Economic situation and market context
The overall economic development in Germany in 2022 was characterised by several factors. COVID-19 continued to have a strong impact on economic activity in the third year of the pandemic. However, in Germany the direct financial impact of the coronavirus pandemic on public transportation and mobility services has been limited because the risk of lost revenue lies with the Public Transport Authorities (PTAs), the clients of Abellio Germany. Public funds have been granted to the PTAs to compensate for this impact.
With the start of the Russian war against Ukraine in February 2022, the situation in global supply chains worsened. There were also massive price increases, especially for food and energy costs. Further, the acquisition of spare parts has become significantly more difficult.
The German economy cooled down sharply in 2022. The high rates of inflation are reducing the real income of private households and their savings and reducing purchasing power.
In order to mitigate the effects of higher prices, especially for energy, food and mobility, the federal government has decided on several relief packages.
One of the key measures was the introduction of a three-month discounted nationwide ticket for regional public transport, the so-called 9-Euro-Ticket in the months of June, July and August. More than 52 million tickets have been sold within 3 months – in addition to 10 million subscribers, who automatically received the discount via their monthly tickets.
Due to the relaxation of the corona measures and the introduction of the 9-Euro-Ticket public transport in Germany recorded significantly more passengers in 2022 than in the two previous years.
In addition to the challenges posed by the corona pandemic and the current geopolitical environment the year 2022 has further been quite difficult for rail operations in Germany due to the all-time high number of construction works on the infrastructure and shortage of staff across our industry.
German rail market in a nutshell
The German regional market has been deregulated since 2003, with responsibility for its organisation assigned to the 16 federal states of Germany. Each state has its own way of managing its regional market for rail passenger transport. This led to the creation of 27 regional transport authorities (PTAs), who adopted different tendering regimes, with a substantial flow of potential concessions. There is a constant flow of public tenders into the market.
Regional public rail transportation in Germany is subsidised by the federal and the state governments through grants in contrary to public long-distance transportation that is not subsidised.
In Germany the rail passenger transport market is dominated by Deutsche Bahn and its regional transportation subsidiary DB Regio AG including Regionalverkehre Start Deutschland GmbH. Start is a subsidiary of DB Regio with a clear focus on winning back regional contracts for Deutsche Bahn. Deutsche Bahn is also responsible for the rail network and stations with infrastructure operator DB Netz and DB Station und Service as part of the DB-Group.
Abellio has gross contracts with the PTAs, which means that Abellio Germany is paid for its service per train-kilometre.
Restructuring of Abellio Germany
Abellio Germany was founded in 2004 as a regional rail company in Essen and NS acquired the company (Abellio GmbH) in 2008. The German regional transport market has been difficult to operate in due to external factors other than the corona pandemic, such as increased infrastructure works resulting in rail replacements costs and penalties for missing contractual punctuality targets that cannot be influenced by the train operators and tariff agreements for train crew and labour market developments resulting in higher staff- and training costs. The aforementioned cost increases are not sufficiently covered by the transport agreements indexation mechanism and not otherwise compensated. Abellio Germany was thus foreseeing a loss-making situation for the longer term, which was not sustainable without significant financial support and/or changes to the transport agreements. The losses have been funded by Abellio Germany’s shareholder under the assumption that long term solutions would be feasible. In 2021, after negotiations with major PTAs had failed, Abellio Germany initiated a so-called Schutzschirmverfahren (special insolvency proceedings under German law) to find a viable long-term solution by restructuring the activities and loss-making contracts of all entities of Abellio Germany. The insolvency proceedings made it possible to work on a solution per entity together with the most important PTAs, rather than a solution for the whole of Abellio Germany.
In the course of 2022 the restructuring process of part of the operational entities was completed and the shares of the relevant entities were transferred to a new German holding company within the NS Group (ATH Rail Transport Beteiligungsgesellschaft Deutschland GmbH) with its headquarter in Berlin. With the closing of the insolvency proceedings financial control was regained over PTS GmbH (as of 1 February 2022) and WestfalenBahn GmbH (as of 1 March 2022). WestfalenBahn will continue running the Emsland- and Mittelland contract until regular expiry in December 2030. Control over Abellio Rail Mitteldeutschland GmbH was regained on 1 July 2022. Abellio will continue services in the STS-network until its regular expiry date (December 2030), whereas the DISA contract will be handed back earlier (December 2024 instead of 2032). Re-tendering of DISA, without participation of Abellio, has already been initiated by the PTAs.
