TIDM88BX TIDM10FX
RNS Number : 1195E
Heathrow
26 February 2020
HEATHROW (SP) LIMITED
RESULTS FOR THE YEARED
31ST DECEMBER 2019
26TH FEBRUARY 2020
Heathrow lands 9(th) year of consecutive growth with healthy
financial performance - Heathrow welcomed a record 80.9 million
passengers in 2019 (+1% vs 2018) with 82% rating the airport as
"Excellent" or "Very Good" following private investment of over
GBP12 billion. The share of UK exports handled through Heathrow
increased to 40%, strengthening our position as the UK's biggest
port. Heathrow remains in strong financial health: revenues climbed
3.4% to GBP3.1 billion on the back of increased demand to fly -
supporting an additional GBP856 million of investment into the
airport in 2019. Adjusted EBITDA rose 4.6% to GBP1.9 billion.
Remaining competitive in the lead-up to expansion continues to be a
priority: strict operating cost discipline while prioritising
service, operational resilience and investment in growth has driven
adjusted costs per passenger pre IFRS 16 up 5.0% to GBP14.85.
Strong balance sheet with liquidity extended to October 2021 after
raising GBP2.1 billion in global capital markets
Heathrow expansion will boost economic prosperity, fulfilling
the Prime Minister's vision of a Global Britain - Case for
expansion was strengthened as new figures revealed that growth at
EU competitor Charles de Gaulle is set to overtake Heathrow,
threatening the UK's only hub airport and the Prime Minister's
ambition for a Global Britain. As capacity constraints continue to
strangle the UK's biggest port by value, trade and tourism volumes
are being handed on a plate to European competitors
Expanding the UK's only hub airport will help level up the
country - Heathrow delivered a record year for apprenticeship
starts in 2019, and finalists in the airport's UK-wide logistics
hub search await the final green light to help build expansion.
GBP14 billion of private investment ready to launch tens of
thousands of jobs, thousands of apprenticeships, new technology and
huge economic benefits in every corner of the country
Heathrow takes a lead on addressing the biggest issue of our
time - climate change - Heathrow signed up to unwavering commitment
of net-zero carbon by 2050, alongside the rest of the aviation
industry. Heathrow achieved carbon-neutral status in January 2020
and are working towards operating zero-carbon infrastructure by
mid-2030s for all its infrastructure. Heathrow remains clear that
unless expansion meets strict environmental targets, no additional
capacity can or will be used
At year ended 31 December 2018 2019 Change (%)
======================================================== ======= ======= ===========
(GBPm unless otherwise stated)
Revenue 2,970 3,070 3.4
Cash generated from operations 1,787 1,942 8.7
Profit before tax 422 546 29.4
-------------------------------------------------------- ------- ------- -----------
Adjusted EBITDA(1) 1,837 1,921 4.6
Adjusted profit before tax(2) 267 375 40.4
======================================================== ======= ======= ===========
Heathrow (SP) Limited consolidated nominal net debt(3) 12,407 12,412 0.0
Heathrow Finance plc consolidated net debt(3) 13,980 14,361 2.7
Regulatory Asset Base(4) 16,200 16,598 2.5
-------------------------------------------------------- ------- ------- -----------
Passengers (million)(5) 80.1 80.9 1.0
Retail revenue per passenger (GBP)(5) 8.94 8.93 (0.1)
======================================================== ======= ======= ===========
"Within two years, Charles de Gaulle will overtake Heathrow as
the biggest airport in Europe. Heathrow's new runway is ready to
turn "global Britain" into more than just a campaign slogan. It's
the key to the UK's success after Brexit and will ensure we stay
ahead of our European rivals. Expansion will be built within
legally-binding environmental targets, creating lower airfares for
passengers, connecting every corner of Britain to global growth and
all at no cost to the taxpayer. It's time to get on with it."
JOHN HOLLAND-KAYE
Heathrow CEO
Notes
(1) Adjusted EBITDA is profit before interest, taxation,
depreciation, amortisation and fair value adjustments on investment
properties.
(2) Adjusted profit before tax excludes fair value adjustments
on investment properties and financial instruments.
(3) Consolidated nominal net debt is short and long-term debt
less cash and cash equivalents and term deposits, it includes index
linked swap accretion and hedging impact of cross currency interest
rate swaps. It excludes pre-existing lease liabilities recognised
upon transition to IFRS 16, accrued interest, bond issue costs and
intra-group loans.
(4) The Regulated Asset Base is a regulatory construct, based on
predetermined principles not based on IFRS. It effectively
represents the invested capital on which we are authorised to earn
a cash return.
(5) Changes in passengers and retail revenue per passenger are
calculated using unrounded passenger numbers
Heathrow (SP) Limited is the holding company of a group of
companies that fully own Heathrow airport and together with its
subsidiaries is referred to as the Group. Heathrow Finance plc,
also referred to as Heathrow Finance, is the parent company of
Heathrow (SP) Limited
Creditors and credit analysts conference call hosted by
John Holland-Kaye, CEO and Javier Echave, CFO
Wednesday 26(th) February 2020
Investor enquiries Media enquiries
Christelle Lubin Alex Connor
+44 7764 805761 +44 7712 537956
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Disclaimer
These materials contain certain statements regarding the
financial condition, results of operations, business and future
prospects of Heathrow. All statements, other than statements of
historical fact are, or may be deemed to be, "forward-looking
statements". These forward-looking statements are statements of
future expectations and include, among other things, projections,
forecasts, estimates of income, yield and return, pricing, industry
growth, other trend projections and future performance targets.
These forward-looking statements are based upon management's
current assumptions (not all of which are stated), expectations and
beliefs and, by their nature are subject to a number of known and
unknown risks and uncertainties which may cause the actual results,
prospects, events and developments of Heathrow to differ materially
from those assumed, expressed or implied by these forward-looking
statements. Future events are difficult to predict and are beyond
Heathrow's control, accordingly, these forward-looking statements
are not guarantees of future performance. Therefore, there can be
no assurance that estimated returns or projections will be
realised, that forward-looking statements will materialise or that
actual returns or results will not be materially lower than those
presented.
All forward-looking statements are based on information
available at the date of this document. Accordingly, except as
required by any applicable law or regulation, Heathrow and its
advisers expressly disclaim any obligation or undertaking to update
or revise any forward-looking statements contained in these
materials to reflect any changes in events, conditions or
circumstances on which any such statement is based and any changes
in Heathrow's assumptions, expectations and beliefs.
These materials contain certain information which has been
prepared in reliance on publicly available information (the "Public
Information"). Numerous assumptions may have been used in preparing
the Public Information, which may or may not be reflected herein.
Actual events may differ from those assumed and changes to any
assumptions may have a material impact on the position or results
shown by the Public Information. As such, no assurance can be given
as to the Public Information's accuracy, appropriateness or
completeness in any particular context, or as to whether the Public
Information and/or the assumptions upon which it is based reflect
present market conditions or future market performance. The Public
Information should not be construed as either projections or
predictions nor should any information herein be relied upon as
legal, tax, financial, investment or accounting advice. Heathrow
does not make any representation or warranty as to the
accuracy or completeness of the Public Information.
All information in these materials is the property of Heathrow
and may not be reproduced or recorded without the prior written
permission of Heathrow. Nothing in these materials constitutes or
shall be deemed to constitute an offer or solicitation to buy or
sell or to otherwise deal in any securities, or any interest in any
securities, and nothing herein should be construed as a
recommendation or advice to invest in any securities.
This document has been sent to you in electronic form. You are
reminded that documents transmitted via this medium may be altered
or changed during the process of electronic transmission and
consequently neither Heathrow nor any person who controls it (nor
any director, officer, employee nor agent of it or affiliate or
adviser of such person) accepts any liability or responsibility
whatsoever in respect of the difference between the document sent
to you in electronic format and the hard copy version available to
you upon request from Heathrow.
Any reference to "Heathrow" means Heathrow (SP) Limited (a
company registered in England and Wales, with company number
6458621) and will include its parent company, subsidiaries and
subsidiary undertakings from time to time, and their respective
directors, representatives or employees and/or any persons
connected with them.
These materials must be read in conjunction with the Heathrow's
annual report and accounts for the year ended 31 December 2019.
Review of the year
2019 marked the end of a transformational decade for Heathrow as
we welcomed a record 80.9 million passengers. Our traffic grew by
nearly 25% in the past ten years and we significantly enhanced our
passenger experience despite being severely capacity-constrained.
Over GBP12 billion of private money made all of this possible. We
invested in our colleagues, in better facilities, better processes
and resilience. We have also taken a leading role in tackling one
of the biggest challenges of our times: climate change. All of this
paid off for our passengers and has earned us a place among the
best-rated airports in the world today. This is a position of which
we can be proud but cannot take for granted. To continue delivering
our vision and give passengers the best airport service in the
world, we need to expand Heathrow. The last decade was pivotal in
that process: we won the parliamentary vote for Heathrow expansion,
we are finalising our Masterplan and we continue working with our
regulator, airline partners, local communities and investors to
deliver this once-in-a-generation project.
Zooming into 2019, we continued progressing on all four
strategic priorities underpinning our vision to give passengers the
best airport service in the world: making Heathrow a great place to
work, transforming customer service, beating the business plan and
sustainable growth.
Our colleagues are fundamental to the success of our vision,
which is why making Heathrow a great place to work and creating
careers where people can fulfil their potential remains at the very
heart of our strategy. In the last 12 months, 1,648 colleagues
(2018: 755) attended training to advance their managerial skills
and 210 colleagues (2018: 263) were promoted. 1,093 apprenticeships
were created as we progressed on our goal to deliver 10,000
apprenticeships by 2030. Since becoming a fully accredited London
Living Wage employer in 2017, we continued making progress with our
direct supply-chain colleagues: 64 contracts out of 108 have now
been updated, with a target full transition by the end of 2020.
Overall, 74% of our colleagues (2018: 73%) agreed that Heathrow is
a great place to work.
Investments to transform customer service delivered successful
results too. We achieved an all-time high 4.17 out of 5.00 score in
the global Airport Service Quality (ASQ) survey over 2019. We also
achieved some of the highest levels of baggage connections and
departures punctuality in our history. For the fifth year running,
Heathrow was named 'Best Airport in Western Europe' as well as
'Best Airport for Shopping' for the tenth year in the most recent
Skytrax World Airport Awards.
2019 was our 9th consecutive year of passenger growth as we
welcomed 80.9 million passengers through the only hub airport in
the world's largest aviation market, up 1.0% compared to 2018. We
continued to beat the plan with GBP3.1 billion revenue, up 3.4% on
last year. Operating costs remained tightly controlled whilst
gearing up for growth. We continued to prioritise safety, security,
service and resilience. This drove a 5.0% increase in adjusted
operating costs per passenger pre IFRS 16. Our Adjusted EBITDA rose
4.6% to GBP1.9 billion as a result. We raised GBP2.1 billion of
debt financing globally in 2019 including a 15-year EUR650m bond
issuance and our inaugural JPY transaction in December. Financing
activities highlighted global investors' continued confidence in
Heathrow's credit and kept cementing strong financial foundations
ahead of expansion.
We contribute proactively in the delivery of the UN Sustainable
Development Goals by 2030 and have achieved significant milestones
to grow Heathrow sustainably today and in the future. We made
further progress on decarbonising the airport's infrastructure: in
January 2020 we became carbon-neutral. We are working towards
operating zero-carbon airport infrastructure by the mid-2030s and
have shared our plan to play our part in decarbonising the aviation
industry over the coming decades. We were delighted to see our
achievements recognised by edie's Mission Possible sustainable
business of the year award.
In late 2019, we published our Initial Business Plan, another
significant milestone in expanding the airport. It outlines how we
will invest to deliver expansion and unlock material reduction in
airfares by introducing additional airline competition and choice
over the next 15 years. The plan is built on strongly-evidenced
consumer views and includes two 'bookend' options which contrast
service and cost by prioritising service or savings. We remain on
track to submit our Development Consent Order ('DCO') application
later in 2020. We continue engaging with our regulator and airline
stakeholders to define the regulatory framework that will enable an
expansion that is sustainable, affordable, financeable and
deliverable.
Strategic priorities
MOJO
We want Heathrow to be a great place to work. We provide an
environment where colleagues feel safe, proud, motivated and enjoy
what they do. In 2019, 74% (2018: 73%) of colleagues agreed
Heathrow is a great place to work through our Mini Pulse
survey.
