TIDM85MJ
RNS Number : 5702V
Network Rail Infrastructure Finance
14 December 2021
14 December 2021
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2021/22
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.
As of 4 July 2014, Network Rail's funding requirement has been
met by the Department for Transport ("DfT") via a loan facility and
grants 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 reimbursed by NRIL in the form of an intercompany
loan.
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. 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.
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, Aa3 (Stable outlook) by Moody's and AA-
(Stable outlook) by Fitch.
Financial review
During the period the company incurred finance costs of GBP956m
(September 2020: GBP531m) relating to the interest on bonds in
issue. These costs were higher due to the impact of higher
inflation on RPI-linked bonds.
NRIF received finance income as it passed on these costs onto
NRIL in line with the intercompany loan agreement.
NRIF made a loss of GBP1,674m (September 2020: GBP1,945m) on the
fair value of its debt due primarily to reductions in forward
market interest rates in the period.
NRIF has a legacy hedging programme made up primarily of
interest rate and cross-currency swaps. This programme is unwinding
resulting in a gain of GBP91m (September 2020: GBP93m) in the
period.
These gains and losses were passed through to NRIL in line with
intercompany loan agreement.
NRIF made a profit before tax of GBP55,000 (September 2020:
GBP55,000) in the period, being the excess of the fee charged to
NRIL for the provision of the facility over the fee charged by NRIL
for the administration of the facility. All shares and
distributable reserves in the company are held for charitable
purposes.
On a fair value basis, net borrowings as described in note 3
have increased from GBP39,780m to GBP41,018m, primarily as a result
of fair value movements (GBP1,674m) offset by the repayment of
GBP132m of bonds during the period.
UK RPI index-linked debt was 89 per cent of gross debt at 30
September 2021.
Cash balances are required for settlement of maturing bonds and
for the purposes of managing collateral posted by financial
derivative counterparties. These cash requirements are met by NRIL
through repayment of the intercompany loan.
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.
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 committee reviews 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 loan agreement in order to maintain
liquidity.
The major financing risks that the company faces are interest
rate risk, foreign currency fluctuation risk and liquidity risk.
Treasury operations seek to provide sufficient liquidity to meet
the company's needs, while reducing financial risks and managing
interest receivable on surplus cash.
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 is limited because both Network Rail and its
counterparties are required to post cash collateral on their full
adverse net derivative positions. The collateral agreements do not
contain threshold provisions.
NRIF will continue in operation to manage the existing bond
portfolio. The bond portfolio is expected to be held to maturity
and as such while market sentiment will drive changes in fair
value, the impact on fair value of the portfolio held is not
considered to be a major financing risk. NRIF does not anticipate
entering into any new derivative contracts in the future and
existing derivatives are currently being fully utilised.
Substantially all of the derivatives will have matured by the 31
March 2024.
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 United Kingdom 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)
3 December 2021
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 2021 which comprise the
Statement of Comprehensive Income, the Balance Sheet, the Cash Flow
Statement, Statement of Changes in Equity and related explanatory
notes.
Based on my review, nothing has come to my attention that causes
me to believe that the condensed interim set of financial
statements for the six months ended 30 September 2021 is not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Basis for Conclusion
I conducted my review in accordance with International Standards
on Review Engagement (UK) 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'
issued 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 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.
As disclosed in note 1, the annual statements of the company are
prepared in accordance with UK adopted IFRSs. The condensed interim
set of financial statements has been prepared in accordance with UK
adopted International Accounting Standard 34 "Interim Financial
Reporting".
