TIDM88BX TIDM10FX
RNS Number : 6730Q
Heathrow
21 February 2019
RNS headline: Notice of results
21 February 2019
Heathrow (SP) Limited
Results for the year ended 31 December 2018
-- Milestone year as 80.1 million passengers choose Heathrow -
Heathrow climbed to the best year in its history after eight years
of consecutive growth. For the first time, Heathrow welcomed a
record-breaking 80.1 million passengers (+2.7% vs 2017) whilst
delivering excellent service at a lower cost. Airport charges fell
1% to GBP21.78 and 81.9% of passengers said they had an "Excellent"
or "Very Good" experience at Heathrow
-- New routes boost Britain's trading opportunities - Heathrow
doubled its Chinese connections in 2018, adding six new cities
including Europe's only flight to Shenzhen, the home of Asia's
Silicon Valley. These new services helped to push global trade
flowing through Heathrow to 1.7 million tonnes
-- Domestic connections growing - Heathrow's domestic
connections are set to grow to 9 as new services to Newquay begin
in April. Following the re-launch of the Inverness services, the
UK's two furthest mainland airports will now be connected to the
nation's hub boosting trade and travel opportunities
-- Robust financial performance - Heathrow remains a well-run
business in strong financial health with revenues climbing 3% to
nearly GBP3 billion on the back of strong retail spend and
increased demand to fly - supporting GBP793 million of investment
into the airport. Adjusted EBITDA climbed 4.4% to GBP1,837 million.
Remaining competitive in the lead-up to expansion remains a
priority, with a focus on efficiency resulting in operating costs
per passenger falling 2% to GBP14.14
-- Heathrow bucks the infrastructure investment trend - Heathrow remains unique amongst global infrastructure assets, raising close to GBP2.3bn from private investors across seven currencies (up from GBP1bn in 2017). Growing demand to invest in Heathrow underpins the airport's plans to entirely privately finance expansion and builds the airport's financial resilience ahead of Brexit (extending our liquidity horizon to March 2021)
-- Expansion momentum as masterplan takes shape - Following one
of the largest ever parliamentary majorities on the Airports
National Policy Statement, Heathrow's preferred masterplan
continues to take shape. The airport will release the detailed
plans in further consultation in June 2019, and remains on-track to
submit a planning application in 2020 and for the first flights to
use the new runway in 2026
At or for year ended 31 December 2017 2018 Change
(%)
======================================= ======= ======= ================
(GBPm unless otherwise stated)
Revenue 2,884 2,970 3.0
Adjusted EBITDA(1) 1,760 1,837 4.4
EBITDA(2) 1,909 1,954 2.4
Cash generated from operations 1,733 1,787 3.1
Cash flow after investment and
interest(3) 484 420 (13.2)
Adjusted profit before tax(4) 217 267 23.0
Heathrow (SP) Limited consolidated
nominal net debt(5) 12,372 12,407 0.3
Heathrow Finance plc consolidated
net debt(5) 13,674 13,980 2.2
Regulatory Asset Base(5) 15,786 16,200 2.6
======================================= ======= ======= ================
Passengers (million)(6) 78.0 80.1 2.7
Retail revenue per passenger (GBP)(6) 8.45 8.94 5.8
======================================= ======= ======= ================
Notes 1-6: see page 2
John Holland-Kaye, Chief Executive Officer of Heathrow,
said:
"2018 was the best ever year at Heathrow. We were voted best
airport in Western Europe by passengers, while continuing to drive
down costs. We improved safety and closed our gender pay gap. We
were named "Responsible Business of the Year" and won an
overwhelming parliamentary majority in support of Heathrow
expansion. We remain on track to open the new runway in 2026. I am
very proud of the outstanding work of 76,000 colleagues across the
airport, who are delivering for Britain"
Notes
(1) Adjusted EBITDA is earnings before interest, tax, depreciation & amortisation
(2) EBITDA is earnings before interest, tax, depreciation and amortisation
(3) Cash flow after investment and interest is cash generated
from operations after net capital expenditure and net interest
paid
(4) Adjusted profit before tax is adjusted operating profit
after deducting net finance costs and before tax and certain
re-measurements
(5) 2017 net debt and RAB figures at 31 December 2017. Nominal
net debt excluding intra-group loans and including inflation-linked
accretion
(6) 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 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.
Investor enquiries Media enquiries
James Hoskins Weston Macklem
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======================================== ================================================
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21 February 2019
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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. Accordingly, 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 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.
Review of the year
We continued to deliver strong performance in 2018 and welcomed
a record 80 million passengers travelling through the UK's only hub
airport, up 2.7% on last year. We are one of only seven airports in
the world to have exceeded 80 million passengers per annum and the
only airport to achieve this milestone with only 2 runways. Whilst
continuing to deliver growth, we also sustained our high customer
satisfaction scores and were named 'Best Airport in Western Europe'
for the fourth year running, and 'Best Airport for Shopping' for
the ninth year in the most recent Skytrax World Airport Awards.
We also progressed the four strategic priorities underpinning
our vision to give our passengers the best airport service in the
world: making Heathrow a great place to work, transforming our
service to passengers and airlines, beating the business plan over
the current regulatory period and operating and growing Heathrow
sustainably today and in the future. Critical to the success of our
vision is attracting, retaining and developing high quality talent.
This is why making Heathrow a great place to work and creating
careers where people can fulfil their potential is at the very
heart of our strategy. In 2018 an outstanding 472 colleagues were
promoted and 755 colleagues attended training to advance their
managerial skills.
We delivered outstanding services to our passengers during our
busiest year ever. We achieved an excellent 4.15 out of 5.0 score
in the global Airport Service Quality (ASQ) survey in 2018 while
maintaining our high levels of successful baggage connections and
departures punctuality. In addition, reflecting the success of our
pricing strategy to boost domestic connectivity, short haul traffic
grew by 2.2% and intercontinental grew by 3.1%. Intercontinental
growth continued to be driven by strong growth in routes to North
America, through increased flight frequency and aircraft size to a
number of destinations, while passenger numbers to and from the
Asia Pacific region grew strongly driven by our new Chinese
routes.
As part of our Heathrow 2.0 plan for sustainable growth we
released our Carbon Neutral Growth Roadmap, setting out a
comprehensive set of measures that will become our plan for how,
over the next decade, we will deliver our aspiration to make growth
from our new runway carbon neutral. We also launched our Living
Wage Roadmap, which shows how we will ensure that our supply chain
will guarantee their employees the Living Wage. Building on
Heathrow achieving Living Wage accreditation in 2017, the Roadmap
sets ambitious goals for 100% of target contracts to be amended by
the end of 2020.
Despite continuing to invest in winter resilience, special
passenger assistance, security and expansion, we have continued to
deliver declining costs per passenger. On the revenue side,
aeronautical revenues grew by 1.7% compared to 2017 despite a
delivering a 1% reduction in aeronautical revenue per passenger.
Retail revenues grew by an outstanding 8.6% as passengers responded
strongly to several successful retail initiatives. We are seeing
more passengers participating in our retail offering with each
spending more on average. As a result of these dynamics, total
revenues were almost GBP3 billion, up 3% compared to 2017. We
raised close to GBP2.3 billion of debt financing globally in 2018,
further strengthening our liquidity position and providing
additional duration and diversification to our GBP14 billion
consolidated debt.
