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Network Rail Ifi PLC (85MJ)

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Thursday 06 June, 2013

Network Rail Ifi PLC

Final Results

RNS Number : 4094G
Network Rail Infrastructure Finance
06 June 2013
 



Network Rail Infrastructure Finance PLC

Full year results 

Year ended 31 March 2013

Directors' report

The directors present their annual report and audited financial statements of Network Rail Infrastructure Finance PLC (NRIF or the company) for the year ended 31 March 2013.

Principal activities

The principal activity of NRIF is to act as issuer for Network Rail's Debt Issuance Programme (DIP).

Future activities

The directors do not envisage any changes in the company's principal activities in the foreseeable future.

Dividends

No dividend was paid or proposed in the current year (2012: £nil).

Business review

The company was incorporated on 31 March 2004 and entered into documentation to facilitate debt issuance on 29 October 2004.

The company was incorporated for the sole purpose of acting as the issuer under Network Rail's DIP and is neither a member of the Network Rail group nor controlled by the Secretary of State for Transport.

Although the company is not a member of the Network Rail group, for accounting purposes the company is treated as a subsidiary in the consolidated financial statements of Network Rail Limited (NRL). The DIP is guaranteed by a Financial Indemnity from the Secretary of State for Transport and as a result the Financial Indemnity is a direct sovereign obligation of the Crown and Network Rail's debt is zero per cent risk weighted.

The Financial Indemnity is an unconditional and irrevocable obligation of the UK Government to make payments directly to a Security Trustee to cover all debt service shortfalls, whatever the cause. The Financial Indemnity is also designed to ensure timely payment as well as ultimate recourse to the UK Government. The DIP continues to provide Network Rail access to the widest possible sources of funding at the lowest possible cost; it provides a stable base for funding a continuing programme of long-term investment in the national rail network.

Within the DIP, which is administered by Network Rail Infrastructure Limited (NRIL), the owner and operator of the national rail network of Great Britain, is a £40bn multi currency note which has been assigned the following credit ratings: AAA by Standard and Poor's, Aa1 by Moody's (stable outlook) and AA+ by Fitch (stable outlook). The stable outlook reflects the outlook on the United Kingdom's sovereign rating.

In the financial year £4.2bn of bonds were issued. As at 31 March 2013, 51% of gross debt was UK RPI index-linked. Cash balances increased by £1.7bn. Individual bonds issued during the financial year were:

-     £250m 2.5% nominal notes due Mar 2014

       US$1.5bn 0.625% nominal notes due Jun 2015 (sterling equivalent of £962m)

-     £55m 1.75% index linked notes due Nov 2027

-     £40m 1.375% index linked notes Nov 2037

-     £30m 1.125% index linked notes Nov 2047

-     £30m 1.75% index linked notes due Nov 2027

-     US$1.25bn 0.75% nominal notes due Oct 2017 (sterling equivalent of £774m)

-     £750m 1% nominal notes due Dec 2017

-     £600m floating rate nominal notes due Feb 2016

-     £420m 1.75% index linked notes due Nov 2027

-     £195m 1.375% index linked notes Nov 2037

-     £135m 1.125% index linked notes Nov 2047

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; that the company has continued to raise debt as required by NRIL; 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.

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 NRIL board. Treasury operations are subject to regular internal audits and the company does not engage in trades of a speculative nature.

Company policy is to maintain sufficient short-term investments and a £4bn commercial paper programme is available as liquidity to cover the next 12 months' funding requirements.

The major financing risks that the company faces are interest rate, foreign currency fluctuation risk and liquidity risk. Treasury operations seeks to provide sufficient liquidity to meet the company's needs, while reducing financial risks and prudently maximising interest receivable on surplus cash (further details are provided in note 12).

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).

Directors

None of the directors had any interests in the shares of the company or any other company within the Network Rail group at any time in the year.

NRIF maintains directors and officers liability insurance for its directors with a cover limit of £150 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.

