Half-year Report

Network Rail Limited

11 December 2024

 

 Network Rail half-year results 2024/2025

Network Rail publish its half year financial results to 30 September 2024

11 December 2024

Network Rail today published its half-year financial results for the six months ending 30 September 2024.

Financial highlights

	Unaudited six months ended 30 September 2024 £m	Unaudited six months ended 30 September 2023 £m	Variance £m
Revenue	5,283	5,296	(13)
Net operating costs excluding depreciation and amortisation	(2,860)	(2,656)	(204)
Net operating costs	(4,013)	(3,802)	(211)
Operating profit	1,270	1,494	(224)
Profit/(Loss) before tax	3	(82)	85
Net cash from operating activities	2,171	2,227	(56)
Capital expenditure	3,046	3,392	(346)
Capital grant received	1,231	1,438	(207)

	Unaudited 30 September 2024 £m	Audited 31 March 2024 £m	Variance £m
Net borrowings	(60,170)	(60,145)	(25)
Net assets	19,889	18,462	1,427
Property, plant and equipment - the railway network	88,891	86,883	2,008
Investment Property	209	227	(18)

Commentary

Summary

These results show the first six months of the five-year funding plan, Control Period 7 (CP7), that runs from April 2024 through to March 2029. Network Rail made a profit in the period and continued to generate strong cashflows from its operations. Every penny of these cashflows was used to fund our railway investment programme.

The CP7 determination of funding and outputs for 2024-29, provides clarity and certainty for the railway and its supply chain. The settlement, whilst a vote of confidence in the industry, also requires some tough strategic choices including managing risks that may impact our spending plans.

Our focus on further increasing productivity by reducing our cost base by another £3.9bn in the period 2024-2029 will be instrumental in delivering this funding plan. We have made a solid start to delivering cost efficiencies and we know it is important to make early gains in shrinking the cost base to maximise the savings across the 5-year period.

We welcome recent industry data showing that passenger numbers increased by around 7% year on year to around 96% of the pre-covid levels (89 per cent excluding Elizabeth Line). To keep rail usage growing we know that, as an industry, we need to keep improving train performance, particularly reliability and punctuality. In this period the key factors affecting performance included strike days in the wider industry, infrastructure failures, weather events and train crew shortages.

We also reflect and learn as an industry on the serious incident that took place on our railway in October when two trains collided at slow speed at Llanbrynmair in Powys, Wales. One man died, while other passengers and train crew sustained injuries.

It is no consolation that our overall railway safety record remains at its highest levels and reminds us that our mission is to get everyone to their destination safely every day.

Financial summary

Revenues decreased in comparison to the same period last year by £13m to £5,283m (2023: £5,296m). This was in part due to a reduction in grant drawn down, offset by inflation-linked increases in charges. Also we paid less compensation to our customers because of fewer delays and cancellations attributed to Network Rail (£73m).

Operating costs increased by £211m to £4,013m (2023: £3,802m). This was because energy costs increased by £57m, planned maintenance external charges by £35m, staff costs by £68m, and depreciation & amortisation of grants by £7m. Other operating external charges decreased by £25m.

In this half year, Network Rail made an operating profit of £1,270m (2023: £1,494m) and profit before tax was £3m (2023: loss of £82m).

Borrowings

Network Rail is not planning to issue any new debt in the foreseeable future. Net debt remained at £60.2bn which is a slight increase compared to year end 31 March 2024.

Assets

As of 30 September 2024, the value of the railway network increased to £88.9bn from £86.9bn (31 March 2024). After considering prevailing inflation rates and forecasts regarding revenue and running costs, the network was valued upwards by £1.3bn. This is discussed in more detail in Note 6 to the Interim Financial Statements.

Investment

Investment in the first six months of the year was £3.0bn (2023: £3.4bn). Enhancement investment of £1.3bn (2023: £1.4bn) included some of our flagship programmes to improve the network such as the Trans Pennine Route Upgrade. Renewals of £1.8bn (2023: £2.0bn) included £0.5bn on track renewals, signalling £0.3bn, civils £0.4bn, drainage £0.1bn, buildings £0.2bn, electrification £0.2bn and telecoms £0.1bn.

Risks and Uncertainties

The principal risks and uncertainties affecting the business activities of the group were set out on pages 91 to 99 of the annual report and accounts for the year ended 31 March 2024, a copy of which is available on the group's website www.networkrail.co.uk. The group's key risks and uncertainties are summarised under the headings: safety; performance; and value.

In the view of the board, the key risks, and uncertainties for the remaining six months of the financial year continue to be those set out in the risks and uncertainties section of the 31 March 2024 annual report and accounts. It should be noted that the autumn and winter seasons provide additional performance risks, due to increases in weather-related and track adhesion-related delays.

The critical accounting judgements and key sources of uncertainties relating to these interim financial statements are set out on page 16.

Outlook

Network Rail is building on £4bn of efficiencies made in the period 2019-2024. We have a target of £3.9bn of efficiencies in these five years and we have made a solid start by continuing to deliver more for less and making the railway more affordable for taxpayers and rail users alike.

