lsg annualreview 2014

CONTENTS02 Letter from the Executive Board

04 Insider Interviews

06 Business and Strategy

08 Markets and Competition

10 Sales and Customers

11 Partnerships and Joint Ventures

12 Products and Services

17 Revenues and Earnings

18 Awards

20 Quality and Food Safety

22 Worldwide Presence

26 Corporate Social Responsibility

27 Environmental Management

29 Environmental Successes

30 Outlook

33 Consolidated Income Statement

34 Executive Board Responsibilities

35 Key Figures

03|

yours sincerely,

The year 2014 was a good one for our industry. Passenger volumes continued to grow in all regions. We also saw a slight tendency to upgrade service concepts thanks to the improved financial situation of many carriers, even in mature markets but especially in North America. While benefitting from this growth across our network, LSG Sky Chefs was also able to strengthen its position in the increasingly important onboard retail sector and in some adjacent markets.

Over the past few years, the company has enjoyed a solid and sustainable operational and financial performance, providing a strong basis for our future. Looking ahead, we have the clear goal of becoming more market- and customer-focused in order to stay ahead and live up to our obligation to develop the market further with innovative products and service concepts. In order to get there, we have launched several worldwide initiatives that revolve around innovation, consumer data and onboard retail programs. They will prepare us to better deal with the increasingly divergent customer and consumer demands we must meet today.

We look forward to continue working with you and proactively define common goals and opportunities. At the same time, we would like to thank you for your trust and personal contributions, which have helped us remain the top player in our core business while tackling new ventures to achieve the profitable growth we aim for in our Mission and our Strategy.

DEAR READER,

LETTER FROM ThE ExECuTIVE BOARd

Jochen MüllerChIEF OPERATInG OFFICER

.................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................... LSG SKY ChEFS | AnnuAL REVIEW 2014

Erdmann RauerChIEF ExECuTIVE OFFICER

Dr. Kristin NeumannChIEF FInAnCIAL OFFICER

We would like to invite you to take an in-depth look at LSG Sky Chefs – our way of thinking and what motivates us.

Get to know five individuals who represent various areas of our company.

Discover their actual statements, revealing what drives them and why their skills and expertise benefit customers and consumers alike.

INSIDER INTERVIEWS

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LSG Sky Chefs is the global market leader in airline catering in terms of market share, quality, innovative drive and worldwide presence. With 210 customer service centers based in 51 countries, the LSG Sky Chefs Group has the largest network of production sites in the industry. In both of its home markets (Germany and the united States) the company is present at almost all major airports. In the emerging markets of Latin America, Asia/Pacific, Africa and Eastern Europe, the network of units is being continuously extended via joint ventures and management agreements with local partners.

At the end of the year 2014, the Group comprised 159 companies that supply a considerable roster of airlines at 214 airports. LSG Lufthansa Service Holding AG (headquartered in Neu-Isenburg, Germany) is the parent company. Changes in the group of consolidated companies this year included the first-time consolidation of Chelyabinsk Catering Service in the third quarter of 2013 and of Starfood Finland Oy on March 1, 2014.

In the course of the business year 2014, the composition of the Executive Board changed and was reduced from four to three members. On July 1, Dr. Kristin Neumann took over as Chief Financial Officer (CFO) and Chief HR Officer with responsibility

for Finance, Human Resources, Procurement, Information Technology and the German retail shops “Ringeltaube”.

On October 1, Erdmann Rauer, who had been a Member of the Executive Board in his role as Chief Sales Officer since January 2011, assumed the helm of the company as the new Chief Executive Officer (CEO). Strategy and Business Development, Sales and Products, Communications and Marketing, Legal and Corporate Affairs as well as Internal Audit all fall within his area of responsibility.

Jochen Müller remains the company’s Chief Operating Officer (COO) and Member of the Executive Board since March 2005. he is responsible for the group’s worldwide operations. Additionally, he supervises the SPIRIANT/SkylogistiX equipment and logistics subsidiaries, LSG Sky Chefs Lounge and Air Security businesses as well as the Corporate Operational Excellence function.

The airline catering activities are managed by five regional management teams with responsibility for North America, Latin America, Europe, Asia/Pacific and the Emerging Markets. This structure ensures that the highly diverse customer requirements

based on market maturity or growth, expansion opportunities and cultural differences are adequately met. Over the past few years, LSG Sky Chefs has expanded its portfolio with a special focus on its core competencies – culinary excellence and logistics.

In terms of culinary excellence, the company enhanced its services in order to accommodate the changing requirements of its airline customers. This entailed the further refinement of its culinary excellence philosophy to include the preparation of ethnic meals, which are increasingly in demand. In the area of logistics, the company – via its subsidiary, SPIRIANT – provides a growing number of airlines with the development, procurement, planning, transportation and warehouse handling of catering equipment. These include point-to-point, legacy and start-up low-cost carriers in all regions.

