Railtrack Group PLC Preliminary Results for the 12 Months Ending March 31, 2001.
Business Editors
LONDON--(BUSINESS WIRE)--May 24, 2001--Railtrack PLC announces
preliminary results for the 12 months ending March 31, 2001.
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Financial Highlights
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3/31($)(b) 3/31((pound)) 3/31/((pound)
2001 2001 2000
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Operating Profit(a) 370m 261 424
Profit before tax(a) 282m 199 421
Exceptional item 1,038m 733 61
Earnings per share(a) .69 48.9p 69.9p
Earnings per share post
exceptional (.84) (59.6p) 58.0p
Full year dividend .38 26.9p 26.9p
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(a) Pre-exceptional
(b) US Dollar equivalents provided for reader convenience at the
March 30, 2001 rate of(pound)1=$1.4161
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Operational Highlights
-- Second half results dominated by impact of National Recovery
Plan
-- Normal timetable now restored - huge engineering task
-- Major business review completed - key issues identified and actions
underway
-- Real progress on safety indicators: broken rails down 24%
-- Regulatory review accepted - post-Hatfield interim review
application in 2002
-- (pound)1.5 billion ($2 billion) accelerated grants secured and
statement of principles with Government.
-- Strengthened Board and management team with new Chairman appointed
Looking forward Steve Marshall, Chief Executive said:
"The new management team knows that the only way to rebuild our
reputation is through delivery not words. That is what our customers,
our funders and the traveling public want. It will take money, time
and much increased focus on the basics to get the network to an
acceptable standard. Passengers are returning to the railway in huge
numbers - we are determined to help our customers meet their
expectations."
Overview
Operational and financial performance for the year has been
dominated by the adverse impact of the tragic Hatfield accident and
the subsequent National Recovery Programme. This has been the most
intensive program of rail renewal seen on Britain's rail system in the
last fifty years, with 500 miles of track and 1,100 switches and
crossings being replaced. Normal timetables were restored across the
network on May 21.
Over the last 12 months Railtrack has undertaken an unprecedented
safety program to reduce the risk of catastrophic accidents. Broken
rails reduced by 24% and the industry has achieved the lowest ever
number of signals passed at danger (SPADs), however serious SPADs have
shown a disappointing recent increase and industry-wide action is in
hand to address this.
Financial performance reflected the huge impact of the National
Recovery Programme most obviously in the exceptional item, but also in
its knock-on impact on underlying network performance. Profit before
tax was (pound)199 million ($282m) before exceptional items of
(pound)733 million ($1,038m). Earnings per share, before the
exceptional item, fell by 30% to 48.9p ($.69), with a loss per share,
after the exceptional item, of 59.6p ($.84).
A new management team is now in place under Steve Marshall, who
was appointed as Chief Executive in November 2000. At Board level
David Harding has joined the company as Finance Director and Sebastian
Bull has been appointed Business Development Director. John Robinson
has been announced as Railtrack's new Chairman and will take up his
appointment on July 2, 2001. David Jones has also joined the Board as
a non-executive Director.
Business Outlook
The events of the last 18 months have resulted in a loss of
confidence in Railtrack and the railways. The task facing Railtrack is
to deliver a reliable and safe rail network that meets the demands of
its customers, the traveling public and its funders. The faults and
shortcomings of the network are clearly identifiable and require long
term solutions and funding; there is no instant easy answer to the
years of underinvestment. Railtrack and the industry need to set
realistic objectives and ensure they are delivered. Achieving this
requires clear leadership and focus on the core business, building on
existing strengths which recent events have masked. Railtrack will
change to become faster moving, less bureaucratic, more customer
focused and with stronger engineering leadership and competencies.
In December the management team initiated a full-scale review of
the business to identify and quantify all problems and issues. This
process is now mostly complete and the company is in a position to
move forward.
To get clearer focus and accountability Railtrack is segregating
its activities into three distinct areas, each with its own operating
Board.
Core Network Operations -- keeping the railway operating and
ensuring that assets are maintained, as they should be. This Board
will be chaired by Jonson Cox, Chief Operating Officer supported by
Richard Middleton, Technical Director. The operating team are charged
with developing a phased restructuring and improvement program for the
core network. It will put delivery for customers at the top of the
agenda and will take two to three years to implement.
Enhancement and Major Programs -- ensuring that when we commit to
a new project we have the industry resources and a firm prospect of
delivering the commercial benefits to the customer, and making a
return for shareholders. Chaired by Steve Marshall, Chief Executive,
with Sebastian Bull, Business Development Director, responsible for
ensuring commercial delivery (as well as moving ahead on trialling
Special Purpose Vehicles and the Strategic Rail Authority (SRA)
partnership), and Simon Murray, Director Major Projects and
Investment, responsible for delivery of all Major Project
construction. The significant legacy projects - West Coast Main Line
(WCML) and Thameslink 2000 - which were committed to on a basis that
would not be acceptable today - must be taken forward in ongoing
discussion with customers and funders. Prioritization of new projects
with the SRA will be a key focus.
Property and New Business -- chaired by the Chief Executive, with
John O'Brien, Property Director, and his team focusing on plans to
outperform the (pound)1 billion ($1.42 billion) of property revenue
the Regulator has already assumed will be ploughed back into the
railway over the next five years. Opportunities to increase the income
available from unregulated areas; property development and recently
announced joint ventures on telecoms, including 3G masts (with
Marconi) and an internet travel portal (with FirstGroup) will be
actively pursued although first call on resources will always be the
core railway.
Company-wide coordination and strategy will be facilitated by an
Executive Committee chaired by the Chief Executive consisting of the
executive directors and key corporate functions.
Financial Outlook
On April 2, Railtrack announced a settlement with the SRA and
Government on bringing forward (pound)1.5 billion ($2 billion) of
deferred revenue into the second control period which should provide
the company with a stable financial base. On the same date the company
also announced a (pound)500 million ($708m) increase in the cost of
the WCML and a projected shortfall of some (pound)750 million
($1,062m) versus the regulatory determination arising from increased
performance payments ((pound)400 - (pound)500 million; $566 - $708m)
and unrealizable 2001/02 efficiencies (some (pound)250 million; $354m)
in the second control period.
