Generation of strong free cash flows is a principal goal of financial management

The Company’s net debt rose during the coronavirus pandemic. Thanks to strict liquidity management and successful financing measures, including the capital increase carried out in October 2021, the stabilisation measures were repaid in full, significantly earlier than originally planned. The generation of strong free cash flows is essential in order to further reduce debt and to safeguard the Company’s long-term investment capability. In addition to increasing the operating result, the key levers for this are strict working capital management and focused investing activities. Through this, the Lufthansa Group plans to generate significantly positive Adjusted free cash flow in 2023 and 2024.

The definition of Adjusted free cash flow was amended in the 2022 financial year so that cash inflows and outflows from the sale and acquisition of companies or individual business units which are allocated to investing activities are no longer recognised. Moreover, since the 2022 financial year all cash flows that are related to pensions – including allocations to the pension funds and dividends paid out of them – have been shown as part of operating cash flow.

In the 2022 financial year, Adjusted free cash flow benefited in particular from the strong increase in bookings and related advance payments as well as improvements to working capital. It thus reached a record level of EUR 2,526m (previous year: EUR –1,049m).

Primary, secondary and financial investments in mio. EUR 1)

1) Excluding share purchases.

Improvements in working capital management support cash flow generation

Working capital management is to be further intensified. Targeted measures such as strict receivables management, improving payment terms with suppliers, improvements to procurement processes and maintenance of inventories, in particular at Lufthansa Technik, are additional areas of optimisation. Free cash flow also plays a major role for managers’ variable remuneration and in the performance dialogues with the business entities. The organisation is continuously made aware of its influence on Company value and incentives are established to increase the level of free cash flow.

Focused investing activities to maximise return on capital employed

The Lufthansa Group is making extensive investments in the modernisation of its fleet, on-board and ground products as well as infrastructure in order to ensure profitable long-term growth. However, the net investments should not exceed the value of the depreciation and amortisation at least up to and including 2024, thus within the period of the medium-term planning presented in the summer of 2021.

Additional aircraft will mainly replace older, less efficient models. The allocation of new aircraft to the different airlines and bases is constantly optimised according to value-based criteria. Greater use of leasing is intended to increase the level of flexibility for long-term fleet planning and to limit the use of capital. In the medium term, this will take the proportion of leasing above its current level of around 10%.

Following the strong reduction in investment spending due to the coronavirus pandemic, the Lufthansa Group significantly increased its volume of investment in the reporting year. The investment volume remained significantly lower than its pre-crisis level in 2019. However, compared with the previous year, net capital expenditure rose by 104% to EUR 2,286m (previous year: EUR 1,119m). Advance and final payments for aircraft and aircraft components along with aircraft and engine overhauls account for most of this.

Now that the coronavirus crisis has been overcome, the goal is to resume dividend payments

Shareholders are to again directly participate in the Company’s success as soon as the Group’s long-term financial stability has been restored. Before the coronavirus crisis, the Lufthansa Group’s dividend policy was to distribute to shareholders 20% to 40% of net profit, adjusted for non-recurring gains and losses. One condition for the payment of a dividend is that a distribution of the relevant amount is permitted by the net profit for the year as shown in the individual financial statements of Deutsche Lufthansa AG that are drawn up under German commercial law. For the 2023 financial year, the Group intends to return to its original dividend policy, provided that the economic recovery continues as forecast for the 2023 financial year.