Section 1 General information and significant accounting policies

General information

NV Nederlandse Spoorwegen has its registered office on Laan van Puntenburg in Utrecht, the Netherlands (Chamber of Commerce number 30012558). The company’s consolidated financial statements for the 2019 financial year include the company and its subsidiaries (hereinafter referred to as the ‘Group’) and the Group’s share in associates and companies that it controls jointly with third parties. NV Nederlandse Spoorwegen is the holding company of NS Groep NV, which in turn is the holding company of the operating companies that carry out the Group’s various business operations. The figures for the consolidated financial statements of NS Groep NV are the same as the consolidated figures for NV Nederlandse Spoorwegen. The operating companies of NS Groep NV are listed in note 33. The Group's activities consist mainly of passenger transport, the management and development of property and the operation of station locations.

The Executive Board prepared the financial statements on 26 February 2020. In its preliminary report to the General Meeting of Shareholders, the Supervisory Board advised that the financial statements should be adopted unaltered. On 26 February 2020, the Executive Board and Supervisory Board approved the publication of the financial statements. Adoption of the financial statements is on the agenda of the General Meeting of Shareholders on 10 March 2020.

Acquisition and disposal of companies

The following sales transaction of equity interests took place in 2019.

DISA

On 2 October 2018, the Group resolved to dispose of the company DISA Assets Ltd (subsidiary of NSFSH). From that date, the assets and liabilities were reclassified as held for sale and the assets were no longer depreciated. On 10 April 2019, the Group disposed of its 100% interest in the company DISA Assets Ltd. The accounting for the transaction was based primarily on its substance (sale and leaseback) rather than its legal form. As a result, a large portion of the book profit is recognised over the term of the lease.

The portion of the gain on sale (difference between the sales proceeds of €17 million and the net asset value) of this transaction that does not relate to the value of the right-of-use assets acquired was recognised in 2019. This portion amounted to €2 million.

Significant accounting policies

Below is a description of the accounting policies for consolidation, the measurement of assets and liabilities and the determination of the result of the Group. These policies are in accordance with IFRS, insofar as they are accepted by the EU and are applied consistently to all information that is presented. Furthermore, insofar as applicable, the financial statements comply with the legal regulations as included in Part 9 of Book 2 of the Dutch Civil Code. The Group applies the historical cost price system as measurement basis, unless stated otherwise.

As of 1 January 2019, the Group has adopted the following new standards and amendments to standards, including all consequent changes deriving from them in other standards.

IFRS 16 Leases

IFRS 16 introduces an unambiguous ‘on-balance’ reporting model for lessees. For the Group, as a lessee, this results in capitalisation of the right-of-use assets, representing the right to use the underlying assets, and lease liabilities, representing the obligation to make future lease payments.

The Group has applied IFRS 16 from 1 January 2019, using the modified retrospective approach. Therefore, the cumulative effect of the adoption of IFRS 16 has been recognised as a restatement in the opening balance on 1 January 2019, without restatement of comparative information. The Group has elected not to use the practical expedient to apply the standard only to contracts previously identified as lease arrangements on the date of initial application of IAS 17 and IFRIC 4. Instead, it has carried out a comprehensive new assessment of all lease contracts.

The Group has elected to use the exemptions for the recognition of lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term lease arrangements') and lease contracts for which the underlying asset is of low value.

The effect of applying IFRS 16 as at 1 January 2019 is as follows:

The effect on equity of €35 million reflects the recognition of lease contracts in Germany and the United Kingdom, as a result of which the difference between the right-of-use assets and the lease liability, net of the deferred tax liability, has been accounted for in equity. In the Netherlands, the value of the right-of-use assets as at 1 January 2019 has been equated with the value of the lease liability as at 1 January 2019.

The impact on the income statement for 2019 is as follows:

Nature of the effect of applying IFRS 16

The Group has lease contracts for rolling stock, real estate and other operating assets. Prior to the application of IFRS 16, the Group classified each of its lease arrangements (as lessee) as a finance lease or operating lease on the commencement date. A lease arrangement was classified as a finance lease if it substantially transferred all the risks and rewards incidental to ownership of the leased asset to the Group. Otherwise, the lease was classified as an operating lease. Finance leases were capitalised at the fair value of the leased asset or, if lower, the present value of the minimum lease payments, upon commencement of the lease arrangement. Lease payments were apportioned between interest (recognised as financing costs) and reduction of the lease liability. For operating leases, the leased property was not capitalised and the lease payments were recognised on a straight-line basis as rental expenditure in the income statement during the lease term. Any prepaid rent and accrued rent were recognised in Prepayments and Trade and other payables, respectively.

