Authority for Consumers and Markets (ACM)
In its judgement of 6 March 2015, the ACM concluded that NS had infringed Sections 67 and 71 of the Railways Act by not making a reasonable offer in the Limburg tendering process for locations for service desks, break rooms, emergency button facilities, check-in/check-out posts, energy costs, dealing with disruptions and journey information (Section 67 of the Railways Act). In addition, the ACM concluded that NS shared sensitive competitive information from Veolia and others with Abellio and Qbuzz (Section 71 of the Railways Act).
The ACM then carried out a further investigation into the possible abuse of their position of economic power by NS and its subsidiaries in the Limburg tendering process under the Competitive Trading Act and EU competition rules. The ACM sent a report on the investigation to NS on 7 July 2016. NS submitted its views on this.
On 22 May 2017, the ACM informed NS of its decision and ruled that NS had acted in violation of Section 24 of the Competitive Trading Act and Section 102 of the Treaty on the Functioning of the European Union. The ACM therefore imposed a fine of €40.95 million on NS. Based on a norm framework that the ACM itself devised, the ACM has concluded that NS’s offer did not satisfy the ‘internal rate of return’ requirement. This approach taken by the ACM is new and has far-reaching consequences for the rail sector and future tenders and investments by NS. In view of this, NS has lodged an objection to the decision. NS disputes the suggestion that it made a loss-making offer in the public transport tender in Limburg. The bid also satisfied the ‘internal rate of return’ requirement. NS therefore disagrees with the ACM’s ruling and the supporting arguments for the decision. NS has submitted a notice of objection, asking the ACM to reconsider its decision. A hearing took place on 2 November 2017, during which NS clarified its written objections. The ACM is expected to reach its decision about the objection in the first quarter of 2018.
Even though NS had lodged an objection, it was still required to pay the fine within 24 weeks. The fine was imposed in 2017 and has been charged to the income statement in 2017. Given that the outcome of the objection process is uncertain and any receivables from the ACM as a result of the objection process outcome do not satisfy the IFRS criterion of “virtually certain”, NS has not recognised any associated receivables.
Public Prosecution Service
The Public Prosecution Service (specifically, the Office for Financial, Economic and Environmental Offences in ’s-Hertogenbosch) started an investigation in 2015 into possible criminal acts in connection with the tendering process for public transport in Limburg. The investigation focused on the actions and circumstances surrounding an alleged arrangement regarding the disclosure of business secrets. The suspected parties include the companies NS Groep NV, Qbuzz BV, Abellio Transport Holding BV and Abellio Nederland BV. In February 2016 NS Groep NV received the final report of the criminal investigation. The Public Prosecution Service then issued NS Groep NV with a summons. The substantive proceedings took place in the second half of 2017. On 21 December 2017, the district court of Oost-Brabant acquitted NS of two of the offences with which NS was charged and ruled that the Public Prosecution Service was not allowed to prosecute in the case of a third offence with which NS was charged. The Public Prosecution Service has appealed against the ruling on 21 December 2017. At present, no reliable indication can be given of the outcome of this and the financial consequences (the size of any fine, transaction etc.). As a result, no provision has been recognised.
There is an inherent risk that additional claims will follow as a result of the irregularities that have been observed. The claims mentioned above could have a material impact on the results and equity position of NS. Because the outcome cannot be reliably estimated at this point in time, no provisions have been included for it.
There were a number of long-term financial commitments to third parties at year-end 2017. These mainly concern operating lease agreements for trains, company cars and copiers. There are also long-term contracts for services by third parties in the areas of IT, employee health and safety, maintenance and cleaning.
Operating lease agreements
The lease amounts payable for operating lease agreements that cannot be cancelled (including rental agreements for office space) fall due as follows.
(in millions of euros)
December 31, 2017
December 31, 2016
< 1 year
In 2017, a sum of €393 million was accounted for as a liability for operating lease agreements.
The amounts payable as shown above include sums relating to a number of franchises in Germany that are compensated in full by the franchise authorities. These amounts fall due as follows.