We continued building strong leadership capability in 2019: 210
colleagues (2018: 263) were promoted and 1,648 colleagues (2018:
755) attended training and development programmes.
We want everyone to go home safe and well to their loved ones.
In 2019, our lost time injuries metric was broadly stable at 0.34
(2018: 0.33). Targeted action plans are in place to drive down
injuries such as sharps related injuries and those sustained
searching vehicles at control posts.
We have recently agreed a pay deal with our unions. The deal
secures stable and fair terms and conditions for our colleagues
until 2022 while remaining competitive.
TRANSFORM CUSTOMER SERVICE
We continue to deliver strong levels of service across our
passengers' journey. Our service standards remain high, despite
passenger growth putting pressure on some key processes such as
check in, security, immigration and baggage.
In 2019, we achieved a record ASQ rating of 4.17 out of 5.00
(2018: 4.15) compared to 3.84 out of 5.00 in 2010. In addition, 82%
of passengers surveyed rated their Heathrow experience 'Excellent'
or 'Very good' (2018: 82%). These scores illustrate not only the
strength and resilience of our operations but also the benefits of
our continued investments. For instance, passengers are enjoying
upgraded Wi-Fi facilities and a transformed immigration experience
as a result of newly installed e-Gates. Closure of the cargo tunnel
caused connections satisfaction to decline to 4.14 out of 5.00
(2018:4.16).
Service standard performance 2018 2019
indicators (1)
ASQ 4.15 4.17
Baggage connection 98.8% 99.0%
Departure punctuality 77.6% 78.5%
Security queuing 96.8% 96.3%
Connections satisfaction 4.16 4.14
(1) For the year ended 31 December 2019
BEAT THE PLAN
New intercontinental routes
New routes were announced to North America by British Airways:
Pittsburgh and Charleston. British Airways also announced new
routes to Kansai, Dammam and Valencia. We also had new routes
announced to Bali from Garuda Indonesia and Sialkot from Pakistan
International Airline.
Record passenger traffic
During 2019 we welcomed 80.9 million passengers, an increase of
1.0% (2018: 80.1 million) and our 9(th) consecutive year of record
passenger traffic. Aircraft continue to fly fuller with load
factors increasing to the highest we have ever seen at 80.0% (2018:
79.4%). Nevertheless 1 in 5 seats remain empty, which provides a
significant growth opportunity prior to expansion. The average
number of seats per passenger aircraft also increased to 213.7
(2018: 213.4) driven by aircraft upgrades on European and Middle
Eastern routes throughout the year.
Intercontinental traffic grew by 2.2%. Intercontinental growth
continues to be driven by North America, through increased load
factors and frequencies, additional services and new routes such as
Pittsburgh and Charleston. Africa traffic also grew strongly due to
additional services to Marrakesh, Seychelles, Durban and
Johannesburg. Middle East traffic increased due to larger aircraft
and increased load factors. Asia pacific traffic declined due to
Jet ceasing operations early in the year. Short-haul traffic
declined slightly by 0.3% driven by European traffic with a number
of carriers reducing services. Domestic traffic grew 0.9% with new
routes to Newquay, Guernsey and Isle of Man.
Our cargo volumes declined 6.6% compared to 2018 reflecting the
general weakness in the global market in 2019. Our cargo operation
reached capacity in 2018 and we do not expect volumes to increase
materially until the capacity constraints are resolved by expanding
Heathrow.
(Millions) 2018 2019 Var
% (1)
UK 4.8 4.8 0.9
Europe 33.3 33.2 (0.5)
North America 18.1 18.8 4.1
Asia Pacific 11.5 11.4 (1.1)
Middle East 7.7 7.8 1.2
Africa 3.3 3.5 5.3
Latin America 1.4 1.4 2.3
Total passengers 80.1 80.9 1.0
(1) Calculated using unrounded passenger figures
Other traffic 2018 2019 Var
performance indicators %
Passenger ATM 472,744 473,233 0.1
Load factors
(%) 79.4 80.0 0.7
Seats per ATM 213.4 213.7 0.2
Cargo tonnage
('000) 1,700 1,587 (6.6)
SUSTAINABLE GROWTH
Decarbonising aviation
Tackling climate change is the biggest challenge of our
generation and the aviation industry must be part of the solution.
Aviation is a force for good in the world, helping power economic
growth and bring people and cultures together. Heathrow matters
because of our role connecting the UK to global growth. Aviation is
not the enemy - carbon is. At Heathrow, we have outlined our new
carbon plan that brings together partners in the industry,
Government and passengers to help aviation achieve net-zero
emissions by 2050.
The first step is to remove carbon from Heathrow's operations.
Following more than GBP100 million in investments, Heathrow has
become carbon-neutral. Heathrow's terminals are now powered by 100%
renewable energy and green gas. Investments in new vehicles and
charging infrastructure mean we now operate one of the largest
electric vehicle fleets in Europe. Further investment will help us
work towards our target of zero-carbon airport infrastructure by
2050, although we aim to achieve this sooner by the mid-2030s.
In addition to our own operations, we are reducing wider carbon
emissions by making it easier for passengers and colleagues to
travel to the airport sustainably and by aiming to make Heathrow a
world leader in low-carbon construction.
We are also focusing on removing carbon from the atmosphere by
helping passengers to offset their flights, and increasing our own
investment in natural climate solutions to capture carbon
emissions. Heathrow passengers currently have the option to offset
their journeys through verified schemes via our new partnership
with climate company CHOOOSE. UK-based natural carbon capture
projects like peatland and woodland restoration as well as
regenerative farming provide an important opportunity to actively
reduce and remove carbon emissions. Heathrow is already investing
in a number of these projects in the UK, and earlier this month
announced a further GBP1.8 million to restore UK peatlands and
woodlands, as well as funding research into new farming methods
which better capture and hold carbon in vegetation and soils.
Finally, we want to support the removal of carbon from flights
by working with industry partners and governments to scale-up the
production of sustainable alternative fuels ('SAF') and support the
development of technologies which can get aviation to entirely
zero-carbon flight.
On 4(th) February 2020, key players in the UK aviation industry
including Heathrow, airlines and aircraft manufacturers jointly
committed to a carbon roadmap that puts the industry on course to
achieve net-zero emissions by 2050. Heathrow is calling on the UK
Government to now accept the Committee on Climate Change's
recommendation to include aviation in the UK's 2050 net-zero
target. Officially including aviation emissions in the target would
unlock the certainty needed to accelerate investment and technology
change within the industry. The UK Government could take further
action to prioritise sustainable fuel for aviation - the hardest
sector to decarbonise - and set common and progressive targets for
the percentage of aviation fuel that must be from sustainable
sources. This will send a strong signal to producers to increase
investment in biofuel and synthetic fuel production and start to
reduce the cost of production.
A review and restructuring of Air Passenger Duty ('APD') could
also make a significant contribution to efficiently secure this
urgent, rapid transition. Reforming how APD is calculated and used
to incentivise uptake of SAF will both help the Government achieve
its decarbonisation aims and help the aviation industry to play a
leading role in in tackling emissions. Such a move - achieved on a
revenue neutral basis through an incremental increase on APD
claimed back as a rebate by SAF - would narrow the cost gap with
fossil fuels and would stimulate the production of SAF by
supporting demand. Heathrow's view is that there is a window of
opportunity to develop and propose a policy for reform of APD in
2020.
Heathrow 2.0
In the last quarter of 2019 we have continued to deliver our
Heathrow 2.0 sustainability strategy.
In October, we launched a new colleague campaign - Way2Go - to
help all Team Heathrow colleagues find cheaper, smarter, healthier
and greener ways to get to work. The campaign helps colleagues cut
their carbon footprint, boost their physical and mental wellbeing
and save money.
We published our latest "Fly Quiet & Green" quarterly league
table. 60% of movements were by aircraft in the quietest category
and under 1% in the noisiest, demonstrating airlines swapping in
newer, quieter and more efficient jets to their fleets to decrease
noise and emissions.
We also held our 23(rd) annual flagship Heathrow Business
Summit. This followed a year-long tour, consisting of 11 business
summits held in cities across the UK in conjunction with local
business organisations and supported by the Department for
International Trade ('DIT'). These provided opportunities for over
870 SMEs to meet with our largest suppliers and professional trade
advisers, and to find out about opportunities around the country
connected to Heathrow's expansion.
Through our World of Opportunity programme, we also partnered
with the DIT to offer 20 SMEs across the UK a grant and expert
advice to expand their business overseas.
In December, we increased our surface access connectivity to the
UK through new coach and rail links. We are now connected to 64 of
the UK's 100 largest towns & cites, with Warrington, Southport,
Lincoln and Harrogate forming the new additions.
The table below reports a select number of KPIs from our
Heathrow 2.0 strategy. Progress against all of our KPIs and goals
will be reported in our 2019 Sustainability Report in Spring
2020.
Sustainability performance indicators 2018 2019 target 2019
Number of apprenticeships(1) 310 400 1,093(2)
Late running aircraft(3) 268 219 257
London Living Wage contracts(4) n/a 49 64
Total Carbon footprint (5) 2,089,141 Var(6) -
(1) Number of people starting apprenticeships across Team
Heathrow with the goal to deliver 10,000 apprenticeships by
2030
(2) Total number of people starting an apprenticeship either
through the Heathrow Academy (175), or facilitated by Team Heathrow
business partners, independently of the Heathrow Academy (918)
(3) Unscheduled departing aircraft operating after 11.30pm, on
non-disrupted days with the goal of at least halving the number by
2022
(4) The number of amended and renegotiated contracts to be
London Living Wage compliant, with the goal of all direct supply
chain colleagues working at Heathrow to be transitioned by the end
of 2020
(5) Represents Heathrow's total carbon footprint for scopes 1, 2
(emissions we control) and scope 3 (emissions we influence)
(6) Various targets apply and are defined in the glossary
Our sustainability performance indicators are linked to the four
strategic pillars of Heathrow 2.0:
'A Great Place to Work': working with our partners across Team
Heathrow, we have far exceeded our 2019 target. 175 people started
their apprenticeship through the Heathrow Academy. A further 918
apprenticeship starts were facilitated by Team Heathrow companies
independently of the Academy. This bring the total number of
apprenticeship starts to 1,093.
'A Great Place to Live': the number of late running departing
aircraft did not meet our 2019 target, due to increased air traffic
across Europe, Air Traffic Control resourcing challenges, weather,
aircraft technical issues delaying departures as well as capacity
restrictions across multiple air traffic sectors. We have made
progress towards our end goal to at least half the number of
flights to 165, with 257 flights operating after 11:30pm, 4% better
than 2018. There were 119 nights with no flights, arrivals or
departures between 11.30pm and 4.30am (2018: 115).
'A Thriving Sustainable Economy': we have exceeded our target,
by updating 64 out of 108 supplier contracts included in the scope
of our London Living Wage Roadmap. We also uplifted over 1,300
employees to the Living Wage and protected more than 1,275 through
contractual changes during 2019.
'A World Worth Travelling': in November we reported our 2018
carbon emissions. Carbon emissions we control (2%) fell due to
improvements in energy efficiency and our purchase of renewable
electricity. Carbon emissions that we influence (98%) increased
year on year due to areas such as passenger and colleague travel to
the airport and a small rise in emissions from aircraft in their
landing and take-off ('LTO') cycle. Heathrow's overall gross carbon
footprint increased by 1.95% year on year. We recently announced
the purchase of 27,244 carbon credits to offset emissions from our
gas, electricity, operational vehicles and business travel making
Heathrow carbon-neutral. Our 2019 carbon emissions will be
published later in 2020.
Key Expansion developments
Heathrow expansion took a significant step forward in 2019 as we
completed our statutory consultation after unveiling our Draft
Preferred Masterplan for the project. The consultation outlined the
latest plans for our future airport, how we propose to operate and
manage our growth and how we will ensure a sustainable, affordable,
financeable and deliverable expanded Heathrow at no cost to the
taxpayer. We are now working to finalise the Masterplan and will
hold a further eight-week public consultation between April and
June before submitting our DCO application toward the end of 2020.