Railtrack also stated that it was finalizing its business plan to
enable it to quantify the additional costs necessary for the
operation, maintenance and renewal of the rail network. This work is
estimated at an additional (pound)700 million ($991m) per annum over
and above that allowed in the regulatory determination.
The Regulator has however recognized that an interim review may be
applied for in respect of additional costs associated with Hatfield
and re-openers to cover other safety measures which Railtrack is
required to introduce. The regulatory determination also provides the
facility for further adjustments to the Regulatory Asset Base (RAB) to
cover, for example, additional signaling costs and traffic growth on
the network. Management estimates that some (pound)500 million ($708m)
per annum in total may be recoverable via these routes although this
is clearly subject to significant uncertainty until an interim review
application is made and, assuming it is approved, carried out. It is
likely to be the end of 2002 before the situation is fully confirmed.
The new management team must achieve a successful interim review,
significantly improve operating performance, resolve some significant
uncertainties in major projects, and move in a measured way to achieve
efficiencies to bridge, as far as possible, the residual shortfall, of
some (pound)250 million ($354m) per annum on average from 2002 to
2006, between the company's business plan and the regulatory
determination. The management's aim is to deliver the service
Railtrack's customers and the traveling public require while at the
same time putting the company in a position to deliver future value
for shareholders.
Dividend
In reaching a decision on the dividend payment the Board has
considered, at length, the needs of all its stakeholders. It believes
that it is essential for the company to have access to the capital
markets. This is also very much in the interest of taxpayers and the
traveling public.
The Board is therefore recommending a final dividend of 17.15p
($.24), which together with the interim of 9.75p ($.14) gives an
unchanged total of 26.90p ($.38) for the year ended March 31, 2001,
being the final year in the first five year control period.
Looking forward to the next control period, the dividend for the
year ending March 31, 2002 will reflect the progress made at that time
in resolving the major uncertainties currently facing the business.
Financial Review
Sales and operating profit - pre-exceptional
Underlying sales revenues declined by (pound)71 million ($101m) in
the year from (pound)2,547 million ($3,607m) to (pound)2,476 million
($3,506m), principally because of a reduction in passenger access
income of (pound)86 million ($122m), offset by increased revenue from
freight operators of (pound)4 million ($6m), and property rental
income of (pound)11 million ($16m).
Staff costs rose from (pound)322 million ($456m) to (pound)362
million ($513m) reflecting the pay award to signalers, the building up
of project teams and certain expenses associated with the abortive
negotiations on CTRL 2, but other costs fell so that production and
management expenses overall fell slightly, by (pound)7 million ($10m),
to (pound)575 million ($814m).
Infrastructure maintenance costs, at (pound)706 million ($1,000m)
were up (pound)43 million ($61m) while joint industry costs, which
Railtrack pays on behalf of the industry and passes on to train
operators, decreased by (pound)6 million ($8.5m), reflecting the lower
charge for electricity as a result of the reduced number of trains
during the months after Hatfield.
Depreciation increased by (pound)62 million ($88m) to (pound)720
million ($1,020m) of which depreciation on track, route structures,
stations and depots (the AMP assets) was (pound)550 million ($779m)
and depreciation on the other assets was (pound)170 million ($241m).
Operating profit (before exceptional charges) fell by (pound)163
million ($231m) to (pound)261 million ($370m).
Exceptional item
The accounts also include an exceptional charge of (pound)733
million ($1,038m) comprising the costs attributable to Gauge Corner
Cracking; ((pound)644 million; $912m) flooding ((pound)25 million;
$35m); additional depreciation arising from the asset maintenance plan
((pound)157 million; $222m), partially offset by a provision release
of (pound)93 million ($132m) largely relating to spending programs on
Major Stations. Of the total exceptional charge, (pound)586 million
($830m) represents penalties incurred and has therefore been accounted
for as an exceptional reduction in sales revenues; the remainder is
reported as an exceptional cost.
Property
Proceeds from fixed asset property sales, net of expenses and
property clawback, were (pound)55 million ($78m) (1999/2000:
(pound)132 million) with profits amounting to (pound)27 million ($38m)
(1999/2000: (pound)56 million).
(Loss)/profit before tax
After a net interest charge of (pound)89 million ($126m)
(1999/2000: (pound)59 million), the Group reported a loss before tax
of (pound)534 million ($756m) compared with a profit of (pound)360
million ($510m) the previous year. The interest charge is after
deducting capitalized interest of (pound)49 million ($69m), an
increase of (pound)20 million ($28m) from the previous year.
Taxation
Following the introduction and adoption by the Group of Accounting
Standard FRS19 (`Deferred Tax') the accounts have been prepared to
reflect deferred tax on a full provisioning discounted basis. As a
result, the accounts include a (pound)227 million ($321.5m) tax credit
for the year of which (pound)207 million ($293m) is deferred and
reflects in the main the discounted future value of tax losses in
respect of the exceptional charge described above.
Under the previous accounting standard, Railtrack was required to
provide for deferred taxation only on timing differences which were
expected to reverse in the foreseeable future. FRS19, however,
requires that provision be made for the cumulative amount of tax
deferred, over many years, through accelerated capital allowances. The
discounted amount of this provision at March 31, 2001 was (pound)256
million ($363m). The reversal of the discount will be charged in
future years to deferred tax in the profit and loss account.
The (pound)440 million ($623m) cumulative prior period effect of
this change of accounting policy has been charged to reserves at April
1, 2000.
Earnings per share
Earnings per share before exceptional items fell from 69.9p ($.99)
to 48.9p ($.69) and moved from 58.0p ($.82) to negative 59.6p
(negative $.84) on a post-exceptional basis.