(in millions of euros)
December 31, 2017
December 31, 2016
< 1 year
As at the end of 2017, the purchase obligations under the energy contract in the Netherlands for the volumes already covered, the payments for the programme of responsibilities and the surcharge for green electricity over the period 2018-2024 (the remainder of the 10-year contract) came to €227 million (as opposed to €231 million at the end of 2016). The volume expected to be required for 2018 and 2019 is fully covered.
Transport costs and energy taxes are not included in the purchase obligations shown. If the difference between the market values and the contract value exceeds a given threshold, the Group or Eneco has to give the other party guarantees or provide cash collateral. Any payments and liabilities are netted as they are both inextricably linked. As at year-end 2017, NS had received €11 million in collateral in the form of margin money.
With respect to the forward contracts that are used to hedge fuel costs abroad, Abellio has given guarantees for a sum of €4 million.
For more detailed information about the energy contracts, see note 26.
For the purpose of income tax, all the Dutch subsidiaries belonging to the Group are part of the NS fiscal unity. As a result, the Group is jointly and severally liable for all tax liabilities of the subsidiaries included in the fiscal unity.
At the end of 2017, the Group had outstanding investment commitments of €1,437 million (2016: €1,428 million), primarily for purchasing and upgrading trains and investments in the areas around the stations.
The Group has paid €26 million (after conversion) of its share in the issued share capital of EUROFIMA AG (a sum of €103 million after conversion). The Group has a liability for full payment on demand of the shares and other guarantee commitments totalling €258 million. Payment of the liability can be demanded if EUROFIMA AG’s own equity position gives reason to do so. For EUROFIMA loans that are not part of the cross-border lease financing arrangements, collateral has been provided in the form of pledges on rolling stock.
As a result of the agreements made with the Belgian carrier regarding the IC Brussels service as part of the main rail network, the Group is making allowances for a negative balance (for the Group) in the settlement of the costs of commercial operation for this route. The size of that negative balance depends on the commercial results on that route.
A number of investigations are ongoing and various claims have been submitted against NS and/or its group companies, which NS is contesting. Although the outcome cannot be predicted with certainty, it is expected that these will not have negative financial consequences of any material significance.
The Group has issued guarantees totalling €784 million (31 December 2016: €869 million) relating to the operation of the various franchises.
The Group has the following franchises.
Concessions in 2017
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Main rail network/ HSL-South
December 31, 2024
Regional train concessions
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Merseyrail-concession surrounding Liverpool
July 20. 2028
Greater Anglia-concession (East Anglia)
October 12, 2015
Abellio London-concession (bus)
ScotRail-concessie in Scotland (from 1 April 2015)
March 31, 2022
March 31, 2026
Concessions in 2017
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December 1, 2019
Ruhr Sieg Netz
December 1, 2034
December 1, 2028
Saale-Thüringen-Südharz (vanaf december 2015)
December 1, 2030
December 1, 2028
Rhine-Ruhr-Express (start of the operation in two steps; December 2018 and December 2020)
December 1, 2033
Stuttgarter Netze (start of the operation in June 2019)
December 1, 2032
Dieselnetz Sachsen-Anhalt (start of the operation in December 2018)
December 1, 2032
S-Bahn Rhein-Ruhr (start of the operation in December 2019)
December 1, 2034
Net contracts are contracts with a revenue risk concerning the revenue from passengers.
Gross contracts are contracts with no revenue risk concerning the revenue from passengers.
Mixed contracts are contracts with certain protective measures for the revenue from passengers.
