TIDM85MJ
RNS Number : 6732G
Network Rail Infrastructure Finance
20 July 2023
Network Rail Infrastructure Finance PLC
Full year results
Year ended 31 March 2023
Strategic report
The directors present their strategic report of Network Rail
Infrastructure Finance PLC ("NRIF" or "the company") for the year
ended 31 March 2023.
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 has been
met by the Department for Transport ("DfT") via a loan facility and
grants to Network Rail Infrastructure Limited ("NRIL") the owner
and operator of the national rail network of Great Britain. As a
result, NRIF continues to operate as the administrator of existing
debt issues and derivatives under the Debt Issuance Programme
("DIP") but will not be issuing new debt for the foreseeable
future. Existing debt, derivatives and related interest payments
within NRIF are reimbursed by NRIL in the form of an intercompany
loan.
The company was incorporated for the sole purpose of acting as
the issuer under Network Rail's DIP and legally is not a member of
the Network Rail group. However, for accounting purposes the
company is treated as a subsidiary in the consolidated accounts of
Network Rail Limited ("NRL"). The DIP is guaranteed by a financial
indemnity from the Secretary of State for Transport and as a result
the financial indemnity is a direct sovereign obligation of the
Crown.
The financial indemnity is an unconditional and irrevocable
obligation of the UK Government to make payments directly to a
security trustee to cover all debt service shortfalls, whatever the
cause. The financial indemnity is also designed to ensure timely
payment as well as ultimate recourse to the UK Government.
Within the DIP, which is administered by NRIL, is a GBP40,000m
multi-currency note programme which has been assigned the following
credit ratings: AA by Standard and Poor's, Aa3 (outlook negative)
by Moody's and AA- (outlook negative) by Fitch.
Financial review
During the year the company incurred finance costs of GBP3,412m
(2022: GBP2,051m). These costs were passed onto NRIL in the form of
finance income for NRIF. NRIF also made a gain of GBP9,467m (2022:
GBP833m loss) on the fair value of its debt as it continues to fair
value its debt under IFRS 9. This gain arose as a result of
decreases in the fair value of debt which in turn is driven by
market sentiment on interest rates and risk. NRIF made a gain of
GBP83m (2022: GBP157m) on its derivatives. This gain largely
represents the reduction of the fair value of interest rate
derivatives liabilities through interest paid on swaps (the latter
is included in finance costs). These gains and losses were passed
through to NRIL as part of the intercompany loan receivable. NRIF
made GBP110k profit before tax (2022: GBP110k) in the year ended 31
March 2023, 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.
On a fair value basis, net borrowings as described in note 10
have decreased from GBP40,185m to GBP30,833m, reflecting fair value
movements.
UK RPI index-linked debt was 89 per cent of gross debt at 31
March 2023.
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).
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 is funded 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.
Treasury operations
The treasury operations of NRIL, who administers the programme
on behalf of NRIF, are co-ordinated and managed in accordance with
policies and procedures approved by the Treasury Committee, being a
full sub-committee of the Network Rail board. Treasury operations
are subject to internal audits and committee reviews and the
company does not engage in trades of a speculative nature.
Liquidity is provided by monitoring that NRIL has sufficient
funds to meet its obligations to NRIF. NRIL are able to vary
drawdowns under the DfT loan agreement in order to maintain
liquidity.
The major financing risks that the company faces are interest
rate risk, foreign currency fluctuation risk and liquidity risk.
Treasury operations seek to provide sufficient liquidity to meet
the company's needs, while reducing financial risks and managing
interest receivable on surplus cash (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 collateral agreements do not
contain threshold provisions.
NRIF will continue in operation to manage the existing bond
portfolio. The bond portfolio is expected to be held to maturity
and as such while market sentiment will drive changes in fair
value, the impact on fair value of the portfolio held is not
considered to be a major financing risk. NRIF does not anticipate
entering into any new derivative contracts in the future and
existing derivatives are currently being fully utilised.
Directors' statement of compliance with duty to promote the
success of the company
All directors are aware that they have a responsibility to act
in good faith and in a way that promotes the success of NRIF for
the benefit of all stakeholders. All decisions are undertaken with
the sole objective that the Company is run successfully and in so
doing have regard (amongst other matters) to the following
factors:
A) The likely consequences of any decision in the long term.
