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| Name | Symbol | Market | Type |
|---|---|---|---|
| Net.r.i.4.75% | LSE:85MJ | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.275 | -0.28% | 98.625 | 96.65 | 100.60 | 98.825 | 98.55 | 98.75 | 0 | 12:19:27 |
From Dec 2019 to Dec 2024
TIDM85MJ
RNS Number : 0282G
Network Rail Infrastructure Finance
18 July 2019
Network Rail Infrastructure Finance PLC
Full year results
Year ended 31 March 2019
Strategic report
The directors present their strategic report of Network Rail Infrastructure Finance PLC ("NRIF" or "the company") for the year ended 31 March 2019.
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.
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 (negative watch) by Fitch.
Financial review
During the year the company incurred finance costs of GBP1,187m (2017/18: GBP1,330m) relating the interest on bonds in issue. These costs were passed onto NRIL in the form of finance income for NRIF. NRIF also made a loss of GBP8m on the mark to market value of its derivatives, and a loss of GBP910m on the fair value of foreign currency debt, largely due to the change in the accounting policy, brought on by the adoption of IFRS 9 'Financial Instruments' in the year, in which debt is remeasured to fair value. These gains and losses were passed through to NRIL as part of the intercompany loan receivable. 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 (2018: GBP110,000) in the year ended 31 March 2019, 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 was 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 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 2019, GBP1,738m of bonds matured under the DIP. UK RPI index-linked debt was 80 per cent of gross debt at 31 March 2019.
There was no commercial paper outstanding as at 31 March 2019 (2018:GBPnil).
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 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 enough funds to meet its obligations to NRIF. NRIL can vary drawdowns under the DfT loan agreement 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 is limited because both Network Rail and its counterparties are required to post cash collateral on their full adverse net derivative positions. The new agreements do not contain threshold provisions.
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 are currently being fully utilised. Substantially all of the derivatives will have matured by the end of CP6.
Approved by the board of directors and signed by order of the board
Paul Marshall (director)
16 July 2019
Directors' report
The directors present their report and the annual financial statements of the company for the year ended 31 March 2019.
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 (2018: 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
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 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
All of NRIF's activities are administered by NRIL's employees and therefore the company does not have any employees. NRIF relies on the governance structures of its effective controlling party Network Rail Limited (NRL), 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 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 as independent auditor 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
Paul Marshall (director)
16 July 2019
Statement of comprehensive income
for the year ended 31 March 2019
Hot Features
Premium
Notes 2019 2018*
GBPm GBPm
Result from operations - -
Finance income 5 1,187 1,330
Finance costs 5 (1,187) (1,330)
Other gains and losses 6 - -
Profit before taxation - -
Tax - -
Profit and total comprehensive - -
income for the year
All income and expenses are recognised in the statement of comprehensive income.
Statement of changes in equity
for the year ended 31 March 2019
Share Retained Total
capital earnings equity
GBPm GBPm GBPm
-
------------------------------- -------- --------- -------
At 31 March 2017* - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2018* - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2019 - 1 1
Balance sheet
at 31 March 2019
Notes 2019 2018* 2017*
GBPm GBPm GBPm
Non-current assets
Receivables: amounts falling due after
more than one year* 7 30,650 29,977 33,425
Derivative financial instruments 11 340 269 864
Total non-current assets 30,990 30,246 34,289
Current assets
Derivative financial instruments* 11 10 228 237
Receivables: amounts falling due within
one year* 7 904 2,664 2,303
Cash and cash equivalents 10 - 1 4
Total current assets 914 2,893 2,544
Total assets 31,904 33,139 36,833
Current liabilities
Loans* 9 - (1,957) (1,715)
Derivative financial instruments 11 (51) (19) -
Other payables 8 (215) (269) (444)
Total current liabilities (266) (2,245) (2,159)
-
---------------------------------------- ----- -------- -------- --------
Net current assets 648 648 385
Non-current liabilities
Loans* 9 (30,657) (29,747) (33,146)
Derivative financial instruments 11 (980) (1,146) (1,527)
Total non-current liabilities (31,637) (30,893) (34,673)
Total liabilities (31,903) (33,138) (36,832)
Net assets 1 1 1
Equity
Share capital 13 - - -
Retained earnings 1 1 1
Total equity 1 1 1
* Prior period comparatives have been restated to fair value for IFRS 9 classification and measurement requirements. See note 16 for further details.
