2017 Integrated Report – Departure into a new era

Improvement in most of the value management figures

  • Target ROCE adjusted to ≥ 8.0%.
  • Development of operating profit drives ROCE and redemption coverage.
  • Rise in net financial debt impacts gearing and net financial debt/EBITDA.

Value management targets (%)

DB
Group

Passenger
transport

Freight
transport
and
logistics

Infra-
structure

Integrated
rail system

ROCE

≥8.0

≥10.0

≥12.0

6.0

≥7.5

Redemption coverage

≥25

≥50

≥50

≥25

≥25

Gearing

100

100

100

100

100

Net financial debt/EBITDA

(multiple)

≤2.5

≤1.5

≤1.5

≤2.5

≤2.5

In the context of our value management we intend to maintain, increase and guarantee DB Groupʼs enterprise value over the long term so that we can finance capital expenditures on our core business. The financial management of DB Group and therefore also the monitoring of the success of our targets for profitable growth is performed on the basis of a value management system based on key figures. The results are an important factor for our strategic approach, our capital expenditure decisions, and employee and management remuneration.

Our value management approach is based on profitability and creditworthiness.

  • Profitability: profitability as an overriding target in value management ensures that investors receive a reasonable long-term rate of return over several economic cycles. We calculate the weighted average cost of capital (WACC) of debt and equity capital on an annual basis using market values. The actual return, ROCE, is calculated as the ratio of the operating income before in­­ter­­est and taxes (EBIT adjusted) to capital employed. The ROCE target is set higher than the cost of capital. In light of the persistently low interest level, we adjusted ROCE targets for DB Group, the Freight Transport and Logistics area and Infrastructure in the year under review. The long-term objective is to achieve an ROCE whose multi-­y­­ear average is above the target value, thus ensuring that cost of capital is covered. This ROCE target corresponds to the minimum required rate of return (MRR). The different business characteristics result in different target values for our activities in passenger transport, in logistics and in rail freight transport as well as in infrastructure. The cost of capital and thus the expected returns from the infrastructure business units are lower than in passenger transport, logistics and rail freight transport owing to our projection of continuing low profit volatility. The target value for the integrated rail system was derived for the first time in the year under review from the value-weighted return expectations of all business units in DB Group except DB Arriva and DB Schenker. The operating business is always controlled before taxes, and the reporting of key figures is accordingly based mainly on pre-tax figures.
  • Creditworthiness: it is essential for us as a capital-intensive business to have permanent access to the capital market on favorable terms and conditions. An additional material target of our value management is consequently achieving appropriate key debt ratios from the standpoint of our debt investors. The key figures for con­­­trolling indebtedness are redemption coverage (the ratio of adjusted operating cash flow after taxes to adjusted net financial debt), gearing (the ratio of net financial debt to equity) and the ratio of net financial debt to adjusted EBITDA. Target values for key debt ratios are derived from key rating figures and annual benchmarking with comparable companies with an excellent credit rating.