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

Given the substantial impact of COVID-19 on passenger revenues, 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:

On balance, in the Netherlands the assessment led to reversals of impairments.

There were no (reversals of) impairments in 2021.

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 to all non-current assets on a straight-line basis. In 2022, due to the impairment an amount of € 150 million less was written off compared to the situation before this impairment.

As a result of the changed assumptions in terms of BVOV commitments and passenger forecast estimates, there is a trigger to reassess the impairment at year-end 2022. An impairment test based on the most likely scenario was performed at the end of 2022. At both year-end 2021 and year-end 2022, 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;

• in June 2020, the Ministry of Infrastructure and Water Management announced its intention to award the franchise directly to NS from 2025. This was confirmed by the House of Representatives in September 2020. In October 2022, the Ministry sent the Programme of Requirements to the House of Representatives. In November, the House of Representatives debated this, with the result that the scope of the main rail network franchise remains unchanged in principle. For the period after 2024, it is therefore assumed that the main rail network contract will be awarded under conditions that enable NS to earn the ‘cost of capital’.

• 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.

At year-end 2022, the following key assumptions were also used:

• estimates regarding the outcomes of adapting the organisation to the lower passenger income with related cost savings and reduction of investments;

• the Ministry of Infrastructure and Water Management has made a so-called public transport transition safety net (TVOV) available for the entire sector for 2023. NS is expected to be entitled to an amount of € 45 million.

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

• Increase in the cost of capital by one percentage point has a negative effect of approximately € 26 million in relation to the recognised impairment;

• lower passenger revenue of 10% in the coming years will lead to a negative effect of approximately € 442 million compared to the recognised impairment;

• for the period after 2024, it is assumed that the main rail network contract will be awarded under conditions that enable NS to earn the ‘cost of capital’. An increase/decrease in the cost of capital or higher/lower passenger revenues have no influence on the (reversal of the) impairment.

The Group notes in this connection that the underlying analyses include significant estimation uncertainties. These uncertainties have been increased by uncertainties regarding the final financial arrangements with regard to the new main rail network franchise. The realisation may differ and the impairment may have to be adjusted in the future with a positive or negative result effect.

The reassessment as at 31 December 2022 led to a reversal of the recognised impairment loss for an amount of € 385 million. This is mainly caused by advancing insights into the passenger forecast and additional contributions from the Dutch government. At year-end 2022, the carrying amount of the impairment is € 879 million (2021: € 1,413 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) and in Germany.