Income development under pressure
Transition to the adjusted statement of income
- Special issues are eliminated in the adjusted statement of income. The transition to the adjusted statement is a two-step process. Firstly, standard reclassifications are carried out, then the figures are adjusted for individual special items.
- The reclassifications essentially relate to two issues.
- The first issue is the reclassification of net interest income components not related to net financial debt and pension provisions: predominantly the compounding and discounting effects of non-current provisions (excluding pension obligations) and non-current liabilities (excluding financial debt). The non-operational character of these components can also be seen in the fact that their influence on net interest income very much depends on the interest rates as of the balance sheet date.
- The second significant reclassification relates to the amortization of intangible assets capitalized in the course of purchase price allocation (PPA) of acquisitions conducted during the assessment of long-term customer contracts. Existing transport contracts are an essential component of the purchase price valuation, in passenger transport in particular. In order to safeguard the operating assessment and to prevent these contracts from being treated differently from other contracts, these depreciation components are eliminated from the operating profit. The sum reclassified in the year under review relates almost entirely to the acquisition of Arriva.
- Adjustments for special items involve issues which are extraordinary based on the reasons for them and/or the amounts involved and which would have a significant negative effect on operating performance over time. Book profits and losses from transactions with subsidiaries/financial assets are adjusted regardless of their amounts. Individual items are adjusted if they are extraordinary in character, can be accounted for and assessed precisely and are significant in volume.
| Transition to the adjusted statement of income (€ million) | 2018 | Reclassifications | Adjustment of special items | 2018 | |||||||
IFRS com-pounding/ | Net | PPA | Provision | Restruc- | Civil proceedings infrastructure utilization fees | Provision relating to superstructure | Others | ||||
Revenues | 44,065 | – | – | – | – | – | –41 | – | –0 | 44,024 | |
Inventory changes an other internally produced and capitalized assets | 3,091 | – | – | – | – | – | – | – | – | 3,091 | |
Other operating income | 2,998 | – | – | – | – | –45 | –10 | –24 | –57 | 2,862 | |
Cost of material | –22,258 | – | – | – | – | 3 | – | – | 1 | –22,254 | |
Personnel expenses | –17,301 | – | – | – | – | 141 | – | – | 11 | –17,149 | |
Other operating expenses | – 6,088 | – | – | – | 204 | 20 | 1 | – | 28 | – 5,835 | |
EBITDA/EBITDA adjusted | 4,507 | – | – | – | 204 | 119 | –50 | –24 | –17 | 4,739 | |
Depreciation | – 2,688 | – | – | 59 | – | 1 | – | – | 0 | – 2,628 | |
Operating profit (EBIT) | EBIT adjusted | 1,819 | – | – | 59 | 204 | 120 | –50 | –24 | –17 | 2,111 | |
Net interest income | Net operating interest | – 645 | 27 | – | – | – | – | 0 | – | 0 | – 618 | |
Operating income after interest | 1,174 | 27 | – | 59 | 204 | 120 | –50 | –24 | –17 | 1,493 | |
| Result from investments accounted for using the equity method | Net investment income | 12 | – | –0 | – | – | – | – | – | – | 12 | |
| Other financial result | – 14 | –27 | 0 | – | – | – | – | – | – | – 41 | |
| PPA amortization customer contracts | – | – | – | –59 | – | – | – | – | – | – 59 | |
| Extraordinary result | – | – | – | – | –204 | –120 | 50 | 24 | 17 | – 233 | |
| Profit before taxes on income | 1,172 | – | – | – | – | – | – | – | – | 1,172 | |
Excerpt from adjusted statement of income (€ million) | 2018 adjusted | 2017 | Change | ||||
absolute | thereof due | thereof due to exchange rate effects | % | ||||
Revenues | 44,024 | 42,704 | + 1,320 | +44 | –507 | + 3.1 | |