Dividend
The board is recommending a final dividend of 17.15p ($.24), which
together with the interim of 9.75p ($.14) gives an unchanged total of
26.90p ($.38) for the year ended March 31, 2001.
Cashflow
During the year the Group's pre-exceptional operating activities
generated cash of (pound)1,161 million ($1,644m) (1999/2000:
(pound)1,123 million). After the cash costs of the exceptional charge
mentioned above of (pound)443 million ($627m), the net cash inflow
from operating activities was (pound)718 million ($1,017m). Net
interest payable amounted to (pound)123 million ($174m) and dividends
cost (pound)124 million ($175m). Spending on fixed assets totaled
(pound)2,189 million ($3,100m) (1999/2000: (pound)1,546 million),
while receipts from the sale of fixed assets amounted to (pound)55
million ($78m). Other items, primarily capital grants generated
(pound)45 million ($64m). After adjusting for non-cash debt movements
(principally leasing) of (pound)16 million ($23m) and (pound)3 million
($4m) from the issue of shares, net debt increased by (pound)1,631
million ($2,310m).
Gearing (defined as net debt as a percentage of total
shareholders' funds) was 127% (1999/2000: 56%). Interest cover
(defined as pre-exceptional operating profit to net interest charge)
was 2.9 times (1999/2000: 7.2 times). The average interest rate
payable on total debt for the year was 6.0%.
The ongoing cash outflow will result in a rising debt profile
that, taking into account committed enhancement schemes, will increase
for several more years.
Pension costs
Railtrack provides benefits for its employees through the
Railtrack section of the Railways Pension scheme. At the most recent
valuation of the section, at December 31, 1998, the section was 108%
funded. After a package of benefit improvements, including an
extension to the period over which both the Group and its employees
will enjoy reduced contributions, the section was 102% funded.
Accounting policies
There have been no changes in the Group's accounting policies
apart from the change in respect of deferred taxation required by
FRS19.
Going concern
The financial statements have been prepared on a going concern
basis. The directors have considered: (i) the uncertainties inherent
in the contingent liabilities described in note 11 to the financial
statements and the potential interim review by the Regulator of the
longer term implications of Hatfield described in the Business Review;
and (ii) a period of twelve months from the date of approval of the
financial statements, in accordance with the implicit assumption in
Financial Reporting Standard 18 (`Accounting Policies').
Contingent liabilities
This preliminary announcement contains reference (note 11) to the
contingent liabilities facing the business. These contingent
liabilities include: the outcome of the joint procurement review of
Thameslink 2000 with the SRA; the impact of the commercial issues
still outstanding including the risk of delay to Phase 2 of the West
Coast upgrade; potential claims from rolling stock manufacturers for
delays to vehicle acceptance; the outcome of a gauging dispute with
Virgin; and potential prosecution for accidents at Ladbroke Grove and
Hatfield. The scale of those contingent liabilities in aggregate, if
they were to materialize, could seriously prejudice the Group's
financial position. In each case the directors are taking every
possible action to mitigate the outcome.
Business Review
The business review below focuses on each of the businesses and
sets out the action which management is taking to improve performance.
Network Operations
Network operations covers the safe operation of the railway
control systems and infrastructure, its maintenance, renewal and the
associated engineering activities. The operation of the 14 major
stations are included in this core business.
The management of Railtrack's network business over the last six
months has been dominated by the National Recovery Plan.
Network condition and asset maintenance
The extensive examination of the network following Hatfield has
revealed that it is in a poorer condition than was previously thought.
This means that to ensure safety there are more speed restrictions in
place than Railtrack would wish. Despite the restoration of normal
timetable operation, this will inevitably have an impact upon train
performance in the short/medium term and has led to a full review of
the company's approach to infrastructure engineering.
The review is examining how railway infrastructure is engineered
to achieve current and future fitness for purpose. Railtrack will take
effective control of the infrastructure inspection process and has
already established a more collaborative partnership with maintenance
contractors. Today 13 of the new infrastructure maintenance contracts
(IMC 2000), covering 74% (by cost) of the network have been
implemented or are in the course of being implemented. By April 2002
the whole network will be using these new, much more transparent
contracts which provide visibility over work done and planned.
Much of this work will depend on the success of the asset
maintenance plan and its associated register of asset condition. In
partnership with suppliers, Railtrack is continuing to populate the
register and create decision tools which enable it to manage assets in
an efficient, safe and effective manner. By June 2001 the current
state of the asset data will be published, and by October 2001 a two
year rolling program detailing further developments within the
register will be agreed with the Regulator and published.
Railtrack will introduce new methods of remotely monitoring the
condition of the network in order to rectify faults before they become
a performance or safety issue. The company will also improve its
response to incidents when they occur and reduce the impact they have
on service performance. New technologies including video inspection,
ground-probing radar and train-based ultrasonics will be utilized to
improve understanding of the condition of the network and its
associated assets. The engineering budget has been increased
significantly.
Safety
Over the last 12 months Railtrack has undertaken an unprecedented
safety program to reduce the risk of catastrophic accidents. This has
included the nationwide installation of the train protection and
warning system (TPWS). Some 11,000 signals will be equipped with TPWS
by December 2002 (a stretching roll-out target) but the benefits are
already being seen on routes which are fully equipped.
Other safety initiatives include SPAD reduction measures such as
alarms, countdown markers and banner repeater signals; risk assessment
of all level crossings and reduction of trespass and vandalism.
Railtrack has introduced a national confidential safety reporting
system called CIRAS. This allows front-line personnel to report any
safety concerns to an independent agency who will then take
appropriate action and publish results. "Project Sentinel" and the
"Take Possession Project" have also been introduced to maximize the
safety of all trackside personnel.
In cooperation with staff and contractors the industry has
achieved the second lowest recorded total of serious train accidents,
reduction in collisions at level crossings, a 24% reduction in broken
rails and a 14% reduction in serious fires. Disappointingly, although
SPADs have decreased overall, serious SPADs have increased.
