and a new collective agreement with crew. Vueling introduced 20 additional aircraft by year end with a total fleet of 88. Revenue was up 22.0 per cent and operating margin was 8.2 per cent.

	British Airways		Iberia		Vueling
	£ million		€ million		€ million
	2014	Higher/ (lower)	2014	Higher/ (lower)	2014	Higher/ (lower)
ASKs	170,917	5.9%	54,328	3.6%	26,686	24.2%
Seat factor (per cent)	81.0	(0.3) pts	78.6	(0.5) pts	80.4	0.8 pts
Passenger revenue	10,452	3.2%	3,178	(0.7)%	1,725	22.0%
Cargo revenue	598	(13.2)%	253	(3.1)%	-	-
Other revenue	669	10.9%	837	8.3%	-	-
Total revenue	11,719	2.6%	4,268	0.8%	1,725	22.0%
Fuel, oil costs and emissions charges	3,515	(6.4)%	1,156	(4.8)%	488	20.5%
Employee costs	2,461	2.9%	1,035	(9.9)%	156	31.1%
Supplier costs	3,857	1.1%	1,575	(1.1)%	755	23.8%
EBITDAR	1,886	29.4%	502	80.6%	326	16.4%
Ownership costs	911	12.9%	452	1.8%	185	31.2%
Operating profit before exceptional items	975	49.8%	50	130.1%	141	1.4%
Passenger yield (pence or cents/RPK)	7.55	(2.1)%	7.45	(3.4)%	8.04	(2.8)%
Unit passenger revenue (pence or cents/ASK)	6.12	(2.4)%	5.85	(4.1)%	6.46	(1.8)%
Total unit revenue (pence or cents/ASK)	6.86	(3.0)%	7.86	(2.7)%	6.46	(1.8)%
Fuel unit cost (pence or cents/ASK)	2.06	(11.6)%	2.13	(8.2)%	1.83	(2.9)%
Non-fuel unit costs (pence or cents/ASK)	4.23	(2.7)%	5.64	(7.2)%	4.11	1.3%
Total unit cost (pence or cents/ASK)	6.29	(5.7)%	7.76	(7.5)%	5.94	-

Balance sheet

Property, plant and equipment and intangible assets

The increase in property, plant and equipment in 2014 is mostly related to the Group's investment in aircraft. On balance sheet fleet includes:

· Delivery of 15 new aircraft, including five Airbus A380s, four Boeing B787s, two Boeing B777-300s, three Airbus A320s and one Embraer E190s;

· Pre-delivery payments related to future deliveries;

· Positive translation exchange; offset by

· The sale and leaseback of three aircraft; and

· Depreciation.

The intangible asset increase is primarily related to software additions and the reversal of the Brand impairment.

Other non-current assets

British Airways' defined benefit pension plan assets increased by €400 million from higher interest rates, offset by the sale of Iberia's investment in Amadeus.

Shareholders' equity

In 2014, shareholders' equity decreased €424 million from movements in other reserves. Profit after tax for the Group was €1,003 million offset by adverse movements in the fair value of cash flow hedges of approximately €1,235 million primarily related to lower fuel prices, a net decrease mainly related to the sale of Amadeus recycled to the income statement, an increase in post-employment obligations of €400 million from a decrease in corporate bond rates and a currency translation benefit of €168 million from the weaker euro.

Other non-current liabilities

Non-current liabilities are up due to the increase in the British Airways defined benefit obligation, higher net derivative liabilities from lower fuel prices and an increase in provisions for Iberia's current year restructuring charge. These impacts were partially offset by a reduction in the deferred tax liability balance from the recognition of Iberia's deferred tax asset.

In respect of cash, cash equivalents and interest-bearing deposits and interest-bearing long-term borrowings, see Liquidity and capital resources.

Liquidity and capital resources

The primary source of the Group's liquidity over the past two years has been cash generated from operations.

In 2014 cash generated from operations increased to €1,862 million from €1,218 million. The improvement in the year is proportionate to the increase in operating results achieved by the Group. The cash flows generated from operating activities is after payments made to pension schemes of €409 million, and after interest and tax payments of €277 million.

Net cash flow from investing activities

The Group invested €2.6 billion in fixed assets during the year, primarily represented by fleet transactions and increased its current interest-bearing deposits by €1.4 billion. The sale of Iberia's investment in Amadeus generated net proceeds of €572 million.

Net cash flow from financing activities

The Group's proceeds from long term borrowings relates to aircraft delivery in the year, and includes $431 million drawn down from the Enhanced Equipment Trust Certificates (EETC) issued in 2013. In addition, debt repayments of €1 billion were made during the year.

Cash, cash equivalents and interest-bearing deposits

At December 31 the Group's cash position improved by €1,311 million, generated from the Group's operating activities and the sale of Amadeus. The net cash flows from operations covered the repayment of borrowings including finance leases; funded the acquisition of some fleet and all non-fleet assets; and contributed to the current year increase in cash.

Liquidity risk management

Adequate cash levels are maintained by each operating company. The cash balance at December 31, 2014 comprised €3,206 million held by British Airways, €870 million held by Iberia, €651 million held by Vueling and €217 million held by the parent and other Group companies.

In addition, the Group had undrawn general and committed aircraft financing facilities (primarily available in US dollars) in euro equivalent of €2,975 million (2013: €3,686 million). The Group also had undrawn overdraft facilities of €13 million (2013: €12 million) and undrawn uncommitted money market lines of €32 million (2013: €30 million).

Capital risk management

IAG's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, to maintain an optimal capital structure in order to reduce the cost of capital, and to prepare the Group to provide future returns to shareholders. The Group monitors capital using the adjusted gearing and adjusted net debt to EBITDAR.

The Group's cash increased €1,311 million during the year due to improved cash flows from operations. Net financing was up €1,000 million and reflects the draw down on the remaining EETC and refinancing of the Iberbond. Including adverse exchange and other non-cash movements of €495 million, the Group's net debt was €184 million higher. Adjusted net debt was up €380 million reflecting the increase in net debt and the additional off balance sheet operating leases.

Excluding the remeasurement of employment benefit obligations, IAG's total adjusted shareholders equity for the year was broadly flat, with the profit after tax offset by the fair value movements on cash flow hedges. Combined with the increase in adjusted net debt, this drives adjusted gearing up 1 point to 51 per cent. Adjusted net debt to EBITDAR improves 0.6 to 1.9 times.

Net debt

€ million	2014	2013	Higher / (lower)
Decrease in cash and cash equivalents during the year (excluding Business combination)	(13)	(114)	101
Increase in other current interest-bearing deposits	1,324	532	792
Net funds acquired through Business combination	-	306	(306)
Increase in cash net of exchange	1,311	724	587
Net cash outflow from repayments of debt and lease financing	1,009	677	332
New borrowings and finance leases	(2,009)	(1,529)	(480)
Increase in net debt resulting from financing cash flows	(1,000)	(852)	(148)
Exchange movements and other non-cash movements	(495)	528	(1,023)
(Increase)/decrease in net debt during the year	(184)	400	(584)
Net debt at January 1	(1,489)	(1,889)	400
Net debt at December 31	(1,673)	(1,489)	(184)

Capital commitments and off balance sheet arrangements

Capital expenditure authorised and contracted for amounted to €9,027 million (2013: €8,745 million) for the Group. The majority of this is in US dollars and includes commitments until 2021 for 88 aircraft from the Airbus A320 family, 34 Boeing 787s, 26 Airbus A350s, eight Airbus A330s and four Airbus A380s.

