Date Create your footer by changing copy in the Header and Footer section1 Network Rail’s Strategic Agenda Calvin Lloyd

2 Key strategic issues Industry structure Plans for the railway The nature of our company Value for money

3 Network Rail’s business environment COMPLETE WORK ON-TIME £26.7bn LICENCE BREACH PPM 92.6%

4 Government view of rail?

Date Create your footer by changing copy in the Header and Footer section5 The nature of our company

6 Key features of a CLG Government Department CLGPLC GovernanceMinisterMembersShareholders Purpose Deliver government policy “Do right thing” Grow shareholder value Stability of decisions Subject to policy change Take long term view Short term market drivers Profit(Cost centre)Profits re-investedProfits distributed RemunerationBasicMIPShare options

Date Create your footer by changing copy in the Header and Footer section7 Value for money

8 Key costs & revenue drivers… CostsIncome Using CP5 totals (2011/12 prices). The Network Rail costs are based on an illustrative CP5 forecast

99 International benchmarks Comparator railways (F, NL, SE, CH) £ / passenger km Infrastructure & rolling stock contribute most to higher costs. Train operating costs are below comparisons. 40% reduction needed to reach benchmark average. Additional 10% from efficiency models is due to relatively lower levels train utilisation.

10 Key findings of VFM study 30% reduction from industry costs should be possible by 2018/19, with further savings beyond that. The industry needs to plan how to meet this challenge and take responsibility for change. There are 10 broad areas identified as causing inefficiencies. Recommendations cover 8 areas and effect a wide range of the industry, from government policy and regulation through to operators and Network Rail’s activities and relationships.

11 Savings to be achieved Estimate for savings in year 2018/19 (09/10 prices) over and above CP4 and initial CP5 targets (£m). The remaining £600m could be delivered by a 5% improvement in train productivity. Study area30% (High case) Industry objectives, strategy and outputs110 Leadership, structures, interfaces and incentives130 Revenue90 Asset management and supply chain management580 Programme management100 Safety Standards and innovation190 People260 Less double counts (410): TOTAL1,050

12 Recommendations – key themes (1) Industry objectives, strategy and outputs. Franchising reform is supported by the Study. Leadership, planning and decision making Structures, interfaces and incentives Improve incentives on Network Rail and TOCs Fares & other revenue Asset management Whole system programme management Supply chain management Safety, Standards and Innovation

13 Progress to date The Study recognises the efforts of Network Rail and train operators to address the “co-operation deficit”. –Network Rail’s commitment to change, to a focus on customer needs, and to greater levels of safety, transparency and accountability is noted. –Train operators’ greater willingness to work with Network Rail is also noted. –Early signs are described as “encouraging”. The Study also welcomes the plans announced by Network Rail to improve engagement with suppliers and contractors.

14 Implementing change The Study recommends “a large amount of change” that should be evolutionary rather than revolutionary. Focus is on making existing structures work better. Legislating change would use valuable time and effort, and be disruptive and potentially costly. Major changes and the identified efficiencies can still be delivered by adapting existing structures. Many of the changes within Network Rail have already begun.

Date Create your footer by changing copy in the Header and Footer section15 Plans for the railway

16 PR13 Key milestones Sep 2011:Initial Industry Plan February 2012:ORR advice to ministers July 2012:HLOSs and SOFAs January 2013:Strategic Business Plan June 2013:Draft Determinations Sep 2013:Response to Draft Determinations October 2013:Final Determinations February 2014:Accept / reject decision March 2014:CP5 Delivery Plan

17 The Initial Industry Plan Planning Oversight Group asked by ORR to publish an Initial Industry Plan (IIP) in September In terms of expenditure, the primary focus of the IIP is the level of overall Government subsidy to rail in CP5 We have been asked to prepare at least two scenarios: –The cost of the current railway –A preferred plan that meets customer and stakeholder needs This will inform the development of the High Level Output Specifications (HLOSs) and Statement of Funds Available (SoFAs) to be published by DfT and Transport Scotland in July 2012

18 “Background” growth – summary Market Approx. % of National Passenger km Passenger km Growth to Average Rate Per Year London Commuter21%+40%1.3% Long Distance35%+67%2.0% Regional Urban Commuter 7%+102%2.8% London Other26%+90%2.5% Regional Urban Other 9%+116%3.0% Rural3%+90%2.5% Total100%75%2.2%

19 Key questions Is the scale of ambition right? What additional outputs do we want to deliver? What assumptions do we make about industry efficiencies in CP5? How will devolution impact on our costs? What policy choices should we examine?

20 A compelling future for Network Rail “A leading independent British-based infrastructure group that is internationally recognised for providing rail transportation solutions that deliver outstanding value to customers”