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Name | Symbol | Market | Type |
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Net.r.i.4.75% | LSE:85MJ | London | Medium Term Loan |
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TIDM85MJ
RNS Number : 2952X
Network Rail Infrastructure Finance
18 December 2019
18 December 2019
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2019/20
Commentary
Network Rail Infrastructure Finance PLC ("NRIF", "the company") was incorporated on 31 March 2004 and entered into documentation to facilitate debt issuance on 29 October 2004.
Since 4 July 2014 Network Rail's funding requirement is 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 passed onto NRIL in the form of an intercompany loan and embedded derivative.
The company was incorporated for the sole purpose of acting as the issuer under Network Rail's DIP and legally is not a member of the Network Rail group or related to or controlled by the Secretary of State for Transport. However, for accounting purposes the company is treated as a subsidiary in the consolidated accounts of Network Rail Limited ("NRL"). The DIP is guaranteed by a financial indemnity from the Secretary of State for Transport and as a result the financial indemnity is a direct sovereign obligation of the Crown and Network Rail's debt is zero per cent risk weighted.
The financial indemnity is an unconditional and irrevocable obligation of the UK Government to make payments directly to a security trustee to cover all debt service shortfalls, whatever the cause. The financial indemnity is also designed to ensure timely payment as well as ultimate recourse to the UK Government.
Within the DIP, which is administered by NRIL, is a multi-currency note programme with a maximum limit of GBP40bn, which has been assigned the following credit ratings: AA by Standard and Poor's, Aa2 (stable outlook) by Moody's and AA (negative outlook) by Fitch.
NRIF made a profit before tax of GBP55,000 in the six months to 30 September 2019, being the excess of the fee charged to NRIL for the administration of the facility over the fee charged by NRIL for the provision of the facility.
Reclassification of Network Rail
In December 2013, the Office for National Statistics announced the reclassification of Network Rail as a Central Government Body in the UK National Accounts and Public Sector Finances with effect from 1 September 2014. This is a statistical change driven by new guidance in the European System of National 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, NRIL 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.
Financial commentary
All of the outstanding bonds under the DIP, including nominal and index-linked benchmarks and private placements in all currencies, will continue to benefit from a direct and explicit guarantee from the UK Government under the financial indemnity.
At 30 September 2019 there was GBP31,674m of bonds outstanding issued under the DIP. UK RPI index-linked debt was 80 per cent of gross debt at 30 September 2019. There was no issued commercial paper outstanding as at 30 September 2019 (30 March 2019: GBPnil).
Cash balances are required for settlement of maturing bonds and for the purposes of managing collateral posted by financial derivative counterparties. This is funded by NRIL through the intercompany borrowing. The cash and cash equivalents balance as at 30 September 2019 totalled GBP3m.
The external derivative value increased by GBP154m to negative GBP527m at 30 September 2019 (31 March 2019: negative GBP681m). This movement relates to the increase in valuation of cross currency swaps of GBP27m and an increase in the valuation of interest rate swaps of GBP127m.
Treasury operations
The treasury operations of NRIL, who administers the programme on behalf of NRIF, are co-ordinated and managed in accordance with policies and procedures approved by the Treasury Committee, being a full sub-committee of the Network Rail board. Treasury operations are subject to internal audits and the company does not engage in trades of a speculative nature.
Liquidity is provided by monitoring that NRIL has sufficient funds to meet its obligations to NRIF. NRIL are able to vary drawdowns under the DfT grant agreements in order to maintain liquidity.
NRIF is also affected by future cash flow risks arising from changes in interest rate, inflation rate and foreign currency movements. The company enters into derivative financial instruments to partially mitigate these risks. Further detail is available in the Network Rail Limited annual report and accounts 2019.
Counterparty limits are set with reference to published credit ratings. These limits dictate how much and for how long management deals with each counterparty and are monitored on a regular basis.
Outlook
The principal risks managed by Network Rail are unchanged from those set out in the directors' report on pages 68-77 of the Network Rail Limited annual report and accounts 2019. There are also further details on funding and financial risk management in note 25 on pages 172-178 of these accounts.
