TIDM85MJ
RNS Number : 4230J
Network Rail Infrastructure Finance
12 December 2022
12 December 2022
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2022/23
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 at 30 September 2022 had been assigned the following credit
ratings: AA by Standard and Poor's, Aa3 (outlook stable) by Moody's
and AA- (outlook stable) by Fitch. In October 2022 Moody's rating
was adjusted to Aa3 (outlook negative) and Fitch's rating was
adjusted to AA- (outlook negative). As of August 2022, a credit
rating is no longer being obtained from Standard and Poor on the
programme itself, although it continues to maintain ratings on
individual outstanding debt issuances.
Financial review
During the period the company incurred finance costs of
GBP1,918m (September 2021: GBP956m) relating to the interest on
bonds in issue. These costs were higher due to the impact of higher
inflation on RPI-linked bonds and prevailing volatile economic
conditions.
NRIF received finance income as it passed on these costs onto
NRIL in line with the intercompany loan agreement.
NRIF made a gain of GBP9,864m (September 2021: loss of
GBP1,674m) on the fair value of its debt due primarily to increases
in 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 GBP60m (September 2021: GBP91m) 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 2021:
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 decreased from GBP40,185m to GBP30,395m, primarily as a result
of increases in market interest rates (GBP9,864m) during the
period.
UK RPI index-linked debt was 89 per cent of gross debt at 30
September 2022.
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 original derivatives held 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)
5th December 2022
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 2022 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 financial statements for
the six months ended 30 September 2022 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
financial statements have 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 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)
8 December 2022
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
2022 2021 2022
GBPm GBPm GBPm
Profit from operations - - -
Finance income 1,918 956 2,051
Finance costs (1,918) (956) (2,051)
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 2021 - 1 1
Profit for the period - - -
At 1 April 2022 - 1 1
Profit for the period - - -
At 30 September 2022 - 1 1
Balance sheet
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
GBPm GBPm GBPm
Notes
Non-current assets
Receivables: amounts falling
due after more than one year 2 30,188 41,028 40,437
Derivative financial instruments 154 100 8
Total non-current assets 30,342 41,128 40,445
Current assets
Receivables: amounts falling
due within one year 2 801 860 401
Derivative financial instruments 7 53 2
Cash and cash equivalents 3 1 241 2
Total current assets 809 1,154 405
Total assets 31,151 42,282 40,850
Current liabilities
Loans 3 (394) (306) -
Derivative financial instruments (43) (88) (55)
Other payables 4 (225) (230) (146)
Total current liabilities (662) (624) (201)
Net current assets 147 530 204
Non-current liabilities
Loans 3 (30,184) (41,278) (40,442)
Derivative financial instruments (304) (379) (206)
Total non-current liabilities (30,488) (41,657) (40,648)
Total liabilities (31,150) (42,281) (40,849)
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
5(th) December 2022 and authorised for issue on the date of the
Independent Review Report.
It was signed on its behalf by:
Paul Marshall (director) Helena Whitaker (director)
Cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2022 2021 2022
Note GBPm GBPm GBPm
Cash flows from operating activities 6 (74) 325 427
Interest paid (213) (235) (557)
Net cash (outflow) / inflow
from operating activities (287) 90 (130)
Investing activities
Interest received 213 237 558
Net cash flow from investing
activities 213 237 558
Financing activities
Repayment of borrowings - (132) (433)
Net collateral movement with
counterparties 73 46 7
Net cash used in financing activities 73 (86) (426)
Net (decrease) / increase in
cash and cash equivalents (1) 241 2
Cash and cash equivalents at 2 - -
beginning of the period
Cash and cash equivalents at
end of the period 1 241 2
Notes to the interim financial statements
Six months ended 30 September 2022
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.
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
2022 were approved by the board of directors on 11 July 2022 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 2022, 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 2022.
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; 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. The
company's debt was also 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) using the mid-market price. 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 to the financial risks of
changes in interest rates and foreign currency exchange rates. The
company uses interest rate swaps and cross currency swaps to hedge
these exposures.
Interest rate swaps and cross currency swaps are recorded at
fair value at inception and at each balance sheet date. Movements
in fair value are recorded in other gains and losses in the
statement of comprehensive income.
Derivatives are presented in the balance sheet in line with
their maturity dates.
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. 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.
