REG - Intl Con Airline Grp - Half-year Report <Origin Href="QuoteRef">ICAG.L</Origin> - Part 2
28/07/2017 07:05
- Part 2: For the preceding part double click ID:nRSb3657Ma
1,066 6,105 (96) (1,719) 5,356 308 5,664
Total comprehensive income for the period (net of tax) - - - 155 155 10 165
Cost of share-based payments - - - 18 18 - 18
Vesting of share-based payment schemes - - 19 (31) (12) - (12)
Acquisition of treasury shares - - (500) - (500) - (500)
Dividend - - - (262) (262) - (262)
Distributions made to holders of perpetual securities - - - - - (10) (10)
June 30, 2017 1,066 6,105 (577) (1,839) 4,755 308 5,063
(1)Closing balance includes retained earnings of E1,418 million (excluding cumulative charge to reserves following amendment to 'Employee benefits' accounting standard: retained earnings of E3,467 million).
For the six months to June 30, 2016
E million Issued share capital Share premium Treasury shares Other reserves(1) Total shareholders' equity Non-controlling interest Total equity
January 1, 2016 1,020 5,867 (113) (1,548) 5,226 308 5,534
Total comprehensive income for the period (net of tax) - - - (859) (859) 10 (849)
Cost of share-based payments - - - 26 26 - 26
Vesting of share-based payment schemes - - 42 (76) (34) - (34)
Acquisition of treasury shares - - (25) - (25) - (25)
Dividend - (106) - (106) (212) - (212)
Issue of ordinary shares related to conversion of convertible bond 46 344 - (33) 357 - 357
Distributions made to holders of perpetual securities - - - - - (10) (10)
June 30, 2016 1,066 6,105 (96) (2,596) 4,479 308 4,787
(1)Closing balance includes a retained earnings of E331 million (excluding cumulative charge to reserves following amendment to 'Employee benefits' accounting standard: retained earnings of E2,380 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, and Aer Lingus Group
Plc ('Aer Lingus') on August 18, 2015.
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 condensed consolidated interim financial statements were prepared in
accordance with IAS 34 and authorised for issue by the Board of Directors on
July 27, 2017. The condensed consolidated interim 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 interim financial statements.
The basis of preparation and accounting policies set out in the IAG Annual
Report and Accounts for the year to December 31, 2016 have been applied in the
preparation of these condensed consolidated interim financial statements.
IAG's financial statements for the year to December 31, 2016 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 IFRS Interpretations Committee of the International Accounting
Standards Board (IASB). The report of the auditors on those financial
statements was unqualified.
In order to provide additional information on non-operating items included in
the Income statement, the Group has included an additional line to separate
the unrealised movements on open derivatives from realised gains and losses.
The financial statements for the prior year include reclassifications that
were made to conform to the current year presentation.
2. ACCOUNTING POLICIES
The Group has not adopted any standard, interpretation or amendment in the six
months to June 30, 2017 which has had an impact on its accounting policies and
has not early adopted any standard, interpretation or amendment that has been
issued but is not yet effective. The following standards are effective for
periods beginning on or after January 1, 2018:
IFRS 15 'Revenue from contracts with customers' effective from January 1,
2018. IAG is currently in the process of finalising its accounting policies
under the new standard. It is anticipated that the main changes on adoption
will be as follows:
· Passenger revenue - revenue associated with ancillary services that is
currently recognised when paid, such as change fees, will be deferred to align
with the recognition of revenue associated with the related travel.
· Cargo revenue - interline cargo revenue will be presented gross rather
than net of related costs as IAG is considered to be principal rather than
agent in these transactions.
· Other revenue - loyalty revenue associated with the redemption of Avios
points with third parties will be presented net of the related costs as IAG is
considered to be agent rather than principal in these transactions. In
addition, revenue associated with maintenance activities and holiday revenue
with performance obligations that are fulfilled over time, will be deferred
(with the related costs) and recognised over the performance obligation
period.
The Group expects to apply the standard on a fully retrospective basis and
does not expect a significant change to its financial performance or position
on adoption of the standard.
