ROCE
ROCE | 2020 | 2019 | Change | ||
absolute | % | ||||
EBIT adjusted (€ million) | –2,903 | 1,837 | –4,740 | – | |
Capital employed as of Dec 31 (€ million) | 41,764 | 42,999 | –1,235 | –2.9 | |
ROCE (%) | –7.0 | 4.3 | – | – | |
The significant deterioration in ROCE was mainly due to the sharp decline in adjusted EBIT caused by the effects of Covid-19. Capital employed fell slightly as of December 31, 2020.
Yield spread (%) | 2021 | 2020 | 2019 | 2018 | 2017 | |
ROCE | – | –7.0 | 4.3 | 5.8 | 6.1 | |
Cost of capital (pre-tax WACC 1)) | 6.2 | 5.9 | 6.4 | 7.0 | 7.3 | |
Spread (percentage points) | – | –12.9 | –2.1 | –1.2 | –1.2 | |
1) Each value taken at the beginning of the year.
In 2020, the negative difference between ROCE and the cost of capital increased significantly as a result of the negative operating profit caused by the effects of Covid-19. The lack of profitability of the RIC and of DB Cargo in previous years was worsened by the development in 2020.
Capital employed as of Dec 31 (€ million) | 2020 | 2019 | Change | ||
absolute | % | ||||
BASED ON ASSETS | |||||
Property, plant and equipment | 47,704 | 46,591 | +1,113 | +2.4 | |
Intangible assets/goodwill | 2,290 | 3,894 | –1,604 | –41.2 | |
Inventories | 1,937 | 1,520 | +417 | +27.4 | |
Trade receivables | 4,849 | 4,871 | –22 | –0.5 | |
Receivables and other assets | 3,345 | 2,792 | +553 | +19.8 | |
Financial receivables and earmarked bank deposits (not including | –625 | –404 | –221 | +54.7 | |
Income tax receivables | 55 | 60 | –5 | –8.3 | |
Held-for-sale assets | 0 | 0 | – | – | |
Trade liabilities | –6,312 | –5,789 | –523 | +9.0 | |
Miscellaneous/other liabilities | –4,042 | –3,770 | –272 | +7.2 | |
Income tax liabilities | –191 | –190 | –1 | +0.5 | |
Other provisions | –6,041 | –5,098 | –943 | +18.5 | |
Deferred items | –1,205 | –1,478 | +273 | –18.5 | |
Capital employed | 41,764 | 42,999 | –1,235 | –2.9 | |
Capital employed equates to the assets deemed necessary for business and subject to the cost of capital, as derived from the balance sheet. Capital employed declined slightly in 2020. This was mainly due to a decline in goodwill as a result of impairments at DB Arriva, an increase in other provisions and higher trade liabilities. This was partially countered in particular by an increase in property, plant and equipment driven by capital expenditures, higher receivables and other assets and increased inventories.
The cost of capital is updated annually to take account of changes in market parameters. We take the long-term focus of the controlling concept into consideration and balance out short-term fluctuations.
In 2020, there was an increase in the pre-tax cost of capital from 5.9 % to 6.2 % for DB Group, mainly due to Covid-19. After taxes, there was a cost of capital of 4.3 % (previous year: 4.1 %). We calculate DB Group’s cost of capital as a weighted average interest rate of equity, hybrid capital, net financial debt and pension obligations. Determined annually, this reflects current capital market parameters, the prevailing taxframework and the value share of methods used to finance capital employed.
When determining the company-independent capital market parameters, market risk premium and risk-free interest rate, short-term fluctuations in debt and equity market returns are smoothed out in line with the long-term focus of our value management concept. The parameters are determined on the basis of the yields on long-term German bunds as well as the long-term average returns of the German DAX 30 equity index. The parameters used are also validated on the basis of up-to-date recommendations of recognized valuation experts. The company-dependent capital market parameters, beta and credit spread, measure the risk of our debt and equity financing in comparison with alternative forms of investment. Beta reflects the risk of equity capital relative to the risks of the equity markets. The determination is based on comparable international companies at business unit level. The credit spread corresponds to DB Groupʼs current issue costs relative to Federal Government bonds with an imputed term of twelve years. The credit spread for transport and logistics is determined in line with market conditions, using the current capital market data of companies with comparable creditworthiness.
Taxfactors are calculated using a taxation rate of 30.5 %. The taxfactor for net financial debt reflects the trade tax applied to fixed debt interest to be credited. The taxes remaining after this are fully allocated to cost of equity. The weighting of forms of financing is based on market values. Net financial debt and pension obligations are valued at their carrying amounts. Equity weighting is based on recognized business valuation methods.
The weighting of forms of financing for passenger transport, rail freight transport, logistics, infrastructure and the integrated rail system corresponds to that of DB Group as the tax shield resulting from the tax-deductible status of debt interest arises, as a rule, from the fact that DB Group is a consolidated tax group.
