Carburton Street, London -- This morning's interim results from Railtrack (LSE: RTK) showed just how reliant the troubled train firm was on the government. While Railtrack's headline figures do their best to highlight greater profits, the fact is that the group's financial improvement is wholly down to external revenue grants.
On the face of it, Railtrack reported six-month turnover jumping from £1,275m to £1,759. But various revenue grants from the Strategic Rail Authority amounted to £732m in the period. Without any similar payments last year, interim pre-tax profits leapt from £175m to £292m.
However, strip out the SRA's funding and a different picture emerges. 'Underlying' turnover would have fallen 19% to £1,032m, mainly caused by a 20% reduction in passenger franchise income. Freight revenue fell 40% to £49m. And with operating costs of £1,400m during the period, Railtrack -- minus the SRA's help -- would have reported operating losses of about £400m.
Unsurprisingly, other parts of Railtrack's finances don't look too healthy, either. The balance sheet contains £4,551m of net debt and infrastructure expenditure of £1,400m was spent in the latest six months. What's more, there's the £1,700m obligation to purchase the first part of the Channel Tunnel Rail Link in 2004, too.
Chief Executive Steve Marshall stated this morning that "Railtrack was NOT [his emphasis] insolvent until the Secretary of State chose to make it so. No financial meltdown was in sight".
Marshall may be technically correct. Furthermore, the method and timing of Railtrack's insolvency raises many political issues. But today's results certainly emphasise the precarious state of the group's finances.
The figures clearly highlight the terrible economics of this capital intensive and regulated business. Indeed, with Stephen Byers lining up a 'not-for-profit' company to replace Railtrack, at least the government officially recognises the fundamentally poor financials of the rail infrastructure operator.
More: Railtrack discussion board
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