To achieve this, we have developed a detailed CP7 delivery plan. The impact of inflation, tight public finances and the need to invest more to manage the impact of more frequent extreme weather on the infrastructure means that our funding will need to go further than ever before.

Alongside delivering cost efficiencies, we continue to deliver extensive investments across the length and breadth of the network. In addition to improvements to safety, we will work to boost train performance, usher in modern technologies and invest significantly more funds to tackle climate change.

Rail has a critical role as part of our national infrastructure and is key driver of clean, green, and safe economic growth.

Statement of directors' responsibilities

The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard ("IAS") 34 as adopted by the United Kingdom and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules (DTR) 4.2.7 and DTR 4.2.8, namely:

an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Network Rail Limited are listed in the Network Rail Limited annual report for the year ended 31 March 2024. A list of current directors is available on the group's website: www.networkrail.co.uk.

By order of the board

Andrew Haines

Chief executive

6 December 2024

Independent review report to Network Rail Limited

I have been engaged by the company to review the condensed consolidated interim financial statements of Network Rail Limited for the six months ended 30 September 2024 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and related explanatory notes.

Based on my review, nothing has come to my attention that causes me to believe that the condensed set of financial statements for the six months ended 30 September 2024 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

I conducted my review in accordance with International Standards on Review Engagement (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable me to obtain assurance that I would become aware of all significant matters that might be identified in an audit. Accordingly, I do not express an audit opinion.

As disclosed in note 1, the annual statements of the group are prepared in accordance with UK adopted IFRSs. The condensed set of financial statements has been prepared in accordance with UK adopted International Accounting Standard 34 "Interim Financial Reporting".

Conclusions Relating to Going Concern

Based on my review procedures, which are less extensive than those performed in an audit as described in the Basis on Conclusion section of this report, nothing has come to my attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE, however, future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of directors

The directors are responsible for preparing the condensed interim financial statements in accordance with Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the condensed interim financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors wither intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the condensed interim financial statements, I am responsible for expressing to the Company a conclusion on the condensed set of financial statements in the condensed interim financial statements. My conclusion, including my Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Sarah Che (Senior Statutory Auditor)           

9 December 2024

For and on behalf of the

Comptroller and Auditor General (Statutory Auditor)

National Audit Office

157-197 Buckingham Palace Road

Victoria

London

SW1W 9SP

Consolidated income statement

			Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March  2024
	Notes		£m	£m	£m
Revenue	2		5,283	5,296	11,580
Net operating costs	3		(4,013)	(3,802)	(7,524)
Operating profit			1,270	1,494	4,056
Property revaluation movements and profits on disposal			(18)	(3)	(6)
Total profit from operations			1,252	1,491	4,050
Investment revenue	4		2	5	15
Other gains and losses	4		16	31	57
Finance costs	4		(1,267)	(1,609)	(2,619)
Profit/(Loss) before tax			3	(82)	1,503
Tax Credit/(Charge)	5		2	15	(508)
Profit/(Loss) after tax for the period			5	(67)	995

Consolidated statement of comprehensive income

	Unaudited six months ended 30 September 2024		Unaudited six months ended 30 September 2023		Audited year ended 31 March  2024
	£m		£m		£m
Profit/(Loss) for the period	5		(67)		995
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Gain on revaluation of the railway network	1,340		4,885		2,883
Remeasurement of defined benefit scheme obligations	538		574		149
Tax relating to components of other comprehensive income that will not be reclassified to profit or loss	(470)		(1,365)		(758)
Total items that will not be reclassified to profit or Loss	1,408		4,094		2,274
Items that may be reclassified to profit or loss
Reclassification of balances in the hedging reserve to     the income statement	14		23		41
Total items that may be reclassified subsequently to profit or loss	14		23		41
Other comprehensive income for the period	1,422		4,117		2,315
Total comprehensive income for the period	1,427		4,050		3,310

Consolidated statement of changes in equity

	Revaluation Reserve	Other Reserve*	Hedging Reserve	Retained Earnings	Total
	£m	£m	£m	£m	£m
At 1 April 2024	7,958	249	(60)	10,315	18,462
Profit for the period	-	-	-	5	5
Other comprehensive income
Revaluation of the railway network	1,340	-	-	-	1,340
Transfer of deemed cost depreciation from revaluation reserve	(133)	-	-	133	-
Increase in deferred tax liability on the railway network	(335)	-	-	-	(335)
Actuarial gain on defined benefit scheme	-	-	-	538	538
Deferred tax on actuarial gain	-	-	-	(135)	(135)
Transfer between reserves - deferred tax	33	-	-	(33)	-
Reclassification of balances in the hedging reserve to the income statement	-	-	14	-	14
Total comprehensive income	905	-	14	508	1,427
Balance at 30 September 2024 (Unaudited)	8,863	249	(46)	10,823	19,889
	Revaluation Reserve	Other Reserve*	Hedging Reserve	Retained Earnings	Total
	£m	£m	£m	£m	£m
At 1 April 2023	5,949	249	(101)	9,055	15,152
Loss for the period	-	-	-	(67)	(67)
Other comprehensive income
Revaluation of the railway network	4,885	-	-	-	4,885
Transfer of deemed cost depreciation from revaluation reserve	(123)	-	-	123	-
Increase in deferred tax liability on the railway network	(1,221)	-	-	-	(1,221)
Actuarial gain on defined benefit scheme	-	-	-	574	574
Deferred tax on actuarial gain	-	-	-	(144)	(144)
Transfer between reserves - deferred tax	31	-	-	(31)	-
Reclassification of balances in the hedging reserve to the income statement	-	-	23	-	23
Total comprehensive income	3,572	-	23	455	4,050
Balance at 30 September 2023 (Unaudited)	9,521	249	(78)	9,510	19,202

