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Railtrack Group PLC (RTK)

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Thursday 27 June, 2002

Railtrack Group PLC

Disposal/Final Results

Railtrack Group PLC
27 June 2002


For release at 7:00 a.m.                                           27 June 2002


                              Railtrack Group PLC


        Proposed Disposals of Railtrack PLC (in Railway Administration)

                                      and

                   interests in the Channel Tunnel Rail Link

                                      and


  preliminary announcement of audited results for the year ended 31 March 2002



•       Suspension of Railtrack shares lifted and recommencement of trading

•       Sale* of Railtrack PLC to Network Rail for £500 million

•       Sale* of interests in the Channel Tunnel Rail Link to London &
        Continental Railways for £375 million, with part being sold on to 
        Network Rail

•       Directors expect sales to be tax free

•       Approximately £350 million recoverable from Railtrack PLC

•       Conditions include shareholder approval, state aid and other regulatory
        clearances

•       Sales expected to be completed by the end of September 2002

•       Directors estimate a return of 245 to 255 pence per Share**

•       First instalment of return of cash expected to be 160 to 180 pence per
Share within four months of completion of the sales**

•       Options for returning cash to shareholders in a tax efficient manner and
on a timely basis are being considered.  The Board's present intention is to
effect a solvent voluntary liquidation of Railtrack Group

•       Agreement* not to proceed with litigation

•       Preliminary audited results for 12 months to 31 March 2002 announced

        - loss before tax from continuing operations of £11 million

        - exceptional write down of investment in Railtrack PLC of 
          £1,988 million

* subject to the conditions as detailed in Part IV of this announcement

** subject to factors described in "Return of value" in Part I of this
announcement


Proposed Disposals

Railtrack PLC was placed into Administration on 7 October 2001.  On 25 March
2002, Railtrack Group received an offer from Network Rail, a company sponsored
by HM Government, to acquire Railtrack PLC for £500 million.  As at 30 September
2001, Railtrack PLC had liabilities of approximately £7.5 billion.

On 28 March 2002, Railtrack Group received an offer from London & Continental
Railways Limited to acquire the Group's interest in Section 1 of the Channel
Tunnel Rail Link for £295 million and a further offer of £80 million from
Network Rail for the right to operate the completed link and the concession to
manage St Pancras Station.  The Directors currently expect that, were Railtrack
Group to retain its right and obligation to acquire Section 1 of the CTRL, the
purchase price would be between £1.5 and £1.7 billion.

Railtrack Group has now entered into conditional agreements to dispose of these
assets and has agreed that, if the Proposed Disposals proceed, it will waive its
right to pursue litigation against HM Government in respect of the
Administration of Railtrack PLC.  In view of their size, Shareholder approval is
required for the Proposed Disposals.  The Board will be writing to Shareholders
during the course of the next week to seek their approval for the Proposed
Disposals at an Extraordinary General Meeting to be held on Tuesday 23 July
2002.

The Board currently estimates that, were all the Group's assets to be realised
as expected and were no further liabilities to arise, Railtrack Group would be
able to return between 245 and 255 pence per Share and that, subject to certain
guarantees being released, a first instalment of between 160 to 180 pence per
Share could be returned to Shareholders within four months of the completion of
the Proposed Disposals.  Therefore, assuming completion of the Proposed
Disposals by the end of September 2002 and the release of the guarantees, the
Directors expect that the first payment could be made by early January 2003.
Further details on the return of cash including factors which could impact the
amount to be returned, and the timing, are set out in Part I of this
announcement.

Preliminary results

The full text of the preliminary announcement of the results of Railtrack Group
for the twelve months ended 31 March 2002 is set out in Part II of this
announcement.

Following Administration and in line with Financial Reporting Standard ("FRS") 3
"Reporting Financial Performance" Railtrack PLC has been classified as a
discontinued operation. The Group's interest in Railtrack PLC has been treated
as a trade investment the book value of which has been written down by £1,988
million from £2,488 million to £500 million in line with the offer received for
the shares in Railtrack PLC.  This write down has been treated as an exceptional
item.

Group turnover, before exceptional items was £1,797 million (2001: £2,476
million).  Before exceptional items, interest and taxation, operating profit on
ordinary activities was £321 million (2001: operating profit £261 million).  The
continuing businesses recorded an operating loss of £15 million in the year,
reflecting the high level of legal costs and one-off costs associated with the
CTRL.  The discontinued businesses recorded an operating profit of £336 million
almost all of which related to Railtrack PLC up to the date of the
Administration Order.  Exceptional items totalled £1,951 million (2001: £706
million) representing the write down of £1,988 million referred to above less
the gain on the sale of assets. After interest of £93 million (2001: £89
million), the pre-tax loss for the year was £1,724 million (2001: £534 million).
The continuing businesses recorded a loss on ordinary activities before
taxation of £11 million.  The loss per Share for the year was 342.2 pence (2001:
59.6 pence).

The Board is not recommending a final dividend.

Commenting on the Proposed Disposals, Geoffrey Howe, Chairman of Railtrack Group
PLC, said:



"The Board looked at all the options in detail and has unanimously concluded,
based upon the substantial uncertainties as to timescale and size of any cash
return that might become available to shareholders as a result of legal action
against the Government or the proceeds from the sale of Railtrack PLC's assets
by the Administrators, that the disposals are in the best interests of
shareholders.



"The Board currently estimates that, were all the Group's assets to be realised
as expected and were no further liabilities to arise, Railtrack Group would be
able to return between 245 and 255 pence per share and that a first instalment
of between 160 to 180 pence per share could be returned to shareholders within
four months of the completion of the Proposed Disposals and once certain
guarantees have been released."



Enquiries


Railtrack Group:                                   020 7544 8435 / 07850 285471
Geoffrey Howe, Chairman
David Harding, Chief Executive
Sue Clark, Director of Corporate Affairs

Lehman Brothers:                                   020 7601 0011
John McIntyre
Anthony Odgers
Henry Phillips



Shareholders who have queries should contact the Shareholder helpline.

Shareholder helpline:                              020 7864 9001



This summary should be read in conjunction with the full text of the attached
announcement.



An analysts' presentation will be held at 10.00 a.m. today at Lehman Brothers,
One Broadgate, London  EC2M 7HA.



Lehman Brothers Europe Limited, which is regulated in the UK by the Financial
Services Authority, is acting for Railtrack Group PLC and no one else in
connection with the proposals described in this press release and will not be
responsible to anyone else for providing the protections afforded to the clients
of Lehman Brothers Europe Limited nor for providing advice in relation to such
proposals.


                                     PART I



   Proposed Disposals of Railtrack PLC and Railtrack Group's interests in the
                        Channel Tunnel Rail Link (CTRL)



Introduction

Railtrack PLC was placed into Administration on 7 October 2001.  On 25 March
2002, Railtrack Group received an offer from Network Rail, a company sponsored
by HM Government, to acquire Railtrack PLC for £500 million. On 28 March 2002,
Railtrack Group received an offer from London & Continental Railways Limited to
acquire the Group's interest in Section 1 of the Channel Tunnel Rail Link for
£295 million and a further offer of £80 million from Network Rail for the right
to operate the completed link and the concession to manage St Pancras Station.

Railtrack Group has now entered into conditional agreements to dispose of these
assets and has agreed that, if the Proposed Disposals proceed, it will waive its
right to pursue litigation against HM Government in respect of the
Administration of Railtrack PLC.  In view of their size, shareholder approval is
required for the Proposed Disposals.  The purpose of this announcement is to
explain why the Board unanimously believes that it is in the best interests of
Shareholders to proceed with the Proposed Disposals; to set out provisional
details of the Board's plans for returning cash to Shareholders; and to advise
Shareholders that the listing of Railtrack Shares is now being restored.

Overview of the Group

The Group's most significant tangible assets and contingent liabilities are
described below.

Railtrack PLC

Railtrack PLC owns and operates the national rail infrastructure and is
regulated by the Office of the Rail Regulator. Its main activities are:
providing train operators with access to track; property and major station
management; maintaining and renewing the rail infrastructure; undertaking major
route upgrades; and managing timetabling, train planning and signalling.

Railtrack UK (CTRL)

The CTRL is a high-speed railway from the Channel Tunnel to St Pancras Station
and is currently under construction.  The railway is divided into two sections,
Section 1 running from the Channel Tunnel to Fawkham Junction and Section 2
running from Fawkham Junction to St Pancras Station. Section 1 is some 85 per
cent. complete and is currently due to open in September 2003.  Railtrack UK has
the right and obligation to acquire Section 1 and thereafter to own and operate
it in return for access charges payable by Eurostar and other train operators.
The Directors currently expect that, were Railtrack Group to retain its right
and obligation to acquire Section 1, the purchase price would be between £1.5
and £1.7 billion.  Railtrack UK would also have the right to operate Section 2
in return for an annual fee and performance payments and St Pancras Station in
return for a management fee and a share of retail and car parking income.
Railtrack Group has guaranteed the performance by Railtrack UK of certain of its
obligations in respect of the CTRL.

Amount recoverable from Railtrack PLC

When Railtrack PLC went into Administration, HSBC held £372 million of cash on
deposit in the names of Railtrack Group and Railtrack Developments.  Railtrack
PLC owed money to HSBC and this debt was effectively guaranteed by both
Railtrack Group and Railtrack Developments.  After Railtrack PLC was placed into
Administration, HSBC demanded the repayment of this debt from Railtrack Group
and Railtrack Developments and then used the £372 million deposit to reduce the
outstanding debt.  The effect of this was to give Railtrack Group and Railtrack
Developments finance creditor status in Railtrack PLC's Administration, with a
claim against Railtrack PLC of £372 million.

Since Administration, the Group has negotiated the advance to it of £23 million,
including £16 million required to close out certain interest rate hedging
arrangements in respect of the CTRL, with the result that approximately £350
million remains outstanding.  This amount will be paid to the Group on
completion of the sale of Railtrack PLC to Network Rail.

Property and other assets and liabilities

Railtrack Group owns a number of property assets through Railtrack Developments
and Railtrack (Spacia) Limited. Railtrack Developments holds a development
property portfolio and a number of joint venture interests.  Railtrack (Spacia)
Limited has long term leases over approximately 130 railway arches.  As at 31
March 2002, the net book value of properties in Railtrack Developments and
Railtrack (Spacia) Limited, together with Railtrack Group's share of the net
assets of the property joint ventures, was £72 million.  Whilst the Group's
ability  to develop certain of its property assets is dependent upon the
continuing co-operation of Railtrack PLC, Railtrack Group has received certain
confirmations from Network Rail regarding the provision of such co-operation.
The Railtrack Group property portfolio and the joint venture interests are
separate from the significant and much larger operational property portfolio
owned by Railtrack PLC, which includes the major stations and land adjacent to
the railway.  Railtrack Group has guaranteed the performance by Railtrack
Developments of certain of its obligations in respect of its joint ventures.
The level of financial exposure under these guarantees will depend on the future
development of the relevant projects.  In addition, as at 31 March 2002,
Railtrack Group had pro forma net assets of £15 million which, when combined
with the property assets described above, gives a pro forma net book value of
the Group's property and other assets and liabilities, as at 31 March 2002, of
£87 million.  Further information is set out in Part III of this announcement.

Contingent liabilities

Railtrack Group has significant contingent liabilities.  In addition to the
guarantees referred to above, the Group has guaranteed the repayment by
Railtrack PLC of up to £1 billion of bank facilities granted to Railtrack PLC by
the European Investment Bank.  As at 31 March 2002, £800 million of these
facilities had been drawn down. In addition, the Group has guaranteed the
repayment by LCR of up to £700 million of bank facilities made available to LCR
in connection with the CTRL.  As at 31 March 2002, £472 million of these
facilities had been drawn down.  It is a term of each of the Proposed Disposals
that these guarantees will be released upon completion.  Further details are set
out in Part IV of this announcement.

Background

Introduction

Railtrack PLC's business is heavily regulated, with a large proportion of its
revenues received by way of direct or indirect HM Government grant or subsidy.
Railtrack PLC's revenues are determined by the Rail Regulator through a process
referred to as a "periodic review".  The first periodic review after Railtrack
Group's privatisation in 1996 covered the period from 1 April 2001 to 31 March
2006 and this period is referred to as the "2001 to 2006 control period".

Since the Proposed Disposals are a consequence of the Secretary of State's
decision to place Railtrack PLC into Administration, the principal events in the
period prior to Administration and shortly thereafter are described below.

Prior to Administration

On 23 October 2000, the Rail Regulator published the final conclusions of his
first periodic review, setting Railtrack PLC's revenues for the 2001 to 2006
control period.  This review was published a week after the Hatfield accident
and took no account of the resultant implications.

By January 2001, it had become apparent to the Board that the immediate and
ongoing operational and financial consequences of the Hatfield accident would
leave Railtrack PLC, and therefore Railtrack Group, in a materially worse
financial position during the 2001 to 2006 control period than the Rail
Regulator had assumed in his first periodic review.

Following discussions with the Rail Regulator, the Board decided on 14 January
2001 to accept the final conclusions of the first periodic review on the basis
that:

(i)   discussions would take place with HM Government and the Strategic Rail
Authority to accelerate into the 2001 to 2006 control period some £1.5 billion
of agreed investment funding which was deferred in the first periodic review
beyond 2006 and that, if this could not be achieved, the Rail Regulator would be
approached for an interim periodic review; and

(ii)  an application could be made to the Rail Regulator in the first half of
2002 for a separate interim periodic review to take account of the ongoing
financial and operational implications of the Hatfield accident.  This was
intended to give the Group time to stabilise the network and evaluate the long
term effects of the Hatfield accident and to enable it to put forward a
persuasive case for an interim periodic review.

On 15 January 2001, the Rail Regulator announced that he would be sympathetic to
an application by Railtrack PLC for a separate interim periodic review relating
to the Hatfield accident.  The Rail Regulator also set out his intention to
assess any interim periodic review proposals in light of the requirement to
maintain a single A credit rating for Railtrack PLC.

On 2 April 2001, Railtrack PLC announced that a settlement had been reached with
the SRA and HM Government on bringing forward the £1.5 billion of deferred
funding thereby matching it against necessary investment expenditure.  In
addition, it was agreed that Railtrack PLC and the SRA would use best endeavours
to establish a financing structure (referred to in public announcements by
Railtrack Group as "Renewco") to bring the payment of future SRA grants to
Railtrack PLC more closely in line with the profile of expenditure required for
the network.

On the same day, Railtrack Group also announced a £500 million increase in the
cost of the West Coast Mainline modernisation.  In addition, Railtrack Group
announced a projected shortfall of up to £750 million in the 2001 to 2006
control period versus the Rail Regulator's first periodic review, resulting from
increased performance penalties payable to train operating companies and
unrealisable 2001/02 efficiencies.  The Directors confirmed that it was still
their intention to apply for an interim periodic review in 2002 to take account
of the direct and indirect implications of the Hatfield accident.

On 24 May 2001, Railtrack Group announced its preliminary results for the
financial year ended 31 March 2001.  The announcement included statements to the
effect that: (i) the Board had estimated that £700 million per annum of
expenditure, in addition to that provided for in the Rail Regulator's first
periodic review, would be required to operate, maintain and renew the rail
network during the 2001 to 2006 control period; and (ii) the Board had estimated
that up to £500 million per annum of additional revenues could be permitted by
the Rail Regulator, although this was subject to significant uncertainty.  In
addition, the Directors re-iterated that there were significant unresolved
commercial risks associated with the modernisation of the West Coast Mainline
that could involve substantial compensation becoming payable by Railtrack PLC.

