TIDM85MJ
RNS Number : 6294T
Network Rail Infrastructure Finance
21 July 2020
Network Rail Infrastructure Finance PLC
Full year results
Year ended 31 March 2020
Strategic report
The directors present their strategic report of Network Rail
Infrastructure Finance PLC ("NRIF" or "the company") for the year
ended 31 March 2020.
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, Aa2 (outlook stable) by
Moody's and AA (negative watch) by Fitch.
Financial review
During the year the company incurred finance costs of GBP1,189m
(2018/19: GBP1,187m) relating to the interest on bonds in issue.
These costs were passed onto NRIL in the form of finance income for
NRIF. NRIF also made a loss of GBP862m on the fair value of its
debt as it continues to fair value its debt under IFRS 9. This loss
arose as a result of increases in the fair value of debt which in
turn is driven by market sentiment on interest rates and risk,
including in the last quarter in relation to the coronavirus
pandemic. NRIF made a gain of GBP231m on its derivatives. These
gains and losses were passed through to NRIL as part of the
intercompany loan receivable. NRIF made a profit before tax of
GBP110,000 (2019: GBP110,000) in the year ended 31 March 2020,
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 increased from GBP29,968m to GBP31,105m, primarily reflecting
fair value movements and the fact that no instruments fell due for
repayment during 2019-20.
During the year ending 31 March 2020, no bonds matured under the
DIP. UK RPI index-linked debt was 80 per cent of gross debt at 31
March 2020.
There was no commercial paper outstanding as at 31 March 2020
(2019:GBPnil).
Cash balances are required for settlement of maturing bonds and
for the purposes of managing collateral posted by financial
derivative counterparties. These cash requirements are met by NRIL
through repayment of the intercompany loan.
Counterparty limits are set with reference to published credit
ratings. These limits dictate how much and for how long management
deals with each counterparty, and are monitored on a regular basis
(further details are provided in note 12).
Reclassification of Network Rail
In December 2013, the Office for National Statistics announced
the reclassification of Network Rail as a Central Government Body
in the UK National Accounts and Public Sector Finances with effect
from 1 September 2014. This was a statistical change driven by new
guidance in the European System of National Accounts 2010
(ESA10).
As part of Network Rail's formal reclassification to the public
sector, an arrangement was agreed whereby funding would be provided
by the DfT in the form of a loan made directly to NRIL. As a
result, from 4 July 2014, Network Rail borrows directly from the UK
Government and currently has no plans to issue debt in its own name
through NRIF.
In the unlikely event that the DfT withdraws or breaches its
obligations on the loan facility to NRIL, NRIF may issue further
bonds or commercial paper. NRIF's future debt service obligations
will be met through repayments of the intercompany loan by
NRIL.
All the outstanding bonds under the DIP, including nominal and
index-linked benchmarks and private placements in all currencies,
will continue to benefit from a direct and explicit guarantee from
the UK Government under the financial indemnity.
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.
Substantially all of the derivatives will have matured by the 31
March 2024.
Approved by the board of directors and signed by order of the
board
Paul Marshall (director)
16 July 2020
Directors' report
The directors present their report and the annual financial
statements of the company for the year ended 31 March 2020.
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 (2019:
GBPnil).
Directors
NRIF maintains directors' and officers' liability insurance for
its directors with a cover limit of GBP150 million for each claim
or series of claims against them in their capacity as directors of
the company. The company also indemnifies its directors and
officers to the extent permitted by law.
Going concern
After making enquiries, the directors have a reasonable
expectation that the company has adequate resources to continue in
operational existence for the foreseeable future.
In reaching this conclusion the directors considered: the
Financial Indemnity as described above; the collateral arrangements
with banking counterparties as described in note 12 of the
financial statements; and that the company has an intercompany
agreement that recovers all net costs from NRIL.
