To: the shareholders and supervisory board of N.V. Nederlandse Spoorwegen
We have audited the financial statements 2017 of N.V. Nederlandse Spoorwegen based in Utrecht. The financial statements include the consolidated financial statements and the company financial statements.
In our opinion:
The accompanying consolidated financial statements give a true and fair view of the financial position of N.V. Nederlandse Spoorwegen as at 31 December 2017 and of its result and its cash flows for 2017 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.
The accompanying company financial statements give a true and fair view of the financial position of N.V. Nederlandse Spoorwegen as at 31 December 2017 and of its result for 2017 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
We have reviewed the sustainability information for the year 2017 of N.V. Nederlandse Spoorwegen based in Utrecht. The scope is described in section “Our scope”. A review engagement is aimed at obtaining limited assurance.
Based on our procedures performed, nothing has come to our attention that causes us to believe that the accompanying sustainability information does not present, in all material respects, a reliable and adequate view of:
Basis for our conclusions
We performed our assurance engagements in accordance with Dutch law, including the Dutch Standards on Auditing and the Dutch Standard 3810N, “Assurance engagements relating to sustainability reports”, which is a specified Dutch Standard that is based on the International Standard on Assurance Engagements (ISAE) 3000, “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”.
Our responsibilities under those standards are further described in the section “Our responsibilities” in this report.
We believe the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our conclusions.
We are independent of N.V. Nederlandse Spoorwegen in accordance with the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the “Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence)” and other relevant independence regulations in the Netherlands. This includes that we do not perform any activities that could result in a conflict of interest with our independent assurance engagements. Furthermore, we have complied with the “Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics)”.
Our engagements scope
The consolidated financial statements comprise:
The consolidated statement of financial position as at 31 December 2017.
The following statements for 2017: the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement.
The notes comprising a summary of the significant accounting policies and other explanatory information.
The company financial statements comprise:
The company statement of financial position as at 31 December 2017.
The company statement of income 2017.
The notes comprising a summary of the accounting policies applied for the financial statements and other information.
The sustainability information consists of the chapters In brief, 2017 in a nutshell, Foreword by the CEO, The profile of NS, Our strategy, all chapters presented in Activities in the Netherlands and Operations abroad, Our impact on the environment and on society, NS as an employer in the Netherlands, Dialogue with our stakeholders and Scope and reporting criteria in the annual report of the NS.
Limitations to the scope of our review engagement
Unexamined prospective information
The sustainability information includes prospective information, such as ambitions, strategy, plans, expectations, estimates and risk assessments. Inherently, the actual future results are uncertain. We do not provide any assurance on the assumptions and achievability of prospective information in the sustainability information.
Unreviewed references to external sources
The references to external sources or websites in the sustainability information are not part of the sustainability information as reviewed by us. We therefore do not provide assurance on this information.
The scope of our assurance procedures is influenced by the application of materiality. Our assurance engagements aim to provide assurance about whether the financial statements and the sustainability information are free from material misstatement. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements and the sustainability information. The materiality affects the nature, timing and extent of our assurance procedures and the evaluation of the effect of identified misstatements on our conclusions.
For the audit of the financial statements our considerations regarding the materiality are as follows:
€40 million (2016: €40 million)
0.8% of revenues
Given the nature of NS, its objectives, and the importance of its operating performance in the Netherlands and abroad, its revenue activity base is considered the most relevant basis for materiality.
We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
We agreed with the supervisory board that misstatements in excess of €2 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Based on our professional judgment we determined materiality levels for each part of the sustainability information and for the sustainability information as a whole. When evaluating our materiality levels, we have taken into account quantitative and qualitative considerations as well as the relevance of information for both stakeholders and the organization.
Based on professional judgement, we determined the materiality for specific quantitative information with a bandwidth between 2% and 10%.
Our scope for the group audit of the financial statements
N.V. Nederlandse Spoorwegen is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of N.V. Nederlandse Spoorwegen.
Our group audit mainly focused on the significant group entities NS Operaties, NS Commercie & Ontwikkeling, and Abellio. Based on the full scope and specific scope procedures, we have obtained audit assurance on 99% of assets and 92% of revenues. We have performed audit procedures ourselves at the Dutch group entities. We used the work of other auditors in our international network for the foreign group entities.