Railtrack has developed a new safety and environment improvement
plan for 2001/2002. This underpins the Group Safety Plan and is the
company's most ambitious safety program ever. The plan can be viewed
on the website and Railtrack's performance against it will be reported
in the Corporate Sustainability Report due to be published in June
2001.
Performance
Disappointingly, underlying train performance deteriorated
throughout the year. The number of delay minutes to passenger trains
attributed to Railtrack rose by 125% against an industry rise of 69%
in total.
The Hatfield derailment and the subsequent re-railing program
accounted for a high proportion of delays, however the severe weather
experienced from the autumn onwards had a major impact on performance.
The principal problem was the disruption and damage caused to the
network by flooding, with significant damage to rail/river bridges,
embankments and other structures.
Although Railtrack has observed a general decline in the number of
disruptive events on the network the individual impact of each event
has been greater. This worrying trend is partly as a consequence of
the overall growth in network use experienced over the past five
years.
Railtrack is tackling the root causes of train delays on the
network. It is systematically identifying performance critical assets
and developing enhanced maintenance and investment programs for these
key components. In addition the company has strengthened its Area
Delivery Groups to provide a multi-functional approach to resolving
local performance issues and ensure delivery against agreed
objectives.
Railtrack believes a cross-industry approach to performance
improvement is needed and is actively promoting and participating in
such initiatives.
Customer delivery
Railtrack recognizes that it needs to improve its customer focus.
Greater liaison between customers and the company has taken place over
the last few months. Although it has been a difficult time, this has
already improved working relationships. Railtrack is determined to
achieve greater operational discipline and consistency across its
business.
The disruption caused to the network during the National Recovery
Plan had a major impact on customers. In recognition of this Railtrack
has reached agreement for limited compensation to some customers, over
and above its contractual obligations, typically (as with Virgin) with
agreed benefits being made available to passengers as a result.
Railtrack needs to work with its customers and Regulators to
address industry-wide problems including possession management,
investment planning and performance.
Enhancements - existing projects
The past year has seen considerable progress on major projects,
which were conceived prior to, or immediately after, privatization.
Railtrack has categorized these projects as legacy projects,
recognizing the fact that the company agreed to undertake these works
before the complete project evaluation and scope definition had been
tied down in the way it would be today. These projects have been
subject to considerable cost increases arising from increasing work
scope or unsuitable technology being applied to the original
specification.
A detailed review of all projects has been undertaken and the
risks identified:
West Coast Main Line
The West Coast Main Line is by far the largest and most complex
project currently being undertaken on the rail network. Construction
of the first phase is 59% complete against a target of 60% and is
scheduled to be completed in October 2002.
As previously announced a review of the total project has resulted
in projected costs increasing by some (pound)500 million to (pound)6.3
billion. This increase represents (pound)200 million additional scope
(which includes bi-directional signaling now required in certain
locations) and (pound)300 million in respect of additional
compensation to customers for disruption to their services. In
addition there are a number of significant outstanding commercial
issues, which the company will be addressing over the coming months in
discussions with the funders and customers. These issues could result
in additional costs.
Thameslink 2000
Thameslink 2000 is in the final stages of the Transport and Works
Act process, the formal inquiry just having been closed. Both
Railtrack and the SRA remain committed to this strategically important
project. However the cost projections have moved on very considerably
since the project was inherited by Railtrack as part of its vesting
obligations. Therefore as previously announced a joint procurement
review of the project is being undertaken with the SRA.
CTRL - section 1
The first section of the Channel Tunnel Rail Link (CTRL) is
progressing well despite the very heavy autumn and winter rainfall
experienced on site, and is 60% complete and on budget. It is expected
that the project will be completed on time in October 2003. Railtrack
has decided not to exercise its option to proceed with section two but
will however provide professional railway services during the
construction period. When the project is complete, Railtrack will
operate and maintain the whole integrated railway. Railtrack has also
negotiated with the Government the ability to securitise the revenue
streams at the point it purchases section one, which will
substantially reduce the company's cash requirement.
East Coast Main Line - phase 1
Phase 1 of the East Coast Main Line upgrade is well underway
although some difficulties were experienced at Leeds over Christmas
2000 which contributed to increased costs amounting to some (pound)80
million above expectation. The station has now been completely
remodeled and power supplies enhanced and as a result customers are
now experiencing improved service reliability and quality.
Cross Country
The modernization of the routes used by Virgin Cross Country
trains is underway, this will increase track capacity and improve
linespeeds and is estimated to cost around (pound)168 million. The
project is scheduled for completion in winter 2003.
Enhancements - new projects
The past year has seen a major advance in the way in which
Railtrack and the rail industry approach the commercial aspects of
major projects. Experience has taught the company that it is not
feasible to commit to major construction projects before full design
and development work has been completed or indeed too far in advance
of the works being undertaken. The Rail Regulator has endorsed this
approach and it will be the process followed by the company in all
future projects where Railtrack is substantially exposed to the risks
of failing to achieve committed outputs.
We are currently exploring with GoVia and Bechtel (a major program
management company) the opportunity to establish a Special Purpose
Vehicle (SPV) for the upgrading of the route between Brighton and
London Victoria. This is the first project of this type and as such
will be used to develop the underlying methodology associated with
SPVs. Areas of particular concern are the levels of risk which fall on
all parties to the scheme and the appropriate reward structure.
The creation of the new Board role of Business Development
Director demonstrates Railtrack's commitment to playing a leading role
in this process. It also signals Railtrack's intention only to take on
risks which it properly understands and can manage effectively.
Property and New Business
Throughout the year, Railtrack has continued to strengthen its
property and new business team. The company has secured planning
consent for station developments at Aberdeen, Bromley South, London
Bridge and Luton and is also well advanced in the planning process at
Cambridge, Edinburgh, Liverpool, Paddington and Victoria. The sales
team hit its targets and Spacia's business continues to grow its
portfolio with major developments being completed in Chelmsford and
Old Jamaica Road in London.
