09.03.2017, BearingPoint Round Table Zurich FORward> Common Finance Optimization of Steering, Leadership & Planning @ Group

Manfred Himmel (LH-Projektleiter), Dr. Frank Tiefenbeck (BearingPoint-Projektleiter), Cathrina Eisenring (BearingPoint-Teilprojektleiter Umsetzung)

lufthansagroup.com Agenda

Lufthansa – An Overview

Planning within a Matrix – A Challenge

Projekt Forward – An Optimization

Projekt Forward – Projectplan and -organization

Slide 1 Some Stats and Facts about the …

Total revenue 2015 EUR 32.056bn

EBIT 2015 Foundation of Lufthansa EUR 1.676bn 1953 (1926)

Passenger load factor 2015 Privatization of Lufthansa 80,4% 1997

Passenger 2015 Average Employees 2015 107,7m Total: 119,6k

Destinations 2015 Group Fleet 2015 297 destinations in more 600 aircraft than 89 countries

Source: Lufthansa Group Annual Report 2015

Slide 2 …the Lufthansa Aviation Group consists of Five Major Business Segments –thus forms Worldwide a Unique Corporation

Airlines Aviation Services

Hub-carrier Point-2-Point Logistics MRO Catering

The carriers of the Passenger Airline is one of is a LSG Sky Chefs is the world's Group rank among the world’s leading the world's leading cargo leading supplier of largest provider of airline airlines carrier in international air engineering services in catering and integrated in- traffic the airline business flight solutions

All of the Lufthansa Group companies are leaders in their respective field

Slide 3 Lufthansa defined 7 Action Areas

Customer New centricity & concepts for quality focus growth

Constant Customer Innovation & improvement digitalization in efficiency #1

Shareholder Employee Effective & Value based Financial stability lean steering organization

Culture & leadership

Source: “The Lufthansa Group – The Way Forward” by Carsten Spohr

Slide 4 Controlling as a Business Partner supports the overall strategic direction of Lufthansa Group

Effective & lean organization Culture & leadership Value based steering

 A groupwide program for  Rotation principle and  Consider replacing the stronger process compensation based on present CVA*-based orientation achieving group-level targets system with a simpler and for management staff more transparent  Flatter hierarchies and  Stronger alignment to alternative performance and more faster decision-  Adopt new KPIs: responsibility for each making processes  Return on individual employee invested capital  Strengthen the communal  Adjusted EBIT after notion and spirit of an deduction of capital aviation group costs

Source of the three boxes above: “The Lufthansa Group – The Way Forward” by Carsten Spohr; *CVA – Cash Value Added

Business Partner as Business Partner as Business Partner as 1 2 3 Moderator within Strategy Enabler Performance Keeper Matrix-Organization

Slide 5 Agenda

Lufthansa – An Overview

Planning within a Matrix – A Challenge

Projekt Forward – An Optimization

Projekt Forward – Projectplan and -organization

Slide 6 Controlling as Business Partner fosters Transformation, Strategy Execution and provides Transparency

Business Partner as Moderator

Effective &  Moderate conflicts between Business Units and lean Process Streams organization*  Using cross-functional knowledge and network  Reconcile conflicts with management

Business Partner as Strategy Enabler

 Connecting strategic targets with operative Culture & measures leadership*  Implementing KPIs to measure strategic targets and monitor target achievement

Business Partner as Performance Keeper

 Implementing and managing a group-wide data Value based pool steering*  Running data analysis among BUs and Process Streams to align common targets and improve reconciliation

*Source: “The Lufthansa Group – The Way Forward” by Carsten Spohr

Slide 7 The future steering and planning approach follows the process orientation of the Lufthansa Group

Before Reorganization Current Challenge Target

Different structures within Development of Planning Planning from July 2017 individual Business Units Units (SBAs*) on

Identification of PO and BU Only BU view available intersections BU & PO view available LH LX OS EW LHCLSG LHT LH LX OS EW LHCLSG LHT LH LX OS EW LHC LSG LHT

Infra Infra Infr. Infrastructure & Security

Netw Netw Netw. Network

Flight Flight Flight Flight Ops

Common and consistent platform . . .