Disclosure of information to auditors

Pursuant under the Companies Act 2006 Section 418, each of the directors confirms that, so far as he or she is aware, there is no relevant audit information of which the company's auditors are unaware and that the directors have taken all responsible steps in order to make themselves aware of any relevant audit information and to establish that the company's auditors are aware of that information.

 

Statement of comprehensive income

for the year ended 31 March 2013

 


 

 

Notes




 

2013


 

2012






£m


£m

 

 

 

 

 

 

 

 

Profit from operations





-


-

 

 

 

 

 

 

 

 

Investment income

5




1,130


1,141

Finance costs

5




(1,130)


(1,141)

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



Total



£m

 

 

 

At 1 April 2011


-

Profit and total comprehensive income for the year


-

 

 

-

At 31 March 2012


-

Profit and total comprehensive income for the year



 

 

 

At 31 March 2013


-

 

 

 



 

Balance sheet

at 31 March 2013

 

 



 

 

2013


 

 

2012


Notes


£m


£m

 

 

 

 

 

 

Non-current assets






Receivables: amounts falling due after more than one year

7


29,559


26,880

Derivative financial instruments

11


681


670

 

 

 

 

 

 

Total non-current assets



30,240


27,550







Current assets






Derivative financial instruments

11


290


445

Receivables: amounts falling due within one year

7


252


243

Cash and cash equivalents



3,436


1,778

 

 

 

 

 

 

Total current assets



3,978


2,466

 

 

 

 

 

 

Total assets



34,218


30,016







Current liabilities






Loans

9


(4,120)


(1,143)

Derivative financial instruments

11


-


(410)

Other payables

8


(642)


(325)

 

 

 

 

 

 

Total current liabilities



(4,762)


(1,878)

 

 

 

 

 

 

Net current (liabilities)/assets



(784)


588

 

 

 

 

 

 

Non-current liabilities






Loans

9


(29,247)


(27,842)

Derivative financial instruments

11


(209)


(296)

 

 

 

 

 

 

Total non-current liabilities



(29,456)


(28,138)







Total liabilities



(34,218)


(30,016)

 

 

 

 

 

 

Net assets



-


-

 

 

 

 

 

 

Equity



                      


                      

Share capital

13


-


-

Retained earnings



-


-

 

 

 

 

 

 

Total equity



-


-

 

 

 

 

 

 

 

The financial statements were approved by the board of directors and authorised for issue on

5 June 2013.  They were signed on its behalf by Samantha Pitt (director) and Jocelyn Coad (director).

Company registration number: 5090412

 

Statement of cash flows

for the year ended 31 March 2013


 

2013

 

2012

                                                                                                  

Note

£m

£m

 

 

 

 

Cash flow from operating activities                      

14

(1,768)

(1,624)

Interest paid


(651)

(552)

 

 

 

 

Net cash outflow from operating activities                      


(2,419)

(2,176)

 

 

 

 

Investing activities




Interest received


645

553

 

 

 

 

Net cash inflow from investing activities


645

553

 

 

 

 

Financing activities




Repayment of borrowings


(1,190)

(2,265)

New loans raised


4,751

5,489

Collateral received from counterparties


323

(78)

Cash flow on derivatives not hedge accounted


(452)

(390)

 

 

 

 

Net cash inflow from financing activities


3,432

2,756

 

 

 

 

Net increase in cash and cash equivalents


1,658

1,133





Cash and cash equivalents at beginning of the year


1,778

645

 

 

 

 

Cash and cash equivalents at end of the year


3,436

1,778

 

 

 

 

 

 

Notes to the Financial Statements

for the year ended 31 March 2013

1.  General information

The financial information set out in this preliminary announcement does not constitute the company's statutory accounts for the years ended 31 March 2013 or 31 March 2012, but is derived from those accounts. Whilst the financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRS Interpretations Committee updates as adopted by the European Union, this announcement itself does not contain sufficient information to comply with IFRSs. Statutory accounts for the year ended 31 March 2012 have been delivered to the Registrar of Companies and those for the year ended 31 March 2013 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified.  This announcement has been prepared on the basis of the accounting policies as stated in the previous year's financial statements as no new Standards, Amendments or Interpretations that became effective in the financial year had an impact on the company's results.  This announcement was approved by the board on 5 June 2013.

