Published 27th November 2012
Network Rail (NR) is one of the best known organisations in the UK and owns all the UK’s main line railway network and most of the freight yards, the latter currently mainly leased to train operators. It also owns all the stations, most of which are leased to passenger franchisees.
NR is a product of railway privatisation from 1994 and took over from Railtrack when Stephen Buyers, at the time a Labour Minister, in essence bankrupted them in 2002. This followed a spate of bad accidents resulting in many fatalities.
Network Rail took over as a company without shareholders but has an active Investor Relations department, part of an organisation that specifically deals with shareholders normally. So what does this department do? The company is 100% financially guaranteed by the Government allowing them to access financial markets for borrowing. This arrangement also keeps their debt away from the Government books despite them guaranteeing their debt.
You cannot buy shares in NR as with listed companies as they have Members as opposed to shareholders who are selected from the Industry to serve for a couple of years. They do not influence policy or strategy so are not like directors on a board.
NR is the only regular issuer with a direct and explicit UK Government guarantee issuing across a range of currencies in the capital markets offering investors a unique opportunity to gain exposure to UK sovereign credit. All our debt financing is used to fund investment in the rail infrastructure and to refinance existing debt.
The NR bonds are they claim, an exclusive low risk opportunity to gain exposure to UK sovereign credit across a range of currencies. Investors have a direct, explicit, irrevocable, unlimited and uncancellable claim on her majesty’s UK Government; the structure of which is designed to withstand any changes of government or restructuring within the rail industry. The guarantee has a unique pre-funding structure designed so investors are paid in full and on time in the currency of the original debt issuance. Some bonds will remain in force for another 40 years.
The expected funding requirement of circa £3bn for the remainder of 2012/13 and circa £6bn for 2013/14, to cover capital expenditure and refinancing and is primarily offered in US Dollars and GB Pounds.
Since launching at the end of 2004, approx. £34bn of bonds have been issued in a variety of currencies including GBP, USD, AUD, CAD, JPY, NOK & CHF in maturities out to 2052.
In the last decade, growth in rail has been constant despite the economic situation and above inflation fares’ increases. This creates a difficult challenge for NR to accommodate more and more trains running while under pressure by the Office of the Rail Regulator (ORR) to reduce costs and to improve punctuality which is a function of capacity, reliability and efficiency.
The growth on the network of five per cent a year for a decade is set to continue NR says, which means as they put it, they must continue to become more efficient therefore have to continue to invest to meet this growth and keep punctuality up.
More trains leads to an increase in access charges paid by train operators and by reducing costs, allow NR to sustain high levels of capital investment and report increased profits which are retained by the company and not paid out in share dividends. Investment totalled £2.1bn in the six months reporting period and was spread over projects such as Thameslink upgrade, Reading remodelling, the Hitchin flyover and other East Coast main line improvements to name just a few projects
NR is currently undergoing another re-organisation and powers are being decentralised and devolved to routes, each with their own Managing Director. This is after moving to a new HQ building in Milton Keynes designed to accommodate 3000 employees.
Patrick Butcher, group finance director, Network Rail said that last year we completed devolving authority to all ten of our routes and now we can make progress to moving to a group structure that reflects this.
We have already set up our infrastructure projects division as a standalone business unit, launched Network Rail Consulting as our international business and we have plans to run our energy, telecoms and recycling operations each with their own profit and loss account. We believe this will generate greater efficiencies and unlock greater value to the business.
Our daily focus remains on running safe, reliable and efficient railway service for passengers and freight users alike. Whilst train punctuality is at high, historical levels we recognise that on parts of the railway performance is not as good as it should be. As we have before, we will continue to take any appropriate action to improve services.
Revenue was £3,167m compared to £2,997m for the same period last year
Operating profit was £1,226m compared to £1,227m
Profit after taxation was £573m compared to £136m
Capital expenditure – the amount invested in the railway over the period – was £2,064m compared to £2,071m
Net borrowings were £28,043m compared to £27,200m at 31 March 2012
Gross debt as at 31 March 2012 was approx. £28.5bn and is forecast to increase to circa £34bn by March 2014.
NR leases all stations to train operators to manage with the exception of 17 of Britain's biggest and busiest stations.
Regional stations under NR management are Birmingham New Street, Edinburgh, Glasgow Central, Leeds, Liverpool Lime Street, Manchester Piccadilly.
In London they manage and operate, Cannon Street, Charing Cross, Euston, Fenchurch Street, Kings Cross, Liverpool Street, London Bridge, Paddington, St. Pancras International, Victoria and Waterloo.