IFRS 9 'Financial Instruments' effective from January 1, 2018. The standard
amends the classification and measurement models for financial assets and adds
new requirements to address the impairment of financial assets and hedge
accounting. IFRS 9 will allow the Group to hedge specific risk components of
its fuel purchases, such as crude oil price risk. It also requires movements
in the time value of options (currently recognised in the Income statement) to
be recognised in Other comprehensive income. These changes will result in a
reduction in the gains and losses on derivatives not qualifying for hedge
accounting recognised in the Income statement. The standard also requires the
Group to make a policy choice on whether gains and losses on equity
instruments measured at fair value should be recognised in the Income
statement or Other comprehensive income, with no recycling. The Group is
currently in the process of finalising its accounting policies under the new
standard. The Group does not expect any significant changes to its financial
performance or position or its hedging activities on the adoption of the
standard.
2. ACCOUNTING POLICIES continued
IFRS 16 'Leases' (not yet endorsed by the EU) effective from January 1, 2019.
The new standard eliminates the classification of leases as either operating
leases or finance leases and instead introduces a single lessee accounting
model. The Group is currently assessing the impact of the new standard.
Interest-bearing borrowings and non-current assets will increase on
implementation of this standard as obligations to make future payments under
leases currently classified as operating leases will be recognised on the
Balance sheet, along with the related 'right-of-use' asset. There will be a
reduction in expenditure on operations and an increase in finance costs as
operating lease costs are replaced with depreciation and lease interest
expense. Foreign exchange movements on lease obligations, which are
predominantly denominated in US dollars, will be remeasured at each balance
sheet date, creating volatility in the Income statement.
3. exceptional items
Six months to June 30
E million 2017 2016
Employee costs (1) 77 (51)
Pre-acquisition cash flow hedge impact (2) - (28)
Recognised in expenditure on operations 77 (79)
Total exceptional charge/(credit) before tax 77 (79)
Tax on exceptional items (15) 14
Total exceptional charge/(credit) after tax 62 (65)
(1)Employee costs
British Airways has embarked on a series of transformation proposals to
develop a more efficient and cost effective structure. The overall costs of
the programme principally comprise employee severance costs. Costs incurred in
the six months to June 30, 2017 in respect of this programme amount to E77
million, with a related tax credit of E15 million.
During the six months to June 30, 2016 the Group made changes to the US PRMB
(Post-Retirement Medical Benefits) to further bring the level of benefits in
line with national trends seen in the US. This scheme is accounted for in a
similar way to a defined benefit plan, so any reduction in benefit results in
the recognition of a past service gain when the plan amendment occurs. This
change has resulted in a one-off gain in employee costs of E51 million in the
period, and a related tax charge of E10 million.
In the period to June 30, 2016:
(2)Pre-acquisition cash flow hedge impact
Under IFRS 3 Business combinations, gains or losses on cash flow hedges
acquired should not be recycled to the income statement but recognised in
equity. Following the acquisition of Aer Lingus, IAG continued to unwind the
cash flow fuel hedges acquired in reported fuel expense. For the six months to
June 30, 2016, a credit of E28 million was recognised as an exceptional item,
reversing the impact of unwinding the cash flow hedges to arrive at the total
Fuel, oil costs and emissions charges. A related tax charge of E4 million was
also recognised.
4. 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.
5. Segment INFORMATION
a. Business segments
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 (IAG MC).
The Group has a number of entities which are managed as individual operating
companies including airline and platform functions. Each airline operates its
network operations as a single business unit and the IAG MC assesses
performance based on measures including operating profit, and makes resource
allocation decisions for the airlines 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.
Based on the way that the Group treats its businesses and the manner in which
resource allocation decisions are made the Group has determined its operating
segments. British Airways, Iberia, Vueling and Aer Lingus have been identified
for financial reporting purposes as reportable operating segments. Avios and
LEVEL are also operating segments but do not exceed the quantitative
thresholds to be reportable and management has concluded that there are
currently no other reasons why they should be separately disclosed.
5. SEGMENT INFORMATION continued
a. Business segments continued
The platform functions of the business primarily support the airline
operations. These activities are not considered to be reportable operating
segments as they either earn revenues only incidental to the activities of the
Group or are not reviewed by the IAG MC and are included within Other Group
companies.