Our DCO application will detail how the airport proposes to expand
and connect all of Britain to global growth, whilst meeting the
requirements of the Airports National Policy Statement. It will
also restate our commitment to ensuring an expanded Heathrow meets
strict environmental targets, delivers tens of thousands of new
high-skilled jobs and honours the commitments the airport has made
to local communities.
We remain committed to the long-term sustainable expansion of
Heathrow. A key component of this is set out in our proposals for
an Environmentally Managed Growth framework. It sets out our
proposals for how our growth would be managed in accordance with
strict environmental limits on air quality, surface access, noise
and carbon, and supports growth in flights at the airport while
ensuring our environmental performance stays within maximum limits.
We are also committed to reducing the impact of construction on the
local environment, by adopting innovative construction practices
including our logistics hubs - four off-site centres for
pre-assembly and consolidation located across the UK - to help us
deliver expansion sustainably and efficiently.
Regulatory developments
In November, the CAA extended our economic licence until the end
of 2021 to better align the next regulatory period ('H7') with the
overall expansion timetable and related statutory process. The
period encompassing 2020 and 2021 is known as Interim H7 ('iH7'). A
Commercial Airline Agreement defining the rebate on aeronautical
charges that will be applicable during iH7 was reached with our
airline community. This Agreement is reflected in the extended
licence.
The agreement is built by overlaying fixed and volume-based
rebates onto an extension of the existing RPI-1.5% price path and
regulatory framework. The deal aims to incentivise airlines to
maximise the use of current congested capacity ahead of new
capacity being released.
Later in December, we submitted our Initial Business Plan (IBP)
to the CAA. Expansion will unlock material reductions in airfares
by injecting airline competition and choice. The plan is
sustainable, affordable, financeable and deliverable and sets out
our aspirations to offer what we understand consumers want while
addressing the constraints from our other key stakeholders
including our airline partners, local communities, colleagues and
investors. Through engagement, we have identified two 'bookend'
options contrasting cost and service. The first option prioritises
savings by releasing additional capacity faster while the second
option prioritises service with more emphasis in rail and service
improvements. Through expansion, it is estimated that airfare
savings could be between GBP21 to GBP142 per ticket depending on
which option is chosen. Our plan also proposes an evolution to the
regulatory framework by extending the price control period to 15
years. The longer horizon aims to balance predictability, risk and
flexibility. We propose fixing the cost of equity for the duration
of the price control while implementing periodic or
performance-based resets for some building blocks such as passenger
forecasts, operating expenses and commercial revenue to ensure
creditors don't take additional risk. Feedback on our IBP is being
collected from the Consumer Challenge Board, our airline partners
and other key stakeholders at the time of this report. This
feedback will be reflected in our Final Business Plan (FBP) due to
be published in the second half of 2020.
Lastly, in January 2020 the CAA published a further consultation
on the regulatory framework and financial issues related to H7. The
CAA outlines the importance of setting price control arrangements
that are consistent with our credit rating commitments and the
importance of providing longer term regulatory certainty. It also
signals that it will use the most up to date information from the
Competition and Markets Authority regarding the NERL's case when
defining the WACC for H7. We continue engaging on these issues with
the CAA and will respond to the consultation by 5 March 2020.
Summary of current regulatory and legal challenges to
expansion
The publication of the CAA policy document in December 2019 on
the early design and construction costs associated with expanding
Heathrow - category B and early category C costs - represents
further progress towards providing the regulatory certainty
necessary to deliver an expanded Heathrow. We are concerned that
some proposals do not represent a balanced set of incentives needed
for investment. This will be reflected in our upcoming response to
the consultation. A final decision and policy statement from the
CAA is currently expected to be received in April or May 2020.
The Court of Appeal judgement is awaited on the current judicial
review proceedings against the Secretary of State for Transport
relating to the Government's decision to designate the Airports
National Policy Statement. We remain of the view that a robust
process has been applied to date, including the extensive evidence
gathered by the independent Airports Commission, multiple rounds of
public consultation and the overwhelming vote in Parliament.
If the appeal were to go against the Secretary of State for
Transport, depending on the detail of the judgement, we will
carefully consider our next course of action.
We have concluded expansion is probable and therefore it is
appropriate to have recognised GBP450 million of spend to date as
an asset in the course of construction. Our current plan assumes
that investment will continue growing in 2020 to
circa GBP1 billion as set out in the Investor Report published
on 20 December 2019. If either the policy statement setting out the
CAA's final decisions does not resolve our concerns, or the
Airports National Policy Statement is set aside in the event of an
adverse court judgement against the Secretary of State for
Transport, a reassessment of the probability of expansion occurring
would take place. If the likelihood of expansion occurring were no
longer considered probable, the expansion related capital
investment incurred as of date of reassessment would be required to
be impaired and expensed to the income statement. It should also be
noted that we expect most of the assets will remain in the
Regulatory Asset Base and continue to generate a return through the
regulatory framework.
Financial Review
Basis of presentation of financial results
Heathrow (SP) Limited ('Heathrow SP') is the holding company of
a group of companies (the 'Group'), which includes Heathrow Airport
Limited ('HAL') which owns and operates Heathrow airport, and
Heathrow Express Operating Company Limited ('Hex Opco') which
operates the Heathrow Express rail service. Heathrow SP's
consolidated accounts are prepared under International Financial
Reporting Standards ('IFRS').
Management use Alternative Performance Measures ('APMs') to
monitor performance of the segments as it believes this more
appropriately reflects the underlying financial performance of the
Group's operations. A reconciliation of our APMs has been included
in note 13.
Summary performance
In the year ended 31 December 2019, the Group's revenue climbed
3.4% to GBP3,070 million (2018: GBP2,970 million). Adjusted EBITDA
increased 4.6% to GBP1,921 million (2018: GBP1,837 million), and
its profit after tax increased 24.0% to GBP413 million (2018:
GBP333 million).
Year ended 31 December 2018 2019
GBPm GBPm
Revenue 2,970 3,070
Adjusted operating costs
(1) (1,133) (1,149)
--------------------------------- -------- --------
Adjusted EBITDA(2) 1,837 1,921
Depreciation and amortisation (743) (771)
--------------------------------- -------- --------
Adjusted operating profit(3) 1,094 1,150
Net finance costs before
certain re-measurements (827) (775)
--------------------------------- -------- --------
Adjusted profit before
tax(4) 267 375
Tax charge on profit
before certain re-measurements (58) (104)
Adjusted profit after
tax(4) 209 271
Including certain re-measurements
Fair value gain on investment
properties 117 43
Fair value gain on financial
instruments 38 128
Tax charge on certain
re-measurements (31) (29)
----------------------------------- ----- -----
Profit after tax 333 413
(1) Adjusted operating costs excludes depreciation amortisation
and fair value adjustments on investment properties.
(2) Adjusted EBITDA is profit before interest, taxation,
depreciation, amortisation and fair value adjustments on investment
properties.
(3) Adjusted operating profit excludes fair value adjustments on investment properties.
(4) Adjusted profit before and after tax excludes fair value
adjustments on investment properties and financial instruments and
associated tax.
Following the adoption of IFRS 16, GBP52 million of operational
lease costs are now reported below EBITDA. Prior to the adoption of
IFRS 16 these costs would have been included in operating costs and
within EBITDA. Adjusted EBITDA excluding the application of IFRS 16
has increased 1.7% to GBP1,869 million. (2018: GBP1,837
million)
Revenue
In the year ended 31 December 2019 revenue increased 3.4% to
GBP3,070 million (2018: GBP2,970 million).
Year ended 31 December 2018 2019 Var.
GBPm GBPm %
Aeronautical 1,745 1,831 4.9
Retail 716 722 0.8
Other 509 517 1.6
------------------------ ------- ------- -----
Total revenue 2,970 3,070 3.4
Aeronautical revenue has increased by 4.9% compared to 2018.
Aeronautical revenue per-passenger increased 3.9% to GBP22.64
(2018: GBP21.78). A combination of record passenger traffic,
favourable mix of passengers and recovery of prior-year yield
dilution continue to be key drivers of growth. This has been
partially offset by the introduction of our new commercial airline
deal, providing a saving of GBP0.55 per-passenger on airline
charges.
Year ended 31 December 2018 2019 Var.
GBPm GBPm %
Retail concessions 323 342 5.9
Catering 61 64 4.9
Other retail 128 113 (11.7)
Car parking 126 125 (0.8)
Other services 78 78 0.0
------------------------ ------- ------- -------
Total retail revenue 716 722 0.8
Retail revenue has grown by 0.8%, retail revenue per-passenger
remained flat at GBP8.93 (2018: GBP8.94). Growth was led by retail
concessions and catering, reflecting record passenger traffic. The
Sterling Pound weakening against both the Euro and US Dollar also
contributed in driving retail concessions. Other retail revenue
declined due to bureaux de change customers favouring alternative
methods of prebooked currency, and a one off contractual benefit
received in 2018 which will not reoccur. Excluding the one off
contractual benefit in 2018, retail revenue per-passenger would
have increased by 1.0% to GBP8.93 (2018: GBP8.83).
Year ended 31 December 2018 2019 Var.
GBPm GBPm %
Other regulated
charges 243 244 0.4
Heathrow Express 123 117 (4.9)
Property and other 143 156 9.1
------------------------ ------- ------- ------
Total other revenue 509 517 1.6
Other revenue increased 1.6% in 2019 to GBP517 million. Property
and other revenues grew 9.1% driven by rail track-access charges.
Heathrow Express saw a 4.9% decline in revenue due to lower prices
to remain competitive and lower Crossrail compensation.
Adjusted operating costs
Adjusted operating costs increased 1.4% to GBP1,149 million
(2018: GBP1,133 million). Adjusted operating costs per-passenger
increased by 0.4% to GBP14.21 (2018: GBP14.14).
Year ended 31 December 2018 2019 Var.
GBPm GBPm %
Employment 378 378 0.0
Operational 264 279 5.7
Maintenance 176 173 (1.7)
Rates 122 117 (4.1)
Utilities and Other 193 202 4.7
------------------------ ------- ------- --------
Adjusted operating
costs 1,133 1,149 1.4
Following the adoption of IFRS 16, GBP52 million of operational
lease costs are now reported below operating profit. Of the GBP52
million, GBP24 million would have been located within operational
costs, GBP2 million within maintenance costs and GBP26 million
within utilities. Excluding the application of IFRS 16, adjusted
operating costs are up 6.0% to GBP1,201 million, and on a
per-passenger basis up 5.0% to GBP14.85.
Operational costs have increased as we gear up for growth with
investment in expansion, security, resilience and passenger
experience. We spent more on services for passengers with reduced
mobility, upgrading drone defence capabilities, implementing new
hold baggage screening and investing in our IT systems. Utilities
costs also increased due to a rise in government levies on usage,
whilst overall consumption declined.
Operating profit and Adjusted EBITDA
In the year ended 31 December 2019, operating profit decreased
1.5% to GBP1,193 million (2018: GBP1,211 million). The decrease was
due to a lower gain in the non-cash fair value of our investment
properties offset by the favourable impact of operational lease
costs now reported below operating profit.
Depreciation and amortisation increased to GBP771 million (2018:
GBP743 million) mainly impacted by an additional GBP35 million of
depreciation due to the transition to IFRS 16.
Fair value gain on investment properties decreased to GBP43
million (2018: GBP117 million) due to a smaller increase in the
value of our car parks compared to 2018.
Adjusted EBITDA increased 4.6% to GBP1,921 million (2018:
GBP1,837 million), resulting in an Adjusted EBITDA margin of 62.6%
(2018: 61.9%). Adjusted EBITDA excluding the application of IFRS 16
has increased 1.7% to GBP1,869 million. (2018: GBP1,837
million).
Year ended 31 December 2018 2019
GBPm GBPm
=============================== ====== ======
Operating profit 1,211 1,193
=============================== ====== ======
Depreciation and amortisation 743 771
=============================== ====== ======
EBITDA 1,954 1,964
=============================== ====== ======
Excl. Fair value gain
on investment properties (117) (43)
------------------------------- ------ ------
Adjusted EBITDA 1,837 1,921
=============================== ====== ======
Impact of IFRS 16(1) - (52)
=============================== ====== ======
Adjusted EBITDA excl.
impact of IFRS 16(1) 1,837 1,869
=============================== ====== ======
(1) Following the adoption of IFRS 16, GBP52m of operational
lease costs are now being reported below EBITDA. Prior to the
adoption of IFRS 16 these costs would have been included in
operating costs, above EBITDA.
