TIDM85MJ
RNS Number : 7459G
Network Rail Infrastructure Finance
27 November 2020
27 November 2020
NETWORK RAIL INFRASTRUCTURE FINANCE PLC
HALF-YEAR RESULTS 2020/21
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 GBP40bn,
which has been assigned the following credit ratings: AA by
Standard and Poor's, Aa3 (stable outlook) by Moody's and AA-
(negative outlook) by Fitch.
Financial review
During the period the company incurred finance costs of GBP531m
(2019: GBP733m) 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 GBP1,185m 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. NRIF made a
gain of GBP93m 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 GBP55,000 (2019: GBP55,000) 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. 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 3
have increased from GBP31,105m to GBP31,395m, primarily reflecting
the excess of fair value movements (GBP1,185m) over the repayment
of GBP1,000m of bonds during the period.
UK RPI index-linked debt was 84 per cent of gross debt at 30
September 2020.
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 European Union and that the
interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
Approved by the board of directors and signed by order of the
board.
Paul Marshall (director)
23rd November 2020
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 2020 which comprise the
Statement of Comprehensive Income, the Balance Sheet, the Cash Flow
Statement, the Statement of Changes in Equity and related
explanatory notes.
I have read the other information contained in the interim
financial statements and considered whether it contains any
apparent misstatements or material inconsistences with the
information in the condensed interim financial statements.
Respective responsibilities of the directors and the auditor
The condensed interim financial statements are the
responsibility of, and have been approved by, the directors of
Network Rail Infrastructure Finance Plc. As explained more fully in
the Statement of Directors' Responsibilities, the directors are
responsible for preparing the condensed interim financial
statements in accordance with the Disclosure and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the financial reporting framework that
has been applied in the preparation of the full annual financial
statements of the group is applicable law and International
Financial Reporting Standards (IFRS) as adopted by the European
Union. The condensed interim financial statements have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
My responsibility is to express to the company a conclusion on
the condensed interim financial statements.
Scope of Review
I conducted my review in accordance with International Standards
on Review Engagement (UK & Ireland) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Auditing Practices Board for use in the
United Kingdom.
A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable me to obtain
assurance that I would become aware of all significant matters that
might be identified in an audit. Accordingly, I do not express an
audit opinion.
Conclusion
Based on my review, nothing has come to my attention that causes
me to believe that the accompanying interim financial information
for the six months ended 30 September 2020, is not prepared in all
material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Matthew Kay (Senior Statutory Auditor)
26th November 2020
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
2020 2019 2020
GBPm GBPm GBPm
Profit from operations - - -
Finance income 531 733 1,189
Finance costs (531) (733) (1,189)
Profit before taxation - - -
Tax - - -
Profit and total comprehensive income - - -
for the period
All income and expense in the company is recognised in the
statement of comprehensive income.
Statement of changes in equity
Share Retained
capital Earnings Total
GBPm GBPm GBPm
-
---------------------- -------- --------- -----
At 1 April 2019 - 1 1
Profit for the period - - -
-
---------------------- -------- --------- -----
At 1 April 2020 - 1 1
Profit for the period - - -
At 30 September 2020 - 1 1
Balance sheet
Unaudited
Unaudited 30 September Audited
30 September 2019 31 March
2020 (Restated) 2020
Notes GBPm GBPm GBPm
Non-current assets
Receivables: amounts falling
due after more than one year 2 31,560 31,809 30,506
Derivative financial instruments 340 501 472
Total non-current assets 31,900 32,310 30,978
Current assets
Receivables: amounts falling
due within one year 2 817 1,872 1,727
Derivative financial instruments 214 11 10
Cash and cash equivalents 3 - 3 -
Total current assets 1,031 1,886 1,737
Total assets 32,931 34,196 32,715
Current liabilities
Borrowings 3 (149) (1,031) (1,013)
Derivative financial instruments (61) (54) (48)
Other payables 4 (354) (303) (300)
Total current liabilities (564) (1,388) (1,361)
Net current assets 467 498 376
Non-current liabilities
Borrowings 3 (31,560) (31,822) (30,506)
Derivative financial instruments (806) (985) (847)
Total non-current liabilities (32,366) (32,807) (31,353)
Total liabilities (32,930) (34,195) (32,714)
Net assets 1 1 1
Equity
Share capital - - -
Retained earnings 1 1 1
Total equity 1 1 1
This interim report was approved by the board of directors on
23rd November 2020.
