DB Cargo UK grasps financial nettle

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 pounds, a modest improvement on the previous year, despite a lower turnover of 267.6 million pounds. 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 written down as 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 48.5 million pounds in the financial year just reported.

Despite this pushing losses to 93.1 million pounds in 2023, the company stands by the decision to push through the programme’s cost 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 of future profitability

Losses amounting to 35 per cent of turnover, or nearly 17 per cent excluding those exceptional restructuring expenses, cannot be glossed over, though. For a commercial concern, they are nothing short of, well, concerning. 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.

However, in a footballing analogy, winning matches is the only metric that matters, and by no measure does a loss approaching fifty million pounds constitute a win. 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 customer service standards,” a company spokesperson said. “We have reduced the size and efficiency of our locomotive and wagon fleets and, as a result, availability and reliability are 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 an increased portfolio of third-party customers,” they added.

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 be a matter of time, but to evoke the footballing analogy once again, will the market give DB Cargo UK more of that precious commodity to see the results come through?