REG - Network Rail Ifi PLC - Interim Financial Statements 2022
14/12/2021 10:30
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RNS Number : 5702V Network Rail Infrastructure Finance 14 December 2021
14 December 2021
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2021/22
Commentary
Network Rail Infrastructure Finance PLC ("NRIF", "the company") was
incorporated on 31 March 2004 and entered into documentation to facilitate
debt issuance on 29 October 2004.
As of 4 July 2014, Network Rail's funding requirement 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 multi-currency note
programme with a maximum limit of £40bn, which has been assigned the
following credit ratings: AA by Standard and Poor's, Aa3 (Stable outlook) by
Moody's and AA- (Stable outlook) by Fitch.
Financial review
During the period the company incurred finance costs of £956m (September
2020: £531m) relating to the interest on bonds in issue. These costs were
higher due to the impact of higher inflation on RPI-linked bonds.
NRIF received finance income as it passed on these costs onto NRIL in line
with the intercompany loan agreement.
NRIF made a loss of £1,674m (September 2020: £1,945m) on the fair value of
its debt due primarily to reductions in forward market interest rates in the
period.
NRIF has a legacy hedging programme made up primarily of interest rate and
cross-currency swaps. This programme is unwinding resulting in a gain of £91m
(September 2020: £93m) in the period.
These gains and losses were passed through to NRIL in line with intercompany
loan agreement.
NRIF made a profit before tax of £55,000 (September 2020: £55,000) in the
period, 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.
All shares and distributable reserves in the company are held for charitable
purposes.
On a fair value basis, net borrowings as described in note 3 have increased
from £39,780m to £41,018m, primarily as a result of fair value movements
(£1,674m) offset by the repayment of £132m of bonds during the period.
UK RPI index-linked debt was 89 per cent of gross debt at 30 September 2021.
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.
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.
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. Substantially all of
the derivatives will have matured by the 31 March 2024.
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 United Kingdom 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)
3 December 2021
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 2021 which comprise the Statement of Comprehensive Income, the
Balance Sheet, the Cash Flow Statement, Statement of Changes in Equity and
related explanatory notes.
Based on my review, nothing has come to my attention that causes me to believe
that the condensed interim set of financial statements for the six months
ended 30 September 2021 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Basis for Conclusion
I conducted my review in accordance with International Standards on Review
Engagement (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued 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 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.
As disclosed in note 1, the annual statements of the company are prepared in
accordance with UK adopted IFRSs. The condensed interim set of financial
statements has been prepared in accordance with UK adopted International
Accounting Standard 34 "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on my review procedures, which are less extensive that those performed
in an audit as described in the Basis on Conclusion section of this report,
nothing has come to my attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified uncertainties relating to going concern that are
not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however, future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of Directors
The directors are responsible for preparing the condensed interim financial
statements in accordance with Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
In preparing the condensed interim financial statements, the directors are
responsible for assessing the company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of
accounting unless the directors wither intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the condensed interim financial statements, I am responsible for
expressing to the Company a conclusion on the condensed interim set of
financial statements. My conclusion, including my Conclusions Relating to
Going Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Stephen Young (Senior Statutory Auditor)
7 December 2021
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
2021 2020 2021
£m £m £m
Profit from operations - - -
Finance income 956 531 879
Finance costs (956) (531) (879)
Other gains and losses - - -
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 Total
capital Earnings
£m £m £m
At 1 April 2020 - 1 1
Profit for the period - - -
At 1 April 2021 - 1 1
Profit for the period - - -
At 30 September 2021 - 1 1
Balance sheet
Unaudited Unaudited Unaudited Audited
30 September 30 September 30 September 31 March
2021 2020 2019 2021
£m £m £m £m
Notes (restated) (restated)
Non-current assets
Receivables: amounts falling due after more than one year 2 41,028 41,521 41,252 39,609
Derivative financial instruments 100 340 501 191
Total non-current assets 41,128 41,861 41,753 39,800
Current assets
Receivables: amounts falling due within one year 2 860 817 1,872 950
Derivative financial instruments 53 214 11 194
Cash and cash equivalents 3 241 - 3 -
Total current assets 1,154 1,031 1,886 1,144
Total assets 42,282 42,892 43,639 40,944
Current liabilities
Borrowings 3 (306) (149) (1,031) (433)
Derivative financial instruments (88) (61) (54) (82)
Other payables 4 (230) (354) (303) (254)
Total current liabilities (624) (564) (1,388) (769)
Net current assets 530 467 498 375
Non-current liabilities
Borrowings 3 (41,278) (41,521) (41,265) (39,609)
Derivative financial instruments (379) (806) (985) (565)
Total non-current liabilities (41,657) (42,327) (42,250) (40,174)
Total liabilities (42,281) (42,891) (43,638) (40,943)
Net assets 1 1 1 1
Equity
Share capital - - - -
Retained earnings 1 1 1 1
Total equity 1 1 1 1
This interim report was approved by the board of directors on 2 December 2021
and authorised for issue on 3 December 2021.