The portfolio expansion also includes gaining the capacity to handle the complete management of onboard retail processes, from analyzing and recording the needs of consumers to the selection of products, demand forecasting, logistics and sales processes, as well as invoicing.

Additionally, LSG Sky Chefs continues to offer its extensive expertise in culinary excellence and logistics to new customer groups such as train operators, convenience retail chains and school and university canteens. In seeking to complement its internal competencies, the company actively cooperates with business partners around the globe. In order to further secure its continued success, LSG Sky Chefs is building on its profitable growth through geographic and knowledge-based expansion. To heighten customer benefits and satisfaction, the company mostly relies on product and process innovation, coupled with optimized service quality and consistency.

At the same time, LSG Sky Chefs pursues consistent cost management with the ongoing optimization of process flows and the growing standardization of its highly decentralized network. Cost management concerns all personnel levels, business areas and locations of the company. The focal points include the management of material costs by converging volumes and applying modern supplier management, more flexible labor costs and the introduction of new business models based on customer requirements.

LSG Sky Chefs broadens its presence and expands its portfolio

BUSINESS AND STRATEgy

lSg Sky Chefs has expanded its portfolio with a special focus on its core competencies – culinary excellence and logistics.

S T A N D A R D I z A T I O N

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Growth in demand supports expansion plans

mARkETS AND COmPETITION

In the coming years, the company expects growing passenger volumes that will vary greatly depending on the region. Low-cost and charter airlines continue to hold a disproportionate share in this growth. Based on this general development in the airline industry, LSG Sky Chefs is forecasting growth in the market volume for airline catering.

network airlines are increasingly looking to upgrade their service concepts in order to position the in-flight experience as an additional differentiation opportunity. Low-cost and charter airlines favor so-called hybrid models, which combine traditional free-of-charge in-flight services for passengers with innovative onboard retail programs that have already proven highly successful with some customers. Comprehensive, intelligent onboard retail programs that go far beyond the food and beverage offer with entertainment choices and convenient shopping are increasingly in demand. They improve the guest’s travelling experience and open up additional revenue streams for airlines.

In terms of airline catering, LSG Sky Chefs continues to hold the industry’s leading position with a global market share of 29 percent. The market share in America and Europe, according to internal calculations, totals around 40 and 45 percent respectively. In Asia, where catering is commonly provided at the hubs by the hub carriers, LSG Sky Chefs has been active for almost 25 years and still is the market leader. In Eastern Europe and Africa, the company continues to build its market presence at a number of rapidly growing airports.

The LSG Sky Chefs worldwide network of companies comprises a number of proprietary locations and a wide range of joint ventures with airlines, airport operators and local businesses, especially in Latin America, China, Russia and the UK. Some of these partnerships have been in place for several decades and continue to grow.

LSG Sky Chefs’ competition remains fragmented. There is only one global competitor and a transparent number of local and/or regional suppliers that are gradually expanding. The past several years have seen a few new companies from the logistics segment and the restaurant business enter the airline catering market with a different product portfolio and aggressive pricing. They offer services specifically geared towards the onboard retail programs of low-cost carriers and less complex onboard services on short-haul flights. They also target the economy class service where freshness and culinary excellence are not a priority in relation to the food selection.

The company’s network grew further during the year under review. Its far-reaching presence in Russia now includes 10 locations after entering Rostov-on-don as part of its joint venture with Aeroflot, Aeromar. In China, LSG Sky Chefs launched a new joint venture in Wenzhou, which entails the construction of a new catering unit. Within the context of additional new joint ventures, the company was able to enter the markets in Sofia, Bulgaria, and the Tokyo Narita and Haneda airports in Japan. In South Korea, the company is now present at the country’s three busiest airports after opening a new location in Busan. Furthermore, the company acquired the pre-production unit for LSG Sky Chefs Finland in Helsinki, and opened new modern production sites in Panama City, Panama, and Nanjing, China – two locations with rich potential.

SPIRIANT, a subsidiary in the field of onboard service equipment development and logistics, opened its first branch in Dubai, UAE, in order to cater to the growing demand in the region for quality onboard services. In New Zealand, LSG Sky Chefs acquired Naturezone, a retail supplier, thereby creating a second business pillar for the company in that country.


LSG Sky Chefs is proud of its partnerships around the globe, many of which last for decades. The company was the industry’s pioneer in entering the Chinese and Russian markets in the 1980s and has since continued to seek new opportunities wherever they come up by combining global expertise with local market access. Major partnerships covering more than one location include:

Aeromar – the 51/49 joint venture with Russian carrier Aeroflot, established in 1989 in Moscow-Sheremetyevo, today comprises six locations in Rostov-on-Don (new in 2014), Sheremetyevo, Simferopol (new in January 2015), Sochi, St. Petersburg and Vladivostok and is the number one caterer in Russia.