For the six months to June 30, 2017
2017
E million British Airways Iberia Vueling AerLingus Other Group companies Total
Revenue
External revenue 6,763 2,095 902 839 289 10,888
Inter-segment revenue 225 188 - - 229 642
Segment revenue 6,988 2,283 902 839 518 11,530
Depreciation, amortisation and impairment (442) (92) (10) (39) (20) (603)
Operating profit/(loss) before exceptional items 741 84 (6) 59 97 975
Exceptional items (note 3) (77) - - - - (77)
Operating profit/(loss) after exceptional items 664 84 (6) 59 97 898
Net non-operating costs (192)
Profit before tax 706
For the six months to June 30, 2016
2016
E million British Airways Iberia Vueling Aer Lingus Other Group companies Total
Revenue
External revenue 6,875 1,982 857 787 285 10,786
Inter-segment revenue 238 151 - - 230 619
Segment revenue 7,113 2,133 857 787 515 11,405
Depreciation, amortisation and impairment (487) (115) (9) (37) (10) (658)
Operating profit/(loss) before exceptional items 631 (6) (54) 42 97 710
Exceptional items (note 3) 51 - - - 28 79
Operating profit/(loss) after exceptional items 682 (6) (54) 42 125 789
Net non-operating costs (101)
Profit before tax 688
b. Geographical analysis
Revenue by area of original sale
Six months to June 30
E million 2017 2016
UK 3,525 3,854
Spain 1,630 1,659
USA 1,969 1,731
Rest of world 3,764 3,542
10,888 10,786
5. SEGMENT INFORMATION continued
b. Geographical analysis continued
Assets by area
June 30, 2017
E million Property, plantand equipment Intangibleassets
UK 9,020 1,159
Spain 1,924 1,230
USA 21 9
Rest of world 760 592
11,725 2,990
December 31, 2016
E million Property, plantand equipment Intangibleassets
UK 9,608 1,196
Spain 1,877 1,236
USA 20 18
Rest of world 722 587
12,227 3,037
6. FINANCE COSTS AND INCOME
Six months to June 30
E million 2017 2016
Finance costs
Interest payable on bank and other loans, finance charges payable under finance leases (106) (141)
Unwinding of discount on provisions (9) (11)
Capitalised interest on progress payments 3 1
Change in fair value of cross currency swaps (1) (2)
Total finance costs (113) (153)
Finance income
Interest on other interest-bearing deposits 15 18
Total finance income 15 18
7. TAX
The tax charge for the six months to June 30, 2017 is E139 million (2016: E134
million), and the effective tax rate is 20 per cent (2016: 20 per cent).
The tax charge is calculated at the domestic rates applicable to profits or
losses in the main countries of operation.
8. EARNINGS PER SHARE AND SHARE CAPITAL
Six months to June 30
Millions 2017 2016
Weighted average number of ordinary shares in issue 2,111 2,030
Weighted average number for diluted earnings per share 2,202 2,210
Six months to June 30
E cents 2017 2016
Basic earnings per share 26.4 26.8
Diluted earnings per share 25.7 25.6
8. EARNINGS PER SHARE AND SHARE CAPITAL continued
The number of shares in issue at June 30, 2017 was 2,132,988,743 (December 31,
2016: 2,132,988,743) ordinary shares with a par value of E0.50 each.
In February 2017, the Group announced its intention to carry out a share
buyback programme of up to E500 million, as part of its corporate finance
strategy to return cash to shareholders while reinvesting in the business and
managing leverage. The programme started on March 6, 2017 and will complete by
December 29, 2017. During the period to June 30, 2017 the Group purchased 31
million shares, amounting to E203 million. The outstanding payment obligation
of the share buyback programme totalling E297 million is included in Trade and
other payables in the consolidated Balance sheet.
9. Dividends
The Directors do not propose a dividend for the six months to June 30, 2017
(June 30, 2016: nil).
The final dividend of 12.5 E cents per share for the year to December 31, 2016
was approved at the annual general meeting on June 15, 2017. This final
dividend, amounting to E262 million, has been recognised as a liability at
June 30, 2017 and was paid from July 3, 2017.