IAG does not have any other off-balance sheet financing arrangements that currently have or are reasonably likely to have a material future effect on the Group's financial condition, changes in financial condition, results of operations, liquidity, capital expenditure or capital resources.

Strategic framework

Our mission is to be the leading international airline Group. This means we will:

· Win the customer through service and value across our global network;

· Deliver higher returns to our shareholders through leveraging cost and revenue opportunities across the Group;

· Attract and develop the best people in the industry;

· Provide a platform for quality international airlines, leaders in their markets, to participate in consolidation;

· Retain the distinct cultures and brands of individual airlines.

By accomplishing our mission, IAG will help to shape the future of the industry, set new standards of excellence and provide sustainability, security and growth.

IAG's six core strategic objectives are:

· Leadership in IAG's main cities;

· Leadership across the Atlantic;

· Stronger Europe-to-Asia position in critical markets;

· Grow share of Europe-to-Africa routes;

· Stronger intra-Europe profitability; and

· Competitive cost positions across our businesses.

Principal risks and uncertainties

The 2013 Annual Report and Accounts refers to a risk of retaliatory action from Non-EU governments should the EU extend their Emissions Trading Scheme (EU ETS) from just intra EU flights to all flights through EU airspace. This risk was mitigated in 2014 by the EU's restriction of EU ETS to intra-European flights until the end of 2016. This EU move was in response to progress made by the International Civil Aviation Organisation (ICAO) in developing a roadmap for a global market based mechanism to tackle aviation emissions.

The 2013 Annual Report and Accounts refers to residual Iberia Transformation risks related to receiving union general assembly approval of negotiated agreements and the refinancing of 16 Airbus A320 aircraft. During 2014 the required union approval was obtained and the aircraft refinancing successfully executed.

Iberia continues to experience problems in repatriating cash balances held in Venezuela with all balances relating to 2013 receipts and seven months of 2014 receipts being trapped in Venezuela. An exceptional charge has been recognised in the year revaluing the cash balance to better reflect the economic reality, and is explained in note 3.

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

Unaudited Full year Condensed Consolidated Financial Statements

January 1, 2014 - December 31, 2014

CONSOLIDATED INCOME STATEMENT
	Year to December 31
€ million	Before exceptional items 2014	Exceptional items	Total 2014	Before exceptional items 2013	Exceptional items	Total 2013
Passenger revenue	17,825		17,825	16,264	(106)	16,158
Cargo revenue	992		992	1,073		1,073
Other revenue	1,353		1,353	1,338		1,338
Total revenue	20,170		20,170	18,675	(106)	18,569
Employee costs	4,325	260	4,585	4,123	98	4,221
Fuel, oil costs and emissions charges	5,987		5,987	5,951	(6)	5,945
Handling, catering and other operating costs	2,063		2,063	1,932		1,932
Landing fees and en-route charges	1,555		1,555	1,422		1,422
Engineering and other aircraft costs	1,276		1,276	1,237	15	1,252
Property, IT and other costs	927		927	922	5	927
Selling costs	859		859	785		785
Depreciation, amortisation and impairment	1,196	(79)	1,117	1,006	8	1,014
Aircraft operating lease costs	551		551	482	17	499
Currency differences	41	180	221	45		45
Total expenditure on operations	18,780	361	19,141	17,905	137	18,042
Operating profit	1,390	(361)	1,029	770	(243)	527

Finance costs	(237)		(237)	(301)		(301)
Finance income	32		32	31		31
Retranslation (charges)/credits on currency borrowings	(27)		(27)	12		12
(Losses)/gains on derivatives not qualifying for hedge accounting	(49)		(49)	43		43
Net gain related to available-for-sale financial assets	10	83	93	2		2
Share of post-tax profits/(losses) in associates	2		2	(8)		(8)
Loss on sale of property, plant and equipment and investments	(11)		(11)	(9)	(17)	(26)
Net financing charge relating to pensions	(4)		(4)	(53)		(53)
Profit before tax from continuing operations	1,106	(278)	828	487	(260)	227
Tax	(238)	413	175	(57)	(19)	(76)
Profit after tax from continuing operations	868	135	1,003	430	(279)	151
Loss after tax from discontinued operations	-		-	-	(4)	(4)
Profit after tax for the year	868	135	1,003	430	(283)	147

Attributable to:
Equity holders of the parent	847		982	405		122
Non-controlling interest	21		21	25		25
	868		1,003	430		147


Basic earnings per share (€ cents)
From continuing operations	41.6		48.2	21.3		6.6
From discontinued operations	-		-	-		(0.2)
From profit for the year	41.6		48.2	21.3		6.4
Diluted earnings per share (€ cents)
From continuing operations	40.2		46.4	20.8		6.5
From discontinued operations	-		-	-		(0.2)
From profit for the year	40.2		46.4	20.8		6.3

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME


	Year to December 31
€ million	2014	2013
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity	(1,235)	(203)
Reclassified and reported in net profit	357	36
Available-for-sale financial assets:
Fair value movements in equity	29	297
Reclassified and reported in net profit	(359)	(3)
Currency translation differences	168	(20)

Items that will not be reclassified to net profit
Remeasurements of post-employment benefit obligations	(394)	521
Total other comprehensive income for the year, net of tax	(1,434)	628
Profit after tax for the year	1,003	147
Total comprehensive income for the year	(431)	775

Total comprehensive income is attributable to:
Equity holders of the parent	(452)	750
Non-controlling interest	21	25
	(431)	775
Total comprehensive income attributable to equity shareholders arises from:
Continuing operations	(452)	754
Discontinued operations	-	(4)

Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.

CONSOLIDATED BALANCE SHEET
€ million	December 31, 2014	December 31, 2013
Non-current assets
Property, plant and equipment	11,784	10,228
Intangible assets	2,438	2,196
Investments in associates	27	25
Available-for-sale financial assets	84	1,092
Employee benefit assets	855	485
Derivative financial instruments	80	35
Deferred tax assets	769	501
Other non-current assets	188	197
	16,225	14,759
Current assets
Non-current assets held for sale	18	12
Inventories	424	411
Trade receivables	1,252	1,196
Other current assets	611	631
Derivative financial instruments	178	135
Other current interest-bearing deposits	3,416	2,092
Cash and cash equivalents	1,528	1,541
	7,427	6,018
Total assets	23,652	20,777

Shareholders' equity
Issued share capital	1,020	1,020
Share premium	5,867	5,867
Treasury shares	(6)	(42)
Other reserves	(3,396)	(2,936)
Total shareholders' equity	3,485	3,909
Non-controlling interest	308	307
Total equity	3,793	4,216
Non-current liabilities
Interest-bearing long-term borrowings	5,904	4,535
Employee benefit obligations	1,324	738
Deferred tax liability	278	884
Provisions for liabilities and charges	1,967	1,796
Derivative financial instruments	359	66
Other long-term liabilities	226	225
	10,058	8,244
Current liabilities
Current portion of long-term borrowings	713	587
Trade and other payables	3,281	3,297
Deferred revenue on ticket sales	3,933	3,496
Derivative financial instruments	1,313	528
Current tax payable	57	11
Provisions for liabilities and charges	504	398
	9,801	8,317
Total liabilities	19,859	16,561
Total equity and liabilities	23,652	20,777

