Network Rail today published its financial information for the year ended 31 March 2005 and the opening balance sheet at 1 April 2004, restated under International Financial Reporting Standards ("IFRS").
For the year ended 31 March 2005 and previous financial years, Network Rail Infrastructure Limited (“NRIL”) prepared its financial statements under UK Generally Accepted Accounting Principles (“UK GAAP”). European Union regulations require listed companies in any member state to adopt IFRS for financial years commencing on or after 1 January 2005. NRIL has a regulatory requirement to report in the manner of a listed PLC and therefore must comply with IFRS for the first time for the year ending 31 March 2006.
The main changes to the results and financial position of Network Rail Infrastructure Limited reported under UK GAAP for the year ended 31 March 2005 are:
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Profit from operations of £539m, £132m higher than that under UK GAAP;
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Loss before tax of £47m, £117 lower than that under UK GAAP, and
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Net assets of £3,610m, £1,607m lower than that under UK GAAP.
The most significant areas of change on the transition to IFRS are as follows
Investment properties and fixed assets
IFRS significantly widens the definition of an investment property. For Network Rail this now captures the majority of its Spacia estate and a number of serviced offices. This has required a significant reclassification from property, plant and equipment to investment properties. Items have been reclassified to investment properties at the same value that they were held within property, plant and equipment. The rationale for this is that net assets should not be increased or decreased by the transfer, given that in setting the Regulatory Asset Base, the Office of Rail Regulation determined a single overall economic value for the business. £789m has been reclassified in the balance sheet at 31 March 2005.
Under IFRS movements in the fair value of investment properties are recorded through the income statement within operating profit, whereas currently under UK GAAP movements are taken through the revaluation reserve. £81m of investment property revaluation is included within operating profit under IFRS. Reclassifying items from property, plant and equipment reduced the depreciation charge under IFRS for the year ended 31 March 2005 by £30m.
Pensions
Under IFRS the Company’s share of the full pension deficit is recognised on the balance sheet. Actuarial gains and losses in subsequent years are recognised immediately in the balance sheet through the statement of recognised income and expense, outside the income statement.
The Company’s share of the scheme deficit under IFRS was £414m at 31 March 2005. Recognising the Company’s share of the scheme deficit on the balance sheet reduced the income statement charge for 2005 by £21m. Previously under UK GAAP the deficit was being charged to the profit and loss account over the average remaining service lives of employees.
Deferred taxation
Significant additional deferred taxation provisions are required under IFRS, mainly due to the tax treatment of the revaluation of the railway network. Under IFRS deferred taxation is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying value in the financial statements. The additional deferred taxation provision is treated principally as a reduction in the revaluation reserve. The deferred taxation provision at 31 March 2005 is £1,444m, compared to £152m reported under UK GAAP. Deferred taxation coupled with the provision for the pension deficit are the major reasons for the decrease in net assets under IFRS.
Financial instruments
Network Rail has taken advantage of transitional exemptions and will adopt IAS 32 and IAS 39 in full from 1 April 2005. Pro-forma financial information showing the impact of these standards had they been adopted from 1 April 2004 is provided in the published documents.
Notes to Editors
1. Documents with full detail on the restated financial information for Network Rail Infrastructure Limited and Network Rail Limited can be obtained from the Company’s website www.networkrail.co.uk
2. Network Rail is the 'not for dividend' owner and operator of Britain's railway infrastructure, which includes the tracks, signals, tunnels, bridges, viaducts, level crossings and stations – the largest of which we also manage
3. We are working to rebuild Britain’s railway and provide a safe, reliable and efficient rail infrastructure for freight and passenger trains to use
4. Our website: www.networkrail.co.uk
Media contact: 020 7557 8292