The activities in North Rhine-Westphalia were discontinued and the contracts were transferred to various operators appointed by the PTAs, as an agreement could not be reached on additional compensation. The entity in North Rhine-Westphalia will be liquidated by the trustee. The subsidiary in Baden-Württemberg was acquired by the state-owned operator SWEG, which manages the operations until the end of 2023. The entity will then be transferred to a new shareholder following the retender of the local rail network contract. The insolvency (restructuring) proceeding of Abellio GmbH, the former German holding, is still in progress. The legal completion of these proceedings could take quite some time. The nature and outcome of an insolvency process are unpredictable. Hence, the operating result and cash flow in future years could be affected by an (un)favourable outcome compared to current estimates that have been made.
After the restructuring Abellio Germany now operates rail concessions in the federal states of North Rhine-Westphalia and Lower Saxony (WestfalenBahn) as well as Saxony, Saxony-Anhalt, Thuringia, Hesse, Brandenburg and Berlin (Abellio Rail Mitteldeutschland). In addition, Abellio in Germany owns the cleaning and security services company PTS, located in Neuss.
Further, in 2022 (after completion of the insolvency proceedings) a new functional organisation across all remaining Abellio entities with a clear Management focus on operational performance and customer satisfaction has been established. Key management objectives are improvement of operational quality, safety and service orientation as well as sustainable profitability.
In Central Germany, the STS concession entered its eighth year of operation in December 2022. WestfalenBahn has also been operating the Emsland and Mittelland network for eight years. In recent years, both companies have built up based on their operational performance a strong and good reputation among passengers and PTAs.
In general the operational framework conditions are very challenging. Especially in the summer months, the 9-Euro-Ticket led to an all-time high number of passengers on the connections, which were already in high demand. The significant increase in number of passengers all over the country caused a significantly lower punctuality rate in 2022 than in former years. Reasons are: overcrowded trains due to 9-Euro-Ticket, personnel shortages and poor infrastructure availability (unmanned signal boxes, construction works, short term closure of tracks because of the replacement of a specific type of railroad ties (Dwarsliggers) by DB Netz. Other operational challenges, e.g. safety management and availability of trains, are under control.
Shortage of staff and need for qualified personnel
The labour market in Germany is difficult. There is a high demand for conductors, train drivers and workshop employees. Experienced train drivers are scarce and it is not easy to recruit qualified specialists as career changers for the industry. All players in the industry see themselves confronted with the challenges of an increasing shortage of skilled workers. The entire railway sector is in competition with other industries, so that it is becoming increasingly difficult to attract career changers. The infrastructure operator DB Netz is also increasingly unable to fill shifts. This means, for example, that Abellio in Central Germany had to cancel numerous connections, especially during night hours and weekends. Abellio launched a major employer branding and recruiting campaign for all operational companies in 2022. The aim of the campaign is to draw attention to Abellio as an attractive employer in our regions. The attrition rate at Abellio is below industry average, which is especially significant as Abellio just left an insolvency proceeding. However, vacancy rates are high as job vacancies could not be filled due to the proceedings and the overall shortage of skilled work force is impacting us the same as all companies.
The German rail network is considered to be overloaded. Apparently there are too many trains on certain main axes in particular. In many places the infrastructure is outdated and ailing. It urgently needs to be renovated, extended and digitalised. As a result there are now more construction works to get the network back into shape. This also causes bottlenecks in the rail network, resulting in massive delays. In addition to the planned construction sites to modernise the infrastructure, there were particular strains in 2022 due to short-term route closures to replace damaged concrete sleepers. The network operator DB Netz had to replace concrete sleepers in the summer of 2022 following an accident in the south of Germany that killed 5 people. The Harz region in Central Germany (ABRM), among others, was massively affected. Train traffic was disrupted for several weeks.
