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Lufthansa Group increases result in core business

November 4, 2013 Financial No Comments Email Email

Adjusted for restructuring costs and non-recurring effects, the Lufthansa Group increased its profit in the first nine months of 2013 by around 47 per cent, or EUR 278m, to a total of EUR 859m.

The reported result for the first nine months of the year came to an operating profit of EUR 661m, against EUR 907m in the previous year. The Group was able to keep revenue steady at EUR 22.8bn, despite fewer passenger and cargo flights. Non-recurring effects also had an impact on the net profit for the period.

Candi Beach CottagesThis fell by EUR 450m to EUR 247m. “We have significantly improved earnings in the passenger business. For the first time in five years, we are in the black with Lufthansa’s European traffic – thanks to the progress with Germanwings. Austrian Airlines has also returned to profitability. Our progress is confirmation of the fact that, strategically, we are on the right track. It also serves to motivate us to develop our strengths further”, said Christoph Franz, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, when presenting the results for the first nine months.

The Score program, launched in February 2012, is having a clear effect. In the passenger business, the Group increased the load factor of the aircraft by managing capacity in closer alignment with seasonal demand. Outside of the two main hubs in Frankfurt and Munich, European routes to and from Germany were transferred to Germanwings, which has already had a very positive effect on the nine-month result. Adjusted for non-recurring effects and lower fuel costs as a result of lower volumes, costs fell by 0.9 per cent across the Group, while revenue remained stable. This corresponds to EUR 171m. The passenger airlines in the Group cut unit costs, i.e. costs per available seat-kilometre (CASK), by a total of 1.2 per cent for the period from January to September. Unit costs even fell by 1.8 per cent once the reduction in fuel costs was factored in.

Lufthansa German Airlines, which includes Germanwings, contributed a positive operating result of EUR 300m to the business segment’s profit in the first nine months of 2013, an increase of EUR 189m over the same period last year. Swiss generated an operating profit of EUR 182m, which was EUR 9m more than in the previous year. Austrian Airlines achieved a profit of EUR 19m for the first three quarters and increased its normalized result by EUR 11m. The previous year’s result of EUR 210m included positive non-recurring effects from the transfer of operations from Austrian Airlines to Tyrolean.

Service companies boost earnings by almost EUR 100m

The effectiveness of the Score measures can also be seen in the key financial figures for the Group’s other business segments. All of them were profitable in the first nine months of the year.

Lufthansa Technik was able to increase its operating profit by EUR 101m year on year to EUR 332m. Likewise, revenue generated by the company rose by 3.6 per cent, notably as a result of third-party business outside the Lufthansa Group. Lufthansa Technik’s operating expenses were also unchanged. Similarly, the IT Services business segment posted an increase in operating profit of EUR 4m against the previous year to EUR 17m. This was mainly the result of a rise in revenue. LSG SkyChefs, the global number one in the catering segment, reported a profit of EUR 63m for the first nine months. The decline of EUR 12m was primarily attributable to the transfer of the British subsidiaries to a joint venture, which is no longer part of the group of consolidated companies. In the Logistics business segment, the operating profit for the first three quarters was EUR 24m below that of the previous year at EUR 43m, largely as a result of persistently weak demand on global airfreight markets. Nevertheless, Lufthansa Cargo was able to remain profitable, in contrast to almost every other cargo airline around the world. This was also possible due to the company’s strong focus on the profitable segment of high-value specialized transportation.

Lufthansa Group expects adjusted operating profit of between EUR 900m and EUR 1bn for 2013

For the full year, the Lufthansa Group expects to achieve a higher operating profit of between EUR 600m and 700m compared with the previous year (EUR 524m). Adjusted for non-recurring restructuring and project costs amounting to EUR 300m, earnings are forecast to be between EUR 900m and EUR 1bn. Revenue is expected to be on a par with the previous year. Exchange rate effects during the year have caused a decline in revenue in the reporting currency, the euro, particularly in the passenger business. Simone Menne, Member of the Executive Board and CFO at Deutsche Lufthansa AG, said: “We have reduced our costs on a sustainable basis, while at the same time further improving the quality for our customers. Exchange rate effects that reduce our revenue demonstrate to us clearly how important it is to be cost-efficient. We will not simply content ourselves with what we have achieved, but continue to work to be become even more commercially robust and better at what we do.”

Lufthansa Group January to September Change
2013 2012**
Total revenue €m 22,768 22,821 -53
of which traffic revenue €m 18,663 18,786 -123
Result from operating
€m 582 915 -333
Operating result €m 661 907 -246
Restructuring and project costs €m +198
Positive non-recurring effects €m -325
Adjusted operating result*** €m 859 582 277
Adjusted operating margin* in % 3.2 4.3 -1.1 pp
Net profit/loss for the period €m 247 697 -450
Capital expenditure €m 1,896 1,878 34
Cash flow from operating activities €m 3,001 2,428 573
Employees as of 30.9. 117,538 118,088 -550
Earnings per share 0.54 1.52 -0.98

*) Operating result plus write-backs of provisions, divided by revenue
**) Previous year’s figures have been adjusted in line with changes to IAS 19
***) Operating result adjusted for restructuring and project costs (EUR 198m) and positive non-recurring effects in the previous year’s result (EUR 325m)

The first nine months of 2013 in figures

Revenue in the first nine months of 2013 remained stable at EUR 22.8bn, a fall of 0.2 per cent compared with the previous year. Overall, the Group’s operating income declined slightly to EUR 24.3bn in the reporting period, a fall of 0.3 per cent. Traffic revenue declined by 0.7 per cent to EUR 18.7bn. Operating expenses rose by 1.1 per cent in the first three quarters to EUR 23.7bn. Fuel costs fell by EUR 161m to EUR 5.4bn, a decline of 2.9 per cent, largely due to lower volumes. Included in this amount is a price hedging result of EUR -99m. Fees and charges fell by 0.2 per cent on the previous year, in particular due to a lower number of flights.

From January to September 2013, the Lufthansa Group generated an operating result of EUR 661m. To facilitate comparison, the operating result originally reported for the same period last year was adjusted by EUR 279m following the amendments to accounting standard IAS 19. Following this adjustment, the result for the first nine months of 2012 came to EUR 907m.

The net result for the period fell by EUR 450m to EUR 247m. Earnings per share sank to EUR 0.54.

In the reporting period, the Lufthansa Group invested EUR 1.9bn, which was on a par with the same period last year. Of the total, EUR 1.7bn went on modernizing and maintaining the fleet. Cash flow from operating activities came to EUR 3.0bn and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 1.6bn. Cash flow therefore climbed steeply year on year. For the first nine months, the Group has net debt of EUR 1.1bn. Following the application of new accounting standards (IAS 19), the equity ratio is now 19.1 per cent.

The detailed interim report for the first three quarters will be published on 31 October 2013 at 7.30 a.m. CEST on

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