TIDM85MJ
RNS Number : 4567T
Network Rail Infrastructure Finance
03 July 2018
Network Rail Infrastructure Finance PLC
Full year results
Year ended 31 March 2018
Strategic report
The directors present their strategic report of Network Rail
Infrastructure Finance PLC ("NRIF" or "the company") for the year
ended 31 March 2018.
Business review
NRIF 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 was 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
reimbursed by 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. 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 GBP40,000m
multi-currency note programme which has been assigned the following
credit ratings: AA by Standard and Poor's, Aa2 (outlook stable) by
Moody's and AA (outlook negative) by Fitch.
Financial review
During the year the company incurred finance costs of GBP1,330m
relating the interest on bonds in issue. These costs were passed
onto NRIL in the form of finance income. NRIF also made a loss of
GBP244m on the mark to market value of its derivatives (including
the effect of a GBP170m loss on a derivative maturing in the year),
and a gain of GBP480m on the retranslation of its foreign currency
debt (including the effect of a GBP170m gain on settlement of bond
maturing in the year). These gains and losses were passed through
to NRIL as part of the embedded derivative. On the Network Rail
group level the majority of these derivatives are in a hedge
accounting relationships against future DfT drawdowns for the
current control period.
NRIF made a profit before tax of GBP110,000 (2017: GBP110,000)
in the year ended 31 March 2018, 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. On wind up
of the company all shares and distributable reserves in the company
are held for charitable purposes.
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, 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.
During the year ending 31 March 2018, GBP1,524m of bonds matured
under the DIP. UK RPI index-linked debt was 74 per cent of gross
debt at 31 March 2018.
There was no issued commercial paper outstanding as at 31 March
2018 (2017:GBPnil).
The cash and cash equivalents balance as at 31 March 2018
totalled GBP1m, having decreased by GBP3m compared to year end
2017. 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
(further details are provided in note 12).
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 regular 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 (further details are
provided in note 12).
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.
Looking forward to Control Period 6 (2019-2024) NRIF will
continue in operation to manage the existing bond portfolio. NRIF
does not anticipate entering into any new derivative contracts in
the future and existing derivatives will be fully utilised by the
end of Control Period 5. Currently Network Rail is working with DfT
to assess the means by which liquidity is provided to the group as
a whole in CP6
Approved by the board of directors and signed by order of the
board
Samantha Pitt (director)
2 July 2018
Directors' report
The directors present their report and the annual financial
statements of the company for the year ended 31 March 2018.
Principal activities
The principal activity of NRIF is to act as issuer for Network
Rail's DIP.
Dividends
No dividend was paid or proposed in the current year (2017:
GBPnil).
Directors
NRIF maintains directors' and officers' liability insurance for
its directors with a cover limit of GBP150 million for each claim
or series of claims against them in their capacity as directors of
the company. The company also indemnifies its directors and
officers to the extent permitted by law.
Going concern
All of NRIF's activities are administered by NRIL's employees
and therefore the company does not have any employees.
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 above; the collateral
arrangements with banking counterparties as described in note 12 of
the financial statements; and that the company has an intercompany
agreement that recovers all net costs from NRIL.
The loan arrangement agreed between DfT and NRIL has resulted in
loans being made by DfT direct to NRIL. NRIF does not anticipate
issuing further bonds and NRIF's debt service obligations will
continue to be met through repayments of the intercompany loan by
NRIL.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Corporate Governance
NRIF employs no staff, and relies entirely on the governance
structures of its effective controlling party Network Rail Limited,
including its audit and risk committee. The role of these
governance structures is scoped to include NRIF's activities in
full. As permitted by DTR rule 1B.1.6, since it has not issued
shares which are admitted to trading, NRIF does not itself apply a
corporate governance code. However, it is subject to an
appropriate
degree of control and accountability as a result of Network Rail
Limited (NRL) applying the UK Corporate Governance Code, subject to
a small number of exceptions as disclosed in its accounts. The
principal exception to Code compliance at NRL is that due to the
public sector reclassification of the Network Rail group as a
whole, the Department for Transport expects (as described in
Network Rail's Framework Agreement) the Comptroller and Auditor
General to be appointed for Network Rail and its key subsidiaries,
including NRIF. NRL's annual reports and accounts consolidate
NRIF's financial results; describe the governance structures for
NRL, to which NRIF is also subject, and the activity of its audit
and risk committee; and describe Code compliance for the group as a
whole. These reports are available at
http://www.networkrail.co.uk
Approved by the board of directors and signed by order of the
board
Samantha Pitt (director)
2 July 2018
Statement of comprehensive income
for the year ended 31 March 2018
Notes 2018 2017
GBPm GBPm
Result from operations - -
Finance income 5 1,330 1,017
Finance costs 5 (1,330) (1,017)
Other gains and losses 6 - -
Profit before taxation - -
Tax - -
Profit and total comprehensive - -
income for the year
All income and expense is recognised in the statement of
comprehensive income.