B) The interests of NRIL's employees. All NRIF's activities are
administered by NRIL's employees and therefore the company does not
have any employees.
C) The need to foster the company's business relationships with
all key stakeholders
D) The impact of the company's operations on the community and
the environment,
E) The desirability of the company maintaining a reputation for
high standards of business conduct, and
F) The need to act fairly as between members and noteholders of the company
The above factors are derived from the governance structures of
NRIF's effective controlling party Network Rail Limited (NRL),
including its audit and risk committee. More information
surrounding Corporate governance has been disclosed in the
Directors' report below.
Approved by the board of directors and signed by order of the
board
Paul Marshall (director)
18 July 2023
Directors' report
The directors present their report and the annual financial
statements of the company for the year ended 31 March 2023.
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 (2022:
GBPnil).
Directors
The directors who served during the year, and up to the date of
signing the financial statements are disclosed above.
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. Given that the
company's assets are due from Network Rail, the Directors took into
account the publication of the Plan for Rail Review and its plans
to reform the rail industry. This proposes that a new public body,
Great British Railways, will integrate the railways, owning the
infrastructure, collecting fare revenue, running, and planning the
network, and setting most fares and timetables. It is planned that
Network Rail Infrastructure Limited will be absorbed into the
public body to bring about single, unified, and accountable
leadership for the national network. At this stage it is not likely
that this reform will involve the winding up of Network Rail
Infrastructure Limited but in any event Great British Railways will
assume the existing functions of Network Rail Infrastructure
Limited as well as have a wider range of powers and functions. The
publication of the Plan for Rail review has not had any impact on
the preparation of these financial statements.
In reaching this conclusion the directors considered: the
Financial Indemnity as described under the Business review section
of the Strategic report; 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 .
The NRIF Board meets twice a year to consider and approve the
interim and annual financial statements
Approved by the board of directors and signed by order of the
board
Paul Marshall (director)
18 July 2023
Statement of directors' responsibilities
The directors are responsible for preparing the Strategic
Report, Directors' Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the United Kingdom. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period.
In preparing these financial statements, the directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable International Financial Reporting
Standards (IFRSs) as adopted by the United Kingdom have been
followed, subject to any material departures disclosed and
explained in the financial statements.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Each director of the company, in office at the time of approval
of this report, acknowledges that:
-- so far as the director is aware, there is no relevant audit
information of which the company's auditor is unaware; and
-- he/ she has taken all the steps that he/ she ought to have
taken as a director in order to make himself/ herself aware of any
relevant audit information and to establish that the company's
auditor is aware of that information.
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for its member to assess the company's
performance, business model and strategy.
Approved by the board of directors and signed by order of the
board
Paul Marshall (director)
18 July 2023
Statement of comprehensive income
for the year ended 31 March 2023
Notes 2023 2022
GBPm GBPm
Result from operations - -
Finance income 5 3,412 2,051
Finance costs 5 (3,412) (2,051)
Other gains and losses 6 - -
Profit before taxation - -
Tax - -
Profit after taxation - -
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
for the year ended 31 March 2023
Share Retained Total
capital earnings equity
GBPm GBPm GBPm
-
------------------------------- -------- --------- -------
At 31 March 2021 - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2022 - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2023 - 1 1
Balance sheet
at 31 March 2023
Notes 2023 2022
GBPm GBPm
Non-current assets
Receivables: amounts falling due after
more than one year 7 29,826 40,437
Derivative financial instruments 11 70 8
Total non-current assets 29,896 40,445
Current assets
Derivative financial instruments 11 21 2
Receivables: amounts falling due within
one year 7 1,441 401
Cash and cash equivalents 10 2 2
Total current assets 1,464 405
Total assets 31,360 40,850
Current liabilities
Loans 9 (1,149) -
Derivative financial instruments 11 (49) (55)
Other payables 8 (153) (146)
Total current liabilities (1,351) (201)
-
---------------------------------------- ----- -------- --------
Net current assets 113 204
Non-current liabilities
Loans 9 (29,826) (40,442)
Derivative financial instruments 11 (182) (206)
Total non-current liabilities (30,008) (40,648)
Total liabilities (31,359) (40,849)
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
on 18 July 2023 and authorised for issue on the date of the audit