The major risks that the company faces are financing risks including, interest rate risk, foreign currency fluctuation risk, and liquidity risk. The treasury operation of NRIL, which administers the programme on behalf of NRIF, seeks to provide sufficient liquidity to meet the company's needs, while reducing financial risks and prudently maximising interest receivable on surplus cash.
Liquidity risk is managed by maintaining adequate cash balances and continuous monitoring of forecast and actual cash flows.
The company has certain debt issuances which are index-linked and thus exposed to movements in inflation rates. The company does not enter into any derivative arrangements to hedge these.
The credit risk with regard to all classes of derivative financial instruments entered into before 1 January 2013 is limited because Network Rail has arrangements in place which limits each counterparty to a threshold (based on credit ratings) which if exceeded requires the counterparty to post cash collateral. Trades entered into after 1 January 2013 are governed by new agreements where both Network Rail and its counterparties post collateral on their full adverse net derivative positions. The new agreements do not contain threshold provisions.
Treasury operations are co-ordinated and managed in accordance with policies and procedures approved by NRIL's board. Treasury operations are subject to regular internal audits and treasury does not engage in trades of a speculative nature.
Statement of directors' responsibilities
The directors confirm that this interim financial information has been prepared in accordance with International Accounting Standard ("IAS") 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
Approved by the board of directors and signed by order of the board.
Paul Marshall (director)
17(th) December 2019
Independent review report
to Network Rail Infrastructure Finance PLC
I have been engaged by the company to review the condensed interim financial statements of Network Rail Infrastructure Finance Plc for the six months ended 30 September 2019 which comprise the Statement of Comprehensive Income, the Balance Sheet, the Cash Flow Statement, the Statement of Changes in Equity and related explanatory notes.
I have read the other information contained in the interim financial statements and considered whether it contains any apparent misstatements or material inconsistences with the information in the condensed interim financial statements.
Respective responsibilities of the directors and the auditor
The condensed interim financial statements are the responsibility of, and have been approved by, the directors of Network Rail Infrastructure Finance Plc. As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for preparing the condensed interim financial statements in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. The condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
My responsibility is to express to the company a conclusion on the condensed interim financial statements.
Scope of Review
I conducted my review in accordance with International Standards on Review Engagement (UK & Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom.
A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable me to obtain assurance that I would become aware of all significant matters that might be identified in an audit. Accordingly, I do not express an audit opinion.
Conclusion
Based on my review, nothing has come to my attention that causes me to believe that the accompanying interim financial information for the six months ended 30 September 2019, is not prepared in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Matthew Kay (Senior Statutory Auditor)
17(th) December 2019
For and on behalf of the
Comptroller and Auditor General (Statutory Auditor)
National Audit Office
157-197 Buckingham Palace Road
Victoria
London SW1W 9SP
Statement of comprehensive income
Unaudited Unaudited Audited six months six months year ended ended ended 30 September 30 September 31 March 2019 2018 2019 GBPm GBPm GBPm Profit from operations - - - Finance income 733 699 1,187 Finance costs (733) (699) (1,187) Profit before taxation - - - Tax - - - Profit and total comprehensive income - - - for the period
All income and expense in the company is recognised in the statement of comprehensive income.
Statement of changes in equity
Share Retained capital Earnings Total GBPm GBPm GBPm - ---------------------- -------- --------- ----- At 1 April 2018 - 1 1 Profit for the period - - - - ---------------------- -------- --------- ----- At 1 April 2019 - 1 1 Profit for the period - - - At 30 September 2019 - 1 1
Balance sheet
Unaudited Unaudited Audited 30 September 30 September 31 March 2019 2018 2019 Notes GBPm GBPm GBPm Non-current assets Receivables: amounts falling due after more than one year 2 31,584 28,858 30,650 Derivative financial instruments 501 270 340 Total non-current assets 32,085 29,128 30,990 Current assets Receivables: amounts falling due within one year 2 1,872 1,711 904 Derivative financial instruments 11 163 10 Cash and cash equivalents 3 3 8 - Total current assets 1,886 1,882 914 Total assets 33,971 31,010 31,904 Current liabilities Borrowings 3 (1,031) (765) - Derivative financial instruments (54) (39) (51) Other payables 4 (303) (320) (215) Total current liabilities (1,388) (1,124) (266) Net current assets 498 758 648 Non-current liabilities Borrowings 3 (31,597) (28,868) (30,657) Derivative financial instruments (985) (1,017) (980) Total non-current liabilities (32,582) (29,885) (31,637) Total liabilities (33,970) (31,009) (31,903) Net assets 1 1 1 Equity Share capital - - - Retained earnings 1 1 1 Total equity 1 1 1
This interim report was approved by the board of directors on 17(th) December 2019.