 Individual methods, definition,  Based on the Process (Domain) 1. Supports corporate steering processes and systems Owner Responsibility: 2. Controllability for Process  The process image differs within  Need for an aligned steering Owner possible Business Units process for POs and Bus 3. Coordination between BU and  No integrated planning of BU  Integrated planning avoids PO and PO possible double effort

* SBA = Strategic Business Area

Slide 8 Business Partner Role of Controlling and the Matrix Organization provide four main challenges for the project

Finance Function Line of Business Business Unit  High IT costs because of multiple parallel systems  Process orientation leads to a necessity of group- and Process  Process Synergies cannot be realized in spite of wide steering ability bundling tasks at LGBS aligned  Steering by analysis of events, anticipation of the  New Technologies („Digital Boardroom“) mean Matrix future and resultant action prohibitive high costs in both implementation and Organization  In today‘s heterogeneous IT landscape, these maintenance requirements are not being fully addressed

Challenges for the Project

1 Define Planning 2 Define Planning 3 Define Planning Methodology Content Proceses

 Identify suitable  Matrix aligned  Integrate Strategy general Planning planning hierarchy and Planning Process Approach  Harmonized CoA, KPI  Define reconciliation and Reporting process within of the matrix

4 Define and implement Planning System

Slide 9 Agenda

Lufthansa – An Overview

Planning within a Matrix – A Challenge

Projekt Forward – An Optimization

Projekt Forward – Projectplan and -organization

Slide 10 Planning Methodology, Content, Process and System get optimized in terms of effectivity and efficiency

Planning Methodology

 Is the focus on steering the portfolio (Finance-focused planning): cost units oriented finance planning supplemented by statistical information?  A rather operative steering approach (integrated planning): Cost units oriented operative planning is derived out of the financial planning  Influence driver based steering possible (Influence driver based planning): Influence driver based derivation of the financial planning

Higher Higher steering Validity Planning System relevance Planning Content

 Are the requirements for a supportive IT-solution  steering relevant KPIs already defined? defined?  Are planning occasions, planning horizon, and  Are the fundamental frameworks for an IT- planning frequency defined? solution defined?  Are steering relevant KPIs assigned to planning  Is the strategy to support the IT-solution defined? approaches?  Is the granularity of the planning output defined?  Is the granularity of the planning input defined? Higher Higher Efficiency Flexibility

Planning Process

 Are steering relevant KPIs already defined?  Are planning occasions, planning horizon, and planning frequency defined?  Are steering relevant KPIs assigned to planning approaches?  Is the granularity of the planning output defined?  Is the granularity of the planning input defined?

Slide 11 the the Complexityof the company Planning Methodology is depended on Market Dynamics Slide 12 Slide      Budgeting are Lufthansa for suitable Budgeting Elements for Better and and Advanced Better Elements for planning figures withinthe actuals and extrapolating to using relativeconsolidationeffects Planning byConsolidation is simplified harmonizedthe across group The number of are forecasts based Model is usedDriver planTo planning2 year3 a Value+ reduced of the and of MTP the budget were of Number planningunits and objects significantlyPlanning Term (MTP) PlanningContent reduced wasMid for significantly reduced granularitysignificantlyreduced through efficiency well asfocus as through business increased effectiveness thechosenplanning content increases Theconcentrationof on steeringrelevance

Dynamics + - Beyond Budgeting Low Cost CarrierCost Low BetterBudgeting Traditional Budgeting Advanced Budgeting Innovation Planning & internet ventures internet Based Budgeting High-growth High-growth Accounting and and Zero Complexity + relevance and increase relevance and increase efficiency The reduction ofgranularity is a key to focus on s Slide 13 Slide Drvto o rcs Pscretyin discussion currently KPIs Process *Derivationfor       Planning content is more granular as as shorter the planning horizon is

Local CoA cover ~14.300 Accounts is based on(CoA) ~3.500Accounts Actual Lufthansa Chart of Accounts 1 : n to the of actualgranularity figures mapped granularities are All strictly the Base Capital (dependent on and BU) 33 Items of Budget planned is on 91max. Items Planning(MTP)* Base are defined Term in Mid and 4Service) Items of the Capital P&L Items (dependent on Aviation 23 max. selected (Airlines), Drivers planTo 22Business Units Value defined EBIT for and Investments are Processes (PO) Administrations Operational and Commercial, and Targets (BU) Business for Units significantly reduced granularity through as efficiency increased business focus as well through increases effectiveness the chosen planning content The strong steering relevance of Detail SBAs BUs Planning LinesPlanning BUs MTP Planfor Y1 Target MTP = Influence Influence driver BU Targets BU PO PO Targets teering teering Airlines Targets Budget MTP Budget Basis for KPI Core SetKPI Core To enable steering and planning of the new matrix- organization the Operating Model has to be more detailed