The loan arrangement agreed between DfT and NRIL has resulted in
loans being made by DfT direct to NRIL. NRIF does not anticipate
issuing further bonds and NRIF's debt service obligations will
continue to be met through repayments of the intercompany loan by
NRIL.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Corporate Governance
All of NRIF's activities are administered by NRIL's employees
and therefore the company does not have any employees. NRIF relies
on the governance structures of its effective controlling party
Network Rail Limited (NRL), including its audit and risk committee.
The role of these governance structures is scoped to include NRIF's
activities in full. As permitted by DTR rule 1B.1.6, since it has
not issued shares which are admitted to trading, NRIF does not
itself apply a corporate governance code. However, it is subject to
an appropriate degree of control and accountability as a result of
NRL applying the UK Corporate Governance Code, subject to a small
number of exceptions as disclosed in its accounts. The principal
exception to Code compliance at NRL is that due to the public
sector reclassification of the Network Rail group as a whole, the
Department for Transport expects (as described in Network Rail's
Framework Agreement) the Comptroller and Auditor General to be
appointed as independent auditor for Network Rail and its key
subsidiaries, including NRIF. NRL's annual reports and accounts
consolidate NRIF's financial results; describe the governance
structures for NRL, to which NRIF is also subject, and the activity
of its audit and risk committee; and
describe Code compliance for the group as a whole.
These reports are available at http://www.networkrail.co.uk
.
Approved by the board of directors and signed by order of the
board
Paul Marshall (director)
16 July 2020
Statement of comprehensive income
for the year ended 31 March 2020
Notes 2020 2019
GBPm GBPm
Result from operations - -
Finance income 5 1,189 1,187
Finance costs 5 (1,189) (1,187)
Other gains and losses 6 - -
Profit before taxation - -
Tax - -
Profit and total comprehensive - -
income for the year
All income and expense is recognised in the statement of
comprehensive income.
Statement of changes in equity
for the year ended 31 March 2020
Share Retained Total
capital earnings equity
GBPm GBPm GBPm
At 31 March 2018 - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2019 - 1 1
Profit and total comprehensive - - -
income for the year
At 31 March 2020 - 1 1
Balance sheet
at 31 March 2020
Notes 2020 2019
GBPm GBPm
Non-current assets
Receivables: amounts falling due after
more than one year 7 30,506 30,650
Derivative financial instruments 11 472 340
Total non-current assets 30,978 30,990
Current assets
Derivative financial instruments 11 10 10
Receivables: amounts falling due within
one year 7 1,727 904
Cash and cash equivalents 10 - -
Total current assets 1,737 914
Total assets 32,715 31,904
Current liabilities
Loans* 9 (1,013) -
Derivative financial instruments 11 (48) (51)
Other payables 8 (300) (215)
Total current liabilities (1,361) (266)
- -
---------------------------------------- ----- -------- --------
Net current assets 376 648
Non-current liabilities
Loans* 9 (30,506) (30,657)
Derivative financial instruments 11 (847) (980)
Total non-current liabilities (31,353) (31,637)
Total liabilities (32,714) (31,903)
Net assets 1 1
Equity
Share capital 13 - -
Retained earnings 1 1
Total equity 1 1
The financial statements and accompanying disclosure noted on
pages 6 to 20 were approved by the board of directors and
authorised for issue on 16 July 2020 and authorised for issue on 21
July 2020. They were signed on its behalf by:
Paul Marshall (director) Helena Whitaker (director)
Company registration number: 5090412
Statement of cash flows
for the year ended at 31 March 2020
2020 2019
Note GBPm GBPm
Cash flow from operating activities 14 (275) 1,764
Interest paid* (673) (696)
Net cash (outflow) / inflow from operating
activities (948) 1,068
Investing activities
Interest received 673 695
Net cash inflow from investing activities 673 695
Financing activities
Repayment of borrowings - (1,738)
Net collateral movement with counterparties 275 (26)
Cash settlement derivatives not hedge - -
accounted
Net cash inflow / (outflow) from financing
activities 275 (1,764)
Net decrease in cash and cash equivalents - (1)
Cash and cash equivalents at beginning
of the year - 1
Cash and cash equivalents at end of - -
the year
*Balance includes the net interest on derivative financial
instruments
Notes to the Financial Statements
for the year ended 31 March 2020
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 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 strategic and directors' reports on pages 1 to
5.
