A number of investigations are under way against NS and/or group companies and various claims have been submitted which are being contested by the company. Where deemed necessary, provisions have been made for this. A number of important subjects are explained below.

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).

On 22 May 2017, the ACM 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 penalty of €40.95 million on NS. Based on a norm framework that the ACM itself devised, the ACM 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 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. On 29 March 2018, the ACM dismissed NS’s objections. NS has lodged a (pro forma) appeal against the ruling on the objection. The penalty was paid in 2017 and 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 as at 31 December 2018.

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 of 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, out-of-court settlement etc.). As a result, no provision has been included for this.

Individual allowance for the Second World War

NS was commissioned by the occupying forces to drive trains during the Second World War. Various discussions with Mr Salo Muller, a Holocaust survivor, have shown that Mr Muller, but also others, want NS not only to commemorate the victims of the transports and their immediate relatives collectively, but also to acknowledge their suffering individually and to meet the demand for individual compensation. NS believes that no one benefits from long legal procedures. NS has expressed its willingness to grant individual financial compensation on moral grounds. to those most directly affected by its actions. It was therefore jointly decided not to institute legal proceedings on liability and to set up a committee to implement the compensation scheme. In January 2019, under the chairmanship of Mr Job Cohen, the Committee started its work with the task of providing individual compensation on moral grounds to a group of survivors and direct surviving relatives to be determined.

The financial effects of the individual allowances cannot be reliably determined when drawing up the annual accounts. This is related to major uncertainties regarding the size of the population and the amount that will be paid out to each individual. As a result, no provision has been recognised.

Chrome 6

On Thursday 31 January 2019, the RIVM presented the results of the Chromium-6 study of the reintegration project tROM in Tilburg. In the tROM project in Tilburg, between 2004 and 2011, benefit recipients worked on, among other things, NS trains and museum trains in the former NedTrain Tilburg workshop. The RIVM carried out research in which NS cooperated. An independent committee drew conclusions on the basis of the research results and formulated ad hoc recommendations. The committee drew firm conclusions, including about the role of NS in the Tilburger project. According to the committee, the municipality of Tilburg, NS and the Railway Museum have all dropped their stitches. At the beginning of February 2019, the parties announced that they would come to an arrangement jointly and each on the basis of their own responsibility. The aim is to provide clarity to those involved as quickly as possible.

NS provided for its share of the expected costs as at 31 December 2018.

The Police is also currently conducting criminal investigations on behalf of the Public Prosecution Service, in which NedTrain has been identified as one of the suspects. The results of this investigation are currently uncertain.

Long-term contracts

There were a number of long-term financial commitments to third parties at year-end 2018. 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.

The breakdown of the lease commitments by country is as follows:

In 2018, a sum of €517 million was accounted 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.

Energy contracts

As at the end of 2018, 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 2019-2024 (the remainder of the 10-year contract) came to €218 million (as opposed to €227 million at the end of 2017). The volume expected to be required for 2019 and 2020 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 2018, NS had received €65 million (2017: €11 million) in collateral in the form of margin money.

For more detailed information about the energy contracts, see note 26.

Tax group

For the purpose of income tax, all the Dutch subsidiaries belonging to the Group are part of the NS tax group. As a result, the Group is jointly and severally liable for all tax liabilities of the subsidiaries included in the tax group.

Investment commitments

At the end of 2018, the Group had outstanding investment commitments of €1,377 million (2017: €1,437 million), primarily for purchasing and upgrading trains and investments in the areas around the stations.

Contingent receivable

On 17 March 2014, the Group and the supplier reached a settlement of their dispute over the V250 trains. Part of the agreement is that NS is entitled to compensation in the event of a possible sale of the trains. These possible additional future payments due as a result of the sale of trains by the supplier have not yet been accounted for in view of the uncertainty.

Contingent liabilities

The Group has paid €27 million (after conversion) of its share in the issued share capital of EUROFIMA AG (a sum of €107 million after conversion). The Group has a liability for full payment on demand of the shares and other guarantee commitments totalling €268 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.

Guarantees

The Group has issued guarantees totalling €830 million (31 December 2017: €784 million) relating to the operation of the various franchises.

Franchises

The Group has the following franchises.

Explanation

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.

Netherlands

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).

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 €152 million in 2018. 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 2016. Any entitlement to an adjustment was first calculated in 2017 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 2017; 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 2018 and previous years.

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 2018, NS operated the the franchise Gouda – Alphen aan den Rijn until 11 December 2031

The franchise was awarded by the relevant province. A fee is received from the franchise authority for the operation of the franchise.