2018 also saw the commencement of our plans to deliver expansion
following the UK Parliament passing the airports National Policy
Statement in June by a substantial majority.
We continue engaging with our regulator and airline stakeholders
to define the regulatory framework that will enable expansion that
is affordable, sustainable and financeable. Following the launch of
our initial planning consultation in January 2018, we also launched
a consultation on airspace changes in January 2019 and are making
final preparations for the statutory consultation on our masterplan
for expansion in mid 2019. These consultations provide an
opportunity for our local community and other stakeholders to help
us shape Heathrow's future.
Strategic priorities
MOJO
We are committed to making Heathrow a great place to work. We
provide an environment where colleagues feel safe, proud, motivated
and enjoy what they do. We were recently voted as one of the top 10
employers of the MI5 British LGBT+ awards. We continue to enhance
our leadership capabilities and provide great career opportunities
supported by some of the best development and training. In 2018,
472 colleagues were promoted and 755 colleagues attended training
to advance their managerial skills.
We take a pragmatic and proactive approach to improving our
Health and Safety credentials through engaging our colleagues. We
have seen a positive shift in our culture and behaviours which
remains a significant driver in achieving great results and
preventing or reducing the likelihood of incidents occurring. In
2018, our lost time injuries metric improved to 0.33 (2017:
0.48).
TRANSFORM CUSTOMER SERVICE
In 2018, we continued to deliver strong levels of service across
the passenger journey. Over the period, our service standards
remained high, with limited or no disruption to our operations,
despite passenger growth putting pressure on some key processes
such as check in, security, immigration and baggage.
In 2018, we achieved a score an ASQ of 4.15 out of 5.00 (2017:
4.16) compared to 3.97 just five years ago. In addition, 81.9% of
passengers surveyed rated their Heathrow experience 'Excellent' or
'Very good' (2017: 82.5%) illustrating the strength and resilience
of our operations. As part of our drive to provide the best airport
service in the world we introduced our Service Signatures programme
highlighting a set of behaviours that help guide the way in which
we all deliver an even better service to our passengers, customers,
and also our colleagues.
Service standard performance 2017 2018
indicators(1)
============================== ====== ======
ASQ 4.16 4.15
Baggage connection 99.0% 98.8%
Departure punctuality 80.2% 77.6%
Security queuing 97.3% 96.8%
============================== ====== ======
(1) For the twelve months ended 31 December 2018
Investing in Heathrow
We invested GBP666 million in 2018 (2017: GBP604 million) on a
variety of programmes to improve the passenger experience, airport
resilience and work through a broad asset replacement programme. We
also continue to develop our plans for expanding Heathrow for which
investments amounted to an additional GBP127 million in the year
(2017: GBP83 million).
Safety continued to be our priority and 2018 was the busiest and
safest year in the quinquennium for our capital investment teams
working across the airport, with the best ever performance on Safe
Days (no. of days without a lost-time incident), peaking at 148
(2017: 112).
The next stage of Passenger Flow Monitoring went live,
continuing the focus on passenger experience improvements by
enabling the Airport Operations Centre to monitor passenger numbers
and flow, predict congestion in key areas and direct resources in
the most efficient manner. The roll out of self-service bag drops
maintained its momentum with 48 units going live in Terminals 5
alone.
We completed a significant project to install Oyster card
electronic passenger gates at the Heathrow terminals of the
Heathrow Express enabling easier transfer for our passengers to and
from London and have also received all relevant approvals to
install the gates at Paddington in 2019.
The Hold Baggage Screening (HBS) upgrade works progressed well
in 2018. Terminal 2 was certified as Standard 3 Department for
Transport (DfT) compliant and Terminal 5 met the DfT target of 83%
screened at Standard 3 by September 2018. The Terminal 5 programme
remains on plan for the target of 100% screening at Standard 3 by
April 2019.
BEAT THE PLAN
New intercontinental routes
W added 6 direct routes to China, doubling the number of
connections from Heathrow, the UK's only hub airport and primary
gateway to China. New routes were also announced to North America
with British Airways announcing a new direct route to Pittsburgh
and American Airways announcing a new route to Phoenix. Both routes
will commence in April 2019.
Record passenger traffic
During 2018, we welcomed a record 80.1 million passengers, an
increase of 2.7% on 2017 (2017: 78.0 million). December 2018 was
the 26th consecutive month of record passenger numbers. Aircraft
continue to fly fuller with load factors increasing to 79.4% (2017:
78.0%). The average number of seats per passenger aircraft also
increased to 213.4 (2017: 212.3) driven by aircraft upgrades on
European and Middle Eastern routes.
Reflecting the success of our pricing strategy to fill short
haul seats and boost connectivity, short haul traffic grew by 2.2%
and intercontinental traffic grew by 3.1%. Intercontinental growth
continues to be driven by North America, through increasing flight
frequency and aircraft size to a number of destinations, while
passenger numbers to and from the Asia Pacific region grew strongly
driven by our new Chinese routes and increased frequency to
India.
(Millions) 2017 2018 Var %(1)
================== ===== ===== =========
UK 4.8 4.8 (0.1)
Europe 32.4 33.3 2.6
North America 17.4 18.1 4.3
Asia Pacific 11.3 11.5 2.4
Middle East 7.6 7.7 0.5
Africa 3.2 3.3 5.3
Latin America 1.3 1.4 4.4
================== ===== ===== =========
Total passengers 78.0 80.1 2.7
================== ===== ===== =========
(1) Calculated using unrounded passenger figures
Other traffic 2017 2018 Var
performance indicators %
========================= ======== ======== ======
Passenger ATM 471,082 472,744 0.4
Load factors
(%) 78.0 79.4 1.8
Seats per ATM 212.3 213.4 0.5
Cargo tonnage
('000) 1,698 1,685 (0.8)
========================= ======== ======== ======
SUSTAINABLE GROWTH
Heathrow 2.0
As part of our Heathrow 2.0 plan for sustainable growth, we
released our Carbon Neutral Growth Roadmap in November 2018. This
set out a comprehensive set of measures that will become our plan
for how, over the next decade, we will deliver our aspiration to
make growth from our new runway carbon neutral. The Roadmap
outlines four key action areas including cleaner aircraft
technology, improvements to airspace and ground operations,
sustainable aviation fuels, and carbon offsetting methods. As an
important step towards encouraging the development of commercial
electric technology, in October we announced that the first
electric-hybrid aircraft to be put into regular service at Heathrow
will not have to pay landing charges for a year, a prize worth
nearly GBP1 million.
2018 was a busy year for our charity partnerships as we launched
a new partnership with CARE International UK. Through colleague and
passenger fundraising, we are supporting CARE's 'Lendwithcare'
programme which enables donors to make loans to entrepreneurs in
developing countries, helping to build a business and lift
themselves and their families out of poverty. We also ran our third
'Race the Plane' event, with funds raised benefitting the Duke of
Edinburgh's Award Scheme and the Heathrow Community Fund. Over 400
cyclists raced a United Airlines flight form Heathrow to New York,
with the teams working together to complete 30-minute sessions on
stationary bikes outside Terminal 2. The teams managed to beat the
plane, raising over GBP100,000 in the process.