Profit after tax
For year ended 31 December 2019, the Group recorded a profit
before tax of GBP546 million (2018: GBP422 million profit). Profit
after tax increased 24.0% to GBP413 million (2018: GBP333 million
profit).
Year ended 31 December 2018 2019
GBPm GBPm
Operating profit 1,211 1,193
------------------------------ ------ ------
Net finance costs before
certain remeasurements (827) (775)
Fair value gain on financial
instruments 38 128
------------------------------ ------ ------
Profit before tax 422 546
------------------------------ ------ ------
Taxation charge (89) (133)
------------------------------ ------ ------
Profit after tax 333 413
Net finance costs before certain re-measurements decreased to
GBP775 million (2018: GBP827 million) due to RPI growth rate for
the 12-months to December 2019 falling to 2.2%, down from 3.2% in
the same prior period.
Fair value gains on financial instruments increased to GBP128
million (2018: GBP38 million) as a result of a decrease in long
term inflation expectations.
Taxation
The total tax charge for the year ended 31 December 2019 is
GBP133 million (year ended 31 December 2018: GBP89 million),
representing the sum of the tax charge on profits before certain
re-measurements and the tax charge on certain re-measurements. The
tax charge before certain re-measurements for the year ended 31
December 2019 was GBP104 million (2018: GBP58 million), resulting
in an effective tax rate of 27.7% (year ended 31 December 2018:
21.7%). The effective tax rate being higher than (2018: higher
than) the statutory rate of 19% (2018: statutory rate of 19%)
primarily reflects the fact that a substantial proportion of
Heathrow's capital expenditure does not qualify for tax relief. For
the period, the Group paid GBP98 million (year ended 31 December
2018: GBP70 million) in corporation tax.
Cash flow
At 31 December 2019, the Group had GBP1,540 million (2018:
GBP711 million) of cash and cash equivalents and term deposits, of
which cash and cash equivalents were GBP815 million (2018: GBP591
million). As we transition into a period of intense investment,
surplus funds are managed through a variety of investment products
in line with policy thresholds to maximise available returns.
Cash generated from operations
In the year ended 31 December 2019, cash generated from
operations increased 8.7% to GBP1,942 million (2018: GBP1,787
million). This continues to demonstrate our strong ability to
convert operating profit into cash. The following table reconciles
Adjusted EBITDA to cash generated from operations.
Year ended 31 December 2018 2019
GBPm GBPm
Cash generated from
operations 1,787 1,942
Exclude:
Increase/(decrease)
in inventories and trade
and other receivables(1) 46 (57)
(Increase)/decrease
in payables (11) 7
Decrease in provisions - 7
Difference between pension
charge and cash contributions 15 22
Adjusted EBITDA 1,837 1,921
(1) Includes movement in Group deposits
Capital expenditure
Total capital expenditure in 2019 was GBP856 million (2018:
GBP793 million).
We invested GBP620 million (2018: GBP666 million) in a variety
of programmes to improve the passenger experience, airport
resilience and for asset replacement. We also progressed our plans
to expand Heathrow with investment of an additional GBP236 million
in the period (2018: GBP127 million).
We continued to invest in airfield and resilience programmes.
Work is underway to meet the next-generation security requirements
mandated by the Department for Transport ('DfT'). Significant
investment continues in automating the passenger journey with the
roll-out of self-bag drops and self-boarding gates across all
terminals. Further investment has also been made to increase
capacity in Terminal 5, with 20 new carriages now on order to
double the capacity on the Track Transit System, linking the main
terminal to satellite buildings. The Hold Baggage Screening (HBS)
upgrade works are progressing well, with the Terminal 5 programme
now fully complete. The works in Terminal 4 are progressing well
and scheduled to achieve the DfT compliance date in September
2020.
Expansion-related capital expenditure includes Category B costs
associated with the consent process and also includes early
Category C costs predominantly relating to early design costs.
Since 2016, Heathrow has invested GBP361 million in Category B
costs and GBP89 million in Category C costs, a total of GBP450
million that is carried in our balance sheet as assets in the
course of construction. By the end of 2020 it is currently forecast
that the asset under the course of construction will increase to
circa GBP1 billion as set out in the Investor Report published on
20 December 2019.
As outlined in our summary of current regulatory and legal
challenges to expansion, if the likelihood of expansion occurring
was no longer probable, capital expenditure would be required to be
impaired. This would significantly reduce the available
distributable reserves of Heathrow Airport Limited (the legal
entity holding the asset). Based on distributable reserves as at
the 31 December 2019 the potential impairment would not result in
negative distributable reserves within Heathrow Airport
Limited.
It should also be noted that the non-cash impairment recognised
under IFRS is separate to the Regulatory Asset Base. Should a
planning decision or the appeal to the judicial review go against
us we expect most of the assets will remain in the Regulatory Asset
Base and continue to generate a return though the regulatory
framework. As a result, key covenant ratios would not be materially
affected as they are based on the Regulatory Asset Base and Income
excluding Exceptional items.
Restricted payments
The financing arrangements of the Group and Heathrow Finance plc
("Heathrow Finance") restrict certain payments unless specified
conditions are satisfied. These restricted payments include, among
other things, payments of dividends, distributions and other
returns on share capital, any redemptions or repurchases of share
capital, and payments of fees, interest or principal on any
intercompany loans.
In the year ended 31 December 2019, total restricted payments
paid by Heathrow SP amounted to GBP269 million (net) or GBP1,533
million (gross) excluding cash pushed down from Heathrow
Finance.
Net restricted payments included:
a) GBP478 million (2018: GBP485 million) payment made by
Heathrow SP to Heathrow Finance to fund the majority of the GBP500
million (2018: GBP500 million) dividends paid to ultimate
shareholders reflecting the continued strong performance of the
business,
b) GBP110 million (2018: GBP99 million) of interest on the
debenture between Heathrow SP and Heathrow Finance,
c) GBP2 million (2018: GBP2 million) payment to fund interest at ADIF2, and
d) a net cash inflow of GBP321 million (2018: net cash inflow of
GBP363 million) from Heathrow Finance to Heathrow SP.
RECENT FINANCING ACTIVITY
Continued confidence and support for our credit through
expansion enabled us to raise GBP2.1 billion of debt in 2019. This
funding underpins our robust liquidity position and provides
additional duration and diversification to our GBP14 billion debt
portfolio. 2019 funding activities comprised around GBP1 billion in
Class A, including a JPY note representing our 8th currency of
issuance, GBP75 million in Class B and GBP1 billion of debt raised
at Heathrow Finance.
Class A financing activities included:
a) a EUR650 million 15-year Class A bond maturing in 2034,
b) a EUR86 million 20.5-year Class A zero coupon bond maturing in 2039,
c) a CHF210 million 7.5-year Class A bond maturing in 2026,
marking our 3rd Swiss Franc issuance,
d) a GBP140 million Class A term debt maturing in 2037,
e) an inaugural JPY10 billion 20-year Class A note maturing in 2039, and
f) the repayment of our $400m CAD bond.
Class B financing activities included:
a) a GBP75 million 15-year Class B private placement maturing in
2035 to be drawn in April 2020.
Financing activities at Heathrow Finance included:
a) GBP700 million new loan facilities, with various maturities
out to 2035, which are partially drawn,
b) a GBP300 million 10-year Heathrow Finance bond maturing in 2029,
c) the early repayment of GBP267 million 2019 Heathrow Finance bond on the 4(th) March 2019,
d) the repayment of GBP325 million of term loans, and
e) the migration of GBP75 million raised by ADIF2 to Heathrow Finance in March 2019.
Our revolving credit facilities were amended to include direct
link to ESG factors and extended to 2023.
FINANCING POSITION
Debt and liquidity at Heathrow (SP) Limited
At 31 December 2019, Heathrow SP's consolidated nominal net debt
was GBP12,412 million (31 December 2018: GBP12,407 million). It
comprised GBP12,147 million in bond issues, GBP1,455 million in
other term debt, GBP345 million in index-linked derivative
accretion and GBP5 million of additional lease liabilities post
transition to IFRS 16. This was offset by GBP1,540 million in cash
and cash equivalents and term deposits. Nominal net debt comprised
GBP11,055 million in senior net debt and GBP1,357 million in junior
debt.
The average cost of Heathrow SP's nominal gross debt at 31
December 2019 was 3.41% (31 December 2018: 3.63%). This includes
interest rate, cross-currency and index-linked hedge costs and
excludes index-linked accretion. Including index-linked accretion,
Heathrow SP's average cost of debt at 31 December 2019 was 4.75%
(31 December 2018: 5.40%). The reduction in the average cost of
debt since the end of 2018 is mainly due to:
a) recent financing activities at a lower cost, and
b) falling RPI inflation which reduced index-linked swap accretion.
The average life of Heathrow SP's gross debt as at 31 December
2019 was 11.5 years (31 December 2018: 12 years).
Nominal net debt excludes any restricted cash and the debenture
between Heathrow SP and Heathrow Finance. It includes all the
components used in calculating gearing ratios under Heathrow SP's
financing agreements including index-linked accretion and
additional lease liabilities entered since the transition to IFRS
16.
The accounting value of Heathrow SP's net debt was GBP12,684
million at 31 December 2019 (31 December 2018: GBP12,158 million).
This includes GBP1,540 million of cash and cash equivalents and
term deposits, and GBP384 million lease liabilities as reflected in
the statement of financial position and excludes accrued
interest.
We have sufficient liquidity to meet all our forecast needs
until October 2021. This includes forecast capital investment
(including projected expansion related investments as per our
investor report published on 20 December 2019), debt service costs,
debt maturities and distributions. This liquidity position takes
into account GBP3.7 billion in undrawn loan facilities, bonds and
term debt to be drawn as well as cash resources at 31 December 2019
together with expected operating cash flow over the period.
Debt at Heathrow Finance plc
The consolidated nominal net debt of Heathrow Finance increased
to GBP14,361 million (31 December 2018: GBP13,980 million). This
comprised Heathrow SP's GBP12,412 million nominal net debt,
Heathrow Finance's nominal gross debt of GBP1,979 million and cash
and term deposits held at Heathrow Finance of GBP30 million.
Financial ratios
Heathrow SP and Heathrow Finance continue to operate comfortably
within required financial ratios. Gearing ratios are calculated by
dividing consolidated nominal net debt by Heathrow's Regulatory
Asset Base ('RAB').
At 31 December 2019, Heathrow's RAB was GBP16,598 million (31
December 2018: GBP16,200 million). Heathrow SP's senior (Class A)
and junior (Class B) gearing ratios were 66.6% and 74.8%
respectively (31 December 2018: 68.2% and 76.6% respectively) with
respective trigger levels of 72.5% and 85%. Heathrow Finance's
gearing ratio was 86.5% (31 December 2018: 86.3%) with a covenant
of 92.5%. The covenant at Heathrow Finance changed earlier in the
year from 90% to 92.5% due to the redemption of the 2019 notes at
Heathrow Finance. Lower gearing ratios at Class A and Class B
reflect some debt reallocation between the ring-fenced group,
Heathrow SP and Heathrow Finance as we build toward expansion. To
complement this first step and deliver our commitment to maintain
our existing investment grade ratings, we expect our existing
cautious approach to balance sheet management to further focus on
cash-flow driven metrics.
PENSION SCHEME
We operate a defined benefit pension scheme (the BAA Pension
Scheme) which closed to new members in June 2008. At 31 December
2019, the defined benefit pension scheme, as measured under IAS 19,
was funded at 100.8% (2018: 100.7%). This translated into a surplus
of GBP33 million (2018: GBP28 million surplus). The GBP5 million
increase in the surplus in the 12 months is primarily due to
actuarial losses of GBP17 million, attributable to a decrease in
the net discount rate of 0.90% over the 12 months and offset by
contributions in excess of current service cost of GBP22 million.
At 31 December 2019, we contributed GBP47 million (2018: GBP48
million) into the defined benefit pension scheme including GBP23
million (2018: GBP23 million) in deficit repair contributions.
Management believes that the scheme has no significant
plan-specific or concentration risks.
