Dsb Case Mcgill - Final

Lara Ballantyne Jaylen Gadhia Rachel Kirby Sami Zubair

Agenda Current Situation

Objectives

Distance

Satisfaction

Brand

Finance & Implementation

Current Situation Objectives Distance

Satisfaction Brand Financials & Implementation

Current Situation

50% of revenues came from online sales channels

East-West routes = 38% of revenue and 35% of passenger kms

32% of Danes are motivated to use the train system, however rarely do

POLITICAL ECONOMIC REPUTATIONAL



What Matters Most

Alterna(ves Increase Rail

Travel Maximize Sa(sfac(on

Financial Impact

Strengthen Brand Image

ST & LT Benets

Increase Fleet

Commercialize Sta(ons

Improve Technology

Market the Brand

Alter Interior of Trains

Focus on On-Board Ameni(es

Enter Alterna(ve Transport Markets



The DSB Strategy

Improve DSBs brand

image

Introduce a message-heavy marketing campaign emphasizing benefits of railway travel and DSB

Better reputation

amongst the Danes

STRATEGY IMPACT OBJECTIVE

Increase passenger kilometers travelled

Facilitate commercialization of surrounding train station areas with improved Park & Ride facilities and station refurbishment with added amenities

Capture new customer segments

Maximize customer

satisfaction

Deploy a comprehensive digital strategy focused on greater integration, communication and satisfaction

Continue improving on punctuality

Facilitate an improved

experience for customers

D (Distance)

S (Satisfaction)

B (Brand)



The Opportunity By implementing the DSB Strategy, Danish State Railways will be able to increase the

amount of passenger kilometres in Denmark by over 7.5%, focus on improving the customer

experience and remain profitable, realizing an NPV of between 3.4B 4.9B DKK by 2018, all

while satisfying the triple bottom line of economic, political and reputational gain.



Increasing Passenger KMs D

(Distance)

How do we successfully convert passenger cars to train riders?



Commercialize Stations Increase

passenger kilometers travelled

Facilitate commercialization of surrounding train station areas with improved Park & Rides and station refurbishment along the East-West line

Capture new customer segment

D (Distance)

Work the exis,ng infrastructure of the train sta,ons along the East-West line to make them as much des,na,ons as they are departure points

Allow for greater penetra,on of the

passenger cars and bike markets by oering more substan,al free parking

facili,es 1 2 3

Implement WiFi and pop-up cafes into 20 train sta,ons

along the East-West line as an added incen,ve to use the train

as travel method of choice during the next 3 years



Focusing on Satisfaction

Drivers of Customer Satisfaction

The #1 priority of DSB moving forward

Improved satisfaction will help drive growth

Opportunity for improvement and innovation 1. Continue working with

BaneDanmark to reduce maintenance in peak hours

2. Discontinue waiting for late passengers

1. Commit to full-fledged digital strategy utilizing Rejseplanen and Rejsekortet

Punctuality & Frequency

Traffic Information



A Digital App-roach Rejseplanen

DSBs most opportunistic asset

Hugely popular amongst users

Add an account feature to gain better insights into customers

DSB can leverage further to greatly increase customer satisfaction

Up to 60% of seats available for reservation online

Cost of 6 DKK/trip Easily adaptable to

customer wants, needs & feedback

Weight and phone based tracking to determine capacity, shown in real-time

5 additional hires to design & manage all communication systems

Integration of Rejsekort, Rejseplan and Wifi data tracking will reveal many insights

Can be used to provide a more complete and satisfying experience as well as operational efficiencies

Seat Reservation Reliable in Real-Time Rich Data Collection



The Benefits of Digital Customer DSB

1 A seamless public transport experience

2 Greater transparency and availability of more information

3 Ability to chose to travel in greater comfort

1 Capitalize on both consumer and industry trends by further leveraging current capabilities

2 Provide higher customer satisfaction accuracy, reliability and convenience

3 Ability to improve operations through rich customer and operational data collection



Brand Image Image better among

regular customers than occasional users

Customer satisfaction (contrary to image) is high compared with

European counterparts

TARGETING LIGHT & NON-USERS



Repositioning

WAITING TIME

SLOW

DELAYS

EFFICIENCY

ENVIRO-FRIENDLY

PLUS TIME



#BuyTime Campaign 250,000 hours per day

wasted in trac

+,me is greatest benet over compe,ng modes

With DSB, customers can buy ,me



#BuyTime Campaign

Baresso bathrooms located in larger ci,es outside

capital region

Mo,vated/ light users

High trac highways connec,ng outside ci,es

with capital region

Mo,vated/unmo,vated light users

WHAT?

