Network Rail Limited Annual Report and Accounts 2013.PDF

8/22/2019 Network Rail Limited Annual Report and Accounts 2013.PDF

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A better railway for a better Britain

Delivering throughpartnerships

Network Rail LimitedAnnual report and accounts 2013

Network Rail and FirstGroup

working together to deliver

Reading station area

improvements


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Contents

Overview01 Group overview

02 Group at a glance

Business review07 Chairmans statement

10 Our group strategic framework

11 Our strategic themes

12 Chief executives review

18 Group finance directors review

26 Our approach to risk management

30 Our principal risks and uncertainties

32 Our score card

42 The way we work

Governance48 Board of directors

51 Corporate governance report

62 Committee reports

71 Engaging with members

Remuneration74 Directors remuneration report

Directors

responsibilities95 Statement of directors responsibilities

Financial statementsand notes96 Independent auditors report

98 Income statement

99 Statement of comprehensive income

100 Statement of changes in equity

101 Balance sheet

102 Statement of cash flows

103 Notes to financial statements

Investing in the Western routeOur modernisation of the Great Western is the biggest investmentsince it was built, benefiting passengers, businesses, freight usersand communities all along the line.

These are only the highlights of our plan for the Great Western. Our investment covers updating outmoded signal boxes

to state-of-the-art signalling systems, electrification of the route, restoring the historic roof of Paddington station and

the modernisation of one of the UKs busiest stations at Reading.

To see the bigger picture, visit our website at networkrail.co.uk/thegreatwestern

We have a positive relationship with train

operating companies. The TOCs are close

to what is going on, they understand

the complexity in delivering major work

programmes, they really understand

and appreciate Network Rail and there

are some good relationships there.Jason Hamilton,

Project Manager, Reading

During reconstruction of the new station we managed

to maintain an operational timetable with Network

Rail, which demonstrates a good relationship all the

way through the project. We now have a brand new

station fit for the 21st century.Lauren Marshall, Welcome Host for First Great Western,

Reading station


3/14001Network Rail Limited Annual report and accounts 2013

Network Rail is the not for dividend owner and operator of Britains railway infrastructure,

which includes the tracks, signals, tunnels, bridges, viaducts, level crossings and stations the largest of which we also manage. We aim to provide a safe, reliable and efficient railinfrastructure for freight and passenger trains.

Group overview

Revenue in the year Operating profit

6,197m6,004m

2,347m 2,217m

2011/12 2012/13 2011/12 2012/13

699mProfit after tax down 62m from 2011/12 5,050mCapital expenditure up 450m from 2011/12

30,358mNet debt at year end up 3,076m from 2011/12

65.1%Gearing ratio (regulatory debt to regulatory asset base)

2,570mOperating costs, excluding depreciation

2011/12: 2,347m

Passenger trains arriving on time

91.6% 90.9%

2011/12 2012/13


4/14002 Network Rail Limited Annual report and accounts 2013

Our routes

We are divided into ten routes to enable us to work closelywith the train and freight operating companies.

Group at a glance

01

02

10

09

08

0706

03

05

04

01 Scotland

Train operating companies

CrossCountryEast CoastFirst ScotRailFirst TransPennine ExpressVirgin Trains

Managed stations

Edinburgh WaverleyGlasgow Central

Overall satisfaction (%) 56

02 London NorthEastern


CrossCountryEast CoastEast Midlands TrainsFirst Capital ConnectFirst TransPennine ExpressGrand CentralHull TrainsNorthern

Managed stations

Kings Cross

Leeds City


03 East Midlands


CrossCountryEast Midlands TrainsFirst Capital ConnectNorthern


Every year we measure theirsatisfaction with our overallperformance. The overall score for2012 was 66 per cent (train operators:67 per cent, freight operators:60 per cent), an improvement from2011 when the score was 43 per cent(train operators: 42 per cent, freightoperators: 57 per cent).

Every year we also survey managedstation users satisfaction jointly withPassenger Focus. The score for Autumn2012 was 85 per cent compared with81 per cent for Autumn 2011.



04 Anglia


c2cCrossCountryEast Midlands TrainsFirst Capital ConnectGreater AngliaLondon Overground

Managed stations

Fenchurch StreetLiverpool Street


05 Kent


First Capital ConnectSoutheasternSouthern Railway

Managed stations

Cannon StreetCharing CrossLondon Bridge


Network Rail (High Speed)Train operating companies

EurostarSoutheastern

Operated stations

Ebbsfleet InternationalSt Pancras InternationalStratford International

06 Sussex


First Capital ConnectFirst Great WesternLondon OvergroundSoutheasternSouthern Railway

Managed station

Victoria


07 Wessex


CrossCountryFirst Great WesternIsland LineLondon OvergroundSouthern RailwaySouth West Trains

Managed station

Waterloo

Overall satisfaction* (%) 48

*Not including South West Trains

08 Western


Arriva Trains WalesChiltern RailwaysCrossCountryFirst Great WesternHeathrow ExpressLondon MidlandSouth West Trains

Managed station

Paddington


09 Wales


Arriva Trains WalesCrossCountryFirst Great WesternLondon MidlandVirgin Trains


10 London North Western


Arriva Trains WalesChiltern RailwaysCrossCountryEast Midlands TrainsFirst ScotRailFirst TransPennine ExpressLondon MidlandLondon OvergroundMerseyRailNorthernSouthern RailwayVirgin Trains

Managed stations

Birmingham New StreetEustonLiverpool Lime StreetManchester Piccadilly


Freight operating companiesand othersColas RailDB Regio Tyne & WearDB Schenker

Devon and Cornwall RailwaysDirect Rail ServicesEuroporteFreightliner GroupGB RailfreightLondon Underground



Our rail infrastructure projects delivery business

We are working with our customers to transform the railway,resulting in better stations, better journeys and more capacity.This map shows just some of the improvements.

Group at a glance

Locations

01 Forth Bridge

This iconic bridge wont need painting againfor at least 20 years

02 Newcastle (Northern Hub)

More trains and better connections

03 Leeds (Northern Hub)More trains and better connections

04 Liverpool

Major improvements to Liverpool Lime Street,Liverpool Central station and the Underground

05 Manchester Victoria

A dramatically improved station for passengers

06 Sheffield (Northern Hub)

More trains and better connections

07 Nottingham Hub

A new integrated transport hub, with stationimprovements

08 Stafford West Coast Main Line

A new bypass to increase trains, but it wontsolve capacity problems further south

09 Birmingham New Street

A radical overhaul, bringing significant widerregeneration benefits

10 Bletchley West Coast Main Line

A major programme of renewals and resignalling

11 Loughor

New viaduct and doubling the railway lineswill remove the current bottleneck and providefuture capacity

12 Reading

Unlocking a key bottleneck on the Western

route and rebuilding the station

20,000Jobs will be created as aresult of better connectionslinking towns and cities

across the north including

Manchester, Leeds,

Liverpool, Sheffield

and Newcastle

+700Extra trains every day across

the north east, and north

west of England

+43%Capacity in London andthe south east

Routes

13 Aberdeen Inverness

Enhanced commuter services

14 Airdrie Bathgate

The longest new section of passenger railwayin the UK for over 100 years

15 Flint Llandudno

A major resignalling programme to improvepassenger journeys

16 Cardiff areaA major resignalling programme includingstation and track upgrades

17 Plymouth Penzance

Resignalling as part of a long-term programmeacross the south west

17

13

15

14

01

10

11

02

03

04 05 06

07

08

09

1216



Greater London 18 Kings CrossA spectacular redevelopment of this Grade Ilisted station

19 Paddington

Restoration of an historic roof and Crossrailimprovements

20 Farringdon

A new interchange linking Thameslink,the Underground and Crossrail

21 Stratford

Transformed ahead of London 2012

22 London Blackfriars

London Blackfriars the first station to spanthe Thames

23 London Bridge

More space for passengers and trains

Key

Completed

In progress

Future development

Ports served by improved freight routes

Electrification of key routes

Crossrail route Thameslink route

To Kent and Sussex

ToBrightonand

southcoast

To Maidenhead

To Shenfield

ToBedford

ToCambridge

23

01

11 23

05 07

09

18

20

22

19

23

21



Group at a glance

Our commercial property business

We are the largest small business landlord in the UK, with a nationalportfolio of over 7,400 properties. We work with our partners to promoteregeneration around our stations and improve passengers journeyexperience.

