2017 Integrated Report – Departure into a new era

Fundamentals

Business model stable

DB Group offers attractive, customer-focused and environmentally friendly mobility, transport and logistics solutions and networks from a single source. We selectively use the possibilities of digital technologies to improve our operational and administrative processes, to continue to develop services for the customer, to integrate new services and to simplify the customer interface. Our customers are individuals, business customers and contracting organizations in local and regional transport.

The integrated rail system is at the heart of our business activities. In addition, we are gradually expanding our business portfolio in order to meet our customers’ needs more effectively and respond to new market demands.

Our passenger transport business activities are broadly diversified. They comprise not only bus and rail transport, but also intelligent linkage with other modes of transport such as the car and bicycle. We offer long distance rail passenger transport within Germany and into neighboring countries. Furthermore, we have regional transport operations throughout Europe that enable us to benefit from increasing market potential in bus and rail transport markets that are opening up.

Our business activities in the freight transport and logistics market were moved to an international platform very early on. DB Cargo and DB Schenker operate first and foremost in the business-to-business segment. We offer our customers industry-specific solutions in European rail freight and land transport, in global air and ocean freight as well as in global contract logistics. Covering all relevant modes of transport allows us to offer complex combined logistics services and to make use of synergies in our networks for the benefit of our customers.

As an operator of networks and provider of services in passenger transport, freight transport and logistics, as well as track infrastructure, our economic success is influenced by the general economic environment and the specific development of the various relevant markets.

  • Demand for passenger transport is driven first and foremost by the size of the population, the number of people in employment and real disposable incomes. The competitive situation relative to the car is markedly influenced by the trend in fuel prices.
    The financial resources of the contracting organizations are also of key importance in the DB Regional and DB Arriva business units.
  • Our freight transport and logistics operations depend largely on economic developments. Due to our global networks we monitor the development not only of global gross domestic product (GDP) and world trade, but also of economic growth in the regions, countries and trade relations in which we have a high market share or in­­which high growth rates in the exchange of goods can be expected. Customary early-warning indicators of the business climate and of the expectations of purchasing managers are an integral part of our monitoring system.
  • The specific market environment of DB Cargo is particularly influenced by the manufacturing industry’s production output and the development of the iron, coal, steel and chemical industries. Furthermore, the cross-border movement of goods within Europe is growing in importance.
  • The services of the Infrastructure business units cover important elements of their customers’ value-added chains. In this respect, the development of demand is a factor that is largely determined by upstream passenger and freight transport markets. The area of marketing in DB Netze Stations is also important. Consumer trends in the general public are an important factor here, much as they are in general retail in Germany.

The development of the economic and early-warning indicators, as presented above, influences how we manage our market activities and resources. Opportunities and risks can therefore be recognized early on, and as a result short-term management activities and long-term positioning can be focused accordingly. At the same time we work systematically on optimizing our operating value drivers.

Operating regional and global transport networks often necessitates a high level of capital employed, long investment cycles and distinctive fixed-cost structures. In this respect, achieving optimal capacity utilization of our networks and systematically developing, integrating and cost-effectively operating these networks with the efficient use of resources are important to DB Group’s economic development. Ensuring and improving service quality for our customers is at the center of our activities. By expanding what we offer our customers, particularly digital services and customer loyalty programs, we intend to gain additional customers in order to achieve increasing volumes and economies of scale.

We generally use operating performance data to measure capacity utilization in our networks and our relative shares of the transport markets. In order to determine a relative return, we calculate ratios comparing this performance data with the revenues generated (specific revenues). With its comprehensive portfolio, DB Group has an effective business model. This allows DB Group to offer services from one single source and means that it operates successfully in all segments of the transport market with its national and international services.

In most of our business units incoming orders are not a relevant performance indicator, and the majority of the Group’s revenues are generated independently of long-term contracts. DB Regional and DB Arriva are an exception to this rule, together accounting for about one-third of Group revenues. In these business units, the development of orders in the form of long-term transport contracts entered into with the ordering organizations of Germany’s Federal states and franchisers in other European countries constitutes a key performance metric for business development. There are also long-term contractual relationships with cus­­tomers in DB Schenker’s contract logistics/SCM business, which generates about 6% of Group revenues.

There are four key success factors in the development of DB Group, which are a central component of DB Group’s business model:

  • Entrepreneurial approach to business: in the course of the German rail reform DB Group has established itself as a commercial enterprise. Particularly worth mention­­ing in this context are the establishment of a modern and efficient organization and a value-based management approach with capital market viability as a target.
  • Integrated Group: as a system integrator in Germany, DB Group optimizes the integrated rail system. In doing so, it serves as an important driving force for techno­-
    lo­gical innovation. The integrated Group structure enables us to achieve positive synergies and align our infrastructure to support efficiency, market orientation and profitability.
  • International position: due to our focus on Europe in passenger transport as well as our European and global orientation in the areas of freight transport and logistics activities, DB Group has an excellent position in the relevant markets. As a result, we are responding to the increasing demand for cross-border solutions. At the same time, we are best positioned to take advantage of growth opportunities.
  • Cross-modal transport solutions: we offer our customers door-to-door mobility and logistics solutions from a single source. We use digital technologies to intelligently link various modes of transport in an economical and environmentally friendly way. In addition, we offer complementary products and services in the freight transport and logistics market.