	Revaluation Reserve		Other Reserve*		Hedging Reserve		Retained Earnings		Total
	£m		£m		£m		£m		£m
At 1 April 2023	5,949		249		(101)		9,055		15,152
Loss for the period	-		-		-		995		995
Other comprehensive income
Impact of change in tax rate	-		-		-		-		-
Revaluation of the railway network	2,883		-		-		-		2,883
Transfer of deemed cost depreciation from revaluation reserve	(204)		-		-		204		-
Increase in deferred tax liability on the railway network	(721)		-		-		-		(721)
Actuarial gain on defined benefit pension schemes	-		-		-		149		149
Deferred tax on actuarial gain	-		-		-		(37)		(37)
Transfer of deferred tax	51		-		-		(51)		-
Reclassification of balances in the hedging reserve to the income statement	-		-		41		-		41
Total comprehensive income	2,009		-		41		1,260		3,310
Balance at 31 March 2024 (Audited)	7,958		249		(60)		10,315		18,462

*Other reserves of £249m (2023: £249m) include a £242m vesting reserve on privatisation.

Consolidated balance sheet

				Unaudited 30 September 2024			Unaudited 30 September 2023			Audited 31 March   2024
			Note	£m			£m (Restated)			£m
Assets
Non-current assets
Intangible assets				58			59			59
Right of use assets				388			363			341
Property, plant and equipment - the railway network			6	88,891			88,550			86,883
Investment property				209			228			227
Derivative financial instruments			10	16			95			40
Retirement benefit surplus			9	541			474			82
Interest in joint venture				29			28			32
				90,132			89,797			87,664
Current assets
Assets held for sale				4			4			4
Inventories				397			338			371
Trade and other receivables				1,538			1,586			1,678
Current tax assets				-			50			-
Derivative financial instruments			10	25			31			32
Cash and cash equivalents			7	1,042			759			428
				3,006			2,768			2,513
Total assets				93,138			92,565			90,177
Liabilities
Current liabilities
Trade and other payables				(3,147)			(4,180)			(2,594)
Current tax liabilities				(1)			-			(1)
Borrowings			7	(5,261)			(15,319)			(15,792)
Derivative financial instruments			10	(46)			(51)			(54)
Provisions				(134)			(64)			(122)
				(8,589)			(19,614)			(18,563)
Net current liabilities				(5,583)			(16,846)			(16,050)
Non-current liabilities
Borrowings			7	(56,014)			(45,066)			(44,863)
Derivative financial instruments			10	(57)			(179)			(98)
Other payables				(214)			(534)			(253)
Retirement benefit obligation			9	(192)			(169)			(222)
Deferred tax liabilities				(8,183)			(7,801)			(7,716)
				(64,660)			(53,749)			(53,152)
Total liabilities				(73,249)			(73,363)			(71,715)
Net assets				19,889			19,202			18,462
					Unaudited 30 September 2024		Unaudited 30 September 2023			Audited 31 March   2023
					£m		£m			£m
Equity
Revaluation reserve					8,863		9,521			7,958
Other reserve					249		249			249
Hedging reserve					(46)		(78)			(60)
Retained earnings					10,823		9,510			10,315
Total equity					19,889		19,202			18,462

This interim financial report was approved by the board of directors on 5 December 2024 and authorised for issue on the date of the Independent Auditor's Review Report.

They were signed on 6 December 2024 on its behalf by:

Andrew Haines

(Chief executive)

Consolidated cash flow statement

		Unaudited six months ended 30 September 2024 £m	Unaudited six months ended 30 September 2023 £m	Audited year ended 31 March 2024 £m
Cash flows from operating activities
Cash generated from operations	8	2,834	2,787	5,258
Interest paid[1]		(663)	(560)	(1,271)
Income tax paid		-	-	50
Net cash generated from operating activities		2,171	2,227	4,037
Investing activities
Interest received		2	5	16
Purchases of property, plant and equipment		(2,723)	(3,149)	(6,852)
Proceeds on disposal of property		-	15	78
Capital grants received		1,231	1,438	2,995
Net cash inflows from joint ventures		3	-	(4)
Net cash flows used in investing activities		(1,487)	(1,691)	(3,767)
Financing activities
Repayment of borrowings		(20)	(435)	(1,210)
New loans raised		-	400	1,150
Decrease in collateral placed		22	30	56
Increase in collateral received		(3)	-	1
Cash flow on settlement of derivatives		(3)	(5)	-
Repayment of lease liabilities		(66)	(70)	(142)
Net cash used in financing activities		(70)	(80)	(145)
Net increase/(decrease) in cash and cash equivalents		614	456	125
Cash and cash equivalents at beginning of the period		428	303	303
Cash and cash equivalents at the end of the period		1,042	759	428

  ¹ Balance includes the net interest on derivative financial instruments

Notes to the interim financial statements for the six months ended 30 September 2024

1.General information

This condensed consolidated interim financial information does not comprise statutory financial statements within the meaning of Section 434 of the Companies Act 2006. Statutory financial statements for the year ended 31 March 2024 were approved by the board of directors on 12 July 2024 and delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not report any matters by exception under Section 498 of the Companies Act 2006.