Main rail network
The main rail network franchise is awarded by the Ministry of Infrastructure and Water Management. It covers passenger transport by rail on the main rail network in the Netherlands. The old main rail network franchise and the HSL franchise (see the paragraph below) ended in 2014 and the ministry decided in December 2014 to award a new integrated main rail network franchise to NS for the period from 1 January 2015 to 31 December 2024. The train services on the HSL South are also covered by this franchise from 1 January 2015 onwards. The franchise agreement stipulates that performance must improve during the term of the franchise. The interim evaluation and final evaluation will take place in 2019 and 2024 respectively. If NS does not achieve the target values for 2019 or 2024 respectively, NS will be obliged to pay a sum of €1.5 million for each performance indicator not attained up to a maximum of €19.5 million per evaluation. If NS does meet the conditions, a maximum bonus of €10 million can be earned for each evaluation. In addition, the ministry can impose a fine of up to €6.5 million a year if NS does not achieve the minimum values for the franchise performance indicators. The performance indicators are measured for the following performance areas: general (customer satisfaction), the door-to-door journey, comfortable journeys (transport capacity at peak times), journey information (in the event of disruptions), safety (including personal safety) and reliability (punctuality for passengers). In 2017 the Ministry of Infrastructure and the Environment imposed a fine on NS of €1.25 million for 2016 (this had already been anticipated in the 2016 financial year).
The agreements made with the government include agreements on the production assets (rolling stock in particular) that are to be used for operating the main rail network franchise. Depending on the ownership situation and the form of tender, the production assets may be leased in the event of complete or partial loss of the main rail network franchise to a subsequent franchise holder, sold at the carrying amount and/or their leases may be transferred unchanged to the subsequent franchise holder.
The overall fees for track use and the franchise for the integrated main rail network/HSL South franchise were €132 million in 2017. The negotiation agreement of 2011 included an adjustment mechanism to avoid the liquidation of HSA. This adjustment mechanism has been included in the implementation agreement for the franchise. It works as follows. If the average return on investment for the franchise holder over a fixed period turns out to be lower than the threshold value (4%), then the holder will be entitled to an adjustment to the franchise price (equal to the difference between the actual return and 4%, with the adjustment over the entire duration of the franchise being capped at the equivalent of €144 million at 2010 prices). There was no entitlement to any such adjustment over 2015. Any entitlement to an adjustment was first calculated in 2016 using the average return on investment for 2015 and 2016, and thereafter on a rolling basis using the previous three years. An entitlement to an adjustment to the franchise price deriving from the implementation agreement does not lapse if at any point in subsequent years the return on investment exceeds the threshold value. Payment of any entitlement that may have arisen to an adjustment to the franchise fee will be spread in instalments, as per the implementation agreement. The adjustment mechanism for the average profitability is recognised during the franchise on a straight-line basis covering the entire franchise term.
The franchise also includes an adjustment mechanism for a settlement of any windfalls in energy price changes over the franchise period. This adjustment will be calculated cumulatively, with NS owing the Ministry of Infrastructure and Water Management 75% of the difference between the actual energy prices and the forecast energy prices according to the business case, with no adjustment being made if the cumulative actual return on investment falls below the cumulative norm return. Apart from the calculation outlined above, NS owes an unconditional one-off sum of €56 million to the ministry for 2016; this payment is amortised on a straight-line basis over the entire term of the franchise. This arrangement is capped at €290 million (including the one-off payment) and will never result in a payment to NS by the Ministry of Infrastructure and Water Management. No energy cost adjustment is owed for 2017.
Regional rail franchises
This concerns passenger transport by rail on the routes listed below. The franchises specify the conditions with respect to frequency, accessibility, service levels, etc. In 2017, NS operated the following four franchises, which will run for the periods stated:
• Gouda – Alphen aan den Rijn until 11 December 2031
• Zwolle – Kampen until 9 December 2017
• Zwolle – Enschede until 9 December 2017
• Rotterdam – Hoek van Holland Strand until 31 March 2017
The franchises were awarded by the relevant provinces or metropolitan regions. A fee is received from the franchise authority for the operation of the franchises.
This franchise is operated as a 50-50 joint venture with Serco, a listed British company. It concerns passenger transport on the rail network in the region around Liverpool. There is an obligation to operate defined services (timetable, quality of the service) for a fixed fee paid by the regional authorities. Every five years there is an evaluation that includes checking whether the operations are still 'efficient'. Merseyrail has successfully been through two evaluations and the third evaluation is scheduled for 2018. The franchise runs for 25 years (through to 20 July 2028). There is an option for a five-year extension. The annual payment received from the authorities (the grant) is determined in the contract and is indexed annually.
