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Network Rail Ifi PLC (85MJ)

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Tuesday 04 December, 2018

Network Rail Ifi PLC

Half-year Report 2018/19

RNS Number : 4008J
Network Rail Infrastructure Finance
04 December 2018
 

4 December 2018

NETWORK RAIL INFRASTRUCTURE FINANCE PLC

HALF-YEAR RESULTS 2018/19

 

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 is met by the Department for Transport ("DfT") via a loan facility 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 passed onto NRIL in the form of an intercompany loan and embedded derivative.

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 or related to or controlled by the Secretary of State for Transport.  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 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.

Within the DIP, which is administered by NRIL, is a multi-currency note programme with a maximum limit of £40bn, which has been assigned the following credit ratings: AA by Standard and Poor's, Aa2 (stable outlook) by Moody's and AA (negative outlook) by Fitch. 

NRIF made a profit before tax of £55,000 in the six months to 30 September 2018, being the excess of the fee charged to NRIL for the administration of the facility over the fee charged by NRIL for the provision of the facility.

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 is 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.

Financial commentary

All of the outstanding bonds under the DIP, including nominal and index-linked benchmarks and private placements in all currencies, will continue to benefit from a direct and explicit guarantee from the UK Government under the financial indemnity.

At 30 September 2018 there was £28,834m of bonds outstanding issued under the DIP.  During the period a nominal bond of USD 1,750m matured.  UK RPI index-linked debt was 77 per cent of gross debt at 30 September 2018.  There was no issued commercial paper outstanding as at 30 September 2018 (30 March 2018: £nil).

Cash balances are required for settlement of maturing bonds and for the purposes of managing collateral posted by financial derivative counterparties. This is funded by NRIL through the intercompany borrowing. The cash and cash equivalents balance as at 30 September 2018 totalled £8m.

The external derivative value increased by £45m to negative £623m at 30 September 2018 (31 March 2018: negative £668m). This movement relates to the decrease in valuation of cross currency swaps of £53m, offset by an increase in the valuation of interest rate swaps of £98m.

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 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.  In addition a £4bn commercial paper programme is available to provide liquidity in the event of the withdrawal of, or default by, DfT under the DfT Loan Facility.

NRIF is also affected by future cash flow risks arising from changes in interest rate, inflation rate and foreign currency movements.  The company enters into derivative financial instruments to partially mitigate these risks.  Further detail is available in the Network Rail Limited annual report and accounts 2018.

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.

Outlook

The principal risks managed by Network Rail are unchanged from those set out in the directors' report on pages 39-45 of the Network Rail Limited annual report and accounts 2018. There are also further details on funding and financial risk management in note 25 on pages 126-134 of these accounts.

The major risks that the company faces are financing risks including, interest rate risk, foreign currency fluctuation risk, and liquidity risk. The treasury operation of NRIL, which administers the programme on behalf of NRIF, seeks to provide sufficient liquidity to meet the company's needs, while reducing financial risks and prudently maximising interest receivable on surplus cash. 

Liquidity risk is managed by maintaining adequate cash balances and continuous monitoring of forecast and actual cash flows.

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 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.  Trades entered into after 1 January 2013 are governed by new agreements where both Network Rail and its counterparties post collateral on their full adverse net derivative positions.  The new agreements do not contain threshold provisions.

Treasury operations are co-ordinated and managed in accordance with policies and procedures approved by NRIL's board. Treasury operations are subject to regular internal audits and treasury does not engage in trades of a speculative nature.

 

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.

The directors of NRIF are listed on our website at www.networkrail.co.uk

Approved by the board of directors and signed by order of the board.

 

 

Cliff Pearce (director)

3 December 2018

 

 

 

 

 

 

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 2018 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 2018, 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)      

4 December 2018

 

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

six months

ended

30 September

2018               

Unaudited

six months

ended

30 September

2017               

Audited

year

ended

31 March

2018               

 

£m

£m

£m

 

 

 

 

Profit from operations

-

-

-

 

 

 

 

Finance income

699

757

1,330

Finance costs

(699)

(757)

(1,330)

 

 

 

 

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 and there are no transactions that impact the statement of comprehensive income.

There has been no impact to the statement of comprehensive income on adoption of IFRS9. Restatement of prior year balances also has had no impact.