The financial statements were approved by the board of directors and authorised for issue on 16 July 2019. They were signed on its behalf by: Paul Marshall (director) Douglas Armour (director) Company registration number: 5090412
Statement of cash flows
for the year ended at 31 March 2019
2019 2018
Note GBPm GBPm
Cash flow from operating activities 14 1,764 1,819
Interest paid* (696) (652)
Net cash inflow from operating activities 1,068 1,167
Investing activities
Interest received 695 651
Net cash inflow from investing activities 695 651
Financing activities
Repayment of borrowings (1,738) (1,524)
Net collateral movement with counterparties (26) (297)
Cash settlement derivatives not hedge -
accounted
Net cash outflow from financing activities (1,764) (1,821)
Net decrease in cash and cash equivalents (1) (3)
Cash and cash equivalents at beginning
of the year 1 4
Cash and cash equivalents at end of
the year - 1
*Balance includes the net interest on derivative financial instruments
Notes to the Financial Statements
for the year ended 31 March 2019
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 2019 or 31 March 2018 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 IFRS. Statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies and those for the year ended 31 March 2019 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 financial statements for the year ended 31 March 2019.
This announcement was approved by the board on 16 July 2019.
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 fair value basis (previously historic cost basis with exceptions), as bank loans and bonds, financial assets and liabilities are carried at fair value, with the exception of interest which accrues on the nominal value of bonds in issue. 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, other than for the changes explained below, are consistent with those set out in the annual financial statements for the year to 31 March 2018.
The following accounting standards have been adopted by the company for the year to 31 March 2019 and are considered to have a material impact on the company:
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.
During the period the company adopted the classification and measurement requirements of IFRS 9 'Financial Instruments'. As the new standard does not permit bifurcation of classification between embedded derivatives in financial assets and their host contracts and since the intercompany loan does not meet the 'solely payment of principal and interest' test, the entire loan receivable from Network Rail Infrastructure Limited (NRIL) has been restated to fair value. To eliminate the mismatch between the external bonds (previously held at amortised cost) that NRIF holds and the intercompany loan receivable with NRIL, all bonds have also been designated irrevocably at fair value through profit and loss (FVTPL). As part of this adoption, prior period comparatives have been restated and additional disclosures have been included in the notes to the financial statements.
The company has assessed the impact on other financial assets and other financial liabilities, which are held at FVTPL (including cash and cash equivalents (where applicable)).
The monetary impact of adoption of IFRS 9 for the year ended 31 March 2019, is detailed in note 16 to the financial statements, which sets out the impact of adjusting all impacted financial instruments to fair value. This information supersedes the estimated impact disclosed during the year ended 31 March 2018, which considered selected instruments based on information available at that stage.
There are no other IFRS or IFRS Interpretation Committee interpretations, effective and not yet effective, that would be expected to have a material impact on the company.
Expected credit losses
The company's exposure to credit risk is limited to the intercompany receivable balance from Network Rail Infrastructure Limited (NRIL). All NRIF borrowings, related balances and risks are passed on to NRIL in line with the terms of the intercompany loan agreement between NRIF and NRIL. NRIF has historically not recognised any allowances for credit losses based on current credit risk, and, due to there not being any significant change or increase in credit risk, no future expected credit losses are recognised.
The Network Rail group as a whole has continued to recognise 12 month expected losses that are updated at each reporting date.
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 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). 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 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 are presented in the balance sheet in line with their maturity dates.
Investments
Investments are classified and measured initially at fair value (equal to cost), and subsequently measured at fair value through other comprehensive income, with gains or losses from changes in fair value recognised directly in other comprehensive income. Changes in fair value are not subsequently recycled to profit and loss and dividends (where applicable) are recognised in profit or loss.
