Current market context
It has been an exceptionally difficult year for rail operators in the UK due to the corona virus pandemic. The British government responded to the outbreak by implementing a nationwide lockdown in March 2020 and ordering that the use of the railways was limited to essential travel for key workers only. Passenger numbers in average fell below 10% of the equivalent period in 2019 during the first lockdown. Passenger demand recovered after the initial lockdown to a national average of around 40% by September 2020. However demand fell again as the British government introduced tighter restrictions in the autumn with demand then increasing during December 2020 before further restrictions were imposed in later in that month.
The graph below highlights the impact on the passenger revenues of the Abellio TOCs from these key government interventions, by comparing 2020 passenger revenues as a percentage of 2019 passenger revenues for the equivalent time period.
Abellio London Bus played a key role in keeping key workers moving during the pandemic, adapting services to reflect both customer demand and staff availability. Abellio Rail Replacement (ARR) continued operating buses through the lockdown period with reduced volumes. Event Connect, which supplies ground transport solutions to major sporting events, tour operators and corporate clients has been severely affected due to the downturn in the leisure sector.
UK rail franchises and bus services
Abellio operates 5 UK rail franchises and around 9% of London bus services with a combined revenue of € 3.1 billion (excluding Merseyrail; a non-consolidated 50:50 joint venture with Serco). It operates East Midlands Railway, ScotRail, Greater Anglia, West Midlands and Merseyrail , as well as a profitable bus business.
Expiry date of contract
Emergency contract end date*
Greater Anglia (GA)
12 October 2025
12 October 2026
19 September 2021
20 July 2028
20 July 2033
31 March 2022
13 October 2022
31 March 2021
West Midlands (WM)
31 March 2026
31 March 2028
19 September 2021
East Midlands (EMR)
17 August 2027
17 August 2029
31 March 2022
* Revenue and cost risks are taken over by UK Government from 1 March 2020, with a possible extension of the end date by 7 rail periods of 4 weeks by the franchising authority.
With the sudden loss of 80% of revenues in 2020 due to the lockdowns, contracts that normally operated on a 3%-4% margin became unviable. Estimates suggest that train travel will not return to pre-corona levels in the short term, due to changed working habits and passenger concerns over safety. Given the uncertain outlook, the DfT swiftly responded by initiating the following process to realign contracts.
On 22 March 2020, all three Abellio DfT franchises (Greater Anglia, West Midlands and East Midlands) accepted an offer of a variation to their franchise agreements, recognising the exceptional circumstances presented by the corona pandemic and to ensure continuity of operations. An equivalent offer for ScotRail was received from Transport Scotland (TS) on 24 March 2020 which closely mirrored the structure of the DfT offer. No contract variation was offered for Merseyrail, which continued operating with revenue and cost risk under the existing concession agreement with Merseytravel albeit with a reduced profit.
Emergency Measures Agreements
The Emergency Measures Agreement (EMA) was intended to ensure that franchisees are insulated as far as reasonable from the severe financial impacts of the corona virus pandemic. In order to achieve this the UK and Scottish governments essentially took on revenue and cost risk for the term of the EMA, with operators being paid a management fee with the potential to earn a performance fee dependent on meeting a number of key performance indicators.
The term of the EMAs was initially from 1 March 2020 to 20 September 2020. The EMA was extended in ScotRail from 20 September 2020 to 10 January 2021, with a further extension to 31 March 2021 agreed on 18 December 2020. TS continues to take revenue and cost risk and consistent with the first EMA, a fee is earned by ScotRail linked to achieving certain key performance indicators. ScotRail is in positive dialogue with TS about a further extension of the EMA after 31 March 2021.
Emergency Recovery Measures Agreements
In respect to the three Abellio UK DfT franchises the EMAs were replaced on 20 September 2020 by Emergency Recovery Measures Agreements (ERMAs). These ERMAs vary in length, depending on the operator, from 6-18 months and, similar to the EMAs, costs are borne by the DfT with an, albeit smaller, management fee earned by TOCs. The DfT linked the fee to four performance targets: operational, financial, customer service and collaboration with Network Rail. For East Midlands Railway the ERMA contract will expire at the end of March 2022 whilst for West Midlands and Greater Anglia these will end in September 2021 with an option for DfT to extend the ERMAs by a maximum of 7 rail periods of 4 weeks.
A fundamental condition on signing an ERMA was that each TOC agreed on a process to terminate their existing franchise agreement at the end of the ERMA period and the DfT has begun a process of transition to new contracts. Direct awards of potentially 4 to 6 years in duration will replace the ERMAs where the TOC meets the qualifying criteria. The expectation is that revenue and cost risks will remain with the UK government. Further details on the Direct Award process and terms and conditions are expected during the second half of 2021.