Thirteen joint ventures with major Chinese airlines, authorities and local partners at 19 airports in China – established between 1990 and 2014, they include units in Beijing, Chengdu, Dunhuang, Guangzhou, Hangzhou, Hefei, Hong Kong, Kunming, Lanzhou, Lijiang, Nanchang, Nanjing, Sanya, Shanghai-Hongqiao, Shanghai-Pudong, Shangri-La, Urumqi, Wenzhou (new in 2014) and Xian.

Goddard Catering Group – established in 1997 with a shareholding of 49 percent and comprising locations in 17 countries in Latin America and the Caribbean: Antigua, Barbados, Bermuda, Cayman Islands, Colombia, Ecuador, El Salvador, Grenada, Guatemala, Jamaica, Netherlands Antilles, Paraguay, St. Lucia, Trinidad and Tobago, Uruguay, Venezuela and the u.S. Virgin Islands.

The company’s customers include virtually all international airlines and numerous national and regional carriers. The types of business relationships, in terms of scope and duration, vary among the roughly 300 key customer accounts. They span everything from global contracts to agreements for individual locations only. Built on the company’s reputation as an industry leader in quality and sustainability, the strength of these relationships is confirmed periodically by a solid retention rate in the core catering business segment. While the company continues to sharpen its focus on innovation and new business models, it has also managed to make inroads in the onboard retail sector in Europe and north America.

Aerococina de Mexico – established in 1997 with a current shareholding of 51 percent and present in Bajio, Cancun, Cozumel, Guadalajara, Merida, Mexicali, Mexico City, Monterrey, Puerto Vallarta, San Jose del Cabo and Tijuana.

Alpha LSG Limited – In 2012, LSG Sky Chefs founded a new joint venture with the Alpha Flight Group in Great Britain, serving 21 airports throughout the UK: Belfast, Birmingham, Blackpool, Bristol, Cardiff, Doncaster, Durham, East Midlands, Edinburgh, Glasgow, Humberside, Leeds-Bradford, Liverpool, London Gatwick, London Heathrow, London Stansted, Luton, Manchester, Newcastle, Norwich and Prestwick.

Joint venture with Asiana Airlines – established in 2003 with a shareholding of 80 percent at the fast-growing Seoul-Incheon airport, today it is also present at the other two major airports in South Korea: Seoul-Gimpo and Busan.

Through these partnerships, LSG Sky Chefs benefits from the local network and market access of its partners. The partners, in turn, receive access to a global network of expertise in important areas such as operations, quality, human resources and technology, as well as research and development.

While these partnerships bolster the geographical presence of LSG Sky Chefs, the company also engages in collaborations with specialized partners that can complement its capabilities, primarily in its core airline catering business. These partnerships are described in more detail in the Products and Services section of this report.

The financial year 2014 was marked by a stronger demand for airline catering services. This was due to higher passenger volumes and the slight upgrading of onboard services by some airlines. Consequently, LSG Sky Chefs was able to increase sales in almost all markets. The sole exception was Eastern Europe, where demand declined as the result of the present political instability.

LSG Sky Chefs closed the year under review with a customer retention rate of close to 90 percent and a three-digit million net new business figure. New customer contracts were signed for airline catering services as well as areas beyond.

Standout deals include the global agreement with delta Airlines and the expansion of the business relationship with JetBlue Airlines in the united States. There were also catering contract extensions with Emirates, Singapore Airlines and Qantas in new Zealand. new onboard retail agreements were signed with Germanwings, SunExpress and Air Baltic in their respective markets, as well as with Spirit Airlines in North and South America. Meanwhile, closer cooperation was achieved with the fast-growing airlines in the Middle East, particularly at their newest destinations in north America.

LSG Sky Chefs was also able to further consolidate its market position in the train catering segment. Thanks to innovative service concepts, two new agreements were obtained with French high-speed train operator idTGV and the Italian nTV.

Global expertise combined with local market access

PARTNERShIPS AND JOINT VENTURESSharper focus on new business models strengthens position

SAlES AND CUSTOmERS

the financial year 2014 was marked by a stronger demand for airline catering services.

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LSG Sky Chefs’ commitment to live up to its vision (“To deliver the taste of the world to make your customers’ day better”) is strongly supported by the dedication and diversity of its workforce, worldwide locations and expanded portfolio. The company consistently works on broadening its portfolio in order to deliver a more memorable experience for passengers along the entire travel chain, starting with the booking through arrival at the final destination. The travel chain concept, which was initially conceived for airlines and their passengers, has been successfully translated to meet the needs of other target groups, such as high-speed train and bus travelers. At the same time, customers (airline, train and bus companies) expect a well-balanced portfolio that leads to passenger satisfaction while delivering efficiency and generating revenues.