In applying IFRS 16, the Group applied a single method of recognition and measurement for all lease arrangements, except short-term lease arrangements and lease arrangements for low-value assets. The standard provides for specific transitional requirements and practical benefits, which have been applied by the Group. The cash flow statement has been modified for IFRS 16 by including a line item 'repayment of lease liability' under net cash flow from financing activities.

Lease arrangements previously classified as finance leases

The Group has not changed the initial carrying amount of the recognised assets and liabilities on the date of initial application for lease arrangements previously classified as finance leases (i.e. the right-of-use assets and liabilities are equal to the assets and liabilities that were recognised under IAS 17). The requirements of IFRS 16 were applied to these lease arrangements as from 1 January 2019.

Lease arrangements previously classified as operating leases

The Group has recognised right-of-use assets and lease liabilities for the lease arrangements that were previously classified as operating leases. Short-term lease arrangements, lease arrangements for low-value assets and arrangements that were not determined to be within the scope of the definition of a lease in the comprehensive assessment were exempted from this.

For the lease contracts in Germany and the United Kingdom, the right-of-use assets were recognised based on the carrying amount as if the standard had always been applied, apart from the use of the incremental borrowing rate of interest on the date of initial application. For the leases in the Netherlands, the right-of-use assets were recognised based on the amount that is equal to the lease liabilities, adjusted for any prepaid and current lease payments recognised previously. Lease liabilities have been recognised based on the present value of the remaining lease payments, discounted by applying the incremental borrowing rate of interest on the date of initial application.

The lease liabilities as at 1 January 2019 can be reconciled with the operating lease liabilities as at 31 December 2018 as follows:

Incremental borrowing rate of interest

To calculate the present value of the lease liabilities, the Group uses the incremental borrowing rate of interest at the commencement date of the lease arrangement. After the commencement date, the amount of the lease liabilities is increased to reflect the increase in the interest rate and reduced by the lease payments made. In addition, the carrying amount of the lease liabilities is revaluated in the event of a change in the lease term, in the specified fixed lease payments or in the assessment of the purchase of the underlying asset.

The interest rate is determined on the basis of the incremental borrowing rate of interest derived from the internal rating model by country with a deduction for asset-specific elements. The interest rate applied depends on the term of the contract and varies as follows:

Other

The following new or amended standards have not had a significant impact on the Group's consolidated financial statements:

• Uncertainty over income tax treatments (IFRIC interpretation 23);

• Amendments to IFRS 9: Prepayment Features with Negative Compensation ;

• Plan Amendment, Curtailment or Settlement (Amendments to IAS 19);

• Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28);

• Annual Improvements to IFRS Standards 2015–2017 Cycle.

New standards and amendments to standards that are mandatory from 2020 or later

The Group has not voluntarily opted for the early adoption of any new standards or amendments to existing standards or interpretations that are only mandatory with effect from the financial statements for 2020 or later.

The following new or amended standards have no significant impact on the consolidated financial statements of the Group:

• Amendments to References to the Conceptual Framework in IFRS Standards (effective 1 January 2020);

• Amendments to IFRS 3 Business Combinations (effective 1 January 2020);

• Amendments to IAS 1 and IAS 8: Definition of Material (effective 1 January 2020);

• Interest Rate Benchmark Reform (amendments to IFRS 9, IAS 39 and IFRS 7 (effective 1 January 2020).

Estimates and assessments

The preparation of the financial statements requires the Executive Board to make judgements and estimates that affect the application of accounting policies and the reported value of assets and liabilities, and income and expenses. The estimates and corresponding assumptions are based on experiences from the past and various other factors that could be considered reasonable under the circumstances. The actual outcomes may differ from these estimates. The estimates and underlying assumptions are reviewed on a regular basis. Revisions of estimates are recognised in the period in which the estimate is revised or in future periods if the revision relates to those periods.

The key estimates and assessments concern: mainly estimates of infrastructure levy and franchise fees (note 7) and also leases (note 31), receivables (note 17), provisions/off-balance sheet arrangements (note 30 and note 32) and measurement of deferred tax assets (note 10). The estimates concerning leases mainly relate to reasonable certainty of any extension and termination options.

