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

As a result of the coronavirus pandemic, the Company’s net debt has increased. Thanks to strict liquidity management and successful financing measures, particularly the capital increase carried out in October 2021, the stabilisation measures in Germany could be repaid significantly earlier than originally planned. Nevertheless, indebtedness is significantly above the pre-crisis level. To further reduce debt, including the repayment of the additional state-guaranteed loans in Switzerland, Austria and Belgium drawn at the end of 2021, generating strong free cash flows is essential. In addition to increasing the operating result, the key levers for this are strict working capital management and disciplined investing activities. Through this, the Lufthansa Group plans to generate Adjusted free cash flow of around EUR 2bn each in 2023 and 2024.

Adjusted free cash flow in 2021 came to EUR –855m (previous year: EUR –3,669m).

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

1) Excluding acquisition of shares.

Improvements in working capital management support cash flow generation

Working capital management will be intensified even beyond the acute crisis. This will include such measures as strict receivables management, improving payment terms with suppliers, process improvements in procurement and optimising inventories, in particular at Lufthansa Technik. In performance dialogues with business entities, cash flow plays an important role such that the organisation is continuously sensitised to its influence on company value.

Focused investing activities to maximise return on capital employed

Capital expenditure planned in all segments in 2020 and 2021 has been reviewed and postponed – whenever possible and economically viable – in order to minimise short-term cash outflows. In the coming years, the Group will increase its capital expenditure again in order to secure long-term profitable growth. As a matter of principle capital expenditure should not exceed the value of the depreciation and amortisation.

The Lufthansa Group will also invest further in the modernisation of the fleet, the on-board and ground product as well as infrastructure. 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. This makes the investment profile more balanced and increases focus on the deployment of capital. The increased use of leasing will further limit capital usage. This will take the proportion of leasing above its current level of 12%.

The Lufthansa Group has reduced capital expenditure since the outbreak of the coronavirus crisis, in particular by delaying aircraft deliveries. In the reporting year, capital expenditure remains significantly below the pre-crisis level. Compared with the previous year, gross capital expenditure (excluding the purchase of shares) rose by 4% to EUR 1,329m (previous year: EUR 1,273m). Advance and final payments for aircraft and aircraft components along with aircraft and engine overhauls account for most of this. The increase compared with the previous year mainly resulted from higher advance payments for future aircraft deliveries.

Cashflow and capital expenditure in €m

1) Without acquisition of equity investments.
2) Since 2018: Adjusted free cash flow.

Resumption of dividend payments targeted in the long-term

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 pandemic, the Lufthansa Group’s dividend policy was to distribute to shareholders 20% to 40% of net profit, adjusted for non-recurring gains and losses.

However, the contractual terms of the Economic Stabilisation Fund’s (ESF) stabilisation measures still rule out the payment of dividends. This applies until the complete sale of the shareholding of WSF (31 December 2021: 14.09%), which has been agreed to take place by October 2023.

On condition that the net profit for the year in the individual financial statements prepared in line with German commercial law for Deutsche Lufthansa AG permits a distribution of this amount, dividend payments would again be possible in the year following the end of the stabilisation measures. Until then, the Group will use its free cash flow primarily for repaying its financial liabilities, including the state stabilisation measures.