LSG Sky Chefs’ vast experience, coupled with its continuous quest for innovation has generated an array of products and services that go beyond classic airline catering. Presently, the company’s portfolio includes:

A diverse portfolio that can promote differentiation and individualization

PRODUCTS AND SERVICES

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1.6 Mio578 Mio.MeaLs Per daY

airline caterinGAt the heart of LSG Sky Chefs’ broad range of activities is its proven expertise in airline catering, which spans more than 70 years of history. It rests on the company’s culinary excellence philosophy and experience in day-to-day logistics. Today, that legacy is carried on by more than 700 chefs representing different cuisines in 210 customer service centers in 51 countries. By applying that expertise, the company is able to offer airlines, passengers and consumers high-quality culinary choices every day, anywhere.

Depending on a customer’s needs, LSG Sky Chefs utilizes the expertise of a team of in-flight specialists that will work hand-in-hand with an airline on a number of key activities, such as:

Carrying out in-depth research on trends, consumer demands and passenger expectations on a global scale

Translating short, medium and long-haul strategies into value-adding catering concepts

Benchmarking with other airlines to ensure products are “on brand”

Implementing special programs such as Celebrity Chefs’ menus.

onboard retailA successful onboard retail offering is built on a foundation of providing passengers with the right product mix. This increases customer satisfaction and improves brand perception. But it has to be done with technology that makes those products easy to sell and buy. That is why LSG Sky Chefs partners with Retail inMotion (RIM), a leading retail technology provider, to support airlines and train operators in optimizing their onboard sales processes and increasing their ancillary revenues.

The company has developed an ideal onboard retail product mix for its customers based on demographics, culture and specific routes that generate income. It has also defined the optimal stock levels of goods, ranging from luxury items to basic products, in order to minimize waste.

Services include the selection of the product mix, menu planning, procurement, packaging design and cabin crew sales training. All process steps are supported by state-of-the-art technology, which is a key success factor for onboard retail programs. In addition, the company offers end-to-end retail IT-solutions that include the technology, software back-up and back-office analysis.

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34

5airPorts served

lSg Sky Chefs consistently works on broadening its portfolio.

food solutionsThe range of services used by customers varies considerably – some require full-service, others prefer convenient meal options or meal boxes. As a proactive response to changing market requirements, LSG Sky Chefs has built a robust line of products that can complement or replace traditional catering solutions as well as onboard retail programs:

With frozen food production units in China, Germany and the U.S., the company is the only global provider of frozen airline meals. The frozen-meal product catalog includes over 900 different dishes representing 100 ethnic varieties. Customers benefit from increased flexibility in terms of availability and high consistency.

LSG Sky Chefs is also a leading provider of meal-box solutions that can be tailored to the customer’s needs and brand values through its ownership and shareholding in Oakfield Farms Solutions. Individually designed meal boxes can hold a free-to-choose assortment of nutritional snacks and meal components.

eQuiPment sourcinG and desiGn/develoPmentLSG Sky Chefs’ equipment brand, SPIRIANT is a leading global provider of in-flight products, equipment and logistics aimed at optimizing an airline’s entire supply chain.

SPIRIAnT adds value by designing concepts that meet customers’ practical needs. With nearly 20 years of experience working with major airlines around the world, the SPIRIANT team has the insight and knowledge to source, design and deliver a variety of product concepts. Those include meal service equipment (trays, cutlery and tableware), comfort items (linens and amenities), galley equipment (trolleys/carts and drawers) and comfort items. All of them are designed to strengthen the airline’s specific brand values while addressing the practical needs of the crew and passengers.

With dedicated teams across Europe, the Americas, Asia and the Middle East, SPIRIANT employs more than 200 people. In June 2014, the subsidiary officially opened its first branch in Dubai, UAE, in answer to the rising demand for enhanced in-flight services in the Middle East.

Last year SPIRIAnT was also honored with the prestigious “Good Design” award for four different products at the “Good design Awards” competition in Chicago. SPIRIAnT’s Slot tray and tableware, Lufthansa’s bread basket, salt & pepper shakers and "Berlin" gourmet b ox stood out against product designs from several thousand companies from 48 countries.

eQuiPment loGisticsSkylogistiX, a joint venture between LSG Sky Chefs and Kuehne+Nagel, one of the world’s leading logistics providers, creates transparency in materials management. The combination of Kuehne+nagel's logistics excellence and LSG Sky Chefs' expertise in equipment management provides customers comprehensive operational experience in in-flight services and airline management.

SkylogistiX offers outsourcing and logistics expertise for the supply chain management of in-flight catering equipment, all supported by state-of-the-art custom-designed IT systems. The aim is to integrate and optimize all elements of the supply chain to minimize total cost without compromising service levels.

