IR news

Volume growth ongoing • Freight rate development and higher infrastructure expenses impacting revenues and profits

DB Group generated operating profit in the first half of 2023 despite the difficult economic environment • About EUR 25 billion in revenues • DB Schenker remains very profitable

(Berlin, July 27, 2023) Demand for travel on trains operated by Deutsche Bahn Group (DB Group) continued to grow in the first half of 2023. The Germany Ticket bolstered this trend with some 11 million local public transport subscriptions sold sector-wide in the first two months the ticket was available.

Despite the difficult framework, with ongoing inflation and falling freight rates on international freight markets, DB Group again generated an operating profit (adjusted EBIT) of EUR 331 million in the first half of 2023. However, operating profit was EUR 545 million (around 62%) lower than in the first half of 2022, due in part to DB Group's higher expenses up front for infrastructure improvements. DB Group's adjusted revenues totaled roughly EUR 25 billion in the first half of 2023 (compared with roughly EUR 28 billion in the first half of 2022).

"We aren't even close to tapping the full potential for demand," said Dr. Richard Lutz, Chairman of the Management Board and CEO, in Berlin. "That is good news for DB Group and for the climate." He added: "The support for rail shows us that continuing to invest in more climate-friendly rail transport is crucial, even in challenging times. At the same time, we are committed to increasing our profitability."

Improvements to the rail network are key, says CEO Lutz

The decline in revenues and profits was largely due to the industry-wide normalization of freight rates in air and ocean freight. As expected, this global development affected DB Group's logistics unit, DB Schenker. "Even though freight rates in air and ocean freight are normalizing, DB Schenker generated a significant operating profit of EUR 626 million in the first half of the year," Lutz said.

The operating profit of DB Schenker was nevertheless nearly three times higher than before the Covid-19 pandemic.

All business units of the Integrated Rail System increased their revenues in the first half of 2023. Growing demand for passenger services contributed to these increases: More than 808 million rail passengers at DB Regional in the first half of 2023 (+11.5%) and more than 68 million passengers at DB Long-Distance (+15.4%).

At 21.7 billion passenger kilometers, volume sold of DB Long-Distance far exceeded performance in the first half of 2022 and surpassed the previous half-year record, which it set in 2019. DB Long-Distance improved its operating profit in the first half of 2023 by more than EUR 130 million.

DB Group's rail freight business unit, DB Cargo, continued to make losses. Negative effects included the deteriorated competitive environment for rail freight transport, much higher electricity prices compared with fuel prices, and a less dynamic market.

On the whole, the Integrated Rail System posted an operating loss of EUR 339 million in the first six months of 2023. Much higher expenses at DB Netze Track for infrastructure improvement measures were the biggest impact factor.

Construction and modernization efforts are at record levels throughout Germany and were a main driver for punctuality in long distance rail transport to fall to 68.7% in the first half of 2023 (69.6% in the first half of 2022) among others. "Although we are asking a lot of all stakeholders at the moment, the infrastructure is the key to sustainable improvements for our customers," Lutz said.

Becoming more productive in all areas, says CFO Holle

DB Group spent considerable funds up front in the infrastructure in the first half of 2023 including much more on maintenance. "Despite the difficult financial situation, we greatly increased our spendings for a better infrastructure. This will be a one-time injection until the higher funding from the Federal Government that has been announced takes effect next year," said Dr. Levin Holle, CFO.

DB Group increased its net capital expenditures (excluding investment grants) by 13.1% to EUR 3.1 billion in the first six months of 2023. Gross capital expenditures (including investment grants) were up 16.7% to EUR 6.3 billion. More than 90% of gross capital expenditures have continued to go toward rail operations in Germany, including for tracks, stations and new trains.

"We need to be more productive and more efficient in all areas to secure our investments in the future," Holle said. Additional expenses need to be offset with higher productivity and higher income, he added.

Holle noted conditions that had deteriorated for DB Group in 2023, such as lower freight rates, higher interest rates and continued inflation. He said that expenses will also increase as a result of upcoming collective bargaining agreements.

DB Group expects these factors to lead to a significant operating loss for the full year, as it noted back in March 2023. However, the operating loss is now expected to be lower, at slightly less than EUR 1 billion. DB Group's revenues are likely to be around EUR 51 billion. All predictions depend on further developments and are subject to a high level of uncertainty.

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