Commercial property income Occupancy rates at our business space estate

257m239m

2011/12 2012/13 2011/12: 92% 2012/13: 95%

2%Like-for-like retail sales growth British Retail Consortiumreported average growth on the high street was 0.6 per cent 505,000 sq ftRetail space at our managed stations2012: 459,000 sq ft

London Waterloo stationWe are applying an innovative

approach to our property portfolio,

profits from which are reinvested into

the network.

A 25m enhancement scheme atWaterloo has transformed the stationand smoothed the journey forpassengers. The creation of a 220 metrebalcony has removed retail units fromthe concourse, reducing congestionand improving passenger access whilststill providing the facilities expected ata modern travel hub.

In December 2012, the NationalPassenger Survey showed thatcustomer satisfaction at Waterloo

has soared by 11 per cent.



As chairman of Network Rail, I am acutely aware of the

central role the railway plays in British life, and the healthand well-being of the nation as a whole.

Chairmans statement

Pioneers of the industry two centuriesago, the railway in Britain todayremains integral to millions of peopleslives, and to the general conversationthat plays out in so many ways, and inso many places, across the country.

Whether people are travelling to andfrom work, or to visit their family andfriends, or simply turning on the lightsin their homes, they depend on ourindustry. Even the very geography ofBritain has been shaped by the railway.

It is clear that one thing has changedbeyond recognition since the middleyears of the 20th century. Then, ofcourse, the task was to managedecline in a way that would prove less

of a drain on the public purse. Now,there is a new sense of confidence, andthis has perhaps been one of the moststriking things to me as a newcomer.The challenges I find myself discussingso much of the time would have beenunimaginable half a century ago. Howdo we deal with ever increasingdemand? How can we embracetechnology and accelerate themodernisation of our industry?What do we need to do to build forthe future?

These challenges, of course, confrontNetwork Rail more than they do anyother part of the industry. Thecompany passed its 10th anniversaryin October and has been developing aclear strategy and direction to guide usthrough the second decade.

There is no longer a need to focus onhow to wrestle the industry out of thecrisis in which it found itself in back in2002, Instead, the company has nowdefined an unambiguous purpose, roleand vision for itself, which is set out on

page 10.

David Higgins, in his chief executivesreview, and Patrick Butcher, groupfinance director, will both set out moredetails of the companys performanceover the year in their owncontributions to this report. David andPatrick are just two of what is now anextremely gifted and well-establishedteam at the top of Network Rail,confident in the company and thepotential for our industry as a whole.

There has been an even greater focuson the future over this year than isusual. The production of the StrategicBusiness Plans for England and Walesand for Scotland for the next controlperiod from 2014 to 2019 was acritical exercise for the company. Theyprovide a comprehensive andconsidered response to the High LevelOutput Specifications published bygovernments last July.

The Office of Rail Regulation has, injust the last week, published its initialview on those plans. David Higgins willdiscuss this to a greater extent in thefollowing pages, but it is right that thecompany takes the time to reflect onthe implications and understand thereasoning behind the determination.

Richard Parry-Jones

Chairman

Safety is at the core ofeverything we do. The riskof death or injury fromaccidents on the railwayfor our passengers,workforce and membersof the public remains ournumber one priority.



It is undeniable that the plans in theround reflected the benefits ofstronger relationships not just withgovernments in London, Edinburghand Cardiff but with our many andvaried stakeholders including, of

course, our customers. We know as anindustry we are riding a wave ofconsensus that investment in ourtransport, and specifically rail,infrastructure is essential for oureconomy, and we recognise that weneed to earn the right to continue tosecure that support andaccompanying investment. Theendorsements from governments not

just in the High Level OutputSpecifications, but in the developingplans for High Speed 2, demonstrate

this consensus remains in place. Ourinfrastructure, which in many placeswould still be recognisable to theVictorian engineers who built it, needsperhaps two to three decades ofsustained strategic investment to meetthe challenges ahead. That will only beforthcoming if we can demonstrate tofunders, including the citizens of thiscountry, that we are a horse worthbacking.

A key demonstration of the companyswillingness to be held accountable forits plans, its activities and its resultshas been the programme oftransparency. More details will followlater in this report, but transparency is

rightfully a focus for David Higgins andthe executive team given the level ofsupport the company receives onbehalf of the taxpayer.

On the board, over the year we areall focused on having an open andengaged, challenging and constructivedialogue about the business, bothoperationally and strategically, anddelivering excellent stewardship of thecompany. We strive to strike the rightbalance between a commitment to

rigorous and forensic challenge; agenuine understanding of thecomplexities and constraints withinwhich the management team operate;and a desire to see the companycontinue to improve its performanceagainst all its key accountabilities.

Chairmans statement

As we head toward themiddle of the second

decade of the 21st century,were committedto providing unendingdiligence, focus and plainhard work.



There are details further on in thisreport from all the board sub-committees on their key areas of focusand activity over the year. In general,however, all the non-executives havesought to improve assurance that the

executive has well-defined, crediblestrategies and plans to deliver whatthey need to deliver both in theshort-term and into the future. Thisincludes, of course, safety of ourworkforce and the public, and it hasbeen heartening to see the emphasisthe company continues to place onimproving safety.

Now, as we head towards the middleof the second decade of the 21stcentury, those of us in the industry can

sense the potential. To realise thatpotential will require unendingdiligence, focus and plain hard work,something I know the team atNetwork Rail is resolutely committedto providing.

Richard Parry-Jones

Chairman

5 June 2013



We have bold plans. Delivering them requires not just sustained

investment in our infrastructure but also in our people, addressingthe culture of our organisation. The following statements set outwhere we are going and the importance of our employees in this.

Our group strategic framework

Our purpose(Why we exist)

To generate outstanding value

for taxpayers and customers

We do not pay dividends to shareholders. Instead,

we reinvest our profits to make the railway better.

As a company that relies on public funding and ticket

revenues, we must always remain accountable to

taxpayers and passengers.

Our role(What we do)

A better railway for a better Britain

A better railway means a safer, more reliable railway,

with greater capacity and efficiency. Better Britain

means a thriving, sustainable, low-carbon economy

with better connections between people and jobs.

Our vision(What we want to be)

To be a trusted leader

in the rail industry

This is our ambition the type of organisation we

want to be five to 10 years from now. Trust is the key

word: we want to be a trusted leader working in close

collaboration with our partners. And we know that

trust must be earned.

Our strategy(How we are going to do it)

To work with our partners and use

our full potential to improve safety,

reliability, capacity and valuefor customers and taxpayers

Our priorities are safety, reliability, capacity and

value for customers and taxpayers. To deliver this

we need to unlock the potential and expertise

of our people creating an environment that

promotes diversity, accountability and gives

opportunity. By investing in our people we aim

to become an employer of choice, attracting

the best talent.

Our behaviours(How we need to work)

We will only be successful if we

are customer-driven, accountable,

collaborative and prepared to challenge.



1 Everyone home safe every day

By putting safety at the heart

of how we design, manage and

maintain our railway we will

reduce safety risks for passengers,

the public and our workforce notjust in the next five years but

for generations to come.

6 A customer-focused organisation

Structuring our organisation

to give clearer accountability to

local people who best understand

the needs of our customers will

help us become a more flexible,collaborative company.

2 Reliable infrastructure

We will go from being world

class in taking care of our track

to becoming a world leader in the

management of all of our assets.

7 Investing in our people

We will create an environment

that promotes accountability,

opportunity and diversity.

This will help us to become

an employer of choice.

3 Reliable timetables

We will continue to transform

how we timetable and operate

the railway, enabling us to

deliver a better service for all.

8 Opening up

We will become an open and

accessible organisation which

understands, and helps others to

understand, the issues shaping

the future of the railway.

4 The biggest investment since

the Victorian era

We will deliver the biggest

capacity increase on the railway

for 100 years, benefiting

people and businesses across

Britain.