United Kingdom

Merseyrail franchise

Merseyrail has been operated by Abellio for a period of 25 years since 2003 as part of a 50:50 joint venture with Serco. It provides passenger services in the Liverpool region and is let by the local transport authority, Merseytravel. Merseyrail is now over half way through the contract period, and there is an option for a five-year extension. Merseytravel is part-way through procuring an entire new fleet from Stadler; the first train set is due to arrive in 2020.

Greater Anglia franchise (East Anglia)

Abellio took over the new franchise for Greater Anglia on 16th October 2016, having won the bid to continue operations following the end of the previous contract. Abellio had run the old Greater Anglia franchise since 2012. Abellio divested of a 40% share of the franchise to Mitsui in January 2017. The new franchise will run until 12th October 2025, with an option for a further extension of one year. Greater Anglia operates trains on rural, intercity and suburban services in the East Anglia region of the UK and is undertaking a complete fleet refresh with the first of the trains arriving in 2019.

ScotRail franchise

Abellio has been operating ScotRail under an Alliance agreement with the infrastructure provider – Network Rail – since 1st April 2015 for a period of at least seven years. The contract is for ten years with a break clause at year seven, exerciseable at year five. There is also an option for a further extension of two years through to 31st March 2027. The contract is let by Transport Scotland and provide intercity, regional and rural services throughout Scotland.

West Midland franchise

Abellio operates the West Midlands franchise for a period of eight years and three months as part of a 70:15:15 joint venture with Mitsui and JR East. The franchise began operating on 10th December 2017 and will continue until 31st March 2026. The franchise provides intercity, urban and regional services in the West Midlands area, extending to London and Crewe and Liverpool as part of the London Northwestern Railway. The franchise will bring in over 400 new train vehicles by 2021 and a suite of associated infrastructure and improvement works to improve customer experience across the entire franchise.

Franchises in London

Abellio London operates bus services from five permanent depots in South and West London, and is currently in the process of building a new site in place of a temporary depot at Southall, West London. Abellio operates approximately 8% of the London bus market which is franchised to the local public sector transport provider, Transport for London. The contracts each run for a period of five years with an optional two year extension, subject to meeting various performance criteria.

Abellio Germany

Abellio operates various train services in the regions North Rhine-Westphalia and Mitteldeutschland against a predetermined compensation from the government (subsidy), which is indexed annually. The concessions have a term ending between 2019 and 2030.

Abellio is one of the leading private railway transport companies in Germany. Abellio is head-quartered in Berlin and operate rail networks in the federal states of North Rhine-Westphalia, Saxony, Lower Saxony, Saxony-Anhalt, Hessen and Thuringia. Abellio Rail NRW GmbH in Hagen, Abellio Rail Mitteldeutschland GmbH in Halle as well as WestfalenBahn GmbH in Bielefeld are responsible for ongoing operations. In June 2019 Abellio Rail Baden-Württemberg GmbH will start operations.

Abellio Rail NRW operates regional rail transport services across several rail lines throughout North Rhine-Westphalia, including in the Emscher-Ruhrtal network with Bochum, Wanne-Eickel and Gelsenkirchen as well as in the Ruhr-Sieg network between Essen, Hagen, Iserlohn and Siegen. Abellio is also operating the "Der Müngstener" route steeped in tradition since December 2013, running over Germany’s highest rail-way bridge through the towns of Wuppertal, Remscheid and Solingen. Since April 2017 Abellio is responsible for the cross-border route between Düsseldorf and the Dutch city of Arnhem by operating the Lower Rhine network. At the end of 2018 Abellio Rail NRW started the important "Rhine-Ruhr-Express" mobility project and in 2019 Abellio will take over the largest batch of the Rhine-Ruhr S-Bahn.

Abellio Rail Mitteldeutschland GmbH has been ensuring mobility for those travelling between Kassel, Halle (Saale), Leipzig, Eisenach, Gotha, Erfurt, Weimar and Saalfeld on the Saale-Thuringia-Südharz electric network since 2015. Abellio started commence passenger operations on the Saxony-Anhalt diesel network in December of this year. Passengers are now be able to travel in between the major cities of Erfurt, Magdeburg, Potsdam and Berlin.

Abellio Rail Baden-Württemberg GmbH will operate along the Neckartal as part of the Stuttgart network from 2019. Passengers in Baden-Württemberg will be able to benefit from the quality standards of Abellio in the future. Abellio work hard to implement the quality leadership on the rails between Tübingen, Heidelberg and Mannheim already seen in other German states.

In 2017 Abellio Deutschland became the sole shareholder of WestfalenBahn. The WestfalenBahn links the cities of Emden, Münster, Bielefeld, Hannover and Braunschweig along the Emsland-Mittelland network.