2016 was the year in which NS picked up the threads again. Performance improved and the new strategy and new top structure mean that the company will be able to focus on its core activities even better and on the mid-term review in 2019.

For NS, 2016 was all about stabilisation and a renewed focus on the core business: carrying passengers, in clean trains that run on time and from attractive stations. Dossiers such as crowding on the trains and IC direct required a great deal of attention. NS tackled a lot of problems over the last year, including peak-time capacity. NS has started work with a new executive board, new trains, committed employees and a new strategy, going all-in to get a good journey experience for its customers.

New strategy

In March 2016, NS presented its new strategy. NS has chosen three core tasks: improving performance on the main rail network (including the HSL), creating world-class stations and making a contribution to the door-to-door journey. The Board was closely involved in setting up the new strategy, for instance through the temporary strategy committee. The Board believes that the new strategy will enable NS to focus on the mid-term review that the Ministry of Infrastructure and the Environment will be holding in 2019. This will let NS continue to build a company with solid foundations, a vast amount of knowledge and the dedication of its employees. From December 2016 onwards, NS will in addition see large numbers of new trains coming in over the period to 2024, which will be a huge gain for its passengers as well as presenting a challenge.
As part of the new strategy, NS will dispose of some or all of the station retail outlets. To get world-class stations, NS believes it is not sensible to operate the retail outlets itself. The intended sale of Qbuzz and the sale of the HTM shareholding are also a consequence of the new focus. For an attractive, low-threshold door-to-door journey, NS wants to cooperate as well as possible with other carriers.
As part of the international strategy, NS is expanding the foreign activities of its subsidiary Abellio that are focused on the deregulated European markets in Germany and the United Kingdom.
Before the new cabinet is formed in March 2017, an investigatory committee set up for the purpose by the Dutch government will produce its conclusions about market regulation on the railways. NS will be contributing information, data and knowledge to this study. The Board awaits the committee’s recommendations with interest.

Structure at the top

NS adapted its management structure in 2016 in line with the new strategy. The Executive Board has been expanded from two members to five. A two-person Executive Board is vulnerable in terms of organised counter-arguments and continuity in staffing and is therefore (according to the board) not a suitable solution for NS, given the complex societal, political and legal arena in which it operates. The Executive Committee (ExCo) with no formal decision-making authorisation was dissolved at the same time. The Supervisory Board believes that an Executive Board with five members and direct operational responsibility is a better management model for NS. Setting up the Operations vertical control unit, in which NS Reizigers and NedTrain jointly control the day-to-day operations (everything from cleaning to train deployment), means we can concentrate even better on the passengers.

Governance, Risk & Compliance

Integrity and compliance were two topics that were regularly on the Board’s agenda during 2016. Measures, including some at the behest of the Board, were taken as a result of inter alia the irregularities around the tender in Limburg and the parliamentary inquiry into Fyra. The research and consultancy firm Alvarez & Marsal was commissioned by the board and the Minister of Finance to carry out a thorough analysis of the effectiveness of the internal procedures, risk management, compliance and checks at NS and all the subsidiaries. The final report was published in January 2016. NS has taken additional measures based on the Alvarez & Marsal report to refine internal procedures and checks and it has drawn up an action plan. The company has not only focused here on the things that went wrong, but also on measures that have a preventive effect. An internal culture programme is a major element of this. In addition, the new approach to governance, risk & compliance also presents commercial and economic opportunities e.g. for assessing the working method in terms of effectiveness and efficiency and to get better insights into investment and procurement policy. The appointment of a Risk Management director in the Executive Board from 1 February 2016 means that governance, risk & compliance are embedded in the organisation at the highest level.
In addition, NS had to deal with the legal aftermath of the public transport tender in Limburg. The Netherlands Authority for Consumers and Markets (ACM) concluded in 2015 after a complaint by Veolia that NS had violated the Railways Act in the tendering process in Limburg. The ACM rejected some elements of Veolia’s complaint. Veolia submitted an appeal against this and on 14 July 2016, the Trade and Industry Appeals Tribunal ruled against Veolia. No further appeal is possible against that ruling. In the summer of 2016, the ACM concluded its examination of the facts concerning violation by NS of the Competitive Trading Act and NS explained its point of view. ACM will now assess whether any violation of the Competition Act did take place and if so, whether a sanction will be imposed by means of a legal decision. The Public Prosecution Service started an investigation in 2015 into possible criminal acts in connection with the tendering process for public transport in Limburg. A pre-trial review was held on 13 December 2016. The examination of the substantive details has yet to take place.