9 A railway fit for the future

By placing sustainability at

the heart of everything we do,

we will make our business more

efficient, protect the value of

our assets, and deliver a railway

fit for future generations.

5 A technology-enabled future

Investing in technology will

transform our knowledge of

the railway making us better

at targeting when, where and

how we improve it.

10 Reducing public subsidy

We will continue to reduce

public subsidy of the railway.

We have identified 10 key themes central to our plans for a better

railway for a better Britain. Against each of these we have madea commitment, which we want to be held to account on.

Our strategic themes



The Olympic and Paralympic Games last summer saw the

railway industry at its best working together in a way thatnot only ensured the success of the Games, but also containedmany lessons for the future.

Chief executives review

Last summer we managed to use thenetwork more intensively than everbefore for the 2012 Olympic andParalympic Games. There were moretrains, longer trains and scores of travelchampions at all of our London

stations. The railway outperformeditself and our people played a hugepart in making the Games theoverwhelming success they were.

But the remarkable achievement ofthe rail industry was the result ofrigorous preparation and planning, alldirected towards a six week period. Weput in place new protocols, additionalteams on call to respond to problems,and potentially the single greatestchange we made for these six weeks

we postponed all disruptivemaintenance work. However, thispostponement could not have beensustained for any longer.

The maintenance holidays underBritish Rail and Railtrack haveunderlined the importance of regularlymaintaining the railway for bothsafety and the long-term cost of therailway.

It was within this context that wepublished our Strategic Business Planin January, setting out our proposalsfor the railway up to 2019. Since then,almost 200 meetings have been heldwith the Office of Rail Regulation

(ORR) ahead of the publication in Juneof their emerging view of our requiredfunding and outputs for this period;and we will continue this dialoguethroughout the rest of this year, aheadof the regulators final determinationin October.

Therefore, this year has been one oflooking forward and planning, not justfor the future of the rail network butalso for the future of the railwaysplace in Britain and the role it plays in

helping to deliver sustainableeconomic growth.

Our railway has seen a decade ofunprecedented growth of the kind thatwould be the envy of other industries.Passenger demand has increased by50 per cent over the last 10 years and,by 2020, another 400 million journeyswill be made every year.

The challenge we face is one of successand we have a responsibility to

respond to this by building newcapacity. However, the economic timesin which we live mean that alongsidedelivering new capacity we need tokeep a constant drive for improvedefficiency delivering more for less tocreate a railway that is morefinancially sustainable. These twinchallenges of building capacity anddriving efficiency, alongside ourcontinued drive to improveperformance, lie at the heart of theStrategic Business Plans and the future

of the company. For more detail on ourstrategic framework and themes, seepages 10 and 11.

David Higgins

Chief executive

We have the most intenselyused railway in Europe withcritical parts now runningat close to 100 per centcapacity.



As we look forward and plan for thefuture we must also remember themost important lesson of the past:that the success of the rail industry isbuilt on safety. Research carried out bythe European Commission this year

showed that Britain now has the safestrailway of all EU countries. This issomething we are immensely proud of,but we will never allow ourselves tobecome complacent.

In the last year the tragic accidentaldeath of a young girl at Beech Hill wasa painful reminder of the profoundeffect events on the railway can haveon families, communities and our staff.

We also experienced the incredible

sadness of losing one of our ownpeople and one of our contractors. InNovember, Charlie Lamont was killedin a road traffic accident whiletravelling to a work site. And inDecember, Scott Dobson, who was amember of our Great Northern GreatEastern project team working for SkyBlue on contract to Carillion, was struckby a train while on duty.

We know there is nothing we can sayor do to lessen the pain felt by those

families and staff affected but we willwork tirelessly to prevent suchaccidents happening again. Let me bevery clear: we will never allow there tobe a trade-off between safety and anypart of running the railway. It is ourabsolute priority to get everyone homesafe every day.

This year we took important stridesforward in further improving safety.Amongst these was the closure of the600th level crossing, as part of our130m investment plan to improvesafety and reduce risk on the railway.

We also introduced 11 lifesaving rulesto our employees with the aim toeliminate fatal and life-changinginjuries on the railway.

Train performance continued athistorically high levels, customersatisfaction improved to its highestever level and passenger complaintsfell for the 10th year in succession.However, the challenging weatherconditions which saw parts of thenetwork suffer first from extended

drought and then from unprecedentedrainfall and flooding meant wemissed the regulatory trainperformance target for the year, withEngland and Wales deterioratingcompared to last year while Scotlandimproved slightly and outperformed onits regulatory target.

However, even before the severeweather, we had already recognisedthat we would not be meeting ourtrain performance or delay minutes

targets at the end of the controlperiod. This is in part because of thesuccess our industry has had inattracting an ever growing number ofpassengers, and the effect more trainshave on the resilience of the networkto recover from delays. Nevertheless, itis our responsibility to focus on drivingup performance where possible; andwe expect to achieve all our otherregulatory targets, including assetcondition and safety.

Closing level crossingsWeve closed the 600th levelcrossing as part of our 130minvestment plan to improve safetyand reduce risk on the railway.

95%of passengers felt that rail travel

during the Olympics had exceeded

or met their expectations.



Maintaining a safe and reliablenetwork lies at the heart of our role ascustodian of the nations railway.However, managing the legacy of arailway that was substantially builtin Victorian times is a relentless

challenge. This challenge is madeeven greater by the decades ofunderinvestment and neglect that therailway suffered before the renaissanceit enjoys today.

So we are currently halfway throughan unprecedented programme toreplace outdated equipment andrenew structures. We need a railwaythat is technologically better able tocope with the huge number of trainsthat run today and structurally more

resilient to the extreme weather we areseeing with increased frequency. Theimpact of these events underscoresthe vital importance of our work tobetter understand our assets and toinvest in them. We should never beafraid to make the case for investmenttoday if it saves money in the future.

Investment in reliable infrastructuremust also go hand in hand withbuilding a resilient timetable.

This is particularly important in Britainas we have the most intensively usedrailway in Europe. Critical parts of ournetwork now run at close to 100 percent capacity and the impact of this issignificant. Similar to a busy motorway,even the smallest delay can have ahuge knock-on impact. This meansthat if you cram trains too closelytogether there is no flexibility and itbecomes harder to recover fromdelays.

We can, however, do more to make thebest of the limited space we have onthe network. This year, for example, wecontinued to make real progress in thedelivery of our operating strategy. Byconsolidating signalling and control

activity into 14 modern Rail OperatingCentres over the next 15-30 years, wewill be able to deliver more reliableperformance and make significantimprovements in how quickly we canrecover from delays.

We are also investing to deliver aquantum leap in the application oftechnology. Intelligent infrastructure isquite simply a game changer. It leadsto smarter working, lower costs,improved safety and better reliability.

We have not invested enough inresearch and technology in the pastbut we have begun to make up for losttime. Innovative new ways ofinspecting our railway are alreadyenabling us to better target work,moving from a find and fix approachto one where potential problems arespotted and dealt with before theyhappen. This year we completed theroll-out of 8,000 handheld devices withbespoke apps to log and record vital

information, which has replacedmillions of paper-based inspectionrecords. And this is just the beginning.By 2019 we will be investing more peryear in technology than comparableBritish companies.


London Bridge stationThe scale of improvements is hugeand impacts a railway busier thanever. London Bridge is an exampleof the difficulties of improvingwork on a live railway. Aroundseven per cent of all trains gothrough London Bridge stationand the interconnectivity of therailway means that work here has

the potential to impact over25 per cent of overall nationalperformance.

We will never allow thereto be a trade off betweensafety and any part of

running the railway.



Improving resilience and reliability tomake the best of what we have isabsolutely the right thing to do. Butthe only answer to a railway runningout of space and still facing hugedemand is sustained strategic

investment to build new capacity. InJuly, the Government recognised thisin its High Level Output Statementwhich signalled its support forcontinued rail investment. This backedour plan to deliver the biggest capacityincrease on the railway for 100 years.This includes completing Thameslinkand Crossrail, delivering the NorthernHub and investing more than 4bn peryear to improve the railway and todeliver 170,000 extra commuter seatsat peak times by 2019. Our proposed

renewals programme for the nextcontrol period is larger than all of theUKs power distribution companies andthe National Grids gas and powernetworks combined.