The Annual Report published in June 2001 described the risks and uncertainties
referred to above and the Board's strategy for dealing with them.  The Board
believes that these risks and uncertainties were factors in the decline of the
Railtrack Share price from 925.5 pence per Share on 1 January 2001 to a low of
252.5 pence per Share on 20 September 2001.

Shortly after the appointment of John Robinson as Chairman in June 2001,
Railtrack Group and its then financial advisers entered into discussions with HM
Government with a view to agreeing a revised financial and regulatory framework
intended to enable Railtrack PLC to focus on improving the reliability and
safety of the railway whilst also providing an appropriate economic return to
Shareholders over the medium to long term. Discussions continued into October
2001.

Appointment of the Administrators

After the London Stock Exchange closed on Friday 5 October 2001, the Secretary
of State informed Railtrack Group that HM Government was no longer prepared to
provide any additional financial support to Railtrack PLC beyond that provided
for in the first periodic review, and was withdrawing the proposed Renewco
financing structure.  The Secretary of State also reported that he had told the
Rail Regulator not to carry out an interim periodic review and that, if
necessary, legislation would be introduced to prevent or override such a review
if he attempted to do so.  The Secretary of State also informed Railtrack Group
that he intended to petition the High Court to place Railtrack PLC into railway
administration.

Over the weekend of 6 and 7 October 2001, following discussions with the Rail
Regulator, the Board concluded that it would not be possible to carry out an
interim periodic review over the weekend and that, as draft legislation had been
prepared to prevent the Rail Regulator from acting, in practice, it would not be
possible to implement an interim periodic review thereafter.  In addition,
articles appeared in the weekend press indicating HM Government's intent, which
the Board believed would prevent Railtrack PLC drawing on its bank credit lines
on the morning of Monday 8 October.  Moreover, both the Secretary of State and
his advisers made it clear that the Secretary of State would petition the court
for Railtrack PLC to be put into administration with or without the support of
Railtrack PLC or Railtrack Group.

The Board was advised that, even though Railtrack PLC was a wholly owned
subsidiary of Railtrack Group, the Company was not able to oppose the Secretary
of State's petition to place Railtrack PLC into Administration.  The board of
Railtrack PLC was advised that, in the absence of a viable alternative, which
could be implemented immediately, it was unable to oppose the Secretary of
State's petition.  On Sunday 7 October, the Secretary of State successfully
petitioned the High Court with the result that certain partners in Ernst & Young
LLP were appointed as the Joint Special Railway Administrators.

On Friday 5 October, neither Railtrack Group nor Railtrack PLC was insolvent.
However, the practical consequence of: the statements made by the Secretary of
State (including the withdrawal of the Renewco financing structure); the
impossibility of carrying out an interim periodic review over the weekend; the
fact that draft legislation had been prepared to prevent the Rail Regulator from
carrying out an interim periodic review; the weekend press coverage surrounding
these events; and the likely inability of Railtrack PLC to draw on its credit
lines, was to render Railtrack PLC insolvent.

As a result of the appointment of the Administrators and uncertainty as to the
consequences for Railtrack Group, the Board requested the immediate suspension
of Railtrack Group's listing on the London Stock Exchange with the result that
trading in Railtrack Shares was suspended with immediate effect on Monday 8
October 2001.

The closing price per Railtrack Share on Friday 5 October 2001, the last trading
day before suspension, was 280.5 pence.

Post Administration

Since the date of the Administration Order, the affairs, business and property
of Railtrack PLC have been managed by the Administrators and limited information
on Railtrack PLC has been provided to Railtrack Group.  Although a number of
Railtrack Group directors were also directors of Railtrack PLC prior to their
resignation as Railtrack PLC directors on or before 1 February 2002, access to
information on Railtrack PLC was progressively restricted.  Since 1 February
2002, the Administrators have declined to release information on terms
acceptable to the Board and within the timetable required for the production of
this announcement, with the result that the Directors have only received limited
information on Railtrack PLC.  As a result, there may be information (or changes
to information that is disclosed herein) which the Directors would normally have
been required to have included in this announcement which they have been unable
to include.

From the date of the Administration Order, HM Government had indicated that it
was unwilling to compensate Shareholders.  During this period, the Board pursued
a course of action intended to realise value for Shareholders including: staving
off the insolvency of Railtrack Group as a result of the Administration of
Railtrack PLC and establishing it as a standalone entity; preparing to pursue
claims against HM Government through the Courts if necessary; appointing Lehman
Brothers to advise on means of maximising value for Shareholders and mounting an
active public relations campaign arguing the case for Shareholder compensation.
In particular, the Board sought the disclosure by HM Government of documents
relating to its decision to place Railtrack PLC into Administration and informed
HM Government that, unless such disclosure was agreed in principle, legal
proceedings would be commenced to obtain pre-action disclosure of documentation.

Board changes

Since October 2001, a number of Board changes have taken place. On 7 March 2002,
Geoffrey Howe was appointed chairman, David Harding, formerly finance director,
was appointed chief executive and Simon Osborne, formerly company secretary,
joined the Board as legal director.  On the same day, John Robinson stepped down
as chairman, Steve Marshall, who had tendered his resignation on 8 October 2001,
stepped down as chief executive and both John Robinson and Steve Marshall agreed
to become non-executive directors.  Executive directors Sebastian Bull, Richard
Middleton and Christopher Leah resigned from the Board on 11 February 2002.  In
addition, John Robinson and Steve Marshall resigned from the board of Railtrack
PLC on 14 December 2001. David Harding resigned from the board of Railtrack PLC
on 1 February 2002.

Reasons for the Proposed Disposals

The Offer for Railtrack PLC

On 25 March 2002, Railtrack Group received an offer from Network Rail, a new "
not for dividend" company sponsored by HM Government, to acquire the entire
issued share capital of Railtrack PLC for £500 million.  The offer was expressed
as being intended to reflect the economic benefits of an early release from
Administration and was subject to agreement on a timetable to bring Railtrack
PLC out of Administration as quickly as possible.  The offer was not open to
further negotiation.  On 27 June 2002, Railtrack Group entered into an agreement
to sell Railtrack PLC, the provisions of which are summarised in Part IV of this
announcement.  The sale is conditional on the prior satisfaction of certain
conditions, including state aid clearance by the European Commission, and
simultaneous completion of the CTRL Disposal.  Whilst the Board believes that
completion of the sale will require the active co-operation of HM Government
including in relation to the satisfaction of the final conditions to Network
Rail's financing arrangements, it expects the sale to have been completed by the
end of September 2002.  If the Railtrack PLC Disposal completes:

(i)   the Group will be paid approximately £350 million which, as described
above, is owed by Railtrack PLC to Railtrack Group and Railtrack Developments;
and

(ii)  the Group will be released from all liability under the guarantees to EIB
in respect of up to £1 billion of bank facilities made available by EIB to
Railtrack PLC.

The Directors do not expect the Group to incur any tax liability as a result of
the Railtrack PLC Disposal.

Network Rail has given assurances to the Board that the existing employment
rights, including pension rights, of employees of Railtrack PLC will be fully
safeguarded.

Upon completion of the sale, Railtrack Group will waive all of its claims for
compensation against HM Government, the Secretary of State, the DTLR and others
in respect of the making of the Administration Order and will agree not to
support any such claims by third parties.  The terms and scope of this waiver
are summarised in more detail in Part IV of this announcement.

The Offers for the Group's interests in the CTRL

On 28 March 2002, Railtrack Group received an offer from LCR to acquire
Railtrack Group's interest in Section 1 of the CTRL for £295 million.  On the
same day, Railtrack Group also received an offer from Network Rail of £80
million to acquire the right to operate the completed CTRL and the concession to
manage St Pancras Station.  The disposal of these assets is to be effected
through the sale by Railtrack Group of the entire issued share capital of
Railtrack UK to LCR for £375 million.  On 27 June 2002, Railtrack Group entered
into an agreement for the sale of Railtrack UK, the provisions of which are
summarised in Part IV of this announcement.  Following completion of the sale,
it is intended that LCR will dispose of the right to operate the completed CTRL
and the concession to manage St Pancras Station to Network Rail for £80 million.
  The sale of shares in Railtrack UK is conditional on the prior satisfaction of
certain conditions, including state aid clearance by the European Commission,
and on simultaneous completion of the Railtrack PLC Disposal.  Whilst the Board
believes that completion of the sale will require the active co-operation of HM
Government, it expects the sale to have been completed by the end of September
2002.   It is a term of the CTRL Disposal that, with effect from completion, the
Group will be released from:

(i)   all liability under the guarantees given by Railtrack Group to HM
Government and to members of the LCR Group in respect of the performance by
Railtrack UK of certain obligations in connection with the CTRL, including its
obligation to acquire Section 1 of the CTRL; and

(ii)  its obligation to share any gain arising on the disposal of its interests
in the CTRL with HM Government.

It is a condition of the CTRL Disposal that the Group will be released from all
liability under the CTRL Financial Guarantees.  The Directors believe that there
is a risk that, if LCR's proposed refinancing has not been completed, the CTRL
Financial Guarantees may not be capable of release by the end of September 2002,
in which case the Directors would have to decide whether:

(i)   to allow the repayment by LCR of the £472 million drawn under the £700
million of bank facilities made available to the LCR Group in connection with
the CTRL, whilst leaving the CTRL Financial Guarantees outstanding, and waive
this condition which would impact on the amount and/or timing of the first
instalment of the return of cash; or

(ii)  to allow the Proposed Disposals to lapse.  The Directors do not expect the
Group to incur any tax liability as a result of the CTRL Disposal.

Consideration of the Offer for Railtrack PLC

The Board has concluded that the continued operation of the railway by Railtrack
PLC under Railtrack Group's management is not a realistic option.  The Board has
therefore considered various options including a disposal of shares of Railtrack
PLC and seeking offers for Railtrack Group. No alternative offers have been
received.

Therefore, the only alternative to the Proposed Disposal to Network Rail would
have been to await the disposal by the Administrators of Railtrack PLC's assets.
Prior to any return of value to Railtrack Group, any disposal by the
Administrators would require the settlement or transfer of Railtrack PLC's
liabilities.  As at 30 September 2001, these were approximately £7.5 billion.
If the Railtrack PLC Disposal completes, Network Rail will acquire Railtrack PLC
with these liabilities.  The Board has concluded in reaching its recommendation
that:

(i)   both the timing of any disposal and the value that might be realised by
the Administrators are highly uncertain;

(ii)  the offer from Network Rail, which was conditional on a swift exit of
Railtrack PLC from Administration, would have been withdrawn had the Railtrack
PLC Agreement not been entered into;

(iii) even if the Rail Regulator were to carry out an interim periodic review
during the Administration, it would be unlikely to result in value for
Shareholders in excess of that provided by the offer from Network Rail; and

(iv) whilst there may be changes to the funding and structure of the railway
industry in the future, any beneficial change would not have been made available
to Railtrack PLC in such a way as to benefit Railtrack Group Shareholders.

Railtrack PLC owns a significant property portfolio including major stations and
land adjacent to the railway.  The Rail Regulator confirmed to Railtrack Group
in May that he had no present expectation of amending the licence provisions
relating to the disposal by Railtrack PLC of material property assets.
Therefore, it is unlikely that Railtrack PLC will be able to sell any
significant property assets, over and above those provided for in a periodic
review, as the property is considered to be integral to the operation of the
railway.  There can however be no guarantee that this position will not change
in the future.  In addition, Network Rail has given assurances to the Board that
it has no current intention of disposing of any material property assets at or
around completion of its purchase of Railtrack PLC.

Consideration of the Offers for the Group's interests in the CTRL

Section 1 of the CTRL is some 85 per cent. complete and is due to open in
September 2003.  Although the project is currently substantially on schedule and
within budget, there remains a degree of uncertainty regarding its final cost
and completion date.

Railtrack Group's proposed financing of its purchase of Section 1 of the CTRL
through a securitisation structure means that the value to Railtrack Group of
Section 1 of the CTRL is highly sensitive to changes in interest rates.  Whilst
the Group had previously hedged against this exposure to protect the value of
the CTRL, the hedges were unwound as a consequence of Railtrack PLC being placed
into Administration.

The Board has taken these factors into account and, in reaching its
recommendation, has concluded that:

(i)   offers of £375 million for the CTRL would not have been received had they
not been in the context of an overall settlement with HM Government;

(ii)  a sale or alternatively, the retention and financing of the CTRL would be
difficult to achieve without the active co-operation of HM Government, and
because of the complexity of the CTRL arrangements and the close involvement of
HM Government in the project, it would be very unlikely to realise in excess of
£375 million upon a sale (after sharing any gain with HM Government); and

(iii) if the Proposed Disposals do not complete and litigation is pursued, HM
Government would not continue to co-operate with Railtrack Group.

The Board believes that, if Shareholder approval is not obtained with the result
that the Proposed Disposals are not completed, it is unlikely that Network Rail
and LCR will repeat their offers for Railtrack PLC and the Group's interests in
the CTRL on comparable terms, and the Group would face an uncertain future.

Litigation prospects

The offer from Network Rail for Railtrack PLC requires Railtrack Group to give
up all of its current or future claims against HM Government, Railtrack PLC or
the Administrators and requires Railtrack Group not to support such litigation
by third parties.  The Board has carefully considered whether it is in the
interests of Railtrack Group, in the context of the Proposed Disposals, to give
up its right to sue HM Government for compensation on the ground that HM
Government acted improperly in relation to the events leading to the petition to
the High Court to place Railtrack PLC into Administration.

The Board has taken account of all relevant factors including: the likely cash
return to Shareholders as a result of the Proposed Disposals; the probable
lengthy duration of litigation against HM Government; the relatively unusual
nature of the potential claims; the uncertainty as to the outcome of the
litigation against HM Government; and, even if the litigation were to be
successful, the level of damages which might be awarded by a court.

If litigation were pursued, the Board believes that, quite apart from the
difficulties of realising value in Railtrack PLC at the end of the
Administration process or in respect of the CTRL:

(i)   the amount of approximately £350 million owing to the Group by Railtrack
PLC would remain unpaid until the end of the Administration process and may
never be repaid; and

(ii)  the Guarantees both in relation to Railtrack PLC and CTRL would remain
outstanding with the risk that, were any of these Guarantees to be called,
Railtrack Group would become insolvent.

The Board has taken legal advice and has concluded that there is a clear basis
for making a claim that HM Government acted improperly in putting Railtrack PLC
into Administration.  HM Government has, however, refuted all allegations made
to it.

The Board decided to seek the disclosure by HM Government of documents relating
to its decision to place Railtrack PLC into Administration.  As a result of HM
Government's denial of the allegations and refusal to provide any such
documents, Railtrack Group threatened to commence proceedings, initially to
obtain pre-action disclosure of those documents.