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
2020 2019 2020
Note GBPm GBPm GBPm
Cash flows from operating activities 6 895 (148) (275)
Interest paid (296) (318) (673)
Net cash flow from operating
activities 599 (466) (948)
Investing activities
Interest received 296 318 673
Net cash flow from investing
activities 296 318 673
1
-------------------------------------- ---- ------------- ------------- ---------------
Financing activities
Repayment of borrowings (1,000) - -
Net collateral movement with
counterparties 105 151 275
Cash flow on settlement of derivatives - - -
1
-------------------------------------- ---- ------------- ------------- ---------------
Net cash used in financing activities (895) 151 275
Net increase/ (decrease) in
cash and cash equivalents - 3 -
Cash and cash equivalents at - - -
beginning of the period
Cash and cash equivalents at
end of the period - 3 -
Notes to the interim financial statements
Six months ended 30 September 2020
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
2020 were approved by the board of directors on 16 July 2020 and
delivered to the Registrar of Companies. The auditors' report on
these accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain a statement under Section 498
of the Companies Act 2006.
The condensed interim financial statements are prepared in
accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority. The condensed interim
financial statements are prepared in accordance with IAS 34,
'Interim Financial Reporting', as adopted by the European
Union.
This condensed interim financial information has been reviewed,
not audited. The condensed interim financial information should be
read in conjunction with the annual report and accounts for the
year ended 31 March 2020, which have been prepared in accordance
with IFRSs as adopted by the European Union. A copy of this
document is available on the Companies house website.
Accounting policies
The accounting policies and methods of computation adopted in
this condensed set of financial statements are consistent with
those set out in the annual financial statements for the year to 31
March 2020.
There are no IFRS or IFRS Interpretation Committee
interpretations not yet effective that would be expected to have a
material impact on the company.
The 30 September 2019 balances have been restated to include an
omitted bond of GBP225m (representing 0.7% of the bond portfolio)
with an equal and opposite increase in the loan receivable from
NRIL.
Going concern
After making enquiries, the directors have a reasonable
expectation that the company has adequate resources to continue in
operational existence for the foreseeable future.
In reaching this conclusion the directors considered: the
financial indemnity as described on page 1; the collateral
arrangements with banking counterparties; and that the company has
an inter-company agreement that recovers all net costs from
NRIL.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
Operating segments
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reports about components of the
company that are regularly reviewed by the board to allocate
resources to the segments and to assess their performance. The
company has adopted IFRS 8 for these financial statements. However,
there has been no material change in presentation of these
statements because the company operates one class of business, that
of acting as issuer for Network Rail's DIP and undertakes that
class of business in one geographical area, Great Britain. This
debt is often issued in currencies other than sterling and sold to
overseas investors.
Debt
Debt instruments are initially recorded at fair value, net of
discount and direct issue costs, and are subsequently measured at
fair value. Finance charges, including premiums payable on
settlement or redemption and direct issue costs are recognised in
the statement of comprehensive income over the life of the debt
instrument. They are added to the carrying value of the debt
instrument to the extent that they are not settled in the period in
which they arise.
Derivative financial instruments
The company's activities expose it primarily to the financial
risks of changes in interest rates and foreign currency exchange
rates. The company uses interest rate swaps and foreign exchange
forward contracts to hedge these exposures.
Interest rate swaps and foreign exchange forward contracts are
recorded at fair value at inception and at each balance sheet date.
Movements in fair value are recorded in the statement of
comprehensive income.
