26. Financial instruments – Risk management

The Group is exposed to the following risks arising from the use of financial instruments:

• Market risks consisting of:

• • Interest rate risk

  • Currency risk

  • Energy price risk

• Credit risk

• Liquidity risk

• Insurance-related risks

Risk management framework

The Executive Board has final responsibility for setting up and supervising the Group's risk management framework. The Risk and Audit Committee and the Supervisory Board monitor the adequacy of the risk management framework in relation to the risks faced by the Group. The Group's Risk and Audit Committee is assisted in its supervisory role by NS Audit, NS Risk, and the Group Control & Expertise department. NS Audit provides additional assurance regarding the proper management of all NS business processes by conducting regular and incidental evaluations. The findings of NS Audit are reported to the Risk and Audit Committee.

The Group's risk policy aims to identify and analyse the risks facing the Group, determine appropriate risk limits and controls, and monitor compliance with the limits. Financial risk management policies and systems are regularly evaluated and, where necessary, adjusted to changes in market conditions and the Group's activities. Financial risk management is part of the NS risk framework.

Additional policies have been established for NS Insurance to ensure adequate risk management. Given the nature of its activities, NS Insurance has specific risk management procedures in place compared to other business units, for which Corporate Treasury is responsible for financial risk management.

Market risks

Market risk is the risk that the Group's income and expenditure or the value of its investments in financial instruments will be adversely affected by changes in market prices, such as commodity prices, exchange rates, and interest rates. The aim of market risk management is to keep the market risk position within acceptable limits while achieving an optimal return. Market risk comprises three types of risk: interest rate risk, currency risk, and price risk.

Interest rate risk

The Group's policy is to ensure that at least 50% of the interest rate risk on loans taken out is based on a fixed interest rate. When determining the interest rate risk on loans taken out, the Group may take into account available liquidity that can neutralise the interest rate risk of variable-rate loans. The Group uses derivatives, such as interest rate swaps, to limit interest rate risk. Interest rate risks are largely managed centrally.

Exposure to interest rate risk

The interest rate profile of interest-bearing financial instruments is as follows:

A 100 basis point increase/decrease in interest rates would result in a lower/higher interest expense of €7 million.

Currency risk

The Group is exposed to currency risk on purchases, trading activities, cash and cash equivalents, loans taken out, other balance sheet items and off-balance sheet liabilities denominated in currencies other than the euro. Due to its business activities, the Group mainly has currency positions in British pounds (GBP).

The risk of exchange rate fluctuations on repayments, interest, and dividend flows within the group is hedged using forward exchange contracts, spot and/or forward purchases and sales, and swaps, thereby hedging one or more of the risks to which the primary financial instruments are subject. Purchases and sales, investment and financing obligations, as well as settlements with foreign railway companies, are mainly conducted in the functional currency (euro) of the Group's operating units.

At the end of 2025 and 2024, no material items will be held in currencies other than the functional currency of the relevant operating unit.

Foreign currency sensitivity analysis

Since no material items in financial instruments are held in foreign currencies at the end of 2025 and 2024, other than those mentioned above, a change in the euro against a foreign currency at year-end has no material effect on equity and profit for the reporting period.

Energy price risk

The Group is sensitive to the effect of market fluctuations in energy prices. In 2023, the Group entered into three-year contracts (2025-2027) with EPC (formerly PZEM) and Shell. The contract with EPC concerns the purchase of the Programme Responsibility, the supply of traction electricity, and the option to hedge traction electricity prices. The contract with Shell provides for the supply of Guarantees of Origin certificates. The contracts cover the following risks (in part) as follows:

• Price risk: the fees for Programme Responsibility and Guarantees of Origin are fixed for the entire contract period. The contract offers the possibility to purchase the required traction electricity for future contract years on the basis of a hedge strategy, thereby limiting the degree of exposure to the market price.

• Credit risk: the credit risk is limited because the risk position is determined on a daily basis and this position is then settled between NS Group and EPC. The settlement takes place by placing cash collateral with the party that bears the risk. The risk position, known as exposure, takes into account, among other things, the difference between market values and the contract value of the traction electricity hedged on the basis of the hedge strategy.

• Volume risk: the volume risk is limited because the expected volume for each new quarter is specified in the preceding quarter. In addition to the above, a (collective) bandwidth applies within the quarter in question with regard to the volume, within which higher or lower consumption has no effect on the price per unit.

The contracts comply with the own use exception under IFRS and are not classified as derivatives.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risks arise mainly from receivables from customers and from investments. There were no significant concentrations of credit risk at the balance sheet date.