Critical accounting judgements and key sources of
uncertainty
Valuation of the debt portfolio by its nature includes
judgements and estimates. Since the company's bonds are traded with
varying frequency, valuations are derived with reference to both
directly observed activity on the bonds themselves and to
observations of frequently traded reference gilts which have
similar characteristics. Where bonds are frequently traded and
independent prices are available, these are used in valuing the
bonds. Where bonds are infrequently traded, independent prices are
determined using an independent pricing service. These valuations
include the analysis of similar but more frequently traded bonds in
order to determine a price. There are a small number of privately
held bonds that are valued by management. Management review
comparator bonds and determine an appropriate yield rate based on
similar bonds that have available prices.
2. Receivables
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
GBPm GBPm GBPm
Non-current assets
Loans to Network Rail Infrastructure
Limited 30,188 41,028 40,437
30,188 41,028 40,437
Current assets
Interest on loans to Network Rail
Infrastructure Limited 211 211 146
Loans to Network Rail Infrastructure
Limited 394 306 -
Collateral receivable 196 343 255
801 860 401
Total receivables 30,989 41,888 40,838
3. Net borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
GBPm GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents 1 241 2
Collateral receivable 196 343 255
Collateral obligation (14) (18) -
Bank loans (683) (904) (912)
Bonds issued under the Debt Issuance
Programme (29,895) (40,680) (39,530)
At the end of the period/year (30,395) (41,018) (40,185)
Movements in net borrowings
At the beginning of the period (40,185) (39,780) (39,780)
(Decrease) / increase in cash and
cash equivalents (1) 241 2
Movement in collateral receivable (59) (24) (112)
Movement in collateral obligation
to counterparties (14) 87 105
Repayment of borrowings - 132 433
Fair value and other movements 9,864 (1,674) (833)
At the end of the period/year (30,395) (41,018) (40,185)
Cash and cash equivalents 1 241 2
Collateral receivable 196 343 255
Collateral obligation (14) (18) -
Borrowings included in current
liabilities (394) (306) -
Borrowings included in non-current
liabilities (30,184) (41,278) (40,442)
At the end of the period/year (30,395) (41,018) (40,185)
Increases in interest rates around the reporting date were the
main driver of the GBP9,864m decrease in the fair value of bonds
and loans since 31 March 2022. The increase in finance costs
reported in the Statement of Comprehensive Income occurred largely
as a result of the increase in RPI from 31 March 2022 to 30
September 2022 which had a direct impact on the finance costs
associated with index linked bonds.
4. Other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2022 2021 2022
GBPm GBPm GBPm
Current liabilities
Interest payable on bonds issued 209 210 144
Interest on long term loans 2 2 2
Collateral obligation 14 18 -
Total payables 225 230 146
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
2022 2021 2022
GBPm GBPm GBPm
(Restated)
Level 2:
Derivative financial assets 161 153 10
Financial assets at fair value 30,989 41,888 40,838
Level 1:
Bonds (26,147) (23,407) (34,650)
Level 2:
Derivative financial liabilities (347) (467) (261)
Bonds (4,431) (18,177) (5,792)
Financial liabilities held at fair
value (225) (230) (146)
Total - (240) (1)
The disclosure for 30 September 2021 is based on a refined
analysis from the published position.
A small number of privately held bonds have been valued by
management.
Fair values for Level 1 financial instruments are obtained from
Bloomberg, and where applicable, directly from the relevant third
parties.
Fair values for Level 2 financial instruments are derived from
Bloomberg (bonds, interest rate swaps and cross currency swaps),
apart from certain Level 2 financial liabilities (collateral and
accrued interest), which are carried at an amortised cost that
approximates the fair value.
A review of the categorisation of financial instruments into the
three levels is made at each reporting date. There was 1 transfer
from Level 2 to Level 1 (valued at 30 September 2022 GBP76m, 31
March 2022 GBP112m) and 1 transfer from Level 1 to Level 2 fair
value measurements (valued at 30 September 2022 GBP498m, 31 March
2022 GBP520m.)
6. Notes to the cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2022 2021 2022
GBPm GBPm GBPm
Profit before tax - - -
Adjustments for:
Fair value (gain) / loss on derivatives
and debt (9,929) - 822
Operating cash flow before movements
in working capital (9,929) - 822
(Increase) / decrease in receivables 9,855 325 (395)
Cash generated from operations (74) 325 427
Cash and cash equivalents (which are represented as a single
class of assets on the face of the balance sheet) comprise cash at
bank.
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.
8. Post balance sheet events
The fair values of the loan balances fluctuate over time in
response to market and macroeconomic conditions, including changes
in interest rates. The general market volatility at the reporting
date means that the valuations of the loans may vary significantly
compared to the value at the reporting date.
Apart from the events disclosed above, there have not been any
significant post balance sheet events, whether adjusting or
non-adjusting.
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END
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