The condensed consolidated interim financial statements are prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority and International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the United Kingdom.

The condensed financial statements present the results for the first half of the year. The nature of Network Rail's business means there are seasonal impacts. The impact of the performance regime (Note 2) can vary across the year and the performance regime result in the first half of the year may not be indicative of performance in the second half of the year. However, due to the grant funding arrangements, the impact of this and any other

seasonality would be expected to be minimal on profit or loss before tax.

This condensed consolidated interim financial information has been reviewed, not audited. The condensed consolidated interim financial information should be read in conjunction with the annual report and accounts for the year ended 31 March 2024, which have been prepared under International Financial Reporting Standards 'IFRSs' in conformity with the requirements of the Companies Act 2006. A copy of this document is available on the group's website: www.networkrail.co.uk.

Material accounting policies

The accounting policies adopted in this condensed set of financial statements are consistent with those set out in the annual financial statements for the year to 31 March 2024.

IFRS 17 Insurance Contracts is effective for years beginning on or after 1 January 2023 with restated comparatives. It was adopted in the year ended 31 March 2024 financial statements.

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

Prior year restatement

The interim balance sheet for the period ended 30 September 2023 has been restated for the presentation of the retirement benefit position by separating the net position into the gross asset and gross liability. Further details in relation to retirement benefit balances are in Note 9.

Going concern

The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

The directors took into account the publication of the Plan for Rail Review and 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 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 Limited but in any event Great British Railways will assume the existing functions of Network Rail Limited as well as have a wider range of powers and functions. The transformation programme is dependent on further activities including legislation and will take time to fully deliver.

The group has considerable financial resources together with long-term contracts with many customers and suppliers. Network Rail does not expect to undertake any new borrowing in the next 12 months. Instead, its activities will be largely funded by grants from the Department for Transport and revenue from customers. Network Rail has secured a £32.3bn loan facility with the Department for Transport (DfT), which it draws upon to specifically refinance its' existing debt. This facility remains within its parameters.

Network Rail has nine separate grant agreements in place with DfT and Transport Scotland (TS) to fund activities in the period to 30 September 2024. These grants are: - with DfT - Network Grant; Enhancements Grant; Great British Railways Transition Team Grant; British Transport Police Grant; Financing Costs Grant for DfT interest; Financing Costs Grant for external interest (bonds and swaps); and Corporation Tax Grant - with TS - Network Grant and Enhancements Grant.

Business plans and financial models are used to project cash flows and monitor financial risks and liquidity positions, forecast future funding requirements and other key financial ratios, including those relevant to our network licence. Analysis is undertaken to understand the resilience of the group and its business model to the potential impact of the group's principal risks, or a combination of those risks. This analysis takes account of the availability and effectiveness of the mitigating actions that could realistically be taken to avoid or reduce the impact or occurrence of the underlying risks. The board considers the likely effectiveness of such actions through regular monitoring and review of risk management and internal control systems. Further details are set out in the Viability Statement on pages 100 to 103 of the Network Rail Limited annual report and accounts 2023-24. In addition, Note 23 to those accounts includes the group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit, liquidity and foreign exchange risk.

After making enquiries, including those detailed above, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

Business segments

No segmental analysis is provided because the group operates one class of business; that of managing the national rail infrastructure and undertakes that class of business in one geographical segment, Great Britain.

Critical accounting judgements and key sources of uncertainty

The principal risks managed by Network Rail are unchanged from those set out in the Network Rail Limited 2023-24 annual report and accounts. This can be found in the Risk Management section on pages 91-99. There are also further details on funding and financial risk management in note 23 on pages 202-207 of those accounts.

(i)Property, plant and equipment - the railway network: the estimate of the fair value of the railway network is based on an income approach using the regulatory asset base, which equates to the discounted future cash flow associated with the network, adjusted for the net present value of the effects of any forecast variances from the Office of Rail and Road's determination using the building block model regulation. The methodology of the valuation and critical judgements therein are discussed in detail in Note 10 of the Network Rail Limited annual report and accounts 2024. Management have assessed the valuation methodology considering the ORR's Final Determination for CP7 and have concluded that it remains appropriate. The two key judgements are an estimate of November Consumers Price Index (CPI) used to index the regulatory asset base and a review to assess whether the weighted average cost of capital (WACC) has materially changed in the last six months. The CPI estimate increases the valuation by £2.1bn as at 30 September 2024 and there has been no material change to the WACC in the last six months. These are discussed further in note 6.

