Shares: Company of the Week

SHARES in Railtrack, which owns the UK rail network, rose 17 per cent last week after the company announced a 12 per cent rise in profits to pounds 388m and was awarded a stake in the construction and a right to buy the high-speed Channel Tunnel link into London.

The results were better than expected, as the company succeeded in reducing costs and passenger and freight revenue rose.

"This has been an encouraging year: growth in passenger and freight, increased investment, consolidation of performance improvements, a reducing cost base and continued improvement in earnings," chairman, Sir Robert Horton, said.

About 90 per cent of the company's revenue is provided by a fixed annual charge set by Government regulators, which rises at 2 per cent above the rate of inflation. The company sliced 4 per cent from its infrastructure maintenance costs by keeping a closer control over its contractors and through the improvement of its basic infrastructure. It also cut expenses on electric rates and on managing its assets.

Railtrack has reached agreement with the Government on the future of the troubled high-speed rail link between the Channel Tunnel and London which will cut journey times to Europe.

It will help build and then buy the first stretch of the 68-mile link for an estimated pounds 1.5bn. It will also have an option to buy the second half of the link, estimated to cost pounds 1.8bn, at the end of 2006. In return, it will receive access fees from Eurostar, which operates the train service.

The project, which Railtrack estimates will cost it about pounds 3.3bn, will come on top of the company's other plans to raise infrastructure spending on the network. This year the company will increase investment by 16 per cent to pounds 1.45bn as part of a plan to spend pounds 17bn over the next 10 years.

Copyright IOS & Bloomberg.