As the consolidation criteria were no longer met, NS deconsolidated all German subsidiaries as of 30 June 2021 following the start of the insolvency proceedings and its value and further investments have been written down to zero. NS started consolidating the financial result again from the moment the shares in the restructured German entities were re-acquired and the insolvency proceedings ended in the course of 2022. As such the consolidated period varies per legal entity. PTS is consolidated as of 1 February 2022, WestfalenBahn (WfB) as of 1 March 2022 and Abellio Rail Mitteldeutschland (ABRM) as of 1 July 2022. Abellio GmbH (the former holding company) is still in proceedings, thus not consolidated, but still possess various assets, personnel and contracts.
In 2022 Abellio Germany reported a revenue of € 256 million from its restructured operations (first half of 2021 € 355 million). The consolidated operational result for Abellio Germany in 2022 was € 2 million (first half year 2021 € 22 million negative and in addition the shareholder financed the costs incurred during the restructuring, for the loss-making contracts and costs associated with the termination of part of its activities).
The first time consolidation in 2022 of the restructured German entities resulted in an accounting upside of € 108 million in the acquiring holding company ATHR due to acquisition accounting whereby assets and liabilities are reassessed and former shareholder loans as well as part of the creditor liabilities are released as agreed in the insolvency plan. This accounting upside in 2022 has been recognized as ‘financial result’ and should be seen in conjunction with the aforementioned impairment of the investment and shareholder loans and provisions by the shareholder when NS lost control in 2021. The result is due to the on-going finalisation of the insolvency and local statutory accounts still subject to change in 2023.
In 2023, the two issues of staff availability and infrastructure construction sites will continue to have a strong impact. In order to continue to have sufficient staff available, Abellio will further intensify its recruitment campaign in the first half of 2023.
In view of the high investment volume for the expansion and renewal as well as digitisation of the rail infrastructure, numerous restrictions are to be expected. The German state and Deutsche Bahn will invest €86.2 billion by 2030 to modernise the rail network. Among other things, this involves the replacement of outdated switches, tracks and bridges. A further €40.5 billion are available for the digitisation of the network and for new construction and expansion projects. This will increase the capacity of rail infrastructure in the longer term, but will cause an increase in construction works in the short term with massive impact on both passengers and train operating companies.
According to the Federal Government, the general refurbishment is a prerequisite for the desired “Deutschlandtakt”. By 2030, this envisages a system with better coordinated transfer connections between the major cities. Passenger transport is to be doubled by 2030.
As a continuation of the popular 9-Euro-Ticket and with regard to strengthen environmentally friendly mobility, the federal government and the federal states have decided to introduce a digital and nationwide ticket for local and regional transport for 49 euros per month (so-called Deutschland-Ticket). It is currently planned by the federal states and the PTAs that the ticket - as a monthly redeemable subscription - will be available from May 1st 2023.
In addition the funding of regional public transportation services (‘regionalisation fund’) were increased by €1 billion per annum. This will give the 16 federal states the opportunity to order more public transportation, make rail transport more attractive and thus achieve the goal they have set themselves of doubling the number of passengers by 2030.
Regarding Abellio's business activities the current strategy is to optimise existing contracted services and pursue opportunities that are regionally well connected to its current business activities and will offer synergy potential. While the focus for 2022 has been on the restructuring; the future goal remains that Abellio's operations contribute to Dutch operations through cross-border connections in the interest of Dutch passengers and contribute positively to the financial result. Preferably the cross-border traffic between the Netherlands and Germany is expanded and improved. This supports the strategy of NS and is an attractive prospect for Dutch and German passengers, but only if the contracted fee enables Abellio Germany to earn a reasonable return over time.
In 2023 Abellio will intensify the preparatory work regarding the handover of the DISA-network to a new operator in December 2024.
Rail franchises in Germany
Today Abellio operates 29 lines in 3 rail concessions in 8 federal states. Abellio Germany’s head office is based in Berlin with subsidiary offices in Halle (ABRM), Bielefeld (WfB) and Neuss (PTS).
In Central Germany, Abellio operates the Saale-Thüringen-Südharz network (STS) and the Sachsen-Anhalt diesel network (DISA) with Abellio Rail Mitteldeutschland GmbH. WestfalenBahn GmbH runs the Emsland and Mittelland network in North Rhine-Westphalia and Lower Saxony. In addition, Abellio in Germany owns the cleaning and security services company PTS, located in Neuss, which provides services to various concessions operated by Abellio and other train operators in Germany.
Annual train kilometres in millions
Punctuality with a 5 minute margin