In November we held the annual flagship Heathrow Business
Summit, welcoming over 250 local Small and Medium Enterprises
(SME)'s to discuss contract opportunities with our business
partners, as well as to gain insight on how businesses can export
their products through Heathrow. We also progressed towards our
commitment to open four Logistics Hubs across the UK to support
delivery of an expanded Heathrow, with airport delegates visiting
all 65 sites on the longlist. The shortlist will be announced in
Spring 2019.
We also launched our Living Wage Roadmap, which shows how we
will ensure that our supply chain will guarantee their employees
the Living Wage. Building on Heathrow achieving Living Wage
accreditation in 2017, the Roadmap sets ambitious goals for 100% of
target contracts to be amended by the end of 2020.
Throughout 2018, we have been considering how we can best engage
our passengers with our sustainability strategy. Building on some
detailed research carried out at the start of the year, in November
we launched a campaign to highlight some of our key areas of focus
and the actions passengers can take to contribute. For example, we
have raised awareness that passengers can bring their own water
bottles with them when they travel through Heathrow as we offer
free refill points after security. We've partnered with 'Refill' to
make sure that all the refill points at the airport are included on
their free to use smart phone app.
Task force for climate related financial disclosures (TCFD)
We take seriously our responsibility to help develop a
transparent, consistent and effective system for climate related
financial disclosures. We already publish substantial quantities of
information in publicly available sustainability reports, including
in our Climate Change Adaption report, in Annual sustainability
progress reports, and in our Carbon Footprint reporting. We will
expand and improve our climate related disclosures within our
Annual Report and financial statements in 2019 and beyond to ensure
Heathrow provides clear and useful disclosures relevant to the
lifespan of an Expanded Heathrow.
Key Expansion developments
We continue to make significant progress in developing proposals
to expand the airport following the overwhelming vote in Parliament
in favour of the Airports National Policy Statement ('NPS') in June
2018. Initial ground surveys at 650 sites across the land required
for the project have been completed and the airport is moving
towards confirming its preferred masterplan.
We have incorporated feedback from a successful initial public
consultation at the start of 2018, and will hold two consultations
in 2019 to seek further views on our plans. The first of those
consultations in 2019 is on airspace and future runway operations
and is running from 8 January until 4 March 2019. It will be
followed by a statury consultation in June 2019 which will include
information on all aspects of expansion, including outlining our
preferred masterplan in detail as well as setting out the likely
environmental effects of the proposals and the ways we intend to
deal with them. The announcement of these consultations comes as
the latest independent polling from Populus released in September
2018 continued to show that more local people around Heathrow
support than oppose Heathrow expansion - a result which has been
consistent since polling started in 2015. After reviewing and
assessing feedback from the two consultations in 2019, we will
prepare a final masterplan and submit a development consent order
application to the Secretary of State in 2020, commencing a
consenting process which will take approximately 18 months from
submission to decision. If Heathrow is granted development consent,
the new runway is expected to open in 2026.
We are continuing strong engagement with businesses across the
UK. In 2018 we hosted 10 Business Summits at various locations
across the UK. These summits help to increase the number of SMEs in
the airport's multi-billion-pound supply chain. We have completed
visits to all 65 longlisted Logistics Hubs sites and in 2019 we
expect to draw up a shortlist of sites which will be invited to
formal tender this year. The final selected sites will help deliver
expansion efficiently by pioneering large-scale offsite
manufacturing. We have also announced an Innovation Partnership
programme calling for third parties to bring forward innovative
ideas to deliver the airport's expansion plans more affordably and
sustainably. After reviewing over 150 entries, we have announced a
shortlist of 37, including local authorities, retail giants and
airline partners which are now working on business cases for final
consideration.
We remain committed to delivering a sustainable, affordable and
financeable expanded airport. Our expansion programme will be
entirely privately funded at no cost to the taxpayer. We are also
committed to maintaining our existing strong investment grade
credit ratings throughout expansion. We are confident that we can
expand the airport whilst keeping passenger charges close to 2016
levels in real terms- which represents significant value for money
for consumers and meets the Government's affordability challenge.
Our proposals to expand Heathrow intend to unlock billions of
pounds in growth, create tens of thousands of new skilled jobs
across the UK, meet tough environmental and noise limits, open up
to 40 new long-haul trading links, improve domestic connectivity
and secure a skills legacy for future generations. Over the next 12
months alone, we expect to sign GBP150 million worth of contracts
with British businesses, creating 900 new jobs and 200 new
apprenticeships.
In parallel with the ongoing development consent process
outlined above, we will continue to participate in the judicial
review proceedings relating to the Government's decision to
designate the Airports NPS - the hearing for which has now been set
for March 2019. We are confident that the Government's
decision-making process in designating the NPS was robust. To date,
there have been no successful challenges against the designation of
a NPS.
Expansion - H7 Regulatory developments
The CAA's fundamental objectives in developing the framework for
the next regulatory period (known as H7) are to accelerate the
delivery of new capacity, drive competition and choice for the
benefit of consumers and to strike an appropriate balance between
affordability and financeability to support capacity expansion in
the best interest of consumers. Guided by this objective, the CAA
continues to progress its thinking on the H7 framework with a new
consultation launched in October 2018: 'Economic regulation of
capacity expansion at Heathrow: policy update and consultation'
(CAP1722). In this consultation the CAA discusses a number of areas
outlined below.
a) H7 is due to start in January 2022 and the CAA confirms that
Heathrow should produce a Business Plan for H7 by the end of 2019
to commence the price setting process
b) the CAA assesses that there are merits to the case for a
potential modification to Heathrow's licence by means of a new
condition promoting economy and efficiency in the operation,
maintenance and development of the airport
c) the CAA provides a further update on its approach to issues
raised by potential alternative arrangements for delivering new
capacity at Heathrow airport
d) the CAA also consults on its decision regarding its surface
access policy and confirms the "user pays" principle.
Alongside the consultation documents, the CAA published a report
assessing representations on the scarcity rents accruing to
airlines operating at Heathrow. The report acknowledges the
existence of scarcity rents and considers that further work is
required in order to value them. It also dismisses the position
that scarcity rents are competed away on a route by route
basis.
The CAA plans to provide additional clarity on the regulatory
framework in mid 2019 when it publishes its next consultation
papers.
Expansion - iH7 Regulatory developments
Delivering an affordable expanded Heathrow is a very important
issue for consumers and airlines. We've worked closely with our
airline partners as we refine our master plan to meet the
government's challenge to deliver expansion with average charges
close to 2016 levels in real terms. In addition to the work under
way on the H7 framework, based on an MoU agreed with major
carriers, a Formal Agreement has been finalised between Heathrow
and airlines on the aeronautical charges to be applied prior to the
start of H7. The Formal Agreement has been signed recently by a
number of key carriers from multiple alliances and groups
representing well over half of Heathrow's traffic with most other
carriers expected to sign in coming days as they complete internal
governance. Under the Formal Agreement, we will offer a rebate to
all airlines depending on actual passenger traffic volumes. The
rebate creates an incentive for airlines to make better use of our
existing capacity by way of a volume discount while also providing
protection in the event that passenger volumes were to fall below
current levels prior to 2022. Another benefit of the Formal
Agreement is that it will enable all parties to concentrate on the
longer term aim of securing a regulatory settlement for H7 which
will support affordable and financeable expansion of Heathrow. The
Formal Agreement remains subject to consultation by the CAA and
will maintain all existing regulatory protections to investors.
