NS can look back on a successful 2019. Our operational performance is up to standard, so we can look forward to the future with considerable confidence. 2020 looks set to become an important year, as we are awaiting the results of a number of marketing studies of significance for NS in the near future.
The NS 'On Track for Improvement' strategy (2016-2019) focused on improving the company's operational performance. One important component of the strategy was our performance on the main rail network. The Supervisory Board monitors that performance, and at every meeting we discuss the progress made in light of the midterm review, in the spring of 2020, when the government will assess NS's performance half-way into the franchise period for the main rail network. The Supervisory Board monitors our progress on the KPIs. In 2019, NS's performance was above the minimum required value on nearly all franchise KPIs and even above the agreed target value for most KPI's.
The company also did well on the other elements of its strategy. For example, NS is offering more and more door-to-door journey services, including public transport bicycles, rental cars, zone taxis and bicycle parking facilities, supported by agreements made in consultation with local providers of bus, tram and metro services. As such, the company is increasingly successful in realising this part of its strategy. NS also achieved good results on the World-Class Stations element of the strategy. One example is the modernisation project launched for some 200 smaller stations.
The operations and performance of Abellio are a regular item on the agenda for discussions with the Executive Board. External factors have caused the returns on franchises in Germany and Scotland to come under pressure. As a result, in March 2022 the ScotRail franchise will not be renewed. Abellio was only prepared to renew the contract if cost-effectiveness improved.
The Supervisory Board also monitors developments concerning the Williams Review by the UK Department for Transport into the current and future structure of the British rail industry and passenger transport.
The future of NS and tightened strategy
In 2019, NS continued efforts to tighten its strategy for the 2020-2025 period, including a look ahead towards 2030. The Executive Board was closely involved in this exercise, for example through a temporary committee and regular consultation with groups of NS staff lead by Executive Board member Tjalling Smit. In addition, the Supervisory Board co-initiated the organisation of a series of seminars with scientists and other experts on the future of the railways. Several Supervisory Board members also attended these events, which have resulted in ‘De toekomst op de rails’ ('On Track for the Future'), a dossier published by economists' trade journal ESB.
NS has now tightened its strategy in preparation for the future. The major challenge is to accommodate the growth in passenger volumes in the face of a shortage of infrastructural capacity. This combination will result in stagnation in the mobility system. For example, platforms at the stations may well prove too short for the longer trains to be deployed. To continue transporting as many passengers as possible, NS will continue examining possible improvements to the timetable and the more effective deployment of staff. In addition, NS is purchasing more than three billion euros' worth of new trains. NS has also identified opportunities to improve mobility through innovation, for example by jointly promoting AI technology with Ahold Delhaize, ING, KLM and Philips.
Several market organisation studies currently being undertaken potentially also concern the activities of NS, including studies into the high-speed railway line, regional railway lines and the position of the stations. The political debate on this is scheduled for the spring of 2020. The Supervisory Board is also devoting ample attention to this, and is being updated by the Executive Board on a continuous basis about developments in these areas. Given NS's current performance level, the Supervisory Board has every reason to feel confident about the upcoming midterm review. The Supervisory Board is keen to identify any changes in the KPIs for the second half of the franchise. NS has posted fine results during a period characterised by a sharp rise in passenger numbers, but given the projected further growth in passenger volumes it is not realistic to expect that all target values will continue to rise.
Individual Compensation for Victims of WWII Transport
NS has taken over the recommendation issued by the Committee on Individual Compensation for Victims of WWII Transport by NS. The Supervisory Board was meticulously informed by the Executive Board of developments during the decision-making process, and supports the decision wholeheartedly.
Safety is a regular item on the Supervisory Board's agenda, and is the theme of visits by the Supervisory Board of NS business units or drills every year. For example, in 2019 the Board attended a safety walk at the Watergraafsmeer maintenance company in Amsterdam. The Supervisory Board itself also did a terrorism emergency drill and performed a deep dive on railway safety.
