Final Results

Network Rail Infrastructure Finance

30 July 2024

 

Network Rail Infrastructure Finance PLC

Full year results

Year ended 31 March 2024

Strategic report

The directors present their strategic report of Network Rail Infrastructure Finance PLC ("NRIF" or "the company") for the year ended 31 March 2024.

Business review

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

As of 4 July 2014, Network Rail's funding requirement has been met by the Department for Transport ("DfT") via a loan facility and grants to Network Rail Infrastructure Limited ("NRIL") the owner and operator of the national rail network of Great Britain.  As a result, NRIF continues to operate as the administrator of existing debt issues and derivatives under the Debt Issuance Programme ("DIP") but will not be issuing new debt for the foreseeable future.  Existing debt, derivatives and related interest payments within NRIF are reimbursed by NRIL in the form of an intercompany loan.

The company was incorporated for the sole purpose of acting as the issuer under Network Rail's DIP and legally is not a member of the Network Rail group.  However, for accounting purposes the company is treated as a subsidiary in the consolidated accounts of Network Rail Limited ("NRL").  The DIP is guaranteed by a financial indemnity from the Secretary of State for Transport and as a result the financial indemnity is a direct sovereign obligation of the Crown.

The financial indemnity is an unconditional and irrevocable obligation of the UK Government to make payments directly to a security trustee to cover all debt service shortfalls, whatever the cause.  The financial indemnity is also designed to ensure timely payment as well as ultimate recourse to the UK Government.

Within the DIP, which is administered by NRIL, is a £40,000m multi-currency note programme which has been assigned the following credit ratings: AA by Standard and Poor's, Aa3 (outlook stable) by Moody's and AA- (outlook stable) by Fitch.

Financial review

During the year the company incurred finance costs of £1,837m (2023: £3,412m).  These costs were passed onto NRIL in the form of finance income for NRIF.  NRIF also made a gain of £868m (2023: £9,467m gain) on the fair value of its debt as it continues to fair value its debt under IFRS 9.  This gain arose as a result of decreases in the fair value of debt which in turn is driven by market sentiment on interest rates and risk.  NRIF made a gain of £44m (2023: £83m) on its derivatives.  This gain largely represents the reduction of the fair value of interest rate derivatives liabilities through interest paid on swaps (the latter is included in finance costs).  These gains and losses were passed through to NRIL as part of the intercompany loan receivable. NRIF made £110k profit before tax (2023: £110k) in the year ended 31 March 2024, being the excess of the fee charged to NRIL for the provision of the facility over the fee charged by NRIL for the administration of the facility.  On wind up of the company all shares and distributable reserves in the company are held for charitable purposes.

On a fair value basis, net borrowings as described in note 10 have decreased from £30,833m to £28,874m, reflecting the repayment of £1,150m bonds and fair value movements. UK RPI index-linked debt was 92 per cent of gross debt at 31 March 2024.

Cash balances are required for settlement of maturing bonds and for the purposes of managing collateral posted by financial derivative counterparties.  These cash requirements are met by NRIL through repayment of the intercompany loan.

Counterparty limits are set with reference to published credit ratings. These limits dictate how much and for how long management deals with each counterparty and are monitored on a regular basis (further details are provided in note 12).

Reclassification of Network Rail

In December 2013, the Office for National Statistics announced the reclassification of Network Rail as a Central Government Body in the UK National Accounts and Public Sector Finances with effect from 1 September 2014.  This was a statistical change driven by new guidance in the European System of National Accounts 2010 (ESA10).

As part of Network Rail's formal reclassification to the public sector, an arrangement was agreed whereby funding would be provided by the DfT in the form of a loan made directly to NRIL.  As a result, from 4 July 2014, Network Rail is funded directly from the UK Government and currently has no plans to issue debt in its own name through NRIF.

In the unlikely event that the DfT withdraws or breaches its obligations on the loan facility to NRIL, NRIF may issue further bonds or commercial paper.  NRIF's future debt service obligations will be met through repayments of the intercompany loan by NRIL.

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

Treasury operations

The treasury operations of NRIL, who administers the programme on behalf of NRIF, are co-ordinated and managed in accordance with policies and procedures approved by the Treasury Committee, being a full sub-committee of the Network Rail board.  Treasury operations are subject to internal audits and committee reviews and the company does not engage in trades of a speculative nature.

Liquidity is provided by monitoring that NRIL has sufficient funds to meet its obligations to NRIF.  NRIL are able to vary drawdowns under the DfT loan agreement in order to maintain liquidity. 

