Network Rail infrastructure limited

Network Rail infrastructure limited

  * Net operating costs down to £1.749bn for the six months to 30 September 2009 from £1.891bn for the six months to 30 September 2008
  * Revenue of £2.843bn (Sept 2008: £3.117bn)
  * Operating profit of £1.094bn (Sept 2008: £1.226bn)
  * Profit after tax of £99m (Sept 2008: £5m)
  * Capital expenditure of £1.791bn (Sept 2008: £2.161bn)
  * Net debt of £22.244bn (March 2009: £22.307bn)
  * Reduced charges to customers in the period by £274m
  * More than 3,000 additional train services per week
  * On time performance rose to 93.3% on average with over 5,000 more trains arriving on time each week

Iain Coucher, chief executive said: “The interim results for the half year to 30 September 2009 show good financial performance. Revenue figures are in line with regulatory targets for the current funding period (2009-14).

“Maintenance costs are declining, staff costs have been held steady, and our investment programme continues apace. The debt programme continues to be prudent, well managed and fully hedged.”

Operating and investment activities are compared to the first six months of the preceding financial year and balance sheet positions are compared to those set out in the annual report and accounts as at 31 March 2009.



In its review of Network Rail’s charges for 2009-14 the Office of Rail Regulation agreed that the company could afford a lower return on assets (4.8% compared to 6.5% for the last three years).

This has allowed Network Rail to cut its charges to passenger and freight users. Charges to passenger operators have fallen by half a penny per passenger kilometre (5%) or 22p per passenger train journey. Freight costs have fallen by on average £1.16 per gross tonne mile (35%).

The decline in revenue has been partly offset by strong performance in cutting delays to passengers and better planning of improvement work, triggering out-performance bonuses from train operators and reducing the payments to train operators for disruption caused by investment work. Net income from these payments was £58m, compared to £35m in the same period last year.


Network Rail is making very good progress in its commitment to reduce the costs of running the railway, making it ever more affordable. The combined target for 2009-14 is £4.1bn and currently efficiency savings are slightly ahead of projections.

Network Rail is able to make significant cost efficiencies in its maintenance operations by adopting smarter working practices. Maintenance costs were £65m (or 8.5%) lower as a result of savings on subcontractors, agency workers and the hire of plant equipment.

Network Rail will cut costs further by implementing new techniques to replace life-expired infrastructure, such as the use of prefabricated, modular bridges and switches and crossings. This will also reduce the time needed to close sections of the railway and increase the amount of time that the network is available for trains to run. Network Rail has recently announced a planned reduction of around 1,500 posts in maintenance over the next 18 months.

Network Rail’s expanding investment programme has allowed it to create 600 new jobs, combined with 500 jobs insourced as part of an efficiency drive. This has resulted in an increase in the workforce from 36,000 to 37,000 and an increase in total employee costs by £22m. The annualised average cost per employee, however, decreased by £414.

As a result of these savings, and other working capital movements, Network Rail generated cash flows of £1.638bn from its operating activities, broadly equivalent to the same period last year, despite the reduction in income. These cash flows funded 91% of the capital investment in the railway network in the period.


Investment remains at historically high levels reflecting the focus on adding capacity, increasing line-speeds and improving reliability. In London and the South East a major congestion-busting programme of platform lengthening, to allow longer trains, is well underway. The last six months has seen significant work started on other major projects, notably Thameslink, Birmingham New Street and the Airdrie to Bathgate line, near Edinburgh.


Net debt of £22.2bn remains at a sustainable level. Network Rail is confident that its debt is well managed and the company has a policy of fully hedging. The company’s debt issuance programme remains attractive to the market and continues to be over-subscribed. In the last six months over £2bn has been raised including a single public placement of a £750m inflation linked bond.


The valuation of the railway network rose to £35.476bn at 30 September 2009 from £34.925bn at 31 March 2009. This is despite a reduction in the valuation of investment property from £700m to £669m reflecting the continued depressed state of the property market.


Like many companies, Network Rail has seen its pension deficit rise. The increase in deficit has been driven primarily by the way accounting rules measure the present value of future liabilities, rather than by a worsening of the underlying position of the defined benefit scheme. This is despite an increase in the valuation of scheme assets which have risen in line with gains in the equity markets in the half year.

Accounting rules require that the total projected amounts that the scheme is obliged to pay out in the future are reduced to a present day liability using highly rated (AA) corporate bond indices. Given it is cheaper to borrow now than it was six months ago the amount by which the future pension costs are discounted has fallen, causing the valuation of the liabilities to increase, and the deficit, for accounting purposes, to worsen.

Network Rail’s liabilities in the Railway Pension Scheme are set at 60% with 40% borne by our employees. Network Rail’s share of the pension deficit on 30 September 2009 was £998m, compared to £664m on 31 March 2009.


Mr Coucher concluded: “Network Rail has a big task ahead. It must continue to drive down costs and reduce prices to customers and at the same time build a bigger and better railway through an extensive investment programme that will bring more trains, more seats and better journeys.

“Network Rail continues to invest through the downturn; providing skilled jobs and opportunities for partners and suppliers across Great Britain. It anticipates that demand for rail will continue to grow and this vital investment will meet the needs of a recovering British economy. Looking forward Network Rail is confident that as roads and airports become more congested, the greener and safer option of rail travel makes it the best choice.”