Greater Anglia franchise (East Anglia)
Abellio was the operator of the previous Greater Anglia franchise, which expired in October 2016, and won the new Greater Anglia concession in August 2016. This franchise is operated by the full subsidiary Abellio East Anglia Ltd. On 17 January 2017 it was announced that the proposal is to sell 40% of the share of the concession to Mitsui.The concession operates passenger transport on the rail network in the Anglia region in the east of England. The number of train-kilometres for this concession is around 29 million per annum. The concession started operation on 16 October 2016 and runs to 12 October 2025, with an option for a further extension of a year. There is an obligation for the replacement of the entire current fleet, with new vehicles by September 2020 to run on the Rural, Intercity, Stansted Express, West Anglia and Great Eastern routes. This will increase the number of seats. Other obligations include a commitment to invest GBP 120 million in depot facilities and GBP 60 million in station upgrades.
Abellio won the ScotRail franchise in October 2014. The franchise started on 1 April 2015 and will run for at least seven years. An extension to 31 March 2025 is possible by mutual consent after an evaluation in Year 5, with an option for a further extension of two years through to 31 March 2027. The ScotRail franchise was awarded by Transport Scotland and is operated by the fully-owned subsidiary Abellio ScotRail Ltd, providing intercity, regional and provincial passenger transport by train on the Scottish national rail network. There is an obligation to provide the specified services (timetable, quality of the services) for a predetermined fee paid by the government (grant), which is indexed on an annual basis.
West Midland franchise
Abellio started the West Midlands franchise on 10 December 2017. The franchise runs until 2025/2026. It covers the area around Birmingham as well as the services from London Euston to Crewe and from Liverpool to Birmingham. The franchise is operated by West Midlands Trains Ltd, a joint venture between Abellio, East Japan Railway Company and Mitsui & Co Ltd. The new franchise agreement stipulates that new trains should be introduced in 2021 to provide room for more passengers during peak periods in Birmingham and London. The long trains will mean more seats and more room for passengers. In this franchise, investments are also being made in a better ticketing system and improved journey information as part of the changes intended to improve passengers’ journeys.
Franchises in London
Abellio London operates bus routes in London from a number of depots (with an 8% market share). The franchises have terms of five years on average with an option for an extension of two years, depending on the attainment of various performance criteria.
Abellio operates various train services in the North Rhine-Westphalia (NRW) and Central Germany regions for a predetermined fee paid by the government (grant), which is indexed on an annual basis. The franchises run for periods that end at various points between 2019 and 2030.
In December 2016, the German section of the Niederrhein-Netz franchise started.
In June 2016 Abellio was awarded two routes of the Rhine-Ruhr-Express (RRX), operation of which will start in two steps. The first route, from Münster to Dortmund, Düsseldorf, Cologne and Aachen, will start in 2018 and the second, from Düsseldorf to Dortmund, Paderborn and Kassel, in 2020.
In November 2016 Abellio won the Stuttgarter Netze franchise. Abellio will operate the franchise from June 2019 with new trains in the Baden-Württemberg region.
Abellio also won de Saxony-Anhalt diesel network (DISA) franchise in December 2016. Abellio will start operating this franchise from December 2018 on a number of routes in the Saxony-Anhalt region.
In July 2016 Abellio won the S-Bahn Rhein-Ruhr franchise. Abellio will start operating this franchise from December 2019 on a number of routes in the NRW region.
In December 2016 Abellio successfully managed to defend its Ruhr-Sieg-Netz franchise. Abellio will operate the franchise from 2019 with a number of trains.
On 6 December 2017, the Group increased its stake in WestfalenBahn from 25% to 100%. WestfalenBahn is located in Bielefeld. With its Expresslines Emsland, it connects the cities of Braunschweig and Hannover in Lower Saxony with Bielefeld and Rheine in North Rhine-Westphalia. From Münster there is a direct line via Meppen and Leer to Emden on the North Sea.