Deutsche Bahn’s need for capital may bring Schenker sale closer

DB Group reported its half-year results with total Group revenues of €21.8bn, up 12.2% compared with the same period in 2020.

The state-owned rail network and owner of major logistics service provider, Schenker, is reported to be asking for substantial funds for capital investment.  

Ageing stations and increasingly late trains are due to inadequate levels of investment as even the Deutsche Bahn’s own management admits. The organisation’s CEO, Richard Lutz, has already admitted that its punctuality targets for trains will not be achieved.

Press reports over the weekend in Germany now suggest that it is asking the German Federal Government for €4.9bn in order to fund improvements in the track and electrification.

The likelihood is that further capital will be required. Although the German government has said that it sees the need for investment in rail services, fiscal generosity is not a characteristic of the present federal administration. Debt is also an issue at Deutsche Bahn. The organisation already has a net financial debt – not including pensions – of €18.6bn and climbing, so its headroom is limited. The €4.9bn represents around six-to-twelve months of capital investment at the present run-rate depending on definitions. 

The probability is that Deutsche Bahn will have to review its assets and that includes the freight forwarder and contract logistics provider Schenker.

Deutsche Bahn has already suggested the idea of a partial sale of two significant assets, Schenker and its UK rail operation Arriva. However, the project came to halt in 2016 supposedly due to Britain leaving the EU, although how relevant this was to Schenker is unclear.

Deutsche Bahn is not a very transparent organisation and how much the sale of Schenker would raise is unclear. However, Schenker had sales of €16.3bn and an EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) of €676m, so even a partial sale could raise a similar number to that being asked of the German Government.

The logic of Deutsche Bahn owning Schenker always seemed to owe more to history than strategy, however the German railway may well take some time to be persuaded to sell it entirely.

Source: Transport Intelligence, November 13, 2018

Author: Thomas Cullen


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