(ii)  Investment property: Jones Lang LaSalle (JLL) provided independent valuations of nineteen one-off individual properties and value the balance of the estate under the Beacon method by splitting the portfolio into seventeen homogeneous classes of property and areas. The method of calculation is the same as set out in Note 11 of the Network Rail Limited annual report and accounts 2024.

(iii)  Retirement benefit obligations: The calculations include several judgements and estimations in respect of the expected rate of return on assets, the discount rate, inflation assumptions, the rate of increase in salaries and life expectancy, among others. Changes in these assumptions can have a significant effect on the value of the retirement benefit obligation. The key assumptions made are set out in Note 24 of the Network Rail Limited annual report and accounts 2023-24. At 30 September 2024, the discount rate has increased to 5.1% from 4.8% at 31 March 2024 in line with corporate bond prices and yields. The Retail Price Index assumption decreased to 3.1% from 3.2%. The Consumer Price Index assumption decreased to 2.8% from 2.9%.

A further key judgement in the retirement benefit obligation, is the recognition of the surplus in relation to the RPS scheme. This is discussed further in Note 9. The change in discount rate assumption from 31 March 2024 is the key driver behind the increase in the RPS pension asset and in the decrease in the level of CARE pension liability reported in this period.

(iv)  Taxation: the group recognises and discloses its deferred tax assets in accordance with IAS 12. Where it is considered to be probable that deferred tax assets can be matched to future taxable profits then deferred tax assets are recognised or offset against the overall deferred tax provision as appropriate. This evaluation requires significant judgements to be made, including the uncertainty of the availability of future taxable profits. Further details are set out in note 9 of the 2024 annual report and accounts.

2.       Revenue

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Grant income	3,375	3,622	8,372
Franchised network access	1,719	1,498	2,851
Freight revenue	36	29	53
Property rental income	132	119	249
Other income	21	28	55
	5,283	5,296	11,580

The effect of the performance regimes on the results of the group was a reduction in income of £29m (six months to 30 September 2023: reduction of £102m).

3.   Net operating costs 

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Employee costs*	1,541	1,473	2,910
Own costs capitalised	(405)	(459)	(942)
Maintenance external charges	653	618	1,263
Energy charges	510	453	961
Business rates	147	155	232
Telecommunications and IT	119	108	219
Operational external charges	391	416	906
Other industry costs	84	76	152
Other operating income and recoveries	(180)	(184)	(444)
Net operating costs before depreciation	2,860	2,656	5,257
Depreciation and other amounts written off non-current assets	1,360	1,320	2,606
Amortisation of grants	(207)	(174)	(427)
Impairment of HS2 related works	-	-	88
Net operating costs	4,013	3,802	7,524

*The average number of employees (including executive directors) in the six months ended 30 September 2024 was 41,038 (six months ended 30 September 2023: 41,063).

4.   Finance income, finance costs and other gains and losses

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Interest receivable on investments and deposits	2	5	15
Finance costs
Interest on bank loans and overdrafts	(3)	(26)	(46)
Interest on loan issued by Department for Transport	(419)	(353)	(745)
Interest on bonds issued under the Debt Issuance Programme	(817)	(1,189)	(1,745)
Interest on derivative instruments	(19)	(30)	(62)
Defined benefit pension schemes net interest cost	(1)	(4)	(8)
Lease interest payable	(8)	(7)	(13)
Total finance costs	(1,267)	(1,609)	(2,619)

Other gains and losses
Net decrease in fair value of debt	1		2		4
Gain on derivatives	15		29		53
Total other gains and losses	16		31		57

 

5.   Tax

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Current tax:
Current tax on profits	-	-	-
Adjustment in respect of prior years	-	-	(1)
Total current tax	-	-	(1)
Deferred tax:
Current year (charge)/credit	(1)	19	(388)
Effect of rate change	-	-	-
Adjustments in respect of prior years	3	(4)	(119)
Total deferred tax credit/(charge)	2	15	(507)
Total tax credit/(charge)	2	15	(508)

Closing deferred tax is calculated at a rate of 25 per cent (31 March 2024: 25 percent, 30 September 2023: 25 percent). The amount at which timing differences crystallise is sensitive to the decisions on future tax laws to be taken by Parliament.

UK corporation tax is calculated at 25 per cent (31 March 2024: 25 per cent).