Conclusions Relating to Going Concern
Based on my review procedures, which are less extensive that
those performed in an audit as described in the Basis on Conclusion
section of this report, nothing has come to my attention to suggest
that management have inappropriately adopted the going concern
basis of accounting or that management have identified
uncertainties relating to going concern that are not appropriately
disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however, future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of Directors
The directors are responsible for preparing the condensed
interim financial statements in accordance with Disclosure Guidance
and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the condensed interim financial statements, the
directors are responsible for assessing the company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors wither intend to liquidate the
company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the condensed interim financial statements, I am
responsible for expressing to the Company a conclusion on the
condensed interim set of financial statements. My conclusion,
including my Conclusions Relating to Going Concern, are based on
procedures that are less extensive than audit procedures, as
described in the Basis for Conclusion paragraph of this report.
Stephen Young (Senior Statutory Auditor)
7 December 2021
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
2021 2020 2021
GBPm GBPm GBPm
Profit from operations - - -
Finance income 956 531 879
Finance costs (956) (531) (879)
Other gains and losses - - -
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 2020 - 1 1
Profit for the period - - -
At 1 April 2021 - 1 1
Profit for the period - - -
At 30 September 2021 - 1 1
Balance sheet
Unaudited Unaudited Unaudited Audited
30 September 30 September 30 September 31 March
2021 2020 2019 2021
GBPm GBPm GBPm GBPm
Notes (restated) (restated)
Non-current assets
Receivables: amounts falling
due after more than one year 2 41,028 41,521 41,252 39,609
Derivative financial instruments 100 340 501 191
Total non-current assets 41,128 41,861 41,753 39,800
Current assets
Receivables: amounts falling
due within one year 2 860 817 1,872 950
Derivative financial instruments 53 214 11 194
Cash and cash equivalents 3 241 - 3 -
Total current assets 1,154 1,031 1,886 1,144
Total assets 42,282 42,892 43,639 40,944
Current liabilities
Borrowings 3 (306) (149) (1,031) (433)
Derivative financial instruments (88) (61) (54) (82)
Other payables 4 (230) (354) (303) (254)
Total current liabilities (624) (564) (1,388) (769)
Net current assets 530 467 498 375
Non-current liabilities
Borrowings 3 (41,278) (41,521) (41,265) (39,609)
Derivative financial instruments (379) (806) (985) (565)
Total non-current liabilities (41,657) (42,327) (42,250) (40,174)
Total liabilities (42,281) (42,891) (43,638) (40,943)
Net assets 1 1 1 1
Equity
Share capital - - - -
Retained earnings 1 1 1 1
Total equity 1 1 1 1
This interim report was approved by the board of directors on 2
December 2021 and authorised for issue on 3 December 2021.
It was signed on its behalf by:
Paul Marshall (director) (director)
Cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
Note GBPm GBPm GBPm
(restated)
Cash flows from operating activities 6 325 895 848
Interest paid (235) (296) (629)
Net cash flow from operating
activities 90 599 219
Investing activities
Interest received 237 296 629
Net cash flow from investing
activities 237 296 629
Financing activities
Repayment of borrowings (132) (1,000) (1000)
Net collateral movement with
counterparties 46 105 152
Cash flow on settlement of derivatives - - -
Net cash used in financing activities (86) (895) (848)
Net increase/ (decrease) in
cash and cash equivalents 241 - -
Cash and cash equivalents at - - -
beginning of the period
Cash and cash equivalents at
end of the period 241 - -
Notes to the interim financial statements
Six months ended 30 September 2021
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
2021 were approved by the board of directors on 30 July 2021 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 report any matters by exception 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 United
Kingdom.
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 2021, which have been prepared in accordance
with IFRSs in conformity with the requirements of the Companies Act
2006. 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 2021.
There are no IFRS or IFRS Interpretation Committee
interpretations not yet effective that would be expected to have a
material impact on the company.
During the year ended 31 March 2021 it was identified that when
valuing certain index linked loans, the full value attributable to
the index linked features of the instruments had not been included
in previous valuations as a result of the use, without adjustments,
of a third-party pricing function which provides quotations
excluding these elements of value. The valuation of these
instruments was then understated by this amount. The impact of the
adjustment has been to increase the fair value of external bonds by
GBP9,961m at 30 September 2020 and GBP9,443m at 30 September 2019.
