Financial results 2016
• Adjusted EBIT of EUR 1.75 billion including strike cost of EUR 100 million in line with the guidance and broadly on last year’s record level
• Earnings mainly driven by positive development of passenger airlines
• Total costs decline faster than fuel costs
• Net indebtedness reduced by 19 per cent
• Equity ratio increased to around 21 per cent
• Dividend proposal of EUR 0.50 per share
Forecast for 2017
• Reduction in unit costs are expected to continue to offset a large part of higher fuel costs and lower unit revenues at the passenger airlines
• Aviation services expect overall earnings on par with previous year
• Adjusted EBIT just slightly below 2016 expected
“The Lufthansa Group continues to develop successfully,” says Carsten Spohr, Chairman of the Executive Board & CEO of Deutsche Lufthansa AG. “We are again in a stronger position today than we were a year ago. And once again we were able to convince our customers of the quality and the appeal of our products and services.”
“In a very demanding market environment,” Spohr adds, “we successfully kept the Lufthansa Group’s margins at their record prior-year levels, through consistent capacity and steering measures and, above all, through our effective cost reductions. Based on this good financial development, all our business segments developed positively in their respective markets. And by expanding our commercial joint ventures for the Network Airlines, fully acquiring Brussels Airlines and concluding the comprehensive wet-lease agreement with Air Berlin we have also strengthened our strategic position.”
“In 2017,” Spohr continues, “it remains necessary to further reduce our costs. This is the only way to meet and master the decline in unit revenues and the higher fuel expenses, and at the same time to maintain and strengthen our financial stability and our investment capacities.”
The Lufthansa Group generated revenues of EUR 31.7 billion in 2016, a decline of 1.2 per cent on the prior-year result. Adjusted EBIT for the year amounted to EUR 1.75 billion, a decline of 3.6 per cent. This means that, as expected, earnings before strike costs of EUR 100 million came in at previous year’s level. The Adjusted EBIT margin for 2016 was 5.5 per cent, a decline of 0.2 percentage-points.
EBIT for the year amounted to EUR 2.3 billion, a significant improvement of EUR 599 million on 2015. The difference between the EBIT and Adjusted EBIT is largely attributable to the new collective labor agreement concluded between Lufthansa and its flight attendants’ union UFO. The agreed switch from a defined benefit in a defined contribution pension system had a EUR 652 million positive impact on EBIT for the year which is not included in the Adjusted EBIT. But even without this non-recurring item, the Lufthansa Group further enhanced its financial strength in 2016, achieving a further 2.5-per-cent reduction in its unit costs excluding fuel and currency effects.
“The key financial indicators for the Lufthansa Group prove our financial strength and our sound business performance,” adds Ulrik Svensson, Chief Officer Finance of Deutsche Lufthansa AG. “The change in the pension system for our cabin crews, which we now also agreed on for our cockpit crews, has had a sustainable positive effect, strengthening our balance sheet and making us less dependent on volatile interest rate developments. This shows how important it is to have viable and forward-looking collective labor agreements.”
“We retain our focus on sustainably improving our margins and developing our costs towards competitive levels,” Svensson continues, “because we can only grow in those markets and business segments where we have the right cost position.”
The Lufthansa Group invested EUR 2.2 billion in 2016, some EUR 300 million less than originally planned. The total investment volume was thus 13 per cent down on the prior-year period, owing largely to delays in new aircraft deliveries. As a result, free cash flow increased by 36.5 per cent to EUR 1.1 billion. Net indebtedness was reduced significantly by 19 per cent. Based on earnings after cost of capital (EACC), the Lufthansa Group created value of EUR 817 million last year. Despite the structural benefits of the new collective labor agreement with the company’s cabin personnel, pension provisions rose 26 per cent to EUR 8.4 billion, owing to a decline in actuarial discount rates.