2. Significant Accounting Policies
These financial statements have been prepared in accordance with
IFRS as adopted by the European Union, IFRIC interpretations and
the Companies Act 2006 as applicable to companies reporting under
IFRS.
The financial statements have been prepared under the fair value
basis as bank loans and bonds, financial assets and liabilities are
carried at fair value, with the exception of interest which accrues
on the nominal value of bonds in issue. The principal accounting
policies have been applied consistently throughout the year.
The principal accounting policies are set out below.
Adoption of new and revised standards
The accounting policies adopted in this set of financial
statements are consistent with those set out in the annual
financial statements for the year to 31 March 2019.
Expected credit losses
The company's exposure to credit risk is limited to the
intercompany receivable balance from Network Rail Infrastructure
Limited (NRIL) and Collateral placed with banking counterparties.
All NRIF borrowings, related balances and risks are passed on to
NRIL in line with the terms of the intercompany loan agreement
between NRIF and NRIL. NRIF has historically not recognised any
allowances for credit losses based on current credit risk, and, due
to there not being any significant change or increase in credit
risk, no future expected credit losses are recognised.
Operating segments
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reports about components of the
company that are regularly reviewed by the board to allocate
resources to the segments and to assess their performance. The
company has adopted IFRS 8 for these financial statements. However,
there has been no material change in presentation of these
statements because the company operates one class of business, that
of acting as issuer for Network Rail's DIP and undertakes that
class of business in one geographical area, Great Britain. The
company's debt was also issued in currencies other than sterling
and sold to overseas investors.
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). 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 effectively 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 and hedge accounting
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 now 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.
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 GBP26,250 (2019: GBP25,000) have been
borne by NRIL. No other fees were payable by the company to the
company auditors in the current or prior year.
5. Finance income and finance costs
Year Year
ended ended
31 March 31 March
2020 2019
GBPm GBPm
Finance income
Interest receivable from NRIL 1,185 1,178
Interest receivable on investments 4 9
Total finance income 1,189 1,187
====================== ===== =====
Finance costs
Interest payable on debt issued
under the DIP (940) (934)
Interest on bank loans and overdrafts (19) (21)
Net interest on derivative instruments (230) (232)
Total finance costs (1,189) (1,187)
===================== ======= =======
6. Other gains and losses
Year Year
ended ended
31 March 31 March
2020 2019
GBPm GBPm
(Loss)/gain on fair value of external
debt (862) (910)
Net gain / (loss) on fair value
of external
derivative financial instruments 231 (8)
Gain/(loss) on fair value of intercompany
loan to NRIL 631 918
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
2020 2019
GBPm GBPm
Non-current assets
Loans to NRIL 30,506 30,650
30,506 30,650
Current assets
Interest on loans to NRIL 180 177
Loans to NRIL 1,013 -
Interest on investments - -
Collateral placed with banking counterparties 534 727
1,727 904
Total receivables 32,233 31,554
=================== ====== ======
The company believes that amounts receivable from NRIL and the
banking counterparties represent a high level of credit quality and
as such, no credit losses have been recognised. The high credit
quality of NRIL accompanied with the nature of the intercompany
agreement results in the balance matching the value of loans
disclosed in note 9.