Brexit
We continue to monitor progress made by the UK Parliament as it
debates the proposed Withdrawal Agreement. While the continued
delays in reaching an agreement increase uncertainty for UK
businesses, the aviation industry remains well positioned as a
result of the EU aviation contingency plans.
These plans ensure that in a potential no deal scenario and
subject to a reciprocal offer by the UK, airlines will be able to
continue to fly between the EU and UK. In addition, UK citizens
will be permitted to travel visa free in the EU for up to 90 days
and the EU will continue to recognise the UK for the 'EU One Stop
Aviation Security Regime'. While these contingency arrangements are
only intended to be in place until the end of 2019, if enacted, we
anticipate that there will be very little, if any, impact on
flights if the UK departs the E.U. without a deal.
Separately, the UK Government is continuing work to implement
replacement Air Service Agreements (ASAs) for the 17 countries
which are currently covered by the UK's membership of the EU. The
Government has already indicated that a number of these ASAs,
including the agreement with the US, have been agreed and the
remaining agreements will be put in place well in advance of the
termination of the EU contingency plans or the UK leaving the EU.
These new ASAs, combined with the existing 111 bilateral agreements
with international destinations, will ensure that the vast majority
of traffic at Heathrow is unaffected by the outcome of the
negotiations on the transition agreement.
We have a unique position as we are the UK's only hub airport
and global gateway. We benefit from a very well diversified traffic
mix, more stable passenger traffic and demand than any other
European airport and a robust regulatory framework. We have taken
an extremely responsible approach to both operational and financial
planning for 2019. Extensive operational contingency plans have
been developed which will help to minimise any potential impact on
passengers. In addition to maintaining substantial headroom to our
covenant levels, we raised close to GBP2.3 billion from global
investors in 2018. This extends our liquidity horizon until March
2021 and ensures that Heathrow has sufficient resources to cope
with a no-deal Brexit and still meet its obligations, including
progressing our expansion plans.
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') that owns and operates Heathrow airport, and
Heathrow Express Operating Company Limited ('Hex Opco') which owns
the Heathrow Express rail service. Heathrow SP's consolidated
accounts are prepared under International Financial Reporting
Standards ('IFRS').
Summary performance
In the year ended 31 December 2018, the Group's operating profit
before certain re-measurements was GBP1,094 million (2017: GBP1,069
million) and its profit after tax was GBP333 million (2017: GBP484
million).
Year ended 2017 2018
31 December GBPm GBPm
================================= ======== ========
Revenue 2,884 2,970
Adjusted operating costs (1,124) (1,133)
================================= ======== ========
Adjusted EBITDA(1) 1,760 1,837
Depreciation and amortisation (691) (743)
================================= ======== ========
Adjusted operating profit(2) 1,069 1,094
Net finance costs before
certain re-measurements (852) (827)
--------------------------------- -------- --------
Adjusted profit before
tax(3) 217 267
Tax charge on profit
before certain re-measurements (48) (58)
================================= ======== ========
Adjusted profit after
tax(3) 169 209
================================= ======== ========
Including certain
re-measurements
Fair value gain on investment
properties 149 117
Fair value gain on financial
instruments 213 38
=============================== ===== =====
Tax charge on certain
re-measurements (47) (31)
=============================== ===== =====
Profit after tax 484 333
=============================== ===== =====
(1) Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation and certain re-measurements
(2) Adjusted operating profit is adjusted EBITDA including depreciation and amortisation
(3) Adjusted profit is adjusted operating profit after deducting
net finance costs and before certain re-measurements
For the year ended 31 December 2018, Adjusted EBITDA was
GBP1,837 million (2017: GBP1,760 million) and EBITDA was GBP1,954
million (2017: GBP1,909 million) after adjusting for fair value
gain/(loss) on investment properties.
Management uses Adjusted EBITDA to monitor performance of the
segments as it believes it more appropriately reflects the
underlying financial performance of the Group's operations. On a
monthly basis management review results, paying particular
attention to the airport operations over which it exercises control
on a day-to-day basis.
Certain re-measurements comprise fair value movements on
investment properties, which are mainly market-driven and over
which management has little influence; fair value gains and losses
on financial instruments which are subject to external financial
market fluctuations; tax associated with these items and the
effects of changes in tax rates, which are set by statute.
Revenue
In the year ended 31 December 2018, revenue increased 3.0% to
GBP2,970 million (2017: GBP2,884 million).
Year ended 2017 2018 Var.
31 December GBPm GBPm %
=============== ====== ====== =====
Aeronautical 1,716 1,745 1.7
Retail 659 716 8.6
Other 509 509 0.0
=============== ====== ====== =====
Total revenue 2,884 2,970 3.0
=============== ====== ====== =====
Aeronautical income continues to benefit from record traffic
growth offset by recoverable yield dilution as airlines employ
cleaner and quieter aircraft as incentivised by our tariff
structure. We continue to deliver strong value for passengers with
average aeronautical revenue per passenger decreasing by 1% to
GBP21.78. (2017: GBP22.00).
Year ended 2017 2018 Var.
31 December GBPm GBPm %
====================== ====== ====== =====
Retail concessions 304 323 6.3
Catering 56 61 8.9
Other retail 109 128 17.4
Car parking 120 126 5.0
Other services 70 78 11.4
====================== ====== ====== =====
Total retail revenue 659 716 8.6
====================== ====== ====== =====
Retail revenue growth was strong across all revenue streams with
retail concession reflecting higher passenger numbers as well as
our call to gate initiative which increases passenger dwell time in
the departure lounge. Retail concessions were additionally boosted
by the roll out of new digital capability on Heathrow boutique,
allowing customers to reserve and collect their shopping, with 52
brands now offering this service. Catering also benefitted from the
call to gate initiative, and strong performance in the year was
further enhanced by refurbishments in Terminals 3 and 5, as well as
"Grab & Go" offerings for passengers to take meals on flights.
Other retail reflects a significant increase in advertising income
from improved utilisation of advertising spaces. Retail revenue per
passenger rose 5.8% to GBP8.94 (2017: GBP8.45).
Year ended 2017 2018 Var.
31 December GBPm GBPm %
===================== ====== ====== ============
Other regulated
charges 240 243 1.3
Heathrow Express 127 123 (3.1)
Property and other 142 143 0.7
===================== ====== ====== ============
Total other revenue 509 509 0.0
===================== ====== ====== ============
Other revenue remained consistent with last year. Other
regulated charges grew as a result of more passengers travelling
through the airport resulting in more baggage being processed.
Heathrow Express revenue declined with the cession of Heathrow
connect services.
Operating costs before depreciation and amortisation
Operating costs before depreciation and amortisation increased
0.8% to GBP1,133 million (2017: GBP1,124 million). Operating costs
per passenger excluding depreciation and amortisation declined by
1.9% to GBP14.14 (2017: GBP14.41).
Year ended 2017 2018 Var.
31 December GBPm GBPm %
====================== ====== ====== =======
Employment 374 378 1.1
Operational 252 264 4.8
Maintenance 176 176 0.0
Rates 126 122 (3.2)
Utilities and Other 196 193 (1.5)
Operating costs
before depreciation
and amortisation 1,124 1,133 0.8
====================== ====== ====== =======
Operating cost increases were primarily driven by expansion and
investment in safety, security and resilience. In the early part of
the year, we spent over GBP5 million in ensuring operations ran
with limited disruption during one of the worst winters in recent
years which impacted both maintenance and other costs. We also
increased investment in our special assistance services, security
costs to aid operational resilience and upgrading drone defence
capabilities.