report. They were signed on its behalf on 18 July 2023 by:
Paul Marshall (director) Helena Whitaker (director)
Company registration number: 05090412
Statement of cash flows
for the year ended at 31 March 2023
2023 2022
Note GBPm GBPm
Cash flow (used in) / generated by
operating activities 14 (89) 427
Interest paid* (530) (557)
Net cash outflow from operating activities (619) (130)
Investing activities
Interest received 531 558
Net cash inflow from investing activities 531 558
Financing activities
Repayment of borrowings - (433)
Net collateral movement with counterparties 115 7
Cash settlement derivatives (27) -
Net cash inflow / (outflow) from financing
activities 88 (426)
Net increase in cash and cash equivalents - 2
Cash and cash equivalents at beginning
of the year 2 -
Cash and cash equivalents at end of
the year 2 2
*Balance includes the net interest on derivative financial
instruments
Notes to the Financial Statements
for the year ended 31 March 2023
1. General information
Network Rail Infrastructure Finance Plc ('the company') is a
company incorporated in Great Britain and registered in England and
Wales under the Companies Act 2006.
The company's registration number is 05090412.
The company's registered office is situated at Waterloo General
Office, London, SE1 8SW, 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 strategic and directors' reports.
2. Significant Accounting Policies
These financial statements have been prepared in accordance with
UK adopted international accounting standards.
The financial statements have been prepared under the fair value
basis, 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.
Functional and presentation currency
The financial statements are presented in Pound Sterling (GBP)
which is the functional and presentation currency of Network Rail
Infrastructure Finance Plc. All values are rounded to the nearest
million pounds (GBPm) unless otherwise stated.
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 2022. There are no
standards that are not yet effective that are 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 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.
Intra-group borrowings
The company provides the Network Rail group with funding. It
passes all transactions and balances through the intra-group
borrowings to NRIL. Existing debt, derivatives and related interest
payments within NRIF are passed onto NRIL in the form of an
intercompany loan. The nature of the arrangement means that the
instrument fails the Solely Payment of Principal and Interest test
under IFRS 9 and as such, the entire instrument is measured at fair
value through profit or loss.
Debt
Debt instruments are initially measured at fair value, and
subsequently designated and measured at Fair Value Through Profit
and Loss (FVTPL) using mid-market price. The intra-group borrowings
from NRIL are measured at FVTPL. Given the relationship between
this balance and the debt instruments, the debt instruments were
designated at fair value through profit or loss. This treatment
results in all fair value movements on debt being passed to NRIL
within these financial statements, in line with the intercompany
agreement. Finance charges, including premiums payable on
settlement or redemption and direct issue costs, are recognised in
the period in which they arise and are not capitalised against the
financial instrument measured at FVTPL.
Finance income/expense
Finance income and expense is calculated based on the amortised
cost of the underlying debt. This amount is calculated and
presented to allow for comparability with the financial statements
of NRIL where the debt is carried at amortised cost.
Derivative financial instruments
The company's activities expose it to the financial risks of
changes in interest rates and foreign currency exchange rates. The
company uses interest rate swaps and cross currency swaps to hedge
these exposures.
Interest rate swaps and cross currency swaps are recorded at
fair value at inception and at each balance sheet date. Movements
in fair value are recorded in other gains and losses in the
statement of comprehensive income.
Derivatives are presented in the balance sheet in line with
their maturity dates.
Foreign currencies
Monetary assets and liabilities expressed in foreign currencies
are translated into sterling at 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 captured within the
fair value line of 'Other Gains and Losses' in the statement of
comprehensive income.
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.
Critical accounting judgements and key sources of
uncertainty
Valuation of the debt portfolio by its nature includes
judgements and estimates. Since the company's bonds are traded with
varying frequency, valuations are derived with reference to both
directly observed activity on the bonds themselves and to
observations of frequently traded reference gilts which have
similar characteristics. Where bonds are frequently traded and
independent prices are available, these are used in valuing the
bonds. Where bonds are infrequently traded, independent prices are
determined using an independent pricing service. These valuations
include the analysis of similar but more frequently traded bonds in
order to determine a price. There are a small number of privately
held bonds that are valued by management. Management review
comparator bonds and determine an appropriate yield rate based on
similar bonds that have available prices.