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

The company has certain debt issuances which are index-linked and thus exposed to movements in inflation rates.  The company does not enter into any derivative arrangements to hedge these.

The credit risk with regard to all classes of derivative financial instruments is limited because both Network Rail and its counterparties are required to post cash collateral on their full adverse net derivative positions.  The collateral agreements do not contain threshold provisions.

NRIF will continue in operation to manage the existing bond portfolio.  The bond portfolio is expected to be held to maturity and as such while market sentiment will drive changes in fair value, the impact on fair value of the portfolio held is not considered to be a major financing risk.  NRIF does not anticipate entering into any new derivative contracts in the future and existing derivatives are currently being fully utilised.

Directors' statement of compliance with duty to promote the success of the company

All directors are aware that they have a responsibility to act in good faith and in a way that promotes the success of NRIF for the benefit of all stakeholders.  All decisions are undertaken with the sole objective that the Company is run successfully and in so doing have regard (amongst other matters) to the following factors:

a)       The likely consequences of any decision in the long term. 

b)       The interests of NRIL's employees. All NRIF's activities are administered by NRIL's employees and therefore the company does not have any employees.

c)       The need to foster the company's business relationships with all key stakeholders

d)       The impact of the company's operations on the community and the environment,

e)       The desirability of the company maintaining a reputation for high standards of business conduct, and

f)         The need to act fairly between members and noteholders of the company

The above factors are derived from the governance structures of NRIF's effective controlling party Network Rail Limited (NRL), including its audit and risk committee.  More information surrounding corporate governance has been disclosed in the Directors' report below.  

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

Paul Marshall (director)

25 July 2024

Directors' report

The directors present their report and the annual financial statements of the company for the year ended 31 March 2024.

Principal activities

The principal activity of NRIF is to act as issuer for Network Rail's DIP.

Dividends

No dividend was paid or proposed in the current year (2023: £nil).

Directors

The directors who served during the year, and up to the date of signing the financial statements are disclosed on page 1 of this annual report.

NRIF maintains directors' and officers' liability insurance for its directors with a cover limit of £150 million for each claim or series of claims against them in their capacity as directors of the company.  The company also indemnifies its directors and officers to the extent permitted by law.

Going concern

After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.  Given that the company's assets are due from Network Rail, the Directors of NRIF took into account the publication of the Plan for Rail Review and the draft Rail Reform Bill its plans to reform the rail industry.  This proposes that a new public body, Great British Railways, will integrate the railways, owning the infrastructure, collecting fare revenue, running, and planning the network, and setting most fares and timetables.  It is planned that Network Rail Infrastructure Limited will be absorbed into the public body to bring about single, unified, and accountable leadership for the national network.  At this stage it is not likely that this reform will involve the winding up of Network Rail Infrastructure Limited but in any event Great British Railways will assume the existing functions of Network Rail Infrastructure Limited as well as have a wider range of powers and functions.  The publication of the Plan for Rail review has not had any impact on the preparation of these financial statements.

In reaching this conclusion the directors considered: the Financial Indemnity as described on page 2; the collateral arrangements with banking counterparties as described in note 12 of the financial statements; and that the company has an intercompany agreement that recovers all net costs from NRIL. The loan arrangement agreed between DfT and NRIL has resulted in loans being made by DfT direct to NRIL.  NRIF does not anticipate issuing further bonds and NRIF's debt service obligations will continue to be met through repayments of the intercompany loan by NRIL.

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

Corporate Governance

All of NRIF's activities are administered by NRIL's employees and therefore the company does not have any employees.  NRIF relies on the governance structures of its effective controlling party Network Rail Limited (NRL), including its audit and risk committee.  The role of these governance structures is scoped to include NRIF's activities in full.  As permitted by Disclosure Guidelines and Transparency Rule 1B.1.6, since it has not issued shares which are admitted to trading, NRIF does not itself apply a corporate governance code.  However, it is subject to an appropriate degree of control and accountability as a result of NRL applying the UK Corporate Governance Code, subject to a small number of exceptions as disclosed in its accounts.  The principal exception to Code compliance at NRL is that due to the public sector reclassification of the Network Rail group as a whole, the Department for Transport expects (as described in Network Rail's Framework Agreement) the Comptroller and Auditor General to be appointed as independent auditor for Network Rail and its key subsidiaries, including NRIF.  NRL's annual reports and accounts consolidate NRIF's financial results; describe the governance structures for NRL, to which NRIF is also subject, and the activity of its audit and risk committee; and describe Code compliance for the group as a whole. These reports are available at http://www.networkrail.co.uk.