 

 

 

 

Statement of changes in equity

 

 

Share

capital

Retained

Earnings

Total

 

£m

£m

£m

 

-

 

 

At 1 April 2017

-

1

1

Profit for the period

-

-

-

 

 

 

-

At 1 April 2018

-

1

1

Profit for the period

-

-

-

 

 

 

 

At 30 September 2018

-

1

1

 

 

 

 

 

Balance sheet

 

 

Unaudited

30 September

2018

 

Unaudited

30 September

2017

(restated)*

Audited

31 March

2018

(restated)*

 

Notes

£m

£m

£m

 

 

 

 

 

Non-current assets

 

 

 

 

Receivables: amounts falling due after more than one year*

2

28,858

29,727

29,977

Derivative financial instruments

 

270

466

269

 

 

 

 

 

Total non-current assets

 

29,128

30,193

30,246

 

 

 

 

 

Current assets

 

 

 

 

Receivables: amounts falling due within one year*

2

1,711

3,690

2,664

Derivative financial instruments*

 

163

193

228

Cash and cash equivalents

3

8

946

1

 

 

 

 

 

Total current assets

 

1,882

4,829

2,893

 

 

 

 

 

Total assets

 

31,010

35,022

33,139

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Borrowings*

3

(765)

(2,985)

(1,957)

Derivative financial instruments

 

(39)

(3)

(19)

Other payables

4

(320)

(349)

(269)

 

 

 

 

 

Total current liabilities

 

(1,124)

(3,337)

(2,245)

 

 

 

 

 

Net current  assets

 

758

1,492

648

 

 

 

 

 

Non-current liabilities

 

 

 

 

Borrowings*

3

(28,868)

(30,367)

(29,747)

Derivative financial instruments

 

(1,017)

(1,317)

(1,146)

 

 

 

 

 

Total non-current liabilities

 

(29,885)

(31,684)

(30,893)

 

 

 

 

 

Total liabilities

 

(31,009)

(35,021)

(33,138)

 

 

 

 

 

Net assets

 

1

1

1

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

-

-

-

Retained earnings

 

1

1

1

 

 

 

 

 

Total equity

 

1

1

1

 

 

 

 

 

* Prior period comparatives have been restated to fair value for IFRS 9 classification and measurement requirements.  See note 7 for further details.  The prior period comparatives for 31 March 2018 were audited before the restatement for IFRS 9.

 

This interim report was approved by the board of directors on 3 December 2018.

It was signed on its behalf by:

 

 

 

Cliff Pearce (director)

                      Helena Whitaker (director)

 

Cash flow statement

 

 

Unaudited

six months

ended

30 September

2018

Unaudited

six months

ended

30 September

2017

Audited

year

ended

31 March

2018

 

Note

£m

£m

£m

 

 

 

 

 

Cash flows from operating activities

6

1,095

1,113

1,819

Interest paid

 

(319)

(272)

(652)

                                                                   

 

 

 

 

Net cash inflow from operating activities

 

776

841

1,167

                                                                   

 

 

 

 

Investing activities

 

 

 

 

Interest received

 

319

271

651

                                                                   

 

 

 

 

Net cash flow from investing activities

 

319

271

651

 

 

 

 

 

Financing activities

 

 

 

 

Repayment of borrowings

 

(1,126)

-

(1,524)

Decrease/(Increase) in collateral posted

 

23

(193)

(125)

Increase/(Decrease) in collateral held

 

15

(136)

(172)

Cash flow on settlement of derivatives

 

-

159

-

 

 

 

 

 

Net cash used in financing activities

 

(1,088)

(170)

(1,821)

 

 

 

 

 

Net increase/ (decrease) in cash and cash equivalents

 

7

942

(3)

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

1

4

4

 

 

 

 

 

Cash and cash equivalents at end of the period

 

8

946

1

 

 

 

 

 

 

 

Notes to the interim financial statements

Six months ended 30 September 2018

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 2018 were approved by the board of directors on 27 June 2018 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 2018, which have been prepared in accordance with IFRSs as adopted by the European Union. A copy of this document is available on the company's website: www.networkrail.co.uk

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 2018 with the exception of IFRS 9 adoption detailed below.

Adoption of new standards

During the period the company adopted the classification and measurement requirements of IFRS 9 Financial Instruments.  As the new standard does not permit bifurcation of classification between embedded derivatives in financial assets and their host contracts and since the intercompany loan as a whole does not meet the 'solely payment of principal and interest' test, the entire loan receivable from NRIL has been restated to fair value.  To eliminate the mismatch between the external bonds (previously held at amortised cost) that NRIF holds and the intercompany loan receivable with NRIL, all bonds have also been designated irrevocably at fair value through profit and loss.  As part of this adoption, prior period comparatives have been restated and additional disclosures have been included in the notes to the accounts. 