Railtrack has entered into a joint venture agreement with Marconi
to explore telecoms opportunities and has recently launched
"ultramast" which will concentrate on providing telecoms
infrastructure to mobile phone operators. Railtrack has also taken a
minority stake in "Ipsaris", a fiber business where the majority stake
is held by Marconi. In addition, the company has formed a joint
venture with FirstGroup to launch a travel portal -
"totaljourney.com". This will allow customers to access the timetable,
book tickets and select a wide range of travel related services.
Railtrack's property and unregulated businesses represent
opportunities for business growth and outperformance. Railtrack will
continue to seek out development opportunities and, where necessary,
undertake tactical disposals to raise cash for reinvestment in the
operating railway.
Regulation
The Regulator's determination of access charges for the five years
which commenced on April 1, 2001 is very challenging.
Railtrack has committed to improve train performance (measured in
terms of the average lateness of trains at monitoring points) by 2.5%
in each of the next five years. However, the proposed opening
performance benchmark does not reflect where Railtrack's performance
would have been in April 2001 even excluding the huge ongoing impact
of the Hatfield accident. Railtrack currently anticipates that the
large gap between the Regulator's assumptions and actual 2001
performance, unless revised at an interim review, could lead to
performance related compensation payments of some (pound)400 -
(pound)500 million over the next five year period. We believe this is
a curious use of resources that are much needed for the railway and
the arguments in favor of re-basing the position post-Hatfield are
surely compelling.
Railtrack is committed to further improving the efficiency of its
operations. The Regulator's target of an underlying efficiency
improvement of 17% of total costs over the five-year period remains
highly challenging given the phenomenal scale of the company's agenda
and the need to improve safety, other outputs, and accommodate growth
and further investment on the network. It is unlikely that any
efficiencies will be achieved in the current year, in the light of the
Hatfield accident.
In his statement of January 15, the Regulator indicated that he
would consider sympathetically an approach by Railtrack for an interim
review to consider the ongoing impact of Hatfield. Such a review would
take into account both the direct and indirect impact on efficient
levels of activity, outputs and expenditure over the five year control
period. It would be expected to cover changes to maintenance and
renewal expenditure requirements, particularly on track, together with
implications for achievable rates of improvement in train performance,
efficiency and possession costs. Railtrack intends to apply for an
interim review, probably in the first half of 2002.
The scale of the regulatory agenda going forward is significant.
Railtrack is working with industry parties to implement proposals
which include a Code of Conduct for Dependent Persons (ie those who
want to contract with us), asset register conditions and further
controls on the sale of railway property. Railtrack accepts that it
must be fully accountable for its efficient use of public and
customers' funds and its recent agreement to no less than six license
modifications is ample demonstration of this.
Railtrack believes that it has met the terms of the Regulator's
provisional orders for the Rail Recovery Plan. Part 1 of the Network
Management Statement due on May 31, will set out Railtrack's plans for
improving the way it maintains and renews its infrastructure, in
consultation with customers. It will also detail enhancement plans to
which the company is committed.
Statement of Principles
Railtrack has reached a settlement with the Strategic Rail
Authority and Government on bringing forward (pound)1.5 billion of
grant revenue into the second control period (2002 to 2006) which,
subject to a successful interim review, puts Railtrack on a more
stable financial basis for the company and should ensure that a credit
rating within the A category is maintained.
As part of this settlement the company has agreed a statement of
principles with the Government, which endorses Railtrack's role as the
national infrastructure operator. These undertakings recognize
Railtrack's unique role as a Public Company, which provides an
important public service attracting significant public funding.
Against this background the Board has agreed to appoint, after
consultation with Government, a non-executive director to its main
Board with the background and credentials to provide a powerful public
and consumer interest voice around the boardroom table. The nominee
will be selected by the Board and will have the same obligations as
all other directors.
In addition the company has signaled its intention not to pay any
exceptional or special dividends to shareholders over the next five
years. The rate of growth in dividends paid up from Railtrack PLC, the
regulated entity, will not exceed earnings growth. Railtrack has also
agreed, subject to market conditions and shareholder approval, to
raise (pound)250 million of preferred equity by March 31, 2002 for the
benefit of Railtrack PLC.
Commenting on the results, Chief Executive Steve Marshall said:
"The last six months has been a humbling experience for everyone
at Railtrack. Having stabilized the network and our finances, and with
a strengthened management team, we now intend to make some real
progress and repay the patience shown to us by passengers, train and
freight operators and equity investors alike.
The maintenance and operation of a safe network is obviously our
key priority. We must get the basics right above all else, but
passengers are returning rapidly and new capacity is needed. This will
require clear industry priorities and more resources than Railtrack
alone can provide. We look forward to developing a genuine
public-private partnership with the SRA to plan and grow the network."
Recent press releases can be found on the Railtrack web site at
the following address: http://www.railtrack.co.uk/corporate/notice
GROUP PROFIT AND LOSS ACCOUNT
Year ended March 31, 2001
2001 2001
Note BEFORE EXCEPTIONAL
EXCEPTIONAL ITEMS
ITEMS (NOTE 4)
(pound)m (pound)m
TURNOVER 2 2,476 (586)
Operating costs 4 (2,215) (147)
----------- ---------
OPERATING PROFIT/(LOSS) 261 (733)
Profit on
sale of properties 27 -
Net interest payable (89) -
----------- ---------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEFORE TAXATION 199 (733)
Tax credit/(charge)
on profit on
ordinary activities 5 53 174
----------- ---------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION 252 (559)
----------- ---------
Equity dividends 6
(ACCUMULATED LOSS)/RETAINED
PROFIT FOR THE FINANCIAL
YEAR
EARNINGS PER SHARE
BEFORE EXCEPTIONAL ITEMS 7
(LOSS)/EARNINGS PER SHARE
AFTER EXCEPTIONAL ITEMS 7
DILUTED (LOSS)/EARNINGS
PER SHARE AFTER
EXCEPTIONAL ITEMS 7
2001 2001 2000
Note TOTAL TOTAL Total
(RESTATED)
$m (pound)m (pound)m
TURNOVER 2 2,676 1,890 2,547
Operating costs 4 (3,345) (2,362) (2,184)
-------- --------- --------
OPERATING PROFIT/(LOSS) (668) (472) 363
Profit on
sale of properties 38 27 56
Net interest payable (126) (89) (59)
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEFORE TAXATION (756) (534) 360
Tax credit/(charge)
on profit on
ordinary activities 5 31 227 (65)
-------- ------- --------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION (435) (307) 295
Equity dividends 6 (195) (138) (137)
-------- ------- --------
(ACCUMULATED LOSS)/RETAINED
PROFIT FOR THE FINANCIAL (630) (445) 158
YEAR
EARNINGS PER SHARE ======== ======= ========
BEFORE EXCEPTIONAL ITEMS 7 .69 48.9p 69.9p
======== ======= ========
(LOSS)/EARNINGS PER SHARE
AFTER EXCEPTIONAL ITEMS 7 (.84) (59.6)p 58.0p
======== ======= ========
DILUTED (LOSS)/EARNINGS
PER SHARE AFTER
EXCEPTIONAL ITEMS 7 (.84) (59.6)p 57.1p
======== ======= ========
All amounts derive from continuing operations.