Based on legal advice received, the Board has concluded that there is
considerable uncertainty as to whether Railtrack Group's claim against HM
Government would ultimately succeed.  One important factor is the uncertainty of
not knowing what HM Government's documents would disclose about its decision to
put Railtrack PLC into Administration.  There is no certainty that a pre-action
disclosure application would succeed in forcing the early disclosure of HM
Government's documents nor, even if it did, whether those documents would assist
Railtrack Group's claim.

The Board has also taken advice as to the amount of damages that Railtrack Group
might be likely to be awarded were the litigation to be successful.  In reaching
its conclusions, the Board has taken into account the risks and uncertainties
relating to the circumstances of the Group prior to the Administration.  The
Board believes that HM Government would seek to argue that the value of
Railtrack Shares, at the date of the Administration, was materially less than
280.5 pence per Share, the closing Share price the day prior to dealings being
suspended.  The Board considers that a damages award would be unlikely to exceed
an amount that would enable a return to Shareholders materially in excess of
280.5 pence per Share and could produce a materially lower return.  The Board
has also noted that it would probably take several years for the litigation to
be concluded and hence for any cash proceeds arising from successful litigation
to be returned to Shareholders and further that any such cash proceeds could
probably not be returned to Shareholders as long as the CTRL Guarantees were to
remain outstanding.

In summary, in view of:

(i)   the likely duration and uncertainty as to the outcome of the litigation;

(ii)  the Board's conclusion that, even if the litigation were successful, a
damages award would be unlikely to exceed an amount that would enable a return
materially in excess of 280.5 pence per Share and could produce a materially
lower return;

(iii) the fact that any cash proceeds could probably not be returned to
Shareholders whilst the CTRL Guarantees were to remain outstanding; and

(iv) the prospect of being able to realise between 245 and 255 pence per Share
in the comparatively near future if the Proposed Disposals proceed,

the Board has concluded that it is in the best interests of Railtrack Group and
Shareholders as a whole to proceed with the Proposed Disposals and, accordingly,
to agree not to pursue or support litigation against HM Government.

Financial information

Preliminary results

The full text of the preliminary announcement of the results of Railtrack Group
for the twelve months ended 31 March 2002 is included in Part II of this
announcement.

Information on Railtrack PLC

Since the Administration Order has resulted in Railtrack Group ceasing to
control Railtrack PLC, Railtrack Group is required to treat Railtrack PLC for
accounting purposes as a trade investment.  The accounts therefore include an
exceptional charge of £1.99 billion, representing a write down in value of
Railtrack PLC from its net asset value at 30 September 2001 of £2.49 billion to
its estimated value as a trade investment as at 31 March 2002, based on the
offer received from Network Rail, of £500 million.  The Board has no information
as to the net asset value of Railtrack PLC as at 31 March 2002.  For the year
ended 31 March 2001, Railtrack PLC reported an operating loss after exceptional
items of £462 million (31 March 2000: operating profit after exceptional items
of £365 million).

Information on Railtrack UK

The net asset value of Railtrack UK as at 31 March 2002 was £10 million (31
March 2001: net liabilities of £8 million).  For the year ended 31 March 2002,
Railtrack UK reported an operating loss after exceptional items of £5 million
(31 March 2001: £7 million).

Restoration of listing

As a result of the appointment of the Administrators and uncertainty as to the
consequences for Railtrack Group, the Board requested the immediate suspension
of Railtrack Group's listing on the London Stock Exchange and that trading in
Railtrack Shares be suspended from Monday 8 October 2001.

In view of the reduced uncertainty for Railtrack Group as a result of the
Proposed Disposals, the listing of Railtrack Shares will now be restored and
trading in Railtrack Shares on the London Stock Exchange will recommence today.

Working capital

Railtrack Group is of the opinion that, taking into account the net proceeds of
the Proposed Disposals, the Retained Railtrack Group has sufficient working
capital for its present requirements, that is, for at least twelve months from
the date of this announcement.

Pending completion of the Proposed Disposals, or if they do not proceed as
envisaged, Railtrack Group is of the opinion that it would have sufficient
working capital for its present requirements, that is, for at least twelve
months from the date of this announcement, unless:

(i)   any of the Guarantees were to be called, in which case Railtrack Group
would become insolvent and therefore would be obliged to seek the appointment of
an administrator to Railtrack Group; or

(ii)  none of the Guarantees was called, but it was not possible to reach
agreement with Railtrack PLC in respect of previous arrangements to prevent
potential tax liabilities of up to £34 million arising, and/or settlement of £13
million balances claimed by Railtrack PLC on the inter-company account.  In
these circumstances, Railtrack Group would seek to dispose of property and/or
borrow against the amount of approximately £350 million owing to the Group,
failing which Railtrack Group may have insufficient working capital and would be
obliged under those circumstances to seek to appoint an administrator to
Railtrack Group.

The Group has a commitment to purchase Section 1 of the CTRL at its net cost.
The Directors expect that Section 1 will be completed by September 2003 at an
expected net cost of £1.5 to £1.7 billion and that the Group would be required
to purchase Section 1 on or before 30 September 2004.  If the Proposed Disposals
are not completed and Railtrack Group is unable to complete the steps necessary
to fund this purchase from the securitisation of the revenues relating to the
future operation of the CTRL, Railtrack Group would not be able to fund this
commitment from its working capital and would be obliged to seek alternative
sources of financing, failing which it would be obliged to seek the appointment
of an administrator to Railtrack Group.


Return of value

Whilst no final decision has been taken as to the manner in which cash will be
returned to Shareholders, the Board's present intention is to effect a solvent
voluntary liquidation of Railtrack Group as soon as reasonably practicable after
the Proposed Disposals have completed.  This will be subject to approval by a
special resolution of Shareholders at a subsequent meeting.  On the commencement
of a solvent voluntary liquidation, control of  Railtrack Group would move from
the Board to the person who is appointed liquidator.  Shareholders should note
that, if a solvent voluntary liquidation is effected, all distributions of cash
would be made by the liquidator, and as such the Board cannot guarantee that the
liquidator will return cash as described in this announcement.  .

Although, as described below, a number of uncertainties remain, the Board
currently estimates that, were all Railtrack Group's assets to be realised as
expected and were no further liabilities to arise, Railtrack Group would be able
to return to Shareholders between 245 and 255 pence per Share through the
solvent voluntary liquidation referred to above.  The Board believes that,
subject to certain guarantees having been released, a first instalment of 160 to
180 pence per Share could be returned within four months of the completion of
the Proposed Disposals.  Therefore, assuming completion of the Proposed
Disposals by the end of September 2002 and the release of the guarantees, the
Directors expect that a first payment could be made by early January 2003.

Shareholders should, however, be aware that:

(i)   the final amount of cash which can be returned to Shareholders will be
dependent upon a number of factors including the prices which purchasers may be
prepared to pay for Railtrack Group's remaining assets, the amounts required to
settle outstanding liabilities, transaction costs incurred by Railtrack Group
and any taxes payable on the disposal of any assets;

(ii)  the Board cannot at this stage state with certainty when the Proposed
Disposals will be completed;

(iii) the first instalment of cash will not be returned until after the Proposed
Disposals have been completed;

(iv) the amount and timing of the first instalment will depend on the release of
the CTRL Financial Guarantees.  If the CTRL Financial Guarantees are not
released on completion either:

(a)   the amount of the first instalment may be reduced unless the CTRL
Financial Guarantees are released after completion of the Proposed Disposals but
prior to the payment of the first instalment; or

(b)  the payment of the first instalment may be delayed until six months after
completion of the Proposed Disposals unless the CTRL Financial Guarantees are
released in the intervening period; and

(v)  if cash is returned through a voluntary liquidation of Railtrack Group, the
liquidator will only be able to return cash to Shareholders to the extent that
he is satisfied that the cash is not required to meet any remaining liabilities
of Railtrack Group and is available for distribution.  The cash will therefore
have to be returned over a period of time and in a number of instalments.

The Board has been advised that, if a voluntary liquidation of Railtrack Group
is effected, it should be possible for Shareholders to receive cash by way of
capital rather than income.

The Board is considering the options available to maximise value from Railtrack
Group's other assets, including Railtrack Developments, and this may include a
sale of Railtrack Developments to a purchaser with the requisite financial
strength and appetite to invest in early stage development property.  The Board
expects to be able to inform Shareholders of its proposed course of action by
the time that it writes to Shareholders with its proposals for returning cash.

A pro forma statement of the net assets of Railtrack Group as at 31 March 2002
is set out in Part III of this announcement.

Extraordinary General Meeting

The Proposed Disposals are conditional on the approval of Shareholders.  An
Extraordinary General Meeting to seek this approval  is to be convened for 11.30
a.m. on Tuesday 23 July 2002 at  Alexandra Palace, Alexandra Palace Way, Wood
Green, London,  N22 7AY.  At the meeting, a resolution to approve the Proposed
Disposals will be proposed as an ordinary resolution by way of a poll.  Since
completion of the sale of Railtrack PLC is conditional upon the sale of
Railtrack UK having completed, a single resolution to approve both Proposed
Disposals is to be considered at the Extraordinary General Meeting.

Conclusion and recommendation

The Proposed Disposals are a direct result of the decision by HM Government to
put Railtrack PLC into Administration.  The Board realises that the
Administration Order has been detrimental to the interests of Shareholders.
However, when considering the Proposed Disposals against the alternative of
litigating against HM Government, the Board has had to be realistic about the
options available.  Whilst the Board has had only limited access to recent
information, including financial information, relating to Railtrack PLC, for the
reasons stated above, the Directors, who have received financial advice from
Lehman Brothers, consider the Proposed Disposals together to be in the best
interests of Shareholders taken as a whole.  In providing advice to the Board,
Lehman Brothers has placed reliance upon the Directors' commercial assessment of
the Proposed Disposals.

Accordingly, the Directors unanimously recommend that Shareholders vote in
favour of the Resolution as they intend to do in respect of their own beneficial
holdings of Railtrack Shares.


                                    PART II



                    Financial information on Railtrack Group



      Preliminary announcement of audited results for Railtrack Group PLC
                     for the 12 months ending 31 March 2002



OPERATING AND FINANCIAL REVIEW

Introduction

Prior to 7 October 2001 Railtrack Group PLC's main activity, carried out through
its principal operating subsidiary Railtrack PLC, was the ownership and
operation of the national rail infrastructure.  On 7 October 2001, the High
Court, on the petition of HM Government, placed Railtrack PLC into
Administration.

Since then the Group's main activities have been the development of its property
assets, the management of its interest in Section 1 of the Channel Tunnel Rail
Link ("CTRL") and the pursuit of fair value for Shareholders.  This has involved
preparing to pursue claims against HM Government through the Courts if
necessary, appointing Lehman Brothers to advise on means of maximising value for
Shareholders and mounting an active public relations campaign arguing the case
for Shareholder compensation.

Full details of the background to the Administration Order and the offers
subsequently received for Railtrack PLC and the Group's interests in the CTRL,
together with provisional details of the Board's plans for returning cash to
Shareholders are set out in detail in Part I of this announcement.

Results

Following Administration and in line with Financial Reporting Standard ("FRS") 3
"Reporting Financial Performance" Railtrack PLC has been classified as a
discontinued operation.  The Group's interest in Railtrack PLC has been treated
as a trade investment the book value of which has been written down by £1,988
million from £2,488 million to £500 million in line with the offer received for
the shares in Railtrack PLC.  This write down has been treated as an exceptional
item.

Group turnover, before exceptional items, was £1,797 million (2001: £2,476
million).  Before exceptional items, interest and taxation, operating profit on
ordinary activities was £321 million (2001: operating profit £261 million).  The
continuing businesses recorded an operating loss of £15 million in the year,
reflecting the high level of legal costs and one-off costs associated with the
CTRL.  The discontinued businesses recorded an operating profit of £336 million
almost all of which related to Railtrack PLC up to the date of the
Administration Order.  Exceptional items totalled £1,951 million (2001: £706
million) representing the write down of £1,988 million referred to above less
the gain on the sale of assets.  After interest of £93 million (2001: £89
million), the pre-tax loss for the year was £1,724 million (2001: £534 million).
  The continuing businesses recorded a loss on ordinary activities before
taxation of £11 million.  The loss per share for the year was 342.2 pence (2001:
59.6 pence)

The Group's balance sheet includes as a debtor an amount of £351 million,
recoverable from Railtrack PLC on completion of the Railtrack PLC Disposal.

The Board is not recommending a final dividend.

Post Administration

The Administration of Railtrack PLC has resulted in Railtrack Group PLC losing
the ability to control Railtrack PLC.  Because the Administrators have
restricted the Group's access to information in the timescale required for
production of these Accounts, it has not been possible to provide all of the
financial information normally included in a company's accounts.

FUNDAMENTAL UNCERTAINTIES

These financial statements have been prepared on the going concern basis which,
in the opinion of the Directors, is appropriate.  However, there are a number of
uncertainties in relation to the going concern status of the Group reflecting
the issues arising since Administration.  These are described in detail in note
1 to the Accounts.  The successful completion of the planned disposals will
remove these uncertainties.

The main uncertainties in the Accounts are:

•       The Profit and Loss Account includes the results of Railtrack PLC
previously included in the published Railtrack Group Interim Accounts for the
period to 30 September 2001.  Since the date of the Administration Order, the
affairs, business and property of Railtrack PLC have been managed by the
Administrators and limited information on Railtrack PLC has been provided to
Railtrack Group.  Although a number of Railtrack Group directors were also
directors of Railtrack PLC prior to their resignation as Railtrack PLC directors
on or before 1 February 2002, access to information on Railtrack PLC was
progressively restricted.  Since 1 February 2002, the Administrators have
declined to release information on terms acceptable to the Board and within the
timetable required for production of these Accounts, with the result that the
Directors have only received limited information on Railtrack PLC.  As a result,
the Directors have not been able to update the interim results for the period to
30 September 2001 previously published, in particular, the assumptions relating
to the Asset Maintenance Plan depreciation charge.

•       The value of certain assets and liabilities included in the Balance
Sheet including the Group's interests in the CTRL and the investment in
Railtrack PLC are heavily dependent upon the successful completion of the
Proposed Disposals.

•       The Group's tax liabilities, which will ultimately depend on a final
agreement of taxation issues between Railtrack PLC and the Group.

AUDIT OPINION

Owing to the loss of control of Railtrack PLC, it was not possible for the
Group's Auditors to audit the results of Railtrack PLC for the six months to 30
September 2001.  Their Audit Opinion on the Group Profit and Loss Account and
the Group Cash Flow Statement is therefore qualified on the grounds of
limitation in scope though they have been able to issue an unqualified opinion
on the Group and Company Balance Sheets as at 31 March 2002, albeit the Audit
Report draws attention to the major uncertainties underlying the Accounts.