The NRIF Board meets twice a year to consider and approve the interim and annual financial statements.

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

Paul Marshall (director)

25 July 2024

Statement of directors' responsibilities

The directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom.  Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.  In preparing these financial statements, the directors are required to:

·    select suitable accounting policies and then apply them consistently;

·    make judgements and accounting estimates that are reasonable and prudent;

·      state whether applicable International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom have been followed, subject to any material departures disclosed and explained in the financial statements.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each director of the company, in office at the time of approval of this report, acknowledges that:

·      so far as the director is aware, there is no relevant audit information of which the company's auditor is unaware; and

·   he/she has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company's auditor is aware of that information.

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for its member to assess the company's performance, business model and strategy.

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

Paul Marshall (Director)

25 July 2024

Statement of comprehensive income

for the year ended 31 March 2024

	Notes				2024		2023
					£m		£m
Result from operations					-		-
Finance income	5				1,837		3,412
Finance costs	5				(1,837)		(3,412)
Other gains and losses	6				-		-
Profit before taxation					-		-
Tax					-		-
Profit after taxation					-		-
Profit and total comprehensive income for the year					-		-

All income and expense in the company is recognised in the statement of comprehensive income.

Statement of changes in equity

for the year ended 31 March 2024

		Share capital	Retained earnings	Total equity
		£m	£m	£m
		-
At 31 March 2022		-	1	1
Profit and total comprehensive income for the year		-	-	-
At 31 March 2023		-	1	1
Profit and total comprehensive income for the year		-	-	-
At 31 March 2024		-	1	1

Balance sheet

at 31 March 2024

	Notes		2024 £m	2023 £m
Non-current assets
Receivables: amounts falling due after more than one year	7		28,956	29,826
Derivative financial instruments	11		40	70
Total non-current assets			28,996	29,896
Current assets
Derivative financial instruments	11		32	2 1
Receivables: amounts falling due within one year	7		235	1,441
Cash and cash equivalents	10		1	2
Total current assets			268	1,464
Total assets			29,264	31,360
Current liabilities
Loans	9		-	(1,149)
Derivative financial instruments	11		(54)	(49)
Other payables	8		(152)	(153)
Total current liabilities			(206)	(1,351)
Net current assets			62	113
Non-current liabilities
Loans	9		(28,958)	(29,826)
Derivative financial instruments	11		(99)	(182)
Total non-current liabilities			(29,057)	(30,008)
Total liabilities			(29,263)	(31,359)
Net assets			1	1
Equity
Share capital	13		-	-
Retained earnings			1	1
Total equity			1	1

The financial statements were approved by the board of directors on 08 July 2024 and authorised for issue on the date of the Independent Auditor's Report. They were signed on 25 July 2024 on its behalf by:

Paul Marshall (director)                                           Jackie Sarpong (director)

Company registration number: 05090412   

Statement of cash flows

for the year ended at 31 March 2024

	2024		2023
	£m		£m (Restated)
Cash flow generated by / (used in) operating activities	-		-
Net cash inflow / (outflow) from operating activities	-		-
Investing activities
Movement in NRIL loan to settle bond maturities	1,150		-
Interest received	535		531
Net collateral movement with counterparties	57		115
Cash settlement derivatives	(15)		(27)
Net cash inflow from investing activities	1,727		619
Financing activities
Repayment of borrowings	(1,150)		-
Interest paid*	(536)		(531)
Movement in NRIL loan to settle collateral	(57)		(115)
Movement in NRIL loan to settle derivatives	15		27
Net cash outflow from financing activities	(1,728)		(619)
Net decrease in cash and cash equivalents	(1)		-
Cash and cash equivalents at beginning of the year	2		2
Cash and cash equivalents at end of the year	1		2

*Balance includes the net interest on derivative financial instruments

Notes to the Financial Statements

for the year ended 31 March 2024

1.  General information

Network Rail Infrastructure Finance Plc ('the company') is a company incorporated in Great Britain and registered in England and Wales under the Companies Act 2006.

The company's registration number is 05090412.

The company's registered office is situated at Waterloo General Office, London, SE1 8SW, United Kingdom.

The company's principal activities, details of the company's business activities and key events and changes during the year are contained within the strategic and directors' reports.