Services include forecasting (demand and order management), transport management by using worldwide logistics networks and warehousing (stock management, inbound quality checks, restocking and repacking of returned deliveries). Those services aim at bringing innovation into the in-flight service supply chain through leading-edge systems, dedicated expertise and the company’s global network.


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6consultinG and innovationThe key to understanding consumers is not just knowing what they want, but where, when and how they want it. LSG Sky Chefs is passionate about people, food and travelling. Listening to consumers, conducting market research and monitoring global trends as they emerge form the basis of our approach to innovation.

This involves more than just looking for the latest culinary trends; it also includes analyzing social, lifestyle and cultural trends. When emerging trends are identified, proven innovation extrapolation techniques are applied to translate them into a service vision. Within the framework of co-innovation workshops, the service vision is then turned into concrete concepts that fit with the customer’s brand and goals. In order to achieve the best results from the innovation process, all consumer touch points are analyzed. This lays the ground for the creation of a seamless brand experience for the traveler and increased awareness about the customer services available.

lounGe servicesYears of experience in operating and managing lounges have given LSG Sky Chefs a clear and competitive lead in this area. The company currently manages 65 lounges and provides food and beverage services to around 30 additional lounges at 36 airports around the world. The lounge portfolio features various modules ranging from food and beverage to service, uniforms and equipment. As a one-stop-shop, it delivers a seamless brand experience for passengers and a more efficiently-handled area for the airline or train operator.

security services The company’s u.S.-based SCIS Air Security subsidiary provides the airline industry with solutions for the requirements of the post-9/11 world. In fact, it is recognized as the leader in airline catering security in north America. And it continues to expand its portfolio to include airport operations area security, aircraft security, cargo security, personnel screening, in-flight entertainment and point-of-sale solutions, duty-free management and cash management services.

“rinGeltaube” retail shoPs LSG-Food & Nonfood Handel operates 24 retail shops under the „Ringeltaube“ brand at German airports, offering a huge variety of beverages, perfumes and cosmetics, travel accessories and gourmet food, exclusively to airport and airline employees.

Supported by a favorable, yet highly competitive market environment and in line with the company’s strategy, the LSG Group was able to continue its path of profitable growth. LSG Group’s consolidated revenue rose by 4.7 percent (adjusted for currency effects: +6.8 percent) to EUR 2,633 million in the 2014 financial year. Changes in the group of consolidated businesses increased revenues by EuR 22 million compared to previous year.

Other operating income rose by EUR 7 million to EUR 93 million. Overall, total operating income increased by 4.9 percent to EUR 2,727 million.

Cost of materials and services rose by EuR 52 million to EUR 1,156 million. This development was mainly due to the increased business volume. The cost of materials ratio remained unchanged at 43.9 percent.

The average number of employees rose to 32,526, meaning 3.7 percent more than the year before. In total, personnel expenses climbed by 4.0 percent to EUR 964 million. This can be attributed to the increased business volume and the changes in the consolidated companies in Europe.

The amortization and depreciation ratio amounted to 2.5 percent, corresponding to the 2013 figure (2.5 percent). The nominal amount slightly rose by EuR 3 million to EuR 65 million.

Other operating expenses increased by 9.7 percent to EuR 441 million on a year-to-year basis. This was mainly driven by the higher business volume and higher expenses for external personnel.

LSG Group achieved an operating profit of EUR 100 million in 2014, EUR 5 million below the previous year’s figure of EUR 105 million. This reflects the ongoing price and cost pressure in the industry which could not be fully absorbed by productivity gains and process optimization.

The results of investments, accounted for using the equity method, decreased by EUR 11 million to EUR 8 million due to unfavorable exchange rates fluctuations of the Russian Ruble. The interest result remained unchanged at EuR minus 18 million compared to the previous year.

Other non-operating result of EuR minus 37 million was mainly influenced by the effect of negative exchange rates and impairments which led to an overall drop of EuR 18 million compared to 2013.

The developments mentioned above, especially in the non-operating result, led to a decrease in the result (after taxes) by EuR 21 million to EuR 36 million.

