Digitally Transporting German Efficiency to the World: Germany’s & Europe’s #1 Market Leader in Integrated IT & Software Solutions for Public Passenger Transport | H.E.R.O. Issue 15, 21 December 2020
Behold the marvel of rail trains and buses of over 500 transport operators in Germany and Europe who are punctual and running smoothly for annual ridership by the billions with the world-famous German-like efficiency and precision - all because they are relying on the software solutions developed by a quiet digital innovator who commands over 80% market share leadership in Germany and a dominant position in the EU as the de facto standard in rail IT solution for public transport operators.
Deutsche Bahn, Transdev, Netinera and Abellio - Germany’s four largest regional railway companies with a combined market share of 82% - all rely on the innovator's software for the planning and dispatching of vehicles and personnel. They are joined by HLB, AVG, National Express and SWEG, who also serve more than 6% of the German volume of regional public transport traffic. The company has maintained market share dominance in core German-speaking markets (Austria, Germany, Switzerland) and has also expanded successfully outside of Germany to throughout Europe (48% of revenue) and worldwide (3% of revenue).
Building on 44 years of experience since its establishment in 1976 by founder Chairman Professor Dr. S and fellow graduates of the Technical University of Berlin whose alumni include seven Nobel Prize winners, digital solutions by this quiet Berlin innovator help transport operators to standardise their entire operational workflows and provide forward-looking services for the transport of tomorrow. A large number of delegations from distant countries also travel to Berlin to see how pleasant public transport can be in a metropolis. CEO Mr. M shared: "For every bus and subway or tram driver and also for every vehicle, the operational planning is made with our software. We also take care of the data for the electronic notice boards, which show the arrival times of the nearest buses and trams."
Notably, the company is the indispensable digital leader in solving the high-value problem of electromobility for many transport operators, because the planning of electric buses is much more complex than for diesel vehicles. With the right systems, they can save a lot of money. The company's proprietary complex algorithms minimise the number of electric buses required, and the range, state and level of charge, charging timetable and need, are all automatically coordinated. It is important to set the loading times as far as possible in such a way that the vehicles are as busy as possible and the timetable can be adhered to. Another example is the company's innovative cloud products and the use of tablets, instead of the conventional on-board computer, that offers the full range of functions even without expensive dedicated hardware.
For instance, the company’s customer BVG (Berliner Verkehrsbetriebe) will be electrifying its entire bus fleet of 1,400 by 2030; already more than 100 buses are in operation using the company’s solution to ensure vehicles and infrastructure are optimally used. Under 1% of all buses in Europe are electrified and they all require a new integrated IT and software solutions to ensure vehicles and infrastructure are optimally used. The company has a strategic partnership with Daimler Buses, who sells more than 30,000 buses around the world every year and has acquired a 5.25% strategic stake in the company's shares in Feb 2019, in joint development of integrated solutions for public transport and to further strengthen the company's strong positioning in domestic markets and worldwide sales opportunities.
This week, we highlight one of our portfolio companies, Germany's & Europe's #1 Dominant Market Leader in Integrated IT & Software Solutions for Public Passenger Transport, which is up +11.2% during the week (14 to 18 Dec 2020). It had earlier reported on 19 Nov 2020 record-high profits, in which 3Q2020 sales climbed 9.7% yoy, operating profit rose 51.3% yoy; 9M2020 sales +14.8% yoy, operating profit +191.1% yoy and operating cashflow +24.5% yoy, with OCF margin improving from 194% to 21.1% and strong profitability in GP/TA (Gross Profit/Total Asset) of 58.3% and CFROE (= OCF/Equity) of 33.5%. This rising dividend-yielding profitable and cashflow generative innovator has also compounded +329% in capital gains in the recent five years vs MSCI ACWI World index +59%. With long-term contracts and high customer switching costs as the systems are highly embedded into the customers' operations, the company has a resilient and attractive business model, in which today’s software license sales will generate tomorrow’s maintenance revenue, and generate increasing recurring and predictable income. The founding team continues to be committed long-term shareholders with over 22% stake in the company.
Digitization trends, urbanisation, and increasing demand for energy-efficient solutions and public transport will likely increase TAM (total addressable market) for the company going forward. Notably, as a result of COVID, cars are likely to used in less than 50% of journeys within cities by 2030. In times of pandemic, it is important to organize flows of people and goods smartly and there is strong demand during the present COVID-inflicted and vaccine rollout phase and post-COVID period with public transport operators requiring digital solutions to better plan and manage their operations in accordance with social distancing rules and a phased return to more normal times.
Many railway companies are looking for standard solutions to digitalise and optimise their complex operational processes. The company’s integrated solutions and software cover all bus and rail companies’ processes: from planning and optimizing the deployment of buses and trains, fleet management, dispatching driers and vehicle, monitoring and operations controls of vehicle fleets to ticketing, passenger information, billing, the settlement of transport contracts, and performance assessment. The company uses sophisticated mathematical algorithms for optimising the highly complex timetabling of trains, thus helping railway companies to save valuable resources. Consequently, they increase the efficiency and the quality of public transport by creating a consistent digital workflow.