It was signed on its behalf by:
Paul Marshall (director)
Cash flow statement
Unaudited Unaudited Audited six months six months year ended ended ended 30 September 30 September 31 March 2019 2018 2019 Note GBPm GBPm GBPm Cash flows from operating activities 6 (148) 1,095 1,764 Interest paid (318) (319) (696) Net cash flow from operating activities (466) 776 1,068 Investing activities Interest received 318 319 695 Net cash flow from investing activities 318 319 695 Financing activities Repayment of borrowings - (1,126) (1,738) Net collateral movement with counterparties 151 38 (26) Cash flow on settlement of derivatives - - - Net cash used in financing activities 151 (1,088) (1,764) Net increase/ (decrease) in cash and cash equivalents 3 7 (1) Cash and cash equivalents at beginning of the period - 1 1 Cash and cash equivalents at end of the period 3 8 -
Notes to the interim financial statements
Six months ended 30 September 2019
1. General information
Network Rail Infrastructure Finance PLC is a company incorporated in Great Britain and registered in England and Wales under the Companies Act 2006.
The company's registration number is 5090412. The company's registered office is situated at 1 Eversholt Street, London, NW1 2DN, United Kingdom.
The company's principal activities, details of the company's business activities and key events, and changes during the year are contained within the commentary on pages 1 to 3.
This condensed interim financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2019 were approved by the board of directors on 26 July 2019 and delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498 of the Companies Act 2006.
The condensed interim financial statements are prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. The condensed interim financial statements are prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union.
This condensed interim financial information has been reviewed, not audited. The condensed interim financial information should be read in conjunction with the annual report and accounts for the year ended 31 March 2019, which have been prepared in accordance with IFRSs as adopted by the European Union. A copy of this document is available on the Companies house website.
Accounting policies
The accounting policies and methods of computation adopted in this condensed set of financial statements are consistent with those set out in the annual financial statements for the year to 31 March 2019.
There are no IFRS or IFRS Interpretation Committee interpretations not yet effective that would be expected to have a material impact on the company.
Going concern
After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.
In reaching this conclusion the directors considered: the financial indemnity as described on page 1; the collateral arrangements with banking counterparties; and that the company has an inter-company agreement that recovers all net costs from NRIL.
Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Operating segments
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the company that are regularly reviewed by the board to allocate resources to the segments and to assess their performance. The company has adopted IFRS 8 for these financial statements. However, there has been no material change in presentation of these statements because the company operates one class of business, that of acting as issuer for Network Rail's DIP and undertakes that class of business in one geographical area, Great Britain. This debt is often issued in currencies other than sterling and sold to overseas investors.
Debt
Debt instruments are initially recorded at fair value, net of discount and direct issue costs, and are subsequently measured at fair value. 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
The company's activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates. The company uses interest rate swaps and foreign exchange forward contracts to hedge these exposures.
Interest rate swaps and foreign exchange forward contracts are recorded at fair value at inception and at each balance sheet date. Movements in fair value are recorded in the statement of comprehensive income.
Investments
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 rates of exchange prevailing at the balance sheet date. Individual transactions denominated in foreign currencies are translated into sterling at the exchange rates prevailing on the dates payment takes place. Gains or losses realised on any foreign exchange movements are recognised in the statement of comprehensive income.
