TIDM85MJ
RNS Number : 2952X
Network Rail Infrastructure Finance
18 December 2019
18 December 2019
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2019/20
Commentary
Network Rail Infrastructure Finance PLC ("NRIF", "the company")
was incorporated on 31 March 2004 and entered into documentation to
facilitate debt issuance on 29 October 2004.
Since 4 July 2014 Network Rail's funding requirement is met by
the Department for Transport ("DfT") via a loan facility to Network
Rail Infrastructure Limited ("NRIL") the owner and operator of the
national rail network of Great Britain. As a result, NRIF continues
to operate as the administrator of existing debt issues and
derivatives under the Debt Issuance Programme ("DIP") but will not
be issuing new debt for the foreseeable future. Existing debt,
derivatives and related interest payments within NRIF are passed
onto NRIL in the form of an intercompany loan and embedded
derivative.
The company was incorporated for the sole purpose of acting as
the issuer under Network Rail's DIP and legally is not a member of
the Network Rail group or related to or controlled by the Secretary
of State for Transport. However, for accounting purposes the
company is treated as a subsidiary in the consolidated accounts of
Network Rail Limited ("NRL"). The DIP is guaranteed by a financial
indemnity from the Secretary of State for Transport and as a result
the financial indemnity is a direct sovereign obligation of the
Crown and Network Rail's debt is zero per cent risk weighted.
The financial indemnity is an unconditional and irrevocable
obligation of the UK Government to make payments directly to a
security trustee to cover all debt service shortfalls, whatever the
cause. The financial indemnity is also designed to ensure timely
payment as well as ultimate recourse to the UK Government.
Within the DIP, which is administered by NRIL, is a
multi-currency note programme with a maximum limit of GBP40bn,
which has been assigned the following credit ratings: AA by
Standard and Poor's, Aa2 (stable outlook) by Moody's and AA
(negative outlook) by Fitch.
NRIF made a profit before tax of GBP55,000 in the six months to
30 September 2019, being the excess of the fee charged to NRIL for
the administration of the facility over the fee charged by NRIL for
the provision of the facility.
Reclassification of Network Rail
In December 2013, the Office for National Statistics announced
the reclassification of Network Rail as a Central Government Body
in the UK National Accounts and Public Sector Finances with effect
from 1 September 2014. This is a statistical change driven by new
guidance in the European System of National Accounts 2010
(ESA10).
As part of Network Rail's formal reclassification to the public
sector, an arrangement was agreed whereby funding would be provided
by the DfT in the form of a loan made directly to NRIL. As a
result, from 4 July 2014, NRIL borrows directly from the UK
Government and currently has no plans to issue debt in its own name
through NRIF.
In the unlikely event that the DfT withdraws or breaches its
obligations on the loan facility to NRIL, NRIF may issue further
bonds or commercial paper. NRIF's future debt service obligations
will be met through repayments of the intercompany loan by
NRIL.
Financial commentary
All of the outstanding bonds under the DIP, including nominal
and index-linked benchmarks and private placements in all
currencies, will continue to benefit from a direct and explicit
guarantee from the UK Government under the financial indemnity.
At 30 September 2019 there was GBP31,674m of bonds outstanding
issued under the DIP. UK RPI index-linked debt was 80 per cent of
gross debt at 30 September 2019. There was no issued commercial
paper outstanding as at 30 September 2019 (30 March 2019:
GBPnil).
Cash balances are required for settlement of maturing bonds and
for the purposes of managing collateral posted by financial
derivative counterparties. This is funded by NRIL through the
intercompany borrowing. The cash and cash equivalents balance as at
30 September 2019 totalled GBP3m.
The external derivative value increased by GBP154m to negative
GBP527m at 30 September 2019 (31 March 2019: negative GBP681m).
This movement relates to the increase in valuation of cross
currency swaps of GBP27m and an increase in the valuation of
interest rate swaps of GBP127m.
Treasury operations
The treasury operations of NRIL, who administers the programme
on behalf of NRIF, are co-ordinated and managed in accordance with
policies and procedures approved by the Treasury Committee, being a
full sub-committee of the Network Rail board. Treasury operations
are subject to internal audits and the company does not engage in
trades of a speculative nature.
Liquidity is provided by monitoring that NRIL has sufficient
funds to meet its obligations to NRIF. NRIL are able to vary
drawdowns under the DfT grant agreements in order to maintain
liquidity.
NRIF is also affected by future cash flow risks arising from
changes in interest rate, inflation rate and foreign currency
movements. The company enters into derivative financial instruments
to partially mitigate these risks. Further detail is available in
the Network Rail Limited annual report and accounts 2019.