Dimensions of the Matrix aible to able to reconcile plan figures

 Strategic Business Areas (SBA) at the Network Airlines Point-to-Point Aviation Services Group CityLine crossing point of the Business Units FRA MUC Zentral Functions and Commercial, Operational and Group Strategy 14 Administrational Processes are Technical Fleet Mgmt. 79 defined Commercial Fleet Mgmt. 12 Network & Partnership 25

 The Basis of the definition of the SAB Pass. Exp. & Prod. Mgmt. 86

is an legal coordination framework of Distribution & Revenue 25 522 all essential companies of the Sales 78 Lufthansa Group Infrastructure & Security 45 Information Mgmt. 11

 To define SBA intensive discussion of Marketing Comm. 14

Business Units and Processes had to Ground Operations 31 be managed Flight Operations 102  SBA can be aggregated to Business Finance 19 HR 16 56 Units (EBIT-Responsible) and Corporate 21

Processes (steering by KPI) Non-Process Related 32 32  Number of Planning Object in Budget Entities 172 172 (Plan Year 1) were reduced Commercial & Operative 53 53 43 19 13 2 72 72 60 15 4 2 113 Total: significantly ~5.000 to ~750 Admin 3 3 3 0 0 0 3 3 0 3 3 3 32 782 Status Non-Process Related 3 3 3 1 1 1 7 3 4 1 1 1 3 Quo: TM1 55 Entities 0 0 0 0 0 0 2 0 0 3 22 110 36 BPS 270 Local* 5.000

SBA are enable an effective way to reconcile the budget planning figures. The reduction of the number of planning objects increases efficiency.

Slide 14 It was the target to strengthen the Target Setting and enable reconciliation between the dimensions of the matrix

Business relevant definition of planning content Link to Strategic Prepare Planning Conduct planning and approval Planning

Action and Conduct  Top down target setting was Strategic Set PO Set BU Budget Budget financial planning for Planning target target approval strengthen plan Y1/3 budget year alignment  The new Process dimension of the matrix organization is part of the target setting process and the budget Strategy Strat. Develop. planning process Strategic Vision, Mission & Strategic Execution Development Group Companies Values* Framing (KoVo) & monitoring  Process dimensions defines KPI Planning Group Processes, Hubs & Processes related targets based on strategic Action and PO Initiative First CC initiatives Development PO Target financial Target Planning Alignment plan Y1/3 Operationali- Setting Aligned MTP  Process KPI targets are Input value Premises BU Input Set PO zation of via + Final Known for the Value Driver Model of the target Strategic Value Driver Budget

MTP Initiatives Targets Based BU Initiative Value Driver Target Structural Based BU Target Business units July & August Financial Set BU effects Plan V1 Financial Alignment Target  Based in Value Driver Model EBIT, target PO Input Plan V2 Setting reduced P&L-Structure and Capital Conduct planning Prepare Production Invest IC Internal Balance can be deduced for Fleet Planning Revenue Plan Cost Planning Planning Planning Planning Reconciliation Alignment  Based on Targets for EBIT and budget year Investments Budget (Plan year 1) is Board Budget BU/PO “Wasserstands Big 7 + Submission “VF – BU/PO Meeting v1 Alignment -meldung” CC Telco VF Document Gespräch” Alignment planed more detailed alignment (VoSi) Budget CFO Budget Board Meeting Supervisory September -December approval v2 (VoSi) Board (AR) Dialogue The combination of initiatives, KPI and Value Driver Model increases effectiveness Plan through business focus. Target setting an Reporting process involvement increases efficiency by reduced vertical reconciliation.

Slide 15 S/4 Central Finance, embedded SAP BW and SAP BPC 10.1 embedded provides innovative way to integrate data

Consequent use of opportunities to of virtualize data

 Low automatization of planning and forecasting processes increase the consumption of resources  S/4 Central Finance offers the opportunity to have all SAP based financial actual data within one system  SAP BW embedded provides the opportunity to add non SAP based financial data and plan data  SAP BPC 10.1 embedded in combination with Analysis for Office Front end offers the opportunity to bring SAP Central Finance based data and SAP BW embedded together  Integrate Planning and reporting is possible without significant data transfers

The integration of actual data based on virtual data provider and aggregations increase efficiency by reduced number of persistent data and no longer needed reconciliations and data transfers.

