15. (Reversal of) impairments of non-current assets/onerous contracts

The Group has determined that there are indicators for (reversal of) impairment of assets of some of the Group’s cash-generating units (CGUs). First of all, the various CGUs were identified by the Group, after which the assets of these CGUs were assessed for possible impairment. It was then assessed whether, in addition to the possible impairment to be recognised, the formation of a provision for onerous contracts was necessary.

The recoverable amount of the CGU was then determined based on the higher of the value in use or the fair value less costs to sell. The value in use was determined by discounting the expected cash flows at the balance sheet date.

The discount rate is determined after tax on the basis of the interest rate of government bonds issued by the most creditworthy government in the relevant market and in the same currency as the cash flows, adjusted by a risk premium to reflect both the increased risk of investing in shares in general and the risk of the specific CGU.

For each country, the following discount rate after taxation was employed:

The review resulted in the following impairments broken down by the Netherlands and Germany:

Impairment losses in 2023 were recognised in the following categories (in 2022: reversals of impairment losses):

The Netherlands

The COVID-19 crisis forced the Group to perform an impairment analysis in 2020. This led to an impairment loss of €1,562 million at the end of 2020. This impairment is attributed proportionally to all non-current assets. A reassessment of the impairment was carried out as at 31 December 2022, resulting in reversal of the impairment in the amount of €385 million. At the end of 2022, it was assumed that the main rail network contract would be awarded for the period beyond 2024 under conditions that would enable NS to earn the ‘cost of capital’. The reversal of the impairment as at 31 December 2022 therefore applied to the years 2023 and 2024.

At the end of 2023, the Group entered into the franchise for the main rail network (HRN) in the Netherlands for the period 2025–2033. In addition, changed assumptions on passenger forecast estimates apply for 2024. These are triggers to reassess the impairment at the end of 2023, with an impairment test based on the most likely scenario. At year-end 2023, the impairment test was performed on the basis of the following assumptions:

• For the Netherlands, the main rail network (HRN) contract has been designated as one cash-generating unit.

• The current franchise runs until the end of 2024.

• At the end of 2023, the franchise for the period 2025–2033 was awarded to NS by the Ministry of Infrastructure and Water Management; the financial return over this period is expected to be lower than the 'cost of capital' according to market standards. Key elements in the concession with potential financial impact are:

• • NS receives an annual subsidy of €5.5 million to implement the Franchise. This amount is supplemented by a sum of €7.5 million per year the costs incurred by NS in managing the national travel information system.

  • The franchise includes agreements on risk sharing at the time when the number of passenger kilometres deviates from lower and upper limits. This reduces the risk (both upward and downward) for NS. The projected cash flows underlying the impairment test assume that these lower and upper limits will not be touched.

  • NS will be given room to incorporate the financial impact of sharply rising energy costs (exceeding the CPI development) in its fares.

  • NS will be given room to raise fares by an extra amount from 1 January 2025 and 1 January 2026, on top of the regular indexation that NS is allowed. Part of the reason for this is that, in 2021, 2022 and 2023, the costs of NS, like those of other transport companies, have increased sharply, but fares could only be increased by a limited amount in those years. Costs are also expected to rise in 2024. In line with the demand of the Lower House, fares will not be increased in 2024. NS will receive compensation amounting to €120 million for this.

• The fair value of the assets in question cannot be reliably determined, as the assets are strongly linked to the HRN contract, the trains are specifically produced for the Dutch railway network and no active market exists for these specific trains.

• Expected revenues from passenger transport over the remaining contract term. The development of passenger transport partly depends on macroeconomic factors such as economic growth, congestion and trends in travel behaviour.

• The income from passenger transport partly depends on the choices regarding the timetable, which are coordinated with the Ministry of Infrastructure and Water Management.

• Continuation of the current student public transport passes contract.

• The production assets can be transferred at book value to the successor franchisee at the end of the concession period when it is not NS. At the time when, at the end of the franchise period, all or part of the franchise is structured differently (e.g. through Open Access), NS and the Ministry of Infrastructure and Water Management will make process and other agreements on how to deal with the transition of the associated production assets.

The sensitivity of the cost of capital and recovery of passenger revenue is as follows:

• An increase in the cost of capital by half a percentage point has a negative effect of approximately €125 million in relation to the recognised impairment.

• Lower passenger kilometres up to the lower limit of risk sharing with the Ministry of Infrastructure and Water Management with unchanged cost levels in the coming years result in a negative impact of around €700 million compared to the recognised impairment. 

The Group notes in this connection that the underlying analyses include significant estimation uncertainties. The realisation may differ, and the impairment may have to be adjusted in the future with a positive or negative result effect.

In 2023, due to the impairment, an amount of €84 million less was written off (2022: €150 million) compared to the situation before this impairment.

The reassessment as at 31 December 2023 led to an additional impairment loss for an amount of €402 million. At year-end 2023, the carrying amount of the impairment was €1,197 million (2022: €879 million).

The recognised impairments have been proportionally deducted from the carrying amounts of the assets of the main rail network. The revised carrying amounts are depreciated over the remaining life of the assets.

No impairments have occurred in the other activities in the Netherlands (station development and operation).

Germany

At year-end 2022, the group created a provision for onerous contracts in the acquisition balance sheet in the amount of €10 million at the start of operations in Germany. Based on a renewed understanding, the provision was adjusted and recognised in the comparative figures as an impairment of the right-of-use assets.

In 2023, poor operational performance in Germany, largely caused by infrastructure outages and numerous track maintenance works, resulted in fines that are only partially compensated. Staff shortages and a high sickness absence rate also caused train cancellations and thus prevented the running of a full timetable. In addition, operating results for the years after 2023 are negatively affected by higher personnel and energy costs. This prompted the conduct of an impairment test.

The following assumptions were used:

• The legal entities WestfalenBahn GmbH and Abellio Rail Mitteldeutschland GmbH are each considered independent cash-generating units (CGUs).

• The cash flows are based on the current business plan taking into account the most recent insights regarding personnel costs (based on collective labour agreement negotiations) and energy costs.

• The fair value of the assets in question cannot be reliably determined given the assets' strong links to concession contracts.

• The WestfalenBahn franchise runs until 2030. The franchises in Mitteldeutschland run until 2024 (DISA) and 2030 (STS) respectively. 

The reassessment as at 31 December 2023 led to a reversal of the recognised impairment loss for an amount of €121 million. 

The sensitivity of the cost of capital and expected impairment results is as follows:

• An increase in the cost of capital by half a percentage point has a negative effect of approximately €3 million in relation to the recognised impairment.

• A decrease in expected cash flows from operating activities by 5% has a negative impact of around €3 million compared to the recognised impairment.

The Group notes in this connection that the underlying analyses include significant estimation uncertainties. The realisation may differ, and the impairment may have to be adjusted in the future with a positive or negative result effect.