Solid performance in a highly competitive environment

REVENUES AND EARNINgS

OPERATInG RESuLT (EUR/MILLION)

2009

72

2010

76

2011

85

2012

101

2013

105

2014

100

l O g I S T I C S

IndIvIduaLIzatIondiverse

PortfoLioexPeriences

CONSUmER INSIghTonboard reta IL

Lounge servIcesI N N O V A T I O N

CUlINARy ExCEllENCE

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Customer

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The LSG Sky Chefs global network delivers consistent service quality and culinary excellence worldwide. Our customers acknowledge our commitment to excellence through their loyalty and the awards they bestow upon us, such as:

20142014 QSAI Platinum Award for best worldwide airline catering facility according to QSAI standards | Munich, Germany2014 QSAI Award of Excellence for Europe, Middle East & Africa ‘Gold Medal’ | Munich, Germany2014 QSAI Award of Excellence for the Americas ‘Gold Medal’ | Buenos Aires, Argentina2014 QSAI Award of Excellence for the Americas ‘Silver Medal’ | Bonaire, Netherlands AntillesDelta “Caterer of the year” as Best Small Kitchen (<500 flights/month) | Anchorage, USADelta “Caterer of the year” as Best Medium Kitchen (> 501-999 flights/month) | Mexico City, MexicoKLM Catering Performance Award 2014 for Africa | Cape Town, South AfricaKLM Catering Performance Award 2014 for Americas | Buenos Aires, ArgentinaSingapore Airline Excellence Award 2014 | Munich, GermanyOman Air Certificate of Appreciation for consistent performance 2014 | Kathmandu, Nepal

The innovative and unique products designed by SPIRIANT take into account the growing environmental awareness.

This is increasingly recognized by a number of renowned international design awards, such as:

2014 Travel Plus Gold Winner for Lufthansa Children’s Goody Bag Pilotenkoffer Travel Plus Gold Winner (Formia & SPIRIANT) for Qatar Airways Business Class amenity kits

‘Good Design Award' for Lufthansa Premium Economy Class tableware

20132013 QSAI Award of Excellence for the Americas ‘Gold Medal’ | Bonaire, Netherlands Antilles

2013 QSAI Award of Excellence for the Americas ‘Silver Medal’ | Buenos Aires, Argentina2013 QSAI Award of Excellence for the Americas ‘Bronze Medal’ | Santiago de Chile, Chile

2013 QSAI Award of Excellence for Europe, Middle East & Africa ‘Silver Medal’ | Munich, Germany2013 QSAI Award of Excellence for Europe, Middle East & Africa ‘Bronze Medal’ | Kiev, Ukraine2013 ANA Overseas Caterer Award – Silver Prize for best long-haul/middle haul caterer | Washington, USA

Delta Airlines ‘Caterer of the Year Award 2013’ | Milan Malpensa, ItalyChartered Institute (Australia) ‘Best Supplier Partnership’ for cooperation between Air new Zealand and LSG Sky Chefs | LSG Sky Chefs, New ZealandLufthansa ‘Best Caterer Award 2013’ in the category Asia/Pacific and worldwide award | Hong Kong, China

Lufthansa ‘Best Caterer Award 2013’ in the category North and South America | Dallas, USALufthansa ‘Best Caterer Award 2013’ in the category Europe | Frankfurt, Germany

United Airlines ‘Quality First Awards’ – Crystal Award Premium International (top performer in United’s Quarterly Awards) | Birmingham, UKUnited Airlines ‘Quality First Awards’ – Crystal Award Hub/Large – over 10,000 departures per month | Denver, USA

United Airlines ‘Quality First Awards’ – Crystal Award Medium – 500 to 10,000 departures per month | Mexico City, MexicoUnited Airlines ‘Quality First Awards’ – Silver Medal Medium – 500 to 10,000 departures per month | Bogota, Colombia

United Airlines ‘Quality First Awards’ – Bronze Medal Medium – 500 to 10,000 departures per month | Guatemala City, GuatemalaUnited Airlines ‘Charter Caterer of the Year | Frankfurt, Germany

2013‘Good Design Award’ for the “Slot” tray and tableware

‘Good Design Award’ for the Lufthansa bread basket ‘Good Design Award’ for the Lufthansa salt & pepper shakers ‘Good Design Award’ for the Lufthansa "Berlin" gourmet box

‘ Dieline Package Design’ Award – 1st in Fresh Food category for the Lufthansa “Metropolitan“ meal box ‘ Gute Gestaltung/Good Design 14’ – Silver Award in the product category for the “Slot“ tray and tableware

lSg Sky ChEfS – PROVEN ExCEllENCE

SPIRIANT – WhERE INSPIRATION mEETS PERfORmANCE

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Quality is a fundamental element of the company’s philosophy

QUAlITy AND fOOD SAfETyOffering customers the highest levels of quality and efficiency is a fundamental element of LSG Sky Chefs’ philosophy. In order to achieve global consistency, the company builds the optimal measure of quality into each and every aspect of the supply chain, from innovation, product development, operations, costs and supplier management to measuring passenger satisfaction. It also continuously optimizes processes and services to drive efficiency and increase quality in close cooperation with its business partners and suppliers.

A key part of this effort is the industry-leading Global Quality System. It guarantees consistency regarding the factors that are most important to the customer’s success: customer satisfaction, on-time and safety performance, product and process quality and food safety and hygiene.