GROUP PROFIT AND LOSS ACCOUNT
Year ended 31 March 2002
                                                             2002                                  2001

                                                            Discontinued
                                        Note    Continuing    activities     Total   Continuing   Discontinued    Total
                                                activities      (note 1)       £'m   activities     activities      £'m
                                                  (note 1)           £'m                    £'m            £'m
                                                       £'m
 Turnover   - Before exceptional                        38         1,759     1,797            8          2,468    2,476
              items
            - Exceptional                                -             -         -            -          (586)    (586)
                                                        38         1,759     1,797            8          1,882    1,890
Less Turnover attributable to joint                   (24)             -      (24)            -              -        -
ventures

GROUP TURNOVER                             5            14         1,759     1,773            8          1,882    1,890
Operating costs -  Before exceptional      6          (29)       (1,423)   (1,452)          (8)        (2,207)  (2,215)
                   items
                 - Exceptional                           -             -         -          (3)          (144)    (147)
                                                      (29)       (1,423)   (1,452)         (11)        (2,351)  (2,362)

OPERATING (LOSS)/PROFIT                    7          (15)           336       321          (3)          (469)    (472)
Share of operating loss of joint                         -           (1)       (1)            -              -        -
ventures
Exceptional items:
Loss on sale of operations                 3             -           (7)       (7)            -              -        -
Amounts written off investments            2             -       (1,988)   (1,988)            -              -        -
Profit on sale of fixed assets                           -            44        44            7             20       27

(LOSS)/PROFIT ON ORDINARY                             (15)       (1,616)   (1,631)            4          (449)    (445)
ACTIVITIES BEFORE INTEREST
Net interest receivable/(payable)          8             4          (97)      (93)           12          (101)     (89)

(LOSS)/PROFIT ON ORDINARY                             (11)       (1,713)   (1,724)           16          (550)    (534)
ACTIVITIES BEFORE TAXATION

Tax charge/(credit) on loss on             9                                    48                                (227)
ordinary activities

LOSS ON ORDINARY ACTIVITIES AFTER                                          (1,772)                                (307)
TAXATION
Equity dividends - paid                                                          -                                (138)

AMOUNT TRANSFERRED FROM RESERVES                                           (1,772)                                (445)
FOR THE FINANCIAL YEAR

LOSS PER SHARE                            10                              (342.2p)                              (59.6p)
DILUTED LOSS PER SHARE                    10                              (348.6p)                              (59.6p)








STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 March 2002
                                                                                                     2002        2001
                                                                                                      £'m         £'m
LOSS FOR THE FINANCIAL YEAR                                                                       (1,772)       (307)
Revaluation of investment properties                                                                    -           5
Unrealised gain on formation of joint ventures                                                         33           3
Clawback on disposal of properties (net of tax relief)                                                  -         (3)
Corporation tax on realised gain on investment properties                                               -         (4)

TOTAL RECOGNISED GAINS AND LOSSES FOR THE FINANCIAL YEAR                                          (1,739)       (306)


NOTE OF HISTORICAL COST PROFITS AND LOSSES
Year ended 31 March 2002
                                                                                                     2002        2001
                                                                                                      £'m         £'m
Loss on ordinary activities before taxation                                                       (1,724)       (534)
Realisation of property revaluation gains of previous years                                            61          32

Historical cost loss on ordinary activities before taxation                                       (1,663)       (502)

Historical cost loss for the year retained after taxation and dividends                           (1,711)       (413)




CONSOLIDATED BALANCE SHEET
31 March 2002
                                                                                                 2002            2001
                                                                                 Note             £'m             £'m
FIXED ASSETS
Tangible fixed assets                                                              11           1,133           8,805
Investments in joint ventures
- share of gross assets                                                                            64              48
- share of gross liabilities                                                                     (38)            (44)
                                                                                                   26               4
Loans to joint ventures                                                                            30              32
Investments                                                                        12              56              36
                                                                                                1,189           8,841

CURRENT ASSETS
Stocks                                                                                             24              56
Debtors - amounts falling due within one year
- other                                                                                            26             382
- amount recoverable from Railtrack PLC                                                           351               -
                                                                                                  377             382
Debtors - amounts falling due after more than one year                                              -              46
                                                                                                  377             428
Investments                                                                        13             500              94
Cash at bank and in hand                                                                           25              24
                                                                                                  926             602

CREDITORS: amounts falling due within one year                                                   (50)         (2,517)

NET CURRENT ASSETS/(LIABILITIES)                                                                  876         (1,915)

TOTAL ASSETS LESS CURRENT LIABILITIES                                                           2,065           6,926
CREDITORS: amounts falling due after more than one year
Convertible debt                                                                                    -           (392)
Other creditors                                                                    14         (1,145)         (3,575)
                                                                                              (1,145)         (3,967)

PROVISIONS FOR LIABILITIES AND CHARGES                                                              -           (311)

NET ASSETS                                                                                        920           2,648

CAPITAL AND RESERVES
Called up share capital                                                                           130             129
Share premium                                                                      15               5               3
Revaluation reserve                                                                15               -              61
Other reserves                                                                     15             532           1,085
Profit and loss account                                                            15             253           1,370

EQUITY SHAREHOLDERS' FUNDS                                                                        920           2,648


These financial statements were approved by the Board of Directors on 27 June
2002.

Signed on behalf of the Board of Directors

David A Harding




COMPANY BALANCE SHEET
31 March 2002
                                                                                                 2002             2001
                                                                                 Note             £'m              £'m
FIXED ASSETS
Investments                                                                                        35            2,239
CURRENT ASSETS
Debtors - amounts falling due within one year
- other                                                                                            76              168
- amount recoverable from Railtrack PLC                                                           351                -

                                                                                                  427              168
Investments                                                                                       500                -
Cash at bank and in hand                                                                           13              335

                                                                                                  940              503
CREDITORS: amounts falling due within one year                                                   (60)             (94)

NET CURRENT ASSETS                                                                                880              409

NET ASSETS                                                                                        915            2,648

CAPITAL AND RESERVES
Called up share capital                                                                           130              129
Share premium                                                                      15               5                3
Revaluation reserve                                                                15               -            1,150
Other reserves                                                                     15             500              796
Profit and loss account                                                            15             280              570

EQUITY SHAREHOLDERS' FUNDS                                                                        915            2,648


These financial statements were approved by the Board of Directors on 27 June
2002.

Signed on behalf of the Board of Directors

David A Harding






GROUP CASH FLOW STATEMENT
Year ended 31 March 2002


                                                                                2002                               2001

                                                             Continuing    Discontinued
                                                   Note      activities      activities           Total
                                                                    £'m             £'m             £'m             £'m
Net cash inflow from operating activities            16              44             112             156             718
Dividends received from joint ventures                                4               -               4               -
Returns on investments and servicing of finance
Interest received                                                     4              13              17              27
Interest paid                                                         -           (139)           (139)           (150)

Net cash inflow/(outflow) from returns on                             4           (126)           (122)           (123)
investments and servicing of finance

Capital expenditure and financial investment
Purchase and sale of tangible fixed assets                            -         (1,207)         (1,207)         (2,134)
Sale of trade investment                                             30               -              30               -
Capital element of finance lease receipts                             -               -               -              14
Capital grants received                                               -               -               -              63
Loans repaid by/(made to) joint ventures                             10               -              10            (32)

Net cash inflow/(outflow) from capital expenditure                   40         (1,207)         (1,167)         (2,089)

Acquisitions and disposals
Disposal of subsidiary                                                                                8               -
Acquisitions and sale of joint ventures                                                             (1)               -

Net cash inflow from acquisitions and disposals                                                       7              -

Equity dividends paid                                                                              (78)           (124)

Cash outflow before use of liquid resources
and financing                                                                                   (1,200)         (1,618)

Management of liquid resources                                                                     (39)             474
(Purchase)/disposal of short term deposits
Financing
Issue of ordinary share capital                                                                       2               3
New loans                                                                                         1,238           1,165

Net cash inflow from financing                                                                    1,240           1,168

Increase in cash                                                                                      1              24







NOTES TO THE ACCOUNTS
Year ended 31 March 2002



1. BASIS OF PREPARATION

Introduction

The Group accounts are a consolidation of the financial statements of the
Company and all its subsidiary undertakings with the exception of Railtrack PLC
and Railway Safety.

On 7 October 2001, as a result of the Administration Order, the Group lost
control of Railtrack PLC and therefore, in accordance with FRS 2 "Accounting for
Subsidiary Undertakings", its results and cashflows for the period after 7
October 2001 have not been included in the consolidated Profit and Loss Account
and Cash Flow Statement and its assets and liabilities have not been included in
the 31 March 2002 consolidated Balance Sheet.  The Group's investment in
Railtrack PLC has therefore been reclassified as a trade investment.  The
Directors have reviewed the carrying value of this investment and have concluded
that it has been impaired and have booked the resulting write-down, being the
difference between the net tangible assets of Railtrack PLC at 7 October 2001
and the value of the offer received from Network Rail for the Group's investment
in Railtrack PLC, as an amount written-off investments.  In the Profit and Loss
Account the activities of the Group have therefore been classified as follows:

•       Discontinued Activities

As a result of the Administration Order on 7 October 2001, the Group lost
control of Railtrack PLC and Railway Safety.  Therefore, their results up to
that date have been classified as discontinued operations.

On 15 November 2001, the principal activities of Railtrack Travel Limited ceased
with the closure of its totaljourney.com joint venture.  This decision was taken
in response to an intervention by the Rail Regulator.

On 25 March 2002, Railtrack Insurance Limited was sold to Railtrack PLC.

•       Continuing Activities

All other activities of the Group have been treated as continuing activities.

Fundamental Uncertainties

The Administration Order has had a significant impact on the Group's financial
position resulting in a number of fundamental uncertainties.  The successful
completion of the proposed sale of Railtrack PLC to Network Rail and the Group's
interests in the CTRL to London & Continental Railways Limited (together "the
Proposed Disposals"), as explained in Part I of this announcement, would result
in the elimination of the uncertainties relating to going concern and the
Balance Sheet.  At the date of approval of these financial statements these
proposed sales remain subject to Shareholder approval and the conditions as set
out in note 4.  These fundamental uncertainties may have a significant impact on
the following areas:

(a) Going Concern

In accordance with FRS 18 "Accounting Policies", the financial statements have
been prepared on the going concern basis.  On the basis of the Proposed
Disposals proceeding, it is expected that Railtrack Group PLC will remain a
going concern.  However, in the event that these do not proceed there are
certain fundamental uncertainties that may affect the ability of the Group to
continue as a going concern.  These are:

Obligation to Purchase Section 1 of the Channel Tunnel Rail Link (CTRL)

Railtrack (UK) Limited, a subsidiary of Railtrack Group PLC, has committed to
purchase Section 1 of the CTRL at its net cost.  The Directors expect that
Section 1 will be completed by September 2003 at an expected net cost of £1.5 to
£1.7 billion and that the Railtrack Group would be required to purchase Section
1 on or before 30 September 2004.  The Administration Order has created
uncertainty over whether certain agreements, to which Railtrack Group is a
party, would come into, or continue in effect.  In the event of these contracts
terminating, or not coming into effect, the purchase obligation would become an
onerous contract that could not be funded by the Group.

These financial statements have been prepared on the assumption that the sale of
the Group's interests in the CTRL to London & Continental Railways Limited
proceeds.

Guarantees

Railtrack Group PLC has outstanding guarantees of up to £1 billion that have
become contingent liabilities as a result of the Administration.  These are in
respect of two European Investment Bank facilities made available to Railtrack
PLC, of which £800 million had been drawn at 31 March 2002.

The Group has also guaranteed three bank facilities of up to £700 million which
have been made available to London & Continental Railways Limited in connection
with the CTRL, of which £472 million had been drawn at 31 March 2002.

These financial statements have been prepared on the assumption that the
Proposed Disposals proceed and therefore that there is no call on Railtrack
Group PLC under these guarantees.

The financial statements do not include any adjustments that would arise should
the going concern basis prove inappropriate.

(b) Group Balance Sheet

Carrying Value of Railtrack PLC

The carrying value of the Group's investment in Railtrack PLC of £500 million is
based upon the offer from Network Rail to purchase Railtrack PLC (in Railway
Administration).  This offer remains subject to Shareholder approval.  If the
Proposed Disposals do not proceed there will remain a fundamental uncertainty as
to the value of this investment.

Carrying Value of the CTRL Assets

The Group Balance Sheet includes the assets constructed to date of £1.1 billion
as well as a related liability for the purchase obligation of £1.1 billion.  As
set out above, uncertainty remains over the ongoing operating arrangements and
it is therefore not possible to assess whether any impairment in value or any
further purchase obligations should be recognised.

Taxation

The Group has certain contingent tax liabilities arising from transactions
entered into before 7 October 2001 for which no provision has been made.  There
is uncertainty whether the Administrators of Railtrack PLC will permit the
planned rollover of chargeable gains arising in the year.  If they do not, the
Group could suffer a further tax liability of up to £34 million.

As part of the sale of Railtrack PLC to Network Rail it is anticipated that the
planned rollover will occur and that therefore this contingent tax liability
will not crystallise.

(c) Group Profit and Loss Account

There are a number of fundamental uncertainties relating to the Profit and Loss
Account of Railtrack PLC for the period from 1 April 2001 to 7 October 2001
which have been included in the discontinued operations on the face of the
Profit and Loss Account.  Any adjustments arising from these uncertainties would
have an equal and opposite adjustment on the exceptional charge arising from the
amounts written off investments.  The matters of which there is fundamental
uncertainty are:

Events occurring between 17 December 2001 and 27 June 2002

The Railtrack PLC results included in these financial statements are based on
the information included in the unaudited interim accounts for Railtrack Group
PLC for the period to 30 September 2001, which were approved on 17 December
2001.  Since the date of the Administration Order, the affairs, business and
property of Railtrack PLC have been managed by the Administrators and limited
information on Railtrack PLC has been provided to Railtrack Group.  Although a
number of Railtrack Group directors were also directors of Railtrack PLC prior
to their resignation as Railtrack PLC directors on or before 1 February 2002,
access to information on Railtrack PLC was progressively restricted.  Since 1
February 2002, the Administrators have declined to release information on terms
acceptable to the Board and within the timetable required for production of
these Accounts, with the result that the Directors have only received limited
information on Railtrack PLC.  It is therefore not possible to identify, as
required by Statement of Standard Accounting Practice ("SSAP") Number 17 "
Accounting for Post Balance Sheet Events", whether any adjusting post Balance
Sheet events have occurred that would require amendments to these previously
reported figures.

Railtrack PLC Profit and Loss Account for the Period from 1 October 2001 to 7
October 2001

No information is available to the Directors of Railtrack Group PLC on the
trading results of Railtrack PLC for the above period and therefore the results
of this period have been excluded from the financial statements.

Asset Maintenance Plan (AMP)

Fundamental uncertainty exists over amounts included within the Profit and Loss
Account for the period to 30 September 2001 in respect of the AMP and the
renewals accounting policy that had been applied in respect of certain network
assets.

The impact of gauge corner cracking and the industry's changing approach to risk
meant that the AMP requirements were still under review at the time of the
Administration Order. Decisions on the timing and basis of preparation of the
AMP are now matters for the Administrators of Railtrack PLC.

The depreciation charge presented represents six months' of charge relating to
track, route structures, stations and depots.  This figure was based on the
Directors' best estimate of the cost set out within Railtrack PLC's draft asset
maintenance plan at the time.

Accounting Policies

The financial information set out in the preliminary announcement has been
prepared in accordance with applicable accounting standards.  The accounting
policies adopted are described in the Group's 2002 statutory accounts and have
been consistently applied in both 2001 and 2002.



2. AMOUNTS WRITTEN OFF INVESTMENTS

An exceptional loss of £1,988 million arises on the write down of the carrying
value of the investment in Railtrack PLC held by Railtrack Group PLC from its
book value of £2,488 million to its estimated market value.