There are no IFRS or IFRS Interpretation Committee interpretations not yet effective that would be expected to have a material impact on the company.

Going concern

After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.

In reaching this conclusion the directors considered: the financial indemnity as described on page 1; the collateral arrangements with banking counterparties; and that the company has an inter-company agreement that recovers all net costs from NRIL.

Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Operating segments

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the company that are regularly reviewed by the board to allocate resources to the segments and to assess their performance.  The company has adopted IFRS 8 for these financial statements.  However, there has been no material change in presentation of these statements because the company operates one class of business, that of acting as issuer for Network Rail's DIP and undertakes that class of business in one geographical area, Great Britain. This debt is often issued in currencies other than sterling and sold to overseas investors.

Debt

Debt instruments are initially 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.  As a result an intra-group receivable arises from NRIL to NRIF.

2.  Receivables

 

Unaudited

30 September

2018

 

Unaudited

30 September

2017

(restated)*

Audited

31 March

2018

(restated)*

 

£m

£m

£m

 

 

 

 

Non-current assets

 

 

 

Loans to Network Rail Infrastructure Limited*

28,858

29,727

29,977

 

 

 

 

Current assets

 

 

 

Interest on loans to Network Rail Infrastructure Limited

218

226

181

Loans to Network Rail Infrastructure Limited*

766

2,646

1,733

Collateral receivable

727

818

750

 

 

 

 

Total receivables

30,569

33,417

32,641

 

 

 

 

*Adoption of IFRS 9

Prior period comparatives have been restated to fair value for IFRS 9 classification and measurement requirements.  The restatement of comparative periods has been calculated as follows:

 

Audited 31 March 2018

Option to recognise inter-company loan at fair value option

Audited

31 March

2018

(restated)

31 March 2018

£m

£m

£m

 

 

 

 

Non-current assets

 

 

 

Loans to Network Rail Infrastructure Limited*

23,379

6,598

29,977

 

 

 

 

Current assets

 

 

 

Interest on loans to Network Rail Infrastructure Limited

181

-

181

Loans to Network Rail Infrastructure Limited*

1,738

(5)

1,733

Collateral receivable

750

-

750

 

 

 

 

Total receivables

26,048

6,593

32,641

 

 

 

 

 

 

Audited 31 March 2017

Option to recognise inter-company loan at fair value option

Audited

31 March

2017

(restated)

31 March 2017

£m

£m

£m

 

 

 

 

Non-current assets

 

 

 

Loans to Network Rail Infrastructure Limited*

24,730

8,695

33,425

 

 

 

 

Current assets

 

 

 

Interest on loans to Network Rail Infrastructure Limited

184

-

184

Loans to Network Rail Infrastructure Limited*

1,524

(30)

1,494

Collateral receivable

625

-

625

 

 

 

 

Total receivables

27,063

8,665

35,728

 

 

 

 

 

 

Audited 30 September 2017

Option to recognise inter-company loan at fair value option

Audited

30 September

2017

(restated)

30 September 2017

£m

£m

£m

 

 

 

 

Non-current assets

 

 

 

Loans to Network Rail Infrastructure Limited*

22,775

6,952

29,727

 

 

 

 

Current assets

 

 

 

Interest on loans to Network Rail Infrastructure Limited

226

-

226

Loans to Network Rail Infrastructure Limited*

2,650

(4)

2,646

Collateral receivable

818

-

818

 

 

 

 

Total receivables

26,469

6,948

33,417

 

 

 

 

 

 

3.  Net borrowings

 

Unaudited

30 September

2018

 

Unaudited

30 September

2017

(restated)

Audited

31 March

2018

(restated)

 

£m

£m

£m

 

 

 

 

Net borrowings by instrument

 

 

 

Cash and cash equivalents*

8

946

1

Collateral receivable

727

818

750

Collateral obligation

(102)

(123)

(87)

Bank loans

(799)

(801)

(811)

Bonds issued under the Debt Issuance Programme

(28,834)

(32,551)

(30,893)

 

 

 

 

At the end of the period/year

(29,000)

(31,711)

(31,040)

 

 

 

 

 

Unaudited

30 September

2018

 

Unaudited

30 September

2017

(restated)