The triennial valuation (as at 30 September 2018) has been
completed and agreed by the Trustees of the scheme and LHR Airports
Ltd, setting out the contributions needed to cover the costs of the
benefits that active members will build up in the future and
additional cash contributions from Heathrow to make up the
shortfall between liabilities calculated on a technical provisions
basis and assets at that date. Cash contributions of GBP20 million
per year from 1 October 2019 (GBP23 million per year before 1
October 2019) are expected to eliminate the shortfall within 4
years.
KEY MANAGEMENT CHANGES
Management changes this year include Fidel Lopez resigning as a
Non-Executive Director of the Board on 30 January 2019. He was
replaced by Maria Casero on the same date. RT Hon Ruth Kelly was
appointed as a Non-Executive Director of the Board on 8 April 2019.
Rachel Lomax stepped down from the HAHL Board on 23 February 2020,
having served just over nine years on the Board.
OUTLOOK
The outlook for our Adjusted EBITDA performance in 2020 remains
materially consistent with the forecast set out in the Investor
Report published on 20 December 2019. We also forecast to maintain
comfortable covenant headroom.
We are concerned about the global impact of the COVID-19 virus
and are closely monitoring its impact on our business and
stakeholders. At this point, and based on our central case, we do
not expect this to have a material negative impact on our financial
results. We will continue to monitor the situation carefully over
the coming months and will provide updates in our quarterly results
and semi-annual investor report.
2020 marks the beginning of an ambitious decade, with new
private investment helping us to deliver a third runway which will
give the UK's hub airport more capacity than our competitors in
France or Germany, making us one of the best-connected airports in
the world. Regular, direct flights to all the major cities in the
US, India and China - the great economies of the 21st century -
linked via the expanded hub at Heathrow to the regions and nations
of the UK will ensure the whole of the country is at the heart of
global trade. We look forward to delivering this economic growth
that will help level up the UK in a way that unlocks an even better
experience for passengers through cheaper tickets, and which
crucially aligns with the Committee on Climate Change's net-zero
2050 target.
Appendix 1 Financial information Heathrow (SP) Limited
Consolidated income statement for the year ended 31 December
2019
Year ended 31 December 2019 Year ended 31 December 2018
Before Before
Certain Certain Total Certain Certain Total
re-measurements re-measurements(a) re-measurements re-measurements
(a)
Note GBPm GBPm GBPm GBPm GBPm GBPm
================= ===== ================ ================== ======== ================ ================ ========
Continuing
operations
Revenue 1 3,070 - 3,070 2,970 - 2,970
Operating costs 2 (1,920) - (1,920) (1,876) - (1,876)
Other operating
items
Fair value
gain
on investment
properties - 43 43 - 117 117
================= ===== ================ ================== ======== ================ ================ ========
Operating profit 1,150 43 1,193 1,094 117 1,211
================= ===== ================ ================== ======== ================ ================ ========
Financing
Finance income 9 - 9 2 - 2
Finance costs (784) 128 (656) (829) 38 (791)
================= ===== ================ ================== ======== ================ ================ ========
Net finance cost 3 (775) 128 (647) (827) 38 (789)
Profit before
tax 375 171 546 267 155 422
================= ===== ================ ================== ======== ================ ================ ========
Taxation charge 4 (104) (29) (133) (58) (31) (89)
================= ===== ================ ================== ======== ================ ================ ========
Profit for the
period 271 142 413 209 124 333
(a) Certain re-measurements consist of: fair value gains on
investment property revaluations and disposals; gains arising on
the re-measurement of financial instruments, together with the
associated fair value gains and losses on any underlying hedged
items that are part of a fair value hedging relationship and the
associated tax impact of these and similar cumulative prior year
items.
Consolidated statement of comprehensive income for the year
ended 31 December 2019
Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Profit for the period 413 333
============================================================================== ================== ==================
Items that will not be subsequently reclassified to the consolidated income
statement:
Actuarial (loss)/gain on pensions net of tax:
Gain/(loss) on plan assets(b) 498 (192)
(Increase)/decrease in scheme liabilities(b) (509) 310
Items that may be subsequently reclassified to the consolidated income
statement:
Cash flow hedges net of tax:
Losses taken to equity(b) (3) (162)
Transfer to finance costs(b) 32 198
============================================================================== ================== ==================
Other comprehensive income for the period net of tax 18 154
============================================================================== ================== ==================
Total comprehensive income for the period(a) 431 487
(a) Attributable to owners of the parent.
(b) Items in the statement above are disclosed net of tax.
Consolidated statement of financial position as at 31 December
2019
as at 31 December 2019 as at 31 December 2018
Note GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 5 11,561 11,405
Right of use asset 276 -
Investment properties 6 2,522 2,472
Intangible assets 176 173
Retirement benefit surplus 9 33 28
Derivative financial instruments 8 539 543
Trade and other receivables 18 20
================================== ===== ========================= =========================
15,125 14,641
================================== ===== ========================= =========================
Current assets
Inventories 13 13
Trade and other receivables 247 302
Term deposits 725 120
Cash and cash equivalents 815 591
================================== ===== ========================= =========================
1,800 1,026
================================== ===== ========================= =========================
Total assets 16,925 15,667
================================== ===== ========================= =========================
Liabilities
Non-current liabilities
Borrowings 7 (15,948) (14,813)
Derivative financial instruments 8 (1,227) (1,523)
Lease liabilities (346) -
Deferred income tax liabilities (934) (907)
Retirement benefit obligations 9 (29) (32)
Provisions (1) (1)
Trade and other payables (5) (7)
================================== ===== ========================= =========================
(18,490) (17,283)
================================== ===== ========================= =========================
Current liabilities
Borrowings 7 (647) (496)
Derivative financial instruments 8 (55) (39)
Lease liabilities (38) -
Provisions (8) (13)
Current income tax liabilities (31) (39)
Trade and other payables (430) (433)
================================== ===== ========================= =========================
(1,209) (1,020)
================================== ===== ========================= =========================
Total liabilities (19,699) (18,303)
================================== ===== ========================= =========================
Net liabilities (2,774) (2,636)
================================== ===== ========================= =========================
Equity
Capital and reserves
Share capital 11 11
Share premium 499 499
Merger reserve (3,758) (3,758)
Cash flow hedge reserve (187) (216)
Retained earnings 661 828
================================== ===== ========================= =========================
Total shareholder's equity (2,774) (2,636)
================================== ===== ========================= =========================
Consolidated statement of changes in equity for the year ended
31 December 2019
Attributable to owners of the Company
Share Share premium Merger reserve Cash flow hedge Retained earnings Total
capital GBPm GBPm reserve GBPm equity
GBPm GBPm GBPm
======================= ========= ============== =============== ================== ================== =========
1 January 2018
(previously reported) 11 499 (3,758) (252) 865 (2,635)
Adjustment in respect
of:
Transition to IFRS
15 (1) (1)
Transition to IFRS 9 (2) (2)
======================= ========= ============== =============== ================== ================== =========
1 January 2018
(re-stated) 11 499 (3,758) (252) 862 (2,638)
======================= ========= ============== =============== ================== ================== =========
Comprehensive income:
Profit for the period 333 333
Other comprehensive
income:
Fair value gain on
cash flow
hedges net of tax 36 36
Actuarial gain on
pension net of tax:
Loss on plan assets (192) (192)
Decrease in scheme
liabilities 310 310
======================= ========= ============== =============== ================== ================== =========
Total comprehensive
income - - - 36 451 487
======================= ========= ============== =============== ================== ================== =========
Transaction with
owners:
Dividends paid to
Heathrow Finance plc - - - - (485) (485)
======================= ========= ============== =============== ================== ================== =========
Total transaction with
owners - - - - (485) (485)
======================= ========= ============== =============== ================== ================== =========
31 December 2018 11 499 (3,758) (216) 828 (2,636)
======================= ========= ============== =============== ================== ================== =========
Adjustment in respect
of:
Transition to IFRS
16 (89) (89)
======================= ========= ============== =============== ================== ================== =========
1 January 2019
(re-stated) 11 499 (3,758) (216) 739 (2,725)
======================= ========= ============== =============== ================== ================== =========
Comprehensive income:
Gain for the period 413 413
Other comprehensive
income:
Fair value gain on
cash flow
hedges net of tax 29 29
Actuarial loss on
pension net of tax:
Gain on plan assets 498 498
Increase in scheme
liabilities (509) (509)
======================= ========= ============== =============== ================== ================== =========
Total comprehensive
income - - - 29 401 431
======================= ========= ============== =============== ================== ================== =========
Transaction with
owners:
Dividends paid to
Heathrow Finance plc - - - - (480) (480)
======================= ========= ============== =============== ================== ================== =========
Total transaction with
owners - - - - (480) (480)
======================= ========= ============== =============== ================== ================== =========
31 December 2019 11 499 (3,758) (187) 661 (2,774)
Consolidated statement of cash flows for the year ended 31
December 2019
Year ended Year ended
31 December 2019 31 December 2018
Note GBPm GBPm
Cash flows from operating activities
Cash generated from operations 10 1,942 1,787
Taxation:
Corporation tax paid (98) (70)
Group relief paid - (6)
--------------------------------------------------- ----- ------------------ ------------------
Net cash from operating activities 1,844 1,711
--------------------------------------------------- ----- ------------------ ------------------
Cash flows from investing activities
Purchase of:
Property, plant and equipment (849) (769)
Investment properties (7) (4)
Intangible assets - (20)
(Increase) in term deposits(1) (605) (108)
Interest received 7 2
--------------------------------------------------- ----- ------------------ ------------------
Net cash used in investing activities (1,454) (899)
--------------------------------------------------- ----- ------------------ ------------------
Cash flows from financing activities
Dividends paid to Heathrow Finance plc (480) (485)
Proceeds from issuance of bonds 857 771
Repayment of bonds (251) (910)
Repayment of facilities and other financing items (21) (32)
Increase in amount owed to Heathrow Finance plc 321 363
Interest paid (580) (576)
Issuance of term note 340 245
Settlement of accretion on index-linked swaps (295) (110)
Payment of lease liabilities(2) (50) -
Consent fee payment (7) --
--------------------------------------------------- ----- ------------------ ------------------
Net cash used in financing activities (166) (734)
--------------------------------------------------- ----- ------------------ ------------------
Net increase in cash and cash equivalents 224 78
Cash and cash equivalents at beginning of period 591 513
Cash and cash equivalents at end of period 815 591
(1) Term deposits with an original maturity of over three months
are invested at Heathrow Airport Limited.
(2) Payment in relation to investor's consent regarding IFRS 16 and lease liabilities
Notes to the consolidated financial statements for the year
ended 31 December 2019
General information
The financial information set out herein does not constitute the
Group's statutory financial statements for the year ended 31
December 2019 or any other period. The annual financial information
presented herein for the year ended 31 December 2019 is based on,
and is consistent with, the audited consolidated financial
statements of Heathrow (SP) Limited (the 'Group') for the year
ended 31 December 201 9 . The auditors' report on the 201 9
financial statements was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statements under
section 498(2) or (3) of the Companies Act 2006.
Accounting policies
Basis of preparation and new accounting standards,
interpretations and amendments
The consolidated financial statements of Heathrow (SP) Limited
have been prepared in accordance with IFRS as issued by the
International Accounting Standards Board ('IASB') and as adopted by
the European Union ('EU') and prepared under the historical cost
convention, except for investment properties, derivative financial
instruments and financial liabilities that qualify as hedged items
under a fair value hedge accounting system. These exceptions to the
historical cost convention have been measured at fair value in
accordance with IFRS and as permitted by the Fair Value Directive
as implemented in the Companies Act 2006.
Notes to the consolidated financial statements for the year
ended 31 December 2019
1. Segment information
Management has determined the reportable segments of the
business based on those contained within the monthly reports
reviewed and utilised by the relevant Board for allocating
resources and assessing performance. These segments relate to the
operations of Heathrow and Heathrow Express.
The performance of the above segments is measured on a revenue
and Adjusted EBITDA basis, before certain re-measurements and
exceptional items. The reportable segments derive their revenues
from a number of sources including aeronautical, retail, other
regulated charges and other products and services (including rail
income), and this information is also provided to the Board on a
monthly basis.
Revenue previously disclosed as Aeronautical, Retail, Other
regulated charges, and Other have been further disaggregated and
incorporates the new requirements of IFRS 15.