The company's secret weapon and exponential competitive edge is its proprietary product in the rail IT segment – no other product on the market is fully integrated. Many software products in the transportation management system industry are unbundled versions of the company’s fully integrated software. In the context of digitalisation, it opens up opportunities to link up departments, use data extensively and optimise and accelerate workflows on a long-term basis. The company's software can often replace many different systems at once as it is integrated, reducing operational complexity and risks and lower total costs.
The foundation for the continued growth of the company lies with sophisticated products, which it develops in cooperation and coordination with its customers. Close collaboration with transport companies and partners in industry and science generates impetus for new functionalities and application models of the company's systems. The company has consistently invested in R&D and now has strong product offerings and innovative cloud products to capitalize on the structural market trends: digitization in rail, electric busses and transport, and mobile apps for transportation and electric buses.
Highlights of its recent customer wins include:
- Slovenian national railway SŽ will plan and dispatch its entire rail fleet, including staff, with the company's digital solutions.
- Finnish state railway VR Group is using the planning and optimisation tools of the company's digital system. On a rail network of 5,660 km, state-owned VR Group conveys around 15 million passengers every year between the capital Helsinki in the south and Kolari in the far north. The company has been planning and dispatching the train schedules in regional transport as well as all parking and track occupancy at Helsinki Central Station since back in 2010. In view of growing demands on efficiency and planning quality, VR Group decided to use the company's software also to replace the system for planning and dispatch of its conductors in regional train services and train drivers throughout the Group.
- Belgian transport company De Lijn has recently used the the company's digital solutions to modernise the passenger information at the country’s key transport hubs. De Lijn operates public transport in the Flemish provinces of Belgium with over 3,200 buses and around 400 trams. To modernise the passenger information, the company provided its stop computer software, which supplies the displays at every bus station with current data. The system allows bilingual output, which is customary in many parts of Belgium, as well as automatic colour coding of the lines shown on TFT displays. The audio output is also de-signed for the requirements of large interchanges.
- Deutsche Bahn is building a new digital production platform for long-distance transport together with the company. Every day, more than 1,400 trains cross Germany and bring over 400,000 passengers to their destinations. One major advantage of the new system is that the impacts of unexpected disruptions to operations can be identified and rectified more quickly.
- The Danish State Railways have also opted for the company's digital solutions in order to deploy trains and train crews more quickly and flexibly in future with their new planning and dispatching platform. The company’s standard software enables central, end-to-end data storage for all areas of work. The 12-year framework agreement covers licensing, implementation and maintenance.
- Switzerland’s SBB Cargo plans and schedules around 320 locomotives and 2,200 employees with the company's digital solutions to transport over 200,000 tonnes of freight by rail right across Switzerland every day. Conveying around 1.25 million local and long-distance passengers every single day, SBB is the biggest railway company in Switzerland and the backbone of the country’s public transport network. Since 2018, the company has relied entirely on hosting the system in the company's cloud system.
- Netherlands’ Qbuzz has opted for the company’s integrated dispatching and depot management system for the efficient deployment of around 160 electric buses.
- Berlin’s ridepooling service CleverShuttle uses the company's dispatch solutions. About 1,500 drivers and more than 500 vehicles allow CleverShuttle to provide wide-scale coverage in the cities that are served. The entire fleet consists exclusively of hydrogen- or battery electric-powered vehicles. Customers book the service using an app, after which an algorithm intelligently pools the passengers and determines the quickest route.
- The Letbane på Ring 3 is scheduled to be transporting approximately 14 million passengers a year by 2025 in the Greater Copenhagen area. The company has been tasked with installing a complete system for fleet management. The ITCS solution in turn continuously processes vehicle location data, which helps the dispatch managers to react quickly and appropriately to changes in the traffic situation.
On the electric buses market, CEO Mr. M commented: "Complexity is our elixir of life. We live on the fact that it is complicated. If it were easy, companies would do it with paper and pencil or with Excel itself. Stopping at a road junction with the e-bus is a horror for traffic managers. We therefore need to calculate how the battery's state of charge develops. We include the age of the battery, the traffic conditions and the season. Charging times must be planned: the buses cannot all be plugged into the socket at the same time, which would be too expensive."
On what makes the company crisis-resistant with record-high profits, CEO Mr. M shared: "In the current situation, we benefit from the fact that we are a very digital company. In principle, we can carry out our projects from anywhere. I would like to thank my colleagues who have very quickly adapted to the new situation. And then there are the big mega-themes of mobility and digitalization. These trends are long-lasting and remain relevant throughout the crisis. Especially now that it is becoming clear that our solutions – efficiency savings and the ability to react quickly to changes – are more important than ever for transport companies. We are indeed very optimistic about the future demand for our products. Transport is currently changing rapidly, for example electromobility and 'new mobility'. Our products help transport companies adapt to these developments and are in demand accordingly."