14. (Reversal of) impairment 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 value in use or 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.

The following post-tax discount rate was used per country:

On balance, the assessment led to reversals of impairments.

Germany is included in the consolidation until 30 June 2021. Up to 30 June 2021, there were no changes in the recognised impairments. Consequently, there are no (reversals of) impairments in 2021.

In the Netherlands, too, there are no (reversals of) impairments in 2021.

In the United Kingdom, an impairment loss of €21 million was recognised in 2021 (€3 million in property, plant and equipment, €13 million in rights-of-use for non-current assets and €5 million in receivables). This amount is netted in the table above with the recognised reversals of impairments. On balance, there is a reversal of €80 million in 2021.

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 2021, due to the impairment an amount of €149 million less was written off compared to the situation before this impairment, leading to a net effect of €1,413 million.

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 2021. An impairment test based on the most likely scenario was performed at the end of 2021. At both year-end 2020 and year-end 2021, 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 HRN contract runs until the end of 2024;

• 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.

At year-end 2021, the following key assumptions were also used:

• expected passenger transport revenue over the remaining contract period; whereby in 2024 a recovery to 90% of the 2019 pre-COVID-19 level is assumed. The development of passenger transport depends, among other things, on macro-economic factors such as economic growth, congestion and developments 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;

• an availability payment until 31 August 2022, which largely mitigates major risks with regard to passenger transport revenue for the first eight months of 2022. For the first eight months of 2022, an availability payment of €613 million is forecast. For the subsequent period (1 September 2022 to 31 December 2024), it is assumed, given current forecasts, that support in the form of an availability payment will be available. This position is also supported by the letter to the House of Representatives from the Ministry of Infrastructure and Water Management on 16 December 2021. An amount of €416 million has been included for the period from 1 September 2022 to 31 December 2024;

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

• 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. The duration and conditions of the franchise are not yet known and the programme of requirements and the (draft) franchise will follow in 2022. 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’.

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

• increase/decrease in the cost of capital by one percentage point has a positive/negative effect of approximately €100 million in relation to the recognised impairment;

• lower passenger revenues in the years are fully compensated by a higher BVOV; 

• increase/decrease of BVOV by one percentage point over the period 1 September 2022 to 31 December 2024 has a positive/negative effect on the impairment of approximately €10 million. 

The Group notes that the underlying analyses contain significant estimation uncertainties, with these uncertainties magnified by uncertainties about how and when the Dutch economy will recover from COVID-19, the continued impact on passenger behaviour and how public transport companies will be supported in the future. 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 2021 did not lead to an adjustment of the recognised impairment. At year-end 2021, an amount of €1,413 million was recognised as an impairment.

The impairments recognised in 2020 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 occurred in the other activities in the Netherlands (Station Development and Operation).

Abellio United Kingdom

The COVID-19 pandemic in March 2020 resulted in an enormous decrease in passenger revenue. The existing rail franchise contracts in the United Kingdom, with the exception of Merseyrail, have been replaced by short-term emergency agreements (EMA) with effect from 1 March 2020.

With respect to the three Abellio Dft Franchises, the EMAs were replaced by Emergency Recovery Measures Agreements (ERMAs) on 20 September 2020. Depending on the operator, these contracts vary in length from six to 18 months. As with the EMAs, the costs are borne by the Dft with a management fee, albeit smaller. For East Midlands Railway (EMR), the ERMA contract expires in mid-October 2022, while for West Midlands and Greater Anglia this expires in September 2021. These ERMAs were converted into so-called NRCs (privately awarded contracts), subject to the payment of a termination sum.

An impairment test was performed at the end of 2020. For the impairment test of non-current assets, the carrying amount was assessed against either the value in use of the assets or the fair value less costs to sell, whichever was higher. Management’s estimate of the fair value of the assets exceeds the value in use and thus was the basis for the impairment determination.

As a result of agreements under the NRCs, the assets were transferred to the Dft at carrying amount without impairment at the end of the original franchise (West Midlands and Greater Anglia). As a consequence, impairment losses of €101 million were reversed.

For ScotRail it has been agreed with Transport Scotland to extend the EMA until February 2022 and for the period 1 March to 31 March 2022 additional arrangements will be made in the form of a ‘Temporary Measures Agreement’. These additional agreements were not yet known as at 31 December 2021 and were therefore not included in the reassessment of the impairment under IFRS. This is mainly the reason for recognising an impairment of €21 million.