23. Other financial assets, including investments
|
(in millions of euros) |
31 December 2023 |
31 December 2022 |
Valuation principle |
|
Other financial assets included in non-current assets |
|||
|
Interest in Eurofima |
90 |
90 |
Fair value recognised in comprehensive income – equity investment |
|
Interest in bonds |
- |
27 |
Fair value recognised in comprehensive income – investment in debt instruments |
|
Interest rate derivatives |
- |
38 |
Derivatives – Fair value |
|
Interest in Transport UK Group Ltd |
5 |
- |
Fair value through profit or loss |
|
Long-term receivables Transport UK Group Ltd |
6 |
- |
Fair value through profit or loss |
|
Long-term loans Transport UK Group Ltd |
7 |
- |
Amortised cost |
|
Other non-current financial assets |
49 |
42 |
Amortised cost |
|
Total |
157 |
197 |
|
|
Other financial assets included in current assets |
|||
|
Interest in money market funds |
614 |
745 |
Fair value through profit or loss |
|
Interest in Transport UK Group Ltd |
49 |
- |
Fair value through profit or loss |
|
Short-term receivables Transport UK Group Ltd |
3 |
- |
Fair value through profit or loss |
|
Short-term loans Transport UK Group Ltd |
49 |
- |
Amortised cost |
|
Total |
715 |
745 |
The interest in Eurofima is measured at fair value. The net asset value based on the most recently available financial statements of this interest has been used as the best approximation of the fair value.
The carrying amounts of the financial assets and liabilities recognised in the balance sheet do not differ materially from the fair values.
The interest rate derivatives at year-end 2022 are forward starting swaps to hedge the interest rate risk on future financing (see note 26). Derivatives are measured at fair value, which is based on valuation techniques in which all significant data required are derived from observable market data (Level 2).
The amount of the interest in money market funds must be seen in conjunction with the size of the cash balance. The choice of the money market fund instrument, which is highly liquid and can therefore be withdrawn on a daily basis, to hold surplus funds is related to a desired diversification of funds as well as the expectations of when funds must be deployed.
Due to the sale of Abellio UK, the Group has recognised non-current financial assets in the amount of €119 million as at 31 December 2023. These consist of:
Interest in Transport UK Group Ltd (special share; €54 million, of which €49 million is current). The special share entitles the holder to future cash flows from the settlement of former franchises and claims by local management that cannot be recognised as repayment on the loans. This is either because the existing loan has already been repaid or because the entity has no outstanding loan to NS Groep in its books. The special share is a non-marketable equity instrument carried at fair value through profit or loss. The fair value was determined with reference to the projected future cash flows (Level 3). In 2023, a revaluation took place in the amount of €45 million, which was recognised in the result from discontinued operations, and an amount of €5 million was received.
Receivable earn-out Transport UK Group Ltd (€9 million, of which €3 million is current). Under an earn-out scheme over the period 2022–2025, NS is entitled to a share of the joint profits achieved on the Merseyrail franchise and London Bus business up to a maximum of £10 million. The receivable is carried at fair value, calculated on the basis of the projected future cash flows (Level 3). During 2023, a revaluation took place in the amount of €3 million, which was recognised in the result from discontinued operations, and an amount of €2 million was received.
Loans to Transport UK Group Ltd (€56 million, of which €49 million current), measured at amortised cost using the effective interest method, including:
Loans provided by the Group to the operating companies of Abellio UK in the past. With the sale of Abellio UK, these loans were transferred to Transport UK Group Ltd. The part of the loans that is expected to be non-recoverable based on the projected cash flows has been written down. The loans are repaid out of future cash flows from the settlement of former franchises and claims by local management. The loans have a period to maturity ranging from 2024 to 2028, at 4% interest. These loans are expected to be repaid early in 2024.
Loan to Abellio Transport Holding Group with a period to maturity until 1 July 2024, at 4% interest. This is a former shareholder loan that is expected to be repaid in full.
Loan provided to the buyer to finance the takeover (‘vendor loan note’). The loan has an initial period to maturity of four years. The interest rate gradually increases from 6% in the first year to 12% in the fourth year. This loan is associated with a cash receivable from Merseyrail that becomes due and payable at the end of the Merseyrail franchise at the latest.