The scale of the improvements we arecommitted to making is huge but weshould be upfront about the impact itwill have on a network that is busierthan ever. London Bridge station, forexample, which we are rebuilding asthe last major stage of delivering

Thameslink, is a key example of howdifficult it is to carry out improvementwork on a live railway. Around sevenper cent of all trains that we run everyday go through London Bridge. On itsown this is a significant proportion,but the interconnected nature of thenetwork means that whatever happensat London Bridge actually has thepotential to impact on 25 per cent ofoverall national performance.

To put this further into perspective,rebuilding London Bridge station is theequivalent of rebuilding two stadia thesize of Wembley in the middle ofcentral London while trying to hostfootball matches at both twice a day.

It is a mammoth undertaking andthere is a huge responsibility on us todeliver the work with as little disruptionas possible.

Rising to the challenges we face canonly be done by changing the way wework. We are working morecollaboratively with our suppliers andbecoming more competitive in the waywe deliver projects. This is key tochanging the culture of our company.

However, we are making real progress:supplier satisfaction continues toimprove, with 72 per cent of oursuppliers either satisfied or verysatisfied in compared to 45 per centin 2010.

As a sign of our commitment todevelop better relationships with trainoperators and improve reliability on allof our routes, we have expanded thenumber of alliances. We want staff touse local expertise to make judgments

that are right for the route, rather thanfollowing a one size fits all approach.This has brought us closer to ourcustomers and passengers, whileallowing us to look to improve serviceand safety for all users of the network.

A further sign of our commitment toworking more closely with customerswas the secondment of Chris Gibb,Chief Operating Officer of Virgin Trainsto work with us on improving theperformance of the infrastructure onthe southern end of the West CoastMain Line.

01

02

01 The Quadrant:MK is at the forefront of

new office developments and is one of

the most sustainable buildings in the

country.

02 Weve recruited and developed 1,000

apprentices and 500 graduates in the

last five years.

Our proposed renewalsprogramme for the next

control period is largerthan all of the UKs powerdistribution companies andthe National Grids gas and

power network combined.




Our commitment togreater transparencyIn the past year we have underlinedour commitment to greatertransparency with the unveilingof a new information portal on ourwebsite. For the first time peoplehave easy access to a range ofinformation about Britains railinfrastructure operator.

networkrail.co.uk/transparency

55%The majority of electricity supplied

from our 10-year deal with EDF

will be used to power electric trains,

which now account for 55 per cent

of rail traffic.

In the past year we also took asignificant step in the development ofour company with the relocation ofnearly 3,000 people to Quadrant:MK,our new national centre in MiltonKeynes. Quadrant:MK is at the

forefront of new office developmentsand is one of the most sustainablebuildings in the country, with acombination of cutting-edge designand the latest environmentally-friendlyfeatures. The open plan officeencourages flexibility, transparencyopenness and dialogue. This is the kindof environment we would like everyonein the group of Network Railbusinesses to enjoy, and demonstratesour commitment to investing in ourgreatest resource our people.

Our award-winning recruitmentprogramme also brought in around950 new people into Quadrant:MK,mirroring local diversity norms forgender and ethnicity. And, in additionto signing up to partnerships withStonewall, The Disability Forum andWomen in Rail, we have agreed adiversity and inclusion policy with ourtrade union partners, and a bespokeleadership awareness course has beenintroduced.

We continue to be committed totraining and we have recruited anddeveloped 1,000 apprentices and 500graduates in the last five years. Ouraward-winning three-year apprenticeprogramme trains around 200 peoplea year in track, signalling, telecomsand electrification and plant,combining technical training withpersonal development to develop therailway leaders of the future.

We are also committed to changingour culture to one which is increasinglytransparent. In the past year we haveunderlined our commitment to greatertransparency with the unveiling of anew information portal on our website.

For the first time people have easyaccess to a range of information aboutBritains rail infrastructure operator. Werecognise the need to be open aboutwhat we do as a company and themoney we spend delivering a world-class rail network.

We believe transparency helps improvedecision making. Given the amount ofmoney that taxpayers put into the railindustry, it is only correct they aregiven the right to scrutinise where their

money goes. As a result we haveprioritised the publication ofinformation that will have a particularbenefit, such as informing decisionmaking within the industry or by ourcustomers, or increasing understandingof and trust in what we do. Categoriesof information we have released todate range from our equality, diversityand inclusion policy, to key safetyperformance indicators, to expenditureon staff travel.

Our data is also now available to weband app developers so that theirinnovations can help passengers plantheir journeys better. The business ischanging, but it is more important tochange our collective mindset thansimply to release data.



The future for ourorganisation lies inempowering our people.

One of our key responsibilities is toplan for the future of the rail network.We have begun to launch a number ofmarket studies to set out howpassenger and freight demand isexpected to change over the next 30

years. This reflects a new approach todeveloping plans for the future, andthe need to understand more abouthow the rail industry can supportsustainable economic growth andstrategic change, for example, with thedevelopment of High Speed 2.

In addition, we recognise the role thatrail must play in tackling climatechange, and that using low carbonenergy sources will help governmentsto achieve their 2050 carbon emissions

targets. Thats why we awarded EDFEnergy a 10-year deal for the supply oflow carbon electricity to power Britainsgrowing electrified rail network. Themajority of electricity supplied will beused to power electric trains, whichnow account for 55 per cent of railtraffic. This is set to grow considerablyover the coming years as we carry outwork to electrify more than 2,000 trackmiles across Britain and bring downthe cost of running the railway.

This is vital, as we must make Britainsrailway financially sustainable andreduce our overall dependence onpublic subsidy. A combination ofreducing our own costs and benefitingfrom the increased fares revenue thathas resulted from growth in passengernumbers has already allowed us to

reduce public subsidy. Network Railexists to generate outstanding valuefor taxpayers and passengers. Werecognise the last decade has seenvotes of confidence from successivegovernments for investing in rail, and

are keen to keep our side of thebargain by being as efficient aspossible. Patrick Butcher, group financedirector, will provide more detailfurther on in this report.

The future for our organisation lies inempowering our people relievingthem of the needless burden of toomany rules and standards butbalancing this new freedom toinnovate with true accountability.

I am determined that we become atransparent and commercialorganisation that earns the trust ofthe travelling public, the train andfreight operators, the regulator andthe Government; that is trusted whenwe call for investment to reducesubsidy in the years ahead; and thatbuilds a reputation around safety,reliability and efficiency, delivering agreat service for our customers, and abetter railway for a better Britain.

David Higgins

Chief executive

5 June 2013



Revenue was relatively flat comparedto last year due to the impact ofincreased compensation to trainoperators. Higher operating costs dueto pay rises, weather related damageto the network and depreciation of a

larger asset base resulted in areduction in operating profit. A muchlower charge for the revaluation offinancial instruments, however,resulted in a significant increase inprofit before tax.

Our asset base continued to grow aswe invested in the railway; debtincreased as we financed this long-term investment and our 65 per centgearing remained comfortably belowthe regulatory limit of 75 per cent. The

increase in net assets was less thanexpected as the profit for the year waslargely offset by the increase in thepension deficit, largely driven by thechange in the discount rate, and areduction in the value of the railwaynetwork, largely due to an adjustmentin respect of missed train performancein the year.

Overall asset condition improved in theyear and our asset stewardshipindicator is already ahead of the

target set at the beginning of thecontrol period. We remain concernedabout the condition of our structuresassets, especially bridges andembankments. We have continued toimprove our asset information andupdate our policies such that we arebetter placed to focus renewalsexpenditure where it is needed and ina cost effective way. At the same time,Network Rail has gone thoughsignificant organisational change, withthe completion of devolution of

decision making to routes,restructuring of our project deliveryorganisation and the relocation ofnearly 3,000 staff to the new nationaloperating centre in Milton Keynes.