2.  Material Accounting Policies

These financial statements have been prepared in accordance with UK adopted international accounting standards.

The financial statements have been prepared under the fair value basis, as bank loans and bonds, financial assets and liabilities are carried at fair value, with the exception of interest which accrues on the nominal value of bonds in issue.  The principal accounting policies have been applied consistently throughout the year.

The material accounting policies are set out below.

Prior year restatement

The classification of items in the cashflow has been restated as follows:

·        Interest paid was presented under operating activities and has been moved to financing activities

·        Cash movements in relation to the NRIL loan were presented as operating activities and are now disclosed as investing activities

·        Cashflows in relation to collateral and external derivatives were recognised as financing activities and are now recognised as investing activities

·        Cash flows relating to collateral and derivatives in the movement of the NRIL loan were recognised as operating activities and are now disclosed as financing activities.

The impact of these changes is shown in the table below

	£m	£m	£m
Cash inflows/(outflows)	Operating activities	Investing activities	Financing activities
Net cash flow for 2022-23 as previously published	(619)	531	88
Reclassification of interest paid	531	-	(531)
Reclassification of collateral flows with counterparties	-	115	(115)
Reclassification of derivative settlements with counterparties	-	(27)	27
Reclassification of movements in NRIL borrowings resulting from collateral cash flows	115	-	(115)
Reclassification of movements in NRIL borrowings resulting from derivative cash flows	(27)	-	27
Impact of reclassification	619	88	(707)
Net cash flows for 2022-23 as restated	-	619	(619)

The reclassifications have no impact on overall net cash flows. There was no repayment of external borrowings in 2022-23, or the resultant increase on the NRIL loan. For 2023-24 there were repayments of external borrowings and these have been presented as financing and investing activities respectively following a review of IAS 7.

Functional and presentation currency

The financial statements are presented in Pound Sterling (£) which is the functional and presentation currency of Network Rail Infrastructure Finance Plc.  All values are rounded to the nearest million pounds (£m) unless otherwise stated.

Adoption of new and revised standards

The accounting policies adopted in this set of financial statements are consistent with those set out in the financial statements for the year to 31 March 2023.

At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB or IFRIC. None of these Standards or amendments to existing Standards have been adopted early by the Company and no Interpretations have been issued that are applicable and need to be taken into consideration by the Company at the reporting date.

Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Company's financial statements.

Operating segments

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the company that are regularly reviewed by the board to allocate resources to the segments and to assess their performance.  The company operates one class of business, that of acting as issuer for Network Rail's DIP and undertakes that class of business in one geographical area, Great Britain.

Intra-group borrowings

The company provides the Network Rail group with funding.  It passes all transactions and balances through the intra-group borrowings to NRIL. Existing debt, derivatives and related interest payments within NRIF are passed onto NRIL in the form of an intercompany loan.  The nature of the arrangement means that the instrument fails the Solely Payment of Principal and Interest test under IFRS 9 and as such, the entire instrument is measured at fair value through profit or loss.

Debt

Debt instruments are initially measured at fair value, and subsequently designated and measured at Fair Value Through Profit and Loss (FVTPL) using mid-market price.  The intra-group borrowings from NRIL are measured at FVTPL.  Given the relationship between this balance and the debt instruments, the debt instruments were designated at fair value through profit or loss.  This treatment results in all fair value movements on debt being passed to NRIL within these financial statements, in line with the intercompany agreement.  Finance charges, including premiums payable on settlement or redemption and direct issue costs, are recognised in the period in which they arise and are not capitalised against the financial instrument measured at FVTPL.

Finance income/expense

Finance income and expense is calculated based on the amortised cost of the underlying debt. This amount is calculated and presented to allow for comparability with the financial statements of NRIL where the debt is carried at amortised cost.

Derivative financial instruments

The company's activities expose it to the financial risks of changes in interest rates and foreign currency exchange rates. The company uses interest rate swaps and cross currency swaps to hedge these exposures. 

Interest rate swaps and cross currency swaps are recorded at fair value at inception and at each balance sheet date.  Movements in fair value are recorded in other gains and losses in the statement of comprehensive income.

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

Foreign currencies

Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange prevailing at the end of the financial year.  Individual transactions denominated in foreign currencies are translated into sterling at the exchange rates prevailing on the date payment takes place.  Gains or losses realised on any foreign exchange movements are captured within the fair value line of 'Other Gains and Losses' in the statement of comprehensive income. 