Passenger Airline Group remains earnings driver
The Passenger Airline Group exceeded the already good result of the previous year and reported an Adjusted EBIT for 2016 of over EUR 1.5 billion. The Adjusted EBIT margin was 6.4 per cent. Lufthansa Passenger Airlines raised its Adjusted EBIT by EUR 254 million to over EUR 1.1 billion. Austrian Airlines again contributed positively to earnings with an Adjusted EBIT of EUR 58 million (a EUR 6 million improvement on 2015). And SWISS, while falling slightly short of its very good prior-year result, remained the Group’s most profitable airline with an Adjusted EBIT margin of 9.3 per cent. Eurowings reported an Adjusted EBIT of EUR -91 million. More than half of the shortcomings can be attributed to start-up costs and other non-recurring expenditures.
Lufthansa Technik reported an Adjusted EBIT of EUR 411 million for 2016 (down EUR 43 million) and an Adjusted EBIT margin of 8.0 per cent. LSG achieved an Adjusted EBIT of EUR 104 million (up EUR 5 million) and a stable Adjusted EBIT margin despite its extensive restructuring activities and a dynamic market environment. Lufthansa Cargo suffered a EUR 50 million loss for the year. The EUR 124 million decline compared to its 2015 result was due largely to significant pricing declines in particular in the face of massive overcapacities. The “Other” segment showed a EUR 134 million better Adjusted EBIT than last year, partly due to improved exchange rate gains and losses.
The Supervisory Board and Executive Board will propose to the Annual General Meeting a dividend payment of EUR 0.50 per share for the 2016 financial year. This represents a total dividend payment of EUR 234 million and a dividend yield of 4.1 per cent, based on the 2016 closing price of the Lufthansa share. As in the previous year, shareholders will also be offered the option of a scrip dividend.
The Lufthansa Group will be realigning its financial reporting to its three strategic pillars of Network Airlines, Point-to-Point Airlines and Aviation Services from 2017 onwards.
For 2017 the Network and Point-to-Point Airlines expect to see a further decline of unit costs excluding fuel and currency roughly at the same level as in 2016. At present estimates, fuel costs are expected to increase by some EUR 350 in 2017. This cost increase, together with further declining unit revenues at constant currency, is unlikely to be fully offset through further unit cost reductions.
Organic capacity growth is expected to amount to some 4.5 per cent for the passenger airlines. Brussels Airlines, whose results will be fully consolidated for the first time in 2017, and the wet-leased flights of Air Berlin should make a small positive contribution to earnings already in their first year.
Aviation Services expects to report an Adjusted EBIT for 2017 that is broadly on par with prior year’s, though earnings are likely to show differing trends among the companies. Total investments are projected at EUR 2.7 billion.
Overall, the Lufthansa Group expects to report an Adjusted EBIT for 2017 slightly below the previous year.
“We will consistently continue to modernize the Lufthansa Group,” confirms Carsten Spohr. “We aim to be the first choice – for our customers, our employees, our shareholders and our partners. To achieve this, we will continue to focus on cost discipline, so we can create possibilities for profitable growth in the future.”
“This year’s Annual Results’ Media Conference is being held – for the first time – at Munich Airport. There’s nowhere that the Lufthansa Group’s strategic progress be seen more clearly than at our Southern hub. Only few days ago, the airport’s Terminal 2, which is jointly operated by Lufthansa and the airport company FMG and was further enlarged last year, was named the “world’s best airport terminal”. And with the combination of the world’s finest airport and our state-of-the-art new long-haul aircraft, the Airbus A350, we can offer our customers a truly leading premium air travel experience.”
“In a few days’ time Munich will also see the launch of our quality point-to-point brand Eurowings. This makes Munich an excellent example for the implementation of our strategic agenda based on our three pillars. With our Network Airlines we aim to position ourselves even more clearly as providers of a premium air travel experience, including the further development of our leading role in the field of digital innovation. With our Point-to-Point Airlines our new wet leases will substantially enhance our market position, and we will continue to work with high priority to integrate Brussels Airlines into the Eurowings Group. And with our Aviation Services, further possible growth will be closely linked to improving the efficiency and the profitability of the companies concerned.”
“Our goal is clear,” concludes Carsten Spohr. “We want to make the Lufthansa Group even better and even more successful in 2017.”