The estimated market value of the investment of £500 million is based on the
offer made by Network Rail for Railtrack PLC (as detailed in Part I of this
announcement).  This offer is subject to Shareholder approval and a number of
other conditions being satisfied.

For the reasons set out in note 1 above, it is not possible for the Directors to
determine how much of this exceptional charge relates to:

•       the trading results of Railtrack PLC for the period since 7 October
2001;

•       the loss of value in Railtrack PLC arising from the company being placed
in Administration;

•       the costs and related losses arising from the Administration Order; and

•       the losses arising from the anticipated disposal process.



3. LOSS ON SALE OF OPERATIONS

Railtrack Insurance Limited was sold to Railtrack PLC on 25 March 2002 for a
consideration of £10.75 million.  At 31 March 2002, £8 million had been
received.  The balance of £2.75 million is included within Debtors - amounts
falling due within one year, the payment of which is dependent upon a number of
conditions.

On the date of the Administration Order, effective control of Railway Safety was
lost and hence the activities have been treated as discontinued.  No gain or
loss arose as a result.

Railtrack Travel Limited was placed into members voluntary liquidation in April
2002.  The trading activities in the year were treated as discontinued and a
loss was recognised of £1 million.  A loss of £5 million arose on its disposal
of its joint venture, totaljourney.com.



4. POST BALANCE SHEET EVENTS

On 27 June 2002, Railtrack Group PLC entered into an agreement with Network Rail
Limited and Network Rail Holdco Limited to sell Railtrack PLC subject to a
number of conditions.  These are:

•       approval by Shareholders;

•       approval of the change of control of Railtrack PLC by the Secretary of
State pursuant to the network and station licences granted to Railtrack PLC;

•       the European Commission notifying HM Government that the package of
support being provided to Network Rail in relation to or in connection with the
purchase of Railtrack PLC and the arrangements contemplated under or in
connection with that purchase or any matter arising therefrom either (i) will
not involve the grant of state aid within the meaning of Article 87 of the
Treaty of Rome or (ii) is compatible with the common market within the meaning
of the Treaty of Rome in terms which are reasonably satisfactory to the
Secretary of State, the SRA and Network Rail (provided that, in the case of
Network Rail, the terms taken as a whole shall be deemed to be reasonably
satisfactory to it if acceptance of those terms would not result, or would not
be reasonably likely to result, in material loss, damage or detriment to Network
Rail's group taken as a whole);

•       the Office of Fair Trading indicating, in terms reasonably satisfactory
to Network Rail and the SRA, that the Secretary of State for Trade and Industry
does not intend to refer the proposed acquisition of Railtrack PLC or any matter
relating thereto to the Competition Commission (provided that, in the case of
Network Rail, the terms taken as a whole shall be deemed to be reasonably
satisfactory to it if the acceptance of those terms would not result, or would
not be reasonably likely to result, in material loss, damage or detriment to
Network Rail's Group taken as a whole)

•       a resolution of each class of bondholders of Railtrack PLC being passed
to authorise the modification of the terms and conditions of the bonds.
According to information published or made available by Network Rail and
Railtrack PLC, the effect of the modifications will be to:

(i)   provide for mandatory redemption of all of the bonds no later than 14 days
after completion upon the occurrence of certain conditions as to notice and as
to sufficiency of funds referred to below according to a formula which will
value each class of bonds by applying an agreed yield spread to the relevant
reference gilt yield that prevails at the time the bonds are redeemed together
with accrued interest.  The agreed yield spread would be the average yield
spread of each class of the bonds relative to the relevant reference gilt yield
in September 2001 (the month prior to the commencement of the Administration)
adjusted for movements in the spreads of A-rated Eurosterling bond issues
between that time and the time that calculations are made shortly before the
bonds are redeemed.  The bonds will, however, be redeemed at par if such a
calculation would result in a price below par.  The conditions referred to above
are not less than two days' notice being given to bondholders and, prior to
giving such notice, Railtrack PLC certifying to the trustee and producing
evidence acceptable to the trustee that it will have the necessary funds to pay
the aggregate redemption price;

(ii)  vary the duration of the standstill arrangements in respect of the bonds
which have previously been entered into so as to permit the termination of those
arrangements on the date which is 15 days after completion of the sale where the
Administration Order is discharged in express contemplation of completion; and

(iii) in respect of the £400,000,000 3.5 per cent. Exchangeable Bonds due 2009
only, provide that the rights to exchange these bonds into ordinary shares of
Railtrack Group contained in the trust deed and conditions of these bonds, shall
be relinquished;

•       a resolution of noteholders of Railtrack PLC being passed to authorise
the modification of the terms and conditions of the notes.  According to
information made available by Railtrack PLC, the effect of the modifications
will be to:

(i)   provide for mandatory redemption of the notes no later than 14 days after
completion upon the occurrence of certain conditions as to notice and as to
sufficiency of funds referred to below for an amount equal to the sum of their
principal amount together with accrued interest.  The conditions referred to
above are not less than two days' notice being given to noteholders and, prior
to giving such notice, Railtrack PLC certifying to the trustee and producing
evidence acceptable to the trustee that it will have the necessary funds to pay
the aggregate redemption price; and

(ii)  vary the duration of the standstill arrangements in respect of the notes
which have previously been entered into so as to permit the termination of those
arrangements on the date which is 15 days after completion of the sale where the
Administration Order is discharged in express contemplation of completion; and

•       the discharge of the Administration Order following an application for
its discharge by the Secretary of State pursuant to section 18 of the Insolvency
Act 1986 as modified by the Railways Act 1993.  The Administration Order may be
discharged by order of a court on application by the Secretary of State on the
ground that it is no longer necessary that the purposes of the Administration
Order are achieved.  The purposes of the Administration Order are the transfer
of Railtrack PLC's undertaking to another company and the carrying on of its
activities pending the making of such transfer.  It is expected that a court
would discharge the Administration Order once the conditions specified above
have been satisfied and the Railtrack PLC Agreement is otherwise due to
complete.

Completion of the sale is also conditional on Network Rail (save to the extent
that Railtrack Group may not so require) having procured that all steps are
taken to ensure that at completion of the sale Railtrack Group will be released
from the guarantees granted by it in relation to Railtrack PLC in favour of the
European Investment Bank.

On 27 June 2002, Railtrack Group PLC entered into an agreement with London &
Continental Railways Limited to sell Railtrack (UK) Limited subject to a number
of conditions.  These are:

•       Shareholder approval;

•       appropriate state aid clearance by the European Commission for the CTRL
project;

•       merger clearance by the Director General of Fair Trading of the
Competition Commission; and

•       release of the guarantees given by Railtrack Group PLC and Railtrack UK
Limited in respect of £700 million bank facilities made available to LCR for the
purposes of construction of Section 1 of the CTRL.

Completion of the sales of Railtrack PLC and of Railtrack (UK) Limited is
subject to the conditions to both agreements being satisfied.

On 27 June 2002, Network Rail entered into an agreement as part of the above
transactions to amend the existing wayleave agreements between RTS and Railtrack
PLC.  This will result in the release of deferred income of £49 million.



5. TURNOVER
                                                                                2002                             2001
                                                      Continuing        Discontinued
                                                      Activities          Activities          Total
                                                             £'m                 £'m            £'m               £'m
Passenger franchise revenue                                    -                 866            866             1,523
Revenue grant                                                  -                 732            732                 -
Freight revenue                                                -                  49             49               142
Property rental income                                         1                  77             78               146
Other income                                                   -                  29             29                55
Commercial and development property sales                     13                   6             19                24

                                                              14               1,759          1,773             1,890


All turnover relates to the UK.

Revenue grants

The Company has two separate agreements with the Strategic Rail Authority (SRA)
for the receipt of revenue grants:

"Deferred Grant"

In a letter dated 2 April 2001 the SRA agreed to bring forward revenue which,
under the Rail Regulator's October 2000 determination, would have otherwise been
included in the Regulatory Asset Base (RAB) at the end of the second regulatory
control period.  The first payment of £337 million was received on 1 October
2001.

"Network Grant"

Schedule D to the October determination by the Rail Regulator provided for the
receipt of income in the second regulatory control period via a direct grant
from the SRA, as an alternative to track access charges.  Following failure of
the "best endeavours" agreement made with the SRA, also on 2 April 2001, to
securitise sums due under this arrangement, the first payment of £162 million
became due on 1 October 2001.

In accordance with SSAP 4, and on the basis that the Directors at the time of
the interim statements had reasonable assurance that future payments will be
received from the SRA as they fall due, the grants due in respect of the
services provided in the year have been credited to revenue.  The amounts
credited are calculated in accordance with the original agreements and amount to
£732 million for the six months ended 30 September 2001.



6. OPERATING COSTS
                                                      2002                                        2001
                                     Continuing      Discontinued                   Continuing    Discontinued
                                     Activities        Activities        Total      Activities      Activities     Total
                                            £'m               £'m          £'m             £'m             £'m       £'m
Other operating income                      (2)            (29)         (31)             (2)          (77)          (79)
Staff costs                                   3             210          213               1           361           362
Own work capitalised                          -           (105)        (105)               -         (172)         (172)
Capital grants amortised                      -             (5)          (5)               -          (11)          (11)
Other external charges
Normal activities                            28             845          873               9         1,386         1,395
Exceptional item                              -               -            -               3          (70)          (67)
                                             28             845          873              12         1,316         1,328
Depreciation and other amounts
written off tangible fixed assets
Normal activities                             -             507          507               -           720           720
Exceptional item                              -               -            -               -           214           214
                                              -             507          507               -           934           934
                                             29           1,423        1,452              11         2,351         2,362


At 30 September 2001, the AMP requirement in relation to Railtrack PLC was still
under review.  The AMP for the second regulatory control period, from 1 April
2001 to 31 March 2006, had therefore not been completed, nor, as required by FRS
15 "Tangible Fixed Assets", certified by an independent, appropriately qualified
person.  It was anticipated that the plan would have been finalised and
certified prior to the publication of the financial statements for the year
ended 31 March 2002.  Decisions on the timing and basis of preparation of the
AMP are now a matter for the Administrators of Railtrack PLC.

The depreciation charge presented above represents six months' of charge
relating to track, route structures, stations and depots.  This figure was based
on the Directors' best estimate of the cost set out within Railtrack PLC's draft
asset maintenance plan at the time.

Included in other external charges is £8.2 million representing costs associated
with property disposals.




7. OPERATING (LOSS)/PROFIT
                                                                                              2002                2001
                                                                                               £'m                 £'m
This is arrived at after charging/(crediting):
Non-exceptional one-off costs:
-Release of the property maintenance backlog provision                                           -                (24)
-Other one-off costs                                                                             -                   9
-Contractor claims                                                                               -                  12
-Professional fees                                                                               4                   -
-Professional fees associated with the CTRL agreements                                           5                   -
Exceptional items charged to operating profit which all arose in 2000/2001:
-Performance and other payments to TOCs of £561 million,                                         -                 644
operating costs of £26 million and
additional depreciation arising from Hatfield of £57 million
-Performance penalties arising from extreme weather in October 2000                              -                  25
-Additional depreciation arising from review of the asset maintenance plan                       -                 157
-Release of property maintenance backlog provision largely in respect of major                   -                (93)
stations

                                                                                                 -                 733




8. NET INTEREST (RECEIVABLE)/PAYABLE
                                                                                               2002                2001
                                                                                                £'m                 £'m

Interest payable and similar charges                                                            139                 164
Interest capitalised                                                                           (29)                (49)

                                                                                                110                 115
Interest receivable                                                                            (17)                (26)

                                                                                                 93                  89


For the reasons set out in note 1, no information in relation to Railtrack PLC
required for this note has been provided to the Directors of Railtrack Group PLC
for the period from 1 April 2001 to 30 September 2001.  It has therefore not
been possible to split the interest attributable to the discontinued activities
of Railtrack PLC between that on bank loans and overdrafts and that on other
loans.  In the prior year, £28 million of interest was payable on bank loans and
overdrafts and £136 million on other loans.

Included in 'interest on other loans' is £15.8 million relating to loss on a
hedging transaction.

The average interest rate used to determine the amount of finance cost
capitalised was 5.62 per cent. (2000/2001: 5.92 per cent.).



9. TAX CHARGE/(CREDIT) ON LOSS ON ORDINARY ACTIVITIES
                                                                                               2002                2001
                                                                                                £'m                 £'m
Analysis of charge in year
Current UK corporation tax at 30 per cent.
Charge/(credit) for the year                                                                     12                 (3)
Under/(over) provision in respect of prior years                                                 10                (17)

Total current tax                                                                                22                (20)

Deferred tax at 30 per cent.
Charge/(credit) for timing differences arising in the year                                        7               (141)
Decrease/(increase) in discount                                                                  19                (66)

Total deferred tax/(credit)                                                                      26               (207)

Tax charge/(credit) on loss on ordinary activities                                               48               (227)


None of the tax charge for the year relates to exceptional items. In 2000/2001
£174 million of the deferred tax credit related to exceptional items.

The deferred tax charge for the year of £26 million and the current year
corporation tax charge of £12 million relate to discontinued activities.  The
£10 million underprovision from prior years relates to Railtrack Group and £7
million of this represents advance corporation tax written off.

Current factors affecting the tax charge for the year

Ignoring discontinued activities, there is no current year corporation tax
charge as a result of tax losses.  The total tax assessed for the Retained
Railtrack Group and Railtrack UK combined is higher than the standard rate of
corporation tax in the UK of 30 per cent., principally as a result of the prior
year underprovision.

Factors that may affect future tax charges

Excluding exceptional items, such as potential profits on disposal of
investments, the Retained Railtrack Group is expected to have future effective
rates of tax of approximately 30 per cent.




10. LOSS PER SHARE
                                                                                                      2002        2001
                                                                                                       £'m         £'m
Loss attributable to Shareholders                                                                  (1,772)       (307)

Weighted average number of ordinary shares (millions)                                                  518         515
Dilutive effect of Share Savings Scheme (millions)                                                     (9)           -

Weighted average number of ordinary shares taking into account applicable                              509         515
dilutive instruments (millions)

Loss per share                                                                                    (342.2p)     (59.6p)

Diluted loss per share                                                                            (348.6p)     (59.6p)


The calculation of the dilutive effect of the Share Savings Scheme uses the
suspended share price on 5 October 2001 of 280.5 pence per share.



11. TANGIBLE FIXED ASSETS
                                                                                                2002              2001
                                                                                                 £'m               £'m
Net book value
Investment properties                                                                              -                74
Other land and buildings                                                                          22               294
Track, route structures, stations and depots                                                       -             3,952
Other network assets                                                                               -             3,675
Channel Tunnel Rail Link                                                                       1,111               810

                                                                                               1,133             8,805

At valuation                                                                                       -                74
At cost                                                                                        1,133             8,731

                                                                                               1,133             8,805



12. INVESTMENTS
Group                                                  Group share of net            Group loans
                                                          assets of joint      to joint ventures                 Total
                                                                 ventures                    £'m                   £'m
                                                                      £'m
At 1 April 2001                                                         4                     32                    36
Reclassifications                                                     (8)                      8                     -
Additions                                                              36                      -                    36
Interest capitalised                                                    4                      -                     4
Disposals                                                             (5)                      -                   (5)
Share of results of joint ventures                                    (1)                      -                   (1)
Loans made to joint ventures                                            -                      5                     5
Loans repaid by joint ventures                                          -                   (15)                  (15)
Dividends received from joint ventures                                (4)                      -                   (4)

At 31 March 2002                                                       26                     30                    56




13. INVESTMENTS HELD AS CURRENT ASSETS
Group                                                                                       2002                  2001
                                                                                             £'m                   £'m
Investments                                                                                  500                    94


The £500 million investment at 31 March 2002 represents the trade investment
held in Railtrack PLC. The value is based upon its estimated realisable value.
The investment at 31 March 2001 included £55 million of short term money market
deposits.  The remaining investments, which were all held by Railtrack Insurance
Limited, consisted of certificates of deposit, eurobonds and commercial paper.