On a per passenger basis, costs have declined through cost
efficiencies in people-related areas and a decline in Business
Rates, offsetting increased pension charges of over GBP5m including
industry wide one-off Guaranteed Minimum Payment equalisation of
past service costs, and higher staff numbers to manage service and
resilience while passenger numbers continue to increase.
Adjusted operating profit(1)
For year ended 31 December 2018, Heathrow SP recorded an
operating profit before certain re-measurements of GBP1,094 million
(2017: GBP1,069 million). Adjusted EBITDA increased 4.4% to
GBP1,837 million (2017: GBP1,760million), resulting in an Adjusted
EBITDA margin of 61.9% (2017: 61.0%). Depreciation and amortisation
increased to GBP743 million (2017: GBP691 million).
Year ended 2017 2018 Var.
31 December GBPm GBPm %
==================== ======= ======= ======
Adjusted EBITDA 1,760 1,837 4.4
Depreciation and
amortisation (691) (743) 7.5
Adjusted operating
profit(1) 1,069 1,094 2.3
==================== ======= ======= ======
(1) Adjusted operating profit is operating profit before certain re-measurements
Taxation
The tax charge for the period, before certain re-measurements,
was GBP58 million (2017: GBP48 million) resulting in an effective
tax rate of 21.7% (2017: 22.1%), compared to the UK statutory rate
of 19% (2017: 19.25%). The effective tax rate being higher than the
statutory rate reflects the fact that a substantial proportion of
Heathrow's capital expenditure does not qualify for tax relief. The
total tax charge for the year was GBP89 million (2017: GBP95
million). For the period ended 31 December 2018, the Group paid
GBP70 million (2017: GBP53 million) in corporation tax.
Cash flow
In the year ended 31 December 2018, there was an increase of
GBP78 million in cash and cash equivalents compared with an
increase of GBP233 million in 2017.
At 31 December 2018, the Group had GBP711 million (2017: GBP525
million) of cash and cash equivalents and term deposits, of which
cash and cash equivalents were GBP591 million (2017: GBP513
million).
Cash generated from operations
In the year ended 31 December 2018, cash generated from
operations increased 3.1% to GBP1,787 million (2017: GBP1,733
million). The following table reconciles Adjusted EBITDA to cash
generated from operations.
Year ended 2017 2018
31 December GBPm GBPm
================================ ====== ======
Adjusted EBITDA 1,760 1,837
Increase in receivables
and inventories(1) (6) (46)
Increase in payables 8 10
(Decrease)/Increase
in provisions (7) 1
Difference between pension
charge and cash contributions (22) (15)
Cash generated from
operations 1,733 1,787
================================ ====== ======
(1) Excludes movement in group deposits
Restricted payments
In the year ended 31 December 2018, our ultimate shareholders
received GBP500 million (2017: GBP525 million) in dividends
reflecting the continued strong performance of the business. Total
restricted payments paid by Heathrow SP in the period amounted to
GBP222 million (net) or GBP786 million (gross). Other than the
GBP485 million (2017: GBP506 million) payment made by Heathrow SP
to Heathrow Finance to fund dividends to ultimate shareholders, net
restricted payments related mainly to meeting GBP99 million (2017:
GBP67 million) of interest on the debenture between Heathrow SP and
Heathrow Finance and net cash flow of GBP363 million from Heathrow
Finance to Heathrow SP.
RECENT FINANCING ACTIVITY
We have raised close to GBP2.3 billion of debt financing
globally in 2018, further strengthening our liquidity position and
providing additional duration and diversification to our GBP14
billion debt portfolio. Of the GBP2.3 billion of debt raised, just
over GBP1,124 million was in Class A debt excluding extensions to
existing facilities, GBP381 million in Class B debt and GBP786
million of new debt at Heathrow Finance.
Class A financing activity included:
a) a GBP145 million 18-year Class A US private placement and a
GBP55 million US Private Placement due in 2043
b) a C$400 million 10-year public bond and a second C$400
million 12-year bond issuance. This was the first issuance by a UK
based company with a maturity date beyond 10 years in the Canadian
market
c) a GBP160 million 40-year Class A inflation-linked bond
d) an A$175 million 10-year Class A bond which was our debut issuance in the Australian market
e) a GBP200 million 10-year Class A term loan facility with
Export Development Canada ('EDC'), the Canadian Export Credit
Agency with a 12 month availability period; and
f) an amendment to an existing GBP418 million term loan facility
to extend its maturity from March 2020 to October 2021, and
restructured the GBP600 million liquidity facility to a 5 year
rolling facility.
Class B financing activity included:
a) a GBP255 million private placement which matures between 2036 and 2041; and
b) a dual tranche GBP126 million inflation-linked bond with
maturities of 15 years and 18 years which will fund in March
2020.
Finally, financing activity at Heathrow Finance included:
a) a GBP300 million 5.5 year bond
b) GBP486 million in loan facilities which will be drawn between 2018 and 2020; and
c) subsequent to the year-end, we also issued an irrevocable
redemption notice for our 2019 Heathrow Finance bond on 28 January
2019.
FINANCING POSITION
Debt and liquidity at Heathrow (SP) Limited
At 31 December 2018, Heathrow SP's nominal net debt was
GBP12,407 million (31 December 2017: GBP12,372 million). It
comprised GBP11,498 million in bond issues, GBP1,132 million in
other term debt and GBP488 million in index-linked derivative
accretion. This was offset by GBP711 million in cash and cash
equivalents and term deposits. Nominal net debt comprised GBP11,054
million in senior net debt and GBP1,353 million in junior debt.
The average cost of Heathrow SP's nominal gross debt at 31
December 2018 was 3.63 % (31 December 2017: 3.92%). This includes
interest rate, cross-currency and index-linked hedge impacts and
excludes index-linked accretion. Including index-linked accretion,
Heathrow SP's average cost of debt at 31 December 2018 was 5.40%
(31 December 2017: 5.75%). The reduction in the average cost of
debt since the end of 2017 is mainly due to:
a) the replacement in 2018 of relatively high cost maturing
legacy debt with newer lower cost debt; and
b) recent moves in inflation with the retail price index ('RPI')
inflation falling from a high of 3.9% in September 2017 to 3.4% in
June 2018.
The average life of Heathrow SP's gross debt as at 31 December
2018 was 12 years (2017: 11.4 years).
Nominal 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.
The accounting value of Heathrow SP's net debt was GBP12,158
million at 31 December 2018 (2017: GBP12,311 million). This
includes GBP711 million of cash and cash equivalents and term
deposits as reflected in the statement of financial position and
excludes accrued interest.
We have sufficient liquidity to meet all our forecast needs in
full until March 2021. This includes forecast capital investment
(including expected investment over the period related to potential
expansion), debt service costs, debt maturities and distributions.
This liquidity position takes into account GBP2.9 billion in
undrawn loan facilities and term debt as well as cash resources at
31 December 2018 together with expected operating cash flow over
the period.
Debt at Heathrow Finance plc
The consolidated nominal net debt of Heathrow Finance increased
to GBP13,980 million (2017: GBP13,674 million). This comprises the
Heathrow SP's GBP12,407 million nominal net debt, Heathrow
Finance's nominal gross debt of GBP1,577 million and cash held at
Heathrow Finance of GBP4 million.