Tax

The tax expense represents the sum of the current tax payable and deferred tax.  The company's current tax liability is calculated using the tax rates that have been enacted or substantively enacted by the balance sheet date.  Current taxes are based on the taxable results of the company and calculated in accordance with tax rules in the United Kingdom.

Critical accounting judgements and key sources of uncertainty

Valuation of the debt portfolio by its nature includes judgements and estimates. In making these estimates, the impact of credit risk is considered and is concluded to be immaterial. Credit risk is discussed further in Note 12.  Since the company's bonds are traded with varying frequency, valuations are derived with reference to both directly observed activity on the bonds themselves and to observations of frequently traded reference gilts which have similar characteristics.  Where bonds are frequently traded and independent prices are available, these are used in valuing the bonds.  Where bonds are infrequently traded, independent prices are determined using an independent pricing service.  These valuations include the analysis of similar but more frequently traded bonds in order to determine a price.  There are a small number of privately held bonds that are valued by management.  Management review comparator bonds and determine an appropriate yield rate based on similar bonds that have available prices.

3.  Staff costs

The directors received no remuneration for their services in the current or prior year.  Other than the directors, there were no employees of the company in the current or prior year.  Administration services are provided by NRIL.

4.  Auditors' remuneration

Fees payable to the company auditors for the audit of the company's annual accounts of £32,300 (2023: £31,250) have been borne by NRIL.  No other fees were payable by the company to the company auditors in the current or prior year.

5.  Finance income and finance costs

		Year ended 31 March 2024		Year ended 31 March 2023
		£m		£m
Finance income
Interest receivable from NRIL		1,826		3,408
Interest receivable on investments		11		4
Total finance income		1,837		3,412
Finance costs
Interest payable on debt issued under the DIP		(1,712)		(3,239)
Interest on bank loans and overdrafts		(62)		(73)
Net interest on derivative instruments		(63)		(100)
Total finance costs		(1,837)		(3,412)

6. Other gains and losses

		Year ended 31 March 2024		Year ended 31 March 2023
		£m		£m
Gain on fair value of external debt		868		9,467
Net gain on fair value of external   derivative financial instruments		44		83
Loss on fair value of intercompany loan to NRIL		(912)		(9,550)
Total gains and (losses)		-		-

All gains and losses on intra-group borrowings are passed onto NRIL. More details are provided in the intra-group borrowings section of Note 2.

7.  Receivables

		31 March 2024		31 March 2023
		£m		£m
Non-current assets
Loans to NRIL		28,956		29,826
		28,956		29,826
Current assets
Interest on loans to NRIL		150		151
Loans to NRIL		-		1,149
Collateral placed		85		141
		235		1,441
Total receivables		29,191		31,267

The company believes that the collateral balance has a high level of credit quality and as such, no credit losses have been recognised.

8.  Other payables

		31 March 2024		31 March 2023
		£m		£m
Current liabilities
Collateral received		2		1
Interest payable on bonds issued under the DIP		149		151
Interest payable on European Investment Bank long term loans		1		1
Total payables		152		153

9.  Loans

Bonds issued under the DIP are analysed as follows:

31 March 2024 £m 31 March 2023 £m 3% sterling bond due 2023 - 397 4.75% sterling bond due 2024 - 752 1.9618% sterling index linked bond due 2025 504 496 4.615% Norwegian krone bond due 2026 37 40 4.57% Norwegian krone bond due 2026 10 11 1.75% sterling index linked bond due 2027 7,338 7,188 4.375% sterling bond due 2030 889 907 4.75% sterling bond due 2035 1,298 1,331 1.6492% sterling index linked bond due 2035 653 663 1.375% sterling index linked bond due 2037 7,853 8,012 4.6535% sterling bond due 2038 107 110 1.2025% sterling index linked bond due 2039 110 114 1.2219% sterling index linked bond due 2040 404 429 1.1795% sterling index linked bond due 2041 99 106 1.1565% sterling index linked bond due 2043 80 86 1.5646% sterling index linked bond due 2044 428 470 1.1335% sterling index linked bond due 2045 69 75 1.125% sterling index linked bond due 2047 7,106 7,776 0% sterling index linked bond due 2047 101 110 0.678% sterling index linked bond due 2048 152 169 1.003% sterling index linked bond due 2051 32 36 0.53% sterling index linked bond due 2051 177 169 0.517% sterling index linked bond due 2051 177 169 0% sterling index linked bond due 2051 207 206 1.085% sterling index linked bond due 2052 183 196 0% sterling index linked bond due 2052 207 205 Total bonds issued under DIP 28,221 30,223 Index linked European Investment Bank due 2036 and 2037 737 752 Total bonds issued 28,958 30,975 Split as: Current - 1,149 Non-current 28,958 29,826 Total 28,958 30,975

The Secretary of State for Transport has provided an unlimited financial indemnity, expiring in 2052, in respect of all DIP borrowings including all the bonds and bank loans listed above.