The Global Quality System not only adheres to the strictest standards but it also incorporates quality assessment and feedback into the production processes. It provides built-in checks and controls and is supported by internal feedback

loops and problem-solving techniques that focus on the factors that matter to the airlines’ in-flight success. Through this proprietary system, LSG Sky Chefs can monitor the entire supply chain.

LSG Sky Chefs has Quality Managers at all of its locations around the world who conduct regular inspections and use the Global Quality System to verify quality and food safety practices. Additionally, the systems are checked and verified through a series of audits, some of which are conducted unannounced by an external hygiene institute, state and local authorities, customers and third-party vendors.

LSG Sky Chefs’ strict focus on quality and food safety was once again recognized by customers and third parties alike. In 2014, five LSG Sky Chefs units were chosen as winners during the presentation of the Medina Quality Awards for their compliance with quality and food safety standards. A number of LSG Sky Chefs facilities were also honored by Lufthansa and United Airlines for their outstanding product and service quality.

From a purely business perspective, acting as a responsible corporate citizen helps contain risks, enhance employee satisfaction, strengthen customer loyalty and directly affects the bottom line. Furthermore, by acting responsible on a daily basis the company can enhance its reputation and earn the respect of the communities in which it operates while creating shared value.

LSG Sky Chefs has a social responsibility program, backed by the company’s Executive Board and the senior management team, which impacts the entire organization.

LSG Sky Chefs employs more than 32,000 people from more than 100 countries. This rich diversity of cultures, backgrounds and experiences lends a unique identity to the company that strengthens its ability to compete effectively wherever it operates. Understanding the worth of this unique asset, the company is supportive of its eclectic workforce and broad culture. It also recognizes the value of the wide backgrounds of its suppliers, customers and business partners.

LSG Sky Chefs has also shaped its company culture to create an environment in which a social responsibility mentality can thrive. This is why it introduced a set of company values in 2007. The values are designed to promote responsible behaviors and attitudes as guidelines for employees. At the same time, they intend to harmonize the company’s strengths. The company values emphasize:

Respect Trust Reaching for Excellence Customer Commitment Innovation Economic health

The progress made in implementing a values-based culture is measured every two years through worldwide surveys that underline achievements and improvement areas by location. The participation rate has increased from 58 percent in 2008 to 65 percent in 2010, 71 percent in 2012 and an outstanding 73 percent in 2014. This reflects the commitment of employees around the world to contribute to further shaping the company’s future. Customer Commitment was rated as the strongest and most defining value which clearly supports the company’s goal of becoming even more customer centric.

LSG Sky Chefs strives to make the company a good place to work. With higher employee satisfaction it can ensure better, more consistent results for its clients while retaining more employees in a traditionally high-turnover industry.

Awareness earns trust and respect

CORPORATE SOCIAl RESPONSIBIlITy

27 ............................................................................................................................................................................................................................................................................................................................................................................................................................................. LSG SKY ChEFS | AnnuAL REVIEW 2014| LSG

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Emissions Development of an electric driving system for highloader trucks that includes integrated components like an e-lifting mechanism for the truck’s cargo area. The e-lift trucks can reduce fuel consumption, CO2 and noise emissions significantly. This project is further proof that economic efficiency and environmental protection do not have to be exclusive of each other.

WatEr/EnErgy/ChEmiCals Rollout of a custom-designed software tool that measures a dishwasher’s energy, water, chemical use and temperature. The software is able to capture data at 16 different points throughout the dishwashing cycle. If defined target values are exceeded, the system sends an alert. Today, the system is used at the majority of LSG Sky Chefs’ facilities around the world.

REDUCTION OF

PER SQM

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16%REDUCTION OF

PER MEALWater usage

30%INCREASE OF

Waste recYcLed

REDUCTION

PER MEAL*OF Waste

25%30%

the e-lift trucks can reduce fuel consumption, co2 and noise emissions significantly.ENVIRONmENTAl SUCCESSES

*Comparison 2013 vs. 2012

as percentage of total waste*

*

*

Over the past 20 years, LSG Sky Chefs has developed what today is considered the in-flight service industry’s most structured and expansive approach to Environmental Care.

This approach permeates everything the company does to ensure wide-scale awareness and continuous improvement throughout its worldwide organization.

LSG Sky Chefs’ Environmental Policy is the basis of its environmental activities and contains the mission, guidelines and key elements of the Environmental Management System. Ratified in 2008 by the Executive Board, it clearly states the company’s commitment to preventing pollution, reducing its environmental footprint, improving its environmental performance and complying with any related regulations. This policy is prominently displayed in all Customer Service Centers (CSCs) around the globe and can be easily accessed by employees, customers and visitors alike.

In order to measure progress in environmental care, the company has defined a set of stringent Key Performance Indicators (KPIs) for energy, water and waste. All wholly-owned LSG Sky Chefs CSCs worldwide collate this information on an annual basis.

