Annual Report 2016 Lufthansa Group

Annual Report 2016 Lufthansa Group The Lufthansa Group is the world’s leading aviation group. Its portfolio of companies consists of network airlines, point-to-point airlines and aviation service companies. Its combination of business segments makes the Lufthansa Group a globally unique aviation group. T001 Key figures Lufthansa Group 2016 2015 Change in % Revenue and result Total revenue €m 31,660 32,056 – 1.2 of which traffic revenue 1) €m 24,661 25,506 – 3.3 EBIT €m 2,275 1,676 35.7 Adjusted EBIT €m 1,752 1,817 – 3.6 EBITDA €m 4,065 3,395 19.7 Net profit / loss €m 1,776 1,698 4.6 Key balance sheet and cash flow statement figures Total assets €m 34,697 32,462 6.9 Equity ratio % 20.6 18.0 2.6 pts Net indebtedness €m 2,701 3,347 – 19.3 Cash flow from operating activities €m 3,246 3,393 – 4.3 Capital expenditure (gross) €m 2,236 2,569 – 13.0 Key profitability and value creation figures EBIT margin % 7.2 5.2 2.0 pts Adjusted EBIT margin % 5.5 5.7 – 0.2 pts EBITDA margin % 12.8 10.6 2.2 pts EACC €m 817 323 152.9 ROCE % 9.0 7.7 1.3 pts Lufthansa share Share price at year-end € 12.27 14.57 – 15.8 Earnings per share € 3.81 3.67 3.8 Proposed dividend per share € 0.50 0.50 0.0 Traffic figures 2) Passengers thousands 109,670 107,679 1.8 Available seat-kilometres millions 286,555 273,975 4.6 Revenue seat-kilometres millions 226,633 220,396 2.8 Passenger load factor % 79.1 80.4 – 1.4 pts Available cargo tonne-kilometres millions 15,117 14,971 1.0 Revenue cargo tonne-kilometres millions 10,071 9,930 1.4 Cargo load factor % 66.6 66.3 0.3 pts Total available tonne-kilometres millions 43,607 40,421 7.9 Total revenue tonne-kilometres millions 32,300 29,928 7.9 Overall load factor % 74.1 74.0 0.1 pts Flights number 1,021,919 1,003,660 1.8 Employees Average number of employees number 123,287 119,559 3.1 Employees as of 31.12. number 124,306 120,652 3.0 1) Previous year’s figures have been adjusted due to the new reporting method. 2) Previous year’s figures have been adjusted. Date of publication: 16 March 2017. Business segments 2016 figures Passenger Airline Group T002 Passager Airline Group 2016 Change 31.7 in % Passenger transport is the largest business segment Revenue in the Lufthansa Group. The Passenger Airline Group Revenue €m 23,891 – 2.5 of which traffic revenue €m 22,256 – 2.4 in EUR bn includes the airlines Lufthansa Passenger Airlines, EBIT €m 2,095 43.0 SWISS, Austrian Airlines and Eurowings. Equity Adjusted EBIT €m 1,527 1.5 interests in Brussels Airlines and SunExpress are EBITDA* €m 3,616 30.7 strategic additions to the portfolio. Brussels Airlines Adjusted EBIT margin % 6.4 0.3 pts EACC €m 1,004 142.5 was fully acquired at the beginning of the 2017 ROCE % 13.3 3.8 pts 1,752 financial year. Segment capital expenditure €m 1,866 – 15.2 Employees as of 31.12. number 54,308 – 1.7 Adjusted EBIT in EUR m Logistics T003 Logistics 2016 Change in % Lufthansa Cargo is the logistics specialist within the Lufthansa Group and Europe’s leading cargo Revenue €m 2,084 – 11.5 3,246 airline. As well as marketing the freight capacities of which traffic revenue €m 1,986 – 12.7 EBIT €m – 64 Operating cash flow of Lufthansa Passenger Airlines’, Eurowings’ and Adjusted EBIT €m – 50 Austrian Airlines’ passenger aircraft, the company EBITDA* €m 44 – 71.6 in EUR m operates its fleet of cargo aircraft, comprising Adjusted EBIT margin % – 2.4 – 5.5 pts 14 Boeing MD11Fs and five B777Fs. EACC €m – 105 – 45.8 ROCE % – 4.3 – 4.5 pts Segment capital expenditure €m 29 – 75.0 Employees as of 31.12. number 4,568 – 0.8 2,236 Capital expenditure MRO T004 MRO 2016 Change in EUR m in % Lufthansa Technik is the world’s leading independ- ent provider of maintenance, repair and overhaul Revenue €m 5,144 0.9 services (MRO) for civilian commercial aircraft. The of which external revenue €m 3,517 8.0 EBIT €m 410 – 8.5 portfolio consists of a variety of different products Adjusted EBIT €m 411 – 9.5 and product combinations, from the repair of indivi- EBITDA* €m 517 – 6.2 817 dual components to consultancy services and the Adjusted EBIT margin % 8.0 – 0.9 pts EACC fully integrated supply of entire fleets. EACC €m 142 – 10.1 ROCE % 8.5 – 2.1 pts in EUR m Segment capital expenditure €m 216 40.3 Employees as of 31.12. number 20,839 0.9 Catering T005 Catering 2016 Change in % The LSG group is the world’s leading provider of integrated products and services related to in-flight Revenue €m 3,194 5.7 service. These include catering, in-flight sales and of which external revenue €m 2,550 6.9 EBIT €m 60 – 29.4 entertainment, in-flight service equipment and the