lufthansagroup.com lufthansagroup.com/investor-relations STRIVING FOR EXCELLENCE Annual Report 2018 The Lufthansa Group The Lufthansa Group is an aviation group with operations worldwide. It is composed of the segments Network Airlines, Eurowings and Aviation Services. T001 KEY FIGURES LUFTHANSA GROUP 1) 2018 2017 Change in % Revenue and result Total revenue €m 35,844 35,579 1 2) of which traffic revenue €m 28,103 28,399 – 1 3) Operating expenses €m 35,466 35,355 0 4) Adjusted EBITDA €m 5,016 5,009 0 Adjusted EBIT €m 2,836 2,969 – 4 EBIT €m 2,974 3,297 – 10 Net profit/loss €m 2,163 2,340 – 8 Key balance sheet and cash flow statement figures Total assets €m 38,213 35,778 7 Equity ratio % 25.1 25.5 – 0.4 pts Net indebtedness €m 3,489 2,884 21 Pension provisions €m 5,865 5,116 15 Cash flow from operating activities €m 4,109 5,368 – 23 Capital expenditure (gross) 5) €m 3,757 3,474 8 Free cash flow €m 250 2,117 – 88 Key profitability and value creation figures Adjusted EBITDA margin % 14.0 14.1 – 0.1 pts Adjusted EBIT margin % 7.9 8.3 – 0.4 pts EBIT margin % 8.3 9.3 – 1.0 pts ROCE % 11.1 13.2 – 2.1 pts Adjusted ROCE % 10.6 11.9 – 1.3 pts Lufthansa share Share price at year-end € 19.70 30.72 – 36 Earnings per share € 4.58 4.98 – 8 Proposed dividend per share € 0.80 0.80 0 Traffic figures 6) Flights number 1,228,920 1,128,745 9 Passengers thousands 142,335 129,345 10 Available seat-kilometres millions 349,489 322,875 8 Revenue seat-kilometres millions 284,561 261,149 9 Passenger load factor % 81.4 80.9 0.5 pts Available cargo tonne-kilometres millions 16,431 15,754 4 Revenue cargo tonne-kilometres millions 10,907 10,819 1 Cargo load factor % 66.4 68.7 – 2.3 pts Employees Employees as of 31.12. number 135,534 129,424 5 Average number of employees number 134,330 128,856 4 1) The figures for 2017 and 2018 shown here and elsewhere in the report include effects from the first-time application of new accounting standards and other accounting changes. Detailed explanations are provided on ↗ p. 29f. of this Annual Report. The chapter “Earnings, assets and financial position” (↗ p. 29ff.) also shows figures and their development without these effects, to facilitate comparison with the previous year’s financial reporting. 2) Without IFRS 15 effect: 6%. 3) Without IFRS 15 effect: 7%. 4) Without IFRS 15 effect: 7%. 5) Without acquisition of equity investments. 6) Previous year’s figures have been adjusted. Date of publication: 14 March 2019. Business segments NETWORK AIRLINES T002 NETWORK AIRLINES 2018 Change The Network Airlines segment comprises in % Lufthansa German Airlines, SWISS and Revenue €m 22,719 5 1) Austrian Airlines. With their multi-hub strategy, of which traffic revenue €m 20,877 5 1) the Network Airlines offer their passengers Adjusted EBIT €m 2,429 6 a premium product and a comprehensive route Adjusted EBIT margin % 10.7 0.9 pts network combined with the highest level of Adjusted ROCE % 19.4 1.1 pts travel flexibility. Segment capital expenditure €m 2,573 25 Employees as of 31.12. number 51,778 3 1) Without IFRS 15 effect. EUROWINGS T003 EUROWINGS 2018 Change The Eurowings segment comprises the airlines in % Eurowings, Germanwings, Eurowings Europe Revenue €m 4,230 19 1) and Brussels Airlines. The equity investment in of which traffic revenue €m 4,118 20 1) SunExpress is also part of this segment. Adjusted EBIT €m – 231 Adjusted EBIT margin % – 5.5 – 7.0 pts Adjusted ROCE % – 8.2 – 11.0 pts Segment capital expenditure €m 515 – 47 Employees as of 31.12. number 9,255 23 1) Without IFRS 15 effect. C01 Business segments’ share of Group external revenue in % Additional Businesses and Group Functions 2 Catering 7 Logistics 7 MRO 11 Eurowings 12 61 Network Airlines 2018 figures LOGISTICS T004 LOGISTICS 2018 Change Lufthansa Cargo is the logistics specialist in % 35,844 within the Lufthansa Group. The freighter fleet Revenue in EUR m Revenue €m 2,713 7 consisted of five Boeing 777F and twelve Boeing of which traffic revenue €m 2,550 7 MD-11F aircraft as of the end of the financial Adjusted EBIT €m 268 2 year. Lufthansa Cargo markets capacities on Adjusted EBIT margin % 9.9 – 0.5 pts its own freighters and chartered cargo aircraft, Adjusted ROCE % 14.6 – 1.6 pts along with belly capacities on passenger aircraft 2,836 Segment capital expenditure €m 374 373 operated by Lufthansa German Airlines, Austrian Employees as of 31.12. number 4,505 0 Adjusted EBIT in EUR m Airlines, Brussels Airlines, SunExpress and on Eurowings long-haul flights. 