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 now captured within the fair value line of '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. As such any gains and losses relating to debt and derivatives are also passed through to NRIL. As the intra-group loan receivable with NRIL fails the Solely Payment of Principal and Interest test, it is carried at FVTPL.
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 GBP25,000 (2018: 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
2019 2018
GBPm GBPm
Finance income
Interest receivable from NRIL 1,178 1,325
Interest receivable on investments 9 5
Total finance income 1,187 1,330
Finance costs
Interest payable on debt issued
under the DIP (934) (1,144)
Interest on bank loans and overdrafts (21) (22)
Net interest on derivative instruments (232) (164)
Total finance costs (1,187) (1,330)
6. Other gains and losses
Year Year
ended ended
31 March 31 March
2019 2018
GBPm GBPm
(restated)
(Loss)/gain on fair value of external
debt (910) 1,496
Net loss on fair value of external
derivative financial instruments (8) (244)
Gain/(loss) on fair value of intercompany
loan to NRIL 918 (1,252)
Total gains and (losses) - -
All gains and losses on intra-group borrowings are passed onto NRIL. More details are provided in the intra-group borrowings section of Note 2.
7. Receivables
31 March 31 March
2019 2018*
GBPm GBPm
(restated)
Non-current assets
Loans to NRIL* 30,650 29,977
30,650 29,977
Current assets
Interest on loans to NRIL* 177 181
Loans to NRIL* - 1,733
Interest on investments - -
Collateral placed with banking counterparties 727 750
904 2,664
Total receivables 31,554 32,641
*Refer to Note 16 for impact of adoption of IFRS 9 on comparative balances.
8. Other payables
31 March 31 March
2019 2018
GBPm GBPm
(restated)
Current liabilities
Collateral received from banking counterparties 38 87
Interest payable on bonds issued under
the DIP 175 180
Interest payable on European Investment
Bank long term loans 2 2
Total payables 215 269
================================================= ======== ===========
9. Loans
Bonds issued under the DIP are analysed as follows:
31 March 31 March
2019 2018*
GBPm GBPm
(restated)
========================================================= ========= ============
0.875% US dollar bond due 2018 - 1,247
1.75% US dollar bond due 2019 - 710
4.625% sterling bond due 2020 1,049 1,082
2.76% Swiss franc bond due 2021 251 249
2.315% Japanese yen bond due 2021 73 71
2.28% Japanese yen bond due 2021 73 71
2.15% Japanese yen bond due 2021 73 72
3% sterling bond due 2023 435 435
4.75% sterling bond due 2024 881 892
1.9618% sterling index linked bond due 2025 486 471
4.615% Norwegian krone bond due 2026 53 53
4.57% Norwegian krone bond due 2026 15 15
1.75% sterling index linked bond due 2027 5,186 5,052
4.375% sterling bond due 2030 1,153 1,131
4.75% sterling bond due 2035 1,812 1,788
1.6492% sterling index linked bond due 2035 738 676
1.375% sterling index linked bond due 2037 6,687 6,471
4.6535% sterling bond due 2038 147 145
1.2025% sterling index linked bond due 2039 103 100
1.2219% sterling index linked bond due 2040 520 489
1.1795% sterling index linked bond due 2041 99 95
1.1565% sterling index linked bond due 2043 83 80
1.5646% sterling index linked bond due 2044 609 573
1.1335% sterling index linked bond due 2045 76 74
1.125% sterling index linked bond due 2047 7,813 7,637
0% sterling index linked bond due 2047 92 88
0.678% sterling index linked bond due 2048 185 178
1.003% sterling index linked bond due 2051 42 41
0.53% sterling index linked bond due 2051 197 193
0.517% sterling index linked bond due 2051 197 129
0% sterling index linked bond due 2051 235 146
1.085% sterling index linked bond due 2052 206 204
0% sterling index linked bond due 2052 235 232
--------------------------------------------------------- --------- ------------
Total bonds issued under DIP 29,804 30,890
Index linked European Investment Bank due 2036 and 2037 853 811
Total bonds issued 30,657 31,701
--------------------------------------------------------- --------- ------------
Split as:
Current - 1,957
Non-current 30,657 29,747
Total 30,657 31,704
*Refer to Note 16 for impact of adoption of IFRS 9 on comparative balances.