6.   Property, plant and equipment - the railway network

		Group Assets	Group Capital grants	Group Carrying value
		£m	£m	£m
Valuation
At 31 March 2022		86,631	(10,741)	75,890
Additions - Enhancements		2,445	(2,445)	-
Additions - Renewals		4,046	-	4,046
Total Additions		6,491	(2,445)	4,046
Disposals		(28)		(28)
Transfers held for sale		-	-	-
Transfer to investment property		2	-	2
(Depreciation charge)/ grant amortisation for the year		(2,278)	298	(1,980)
Revaluation in the year		4,803	-	4,803
At 31 March 2023		95,621	(12,888)	82,733
Additions - Enhancements		2,699	(2,699)	-
Additions - Renewals		4,070	-	4,070
Total Additions		6,769	(2,699)	4,070
Disposals		(162)		(162)
Transfers to held for sale		-	-	-
Transfer to investment property		(1)	-	(1)
(Depreciation charge)/ grant amortisation for the period		(2,477)	419	(2,058)
Reclassification of deferred capital grants		-	(494)	(494)
Impairment of HS2 related works		(145)	57	(88)
Revaluation in the period		2,883	-	2,883
At 31 March 2024		102,488	(15,605)	86,883
Additions - Enhancements		1,282	(1,282)	-
Additions - Renewal		1,764	-	1,764
Total Additions		3,046	(1,282)	1,764
Disposals		-	-	-
Transfer to held for sale		-	-	-
Transfer to investment property		1	-	1
(Depreciation charge)/ grant amortisation for the period		(1,300)	203	(1,097)
Revaluation in the period		1,340	-	1,340
At 30 September 2024		105,575	(16,684)	88,891

Given the economic and physical interdependency of the assets comprising the rail network, the company has concluded that the rail network is considered as a single class of asset. The rail network is carried at its fair value.

As there is no active market in railway infrastructure assets, the company has derived the fair value of the rail network using an income approach.

When valuing the network, management is required to consider the value a knowledgeable willing party would place on the network in an arm's length transaction. On the grounds that third-party investors are known to value the assets of regulated companies by reference to the Regulated Asset Base (RAB), and that the cash flows associated with the regulatory framework are considered sufficiently stable and robust to form the basis of a third-party valuation, management has used the RAB as the starting point for its valuation.

Under this approach the cash flows that a network licence holder expects to generate from the rail network are assessed using a market rate of return. This valuation is conducted twice a year and revaluation gains and losses are reflected in other comprehensive income.

Under this model the network licence holder's annual income (received in the form of the network grant and track access charges) would comprise:

a) The regulator's assessment of the efficient costs of operating and maintaining the network.

b) An allowance for RAB amortisation - qualifying capital expenditure is added to the RAB as incurred and recovered by the company through future amortisation allowances (in order to spread the cost to customers and stakeholders of investment in the rail network over many years).

c) An allowed return on the RAB - calculated by applying the rate of return permitted by the ORR (based on its assessment of the market's cost of capital) to the RAB balance.

Future cash flows under (a) are assumed to be equivalent over time to the network licence holder's actual costs of operation and maintenance, on the basis that the regulator aims to set targets which are ambitious but achievable. These therefore have no net impact on forecast future cash flows, or the valuations. The allowed return (c) is based on a cost of capital which would be offset in a discounted future cash flows model (see Discount rate below). The economic rights inherent in ownership of the regulated rail network asset are therefore vested primarily in the value of the RAB, which will be recovered through future regulated income as the RAB is amortised (b).

This means that it is possible for the RAB itself to be used as the starting point for a discounted cash flow valuation. The RAB fluctuates in valuation, increasing in value principally because of allowances for capital expenditure and inflation indexation, whilst reducing for amortisation. The adjustments may give rise to upwards or downwards revaluations. Further changes are subject to:

a) Adjustment for any difference between regulatory rate of return and the market cost of capital that a third-party investor would use to assess the value of the network (the rate of return and market cost of capital are currently assessed as fully aligned); and

b) Adjustment for forecast future under or out performance against the regulatory determination over the remainder of the current control period. No adjustment is made in respect of future control periods on the expectation of the regulator setting, over the long term, ambitious but achievable determination.

Revaluation

The valuation includes a £1.3bn upward movement in the value of the railway. The key drivers for the valuation are:

- The impact of indexation inflation (£2.1bn increase in the valuation).

- Negative forecast future cashflow adjustments have decreased by £0.1bn (£0.1bn decrease in the valuation).

- The rate at which assets are amortised in the RAB and assets are depreciated under IAS 16 (£0.5bn decrease in the valuation).

Impact of indexation inflation

Indexation inflation was based on management's forecast for November CPI, of 2.4 per cent. This has added £2.1bn to the valuation of the Regulatory Asset Base. The valuation is sensitive to the CPI assumption. If CPI varied by 1%, this would result in a £0.9bn change in the valuation of the network.

Third party funding

Additions to the railway network funded by capital grant, rather than via the RAB funding mechanism, are included in the valuation at cost. The carrying value of property, plant and equipment is calculated after netting off associated grant funding received or receivable.

Disposals

Disposals are because of property sales in the usual course of business. In line with Regulatory Accounting Guidelines the net proceeds of sales are deducted from the RAB, reducing the valuation of the Railway Network Valuation. The valuation of the disposals is assessed as being equal to the reduction in the valuation of the Railway Network relating to property sales. Renewals are completed at the end of the useful life of the asset and hence there is no value attributable to the item being renewed that needs to be derecognised from PPE. No disposals were made for the period to 30 September 2024.

Depreciation

The depreciation charge for any year is calculated using the average carrying value for the year and the estimated remaining weighted average useful economic life of the rail network. The remaining weighted average useful economic life of the rail network was calculated using the engineering assessment of serviceable economic lives of the major categories that comprise the rail network. The estimated remaining weighted average useful economic life of the network is currently 40 years (2023: 40 years).