Supervision in 2016

Safety

Safety is a topic that is regularly on the Board’s agenda. The Board looks at both personal safety and safety on the tracks. A good way of remaining well informed was the participation of a number of members of the Board in an exercise looking at the risk of a terrorist attack at a station.

Operational performance

In terms of operational performance such as punctuality for passengers and customer satisfaction, there was a cautious upward trend for NS in 2016. Performance of IC direct still needs to improve and this was regularly on the Board’s agenda. In order to understand the issues with this train service better, the Supervisory Board travelled in the cab during one working visit. Working visits help understand the company operations better, intensify the relationship with the Executive Board and ensure that the Supervisory Board can do its work better,
Over the last year, NS has paid a great deal of attention to tackling crowding in the trains. The organisation has kept its eyes open and its ears to the ground as it worked on improvements. The influx of new trains from December 2016 to 2024 will let NS offer its passengers more seating capacity and comfort (electricity sockets, better Wi-Fi). The trains will also be increasingly sustainable and the electric trains will be running entirely on green power from 2017. Highlights over the previous year were the opening of a number of renovated stations, such as Den Haag Centraal, Breda and Utrecht Centraal.

Abellio

NS wants to continue gaining experience on the European railway market so that it can prepare for future developments on the railways. The Board sees a challenge in applying knowledge and experience from abroad so that passengers in the Netherlands can benefit. Particular attention has been paid to the problems at the start of the ScotRail franchise. The Board will be supervising bids for new franchises and looking at any risks such as sureties. A key condition is that Abellio’s risks must be manageable and the franchise must provide added value for the NS Group. Like our shareholder, the Board wants NS to limit the risks being run with the capital it has invested in Abellio. In that context, the Supervisory Board also regularly holds discussions with the Executive Board so that the risks can be managed. In the Greater Anglia franchise that was recently won, Abellio elected to use a joint venture with Mitsui (60/40); the reasons included spreading the risks, making the financing more efficient and because of their knowledge and expertise.

Investments

The Board monitors large investments closely. The Board also debated various investment proposals in 2016, such as the New Generation Intercity.

Financial results

NS achieved a net profit of €212 million this year, compared to a profit of €118 million in 2015. The underlying result (disregarding one-off items) fell however from €234 million in 2015 to €136 million in 2016. A proposal has been made to pay a dividend of €78.7 million, which is 37% of the result for 2016. The board has made a critical assessment of the results and discussed them with the external auditor.
NS has an ambitious investment programme of nearly €3 billion over the coming years. These are long-term investments, largely in new rolling stock, that NS will finance over the course of time, partly with loan capital. As a result, NS will improve quality for the passengers.

Corporate governance

After numerous discussions in 2015, the cycle of consultative meetings was back to normal again in 2016. The cooperation with the Executive Board was both pleasant and constructive.

Functioning of the Supervisory Board

About once every three years, the Board has its functioning assessed by an independent expert. This was also done in 2016. The evaluation showed that the Board functions properly. The new members appointed in 2016 went through an intensive familiarisation programme covering all aspects of the company. This let them learn about the business quickly and thoroughly.

Shareholder

There were numerous contacts with the shareholder in 2015. The frequency of these consultations was normalised again in 2016. The Board describes its relationship with the shareholder as professional, business-like and constructive. The Board’s discussions also covered the composition of the Executive Board and the Supervisory Board.