CONSOLIDATED CASH FLOW STATEMENT
	Year to December 31
€ million	2014	2013
Cash flows from operating activities
Operating profit⁽¹⁾	1,029	527
Depreciation, amortisation and impairment	1,117	1,014
Movement in working capital and other non-cash movements⁽¹⁾	426	320
Settlement of competition investigation	(9)	(32)
Employer contributions to pension schemes	(612)	(577)
Pension scheme service costs	203	205
Interest paid	(159)	(163)
Taxation	(118)	(34)
Net cash flows from operating activities from continuing operations	1,877	1,260
Net cash flows used in operating activities from discontinued operations	(15)	(42)
Net cash flows from operating activities	1,862	1,218

Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets	(2,622)	(2,196)
Sale of property, plant and equipment and intangible assets	404	525
Net proceeds from sale of investments	589	-
Cash acquired on Business combination (net of consideration)	-	293
Interest received	37	27
Increase in other current interest-bearing deposits	(1,352)	(593)
Dividends received	2	3
Other investing movements	12	6
Net cash flows from investing activities	(2,930)	(1,935)

Cash flows from financing activities
Proceeds from long-term borrowings	2,009	1,529
Proceeds from equity portion of convertible bond issued	-	72
Repayment of borrowings	(223)	(275)
Repayment of finance leases	(786)	(402)
Acquisition of treasury shares	(23)	(42)
Acquisition of non-controlling interest	-	(24)
Distributions made to holders of perpetual securities	(20)	(20)
Net cash flows from financing activities	957	838

Net (decrease)/increase in cash and cash equivalents	(111)	121
Net foreign exchange differences	98	58
Cash and cash equivalents at 1 January	1,541	1,362
Cash and cash equivalents at year end	1,528	1,541

Interest-bearing deposits maturing after more than three months⁽¹⁾	3,416	2,092

Cash, cash equivalents and other interest-bearing deposits	4,944	3,633

⁽¹⁾A charge of €180 million has been recorded in the year related to Venezuela funds (note 3).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year to December 31, 2014

	Issued share capital	Share premium	Treasury shares	Other reserves⁽¹⁾	Total shareholders' equity	Non-controlling interest	Total equity

€ million
January 1, 2014	1,020	5,867	(42)	(2,936)	3,909	307	4,216

Total comprehensive income for the year (net of tax)	-	-	-	(452)	(452)	21	(431)

Cost of share-based payments	-	-	-	38	38	-	38
Vesting of share-based payment schemes	-	-	59	(46)	13	-	13
Acquisition of treasury shares	-	-	(23)	-	(23)	-	(23)
Distributions made to holders of perpetual securities	-	-	-	-	-	(20)	(20)
December 31, 2014	1,020	5,867	(6)	(3,396)	3,485	308	3,793

⁽¹⁾Closing balance includes a retained deficit of €234 million (excluding pensions restatement: retained earnings of €1,815 million).

For the year to December 31, 2013
	Issued share capital	Share premium	Treasury shares	Other reserves⁽¹⁾	Total shareholders' equity	Non-controlling interest	Total equity

€ million
January 1, 2013	928	5,280	(17)	(1,436)	4,755	300	5,055
Restatement	-	-	-	(2,077)	(2,077)	-	(2,077)
January 1, 2013 (restated)	928	5,280	(17)	(3,513)	2,678	300	2,978

Total comprehensive income for the year (net of tax)	-	-	-	750	750	25	775

Cost of share-based payments	-	-	-	30	30	-	30
Exercise of share options	-	-	17	(9)	8	-	8
Acquisition of treasury shares	-	-	(42)	-	(42)	-	(42)
Equity portion of convertible bond issued	-	-	-	72	72	-	72
Non-controlling interest arising on Business combination	-	-	-	-	-	26	26
Acquisition of non-controlling interest	-	-	-	-	-	(24)	(24)
Issue of ordinary shares related to conversion of convertible bond	92	587	-	(266)	413	-	413
Distributions made to holders of perpetual securities	-	-	-	-	-	(20)	(20)
December 31, 2013	1,020	5,867	(42)	(2,936)	3,909	307	4,216

⁽¹⁾Closing balance includes a retained deficit of €814 million (excluding pensions restatement: retained earnings of €1,235 million).

1. Corporate Information AND BASIS OF PREPARATION

International Consolidated Airlines Group S.A. (hereinafter 'International Airlines Group', 'IAG' or the 'Group') is a leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora (hereinafter 'British Airways' and 'Iberia' respectively) completed a merger transaction becoming the first two airlines of the Group. Vueling Airlines S.A. ('Vueling') was acquired on April 26, 2013.

IAG shares are traded on the London Stock Exchange's main market for listed securities and also on the stock exchanges of Madrid, Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'), through the Spanish Stock Exchanges Interconnection System (Mercado Continuo Español).

The Group's full year condensed consolidated financial statements for the year to December 31, 2014 were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on February 26, 2015. The condensed financial statements herein are not the Company's statutory accounts and are unaudited. The Directors consider that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the condensed financial statements.

The basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2013 have been applied in the preparation of these condensed consolidated financial statements, except as disclosed in note 2. IAG's financial statements for the year to December 31, 2013 have been filed with the Registro Mercantil de Madrid, and are in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and with those of the Standing Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the International Accounting Standards Board (IASB). The report of the auditors on those financial statements was unqualified.

2. Accounting Policies

The Group has adopted the following standards, interpretations and amendments for the first time in the year to December 31, 2014:

IFRS 10 'Consolidated financial statements', IFRS 11 'Joint arrangements' and IFRS 12 'Disclosure of interest in other entities'; effective for periods beginning on or after January 1, 2014. IFRS 10 replaces the guidance on control and consolidation in IAS 27 and SIC 12 'Consolidation-special purpose entities'. IFRS 11 requires joint arrangements to be accounted for as a joint operation or as a joint venture depending on the rights and obligations of each party to the arrangement. IFRS 12 requires enhanced disclosure of the nature, risk and the financial effects associated with the Group's interest in subsidiaries, associates, joint arrangements and unconsolidated structured entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they were a single entity remains unchanged, as do the mechanics of consolidation. The application of these standards have no impact on the Group's net result or net assets.

IAS 32 (Amendment) 'Financial instruments: Presentation'; effective for periods beginning on or after January 1, 2014. The amendment clarifies some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The application of this standard has no significant impact on the Group's net result or net assets.

IAS 36 (Amendment) 'Impairment of assets'; effective for periods beginning on or after January 1, 2014. The amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The standard requires a change in the presentation of the Group's notes to the financial statements but has no impact on the Group's net result or net assets.

IAS 39 (Amendment) 'Financial instruments: Recognition and measurement'; effective for periods beginning on or after January 1, 2014. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counterparty meets specific criteria. The application of this standard has no impact on the Group's net result or net assets.

