DB Schenker and UK-based Arriva are up for sale
The German colossus Deutsche Bahn needs to sell assets and to cut top management costs to match a growing debt and thus get buoyant again within the frame of its major restructuring plan DB2020
After the rough days of strikes of yesterday, the tough days of cost cutting are the today of the Deutsche Bahn.
The German colossus in fact needs to sell some precious assets – but not only - in order to find the cash to match a growing debt.
Seemingly the first to be put up for sale is the logistics division DB Schenker followed by UK’s Arriva.
However this is not enough since also some top level management costs need to be shrunk down.
The German Railways have officially launched a major restructuring plan named DB2020 that involves to partially privatise subsidiary DB Schenker Logistics “to boost strategic development and finance further growth”.
It is not known yet which part of the business of the world’s second largest transportation and logistics services provider (based on revenues and performance) will be sold, although at least 20% is up for sale to a third party; the times for such dismissal cannot be immediate, we are talking about the end of the year for an official procedure, as confirmed at the Half Year results press conference held.
Also UK based Arriva transport company, which formerly belonged to Cowies group, acquired by DB in August 2010 for €2.8 billion, might go.
Notably in 2014 DB Schenker Logistics generated revenues of €19.8 billion, half of DB Group’s total.
Also as a consequence of the ongoing restructuring, DB Mobility Logistics AG, created years ago in anticipation of a potential IPO, organised into 6 business units (DB Bahn Long Distance, DB Bahn Regional, DB Arriva, DB Schenker Logistics, DB Schenker Rail, DB Services) will be merged with the holding company DB AG to reduce duplicate structures and simplify coordination and processes.
DB boss Ruediger Grube was forced to be seriously looking at the option of disposing of some assets after the disappointing financial results of the first half year whose costs are showed to be running higher and higher, fighting a high debt too: the group reported -18.2% in Ebit and -39% in after-tax profit from €642m to €391m despite a 1.3% increase in revenue to €20bn.
Grube blamed DB's poor performance on 9 strikes by train drivers over several months and a some tough storms, which cost €252m in 2014 and almost the same money in the first part of 2015, to cause a reduction in Ebit to €890m. Traffic went also down: freight trade was badly affected with a 6% reduction in first-half tonne-km from 52 billion to 48.9 billion.
The long-term debt for first half increased "in line with expectations" by €1.4bn or 8.6% to €17.6bn.
The restructuring involves the loss of key senior managers at DB, since the Supervisory Board wants to introduce a savings program worth €700M up to 2020.
DB AG has reduced the number of Management Board members from 8 to 6. Many heads have rolled: Gerd Becht, compliance, legal affairs and corporate security, Heike Hanagarth responsible for the now defunct technology and environment division, Ulrich Homburg passenger traffic, Karl-Friedrich Rausch freight and logistics, Alexander Hedderich, CEO of DB Schenker Rail (Jochen Thewes will replace him on September 1st). Only three members will remain (Richard Lutz, finance and control, Ulrich Weber, human resources, Volker Kefer, infrastructures, services, technology) and two new appointments have been made (Ronald Pofalla, economic, legal and regulatory affairs division, Berthold Huber traffic and transport division).
An IPO is not on the agenda for the time being. “DB is going to become leaner, faster, more efficient and more customer focused to successfully tackle the rapidly changing challenges in the world of mobility and logistics” said Grube, summarising changes under plan. “This restructuring will enable us to focus even more on rail operations in Germany, which is what the German public focuses on”.