Net finance costs and net interest paid
In the year ended 31 December 2018, the Group's net finance
costs before certain re-measurements from operations were GBP827
million (2017: GBP852 million) and net interest paid was GBP574
million (2017: GBP562 million). Reconciliation from net finance
costs on the income statement to net interest paid on the cash flow
statement is provided below.
Year ended 2017 2018
31 December GBPm GBPm
============================= ====== ======
Net finance costs before
certain re-measurements 852 827
Amortisation of financing
fees and other items (30) (21)
Borrowing costs capitalised 46 50
============================= ====== ======
Underlying net finance
costs 868 856
Non-cash accretion on
index-linked instruments (270) (254)
Other movements (36) (28)
Net interest paid 562 574
============================= ====== ======
Underlying net finance costs were GBP856 million (2017: GBP868
million) after adjusting for capitalised borrowing costs of GBP50
million (2017: GBP46 million) and non-cash amortisation of
financing fees, discounts and fair value adjustments of debt of
GBP21 million (2017: GBP30 million).
Net interest paid was GBP574 million (2017: GBP562 million) of
which GBP475 million (2017: GBP495 million) related to external
debt. The remaining GBP99 million (2017: GBP67 million) of interest
paid related to the debenture between Heathrow (SP) and Heathrow
Finance.
Net interest paid is lower than underlying net finance costs
primarily due to non-cash accretion on index-linked
instruments.
Certain re-measurements include a GBP38 million fair value gain
on financial instruments (2017: GBP213 million) driven mainly by an
increase in long term Libor interest rate expectations.
Financial ratios
Heathrow SP and Heathrow Finance continue to operate comfortably
within required financial ratios. Gearing ratios under the Heathrow
SP financing agreements are calculated by dividing consolidated
nominal net debt by Heathrow's Regulatory Asset Base ('RAB').
At 31 December 2018, Heathrow's RAB was GBP16,200 million (31
December 2017: GBP15,786 million). Heathrow SP's senior (Class A)
and junior (Class B) gearing ratios were 68.2% and 76.6%
respectively (31 December 2017: 67.3% and 78.4% respectively).
Heathrow Finance's gearing ratio was 86.3% (31 December 2017:
86.6%).
PENSION SCHEME
We operate a defined benefit pension scheme (the BAA Pension
Scheme), which closed to new members in June 2008. At 31 December
2018, the defined benefit pension scheme, as measured under IAS 19,
was funded at 100.7% (31 December 2017: 97.1%). This translated
into a surplus of GBP28 million (31 December 2017: GBP124 million
deficit). The GBP152 million increase in surplus in the year is
primarily due to net actuarial gains of GBP141 million,
attributable to an increase in the net discount rate of 0.45% over
the year offset by assets having underperformed relative to the
discount rate. In 2018, Heathrow contributed GBP48 million (31
December 2017: GBP50 million) into the defined benefit pension
scheme including GBP23 million (31 December 2017: GBP23 million) in
deficit repair contributions. Management believes that the scheme
has no significant plan specific or concentration risks.
OUTLOOK
The outlook for our Adjusted EBITDA performance in 2019 remains
consistent with the forecast set out in the Investor Report
published on 20 December 2018. We also forecast to maintain
comfortable covenant headroom.
2019 will see significant progress on our expansion plans
including the recent launch of a consultation on airspace change in
January, and the launch of the formal statutory consultation on our
expansion masterplan in June.
KEY MANAGEMENT CHANGES
Chris Garton joined the company as Chief Operating Officer
('COO') in April 2018. He held a similar position for nine years at
Dubai Airport until late 2016. He was most recently Director of
Asset Management at Associated British Ports. During his career,
Chris has also held a number of roles in engineering and change
management at Gatwick Airport, INEOS and ICI. Mr Garton replaced Mr
Derek Provan, who had been interim COO since October 2017.
Appendix 1 Financial information
Heathrow (SP) Limited
Consolidated income statement
for the year ended 31 December 2018
Audited Audited
Year ended Year ended
31 December 2018 31 December 2017
----------------------------------------------
Before certain Certain Before certain Certain
re-measurements re-measurements(a) Total re-measurements re-measurements(a) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---------------- ------------------ -------- ---------------- ------------------ ----------
Continuing
operations
Revenue 1 2,970 - 2,970 2,884 - 2,884
Operating costs 2 (1,876) - (1,876) (1,815) - (1,815)
Other operating
items
Fair value
gain on
investment
properties - 117 117 - 149 149
----------------- ---------------- ------------------ -------- ---------------- ------------------ ----------
Operating profit 1,094 117 1,211 1,069 149 1,218
Financing
Finance
income(b) 2 - 2 3 - 3
Finance
costs(b) (829) 38 (791) (855) 213 (642)
Net finance cost 3 (827) 38 (789) (852) 213 (639)
Profit before tax 267 155 422 217 362 579
----------------- ---------------- ------------------ -------- ---------------- ------------------ ----------
Taxation charge 4 (58) (31) (89) (48) (47) (95)
----------------- ---------------- ------------------ -------- ---------------- ------------------ ----------
Profit for the
period 209 124 333 169 315 484
----------------- ---------------- ------------------ -------- ---------------- ------------------ ----------
(a) Certain re-measurements consist of: fair value gain on
investment property revaluations and disposals; gains and losses
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.
(b) Prior year finance income and finance costs have been
restated by (GBP198) million and GBP198 million respectively to
present interest payable and receivable on derivatives not in a
hedge accounting relationship as a single unit of account (net)
through finance cost.
Heathrow (SP) Limited
Consolidated statement of comprehensive income
for the year ended 31 December 2018
Audited Audited
Year ended Year ended
31 December 31 December
2018 2017
GBPm GBPm
---------------------------------------------- ------------- -------------
Profit for the period 333 484
---------------------------------------------- ------------- -------------
Items that will not be subsequently
reclassified to the consolidated income
statement:
Actuarial gain/(loss) on pensions net
of tax:
(Loss)/gain on plan assets (192) 62
Decrease/(increase) in scheme liabilities 310 (116)
Tax relating to indexation of operational
land - 2
Items that may be subsequently reclassified
to the consolidated income statement:
Cash flow hedges:
Losses taken to equity (162) (105)
Transfer to finance costs 198 121
Other comprehensive income/(loss) for
the period net of tax 154 (36)
---------------------------------------------- ------------- -------------
Total comprehensive income for the period(a) 487 448
---------------------------------------------- ------------- -------------
(a) Attributable to owners of the parent.