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 historical cost basis, except for the revaluation of derivative financial instruments to fair value, and the principle accounting policies have been applied consistently throughout the year.

The principal accounting policies are set out below.

Adoption of new and revised standards

At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective:

IAS 27 Separate Financial Statements

IAS 28 Investments in Associates and Joint Ventures

IFRS 9 Financial Instruments

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

Amendments to IAS 1 Presentation of financial statements

Amendments to IAS 19 Employee Benefits

Amendments to IFRS 1 First-time Adoption of IFRS

Amendments to IFRS 7 Financial Instruments - Disclosures

The company has yet to assess the full impact of adopting these new standards and amendments.

 

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 amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs are accounted for on an accruals basis (at amortised cost) in the statement of comprehensive income using the effective interest method and 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 and hedge accounting

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 other gains and losses in the statement of comprehensive income.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. Unrealised gains or losses are reported in the statement of comprehensive income.

Derivatives are presented in the balance sheet in line with their maturity dates.

Investments

Investments are recognised on a trade date where a purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs.

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 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 recognised in 'other gains and losses' 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.

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 £12,500 (2012: £12,500) have been borne by NRIL. No other fees were payable by the company to the company auditors in the current or prior year.

5.  Investment income and finance costs



Year

 ended

31 March

2013

Year

 ended

31 March

2012



£m

£m

 

 

 

 

Investment income - interest receivable from NRIL


1,117

1,130

Interest receivable on investments


13

11

 

 

 

 

Total investment income


1,130

1,141

 

 

 

 

Finance costs - interest payable on debt issued under the DIP


(1,130)

(1,141)

 

 

 

 

Total finance costs


(1,130)

(1,141)

 

 

 

 

 

6.  Other gains and losses



 

Year

 ended

31 March

2013


 

Year

 ended

31 March

2012



£m


£m

 

 

 

 

 

(Loss)/gain on retranslation of external debt


(353)


62

Net gain/(loss) on fair value of external derivative financial instruments


762


(296)

(Loss)/gain on fair value of embedded derivative


(409)


234






 

 

 

 

 

Total gains and (losses)


-


-

 

 

 

 

 

7.  Receivables


31 March

2013


£m

 

 

Non-current assets



Loans to NRIL

29,559

 

 


29,559

 

 



Current assets


Interest on loans to NRIL

Interest receivable on investments

Collateral receivable

238

-

14

242

1

-

 

 


252

 

 

Total receivables

29,811

 

 

 

8.  Other payables


 

31 March

2013

 

31 March

2012


£m

£m

 

 

 

Current liabilities



Collateral obligation

404

81

Interest payable on bonds issued under the DIP

235

238

Interest payable on European Investment Bank long term loans

3

6

 

 

 

Total payables

642

325

 

9.  Loans

Bonds issued under the DIP are analysed as follows:

 