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
2019 2018*
GBPm GBPm
(restated)
Net borrowings by instrument
Cash and cash equivalents - 1
Collateral receivable 727 750
Collateral obligation (38) (87)
Bank loans (853) (811)
Bonds issued under the DIP (29,804) (30,893)
(29,968) (31,040)
Movement in net borrowings
At the beginning of the year (31,040) (34,491)
Decrease in cash and cash equivalents (1) (3)
Movement in collateral receivable (23) 125
Movement in collateral obligation to counterparties 49 172
Repayments of borrowings 1,738 1,524
Exchange differences - -
Fair value and other movements (691) 1,633
At the end of the year (29,968) (31,040)
Net borrowings are reconciled to the balance
sheet as set out below:
Cash and cash equivalents - 1
Collateral receivable 727 750
Collateral obligation (38) (87)
Borrowings included in current liabilities - (1,957)
Borrowings included in non-current liabilities (30,657) (29,747)
At the end of the year (29,968) (31,040)
==================================================== ======== ===========
*Refer to Note 16 for impact of adoption of IFRS 9 on comparative balances.
11. Derivative financial instruments
Derivatives are split as follows:
31 March 31 March
2019 2018*
GBPm GBPm
(restated)
Derivative financial assets - Current
Interest rate swaps 10 11
Cross currency swaps 217
----------------------------------------------- -------- --------------
Total Current 10 228
Derivative financial assets - Non-current
Interest rate swaps 119 48
Cross currency swaps 221 221
----------------------------------------------- -------- --------------
Total Non-current 340 269
----------------------------------------------- -------- --------------
Total Derivative financial assets 350 497
Derivative financial liabilities - Current
Interest rate swaps (51) -
=============================================== ======== ==============
Total Current (51) -
=============================================== ======== ==============
Derivative financial liabilities - Non-current
Interest rate swaps (980) (1,165)
=============================================== ======== ==============
Total Non-current (980) (1,165)
Total Derivative financial liabilities (1,031) (1,165)
*Refer to Note 16 for impact of adoption of IFRS 9 on comparative balances.
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 2019 and 31 March 2018.
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. All financial assets and liabilities are carried at amounts that approximate to their fair value.
31 March 2019 31 March 2018
Carrying value Fair Carrying value Fair
value value
GBPm GBPm GBPm GBPm
Financial assets
Cash and cash equivalents - - 1 1
Loans and receivables
- Loans to NRIL 30,650 30,650 31,710 31,710
Collateral receivable 727 727 750 750
31,377 31,377 32,461 32,461
Other non-derivative
financial assets
Trade and other receivables
at amortised cost 177 177 181 181
Derivatives
Derivative financial
instruments 350 350 496 496
Total derivatives 350 350 496 496
Total financial assets 31,904 31,904 33,138 33,138
31 March 2019 31 March 2018
Carrying Fair Carrying Fair value
value value value
GBPm GBPm GBPm GBPm
Financial liabilities
Financial liabilities held
at amortised cost:
Collateral held (38) (38) (87) (87)
European Investment Bank
loans (853) (853) (811) (811)
Bonds issued under the DIP (29,804) (29,804) (30,893) (30,893)
Cash and cash equivalents - - - -
(30,695) (30,695) (31,791) (31,791)
Trade and other payables
at amortised cost (177) (177) (182) (182)
Derivatives
Derivative financial instruments (1,031) (1,031) (1,165) (1,165)
Total derivatives (1,031) (1,031) (1,165) (1,165)
Total financial liabilities (31,903) (31,903) (33,138) (33,138)
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 intercompany loan receivable. 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 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. The treasury committee of the Network Rail board authorises the policy for setting counterparty limits based on credit-ratings.
The company spreads its exposure over a few 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 regarding 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 using 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.
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 using 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 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 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.
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 internal audits and committee reviews.
