Deutsche Lufthansa Ag · XETR:LHA
Deutsche Lufthansa — Commerzbank German Investment Seminar 2015
53 slides from Deutsche Lufthansa's conference presentation, Jan 12, 2015
Slide 1: Commerzbank German Investment Seminar
Lufthansa Group Commerzbank German Investment Seminar Simone Menne Member of the Executive Board and CFO New York, 12th January 2015 Page 1
Slide 2: Disclaimer in respect of forward-looking statements
Disclaimer in respect of forward-looking statements Information published in this presentation concerning the future development of the Lufthansa Group and its subsidiaries consists purely of forecasts and assessments and not of definitive historical facts. These forward-looking statements are based
Slide 3: The Lufthansa Group: World's largest aviation group
The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow From analysis to implementation: Comprehensive approach to managing change Specific measure
Slide 4: The Lufthansa Group is the largest aviation group in the world
The Lufthansa Group is the largest aviation group in the world… Strong global market position but facing multiple challenges Our strengths Our challenges Compete with low-cost and Gulf World’s largest aviation group carriers while securing strong with >30 bn EUR in revenue market position Lower unit
Slide 5: A unique portfolio of airlines and aviation services
… with a unique portfolio of airlines and aviation services Service companies sustainably contribute c. 500 m EUR operating profit p.a. Revenue Operating result Op. margin range Airlines 23.5 bn 495 m +4.8% Passenger Airline Group 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 -0.1% Service Compa
Slide 6: Strategy based on optimizing the three pillars of the Group
Our strategy is based on optimizing the three pillars of the Group Focus on profit improvement for hubs, growth in P2P and aviation services Lufthansa Aviation Group - Key Advantages Integrated Value Chain Financial Stability Strong Brand Family Natural Hedge Deep Customer Insights Favoured Employer
Slide 7: Future growth focused outside the network airlines
Therefore future growth will be focused outside the network airlines 40% revenue share of new platforms and aviation services by 2020 Revenue Share Today Targeted Revenue Share in 2020 • Geographical expansion of Service LSG and companies Lufthansa Technik • Growth in adjacent markets 30% 40% 70% 60
Slide 8: Hub and P2P will be developed in balance
Hub and P2P will be developed in balance… Overall fleet size of ca. 600 aircraft remains stable in 2015 Hubs Point-to-Point Today Future c. 60 A320 incl. lower cost ex GER A340 sub-fleet c. 80 A320 ex GER c. 20 CR9 ex GER starting with 7 A330 3 from 10/2015 ex GER currently c. 520 aircraft currently
Slide 9: Aviation services pursue global growth
… while aviation services pursue global growth Extending business models geographically and into adjacent markets Grow APAC, MidEast, North America revenue International expansions and Extension of Joint Venture with Air China new partnerships Joint Ventures with other service providers Grow
Slide 10: The Lufthansa Group: World's largest aviation group
The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow From analysis to implementation: Comprehensive approach to managing change Specific measure
Slide 11: Comprehensive approach to drive change
Comprehensive approach to drive change… Our Way Forward: Seven areas of action to tackle challenges ahead Customer New concepts centricity & for growth quality focus Constantly Innovation & improving digitalization efficiency Value based Effective & lean steering organization Culture & leadership Pa
Slide 12: Enhancing product quality to strengthen pricing
… by enhancing product quality to strengthen pricing Implementation of five star product attains higher customer satisfaction New First Class: New Business Class: New Premium Economy Class: Passenger satisfaction at 98% New full flat seat More exclusivity & personal space 78% of retrofit com
Slide 13: Stepping into new markets and lowering costs
… by stepping into new markets and lowering costs Portfolio differentiation: The new Eurowings Complete migration of non-hub traffic from Lufthansa Passenger to Germanwings Letter of Intent signed with SunExpress for long-haul services under Eurowings brand Feb 15 Rollover of CRJ900 fleet (existin
Slide 14: Negotiating labour deals to support change
