2017 Integrated Report – Departure into a new era

ROCE increased

ROCE (€ million)

2017

2016

Change

absolute

%

EBIT adjusted

2,152

1,946

+ 206

+ 10.6

Capital employed as of Dec 311)

35,093

33,066

+ 2,027

+ 6.1

ROCE (%)

6.1

5.9

1)Previous yearʼs figure adjusted.

The ROCE improved by 0.2 percentage points owing to a slightly disproportionate increase in adjusted EBIT in comparison with capital employed.

Significant rise in capital employed

Capital employed
as of Dec 31 (€ million)

2017

2016

Change

absolute

%

Based on assets

Property, plant and equipment

39,608

38,884

+ 724

+ 1.9

Intangible assets/goodwill 1)

3,599

3,691

– 92

– 2.5

Inventories

1,151

1,062

+ 89

+ 8.4

Trade receivables

4,571

3,974

+ 597

+ 15.0

Receivables and other assets 1)

1,922

1,752

+ 170

+ 9.7

Receivables from financing

– 131

– 134

+ 3

– 2.2

Income tax receivables

52

54

– 2

– 3.7

Assets held for sale

0

0

Trade liabilities

– 5,157

– 5,100

– 57

+ 1.1

Miscellaneous and other liabilities

– 3,632

– 3,763

+ 131

– 3.5

Income tax liabilities

– 150

– 150

Other provisions

– 5,117

– 5,334

+ 217

– 4.1

Deferred items 1)

– 1,623

– 1,870

+ 247

– 13.2

Capital employed 1) 

35,093

33,066

+ 2,027

+ 6.1

1) Previous yearʼs figure adjusted.

Capital employed equates to the assets deemed necessary for business and subject to the cost of capital, as derived from the balance sheet. The reasons for the in­­crease in capital employed included capital expenditures on ICE trains and higher trade receivables for performance- and balance-sheet-date-related reasons, especially at DB Schenker.

Cost of capital down

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.

DB Group recorded a decline in the cost of capital in the year under review, both before and after taxes.

Cost of capital before taxes as of Dec 31 (%)

2017

2016

DB Group

7.0

7.3

Passenger transport

7.3

7.4

Freight transport and logistics

8.6

9.2

Infrastructure

6.0

6.7

Integrated rail system

6.6

7.0

Cost of capital after taxes as of Dec 31 (%)

2017

2016

DB Group

4.8

5.1

Passenger transport

5.1

5.1

Freight transport and logistics

6.0

6.4

Infrastructure

4.2

4.6

Integrated rail system

4.6

4.9

We calculate DB Groupʼs cost of capital as a weighted average interest rate of equity, net financial debt and pension obligations. Determined once a year, this reflects current capital market parameters, the prevailing tax framework 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 rates, fluctuations in short-term 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 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 busi­-ness unit level. The credit spread corresponds to DB Groupʼs current issue costs relative to bunds with an imputed term of ten 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. Tax factors are calculated using a taxation rate of 30.5%. The tax factor for net financial debt reflects the German trade tax on attributable financing costs. Remaining taxes are fully assigned to the 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.

ROCE still lower than the cost of capital

Yield spread (%)

2018

2017

2016

2015

2014

ROCE

6.1

5.9

5.3

6.3

Pre-tax WACC 1)

7.0

7.3

7.7

8.4

9.1

Spread (percentage points)

–1.2

–1.8

–3.1

–2.8

1) Each value taken at the beginning of the year.

In the year under review the negative difference between ROCE and the cost of capital slightly decreased. The shortfall is mainly due to the lack of profitability of the RIC and of DB Cargo.

Determining cost of capital

Capital market parameters
Cost of capital
Tax factor
Cost of capital (WACC)
  • Beta
    Un­levered0,600,610,790,480,53

    Levered
    1,151,161,500,901,01
    Market risk premium
    6.0
    Risk-free interest rate
    1,75
    Credit Spread
    0,801,201,200,801,16
  • Equity
    8,68,710,87,27,8
    Debt capital
    2,63,03,02,62,9
  • 1,441,441,441,441,44
    1,031,041,041,031,03
    1,001,001,001,001,00
  • Equity
    12,512,615,610,411,3
    Weighting1)
    44,3
    Net financial debt
    2,63,13,12,63,0
    Weighting1)
    44,8
    Pension obligations
    2,63,03,02,62,9
    Weighting1)
    10,9
  • Pre-tax
    WACC
    7,07,38,66,06,6
    Tax shield
    100 – 30,5
    After-tax
    WACC
    4,85,16,04,24,6

Click on the colored buttons to display or hide the relevant figures in the diagram.

DB GroupPassenger transportFreight transport and logisticsInfrastructureIntegrated rail system

1) Impact of capital structure is reflected only in the tax shield; because DB Group is a consolidated tax group the capital structure of DB Group is used. Information as of December 31, 2017 (%).

DB GroupPassenger transportFreight transport and logisticsInfrastructureIntegrated rail system

1) Impact of capital structure is reflected only in the tax shield; because DB Group is a consolidated tax group the capital structure of DB Group is used. Information as of December 31, 2017 (%).