14. OTHER CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group                                                                                                2002        2001
                                                                                                      £'m         £'m
Bank loans                                                                                              -       1,050
Eurobonds                                                                                               -       1,122
West Yorkshire PTE due 2019                                                                             -           5
Finance leases and hire purchase contracts                                                              -          34
Debt issued under the Euro Medium Term Note programme                                                   -           8
Other accruals and deferred income                                                                     49          40
Capital grants deferred income                                                                          1         523
Obligation to purchase section one of the Channel Tunnel Rail Link                                  1,095         793

                                                                                                    1,145       3,575

During the year, Railtrack Telecom Services Limited ("RTS") entered into a
long-term agreement with Railtrack PLC for the rental of wayleave rights to lay
cables alongside railways.  The rentals payable to Railtrack PLC are based on
the amount of cables laid and a rental price per kilometre, which increases each
year based on a price index.  In April 2001 RTS sold those wayleave rights for
the first twenty years of the agreement in return for shares in ipsaris Limited
which were later sold under a put and call option for payments received or now
due  totalling £50 million.  No cable has been laid to date and therefore no
amounts have been paid to date.  Owing to a number of uncertainties relating to
the calculation of the total rentals payable to Railtrack PLC over the twenty
years it is not possible to estimate the appropriate level of costs to be
accrued.  Therefore the payments received or now due have been included in
deferred income, of which £49 million is included in creditors falling due after
more than one year.  This will be released to the profit and loss account over
the next twenty years, matching the rental payments made to Railtrack PLC.


15. SHARE CAPITAL AND RESERVES
                                                                                                 Profit
                                                           Share    Revaluation       Other    and loss
                                                         premium        reserve    reserves     account       Total
                                                             £'m            £'m         £'m         £'m         £'m
Group
At 1 April 2001                                                3             61       1,085       1,370       2,519
Transfer of reserves arising on impairment                     -           (61)       (582)         643           -
of investment held in Railtrack PLC
Capital reserve on formation of joint ventures                 -              -          33           -          33
Capital reserve on disposal of joint ventures                  -              -         (3)           3           -
Share dividends                                                -              -         (1)           9           8
Shares issued under Share Savings Scheme                       2              -           -           -           2
Loss for the financial year                                    -              -           -     (1,772)     (1,772)

At 31 March 2002                                               5              -         532         253         790

                                                                                                 Profit
                                                           Share    Revaluation       Other    and loss
                                                         premium        reserve    reserves     account       Total
                                                             £'m            £'m         £'m         £'m         £'m
Company
At 1 April 2001                                                3          1,150         796         570       2,519
Transfer of reserves arising on impairment of                  -        (1,150)       (295)       1,445           -
investment held in Railtrack PLC
Share dividends                                                -              -        (1 )           9           8
Shares issued under Share Savings Scheme                       2              -           -           -           2
Loss for the financial year                                    -              -           -     (1,744)     (1,744)

At 31 March 2002                                               5              -         500         280         785



The number of called up, allotted and fully paid shares as at 31 March 2002 was
519,639,678 (2001: 515,947,547).


16. RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES


                                                                          2002                                   2001
                                                         Continuing       Discontinued
                                                         activities         activities          Total             £'m
                                                                £'m                £'m            £'m
Operating (loss)/profit                                        (15)                336            321           (472)
Share of operating profit of joint ventures                       -                  -              -             (1)
Depreciation and amortisation (net of capital                     -                502            502             923
grants amortised)
Increase in stocks                                              (8)               (16)           (24)             (7)
(Increase)/decrease in debtors                                 (21)            (1,048)        (1,069)             113
Increase in creditors                                            54                340            394             335
Reduction in amounts owed by Railtrack PLC                       34                  -             34               -
Decrease in provisions                                            -                (2)            (2)           (173)

Net cash inflow from operating activities                        44                112            156             718


Included within the net cash inflow for 2001 is an outflow of £443 million in
respect of the exceptional item.



17. CONTINGENT LIABILITIES

The Group has a number of contingent liabilities which, if they were to
crystallise, could seriously prejudice the Group's financial position.  In each
case the Directors are taking steps to mitigate the outcome.

Following the loss of control and the deconsolidation of Railtrack PLC the
contingent liabilities relating to that company have not been included as they
are now under the control of the Administrators.

Guarantees

The Company has given guarantees in respect of (i) a £600 million bank facility
made available to Railtrack PLC by the European Investment Bank (EIB) which is
fully drawn and (ii) a £400 million bank facility made available to Railtrack
PLC by EIB of which £200 million has been drawn.

The Company has given guarantees in respect of (i) a £350 million syndicated
revolving credit facility made available to London & Continental Railways
Limited (LCR) of which £122 million is drawn; (ii) a £150 million bank facility
made available to LCR by Kreditanstalt fur Wiederaufbau, which is fully drawn;
and (iii) a £200 million facility made available to LCR by EIB, which is fully
drawn.

Railtrack Group PLC has guaranteed the performance of a subsidiary undertaking's
investment in the joint venture with British Land relating to the Broadgate
development.  There is no express financial cap on the maximum exposure of
Railtrack Group under the guarantee.  The level of financial exposure will be
dependent upon the future development of the project.

Other

As a result of the Administration, Stannifer Group Holdings Limited, a joint
venture partner of Railtrack Developments Limited ("RDL"), notified RDL that in
their opinion, an event of default has occurred.  If there were to be an event
of default, however, the joint venture could be dissolved.  Based on the legal
advice RDL has received, the Directors do not consider that any such event has
occurred.

Included within other debtors is £20 million due from Marconi Corporation plc.
Marconi Corporation plc has also stated that it intends to make a claim against
Railtrack Telecom Services Limited ("RTS") in connection with RTS's investment
in its joint venture, Ultramast Limited.  No formal claim has yet been made but
on the basis of the available information the Directors do not believe that
there is any substance to the claim.

RTS has entered into a number of arrangements with Ultramast Limited, under
which it is required to supply a number of sites to allow telecommunications
masts to be built.  If insufficient sites are supplied compared to the number
supplied by the other joint venture party certain financial penalties may be
incurred by RTS.  It is not currently possible to assess the likelihood of any
such payments being made.

Under contracts entered into in relation to the formation of the Ultramast joint
venture, RTS is required to supply sites to Ultramast Limited in exchange for a
percentage of the rental fees earned from telecommunication companies using
these sites.  RTS has a separate agreement to rent these sites from Railtrack
PLC for fixed rental payments.  It is not currently possible to assess whether
these combined contractual obligations will result in losses being incurred by
RTS.

Certain other contingent liabilities relating to RTS are detailed in note 14.

The Administration of Railtrack PLC has resulted in a number of uncertainties
relating to the relationship between Railtrack Group and Railtrack PLC.
Although the Directors are not aware of any claims which have not been provided
for in these financial statements, until Railtrack PLC emerges from
Administration, it is possible that further claims will arise.



18. CONTINGENT ASSETS

If the Proposed Disposals do not proceed, the Group would retain its right to
pursue legal action against the Secretary of State and the DTLR for compensation
on the grounds that the Secretary of State acted improperly in putting Railtrack
PLC into Administration.  No value has been attributed to this claim in these
accounts, due to the fact that legal proceedings have not been commenced.



19. RELATED PARTY DISCLOSURES

Prior to the Administration, Railtrack Group PLC and Railtrack PLC participated
in a number of closely linked activities.  A number of employees of the Group
were employed by Railtrack PLC and are currently on secondment providing
assistance to the Group.  A significant number of services were run on a
centralised basis, including payroll and accounting.

Following the Administration on 7 October 2001, certain Railtrack PLC and
Railtrack Group operations have been separated although there remain a number of
areas requiring continuing co-operation between the two entities.

Owing to Railtrack PLC being treated as a discontinued operation within the
Group accounts, trading balances occurring after 7 October 2001 between Group
and its former subsidiary are now required to be disclosed in accordance with
FRS 8 "Related Party Disclosures".  Prior to Administration the exemption
requirements of FRS 8 were met.

Summarised below are the significant transactions arising since the
Administration Order, all having been conducted on an arm's length basis.

Income

•       Rental income of £1.4 million was collected by Railtrack PLC on behalf
of Group companies.

•       Work undertaken by Railtrack (UK) Limited of £6.7 million relating to
bridge upgrade work was charged to Railtrack PLC.

•       Interest income of £8.3 million was received on the amount recoverable
from Railtrack PLC.

Expenditure

•       Staff costs recharged from Railtrack PLC to Group companies costing £2.0
million.

•       Railtrack PLC recharged £4.1 million of capital expenditure.

•       Invoices paid by Railtrack PLC of £11.4 million were recharged to Group
companies.

In addition to the amount recoverable from Railtrack PLC, £12.7 million was
being claimed by Railtrack PLC from Railtrack Group PLC.  A number of items
claimed are currently in dispute as suitable support for the amounts claimed has
not been provided to the Group and the Directors believe that not all items
claimed will be paid.  However, on the ground of prudence, full provision has
been made for the amount claimed.

During the year, £16.2 million of Railtrack Insurance Limited's insurance
premium income was in respect of premiums paid by Railtrack Group PLC and
Railtrack PLC.



20. ABRIDGED ACCOUNTS

Abridged accounts which are not the statutory accounts are set out in this
preliminary announcement.  The balance sheet at 31 March 2002 and the results
and cash flow and associated notes for the year then ended have been abridged
from the Group's 2002 statutory accounts upon which the auditors' opinion on
these accounts was qualified and contains a statement under Section 237(3) of
the Companies Act 1985 which states that the auditors had not been able to
obtain all the information and explanations needed which they consider necessary
in relation to the discontinued results of Railtrack PLC included in the
financial statements for the year ended 31 March 2002.  The Audit Report does
not contain a statement under Section 237(2) of the Companies Act 1985, but has
been modified by the inclusion of an additional paragraph describing a number of
fundamental uncertainties in relation to the Accounts.  The nature of these
uncertainties are described in note 1.  The statutory accounts will be filed
with the Registrar of Companies in due course.

The figures for the year ended 31 March 2001 have been extracted from the annual
report and accounts which have been filed with the Registrar of Companies.  The
auditors' report on those accounts was unqualified and did not contain any
statements under Section 237(2) or (3) of the Companies Act 1985.



21. ANNUAL GENERAL MEETING

The Annual General Meeting of Railtrack Group PLC will be held in October 2002.




                                    PART III

              Pro forma statement of net assets of Railtrack Group



Basis of Preparation

The unaudited pro forma statement of net assets for the Retained Railtrack Group
set out below as at 31 March 2002 has been prepared on the assumption that the
disposal of Railtrack PLC and Railtrack UK as described in Part IV of this
announcement had occurred at that date.  Because of the nature of pro forma
financial information it may not give a true picture of the financial position
of the Retained Railtrack Group and has been prepared for illustrative puposes
only.

The unaudited pro forma statement of net assets as at 31 March 2002 has been
extracted without material modification from the published preliminary
announcement of audited results of Railtrack Group for the year ended 31 March
2002, as set out in Part II of this announcement, and the supporting
consolidation schedules thereto, with further adjustments in accordance with
paragraph 12.29 of the Listing Rules.

The unaudited pro forma financial information does not take any account of
trading results or movements in working capital and cash flows of the Railtrack
Group, Railtrack PLC or Railtrack UK since 31 March 2002.




                                                               Adjustments

                             Railtrack      Sale of      Sale of       Disposal   Settlement   Recognition    Pro forma
                             Group net    Railtrack    Railtrack       proceeds    of amount   of deferred     Retained
                             assets as          PLC           UK         net of     due from     income in    Railtrack
                                 at 31     (Note 2)     (Note 3)    transaction    Railtrack           RTS     Group as
                                 March           £m           £m          costs          PLC      (Note 6)        at 31
                                  2002                                 (Note 4)     (Note 5)            £m   March 2002
                              (Note 1)                                       £m           £m                         £m
                                    £m

FIXED ASSETS
Tangible assets                  1,133            -      (1,111)              -            -             -           22

Investments in joint ventures
-share of gross assets              64                                                                               64
-share of gross liabilities       (38)                                                                             (38)
                                    26                                                                               26
Loans to joint ventures             30                                                                               30

Investments                         56            -            -              -            -             -           56
                                 1,189            -      (1,111)              -            -             -           78

CURRENT ASSETS
Stocks                              24            -            -              -            -              -          24
Debtors - amounts falling due
within one year
-other                              26                         3                                                     29
-amount recoverable from
Railtrack PLC                      351                                                 (351)                          -
                                   377            -            3              -        (351)              -          29
Investments                        500        (500)            -              -            -              -           -
Cash at bank and in hand            25            -            -            854          351                      1,230
                                   926        (500)            3            854            -              -       1,283
CREDITORS: amounts falling
due within one year               (50)            -            3              -            -              -         (47)
NET CURRENT ASSETS                 876        (500)            6            854            -              -        1,236
TOTAL ASSETS LESS
CURRENT LIABILITIES              2,065        (500)      (1,105)            854            -              -        1,314
CREDITORS: amounts falling
due after more than one year
Other creditors                (1,145)            -        1,095              -            -             49          (1)
                               (1,145)            -        1,095              -            -             49          (1)
NET ASSETS                         920        (500)         (10)            854            -             49        1,313



Notes

1.       The net assets of Railtrack Group have been extracted without material
adjustment from the consolidated balance sheet as set out in the preliminary
results of Railtrack Group for the year ended 31 March 2002, as set out in Part
II of this announcement.

2.       The adjustment in respect of Railtrack PLC represents the elimination
of the carrying value of the investment in Railtrack PLC in the consolidated
balance sheet of Railtrack Group at 31 March 2002.

3.       The adjustments in respect of Railtrack UK represent the elimination of
the net assets of Railtrack UK in the consolidated balance sheet of Railtrack
Group at 31 March 2002, and adjustments to reclassify intra-group balances
previously eliminated on consolidation.  This latter adjustment has no impact on
net assets.

4.       The estimated net disposal proceeds of £854 million consist of the
following items:
                                                                             £m
Sale consideration
Railtrack PLC                                                                500
Railtrack UK (including right to operate, control and manage St Pancras      375
Station)
Working capital adjustment                                                   (6)
Estimated transaction costs                                                 (15)
                                                                             854

No tax charge is assumed to arise on these disposals.  As part of the CTRL
Disposal a working capital adjustment will be made to the purchase price
equivalent to the value of net current assets or liabilities transferred to LCR.
The £6 million adjustment shown above in the pro forma is based on the level of
working capital of Railtrack UK as at the  balance sheet date of 31 March 2002.
To the extent that the level of working capital of Railtrack UK changes between
the balance sheet date and the date when LCR assumes control of Railtrack UK,
the figure will also change.