Statement of changes in equity
Share Retained Total
capital earnings equity
GBPm GBPm GBPm
-
------------------------------- -------- --------- -------
At 31 March 2016 - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2017 - 1 1
Profit and total comprehensive
income for the year
At 31 March 2018 - 1 1
Balance sheet
at 31 March 2018
Notes 2018 2017
GBPm GBPm
Non-current assets
Receivables: amounts falling due after
more than one year 7 23,379 24,730
Derivative financial instruments 11 269 864
Total non-current assets 23,648 25,594
Current assets
Derivative financial instruments 11 1,278 1,524
Receivables: amounts falling due within
one year 7 2,669 2,333
Cash and cash equivalents 1 4
Total current assets 3,948 3,861
Total assets 27,596 29,455
Current liabilities
Loans 10 (1,962) (1,745)
Derivative financial instruments 11 (19) -
Other payables 8 (269) (444)
Total current liabilities (2,250) (2,189)
Net current assets 1,698 1,672
Non-current liabilities
Loans 10 (24,199) (25,738)
Derivative financial instruments 11 (1,146) (1,527)
Total non-current liabilities (25,345) (27,265)
Total liabilities (27,595) (29,454)
Net assets 1 1
Equity
Share capital 13 - -
Retained earnings 1 1
Total equity 1 1
The financial statements were approved by the board of directors
and authorised for issue on 2 July 2018. They were signed on its
behalf by:
Samantha Pitt (director)
Helena Whitaker (director)
Company registration number: 5090412
Statement of cash flows
for the year ended at 31 March 2018
2018 2017
Note GBPm GBPm
Cash flow from operating activities 14 1,819 2,167
Interest paid* (652) (593)
Net cash inflow from operating activities 1,167 1,574
Investing activities
Interest received 651 601
Net cash inflow from investing activities 651 601
Financing activities
Repayment of borrowings (1,524) (2,388)
Net collateral movement with counterparties (297) 123
Cash settlement derivatives not hedge
accounted - (6)
Net cash outflow from financing activities (1,821) (2,271)
Net decrease in cash and cash equivalents (3) (96)
Cash and cash equivalents at beginning
of the year 4 100
Cash and cash equivalents at end of
the year 1 4
*Balance includes the net interest on derivative financial
instruments
Notes to the Financial Statements
for the year ended 31 March 2018
1. General information
The financial information set out in this preliminary
announcement does not constitute the company's statutory accounts
for the years ended 31 March 2018 or 31 March 2017, but is derived
from those accounts. Whilst the financial information has been
prepared in accordance with International Financial Reporting
Standards (IFRS) and IFRS Interpretations Committee updates as
adopted by the European Union, this announcement itself does not
contain sufficient information to comply with IFRSs. Statutory
accounts for the year ended 31 March 2017 have been delivered to
the Registrar of Companies and those for the year ended 31 March
2018 will be delivered following the company's annual general
meeting. The auditors have reported on those accounts; their
reports were unqualified. This announcement has been prepared on
the basis of the accounting policies as stated in the previous
year's financial statements as no new Standards, Amendments or
Interpretations that became effective in the financial year. This
announcement was approved by the board on 2 July 2018.
2. Significant Accounting Policies
These financial statements have been prepared in accordance with
IFRS as adopted by the European Union, IFRIC interpretations and
the Companies Act 2006 as applicable to companies reporting under
IFRS.
The financial statements have been prepared under the historical
cost basis, except for the revaluation of derivative financial
instruments to fair value, and the principal accounting policies
have been applied consistently throughout the year.
The principal accounting policies are set out below.
Adoption of new and revised standards
The accounting policies adopted in this set of financial
statements are consistent with those set out in the annual
financial statements for the year to 31 March 2017.