Forecast performance variations

In assessing the value of the rail network, management considers that a knowledgeable willing third party would consider the perceived fairness and deliverability of the current regulatory determination. Accordingly, management makes an addition (or deduction) to the valuation for its assessment of the likely ORR determination in respect of the financial

consequences of anticipated future out (or under) performance against the regulatory determination.

Cost outturns on capital work (renewals and enhancements) have an impact on future cash flows under the regulatory framework, since only efficient overspending in excess of regulated cost targets can be added to the RAB.

At 30 September 2024, the valuation included an increase of £100m to £200m for projected financial under performance.

Capital commitments

At 30 September 2024, the group had entered into contractual commitments in respect of capital expenditure amounting to £4,445m (31 March 2024: £3,041m).

7.   Net borrowings

	Unaudited 30 September 2024	Unaudited 30 September 2023	Audited 31 March 2024
	£m	£m	£m
Net borrowings by instrument
Cash and cash equivalents	1,042	759	428
Collateral placed with counterparties	63	111	85
Collateral received from counterparties	-	(2)	(3)
Bank loans	(670)	(639)	(663)
Lease liabilities	(412)	(378)	(356)
Bonds issued under the Debt Issuance Programme (Including unamortised premium, discount and fees)	(28,294)	(28,166)	(27,708)
Department for Transport facility borrowings	(31,899)	(31,202)	(31,928)
	(60,170)	(59,517)	(60,145)
	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Movements in net borrowings
At the beginning of the period	(60,145)	(59,058)	(59,058)
Increase in cash and cash equivalents	614	456	125
Proceeds from borrowings	(13,237)	(1,940)	(3,915)
Repayment of borrowings	13,237	1,940	3,915
Capital accretion	(612)	(967)	(1,303)
Movement in collateral placed with counterparties	(22)	(30)	(56)
Movement in collateral received from counterparties	3	-	(1)
Movement in lease liabilities	(56)	29	51
Decrease in DFT collateral facility	20	35	60
Fair value and other movements	28	18	37
At the end of the period	(60,170)	(59,517)	(60,145)
Net borrowings are reconciled to the consolidated balance sheet as set out below:
	Unaudited 30 September 2024	Unaudited 30 September 2023	Audited 31 March 2024
	£m	£m	£m
Cash and cash equivalents	1,042	759	428
Collateral placed with counterparties (included in trade and other receivables)	63	111	85
Collateral received from counterparties (included in trade and other payables)	-	(2)	(3)
Borrowings included in current liabilities	(5,261)	(15,319)	(15,792)
Borrowings included in non-current liabilities	(56,014)	(45,066)	(44,863)
	(60,170)	(59,517)	(60,145)

The proceeds and repayment of borrowings lines above differ to the values included in the cash flow statement due to the presentation of drawdowns and repayments of loans with DfT. The items above include items where cash has not been exchanged whereas the cash flow statement includes only those items where cash was exchanged.

8.   Notes to the cash flow statement

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Profit/(Loss) before tax	3	(82)	1,503
Adjustments for:
Property revaluation movements and profits on disposal	18	3	5
Fair value gain on derivatives and debt	(16)	(31)	(57)
Net interest expense	1,265	1,604	2,604
Depreciation	1,360	1,320	2,606
Amortisation of grants	(207)	(174)	(427)
Amortisation of intangible assets	1	-	-
Impairment of HS2 related works	-	-	88
Non cash movement in retirement benefit obligations	48	50	66
(Decrease)/Increase in provisions	12	(4)	-
Operating cash flows before movements in working capital	2,484	2,686	6,388
(Increase)/Decrease in inventories	(26)	11	(22)
Decrease/(Increase) in receivables	91	(42)	1
Increase/(Decrease) in payables	285	132	(1,109)
Cash generated from operations	2,834	2,787	5,258

Cash and cash equivalents (which are represented as a single class of assets on the face of the balance sheet) comprise cash at bank and commercial paper, all of which are on call except for short-term deposits. There were £1,079m (excluding offsetting clearing accounts) of short-term deposits with the government banking scheme (GBS) held as at 30 September 2024 (31 March 2024: £463m).

9.   Retirement benefit schemes

The amount included in the balance sheet arising from the company's obligations in respect of defined benefit schemes is as follows:

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Present value of defined benefit obligation	(8,930)	(8,167)	(9,336)
Fair value of scheme assets	9,151	8,359	9,048
Surplus/ (Deficit) in the scheme	221	192	(288)
Adjustment for member's share of surplus	128	113	148
Group's share of the scheme surplus / (deficit) recognised in the balance sheet	349	305	(140)

The retirement benefit balances are reconciled to the balance sheet as set out below:

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
	£m	£m	£m
Section of RPS disclosed as Retirement benefit asset	541	474	82
CARE Scheme disclosed as Retirement benefit liability	(192)	(169)	(222)
Net retirement benefit surplus / (liability)	349	305	(140)

These amounts are presented as a non-current asset and a non-current liability in the balance sheet. Cumulative gains or losses are recognised in equity.