Heathrow (SP) Limited
Consolidated statement of financial position
as at 31 December 2018
Audited Audited
31 December 2018 31 December 2017
Note GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 11,405 11,307
Investment properties 2,472 2,350
Intangible assets 173 175
Retirement benefit surplus 28 -
Derivative financial instruments 543 444
Trade and other receivables 20 18
---------------------------------- ----- ------------------ ------------------
14,641 14,294
---------------------------------- ----- ------------------ ------------------
Current assets
Inventories 13 11
Trade and other receivables 302 258
Derivative financial instruments - 170
Term deposits 120 12
Cash and cash equivalents 591 513
---------------------------------- ----- ------------------ ------------------
1,026 964
---------------------------------- ----- ------------------ ------------------
Total assets 15,667 15,258
---------------------------------- ----- ------------------ ------------------
Liabilities
Non-current liabilities
Borrowings 5 (14,813) (13,567)
Derivative financial instruments (1,523) (1,459)
Deferred income tax liabilities (907) (870)
Retirement benefit obligations (32) (158)
Provisions (1) (8)
Trade and other payables (7) (7)
---------------------------------- ----- ------------------ ------------------
(17,283) (16,069)
---------------------------------- ----- ------------------ ------------------
Current liabilities
Borrowings 5 (496) (1,363)
Derivative financial instruments (39) (7)
Provisions (13) (6)
Current income tax liabilities (39) (30)
Trade and other payables (433) (418)
---------------------------------- ----- ------------------ ------------------
(1,020) (1,824)
---------------------------------- ----- ------------------ ------------------
Total liabilities (18,303) (17,893)
---------------------------------- ----- ------------------ ------------------
Net liabilities (2,636) (2,635)
---------------------------------- ----- ------------------ ------------------
Equity
Capital and reserves
Share capital 11 11
Share premium 499 499
Merger reserve (3,758) (3,758)
Cash flow hedge reserve (216) (252)
Retained earnings 828 865
---------------------------------- ----- ------------------ ------------------
Total shareholder's equity (2,636) (2,635)
---------------------------------- ----- ------------------ ------------------
Heathrow (SP) Limited
Consolidated statement of changes in equity
for the year ended 31 December 2018
Attributable to owners of the Company (Audited)
----------------------------------------------------------------------------------------
Cash flow
Share Share Merger hedge Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- --------- ---------------- ----------------- ------------------
1 January 2017 11 499 (3,758) (268) 1,537 (1,979)
-------------------------- --------- --------- --------- ---------------- ----------------- ------------------
Comprehensive income:
Profit for the period 484 484
Other comprehensive
income:
Fair value gain on cash
flow
hedges net of tax 16 16
Actuarial gain on
pension
net of tax:
Gain on plan assets 62 62
Increase in scheme
liabilities (116) (116)
Tax relating to
indexation
of operational land 2 2
Total comprehensive
income - - - 16 432 448
-------------------------- --------- --------- --------- ---------------- ----------------- ------------------
Transaction with owners:
Dividends paid to
Heathrow
Finance plc - - - - (1,104) (1,104)
-------------------------- --------- --------- --------- ---------------- ----------------- ------------------
Total transaction with
owners - - - - (1,104) (1,104)
-------------------------- --------- --------- --------- ---------------- ----------------- ------------------
31 December 2017 11 499 (3,758) (252) 865 (2,635)
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)
-------------------------- --------- --------- --------- ---------------- ----------------- ------------------
Heathrow (SP) Limited
Consolidated statement of cash flows
for the year ended 31 December 2018
Audited Audited
Year ended Year ended
31 December 31 December
2018 2017
Note GBPm GBPm
--------------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Cash generated from continuing operations 6 1,787 1,733
Taxation:
Corporation tax paid (70) (53)
Group relief paid (6) (12)
Net cash from operating activities 1,711 1,668
--------------------------------------------- ----- ------------- -------------
Cash flows from investing activities
Purchase of:
Property, plant and equipment (769) (669)
Investment properties (4) (1)
Intangible assets (20) (17)
(Increase)/decrease in term deposits(1) (108) 368
Decrease in group deposits(2) - 11
Interest received 2 5
Net cash used in investing activities (899) (303)
--------------------------------------------- ----- ------------- -------------
Cash flows from financing activities
Dividends paid to Heathrow Finance plc (485) (1,104)
Increase in amount owed to Heathrow Finance
plc 363 485
Proceeds from issuance of bonds 771 443
Repayment of bonds (910) (856)
Proceeds from issuance of other term
debt 245 518
Repayment of facilities and other financing
items (32) (41)
Settlement of accretion on index-linked
swaps (110) (10)
Interest paid (576) (567)
Net cash used in financing activities (734) (1,132)
--------------------------------------------- ----- ------------- -------------
Net increase in cash and cash equivalents 78 233
Cash and cash equivalents at beginning
of period 513 280
Cash and cash equivalents at end of period 591 513
--------------------------------------------- ----- ------------- -------------
(1) Term deposits with an original maturity of over three months
are invested at Heathrow Airport Limited.
(2) Group deposits are amounts settled with LHR Airports Limited
during the period under the terms of the Shared Services
Agreement.
Heathrow (SP) Limited
General information and accounting policies
for the year ended 31 December 2018
General information
The financial information set out herein does not constitute the
Group's statutory financial statements for the year ended 31
December 2018 or any other period. The annual financial information
presented herein for the year ended 31 December 2018 is based on,
and is consistent with, the audited consolidated financial
statements of Heathrow (SP) Limited (the 'Group') for the year
ended 31 December 2018. The auditors' report on the 2018 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
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.
The accounting policies adopted in the preparation of this
consolidated financial information are consistent with those
applied by the Group in its audited consolidated financial
statements for the year ended 31 December 2018, with the exception
of new financial reporting standards which have been applied from 1
January 2018 as follows:
IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 using the modified retrospective
approach which means that the cumulative impact of the adoption is
recognised in retained earnings as of 1 January 2018 and that
comparatives are not restated. The adoption of IFRS 15 resulted in
an amount of GBP1 million charged to retained earnings at 1 January
2018.
IFRS 9 Financial instruments
The Group adopted IFRS 9 on 1 January 2018, and has reviewed its
financial assets and liabilities and there is no change in relation
to its financial liabilities which is the same under IAS 39. The
financial assets under the new impairment model requires the
recognition of impairment provisions based on expected credit
losses (ECL) rather than only incurred credit losses as is the case
under IAS 39.
The adoption of IFRS 9 has resulted in an ECL impairment
provision of GBP2 million in relation to the Group's trade
receivables, as at 1 January 2018, which was charged to retained
earnings at that date.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the year ended 31 December 2018
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
('ORCs') and other products and services (including rail income),
and this information is also provided to the Board on a monthly
basis.