10. property, plant and equipment and intaNgible assets
E million Property, plantand equipment Intangible assets
Net book value at January 1, 2017 12,227 3,037
Additions 654 77
Disposals (235) (16)
Depreciation, amortisation and impairment (543) (60)
Exchange movements (378) (48)
Net book value at June 30, 2017 11,725 2,990
E million Property, plantand equipment Intangibleassets
Net book value at January 1, 2016 13,672 3,246
Additions 1,685 70
Acquired through Business combination 58 (51)
Disposals (101) (18)
Reclassifications (25) 11
Depreciation, amortisation and impairment (609) (49)
Exchange movements (1,441) (171)
Net book value at June 30, 2016 13,239 3,038
Capital expenditure authorised and contracted for but not provided for in the
accounts amounts to E12,876 million (December 31, 2016: E14,022 million). The
majority of capital expenditure commitments are denominated in US dollars, and
as such are subject to changes in exchange rates.
11. IMPAIRMENT REVIEW
Goodwill and intangible assets with indefinite lives are tested for impairment
annually (in the fourth quarter) and when circumstances indicate the carrying
value may be impaired. The key assumptions used to determine the recoverable
amount for the different cash generating units are disclosed in the Annual
Report and Accounts for the year to December 31, 2016. For the six months to
June 30, 2017 there are no indicators that the carrying value may exceed the
recoverable amount.
12. NON-CURRENT ASSETS HELD FOR SALE
The non-current assets held for sale of E23 million represent five Airbus
A340-300 aircraft. These are presented within the Iberia operating segment and
will exit the business by December 31, 2017.
Assets held for sale with a net book value of E15 million were disposed of
during the six months to June 30, 2017, related to the sale of the Group's
investment in Propius Holdings Limited ('Propius'), resulting in no gain or
loss.
12. NON-CURRENT ASSETS HELD FOR SALE continued
At December 31, 2016 the non-current assets held for sale of E38 million
represented E15 million for the Group's investment in Propius and E23 million
for five Airbus A340-300 aircraft. These were presented within the Aer Lingus
and Iberia operating segments respectively.
13. financial instruments
a. Financial assets and liabilities by category
The detail of the Group's financial instruments at June 30, 2017 and December
31, 2016 by nature and classification for measurement purposes is as follows:
June 30, 2017
Financial assets
E million Loans andreceivables Derivativesused forhedging Available-for-sale Non-financialassets Totalcarryingamount bybalance sheetitem
Non-current assets
Available-for-sale financial assets - - 75 - 75
Derivative financial instruments - 34 - - 34
Other non-current assets 274 - - 151 425
Current assets
Trade receivables 1,686 - - - 1,686
Other current assets 364 - - 628 992
Non-current assets held for sale - - - 23 23
Derivative financial instruments - 79 - - 79
Other current interest-bearing deposits 3,870 - - - 3,870
Cash and cash equivalents 4,074 - - - 4,074
Financial liabilities
E million Loans andpayables Derivativesused forhedging Non-financialliabilities Totalcarryingamount bybalance sheetitem
Non-current liabilities
Interest-bearing long-term borrowings 7,017 - - 7,017
Derivative financial instruments - 107 - 107
Other long-term liabilities 10 - 236 246
Current liabilities
Current portion of long-term borrowings 1,007 - - 1,007
Trade and other payables 3,833 - 337 4,170
Derivative financial instruments - 271 - 271
13. financial instruments continued
a. Financial assets and liabilities by category continued
December 31, 2016
Financial assets
E 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 - - 73 - 73
Derivative financial instruments - 169 - - 169
Other non-current assets 267 - - 232 499
Current assets
Trade receivables 1,405 - - - 1,405
Other current assets 304 - - 595 899
Non-current assets held for sale - - - 38 38
Derivative financial instruments - 329 - - 329
Other current interest-bearing deposits 3,091 - - - 3,091
Cash and cash equivalents 3,337 - - - 3,337
Financial liabilities
E million Loans andpayables Derivativesused forhedging Non-financialliabilities Totalcarryingamount bybalance sheetitem
Non-current liabilities
Interest-bearing long-term borrowings 7,589 - - 7,589
Derivative financial instruments - 20 - 20
Other long-term liabilities 16 - 222 238
Current liabilities
Current portion of long-term borrowings 926 - - 926
Trade and other payables 3,049 - 256 3,305
Derivative financial instruments - 88 - 88
b. Fair value of financial assets and financial liabilities
The fair values of the Group's financial instruments are disclosed in
hierarchy levels depending 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 present 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 and trade and other payables
approximate their carrying value largely due to the short-term maturities of
these instruments.