Over the past few years, NS has further professionalised its approach to risk management. Together with the Supervisory Board, the Risk department conducts a 'black swan' exercise every two years. In 2019, the focus of that exercise was on NS's tightened strategy. The outcomes of the black swan exercise and the mitigating measures proposed will be taken into account in further decision-making.
Functioning of the Supervisory Board
Every three years, the Supervisory Board engages an external agency to evaluate its own performance. The next evaluation is to be held in 2020. The Board also conducted its own internal evaluation last year, and found that its members collaborate effectively with one another and bring complementary knowledge and skills to the Board. The relationship between the Supervisory Board and the Executive Board is good. The Supervisory Board is involved in complex and far-reaching decisions in a timely and effective manner that also, and explicitly, covers the associated dilemmas.
The functioning of the Executive Board and collaboration with the Supervisory Board
The Executive Board functioned satisfactorily and performs its tasks well. The Supervisory Board has confidence in the Executive Board and professional relations between the two boards are good. Both the Supervisory Board and the Executive Board keep to their roles in the performance of their tasks. While the Supervisory Board is careful not to do the Executive Board’s job, it does challenge the Executive Board’s members and monitor and supervise decision-making.
Changes in the Executive and Supervisory Boards
Susi Zijderveld left NS with effect from 1 May 2019. The Supervisory Board would like to thank Ms Zijderveld for her huge commitment to further professionalising risk management within NS and for promoting a change of culture that has demonstrably helped to improve openness and accountability. Furthermore, the socio-economic role of our stations has grown under her leadership. As a result of Ms Zijderveld's departure, the Executive Board did not have its full complement of five members throughout the year. On 15 October 2019, Ms Zijderveld was succeeded by Anneke de Vries, who is responsible for Stations and Risk. Ms De Vries has a wealth of experience in the fields of real estate, retail and primary risk management.
In 2019, Paul Rosenmöller left the NS Supervisory Board after the end of his third term of office. NS owes him a considerable debt of gratitude. Mr Rosenmüller was appointed to the Supervisory Board of NS under enhanced powers of recommendation on 1 June 2007. He was always keen to take the interests of his NS colleagues explicitly into account. His constructive yet critical perspective and huge affinity with public transport have proved of immense value to NS over the past 12 years.
In early 2020, Jeroen Kremers stepped back after the end of his second term of office. We greatly appreciated his extremely valuable contributions; NS owes him a considerable debt of gratitude. He was especially keen on identifying the company's long-term interests right from the start of his first term, in 2012. From his supervisory role, he exerted considerable influence on the moves to further strengthen the risk and compliance function. In so doing, he contributed to the solid basis on which NS rests today.
As of 1 June, the shareholder appointed Nebahat Albayrak (b. 1968) member of the Supervisory Board of NS. Her appointment covers a period of four years and may be subsequently be extended. Ms Albayrak was nominated to the shareholder by the Supervisory Board under enhanced powers of recommendation of the Central Works Council. Her knowledge and experience encompass both the private and the public sectors. In addition, she has a demonstrable affinity with sustainable mobility and has extensive management experience.
The shareholder also appointed Herman Dijkhuizen member of the Supervisory Board of NS, effective 1 January 2020. His appointment covers a period of four years and may be subsequently be extended. Mr Dijkhuizen fills the vacancy that had arisen when Mr Kremers left the board. He is a financial expert and has considerable management experience both in the financial market and in the public and private sectors.
Meetings of the Supervisory Board and its committees
The Supervisory Board met eleven times in 2019, of which three meetings specifically concerned the NS strategy. With the exception of three members who were absent on one occasion, all Supervisory Board members attended all the meetings. The average attendance of these meetings was 96%. Two away-days were organised with just the Supervisory Board members. The Supervisory Board has two permanent committees: the Risk and Audit Committee, and the combined Remunerations and Appointments Committee. With three members being absent at one meeting, attendance of the meetings of these committees was 96% and 100%, respectively.
Risk and Audit Committee
The Risk and Audit Committee includes all Supervisory Board members. In 2019, this committee was chaired by Jeroen Kremers, the Supervisory Board’s financial expert. He was succeeded in that role by Herman Dijkhuizen on 26 January 2020.