The carrying amount of the financial assets represents the maximum credit risk. For the credit risk relating to Eurofima, see note 32. The maximum credit risk at the reporting date was as follows:

Investments

The Group limits its credit risk on investments by investing exclusively with counterparties that comply with the policy established by the group. Contractual parties are periodically assessed to determine whether they (still) comply with the policy and whether further action is required.

Given the creditworthiness of counterparties, the Group expects that the counterparties will meet their obligations. No impairment losses were incurred on investments, bonds, and deposits in 2025 and 2024. Investments, with the exception of investments in money market funds, are in principle entered into with counterparties that have a credit rating of at least a long-term credit rating of A- from Standard & Poor's and at least a long-term credit rating of A3 from Moody's. If a counterparty has only one credit rating, it must meet the rating requirements of Standard & Poor's or Moody's described above. If a counterparty has no rating from Moody's or Standard & Poor's, the credit rating of Fitch is taken into account. Investments that no longer comply with this policy will either be tolerated as an exception and monitored frequently, or phased out (primarily through regular turnover), which may take some time after the balance sheet date. No rating requirements apply to investments in money market funds; the fund is selected on the basis of its investment policy and NS monitors developments in the money market fund periodically.

Accounts receivable and other receivables

The credit risk arising from the Group's trade and other receivables is mainly determined by the individual characteristics of the separate customers. The demographic aspects of the customer base, including the risk of default in the sector and the country in which the customers operate, have less influence on the credit risk. Approximately 13% (2024: 14%) of the Group's revenues are generated from sales transactions with the Education Executive Agency (DUO). As part of the credit policy applied by the business units, new customers with a consumer travel account subscription are assessed separately for creditworthiness before standard payment and delivery terms are offered. In the event of contract renewal, the company's own experience figures are used to assess creditworthiness. The majority of customers have been doing business with the company for several years, with only incidental cases of (immaterial) losses.

Liquidity risk

Liquidity risk is the risk that the Group will encounter problems in meeting its obligations. The principles of liquidity risk management are that, as far as possible, sufficient liquidity is maintained to meet current and future short-term financial obligations, in normal and difficult circumstances, without incurring unacceptable risks or jeopardising the Group's reputation. The Group has sufficient liquid assets or assets that can be quickly converted into cash.

In addition, the Group has access to a credit facility (available until December 20, 2029) of €325 million. Furthermore, the Group expects to be able to make use of alternative financing options if the situation so requires.

For the assumptions regarding the availability of liquidity, please refer to the section 'Significant (result) developments' and the continuity assumptions used.

The Group manages its liquidity on the basis of a periodically (bottom-up) constructed liquidity forecast. Based on this forecast, financing limits are granted to the business units that are customers of Corporate Treasury's In-House Bank. The bank monitors these limits and it is not possible to exceed them unless approval has been obtained. This provides Corporate Treasury with an early warning system. The liquidity forecast and the financing limits mentioned above enable Corporate Treasury to manage cash and cash equivalents (investing and withdrawing funds).

The remaining contractual terms of the financial obligations, including estimated interest payments, are shown below. The amounts are gross and not discounted.

When calculating future cash flows, it has been assumed that future variable interest rates will be equal to the last known variable interest rate.

With regard to capital risks, the Group has a dividend policy that has been agreed with the shareholder.

Insurance risks

In the context of its business activities, the Group runs risks that can be insured. Risks above the business units' own risk are managed through the subsidiary NS Insurance. This concerns the risk of collision, fire, business interruption, and liability damage. The maximum extent of this damage is calculated once every three years, or more frequently if changed circumstances so require, by external experts. Subsidiary NS Insurance insures the aforementioned risks of the business units. It does not insure third parties. If the total annual claims exceed NS Insurance's own retention, they are covered by reinsurance. The Group's claims are compensated from NS Insurance's premium income and investment income. If the total costs, including claims, exceed the income, these costs are paid from NS Insurance's sufficient free reserve.

NS Insurance is reinsured by means of stop-loss reinsurance contracts. MPL (Maximum Possible Loss) studies are conducted periodically to determine insured limits. If market conditions allow, NS Insurance only takes out reinsurance with parties with a rating of at least A-. If the rating falls below A-, it has the option of terminating the reinsurance agreement. This has not happened to date. NS Insurance's reinsurers will have a minimum rating of A- at the end of 2025.

NS Insurance is an insurance company supervised by De Nederlandsche Bank and the Netherlands Authority for the Financial Markets. Insurers must maintain equity capital of at least the Solvency II solvency requirement (SCR or Solvency Capital Requirement). Insurers are also required to determine their own standard solvency. NS Insurance has determined its standard solvency in such a way that the SCR will still be met in the event of a stress scenario. The standard solvency is €41 million. NS Insurance more than meets this requirement. NS Insurance is 100% consolidated in the Group.