The following accounting standards have not been early adopted
by the group but will become effective in future years and are
considered to have a material impact on the group:
i) IFRS 9 'Financial Instruments'. This is a new standard that
addresses the classification, measurement and recognition of
financial assets and liabilities. It is effective for accounting
periods starting after 1 January 2018 and will be effective in
NRIF's 2018-2019 annual accounts. NRIF has assessed that the
financial impact will be a grossing up of the financial assets and
liabilities of up to GBP50m.
There are no other IFRS or IFRS Interpretation Committee
interpretations not yet effective that would be expected to have a
material impact on the company.
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 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
amortised cost using straight line amortisation as a proxy for the
IAS 39 effective interest rate method. 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 and hedge accounting
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 other gains and losses in
the statement of comprehensive income.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their risks
and characteristics are not closely related to those of the host
contracts and the host contracts are not carried at fair value.
Unrealised gains or losses are reported in the statement of
comprehensive income.
Derivatives are presented in the balance sheet in line with
their maturity dates.
Investments
Investments are recognised on a trade date where a purchase or
sale of an investment is under contract whose terms require
delivery of the investment within the timeframe established by the
market concerned, and are initially measured at cost, including
transaction costs.
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 exchange rates prevailing at the
end of the financial year. Individual transactions denominated in
foreign currencies are translated into sterling at the exchange
rates prevailing on the date payment takes place. Gains or losses
realised on any foreign exchange movements are recognised in 'Other
gains and losses' 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 and embedded derivative. As such any gains and
losses relating to debt and derivatives are also passed through to
NRIL.
Tax
The tax expense represents the sum of the current tax payable
and deferred tax. The company's current tax liability is calculated
using the tax rates that have been enacted or substantively enacted
by the balance sheet date.
Current taxes are based on the taxable results of the company
and calculated in accordance with tax rules in the United
Kingdom.
3. Staff costs
The directors received no remuneration for their services in the
current or prior year. Other than the directors, there were no
employees of the company in the current or prior year.
Administration services are provided by NRIL.
4. Auditors' remuneration
Fees payable to the company auditors for the audit of the
company's annual accounts of GBP20,000 (2017: GBP20,000) have been
borne by NRIL. No other fees were payable by the company to the
company auditors in the current or prior year.
5. Finance income and finance costs
Year Year
ended ended
31 March 31 March
2018 2017
GBPm GBPm
Finance income
Interest receivable from NRIL 1,325 1,010
Interest receivable on investments 5 7
Total finance income 1,330 1,017
Finance costs
Interest payable on debt issued
under the DIP (1,144) (928)
Interest on bank loans and overdrafts (22) (14)
Net interest on derivative instruments (164) (75)
Total finance costs (1,330) (1,017)
6. Other gains and losses
Year Year
ended ended
31 March 31 March
2018 2017
GBPm GBPm
Gain/(loss) on retranslation of
external debt 480 (164)
Net (loss)/gain on fair value of
external
derivative financial instruments (244) 25
(Loss)/gain on fair value of embedded
derivative (236) 139
Total gains and (losses) - -
All gains and losses on intra-group borrowings are passed onto
NRIL through the embedded derivative. More details are provided in
the intra-group borrowings section of Note 2.
7. Receivables
31 March 31 March
2018 2017
GBPm GBPm
Non-current assets
Loans to NRIL 23,379 24,730
23,379 24,730
Current assets
Interest on loans to NRIL 181 184
Loans to NRIL 1,738 1,524
Interest on investments - -
Collateral placed with banking counterparties 750 625
2,669 2,333
Total receivables 26,048 27,063
8. Other payables
31 March 31 March
2018 2017
GBPm GBPm
Current liabilities
Collateral received from banking counterparties 87 259
Interest payable on bonds issued under
the DIP 180 183
Interest payable on European Investment
Bank long term loans 2 2
Total payables 269 444
================================================= ======== ==========
9. Loans
Bonds issued under the DIP are analysed as follows:
31 March 31 March
2018 2017
GBPm GBPm
------------------------------------------- --------- ---------
1.085% sterling index linked bond due
2052 134 129
0% sterling index linked bond due 2052 144 137
1.003% sterling index linked bond due
2051 25 24
0.53% sterling index linked bond due 2051 129 124
0.517% sterling index linked bond due
2051 130 125
0% sterling index linked bond due 2051 144 138