31 March 2013

31 March 2012


£m

£m

1.085% sterling index linked bond due 2052

119

116

0% sterling index linked bond due 2052

105

105

1.003% sterling index linked bond due 2051

22

22

0.53% sterling index linked bond due 2051

115

113

0.517% sterling index linked bond due 2051

115

112

0% sterling index linked bond due 2051

125

120

0.678% sterling index linked bond due 2048

114

111

1.125% sterling index linked bond due 2047

4,466

4,094

0% sterling index linked bond due 2047

75

72

1.1335% sterling index linked bond due 2045

47

45

1.5646% sterling index linked bond due 2044

259

251

1.1565% sterling index linked bond due 2043

52

51

1.1795% sterling index linked bond due 2041

64

62

1.2219% sterling index linked bond due 2040

256

248

1.2025% sterling index linked bond due 2039

70

68

4.6535% sterling bond due 2038

100

100

1.375% sterling index linked bond due 2037

4,932

4,428

4.75% sterling bond due 2035

1,226

1,225

1.6492% sterling index linked bond due 2035

389

378

4.375% sterling bond due 2030

870

870

1.75% sterling index linked bond due 2027

4,782

3,892

4.615% Norwegian krone bond due 2026

56

55

4.57% Norwegian krone bond due 2026

16

15

1.9618% sterling index linked bond due 2025

328

318

4.75% sterling bond due 2024

731

729

2.76% Swiss franc bond due 2021

208

208

2.315% Japanese yen bond due 2021

70

75

2.28% Japanese yen bond due 2021

70

75

2.15% Japanese yen bond due 2021

70

75

4.625% sterling bond due 2020

997

997

0.75% US dollar bond due 2017

823

-

1% sterling bond due 2017

745

-

6% Australian dollar bond due 2016

344

323

4.4% Canadian dollar bond due 2016

324

312

Floating rate sterling bond due 2016

599

-

1.25% US dollar bond due 2016

658

625

4.875% sterling bond due 2015

996

995

1.25% sterling bond due 2015

1,498

1,497

0.875% US dollar bond due 2015

987

934

0.625% US dollar bond due 2015

986

-

2.5% sterling bond due 2014

1,257

1,006

1.5% US dollar bond due 2014

1,153

1,093

Floating rate US dollar bond due 2013

658

718

3.5% US dollar bond due 2013

824

780

1.75% US dollar bond due 2013

-

625

Floating rate US dollar bond due 2012

-

62

0.52% US dollar bond due 2012

-

62





 

32,701

 

28,062

 

Other long term loans are analysed as follows:


31 March

2013


£m

 

 

Index-linked European Investment Bank due 2037

436

5.57% European Investment Bank due 2013

200

5.77% European Investment Bank due 2012

-

 

 


636

 

 

 

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.

At 31 March 2013 the company had the following undrawn committed facilities:


2013

2013

2013

2012

2012

2012


Drawn

Undrawn

Total

Drawn

Undrawn

Total


£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

Working capital facility

-

-

-

-

1,000

1,000

 

 

 

 

 

 

 

Undrawn committed facilities expire as follows:


2013

2012


Total

Total


£m

£m

 

 

 

Within one year

-

1,000

 

 

 

The £1bn committed facility was cancelled on 25 April 2012.

 

10.  Net borrowings


31 March

2013

31 March

2012


£m

£m

 

 

 

Net borrowings by instrument



Cash and cash equivalents*

               3,436

         1,778

Collateral receivable

                    14

                 -

Collateral obligation

                 (404)

            (81)

Commercial paper

                   (30)

                 -

Bank loans

                 (636)

          (923)

Bonds issued under the DIP

            (32,701)

     (28,062)

 

 

 


(30,321)

(27,288)

 

 

 

Movement in net borrowings



At the beginning of the period

            (27,288)

     (24,821)

Increase in cash and cash equivalents

               1,658

         1,133

Movement in collateral receivable

                    14

-

Movement in collateral obligation to counterparties

                 (323)

              78

Proceeds from borrowings

              (4,751)

       (5,489)

Repayments of borrowings

               1,190

         2,265

Capital accretion on index-linked bonds

                 (485)

          (521)

Exchange differences

                 (353)

              62

Fair value and other movements

                    17

                5

 

 

 

At the end of the period

            (30,321)

     (27,288)

Net borrowings are reconciled to the balance sheet as set out below:



Cash and cash equivalents*

               3,436

         1,778

Collateral receivable

                    14

-

Collateral obligation

                 (404)

            (81)

Borrowings included in current liabilities

              (4,120)

       (1,143)

Borrowings included in non-current liabilities

            (29,247)

     (27,842)

 

 

 

At the end of the period

            (30,321)

     (27,288)

 

* Includes collateral received from derivative counterparties of £404m (2012: £81m)

 

11.  Derivative financial instruments


31 March 2013

31 March 2012


Fair

value

Notional amounts

Fair

value

Notional amounts


£m

£m

£m

£m

 

 

 

 

 

Derivative financial assets included in non-current assets

681

4,702

670

3,052

Derivative financial assets included in current assets

256

2,383

1

62

Embedded derivatives in the inter-company borrowing of NRIL (all within current assets)

34

12,866

444

9,062

 

 

 

 

 


971

19,951

1,115

12,176

 

 

 

 

 


Fair

value

Notional amounts

Fair

value

Notional amounts


£m

£m

£m

£m

 

 

 

 

 

Derivative financial liabilities included in non-current liabilities

(209)

5,780

(296)

4,374

Derivative financial liabilities included in current liabilities

-

-

(410)

1,574

 

 

 

 

 


(209)

5,780

(706)

5,948

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 is largely debt funded. Debt is issued through NRIF.