… by negotiating labour deals to support change in the core business Agreements except of open issues with VC & Swiss pilot unions Preliminary agreement with cabin personnel Agreement with flight crews -20% costs for 14 Lufthansa A340s New terms effective since Dec 2014 Move from DB to DC pens
Slide 15: Structural change: outsourcing of IT infrastructure
… by structural change which go beyond mere optimization Recent example: Cost savings via outsourcing of IT Infrastructure Airline Solutions: Industry Solutions: IT Infrastructure One-time charge in 2014 Airline IT Professional of c. 240 m EUR in IFRS and HGB Services net results (non-operating)
Slide 16: Moving to more efficient structures on the ground
…by moving to more efficient structures on the ground Restructuring of non-hub stations in progress Stations to be restructured Starting point ● HAM Transfer of Lufthansa Passenger ● BRE non-hub services to Germanwings and Eurowings ● HAJ ● BER ● DUS Δ 50-60% Handling providers in Germany ● CGN
Slide 17: Consolidating the decentral sales forces
… by creating efficiencies and strengthening perception of LH Group Consolidating the decentral sales forces of the LH Group airlines Today In the future Ausgangslage de-central steering of field sales Weiterentwicklung steering via Head of Group Field Sales Chief Commercial Officer Board Chief Comm
Slide 18: Standing out through innovation and digitization
… by standing out through innovation and digitization Driving business through systematic approach to innovation Strengthen internal innovation culture by creating “Innovation Hub” company in Berlin a new Group Innovation Unit to get close to the world of start-ups and the digital technology sce
Slide 19: Tracking profit improvement potentials
… by diligently tracking profit improvement potentials SCORE outlook and tangible short-term measures in implementation Measures in 2015 Cabin product upgrade finalized Start of operation to leisure destinations on lower cost sub-fleet 1,200 1,200 from summer schedule 926 Start of Eurowings in Europ
Slide 20: Rolling-over the existing fleet
… by rolling-over the existing fleet Fleet overview Lufthansa Passenger Airlines 2011 2025 5 aircraft types 5 aircraft types 400-500 A380 A380 Development seats 747-8I long-haul -20%CASK Phase-out by age Phase-in of 777-9X 777-9X vs. replaced 300-400 740-400 aircraft seats A340-600 Phase-out by age
Slide 21: Concrete measures and fleet strategy reduce costs
Concrete measures and fleet strategy successfully reduce costs Airline KPIs 2013 vs. start of restructuring program in 2011 FY 2013 vs. FY 2011 Explanation Fleet Size fleet rollover, (no. of aircraft) -2.6% phase-out of small, non-efficient aircraft Capacity capacity growth realized through (ASK) +1
Slide 22: The Lufthansa Group: World's largest aviation group
The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow From analysis to implementation: Comprehensive approach to managing change Specific measure
Slide 23: Fleet, costs and revenue figures FY12-14 and FY15 assumptions
Concrete measures and fleet strategy successfully reduce costs Fleet, costs and revenue figures FY12-14 and FY15 assumptions FY12 actual FY13 actual FY14 act. / *est. FY15 assumptions Number of flights -1.6% -3.7 % -2.6% further reduction Capacity +0.6% +1.0% +2.1% c. +3% (ASK) Volume +2.2% +2.3% +2
Slide 24: Significantly lower fuel costs expected for FY 2015
Significantly lower fuel costs expected for FY 2015 Fuel forecast and sensitivities FY14 and FY15 150 Lufthansa Group fuel expenses after hedging (in bn EUR) LH price 140 Sensitivities 2015 7.4 costs with 7.1 deviating oil price 130 6.7 6.3 6.6bn (+20%) Price paid in USD/barrel 120 5.8 6.2bn (+10%)
Slide 25: Operating result FY15 expected significantly above previous year
Operating result FY15 expected "significantly above previous year" Profit increase to be achieved from airlines and aviation services Lufthansa Group Reported Operating result "significantly above Financial Year 2014 Actual and Forecast previous year" 1,378 Operating profit expected at c. 1.0 bn E
Slide 26: The Lufthansa Group: World's largest aviation group
The Lufthansa Group: World’s largest aviation group with leading airlines and aviation services Hub airlines to improve profitability at current size; point-to-point airlines and aviation services to grow From analysis to implementation: Comprehensive approach to managing change Specific measure