WHERE?

WHO?

Print Billboards

Throughout Denmark routes, with greater emphasis on Jutland

Mo,vated/unmo,vated light users, mo,vated non-users

Train Wrapping



Social Media & Website

- Hashtags - Tie all plaTorms together - Encourage followers to share how

bought ,me could help them in their daily lives develops dialogues

- Targe,ng specic people with specic products

- Press conference & report addressing company changes and concerns rela,ng to punctuality - No wai,ng for late passengers - Construc,on on East-West line &

crea,on of accommoda,ons - Any unexpected delays



6000

6200

6400

6600

6800

7000

7200

7400

7600

2013 2014E 2015E 2016E 2017E 2018E Passen

ger K

m(s) in De

nmark (M

illions)

U(liza(on Increase of DSB Plan 2013-2018

Passenger Million KM (without)

Passenger Million KM (with) Pessimis,c

Passenger Million KM (with) Op,mis,c

Financial Impact

4% CAGR

3% CAGR

1.5% CAGR

0

100

200

300

400

500

600

700

800

2013 2014E 2015E 2016E 2017E 2018E

Net In

come (M

illions)

Net Income Impact of DSB Plan 2013-2018

NI (without)

NI (with) Pessimis,c

NI (with) Op,mis,c

19.5% CAGR

16.5% CAGR

1.5% CAGR

1 2 3 WACC = 7.5% 0.3% - 0.7% converted car commuters Additional 13K

commuters from parking initiative

Assumptions:



Overall Impact of DSB 1

Enhanced Top-Line Growth

2

Positive NPV

3

Exceed Desired Passenger Growth

DKK1.2B DKK 1.9B

DKK 3.4 B DKK 4.9B

7100-7500 M KM 9% - 12.5%

10% - 15%



Implementation

2016 2017 2018

Begin enhancing Rejseplanen interface

Add 8 additional park & go + leisure train

stations

Evaluate strategic efforts and adjust accordingly

Add final 8 park & go + leisure train stations

2015

Launch updated Rejseplanen with

new features

Simultaneously open first 4

enhanced stations

Evaluate data and feedback from Rejseplanen

services and adjust

Launch #BuyTime marketing campaign

Begin enhancing parking and leisure facilities in 4 stations

#BuyTime campaign

ends

Key Takeaways

Increase passenger KMs by 9% - 12.5%

Realize an NPV of 3.4B 4.9B

DKK and increased

revenues of 10%-15%

Regain the trust of the Danes by

increasing reliability and satisfaction

Poli(cal Economic Reputa(onal

By implementing the DSB Strategy, The Danish System Railway can

QUESTIONS Presentation: 3. Current Situation 4. What Matters Most 5. The DSB Strategy 6. The Opportunity 7. Increasing Passenger KMs 8. Commercialize Stations 9. Focusing on Satisfaction 10. A Digital App-roach 11. The Benefits of Digital 12. Brand Image 13. Repositioning 14. BuyTime Campaign 15. BuyTime Campaign 2 16. Social Media & Website 17. Financial Impact 18. Overall Impact of DSB 19. Implementation 20. Key Takeaways

GOAL: Increase amount of passenger kilometres, improve customer experience & remain profitable

Finances: 24. Revenue Assumptions 25. Capital Structure 26. Cost Assumptions 27. DCF 28. Financial Comparison Risks: 29. Risks & Mitigation Strategies 30. Baresso Contingency 31. Station Coffee Shop Trains: 32. ST Alternative to WiFi 33. Bikes and the Issue of Space 23. LT Plan

34. Construction on East-West Line 35. Coffee Machines Marketing: 36. Locations for Billboard 37. Billboards 38. Earth Week 42. Segmentation & Targeting 43. Motivated Light User 44. Unmotivated Light User 45. Unmotivated Non-User 46. Travel Purpose Other Strategies: 39. Why Parking? 40. Rejected Alternatives 41. Commercialization Locations

LT Plan (10 Years) Replace current trains with newer, more efficient, self-operating

trains Expand frequency of trains and train routes based on user data Increase amenities offered on-board Explore entry into alternative transport methods Simplify product portfolio for tickets

Potential 4 classifications include: Youth Student Adult Senior

Only differentiate prices based on peak vs. non-peak hours Eg. Monday Friday 7:00am 6:00pm = peak Everything else = non-peak