The committee met four times. The Chair and CEO, the Members of the Executive Board for Finance & Abellio and Stations & Risk, the Audit Director and the external auditor were also invited to these meetings. Depending on the agenda, other individuals such as the directors of Legal, Group Control & Expertise and Risk were also invited. The main topics were the financial statements, the annual report, the six-monthly figures, the budget, the group plan for 2020-2024, the results of Abellio, risk management (including the outcomes of the stress tests) and risk appetite (see also the section in this report on Safety), audit plans and reports, reporting and management letters from the external auditor, progress in IT projects and risk control, the company's tax position and Chromium 6. In addition, the Risk and Audit Committee discussed the quarterly statements issued by the Integrity & Compliance department.
Major items in the auditor's management letter include the progress and enhanced reliability of the performance indicators for the main rail network, the risk-sharing mechanism for franchises, and cybersecurity control measures. The auditor also points to the management and risk profile of the Abellio franchises and potential risks associated with Brexit, findings from the IT environment with a special focus on improvements and points for attention in the area of user rights, the change management process and the monitoring of functional segregation conflicts and accounts with extensive rights.
Remunerations and Appointments Committee (combined)
Since the departure of Paul Rosenmüller, the combined Remunerations and Appointments Committee has been chaired by Janet Stuijt; its members are Gerard van de Aast, Nebahat Albayrak, Pim van der Feltz and Marike van Lier Lels (since January 2020). The committee met three times in 2019. The topics discussed included filling the profiles for successors to members of the Executive Board, talent development, a new and more extensive process for evaluating the Executive Board, the remuneration policy and the functioning of the Executive Board, including both its performance as a team and the performance of its individual members.
All members of the Supervisory Board are independent as defined in the Dutch Corporate Governance Code. The Supervisory Board broadly subscribes to the best practice stipulations 2.1.7 through to 2.1.9 in the 2016 Code.
The Supervisory Board maintained a good relationship with the shareholder in 2019, with regular contacts in a professional setting.
The Supervisory Board maintained regular contacts with the Central Works Council. This applies in particular to the two Supervisory Board members whose appointment was effected under enhanced powers of recommendation, and to the chair. The relationship is good.
Relationship with the external auditor
As standard, the external auditor attends all meetings of the Risk and Audit Committee. The external auditor also attends the meetings of the entire Supervisory Board when the financial statements and six-monthly figures are discussed. In addition, the Risk and Audit Committee consults with the external auditor without the Executive Board being present. The functioning of the external auditor is evaluated meticulously.
NS achieved a net profit attributable to the shareholder of €208 million this year, compared with a profit of €106 million in 2018. The underlying profit (disregarding one-off items) rose from €205 million in 2018 to €275 million in 2019. A proposal has been made to pay a dividend of €73 million, which equals 35% of the result for 2019. The Supervisory Board critically assessed the results and discussed them with the external auditor. NS has an ambitious investment programme of nearly €4 billion in the Netherlands over the coming years. These are long-term investments, largely in new rolling stock, that NS will finance partly with loan capital. These investments will further improve quality for passengers.
About this report
The financial statements for 2019, as prepared by the Executive Board, were discussed by the Supervisory Board. The external auditor (EY) was present during the discussion. The financial statements are accompanied by the Executive Board’s report. We invite the General Meeting to adopt the 2019 financial statements. We also invite our shareholder to discharge the Executive Board and the Supervisory Board from their liabilities. The profit appropriation proposed by the Supervisory Board can be found in explanatory note 24 to the financial statements.
Thanks to the efforts and the contributions made by all NS staff in the Netherlands and abroad, in 2019 NS was able to concentrate once again on delivering the best possible performance for its passengers. NS ended the year on a positive note by achieving all the franchise KPI targets.
The Supervisory Board would like to thank all employees for their excellent performance in 2019, which was reflected in very high customer satisfaction scores and will serve as the basis for the company's success going forward.
Needless to add, we hope we can also count on their undiminished commitment for our passengers in 2020.
Utrecht, 26 February 2020
The Supervisory Board