It was signed on its behalf by:
Paul Marshall (director)
(director)
Cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2021 2020 2021
Note £m £m £m
(restated)
Cash flows from operating activities 6 325 895 848
Interest paid (235) (296) (629)
Net cash flow from operating activities 90 599 219
Investing activities
Interest received 237 296 629
Net cash flow from investing activities 237 296 629
Financing activities
Repayment of borrowings (132) (1,000) (1000)
Net collateral movement with counterparties 46 105 152
Cash flow on settlement of derivatives - - -
Net cash used in financing activities (86) (895) (848)
Net increase/ (decrease) in cash and cash equivalents 241 - -
Cash and cash equivalents at beginning of the period - - -
Cash and cash equivalents at end of the period 241 - -
Notes to the interim financial statements
Six months ended 30 September 2021
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 2021 were approved by the board
of directors on 30 July 2021 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 report any matters by exception 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
United Kingdom.
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 2021, which have
been prepared in accordance with IFRSs in conformity with the requirements of
the Companies Act 2006. 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 2021.
There are no IFRS or IFRS Interpretation Committee interpretations not yet
effective that would be expected to have a material impact on the company.
During the year ended 31 March 2021 it was identified that when valuing
certain index linked loans, the full value attributable to the index linked
features of the instruments had not been included in previous valuations as a
result of the use, without adjustments, of a third-party pricing function
which provides quotations excluding these elements of value. The valuation of
these instruments was then understated by this amount. The impact of the
adjustment has been to increase the fair value of external bonds by £9,961m
at 30 September 2020 and £9,443m at 30 September 2019. The impact of the
changes in fair values has had a corresponding equal and opposite effect on
the intracompany loan balance due from NRIL. Finally, the changes in fair
values has resulted in the fair value movement on both external debt and the
intragroup amount due from NRIL being restated also. At both 30 September 2019
and 30 September 2020, these changes have had no impact on the net assets of
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 measured at fair value, and subsequently
designated and measured at Fair Value Through Profit and Loss (FVTPL). 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.
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.
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
2021 2020 2021
£m £m £m
(restated)
Non-current assets
Loans to Network Rail Infrastructure Limited 41,028 41,521 39,609
41,028 41,521 39,609
Current assets
Interest on loans to Network Rail Infrastructure Limited 211 210 150
Loans to Network Rail Infrastructure Limited 306 149 433
Collateral receivable 343 458 367
860 817 950
Total receivables 41,888 42,338 40,559
3. Net borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£m £m £m
(restated)
Net borrowings by instrument
Cash and cash equivalents 241 - -
Collateral receivable 343 458 367
Collateral obligation (18) (144) (105)
Bank loans (904) (933) (864)
Bonds issued under the Debt Issuance Programme (40,680) (40,737) (39,178)
At the end of the period/year (41,018) (41,356) (39,780)
Movements in net borrowings
At the beginning of the period (39,780) (40,306) (40,306)
Increase / (Decrease) in cash and cash equivalents 241 - -
Movement in collateral receivable (24) (81) (167)
Movement in collateral obligation to counterparties 87 (24) 15
Repayment of borrowings 132 1,000 1,000
Fair value and other movements (1,674) (1,945) (322)
At the end of the period/year (41,018) (41,356) (39,780)
Cash and cash equivalents 241 - -
Collateral receivable 343 458 367
Collateral obligation (18) (144) (105)
Borrowings included in current liabilities (306) (149) (433)
Borrowings included in non-current liabilities (41,278) (41,521) (39,609)
At the end of the period/year (41,018) (41,356) (39,780)
All borrowings are denominated in or swapped into sterling.
4. Other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2021 2020 2021
£m £m £m
Current liabilities
Interest payable on bonds issued 210 209 147
Interest on long term loans 2 1 2
Collateral obligation 18 144 105
Total payables 230 354 254
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. Bond liabilities
and corresponding NRIL receivables are measured using industry standard
trading platforms which make adjustment to most recent trading prices in
situations where the volume of trades at the period end is insufficient to
derive a fully reliable fair value. Any adjustments are based on the pricing
trends of frequently traded reference instruments; 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
2021 2020 2021
£m £m £m
(restated) (restated)
Level 2: 153 554 385
Derivative financial assets
Non - current receivables 41,028 41,521 39,609
Other current assets 1,101 817 950
Level 1:
Bonds (23,407) (23,184) (22,716)
Level 2:
Derivative financial liabilities (467) (867) (647)
Borrowings (18,177) (18,486) (17,326)
Other current payables (230) (354) (254)
Total 1 1 1
The 31 March 2021 classification of bonds has been restated due to a
misclassification of a bond between level 2 and 1.
6. Notes to the cash flow statement
Audited
Unaudited Unaudited year
six months six months ended
ended ended 31 March
30 September 30 September 2021
2021 2020
£m £m £m
(restated)
Profit before tax - - -
Operating cash flow before movements in working capital - 54 170
Decrease / (Increase) in receivables 325 841 678
Cash generated from operations 325 895 848
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.
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