Against this background, in January2013 we submitted our StrategicBusiness Plan to the Office of RailRegulation (ORR). This was followed bya period of intense engagement withthe regulator including over 200

meetings. The Draft Determination wasissued on 12 June 2013, with the FinalDetermination due in October 2013.

For the year ended 31 March2013

m2012

m

Revenue 6,197 6,004

Operating profit 2,217 2,347

Profit before tax 775 475

Profit after tax 699 761

Net cash fromoperating activities 2,703 2,692

Net debt (30,358) (27,282)Net assets 8,013 7,917

Railway networkfixed assets 46,411 43,112

Value of investmentproperty 751 878

Capital expenditure 5,050 4,600

Progress in achieving thefinancial targets set out in theCP4 Delivery PlanThe Strategic Business Planincorporated the fourth and finalupdate of our Control Period 4 (CP4)Delivery Plan, reflecting performancefor the control period so far and withupdated projections to March 2014.

This year saw the company face significant operational and

financial challenges as we approach the final year of our currentfive-year regulatory settlement which ends in March 2014.

Group finance directors review

Patrick Butcher

Group finance director



Financial performance compared tothe regulatory settlement for thecontrol period continues to be robust.In our Strategic Business Plan, weforecast outperformance for CP4 of1.2bn including 0.9bn of savings oninterest. This is after achieving the4.1bn additional efficiency saving inour original CP4 Delivery Plan.

During the year, we made the firstpayments to train operators under theEfficiency Benefits Sharing Mechanismfor a total of 16m. The mechanismgives operators a 25 per cent share ofoutperformance on Network Railsoperating costs, which can only bepaid when the ORR has agreed thatreported savings are robust.

0

2

4

6

8

10

12

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

Cost()

Controllable operating costs per train mile (2012/13 prices)

01 Unprecedented rainfall damaged the

infrastructure and resulted in delays and

cancellations

-4.0

-3.0

-6.0

-5.0

-2.0

-1.0

0.0

1.0

2.0

SBP DP09 DP10 DP11 DP12 DP13

bn

Forecast financial outperformance for Control Period 4

5.2bnrequired to achieve

FVA of zero

FVA*

Operating profits

2,347 2,217

2011/12 2012/13

5,050mCapital expenditure up 450m

from 2011/12

65.1%Gearing ratio (regulatory debt to

regulatory asset base)

* FVA shown above excludes adjustments for missed outputs

01




The regulatory settlement was basedon achieving year-on-year savings inmaintenance, operating and renewalscosts against the baseline set at thebeginning of the control period.Delivery challenges in the renewal oftrack, including industrial action in thesupply chain, poor plant performanceand adverse weather, meant that thevolume of work delivered in the yearwas significantly lower than planned.With a high level of fixed cost, thisresulted in a higher unit cost of trackrenewal than last year. Signallingrenewals also saw an increase inoverall spend compared to plan andconsequently a lower level of efficiencythan last year. The rate of efficiencysavings on operating costs wasaffected by the additional costsincurred due to the weather conditionsin the year. With traffic levels also notshowing a significant increase in theyear, the unit cost of running therailway remained unchanged fromlast year.

Significant progress continues to bemade on enhancing the railwaynetwork. The Thameslink programmeachieved key milestones that haveincreased the capacity available forservices into and through London. Theprogramme of platform lengtheningmeans longer trains are able tooperate on more of the network. TheKings Cross station redevelopment islargely complete; the redevelopmentof Reading station area andBirmingham New Street station are onschedule and both achieved majormilestones shortly after the year end.In addition to these major projects, weare delivering minor enhancementsaround the network that increasecapacity, reliability, accessibility andcustomer experience.

We have a significant deliverychallenge for the year ahead. Theplanned expenditure of 6.1bn onrenewing and enhancing the networkrepresents a sizeable increase on the

first four years of the control period.Overplanning and securing access tothe railway are key features of ourstrategy to deliver the workload.

Revenue in the year

6,004m6,197m

2011/12 2012/13

699mProfit after tax down 62m from

2011/12

0

1

2

3

4

09/10 10/11 11/12 12/13 13/14

12/13p

ricesbn

CP4 Investment programme R en ew al s E nh an ce me nt s



Looking aheadto Control Period 5The process of reviewing our fundingand outputs for the next control periodwill culminate in October 2013 whenthe ORR will publish their FinalDetermination. We need to considerthe financial and operating challengesthis will entail and how we are going tomeet the demands of reducing costswhile managing asset condition,improving standards and safety andincreasing capacity on an increasinglybusy network. At the same time weneed to continue to address adverseexternal factors such as extremeweather, crime and suicides.

The Strategic Business Plan set out our

vision for the delivery of sustainableimprovements to the railway. The ORRhas to evaluate the evidence andmake a judgement about what level ofchange is sustainable and achievable.A key judgement is the proposal toamend the basis of the return oncapital, which will reduce our income inthe next control period and potentiallybeyond. Key uncertainties that remainfor us include the required levels oftrain performance and asset condition,the level of efficiency that will beassumed, to what extent projectcontingencies will be included and towhat extent the settlement may besegregated into the 10 operatingroutes.

In advance of the Final Determination,we are preparing our Control Period 5(CP5) Delivery Plan that will set out indetail how the performance andsavings set out in the StrategicBusiness Plan will be achieved. Inaddition, we are developing some of

the projects to be delivered in CP5 sothat we can avoid the hiatus in deliveryseen after the end of Control Period 3.

Financial review of the yearRevenue

Network Rail generates the majority ofits income from track access charges,revenue grants and property rental.Fixed track access charges and therevenue grant are set by the ORR andare largely fixed over the five yearcontrol period and increase in line withinflation. Variability in turnover islimited to the impact of theperformance regime, property incomechanges and rebates to operators.Turnover for the year was 3 per centhigher than last year at 6,197m(2012: 6,004m).

Performance regime

Network Rail is expected to operate

the railway reliably and the regulatorysettlement sets Network Rail a targetof reducing unplanned disruption yearon year. When performance is lessgood than assumed in the regulatorysettlement and this is attributable toNetwork Rail, compensation is paid totrain operators.

While high levels of reliability are beingachieved, as mentioned elsewhere, notall the performance targets are beingmet. As a result, payments of 136m

(2012: 80m) were made to operatorsin respect of unplanned delays andcancellations to services. The increasereflects worse performance on keyroutes as well as more demandingtargets.

While there is a very real risk that trainperformance will not achieve theregulatory target in the coming year,the combination of industry initiativesand improved external factors will seethe gap between target and actual

performance reduce, together with thecost of compensating operators. TheORR has, however, stated that a finemay be imposed in respect of trainperformance in the long distancesector in the 2013/14 financial year.

We are developing nowsome of the projects tobe delivered in the nextcontrol period to avoid

the hiatus seen after theend of Control Period 3.




Network Rail also compensatesoperators for amendments to the traintimetable, typically to allow work to becarried out or for the introduction ofemergency timetables. Costs relatingto these changes remain better than

target through better planning andcoordination of our infrastructureworks and were 30m higher than lastyear due to the increased capitalworkload.

Property

Rental income from the propertyestate grew by 7.5 per cent from188m to 203m for the year.Network Rails strong footfall meant itsretailers were able to grow sales on alike-for-like basis by two per cent. This

compared favourably to high streetretail which continued to face achallenging trading environment andsaw several household names collapseinto administration. The underlyingrent roll of Network Rails commercialestate business grew from 73m to75m during the year. This businesslargely services the UK SME marketand this modest growth in incomeagainst a backdrop of a decline in UKGross Domestic Product wasparticularly impressive.

Significant prior year investment in thenew Kings Cross western concourseand a retail balcony at Waterloostation started to pay back. Not onlywas the rental income received, as aresult of these new schemes, a majorfactor in the overall rental growthachieved but passenger satisfactionscores improved at Kings Cross andWaterloo by 32 per cent and 11 percent respectively.

Advertising revenues from the rail sideand road side estates grew by 13.4 percent from 27m to 30m for the year.Investment in digital technologies andincreased advertising revenue duringthe Olympic Games were the main

factors in this improved performance.