By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.
Our key audit & review matters
Key audit and review matters are those matters that, in our professional judgment, were of most significance in our assurance procedures for the financial statements and the sustainability information. We have communicated the key audit and review matters to the supervisory board. The key audit and review matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our assurance procedures for the financial statements and the sustainability information as a whole and to conclude thereon, and we do not provide a separate conclusion on these matters.
In the previous year, Sale and valuation of real estate and Impact Model Regarding Social Impact have been identified as key matters of our audit. In 2016, NS sold the real estate portfolio, which was held jointly with other investors in a real estate fund, as a result of which the property portfolio of NS has been reduced for a significant part. As a result, this issue is no longer recognized as key matter of our audit. Based on our audit outcomes 2016 and our risk analysis 2017, we no longer recognized the topic Impact Model Regarding Social Impact in 2017 as key matter of our audit.
For the audit of the financial statements we identified the following key audit matter:
Key audit matter
How our audit addressed the matter
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Revenue of €4.4 billion from passenger services is included in the account “Revenue”. These passenger revenues include revenues out of the sales of various ticket types entitling their holder to transport as well as, government contributions.
In order to determine these
revenues, management must make assumptions regarding to the allocation to periods, and other conditions as stated in the various concession agreements. The diversity in ticket types, combined with the high volume of transactions, require high standards of reliability and continuity of transaction processing systems in order to guarantee that individual transactions will result in correct and complete revenue recognition.
Our activities include the assessment of internal controls and the IT environment, performing data analysis procedures such as trend analyses and inspection of manual journal entries, performing partial observations on correct and complete transaction processing, and a review of management’s estimates with regard to revenue allocation of the governmental contributions.
We reviewed the reliability and continuity of the automated data processing only insofar as necessary within the scope of the audit of the financial statements. For this purpose, we included specialized IT auditors in
our audit team.
As a result of our procedures we concluded that NS has increased the quality of IT management during 2017 by following-up some of the findings reported by us in previous years. The findings that still require attention and related recommendations have again been brought to the attention.
With regard to reliability and continuity of the
IT environment we also refer to the paragraph Managing risks included in the NS annual report.
Revenue recognition (continued)
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To a considerable extent, NS depends on its IT infrastructure for the continuity of its business operations, for a large part this relates to the process regarding the revenue recognition.
In recent years, NS has invested in the improvement of the IT hardware, — systems and —processes, aimed at increasing the effectiveness of the IT infrastructure and the reliability and continuity of the automated data processing.
The disclosures relating to revenue recognition with
regard to passenger services are included in notes 1, 28 and
31 of the financial statements.
Our procedures included assessing the developments in the IT infrastructure and testing the internal control measures relevant to our audit, including within the revenue recognition process, with regard to IT systems and processes.
Tax position and fiscal risks
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The key issues in the tax position relate to the agreements that NS has concluded with the Irish and Dutch Tax Authorities regarding the transfer of the rolling stock from the Irish subsidiary NS Financial Services to the Dutch company NS Lease B.V. as well as the valuation of deferred tax assets.
The valuation of the deferred tax assets depends on the future tax results, which are inherently subject to estimation uncertainties.
We have included tax specialists to our team to, among other procedures, audit the areas of attention within the tax position.
We have audited the compliance with agreements between NS and the tax authorities in the context of the transfer of the rolling stock from NS Financial Services to N.S. Lease B.V. in 2017. We also verified the formal transfer of the rolling stock from Ireland to the Netherlands. We have tested the acceptability and adequacy of the recognized (deferred) tax receivables and tax liabilities.
We concur with the accounting treatment of the agreement concluded by NS with the Irish and Dutch tax authorities and the valuation of deferred tax assets.
Tax position and fiscal risks (continued)
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The disclosures relating to the tax position and tax risks are included in notes 9 and 10 of the financial statements.
Furthermore we assessed the assumptions underlying the estimates that form the basis for the estimation of the future tax results. We have also discussed this with NS in the light of local tax regulations.
Settlement of claims concerning irregularities in the Limburg tendering process
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In 2015, following the tender in Limburg and a complaint received from Veolia, the Netherlands Authority for Consumers and Markets (ACM) launched an investigation.