10.  Net borrowings

	31 March 2024		31 March 2023
	£m		£m
Net borrowings by instrument
Cash and cash equivalents	1		2
Collateral receivable	85		141
Collateral obligation	(2)		(1)
Bank loans	(737)		(752)
Bonds issued under the DIP	(28,221)		(30,223)
	(28,874)		(30,833)
Movement in net borrowings
At the beginning of the year	(30,833)		(40,185)
Decrease in cash and cash equivalents	(1)		-
Movement in collateral placed	(56)		(114)
Movement in collateral received	(1)		(1)
Repayments of borrowings	1,150		-
Fair value and other movements	867		9,467
At the end of the year	(28,874)		(30,833)
Net borrowings are reconciled to the balance sheet as set out below:
Cash and cash equivalents	1		2
Collateral receivable	85		141
Collateral obligation	(2)		(1)
Borrowings included in current liabilities	-		(1,149)
Borrowings included in non-current liabilities	(28,958)		(29,826)
At the end of the year	(28,874)		(30,833)

11.  Financial instruments

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

All financial assets and liabilities are carried at fair value. 

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

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

·        Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values for Level 1 financial instruments are obtained from Bloomberg.

·        Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For bonds, the majority of fair values for Level 2 financial instruments are obtained from Bloomberg. A small number of privately held bonds have been valued by management. Certain Level 2 financial liabilities (collateral and accrued interest) are carried at an amortised cost that approximates the fair value. The fair value of interest rate and cross currency swaps is calculated as the present value of the estimated future cash flows using yield curves at the reporting date and;

·        Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

	31 March 2024	31 March 2023
	£m	£m
Level 2:
Derivative financial assets	72	91
Financial assets at fair value	29,191	31,267
Level 1: Bonds	-	-
Level 2:
Derivative financial liabilities	(153)	(231)
Bonds	(28,958)	(30,975)
Financial liabilities	(152)	(153)
Total	-	(1)

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

Derivatives are split as follows:

	31 March 2024	31 March 2023
	£m	£m
Derivative financial assets - Current
Interest rate swaps	32	21
Total Current	32	21
Derivative financial assets - Non-current
Interest rate swaps	40	70
Cross currency swaps	-	-
Total Non-current	40	70
Total Derivative financial assets	72	91
Derivative financial liabilities - Current
Interest rate swaps	(54)	(49)
Total Current	(54)	(49)
Derivative financial liabilities - Non-current
Interest rate swaps	(89)	(177)
Cross Currency swaps	(10)	(5)
Total Non-current	(99)	(182)
Total Derivative financial liabilities	(153)	(231)

12.  Funding and financial risk management

Introduction

The company is not a member of the Network Rail group.  However, for accounting purposes the company is treated as a subsidiary in the consolidated accounts of NRL.  The Network Rail group as a whole is largely debt funded.

Summary table of financial assets and liabilities

The following table presents the carrying amounts and the fair values of the company's financial assets and liabilities at 31 March 2024 and 31 March 2023.

The fair values of financial assets and liabilities are recognised at the amount at which the instrument could be exchanged for in a current transaction between willing parties, other than in a forced or liquidation sale.  Bank loans and bonds, financial assets and liabilities are carried at fair value. Those amounts are in accordance with the significant accounting policies set out in Note 2.  Bank loans are valued based on market data at the balance sheet

date and the net present value of discounted cash flows.  Bonds issued under the DIP are valued based on market data at the balance sheet date.  There are a small number of privately held bonds that are valued by management.  Management review comparator bonds and determine an appropriate yield rate based on similar bonds that have available prices.