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 tables 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 2019
Non-derivative financial
liabilities
Bank loans and overdrafts (6) (6) (18) (582) (612)
Sterling denominated
DIP bonds (196) (1196) (1,600) (3,273) (6,265)
Sterling denominated
index linked DIP bonds (268) (276) (852) (40,993) (42,389)
Foreign currency denominated
DIP bonds (14) (14) (459) (65) (552)
Derivative financial
liabilities
Net settled derivative
contracts (231) (137) (247) (44) (659)
Gross settled derivative
contracts - receipts 14 14 459 65 552
Gross settled derivative
contracts - payments (3) (6) (278) (60) (347)
Collateral held (38) - - - (38)
============================== ======== ======== ========== ========= ===========
(742) (1,621) (2,995) (44,952) (50,310)
============================== ======== ======== ========== ========= ===========
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)
Offsetting financial assets and liabilities
The following financial assets and 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 Net Collateral Net amount
amounts amounts of financial liability
of recognised of recognised assets derivatives
financial financial presented
assets liabilities in the
set off balance
in the sheet
balance
sheet
31 March 2019 GBPm GBPm GBPm GBPm GBPm GBPm
Derivatives 350 - 350 (1,031) 689 8
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Net Collateral Net amount
amounts amounts of financial liability
of recognised of recognised assets derivatives
financial financial presented
assets liabilities in the
set off balance
in the sheet
balance
sheet
31 March 2018 GBPm GBPm GBPm GBPm GBPm GBPm
Derivatives 487 - 487 (1,165) 663 (15)
Collateral consists of GBP727m (2018: GBP750m) receivable (Note 7) and GBP38m (2018: GBP87m) payable (Note 8.)
13. Share capital
31 March 31 March
2019 2018
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
2019 2018
GBPm GBPm
Profit before tax - -
Operating cash flow before movements in
working capital
Increase in receivables 1,764 1,819
Net cash generated by operating activities 1,764 1,819
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, however there are no money market deposits remaining at year end.
15. 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.
16. Explanation of transition to IFRS 9
The following Balance Sheet reconciliations disclose the adjustments made to prior years as part of the transition to IFRS 9, to the extent practicable.
Reconciliation of equity at 31 March 2018
Recognise Option Restated
Derecognise inter-company to carry 31 March
31 March embedded loan at borrowings 2018 balance
31 March 2018 2018 derivative fair value at FVTPL sheet
GBPm GBPm GBPm GBPm GBPm
Non-current assets
Receivables: amounts falling
due after more than one year 23,379 - 6,598 - 29,977
Derivative financial instruments 269 - - - 269
Total non-current assets 23,648 - 6,598 - 30,246
Current assets
Receivables: amounts falling
due within one year 2,669 - (5) - 2,664
Derivative financial instruments 1,278 (1,050) - - 228
Cash and cash equivalents 1 - - - 1
Total current assets 3,948 (1,050) (5) - 2,893
Total assets 27,596 (1,050) 6,593 - 33,139
Current liabilities
Borrowings (1,962) - - 5 (1,957)
Derivative financial instruments (19) - - - (19)
Other payables (269) - - - (269)
Total current liabilities (2,250) - - 5 (2,245)
Net current assets 1,698 (1,050) (5) 5 648
Non-current liabilities
Borrowings (24,199) - - (5,548) (29,747)
Derivative financial instruments (1,146) - - - (1,146)
Total non-current liabilities (25,345) - - (5,548) (30,893)
Total liabilities (27,595) - - (5,543) (33,138)
Net assets 1 (1,050) 6,593 (5,543) 1
Equity
Share capital - - - - -
Retained earnings 1 - - - 1
Total equity 1 - - - 1
Reconciliation of equity at 31 March 2017
Recognise Option Restated
Derecognise inter-company to carry 31 March