The ACM concluded that NS had violated the Railways Act (Spoorwegwet) in certain aspects in the preparation
of the tender in Limburg. ACM concluded that NS had
prejudiced Veolia in doing so. In 2017, the ACM imposed a fine of €40.95 million on NS for these violations. NS has recorded the fine and paid it in 2017. NS does not agree with this decision and filed an objection in the fourth quarter of 2017.
The Public Prosecution Service also stated that a number of NS Group companies were deemed to be suspects in this case. On 21 December 2017, the Court handed down a judgment. With regard to none of the alleged offenses, conviction was followed for NS, nor for the other suspects. The Public Prosecution Service has indicated that it will appeal.
We have verified the imposed fine, including the payment of €40.95 million on the basis of source documents.
We have determined, based on the conclusions of internal and independent external advisers, that the results of the objection filed by NS are uncertain.
Any claims on ACM as a result of the outcome of the objection submitted on this basis do not meet the “virtually certain” criteria that apply on the basis of the applicable accounting principles.
We concur with the accounting treatment of NS and refer to the disclosure of the aforementioned in note 31 of the financial statements.
Key audit matter
How our audit addressed the matter
Reliability and continuity of the automated data processing system
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To a considerable extent, NS depends on its IT infrastructure for the continuity of its business operations.
In recent years, NS has invested in the improvement of IT hardware, systems and processes focusing on increasing the IT infrastructure effectiveness and the reliability and continuity of automated data processing.
We reviewed the reliability and continuity of the automated data processing only insofar as necessary within the scope of the audit of the financial statements. For this purpose, we included specialized IT auditors in our audit team.
Our procedures consisted of the assessment of the developments in the IT infrastructure and testing of the internal control procedures relating to IT systems and processes.
We have highlighted the risks and recommendations we have identified and focus on improvements in this area.
We refer to the paragraph Managing risks included in the NS Annual Report.
As a result of our procedures we note that NS has increased the quality of IT management during 2017 by following-up some of the findings reported by us in previous years.
The findings that still require attention and related recommendations have again been brought to the attention in our management letter. In many areas we have been able to verify that these have been adequately followed up and resolved by NS.
We also note that NS has further improved information security in recent years.
For the review of the sustainability information, we identified the following key review matter:
Key review matter
How our review addressed the matter
Progress and reliability HRN performance indicators
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NS measures the progress in achieving its strategy through the performance indicators related to the main rail network. The progress of these performance indicators also forms an important part of the mid-term review in 2019 and the final evaluation in 2024 regarding the extension of the franchise.
As part of our procedures, we have obtained an understanding in the reporting process (including internal control measures). We furthermore reviewed the consistency with the public definitions in the “Vervoerplan 2017”(Transport Plan 2017) and reconciled these with what was reported by NS to the Ministry of Infrastructure and Water Management.
We deem the disclosures of the performance indicators related to the main rail network to be sufficient.
Key review matter
How our review addressed the matter
Progress and reliability HRN performance indicators (continued)
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Given the relevance, we have identified this set of performance indicators as a whole as a key
We have also taken note of the project that NS is carrying out to improve the reliability of the performance indicators.
We have reviewed the disclosures on the performance indicators as included in the section Activities in the Netherlands.
Other information included in the annual report
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of:
The Report by the NS Executive Board
The Report by the Supervisory Board
Other information pursuant to Part 9 of Book 2 of the Dutch Civil Code
Based on the following procedures performed, we conclude that the other information:
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements or in our review of the sustainability information.
Management is responsible for the preparation of the other information, including the NS Executive Board Report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
We were engaged by the shareholder as auditor of N.V. Nederlandse Spoorwegen on
3 September 2013, as of the audit for the year 2014 and have operated as statutory auditor ever since that date.
Responsibilities of management and the supervisory board
Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code.
Management is also responsible for the preparation of the sustainability information in accordance with the Sustainability Reporting Guidelines version G4 of the Global Reporting Initiative (GRI) and the applied supplemental reporting criteria as disclosed in chapter “Scope and reporting criteria” of the annual report, including the identification of the stakeholders and the determination of material issues. The choices made by management with respect to the scope of the sustainability information are included on chapter “Scope and reporting criteria” of the annual report.
Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements and the sustainability information that are free from material misstatement, whether due to fraud or errors.
As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
The supervisory board is responsible for overseeing the company’s (financial) reporting process.
Our responsibility is to plan and perform the assurance engagements in a manner that allows us to obtain sufficient and appropriate assurance evidence for our conclusions.
Our audit of the financial statements has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.
Our review of the sustainability information is aimed to obtain a limited level of assurance. The procedures performed to obtain a limited level of assurance are aimed to determine the plausibility of information and vary in nature and timing from, and are less in extent, than for a reasonable assurance engagement. The level of assurance obtained in review engagements is therefore substantially less than the assurance obtained in audit engagements.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of the financial statements and the sustainability information. The materiality affects the nature, timing and extent of our review procedures and the evaluation of the effect of identified misstatements on our conclusion.
We apply the Nadere voorschriften kwaliteitssystemen (Regulations for Quality management systems) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and other applicable legal and regulatory requirements.
Amsterdam, 28 February 2018
Ernst & Young Accountants LLP
signed by J. Verhagen
Annex to the combined independent auditor’s report
We have exercised professional judgment and have maintained professional skepticism throughout the assurance engagements performed by a multi-disciplinary team, in accordance with Dutch Standards on Auditing and the Dutch Standard 3810N, “Assurance engagements relating to sustainability reports”, ethical requirements and independence requirements.
Our audit to obtain reasonable assurance about the financial statements included the following:
Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control
Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control
Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management
Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report
However, future events or conditions may cause the company to cease to continue as a going concern
Evaluating the overall presentation, structure and content of the financial statements, including the disclosures
Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation
Our review to obtain limited assurance about the sustainability information included the following:
Performing an external environment analysis and obtaining insight into relevant social themes and issues and the characteristics of the organization
Evaluating the appropriateness of the reporting criteria used, their consistent application and related disclosures in the sustainability information, including the evaluation of the results of the stakeholders’ dialogue and the reasonableness of estimates made by management
Obtaining an understanding of the reporting processes for the sustainability information, including obtaining a general understanding of internal control relevant to our review engagement
Reconciling the relevant financial information with the financial statements
Identifying areas of the sustainability information where material misstatements, whether due to fraud or error, are likely to arise, and performing further procedures aimed at determining the plausibility of the sustainability information responsive to this risk analysis. These procedures consisted amongst others of:
Interviewing management and relevant staff at corporate level responsible for the sustainability strategy, policies and results
Interviewing relevant staff responsible for providing the information as disclosed in the sustainability information, carrying out internal control procedures on the data and consolidating the data in the sustainability information
Next to the review procedures performed in the Netherlands, visits were performed to Abellio Greater Anglia, Abellio London & Surrey and Abellio ScotRail in the United Kingdom aimed at, on local level, to validate source data and to evaluate the design of internal control and validation procedures
Reviewing relevant internal and external documentation, on a limited test basis, in order to determine the reliability of the sustainability information
Evaluating whether the estimates made in the impact analysis are reasonable, including the assumptions on which the estimates were based, which are included in the document Impact Analysis Methodology Annual Report 2017 on www.ns.nl/en/about-ns/sustainability/sustainability-at-ns
Evaluating the suitability and plausibility of the external sources used in the calculations on which the impact analysis is based, which are included in the document Impact Analysis Methodology Annual Report 2017 on www.ns.nl/en/about-ns/sustainability/sustainability-at-ns
Evaluating the definitions of the performance indicators for the main rail network in the Transport Plan 2017 as included in the Downloads section at ns.nl/jaarverslag
An analytical review of the data and trends submitted for consolidation at corporate level
Evaluating the presentation, structure and content of the sustainability information as a whole, including the disclosures, in relation to the reporting criteria used.
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.
We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the assurance procedures and significant findings, including any significant findings in internal control that we identify during our assurance engagements.
We provide the supervisory board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the supervisory board, we determine those matters that were of most significance in the audit of the financial statements and the review of the sustainability information of the current period and are therefore the key audit and review matters. We describe these matters in our combined auditor’s report and assurance report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.