TIDM85MJ
RNS Number : 9729G
Network Rail Infrastructure Finance
26 November 2015
26 November 2015
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2015/16
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 will be 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
will continue 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 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 GBP40,000m,
which has been assigned the following credit ratings: AAA by
Standard and Poor's, Aa1 (stable outlook) by Moody's and AA+
(stable outlook) by Fitch.
NRIF made a profit before tax of GBP55,000 in the six months to
30 September 2015, 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.
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 and Regional Accounts
in the European Union 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 facility made directly to NRIL. As
a result, from 4 July 2014, Network Rail 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.
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 2015 there was GBP30,602m of bonds outstanding
issued under the DIP. During the period GBP965m of nominal bonds
matured. UK RPI index-linked debt was 59 per cent of gross debt at
30 September 2015.
There was no issued commercial paper outstanding as at 30
September 2015 (GBP604m outstanding at 30 September 2014).
The cash and cash equivalents balance as at 31 September 2015
totalled GBP114m, having decreased by GBP215m compared to year end
2015. Cash balances are required for settlement of maturing bonds
and for the purposes of managing collateral posted by financial
derivative counterparties.
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 loan agreement in order to maintain
liquidity. In addition a GBP4,000m commercial paper programme is
available to provide liquidity in the event of the withdrawal of,
or default by, DfT under the DfT Loan Facility.
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 prudently
maximising interest receivable on surplus cash.
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 strategic report on pages 38-42 of the Network
Rail Limited annual report and accounts 2015. There are also
further details on funding and financial risk management in note 25
on pages 119-127 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.
The directors of NRIF are listed in the NRIF annual accounts for
the year ended 31 March 2015.
Approved by the board of directors and signed by order of the
board
By order of the board,
Samantha Pitt (director)
24 November 2015
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 2015 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.
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