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended March 31, 2001
2001 2001 2000
(RESTATED)
$m (pound)m (pound)m
(LOSS)/PROFIT FOR
THE FINANCIAL YEAR (435) (307) 295
Revaluation of investment
properties (net of deferred tax) 7 5 9
Capital reserve on
acquisition of joint venture 4 3 -
Clawback on disposal of investment
properties (net of tax relief) (4) (3) (11)
Corporation tax on realized
gains on investment properties (6) (4) _
------- --------
TOTAL RECOGNISED GAINS
AND LOSSES FOR THE YEAR (433) (306) 293
========
Prior period adjustment (623) (440)
-------
TOTAL RECOGNISED GAINS AND
LOSSES SINCE LAST ANNUAL REPORT (1,056) (746)
=======
*US Dollar equivalents provided for reader convenience at the
March 30, 2001 rate of(pound)1=$1.4161
GROUP BALANCE SHEET
Year ended 31 March 2001
Note 2001 2001 2000
$m ((pound)) (RESTATED)
((pound))
FIXED ASSETS
Tangible assets 12,469 8,805 7,234
Investments in joint ventures
- Share of gross assets 68 48 -
- Share of gross liabilities (62) (44) -
6 4 -
Loans to joint ventures 45 32 -
-----------------------------------------
-----------------------------------------
Investments 51 36 -
12,520 8,841 7,234
CURRENT ASSETS
Stocks 79 56 49
-----------------------------------------
Debtors - amounts falling
due within one year 541 382 506
Debtors - amounts falling
due after more than 65 46 54
one year -----------------------------------------
606 428 560
Investments 133 94 568
Cash at bank and in hand 34 24 -
852 602 1,177
CREDITORS: amounts falling
due within one year (3,564) (2,517) (1,314)
NET CURRENT LIABILITIES (2,712) (1,915) (137)
TOTAL ASSETS LESS CURRENT
LIABILITIES 9,808 6,926 7,097
CREDITORS: amounts falling due
after more than
one year
Convertible debt (555) (392) (391)
Other creditors (5,063) (3,575) (2,942)
----------------------------------------
(5,618) (3,967) (3,333)
PROVISIONS FOR LIABILITIES
AND CHARGES (440) (311) (691)
NET ASSETS 3,750 2,648 3,073
CAPITAL AND RESERVES
Called up share capital 183 129 128
Share premium 4 3 -
Revaluation reserve 86 61 88
Other reserves 1,537 1,085 1,083
Profit and loss account 1,940 1,370 1,774
EQUITY SHAREHOLDERS
FUNDS 8 3,750 2,648 3,073
GROUP CASH FLOW STATEMENT
Year ended March 31, 2001
Note 2001 2001 2000
$m ((pound)) ((pound))
NET CASH INFLOW FROM
OPERATING
ACTIVITIES 9 1,017 718 1,123
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 38 27 49
Interest paid (212) (150) (132)
NET CASH OUTFLOW FROM RETURNS
ON INVESTMENTS AND
SERVICING OF FINANCE (174) (123) (83)
CAPITAL EXPENDITURE
Purchase of tangible fixed
assets (3,100) (2,189) (1,546)
Sale of tangible fixed
assets 78 55 132
Capital element of finance
lease receipts 20 14 14
Capital grants received 89 63 37
Loans to joint ventures (45) (32) -
--------- -------- ------
NET CASH OUTFLOW FROM
CAPITAL EXPENDITURE (2,958) (2,089) (1,363)
EQUITY DIVIDENDS PAID (176) (124) (114)
MANAGEMENT OF LIQUID RESOURCES
(Disposal)/purchase of
short-term investments 671 474 (203)
FINANCING
Issue of ordinary share capital 4 3 -
New loans 1,650 1,165 658
Payment of discounts and fees
on new loans - (2)
Repayment of loans - (31)
NET CASH INFLOW FROM
FINANCING 1,654 1,168 625
INCREASE/(DECREASE)
IN CASH 10 34 24 (15)
*US Dollar equivalents provided for reader convenience at the
March 30, 2001 rate of [pound]1=$1.4161
1. BASIS OF PRESENTATION
The financial information set out in the preliminary announcement
has been prepared in accordance with applicable Accounting Standards.
The accounting policies adopted are described in the Groups 2001
statutory accounts and have been consistently applied in both 2000 and
2001, with the exception of those changes required by FRS19. These
changes in policy have increased the deferred tax credit for the year
from ((pound))nil to ((pound))207m. In addition the adoption of FRS19
has decreased the equity shareholders funds at April 1, 2000 by
((pound))440 million in respect of the deferred tax provision, and the
profit for the year ended March 31, 2000 by ((pound))78 million.
