Cost of rising debt hits Network Rail's profits

By KARL WEST
Updated: 17:55 EST, 3 June 2009

Falling profits and spiralling debts dominated the financial performance of state-controlled Network Rail last year.

The rail track operator revealed pretax profit dipped to £1.52billion from £1.59billion, as it pumped a record £4.7billion of investment into the network, up from £4billion.

But the group's attempts to modernise large sections of Britain's ageing rail infrastructure has left it nursing record levels of debt, which soared 13 per cent to £22.3billion.

The borrowings mean that Network Rail paid out a staggering £904million in interest payments last year to service its debt mountain. Debt interest costs were £886m the previous year.

Network Rail CEO Iain Coucher gave up his bonus as the company continued to struggle.

Despite Network Rail's claim to a strong performance, the Office of Rail Regulation described it as 'mixed'.

The industry watchdog said it has written to the group's executive pay committee, adding: 'The company must back up any decision on bonuses with clear evidence of the benefits that have been brought to the railway as a whole.'

Network Rail chief Iain Coucher recently gave up his annual bonus of around £300,000 following pressure from government, which wants senior public sector bosses to take account of the current economic climate.

But Coucher will still be paid around £200,000 from a long-term incentive plan on top of his £500,000 salary.

The rail chief 's gesture is not being followed by other senior management figures, or Network Rail's staff however. Details of their windfalls are due to be released later this month.

Coucher defended the decision to take his second bonus and said it was right that Network Rail staff were rewarded.

'I think there are few people that could argue we haven't improved the performance of the network over the long term. I fully expect people to be paid the rewards they rightly deserve,' he added.

Coucher courted controversy last year when he received more than £500,000 in bonuses - £305,000 of annual incentive as well as more than £205,000 under the long-term plan - despite Network Rail being fined a record £14m for engineering overruns at Christmas and New Year in 2007-08.

The group has started work on the £5.5billion Thameslink upgrade that will quadruple capacity on one of London's most overcrowded routes.