Intra-group borrowings
The company provides the Network Rail group with funding. It passes all transactions and balances through the intra-group borrowings to NRIL. Existing debt, derivatives and related interest payments within NRIF are passed onto NRIL in the form of an intercompany loan. As such any gains and losses relating to debt and derivatives are also passed through to NRIL. The nature of the arrangement means that the instrument fails the Solely Payment of Principal and Interest test under IFRS 9 and as such, the entire instrument is measured at fair value through profit or loss
2. Receivables
Unaudited Unaudited Audited 30 September 30 September 31 March 2019 2018 2019 GBPm GBPm GBPm Non-current assets Loans to Network Rail Infrastructure Limited 31,584 28,858 30,650 Current assets Interest on loans to Network Rail Infrastructure Limited 215 218 177 Loans to Network Rail Infrastructure Limited 1,031 766 - Collateral receivable 626 727 727 Total receivables 33,456 30,569 31,554
3. Net borrowings
Unaudited Unaudited Audited 30 September 30 September 31 March 2019 2018 2019 GBPm GBPm GBPm Net borrowings by instrument Cash and cash equivalents 3 8 - Collateral receivable 626 727 727 Collateral obligation (88) (102) (38) Bank loans (954) (799) (853) Bonds issued under the Debt Issuance Programme (31,674) (28,834) (29,804) At the end of the period/year (32,087) (29,000) (29,968) Movements in net borrowings At the beginning of the period (29,968) (31,040) (31,040) Increase / (Decrease) in cash and cash equivalents 3 7 (1) Movement in collateral receivable (101) (23) (23) Movement in collateral obligation to counterparties (50) (15) 49 Repayment of borrowings - 1,126 1,738 Fair value and other movements (1,971) 945 (691) At the end of the period/year (32,087) (29,000) (29,968) Cash and cash equivalents 3 8 - Collateral receivable 626 727 727 Collateral obligation (88) (102) (38) Borrowings included in current liabilities (1,031) (765) - Borrowings included in non-current liabilities (31,597) (28,868) (30,657) At the end of the period/year (32,087) (29,000) (29,968) All borrowings are denominated in or swapped into sterling.
4. Other payables
Unaudited Unaudited Audited 30 September 30 September 31 March 2019 2018 2019 GBPm GBPm GBPm Current liabilities Interest payable on bonds issued 214 217 175 Interest on long term loans 1 1 2 Collateral obligation 88 102 38 Total payables 303 320 215
5. Financial instruments
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities
-- Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of interest rate and cross currency swaps is calculated as the present value of the estimated future cash flows using yield curves at the reporting date; and
-- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Unaudited Unaudited Audited 30 September 30 September 31 March 2019 2018 2019 GBPm GBPm GBPm Level 2: Derivative financial assets 512 433 350 Financial assets at fair value 33,456 30,577 31,554 Level 1: Financial liabilities held at fair value (32,628) (28,278) (30,657) Level 2: Derivative financial liabilities (1,039) (1,056) (1,031) Financial liabilities held at fair value (303) (1,675) (215) Total (2) 1 1
6. Notes to the cash flow statement
Unaudited Unaudited Audited six months six months year ended ended ended 30 September 30 September 31 March 2019 2018 2019 GBPm GBPm GBPm Profit before tax - - - Operating cash flow before movements - - - in working capital (Decrease) / Increase in receivables (148) 1,095 1,764 Cash generated from operations (148) 1,095 1,764
Cash and cash equivalents (which are represented as a single class of assets on the face of the balance sheet) comprise cash at bank and money market deposit investments with a maturity of up to three months.
7. Controlling party and related party transactions
50,000 shares of the company are held by Intertrust Corporate Services Limited. All shares and distributable reserves in the company are held for charitable purposes.
Legal control of the company is disclosed above but effective control of the company is held by Network Rail and therefore by the DfT and Secretary of State.
On this basis for accounting purposes the company is treated as a subsidiary in the consolidated accounts of Network Rail.
Transactions with NRIL are clearly identified within the relevant notes to the accounts.
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
IR TPBPTMBABMML
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December 18, 2019 06:30 ET (11:30 GMT)
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