Media centre

Thursday 3 Jun 2010

HELPING BRITAIN PROSPER: NETWORK RAIL CONTROLS COSTS AS IT UNVEILS FULL YEAR RESULTS

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National

Network Rail continued to drive efficiencies in running Britain’s railway as it reveals its full year, preliminary financial results. Costs have been controlled; its debt to gearing ratio is sustainable whilst the company’s strong financial performance meant that solid profits were reinvested in the railway.

In line with the regulatory settlement – control period 4 ­– and Network Rail’s delivery plan, which began on April 1, 2009 – revenue fell from £6,160m to £5,668m. This meant Network Rail was able to cut its charges to passenger and freight operators. For passenger operators charges have been cut by 7% or   22p per passenger train journey. On average, freight charges have fallen by 35%.

Chief executive, Iain Coucher said: “Passengers care most about trains being on time and we have delivered another record year with punctuality surpassing 91%. Network Rail also has a duty to get best value for the British people and we have retained a tight focus on controlling costs. This has meant that we can cut charges to passenger and freight operators. As a result, the savings we make could be passed on to passengers in lower fares or to taxpayers through lower government subsidies to the rail industry.

 “This year is the first of five under the current funding settlement agreed with the Office of Rail Regulation. Our results show we are delivering well against the ORR’s key performance indicators, meeting or exceeding the vast majority of them. There remains a lot more hard work to do in this control period, this is a long-term business but solid groundwork has been laid.”

Financial highlights

In line with the regulatory determination that reduced Network Rail’s annual rate of return expressed through track access charges to 4.8% (compared to 6.5% over the last three years), revenue and profits were down

• Revenue was £5,668m down from £6,160m,
• Net operating costs were up slightly to £3,687m from £3,616m, this largely due to higher (but lower than inflation) staff costs,
• Operating profits were down to £1,981m from £2,544m, again in line with the regulatory determination
• Profit after tax was £284m, down from £609m
• Net debt rose to £23,838m from £22,307m, to help fund our investment programme, but had a lower gearing (debt to regulated asset base) ratio of 64% – down from 70% –  well within permitted limits
• Capital expenditure was £3,920m, down from £4,743m

Group finance director, Patrick Butcher added: “Network Rail is maturing into a company that is financially strong and sustainable. Our efforts in controlling costs mean that we have made good progress in delivering even greater value for Britain.

“Our financial performance means we generated operational cash flows 80% greater than required to pay our net financing costs. Our gearing ratio [debt to regulatory asset base] of 64% shows that our debt is at a sustainable level and gives the business a significant buffer to absorb unplanned costs.”

Efficiencies

• The business measures its performance against the CP4 delivery plan using two key performance indicators, the cost efficiency measure and financial value added
  • The cost efficiency measure records progress in reducing the running costs of Network Rail. The company developed a baseline at 1 April 2009 against which it needs to achieve savings of £1.1bn by the end of CP4. In 2009/10 its operations, maintenance and renewal activities are £265m lower than the baseline.
  • The financial value added indicator measured a positive performance of £101m, this means activities this year have been at a net cost of £101m less than the delivery plan on a like for like basis
• Maintenance costs were reduced by 7% or £86m on a like for like basis, through tight cost controls and productivity improvements
• It costs 25 pence less, on average, to run a train one mile than it did last year and £3 less than it did six years ago

Performance results

• In 2009/10 the proportion of passenger trains running on time rose to 91.5%, ahead of the overall target of 91.0% and better than the 2008/9 figure of 90.6%
• When Network Rail became infrastructure manager in 2002 – taking over from Railtrack in administration – the figure was only 78.6%
• Severe winter weather caused 40% of all delay minutes in January
• Better planning of investment work reduced disruption to train operators meaning that additional income from CP4 performance and availability payments was £21m ahead of what was assumed in the delivery plan

Projects

There has been significant growth in the number vital enhancement projects Network Rail is managing, all of which will add capacity to the railway and drive economic growth for Britain. Some highlights include:

• Airdrie to Bathgate – a new line being built in Scotland, scheduled to open in December 2010
• The programme of work for the London 2012 Olympics continues; this includes new lines, new stations, better facilities and new rolling stock on the North London Line and East London Line in addition to works to support and enable the transport links being developed in the Stratford area
• Construction is well advanced on the Thameslink programme
• Also as part of the transport strategy for London, the Reading project has advanced, as well as key development work now underway for Crossrail
• Newport station regeneration
• The Birmingham Gateway project to redevelop New Street has attracted a significant amount of third party investment

Mr Coucher concluded: “In a more austere spending environment it is vital that Network Rail continues to drive down costs and make further efficiency savings. A strong start has been made in 2009/10 in delivering against our targets but we must and we will work harder and faster in the coming years.”