31 March embedded loan at borrowings 2017 balance
31 March 2017 2017 derivative fair value at FVTPL sheet
GBPm GBPm GBPm GBPm GBPm
Non-current assets
Receivables: amounts falling
due after more than one year 24,730 - 8,695 - 33,425
Derivative financial instruments 864 - - - 864
Total non-current assets 25,594 - 8,695 - 34,289
Current assets
Receivables: amounts falling
due within one year 2,333 - (30) - 2,303
Derivative financial instruments 1,524 (1,287) - - 237
Cash and cash equivalents 4 - - - 4
Total current assets 3,861 (1,287) (30) - 2,544
Total assets 29,455 (1,287) 8,665 - 36,833
Current liabilities
Borrowings (1,745) - - 30 (1,715)
Derivative financial instruments - - - - -
Other payables (444) - - - (444)
Total current liabilities (2,189) - - 30 (2,159)
Net current assets 1,672 (1,287) (30) 30 385
Non-current liabilities
Borrowings (25,738) - - (7,408) (33,146)
Derivative financial instruments (1,527) - - - (1,527)
Total non-current liabilities (27,265) - - (7,408) (34,673)
Total liabilities (29,454) - - (7,378) (36,832)
Net assets 1 (1,287) 8,665 (7,378) 1
Equity
Share capital - - - - -
Retained earnings 1 - - - 1
Total equity 1 - - - 1
Prior period comparatives have been restated to fair value for IFRS 9 classification and measurement requirements. The restatement of comparative periods has been calculated as follows:
Receivables (refer to Note 7)
31 March 31 March
2017 2018
Recognise Recognise
inter-company inter-company
Audited loan at Audited loan at
31 March fair value 31 March fair value
2017 option (restated) 2018 option (restated)
GBPm GBPm GBPm
Non-current assets
Loans to NRIL 24,730 8,695 33,425 23,379 6,598 29,977
Current assets
Interest on loans to NRIL 184 - 184 181 - 181
Loans to NRIL 1,524 (30) 1,494 1,738 (5) 1,733
Collateral placed with
banking counterparties 625 - 625 750 - 750
Total receivables 27,063 8,665 35,728 26,048 6,593 32,641
Loans (refer to Note 9)
Bonds issued under the DIP are analysed as follows:
Loan 31 March 31 March Loan 31 March
at fair 2018 at fair
value value
option option
31 March 2017 2018
2017 (restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- --------- ------------ --------- --------- ------------
0.75% US dollar bond due 2017 996 (35) 961 - - -
1% sterling bond due 2017 749 5 754 - - -
0.875% US dollar bond due
2018 1,394 (52) 1,342 1,249 (2) 1,247
1.75% US dollar bond due 2019 797 (24) 773 713 (3) 710
4.625% sterling bond due 2020 999 137 1,136 999 83 1,082
2.76% Swiss franc bond due
2021 238 36 274 224 25 249
2.315% Japanese yen bond due
2021 72 11 83 67 4 71
2.28% Japanese yen bond due
2021 72 10 82 67 4 71
2.15% Japanese yen bond due
2021 72 11 83 67 5 72
3% sterling bond due 2023 398 55 453 398 37 435
4.75% sterling bond due 2024 738 195 933 740 152 892
1.9618% sterling index linked
bond due 2025 353 129 482 366 105 471
4.615% Norwegian krone bond
due 2026 46 12 58 45 8 53
4.57% Norwegian krone bond
due 2026 13 3 16 13 2 15
1.75% sterling index linked
bond due 2027 5,157 173 5,330 5,328 (276) 5,052
4.375% sterling bond due 2030 871 290 1,161 872 259 1,131
4.75% sterling bond due 2035 1,230 574 1,804 1,231 557 1,788
1.6492% sterling index linked
bond due 2035 418 264 682 433 243 676
1.375% sterling index linked
bond due 2037 5,247 1,433 6,680 5,447 1,025 6,472
4.6535% sterling bond due
2038 100 51 151 100 45 145
1.2025% sterling index linked
bond due 2039 75 28 103 78 22 100
1.2219% sterling index linked
bond due 2040 275 212 487 285 204 489
1.1795% sterling index linked
bond due 2041 69 29 98 71 24 95
1.1565% sterling index linked
bond due 2043 56 27 83 58 22 80
1.5646% sterling index linked
bond due 2044 279 297 576 290 283 573
1.1335% sterling index linked
bond due 2045 50 26 76 52 22 74
1.125% sterling index linked
bond due 2047 5,366 2,441 7,807 5,559 2,079 7,638
0% sterling index linked bond
due 2047 87 4 91 91 (3) 88