Slide 27: Lufthansa Group is committed to value creation
Lufthansa Group is commited to value creation New KPIs are to improve transparency and usability 1999 1999-2014 from 2015 Introduction of EACC Positive track record. value creation metric (Earnings After Cost of Capital) > 6 bn EUR CVA Cash Value Added (CVA) and ROCE replace CVA EACC & ROCE Transpar
Slide 28: New system links profit figures and value creation metric
New system directly links profit figures and value creation metric EBIT, EACC and ROCE are transparent and can be calculated easily Total Op. Income Balance Sheet Total (Rev.+ Oth. Op. Income) ./. non-interest bearing ./. operating costs liabilities Capital Employed + Income from Current Year 50 Sub
Slide 29: Example for financial year 2013
New system directly links profit figures and value creation metric Example for financial year 2013 29,084 32,156 ./. 11,555 ./. 31,344 17,529 + 125 50 : 50 17,619 EBIT: 937 + 67 -14 ./. 251 -6 6.2% X ./. 1,090 +70 EACC: -337 Adj. EBIT: 987 (937 + 67 - 251) ROCE = = 4.3% 17,574 Page 29
Slide 30: EBIT is structurally higher than operating result
EBIT is a structurally higher number than operating result Main difference is that income from subsidiaries is included 1,645 1,465 Operating profit 1,297 EBIT 1,020 Adj. EBIT 972 937 987 820 864 839 725 697 2010 2011 2012 2013 Total Operating Income 29,136 31,070 32,947 32,156 ./. Operating Expense
Slide 31: Current capital employed is ca. 17.5 bn EUR
Current capital employed is ca. 17.5 bn EUR Weighted average cost of capital is 6.2% 17,949 18,101 17,526 17,574 Average Capital Employed WACC 7.9% 7.0% 7.0% 6.2% 2010 2011 2012 2013 Balance Sheet Total 29,320 28,081 28.559 29.084 ./. Non-Interest Bearing Liabilities 10.550 10,649 10,940 11.555 - li
Slide 32: Strong track record of dividend payments
Lufthansa Group has strong track record of dividend payments Future dividends continue to be linked to profit development Dividend per share in EUR 1,25 0,70 0,70 0,60 0,60 0,60 0,50 0,45 continue 0,30 0,25 regular payments 0,00 0,00 0,00 0,00 Financial Year 2000 2001 2002 2003 2004 2005 2006 2007 2
Slide 33: Dividends are now linked to EBIT
Dividends are now linked to EBIT Pay-out ratio adjusted for depreciation change and structurally higher base Links dividends to leading profit KPI EBIT New Effective from financial year 2015 (pay-out 2016) Dividend Policy Allows for similar pay-outs as old policy „10-25% of EBIT“ Adjusts non
Slide 34: New dividend policy: pay-out 10-25% of EBIT
New dividend policy is to pay-out 10-25% of EBIT Maximum pay-out is defined by net result under German GAAP Old Dividend Policy New Dividend Policy Operating Result EBIT Pay-outs Regular 30%-40% 10-25% pay-out pay-out local GAAP net result local GAAP net result = max payout in m EUR = max payout in
Slide 35: Shareholders will not be put in worse situation
Shareholders will not be put in worse situation Different earning scenarios - local GAAP defines maximum payout Local 10-25% GAAP Pay-out # of Dividend in m EUR EBIT of EBIT Result Sum shares per Share 150- 150- Example 1 1,500 500 ÷462.8m = 0.32-0.81 EUR 375 375 150- 150- Example 2 1,500 200 ÷462.8
Slide 36: Implementation timeline
Implementation timeline 2014 Reporting, steering and management remuneration based on old KPIs Some new KPIs presented in annual report 2014 for information only External reporting fully based on new KPIs 2015 First interim report based on new KPIs will be Q1 2015 Dividend proposal 2015 (for FY14) b
Slide 37: Lufthansa Investor Relations Contact
Lufthansa Investor Relations Contact Deutsche Lufthansa AG Investor Relations / FRA IR Lufthansa Aviation Center Airportring D-60546 Frankfurt Andreas Hagenbring, Head of IR Phone: +49 (0) 69 696 28000 Fax: +49 (0) 69 696 90990 E-mail: investor.relations@dlh.de Visit our webpage: lufthansa-group.com
Slide 38: Detailed guidance 2014 and financial profile
Appendix – Detailed guidance 2014 and financial profile – Page 38
Slide 39: Profit guidance for 2014 unchanged
Profit guidance for 2014 unchanged Operating profit expected at around 1 billion Euros Result 2013 Forecast for 2014 Segment (m EUR) Lufthansa Passenger Airlines 265 on par with previous year SWISS 226 significantly above previous year Austrian Airlines 25 below previous year, but positive Consolida
Slide 40: Lufthansa Group benefits from superior financing conditions