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 GBP31,250 (2022: GBP28,500) 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
2023 2022
GBPm GBPm
Finance income
Interest receivable from NRIL 3,408 2,051
Interest receivable on investments 4 -
Total finance income 3,412 2,051
Finance costs
Interest payable on debt issued
under the DIP (3,239) (1,875)
Interest on bank loans and overdrafts (73) (27)
Net interest on derivative instruments (100) (149)
Total finance costs (3,412) (2,051)
6. Other gains and losses
Year Year
ended ended
31 March 31 March
2023 2022
GBPm GBPm
Gain /(Loss) on fair value of external
debt 9,467 (833)
Net gain on fair value of external
derivative financial instruments 83 157
(Loss) / gain on fair value of intercompany
loan to NRIL (9,550) 676
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
2023 2022
GBPm GBPm
Non-current assets
Loans to NRIL 29,826 40,437
29,826 40,437
Current assets
Interest on loans to NRIL 151 146
Loans to NRIL 1,149 -
Collateral placed with banking counterparties 141 255
1,441 401
Total receivables 31,267 40,838
The company believes that the collateral balance has a high
level of credit quality and as such, no credit losses have been
recognised.
8. Other payables
31 March 31 March
2023 2022
GBPm GBPm
Current liabilities
Collateral received from banking counterparties 1 -
Interest payable on bonds issued under
the DIP 151 144
Interest payable on European Investment
Bank long term loans 1 2
Total payables 153 146
================================================= ======== ========
9. Loans
Bonds issued under the DIP are analysed as follows:
31 March 31 March
2023 2022
GBPm GBP m
=========================================== ========= =========
3% sterling bond due 2023 397 408
4.75% sterling bond due 2024 752 791
1.9618% sterling index linked bond due
2025 496 520
4.615% Norwegian krone bond due 2026 40 45
4.57% Norwegian krone bond due 2026 11 13
1.75% sterling index linked bond due 2027 7,188 7,634
4.375% sterling bond due 2030 907 1,054
4.75% sterling bond due 2035 1,331 1,645
1.6492% sterling index linked bond due
2035 663 792
1.375% sterling index linked bond due
2037 8,012 10,361
4.6535% sterling bond due 2038 110 136
1.2025% sterling index linked bond due
2039 114 149
1.2219% sterling index linked bond due
2040 429 574
1.1795% sterling index linked bond due
2041 106 141
1.1565% sterling index linked bond due
2043 86 121
1.5646% sterling index linked bond due
2044 470 655
1.1335% sterling index linked bond due
2045 75 112
1.125% sterling index linked bond due
2047 7,776 12,236
0% sterling index linked bond due 2047 110 174
0.678% sterling index linked bond due
2048 169 268
1.003% sterling index linked bond due
2051 36 61
0.53% sterling index linked bond due 2051 169 280
0.517% sterling index linked bond due
2051 169 281
0% sterling index linked bond due 2051 206 374
1.085% sterling index linked bond due
2052 196 332
0% sterling index linked bond due 2052 205 373
-------------------------------------------
Total bonds issued under DIP 30,223 39,530
Index linked European Investment Bank
due 2036 and 2037 752 912
Total bonds issued 30,975 40,442
------------------------------------------- --------- ---------
Split as:
Current 1,149 -
Non-current 29,826 40,442
Total 30,975 40,442
The Secretary of State for Transport has provided an unlimited
financial indemnity, expiring in 2052, in respect of all DIP
borrowings including all the bonds and bank loans listed above.