The impact of the changes in fair values has had a corresponding
equal and opposite effect on the intracompany loan balance due from
NRIL. Finally, the changes in fair values has resulted in the fair
value movement on both external debt and the intragroup amount due
from NRIL being restated also. At both 30 September 2019 and 30
September 2020, these changes have had no impact on the net assets
of 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 measured at fair value, and
subsequently designated and measured at Fair Value Through Profit
and Loss (FVTPL). The intra-group borrowings from NRIL are measured
at FVTPL. Given the relationship between this balance and the debt
instruments, the debt instruments were designated at fair value
through profit or loss. This treatment results in all fair value
movements on debt being passed to NRIL within these financial
statements, in line with the intercompany agreement. Finance
charges, including premiums payable on settlement or redemption and
direct issue costs, are recognised in the period in which they
arise and are not capitalised against the financial instrument
measured at FVTPL.
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.
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
2021 2020 2021
GBPm GBPm GBPm
(restated)
Non-current assets
Loans to Network Rail Infrastructure
Limited 41,028 41,521 39,609
41,028 41,521 39,609
Current assets
Interest on loans to Network Rail
Infrastructure Limited 211 210 150
Loans to Network Rail Infrastructure
Limited 306 149 433
Collateral receivable 343 458 367
860 817 950
Total receivables 41,888 42,338 40,559
3. Net borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
GBPm GBPm GBPm
(restated)
Net borrowings by instrument
Cash and cash equivalents 241 - -
Collateral receivable 343 458 367
Collateral obligation (18) (144) (105)
Bank loans (904) (933) (864)
Bonds issued under the Debt Issuance
Programme (40,680) (40,737) (39,178)
At the end of the period/year (41,018) (41,356) (39,780)
Movements in net borrowings
At the beginning of the period (39,780) (40,306) (40,306)
Increase / (Decrease) in cash and
cash equivalents 241 - -
Movement in collateral receivable (24) (81) (167)
Movement in collateral obligation
to counterparties 87 (24) 15
Repayment of borrowings 132 1,000 1,000
Fair value and other movements (1,674) (1,945) (322)
At the end of the period/year (41,018) (41,356) (39,780)
Cash and cash equivalents 241 - -
Collateral receivable 343 458 367
Collateral obligation (18) (144) (105)
Borrowings included in current
liabilities (306) (149) (433)
Borrowings included in non-current
liabilities (41,278) (41,521) (39,609)
At the end of the period/year (41,018) (41,356) (39,780)
All borrowings are denominated in or swapped into sterling.
4. Other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
GBPm GBPm GBPm
Current liabilities
Interest payable on bonds issued 210 209 147
Interest on long term loans 2 1 2
Collateral obligation 18 144 105
Total payables 230 354 254
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. Bond
liabilities and corresponding NRIL receivables are measured using
industry standard trading platforms which make adjustment to most
recent trading prices in situations where the volume of trades at
the period end is insufficient to derive a fully reliable fair
value. Any adjustments are based on the pricing trends of
frequently traded reference instruments; 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
2021 2020 2021
GBPm GBPm GBPm
(restated) (restated)
Level 2:
Derivative financial assets 153 554 385
Non - current receivables 41,028 41,521 39,609
Other current assets 1,101 817 950
Level 1:
Bonds (23,407) (23,184) (22,716)
Level 2:
Derivative financial liabilities (467) (867) (647)
Borrowings (18,177) (18,486) (17,326)
Other current payables (230) (354) (254)
Total 1 1 1
The 31 March 2021 classification of bonds has been restated due
to a misclassification of a bond between level 2 and 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
2021 2020 2021
GBPm GBPm GBPm
(restated)
Profit before tax - - -
Operating cash flow before movements
in working capital - 54 170
Decrease / (Increase) in receivables 325 841 678
Cash generated from operations 325 895 848
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.
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END
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