3,757 Capital expenditure in EUR m MRO T005 MRO 2018 Change Lufthansa Technik is the world’s leading in % independent provider of maintenance, repair Revenue €m 5,918 10 and overhaul services (MRO) for civilian 250 of which external revenue €m 3,812 7 commercial aircraft. Lufthansa Technik AG Free cash flow in EUR m Adjusted EBIT €m 425 2 serves more than 850 customers worldwide, Adjusted EBIT margin % 7.2 – 0.5 pts including OEMs, aircraft leasing companies Adjusted ROCE % 7.1 – 0.6 pts and operators of VIP jets, as well as airlines. Segment capital expenditure €m 241 3 Employees as of 31.12. number 23,219 8 10.6 Adjusted ROCE in % CATERING T006 CATERING 2018 Change The LSG group offers a complete portfolio of in % products and services related to in-flight service. Revenue €m 3,217 0 It has strong independent expert brands. LSG of which external revenue €m 2,499 – 2 Sky Chefs provides catering for airlines and rail Adjusted EBIT €m 115 74 operators as well as lounge management. It is Adjusted EBIT margin % 3.6 1.5 pts present at 205 airports around the world for Adjusted ROCE % 6.9 3.0 pts more than 300 airlines and a growing number of Segment capital expenditure €m 79 – 6 European rail operators. Employees as of 31.12. number 35,512 3 Key figures Lufthansa Group overview CONTENTS 2 To our shareholders 2 Letter from the Executive Board 5 Report of the Supervisory Board 9 Lufthansa share 12 Combined management report 13 Principles of the Group 13 Business activities and Group structure 13 Goals and strategies 20 Fleet and route network 21 Employees 23 Research and development 23 Legal and regulatory factors 24 Economic report 24 Macroeconomic situation 25 Sector developments 27 Course of business 29 Earnings, assets and financial position 38 Target achievement and overall statement by the Executive Board on the economic position 41 Business segments 41 Network Airlines business segment 48 Eurowings business segment 51 Logistics business segment 54 MRO business segment 57 Catering business segment 59 Additional Businesses and Group Functions 61 Opportunities and risk report 75 Forecast 79 Corporate Governance 94 Notes to the individual financial statements of Deutsche Lufthansa AG (HGB) 99 Consolidated financial statements 206 Combined non-financial report 229 Further information 230 Ten-year overview 234 Glossary 236 Chart and table overview 238 Credits/Contact Financial calendar 2019 and Disclaimer 2 TO OUR SHAREHOLDERS LUFTHANSA GROUP ANNUAL REPORT 2018 Letter from the Executive Board The Executive Board Deutsche Lufthansa AG Harry Hohmeister Ulrik Svensson Carsten Spohr Bettina Volkens Detlef Kayser Thorsten Dirks Member of the Member of the Chairman of the Member of the Member of the Member of the Executive Board Executive Board Executive Board Executive Board Executive Board Executive Board Chief Commercial Chief Financial and CEO Corporate Human Airline Resources Eurowings Officer Officer Resources and & Operations Born in 1966, Born in 1963, chartered Network Airlines Legal Affairs Standards Born in 1961, B.Sc. industrial engineer, engineer, member of the Born in 1964, in Economics, Chairman of the Born in 1963, lawyer, Born in 1965, Executive Board since diploma in commer- Executive Board Executive Board Executive Board Aerospace engineer, 2017, at the Lufthansa cial air transport, member since 2017, and CEO since member since 2013, Executive Board Group since 2017 Executive Board with the Lufthansa 1 May 2014, with the Lufthansa member since 2019, member since 2013, Group since 2017 Executive Board Group since 2012 with the Lufthansa with the Lufthansa member since 2011, Group since 2016 Group since 1985 with the Lufthansa Group since 1994 TO OUR SHAREHOLDERS LUFTHANSA GROUP ANNUAL REPORT 2018 3 Letter from the Executive Board Ladies and gentlemen, Last year at this time we talked about the 100th anniversary of our brand symbol, the crane, which coincided with the most successful year in our Company’s history. By refreshing our brand image, we have begun a new chapter in the history of the Lufthansa Group. The modern design embodies our combination of tradition and innovation and underlines our aim of setting standards in our industry. In 2018, our financial results fulfilled this aim: The Lufthansa Group was one of the few companies in the sector to have achieved the targets set at the start of the year. Despite numerous challenges, the result was almost on par with the previous year. Integration costs at Eurowings in connection with the takeover of significant parts of Air Berlin, irregularities in flight operations and much higher fuel costs added up to a massive financial burden. Profitable growth and efficiency gains nevertheless enabled us to compensate for most of these adverse effects. Network Airlines performed particularly well in this difficult environment.