10. Net borrowings
31 March 31 March
2023 2022
GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents 2 2
Collateral receivable 141 255
Collateral obligation (1) -
Bank loans (752) (912)
Bonds issued under the DIP (30,223) (39,530)
(30,833) (40,185)
Movement in net borrowings
At the beginning of the year (40,185) (39,780)
Increase in cash and cash equivalents - 2
Movement in collateral receivable (114) (112)
Movement in collateral obligation to counterparties (1) 105
Repayments of borrowings - 433
Exchange differences - -
Fair value and other movements 9,467 (833)
At the end of the year (30,833) (40,185)
Net borrowings are reconciled to the balance
sheet as set out below:
Cash and cash equivalents 2 2
Collateral receivable 141 255
Collateral obligation (1) -
Borrowings included in current liabilities (1,149) -
Borrowings included in non-current liabilities (29,826) (40,442)
At the end of the year (30,833) (40,185)
==================================================== ======== ========
11. Financial instruments
The fair values of financial assets and liabilities are
recognised at the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
All financial assets and liabilities are carried at fair
value.
Bonds issued by NRIF benefit from a credit enhancement provided
by the financial indemnity from the Secretary of State for
Transport. This credit enhancement is reflected in the fair value
of the bonds disclosed above.
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. Fair values for Level 1 financial instruments are
obtained from Bloomberg.
-- 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. For bonds, the majority of fair values for Level 2
financial instruments are obtained from Bloomberg. A small number
of privately held bonds have been valued by management. 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).
31 March 31 March
2023 2022
GBPm GBPm
(Restated)
Level 2:
Derivative financial assets 91 10
Financial assets at fair value 31,267 40,838
Level 1:
Bonds - (2,699)
Level 2:
Derivative financial liabilities (231) (261)
Bonds (30,975) (37,743)
Financial liabilities (153) (146)
Total (1) (1)
Since the company's bonds are traded with varying frequency,
valuations are derived with reference to both directly observed
activity on the bonds themselves and to observations of frequently
traded reference gilts which have similar characteristics. A review
of the categorisation of financial instruments into the three
levels is made at each reporting date. There were no transfers from
Level 2 to Level 1, 2 transfers into Level 2 fair value
measurements, and no transfers into and out of Level 3 fair value
measurements in the current or prior years. Following refined
analysis of the levels the prior year has been restated.
Derivatives are split as follows:
31 March 31 March
2023 2022
GBPm GBPm
Derivative financial assets - Current
Interest rate swaps 21 2
Total Current 21 2
Derivative financial assets - Non-current
Interest rate swaps 70 3
Cross currency swaps - 5
----------------------------------------------- -------- --------
Total Non-current 70 8
----------------------------------------------- -------- --------
Total Derivative financial assets 91 10
Derivative financial liabilities - Current
Interest rate swaps (49) (55)
=============================================== ======== ========
Total Current (49) (55)
=============================================== ======== ========
Derivative financial liabilities - Non-current
Interest rate swaps (177) (206)
Cross Currency swaps (5) -
=============================================== ======== ========
Total Non-current (182) (206)
Total Derivative financial liabilities (231) (261)
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 as a whole
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 2023 and 31 March 2022.
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. Bank loans and bonds, financial
assets and liabilities are carried at 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. There are a small number of privately held
bonds that are valued by management. Management review comparator
bonds and determine an appropriate yield rate based on similar
bonds that have available prices.
31 March 2023 31 March 2022
Carrying value Fair Carrying value Fair
Value value
GBPm GBPm GBPm GBPm
Financial assets
Financial assets measured
at amortised cost
Cash and cash equivalents 2 2 2 2
Collateral receivable 141 141 255 255
Trade and other receivables
at amortised cost 151 151 146 146
294 294 403 403
Financial assets measured
at fair value through
profit or loss
Derivative financial
instruments 91 91 10 10
Loans to NRIL 30,975 30,975 40,437 40,437
31,066 31,066 40,447 40,447
Total financial assets 31,360 31,360 40,850 40,850
31 March 2023 31 March
2022
Carrying Fair Carrying Fair value
value Value* value
GBPm GBPm GBPm GBPm
Financial liabilities
Financial liabilities measured
at amortised cost
Collateral held (1) (1) - -
Trade and other payables at
amortised cost (152) (152) (146) (146)
(153) (153) (146) (146)
Financial liabilities measured
at fair value through profit
or loss
Derivative financial instruments (231) (231) (261) (261)
European Investment Bank loans (752) (752) (912) (912)
Bonds issued under the DIP (30,223) (30,223) (39,530) (39,530)
(31,206) (31,206) (40,703) (40,703)
Total financial liabilities (31,359) (31,359) (40,849) (40,849)
*Refer to Note 11 for detail on determination of fair values of
financial assets and liabilities.
