Deutsche Bahn might need more capital as profits pressured

Deutsche Bahn has revealed that its profits are under significant pressure in its half year results. This pressure has led its top management to enact restructuring plans and to consider its options for raising capital.

As presented last week the high-level numbers for the half-year to June show a weakening in performance. Despite revenue increasing by 1.3%, profits as measured by EBIT were down by 18.2% at €890m whilst profits after taxes fell by 39.1% to €391m. A major cause of falling profitability was the strikes experienced on the German railways earlier in the year which Deutsche Bahn estimates detracted from its EBIT number to the tune of €252m. The company’s profits were further reduced by adverse weather conditions during the half.

In the past DB Schenker Logistics, the forwarding, contract logistics and freight transport division of Deutsche Bahn, has delivered a substantial part of the organizations profits. However in this set of half year results Deutsche Bahn disclosed very little information about its logistics segment.

The senior management appears to be concerned at the condition of the company with the CFO, Richard Lutz commenting that, “This position is neither satisfactory in view of our capital employed and degree of indebtedness, nor sufficient in view of our planned customer and service oriented offensive, unless we are prepared to finance our upcoming capital expenditures in the growth of our company solely by incurring additional debt”.

The response has been to announce a six point programme of change to Deutsche Bahn as well as movement in senior management personnel. The whole entity is to be restructured and ‘DB Mobility Logistics AG’ – which was the entity that owned DB Schenker, is to be reabsorbed into the rest of Deutsche Bahn. Also Arriva, the UK train and bus business and DB Schenker are to be merged into one division. Rüdiger Grube, CEO and Chairman of Desutche Bahn, raised the possibility of the partial sale of both Arriva and Schenker, “We are keeping open the option of a partial privatization of DB Arriva und DB Schenker Logistics in order to utilize growth potential on the international markets as effectively as possible”, however, he continued, “nothing has been decided here yet. And I would like to make it perfectly clear that we are not considering selling off these companies.”

In spite of Grube’s best efforts this situation remains unclear. Reading between the lines it seems that the ambitions of Deutsche Bahn’s management demand considerable capital investment and they are nervous that they may not be able to fund this easily within the state-owned organization’s financial constraints. This has led them to attempt to make the company more manageable as well as consider ways of accessing more capital.