0.678% sterling index linked bond due
2048 127 122
1.125% sterling index linked bond due
2047 5,559 5,366
0% sterling index linked bond due 2047 91 87
1.1335% sterling index linked bond due
2045 52 50
1.5646% sterling index linked bond due
2044 290 279
1.1565% sterling index linked bond due
2043 58 56
1.1795% sterling index linked bond due
2041 71 69
1.2219% sterling index linked bond due
2040 285 275
1.2025% sterling index linked bond due
2039 78 75
4.6535% sterling bond due 2038 100 100
1.375% sterling index linked bond due
2037 5,447 5,247
4.75% sterling bond due 2035 1,231 1,230
1.6492% sterling index linked bond due
2035 433 418
4.375% sterling bond due 2030 872 871
1.75% sterling index linked bond due 2027 5,328 5,157
4.615% Norwegian krone bond due 2026 45 46
4.57% Norwegian krone bond due 2026 13 13
1.9618% sterling index linked bond due
2025 366 353
4.75% sterling bond due 2024 740 738
3% sterling bond due 2023 398 398
2.76% Swiss franc bond due 2021 224 238
2.315% Japanese yen bond due 2021 67 72
2.28% Japanese yen bond due 2021 67 72
2.15% Japanese yen bond due 2021 67 72
4.625% sterling bond due 2020 999 999
1.75% US dollar bond due 2019 713 797
0.875% US dollar bond due 2018 1,249 1,394
0.75% US dollar bond due 2017 - 996
1% sterling bond due 2017 - 749
25,677 27,016
=========================================== ========= =========
Other long term loans are analysed as follows:
31 March 31 March
2018 2017
GBPm GBPm
-------------------------------------- -------- --------
Index linked European Investment Bank
due 2036 and 2037 484 467
484 467
====================================== ======== ========
The Secretary of State for Transport has provided an unlimited
financial indemnity in respect of the above borrowings and those
borrowings under the DIP which expires in 2052.
10. Net borrowings
31 March 31 March
2018 2017
GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents 1 4
Collateral receivable 750 625
Collateral obligation (87) (259)
Bank loans (484) (467)
Bonds issued under the DIP (25,677) (27,016)
(25,497) (27,113)
Movement in net borrowings
At the beginning of the year (27,113) (28,702)
Decrease in cash and cash equivalents (3) (96)
Movement in collateral receivable 125 (194)
Movement in collateral obligation to counterparties 172 71
Repayments of borrowings 1,524 2,388
Capital accretion on index-linked bonds (715) (449)
Exchange differences 480 (164)
Fair value and other movements 33 33
At the end of the year (25,497) (27,113)
Net borrowings are reconciled to the balance
sheet as set out below:
Cash and cash equivalents* 1 4
Collateral receivable 750 625
Collateral obligation (87) (259)
Borrowings included in current liabilities (1,962) (1,745)
Borrowings included in non-current liabilities (24,199) (25,738)
At the end of the year (25,497) (27,113)
==================================================== ======== ===================
11. Derivative financial instruments
31 March 2018 31 March 2017
Fair Notional Fair Notional
value amounts value amounts
GBPm GBPm GBPm GBPm
================================== ======== ========= ======== =========
Derivative financial assets
included in non-current
assets 269 3,495 864 9,271
Derivative financial assets
included in current assets 228 3,100 237 2,959
Embedded derivatives in
the inter-company loan to
NRIL (included in current
assets) 1,050 32,009 1,287 29,908
================================== ======== ========= ======== =========
1,547 38,604 2,388 42,138
================================== ======== ========= ======== =========
31 March 2018 31 March 2017
Fair Notional Fair Notional
Value amounts Value amounts
GBPm GBPm GBPm GBPm
================================== ======== ========= ======== =========
Derivative financial liabilities
included in current liabilities (19) 2,352 - -
Derivative financial liabilities
included in non-current
liabilities (1,146) 23,062 (1,527) 17,678
================================== ======== ========= ======== =========
(1,165) 25,414 (1,527) 17,678
================================== ======== ========= ======== =========
12. Funding and financial risk management
Introduction
The company 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 NRL. The Network Rail group is largely
debt funded.
Summary table of financial assets and liabilities
The following table presents the carrying amounts and the fair
values of the company's financial assets and liabilities at 31
March 2018 and 31 March 2017.
The fair values of financial assets and liabilities are
recognised at the amount at which the instrument could be exchanged
for in a current transaction between willing parties, other than in
a forced or liquidation sale. With the exception of bank loans and
bonds, all financial assets and liabilities are carried at amounts
that approximate to their fair value. Those amounts are in
accordance with the significant accounting policies set out in Note
2. Bank loans are valued based on market data at the balance sheet
date and the net present value of discounted cash flows. Bonds
issued under the DIP are valued based on market data at the balance
sheet date. Where market data is not available valuations are
obtained from dealing banks.