The RPS Section reports a £541m surplus based on assumptions made at 30 September 2024. The group has considered the scheme rules and concluded we have an unconditional right to the return of surplus assets in the RPS scheme and have recognised the surplus. The basis for this judgement is that Network Rail could veto any proposed utilisation of the surplus and the Trustees cannot unilaterally wind up the scheme. If in the event of a wind up of the scheme, there are no beneficiaries remaining, then the surplus would be returned to Network Rail. While it is considered extremely unlikely that Network Rail would veto any use of the surplus until such time that no beneficiaries are alive, the result is nonetheless that Network Rail have an unconditional right of the surplus in line with the accounting recognition requirements of IFRIC 14.

Network Rail's share of the CARE scheme deficit is £192m and so the combined position at 30 September 2024 is a surplus of £349m.

Key assumptions used are as follows:

	Unaudited six months ended 30 September 2024	Unaudited six months ended 30 September 2023	Audited year ended 31 March 2024
Future price inflation (RPI measure)	3.1%	3.3%	3.2%
Future price inflation (CPI measure)	2.8%	2.9%	2.9%
Discount rate	5.1%	5.6%	4.8%
Pensionable salary increases	3.1%	3.3%	3.2%

In June 2023, the UK High Court ruled that certain historical amendments for contracted-out defined benefit schemes were invalid if they were not accompanied by the correct actuarial confirmation. The Court of Appeal upheld this ruling in August 2024. Based on the work performed to date, there is no adjustment included in the interim financial statements in relation to the court case. The group will keep this matter and any other cases in this area under review.

10. 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.

Except for bank loans and bonds, the carrying amount of all financial assets and liabilities approximates to their fair value.  Bank loans and bonds are initially measured at fair value and subsequently at amortised cost; except for bonds designated as fair value through profit and loss.

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

	At 30 September 2024		At 30 September 2023		At 31 March 2024
	Carrying value £m	Fair value £m	Carrying value £m	Fair Value £m	Carrying value £m	Fair Value £m
Bank loans	670	733	639	689	663	737
Bonds issued under the DIP	28,248	28,125	28,117	27,296	27,661	28,174
Borrowings issued by Department for Transport	31,899	31,605	31,202	29,674	31,928	31,061
Total	60,817	60,463	59,958	57,659	60,252	59,972

Bonds issued under the Debt Issuance Programme 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 bonds held at fair value through profit or loss, but not in the fair value of bonds held at amortised cost.

Fair value hierarchy

The following table provides an analysis of assets and liabilities that are measured after initial recognition at fair value, grouped into Levels 1 to 3 as defined by IFRS 13, based on the degree to which the fair value is observable:

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

Level 2 fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of interest rate and cross currency swaps is calculated as the present value of the estimated future cash flows using yield curves at the reporting date; and

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

	Unaudited 30 September 2024 £m	Unaudited 30 September 2023 £m	Audited 31 March 2024 £m
Level 2 Derivative financial assets	41	126	72
Assets	41	126	72
Level 2
Financial liabilities designated at fair value through profit and loss	(46)	(49)	(47)
Derivative financial liabilities	(103)	(230)	(152)
Liabilities	(149)	(279)	(199)
Total	(108)	(153)	(127)

The fair value of level 2 derivatives is estimated by discounting the future contractual cash flows using appropriate yield curves based on quoted market rates as at the current financial year end.

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

11. Related parties

The Department for Transport (DfT) and Transport Scotland (TS) are considered related parties of Network Rail. Network Rail received grant income of £3,153m from the DfT in the six months ended 30 September 2024 (30 September 2023: £3,428m). Network Rail received grant income of £222m from TS for the six months ended 30 September 2024 (30 September 2023: £194m). The total of this income is "Grant income" in Note 2. At 30 September 2024, the company held £31,899m of loans issued by DfT (31 March 2024: £31,928m).

The British Transport Police (BTP), with whom Network Rail has a Police Service Agreement is also a related party. Network Rail incurred £66m (2023: £60m) of costs relating to services provided by the BTP in the six months ended 30 September 2024 and received £0.5m (30 September 2023: £0.5m) in property income from the BTP in the same period.

Network Rail is also a related party of High Speed 2 (HS2). At the interim date Network Rail held £51m (30 September 2023:  £44m) of capital work in progress relating to works on HS2 and had also received £80m (30 September 2023: £89m) of capital grants that was recorded against property, plant and equipment.

East West Rail (EWR) is also a related party of Network Rail. During the 6 months ended 30 September 2024, Network Rail received income of £629k (30 September 2023: £292k) from EWR for the provision of feasibility studies and development activities services.

Network Rail is one of DfT OLR Holdings Limited's main industry stakeholders, with common ownership through the latter being wholly owned by the Secretary of State for Transport. Transactions between Network Rail and DfT OLR Holdings Limited are at arm's length. During the period ended 30 September 2024 £405m (30 September 2023: £315m) for services rendered, net of purchases, was received from DfT OLR Holdings Limited. Capital project funding paid, net of capital costs amounted to £30m (31 March 2024: £40m). At 30 September 2024 balances with DfT OLR Holdings Limited included payables of £Nil (31 March 2024: £4m) and receivables of £35m (31 March 2024: £17m).

12. 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.

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END