In July, The Quadrant:MK, our newoperating headquarters in MiltonKeynes, opened its doors. The buildinghas been rated BREEAM excellent, thehighest standard for environmentaldesign. The facility is now occupied by2,780 Network Rail employees and hasallowed Network Rail to close 13,predominately leasehold, buildings.

A new serviced office joint venture with

The Office Group opened its first site atPaddington station. Both occupancyand trading were significantly aheadof initial projections. As well asbringing a beautiful listed buildingback into use, the joint venture hasbeen able to provide a convenient andhigh-quality service at a Network Railstation. There are plans for furtherserviced offices at Kings Cross,Leeds and Liverpool Street over thecoming year.

Operating costsOperating costs increased from3,657m last year to 3,980m thisyear. 113m of the 323m increaserelated to depreciation.

The combination ofindustry initiatives and

improved environmentalconditions will see thegap between target andactual performance reduce.



The year saw an increase in the lossesarising from weather-related incidents,compared to last year. Althoughstorms were more frequent, thebiggest costs came from sustained andexcessive rainfall, which caused

flooding on several parts of thenetwork and was a contributory causeto the spoil heap collapse at HatfieldColliery. This last incident aloneresulted in a 15m loss, being theexcess under our insurance policy; thetotal costs which are covered byinsurance are not yet known but will besignificantly higher. Weather aside, alower level of redundancy costs andgood budgetary managementdelivered savings. Finding areas forsavings is, as expected, getting harder

each year, however devolution ofdecision making to routes, enablingcloser working with customers, and therestructuring of our deliveryorganisation, to engage better withsuppliers, are intended to address this.

The average number of employees fellslightly to 35,190 (2012: 35,253).Employee costs were up 100m (6 percent) to 1,779m. The increase reflectsthe one-off 74m pension credit in lastyears results; excluding this credit,

average staff costs increased 6 percent to 50,554.

The depreciation increase reflects thegrowing asset base as a result ofcontinued investment in railwayinfrastructure.

Profit

Total profit from operations for theyear was 2,214m (2012: 2,366m),due to the factors outlined above.

The impact of the valuation offinancial instruments was a charge of43m (2012: 567m). The reducedcharge saw profit before tax for theyear increase from 475m to 775m.

Financial frameworkFinancing activities

Network Rail Limited is a companylimited by guarantee and is theultimate parent company of NetworkRail Infrastructure Limited. There areno external shareholders and allinvestment is funded through theraising of debt or from operating cashflow. Debt is raised by issuing bondsthrough the financing vehicle NetworkRail Infrastructure Finance plc.

The cost of servicing this debt isaddressed as part of the regulatorysettlement, whereby income for acontrol period is set at a level thatprovides a return on the regulatoryasset base. Provided we meet or

exceed our financial targets during acontrol period, we will generateenough funds from our operations tocover the interest expense.

Ultimately, the group benefits from afinancial indemnity mechanismprovided by the Secretary of State forTransport. This means that in theevent of non-payment of financialcash flows by Network Rail, the UnitedKingdom Government would meetthese obligations unconditionally. The

chance of that indemnity being calledupon should remain remote given thestable capital structure and regulatoryregime in which Network Rail operates.

Operating and maintenance costs

per train mile in real terms

5.825.79

2011/12 2012/13

2,570mOperating costs, excluding

depreciation 2011/12: 2,347m




In view of the indemnity, the creditrating given to Network Rails debt isbased on that of the United KingdomGovernment. As at 5 June 2013, theratings from the three principal ratingagencies are AA+ Stable (Fitch), Aa1

Stable (Moodys) and AAA (Standardand Poors).

Borrowing

The group borrowed principally to fundpart of its 5,050m investmentprogramme in the year and debtrepayments of 1,204m were alsomade in the year


m2012

m

Cash generated fromoperations 2,703 2,692

Capital grants 137 400

Borrowing to fundinvestment 3,547 2,943

Total investment 6,387 6,035

During the year ended 31 March 2013Network Rail raised 4,751m throughthe issue of debt. Our success in raisingdebt in difficult market conditions is areflection of confidence in the abilityof Network Rail to service its debt and

of the existence of the financialindemnity from the UK Government.


m2012

m

Borrowing to fundinvestment 3,547 2,943

Borrowing to refinance 1,204 2,546

Bonds issuedin the year 4,751 5,489

Net debt increased in the year from27,282m to 30,358m as a result ofthe investment in the network. Therequirement to invest in increasing thecapacity and capability of the networkgenerates a financing need. As this

creates a long-term source of incomeand economic benefit, debt finance isconsidered an appropriate source offunding under the current regulatoryregime.

At the end of the year, the key ratio ofdebt compared to the RegulatoryAsset Base was 65 per cent (2012: 63per cent) and well below the ceiling of75 per cent set in the Network Licence.

During the year Network Rail raised an

equivalent of 1,737m (US$2,750m)in the US bond markets. All proceedsof US dollar denominated issuancewere swapped into pounds sterlingthrough the execution of CrossCurrency Basis Swaps at the time ofexecution. The group raised 1,381min the year through long dated RPIlinked issuance, against which RPIlinked derivatives were utilised. RPIlinked financial derivatives wereexecuted in advance of the currentcontrol period in order to fix the real

interest rate of future RPI linkedissuance. In addition, 1,500m ofInterest Rate Swaps were utilisedduring the year to 31 March 2013.Interest Rate Swaps were executed inadvance of the current control periodin order to fix the nominal interest ratefor future nominal bond issuance.

At 31 March 2013 all RPI linkedfinancial derivatives had been utilisedand 1,100m of Interest Rate Swaps,executed prior to CP4, remained for

utilisation against nominal bondissuance in the financial year to31 March 2014.

The final year of the controlperiod will see continuedfocus on improving train

performance and deliveringthe capital work we saidwe would.



The railway network

The railway network that Network Railowns and has a licence to operate isincluded in the accounts at a valuethat represents what a third-partypurchaser would pay for it. The basis of

this valuation is an assessment of thecash flows that are forecast to arisefrom the asset. The starting point forthis valuation is the Regulatory AssetBase (RAB), on which a return iscalculated for setting Network Railsincome for each control period.

Subject to criteria established by theORR, each year capital expenditure isadded to the RAB and amortisation isdeducted. The ORR can makedeductions from the RAB in the event

that Network Rail does not achieve itsoutputs, for example not meetingrequired train performance orbreaching a licence condition. Thevaluation of the railway networkincludes a reduction of 436m (2012:nil) in respect of missed trainperformance using a calculation thatmakes no allowance for the impact ofextreme weather or other externalfactors. We continue to havediscussions with the ORR about thisadjustment.

We have also been advised by the ORRof prospective adjustments in relationto deemed under performance in assetmanagement, specifically on our civilsassets (including bridges andearthworks), fencing and drainage.Network Rail does not agree with theprinciple or the basis of assessmentand discussions are at an early stage.

The ORR has informed us that they willassess and conclude on the quantum

of the adjustments in their annualefficiency and finance assessment laterthis year.

While the adjustments could have animpact of up to 1bn, the outcome ofdiscussions with the ORR is souncertain that we have not reflectedany reduction in the accounts.

SummaryIn a number of areas this has been adifficult year but with several positiveand promising aspects. Overall trainperformance remains at a historicallyhigh level but not meeting regulatorytargets; customer and passengersatisfaction is higher than ever; theorganisation has been throughsignificant change but is now betterplaced for the future. At the sametime, overall financial performanceremains positive and we are on track

to deliver 1.2bn of savings over andabove the 4.1bn stretch target wefaced at the beginning of the controlperiod.

The final year of the control period willsee continued focus on improving trainperformance and delivering the capitalwork we said we would. We are alsosetting out to reach an acceptablefinancial settlement for the nextcontrol period that allows forcontinued investment in the railway,

appropriate levels of maintenance andachievable levels of train performance.

Patrick Butcher

Group finance director

5 June 2013



The boards responsibilities for risk

management

The successful management of risksis essential to deliver our strategicobjectives. We have an establishedgovernance structure which supports

the early identification and mitigationof key business risks.

While the ultimate responsibility forrisk management rests with the board,it delegates the more detailedoversight of risk management andinternal control principally to the auditand risk committee which reports thefindings of its reviews to the board.More detailed oversight of safetyrelated risks is delegated to the safety,health and environment committee.