Growth 6% Tax Rate 22% Debt 8,480 M DKK, TS 1,865 M DKK Rf 2%, MRP 4.8%

Unlevered Beta 0.94 Green Field Premium 1% , ru=7.5%

Capital Structure

Revenue Assumptions Op(mis(c Pessimis(c

Marke,ng 0.66% 0.33% Park & Ride 13,100 new spots, doubling the parking

Seat Reserva,ons 6 DKK per, 60% available, 50% get booked

Cost Assumptions

Billboard 16,250 DKK (Copenhagen)

9,850 DKK (Outside Copenhagen)

Wrapping 98,550 DKK x 200 19.7M DKK Indoor Ads 2x12x2x490x52 DKK 1.2M DKK IT PlaTorm 525k x5 2.6M DKK Parking 26K DKK x 13,000 DKK 344M DKK

Caf 1.3M DKK per store, 20 years Avg. Rent 3050 DKK/sq meter x 36 (we get a third)

(DKK millions) 2013 2014E 2015E 2016E 2017E 2018ERevenuesRevenue Base 12,340 12,525 12,713 13,295 13,930 14,581 Add-OnsMarketing Campaign 184 186 189 Parking & Caf 38 76 77 Seat Reservation Platform 164 167 169 Total Revenue 12,340 12,525 13,098 13,724 14,366 14,581

CostBase Cost 9,558 9,701 10,145 10,630 11,127 11,294 Add-OnsMarketing campaign 28 8 8 Application & Seat Reservation Implementation 3 3 3 3

Operating Cost 9,558 9,701 10,176 10,641 11,138 11,297

EBITDA 2,782 2,824 2,923 3,083 3,228 3,285 EBITDA Margin 0 0 0 0 0 0

Depreciation 1,892 1,920 1,949 1,979 2,009 2,039

EBIT 890 903 973 1,104 1,219 1,245

Interest Expense 504 504 504 504 504 504

Income before taxes 386 399 469 600 715 741 Taxes 97 100 103 132 157 163 Net Income 289 300 366 468 558 578

CAPEX 1,720 1,746 1,846 1,947 1,974 2,003 Change in NWC 150 151 152 153 154 155 FCF 716.20 728 710 741 832 852

Value of the Firm (Post Project) 13,405 NOW

Value of the Firm (Pre-Project) 10,002 Value of the Project 3,402

(DKK millions) 2013 2014E 2015E 2016E 2017E 2018ERevenuesRevenue (without) 12,340 12,525 12,713 12,904 13,097 13,294 Revenue (with) 12,340 12,525 13,098 13,724 14,366 14,581

1.50% 1.50% 1.50% 1.50% 1.50%1.50% 4.58% 4.78% 4.68% 1.50%

EBITDA (without) 2782 2824 2866 2909 2953 2997EBITDA (with) 2,782 2,824 2,923 3,083 3,228 3,285

EBIT (without) 890 903 917 931 945 959 EBIT (with) 890 903 973 1104 1219 1245

NI (without) 289 293 298 302 307 311NI (with) Pessimistic 289 300 366 468 558 578NI (with) Optimistic 289 300 398 533 657 680

1.50% 1.50% 1.50% 1.50% 1.50%3.64% 22.16% 27.88% 19.16% 3.71% CAGR

Change 4.57% 1.5%Change 58.04% 16.5%Change 70.66% 19.5%

Passenger Million KM (without) 6246 6340 6435 6531 6629 6729Passenger Million KM (with) Pessimistic 6246 6340 6562 6809 7060 7166Passenger Million KM (with) Optimistic 6246 6340 6669 7024 7385 7496

1.50% 1.50% 1.50% 1.50% 1.50%1.50% 3.51% 3.76% 3.68% 1.50%

Change 4.57% 1.5%Change 9.20% 3.0%Change 12.40% 4.0%

Risks & Mitigation Strategies Risk Mi(ga(on

Partnership with Riccos Partnership with another coee company

Park & Ride doesnt drive more train commuters

Can always sell the land; would be careful not to over acquire

Danish government prevents seat reserva,on surcharge

Provide the service for free

Everyone takes to the reserva,on app Peoples expecta,ons are clear and we now have another revenue driver

Marke,ng campaign has lille impact Can cut costs quickly

Signicant delays deter from campaign message

Hold a press release to reach out to consumers directly



Baresso Contingency

33 restaurants in Denmark 5 million visitors every year Focus on those outside

capital region



Station Coffee Shop Riccos 10 cafes in Denmark

9 in Copenhagen 1 in Aarhus

One of top 10 coffee shops in Copenhagen (Official City Website)