The accounting policies described below have been applied consistently for the periods presented in these consolidated financial statements, except for IFRS 16, which has only been applied for 2019.

Accounting policies for consolidation

Subsidiaries

The Group has control over an entity if its involvement with that entity means that the Group is exposed to or is entitled to variable returns and that it has the power to influence those returns by virtue of its say in that entity. The financial statements of the subsidiaries are incorporated in the consolidated financial statements as from the date on which control commences until the date on which control ceases.

In the event of a loss of control over the subsidiary, the subsidiary's assets and liabilities, any minority interests and other equity components associated with the subsidiary are no longer recognised in the balance sheet. Any surplus or shortfall is recognised in the income statement. If the Group retains an interest in the former subsidiary, that interest is recognised at the fair value on the date on which the Group ceased to exercise control.

Acquisition of subsidiaries

Business combinations are recognised according to the acquisition method as at the date on which control is transferred to the Group. The remuneration for the acquisition is assessed at its fair value, as are the net identifiable assets that are acquired. Any goodwill deriving from this is assessed annually for impairments. Any gain from a beneficial sale is recognised directly in the income statement. Transaction costs are recognised at the time when they are incurred.

Elimination of transactions on consolidation

Intra-group balances and transactions plus any unrealised gains and losses on transactions within the Group or revenues and expenses from such transactions are eliminated. Unrealised gains arising from transactions with investments accounted for using the equity method are eliminated in proportion to the Group's interest in the investment. Unrealised losses are eliminated in the same way as unrealised gains, but only insofar as impairment is not indicated.

Currency translation

Foreign currency transactions

Transactions denominated in foreign currency are translated to the functional currency of the Group entity concerned at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities that are denominated in foreign currencies are translated to the functional currency at the exchange rate prevailing on the balance sheet date. Non-monetary assets and liabilities denominated in foreign currency that are measured at fair value are translated to the functional currency using the exchange rates that prevailed at the dates when the fair values were determined. Non-monetary assets and liabilities denominated in foreign currency that are measured at historical cost are not retranslated.

The exchange rate differences arising on translation of the following items are recognised in other comprehensive income:

• financial liabilities that are designated as a hedge of the net investment in a foreign operation;

• qualifying cash flow hedges, insofar as the hedge is effective.

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into euros at the exchange rates prevailing on the reporting date. The revenues and costs of foreign operations are converted into euros at an average exchange rate that approximates the exchange rate on the transaction date.

Currency translation differences are included in the other comprehensive income and accounted for in the translation reserve. If the Group ceases to have control, significant influence or joint control due to the disposal of a foreign operation, the cumulative amount in the translation reserve will be reclassified to profit or loss when the profit or loss from the disposal is recognised. If the Group only sells part of its interest in a subsidiary, while retaining control, a proportionate share of the cumulative amount will be reassigned to the minority interest. If the Group only sells part of its interest in an associate or joint venture, while retaining significant influence or joint control, a proportionate share of the cumulative amount will be re-allocated to the income statement.

Determination of fair value

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values for measurement and/or disclosure purposes were determined using the following methods.

Investment property

In view of the nature, diversity and locations (station areas), the fair value of the investment property portfolio is not determined on a regular basis unless impairment is indicated. The fair value is expected to exceed the carrying amount of the investment property. Investment property is measured at cost, less accumulated depreciation and accumulated impairment losses.

Investments in non-current financial assets

The fair value of investments in debt instruments is determined using the price on the reporting date. The fair value of the equity investment (Eurofima) has been determined on the basis of the latest available financial statements.

Derivatives

The fair value of derivatives is based on the derived market prices, taking account of the current interest rates and estimated creditworthiness of the counterparties to the contract.

Non-derivative financial liabilities

The fair value of non-derivative financial liabilities is determined for disclosure purposes and is calculated based on the present value of future repayments and interest payments, discounted at the market interest rate as at the reporting date. For finance leases, the market interest rate is determined by reference to similar lease arrangements.

Segment information

The Group is under no obligation to comply with the requirements of IFRS 8 because it is not listed on a stock exchange. Segment information with a breakdown of revenue and FTEs by geographical area has been included in order to comply with the requirements of Dutch legislation and regulations.

Accounting policies for the consolidated cash flow statement

The cash flow statement is drawn up using the indirect method, using a comparison between the initial and final balances for the financial year in question. The result is then adjusted for changes that did not generate revenue or expenses during the financial year.