Sustainable value creation in the Company
The Lufthansa Group applies a value-based system of management. At its centre is the return on capital. This is measured by the Adjusted Return on Capital Employed (Adjusted ROCE). If Adjusted ROCE exceeds the weighted average cost of capital (WACC), the Company is creating value. The definition of Adjusted ROCE was revised in the 2022 financial year. The capital base is now adjusted for the Group’s cash and cash equivalents. The new calculation method matches that of direct competitors and thereby enables a better comparison between the performance indicators. The Lufthansa Group has set itself the objective of generating an Adjusted ROCE of at least 10% from 2024.
The Company’s profitability is measured by Adjusted EBIT and the Adjusted EBIT margin, i.e. the ratio of Adjusted EBIT to revenue. The adjustments eliminate non-recurring, non-operating effects and thus improve the presentation of the Company’s operating performance. Circumstances that justify an adjustment are listed in a catalogue. These include gains and losses on the disposal of assets and impairment losses, reversals of impairment losses and earnings attributable to other periods in connection with pension obligations. Since the 2022 financial year, these adjustments have also included staff-related restructuring expenses and non-operating extraordinary expenses for legal procedures and company transactions. This change was made to ensure greater comparability with the reporting of other companies in the industry and to increase the transparency of non-recurring items. In the reporting year, the expenses for valuation allowances, depreciation and amortisation and impending compensation payments that were directly caused by the war in Ukraine, as well as impairment losses on goodwill in the Catering segment, are the key issues that were excluded from the Adjusted EBIT calculation.
From 2024, the Lufthansa Group will seek to achieve an Adjusted EBIT margin of at least 8%.
Finally, the Lufthansa Group incorporates the specific CO2 emissions into its management system to lower the associated costs of reducing environmental impacts and to enable sustainable value creation. Management remuneration is also aligned with this goal. Progress made in reducing emissions also influences funding terms. The revolving line of credit concluded in April 2022 with a volume of EUR 2.0bn also takes the specific CO2 emissions into consideration. Achievement of the envisaged reduction path or a failure to do so would result in a lower or higher interest rate in the reporting year in question. Information about the long-term goals for reducing carbon emissions can be found in the Combined non-financial report/Climate protection.
The Company’s value creation was positive again in the 2022 financial year. The Adjusted ROCE after tax was 7.3% (previous year: –7.4%), while the WACC rose by 3.0 percentage points year-on-year to 7.2% (previous year: 4.2%). Adjusted EBIT amounted to EUR 1,509m in the 2022 financial year (previous year: EUR –1,666m). The Adjusted EBIT margin was therefore 4.6% (previous year: –9.9%). Specific CO2 emissions per passenger-kilometre were 90.0 grammes in 2022, 11% lower than in the previous year (previous year: 101.6 grammes).
Development of revenue, adjusted EBIT in €m and adjusted EBIT margin in %
Restructuring forms basis for Lufthansa Group’s return to profitable and sustainable growth
The Lufthansa Group has now almost completed its Groupwide restructuring and transformation programme. The programme has allowed the Company to align itself with the changes in the market environment created by the crisis. The modifications it made to the cost structures, particularly the reduction in fixed costs, reflected the lower market volumes and created the conditions for its return to a positive operating result.
Structural cost savings of EUR 3.5bn per year are to be achieved as a result of the restructuring by 2024. This includes measures to reduce staff costs with a volume of around EUR 1.4bn as well as further measures which are intended to achieve a permanent improvement in productivity, with a volume of roughly EUR 2.1bn. The latter include measures designed to reduce the level of organisational and operational complexity and to standardise and modernise the Group fleet.
By the end of the 2022 financial year, more than 90% of the measures had already been implemented and the cost base had thus been structurally reduced by around EUR 3.2bn per year.