Network Rail announces half year results

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Network Rail remains ‘broadly on course to meet its tough efficiency challenge and thus its commitment to drive down the cost of the railway’.

Network Rail’s running costs are, in real terms, ‘over £300m lower in the first six months of the financial year than the prevailing costs back in 2008-9, when the efficiency challenge was set’. The forecast is to achieve over £700m of savings by the end of the year.

The pace of delivery of Network Rail’s investment activities, aimed at renewing the railway network and increasing capacity, has increased with over £300m (20%) more invested in the first six months compared to the same period last year.

Comparing the six months under review to the same period in 2010, 92.8% of trains ran on time compared to 93.5% last year.

Performance has been adversely impacted by ‘increasing levels of cable theft’. However, Network Rail ‘continues to reduce the number of infrastructure failures’.

Financial highlights of the last six months

  • Revenue was £2,997m compared to £2,870m for the same period last year
  • Operating profit was £1,227m compared to £1,124m
  • Profit after taxation was £136m compared to £275m
  • Capital expenditure – the amount invested in the railway over the period – was £2,071m compared to £1,732m
  • Net debt was £25,742m compared to £25,049m at the year ended 31st March 2011

Network Rail’s group finance director, Patrick Butcher, said:

“Network Rail remains committed to running a safe railway with increasing cost efficiency, investment and performance.

“As Network Rail devolves responsibilities for much decision making from the corporate centre to its routes, it will create a platform for new collaborative ways of working with its customers that will drive down the overall cost of the railway.”

Efficiencies

In autumn 2008 Network Rail was set the ‘demanding challenge’ by the Office of Rail Regulation of cutting costs by 22% between 2009 and 2014.

The measurement of efficiency is a complex task ‘best done over a number of years’. In a capital intensive business like Network Rail this involves a degree of judgement.

By the end of last year an estimated 13% had been saved and in the half year efficiencies has contributed to further savings of over £300m.

Network Rail forecasts to achieve over £700m in this financial year. Total efficiency over the first three years of this control period is forecast to reach between 16% to 17%.

This has been achieved by ‘delivering capital works for less, better asset management, and by reducing operating and maintenance costs’.

Investment

Delivery of works has increased by over 20% on the same period last year, with over £2bn invested in the railway in the half year.

Significant progress has been made on the upgrade of Thameslink with major work at Farringdon and Blackfriars, as well as with projects at King’s Cross, Birmingham New Street, Reading, and on Crossrail.

Major works in Scotland include Paisley Corridor improvements.

Other projects completed in the half year include work on the upgrade of the Cotswold line and the Evergreen 3 mainline project.

As a result of completion of the latter, the Chiltern Railways new timetable was launched in early September. This reduces journey times to Birmingham Moor Street to 90 minutes.

Revenues

Revenue increased in the period in line with the business plan. Most of Network Rail’s turnover is indexed to RPI – the effective rate for the period was 4.7%, and turnover increased accordingly.

Network Rail’s income is largely fixed by the regulatory regime which means that great emphasis is placed on cost efficiency and ensuring marginal costs are exceeded by marginal income.

Debt

Net debt of £25,742m remains at an expected level, up from £25,049m at year end. The increase is largely due to capital investment and the increase in the valuation of RPI-linked bonds.

Network Rail is confident that its debt is well managed and the company has a policy of appropriate hedging. The company issued three bonds in the half year and its issuance programme remains attractive to the market.

Assets

The valuation of the railway network increased to £42,112m at 30 September 2011 from £39,577m at 31 March 2011, reflecting £2,071m of capital investment in the infrastructure over the last six months, depreciation of £681m and a revaluation of £1,145m.

Outlook

Mr Butcher concluded: “Over the next six months Network Rail will undertake a major transition, with all the newly devolved routes planning their businesses and taking decisions that draw on local knowledge.

“The structures for new ways of working and partnerships with customers are in place, and in this way Network Rail will continue to provide a leading role in changing the rail industry.

“This and other strategic change programmes represent a major reform to the structure of Network Rail.

“These results show that Network Rail is continuing to both drive down costs and increase capacity on the railway.

“These achievements meet commitments to achieve efficiencies and to deliver better value-for-money for the rail industry, rail users and tax payers.”

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