Employee participation

The Board has a good relationship with the Works Council (OR) and meets with them on a regular basis. An omission in the decision-making about setting up the supervision of Abellio led to the Enterprise Division of the Court of Appeal being asked to give a ruling. This did not disrupt the relationship with the Works Council.

Changes in the Executive Board and Supervisory Board

Executive Board

Roger van Boxtel was appointed in December 2016 as the Chairman and CEO until August 2019. He had been in this role ad interim since August 2015 in order to guide NS into calmer waters and restore confidence in the organisation. The Supervisory Board is pleased that Roger van Boxtel will continue to use his experience and unifying skills for the benefit of NS. Susi Zijderveld started work on 1 February 2016 as the Risk Management director. Marjan Rintel joined the Executive Board in July 2016 as the Operations director and Bert Groenewegen joined in September 2016 as the Finance director. Bert Schouws filled the role of finance director ad interim from April to September 2016. The former finance director Engelhardt Robbe left NS in April 2016 at his own request. Our note of thanks for his contributions to NS was included in the 2015 Annual Report. Tjalling Smit will be joining the Executive Board as of 1 April 2017 as the director of Commerce & Development.

Supervisory Board

Two new members joined the Board in 2016: Marike van Lier Lels as of 3 February and Janet Stuijt as of 15 August. Truze Lodder said farewell on 2 June after twelve years as a member, most recently also as chair of the Board. We would like to thank her for her exceptional commitment and efforts for NS. Ilonka Jankovich also left the Supervisory Board. We are grateful to her too. Gerard van de Aast was appointed chair of the Board as of 2 June. The Board currently consists of five members. The intention is that the Board will finally comprise six members again.

Meetings of the Supervisory Board and its committees

Supervisory Board

The Board met 17 times in 2016, of which 9 meetings were by phone. With only occasional exceptions, all members of the Supervisory Board were present at all the meetings. The Supervisory Board has the following permanent committees: the Risk and Audit Committee, and the combined Remunerations and Appointments Committee.

Risk and Audit Committee

The Risk & Audit Committee has consisted since August 2016 of Jeroen Kremers (chair and the Board’s financial expert), Gerard van de Aast and Marike van Lier Lels. The committee met 4 times, in the presence of the auditor and the Finance Director. With one exception, all the members attended all the meetings. The key topics were the financial statements, the annual report, the annual and six-monthly figures, the budget, the corporate plan for 2017 to 2021, audit reports, reports by the internal and external accountants/management letters, risk management and IT risk control, as well as a wide variety of investment proposals.

Combined Remunerations and Appointments Committee

Since August 2016, the combined Remunerations and Appointments Committee had Paul Rosenmöller as its chair and Janet Stuijt and Gerard van de Aast as members. The remuneration and appointment meetings were held successively, using a single shared agenda. The committees met three times in 2016, with all the members present on one occasion. The topics discussed included the composition of the new Executive Board and Supervisory Board, the gain sharing planfor Abellio, the pipeline for senior management within the company, changes to the pension mechanism and filling the various positions in the expanded Executive Board and the Supervisory Board itself.

Temporary strategy committee

In the first quarter, Gerard van de Aast, Jeroen Kremers and Paul Rosenmöller were closely involved as representatives of the Supervisory Board in developing the new strategy and the discussions about this with the shareholder. The Supervisory Board also discussed the new strategy in plenary sessions on several occasions.

All members of the Supervisory Board are independent, as defined in the Dutch Corporate Governance Code. The Supervisory Board broadly subscribes to and applies the best practices and principles in Chapter III of the code.

About this report

The financial statements for 2016, 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 report by the Executive Board. We invite the General Meeting of Shareholders to adopt the 2016 financial statements. We also invite our shareholder to ratify the work done by the Executive Board and the Supervisory Board. The profit appropriation proposed by the board has been included here.

Thanks to the efforts and the contributions made by all NS staff in the Netherlands and abroad, NS has been able to rebound this year. The Supervisory Board is grateful to everyone for their resilience and would like to thank the Executive Board for the efforts it has made to restore confidence among the stakeholders.

Utrecht, 24 February 2017
The Supervisory Board