Counterparty limits are set with reference to published credit
ratings. These limits dictate how much and for how long management
deals with each counterparty and are monitored on a regular
basis.
Outlook
The principal risks managed by Network Rail are unchanged from
those set out in the directors' report on pages 68-77 of the
Network Rail Limited annual report and accounts 2019. There are
also further details on funding and financial risk management in
note 25 on pages 172-178 of these accounts.
The major risks that the company faces are financing risks
including, interest rate risk, foreign currency fluctuation risk,
and liquidity risk. The treasury operation of NRIL, which
administers the programme on behalf of NRIF, seeks to provide
sufficient liquidity to meet the company's needs, while reducing
financial risks and prudently maximising interest receivable on
surplus cash.
Liquidity risk is managed by maintaining adequate cash balances
and continuous monitoring of forecast and actual cash flows.
The company has certain debt issuances which are index-linked
and thus exposed to movements in inflation rates. The company does
not enter into any derivative arrangements to hedge these.
The credit risk with regard to all classes of derivative
financial instruments entered into before 1 January 2013 is limited
because Network Rail has arrangements in place which limits each
counterparty to a threshold (based on credit ratings) which if
exceeded requires the counterparty to post cash collateral. Trades
entered into after 1 January 2013 are governed by new agreements
where both Network Rail and its counterparties post collateral on
their full adverse net derivative positions. The new agreements do
not contain threshold provisions.
Treasury operations are co-ordinated and managed in accordance
with policies and procedures approved by NRIL's board. Treasury
operations are subject to regular internal audits and treasury does
not engage in trades of a speculative nature.
Statement of directors' responsibilities
The directors confirm that this interim financial information
has been prepared in accordance with International Accounting
Standard ("IAS") 34 as adopted by the European Union and that the
interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
Approved by the board of directors and signed by order of the
board.
Paul Marshall (director)
17(th) December 2019
Independent review report
to Network Rail Infrastructure Finance PLC
I have been engaged by the company to review the condensed
interim financial statements of Network Rail Infrastructure Finance
Plc for the six months ended 30 September 2019 which comprise the
Statement of Comprehensive Income, the Balance Sheet, the Cash Flow
Statement, the Statement of Changes in Equity and related
explanatory notes.
I have read the other information contained in the interim
financial statements and considered whether it contains any
apparent misstatements or material inconsistences with the
information in the condensed interim financial statements.
Respective responsibilities of the directors and the auditor
The condensed interim financial statements are the
responsibility of, and have been approved by, the directors of
Network Rail Infrastructure Finance Plc. As explained more fully in
the Statement of Directors' Responsibilities, the directors are
responsible for preparing the condensed interim financial
statements in accordance with the Disclosure and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the financial reporting framework that
has been applied in the preparation of the full annual financial
statements of the group is applicable law and International
Financial Reporting Standards (IFRS) as adopted by the European
Union. The condensed interim financial statements have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
My responsibility is to express to the company a conclusion on
the condensed interim financial statements.
Scope of Review
I conducted my review in accordance with International Standards
on Review Engagement (UK & Ireland) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Auditing Practices Board for use in the
United Kingdom.
A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable me to obtain
assurance that I would become aware of all significant matters that
might be identified in an audit. Accordingly, I do not express an
audit opinion.
Conclusion
Based on my review, nothing has come to my attention that causes
me to believe that the accompanying interim financial information
for the six months ended 30 September 2019, is not prepared in all
material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Matthew Kay (Senior Statutory Auditor)
17(th) December 2019
For and on behalf of the
Comptroller and Auditor General (Statutory Auditor)
National Audit Office
157-197 Buckingham Palace Road
Victoria
London SW1W 9SP
Statement of comprehensive income
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
Profit from operations - - -
Finance income 733 699 1,187
Finance costs (733) (699) (1,187)
Profit before taxation - - -
Tax - - -
Profit and total comprehensive income - - -
for the period
All income and expense in the company is recognised in the
statement of comprehensive income.