The audit and risk committee receivesregular reports from the internal andexternal auditors and reviews progressagainst agreed action plans tomanage identified risks.

We are managing risks based on our

strategic themes

The risk management process formsan integral part of our planning andreview activity. Setting top downobjectives across the company

provides a clear line of sightthroughout the business to ourstrategic themes, outcomes and vision.In order to secure delivery of ouroutcomes we need a robustassessment of the risks to achieveunderpinning objectives. The ongoingmanagement of risk linked toobjectives is undertaken by the boardand its committees and the businessand functional areas using theEnterprise Risk Management (ERM)framework.

ERM is a comprehensive andintegrated approach to managing risksat all levels of the business that havethe potential to significantly impactthe achievement of our key objectives.

Key steps taken to implement ERMacross our business include:

The development in the year ofa corporate risk map at level 0 withinput from all our executive directors

based on risks to 2019 outcomesand strategic themes

The production of individual riskmaps at levels 1 and 2 within keybusiness units linked to 2019outcomes and strategic themes

The introduction of a risk escalationprocess to identify and elevate risksfrom programmes and delivery unitsat level 3 to the appropriate level

The establishment of a seniorcross-functional risk review group to

challenge, inform and continuouslyimprove the risk managementprocess

Improved, regular risk reporting tothe board, the audit and riskcommittee as well as the safety,health and environment committee

The commissioning of an in-depthreview of governance, risk andassurance which will strengthen therisk management framework

Process improvements introduced

whereby risk management is beinginformed by the results of internalaudit reports and other internal andexternal assurance information.

As with any business, we face a number of risks and uncertainties in the

course of our day-to-day operations. It is only by effectively identifyingand managing these risks that we will be able to deliver on our strategicpriorities of safety, reliability, capacity and value for customers andtaxpayers.

Our approach to risk management



The board has delegatedauthority to the auditand risk committee toregularly monitor internalcontrols and conduct theannual review.

Board and

committeesLevel 0

Cascadingobjectives

Performancemonitoringand reporting

Corporate risk map for

the board and the auditand risk committee

Enterpriselevelriskmanagement

Lowerlevel

riskmanagement

Business/function areasLevel 1

Business/function areasLevel 2

Sub business units, programmes, projects, delivery unitsLevel 3

Enterprise risk management framework

Specific riskassessments

Executive committeemember risk maps andbusiness unit risk maps

FILTER

FILTER



Our approach to risk management

Bow tie approach

Causes

Actions to improve controls

Monitor,recordandreport

Likelihood score; impact score; bow tie rating

Consequences

Existing controls to causes Existing controls to consequences

Inter-dependencies

Success

criteria

Early warning

indicators/trigger points

Objectivecentric risk

for example we fail

to deliver objective X



We are improving our riskmanagement process through theobjective centred bow tie approach.This methodology identifies the directrelationship between objectives,outcomes, causes and consequences.

Controls are used to display whatmeasures we have in place to preventthe causes and mitigate theconsequences. The bow tie methodrequires us to specify the successcriteria and outcomes we are aimingfor as well as identifying trigger pointsfor events that we are trying to avoid.

The boards responsibilities for the

internal control system

The board is responsible for ourinternal control systems and for

reviewing its effectiveness. Such asystem is designed to manage, ratherthan eliminate, the risk of failure toachieve business objectives. It can onlyprovide reasonable (rather thanabsolute) assurance against materialmisstatement or loss.

The audit and risk committee, onbehalf of the board, keeps theeffectiveness of the system of internalcontrol under review and has done sothroughout the year.

Monitoring and reviewing internal

controls

Our internal audit function providesindependent assurance on theadequacy and effectiveness of thesystem of internal control.

Following each internal audit, a reportis produced showing the findings whichare reported to senior managementand any corrective action is agreed.Summaries of these reports and detailsof progress against action plans arepresented to the audit and riskcommittee at each meeting fordiscussion and review.

In accordance with the TurnbullGuidance, an annual review of internal

controls is conducted. The board hasdelegated authority to the audit andrisk committee to monitor regularlyinternal controls and conduct theannual review. This review covers allmaterial controls such as financial,operational and compliance, and alsorisk management systems in placethroughout the year under review.No significant failings or weaknesseswere identified from this review.

During the course of its review of the

system of internal control, the auditand risk committee has not identifiednor been advised of any failings orweaknesses which it has determined tobe significant. Nevertheless, the boardrecognises that there is still an ongoingneed to build on its internal controlframework and uses the opportunityto review internal control processesagainst incidents when they arisein order to promote continualimprovement of our internal controlsystem.

The board reviews internalcontrol processes againstincidents to promotecontinual improvement.



Description Impact Management actions to mitigate

SafetySafety is at the core ofeverything we do. The risk of

death or injury from accidentson the railway for ourpassengers, workforce andmembers of the publicremains our numberone concern.

There is a risk that incidentsinvolving passengers, the

public and our workforcecontinue to happen.

If deemed to be withinour control, civil or criminalliabilities resulting insignificant costs, includingfines and penalties, and lossof licence or regulatoryenforcement action couldarise, together with significantdamage to our reputation.

Work has continued during the year toidentify opportunities to improve safety

performance with several initiativesunderway including the development ofthe transforming safety and well-beingstrategy, safety leadership and cultureprogramme, level crossing improvementplan, suicide prevention programme anda ten point plan for workforce safety. Moreinformation on these initiatives is availableon pages 34 and 35.

Operating therailwayOur ability to deliver thetimetable can be affected bymany factors, both within andoutside of our control. Forexample: adverse weatherconditions, loss of businesscritical resources and acts ofexternal parties all have thepotential to cause severebusiness interruption.

There is a risk that we donot deliver passenger, freightand stakeholder performanceexpectations.

This could lead to an inabilityto service the requirementsof our customers, with thepotential for loss of ourlicence or regulatoryenforcement action, togetherwith significant damage toour reputation.

We are accountable for managing theindustrys train performance improvementplans. Under the auspices of the NationalTask Force we work closely with the trainoperators via the Joint PerformanceImprovement Plan process to identify andmitigate risks to operational delivery.We also manage the industrys response toextreme weather and major externalincidents.

More information on some of theinitiatives that are under way is availableon pages 36 and 37.

Maintaining therailwayWe need to continuallydevelop and demonstrate ourasset management capabilityin order to be consideredas a benchmark for excellencein asset management.

There is a risk that we do notdevelop and implement newways of working that facilitaterail system optimisation.

This could lead to the failureand/or uncontrolleddegradation of network assets.

Work has continued during the year toidentify opportunities to improveperformance with several initiatives underway including the asset managementimprovement programme, offering railbetter information services (ORBIS),intelligent infrastructure and maintenancedelivery. More information on theseinitiatives is shown on pages 38 and 39.

The table below summarises our principal risks

and uncertainties.

Our principal risks and uncertainties



Description Impact Management actions to mitigate

Improving therailwayWe are committed to

delivering a number ofcomplex, high valueinfrastructure enhancementprojects which we must dosafely, to specification, ontime and within budget.

There is a risk that we donot deliver the enhancement

schemes in accordancewith the High Level OutputSpecification, to specification,on time and on budget.

The consequences would bedamage to our reputation,failure to deliver ControlPeriod 4 outputs and aninability to service customerrequirements.

All projects are managed using a lifecyclemanagement process known as

Governance for Railway InvestmentProjects (GRIP) which controls the progressof a project through detailed stage gates.A comprehensive approach to programmeand risk management is deployed onall major projects which includescomprehensive programme controls usinglatest Oracle business systems measuringcost and schedule performance. Project riskmanagement is deployed as part of thisprocess and tracked each period usingactive risk manager.

FinanceWe have agreed a financialsettlement for the currentcontrol period which we mustuse to deliver the regulatoryoutputs. To do this, we mustidentify and realise significantlevels of cost efficienciesacross the company.

There is a risk that we do notdeliver the investment, assetmanagement and operationalactivity required to meet ourregulatory outputs.

