A new Schenker after Deutsche Bahn

Deutsche Bahn Schenker has never been the most transparent nor obvious combination. Although the original notion of German Railways owning the freight forwarder and contract logistics provider was to exploit the synergies between Deutsche Bahn rail cargo and the various parts of Schenker, it appears that this rationale is unravelling with Deutsche Bahn now viewing Schenker as a resource to fund its core German rail operations.

Driven by more rail passengers, demand for rail services continues to increase with revenue for the entire Deutsche Bahn Group, including both the ‘mobility and rail’ business and the infrastructure organisation seeing an increase in revenue of 1.9% over the Financial Year 2015, at €40.5bn. The problem is that the yield from these assets is not keeping-up with the demands for capital investment.

For the year EBIT fell by 16.6%to €350m whilst after exceptional items and impairments the organisation was driven into a loss of €1.76m. In contrast, capital expenditure rose by 2.4% to €9.3bn. The existing capital projects have resulted in a net debt of €17.5bn and this is only the beginning. The ‘Future of Rail’ project demands investment in new track and trains running into tens of billions of euro’s, largely to keep the German travelling public satisfied about the state of their railways. “We are launching the largest capex campaign in the history of DB Group, and the rise in our net financial debt is a product of that,” said DB CFO Dr. Richard Lutz.

However, this has to be paid for and it is Schenker as well as the Arriva business that runs trains outside Germany, that will do so.

Schenker saw modest growth in road freight and air freight tonnages and a small fall in ocean freight, although it is hard to know for sure as Deutsche Bahn does not break-out financial numbers for these activities. Only for Contract Logistics did it give a revenue figure, up 17.3% year-on-year at €2,381m. The overall Schenker Group saw operating profit up strongly by 63% for the year at €353m but ‘exceptionals’ and restructuring charges of an undetermined nature – presumably CAPEX- depressed the result by €196m.

To solve the problem of high capital demands and an unwillingness to take-on further debt, the German press is reporting that Deutsche Bahn has decided to sell a minority stake in Schenker (and Arriva) through a flotation of the Frankfurt Stock exchange in early 2017. It is estimated that Schenker is worth €5bn, giving Deutsche Bahn an injection of around €2-2.5bn (Arriva is worth a similar amount).

Although the German Rail Group is keen to retain a majority stake in Schenker, this is due to the profit stream it delivers. For Schenker is quoted as an independent company it could no longer integrate its operations into those of the wider Deutsche Bahn Group.

Source: Transport Intelligence, 30th March 2016