Railtrack expected to unveil sharp rise in profits

Railtrack is expected to announce its delayed interim financial results this week following weekend reports that the rail group was enjoying a sharp recovery in profits just as Stephen Byers, the Secretary of State for Transport, pushed the company into administration.

Railtrack's profits for the six months to 30 September are expected to be about £250m to £300m, which is up sharply from the previous year's £175m. Railtrack was due to report the interim figures in early November but the announcement was overtaken by Mr Byers' decision in early October to call in the administrators.

It is thought that all the major benchmarks of the group's financial performance were improving, including cash flow generation. The accounts have not yet been signed off but there will now be increased pressure to report the results this week.

The figures will be a further embarrassment to the Transport Secretary, whose handling of the Railtrack saga has made him the subject of heavy criticism.

Railtrack's supporters argue that with the company's finances improving it would have been able to approach the City for the £3bn of funds required to fund improvements to the rail network.

Passenger groups reacted angrily to the news that profits were improving at the same time as Railtrack was, in the words of the rail regulator Tom Winsor, "going round Whitehall with a begging bowl" demanding taxpayers' money.

Stewart Francis, chairman of the Rail Passengers Council, said passengers would be "livid" over the revelations.

"The company has been paying huge dividends to shareholders while the railway has crumbled. The directors of Railtrack have been scrambling around fighting the Government on behalf of the shareholders' interests. The passengers have had enough," said Mr Francis.

There was fresh hope for beleaguered Railtrack shareholders yesterday as a result of fresh speculation that investors will be offered an interest in the new company limited by guarantee that is expected to take over the running of the rail network.

It is understood that the government is looking at a scheme whereby shareholders would swap their equity in the old Railtrack for debt in the new company. They would then receive a fixed rate of interest on the bonds.

Railtrack believes negotiations with the government could be pitched at about 240p a share, the level of the stock when Railtrack went into administration.

Insiders say the structure of the deal would be politically attractive to Mr Byers as it would enable him to claim that Railtrack was not being bailed out by taxpayers money.

The interest on the bonds would come from the new company limited by guarantee. It is thought that the offer may be attractive to institutional investors.

The reaction may be less positive from ordinary shareholders, including Railtrack's staff who hold an average of more than £1000 of shares in the company.