8. Other payables
31 March 31 March
2020 2019
GBPm GBPm
Current liabilities
Collateral received from banking counterparties 120 38
Interest payable on bonds issued under
the DIP 178 175
Interest payable on European Investment
Bank long term loans 2 2
Total payables 300 215
================================================= ======== ========
9. Loans
Bonds issued under the DIP are analysed as follows:
31 March 31 March
2020 2019
GBPm GBPm
=========================================== ========= =========
4.625% sterling bond due 2020 1,013 1,049
2.76% Swiss franc bond due 2021 262 251
2.315% Japanese yen bond due 2021 77 73
2.28% Japanese yen bond due 2021 77 73
2.15% Japanese yen bond due 2021 77 73
3% sterling bond due 2023 434 435
4.75% sterling bond due 2024 869 881
1.9618% sterling index linked bond due
2025 483 486
4.615% Norwegian krone bond due 2026 47 53
4.57% Norwegian krone bond due 2026 13 15
1.75% sterling index linked bond due 2027 5,138 5,186
4.375% sterling bond due 2030 1,194 1,153
4.75% sterling bond due 2035 1,914 1,812
1.6492% sterling index linked bond due
2035 770 738
1.375% sterling index linked bond due
2037 6,922 6,687
4.6535% sterling bond due 2038 161 147
1.2025% sterling index linked bond due
2039 106 103
1.2219% sterling index linked bond due
2040 547 520
1.1795% sterling index linked bond due
2041 102 99
1.1565% sterling index linked bond due
2043 85 83
1.5646% sterling index linked bond due
2044 648 609
1.1335% sterling index linked bond due
2045 78 76
1.125% sterling index linked bond due
2047 8,149 7,813
0% sterling index linked bond due 2047 96 92
0.678% sterling index linked bond due
2048 191 185
1.003% sterling index linked bond due
2051 43 42
0.53% sterling index linked bond due 2051 205 197
0.517% sterling index linked bond due
2051 205 197
0% sterling index linked bond due 2051 244 235
1.085% sterling index linked bond due
2052 225 206
0% sterling index linked bond due 2052 244 235
Total bonds issued under DIP 30,619 29,804
Index linked European Investment Bank
due 2036 and 2037 900 853
Total bonds issued 31,519 30,657
------------------------------------------- --------- ---------
Split as:
Current 1,013 -
Non-current 30,506 30,657
Total 31,519 30,657
The Secretary of State for Transport has provided an unlimited
financial indemnity in respect of the above borrowings and those
borrowings under the DIP which expires in 2052.
10. Net borrowings
31 March 31 March
2020 2019
GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents - -
Collateral receivable 534 727
Collateral obligation (120) (38)
Bank loans (900) (853)
Bonds issued under the DIP (30,619) (29,804)
(31,105) (29,968)
Movement in net borrowings
At the beginning of the year (29,968) (31,040)
Decrease in cash and cash equivalents - (1)
Movement in collateral receivable (155) (23)
Movement in collateral obligation to counterparties (120) 49
Repayments of borrowings - 1,738
Exchange differences - -
Fair value and other movements (862) (691)
At the end of the year (31,105) (29,968)
Net borrowings are reconciled to the balance
sheet as set out below:
Cash and cash equivalents - -
Collateral receivable 534 727
Collateral obligation (120) (38)
Borrowings included in current liabilities (1,013) -
Borrowings included in non-current liabilities (30,506) (30,657)
At the end of the year (31,105) (29,968)
==================================================== ======== ========
11. Derivative Financial instruments
Derivatives are split as follows:
31 March 31 March
2020 2019
GBPm GBPm
Derivative financial assets - Current
Interest rate swaps 9 10
Cross currency swaps 1 -
----------------------------------------------- -------- --------
Total Current 10 10
Derivative financial assets - Non-current
Interest rate swaps 236 119
Cross currency swaps 236 221
----------------------------------------------- -------- --------
Total Non-current 472 340
----------------------------------------------- -------- --------
Total Derivative financial assets 482 350
Derivative financial liabilities - Current
Interest rate swaps (48) (51)
=============================================== ======== ========
Total Current (48) (51)
=============================================== ======== ========
Derivative financial liabilities - Non-current
Interest rate swaps (847) (980)
=============================================== ======== ========
Total Non-current (847) (980)
Total Derivative financial liabilities (895) (1,031)
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 2020 and 31 March 2019.
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. Where market data is not available valuations
are obtained from dealing banks.