	31 March 2024		31 March 2023
	Carrying value	Fair value	Carrying value	Fair value
	£m	£m	£m	£m
Financial assets
Financial assets measured at amortised cost
Cash and cash equivalents	1	1	2	2
Collateral placed	85	85	141	141
Trade and other receivables at amortised cost	150	150	151	151
	236	236	294	294
Financial assets measured at fair value through profit or loss
Derivative financial instruments	72	72	91	91
Loans to NRIL	28,956	28,956	30,975	30,975
	29,028	29,028	31,066	31,066
Total financial assets	29,264	29,264	31,360	31,360

	31 March 2024			31 March 2023
		Carrying value	Fair   value*	Carrying value	Fair value
		£m	£m	£m	£m
Financial liabilities
Financial liabilities measured at amortised cost
Collateral received		(2)	(2)	(1)	(1)
Trade and other payables at amortised cost		(150)	(150)	(152)	(152)
		(152)	(152)	(153)	(153)
Financial liabilities measured at fair value through profit or loss
Derivative financial instruments		(153)	(153)	(231)	(231)
European Investment Bank loans		(737)	(737)	(752)	(752)
Bonds issued under the DIP		(28,221)	(28,221)	(30,223)	(30,223)
		(29,111)	(29,111)	(31,206)	(31,206)
Total financial liabilities		(29,263)	(29,263)	(31,359)	(31,359)

*Refer to Note 11 for detail on determination of fair values of financial assets and liabilities.

Derivatives

The company has contracted with NRIL to administer the DIP, the terms of which are set out in an administration agreement.  NRIL has a comprehensive risk management process and the Treasury Committee, being a full sub-committee of the Network Rail board, has approved and monitors the risk management processes, including documented treasury policies, counterparty limits, controlling and reporting structures.

Proceeds from the DIP are lent on to NRIL under the intercompany loan agreement which gives rise to an intercompany loan receivable.  In addition, the company also uses other derivatives to reduce the foreign exchange risk and interest rate risk of NRIL.  The company does not use derivative financial instruments for speculative purposes.  The use of derivative instruments can give rise to credit and market risk.  Market risk is the possibility that future changes in foreign exchange rates and interest rates may make a derivative more or less valuable.  Since the company uses derivatives for risk management, market risk relating to derivative instruments will principally be offset by changes in the valuation of the underlying assets or liabilities.

Credit risk

The credit risk with regard to all classes of derivative financial instrument is limited because counterparties are banks with high credit ratings assigned by international credit-rating agencies.  The treasury committee of the Network Rail board authorises the policy for setting counterparty limits based on credit-ratings.

The company spreads its exposure over a number of counterparties and has strict policies on how much exposure can be assigned to each counterparty before collateral is sought.

The concentration of the company's investments varies depending on the level of surplus liquidity.  However, because of the strict criteria governing counterparties' suitability the risk is mitigated.  The treasury committee of the Network Rail board also authorises the types of investment and borrowing instruments that may be used.

The credit risk on the intercompany loan with NRIL is considered limited as the Secretary of State for Transport has provided an unlimited financial indemnity in respect of borrowings under the DIP which expires in 2052 meaning that obligations to debt holders could still be fulfilled without NRIL.

Particular attention is paid to the credit risk of swap counterparties.  The credit risk with regard to all classes of derivative financial instruments entered into before 1 January 2013 is limited because Network Rail has arrangements in place which limit each bank to a threshold (based on credit ratings), which if breached requires the bank to post collateral in cash or eligible securities.  The members of the banking group are required to post collateral on positive mark-to-market swaps above the threshold.  In December 2012 the group entered into new collateral agreements in respect of derivative trades entered into after 1 January 2013.

Under the terms of the new agreements Network Rail posts collateral on adverse net

derivative positions with its counterparties.  The new agreements do not contain a provision for thresholds; as such Network Rail or its counterparties are required to post collateral for the full fair value of net out of the money positions.  At 31 March 2024 the fair value of collateral held was £2m (2023: £1m). The group is the beneficial owner of this collateral.  The group is free to invest or otherwise utilise the collateral at its discretion, subject to acting within the authority sanctioned by the treasury committee.  The balance of collateral posted by the group at 31 March 2024 was £85m (2023: £141m).

Foreign exchange risk

The company is exposed to currency risks from its financing.  Foreign exchange risk for all currencies is managed by the use of currency swaps to limit the effects of movements in exchange rates on foreign currency denominated assets and liabilities.

The company considers a ten percentage point increase in the value of any currency against sterling to be a reasonably possible change and this would not have a material impact on the company's net profit before tax or equity.  This is due to the workings of the intercompany loan agreement.

Interest and inflation rate risk

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

Due to the workings of the intercompany loan agreement an increase or decrease in average interest rates during the year would have no impact upon the statement of comprehensive income, the net assets or the reserves of the company.