This could lead to regulatoryenforcement and damage toour reputation.

A robust business planning process thatidentifies the actions required to deliver therequired efficiencies, together with a seriesof monthly management reviews thatmonitors progress and identifies correctiveaction where necessary.

PeopleWe are committed to

delivering sustainedinvestment in our people. Wemust appoint the right peopleinto key leadership andspecialist roles at the righttime for them and thecompany.

There is a risk that we do

not build rigorous successionpipelines and have robustdevelopment plans for all ourpeople supported by visiblecareer paths.

This could lead to a failure todeliver our plans and damageto our reputation.

A review of policies and processes to

enable greater career mobility (for examplesuccession, promotion, secondment,assignment, interim development) whileensuring transparency and consistencywith our aspiration to become an inclusiveand diverse culture.

Developing our strategy and approach toworkforce planning to deliver capabilityrequirements for Control Period 5 andbeyond.

Defining and embedding future-proofedsuccess profiles and career developmentoptions (leadership, people manager andspecialist) with associated processes andproducts delivered via our talent,recruitment and development approaches.



Safety 2012/13

Actual Target

Compared to

2011/12

Passenger safety indicator

The passenger safety indicator is

measured as passenger fatalitiesand weighted injuries normalised

per million passenger kilometres.

The lower the measure the better.

0.243 0.242 Better

Workforce fatalities and weighted

injuriesThe workforce safety indicator is

measured as workforce fatalities

and weighted injuries normalised

per million employee hours. The

lower the measure the better.

0.149 0.092 Worse

Operating the railway

Public performance measure (PPM)Percentage of franchised operator

trains that arrive on time at their

destination (10 minutes for long

distance, five minutes for regional,

London & South East and Scotland).

90.9% 92.2% Worse

Freight performance measure

Percentage of freight operator

trains that arrive on time at their

destination (10 minutes for alloperators).

74.1% 76.4% Worse

Delay minutes (k YTD)

Sum of minutes lost by revenue

earning trains at or between

monitoring points, which have been

attributed to unplanned incidents

that are our responsibility.

8,818 7,856 Worse

We are working with our partners to deliver our strategic priorities of safety,

reliability, capacity and value for customers and taxpayers. Like any business,we have our key performance indicators (KPIs) which we use to monitor how weperform. Our financial KPIs can be found in the group finance directors review.

Our score card



KeyColours for actual against target

Better

Worse

The results indicate our performance for the year.

Maintaining the railway 2012/13

Actual Target

Compared to

2011/12

Asset stewardship indicator

Indicator of the quality of our asset

stewardship, based on asset condition,reliability and performance across our

key assets. The higher the number

the better.

0.093 0.063 Same

Improving the railway

Achieved

Achieved on

time

Compared to

2011/12

Enhancement milestones completedProgress against the milestones

contained within the CP4 Delivery Plan.429 352 Better

Stakeholder satisfaction Actual

Target

Compared to

2011/12

Passenger satisfaction

The National Passenger Survey (NPS)

commissioned by Passenger Focus,

provides a network-wide picture of

customers satisfaction with rail travel.

This represents passengers overall

satisfaction with their journey in

Autumn 2012.

85% 84% Better

Customer satisfaction

Customer satisfaction is established

through a survey of the top managers

from the train and freight operators in

the UK. The survey is carried out by a

third party company, GfK. This

represents their overall satisfaction

with the company in Autumn 2012.

66% N/A Better



Safety

By putting safety at the heart of how we design, manage andmaintain our railway we will reduce safety risks for passengers,the public and our workforce.

Safety is at the core of everything we

do, from our group board to every

colleague in every depot, station,

signal box and office. Our vision is that

everyone returns home safe every day.

We do not underestimate the

challenge of achieving this in a groupwhich serves members of the public,

including those who travel as

passengers, with over 34,000

employees working in 10 routes,

several businesses and a rail projects

delivery business with a contractor

workforce of up to 100,000.

We aim to be a trusted leader in the

railway industry, working with our

partners and using our full potential to

improve safety to safeguard

passengers and the general public, ourpeople and contractors.

Over the year we developed our

transforming safety and well-being

strategy that will underpin the delivery

of our vision. The strategy will enable

us to significantly improve our safety

performance and to more clearly lead

safety management in our business

and with industry partners. It

demonstrates our ambition to radically

change our safety performance,

recognising that this cannot allhappen within the short horizon of one

control period.

How have we performedduring the year?Workforce safety

Workforce safety is primarily measured

by the workforce safety (fatalities and

weighted injuries) measure which

compares the weighted number of

personal injuries to our staff and

contractors working on the rail

infrastructure. The fatalities and

weighted injuries rate was 0.149

compared with 0.136 in 2012.

(the lower the number the better).

This is an area which has received

increased focus from our executive

team during the year and the key

initiatives under way to improve our

performance on workforce safety can

be found on page 35.

Passenger safetyThe passenger safety indicator

combines train accident risk

information with weighted fatality and

injury data. The passenger safety

indicator at the end of the year was

0.243 against a year-end target of

0.242 (the lower the number the

better) however 2.02 per cent better

than the same time last year. There

was a passenger fatality at Network

Rail managed train stations this year(one of the passengers sadly died of a

heart attack) and there were three

major passenger injuries at Network

Rail managed stations all were slip/

trip/fall accidents. We are focusing on

activities at our managed stations to

manage crowd flows and influence

behaviour so that passenger injuries

on our stations are reduced.

Public safety

During the year there were 49 adult

accidental fatalities and 240 suicides.We continue to work closely with

Samaritans to understand what more

can be done to reduce suicide risk on

the railway.

Our score card

What are our key outcomes?Key 2019 outcomes

Eliminate all fatalities and

major injuries

50 per cent reduction in train

accident risk

Eight per cent reduction in risk

at level crossings.

Key longer term outcomes

Everyone home safe every day

Level crossing riskOur national public safety campaign

continues with the theme of

distraction headlined by rapper

Professor Green encouraging

people to remove their headphones

at level crossings.



Level crossing risk

During the year, the risks associated

with level crossings reduced by 5.5 per

cent according to the level crossing risk

indicator model. We have therefore

achieved a 22.8 per cent risk reduction

so far for Control Period 4 and are

ahead of schedule to achieve a 25 percent risk reduction for the entire

control period.

We have identified 750 high-risk level

crossings which we will close by Spring

2014.

We reached an important milestone in

our level crossing closure programme

when the 600th level crossing at West

Lodge on the London North East route

was closed in October 2012.

Our national campaign continues withthe theme of distraction, headlined by

rapper Professor Green encouraging

people to remove their headphones at

level crossings.

In Control Period 5 we will continue

our programme to reduce risk at level

crossings. We will focus our efforts on

achieving the most cost-effective risk

reduction, closing crossings where

possible and ensuring the public

understand the risks of unsafe use

of crossings.

What key initiatives do wehave under way?Safety culture change

We are working to develop an inclusive

and mature safety culture by achieving

a change in key behaviours across our

organisation. The behaviours

demonstrated when such a culture is in

place include: providing clear and

simple rules while trusting people to

use their expertise in a responsible

way; being risk-aware: encouraging

open discussions about risks; actively

identifying and reporting risks in a

blame-free environment; aiming to

continually improve rather than

control. The culture change will be

achieved primarily through carefully

tailored communications and training

for all our staff as well as dedicated

intranet groups and live forums. Our

first communications campaign

launched 11 lifesaving rules which

cover the most fundamental safety

issues (see above).

Business critical rules programme

Our working regime is being simplified

with the introduction of approximately

100 business critical rules which will

replace the current 1,650 standards.

These rules will be accompanied by

concise means of compliance. For any

employee, supplier or contractor, thenew working regime will clearly specify

the expectations that are placed on

them. The risk of incidents caused by

conflicting information or expectations

will be greatly reduced.

10-point plan for workforce safetyThe plan provides a number of

targeted interventions which willprovide a sustainable step-change in

the safety of the workforce and

contribute towards our target of

eliminating all workforce fatalities and

major injuries. The components of the

plan include: increasing clarity on roles

and res

Network Rail Limited Annual Report and Accounts 2013.PDF

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