As part of the termination process, a Termination Sum is potentially payable based on the forward financial projections of the franchise in absence of the corona virus pandemic. The potential Termination Sum is capped at the undrawn PCS guarantees and the net assets of the TOC. The cash out exposure for NS is therefore limited to € 244 million of undrawn PCS guarantees for Greater Anglia and West Midlands which is within the agreed capital at risk framework. Negotiations are currently ongoing with the DfT in respect of the quantum of any potential Termination Sum and an outcome is expected later in 2021. For the purposes of the 2020 Financial Statements, full provision has been made for the potential Termination Sums still being negotiated. We note that at the time of presenting the Financial Statements Abellio is unable to quantify the reduced expectation and therefore full provision has been made based on DfT’s provisional outcome.
On the 21 October 2020 the DfT issued the estimated termination sums payable by each TOC. For East Midlands Railway the DfT projected a profit-making contract and therefore no termination sum is due. For each of Greater Anglia and West Midlands the DfT projected loss-making contracts with the full draw down of PCS guarantees required to terminate these franchises. NS fundamentally disagrees with this calculation as it bears no relation to Abellio’s own models, which demonstrate that both contracts have been profitable in the past and would have remained profitable in the absence of the pandemic, with some specific but manageable challenges for the Greater Anglia contract.
The final termination sum will be determined by the DfT based on the financial status of each TOC prior to the pandemic, and assessment of their potential trajectory modelled for the remainder of the franchise term. We have engaged in an extensive and detailed process of evidence based representations to the DfT, which we believe make a strong and persuasive case that these termination sums should be significantly less. Consequently if the DfT’s process is fair and reasonable and takes account of the comprehensive evidence provided to them, the expectation is the final termination sums to reduce significantly and reflect our own pre-corona pandemic forecasts of a profitable outturn. Any reduction that will follow from the final agreement with the DfT will be reflected in 2021.
As mentioned above, public attitudes to travelling by train have been slow to adapt since the start of the pandemic. Although a study by the RSSB (Rail Safety & Standards Board) has shown a relatively low risk of infection on trains and in stations, the perception remains that train travel is not safe according the DfT’s National Travel Attitudes Survey. Another key driver behind low passenger numbers is the fact that a significant number of major employers have agreed that staff can work from home for many months as requested by the governments. Working with the DfT Abellio continues to develop flexible and attractive ticketing solutions as part of an industry-wide response to the pandemic recovery and to facilitate easier payment methods. This includes the ongoing conversion of paper season tickets to digital Smart season tickets in West Midlands.
Before the pandemic the Williams Review, a Government-ordered review of the rail industry commissioned in 2018, was seeking to reform the rail industry and end the franchising model in its current form, and the latter was accelerated this year due to the corona virus outbreak with the introduction of emergency contracts. The structure and governance of the industry are set for change and the DfT has pledged to publish its proposals arising from the Review. It is thought this will result in a “guiding mind” for rail at arm’s length from the government. A new body is likely to oversee the results and the infrastructure as well as letting future rail operating management contracts which are expected to involve no direct cost and revenue risks but with some financial incentives.
Safety is always a guiding principle of the rail industry and this was brought into sharp focus in the late summer of 2020 with the derailment of a ScotRail train at Stonehaven. The tragic incident occurred on August 12 during heavy local rainfall, when the 06:38 ScotRail Aberdeen-Glasgow service struck a landslip with the loss of two ScotRail colleagues, the driver and the conductor, and the loss of a passenger.
ScotRail is working closely with accident investigators, Network Rail and industry bodies so that the industry can learn the lessons of this tragedy and make the railway as safe as possible for colleagues and passengers. Network Rail (NR) introduced a range of additional safety measures and inspected sites with similar higher-risk trackside slopes. NR has also launched two taskforces, led by independent experts, as part of its long-term response to climate change and the challenge of maintaining its large portfolio of railway embankments and cuttings.
The line between Aberdeen and Dundee reopened on November 3, 2020, after the completion of extensive work to repair the railway.
Brexit occurred on 31 January 2020 and a trade deal between the EU and the UK was finally agreed in December 2020. It came into effect on 1 January 2021, ending the free movement of people and goods and services between the UK and the EU. The deal ensures tariff-free trade between the UK and the EU with no limits on trade volumes however additional customs declarations will be necessary in some cases.
As a business Abellio UK is significantly insulated against any negative effects of Brexit as it has a domestic customer base, does not conduct business across borders and trades in GB pounds sterling.
However, Brexit has the potential to disrupt hiring plans, particularly in respect of agency workers, mainly bus drivers and cleaners, due to a new points-based immigration system and visa requirements.
While Abellio has a largely UK-based supply chain, the import of some supplies via mainland Europe may be impacted by new customs regulations. Abellio has been working with industry partners to identify and address potential issues regarding Brexit.
