NETWORK RAIL has announced its full-year financial results, just a few days before the Office of Rail Regulation is due to publish its draft determination of Network Rail's budget for the next five years.
There is speculation in the industry that the ORR will be taking a tough stance over Network Rail's proposal to spend £37.5 billion in Control Period 5, which runs from 2014 to 2019.
The company said its main problem was dealing with the 'challenge of success', but also acknowledged that bad weather had caused delays and damaged infrastructure.
Repairs following weather damage had cost £58 million, but the pre-tax profit rose to £775 million, compared with £475 million in 2011-2012. However, profit after tax was £699 million, down from £761 million a year earlier.
Network Rail has no shareholders, and so its annual surpluses are reinvested in the business. Revenue was up (£6.197 billion compared with £6.004 billion) but so were operating costs, which increased from £3.657 billion last year to £3.980 billion this year. This total included £133 million of depreciation, as well as the costs of weather damage.
The company's borrowings also continued, and its net debt at the end of the financial year was £30.358 billion, compared with £27.282 billion in 2011-12. But it said that this 'gearing ratio' of 65 per cent was 'comfortably within our regulator’s 75 per cent limit'. This ratio is calculated by dividing the value of the assets by the company's debt, and means that Network Rail now owes a sum which is almost two-thirds of the value of its assets.
It is also spending more on servicing its debt. Under the heading 'operating activities', Network Rail paid interest of £1.038 billion in 2012-13, compared with £970 million the previous year.
The railway infrastructure is now worth more after capital expenditure of £5.05 billion (up from £4.6 billion) had boosted the asset value to £46.411 billion – an increase of £3.299 billion.
The number of staff fell from 35,253 to 35,190, but staff costs rose to £1.779 billion compared with £1.679 billion last year.
Network Rail group finance director Patrick Butcher said: "The challenge we have faced over the last year, and will continue to face in the years ahead, is one of success – more people wanting to use more trains, more of the time. Over the last 12 months we have invested an unprecedented amount in expanding the rail network through over 2,000 projects.
"However, the economic times in which we live mean that alongside delivering new capacity we need to keep a constant drive for improved efficiency. Our overall financial performance remains strong and we are on track to deliver over £5 billion of cost savings for the five years to 2014."