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 2013 and 31 March 2012.

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. With the exception of bank loans and bonds, all financial assets and liabilities are carried at amounts that approximate to their 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 2013

31 March 2012


Carrying value

Fair value

Carrying value

Fair value


£m

£m

£m

£m

 

 

 

 

 

Financial assets





Cash and cash equivalents

3,436

3,436

1,778

1,778

Loans and receivables - Loans to NRIL

29,559

29,559

26,880

26,880

Trade and other receivables

238

238

243

243

Collateral receivable

14

14

-

-

Derivative financial instruments

937

937

671

671

Embedded derivative

34

34

444

444

 

 

 

 

 

Total financial assets      

34,218

34,218

30,016

30,016

 

 

 

 

 

 

Financial liabilities





Financial liabilities held at amortised cost:





Commercial paper

(30)

(30)

-

-

European Investment Bank loans

(636)

(838)

(923)

(1,087)

Bonds issued under the DIP

(32,701)

(35,584)

(28,062)

(34,212)

 

 

 

 

 


(33,367)

(36,452)

(28,985)

(35,299)






Trade and other payables

(238)

(238)

(244)

(244)

Collateral held

(404)

(404)

(81)

(81)

Derivative financial instruments

(209)

(209)

(706)

(706)

 

 

 

 

 

Total financial liabilities

(34,218)

(37,303)

(30,016)

(36,330)

 

 

 

 

 

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 its 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 inter-company loan agreement which gives rise to an embedded derivative. 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 instruments is limited because counterparties are banks with high credit ratings assigned by international credit-rating agencies. A treasury sub-committee of the NRIL 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 cash 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. A treasury sub-committee of the NRIL board also authorises the types of investment and borrowing instruments that can be used.

The credit risk on the inter-company 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 limits each counterparty to a threshold (based on credit ratings) which if exceeded requires the counterparty to post cash collateral.  The thresholds were reviewed by the treasury committee in the year.  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 will, for the first time, post collateral on its adverse net derivative positions with its counterparties.  The new agreements do not contain threshold provisions.  NRIF and its counterparties are required to post collateral for the full fair value of their net out of the money positions.

 

Foreign exchange risk

The company is exposed to currency risks from its financing and, from time to time, investing activities. 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 inter-company loan agreement and the consequent embedded derivative.

 

Interest and inflation rate risk

The company is exposed to interest rate risks from its financing and investing activities. Interest rate risk for all debt is managed by the use of interest rate swaps to limit the effects of movements in interest rates on floating rate liabilities.

Due to the workings of the inter-company loan agreement and the consequent embedded derivative, 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.

During the year the company utilised all of its remaining real rate swaps (notional value £100m) and all of its remaining gilt locks (notional value £747m) on the issue of index linked debt.

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 inter-company loan agreement and the consequent embedded derivative 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.

 

Embedded derivatives

The obligations and rights of the company under the inter-company loan agreement with NRIL give rise to an embedded derivative in that agreement which reflects the external currency and interest rates risks to which the company is exposed. The embedded derivative is treated as a separate derivative and accounted for in accordance with the accounting policy in note 2.

 

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors. A treasury sub-committee of the board of NRIL, who acts as administrator for NRIF, 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 managed through access to bond markets and commercial paper. Treasury is subject to regular internal audits.

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) and the Commercial Paper Programme.