0.678% sterling index linked
bond due 2048 122 60 182 127 51 178
1.003% sterling index linked
bond due 2051 24 18 42 25 16 41
0.53% sterling index linked
bond due 2051 124 66 190 129 64 193
0.517% sterling index linked
bond due 2051 125 124 249 130 (1) 129
0% sterling index linked bond
due 2051 138 184 322 144 2 146
1.085% sterling index linked
bond due 2052 129 86 215 134 70 204
0% sterling index linked bond
due 2052 137 93 230 144 88 232
27,016 6,973 33,989 25,676 5,216 30,892
=================================== ========== ========= ============ ========= ========= ============
Other long-term loans are analysed as follows:
Loan 31 March 31 Loan 31 March
at March at fair
fair 2018 value
value option
option
31 2017 2018
March
2017 (restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- -------- ------------ ------- --------- ------------
Index linked European Investment
Bank due 2036 and 2037 467 405 872 484 327 811
---------------------------------- -------- -------- ------------ ------- --------- ------------
Net borrowings (refer to Note 10)
Audited 31 March 31 March
31 March 2017 2018
Recognise Recognise
inter-company inter-company
loan at Audited loan at
fair value 31 March fair value
2017 option (restated) 2018 option (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents 4 - 4 1 - 1
Collateral receivable 625 - 625 750 - 750
Collateral obligation (259) - (259) (87) - (87)
Bank loans (467) (405) (872) (484) (327) (811)
Bonds issued under the
Debt Issuance Programme (27,016) (6,973) (33,989) (25,677) (5,216) (30,893)
At the end of the period/year (27,113) (7,378) (34,491) (25,497) (5,543) (31,040) Movements in net borrowings At the beginning of the period (28,702) (3,684) (32,386) (27,113) (7,378) (34,491) Increase/(Decrease) in cash and cash equivalents (96) - (96) (3) - (3) Movement in collateral receivable (194) - (194) 125 - 125 Movement in collateral obligation to counterparties 71 - 71 172 - 172 Repayment of borrowings 2,388 - 2,388 1,524 - 1,524 Capital accretion on index-linked bonds (449) - (449) (715) - (715) Exchange differences (164) 164 - 480 (480) - Fair value and other movements 33 (3,858) (3,825) 33 2,315 2,348 At the end of the period/year (27,113) (7,378) (34,491) (25,497) (5,543) (31,040) Net borrowings are reconciled to the balance sheet as set out below: Cash and cash equivalents 4 - 4 1 - 1 Collateral receivable 625 - 625 750 - 750 Collateral obligation (259) - (259) (87) - (87) Borrowings included in current liabilities (1,745) 30 (1,715) (1,962) 5 (1,957) Borrowings included in non-current liabilities (25,738) (7,408) (33,146) (24,199) (5,548) (29,747) At the end of the period/year (27,113) (7,378) (34,491) (25,497) (5,543) (31,040)
Financial instruments (refer to Note 11)
Year Year
ended ended
31 March 31 March
2017 2018
Audited Audited
year ended Derecognise year ended Derecognise
31 March Embedded 31 March Embedded
2017 Derivative (restated) 2018 Derivative (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
Derivative financial
assets included in non-current
assets 864 - 864 269 - 269
Derivative financial
assets included in current
assets 237 - 237 228 - 228
Embedded derivatives
in the inter-company
loan to NRIL (included
in current assets) 1,287 (1,287) - 1,050 (1,050) -
(
-------------------------------- ------------ ----------- ------------ ------------ ------------ ------------
2,388 (1,287) 1,101 1,547 (1,050) 497
================================ ============ =========== ============ ============ ============ ============
Derivative financial
liabilities included
in current liabilities - - - (19) - (19)
Derivative financial
liabilities included
in non-current liabilities (1,527) - (1,527) (1,146) - (1,146)
(1,527) - (1,527) (1,165) - (1,165)
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 SFAFLAFUSESW
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