Offering: opportunity for expansion

Too costly and beyond DSBs immediate control

Requires significant investment of up to 400M DKK that could be better spent

ST Alternative to WiFi

Mimic the Swiss and instead adopt repeater technology onboard trains travelling to more remote areas

Easier to implement, more cost effective, and more reliable for passengers

Bikes and the Issue of Space Therefore, in the interest of space

and sea,ng available, we believe the train layout should remain as it is in order to maximize exis,ng space on

trains

Though a popular method of transport for Danes, bike storage on trains at a larger scale capacity than what DSB

already has would be an inecient use of space (i.e. bike valet)



Construction on East-West Line TRANSPARENCY

Openness regarding 30-minutes delay times (and potential further delays) in press release

Accurate, real-time updates with DSB App

ACCOMODATION

Provide customers with cafes at stops along East-West line

Improved experience and satisfaction by providing customers with ability to sit and work

Free car and bike parking

- Coffee stations and vending machines

- Increased on-board customer satisfaction

- Self-serve eliminates employee pay, open 24 hours

- Mobile phone & card payment options

- Begin with 3 coffee machines,1 snack machine, 1 water cooler on 50 trains

Coffee Machines

24 billboards concentrated around Zealand

Others in high trafficked areas of Jutland & Funen

Locations for Billboard

Billboards

- 74% of regional commuters into metropolitan Copenhagen come from Zealand

- 26% from Scania - Targeted highways

- E47 - E20 - E65

Earth Week

TRIALABILITY Wednesday, APRIL 22

FREE TRANSPORT ON OFF-PEAK

HOURS

Cars / Capita 607 480 21% less cars

Inhabitants in suburb /

parking spot at the train sta,on

47 153 69% less parking spots

Why Parking?

Denmark Popula,on 5,600,000 less: Top Four ci,es -1,750,000

3,850,000 Half-Live in Secondary Ci,es 50%

1,925,000 Persons/Spot Now 153 Spots now 12,565 Goal (people/spot) 75 Goal 25,667 To build 13,101

13K commuter target:

Rejected Alternatives Objec(ve Poten(al Impact Reason for

Elimina(on

Acquire a complementary transporta9on company

Secure an alterna,ve source of revenue to

compensate for poten,al lost revenue

from railway improvements

Expand reach and market share within the Danish transport

industry

No real prospects that would align with

DSBs vision and growth strategy

Partnership with a bike sharing company

Appeal to the biker por,on of the

transporta,on market to bike to the train

Increased number of consumers considering the train as a transport

op,on

Bike sharing has proven to be unpopular among the Danish people (i.e.

City Bike)

Shu?le service to/from train sta9on in remote areas

Get people who are further than 2 km from the nearest train sta,on without a need

for parking

Expanded reach to mo,vated non-users in more rural areas of

Denmark

Majority of people who would be out of range of a train sta,on would likely

already have access to a car

Commercialization Locations

D (Distance)

Cafes, Wi, and addi9onal parking will become available at 20 sta9ons on the East-West line

An addi,onal 5 commercializa,on

loca,ons will be developed at Hobro, Arden, Skorping, Svenstrup, and Aalborg



Segmentation & Targeting

Image better among regular customers than

occasional users




DESCRIPTION HOW? WHY?

Older, married Larger ci,es

outside capital region

High income Enjoy relaxed

social surroundings

Billboards, print, trains

Subsequent social media

33% (largest) of DSB customers, 19% of Danes

Leads to greater opportunity for 1 ,cket promo

Increased mo,va,on

Motivated Light User

Mo(vated Light Users Image better among regular customers than

occasional users








social surroundings





Increased mo,va,on

Unmotivated Light User


Smaller ci,es away from nearest train sta,on

Take car/bus to work



Parking

13% of Danes Increased

mo,va,on (such that they will use trains)

Unmo(vated Light Users



Find public transport limi,ng

Love their car



App Parking

28% (second largest) of DSB customers, 16% of Danes


Increased mo,va,on


occasional users




Unmo(vated Non-Users





social surroundings





Increased mo,va,on

Unmotivated Non-User



Take car/bus to work



Parking

13% of Danes Increased

mo,va,on (such that they will use trains)


occasional users




Travel Purpose

Documents

Dsb Case Mcgill - Final