German operating companies

Abellio Rail Mitteldeutschland GmbH

Abellio plays an important role in Central Germany. Since 2015, Abellio's trains have been running on the STS electric network and since December 2018 on the DISA network. Thousands of passengers are able to travel with Abellio in the Harz and Borde regions and as well between the major cities of Erfurt and Magdeburg.

WestfalenBahn GmbH

The company is based in Bielefeld and connects the cities of Braunschweig and Hannover in Lower Saxony with Bielefeld and Rheine in North Rhine-Westphalia. From Munster there is a direct line via Meppen and Leer to Emden on the North Sea.

Operational Performance

In Central Germany, the STS concession entered its nineth year of operation in December 2023. WestfalenBahn has also been operating the Emsland and Mittelland network for nine years. In recent years, both companies have built up a strong and good reputation among passengers and PTAs based on their operational performance.

However, in general the operational framework conditions have been very challenging in 2023. The significant increase in construction works and shortage of staff (also at DB Netz) caused a significantly lower punctuality rate in 2023 than in former years. Additional reasons for lower punctuality rates and an increasing number of cancelled trains are staff shortages and poor infrastructure availability (unmanned signal boxes, construction works or short term closure of tracks by DB Netz).

In addition, collective bargaining negotiations were held in 2023 by Deutsche Bahn with the two trade unions Eisenbahn- und Verkehrsgewerkschaft (EVG) and Gewerkschaft Deutscher Lokführer (GDL). This resulted in several strikes, which also affected Abellio in Germany. Abellio also held collective bargaining negotiations with the two unions EVG and GDL. The negotiations with EVG were concluded in June 2023 and with GDL in January 2024 without any strike action.

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 remains tight. There is an ongoing 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 new labour tariff agreement with GDL includes a gradual decrease from a 38 hours workweek in 2024 (same as in 2023) to a 35 hours workweek from January 2028. This means that even more conductors and train drivers will need to be recruited and trained in an already tight labour market. This will result in increased costs and potentially also in more train cancellations.
The infrastructure operator DB InfraGO AG is also increasingly unable to fill shifts. This means, for example, that Abellio in Central Germany had to cancel numerous train services, especially during night hours and weekends. Due to the shortage of staff on the part of the infrastructure operator, a night-time shutdown had to be introduced.
In 2022, Abellio launched a major employer branding and recruiting campaign for all operational companies which has intensified in 2023. The aim of the campaign is to draw attention to Abellio as an attractive employer in our regions. Abellio is also focusing on retaining existing staff. The attrition rate at Abellio was below industry average in 2023. However, vacancy rates are high due to a forced recruitment stop during the proceedings. The overall shortage of skilled work force is impacting us the same as all companies.

Constructions works

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 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 due to route closures.

Financial result

In 2022 NS started consolidating the financial result from the moment the shares in the restructured German entities were re­ acquired and the insolvency proceedings ended. 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. As a result, the year 2023 (first full year of consolidation) is not comparable to 2022. Abellio GmbH (the former holding company) is still in proceedings, thus not yet consolidated.

In 2023 Abellio Germany reported a revenue of €400 million from its operations (2022: € 256 million, not a full consolidated year). The consolidated operational result for Abellio Germany in 2023 was@€0.9 million negative prior to an impairment impact (2022: € 2 million not fully consolidated year). The loss in 2023 is mainly due to the high level of penalties of €42 million (2022: €21 million) resulting in lower subsidies next to a general increase in costs. The penalties are mainly due to the aforementioned construction works and staff shortages resulting in lower punctuality and cancellations. The main part of the penalties is beyond the control of Abellio. Next to the adverse impact of penalties, the higher future staff costs due to the new labour tariff agreements (resulting in higher wages and a higher need of staff due to the phased reduction of the workweek to 35 hours), a volatile energy market and general cost increases resulted in a negative outlook for the DISA and STS contracts until the contract end dates. These adverse developments are not fully compensated for in the contracts with the PTAs and therefore the expected adverse financial impact is reflected in an impairment of assets for an amount of @ €13 million in 2023.

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. The accounting upside in 2022 has been recognised as ‘financial result’. This result was due to the ongoing finalisation of the acquisition still subject to change in 2023, resulting in a €5 million negative impact in the financial result of 2023.

Outlook 2024

In 2024, the two issues of staff availability and infrastructure construction will continue to have a strong impact on the operational and financial result. The contracts of Abellio Mitteldeutschland are expected to be lossmaking. A provision has already been accounted for in the 2023 result. In order to have sufficient staff available, Abellio will continue its recruitment campaign. Abellio will also focus on a smooth handover of the DISA-network to the new operator Start in December 2024. Although Start will welcome all DISA employees without changing their contract, the upcoming handover may negatively affect the staff attrition rate and performance in the last year of operation.

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. By 2030, 40 lines are to be expanded in several stages to create a high-performance network with a length of 9,000 kilometres. Among other things, this involves the replacement of outdated switches, tracks and bridges. In almost all regions of Germany, this will lead to months of full closures, affecting millions of commuters. 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.

The federal and state governments agreed to continue the Deutschlandticket in 2024. In addition to the Deutschlandticket and expected increase in passenger numbers, the funding of regional public transportation services ('regionalisation fund') were increased by €1 billion per annum.

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. At the end of 2024 the restructuring of the German activities (including the former German holding Abellio GmbH) is expected to have been fully completed and the DISA contract will have been terminated and handed over to Start as part of the restructuring plan.