Other amendments resulting from improvements to IFRSs did not have any impact on the accounting policies, financial position or performance of the Group. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

3. Exceptional items

	Year to December 31
€ million	2014	2013
Foreign currency loss⁽¹⁾	180	-
Restructuring costs - employee⁽²⁾	260	268
Restructuring costs - aircraft⁽²⁾	-	44
Reversal of Iberia Brand impairment⁽³⁾	(79)	-
Business combination costs⁽⁴⁾	-	5
Pre-acquisition cash flow hedge impact⁽⁵⁾	-	(10)
Revision in US past service cost benefits⁽⁶⁾	-	(170)
Customer loyalty programme change in estimate⁽⁷⁾	-	106
Recognised in expenditure on operations	361	243
Gain on sale of available-for-sale asset⁽⁸⁾	(83)	-
Loss on step acquisition⁽⁹⁾	-	17
Total exceptional charge before tax	278	260

Loss on discontinued operations⁽¹⁰⁾	-	4
Tax on exceptional items	(144)	19
Net deferred tax credit⁽¹¹⁾	(269)	-
Total exceptional (credit)/charge after tax	(135)	283

⁽¹⁾Foreign currency loss

Since December 2012 repatriation of funds from Venezuela has been limited. Throughout 2013, Iberia recognised net sales at 6.3 bolívares (CADIVI) to the US dollar. The unrepatriated cash at the end of 2013 was €184 million.

From February to October 2014, Iberia recognised net sales at 11 bolívares to the US dollar (SICAD I) since this was the official rate at which Iberia was authorised by the Venezuelan government to repatriate cash. In the third quarter of 2014, Iberia received funds for February to June 2014 at SICAD I and given the ongoing negotiations, the €184 million of unrepatriated funds from 2013 and January 2014 were also revalued to SICAD I. An exceptional charge of €82 million was recognised.

Iberia has been unable to repatriate any further funds earned prior to February 2014 or subsequent to June 2014. Given this and combined with the lack of liquidity in Venezuela, the decrease in the Brent barrel price and a government recognised inflation rate of 65 per cent, Iberia has determined that SICAD I can no longer be considered available in practice, for the repatriation of the funds. The next alternative rate available at December 31, 2014 was the SICAD II rate of 50 bolívares to the US dollar which Iberia considers to better reflect the economic reality. This rate has been applied since November 2014. All remaining funds, which approximately amount to Bs 1.7 billion were revalued to SICAD II resulting in an additional exceptional charge of €98 million. The cash balance at December 31, 2014 is €18 million.

In February 2015 the Venuezuelan government has approved changes to the country's currency exchange systems through new foreign exchange regulations. These changes include replacing SICAD II with SIMADI, a new mechanism to trade US dollars through private brokers that is expected to compete with the illegal parallel market. Using the new SIMADI rates would represent a further write down. Iberia has not used SIMADI rates since these were not available at the balance sheet date.

A related tax credit of €54 million was recognised.

⁽²⁾Restructuring costs

In the year to December 31, 2014, a restructuring expense of €260 million has been recognised in relation to the Iberia Transformation Plan and the agreement on collective redundancies for pilots and ground staff. A related tax credit of €78 million was recognised.

In the year to December 31, 2013, a restructuring expense of €312 million was recognised in relation to the Iberia Transformation Plan. €265 million of additional employee restructuring costs were charged to reflect the increased cost of the severance as proposed by the mediator agreement. Restructuring costs of €47 million associated with the return of leased aircraft and standing down owned aircraft were also recorded in the comparative period. No deferred tax was recognised.

⁽³⁾Reversal of Iberia Brand impairment

In 2014 the partial impairment of the Iberia Brand of €79 million was reversed (note 12). This follows Iberia's return to profitability and the approval of Iberia's Business plan. A related tax charge of €24 million was recognised.

⁽⁴⁾Business combination costs

Transaction expenses of €5 million were recognised in relation to the Vueling Business combination in the year to December 31, 2013.

3. EXCEPTIONAL ITEMS continued

⁽⁵⁾Derivatives and financial instruments

On January 21, 2011, Iberia had a portfolio of cash flow hedges with a net mark-to-market charge of €67 million recorded within Other reserves on the Balance sheet. On April 26, 2013, Vueling had a portfolio of cash flow hedges with a net mark-to-market charge which rounds to nil recorded within Other reserves in the Balance sheet. As these cash flow hedge positions unwind, Iberia and Vueling will recycle the impact from Other reserves through their respective Income statement.

The Group does not recognise the pre-acquisition cash flow hedge net position on the Balance sheet, resulting in fuel and aircraft operating lease costs being gross of the pre-acquisition cash flow hedge positions. For the year to December 31, 2013 this resulted in a decrease in reported aircraft operating lease costs of €4 million, a decrease in reported fuel expense of €6 million and a related €3 million tax charge.

⁽⁶⁾Revision in US past service cost benefits

The Group made changes to the US PRMB (Post-Retirement Medical Benefits) during 2013 to bring the level of benefits in line with national trends in the US. This scheme is accounted for in a similar way to a defined benefit plan. Any reduction in benefits provided would result in a recognition of a past service gain when the plan amendment occurs. This change resulted in a recognition of a one-off gain in employee costs of €170 million during the year to December 31, 2013, and a related deferred tax charge of €39 million.

⁽⁷⁾Customer loyalty programme change in estimate

During 2013, management revised estimates relating to the customer loyalty programme revenue, recognised on redemption. Historically, management information systems have provided a constraint on the reliability of revenue recognition at the point of departure. As part of a Group-wide exercise to review the existing customer loyalty programmes, reporting has been developed to better estimate the revenue that should be deferred to departure and so this new management information was adopted during the year to December 31, 2013 giving rise to a reduction in passenger revenue of €106 million, and a related tax credit of €23 million.

⁽⁸⁾Gain on sale of available-for-sale asset

During the third quarter of 2014, Iberia entered into an agreement to settle its hedging transaction over its ownership interest in Amadeus IT Holding S.A. ('Amadeus') and sell its entire shareholding. The derivative transaction comprised a collar arrangement on Iberia's Amadeus shareholding of 33,562,331 ordinary shares.

The settlement of the derivative contract commenced in August 2014 and the Group's shareholding in Amadeus has been sold in equal instalments over a 100 trading day period. At December 31, 2014 Iberia had settled 99 per cent of the transaction and the resulting €83 million gain was recognised in the Net gain related to available-for-sale financial assets line. A related €36 million tax credit was also recognised.

⁽⁹⁾Loss on step acquisition

As a result of Iberia's initial investment in Vueling, the Business combination was achieved in stages. The Group revalued its initial investment in Vueling to fair value at the acquisition date resulting in a non-cash loss of €17 million recognised in the Loss on sale of property, plant and equipment and investments line in the year to December 31, 2013.

⁽¹⁰⁾Loss on discontinued operations

The loss after tax from discontinued operations of bmibaby and bmi regional was €4 million for the year to December 31, 2013.

⁽¹¹⁾Net deferred tax credit

In the year, the Group recognised a €306 million deferred tax asset relating to losses incurred by Iberia from 2013 and 2012. Recognition is based on Management's expectation of the recoverability of these losses against future profits. Recoverability was based on the improved operating performance in the current year and from the projections included within the Business plan.

During 2014, the Spanish government enacted a number of changes as part of the Spanish Tax Reform, including the phased reduction of corporation tax rate from 30 per cent to 25 per cent and a change in loss utilisation rules. A related tax charge of €37 million was also recognised.