The interest in Transport UK Group Ltd and the Transport UK Group Ltd receivables have been measured at fair value, in which valuation techniques were used using unobservable market sources (Level 3). The movement of the interest in Transport UK Group Ltd and Transport UK Group Ltd receivables during 2023 is as follows:
|
(in millions of euros) |
Interest in Transport UK Group Ltd |
Receivables Transport UK Group Ltd |
|
Balance as at 1 January 2023 |
- |
- |
|
Initial valuation as at 28 February 2023 |
14 |
8 |
|
Revaluation after 28 February 2023 |
45 |
3 |
|
Redemption |
-5 |
-2 |
|
Balance as at 31 December 2023 |
54 |
9 |
|
Presented under: |
||
|
Non-current |
5 |
6 |
|
Current |
49 |
3 |
In the settlement of claims and procedures, the management of Transport UK Group Ltd is entitled to a management fee. This fee equals a percentage of the amount claimed and is recognised as a repayment of the vendor loan note. The vendor loan note will be repaid, irrespective of the amount of the management fee. For that reason, the management fee amounts cannot be included in the valuation of the loan and have been stated separately as a provision. The level of the provision has been calculated on the basis of the present value of the projected management fee amounts, at €6 million as at 31 December 2023. It is included as part of other provisions in note 30.
Accounting policy
On initial recognition, loans, receivables and deposits are accounted for by the Group from the date on which they first arose. All other financial assets are initially recognised on the transaction date. The Group derecognises a financial asset in the balance sheet once the contractual rights to the cash flows from the asset have expired. If the Group transfers the contractual rights to the cash flows from the financial asset by means of a transaction in which virtually all risks and rewards of ownership of the asset are transferred or not retained, and control of the asset transferred is not retained either, the Group no longer includes the financial asset in the balance sheet. If the Group retains or creates an interest in the financial assets being transferred, that interest is recognised as a separate asset or liability.
The Group derecognises a financial liability if the contractual obligations have been discharged or cancelled or have expired.
Financial assets and liabilities are offset, and the resulting net amount is recognised in the statement of financial position only if the Group has a legally enforceable right to set off the amounts and if it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Group uses the following financial instruments:
Non-derivative financial instruments
Non-derivative financial instruments include investments in equity securities, deposits and bonds, trade and other receivables, cash and cash equivalents. Non-derivative financial instruments are initially recognised at fair value. After initial recognition, non-derivative financial instruments are measured as described below.
Financial assets at fair value through profit or loss
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in the income statement.
Financial assets at amortised cost
These assets are subsequently measured at amortised cost using the effective interest method. Amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in the income statement. Any gain or loss arising on derecognition is recognised in the income statement.
Fair value through other comprehensive income – investment in debt instruments
These assets are subsequently measured at fair value. Interest income is calculated using the effective interest method; foreign exchange gains and losses and impairments are recognised in the income statement. Other net gains and losses are recognised in other comprehensive income. On derecognition, the gains and losses accumulated in other comprehensive income are reclassified to the income statement.
Fair value through other comprehensive income – equity investment (interest in Eurofima)
These assets are subsequently measured at fair value. Dividends are recognised as income in the income statement, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in other comprehensive income and are never reclassified to the income statement.
Impairment of financial assets
At each reporting date, financial assets are assessed to determine whether they might be impaired on the basis of expected credit losses.
The Group recognises a provision for expected credit losses for all debt instruments that are not held at fair value through profit or loss. The expected credit losses are based on the difference between the contractual cash flows and all cash flows expected to be received by the Group, discounted at an approximation of the original effective interest rate.
Financial assets that are significant are individually tested for impairment. Other financial assets are assigned to groups with similar credit risk characteristics and are assessed collectively.
Fair value
The interest in Transport UK Group Ltd and the Transport UK Group Ltd receivables have been measured at fair value, in which valuation techniques were used using unobservable market sources (Level 3). The valuation is based on the expected cash flows from the settlement of the franchises and related claims discounted at the interest rate equal to that of the loans to Transport UK Group Ltd.
For bonds, the fair value is calculated using the available current market prices/closing prices (Level 1). In principle, the interest in Eurofima is measured at fair value. The net asset value of this interest was used as the best approximation of fair value.
When determining the value of interest swaps, currency derivatives and money market funds, the Group uses measurement methods in which all significant data required are derived from observable market data (Level 2).
The Group’s credit risks, currency risks and interest rate risks associated with the other investments are explained in more detail in note 26.