Audited

31 March

2018

(restated)

 

£m

£m

£m

 

 

 

 

Movements in net borrowings

 

 

 

At the beginning of the period

(31,040)

(34,491)

(34,491)

Increase/(Decrease) in cash and cash equivalents

7

942

(3)

Movement in collateral receivable

(23)

193

125

Movement in collateral obligation to counterparties

(15)

136

172

Repayment of borrowings

1,126

-

1,524

Capital accretion on index-linked bonds

(359)

(459)

(715)

Exchange differences

-

-

-

Fair value and other movements

1,304

1,968

2,348

 

 

 

 

At the end of the period/year

(29,000)

(31,711)

(31,040)

 

 

 

 

 

 

Unaudited

30 September

2018

 

Unaudited

30 September

2017

(restated)

Audited

31 March

2018

(restated)

 

£m

£m

£m

 

 

 

 

Cash and cash equivalents*

8

946

1

Collateral receivable

727

818

750

Collateral obligation

(102)

(123)

(87)

Borrowings included in current liabilities

(765)

(2,985)

(1,957)

Borrowings included in non-current liabilities

(28,868)

(30,367)

(29,747)

 

 

 

 

At the end of the period/year

(29,000)

(31,711)

(31,040)

 

 

 

 

* Includes collateral received from derivative counterparties of £102m (September 2017: £123m, March 2018: £87m)

 

 

All borrowings are denominated in or swapped into sterling.

 

*Adoption of IFRS 9

Prior period comparatives have been restated to fair value for IFRS 9 classification and measurement requirements.  The restatement of comparative periods has been calculated as follows:

 

 

 

 

Audited 31 March 2018

Option to recognise inter-company loan at fair value option

Audited

31 March

2018

(restated)

31 March 2018

£m

£m

£m

 

 

 

 

Net borrowings by instrument

 

 

 

Cash and cash equivalents

1

-

1

Collateral receivable

750

-

750

Collateral obligation

(87)

-

(87)

Bank loans

(484)

(327)

(811)

Bonds issued under the Debt Issuance Programme

(25,677)

(5,216)

(30,893)

 

 

 

 

At the end of the period/year

(25,497)

(5,543)

(31,040)

 

 

 

 

Movements in net borrowings

 

 

 

At the beginning of the period

(27,113)

(7,378)

(34,491)

Increase/(Decrease) in cash and cash equivalents

(3)

-

(3)

Movement in collateral receivable

125

-

125

Movement in collateral obligation to counterparties

172

-

172

Repayment of borrowings

1,524

-

1,524

Capital accretion on index-linked bonds

(715)

-

(715)

Exchange differences

480

(480)

-

Fair value and other movements

33

2,315

2,348

 

 

 

 

At the end of the period/year

(25,497)

(5,543)

(31,040)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents

1

-

1

Collateral receivable

750

-

750

Collateral obligation

(87)

-

(87)

Borrowings included in current liabilities

(1,962)

5

(1,957)

Borrowings included in non-current liabilities

(24,199)

(5,548)

(29,747)

 

 

 

 

At the end of the period/year

(25,497)

(5,543)

(31,040)

 

 

 

 

 

 

 

 

Audited

31 March

2017

Option to recognise inter-company loan at fair value option

Audited

31 March

2017

(restated)

31 March 2017

£m

£m

£m

 

 

 

 

Net borrowings by instrument

 

 

 

Cash and cash equivalents

4

-

4

Collateral receivable

625

-

625

Collateral obligation

(259)

-

(259)

Bank loans

(467)

(405)

(872)

Bonds issued under the Debt Issuance Programme

(27,016)

(6,973)

(33,989)

 

 

 

 

At the end of the year

(27,113)

(7,378)

(34,491)

 

 

 

 

 

 

 

 

Movements in net borrowings

 

 

 

At the beginning of the period

(28,702)

(3,684)

(32,386)

Increase/(Decrease) in cash and cash equivalents

(96)

-

(96)

Movement in collateral receivable

(194)

-

(194)

Movement in collateral obligation to counterparties

71

-

71

Repayment of borrowings

2,388

-

2,388

Capital accretion on index-linked bonds

(449)

-

(449)

Exchange differences

(164)

164

-

Fair value and other movements

33

(3,858)

(3,825)

 

 

 

 

At the end of the year

(27,113)

 

(7,378)

(34,491)