13. financial instruments continued
b. Fair value of financial assets and financial liabilities continued
The following methods and assumptions were used by the Group in estimating its
fair value disclosures for financial instruments:
Level 1: The fair value of listed asset investments classified as
available-for-sale and listed interest-bearing borrowings is based on market
value at the balance sheet date.
Level 2: The fair value of derivatives and other interest-bearing borrowings
is determined as follows:
· Forward currency transactions and over-the-counter fuel derivatives 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 fair value of the Group's interest-bearing borrowings including
leases is determined by discounting the remaining contractual cash flows at
the relevant market interest rates at the balance sheet date.
Level 3: Unlisted investments are predominantly measured at historic cost less
accumulated impairment losses.
The carrying amounts and fair values of the Group's financial assets and
liabilities at June 30, 2017 are as follows:
Fair value Carryingvalue
E million Level 1 Level 2 Level 3 Total Total
Financial assets
Available-for-sale financial assets 19 - 56 75 75
Derivatives - 113 - 113 113
Financial liabilities
Interest-bearing borrowings 1,088 7,060 - 8,148 8,024
Derivatives - 378 - 378 378
The carrying amounts and fair values of the Group's financial assets and
liabilities at December 31, 2016 are as follows:
Fair value Carrying value
E million Level 1 Level 2 Level 3 Total Total
Financial assets
Available-for-sale financial assets 15 - 58 73 73
Derivatives - 498 - 498 498
Financial liabilities
Interest-bearing borrowings 1,020 7,656 - 8,676 8,515
Derivatives - 108 - 108 108
There have been no transfers between levels of fair value hierarchy during the
period.
The financial instruments listed in the previous table are measured at fair
value for reporting purposes with the exception of the interest-bearing
borrowings.
c. Level 3 financial assets reconciliation
The following table summarises key movements in Level 3 financial assets:
E million June 30, 2017 December 31, 2016
Opening balance for the period 58 65
Exchange movements (2) (7)
Closing balance for the period 56 58
13. financial instruments continued
c. Level 3 financial assets reconciliation continued
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
investment remains classified as a Level 3 financial asset due to the
valuation criteria applied not being observable.
14. borrowings
E million June 30,2017 December 31,2016
Current
Bank and other loans 136 149
Finance leases 871 777
1,007 926
Non-current
Bank and other loans 1,714 1,764
Finance leases 5,303 5,825
7,017 7,589
15. SHARE BASED PAYMENTS
During the period 5,518,776 nil-cost options 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 awards 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, or based on the share price at
the date of grant, dependent on the performance criteria attached. The
following are the inputs to the model for the PSP awards granted in the
period:
Expected share price volatility: 35 per cent
Expected life of options: 4.6 years
Weighted average share price (£): £5.46
The Group also made awards under the Group's Incentive Award Deferral Plan
during the period, under which 673,054 conditional shares were awarded.
16. EMPLOYEE BENEFIT OBLIGATIONS
The principal funded defined benefit pension schemes within the Group are the
Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), both
of which are in the UK and are closed to new members.
June 30, 2017
E million APS NAPS Other Total
Scheme assets at fair value 9,165 18,330 432 27,927
Present value of scheme liabilities (7,628) (19,639) (742) (28,009)
Net pension asset/(liability) 1,537 (1,309) (310) (82)
Effect of the asset ceiling (554) - - (554)
Other employee benefit obligations - - (10) (10)
June 30, 2017 983 (1,309) (320) (646)
Represented by:
Employee benefit assets 989
Employee benefit obligations (1,635)
(646)
16. EMPLOYEE BENEFIT OBLIGATIONS continued
December 31, 2016
E million APS NAPS Other Total
Scheme assets at fair value 9,637 18,366 445 28,448
Present value of scheme liabilities (8,036) (20,376) (781) (29,193)
Net pension asset/(liability) 1,601 (2,010) (336) (745)
Effect of the asset ceiling (580) - - (580)
Other employee benefit obligations - - (10) (10)
December 31, 2016 1,021 (2,010) (346) (1,335)
Represented by:
Employee benefit assets 1,028
Employee benefit obligations (2,363)
(1,335)
At June 30, 2017, the assumptions used to determine the obligations under the
APS and NAPS were reviewed and updated to reflect market conditions at that
date. The change in assumptions has resulted in a credit to Other
comprehensive income of E184 million (net of tax). Key assumptions were as
follows:
APS NAPS
Per cent per annum June 30, 2017 December 31, 2016 June 30, 2017 December 31, 2016
Inflation (CPI) 2.05 2.10 2.05 2.10
Inflation (RPI) 3.15 3.20 3.15 3.20
Salary increases (as RPI) 3.15 3.20 3.15 3.20
Discount rate 2.55 2.60 2.65 2.70
Further information on the basis of the assumptions is included in note 32 of
the IAG Annual Report and Accounts for the year to December 31, 2016.