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 year


1-2 years


2-5 years


5+

years


Total


£m


£m


£m


£m


£m

 

 

 

 

 

 

 

 

 

 

31 March 2013


Non derivative financial liabilities

Bank loans and overdrafts

235


5


15


533


788

Bonds issued under the DIP

Sterling denominated DIP bonds      

1,543


1,765


2,982


5,989


12,279

Sterling denominated index-linked DIP bonds      

213


221


707


40,999


42,140

Foreign currency denominated DIP bonds      

2,758


1,065


3,266


562


7,651

Derivative financial liabilities      

Net settled derivative contracts

35


41


30


(138)


(32)

Gross settled derivative contracts - receipts      

(2,758)


(1,065)


(3,249)


-


(7,072)

Gross settled derivative contracts - payments      

2,451


1,046


2,704


-


6,201


Collateral held

404


-


-


-


404

 

 

 

 

 

 

 

 

 

 


4,881


3,078


6,455


47,945


62,359

 

 

 

 

 

 

 

 

 

 

 


Within 1 year


1-2 years


2-5 years


5+

years


Total


£m


£m


£m


£m


£m

 

 

 

 

 

 

 

 

 

 

31 March 2012


Non derivative financial liabilities

Bank loans and overdrafts

325


216


15


522


1,078

Bonds issued under the DIP

Sterling denominated DIP bonds      

277


1,277


3,169


6,173


10,896

Sterling denominated index-linked DIP bonds      

198


205


658


44,208


45,269

Foreign currency denominated DIP bonds      

969


2,608


2,353


590


6,520

Derivative financial liabilities      

Net settled derivative contracts

(33)


27


9


(57)


(54)

Gross settled derivative contracts - receipts      

(970)


(2,607)


(2,353)


(590)


(6,520)

Gross settled derivative contracts - payments      

1,006


2,516


2,203


417


6,142


Collateral held

81


-


-


-


81

 

 

 

 

 

 

 

 

 

 


1,853


4,242


6,054


51,263


63,412

 

 

 

 

 

 

 

 

 

 

Borrowings

Details of the company's undrawn committed facilities and types of debt instruments used can be found in notes 9 and 10.

Fair value measurements recognised in the balance sheet

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 (i.e. as prices) or indirectly (i.e. derived from prices); 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).

 

As at 31 March 2013:

Level 1

£m

Level 2

£m

Level 3

£m

Total

£m

 

 

 

 

 

Financial assets at fair value through profit and loss





Derivative financial assets

-

971

-

971

 

 

 

 

 

Financial liabilities at fair value through profit and loss





Derivative financial liabilities

-

(209)

-

(209)

 

 

 

 

 

Total

-

762

-

762

 

 

 

 

 

 

There were no transfers between Level 1 and 2 during the year.

 

As at 31 March 2012:

Level 1

£m

Level 2

£m

Level 3

£m

Total

£m

 

 

 

 

 

Financial assets at fair value through profit and loss

-

1,115

-

1,115

Derivative financial assets





 

 

 

 

 

Financial liabilities at fair value through profit and loss

-

(706)

-

(706)

Derivative financial liabilities





 

 

 

 

 

Total

-

409

-

409

 

 

 

 

 

 

There were no transfers between Level 1 and 2 during the year.

13.  Share capital



 

31 March

2013

 

31 March

2012



£

£

 

 

 

 

Authorised, issued and partly paid:




50,000 ordinary shares of £1 partly paid to £0.25 each


12,500

12,500

 

 

 

 

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

2013

 

31 March

2012


£m

£m

 

 

 

Profit before tax

-

-

 

 

 

Operating cash flow before movements in working capital






Increase in receivables

(1,768)

(1,624)

 

 

 

Net cash consumed by operating activities

(1,768)

(1,624)

 

 

 

15.  Controlling party and related party transactions

49,999 shares of the company are held by HSBC Trustee (C.I.) Limited. A nominee for the trustee, HSBC Private Banking Nominee 1 (Jersey) Limited holds 1 share. All shares in the company are held for charitable purposes.

The company is not a member of the Network Rail group or related to or controlled by the Secretary of State for Transport. 

For accounting purposes the company is treated as a subsidiary in the consolidated accounts of Network Rail Limited.

Transactions with NRIL are clearly identified within the relevant notes to the accounts.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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