4. Discontinued operations

In 2014, there was no revenue and no expenditure on operations relating to discontinued operations (2013: total expenditure on operations of €4 million, related to additional costs incurred in handing back bmibaby aircraft to lessors)

5. SEASONALITY

The Group's business is highly seasonal with demand strongest during the summer months. Accordingly higher revenues and operating profits are usually expected in the latter six months of the financial year than in the first six months.

6. SEGMENT INFORMATION

a. Business segments

British Airways, Iberia and Vueling are managed as individual operating companies. Each airline operates its network operations as a single business unit. The chief operating decision maker is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the IAG Management Committee. The IAG Management Committee makes resource allocation decisions based on network profitability, primarily by reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to optimise consolidated financial results. Therefore, based on the way the Group treats its businesses, and the manner in which resource allocation decisions are made, the Group has three (2013: three) reportable operating segments for financial reporting purposes, reported as British Airways, Iberia and Vueling.

For the year to December 31, 2014	2014
€ million	British Airways	Iberia	Vueling	Other Group companies	Total
Revenue
External revenue	14,456	3,989	1,725	-	20,170
Inter-segment revenue	37	279	-	107	423
Segment revenue	14,493	4,268	1,725	107	20,593

Depreciation, amortisation and impairment	(1,027)	(76)	(11)	(3)	(1,117)

Operating profit/(loss) before exceptional items	1,215	50	141	(16)	1,390

Exceptional items (note 3)	-	(361)	-	-	(361)
Operating profit/(loss) after exceptional items	1,215	(311)	141	(16)	1,029

Net non-operating costs					(201)
Profit before tax from continuing operations					828


For the year to December 31, 2013	2013
€ million	British Airways	Iberia	Vueling	Other Group companies	Total
Revenue
External revenue	13,337	4,102	1,130	-	18,569
Inter-segment revenue	18	128	3	84	233
Segment revenue	13,355	4,230	1,133	84	18,802

Depreciation, amortisation and impairment	(851)	(154)	(5)	(4)	(1,014)

Operating profit/(loss) before exceptional items	762	(166)	168	6	770

Exceptional items (note 3)	68	(316)	-	5	(243)
Operating profit/(loss) after exceptional items	830	(482)	168	11	527

Net non-operating costs					(300)
Profit before tax from continuing operations					227

6. SEGMENT INFORMATION continued

b. Geographical analysis

Revenue by area of original sale
	Year to December 31
€ million	2014	2013
UK	6,931	6,085
Spain	3,203	2,839
USA	2,893	2,677
Rest of world	7,143	6,968
	20,170	18,569

Assets by area

December 31, 2014
€ million	Property, plant and equipment	Intangible assets
UK	10,131	1,184
Spain	1,624	1,218
USA	24	12
Rest of world	5	24
Total	11,784	2,438

December 31, 2013

€ million	Property, plant and equipment	Intangible assets
UK	8,891	1,022
Spain	1,296	1,138
USA	34	5
Rest of world	7	31
Total	10,228	2,196

7. FINANCE COSTS AND INCOME

	Year to December 31
€ million	2014	2013
Finance costs
Interest payable on bank and other loans, finance charges payable under finance leases	(211)	(237)
Unwinding of discount on provisions	(39)	(51)
Capitalised interest on progress payments	2	4
Change in fair value of cross currency swaps	(5)	(7)
Currency credits/(charges) on financial fixed assets	16	(10)
Total finance costs	(237)	(301)
Finance income
Interest on other interest-bearing deposits	32	31
Total finance income	32	31
Net charge relating to pensions
Net financing charge relating to pensions	(4)	(53)
Net financing charge relating to pensions	(4)	(53)

8. Tax

The tax credit for the year to December 31, 2014 is €175 million (2013: €76 million charge).

In quarter 4 2014, €306 million of deferred tax assets were recognised relating to losses incurred by Iberia in 2013 and 2012. A tax charge of €37 million was also recognised in relation to the phased reduction in the corporation tax rate in Spain from 30 per cent to 25 per cent.

Excluding the effect of deferred tax assets recognised in the year, the impact of the tax rate reductions and tax on the exceptional items totalling a credit of €413 million, the effective tax rate for the year to December 31, 2014 was 22 per cent.

9. EARNINGS PER SHARE

The number of shares in issue at December 31, 2014 and 2013 was 2,040,078,523 ordinary shares with a par value of €0.50 each.

	Year to December 31
Millions	2014	2013
Weighted average number of ordinary shares outstanding	2,036	1,906
Weighted average number for diluted earnings per share	2,162	1,945

	Year to December 31
€ cents	2014	2013
Basic earnings per share	48.2	6.4
Diluted earnings per share	46.4	6.3

10. DIVIDENDS

The Directors propose that no dividend be paid for the year to December 31, 2014 (December 31, 2013: nil).

11. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

€ million	Property, plant and equipment	Intangible assets
Net book value at January 1, 2014	10,228	2,196
Additions	2,499	138
Disposals	(404)	-
Depreciation, amortisation and impairment	(1,152)	(44)
Impairment reversal	-	79
Exchange movements	613	69
Net book value at December 31, 2014	11,784	2,438

€ million	Property, plant and equipment	Intangible assets
Net book value at January 1, 2013	9,926	1,965
Additions	2,057	150
Acquired through Business combination	3	168
Disposals	(523)	(27)
Reclassifications	(15)	-
Depreciation, amortisation and impairment	(982)	(32)
Exchange movements	(238)	(28)
Net book value at December 31, 2013	10,228	2,196

Capital expenditure authorised and contracted but not provided for in the accounts amounts to €9,027 million (December 31, 2013: €8,745 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to changes in exchange rates

12. IMPAIRMENT REVIEW

The carrying amounts of intangible assets with indefinite life and goodwill for the three cash generating units of the Group are:

€ million	Goodwill	Brand	Customer loyalty programmes	Landing rights	Total
2014
Iberia
January 1, 2014	-	227	253	423	903
Impairment reversal	-	79	-	-	79
December 31, 2014	-	306	253	423	982

British Airways
January 1, 2014	48	-	-	789	837
Additions	-	-	-	1	1
Exchange movements	3	-	-	50	53
December 31, 2014	51	-	-	840	891

Vueling
January 1, 2014	28	35	-	89	152
December 31, 2014	28	35	-	89	152

December 31, 2014	79	341	253	1,352	2,025

€ million	Goodwill	Brand	Customer loyalty programmes	Landing rights	Total
2013
Iberia
January 1, 2013	-	227	253	423	903
December 31, 2013	-	227	253	423	903

British Airways
January 1, 2013	49	-	-	796	845
Additions	-	-	-	15	15
Exchange movements	(1)	-	-	(22)	(23)
December 31, 2013	48	-	-	789	837

Vueling
January 1, 2013	-	-	-	-	-
Additions due to Business combination	28	35	-	89	152
December 31, 2013	28	35	-	89	152

December 31, 2013	76	262	253	1,301	1,892

Basis for calculating recoverable amount

Goodwill, Brand and the customer loyalty programme recoverable amounts have been measured based on their value-in-use.

Landing rights recoverable amount has been measured by reference to market transactions of similar assets less costs to sell, or through value-in-use.