31 March 2018 31 March 2017
Carrying value Fair Carrying value Fair
value value
GBPm GBPm GBPm GBPm
================================== =============== ========= =============== ===========
Financial assets
Cash and cash equivalents 1 1 4 4
Loans and receivables
- Loans to NRIL 25,117 25,117 26,254 26,254
Collateral receivable 750 750 625 625
================================== =============== ========= =============== ===========
25,868 25,868 26,883 26,883
================================== =============== ========= =============== ===========
Other non-derivative
financial assets
Trade and other receivables
at amortised cost 181 181 184 184
Derivatives
Derivative financial
instruments 497 497 1,101 1,101
---------------------------------- --------------- --------- --------------- -----------
Total derivatives 1,547 1,547 2,388 2,388
================================== =============== ========= =============== ===========
Total financial assets 27,596 27,596 29,455 29,455
================================== =============== ========= =============== ===========
31 March 2018 31 March 2017
Carrying Fair Carrying value Fair value
value value
GBPm GBPm GBPm GBPm
---------------------------------- --------------- --------- --------------- -------------
Financial liabilities
Financial liabilities held
at amortised cost:
Collateral held (87) (87) (259) (259)
European Investment Bank loans (484) (811) (467) (872)
Bonds issued under the DIP (25,677) (30,893) (27,016) (33,435)
---------------------------------- --------------- --------- --------------- -------------
(26,248) (31,791) (27,742) (34,566)
Trade and other payables at
amortised cost (182) (182) (185) (185)
Derivatives
Derivative financial instruments (1,165) (1,165) (1,527) (1,527)
---------------------------------- --------------- --------- --------------- -------------
Total derivatives (1,165) (1,165) (1,527) (1,527)
---------------------------------- --------------- --------- --------------- -------------
Total financial liabilities (27,595) (33,138) (29,454) (36,278)
================================== =============== ========= =============== =============
Derivatives
The company has contracted with NRIL to administer the DIP, the
terms of which are set out in an administration agreement. NRIL has
a comprehensive risk management process and the Treasury Committee,
being a full sub-committee of the Network Rail board, has approved
and monitors the risk management processes, including documented
treasury policies, counterparty limits, controlling and reporting
structures.
Proceeds from the DIP are lent on to NRIL under the intercompany
loan agreement which gives rise to an embedded derivative. In
addition, the company also uses other derivatives to reduce the
foreign exchange risk and interest rate risk of NRIL. The company
does not use derivative financial instruments for speculative
purposes. The use of derivative instruments can give rise to credit
and market risk. Market risk is the possibility that future changes
in foreign exchange rates and interest rates may make a derivative
more or less valuable. Since the company uses derivatives for risk
management, market risk relating to derivative instruments will
principally be offset by changes in the valuation of the underlying
assets or liabilities.
Credit risk
The credit risk with regard to all classes of derivative
financial instrument is limited because counterparties are banks
with high credit ratings assigned by international credit-rating
agencies. A treasury sub-committee of the NRIL board authorises the
policy for setting counterparty limits based on credit-ratings. The
company spreads its exposure over a number of counterparties and
has strict policies on how much exposure can be assigned to each
counterparty before cash collateral is sought.
The concentration of the company's investments varies depending
on the level of surplus liquidity. However, because of the strict
criteria governing counterparties' suitability the risk is
mitigated. A treasury sub-committee of the NRIL board also
authorises the types of investment and borrowing instruments that
may be used.
The credit risk on the intercompany loan with NRIL is considered
limited as the Secretary of State for Transport has provided an
unlimited financial indemnity in respect of borrowings under the
DIP which expires in 2052 meaning that obligations to debt holders
could still be fulfilled without NRIL.
Particular attention is paid to the credit risk of swap
counterparties. 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. The thresholds were agreed by the treasury committee.
In December 2012 the group entered into new collateral agreements
in respect of derivative trades entered into after 1 January 2013.
Under the terms of the new agreements Network Rail and its
counterparties are required to post collateral for the full fair
value of their net out of the money positions.