Slide 16 Agenda

Lufthansa – An Overview

Planning within a Matrix – A Challenge

Projekt Forward – An Optimization

Projekt Forward – Projectplan and -organization

Slide 17 To enable steering of the LH-Matrix, deliverables cover needs of the Group, Processes and Business Units

Main Deliverables Organizational Level (1) Matrix aligned Strategic Business Areas

(2) Matrix aligned and harmonized Group Planning Chart of Accounts LH Group

(3) Matrix aligned Reporting Set Airline Sales Business Units Ground Ops IT Requirement. (4) Matrix aligned Planning Process Infrastructure Dec. Network & Fleet Revenue Management Processes (5) Matrix aligned and harmonized Distribution Product Development KPI’s Tech. Fleet Management Commercial Fleet Management Strategic Flight Ops (6) Matrix aligned Planning System Passenger Experience/Ancillaries Business Areas LH Passage SWISS Austrian Wings Cargo LH Lufthansa Technik Chefs LSG Sky Group Functions Etc. SWISS Austrian Wings Cargo Technik LSG (7) Migration Study for LH Group Planning Tools Passage Profit Profit Profit Profit Profit Profit Functions Center Center Center Center Center Center Business (8) Harmonize Business Profit Center, Cost Cost Cost Cost Cost Cost Profit Center, Units Design for Profit- Cost Center / Center / Center / Center / Center / Center / Center / Cost Center / Internal Internal Internal Internal Internal Internal Internal Internal ability Analysis Orders Orders Orders Orders Orders Orders Orders Orders (9) Adjustment needs for Operational Operational Operational Level Feeder Units Systems

Slide 18 Planning, Forecasting und Reporting is part of the overall project plan

Start Start Planning Plan-Actual-Reporting

2016 2017

Workstreams Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Chart of Accounts

Mapping Controlling Objects

Manual & Processes

KPI – Harmonization

System

Planning, Planning, Forecasting & Migration Study Reporting Reporting aligned to LH Matrix

Conceptual design COPA

Planning, Forecasting & Reporting & Forecasting Planning, Decentral Cost Adjustment needs for Analysis Analysis of Hubairlines Profitability Profitability oper. Feeder System Harmonization Harmonization

Buniness Units Replikation

Software ology

Techn- Hardware

Slide 19 The project organization is structured according to PFR Goals and deliverables

Steering Committee

Program Lead FORward> - Common Finance Lufthansa Accenture J. Hannappel C. Ackermann

Sounding Board

Subproject Subproject Subproject Subproject Vorsitz: S. Schmitz Technology Replication Mapping P/F/R Lufthansa  J. Hannappel M. HimmelLufthansa BearingPoint (Common Finance) BearingPointM. Himmel F. Tiefenbeck Dr. F. Tiefenbeck  M. Himmel (Common Finance) Project Office  Big 7 Controller (BU)  M. Müller Planning, Forecasting & Reporting Harmonization Profitability (LGBS, BE-I) aligned Lufthansa Group (LH) Matrix Analysis of Hub Airlines  K. El-Nemr (LGBS, BE-DK) LH Passage WS Lead WS Lead WS Lead WS Lead WS Lead WS Lead  S. Rahmel Manual & KPI Definition & System Study Migr. Conceptual Dec. Cost Acc. (BearingPoint) Swiss Processes Governance Planning Tools design COPA Feeder Sys.  Dr. F. Tiefenbeck Austrian Lufthansa Lufthansa Lufthansa Lufthansa Lufthansa Lufthansa (BearingPoint) Cargo G. Schleussner F. Stenger M. Ehrenleitner - M. Himmel B. Zimmermann  Dr. W. Völl BearingPoint BearingPoint BearingPoint BearingPoint BearingPoint BearingPoint WINGS Dr. W. Völl C. Knoche C. Eisenring M. Kohl C. Zelder C. Zelder (BearingPoint) Technik LSG Group

Slide 20 The Key Success Factors supports the success of the Project

Willingness to cooperate as mandated by C-level

Talent management Willingness to of internal and admit and to reduce external resources complexity

FORward> Common Finance

one single real time Set project goals source of truth Provide quick wins into personal goals and willingness to of executives be an innovator

Slide 21 Thank you for your attention Any questions?

Project FORward>

lufthansagroup.com