DB Cargo UK grasps the financial nettle ‣ WorldCargo News #UKFinance

British rail freight operator DB Cargo UK has posted poor financial figures, but robustly defends its modernisation programme and is bullish for the future

A far-reaching restructuring programme by DB Cargo UK has seen the rail freight carrier write down a significant part of its railway assets. However, the company’s latest annual report and accounts, published this week, reflect the cost of that investment programme, with a significant balance sheet loss for the year.

In the year to 31 December 2023, Doncaster-based DB Cargo UK lost £44.6 million, a modest improvement on the previous year, despite a lower turnover of £267.6 million. The underlying financial performance of the business showed signs of improvement, with operating losses reducing due to increased other income, increased efficiency and a reduction in its cost base.

Restructuring costs an investment

The rail freight carrier generates a significant volume of business, from international intermodal to domestic aggregates. However, DB Cargo UK has been labouring under a legacy of inherited rolling assets that have become marginal to the business. So, in 2023, the company took what it says was the tough decision to accelerate its transformation plans and embark on an expensive restructuring project. That programme has led the company to take the sobering one-off financial hit of an additional £48.5m in the financial year just reported.

Despite this pushing losses to £93.1 million in 2023, the company stands by the decision to push through the cost of the programme in one financial year. Sources within headquarters are resolute that it was money well spent and is already bearing fruit. They say it has created a more stable, profitable and sustainable foundation on which to grow the business in the future.

Bullish statement

Losses amounting to 35 per cent of turnover, or nearly 17 per cent excluding those exceptional restructuring expenses, cannot be glossed over. Despite that, the company board, in a statement accompanying the annual figures, were able to report a reduction in its underlying year-on-year operating losses, as well as improved train service reliability and punctuality.

By no measure does a loss approaching fifty million pounds constitute good news. Nevertheless, in a bullish statement, DB Cargo UK committed to investment in its future. “Our customers and the markets are hugely important to us,” says the financial statement’s accompanying strategic report. It emphasises investment, innovation, and customer relations. “We continue to grow our core rail freight and added value services. We constantly challenge our existing practices. We embrace innovation. We are at the forefront of technological and IT developments, making us the leader of the next generation of rail freight.”

Case for financial recovery

If DB Cargo UK is to remain in its self-proclaimed leadership position, then the company’s financial future will need to be steadied. No amount of rallying rhetoric can sustain losses at the level seen in the accounts just published. The company, however, says the turnaround has already begun. In a tangible effort to turn loss into profit, the rail freight operator has embarked on a far-reaching transformation programme.

“Over the past 12 months we have made significant progress by drastically reducing our asset and cost base and improving overall efficiency while maintaining our high standards of customer service,” a company spokesperson said. “We have reduced the size of our locomotive and wagon fleets and, as a result, availability and reliability is now at an all-time high, providing us with much greater agility to respond to customers’ demands. This, in turn has created additional headroom at our engineering and maintenance depots in Toton, Crewe and Stoke, which continue to offer industry-leading levels of expertise to DB and in increased portfolio of third party customers,” they added.

Company has been through many iterations

DB Cargo UK is a primary mover in the UK rail freight scene. The operator moves intermodal traffic, mainly on port to distribution hub runs, and also and bulk traffic including domestic aggregates and some International diagrams for clients like Tata Steel via the Channel Tunnel. On a British scale, it’s the equivalent of a Class I railroad. The company has gone through a number of iterations since the railways were privatised in the UK in the 1990s. Originally known as “English Welsh and Scottish Railways” (EWS), and under North American ownership, the company almost monopolised the rail freight sector. It also inherited a huge fleet of locomotives and rolling stock, much of which is now outdated or simply redundant.

The last thirty years have seen the company change hands to the German state operator whose name it now carries. Management has gone through many iterations, and the company is now largely autonomous under the management of long-time rail professional Andrea Rossi.

Technological advances for the future

The purpose built headquarters in Doncaster in the north of England, are a statement of intent. The operator has every confidence in its position as a major employer, based in an economically disadvantaged part of the UK. The offices are adjacent to iPortRail, a modern showpiece rail freight terminal and inland customs post. DB Cargo also undertakes maintenance and technical development for third parties, including the UK infrastructure agency Network Rail. They have a highly developed and expanding training arm, including state of the art driving simulators.

The company is also pushing ahead with the development of alternative fuel strategies, and growing the company’s peripheral activities, such as contract technology and maintenance, to make more profitable use of fixed assets. DB Cargo UK claims while last year was about consolidation, it has put in place the foundations to grow again going forward. It may only be a matter of time, but will the market give DB Cargo UK more of that precious commodity, to see their investments realised.