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents*

4

-

4

Collateral receivable

625

-

625

Collateral obligation

(259)

-

(259)

Borrowings included in current liabilities

(1,745)

30

(1,715)

Borrowings included in non-current liabilities

(25,738)

(7,408)

(33,146)

 

 

 

 

At the end of the year

(27,113)

(7,378)

(34,491)

 

 

 

 

 

 

 

 

 

 

 

30 September 2017

Audited

30 September 2017

Option to recognise inter-company loan at fair value option

Audited

30 September

2017

(restated)

 

£m

£m

£m

 

 

 

 

Net borrowings by instrument

 

 

 

Cash and cash equivalents*

946

-

946

Collateral receivable

818

-

818

Collateral obligation

(123)

-

(123)

Bank loans

(471)

(330)

(801)

Bonds issued under the Debt Issuance Programme

(27,231)

(5,320)

(32,551)

 

 

 

 

At the end of the period/year

(26,061)

(5,650)

(31,711)

 

 

 

 

 

 

 

 

Movements in net borrowings

 

 

 

At the beginning of the period

(27,113)

(7,378)

(34,491)

Increase in cash and cash equivalents

942

-

942

Movement in collateral receivable

193

-

193

Movement in collateral obligation to counterparties

136

-

136

Repayment of borrowings

-

-

-

Capital accretion on index-linked bonds

(459)

-

(459)

Exchange differences

224

(224)

-

Fair value and other movements

16

1,952

1,968

 

 

 

 

At the end of the period/year

(26,061)

(5,650)

(31,711)

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents*

946

-

946

Collateral receivable

818

-

818

Collateral obligation

(123)

-

(123)

Borrowings included in current liabilities

(2,989)

4

(2,985)

Borrowings included in non-current liabilities

(24,713)

(5,654)

(30,367)

 

 

 

 

At the end of the period/year

(26,061)

(5,650)

(31,711)

 

 

 

 

 

4.  Other payables

 

Unaudited

30 September

2018

Unaudited

30 September

2017

Audited

31 March

2018

 

£m

£m

£m

 

 

 

 

Current liabilities

 

 

 

Interest payable on bonds issued

217

225

180

Interest on long term loans

1

1

2

Collateral obligation

102

123

87

 

 

 

 

Total payables

320

349

269

 

 

 

 

5.  Financial instruments

The fair values of financial assets and liabilities are recognised at the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

With the exception of bank loans and bonds, all financial assets and liabilities are carried at amounts that approximate to their fair value.  Bank loans and bonds are initially measured at fair value and subsequently at amortised cost, as explained in note 1.

The corresponding carrying values and fair values of bank loans and bonds are set out below:

 

 

At 30 September 2018

At 30 September 2017

At 31 March 2018

 

Carrying value

£m

Fair

value

£m

Carrying value

£m

(restated)

Fair

value

£m

Carrying value

£m

(restated)

Fair

value

£m

 

 

 

 

 

 

 

Bank loans

(799)

(799)

(801)

(801)

(811)

(811)

Bonds issued under the DIP

(28,834)

(28,834)

(32,551)

(32,551)

(30,893)

(30,893)

 

 

 

 

 

 

 

Total

(29,633)

(29,633)

(33,352)

(33,352)

(31,704)

(31,704)

 

 

 

 

 

 

 

Bonds issued by NRIF benefit from a credit enhancement provided by the financial indemnity from the Secretary of State for Transport. This credit enhancement is reflected in the fair value of the bonds disclosed above.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

·    Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities

·    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; 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

30 September

2018

Unaudited

30 September

2017

Audited

31 March

2018

 

£m

£m

£m

 

 

(restated)*

(restated)*

 

 

 

 

Level 2:

Derivative financial assets

433

659

497

Financial assets at fair value

30,577

34,363

32,642

 

 

 

 

Level 1:

 

 

 

Financial liabilities held at fair value

(28,278)

(31,751)

(30,258)

Level 2:

Derivative financial liabilities

(1,056)

(1,320)

(1,165)

Financial liabilities held at fair value

(1,675)

(1,950)

(1,715)

 

 

 

 

Total

1

1

1

 

 

 

 

 

*Adoption of IFRS 9

Prior period comparatives have been restated to fair value for IFRS 9 classification and measurement requirements.  The restatement of comparative periods has been calculated as follows:

 

 

 

 

Audited year ended 31 March 2018

Derecognise Embedded Derivative

 

Audited

year

ended

31 March

2018

(restated)               