Key figures for Abellio UK rail franchises and bus services
Revenue (€ million)
Number of stations
Number of trains/buses
Number of employees
Merseyrail (Joint Venture, JV)
Abellio London Bus
Abellio UK head office
Exclusion intercompany and JV
Consolidated (incl. head office, excl. JVs)
Passenger revenues (€ million)
Government contribution (€ million)
Other income (€ million)
Revenue (€ million)
Abellio London Bus
Consolidated (excl. Merseyrail)
The EMAs and ERMAs have provided significant support from the UK and Scottish Governments. For Abellio UK operating companies, the additional franchise support received during 2020 through additional subsidy and reduced franchise premium totalled €1.5 billion, across Greater Anglia, ScotRail, West Midlands and East Midlands.
Abellio UK consolidated (in € million)
Revenue (excl. Merseyrail)
EBIT before non-recurring items
Intercompany financial result *
Other financial results
Profit before tax
Net profit attributable to Abellio
Capital investments (excl. Merseyrail)
Equity attributable to NS
PCS guarantees provided by NS
Other guarantees provided by NS
Total capital at risk Abellio UK
PCS guarantees called on (NS portion)
Other guarantees called on (NS portion)
Total guarantees called on (NS portion)
*Intercompany financial result consists of interest on shareholder loans and guarantee fees.
The performance data shows an improving trend due to the fact that fewer trains were running and carrying fewer passengers during the pandemic. Delay minutes were also down in line with the punctuality (PPM*, Public Performance Measure) data in the table below. Under the ERMAs, performance is due to be measured with certain KPIs: cancellations, short formations and punctuality.
Trains per day
East Midlands Trains
Abellio Greater Anglia
Great Western Railway
TfW Rail Services
Average for all TOCs
South Western Railway
London North Eastern Railway
Govia Thameslink Railway
West Midlands Trains
Avanti West Coast
- 1 This table shows the performance of the UK’s franchised TOCs (MAA = Moving Annual Average) for Period 10 of the railway calendar for 2020 and 2019. 12 of these operations are franchised by DfT. ScotRail and Caledonian Sleeper are franchised by Transport Scotland and Transport for Wales Rail Ltd is franchised by Transport for Wales. MerseyRail, LOROL and TFL Rail are public sector operated concessions. LNER and Northern Trains are operated directly by DfT. The key reason for the improvement in PPM in 2020, across all TOCs, reflects the reduced volume of traffic operating on the rail network during the corona virus pandemic.
- 2 PPM is the standard industry measure of train punctuality when a service arrives within 5 minutes of time advertised, or 10 minutes for long distance services.
The table below shows the cause of delays to Abellio TOCs in 2020 as attributed to the following categories:
NR on TOC: delays attributed to Network Rail (infrastructure) on train operating companies, including extreme weather conditions.
TOC on Self: delays attributed to a train operating company caused by themselves.
TOC on TOC: delays attributed to a train operating company caused by other train operating companies.
NR on TOC
TOC on self
TOC on TOC
The National Rail Passenger Survey by Transport Focus was suspended shortly after lockdown due to low numbers of passengers and difficulty carrying out fieldwork. The NRPS data in the table with the key figures relates to the spring 2020 survey which reached only 75 per cent of its target sample before the pandemic took effect.
Transport Focus has replaced it with a smaller survey which tracks attitudes but does not break them down by TOC. The percentage of rail passengers satisfied with their journey has ranged between 77% and 90%.
Abellio as an employer
Abellio is a major employer with more than 16,000 colleagues across our operating companies. The organisation has had to be aligned to the new ERMAs/EMAs, direct awards and future concessions. Abellio was named among some of the biggest employers in the UK for its commitment to apprenticeships. The Education and Skills Funding Agency ranked Abellio 39th out of 100 top UK employers which was the highest ranked private sector transport organisation. More than 300 colleagues have started apprenticeships in the past year, in roles ranging from bus and train drivers to customer services, engineering and leadership.
Abellio continues to engage with the trade unions through maintaining professional, cordial relationships to support and engage employees. Abellio has invested in the health and wellbeing of its employees to support them through the pandemic through the provision of online sessions, access to employee assistance support and strengthening the communications and engagement with leaders and managers. Abellio has been carrying out twice yearly engagement surveys to understand how it can make Abellio an even better place to work. Abellio also established engagement forums to allow employees to have a voice in all that Abellio does.
Abellio is continuing the journey to become a diverse and inclusive workforce. Abellio has set up a forum and key actions to increase the number of ethnic minorities and women in senior management, create opportunities for young people and to increase understanding of the benefits of an inclusive workforce. The majority of our operating companies are ahead of target for the appointment of female senior managers and the ethnic diversity of new recruits, while almost a third of apprentices are from a BAME (Black, Asian and Minority Ethnic) background. Abellio has also been identifying and supporting the development of its top talent and investing in their development so we have leaders for the future. We are investing and developing our employees through providing ongoing learning and development investing in online learning programmes.