Pension contributions for APS and NAPS were determined by actuarial valuations
made as at March 31, 2012 and March 31, 2015 respectively using assumptions
and methodologies agreed between the Group and the Trustees of each scheme.
The triennial valuation as at March 31, 2015 for APS was deferred as a result
of legal proceedings (note 18).
17. pROVISIONS FOR LIABILITIES AND CHARGES
E million Restoration and handback provisions Restructuring provisions Employee leaving indemnities and other employee related provisions Legal claims provisions Other provisions Total
Net book value January 1, 2017 1,201 692 593 189 83 2,758
Provisions recorded during the period 177 87 10 36 104 414
Utilised during the period (128) (122) (12) (122) (61) (445)
Release of unused amounts (10) (10) (3) (11) (7) (41)
Unwinding of discount 1 1 7 - - 9
Exchange differences (80) (4) - 2 (4) (86)
Net book value June 30, 2017 1,161 644 595 94 115 2,609
Analysis:
Current 214 261 58 39 77 649
Non-current 947 383 537 55 38 1,960
1,161 644 595 94 115 2,609
During the period the Group recognised a provision in relation to the
restructuring plans at British Airways (note 3).
The legal claims provision includes the payment of E104 million for the
reissued fine in March 2017 against British Airways, related to investigations
by a number of competition authorities in connection with alleged
anti-competitive activity concerning the Group's passenger and cargo
businesses (note 18).
Other provisions includes a E65 million provision recognised during the period
on additional compensation fees and baggage claims related to operational
disruption at British Airways due to a power failure in quarter 2, 2017.
18. CONTINGENT LIABILITIES
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 decision was partially annulled against British
Airways but in full against other carriers and the fine was refunded in full.
British Airways has appealed the partial annulment judgment and the appeal
decision is awaited. In March 2017 the European Commission adopted a new
decision and reissued the fine against British Airways for the same amount,
being E104 million. British Airways subsequently repaid the fine which had
been recognised as a provision. The new decision has been appealed.
Pensions
The Trustees of the Airways Pension Scheme (APS) have proposed an additional
discretionary increase above CPI for pensions in payment for the year to March
31, 2014. British Airways has challenged the decision, as it considers the
Trustees have no power to grant such increases, and initiated legal
proceedings to determine the legitimacy of the discretionary increase. The
outcome of the legal proceedings was issued in May 2017, which concluded the
Trustees do have the power to grant discretionary increases, whilst
reiterating they must take into consideration all relevant factors, and ignore
irrelevant factors. The Group has appealed the judgment and await an appeal
hearing, currently expected to be mid-2018. Payment of the 2013/14
discretionary increase is subject to an injunction as a result of British
Airways appeal. The delayed 2015 triennial valuation will now resume. The
discretionary increase has not been reflected in the accounting assumptions
used, as the outcome is uncertain.
Fuel surcharges on loyalty programme redemption tickets
British Airways is the defendant in a case filed in the United States of
America in respect of fuel surcharges on loyalty programme redemption tickets.
The class has been certified. British Airways intends to vigorously defend the
claim and the outcome of the proceedings is uncertain.
There were no other significant movements in contingent liabilities and
guarantees occurring during the period.
19. 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:
Six months to June 30
E million 2017 2016
Sales of goods and services
Sales to associates 3 4
Sales to significant shareholders 24 18
Purchases of goods and services
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