 

31 March 2018

£m

£m

£m

 

 

 

 

Derivative financial assets included in non-current assets

269

-

269

Derivative financial assets included in current assets

228

-

228

Embedded derivatives in the inter-company loan to NRIL (included in current assets)

 

1,050

(1,050)

-

 

 

(

 

 

1,547

(1,050)

497

 

 

Derivative financial liabilities included in current liabilities

 

(19)

-

 

(19)

Derivative financial liabilities included in non-current liabilities

(1,146)

-

(1,146)

 

 

 

 

 

(1,165)

-

(1,165)

                                                                 

 

 

 

 

 

 

Audited year ended 31 March 2017

Derecognise Embedded Derivative

Audited

year

ended

31 March

2017

(restated)               

31 March 2017

£m

£m

£m

 

 

 

 

Derivative financial assets included in non-current assets

864

-

864

Derivative financial assets included in current assets

237

-

237

Embedded derivatives in the inter-company loan to NRIL (included in current assets)

1,287

(1,287)

-

 

 

 

 

 

2,388

(1,287)

1,101

 

 

Derivative financial liabilities included in current liabilities

-

-

-

Derivative financial liabilities included in non-current liabilities

(1,527)

-

(1,527)

 

 

 

 

 

(1,527)

-

(1,527)

                                                                 

 

 

 

 

 

 

Unaudited

30 September 2017

Derecognise Embedded Derivative

Audited

year

ended

30 September 2017

(restated)               

30 September 2017

£m

£m

£m

 

 

 

 

Derivative financial assets included in non-current assets

466

-

466

Derivative financial assets included in current assets

193

-

193

Embedded derivatives in the inter-company loan to NRIL (included in current assets)

1,298

(1,298)

-

 

 

 

 

 

1,957

(1,298)

659

 

 

Derivative financial liabilities included in current liabilities

(3)

-

(3)

Derivative financial liabilities included in non-current liabilities

(1,317)

-

(1,317)

 

 

 

 

 

(1,320)

-

(1,320)

                                                                 

 

 

 

A review of the categorisation of financial instruments into the three levels is made at each reporting date.  There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements in the current or prior years.

There were no changes in valuation techniques during the periods.

 

6.  Notes to the cash flow statement

 

 

Unaudited

six months

ended

30 September

2018

 

Unaudited

six months

ended

30 September

2017

Audited

year

ended

31 March

2018               

 

£m

£m

£m

 

 

 

 

Profit before tax

-

-

-

 

 

 

 

Operating cash flow before movements in working capital

-

-

-

Increase in receivables

1,095

1,113

1,819

 

 

 

 

Cash generated from operations

1,095

1,113

1,819

 

 

 

 

Cash and cash equivalents (which are represented as a single class of assets on the face of the balance sheet) comprise cash at bank, money fund balances and money market deposit investments with a maturity of up to three months. 

 

 

7.  Explanation of transition to IFRS 9

The following Balance Sheet reconciliations discloses the adjustments made to prior years as part of the transition to IFRS 9.

Reconciliation of equity at 31 March 2018

31 March 2018

31 March 2018

Derecognise  embedded derivative

Option to recognise inter-company loan at fair value

Option to carry borrowings at FVTPL

Restated 31 March 2018 balance sheet

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Receivables: amounts falling due after more than one year

23,379

-

6,598

-

29,977

Derivative financial instruments

269

-

-

-

269

 

 

 

 

 

 

Total non-current assets

23,648

-

6,598

-

30,246

 

 

 

 

 

 

Current assets

 

 

 

 

 

Receivables: amounts falling due within one year

2,669

-

(5)

-

2,664

Derivative financial instruments

1,278

(1,050)

-

-

228

Cash and cash equivalents

1

-

-

-

1

 

 

 

 

 

 

Total current assets

3,948

(1,050)

(5)

-

2,893

 

 

 

 

 

 

Total assets

27,596

(1,050)

6,593

-

33,139

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Borrowings

(1,962)

-

-

5

(1,957)

Derivative financial instruments

(19)

-

-

-

(19)

Other payables

(269)

-

-

-

(269)

 

 

 

 

 

 

Total current liabilities

(2,250)

-

-

5

(2,245)

 

 

 

 

 

 

Net current assets

1,698

(1,050)

(5)

5

648

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

(24,199)

-

-

(5,548)

(29,747)

Derivative financial instruments

(1,146)