Foreign exchange risk
The company is exposed to currency risks from its financing and,
from time to time, investing activities. Foreign exchange risk for
all currencies is managed by the use of currency swaps to limit the
effects of movements in exchange rates on foreign currency
denominated assets and liabilities.
The company considers a ten percentage point increase in the
value of any currency against sterling to be a reasonably possible
change and this would not have a material impact on the company's
net profit before tax or equity. This is due to the workings of the
intercompany loan agreement and the consequent embedded
derivative.
Interest and inflation rate risk
The company is exposed to interest rate risk from its financing
and investing activities. Interest rate risk for all debt is
managed by the use of interest rate swaps to limit the effects of
movements in interest rates on floating rate liabilities.
Due to the workings of the intercompany loan agreement and the
consequent embedded derivative, an increase or decrease in average
interest rates during the year would have no impact upon the
statement of comprehensive income, the net assets or the reserves
of the company.
The company has certain debt issuances which are index-linked
and so is exposed to movements in inflation rates. The company does
not enter into any derivative arrangements to hedge these.
Due to the workings of the intercompany loan agreement and the
consequent embedded derivative an increase or decrease in average
inflation rates during the year would have no impact upon the
statement of comprehensive income, the net assets or the reserves
of the company.
Embedded derivative
The obligations and rights of the company under the intercompany
loan agreement with NRIL give rise to an embedded derivative in
that agreement which reflects the external currency and interest
rates risks to which the company is exposed. The embedded
derivative is treated as a separate derivative and accounted for in
accordance with the accounting policy in note 2.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the board of directors. A treasury sub-committee of the board of
NRIL, who acts as administrator for NRIF, has built an appropriate
liquidity risk management framework for the management of the
company's short, medium and long-term funding and liquidity
management requirements. 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 GBP4bn commercial paper programme
is available to provide liquidity in the event of the withdrawal
of, or default by DfT, under the DfT Loan Facility.
Treasury is subject to regular internal audits.
In addition, the Secretary of State for Transport has provided
an unlimited financial indemnity in respect of borrowings under the
DIP (which expires in 2052).
The following table details the company's remaining contractual
maturity for its financial liabilities. The table has been drawn up
on the undiscounted cash flows of financial liabilities based on
the earliest date on which the company can be required to pay and,
therefore, differs from both the carrying value and the fair value.
The table includes both interest and principal cash flows.
Within 1-2 2-5 years 5+ Total
1 year years years
GBPm GBPm GBPm GBPm GBPm
============================== ======== ======= ========== ========= =========
31 March 2018
Non derivative financial liabilities
Bank loans and overdrafts (5) (5) (14) (483) (507)
Sterling denominated
DIP bonds (196) (196) (1,496) (4,573) (6,461)
Sterling denominated
index linked DIP bonds (256) (264) (839) (38,849) (40,208)
Foreign currency denominated
DIP bonds (1,993) (13) (454) (69) (2,529)
Derivative financial
liabilities
Net settled derivative
contracts (191) (177) (372) (104) (844)
Gross settled derivative
contracts - receipts 1,993 13 454 69 2,529
Gross settled derivative
contracts - payments (1,757) (5) (282) (61) (2,105)
Collateral held (87) - - - (87)
============================== ======== ======= ========== ========= =========
(2,492) (647) (3,003) (44,070) (50,212)
============================== ======== ======= ========== ========= =========
Within 1-2 2-5 years 5+ Total
1 year years years
GBPm GBPm GBPm GBPm GBPm
============================== ======== ======== ========== ========= =========
31 March 2017
Non derivative financial liabilities
Bank loans and overdrafts (3) (3) (9) (527) (542)
Bonds issued under the DIP
Sterling denominated
DIP bonds (971) (214) (1,595) (5,149) (7,929)
Sterling denominated
index linked DIP bonds (155) (155) (464) (20,612) (21,386)
Foreign currency denominated
DIP bonds (1,055) (2,237) (535) (979) (4,806)
Derivative financial
liabilities
Net settled derivative
contracts (160) (280) (916) (409) (1,765)
Gross settled derivative
contracts - receipts 1,040 2,225 495 73 3,833
Gross settled derivative
contracts - payments (794) (1,764) (276) (61) (2,895)
Collateral held (259) - - - (259)
============================== ======== ======== ========== ========= =========
(2,357) (2,428) (3,300) (27,664) (35,749)
============================== ======== ======== ========== ========= =========
Offsetting financial assets and liabilities
a) Financial assets
The following financial assets are subject to offsetting,
enforceable master netting arrangements and similar agreements.