Value-in-use is calculated using a discounted cash ﬂow model. Cash ﬂow projections are based on the Business plan approved by the Board covering a ﬁve year period. Cash ﬂows extrapolated beyond the ﬁve year period are projected to increase on long-term growth rates. Cash ﬂow projections are discounted using the cash generating unit's (CGU) pre-tax discount rate.

12. IMPAIRMENT REVIEW continued

Annually the Group prepares and approves five year Business plans. Business plans were approved in the fourth quarter of the year. The Iberia Business plan cash flows used in the value-in-use calculations reflect all restructuring of the business that has been approved by the Board and which can be executed by Management under existing agreements reached with the unions.

Key assumptions

The key assumptions used in the value-in-use calculations for each of the CGU's are as follows. In addition, where there has been an impairment loss in a CGU, the recoverable amount is also disclosed.

	2014
	British Airways	Iberia	Vueling
Long-term growth rate (per cent)⁽¹⁾	2.5	2.2	2.2
Pre-tax discount rate (per cent)⁽²⁾	10.0	10.2	12.5
Recoverable amount of the CGU (million)	n/a	€6,400	n/a

	2013
	British Airways	Iberia	Vueling
Long-term growth rate (per cent)⁽¹⁾	2.5	-	-
Pre-tax discount rate (per cent)⁽²⁾	10.0	12.2	12.4

⁽¹⁾The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market using gross domestic product (GDP). This is amended from time-to-time to reflect specific market risk. This was last the case in 2013, when Management assessed the outlook for the economic environment in Spain as challenging following two years of negative GDP.

⁽²⁾Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline industry, the Group and its CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by airline investors and the cost of debt is broadly based on the Group's interest-bearing borrowings. CGU specific risk is incorporated by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects the timing of future tax flows.

Summary of results

In 2014, Management reviewed the recoverable amount of each of the CGUs and concluded the recoverable amounts exceeded the carrying values.

Following the impairment review of the Iberia CGU in 2012, goodwill and a franchise agreement were impaired by their full carrying amounts and the Iberia Brand was written down by €79 million. The impairment of goodwill cannot be reversed and the franchise agreement has since expired. The original impairment of the Iberia Brand has been reassessed in the current year given the excess of the Iberia CGU recoverable amount over its carrying value. The reassessment included testing the Iberia Brand recoverable amount using the royalty methodology, with a royalty rate of 0.60 per cent (2013: 0.60 per cent). Individually and in combination, the value-in-use tests of the Iberia CGU and of the Iberia Brand support the reversal of the original €79 million impairment. This has been recorded as an exceptional credit within Depreciation, amortisation and impairment in the Income statement.

Sensitivities

For the Iberia cash generating unit, additional sensitivities have been considered at the overall CGU level. A 16 point increase in the post-tax discount rate would reduce the recoverable amount to the carrying amount. A 7 point reduction in the operating margin in each year of the Business plan, and extrapolated beyond the plan would reduce the recoverable amount to the carrying amount.

No reasonable possible change in the key assumptions for the British Airways or Vueling CGUs would cause the carrying amounts of goodwill to exceed the recoverable amounts.

13. NON-CURRENT ASSETS HELD FOR SALE

The non-current assets held for sale of €18 million (2013: €12 million) represent €11 million for the remaining investment of 0.075 per cent in Amadeus representing one settlement day outstanding, and €7 million representing six Boeing 737 engines (2013: four Boeing 737s and one Boeing 767 aircraft stood down). These are presented within the Iberia and British Airways operating segments respectively and will exit the business within 12 months of December 31, 2014.

Assets held for sale with a net book value of €3 million were disposed of by the Group during the year to December 31, 2014 resulting in a loss of €2 million on disposal (2013: property with a net book value of €3 million disposed of at no gain or loss).

14. FINANCIAL INSTRUMENTS

a. Financial assets and liabilities by category

The detail of the Group's ﬁnancial instruments at December 31, 2014 and December 31, 2013 by nature and classiﬁcation for measurement purposes is as follows:

December 31, 2014	Financial assets
€ million	Loans and receivables	Derivatives used for hedging	Available-for-sale	Non-financial assets	Total carrying amount by balance sheet item
Non-current assets
Available-for-sale financial assets	-	-	84	-	84
Derivative financial instruments	-	80	-	-	80
Other non-current assets	167	-	-	21	188

Current assets
Trade receivables	1,252	-	-	-	1,252
Other current assets	244	-	-	367	611
Non-current assets held for sale	-	-	11	7	18
Derivative financial instruments	-	178	-	-	178
Other current interest-bearing deposits	3,416	-	-	-	3,416
Cash and cash equivalents	1,528	-	-	-	1,528

		Financial liabilities
€ million		Loans and payables	Derivatives used for hedging	Non-financial liabilities	Total carrying amount by balance sheet item
Non-current liabilities
Interest-bearing long-term borrowings		5,904	-	-	5,904
Derivative financial instruments		-	359	-	359
Other long-term liabilities		7	-	219	226

Current liabilities
Current portion of long-term borrowings		713	-	-	713
Trade and other payables		3,017	-	264	3,281
Deferred revenue on ticket sales		-	-	3,933	3,933
Derivative financial instruments		-	1,313	-	1,313

14. FINANCIAL INSTRUMENTS continued


December 31, 2013	Financial assets
€ million	Loans and receivables	Derivatives used for hedging	Available-for-sale	Non-financial assets	Total carrying amount by balance sheet item
Non-current assets
Available-for-sale financial assets	-	-	1,092	-	1,092
Derivative financial instruments	-	35	-	-	35
Other non-current assets	182	-	-	15	197

Current assets
Trade receivables	1,196	-	-	-	1,196
Other current assets	270	-	-	361	631
Derivative financial instruments	-	135	-	-	135
Other current interest-bearing deposits	2,092	-	-	-	2,092
Cash and cash equivalents	1,541	-	-	-	1,541

	Financial liabilities
€ million	Loans and payables	Derivatives used for hedging	Non-financial liabilities	Total carrying amount by balance sheet item
Non-current liabilities
Interest-bearing long-term borrowings	4,535	-	-	4,535
Derivative financial instruments	-	66	-	66
Other long-term liabilities	7	-	218	225

Current liabilities
Current portion of long-term borrowings	587	-	-	587
Trade and other payables	2,971	-	326	3,297
Deferred revenue on ticket sales	-	-	3,496	3,496
Derivative financial instruments	-	528	-	528

b. Fair value of financial assets and financial liabilities

The fair values of the Group's financial instruments are disclosed in hierarchy levels based on the nature of the inputs used in determining the fair values as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis;

Level 2: Inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates; and

Level 3: Inputs for the asset or liability that are not based on observable market data.

The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets, trade and other payables and deferred revenue on ticket sales approximate their carrying value largely due to the short-term maturities of those instruments.

14. FINANCIAL INSTRUMENTS continued

The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:

Instruments included in Level 1 comprise listed asset investments classified as available-for-sale and interest-bearing borrowings which are stated at market value at the balance sheet date.

Instruments included in Level 2 include derivatives and interest-bearing borrowings.

Forward currency transactions and over-the-counter fuel derivatives are entered into with various counterparties, principally financial institutions with investment grade ratings. These are measured at the market value of instruments with similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is deemed to be not significant.