Table (a) Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Segment Revenue
Under IFRS 15
Aeronautical
Landing charges 549 482
Parking charges 74 67
Departing charges 1,208 1,196
------------------------------------------------- ------------------ ------------------
Total Aeronautical revenue 1,831 1,745
Other regulated charges 244 243
Retail services revenue(1) 722 716
Property revenue(1) 25 20
Rail Income
Heathrow Express 117 123
Other 23 14
------------------------------------------------- ------------------ ------------------
Revenue reported under IFRS 15 2,962 2,861
Revenue recognised at a point in time 2,837 2,735
Revenue recognised over time 125 126
------------------------------------------------- ------------------ ------------------
Total revenue reported under IFRS 15 2,962 2,861
------------------------------------------------- ------------------ ------------------
Under IFRS 16 / IAS 17
Property (lease-related income)(1) 108 109
Retail (lease-related income)(1) - -
Total revenue 3,070 2,970
------------------------------------------------- ------------------ ------------------
Heathrow 2,953 2,847
Heathrow Express 117 123
------------------------------------------------- ------------------ ------------------
Adjusted EBITDA
Heathrow 1.860 1,772
Heathrow Express 61 65
------------------------------------------------- ------------------ ------------------
Total adjusted EBITDA 1,921 1,837
Reconciliation to statutory information:
Depreciation and amortisation (771) (743)
------------------------------------------------- ------------------ ------------------
Operating profit
(before certain re-measurements) 1,150 1,094
Fair value (loss)/gain on investment properties
(certain re-measurements) 43 117
------------------------------------------------- ------------------ ------------------
Operating profit 1,193 1,211
Finance income 9 2
Finance costs (656) (791)
------------------------------------------------- ------------------ ------------------
Profit before tax 546 422
------------------------------------------------- ------------------ ------------------
(1) 2018 comparatives have been restated for the
reclassification of lease related income under IAS 17 - Leases to
retail service income under IFRS 15 - Revenue from contracts with
customers. The impact of this is that GBP569 million was
transferred from retail (lease-related income) under IFRS 16 to
Retail services under IFRS 15. GBP109 million was transferred from
property revenue under IFRS 15 to property (lease-related income)
under IAS 17.
Notes to the consolidated financial statements for the year
ended 31 December 2019
1. Segment information continued
Table (b) Year ended Year ended
31 December 2019 31 December 2018
Depreciation & Fair value loss(2) Depreciation & Fair value gain(2)
amortisation(1) GBPm amortisation(1) GBPm
GBPm GBPm
Heathrow (716) 43 (672) 117
Heathrow Express (55) - (71) -
------------------ --------------------------- ------------------- --------------------------- -------------------
Total (771) 43 (743) 117
(1) Includes intangible amortisation charge of GBP25 million
(Year ended December 2018: GBP27 million; Three months ended
September 2018: GBP16 million).
(2) Reflects fair value (loss)/gain on investment properties only.
Table (c) Year ended Year ended
31 December 2019 31 December 2018
-------------------------------------------- --------------------- ------------------------------------
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------------ ---------------------- ------------
Heathrow 13,885 (429) 13,715 (440)
Heathrow Express 652 (15) 670 (14)
-------------------------------------------- ------- ------------ ---------------------- ------------
Total operations 14,537 (444) 14,385 (454)
Unallocated assets and liabilities:
Cash, term deposits and external
borrowings 1,540 (14,055) 711 (13,082)
Retirement benefit assets /(obligations) 33 (29) 28 (32)
Derivative financial instruments 539 (1,282) 543 (1,562)
Deferred and current tax liabilities - (965) - (946)
Amounts owed from/(to) group
undertakings(1) - (2,540) - (2,227)
Right of use asset and lease liabilities 276 (384) - -
-------------------------------------------- ------- ------------ ---------------------- ------------
Total 16,925 (19,699) 15,667 (18,303)
(1) For the year ended 31 December 2018 an amount of GBP4m is
now disclosed within 'Heathrow'. This reallocation has been made as
the amount relates to external payments received by LHR Airports
Limited under the Shared Services Agreement ('SSA') on behalf of
Heathrow that will be remitted to Heathrow in due course.
Previously this was disclosed as an amount 'owed from Group
Undertakings'.
Notes to the consolidated financial statements for the year
ended 31 December 2019
2. Operating costs
Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Employment 378 378
Operational 279 264
Maintenance 173 176
Rates 117 122
Utilities 72 90
Other 130 103
------------------------------------------------------------ ------------------ ------------------
Total operating costs before depreciation and amortisation 1,149 1,133
Depreciation and amortisation:
Property, plant and equipment 693 716
Intangible assets 43 27
Right of Use (RoU) assets 35 -
------------------------------------------------------------ ------------------ ------------------
Total operating costs 1,920 1,876
3. Financing
Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Finance income
Interest on deposits 9 2
------------------------------------------------------------------------------ ------------------ ------------------
Total finance income(4) 9 2
------------------------------------------------------------------------------ ------------------ ------------------
Finance costs
Interest on borrowings:
Bonds and related hedging instruments(1) (535) (541)
Bank loans, overdrafts and related hedging instruments (58) (58)
Net interest expense on derivatives not in hedge relationship(2) (106) (160)
Facility fees and other charges (10) (7)
Net pension finance costs - (4)
Interest on debenture payable to Heathrow Finance plc (102) (109)
Finance costs on lease liabilities (17) -
------------------------------------------------------------------------------ ------------------ ------------------
(828) (879)
Less: capitalised borrowing costs(3) 44 50
------------------------------------------------------------------------------ ------------------ ------------------
Total finance costs(4) (784) (829)
------------------------------------------------------------------------------ ------------------ ------------------
Net finance costs before certain re-measurements (775) (827)
------------------------------------------------------------------------------ ------------------ ------------------
Fair value (loss)/gain on financial instruments
Interest rate swaps: not in hedge
relationship (19) 83
Index-linked swaps: not in hedge relationship 172 (90)
Cross-currency swaps: not in hedge relationship 11 -
Ineffective portion of cash flow hedges (1) 21
Ineffective portion of fair value hedges (33) 24
Fair value re-measurements of foreign exchange contracts and currency (2) -
balances
------------------------------------------------------------------------------ ------------------ ------------------
128 38
------------------------------------------------------------------------------ ------------------ ------------------
Net finance costs (647) (789)
(1) Includes accretion of GBP35 million for year ended December
2019 (year ended December 2018: GBP47 million) on index-linked
bonds.
(2) Includes accretion of GBP152 million for year ended December
2019 (year ended December 2018: GBP207 million) on index-linked
swaps.
(3) Capitalised interest included in the cost of qualifying
assets arose on the general borrowing pool and is calculated by
applying an average capitalisation rate of 4.98% (2018: 5.66%) to
expenditure incurred on such assets
Notes to the consolidated financial statements for the year
ended 31 December 2019
4. Income tax expense
Year ended Year ended
31 December 2019 31 December 2018
Before certain Certain Total Before certain Certain Total
re-measurements re-measurements GBPm re-measurements re-measurements GBPm
GBPm GBPm GBPm GBPm
-------------------- ------------------ ------------------- ------ ------------------ ------------------- ------
UK corporation tax
Current tax charge
at 19% (2018: 19%) (96) (2) (98) (87) (3) (90)
Over provision in
respect of prior
years 8 - 8 5 - 5
Deferred tax:
Current year
(charge)/credit (15) (28) (43) 13 (21) (8)
Prior year
(charge)/credit(1) (1) 1 - 11 (7) 4
-------------------- ------------------ ------------------- ------ ------------------ ------------------- ------
Taxation charge (104) (29) (133) (58) (31) (89)
(1) Year ended 31 December 2018 includes a GBP7 million debit
adjustment in relation to revaluations of property, plant and
equipment and an GBP11 million credit adjustment for accelerated
capital allowances.
(1)
The total tax charge recognised for year ended 31 December 2019
was GBP133 million (year ended December 2018: GBP89 million). Based
on a profit before tax for the year of GBP546 million (2018: GBP422
million), this results in an effective tax rate of 24.4% (2018:
21.1%).
The total tax charge before certain re-measurements for year
ended 31 December 2019 was GBP104 million (2018: GBP58 million).
Based on a profit before tax and certain re-measurements of GBP375
million (2018: GBP267 million), this results in an effective tax
rate of 27.7% (2018: 21.7%). The tax charge for 2019 is more (2018:
more) than implied by the statutory rate of 19% (2018: 19%)
primarily due to non-deductible expenses and because a substantial
proportion of Heathrow's capital expenditure does not qualify for
tax relief. However, with the introduction of the new Structures
and Building Allowance relief (SBA) (see below), a higher
proportion of Heathrow's capital expenditure will qualify for tax
relief in future years, which is expected to reduce the effective
tax rate.
In addition there was a GBP29 million tax charge (2018: GBP31
million tax charge) reflecting the tax impact arising from fair
value gains on investment property revaluations and fair value
gains on financial instruments, along with any associated prior
year adjustments.
The headline UK corporation tax rate is 19% but is due to fall
to 17% with effect from 1 April 2020. The effect of these rate
reductions has been reflected in the deferred tax balances in the
financial statements. Prior to the UK General Election held on 12
December 2019, the Conservative Party announced that it would
maintain the UK corporation tax rate at 19%. However, as no
legislation had been substantively enacted at the balance sheet
date, this announcement has not been reflected in the deferred tax
balances. Based on the current net deferred tax liability, a 19%
corporation tax rate would increase the net deferred tax liability
to an estimated GBP1,044 million, which would give rise to a GBP110
million deferred tax charge due to changes in tax rates.
In the November 2018 Budget the Government announced a new 2%
flat rate Structures and Building Allowance relief (SBA) for
non-residential structural property will be available where the
construction contract is entered on or after 29 October 2018.
Relief will be provided on eligible construction costs at an annual
rate of 2% on a straight-line basis, effectively giving tax relief
over a 50-year period. Heathrow is likely to benefit in future
years from tax relief on expenditure which would not be eligible
under current rules. At the balance sheet date, no material
SBA-qualifying assets had been identified and brought into use.
Notes to the consolidated financial statements for the year
ended 31 December 2019
5. Property, plant and equipment
Terminal Airfields Plant and Other Rail Assets in the Total
complex GBPm equipment land and GBPm course of GBPm
GBPm GBPm buildings construction
GBPm GBPm
Cost
1 January 2018 11,277 2,066 891 205 1,406 893 16,738
Additions - - - - - 769 769
Borrowing costs
capitalised - - - - - 50 50
Disposals (3) - (10) - (15) - (28)
Reclassification 78 - (78) - - - -
Transfer to
intangible
assets - - - - - (5) (5)
Transfer to
completed assets 298 (112) 338 25 44 (593) -
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
31 December 2018 11,650 1,954 1,141 230 1,435 1,114 17,524
Additions - - - - - 849 849
Borrowing costs
capitalised - - - - - 44 44
Disposals (245) (65) (118) (9) (50) - (487)
Reclassification - - - - - - -
Transfer to
intangible
assets - - - - - (44) (44)
Transfer to
completed assets 532 127 (27) 53 10 (695) -
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
31 December 2019 11,937 2,016 996 274 1,395 1,268 17,886
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
Depreciation
1 January 2018 (3,910) (463) (433) (68) (557) - (5,431)
Depreciation
charge (487) (45) (103) (10) (71) - (716)
Disposals 3 - 10 - 15 - 28
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
31 December 2018 (4,394) (508) (526) (78) (613) - (6,119)
Depreciation
charge (492) (61) (67) (19) (54) - (693)
Disposals 245 65 118 9 50 - 487
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
31 December 2019 (4,641) (504) (475) (88) (617) - (6,325)
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
Net book value
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
31 December 2019 7,296 1,513 521 186 778 1,267 11,561
------------------ --------- ---------- ------------------ ------------------ ------ ----------------- --------
31 December 2018 7,256 1,446 615 152 822 1,114 11,405
The Regulatory Asset Base (RAB) at 31 December 2019 was
GBP16,598 million (31 December 2018: GBP16,200 million).
Notes to the consolidated financial statements for the year
ended 31 December 2019
6. Investment properties
GBPm
Valuation
1 January 2018 2,350
Additions 4
Transfers from property, plant and equipment 1
Revaluation 117
---------------------------------------------- ------
31 December 2018 (Audited) 2,472
---------------------------------------------- ------
Additions 7
Transfers to completed assets -
Revaluation 43
---------------------------------------------- ------
31 December 2019 (Audited) 2,522
Investment properties were fair valued at 31 December 2019 by an
external valuer, CBRE Limited. The valuers are independent and have
appropriate, recognised qualifications, and experience in the
categories and location of the investment properties being
valued.
