Lufthansa Suspends Dividend After Earnings Fall

Earnings hit by sale of IT unit, fuel-hedging provisions, an increase in pension liabilities.


FRANKFURT— Deutsche Lufthansa AG on Friday said it won’t pay out a dividend after its full-year earnings were hit by the sale of its IT unit, fuel-hedging provisions, and an increase in pension liabilities.

Shares dropped nearly 5% after the release of preliminary earnings and news the airline would scrap its dividend after paying out 0.45 euros ($0.51) for 2013. The German carrier said in October the dividend could be cut because of the sale of its IT unit.

Lufthansa said it recorded an after-tax loss of €732 million ($834 million) in 2014 according to local accounting standards, compared with a profit of €407 million the previous year. This figure determines the tax assessment and the dividend payment, Chief Financial Officer Simone Menne said.

“In view of this, the executive board proposes that no dividend be paid for 2014, but we will work towards paying (it) again in the future and our commitment remains there,” Ms. Menne said.

The company attributed the after-tax loss largely to a reduction in the value of its provisions for potential losses from fuel hedges following the plunge in oil prices.

“In general, we are profiting from a lower oil price, but (the provisions for potential losses from fuel hedging) are a negative figure in the books,” Ms. Menne said.

Despite a drop in the share price, not all Lufthansa’s investors were stung by the dividend cut.

“Lufthansa badly needs every cent it has for restructuring and fleet renewal, so we welcome the dividend cut,” said Michael Gierse, a portfolio manager at Union Investment, which holds a small stake in the airline.

Aside from hedging provisions, other factors contributed to lower earnings.

Lufthansa sold its IT Infrastructure division to International Business Machines Corp. last year and will begin outsourcing its IT services to the company as part of a broader restructuring of its systems unit. The move will reduce costs in the long term but result in a €240 million charge in 2014, Lufthansa had said.

Using international financial reporting standards, the airline reported an after-tax profit of €55 million, down 82% from €313 million in 2013. The airline attributed that drop to changes in the market value of its JetBlue convertible bonds issued in 2012. Lufthansa issued the bond in 2012 after acquiring a stake in the U.S. budget airline.

For 2014, Lufthansa posted revenue of €30 billion, unchanged from the previous year, the company said. Operating profit was €954 million.

Lufthansa has also been hurt by strikes as it battles unions over pay, retirement benefits and the airline’s plans to expand its low-cost offering. The strikes last year cost the airline €220 million in operating profit, Lufthansa said.

Lufthansa will provide more details of its full-year results on March 12. For the current year, the German carrier cut its guidance in October, citing a weak global economic outlook. It said its earnings targets could still be hit by further strikes.