Lufthansa Group benefits from superior financing conditions Conservative financial profile, but currently burdened by pension provisions 1. Lufthansa Group is profitable and 2. Conservative fleet structure and 3. Solid financial profile provides produces strong cash flows ambitious balance sheet tar
Slide 41: Cost of capital based on target capital structure of 50:50
Cost of capital is based on a target capital structure of 50:50 Current WACC is 6.2% Cost of Debt1 Cost of Equity2 3.6% (FY2013) 8.8% (FY2013) Target Capital Structure 50 : 50 WACC: 6.2% 1 Currently no consideration of tax shield 2 Cost of Equity FY2013 = Risk-free market interest rate of 3.2% + (Ma
Slide 42: Lufthansa Passenger Airlines
Appendix – Lufthansa Passenger Airlines – Page 42
Slide 43: Strong network quality through comprehensive route network
Strong network quality through comprehensive route network Segmentation of long-haul network Share of premium passengers 30% Small Niche Mid-Size Premium Premium Trunk A380 and 20% New Technology Aircraft 747-8I Fleet 10% Two Class Fleet & New Technology Aircraft 5% Lower cost sub-fleet of 14 A340 S
Slide 44: Successful track record of unit cost reductions
Successful track record of unit cost reductions set to continue Spread of RASK and CASK to be increased Lufthansa Passenger Airline development of KPIs (numbers normalized) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 yoy % 2015 2016 2017 12 12 12 12 13 13 13 13 14 14 14 14 +0.3 +0.7 +0.5 +0.4 # of flights -
Slide 45: Five focus areas to increase profitability
Five focus areas to increase profitability Revenue quality to stabilize RASK, efficiency measures to reduce CASK new platforms 2012 2013 2014 2015 2016 2017 freeze fleet size at 400 aircraft Capacity & fleet 1 dimensioning Phase-in A380 and B747-8i (c. -15% CASK) ASK growth at half of market rate (3
Slide 46: Network and partnerships drive revenue quality
Network and partnerships are important drivers for revenue quality Passenger network and partner overview Largest Airline Group in Europe Largest Transatlantic Joint Venture First JV for Japan-Europe and Europe-China Intra- European 46.6% North (+0.3pts.) Asia America Pacific 21.4% 17.6% (+0.8pts.)
Slide 47: Financial Figures 9M & Q3 2014
Appendix – Financial Figures 9M & Q3 2014 – Page 47
Slide 48: The Lufthansa Group was able to increase its profits
The Lufthansa Group was able to increase its profits Key figures 9M & Q3 2014 for the Lufthansa Group Lufthansa Group (in m EUR) 9M 2014 9M 2013 vs. PY Q3 2014 Q3 2013 vs. PY Total revenue 22,624 22,767 -0.6% 8,458 8,303 +1.9% of which traffic revenue 18,460 18,664 -1.1% 6,994 6,884 +1.6% Operating
Slide 49: Profit increase driven by lower one-off costs
Profit increase driven by lower one-off costs and depreciation effect Segment Overview 9M Share of LH Group’s 76.0% 7.7% 8.8% 6.6% 0.9% external revenue 9M 2014 vs. 9M 2013 Passenger Others & in EUR m Airline Group Logistics MRO Catering IT Services Consolidation Revenue 17,694 1,767 3,200 1,960 483
Slide 50: Passenger airlines: record volumes but weak pricing
Passenger airlines: Record volumes but pricing remained weak Operating KPIs of Passenger Airline Group Total 9M '14 Q3 '14 Europe 9M '14 Q3 '14 Asia/Pacific 9M '14 Q3 '14 Number of flights -2.2% -2.2% ASK +1.1% +0.3% ASK +1.7% +4.0% ASK +2.2% +4.0% RPK +2.3% +2.6% RPK +2.4% +4.8% RPK +2.6% +5.0% SLF
Slide 51: Operating expenses grew less than revenue in Q3
Operating expenses grew less than revenue in Q3, stable in 9M Operating costs and revenues Lufthansa Group (in m EUR) 9M 2014 vs. PY Q3 2014 vs. PY Total revenue 22,624 -0.6% 8,458 +1.9% Other operating income 1,348 -4.0% 496 +15.1% Total operating income 23,972 -0.8% 8,954 +2.5% Operating expenses
Slide 52: Operating results and one-off factors
Operating Results and one-off factors Quarterly operating results 2013-2014 in m EUR Q1 Q2 Q3 Q4 6M 9M Full Year Reported operating result 2013 -359 432* 590* 36 73* 663* 699* incl. SCORE restructuring costs -64 -7 -97 -77 -71 -168 -245 incl. Project costs 0 0 -30 -70 0 -30 -100 Normalized operating
Slide 53: Cash flow reduced due to working capital and higher investments
Cash flow reduced due to working capital and higher investments Cash flow statement Group Cash Flow Statement in m EUR 9M 2014 vs. PY 3.3 3.0 2.8 2.4 EBT (earnings before income taxes) 634 +275 2.1 Depreciation & amortisation (incl. D&A for non-current assets) 1,064 -368 Net proceeds from disposal o
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