Statement of changes in equity
Share Retained
capital Earnings Total
GBPm GBPm GBPm
-
---------------------- -------- --------- -----
At 1 April 2018 - 1 1
Profit for the period - - -
-
---------------------- -------- --------- -----
At 1 April 2019 - 1 1
Profit for the period - - -
At 30 September 2019 - 1 1
Balance sheet
Unaudited Unaudited Audited
30 September 30 September 31 March
2019 2018 2019
Notes GBPm GBPm GBPm
Non-current assets
Receivables: amounts falling
due after more than one year 2 31,584 28,858 30,650
Derivative financial instruments 501 270 340
Total non-current assets 32,085 29,128 30,990
Current assets
Receivables: amounts falling
due within one year 2 1,872 1,711 904
Derivative financial instruments 11 163 10
Cash and cash equivalents 3 3 8 -
Total current assets 1,886 1,882 914
Total assets 33,971 31,010 31,904
Current liabilities
Borrowings 3 (1,031) (765) -
Derivative financial instruments (54) (39) (51)
Other payables 4 (303) (320) (215)
Total current liabilities (1,388) (1,124) (266)
Net current assets 498 758 648
Non-current liabilities
Borrowings 3 (31,597) (28,868) (30,657)
Derivative financial instruments (985) (1,017) (980)
Total non-current liabilities (32,582) (29,885) (31,637)
Total liabilities (33,970) (31,009) (31,903)
Net assets 1 1 1
Equity
Share capital - - -
Retained earnings 1 1 1
Total equity 1 1 1
This interim report was approved by the board of directors on
17(th) December 2019.
It was signed on its behalf by:
Paul Marshall (director)
Cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
Note GBPm GBPm GBPm
Cash flows from operating activities 6 (148) 1,095 1,764
Interest paid (318) (319) (696)
Net cash flow from operating
activities (466) 776 1,068
Investing activities
Interest received 318 319 695
Net cash flow from investing
activities 318 319 695
Financing activities
Repayment of borrowings - (1,126) (1,738)
Net collateral movement with
counterparties 151 38 (26)
Cash flow on settlement of derivatives - - -
Net cash used in financing activities 151 (1,088) (1,764)
Net increase/ (decrease) in
cash and cash equivalents 3 7 (1)
Cash and cash equivalents at
beginning of the period - 1 1
Cash and cash equivalents at
end of the period 3 8 -
Notes to the interim financial statements
Six months ended 30 September 2019
1. General information
Network Rail Infrastructure Finance PLC is a company
incorporated in Great Britain and registered in England and Wales
under the Companies Act 2006.
The company's registration number is 5090412. The company's
registered office is situated at 1 Eversholt Street, London, NW1
2DN, United Kingdom.
The company's principal activities, details of the company's
business activities and key events, and changes during the year are
contained within the commentary on pages 1 to 3.
This condensed interim financial information does not comprise
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 March
2019 were approved by the board of directors on 26 July 2019 and
delivered to the Registrar of Companies. The auditors' report on
these accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain a statement under Section 498
of the Companies Act 2006.
The condensed interim financial statements are prepared in
accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority. The condensed interim
financial statements are prepared in accordance with IAS 34,
'Interim Financial Reporting', as adopted by the European
Union.
This condensed interim financial information has been reviewed,
not audited. The condensed interim financial information should be
read in conjunction with the annual report and accounts for the
year ended 31 March 2019, which have been prepared in accordance
with IFRSs as adopted by the European Union. A copy of this
document is available on the Companies house website.
Accounting policies
The accounting policies and methods of computation adopted in
this condensed set of financial statements are consistent with
those set out in the annual financial statements for the year to 31
March 2019.
There are no IFRS or IFRS Interpretation Committee
interpretations not yet effective that would be expected to have a
material impact on the company.
Going concern
After making enquiries, the directors have a reasonable
expectation that the company has adequate resources to continue in
operational existence for the foreseeable future.
In reaching this conclusion the directors considered: the
financial indemnity as described on page 1; the collateral
arrangements with banking counterparties; and that the company has
an inter-company agreement that recovers all net costs from
NRIL.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Operating segments
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reports about components of the
company that are regularly reviewed by the board to allocate
resources to the segments and to assess their performance. The
company has adopted IFRS 8 for these financial statements. However,
there has been no material change in presentation of these
statements because the company operates one class of business, that
of acting as issuer for Network Rail's DIP and undertakes that
class of business in one geographical area, Great Britain. This
debt is often issued in currencies other than sterling and sold to
overseas investors.
Debt
Debt instruments are initially recorded at fair value, net of
discount and direct issue costs, and are subsequently measured at
fair value. Finance charges, including premiums payable on
settlement or redemption and direct issue costs are recognised in
the statement of comprehensive income over the life of the debt
instrument. They are added to the carrying value of the debt
instrument to the extent that they are not settled in the period in
which they arise.
Derivative financial instruments
The company's activities expose it primarily to the financial
risks of changes in interest rates and foreign currency exchange
rates. The company uses interest rate swaps and foreign exchange
forward contracts to hedge these exposures.
