Abellio’s strategy helps NS to achieve its objectives and has three pillars: earn, learn and prepare, whilst effectively balancing risk and reward.
In the early 2000s, NS decided to enter the deregulated railway market to prepare for the liberalisation of European markets, in line with legislation such as the EU’s Fourth Railway Package. Since then, Abellio has built up a strong position in the United Kingdom and Germany. At the same time, other European rail companies such as DB and SNCF are active in the Dutch public transport market. With its clear focus on the key rail markets in Northwest Europe, NS is developing a strong position in the European market through Abellio.
NS is learning from Abellio’s experience operating in highly competitive and commercial environments. At the same time, Abellio incorporates best practices from the Netherlands in its bids and when running its operations. This means that both NS and Abellio learn from the experience of bidding for tenders and franchises, as well as through operating franchises.
Abellio’s strategic priority is to achieve positive, sustainable financial results through effectively managing risks and keeping investments at an acceptable level. The ultimate objective is to create a diversified portfolio of long-term sources of income, and to maintain solid levels of profitability.
All of Abellio’s franchises in the United Kingdom and Germany are expected to be profitable over their contract periods. This is a result of our targeted approach to achieving growth, and effective balancing of risk and reward. In the UK, passenger railway contracts are tendered as net contracts, meaning that passenger revenue risk is taken by the operator and any subsidy received is calculated on costs net of revenue. In Germany, most passenger railway contracts are tendered as gross contracts, meaning that passenger revenue risk is retained by the tendering Transport Authority and any subsidy received is based on the gross costs of the contract.
In 2017 Abellio worked within the capital at risk framework which was agreed in 2016 with the Dutch Ministry of Finance and NS. This stipulates how much capital at risk can be invested in the UK and Germany. Foreign franchises and concessions, like Dutch activities, involve (financial) risks. The state as shareholder has agreed with NS rules to limit the risks in foreign activities. The core of the agreement is that an upper limit has been set for the capital at risk that NS, as the mother of Abellio, may allocate for its foreign activities of Abellio. This consists of € 500 million for invested capital and regular guarantees. An additional limit of € 500 million applies to the bids in the United Kingdom for specific parent company guarantees that the concession provider requires in the UK. With this framework NS and Abellio can develop foreign activities whilst balancing acceptable risks and results.