The hedge of the available-for-sale asset takes the form of an equity collar. The valuation of this collar is based on a Black Scholes valuation model using share price spot rate, strike price, stock volatility and the euro interest rate curve.

The fair value of the Group's interest-bearing borrowings including leases are determined by discounting the remaining contractual cash flows at the relevant market interest rates as at the balance sheet date.

All resulting fair value estimates are included in Level 2 except for certain investments which are classified as Level 3.

The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2014 are set as follows:


	Fair value				Carrying value
€ million	Level 1	Level 2	Level 3	Total	Total
Financial assets
Available-for-sale financial assets	19	-	65	84	84
Derivatives⁽¹⁾	-	258	-	258	258

Financial liabilities
Interest-bearing borrowings	892	6,256	-	7,148	6,617
Derivatives⁽²⁾	-	1,672	-	1,672	1,672

⁽¹⁾Current portion of derivative financial assets is €178 million.
⁽²⁾Current portion of derivative financial liabilities is €1,313 million.

December 31, 2013:
	Fair value				Carrying value
€ million	Level 1	Level 2	Level 3	Total	Total
Financial assets
Available-for-sale financial assets	1,070	-	22	1,092	1,092
Derivatives⁽¹⁾	-	170	-	170	170

Financial liabilities
Interest-bearing borrowings	802	4,658	-	5,460	5,122
Derivatives⁽²⁾	-	594	-	594	594

⁽¹⁾Current portion of derivative financial assets is €135 million.
⁽²⁾Current portion of derivative financial liabilities is €528 million.

There have been no transfers between levels of fair value hierarchy during the year.

Out of the financial instruments listed in the previous table, only the interest-bearing borrowings are not measured at fair value on a recurring basis.

14. FINANCIAL INSTRUMENTS continued

c.	Level 3 financial assets reconciliation

	The following table summarises key movements in Level 3 financial assets:
	€ million	December 31, 2014	December 31, 2013
	Opening balance for the year	22	29
	Gains recognised in the Income statement⁽¹⁾	1	1
	Gains recognised in Other comprehensive income⁽²⁾	48	-
	Sales	-	(2)
	Settlements	(7)	(6)
	Exchange movements	1	-
	Closing balance for the year	65	22

	⁽¹⁾Included in Net credit relating to available-for sale-financial assets in the consolidated Income statement.
	⁽²⁾Included in Available-for-sale financial assets - Fair value movements in equity in the consolidated Statement of other comprehensive income.

	The fair value of Level 3 financial assets cannot be measured reliably; as such these assets are stated at historic cost less accumulated impairment losses with the exception of the Group's investment in The Airline Group Limited. This unlisted investment had previously been valued at nil, since the fair value could not be reasonably calculated. During the year to December 31, 2014 other shareholders disposed of a combined holding of 49.9 per cent providing a market reference from which to determine a fair value. The revaluation resulted in a gain of €48 million recognised in Other comprehensive income. The investment remains classified as a Level 3 financial asset due to the valuation criteria applied not being observable, with the resultant fair value uplift being non-recurring in nature.

15. Borrowings

	December 31,	December 31,
	2014	2013
Current
Bank and other loans	164	183
Finance leases	549	404
	713	587
Non-current
Bank and other loans	1,069	1,169
Finance leases	4,835	3,366
	5,904	4,535

The Group's finance lease for one Airbus A340-600 is subject to financial covenants which are tested annually. The lease is part of a syndicate family. The Group has informed the syndicate that it had failed to meet the covenants for the year to December 31, 2014. As a result of these covenant breaches, the finance lease has technically become repayable on demand and $79 million (€65 million) has been classified as current. The institutions formally waived the breach on February 25, 2015.

Three of the Group's Airbus A340-600 operating leases are also subject to financial covenants which are tested annually. The Group has informed the syndicate that it had failed to meet the covenants for the year to December 31, 2014. The remaining operating lease payments of $156 million (€128 million) will technically fall due within one year. The institutions have provided positive feedback and are expected to formally waive the breach in March 2015.

16. SHARE BASED PAYMENTS

During the year 5,717,197 conditional shares were awarded under the Group's Performance Share Plan (PSP) to key senior executives and selected members of the wider management team. No payment is due upon the vesting of the shares. The fair value of equity-settled share schemes granted is estimated at the date of the award using the Monte-Carlo model, taking into account the terms and conditions upon which the options were awarded. The following are the inputs to the model for the PSP options granted in the year:

Expected share price volatility: 35 per cent

Expected life of options: 3 years

Weighted average share price: £4.35

The Group also made awards related to the 2013 performance year for qualifying employees under the Incentive Award Deferral Plan (IADP) during the year, under which 2,079,780 conditional shares were awarded.

17. EMPLOYEE BENEFIT OBLIGATIONS

The Group operates two principal funded defined benefit pension schemes in the UK, the Airways Pension Scheme (APS) and the New Airways pension scheme (NAPS), both of which are closed to new members.
	At December 31, 2014
€ million	APS	NAPS	Other	Total

Scheme assets at fair value	9,542	16,201	424	26,167
Present value of scheme liabilities	(8,191)	(17,134)	(795)	(26,120)
Net pension asset/(liability)	1,351	(933)	(371)	47
Effect of the asset ceiling	(502)	-	-	(502)
Other employee benefit obligations	-	-	(14)	(14)
December 31, 2014	849	(933)	(385)	(469)

Represented by:
Employee benefit asset				855
Employee benefit obligation				(1,324)
				(469)


	At December 31, 2013
€ million	APS	NAPS	Other	Total

Scheme assets at fair value	8,250	13,847	384	22,481
Present value of scheme liabilities	(7,535)	(14,342)	(608)	(22,485)
Net pension asset/(liability)	715	(495)	(224)	(4)
Effect of the asset ceiling	(236)	-	-	(236)
Other employee benefit obligations	-	-	(13)	(13)
December 31, 2013	479	(495)	(237)	(253)

Represented by:
Employee benefit asset				485
Employee benefit obligation				(738)
				(253)

17. EMPLOYEE BENEFIT OBLIGATIONS continued

The accounting valuation was performed after updating key assumptions at December 31, 2014 as follows:

	APS		NAPS
Per cent per annum	December 31, 2014	December 31, 2013	December 31, 2014	December 31, 2013

Inflation (CPI)	1.85	2.50	1.95	2.55
Inflation (RPI)	2.85	3.25	2.95	3.30
Salary increases (as RPI)	2.85	3.25	2.95	3.30
Discount rate	3.45	4.40	3.80	4.70

Pension contributions for APS and NAPS were determined by actuarial valuation made as at March 31, 2012 using assumptions and methodologies agreed with the Trustees of each scheme.