5.       As a consequence of the sale of Railtrack PLC £351 million owed by
Railtrack PLC to the Railtrack Group will be paid.

6.       As part of the transaction Network Rail has agreed to amend the
existing wayleave arrangements between RTS and Railtrack PLC which will result
in net deferred revenue of £49 million being taken to income on completion of
the Proposed Disposals.

7.       The net book value of properties in Railtrack Developments (£24
million) and Railtrack (Spacia) Limited (£22 million), together with Railtrack
Group's share of net assets of property joint ventures (£26 million), gives pro
forma net book value as at 31 March 2002 of the Group's property assets of £72
million.

8.       After taking into account the gross disposal proceeds of £875 million,
the settlement of the amount due from Railtrack PLC of £351 million and the net
book value of the Group's property assets of £72 million, the pro forma net book
value as at 31 March 2002 of the Group's other assets and liabilities was £15
million.


                                    PART IV



    Summary of the principal terms and conditions of the Disposal Agreements



A.        The Railtrack PLC Agreement

Pursuant to the terms of the Railtrack PLC Agreement, Railtrack Group has
conditionally agreed to sell to Network Rail Holdco Limited ("Holdco") (a wholly
owned subsidiary of Network Rail) the entire issued share capital of Railtrack
PLC for an aggregate consideration of £500 million payable in cash upon
completion of the sale.  The sale is conditional on:

(a)  approval by Shareholders;

(b)  approval of the change of control of Railtrack PLC by the Secretary of
State pursuant to the network and station licences granted to Railtrack PLC;

(c)  the European Commission notifying HM Government that the package of support
being provided to Network Rail in relation to or in connection with the purchase
of Railtrack PLC and the arrangements contemplated under or in connection with
that purchase or any matter arising therefrom either (i) will not involve the
grant of State aid within the meaning of Article 87 of the Treaty of Rome or
(ii) is compatible with the common market within the meaning of the Treaty of
Rome in terms which are reasonably satisfactory to the Secretary of State, the
SRA and Holdco (provided that, in the case of Holdco, the terms taken as a whole
shall be deemed to be reasonably satisfactory to it if the acceptance of those
terms would not result, or would not be reasonably likely to result, in material
loss, damage or detriment to Network Rail's group taken as a whole);

(d)  the Office of Fair Trading indicating, in terms reasonably satisfactory to
Holdco and the SRA, that the Secretary of State for Trade and Industry does not
intend to refer the proposed acquisition of Railtrack PLC or any matter relating
thereto to the Competition Commission (provided that, in the case of Holdco, the
terms taken as a whole shall be deemed to be reasonably satisfactory to it if
the acceptance of those terms would not result, or would not be reasonably
likely to result, in material loss, damage or detriment to Network Rail's group
taken as a whole);

(e)  a resolution of each class of Bondholders being passed to authorise the
modification of the terms and conditions of the Bonds.  According to information
published or made available by Network Rail and Railtrack PLC, the effect of the
modifications will be to:

(i)   provide for mandatory redemption of all of the Bonds no later than 14 days
after completion upon the occurrence of certain conditions as to notice and as
to sufficiency of funds referred to below according to a formula which will
value each class of Bonds by applying an agreed yield spread to the relevant
reference gilt yield that prevails at the time the Bonds are redeemed together
with accrued interest.  The agreed yield spread would be the average yield
spread of each class of the Bonds relative to the relevant reference gilt yield
in September 2001 (the month prior to the commencement of the Administration)
adjusted for movements in the spreads of A-rated Eurosterling bond issues
between that time and the time that calculations are made shortly before the
Bonds are redeemed.  The Bonds will, however, be redeemed at their principal
amount if such a calculation would result in a price less than the principal
amount.  The conditions referred to above are not less than two days' notice
being given to Bondholders and, prior to giving such notice, Railtrack PLC
certifying to the trustee and producing evidence acceptable to the trustee that
it will have the necessary funds to pay the aggregate redemption price;

(ii)  vary the duration of the standstill arrangements in respect of the Bonds
which have previously been entered into so as to permit the termination of those
arrangements on the date which is 15 days after the completion of the sale where
the Administration Order is discharged in express contemplation of completion;
and

(iii) in respect of the £400,000,000 3.5 per cent. Exchangeable Bonds due 2009
only, provide that the rights to exchange these bonds into ordinary shares of
Railtrack Group contained in the trust deed and conditions of these bonds, shall
be relinquished.

(f)   a resolution of the Noteholders being passed to authorise the modification
of the terms and conditions of the Notes.  According to information made
available by Railtrack PLC, the effect of the modifications will be to:

(i)   provide for mandatory redemption of the Notes no later than 14 days after
completion upon the occurrence of certain conditions as to notice and as to
sufficiency of funds referred to below for an amount equal to the sum of their
principal amount together with accrued interest.  The conditions referred to
above are not less than two days' notice being given to Noteholders and, prior
to giving such notice, Railtrack PLC certifying to the trustee and producing
evidence acceptable to the trustee that it will have the necessary funds to pay
the aggregate redemption price; and

(ii)  vary the duration of the standstill arrangements in respect of the Notes
which have previously been entered into so as to permit the termination of those
arrangements on the date which is 15 days after the completion of the sale where
the Administration Order is discharged in express contemplation of completion;
and

(g)  the coming into effect of an order for the discharge of the Administration
Order following an application for its discharge by the Secretary of State
pursuant to section 18 of the Insolvency Act 1986, as amended by paragraph 7(2)
of Schedule 6 of the Railways Act 1993.  The Administration Order may be
discharged by order of a court on application by the Secretary of State on the
ground that it is no longer necessary that the purposes of the Administration
Order are achieved.  The purposes of the Administration Order are the transfer
of Railtrack PLC's undertaking to another company and the carrying on of its
activities pending the making of such a transfer.  It is expected that a court
would discharge the Administration Order once the conditions specified above
have been satisfied and the Railtrack PLC Agreement is otherwise due to
complete.

Completion of the sale is also conditional upon Network Rail (save to the extent
that Railtrack Group may not so require by giving notice to that effect  in
writing) having procured that all steps are taken to ensure that at completion
of the sale Railtrack Group will be released from those Railtrack PLC Guarantees
granted in favour of EIB.

Holdco has agreed to use all reasonable endeavours to co-operate promptly with
and provide all necessary information and assistance reasonably required by any
government or regulatory body in connection with satisfaction of the above
conditions.  In particular, Holdco has agreed to use all reasonable endeavours
to persuade the Director General of Fair Trading that the proposed acquisition
or any matter relating thereto shall not be referred to the Competition
Commission.  If any of the conditions is not satisfied or waived on or before 30
September 2002, then either Railtrack Group or Holdco may, at any time, by
giving seven days' written notice to the other, given not earlier than 30
September 2002, terminate the Railtrack PLC Agreement, subject to having
consulted with the other prior to serving any such notice.  Holdco may waive any
of the conditions specified in paragraphs (b) to (g) above, but may not waive
the condition relating to the discharge of the Administration Order without the
prior written consent of Railtrack Group.  Pursuant to a letter dated 27 June
2002 addressed to Railtrack Group, the Secretary of State has given the
following assurances:

(a)  that in order to secure the benefits of an early exit of Railtrack PLC from
Administration and the continuing development of the network, and subject to
satisfaction of conditions to the effectiveness of a Deed of Grant between the
SRA and Holdco, Government has agreed to make a capital grant of £300 million to
Holdco for the purpose of payment of part of the purchase price for the
acquisition of the share capital of Railtrack PLC;

(b)  that no scheme under Schedule 7 to the Railways Act 1993, being a scheme
for the transfer of property, rights and liabilities from Railtrack PLC to
another company, has been submitted to the Secretary of State for approval to
date;

(c)  that, in view of the fact that the Railtrack PLC Agreement has been entered
into and that the transaction will complete or terminate before 30 September
2002, the Secretary of State is minded not to approve any such scheme before
that date and that he expects to consult Railtrack Group prior to approving any
such scheme;

(d)  that the Secretary of State is expecting to be asked by Railtrack Group and
Holdco to approve the obtaining by Holdco of control of Railtrack PLC for the
purposes of the network licence and the station licence granted to Railtrack PLC
and that, before he reaches a decision on approval in response to such a
request, the Secretary of State expects to consult with the Rail Regulator and
SRA.  The Secretary of State has also confirmed that nothing has yet come to his
attention which is likely to lead to his refusing to approve the change of
control, although his decision on approval will be taken in the light of all
information and representations available to him at the time; and

(e)    that under section 18 of the Insolvency Act 1986 (as read with Schedule 6
to the Railways Act 1993), the Secretary of State may apply for a railway
administration order to be discharged on the ground that it is no longer
necessary that the purposes of the order are achieved.  The Secretary of State
has confirmed that he is minded to apply for the Administration Order to be
discharged when he is satisfied that Railtrack PLC will be able to pay its
debts.  In this respect, one of the matters on which he needs to be satisfied is
that the Railtrack PLC Agreement and the associated transaction agreements
(including those relating to financial support for Holdco) are ready for
completion subject only to the condition precedent relating to the discharge of
the Administration Order.

Railtrack Group gives limited warranties including as to title, capacity and
authority.  Claims under the warranties must be made within seven days after the
date of the passing by Shareholders of a resolution to approve a members'
voluntary liquidation of Railtrack Group and in any event within 6 months of
completion of the sale.  Railtrack Group's liability under the warranties is
capped at £500 million.  The agreement is governed by English Law.

Under the agreement, Railtrack Group agrees (a) to waive and to procure that its
subsidiaries waive on completion of the sale any claim, action or demand ("
Administration Claim") against Railtrack PLC or any of its subsidiary
undertakings, any of Her Majesty's Secretaries of State, any other Minister of
the Crown, the Lords Commissioners of Her Majesty's Treasury, the Treasury
Solicitor, any body corporate wholly owned by any of the foregoing or any
government department or any other person who is acting or who has acted on
behalf of the Crown, the SRA, the ORR, the Administrators or any current or
former employee, director, officer, agent or professional adviser (but solely in
its capacity as adviser to any such person) of any such person (together "Claims
Persons") in each case arising out of or in connection with the making of the
Administration Order, the circumstances and events leading to the making of the
Administration Order and the subsequent management of the affairs, business and
property of Railtrack PLC pursuant to the Administration Order and (b) unless
ordered to do so by a court, arbitrator, judge, regulator or regulatory body or
by virtue of discovery procedures which, in each case, the relevant company has
taken reasonable steps to oppose, not to take and to procure that none of its
subsidiaries takes any active steps to encourage or support in any way any
similar claim of any other person.  Railtrack Group indemnifies each Claims
Person and Ernst & Young in respect of any liabilities, losses, damages, costs
or expenses (including reasonable legal expenses) arising out of or in
connection with any breach by Railtrack Group of these provisions.  Railtrack
Group also confirms to each Claims Person and Ernst & Young that neither it nor
any member of its group has assigned any Administration Claim and covenants that
neither it nor any member of its group will assign any Administration Claim.  In
addition, Railtrack Group covenants that, in the period between the date of the
Railtrack PLC Agreement and its completion, neither it nor any member of its
group will commence, or make preparations to commence, proceedings in relation
to, or otherwise pursue any Administration Claim against, inter alia, the
Secretary of State, any other Minister of the Crown, the Lords Commissioners of
HM Treasury, the Treasury Solicitor, any body corporate wholly owned by any of
the foregoing or any other person acting on behalf of the Crown.

Holdco undertakes to waive and agrees to procure that, with effect from
completion of the sale, Railtrack PLC and its subsidiaries shall waive all
claims which it or they may have against any member of the Retained Railtrack
Group, or any director or former director of any thereof and any of their agents
or advisers (a) arising out of or in connection with the making of the
Administration Order or (b) in respect of the performance or non-performance by
any director or former director of any member of the Group of their duties as
directors.  Holdco also agrees not to take any active steps to encourage or
support any such claims and also to indemnify Railtrack Group from any breach of
these provisions.  Holdco agrees that damages would not be an adequate remedy
for a breach by it of this undertaking and therefore that each person having the
benefit of this undertaking would be entitled to seek specific performance of
Holdco's obligations.

The consideration of £500 million for the purchase of the shares in Railtrack
PLC is based on the assumption that the intra-group debt owing from the
Railtrack PLC Group to the Retained Railtrack Group at completion of the sale is
equal to or less than £371,960,102.70, less the amount of any payments made by
Railtrack PLC in respect of this sum prior to completion of the sale, and
together with accrued interest thereon which is outstanding at completion of the
sale (the "Finance Credit Amount").  The agreement requires the preparation of a
completion statement following completion, showing the amount of the intra-group
debt as at completion.  If the intra-group debt as at completion is greater than
the Finance Credit Amount, then Railtrack Group is required to pay to Holdco an
amount equal to the amount by which the intra-group debt exceeds the Finance
Credit Amount with interest thereon and Holdco is obliged to repay this excess
intra-group debt.  The agreement also requires the preparation of a completion
statement following Completion, showing the amount of any trading balances due
between the Railtrack PLC Group and both the Retained Railtrack Group and
Railtrack UK, all such balances to be settled after Completion.

Upon completion of the sale, Holdco is obliged to procure the payment by
Railtrack PLC of the Finance Credit Amount to the Group.  In addition, at
completion of the sale, the deeds of release pursuant to which the Group is to
be released from all and any liability under the terms of the Railtrack PLC
Guarantees will become effective.

If and to the extent that Railtrack Group suffers any corporation tax on
chargeable gains as a result of the disposal of the shares in Railtrack PLC to
Holdco, HM Government has undertaken pursuant to a letter agreement dated 27
June 2002 to make sufficient funds available or procure that sufficient funds
are made available so as to ensure that the amount receivable by Railtrack Group
by way of consideration in respect of the disposal of the shares in Railtrack
PLC on an after tax basis is equal to £500 million.

Each member of the Retained Railtrack Group and each member of the Railtrack PLC
Agreement will at completion enter into a tax agreement pursuant to which each
company agrees to be responsible for its own tax liabilities and to indemnify
the other companies if it fails to discharge its own primary tax liabilities as
a result of which these fall on any of the other companies.  Such indemnity is
intended to fall away as each company agrees its tax return for the periods
during which it was a member of the Group.  The agreement also covers the
correct apportionment of VAT within the VAT group of the Group.

In addition, Railtrack Group and Network Rail have agreed various ancillary
arrangements, including provisions as to the following:

(a)  that Railtrack Group shall be entitled to have reasonable access to
documents and certain employees of Railtrack PLC after completion of the sale;

(b)  that Railtrack Group will, after completion of the sale to Holdco, propose
a resolution of Shareholders to change the name of the Company by removing
reference to "Railtrack" and, subject to such resolution having been passed, to
amend the company names of the subsidiaries of the Company to exclude reference
to "Railtrack";

(c)    to transfer Railtrack Group's membership in Railtrack Safety to Network
Rail;

(d)    that Holdco will ascertain whether any land held by the Retained
Railtrack Group is required by Railtrack PLC to operate the Railway.  If it is
determined that any such land is held by the Retained Railtrack Group, Railtrack
PLC may acquire that land for a value to be determined; and

(e)  in consideration for a payment of £1 million by RTS to Railtrack PLC,
Network Rail will procure that Railtrack PLC waives its rights to receive
payments under existing wayleave agreements between RTS and Railtrack PLC.  As a
result, £49 million of deferred income as at 31 March 2002 will be released on
completion of the Proposed Disposals.