31 March 2020 31 March 2019
Carrying value Fair Carrying value Fair
Value value
GBPm GBPm GBPm GBPm
Financial assets
Cash and cash equivalents - - - -
Loans and receivables
- Loans to NRIL 31,519 31,519 30,650 30,650
Collateral receivable 534 534 727 727
32,053 32,053 31,377 31,377
Other non-derivative
financial assets
Trade and other receivables
at amortised cost 180 180 177 177
Derivatives
Derivative financial
instruments 482 482 350 350
Total derivatives 482 482 350 350
Total financial assets 32,715 32,715 31,904 31,904
31 March 2020 31 March 2019
Carrying Fair Carrying Fair value
value Value value
GBPm GBPm GBPm GBPm
Financial liabilities
Collateral held (120) (120) (38) (38)
European Investment Bank
loans (900) (900) (853) (853)
Bonds issued under the DIP (30,619) (30,619) (29,804) (29,804)
Cash and cash equivalents - - - -
(31,639) (31,639) (30,695) (30,695)
Trade and other payables
at amortised cost (180) (180) (177) (177)
Derivatives
Derivative financial instruments (895) (895) (1,031) (1,031)
Total derivatives (895) (895) (1,031) (1,031)
Total financial liabilities (32,714) (32,714) (31,903) (31,903)
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 2020 the fair value of collateral held was
GBP120m (2019: GBP38m). 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 2020 was GBP534m (2019:
GBP727m).
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 2020
Non derivative financial liabilities
Bank loans and overdrafts - - (1) (522) (523)
Sterling denominated
DIP bonds (1,196) (150) (1,552) (3,171) (6,069)
Sterling denominated
index linked DIP bonds (276) (284) (900) (34,900) (36,360)
Foreign currency denominated
DIP bonds (14) (453) (8) (62) (537)
Derivative financial
liabilities
Net settled derivative
contracts (189) (113) (149) (34) (485)
Gross settled derivative
contracts - receipts 14 453 8 62 537
Gross settled derivative
contracts - payments (3) (276) (3) (58) (340)
Collateral held (120) - - - (120)
(1,784) (823) (2,605) (38,685) (43,897)
Within 1-2 2-5 years 5+ Total
1 year years years
GBPm GBPm GBPm GBPm GBPm
31 March 2019
Non derivative financial liabilities
Bank loans and overdrafts (6) (6) (18) (582) (612)
Sterling denominated
DIP bonds (196) (1,196) (1,600) (3,273) (6,265)
Sterling denominated
index linked DIP bonds (268) (276) (876) (34,371) (35,791)
Foreign currency denominated
DIP bonds (14) (14) (459) (65) (552)
Derivative financial
liabilities
Net settled derivative
contracts (231) (137) (247) (44) (659)
Gross settled derivative
contracts - receipts 14 14 459 65 552
Gross settled derivative
contracts - payments (3) (6) (278) (60) (347)
Collateral held (38) - - - (38)
(742) (1,621) (3,019) (38,330) (43,712)
Offsetting financial assets and liabilities
The following financial assets and financial liabilities are
subject to offsetting, enforceable master netting arrangements and
similar agreements.
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Net Collateral Net amount
amounts amounts of financial liability
of recognised of recognised assets derivatives
financial financial presented
assets liabilities in the
set off balance
in the sheet
balance
sheet
31 March 2020 GBPm GBPm GBPm GBPm GBPm GBPm
Derivatives 482 - 482 (895) 414 1
Related amounts
not set off in
the balance sheet
Gross Gross Net amount Financial Net Collateral Net amount
amounts amounts of financial liability
of recognised of recognised assets derivatives
financial financial presented
assets liabilities in the
set off balance
in the sheet
balance
sheet
31 March 2019 GBPm GBPm GBPm GBPm GBPm GBPm
Derivatives 350 - 350 (1,031) 689 8
Collateral consists of GBP534m (2019: GBP727m) receivable (Note
7) and GBP120m (2019: GBP38m) payable (Note 8.)
13. Share capital
31 March 31 March
2020 2019
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
2020 2019
GBPm GBPm
Profit before tax - -
Operating cash flow before movements in - -
working capital
(Decrease) / Increase in receivables (275) 1,764
Net cash generated by operating activities (275) 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.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GCGDRLSDDGGB
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