Management conduct a detailed review of each property to ensure
the correct assumptions have been used. Meetings with the valuers
are held to review and challenge the assumptions used in the
valuation.
Notes to the consolidated financial statements for the year
ended 31 December 2019
7. Borrowings
31 December 2019 31 December 2018
GBPm GBPm
Current borrowings
Secured
Heathrow Airport Limited debt:
Loans 4 17
Heathrow Funding Limited bonds:
4.000% C$400 million due 2019 - 230
6.000% GBP400 million due 2020 400 -
-------------------------------------- ----------------- -----------------
Total current (excluding interest
payable) 404 247
Interest payable - external 215 213
Interest payable - owed to group
undertakings 28 36
-------------------------------------- ----------------- -----------------
Total current 647 496
-------------------------------------- ----------------- -----------------
Non-current borrowings
Secured
Heathrow Funding Limited bonds
6.000% GBP400 million due 2020 - 399
9.200% GBP250 million due 2021 255 260
3.000% CAD450 million due 2021 260 256
4.875% US$1,000 million due 2021 763 783
1.650%+RPI GBP180 million due
2022 218 213
1.875% EUR600 million due 2022 517 549
5.225% GBP750 million due 2023 703 691
7.125% GBP600 million due 2024 594 593
0.500% CHF400 million due 2024 307 310
3.250% CAD500 million due 2025 288 281
4.221% GBP155 million due 2026 155 155
6.750% GBP700 million due 2026 693 693
0.450% CHF210 million due 2026 167 -
2.650% NOK1,000 million due 2027 85 90
3.400% CAD400 million due 2028 234 232
7.075% GBP200 million due 2028 200 198
4.150% AUD175 million due 2028 103 99
2.500% NOK1,000 million due 2029 76 79
3.782% CAD400 million due 2030 233 229
1.500% EUR750 million due 2030 644 629
6.450% GBP900 million due 2031 855 853
Zero-coupon EUR50 million due
January 2032 58 59
1.366%+RPI GBP75 million due 2032 87 85
Zero-coupon EUR50 million due
April 2032 57 58
1.875% EUR500 million due 2032 421 447
4.171% GBP50 million due 2034 50 50
Zero-coupon EUR50 million due
2034 49 50
1.875% EUR650 million due 2034 584 -
1.061%+RPI GBP180 million due
2036 202 197
1.382%+RPI GBP50 million due 2039 58 56
3.334%+RPI GBP460 million due
2039 638 626
Zero-coupon EUR86 million due 75 -
2039
0.800% JPY1,000 million due 2039 69 111
1.238%+RPI GBP100 million due
2040 113
5.875% GBP750 million due 2041 738 738
2.926% GBP55 million due 2043 54 55
4.625% GBP750 million due 2046 741 742
1.372%+RPI GBP75 million due 2049 86 85
2.750% GBP400 million due 2049 392 392
0.147%+RPI GBP160 million due
2058 165 164
-------------------------------------- ----------------- -----------------
Total bonds 11,987 11,507
-------------------------------------- ----------------- -----------------
Heathrow Airport Limited debt:
Class A1 term loan due 2020 418 418
Class A2 term loan due 2024 100 100
Class A3 term loan due 2029 200 -
Revolving credit facilities - -
Term note due 2026-2037 723 585
Loans 8 138
-------------------------------------- ----------------- -----------------
Unsecured
Debenture payable to Heathrow
Finance plc 2,512 2,191
-------------------------------------- ----------------- -----------------
Total non-current 15,948 14,813
-------------------------------------- ----------------- -----------------
Total borrowings (excluding interest
payable) 16,352 15,060
At 31 December 2019, Heathrow SP's nominal net debt was
GBP12,412 million (31 December 2018: GBP12,407 million). Nominal
net debt comprised GBP11,055 million (December 2018: GBP11,054
million) in senior net debt and GBP1,357 million (December 2018:
GBP1,353 million) in junior net debt.
At 31 December 2019, total non-current borrowings due after more
than 5 years was GBP11,804 million, comprising GBP8,367 million of
bonds, GBP2,512 million debenture payable to Heathrow Finance plc
and GBP925 million in bank facilities, excludes lease
liabilities.
Impact of fair value hedge adjustments
The nominal value of debt designated in fair value hedge
relationship was GBP 250 million, EUR 2,000 million, US$ 1,000
million, C$ 1,470 million, CHF 610 million, A$ 175 million, JPY 10
billion and NOK 2,000 million. Where debt qualifies for fair value
hedge accounting, hedged item adjustments have been applied as
follows:
Year ended 31 December Year ended 31 December
2019 2018
Nominal Fair value Nominal Fair value
GBPm adjustment(1) GBPm adjustment(1)
GBPm GBPm
-------------- -------- --------------- -------- ---------------
Sterling
debt 250 (4) 200 (2)
Euro
denominated
debt 1,615 (70) 1,498 26
USD
denominated
debt 621 (10) 621 -
CAD
denominated
debt 810 (3) 1,227 3
Other
currencies
debt 946 3 549 17
-------------- -------- --------------- -------- ---------------
Designated
in
fair
value
hedge 4,242 (84) 4,095 44
(1) Fair value adjustment is comprised of fair value loss of
GBP52 million (2018: GBP89 million gain) on continuing hedges and
GBP32 million loss (2018: GBP45 million loss) on discontinued
hedges.
Notes to the consolidated financial statements for the year
ended 31 December 2019
8. Derivative financial instruments
31 December 2019 Notional Assets Liabilities Total
GBPm GBPm GBPm GBPm
Current
Foreign exchange contracts 8 - - -
Interest rate swaps 738 - (11) (11)
Index-linked swaps 313 - (44) (44)
---------------------------- --------- ------- ------------ ------
1,059 - (55) (55)
---------------------------- --------- ------- ------------ ------
Non-current
---------------------------- --------- ------- ------------ ------
Foreign exchange contracts 33 - (2) (2)
Interest rate swaps 1,572 - (386) (386)
Cross-currency swaps 4,551 482 (25) 457
Index-linked swaps 6,082 57 (814) (757)
---------------------------- --------- ------- ------------ ------
12,238 539 (1,227) (688)
---------------------------- --------- ------- ------------ ------
Total 13,297 539 (1,282) (743)
31 December 2018 Notional Assets Liabilities Total
GBPm GBPm GBPm GBPm
Current
Foreign exchange contracts 11 - - -
Interest rate swaps 204 - (5) (5)
Cross-currency swaps 250 - (19) (19)
Index-linked swaps 124 - (15) (15)
---------------------------- --------- ------- ------------ --------
589 - (39) (39)
---------------------------- --------- ------- ------------ --------
Non-current
---------------------------- --------- ------- ------------ --------
Interest rate swaps 2,309 - (377) (377)
Cross-currency swaps 3,685 502 (6) 496
Index-linked swaps 6,395 41 (1,140) (1,099)
---------------------------- --------- ------- ------------ --------
12,389 543 (1,523) (980)
---------------------------- --------- ------- ------------ --------
Total 12,978 543 (1,562) (1,019)
---------------------------- --------- ------- ------------ --------
At 31 December 2019, total non-current notional value of
Derivative financial instruments due in greater than 5 years was
GBP9,057 million (2018: GBP9,171 million), comprising GBP5,311
million (2018: GBP5,496 million) of Index-linked swaps, GBP2,524
million (2018: GBP2,453 million) of Cross-currency swaps, and
GBP1,222 million (2018: GBP1,222 million) of Interest rate
swaps.
Interest rate swaps
Interest rate swaps are maintained by the Group and designated
as hedges, where they qualify against variability in interest cash
flows on current and future floating or fixed rate borrowings. The
gains and losses deferred in equity on the cash flow hedges will be
continuously released to the income statement over the period of
the hedged risk. The losses deferred of GBP20 million expected to
be released in less than one year, GBP22 million between one and
two years, GBP62 million between two and five years and GBP121
million over five years. Of the total amount deferred in other
comprehensive income GBP206 million related to discontinued cash
flow hedges.
Cross-currency swaps
Cross-currency swaps have been entered into by the Group to
hedge currency risk on interest and principal payments on its
foreign currency-denominated bond issues. The gains and losses
deferred in equity on certain swaps in cash flow hedge
relationships will be continuously released to the income statement
over the period to maturity of the hedged bonds.
Index-linked swaps
Index-linked swaps have been entered into in order to
economically hedge RPI linked revenue and the Regulatory Asset Base
but are not designated in a hedge relationship.
Foreign exchange contracts
Foreign exchange contracts are used to manage exposures relating
to future capital expenditure. Hedge accounting is not sought for
these derivatives.
Notes to the consolidated financial statements for the year
ended 31 December 2019
9. Retirement benefit obligations
Amounts arising from pensions related liabilities in the Group's
financial statements
The following tables identify the amounts in the Group's
financial statements arising from its pension related liabilities.
Further details of each scheme (except defined contribution
schemes) are within sections a) and b).
Income statement - pension and other pension related liabilities
costs
Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Employment costs:
Defined contribution schemes 15 13
BAA Pension Scheme 26 34
---------------------------------------------------------------- ------------------ ------------------
41 47
Finance (credit)/charge - BAA Pension Scheme (1) 3
Finance charge - Other pension and post retirement liabilities 1 1
---------------------------------------------------------------- ------------------ ------------------
Total pension costs 41 51
Other comprehensive income - (loss)/gain on pension and other
pension related liabilities
Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
BAA Pension Scheme (loss)/gain (17) 141
Unfunded schemes 2 3
---------------------------------------------- ------------------ ------------------
Actuarial (loss)/gain recognised before tax (15) 144
Tax credit/(charge) on actuarial (loss)/gain 4 (26)
---------------------------------------------- ------------------ ------------------
Actuarial(loss)/gain recognised after tax (11) 118
Statement of financial position - net defined benefit pension
surplus/(deficit) and other pension related liabilities
31 December 2019 31 December 2018
GBPm GBPm
Fair value of plan assets 4,302 3,869
Benefit obligation (4,269) (3,841)
--------------------------------------------------------- ----------------- -----------------
Surplus in BAA Pension Scheme 33 28
Unfunded pension obligations (28) (28)
Post-retirement medical benefits (1) (4)
--------------------------------------------------------- ----------------- -----------------
Deficit in other pension related liabilities (29) (32)
Net surplus/(deficit) in pension schemes 4 (4)
--------------------------------------------------------- ----------------- -----------------
Group share of net surplus/(deficit) in pension schemes 4 (4)
(a) BAA Pension Scheme
The BAA Pension Scheme is a funded defined benefit scheme with
both open and closed sections. The Scheme closed to employees
joining the Group after 15 June 2008. The Scheme's assets are held
separately from the assets of the HAH Group and are administered by
the trustee.
The value placed on the Scheme's obligations as at 31 December
2019 is based on the full actuarial valuation carried out at 30
September 2018. This has been updated at 31 December by KPMG LLP to
take account of changes in economic and demographic assumptions, in
accordance with IAS 19R. The Scheme assets are stated at their bid
value at 31 December 2019. As required by IAS 19R, the Group
recognises re-measurements as they occur in the statement of
comprehensive income.
Analysis of financial assumptions
The financial assumptions used to calculate Scheme assets and
liabilities under IAS 19R were:
31 December 2019 31 December 2018
% %
Rate of increase in pensionable salaries 1.90 1.90
Increase to deferred benefits during deferment 2.40 2.65
Increase to pensions in payment:
Open section 3.05 3.30
Closed section 3.15 3.40
Discount rate 2.10 3.00
Inflation assumption 3.15 3.40
10. Cash generated from operations
Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Operating activities
Profit before tax 546 422
Adjustments for:
Net finance costs 647 789
Depreciation 693 716
Amortisation on intangibles 43 27
Amortisation on right of use assets 35 -
Fair value gain on investment properties (43) (117)
Working capital changes:
Decrease/(increase) in inventories and trade and other receivables 57 (46)
(Decrease)/increase in trade and other payables (7) 11
(Decrease)/increase in provisions (7) -
Difference between pension charge and cash contributions (22) (15)
-------------------------------------------------------------------- ------------------ ------------------
Cash generated from operations 1,942 1,787
11. Commitments and contingent liabilities
Group commitments for property, plant and equipment
Year ended Year ended
31 December 31 December 2018
2019 GBPm
GBPm
Contracted for, but not accrued:
Baggage systems 111 77
Terminal restoration and modernisation 168 174
Capacity optimisation 51 20
IT projects 15 20
Other projects 45 35
---------------------------------------- ------------- ------------------
390 326
The figures in the above table are contractual commitments to
purchase goods and services at the reporting date.