-

-

-

(1,146)

 

 

 

 

 

 

Total non-current liabilities

(25,345)

-

-

(5,548)

(30,893)

 

 

 

 

 

 

Total liabilities

(27,595)

-

-

(5,543)

(33,138)

 

 

 

 

 

 

Net assets

1

(1,050)

6,593

(5,543)

1

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

-

-

-

-

-

Retained earnings

1

-

-

-

1

 

 

 

 

 

 

Total equity

1

-

-

-

1

 

 

 

 

 

 

 

Reconciliation of equity at 31 March 2017

31 March 2017

31 March 2017

Derecognise  embedded derivative

Option to recognise inter-company loan at fair value

Option to carry borrowings at FVTPL

Restated 31 March 2017 balance sheet

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Receivables: amounts falling due after more than one year

24,730

-

8,695

-

33,425

Derivative financial instruments

864

-

-

-

864

 

 

 

 

 

 

Total non-current assets

25,594

-

8,695

-

34,289

 

 

 

 

 

 

Current assets

 

 

 

 

 

Receivables: amounts falling due within one year

2,333

-

(30)

-

2,303

Derivative financial instruments

1,524

(1,287)

-

-

237

Cash and cash equivalents

4

-

-

-

4

 

 

 

 

 

 

Total current assets

3,861

(1,287)

(30)

-

2,544

 

 

 

 

 

 

Total assets

29,455

(1,287)

8,665

-

36,833

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Borrowings

(1,745)

-

-

30

(1,715)

Derivative financial instruments

-

-

-

-

-

Other payables

(444)

-

-

-

(444)

 

 

 

 

 

 

Total current liabilities

(2,189)

                       -

-

30

(2,159)

 

 

 

 

 

 

Net current assets

1,672

(1,287)

(30)

30

385

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

(25,738)

-

-

(7,408)

(33,146)

Derivative financial instruments

(1,527)

-

-

-

(1,527)

 

 

 

 

 

 

Total non-current liabilities

(27,265)

-

-

(7,408)

(34,673)

 

 

 

 

 

 

Total liabilities

(29,454)

-

-

(7,378)

(36,832)

 

 

 

 

 

 

Net assets

1

(1,287)

             8,665

(7,378)

1

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

-

-

-

-

-

Retained earnings

1

-

-

-

1

 

 

 

 

 

 

Total equity

1

-

-

-

1

 

 

 

 

 

 

 

Reconciliation of equity at 30 September 2017

30 September 2017

30 September 2017

Derecognise  embedded derivative

Option to recognise inter-company loan at fair value

Option to carry borrowings at FVTPL

Restated 30 September 2017 balance sheet

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Receivables: amounts falling due after more than one year

22,775

-

6,952

-

29,727

Derivative financial instruments

466

-

-

-

466

 

 

 

 

 

 

Total non-current assets

23,241

-

6,952

-

30,193

 

 

 

 

 

 

Current assets

 

 

 

 

 

Receivables: amounts falling due within one year

3,694

-

(4)

-

3,690

Derivative financial instruments

1,491

(1,298)

-

-

193

Cash and cash equivalents

946

-

-

-

946

 

 

 

 

 

 

Total current assets

6,131

(1,298)

(4)

-

4,829

 

 

 

 

 

 

Total assets

29,372

(1,298)

6,948

-

35,022

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Borrowings

(2,989)

-

-

4

(2,985)

Derivative financial instruments

(3)

-

-

-

(3)

Other payables

(349)

-

-

-

(349)

 

 

 

 

 

 

Total current liabilities

(3,341)

-

-

4

(3,337)

 

 

 

 

 

 

Net current assets

2,790

(1,298)

(4)

4

1,492

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

(24,713)

-

-

(5,654)

(30,367)

Derivative financial instruments

(1,317)

-

-

-

(1,317)

 

 

 

 

 

 

Total non-current liabilities

(26,030)

-

-

(5,654)

(31,684)

 

 

 

 

 

 

Total liabilities

(29,371)

-

-

(5,650)

(35,021)

 

 

 

 

 

 

Net assets

1

(1,298)

             6,948

(5,650)

1

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

-

-

-

-

-

Retained earnings

1

-

-

-

1

 

 

 

 

 

 

Total equity

1

-

-

-

1

 

 

 

 

 

 

 

8. Controlling party and related party transactions

50,000 shares of the company are held by Intertrust Corporate Services (C.I.) 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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