Adjusted EBIT €m 104 5.1 associated logistics as well as consultancy services EBITDA* €m 166 0.0 and the operation of lounges. In addition, the Adjusted EBIT margin % 3.3 0.0 pts company has managed to enter adjacent markets, EACC €m – 15 – 87.5 ROCE % 3.5 – 1.5 pts such as services for rail operators and supplying Segment capital expenditure €m 73 – 50.7 the retail sector. Employees as of 31.12. number 35,530 3.6 * Without Group-internal profit and loss transfer / investment income. C01 Business segments’ share of Group revenue in % Logistics 6.5 Other 0.8 Catering 8.1 Key figures MRO 11.1 Passenger Airline Lufthansa Group Group 73.5 overview Contents 1 To our shareholders 1 Letter from the Executive Board 4 Report of the Supervisory Board 7 Lufthansa share 10 Combined management report 11 Principles of the Group 11 Business activities and Group structure 11 Legal and regulatory factors 12 Goals and strategies 14 Fleet and route network 18 Management system and supervision 19 Employees 21 Corporate responsibility 22 Research and development 23 Economic report 23 Macroeconomic situation 24 Sector developments 26 Course of business 28 Earnings, assets and financial position 37 Target achievement and overall statement by the Executive Board on the economic position 40 Business segments 40 Business segment Passenger Airline Group 48 Business segment Logistics 51 Business segment MRO 54 Business segment Catering 56 Other 57 Opportunities and risk report 70 Forecast 75 Corporate Governance 89 Notes to the individual financial statements of Deutsche Lufthansa AG (HGB) 93 Consolidated financial statements 188 Further information 188 Ten-year overview 192 Glossary 194 Chart and table overview 196 Credits / Contact Financial calendar 2017 / 2018 and Disclaimer To our shareholders Letter from the Executive Board Ladies and gentlemen, Despite numerous challenges, the Lufthansa Group achieved a good result in 2016. In an environment marked by great uncertainty, we met our financial targets and made great progress in implementing our strategic agenda. Our company is in a better position at the close of the financial year than it was at the beginning: our equity ratio increased by 2.6 percentage points, we improved free cash flow by 36.5 per cent and reduced the Lufthansa Group’s total costs excluding fuel costs by 3.2 per cent; in the course of our fleet renewal, our flight operations successfully integrated a new, state-of-the-art aircraft into the Group fleet almost every week and we have stabilised the yield development by means of targeted capacity and steering measures. We have continued to improve the travel experience for our customers by enhancing and increasingly personalising the products and services. And not least, the wet-lease agreement with Air Berlin and the complete takeover of Brussels Airlines have contributed significantly to consolidating Eurowings’ market position as the biggest point-to-point airline in our home markets. With the successful signing of the commercial joint venture agreements with Air China and Singapore Airlines, we are also sustainably strengthening our market position on routes between Europe and Asia. Around 70 per cent of our long-haul revenues is now secured for the long term through leading commercial partnerships. The Lufthansa Group’s service companies showed a stable development in 2016. They also operate in a market environment that is characterised by change and consolidation. All of the operating segments are implementing targeted efficiency programmes and profitable growth initiatives. Lufthansa Technik agreed on competitive conditions with the ver.di trade union, which has made it possible to safeguard jobs in engine overhaul at the Hamburg site. The LSG group is redesigning its business model, changing its portfolio and transforming its European business comprehensively. Lufthansa Cargo is addressing the massive over- capacities in the market by restructuring the company. At the passenger airlines, Lufthansa Passenger Airlines performed particularly well – both in terms of earnings and by signing a long-term collective agreement with the UFO flight attendants’ union, which also comprises the transition to a modernised pension system for its cabin crew. SWISS successfully overcame the particular challenges of the Swiss market and began to renew its fleet and cabin layouts. Austrian Airlines also continued the modernisation of its fleet and improved its competitiveness. Eurowings achieved rapid growth and successfully started its long-haul operations.

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