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Thursday 24 May 2007

NETWORK RAIL INFRASTRUCTURE LIMITED – PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2007

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National

RECORD PROFIT FUNDS £3.3 BILLION INVESTMENT PROGRAMME MORE TRAINS ARRIVING ON TIME

Network Rail today publishes its preliminary results for the year to 31 March 2007, which show a record post-tax profit of £1bn, which has been reinvested in the railway, helping to fund a £3.3bn investment programme. The results also show that train punctuality at its highest level for almost eight years, with 88.1% of trains arriving on time in the year 2006/7. Unveiling the results, Chairman Ian McAllister said: “The performance of Network Rail and of the railway network has improved further in the last year as a result of efforts by Network Rail and the train operating companies. More trains are arriving on time than at any point over the past seven and a half years and costs continue to be driven downward. The rail network is also benefiting from record investment to meet the growing demands of passengers and freight users. “Of course, we cannot look back on the year and not remember the tragedy at Grayrigg in Cumbria in February. The company has accepted full responsibility and I would like to reiterate the Chief Executive's apology to those affected. We continue to work with all the authorities to unearth the underlying causes of the derailment in order to fully understand the reasons behind the derailment. "We should not, however, lose sight of the fact that the railway is now safer than it has ever been, and more importantly, that it is the safest form of transport with key safety indicators, such as broken rails, at record low levels. “Alongside maintaining high levels of safety and train punctuality, Network Rail continues to improve the financial efficiency of the railway. The £1bn of post-tax profits during 2006/07 has already been re-invested in the railway, helping to fund Network Rail’s £3.3bn capital investment programme, and is a tangible benefit of the company’s not-for-dividend status.” Financial highlights

• A post-tax profit of £1bn, compared with a loss of £253m the previous year (additional information about this can be found in notes to editors)
• Turnover was £5.8bn, an increase of £2bn against the previous year
• Operating profit increased to £2.3bn, up from £468m in 2005/6
• Operating costs (before depreciation) are down by £63m in real terms
• Net debt stands at £18.4bn, up marginally from last year’s £18.2bn

Performance results

• Train punctuality is at its highest level since October 1999 with an average of 88.1% of trains arriving on-time, compared with 86.4% the previous year, and 78.6% when Network Rail became the operator of the railway infrastructure
• Delays caused by infrastructure faults were reduced, but delays caused by external factors (such as the January storms) increased by 700,000 minutes. This resulted in an overall number of delay minutes equal to last year’s total of 10.5m minutes
• Freight volumes were sustained, and are currently 60% higher than those in 1996 when the rail industry was privatised; container traffic from deep-sea ports was particularly strong in the past year with another 5% annual rise to new record levels

Investment There have been sustained levels of investment in the network:

• 639 miles of new rail were laid
• 528 miles of new ballast were laid
• 476 switches and crossing units were installed

Efficiency

• A 24% efficiency saving has been made over the past three years – equivalent to a £1.3bn saving
• The company is on course to make the 31% saving target set for 2009 by the Office of Rail Regulation

Group Finance Director Ron Henderson said: “In financial terms, this year has been a year of solid and anticipated progress. This is due to strong budgetary control and efficiencies. Our financial focus going forward remains to deliver more savings and to secure a firm base for further investment and improvement for the network in the years ahead." Mr McAllister concluded: "Today's railway is a thriving railway. In recent years the performance of the network has improved substantially and it continues to do so. Today's results reinforce these achievements and the challenge of the future is one of capacity. Network Rail is determined to work with train operators and the Government to continue to grow the network and meet the aspirations of passengers and freight users alike." Annual incentive awards 2007 Following receipt of the company’s performance figures for 2006/07, the Network Rail Remuneration Committee met to review the totality of the company’s performance against the demanding targets set by the Office of Rail Regulation. These targets were made even tougher by the company last year. The key performance indicators for the management incentive plan (MIP) are:

• Asset stewardship (measures the condition of railway assets)
• Train reliability (measures the punctuality of passenger and freight services)
• Financial efficiency (measures the financial efficiency of Network Rail)

The Grayrigg tragedy, and the significant costs that resulted, affected the company’s performance, lowering the overall bonus payments for all Network Rail employees. In addition, the Remuneration Committee felt it appropriate to reduce bonus payments to senior executives still further in reflection of the Grayrigg derailment. The committee decided to deduct a further 15% from the bonus earned by the company’s senior executives. The overall outcome is a 63% reduction in the annual executive bonus compared to last year. Mr McAllister said: “Every single employee at Network Rail has paid a personal price for the Grayrigg derailment. This is as it should be in an organisation that has taken responsibility for such a tragedy.” Executive directors’ annual bonus award summary:

Last year's award

• John Armitt - £240, 408
• Iain Coucher - £214,650
• Ron Henderson - £160,153
• Peter Henderson - £160,153

This year's award

• John Armitt - £88,740
• Iain Coucher - £79,220
• Ron Henderson - £59,057
• Peter Henderson - £59,057

The Long-term incentive plan (L-TIP) sets long-term targets for train punctuality and financial efficiency, and is designed to perform a similar role to share options in a PLC. The existence of such a scheme is a requirement of Network Rail’s licence, as regulated by the ORR and approved by Members. The key performance indicators for the long term incentive plan (LTIP) are:

• Train punctuality
• Cost reduction

These are measured over a three-year rolling period, and awards are made on the basis of targets met for the three years as a whole. The targets for the three-year period to 31 March 2007 were met, triggering payments from the L-TIP scheme in the same amounts as last year. Payments will be as follows: John Armitt - £112,320; Iain Coucher - £99,840; Peter Henderson - £74,880; and Ron Henderson – £74,880.