The company has certain debt issuances which are index-linked and so is exposed to movements in inflation rates. The company does not enter into any derivative arrangements to hedge these.

Due to the workings of the intercompany loan agreement an increase or decrease in average inflation rates during the year would have no impact upon the statement of comprehensive income, the net assets or the reserves of the company.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors.  The treasury committee of the board of Network Rail has built an appropriate liquidity risk management framework for the management of the company's short, medium and long-term funding and liquidity management requirements.  Liquidity is provided by monitoring that NRIL has sufficient funds to meet its obligations to NRIF.  NRIL are able to vary drawdowns under the DfT loan agreement in order to maintain liquidity.

Treasury is subject to internal audits and committee reviews.

In addition, the Secretary of State for Transport has provided an unlimited financial indemnity in respect of borrowings under the DIP (which expires in 2052).

The following table details the company's remaining contractual maturity for its financial liabilities.  The table has been drawn up on the undiscounted cash flows of financial liabilities based on the earliest date on which the company can be required to pay and, therefore differs from both the carrying value and the fair value.  The table includes both interest and principal cash flows.

	Within 1 year	1-2 years	2-5 years	5+ years	Total
	£m	£m	£m	£m	£m
31 March 2024
Non derivative financial liabilities
Bank loans and overdrafts	(8)	(8)	(24)	(743)	(783)
Sterling denominated DIP bonds	(102)	(102)	(307)	(2,761)	(3,272)
Sterling denominated index linked DIP bonds	(350)	(865)	(7,967)	(20,663)	(29,845)
Foreign currency denominated DIP bonds	(2)	(2)	(49)	-	(53)
Derivative financial liabilities
Net settled derivative contracts	(45)	(19)	(14)	-	(78)
Gross settled derivative contracts - receipts	29	29	28	-	86
Gross settled derivative contracts - payments	(20)	(20)	(19)	-	(59)
Collateral held	(2)	-	-	-	(2)
	(500)	(987)	(8,352)	(24,167)	(34,006)
	Within 1 year	1-2 years	2-5 years	5+ years	Total
	£m	£m	£m	£m	£m
31 March 2023
Non derivative financial liabilities
Bank loans and overdrafts	(8)	(8)	(23)	(720)	(759)
Sterling denominated DIP bonds	(1,300)	(102)	(307)	(2,864)	(4,573)
Sterling denominated index linked DIP bonds	(335)	(335)	(8,259)	(20,012)	(28,941)
Foreign currency denominated DIP bonds	(2)	(2)	(54)	-	(58)
Derivative financial liabilities
Net settled derivative contracts	(68)	(41)	(32)	-	(141)
Gross settled derivative contracts - receipts	29	29	57	-	115
Gross settled derivative contracts - payments	-	-	-	-	-
Collateral held	(1)	-	-	-	(1)
	(1,685)	(459)	(8,618)	(23,596)	(34,358)

Offsetting financial assets and liabilities

The following financial assets and financial liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements.

	Gross amounts of	Gross amounts of	Net amount of financial	Related amounts not set off in the balance sheet
	recognised financial assets	recognised financial liabilities set off in the balance sheet	assets presented in the balance sheet	Financial liability derivatives	Net Collateral	Net amount
	£m	£m	£m	£m	£m	£m
31 March 2024
Derivatives	72	-	72	(153)	83	2
31 March 2023
Derivatives	91	-	91	(231)	140	-

Collateral consists of £85m (2023: £141m) receivable (Note 7) and £2m (2023: £1m) payable (Note 8).

13.  Share capital

	31 March 2024	31 March 2023
	£	£
Authorised, issued and partly paid:
2 ordinary shares of £1 fully paid up	2	2
49,998 ordinary shares of £1 partly paid to £0.25 each	12,500	12,500
	12,502	12,502

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.

14.  Controlling party and related party transactions

50,000 shares of the company are held by Intertrust Corporate Services Limited.  All shares and distributable reserves in the company are held for charitable purposes on wind up.

Legal control of the company is disclosed above but effective control of the company is held by Network Rail and therefore by the DfT and Secretary of State.

On this basis for accounting purposes the company is treated as a subsidiary in the consolidated accounts of Network Rail.

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

15. Post balance sheet events

As at the date of signing these financial statements there have not been any significant post balance sheet events, whether adjusting or non-adjusting.

 

END