Inventory changes and other internally produced and capitalized assets | 3,091 | 2,900 | + 191 | +0 | –0 | + 6.6 | |
| Other operating income | 2,862 | 2,802 | + 60 | +2 | –7 | + 2.1 | |
| Cost of materials | – 22,254 | – 21,441 | – 813 | –15 | +317 | + 3.8 | |
| Personnel expenses | – 17,149 | – 16,363 | – 786 | –16 | +104 | + 4.8 | |
| Other operating expenses | – 5,835 | – 5,672 | – 163 | –10 | +71 | + 2.9 | |
EBITDA adjusted | 4,739 | 4,930 | – 191 | +5 | –22 | – 3.9 | |
Depreciation | – 2,628 | – 2,778 | + 150 | –3 | +6 | – 5.4 | |
EBIT adjusted | 2,111 | 2,152 | – 41 | +2 | –16 | – 1.9 | |
| Net operating interest | – 618 | – 682 | + 64 | +1 | –1 | – 9.4 | |
| Operating income after interest | 1,493 | 1,470 | + 23 | +3 | –17 | + 1.6 | |
| Net investment income | 12 | 14 | – 2 | +0 | –0 | – 14.3 | |
| Other financial result | – 41 | – 49 | + 8 | +0 | +3 | – 16.3 | |
| PPA amortization customer contracts | – 59 | – 73 | + 14 | – | +0 | – 19.2 | |
| Extraordinary result | – 233 | – 394 | + 161 | – | +2 | – 40.9 | |
| Profit before taxes on income | 1,172 | 968 | + 204 | +3 | –12 | + 21.1 | |
Operating profit figures declined
The following presentation describes the changes in the key items on the statement of income, adjusted for special items. The effects of the changes in the scope of consolidation and exchange rate effects are presented in the above table and are not explained further in the following section.
Exchange rate effects in the year under review reduced both income and expenses overall. Effects resulting from changes to the scope of consolidation were not significant.
The economic development was modest overall. Adjusted EBIT developed slightly more weakly compared to the previous year. The burdens from increases in factor costs (particularly in Germany), additional expenses for quality-improvement measures and for digitalization and restrictions to production stability (particularly at DB Cargo) could not be balanced out by the positive effects on the revenue side.
- Revenue development was positive.
- Other operating income rose primarily because of the effects of train-path price support in rail freight transport (opposite effect in revenues) and higher income from the release of provisions. The non-recurrence of the one-off effects of the previous year, such as the reimbursement of the nuclear fuel tax (2017 Integrated Report) and compensation received for damages had a counteracting effect.
- Cost of materials increased. This was due to higher purchased transport services at DB Schenker as a result of volume gains and increased freight rates. In addition, higher energy costs and maintenance expenses hindered development.
- Personnel expenses also increased significantly. In addition to tariff effects, especially in Germany, the higher number of employees also had an impact.
- Other operational expenses increased. This was impacted by factors including higher rental expenses and expense burdens for additional quality and digitalization measures.
- The decrease in depreciation resulted particularly from the reassessment of the economic useful life of fixed assets at DB Netze Track and DB Regional vehicles. Higher depreciation on vehicles as a result of capital expenditures had a partially compensating effect.
The operating income after interest increased as a result of a significantly improved net operating interest. Effects from lower interest rates on refinancing primarily had an effect here.
Net investment income decreased. This was primarily impacted by the elimination of income from Etihad Rail, which since the year under review has been proportionately consolidated as a joint operation. Improvements to income including from Barraquiero and Arriva London Overground at DB Arriva had a compensating effect.
The development of the other financial result was mainly caused by effects from hedging transactions.
The extraordinary charges were significantly lower than in the previous year. This led to a noticeable increase in profit before taxes on income.