B.        The Railtrack UK Agreement

Pursuant to the terms of the Railtrack UK Agreement, Railtrack Group has
conditionally agreed to sell to LCR the entire issued share capital of Railtrack
UK for an aggregate consideration of £375 million payable in cash upon
completion of the sale.

The sale is conditional on:

(a)  approval by Shareholders;

(b)  appropriate state aid clearance by the European Commission for the CTRL
project;

(c)  merger clearance by the Director General of Fair Trading or the Competition
Commission; and

(d)  in respect of the CTRL Financial Guarantees, the occurrence of one or more
of the following:

(i)   release of Railtrack Group and Railtrack UK from their obligation under
any of the CTRL Financial Guarantees;

(ii)  at the request of Railtrack Group or following any acceleration, the
repayment and cancellation of the facilities guaranteed by the CTRL Financial
Guarantees in respect of which no release has been obtained; and

(iii) the entering into of a legally binding obligation by all the beneficiaries
of any of the CTRL Financial Guarantees to release the CTRL Financial
Guarantees, conditional on the state aid clearance referred to above.

In the event that the conditions are not satisfied by 30 September 2002 either
of Railtrack Group or LCR may terminate the agreement.

Railtrack Group gives limited warranties including as to title, capacity and
authority, which are limited to a period of 6 months or the passing of a
resolution approving the return of cash or assets to shareholders, if sooner,
and capped at an aggregate maximum of £375 million.  The agreement is governed
by English Law.

Under the terms of the Railtrack UK Agreement, Railtrack Group has agreed to
allow LCR to participate in the management of Railtrack UK and URS pending
approval of the Proposed Disposals by Shareholders.  Following such event,
Railtrack Group has agreed to permit LCR to assume day to day management control
of Railtrack UK and URS subject to LCR undertaking to keep Railtrack Group
informed and to carry on the business in the usual course.

The consideration of £375 million for the purchase of the shares in Railtrack UK
is based on the assumption that there is no intra-group debt owing from
Railtrack UK to Railtrack Group on completion.  The Railtrack UK Agreement
provides for the preparation of an interim net asset statement of Railtrack UK
prior to completion which provides for provisional adjustment to the purchase
price to the extent that the interim statement shows that the net assets of
Railtrack UK are greater or less than zero.  A further, audited, statement is to
be prepared following completion and any differences between the final audited
statement and the interim statement shall result in a further adjustment to the
purchase price.

In the event that approximately £6,701,000 plus VAT due from Railtrack PLC to
Railtrack UK in respect of freight upgrade works carried out for Railtrack PLC
is not settled by completion of the CTRL Disposal, Railtrack Group has agreed to
make an offer to Railtrack UK to purchase that debt for cash at full value.

To the extent that there is any net amount of debt due to Railtrack Group by
Railtrack UK at Completion, LCR has agreed to procure that this is repaid by
Railtrack UK and the purchase price of £375 million will be reduced by an
equivalent amount.

Railtrack UK will at completion enter into the tax agreement referred to in
section A above.

LCR, through its subsidiary LCR Finance plc, is issuing a tranche of long dated
sterling bonds, guaranteed by HM Government (the "GGB issue").  Part of the
proceeds of this bond issue is, subject to the state aid clearance referred to
above, to be applied in payment of the purchase price payable to Railtrack Group
under the Railtrack UK Agreement.

LCR has agreed to procure that, following completion, Railtrack UK shall
surrender group relief at Railtrack Group's request in respect of the accounting
period ended on 31 March 2002.  Railtrack Group shall pay full value for the tax
loss surrender following agreement with the Inland Revenue that the group relief
claim will be allowed.  If such a payment is made, LCR has agreed to make a
further payment of an equal amount by way of an increase in the purchase price
for the Railtrack UK shares.

The name of Railtrack UK will be changed to CTRL (UK) Limited immediately prior
to completion.

A number of other agreements have been, or will be, entered into by Railtrack
Group and Railtrack UK which release them from obligations under, and/or vary
the terms of, agreements relating to the CTRL.  Further details are set out
below.

C.        The Master Agreement

Pursuant to the terms of an agreement dated 27 June 2002 and made between the
Secretary of State, LCR, Railtrack Group and Network Rail, the parties agreed
that completion of the Railtrack PLC Agreement shall not take place until
completion of the Railtrack UK Agreement has taken place and that completion of
the Railtrack UK Agreement shall not take place unless completion of the
Railtrack PLC Agreement is capable of taking place immediately after completion
of the Railtrack UK Agreement.  In addition, the Secretary of State agreed to
use his reasonable endeavours to procure the due satisfaction of the conditions
referred to in paragraphs (b), (c) and (g) of Section A of Part IV of this
announcement relating to the Railtrack PLC Agreement and paragraph (b) of
Section B of Part IV of this announcement relating to the Railtrack UK
Agreement.

The Master Agreement also provides for put and call option agreements to be
entered into after completion of the CTRL Disposal, exercisable upon certain
conditions being satisfied, which provide for the transfer by LCR and Railtrack
UK to Network Rail of the rights to operate the completed CTRL and the
concession to manage St Pancras Station.

The parties have also agreed that from the day after the Resolution is passed,
certain provisions regarding the conduct of the URS business will come into
effect including obligations to consult with and keep the Secretary of State's
project representative informed on progress and on any proposals arising in
relation to the CTRL project.

The Master Agreement also provides for the execution and delivery of the
following agreements on or prior to completion of the sales of Railtrack PLC and
Railtrack UK:

(a)  the following agreements:

(i)   an agreement between the Secretary of State and Railtrack Group which
provides for the release of Railtrack Group from its obligations under the
Section 1 Direct Agreement;

(ii)  an agreement between Railtrack Group, Railtrack UK and the Secretary of
State whereby the provisions of the Economic Benefit Agreement and disapplied
for the purposes of the CTRL Disposal and LCR assumes the responsibilities of
Railtrack Group thereunder with effect from completion of the CTRL Disposal;

(iii) an agreement between Railtrack Group, LCR, Eurostar, URS and URN whereby
Railtrack Group is released from its obligations under the Railtrack Group
performance guarantee in respect of the obligations of Railtrack UK to the LCR
Group, and LCR assumes the obligations of Railtrack Group thereunder with effect
from completion of the CTRL Disposal;

(iv) an agreement between Railtrack Group, the Secretary of State, LCR,
Eurostar, Railtrack UK and URS whereby Railtrack Group is released from its
obligations under the Securitisation Framework Agreement which provides a
framework designed to enable Railtrack UK to finance and/or refinance the
purchase price of Section 1, and LCR agrees to assume the obligations of
Railtrack Group thereunder with effect from completion of the CTRL Disposal; and

(v)  the terms of the Railtrack UK Agreement also provide for the terms on which
the guarantees given by Railtrack Group of the LCR bank facilities referred to
in paragraph 5 above will be released on or before completion of the CTRL
Disposal; and

(b)  an interim agreement to be entered into between Railtrack Group, the
Secretary of State, Eurostar and Network Rail, which provides:

(i)   for the parties to procure the signatories of all parties to a dispute
resolution agreement relating to the CTRL in respect of a release of Railtrack
Group's obligations thereunder; and

(ii)  for Network Rail to take an interim responsibility for performance of
Railtrack Group's obligations from completion until such release is effective.




                                  DEFINITIONS

The following definitions apply throughout this announcement, unless the context
requires otherwise:

"Administration" means the administration of Railtrack PLC pursuant to the
Administration Order;

"Administration Order" means the order made on 7 October 2001 pursuant to the
Railways Act 1993 to appoint the Administrators as Joint Special Railway
Administrators of Railtrack PLC with immediate effect;"Administrators" means
Michael David Rollings, William Scott Martin, Christopher John Williamson Hill
and Alan Robert Bloom appointed as Joint Special Railway Administrators of
Railtrack PLC pursuant to the Administration Order;

"Board" means the board of Railtrack Group;

"Bondholders" means holders of the Bonds;

"Bonds" means each of the following classes of bonds issued by Railtrack PLC:

(i)     £135,531,000 9.125 per cent. Bonds due 2006;

(ii)    £100,679,000 9.625 per cent. Bonds due 2016;

(iii)   £300,000,000 7.375 per cent. Bonds due 2022;

(iv)   £250,000,000 5.875 per cent. Bonds due 2028;

(v)     £350,000,000 5.875 per cent. Bonds due 2009; and

(vi)   £400,000,000 3.5 per cent. Exchangeable Bonds due 2009;

"Channel Tunnel" means the existing fixed link under the English Channel between
the southern portal at the Department of Pas-de Calais in France and the
northern portal in the County of Kent;

"CTRL" means the Channel Tunnel Rail Link currently being constructed in two
sections, Section 1 and Section 2, between the Channel Tunnel portal and St
Pancras;

"CTRL Disposal" means the proposed disposal of the entire issued share capital
of Railtrack UK to LCR;

"CTRL Financial Guarantees" means the guarantees given by Railtrack Group and
Railtrack UK to EIB, KfW and others of the £700 million bank facilities made
available to LCR for the purposes of construction of Section 1 of the CTRL;

"CTRL Guarantees" means the CTRL Financial Guarantees and the CTRL Performance
Guarantees;

"CTRL Performance Guarantees" means the guarantees given by Railtrack Group to
HM Government and to members of the LCR Group in respect of the performance by
Railtrack UK of agreements with members of the LCR Group to which Railtrack UK
is a party;

"Directors" means the directors of Railtrack Group;

"Disposal Agreements" means the Railtrack UK Agreement and the Railtrack PLC
Agreement or either of them as the context may require;

"DTLR" means the Department of Transport, Local Government and the Regions
(formerly the Department of the Environment, Transport and the Regions and now
the Department of Transport);

"EIB" means European Investment Bank;

"Eurostar" means Eurostar (U.K.) Limited, the UK arm of the Eurostar high speed
passenger train service;

"Extraordinary General Meeting" means the extraordinary general meeting of
Railtrack Group to be held on Tuesday 23 July 2002;

"the Group" or "the Railtrack Group"means Railtrack Group PLC and its
subsidiary undertakings;

"Guarantees" means the Railtrack PLC Guarantees and the CTRL Guarantees;

"HM Government" means the Secretary of State, the DTLR and other organs of HM
Government of the United Kingdom (as the context so requires);

"HSBC" means HSBC Bank PLC;

"International Rail Regulator" or "IRR" means the officer appointed by the
Secretary of State in accordance with regulation 9 of The Railway Regulations
1998/1340;

"KfW" means Kreditanstalt fur Wiederaufbau;

"LCR" means London & Continental Railways Limited;

"LCR Group" means LCR and its subsidiary undertakings;

"Master Agreement" means the agreement dated 27 June 2002 between Railtrack
Group, Network Rail, LCR and the Secretary of State;

"Network Rail" means Network Rail Limited or any subsidiary undertaking of
Network Rail Limited formed to acquire Railtrack PLC;

"Noteholders" means holders of Notes;

"Notes" means the EUR 11,500,000 Index Linked Notes due 2009 issued under the
Railtrack Medium Term Note Programme;

"Offers" means:

(i)    the offer from LCR to acquire Railtrack UK;

(ii)   the offer from Network Rail to acquire Railtrack PLC; and

(iii) the offer from Network Rail to acquire the rights to operate and maintain
the CTRL and St Pancras;

"Office of the Rail Regulator" or "ORR" means the Rail Regulator appointed
pursuant to section 1 of the Railways Act 1993;

"Proposed Disposals" means the proposed disposals of Railtrack UK and Railtrack
PLC pursuant to the Railtrack UK Agreement and the Railtrack PLC Agreement,
respectively;

"Rail Regulator" means the rail regulator who heads the Office of the Rail
Regulator;

"Railtrack Developments" means Railtrack Developments Limited, Company number
3699545, a wholly owned subsidiary of Railtrack Group;

"RAB" means the Regulatory Asset Base as defined by the Rail Regulator;

"Railtrack Group" or "the Company" means Railtrack Group PLC;

"Railtrack PLC" means Railtrack PLC (in Railway Administration), Company number
2904587, a wholly owned subsidiary of Railtrack Group;

"Railtrack PLC Agreement" means the agreement dated 27 June 2002 between
Railtrack Group and Network Rail Holdco Limited for the sale of the entire share
capital of Railtrack PLC;

"Railtrack PLC Disposal" means the proposed disposal of the entire issued share
capital of Railtrack PLC to Network Rail;

"Railtrack PLC Group" means Railtrack PLC and its subsidiary undertakings;

"Railtrack PLC Guarantees" means (i) the guarantees given by Railtrack Group in
favour of EIB pursuant to guarantee and indemnity agreements dated 5 December
1997 and 8 December 1999 in respect of Railtrack PLC's financial obligations
under bank facilities of £1 billion made available to it by EIB and (ii) the
cross undertakings given by Railtrack Group, certain subsidiaries of Railtrack
Group and Railtrack PLC in favour of HSBC dated 14 June 2001;

"Railtrack (Spacia) Limited" means Railtrack (Spacia) Limited, company number
3881191, a wholly owned subsidiary at Railtrack Group;

"Railtrack UK" means Railtrack (UK) Limited, Company No.  3578740, a wholly
owned subsidiary of Railtrack Group;

"Railtrack UK Agreement" means the agreement dated 27 June 2002 between
Railtrack Group and LCR for the sale of the entire issued share capital of
Railtrack UK;

"Resolution" means the ordinary resolution to be proposed at the Extraordinary
General Meeting;

"Retained Railtrack Group" means Railtrack Group and its subsidiary
undertakings, excluding Railtrack PLC and Railtrack UK and their respective
subsidiary undertakings;

"RTS" means Railtrack Telecom Services Limited, company number 3963596, a
wholly-owned subsidiary of Railtrack Group;

"Secretary of State" means the Secretary of State for Transport, the Secretary
of State for Transport, Local Government and the Regions or the Secretary of
State for the Environment, Transport and the Regions as the context requires;

"Section 1" means that part of the CTRL between the Channel Tunnel portal and
Fawkham Junction, via Southfleet in the County of Kent;

"Section 2" means that part of CTRL between Southfleet in the County of Kent and
London St Pancras;

"Shareholders" means holders of Railtrack Shares;

"Share Savings Scheme" means the Railtrack Share Savings Scheme;

"Shares" or  "Railtrack Shares" means shares in Railtrack Group PLC;

"Strategic Rail Authority" or "SRA" means the body corporate which was formally
established on 1 February 2001 pursuant to section 201 of the Transport Act
2000;

"St Pancras" means St Pancras Station;

"Ultramast" means Ultramast Limited;

"URN" means Union Railways (North) Limited, company number 3539665, a subsidiary
of LCR;

"URS" means Union Railways (South) Limited, company number 3540185, a subsidiary
of LCR and a subsidiary of Railtrack UK; and

"West Coast Mainline" means the main arterial rail link joining London, the west
Midlands, the north west and Scotland.









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