Network Rail debt will reach £52bn by 2019
Network Rail’s debt increased 10.2% to £41.6bn last year (2014/15: £37.8bn) and will reach £52bn by 2019, according to the infrastructure provider’s annual report for the year ended 31 March 2016. Of £7.5bn borrowed from the DfT in 2015/16, £3.1bn was to refinance existing debt leaving £4.4bn for investment.
Network Rail was reclassified as a public sector body from 1 September 2014 and has only been able to borrow from the DfT since; it no longer issues private sector bond debt. However, £28.9bn of its £41.6bn debt is still held privately and is redeemable between 2016 and 2052. The other £13.9bn is held by the DfT.
NR’s revenue increased only by 0.2% to £6.098bn (2014/15: £6.087bn), but operating costs rose faster at 3.2% to £4.491bn (2014/15: £4.352bn). Operating profit fell 7.4% to £1.607bn (2014/15: £1.735bn), and finance costs were also down at £1.322bn (2014/15: £1.338bn).
Profit before tax plummeted 18.8% to £411m (2014/15: £506m). However, profit after tax was £717m since NR benefited from a £306m tax credit (for utilising previously derecognised tax losses). This compared to the previous year’s £376m loss after tax.
Further analysis of the £6.098bn revenue shows that combined franchised track access charges and grant income accounted for £5.742bn in 2015-16. There is no disaggregation between the two sources, though ORR’s GB Rail Industry Financial Information 2014-15 disclosed that the network grant amounted to £4.164bn in the previous financial year, 2014/15.
A Network Rail spokesman informed 21CR that the network grant for 2015/16 was £4.282bn, adding:
“We have always aggregated the network grant and track access charges (TACs) in the annual accounts as this is the regulatory income determined by the regulator’s determination of charges. Further breakdown on income types is published in the Regulatory Financial Statements that are updated on our website annually on 31 July.”
Network Rail also derives income from other sources: property rental income £274m (2014-15: £256m); freight revenue £56m (2014/15: £75m); and from other income streams £26m (2014/15: £27m). The 25.3% fall in freight revenue was due to the decline in the coal industry.
NR invested £3.527bn (2014/15: £3.393bn) in enhancements, and £3.077bn (2014/15: £2.949bn) in renewals.
Commenting upon the results, NR’s chief financial officer Jeremy Westlake said:
“Lower profitability year on year was built into the regulatory settlement. Profit before tax has been planned to decline over each year of CP5 as a result of increased depreciation and financing costs associated with the enhancement programme. Only a small net surplus was expected across the five-year period, given that expenditure assumptions were achieved. In this context it was entirely in line with expectations that profit before tax fell to £411m, compared to £506m last year. The largest change was the net £130m increase in depreciation and amortisation fuelled by the high levels of investment into the railway network. We expect a decline in profit before tax in each of the remaining three years of this control period . . .
“The investment programme consumed all £2.2bn net cash generated from operations and a further £4.4bn drawn down from the Department for Transport (DfT) loan facility.”
Westlake added that NR charges were the lowest in real terms for the last 10 years despite the continued increases in passenger and freight traffic. The infrastructure provider had also been badly hit by the severe weather which had cost over £130m.
Regarding the growing debt, Westlake commented:
“Network Rail plans to borrow significantly over the remainder of the control period to finance the investment programme. We plan to draw down a further £11.2bn from the agreed DfT loan facility to finance this investment, and a further £5.7bn to refinance maturing debt. As a result, by March 2019 the net debt will increase to around £52bn.
“During the year ended 31 March 2016 Network Rail borrowed£7.5bn from the DfT. Part of this new debt was used to payback existing bonds whilst the remainder was used to invest in the railway infrastructure. As a result net debt rose from £37.8bn to £41.6bn.”
NR has already drawn £13.9bn from DfT’s £30.9bn loan facility for CP5 (2014-19); the £11.2bn and £5.7bn mentioned above will account for the rest. The final investment/debt repayment split for CP5 will be £19.3bn/£11.5bn.