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
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. 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 number of counterparties
and has strict policies on how much exposure can be assigned to
each counterparty before 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. The treasury committee of the Network Rail 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
limit each bank to a threshold (based on credit ratings), which if
breached requires the bank to post collateral in cash or eligible
securities. The members of the banking group are required to post
collateral on positive mark to market swaps above the threshold. 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 posts
collateral on adverse net derivative positions with its
counterparties. The new agreements do not contain a provision for
thresholds; as such Network Rail or its counterparties are required
to post collateral for the full fair value of net out of the money
positions. At 31 March 2023 the fair value of collateral held was
GBP1m (2022: GBPnil). The group is the beneficial owner of this
collateral. The group is free to invest or otherwise utilise the
collateral at its discretion, subject to acting within the
authority sanctioned by the treasury committee. The balance of
collateral posted by the group at 31 March 2023 was GBP141m (2022:
GBP255m).
Foreign exchange risk
The company is exposed to currency risks from its financing.
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.
Interest and inflation rate risk
The company is exposed to interest rate risk from its financing.
Interest rate risk for all debt is managed by the use of interest
rate swap contracts 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. The treasury committee of the board of
Network Rail 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.
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 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 2023
Non derivative financial liabilities
Bank loans and overdrafts (8) (8) (23) (720) (759)
Sterling denominated
DIP bonds (1,300) (102) (307) (2,864) (4,573)
Sterling denominated
index linked DIP bonds (335) (335) (8,259) (20,012) (28,941)
Foreign currency denominated
DIP bonds (2) (2) (54) - (58)
Derivative financial
liabilities
Net settled derivative
contracts (68) (41) (32) - (141)
Gross settled derivative
contracts - receipts 29 29 57 - 115
Gross settled derivative - - - - -
contracts - payments
Collateral held (1) - - - (1)
(1,685) (459) (8,618) (23,596) (34,358)
Within 1-2 2-5 5+ Total
1 year years years years
GBPm GBPm GBPm GBPm GBPm
31 March 2022
Non derivative financial liabilities
Bank loans and overdrafts (7) (7) (20) (641) (675)
Sterling denominated
DIP bonds (150) (1,300) (307) (2,966) (4,723)
Sterling denominated
index linked DIP bonds (295) (295) (1,295) (23,888) (25,773)
Foreign currency denominated
DIP bonds (2) (2) (61) - (65)
Derivative financial
liabilities
Net settled derivative
contracts (120) (67) (69) (4) (260)
Gross settled derivative
contracts - receipts 29 29 88 - 146
Gross settled derivative - - - - -
contracts - payments
Collateral held - - - - -
(545) (1,642) (1,664) (27,499) (31,350)
Offsetting financial assets and liabilities
The following financial assets and financial liabilities are
subject to offsetting, enforceable master netting arrangements and
similar agreements.
Gross Gross Net amount Related amounts
amounts amounts of financial not set off in
of of the balance sheet
recognised recognised assets Financial Net Collateral Net amount
financial financial presented liability
assets liabilities in the derivatives
set off balance
in the sheet
balance
sheet
GBPm GBPm GBPm GBPm GBPm GBPm
31 March 2023
Derivatives 91 - 91 (231) 140 -
31 March 2022
Derivatives 10 - 10 (261) 255 4
Collateral consists of GBP141m (2022: GBP255m) receivable (Note
7) and GBP1m (2022: GBPnil) payable (Note 8).
13. Share capital
31 March 31 March
2023 2022
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
2023 2022
GBPm GBPm
Profit before tax - -
Operating cash flow before movements in
working capital (9,551) 822
Decrease / (increase) in receivables 9,462 (395)
Net cash (used in) / generated by operating
activities (89) 427
Cash and cash equivalents (which are represented as a single
class of assets on the face of the balance sheet) comprise cash at
bank.
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. Post balance sheet events
As at the date of signing these financial statements there have
not been any significant post balance sheet events, whether
adjusting or non-adjusting.
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