18. PROVISIONS FOR LIABILITIES AND CHARGES

€ million	Employee leaving indemnities and other employee related provisions	Restructuring	Legal claims provisions	Restoration and handback provisions	Other provisions	Total
Net book value at January 1, 2014	592	682	101	684	135	2,194
Provisions recorded during the year	14	313	56	236	48	667
Utilised during the year	(17)	(137)	(31)	(176)	(49)	(410)
Release of unused amounts and other movements	(52)	25	5	(27)	(26)	(75)
Unwinding of discount	14	11	3	9	2	39
Exchange differences	1	1	1	45	8	56
Net book value at December 31, 2014	552	895	135	771	118	2,471
Analysis:
Current	26	219	4	183	72	504
Non-current	526	676	131	588	46	1,967

19. CONTINGENT LIABILITIES

There were contingent liabilities at December 31, 2014 in respect of guarantees and indemnities entered into as part of the ordinary course of the Group's business. No material losses are likely to arise from such contingent liabilities and guarantees. The Group also had the following claims:

Cargo

The Group is party to a number of legal proceedings in the English courts relating to a decision by the European Commission in 2010 which fined British Airways and ten other airline groups for participating in a cartel in respect of air cargo prices. The European Commission's decision is currently the subject of appeal, but has led to a large number of claimants seeking, in proceedings brought in the English courts and elsewhere, to recover damages from British Airways and the other airlines which they claim arise from the alleged cartel activity. It is not possible at this stage to predict the outcome of the proceedings, which British Airways will vigorously defend. British Airways has, or will, join in to the proceedings the other airlines alleged to have participated in cartel activity to obtain a contribution to such damages, if any, awarded.

The Group is also party to similar litigation in a number of other jurisdictions, including Germany, the Netherlands, Israel and Canada, together with a number of other airlines. At present, the outcome of the proceedings is unknown. In each case, the precise effect, if any, of the alleged cartelising activity on the claimants will need to be assessed.

On the basis of latest information obtained and advice from legal counsel, we are currently unable to determine whether the Group has an existing obligation as a result of the past event.

A number of other lawsuits and regulatory proceedings are pending, the outcome of which in the aggregate is not expected to have a material effect on the Group's financial position or results of operations.

The Group has certain contingent liabilities and guarantees, which at December 31, 2014 amounted to €138 million (December 31, 2013: €124 million).

20. RELATED PARTY TRANSACTIONS

The Group had the following transactions in the ordinary course of business with related parties.

Sales and purchases of goods and services:
	Year to December 31
€ million	2014	2013
Sales of goods and services
Sales to associates	16	78
Sales to significant shareholders	-	-

Purchases of goods and services
Purchases from associates	59	61
Purchases from significant shareholders	-	-

Year end balances arising from sales and purchases of goods and services:
€ million	December 31, 2014	December 31, 2013
Receivables from related parties
Amounts owed by associates	6	7
Amounts owed by significant shareholders	-	-

Payables to related parties
Amounts owed to associates	6	6
Amounts owed to significant shareholders	-	-

For the year to December 31, 2014 the Group has not made any provision for doubtful debts arising relating to amounts owed by related parties (2013: nil).

In 2012 the Group entered into a hedging transaction at arm's length with Nomura International Plc, a related party to IAG as there is a common Non-Executive Board member. The transaction was a risk management exercise to protect the value of the 33,562,331 ordinary shares that the Group holds in Amadeus. During the third quarter of 2014, the Group entered into an agreement to settle the hedging transaction over its ownership interest in Amadeus and sell its entire shareholding. At December 31, 2014 the Group had settled 99 per cent of the transaction.

On January 30, 2015 Qatar Airways announced that it has acquired a 9.99 per cent shareholding in IAG.

Board of Directors and Management Committee remuneration

Compensation received by the Group's key management personnel is as follows:

	Year to December 31
€ million	2014	2013
Base salary, fees and benefits
Board of Directors' remuneration	13	16
Management Committee remuneration	18	8

The Board of Directors includes remuneration for two Executive Directors (2013: four Executive Directors).

The Management Committee includes remuneration for eight members (2013: six members).

The Company provides life insurance for all Executive Directors and the Management Committee. For the year to December 31, 2014 the Company's obligation was €48,000 (2013: €37,000).

At December 31, 2014 the transfer value of accrued pensions covered under defined benefit pension obligation schemes relating to the Management Committee totalled €7 million (2013: €5 million).

No loans or credit transactions were outstanding with Directors or officers of the Group at December 31, 2014 (2013: nil).

21. POST BALANCE SHEET EVENTS

On January 27, 2015 IAG submitted a proposal to make an offer for Aer Lingus Group plc of €2.55 per share, structured as a cash payment of €2.50 per share, payable upon completion, in addition to an ordinary dividend of €0.05 per share. The proposal is subject to certain pre-conditions.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

LIABILITY STATEMENT OF COMPANY DIRECTORS FOR THE PURPOSES ENVISAGED UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF 19 OCTOBER (REAL DECRETO 1362/2007).

At a meeting held on February 26, 2015, the Directors of International Consolidated Airlines Group, S.A. confirmed that to the best of their knowledge the Condensed Consolidated Financial Statements for the year to December 31, 2014 were prepared in accordance with IAS 34 as adopted by the European Union, offer a true and fair view of the assets, liabilities, financial situation, cash flows and the results of International Consolidated Airlines Group, S.A. and of the companies that fall within the consolidated group taken as a whole, and the Condensed Consolidated Management Report includes an accurate analysis of the required information also in accordance with the Financial Conduct Authority's DTR 4.2.7R and DTR 4.2.8R (English regulation) including an indication of important events in the year, a description of the principal risks and uncertainties and a list of material related party transactions.

February 26, 2015


	Antonio Vázquez Romero Chairman		Martin Faulkner Broughton Deputy Chairman

	William Matthew Walsh Chief Executive Officer		César Alierta Izuel

	Patrick Jean Pierre Cescau		Enrique Dupuy de Lôme Chávarri

	Denise Patricia Kingsmill		James Arthur Lawrence

	María Fernanda Mejía Campuzano		José Pedro Pérez-Llorca y Rodrigo

	Kieran Charles Poynter		Marjorie Morris Scardino

	Alberto Terol Esteban

AIRCRAFT FLEET


	Number in service with Group companies

	On balance sheet fixed assets	Off balance sheet operating leases	Total December 31,	Total December 31,	Changes since December 31,	Future deliveries	Options
	On balance sheet fixed assets	Off balance sheet operating leases	2014	2013	2013	Future deliveries	Options

Airbus A318	2	-	2	2	-	-	-
Airbus A319	34	27	61	61	-	1	-
Airbus A320	49	123	172	140	32	75	182
Airbus A321	25	11	36	35	1	17	-
Airbus A330	-	8	8	5	3	8	14
Airbus A340-300	7	-	7	7	-	-	-
Airbus A340-600	4	13	17	17	-	-	-
Airbus A350	-	-	-	-	-	26	60
Airbus A380	8	-	8	3	5	4	7
Boeing 737-400	5	-	5	15	(10)	-	-
Boeing 747-400	43	-	43	51	(8)	-	-
Boeing 757-200	1	2	3	3	-	-	-
Boeing 767-300	14	-	14	20	(6)	-	-
Boeing 777-200	41	5	46	46	-	-	-
Boeing 777-300	9	3	12	8	4	-	-
Boeing 787	8	-	8	4	4	34	28
Embraer E170	6	-	6	6	-	-	-
Embraer E190	9	2	11	8	3	-	15
Group total	265	194	459	431	28	165	306

As well as those aircraft in service the Group also holds 20 aircraft (2013: 36) not in service.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SEMFAMFISEDE

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International Consolidated Airlines Group SA (CDI) (IAG)

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