2. TURNOVER
2001 2001 2001 2000
BEFORE EXCEPTIONAL TOTAL
EXCEPTIONAL ITEMS
ITEMS
((pound))
((pound)) ((pound)) ((pound))
Passenger franchise revenue 2,089 (566) 1,523 2,175
Freight revenue 162 (20) 142 158
Property rental income 146 - 146 135
Other income 55 - 55 59
Commercial and development
property sales 24 - 24 20
----------- -------- ------- ------
2,476 (586) 1,890 2,547
All turnover relates to the UK. All profits arose from the Groups
principal activity, the management of the national rail
infrastructure.
3. PERFORMANCE REGIMES
The net effect of the performance regimes on the results of Railtrack
for the year was as follows:
2001 2001 2001 2000
BEFORE EXCEPTIONAL TOTAL
EXCEPTIONAL ITEMS
ITEMS
((pound)) ((pound)) ((pound))
Included in turnover
Access charge supplements 11 - 11 35
Net (penalty to)/bonus from
customers (25) (566) (591) 17
(14) (566) (580) 52
Included in operating costs
Contract premium paid to
suppliers (15) - (15) (21)
Net bonus to suppliers (12) - (12) (25)
Performance fine - - - (10)
------ ------- ------ -----
(27) - (27) (56)
Net effect of the performance
regimes (41) (566) (607) (4)
4. OPERATING COSTS
2001 2000
((pound)) ((pound))
Exceptional items
- Performance and other payments
to TOCs ((pound))561 million), 644 -
operating costs ((pound))26 million)
and additional depreciation
((pound))57 million) arising from
Hatfield
- Performance penalties arising from
extreme weather in October 25 -
2000
- Additional depreciation
arising from review of asset 157 61
maintenance plan
- Release of property maintenance
backlog provision in respect (93) -
of major stations ------- --------
733 61
The executive directors have elected to forego their performance
bonuses payable in respect of the financial year ended March 31, 2001.
5. TAX (CREDIT)/CHARGE ON(LOSS)/PROFIT ON ORDINARY ACTIVITIES
(1) Analysis of (credit)/charge in year
2001 2000
((pound)) (RESTATED)
((pound))
Corporation tax at 30% (2000/01 - 30%) (3) (13)
Over provision in respect of prior years (17) -
Total current tax (20) (13)
Deferred tax at 30%
(Credit)/charge for timing differences
arising in the year (141) 140
Increase in discount (66) (62)
Total deferred tax (207) 78
Tax (credit)/charge on (loss)/profit
on ordinary activities (227) 65
((pound))174 million of the deferred tax
credit relates to the exceptional items
5. TAX (CREDIT)/CHARGE ON(LOSS)/PROFIT
ON ORDINARY ACTIVITIES
(continued)
(2) Factors affecting the tax
(credit)/charge for the year
The tax assessed for the year is
lower than the standard rate of
corporation tax in the UK (30%).
The differences are explained
below:
2001 2000
((pound)) ((pound))
(Loss)/profit on ordinary activities
before tax (534) 360
------------------
(Loss)/profit on ordinary activities
multiplied by the standard rate of
corporation tax in the UK of
30% (1999/2000 30%) (160) 108
Accelerated capital allowances (79) (94)
Tax losses carried forward 272 -
Utilization of provisions (52) (46)
Adjustments in respect of prior years (17) -
Permanent differences 19 37
Current tax losses offset against
profits charged to reserves (3) (18)
------------------
Total current tax credit (20) (13)
=============================================================
6. EQUITY DIVIDENDS
2001 2000
((pound)) ((pound))
Interim of 9.75p per ordinary share
paid (1999/2000 9.3p) 50 47
Final of 17.15p per ordinary share
proposed (1999/2000 17.6p) 88 90
------------------
Ordinary equity dividends paid and
proposed of 26.9p per
share (1999/2000 26.9p) 138 137
7. EARNINGS/(LOSS) PER SHARE
2001 2000
((pound)) (RESTATED)
((pound))
Net profit for the financial year
before exceptional items 252 356
Exceptional items (559) (61)
------------------
(Loss)/profit attributable to
shareholders (307) 295
Interest net of corporation tax saved if
the 3.5% exchangeable bonds 2009 were
converted 10
------------------
(Loss)/earnings taking into account
applicable dilutive instruments (307) 305
========================
2001 2000
Weighted average number of
ordinary shares (millions) 515 509
Dilutive effect of share save
scheme (millions) 3
Dilutive effect of the 3.5% exchangeable
bonds 2009 (millions) 22
------------------
Weighted average number of ordinary
shares taking into account applicable
dilutive instruments (millions) 515 534
==========================
2001 2000
(RESTATED)
[pound]m [pound]m
Earnings per share before exceptional
item 48.9p 69.9p
Loss per share on exceptional item (108.5)p (11.9)p
----------------------
(Loss)/earnings per share (59.6)p 58.0p
==========================
Diluted (loss)/earnings per share (59.6)p 57.1p
==========================
The calculation of the dilutive effect of the share save scheme
uses the average share price for 2000/01 of ((pound))9.42 per share
(1999/2000: ((pound))10.87)
8. RECONCILIATION OF MOVEMENTS IN
EQUITY SHAREHOLDERS' FUNDS
2001 2000
(RESTATED)
((pound)) ((pound))
(Loss)/profit for the year (307) 295
Dividends (138) (137)
----------------------
(445) 158
Share dividends 16 66
Shares issued under share savings scheme 3 -
Revaluation of investment properties 5 9
Capital reserve on acquisition of
joint venture 3 -
Clawback on disposal of properties (net
of tax relief) (3) (11)
Corporation tax on realized gains on
investment properties (4) -
----------------------
Net (reduction)/addition to equity
shareholders' funds (425) 222
Opening equity shareholders' funds
(originally [pound]3,213m before adjusting
for the prior year adjustment of
[pound]362m) 3,073 2,851
----------------------
Closing equity shareholders' funds 2,648 3,073
9. RECONCILIATION OF OPERATING PROFIT TO
NET CASH INFLOW FROM OPERATING
ACTIVITIES
2001 2000
((pound)) ((pound))
Operating (loss)/profit (472) 363
Share of operating profit of
joint ventures (1) -
Depreciation and amortization (net of
capital grants amortized) 923 710
Increase in stocks (7) (24)
Decrease/(increase) in debtors 113 (67)
Increase in creditors 335 239
Decrease in provisions (173) (98)
Net cash inflow from
operating activities 718 1,123
Included within the net cash inflow is an outflow of
((pound))443 million in respect of exceptional items. In addition
within purchases of tangible fixed assets is the cost of rail
replacement totaling [pound]137 million.
