SNCF is making a strong comeback with a net profit of almost one billion euros in the first half of the year

The results are good, even very good for SNCF in this first half. Buoyed by a traffic recovery, boosted by the performance of its subsidiary Geodis, and relieved of much of its debt burden from the state, the rail conglomerate has reached unexpected levels in the first half of 2022. All lights are green, some indicators are above 2019 levels. However, one shadow on the board is very present: the threat of a trend reversal after the summer.

As the first visible element of this recovery, sales reached 20.3 billion euros. That is 27% more than in the same period last year, but above all 14% more than 2019 – the last reference year before the health crisis. Already a driving force last year, Geodis ” continued in line with 2020, with a significant growth of its activities in all its sectors explains Laurent Trevisani, Deputy General Manager for Strategy and Finance of the SNCF Group. With €6.7 billion in sales, the logistics subsidiary improved its performance by 34% over the year and by 67% compared to 2019. The manager took the opportunity to stress the importance of this diversification in SNCF’s strategy, as some believe it was to refocus on national rail operations. An argument reinforced by the fact that Keolis is also up 2% compared to 2019 to €3.3 billion.

SNCF Voyageurs, the heart of the group’s activity, recovers and reaches 8.4 billion euros, with a 36% increase over the year, but still slightly down compared to 2019 (-4%). After traffic was severely affected by the wave of contamination at the beginning of the year, traffic picked up sharply from March to April. ” We have had a very strong recovery in attendance on our trains. And when I say very strong, it’s really, really, really strong “, welcomes Laurent Trevisani. For the TGV activities with all the rolling stock deployed, the occupancy exceeded 70% in the second quarter and even 80% in June, with good performance during the week and not only at the weekend – end.

To explain this enthusiasm, the Chief Financial Officer highlights the current desire to travel, the choice of the train for its lower ecological footprint compared to other modes of transport, but also the economic advantage that the train has over the car with the increase in the price of petrol. SNCF Réseau also benefited from this recovery in tolling activity, with an increase of 7% compared to 2019 to 3.5 billion euros.

From activity to profitability

Perhaps more importantly, SNCF Voyageurs has managed to turn this renewed activity into profitability. From a negative margin of 6% last year, the subsidiary moved to a positive margin of 11%. It was able to generate 900 million Ebitda (earnings before interest, taxes, depreciation and amortization). It thus returns to the level of SNCF Réseau, which remained profitable during the crisis and improved its margin by another four points to 26%. Geodis is the third largest contributor with €598 million (margin of 9%), followed by Keolis with €314 million (10%).

In fact, the group doubles its Ebitda compared to the first half of 2021 and even slightly exceeds that of 2019 at 3 billion euros. This allows for a margin of 15% (compared to 16% in 2019).

The net result improves greatly: SNCF goes from a loss of 780 million euros in 2021 to a profit of 928 million. The achievement is remarkable, especially given the only €20 million generated in 2019. And most importantly, the group is once again generating cash with free cash flow of 1.1 billion euros, compared to a negative cash flow of 745 million euros last year.

Leverage and savings plan

The railway business is a fixed cost economy. If you fill your moves better, it will land right on the edge of the board. It’s the same leverage, but in the opposite direction, that we saw during the crisis », Details Laurent Trevisani. But he warns that this is not the only factor explaining this improvement in profitability: ” It’s also down to the efforts of the house, which has continued to execute on its performance plan for the first half of 2022. We had planned to make 660 million euros in savings in the fiscal year. In the first half of the year we achieved the target of 55% or EUR 360 million. »

To achieve this, the group has bet on industrial costs, thanks in particular to the contribution of digital technology (290 million euros), the optimization of its extensive organization with a better distribution of responsibilities between the central units and the field service (30 million euros) and Ultimate reduction in project costs through standardization and better negotiation of capital expenditures. On this last point, it has been able to use its imposing area, with investments of almost 11 billion euros per year (SNCF and co-financiers), to exert pressure on the ecosystem and the ” right price “.

Laurent Trevisani, on the other hand, did not address the impact of downsizing or the gradual disappearance of railwayman status on cost reduction. SNCF has reduced its workforce by an average of almost 2% between 2011 and 2021, and last September Jean-Pierre Farandou, CEO of the group, announced the forthcoming cuts of 2,000 to 3,000 jobs.

Summer will be nice, but after that?

Thanks to its results, Laurent Trevisani is confident that SNCF can meet the commitment it made to the state during the 2018 rail reform, namely to generate positive free cash flow in 2022. We are on the right path. This is shown by the first half-year report and that makes us confident for the year ‘ he congratulates himself.

However, the strategy and finance director is wary of giving numbers, content to claim that the group will break even. For the time being, the summer is going very positively, in line with the upswing since spring, but Laurent Trevisani fears a trend reversal after the summer: “ In the last term from September to December, I remain more cautious due to exogenous factors such as an aggravation of the Ukraine crisis, a new Covid episode, an aggravation of the economic situation that creates social tensions … Anything that can affect us and cause a slowing down of activity. And with the leverage we’ve seen, it can happen very, very quickly. »

The situation is all the more worrying as the recovery in business travel is still lagging behind that in leisure travel. In the first quarter affected by the Omicron variant, it was only half the pre-crisis level. Although the numbers have improved since then, the gap remains significant. In September, however, it was these business customers that partially replaced the vacationers.

Inflation will hit costs in 2023

Inflation will also have an effect. For capital expenditures, the group is to be retained for the very short term, but only for the very short term. ” As in all companies, our service providers come to us from time to time to demand price increases. We have entered into tough negotiations, but this is only the first step. The effect will be limited in 2022 but much stronger in 2023. »

Added to this are the railway workers’ wage demands so as not to suffer too much from inflation. The first social movements have already taken place at the beginning of the holidays.

The effects of rising energy prices are also likely to be moderate for the time being thanks to SNCF’s multi-year hedging policy. They allow him to buy electricity at predetermined prices, which is very beneficial in the current context, but will dissipate over time. The group also has regulated access to historic core power, the famous Arenh, which gives access to one megawatt hour (MWh) for €42 compared to €900 on the spot market. However, this mechanism must end on December 31, 2025. This still gives SNCF time to turn back, but the additional costs could prove very high.

Laurent Trevisani considers it premature to speak of an increase in ticket prices in 2023 to compensate for the increase in future costs, preferring to recall that SNCF did not increase its prices in 2022.