Best-practice examples of LSG Sky Chefs’ Environmental Care include:

EnErgyA combined heat and power unit in Frankfurt that enables the Customer Service Center to use the co-generation principle and produce both electrical and thermal energy with natural gas. Natural gas is less expensive and more eco-friendly than other fossil fuels (e.g. coal and oil). The thermal energy produced as a by-product in the generation of electrical power is recovered and used for heating the building and the water used in the dishwashing area of the unit.

WastEThe Zero-to-Landfill (ZLF) project in the U.S. kicked off in 2014 with the aim of diverting 100 percent of the recyclable waste from previously designated landfills at all of the 41 LSG Sky Chefs locations across the country by 2015. The ZLF program is the first of its kind in the region, enabling LSG Sky Chefs to substantially reduce its environmental impact through the implementation of new recycling methods, state-of-the-art equipment and comprehensive employee training.

Measuring performance to guarantee sustainable progress

ENVIRONmENTAl mANAgEmENT

In the coming years, lSg Sky Chefs will expand its market proximity and commitment in order to meet customers’ increasingly eclectic requirements for tailored onboard service programs and retail models. The company is already capable of covering the entire value chain, from the development and procurement of

innovative products to logistics and fulfillment. In the future, it will place even more emphasis on further improving its service quality, developing new products and concepts based on modern technology and the acquisition of comprehensive insight about trends and consumer needs in order to fulfill its mission of profitable growth.


2014

k €2014

k €2013

k €

Revenue 2,633,307 2,513,846

Other operating income (including changes in inventories) 93,391 85,566

Total operating income 2,726,698 2,599,412

Cost of materials and services -1,156,448 -1,104,177

Staff costs -964,184 -926,651

Depreciation and amortization -64,740 -62,049

Other operating expenses -440,934 -401,719

Total operating expenses -2,626,306 -2,494,596

Operating result 100,392 104,816

Result from investments accounted for using the equity method 8,034 18,440

Interest result -17,573 -18,177

Other non-operating result -37,356 -18,945

Profit/Loss before income taxes 53,497 86,134

Income taxes -17,177 -29,194

Result after taxes 36,320 56,940

Result attributable to minority shareholders -18,649 -17,039

Result attributable to shareholder of LSG Lufthansa Service Holding AG 17,671 39,901

For the financial year 2014

CONSOlIDATED INCOmE STATEmENT

gROUP fINANCIAl INfORmATION


kEy fIgURESExECUTIVE BOARD RESPONSIBIlITIES

Erdmann RauerChief Executive Officer

Dr. Kristin NeumannChief Financial Officer/Labor Director

Jochen MüllerChief Operating Officer

Corporate Functions

Communications/Marketing

Accounting, Controlling and Risk Management Operational Excellence

Internal Audit Human Resources Product Engineering

Legal, Corporate Affairs and Compliance

Information and Process Management

Marketing and Sales Mergers and Acquisitions

Strategy and Business Development

Procurement

Shared Service Center

Treasury

Regions, Divisions and Programs

Onboard Retail Retail Markets (Ringeltaube) Asia Pacific

SCORE Program Eastern Europe/ Middle East/Africa

Europe

Latin America

North America

Air Security

Lounges

SPIRIANT

Key Figures 2014 2013 2012 2011 2010

Revenues (EUR m) 2,633 2,514 2,503 2,299 2,249

Operating result (EUR m) 1) 100 105 1012) 85 76

Employees as of Dec. 31 32,843 32,307 30,088 29,586 28,499

Company Data 2014

Meals produced 578 million

Customer Service Centers 210

Airports served 214

Countries 51

Companies comprised 159

Customers more than 300

Corporate Headquarters Neu-Isenburg (Frankfurt), Germany

Executive Board Erdmann Rauer, Chief Executive OfficerDr. Kristin Neumann, Chief Financial OfficerJochen Müller, Chief Operating Officer

Supervisory Board Simone Menne (Chairman), Prof. Dr. Ingrid Göpfert, Dr. Reinhold Huber, Dirk Reich, Axel Tillman, Dr. Bettina Volkens, Gerold Schaub 3) (Deputy), Frauke Bendokat 3), Mathias Kilzer 3), Paul Laslop 3), Michael Rüschenbaum 3), Christina Weber 3)

Core business activities CateringIn-flight Equipment Sourcing and DesignIn-flight Equipment LogisticsAirport Services

Adjacent market activities RetailTrain ServicesInstitutional Catering

1 ) Result from operating activities minus book profits (and losses), write-backs of provisions, currency gains and losses on valuation at the balance sheet date of long-term financial liabilities, and other periodic expenses and income 2 ) 2012 numbers are restated due to a change in IFRS accounting standards in connection with employee benefits 3 ) Employee Representative

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lsg annualreview 2014

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