Investments
Investments are classified as available-for-sale and measured at
subsequent reporting dates at fair value. For available-for-sale
investments, gains or losses from changes in fair value are
recognised directly in equity, until the security is disposed of or
is determined to be impaired, at which time the cumulative gain or
loss previously recognised in equity is included in the statement
of comprehensive income for the period.
Foreign currencies
Monetary assets and liabilities expressed in foreign currencies
are translated into sterling at rates of exchange prevailing at the
balance sheet date. Individual transactions denominated in foreign
currencies are translated into sterling at the exchange rates
prevailing on the dates payment takes place. Gains or losses
realised on any foreign exchange movements are recognised in the
statement of comprehensive income.
Intra-group borrowings
The company provides the Network Rail group with funding. It
passes all transactions and balances through the intra-group
borrowings to NRIL. Existing debt, derivatives and related interest
payments within NRIF are passed onto NRIL in the form of an
intercompany loan. As such any gains and losses relating to debt
and derivatives are also passed through to NRIL. The nature of the
arrangement means that the instrument fails the Solely Payment of
Principal and Interest test under IFRS 9 and as such, the entire
instrument is measured at fair value through profit or loss
2. Receivables
Unaudited
Unaudited 30 September Audited
30 September 2019 31 March
2020 (Restated) 2020
GBPm GBPm GBPm
Non-current assets
Loans to Network Rail Infrastructure
Limited 31,560 31,809 30,506
Current assets
Interest on loans to Network Rail
Infrastructure Limited 210 215 180
Loans to Network Rail Infrastructure
Limited 149 1,031 1,013
Collateral receivable 458 626 534
Total receivables 32,377 33,681 32,233
3. Net borrowings
Unaudited Unaudited Audited
30 September 30 September 31 March
2020 2019 2020
(Restated)
GBPm GBPm GBPm
Net borrowings by instrument
Cash and cash equivalents - 3 -
Collateral receivable 458 626 534
Collateral obligation (144) (88) (120)
Bank loans (933) (954) (900)
Bonds issued under the Debt Issuance
Programme (30,776) (31,899) (30,619)
At the end of the period/year (31,395) (32,312) (31,105)
Movements in net borrowings
At the beginning of the period (31,105) (29,968) (29,968)
Increase / (Decrease) in cash and
cash equivalents - 3 -
Movement in collateral receivable (81) (101) (155)
Movement in collateral obligation
to counterparties (24) (50) (120)
Repayment of borrowings 1,000 - -
Fair value and other movements (1,185) (2,196) (862)
(
------------------------------------- ------------- ------------- ---------
At the end of the period/year (31,395) (32,312) (31,105)
Cash and cash equivalents - 3 -
Collateral receivable 458 626 534
Collateral obligation (144) (88) (120)
Borrowings included in current
liabilities (149) (1,031) (1,013)
Borrowings included in non-current
liabilities (31,560) (31,822) (30,506)
At the end of the period/year (31,395) (32,312) (31,105)
All borrowings are denominated in or swapped into sterling.
4. Other payables
Unaudited Unaudited Audited
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
Current liabilities
Interest payable on bonds issued 209 214 178
Interest on long term loans 1 1 2
Collateral obligation 144 88 120
Total payables 354 303 300
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
2020 2019 2020
GBPm GBPm GBPm
(Restated)
Level 2:
Derivative financial assets 554 512 482
Non - current receivables 31,560 31,809 30,506
Other current assets 817 1,875 1,727
Level 2:
Derivative financial liabilities (867) (1,039) (895)
Borrowings (31,709) (32,853) (31,519)
Other current payables (354) (303) (300)
Total 1 1 1
6. Notes to the cash flow statement
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 September 30 September 31 March
2020 2019 2020
GBPm GBPm GBPm
Profit before tax - - -
Operating cash flow before movements - - -
in working capital
Decrease / (Increase) in receivables 895 (148) (275)
Cash generated from operations 895 (148) (275)
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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