Notes to the consolidated financial statements for the year
ended 31 December 2019
12. Related party transactions
The Group entered into the following transactions with related
parties:
Purchase of goods and services Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Amey OWR Ltd 1 1
Ferrovial Agroman 44 69
Heathrow Finance plc(1) 102 109
-------------------------------- ------------------ ------------------
147 179
(1) Relates to interest on the debenture payable to Heathrow Finance plc (Note 3).
Sales to related party Year ended Year ended
31 December 2019 31 December 2018
GBPm GBPm
Harrods International Limited 23 23
Qatar Airways 26 35
59 58
Balances outstanding with related parties were as follows:
31 December 2019 31 December 2018
Amounts owed by Amounts owed to Amounts owed by Amounts owed to
related parties related parties related parties related parties
GBPm GBPm GBPm GBPm
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Heathrow Finance plc - 2,540 - 2,227
Qatar Airways 2 - 2 -
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
2 2,540 2 2,227
The related parties outlined above are related through ownership
by the same parties. The transactions relate primarily to
construction projects, loans and interest payable, and are
conducted on an arm's length basis
13. Reconciliation of our Alternative Performance Measures
(APMs)
Alternative Performance Measures
The Group presents its results in accordance with International
Financial Reporting Standards (IFRS). Management also uses other
financial measures not defined by the IFRS and known as APMs
(Alternative Performance Measures). Management relies on these APMs
for decision-making and for evaluating the Group's performance.
Below we provide an explanation of each APM.
EBITDA
EBITDA is profit before interest, taxation, depreciation and
amortisation. EBITDA is a useful indicator as it is widely used by
investors, analysts and rating agencies to assess operating
performance.
2019 2018
GBPm GBPm
------------------------------------ ------ ------
Profit for the year 413 333
Add: Tax charge 133 89
Add: Net finance cost 647 789
------------------------------------ ------ ------
Operating profit 1,193 1,211
Add: depreciation and amortisation 771 743
------------------------------------ ------ ------
EBITDA 1,964 1,954
Adjusted EBITDA
Adjusted EBITDA is profit before interest, taxation,
depreciation, amortisation and fair value gains and losses on
investment properties. Adjusted EBITDA is an approximation of
pre-tax operating cash flow and reflects cash generation before
changes in working capital and investment. The APM assists
investors to value the business (valuation using multiples) and
rating agencies and creditors to gauge levels of leverage by
comparing Adjusted EBITDA with net debt.
Adjusted EBITDA continued
2019 2018
GBPm GBPm
------------------------------------------------- ------ ------
Profit for the year 413 333
Add: Tax charge 133 89
Add: Net finance cost 647 789
------------------------------------------------- ------ ------
Operating profit 1,193 1,211
Add: depreciation and amortisation 771 743
Less: Fair value gains on investment properties (43) (117)
------------------------------------------------- ------ ------
Adjusted EBITDA 1,921 1,837
2019 2018
GBPm GBPm
----------------------------------------------------------------------- ------ ------
Cash generated from operations 1,942 1,787
Exclude:
(Decrease) / increase in inventories and trade and other receivables (57) 46
(Decrease) / increase in trade other payables 7 (11)
Decrease in provisions 7 -
Difference between pension charge and cash contributions 22 15
----------------------------------------------------------------------- ------ ------
Adjusted EBITDA 1,921 1,837
Adjusted operating profit
Adjusted operating profit shows operating results excluding fair
value gains and losses to investment properties. These are excluded
as they can vary significantly from one year to the next due to
market perceptions of the value of the property and the accounting
method used to calculate the fair value. The adjusted measure is
used to assess underlying performance of the trading business.
2019 2018
GBPm GBPm
------------------------------------------------- ------ ------
Operating profit(1) 1,193 1,211
Less: Fair value gains on investment properties (43) (117)
------------------------------------------------- ------ ------
Adjusted operating profit 1,150 1,094
(1) Operating profit is presented on the Group Income statement,
it is not defined per IFRS, however it is a generally accepted
profit measure
Net finance costs before certain re-measurements
Net finance cost before certain re-measurements exclude fair
value adjustments on financial instruments. Excluding fair value
adjustments can be useful to investors and financial analysts when
assessing the Group's underlying profitability, because they can
vary significantly from one year to the next. A significant portion
of the fair value adjustments on financial instruments occur due to
the business entering into arrangements to hedge against future
inflation. As these contracts do not meet hedge criteria under IFRS
9, fair value adjustments create significant volatility in our IFRS
income statement.
2019 2018
GBPm GBPm
-------------------------------------------------------------------------- ------ ------
Finance income 9 2
Finance cost (656) (791)
-------------------------------------------------------------------------- ------ ------
Net finance cost including certain remeasurements (647) (789)
Less: fair value gain arising on re-measurement of financial instruments (128) (38)
-------------------------------------------------------------------------- ------ ------
Net Finance cost before certain remeasurements (775) (827)
Adjusted profit before tax
Adjusted profit before tax (PBT) excludes fair value adjustments
on investment properties and financial instruments. Excluding fair
value adjustments can be useful to investors and financial analysts
when assessing the Group's underlying profitability, because they
can vary significantly from one year to the next.
2019 2018
GBPm GBPm
-------------------------------------------------------------------------- ------ ------
Profit before tax 546 422
Less: fair value gain on investment properties (43) (117)
Less: fair value gain arising on re-measurement of financial instruments (128) (38)
-------------------------------------------------------------------------- ------ ------
Adjusted PBT 375 267
Adjusted profit after tax
Adjusted profit after tax (PAT) excludes fair value gains and
losses on investment properties and financial instruments and the
associated tax. Excluding fair value adjustments can be useful to
investors and financial analysts when assessing the Group's
underlying profitability, because they can vary significantly from
one year to the next.
2019 2018
GBPm GBPm
-------------------------------------------------------------------------- ------ ------
Profit after tax 413 333
Less: fair value gain on investment properties (43) (117)
Less: fair value gain arising on re-measurement of financial instruments (128) (38)
Add: tax on fair value gain on investment properties and re-measurement
of financial instruments 29 31
-------------------------------------------------------------------------- ------ ------
Adjusted PAT 271 209
Heathrow (SP) Limited consolidated nominal net debt
Consolidated nominal net debt is a measure of financial position
used by our creditors when assessing covenant compliance .
Consolidated nominal net debt is short and long-term debt less
cash and cash equivalents and term deposits. It includes index
linked swap accretion and hedging impact of cross currency interest
rate swaps. It excludes pre-existing lease liabilities recognised
upon transition to IFRS 16, accrued interest, capitalised borrowing
costs and intra-group loans.
2019 2018
GBPm GBPm
--------------------------------------------------------------- --------- ---------
Cash and cash equivalents 815 591
Term deposits 725 120
Current debt including lease liability (442) (247)
Non-current debt including lease liability (13,782) (12,622)
--------------------------------------------------------------- --------- ---------
Accounting value of Net debt (12,684) (12,158)
Index-linked swap accretion (1) (345) (488)
Impact of cross currency interest rate swaps (2) 349 353
Bond issuance costs (3) (111) (114)
Less: IFRS 16 lease liability at 31 December 2019 relating to 379 -
pre-existing leases (4)
--------------------------------------------------------------- --------- ---------
Consolidated nominal net debt (12,412) (12,407)
(1) Index linked swap accretion is included in nominal net debt,
amounts are reported within derivative financial instruments on the
Statement of financial position.
(2) Where bonds are issued in currencies other than GBP, the
Group has entered into foreign currency swaps to fix the GBP cash
outflows on redemption. The impact of these swaps is reflected in
nominal net debt.
(3) Capitalised bond issue costs are excluded from nominal net debt.
(4) The lease liability relating to leases that existed at the
point of transition to IFRS 16 (1 January 2019) is excluded from
nominal net debt. All new leases entered into post transition are
included.
Regulatory Asset Base (RAB)
The regulated asset base is a regulatory construct, based on
predetermined principles not based on IFRS. By investing
efficiently in the Airport, we add to the RAB over time. The RAB
represents the invested capital on which Heathrow are authorised to
earn a cash return. It is used in key financial ratios and in our
regulatory accounts.
2019 2018
GBPm GBPm
----------------------------- ------- -------
Regulatory Asset Base (RAB) 16,598 16,200
----------------------------- ------- -------
Regulatory gearing ratio
The regulatory gearing ratio is consolidated nominal net debt to
the RAB. It is a financial indicator used by investors, financial
analysts, rating agencies, creditors and other parties to ascertain
a company's debt position in regulated industries.
2019 2018
GBPm GBPm
------------------------ ------ ------
Total net debt to RAB 0.748 0.766
------------------------ ------ ------
Senior net debt to RAB 0.666 0.682
------------------------ ------ ------
Glossary
Air Transport Movement 'ATM' - means a flight carried out for
commercial purposes and includes scheduled flights operating
according to a published timetable, charter flights, cargo flights
but it does not include empty positioning flights, and private
non-commercial flights.
Airport Service Quality 'ASQ' - quarterly Airport Service
Quality surveys directed by Airports Council International (ACI).
Survey scores range from 1 up to 5.
Baggage connection - numbers of bags connected per 1,000
passengers.
Carbon Footprint Targets - Targets can be found in the Heathrow
2.0 strategy document available on the company section of the
website.
Carbon-neutral - Emissions are offset through purchasing carbon
offsets.
Category B Costs - Capital expenditure related to the consent
process for Expansion.
Connections satisfaction - Measures how satisfied passengers are
with their connections journey via our in-house satisfaction
tracker - QSM Connections. Throughout the year there are 14,000
face-to-face interviews across all terminals where transfer
passengers rate their satisfaction with their Connections
experience on a scale of one to five, where one is 'extremely poor'
and five is 'excellent'.
Departure punctuality - percentage of flights departing within
15 minutes of schedule.
Early Category C Costs - Capital expenditure related to the
early design and construction costs for Expansion.
Gearing ratios - under the Group's financing agreements are
calculated by dividing consolidated nominal net debt by Heathrow'
Regulatory Asset Base ('RAB') value.
Lost Time Injury - Lost time injuries are injuries sustained by
colleagues whilst conducting work related duties, resulting in
absence from work for at least a day. The measure is calculated as
a moving annual frequency rate of the number of incidents in the
last 12 months per 100,000 working hours.
Mini Pulse Survey - On a monthly basis circa 600 colleagues are
randomly selected from across Heathrow and are asked "To what
extent do you agree or disagree with the following statement:
Heathrow is a great place to work". Colleagues then give a score on
a scale of one to five, where one is 'strongly disagree' and five
is 'strongly agree'.
NERL - National Air Traffic Services is split into two main
service provision companies, one if which is NATS En-Route PLC
(NERL). NERL is the sole provider of civilian en-route air traffic
control over the UK.
Net-zero carbon - Residual carbon emissions are offset by an
equal volume of carbon removals.
Regulatory asset ratio 'RAR' - is trigger event at Class A and
Class B and financial covenant at Heathrow Finance; Class A RAR
trigger ratio is 72.5%; two Class B triggers apply: at Heathrow
Finance it is 82.0% and at Heathrow (SP) Limited it is 85.0%;
Heathrow Finance RAR covenant is 92.5%.
Restricted payments - The financing arrangements of the Group
and Heathrow Finance plc ("Heathrow Finance") restrict certain
payments unless specified conditions are satisfied. These
restricted payments include, among other things, payments of
dividends, distributions and other returns on share capital, any
redemptions or repurchases of share capital, and payments of fees,
interest or principal on any intercompany loans.
Security queuing - % of security waiting time measured under 5
minutes, based on 15-minute time period measured.
WACC - Weighted average cost of capital
Zero-carbon - No emissions are released into the atmosphere.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR DGGDDUUDDGGU
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