Significant drop in net profit for the year
| Excerpt from statement of income (€ million) | 2018 | 2017 | Change | ||
absolute | % | ||||
Profit before taxes on income | 1,172 | 968 | + 204 | + 21.1 | |
Taxes on income | – 630 | – 203 | – 427 | – | |
Actual taxes on income | – 192 | – 180 | – 12 | + 6.7 | |
Deferred taxes expenses | – 438 | – 23 | – 415 | – | |
Net profit for the year | 542 | 765 | – 223 | – 29.2 | |
DB AG shareholders | 528 | 745 | – 217 | – 29.1 | |
Other shareholders | 14 | 20 | – 6 | – 30.0 | |
Earnings per share (€) | |||||
Undituted | 1.23 | 1.73 | – 0.50 | – 28.9 | |
Dituted | 1.23 | 1.73 | – 0.50 | – 28.9 | |
The marked improvement in the profit before taxes on income was more than compensated by the development of the income tax position. This was impacted by the sharply declined development of DB AG’s deferred tax position, mainly because of lower expected results. It was also affected by the risks of higher foreign taxes on income and increases in anticipated taxable losses that are not expected to be available for offsetting. The net profit for the year (profit after taxes on income) therefore fell sharply.
Earnings per share developed accordingly.
Generally weak development of the business units
| EBIT adjusted by business units (€ million) | 2018 | 2017 | Change | ||
absolute | % | ||||
DB Long-Distance | 417 | 381 | + 36 | + 9.4 | |
DB Regional | 492 | 508 | – 16 | – 3.1 | |
DB Arriva | 300 | 301 | – 1 | – 0.3 | |
DB Cargo | – 190 | – 90 | – 100 | + 111 | |
DB Schenker | 503 | 477 | + 26 | + 5.5 | |
DB Netze Track | 840 | 687 | + 153 | + 22.3 | |
DB Netze Stations | 221 | 233 | – 12 | – 5.2 | |
DB Netze Energy | 21 | 72 | – 51 | – 70.8 | |
Other/consolidation | – 493 | – 417 | – 76 | + 18.2 | |
DB Group | 2,111 | 2,152 | – 41 | – 1.9 | |
The development of adjusted profit figures varied between the business units but overall was unsatisfactory. The business units in the integrated rail system declined overall, driven by increases in factor costs and expense burdens from additional quality measures. In addition, there were operational difficulties at DB Cargo. The Other division also saw a noticeable decline particularly as a result of higher personnel expenses. On the other hand, the profit development of DB Netze Track and DB Long-Distance was positive. DB Arriva, in spite of hindrances from operational restrictions amongst others, remained on the level of the previous year. The operating profit from DB Schenker was significantly better than in the previous year.
Extraordinary charges significantly declined
| Extraordinary result (€ million) | 2018 | thereof | 2017 | thereof affecting EBIT | |
DB Long-Distance | 5 | 5 | – | – | |
DB Regional | – 0 | –0 | 21 | 21 | |
DB Arriva | – 204 | –204 | 5 | 5 | |
DB Cargo | – 13 | –13 | – 5 | –5 | |
DB Schenker | – 7 | –7 | – 105 | –105 | |
DB Netze Track | 67 | 67 | – 10 | –7 | |
DB Netze Stations | 7 | 7 | – 10 | –10 | |
DB Netze Energy | – | – | – 15 | –15 | |
| Others/consolidation | – 86 | –86 | – 275 | –275 | |
DB Group | – 233 | –233 | – 394 | –391 | |
The extraordinary result improved significantly and was comprised in the year under review from the following special items inter alia:
- Expenses from the establishment of a provision for impending losses (DB Arriva).
- Effects arising from restructuring measures (DB Long-Distance, DB Arriva, DB Cargo and Other division).
- Effects of civil proceedings in connection with infrastructure fees (DB Netze Track and DB Netze Stations).
- Effects of alterations to provisions relating to the superstructure (DB Netze Track).
- Income from exiting company participations (DB Arriva, DB Cargo, DB Schenker and Other division).
The extraordinary result in the previous year was composed inter alia of the following special items:
- Expenses relating to restructuring measures at DB Regional, DB Cargo, DB Schenker and the Other division.
- Effects of impairments relating to the superstructure (decommissioning overhead line systems on disused routes) at DB Netze Track.
- Expenses relating to the increase in the provision for legacy remediation (Other division) and income from the recovery in value and reductions in provisions for real estate owing to an altered portfolio strategy (DB Netze Track).