Interest rate swaps and foreign exchange forward contracts are
recorded at fair value at inception and at each balance sheet date.
Movements in fair value are recorded in the statement of
comprehensive income.
Investments
Investments are classified as available-for-sale and measured at
subsequent reporting dates at fair value. For available-for-sale
investments, gains or losses from changes in fair value are
recognised directly in equity, until the security is disposed of or
is determined to be impaired, at which time the cumulative gain or
loss previously recognised in equity is included in the statement
of comprehensive income for the period.
Foreign currencies
Monetary assets and liabilities expressed in foreign currencies
are translated into sterling at rates of exchange prevailing at the
balance sheet date. Individual transactions denominated in foreign
currencies are translated into sterling at the exchange rates
prevailing on the dates payment takes place. Gains or losses
realised on any foreign exchange movements are recognised in the
statement of comprehensive income.
Intra-group borrowings
The company provides the Network Rail group with funding. It
passes all transactions and balances through the intra-group
borrowings to NRIL. Existing debt, derivatives and related interest
payments within NRIF are passed onto NRIL in the form of an
intercompany loan. As such any gains and losses relating to debt
and derivatives are also passed through to NRIL. The nature of the
arrangement means that the instrument fails the Solely Payment of
Principal and Interest test under IFRS 9 and as such, the entire
instrument is measured at fair value through profit or loss
2. Receivables
Unaudited Unaudited Audited
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
Non-current assets
Loans to Network Rail Infrastructure
Limited 31,584 28,858 30,650
Current assets
Interest on loans to Network Rail
Infrastructure Limited 215 218 177
Loans to Network Rail Infrastructure
Limited 1,031 766 -
Collateral receivable 626 727 727
Total receivables 33,456 30,569 31,554
3. Net borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents 3 8 -
Collateral receivable 626 727 727
Collateral obligation (88) (102) (38)
Bank loans (954) (799) (853)
Bonds issued under the Debt Issuance
Programme (31,674) (28,834) (29,804)
At the end of the period/year (32,087) (29,000) (29,968)
Movements in net borrowings
At the beginning of the period (29,968) (31,040) (31,040)
Increase / (Decrease) in cash and
cash equivalents 3 7 (1)
Movement in collateral receivable (101) (23) (23)
Movement in collateral obligation
to counterparties (50) (15) 49
Repayment of borrowings - 1,126 1,738
Fair value and other movements (1,971) 945 (691)
At the end of the period/year (32,087) (29,000) (29,968)
Cash and cash equivalents 3 8 -
Collateral receivable 626 727 727
Collateral obligation (88) (102) (38)
Borrowings included in current
liabilities (1,031) (765) -
Borrowings included in non-current
liabilities (31,597) (28,868) (30,657)
At the end of the period/year (32,087) (29,000) (29,968)
All borrowings are denominated in or swapped into sterling.
4. Other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
Current liabilities
Interest payable on bonds issued 214 217 175
Interest on long term loans 1 1 2
Collateral obligation 88 102 38
Total payables 303 320 215
5. Financial instruments
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly. The fair value of interest rate and cross currency
swaps is calculated as the present value of the estimated future
cash flows using yield curves at the reporting date; and
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Unaudited Unaudited Audited
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
Level 2:
Derivative financial assets 512 433 350
Financial assets at fair value 33,456 30,577 31,554
Level 1:
Financial liabilities held at fair
value (32,628) (28,278) (30,657)
Level 2:
Derivative financial liabilities (1,039) (1,056) (1,031)
Financial liabilities held at fair
value (303) (1,675) (215)
Total (2) 1 1
6. Notes to the cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2019 2018 2019
GBPm GBPm GBPm
Profit before tax - - -
Operating cash flow before movements - - -
in working capital
(Decrease) / Increase in receivables (148) 1,095 1,764
Cash generated from operations (148) 1,095 1,764
Cash and cash equivalents (which are represented as a single
class of assets on the face of the balance sheet) comprise cash at
bank and money market deposit investments with a maturity of up to
three months.
7. Controlling party and related party transactions
50,000 shares of the company are held by Intertrust Corporate
Services Limited. All shares and distributable reserves in the
company are held for charitable purposes.
Legal control of the company is disclosed above but effective
control of the company is held by Network Rail and therefore by the
DfT and Secretary of State.
On this basis for accounting purposes the company is treated as
a subsidiary in the consolidated accounts of Network Rail.
Transactions with NRIL are clearly identified within the
relevant notes to the accounts.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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