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Cash collateral Net amount
amounts amounts of financial instruments received
of recognised of recognised assets
financial financial presented
assets liabilities in the
set off balance
in the sheet
balance
sheet
31 March 2018 GBPm GBPm GBPm GBPm GBPm GBPm
Derivative financial
assets 1,547 - 1,547 (406) 123 1,264
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Cash collateral Net amount
amounts amounts of financial instruments received
of recognised of recognised assets
financial financial presented
assets liabilities in the
set off balance
in the sheet
balance
sheet
31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
Derivative financial
assets 2,388 - 2,388 (868) (9) 1,511
b) Financial liabilities
The following financial liabilities are subject to offsetting,
enforceable master netting arrangements and similar agreements.
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Cash collateral Net amount
amounts amounts of financial instruments paid
of recognised of recognised liabilities
financial financial presented
liabilities assets in the
set off balance
in the sheet
balance
sheet
31 March 2018 GBPm GBPm GBPm GBPm GBPm GBPm
Derivative financial
liabilities (1,165) - (1,165) 406 540 (219)
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Cash collateral Net amount
amounts amounts of financial instruments paid*
of recognised of recognised liabilities
financial financial presented
liabilities assets in the
set off balance
in the sheet
balance
sheet
31 March 2017 GBPm GBPm GBPm GBPm GBPm GBPm
Derivative financial
liabilities (1,527) - (1,527) 868 375 (284)
* due to over-collateralisation, the cash collateral paid is
limited to the remaining amount of the net financial liabilities
presented in the balance sheet
Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial
instruments measured at their 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).
As at 31 March 2018: Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
================================== ========= ======== ====== =========
Derivative financial assets - 1,547 - 1,547
Financial assets at amortised
cost - 26,049 - 26,049
================================== ========= ======== ====== =========
Assets - 27,596 - 27,596
================================== ========= ======== ====== =========
Derivative financial liabilities - (1,165) - (1,165)
Financial liabilities held at
amortised cost (29,989) (1,896) - (31,885)
================================== ========= ======== ====== =========
Liabilities (29,989) (3,061) - (33,050)
================================== ========= ======== ====== =========
Total (29,989) 24,535 - (5,454)
================================== ========= ======== ====== =========
There were no transfers between Level 1 and 2 during the
year.
As at 31 March 2017: Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
================================== ========= ======== ====== =========
Derivative financial assets - 2,388 - 2,388
Financial assets at amortised
cost - 27,067 - 27,067
================================== ========= ======== ====== =========
Assets - 29,455 - 29,455
================================== ========= ======== ====== =========
Derivative financial liabilities - (1,527) - (1,527)
Financial liabilities held at
amortised cost (32,784) (2,267) - (35,051)
================================== ========= ======== ====== =========
Liabilities (32,784) (3,794) - (36,578)
================================== ========= ======== ====== =========
Total (32,784) 25,661 - (7,123)
================================== ========= ======== ====== =========
There were no transfers between Level 1 and 2 during the prior
year.
The fair value of Level 2 derivatives is estimated by
discounting the future contractual cash flows using appropriate
yield curves based on quoted market rates as at the current
financial year end.
13. Share capital
31 March 31 March
2018 2017
GBP GBP
Authorised, issued and partly paid:
2 ordinary shares of GBP1 fully paid
up 2 2
49,998 ordinary shares of GBP1 partly
paid to GBP0.25 each 12,500 12,500
12,502 12,502
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares are shown
in equity as a deduction, net of tax, from the proceeds.
14. Notes to the cash flow statement
31 March 31 March
2018 2017
GBPm GBPm
Profit before tax - -
Operating cash flow before movements in -
working capital
Increase in receivables 1,819 2,167
Net cash generated by operating activities 1,819 2,167
Cash and cash equivalents (which are represented as a single
class of assets on the face of the balance sheet) comprise cash at
bank, money fund balances and money market deposit investments with
a maturity of up to three months.
15. Controlling party and related party transactions
50,000 shares of the company are held by Intertrust Corporate
Services Limited[a]. 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.
[a] During the period NRIF was notified that HSBC Trustee (C.I.)
Limited would no longer be providing share trustee responsibilities
to its clients and the responsibilities needed to be transferred to
another provider. Intertrust Corporate Services Limited was
appointed on 5 October 2017 to fulfil these responsibilities.
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
FR SSMFLDFASEFW
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