10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2001 2000
(pound)m (pound)m
Increase/(decrease) in cash in the year 24 (15)
Cash inflow from increase in debt and lease
financing (1,165) (625)
Cash(inflow)/outflow from (decrease)/
increase in liquid resources (474) 203
Change in net debt resulting from cash flows (1,615) (437)
New finance leases (14) (22)
Amortization of discount (2) (1)
Movement in net debt in the year (1,631) (460)
Net debt at April 1 (1,731) (1,271)
Net debt at March 31 (3,362) (1,731)
11. CONTINGENT LIABILITIES
Owners of properties have a right to claim compensation under the
Land Compensation Act 1973 if they are able to establish that the
value of a qualifying interest in land has been depreciated by certain
physical factors (including noise and vibration) caused by the use of
specified public works. As at March 31, 2001, Railtrack PLC had
received approximately 3,000 claims in relation to works on the
existing network to facilitate Channel Tunnel rail services. Railtrack
PLC has not accepted any of the Channel Tunnel route claims. There is
no legal precedent establishing whether or not works of the type
undertaken on existing railway lines constitute the reconstruction,
extension or alteration of public works for which compensation may be
claimed. Claimants would also have to establish the extent of
depreciation in the value of their interest, which the directors
consider would be difficult to determine in the context of an existing
railway line. These claims are not expected to result in a significant
impact on the Railtrack Group's financial performance. A smaller
number of claims raising potentially similar issues have also been
received in relation to works on other lines.
As announced on April 2, 2001 Railtrack PLC and the Strategic Rail
Authority are jointly undertaking a procurement review to determine
the most appropriate way for the Thameslink project to be taken
forward. The outcome of the procurement review is uncertain. However,
it could result in Railtrack not receiving full value for the
development work it has undertaken and/or being liable for significant
penalty payments.
In reviewing the risks associated with the West Coast Route
Modernisation, it has been concluded that there are significant
unresolved commercial risks, including an increased risk of late
delivery on Phase 2 which, if it materializes, could involve
substantial compensation being payable. The scale and impact of the
commercial risks, including the amount of any associated compensation
payments for any delay, are both subject to significant uncertainty at
this stage.
A dispute relating to the accuracy of gauge data supplied by
Railtrack PLC to West Coast Trains Limited in connection with the West
Coast Main Line has been referred to arbitration. The arbitration will
decide whether West Coast Trains will contribute towards the cost of
accommodating the active tilting train. In January 2000 West Coast
Trains claimed for additional losses of (pound)64m. Railtrack denies
liability and will contest the claim.
On October 5, 1999 a collision and fire took place at Ladbroke
Grove on the Great Western Main Line resulting in 31 deaths and a
large number of serious injuries. There was also extensive damage to
the infrastructure and to the trains involved. The accident has been
subject to an inquiry chaired by the Rt Hon Lord Cullen PC, the
outcome of which is expected later this year. Police and HSE enquiries
are continuing and their outcome is awaited.
On October 17, 2000 a derailment occurred at Hatfield on the East
Coast Main Line resulting in 4 deaths and a number of serious
injuries. There was also extensive damage to the infrastructure and
the train involved. Police and HSE enquiries are continuing and their
outcome is not expected for several months.
ADtranz and Alstom have indicated their intention to make claims
against Railtrack for damages as part of the vehicle acceptance
process. It is too early to assess the likelihood of the success of
each claim, should they be brought.
The scale of the contingent liabilities described above, should
they materialize, could seriously prejudice the Group's financial
position. In each case the directors are taking every possible action
to mitigate the outcome.
12. ABRIDGED ACCOUNTS
The balance sheet at March 31, 2001 and the results and cash flow
and associated notes for the year then ended have been abridged from
the Group's 2001 statutory accounts upon which the auditors' opinion
is unqualified and does not include a statement under Section 237(2)
or (3) of the Companies Act 1985. The statutory accounts will be filed
with the Registrar of Companies in due course. The figures for the
year ended March 31, 2000 have been extracted from the annual report
and accounts which have been filed with the Registrar of Companies.
The auditors' report on those accounts was unqualified and did not
contain any statements under section 237(2) or (3) of the Companies
Act 1985.
13. ISSUE OF THE ANNUAL REPORT AND ACCOUNTS
The 2001 annual report and accounts will be posted to shareholders
on June 22, 2001. Copies may be obtained after that date by either
telephoning the Railtrack Helpline on 0845 7114141 or by contacting
Computershare Services PLC, PO Box 84, Caxton House, Redcliffe Way,
Bristol, BS99 7AZ.
14. ANNUAL GENERAL MEETING
The Annual General Meeting of Railtrack Group PLC will be held at
the Barbican Centre, York on July 24, 2001 at11:15 a.m.
FINANCIAL CALENDAR
Ex dividend date for final dividend August 8, 2001
Record date for final dividend August 10, 2001
Annual General Meeting July 24, 2001
Last date for share dividend election September 5, 2001
Final dividend paid October 3, 2001
*T
--30--eb/ny*
CONTACT: RAILTRACK
Peter Koning
011-44-207-557-8151
- or -
Taylor Rafferty
Brian J. Rafferty
212-889-4350
KEYWORD: UNITED KINGDOM INTERNATIONAL EUROPE
INDUSTRY KEYWORD: TRANSPORTATION EARNINGS
COPYRIGHT 2001 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.
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