Deutsche Lufthansa CEO Discusses Q3 2010 Interim Results – Earnings Call Transcript
Deutsche Lufthansa AG (
)
Q3 2010 Interim Earnings Conference Call
October 28, 2010 4:00 AM ET
Executives
Wolfgang Mayrhuber – Chairman and CEO
Stephan Gemkow - Chief Officer Finance and Aviation Services
Frank Huelsmann – Head, IR
Analysts
Penny Butcher – Morgan Stanley
Andrew Light – Citi
Michael Kuehn – Deutsche Bank
Jonathan Wober – Societe Generale
Lexi Dugan [ph] – Liberum Capital
Tobias Sittig – MainFirst
David Fintzen – Barclays Capital
Paul Butler – Macquarie
Andrew Lobbenberg – RBS
Tim Marshall – Redburn Partners
Wolfgang Mayrhuber
Presentation
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Frank Huelsmann: Welcome to our endless conference for the presentation of the results from January to September. This time we’re going to have same procedure as every previous year, which means that we will have a presentation of CEO, Wolfgang Mayrhuber followed by a presentation of CFO, Stephan Gemkow and then we’re happy to take your questions.
So, I’ll just hand over to Wolfgang Mayrhuber, who will give you his view on the recent performance and outlook.
Wolfgang Mayrhuber
Well, ladies and gentleman welcome to the Lufthansa Aviation Center and it’s just been pointed, Stephan Gemkow and I will inform you about the results of the first nine months and to say that we can present to you very respectable results today. It is in my opinion a reward for the persistent hard work for sticking to our principles and of course, the use of all the opportunities that we are presented to ask by the economic upswing.
Our ability to stay on course during the crisis and at the same time make the outlook the necessary adjustments to get leaner, to get faster, fitter and better without neglecting customers’ needs is reflected in these results. You’ll probably remember that starting into the year was not the most ideal one. We had extreme winter operation. We had a sort of self-fabricated losses of production due to strikes and the needless the airspace walk downs that follow the volcanic eruption in Iceland led to major production losses and resulted in immense cost for us.
But all this is behind and we have caught up again and the recovery of the markets helps us to record a positive results in all of our business segments.
Let us start with some key figures for the first nine months. We record an operating profit of EUR612 million that compares to EUR226 last year. This is a significant volume and higher than we had hope at the beginning of this year.
The group recorded a result of EUR524 million compared to EUR31 million last year. We have grown 86 million passengers have chosen Lufthansa and the airline crew. This is a growth of 22%, but includes of course the consolidating effects.
The freight figures are also quite remarkable. Lufthansa Cargo recorded an increase of 19.4% during the nine-month period. In both segments, recovery was quicker than expected and the cause that we have set was a good one and we guided our company nicely through the turbulence. Revenue increased of above offer and therefore, seasonal factor and the cargo load factor reached a very healthy level.
We continued also in the period to invest EUR1.8 billion of which EUR1.6 was spent on aircraft. With the recent order of 48 aircraft which was approved by our Supervisor Report Meeting in September. We outline that we will continue to modernize and expand our fleet. We have grown in a healthy way and did not live on any credits.
Cash flow has increased significantly. Free cash flow reach EUR1.3 billion, cash flow in total EUR2.4 billion. The operating margin has increased and that have dropped. At the close of the third quarter, the Lufthansa share is about 14% higher than at this time of the year. During the course of this year, it has increased almost three times as much as the tax and we feel there is potential in it.
Cash and cash equivalents have risen to internal and internal financing ratios has grown to 137.8%. The gearing has reached the target corridor and the equity ratio has stepped up closer to our target figure of 30%. My colleague, Stephan Gemkow, shall provide you with all the details a little later.
As I said before, we have achieved those figures in an extremely difficult year and have done it without any dubious compromises. It has paid off that with Lufthansa stick to our principles while so during crisis periods which are solid financial structure, quality orientations over our customers, continuing innovations and increasing long-term value. These are the foundations that our of substance for our success.
Ladies and gentlemen I do not want to anticipate the detailed report that you will receive by Stephan Gemkow in a minute, but just let me highlight some of the elements in the areas fields of our businesses.
I am going to start with the Passenger Airline Group. Course, the development in the airline crew altogether is very pleasing, the pictures shape a general recovery in the market and also this is the case for the premium segments. We do have a very large and growing customer base that shows loyalty to us and this has helped very much.
We have introduced the first three A380s. They are in service and enjoying a very reliable operation and people are interested in flying these airplanes.
Our cost reduction and efficiency improvements program climbed 27 is on track and is making progress in all the fields. It will achieve its goals to improve the earnings that Lufthansa passenger Airline by EUR1 billion by the year 2011.
Our company in Switzerland enjoys also the economical surrounding in its domestic market and in the sixth year successful with Lufthansa now.
At Austrian airlines and British Midland, we advised you that we have to expect losses this year. There are losses. They are not worse than plan despite the circumstances we were in. The restructuring and reorganization measures that
both airlines are progressing accordingly, according to our plan and we see only notice some success with both airlines.
At BMI, for example, the real big unnecessary reduction stuff has already been completed.
And is also in airlines has recorded a significant increase in number of passengers, more than 10% growth and is cash positive for the full year. This was the target that we have set for them. However it’s not give generating year around profits again Stephan Gemkow will show you how the curve works.
Brussels Airlines is making also progress. It’s growing also at the same time in Africa and gives us a better foot print to destinations in this important continent.
German Wings had a difficult start in this year, but in the meantime significantly expanded its offer and confirmed its market leadership in the relevant markets, for instance, Cologne and Stuttgart. It has been rewarded in a survey to be the best low-cost carrier.
Nonetheless, the results of the current business year at German Wing shall be lower than in the previous years.
Now, as I turn to Lufthansa Cargo, this unit in particular has seen the steep decline at the beginning of the crisis and again, the steep rise of the distance after we have seen that the market condition change. It reacted very quickly. It managed to turn around with a major impact on their cost and also their flexibility to react has reduced working hours and adjusted their capacity accordingly. This was a compliment for the management and I have to say it’s a true showcase of how Cargo reacted to the market condition change.
The MRO business is a business that sees the crisis later. It’s not an early indicator, it’s a late follower. In the meantime the recovery of the global air traffic has also seen the worldwide demand of MRO or services to grow again. However, there revenue for the first month were smaller than last year. As expected, the MRO will be using with profits to our balance sheet, to our P&L. But the company will further improve its result by the end year and is gaining momentum in the market.
In Lufthansa System, which is our IT house, we have installed a new CEO, Stephan Hansen has had the experience, worked for us many years before and has been outside with another firm and has come back. He will continue the cost-saving program that has been initiated last year. But he also steps up a new program in order to substantially improve their profitability of this unit; this segment will have a smaller profit than last year.
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