Year ended Year ended
31 December 31 December
2018 2017
GBPm GBPm
Segment Revenue
Under IFRS 15
Aeronautical
Landing charges 482 470
Parking charges 67 63
Departing charges 1,196 1,183
------------------------------------------ -------------- --------------
Total Aeronautical revenue 1,745 1,716
Other regulated charges 243 240
Other revenue 276 260
Rail Income
Heathrow Express 123 127
Other 14 9
------------------------------------------ -------------- --------------
Revenue reported under IFRS 15 2,401 2,352
Revenue recognised at a point in
time 2,275 2,232
Revenue recognised over time 126 120
------------------------------------------ -------------- --------------
Total revenue reported under IFRS
15 2,401 2,352
------------------------------------------ -------------- --------------
Under IAS 17
Retail (lease-related income) 569 532
Total revenue 2,970 2,884
------------------------------------------ -------------- --------------
Adjusted EBITDA
Heathrow 1,772 1,688
Heathrow Express 65 72
------------------------------------------ -------------- --------------
Total adjusted EBITDA 1,837 1,760
Reconciliation to statutory information:
Unallocated income and expense
Depreciation and amortisation (743) (691)
------------------------------------------ -------------- --------------
Operating profit (before certain
re-measurements) 1,094 1,069
Fair value gain on investment properties
(certain re-measurements) 117 149
------------------------------------------ -------------- --------------
Operating profit 1,211 1,218
Finance income(1) 2 3
Finance costs(1) (791) (642)
------------------------------------------ -------------- --------------
Profit before tax 422 579
Taxation charge (89) (95)
------------------------------------------ -------------- --------------
Profit for the period 333 484
------------------------------------------ -------------- --------------
(1) Prior year finance income and finance costs have been
restated by (GBP198) million and GBP198 million respectively to
present interest payable and receivable on derivatives not in a
hedge accounting relationship as a single unit of account (net)
through finance cost.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the year ended 31 December 2018
2 Operating costs - ordinary
Audited Audited
Year ended Year ended
31 December 2018 31 December 2017
GBPm GBPm
-------------------------------- ------------------ ------------------
Employment 378 374
Operational 264 252
Maintenance 176 176
Rates 122 126
Utilities 90 86
Other 103 110
-------------------------------- ------------------ ------------------
Total operating costs before
depreciation and amortisation 1,133 1,124
Depreciation and amortisation 743 691
-------------------------------- ------------------ ------------------
Total operating costs 1,876 1,815
-------------------------------- ------------------ ------------------
3 Financing
Audited Audited
Year ended Year ended
31 December 2018 31 December 2017
GBPm GBPm
------------------------------------- ------------------------------------------ -------------------------------
Finance income
Interest on deposits 2 3
Total finance income(4) 2 3
------------------------------------- ------------------------------------------ -------------------------------
Finance costs
Interest on borrowings:
Bonds and related hedging
instruments(1) (541) (574)
Bank loans and overdrafts
and related hedging instruments (58) (61)
Interest payable on derivatives
not in hedge relationship(2) (160) (184)
Facility fees and other charges (7) (7)
Net pension finance costs (4) (3)
Interest on debenture payable
to Heathrow Finance plc (109) (71)
Unwinding of discount on provisions - (1)
------------------------------------- ------------------------------------------ -------------------------------
(879) (901)
Less: capitalised borrowing
costs(3) 50 46
------------------------------------- ------------------------------------------ -------------------------------
Total finance costs(4) (829) (855)
------------------------------------- ------------------------------------------ -------------------------------
Net finance costs before certain
re-measurements(4) (827) (852)
------------------------------------- ------------------------------------------ -------------------------------
Fair value gain on financial
instruments
Interest rate swaps: not in
hedge relationship 83 61
Index-linked swaps: not in
hedge relationship (90) 134
Cross-currency swaps: ineffective
portion of cash flow hedges 21 4
Cross-currency swaps: ineffective
portion of fair value hedges 24 14
38 213
------------------------------------- ------------------------------------------ -------------------------------
Net finance costs (789) (639)
------------------------------------- ------------------------------------------ -------------------------------
(1) Includes accretion of GBP47 million (2017: GBP48 million) on
index-linked bonds.
(2) Includes accretion of GBP207 million (2017: GBP222 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 5.66 % (2017: 5.37%) to
expenditure incurred on such assets.
(4) Prior year finance income and finance costs have been
restated by (GBP198) million and GBP198 million respectively to
present interest payable and receivable on derivatives not in a
hedge accounting relationship as a single unit of account (net)
through finance cost.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the year ended 31 December 2018
4 Taxation
Audited Audited
Year ended 31 December 2018 Year ended 31 December 2017
Before certain Certain Before certain Certain
re-measurements re-measurements Total re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------------------ ----------------- ------ ---------------- ----------------- ------
UK corporation tax
Current tax charge
at 19% (2017:
19.25%) (87) (3) (90) (63) (2) (65)
Over provision in
respect of prior
years 5 - 5 - - -
Deferred tax:
Current year
(charge)/credit 13 (21) (8) 3 (54) (51)
Prior year
credit/(charge)(1) 11 (7) 4 12 9 21
Taxation charge for
the period (58) (31) (89) (48) (47) (95)
-------------------- ------------------------ ----------------- ------ ---------------- ----------------- ------
(1) Prior year credit 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
(2017 includes a GBP9 million credit adjustment primarily in
relation to investment properties and a GBP12 million credit
adjustment primarily for accelerated capital allowances).
The tax charge on the Group's profit before tax differs from the
theoretical amount that would arise by applying the UK statutory
tax rate to the accounting profits of the Group for the reasons set
out in the following reconciliation:
Audited Audited
Year ended 31 December 2018 Year ended 31 December
GBPm 2017
GBPm
---------------------------------------------------- ----------------------------- ------------------------
Profit before tax (before certain re-measurements) 267 217
---------------------------------------------------- ----------------------------- ------------------------
Reconciliation of the tax charge
Tax calculated at the UK statutory rate
of 19% (2017: 19.25%) (51) (42)
Adjustments in respect of current income
tax of previous years 5
Effect of change in tax rate (2) -
Net non-deductible expenses (21) (18)
Adjustments in respect of deferred income
tax of previous years(1) 11 12
------------------------------------------------- ----- -----
Total tax charge before certain re-measurements
excluding change in UK corporation tax
rate (58) (48)
Tax charge on certain re-measurements(2) (31) (47)
------------------------------------------------- ----- -----
Taxation charge for the year (89) (95)
------------------------------------------------- ----- -----
(1) 2018 prior year adjustment relates primarily to accelerated
capital allowances.
(2) This consists of the tax impact arising from fair value
gains/losses on investment property revaluations, fair value
gains/losses on financial instruments and a prior year adjustment
relating to the revaluations of property, plant and equipment.
The total tax charge recognised for the year ended 31 December
2018 was GBP89 million (2017: GBP95 million). Based on a profit
before tax for the year of GBP422 million (2017: GBP579 million
loss), this results in an effective tax rate of 21.1% (2017:
16.4%).
The total tax charge before certain re-measurements for the year
ended 31 December 2018 was GBP58 million (2017: GBP48 million),
which includes an GBP11 million prior year deferred tax credit
adjustment (2017: GBP12 million prior year deferred tax credit
adjustment) relating primarily to accelerated capital allowances.
Based on a profit before tax and certain re-measurements of GBP267
million (2017: GBP217 million), this results in an effective tax
rate of 21.7% (2017: 22.1%). The tax charge for 2018 is more (2017:
more) than implied by the statutory rate of 19% (2017: 19.25%)
primarily due to non-deductible expenses and because a substantial
proportion of Heathrow's capital expenditure does not qualify for
tax relief.
In addition, there was a GBP31 million tax charge (2017: GBP47
million tax charge) reflecting the tax impact arising from fair
value gains on investment property revaluations and fair value
gains/losses on financial instruments and there was a prior year
adjustment relating to the revaluations of property, plant and
equipment.
The headline UK corporation tax rate was 20% up until 1 April
2017, when it reduced to 19%. This 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.
In November 2017 the Finance (No.2) Act 2017 received Royal
Assent, giving effect to a new interest deductibility regime. This
regime is in response to the Organisation for Economic Co-operation
and Development (OECD) reports on base erosion and profit shifting
(BEPS). As a result of the new legislation, from 1 April 2017,
interest deductions are limited to 30% of tax based EBITDA, with
the ability to apply a group ratio rule (GRR) and a public
infrastructure exemption (PIE). The Heathrow Group is to a large
extent protected from the 30% of tax based EBITDA cap therefore no
material interest disallowance has been reflected in the 2018 tax
charge (2017: nil).
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 from tax
relief in future years on expenditure which would not be eligible
under current rules.
Other than these changes, there are no items which would
materially affect the future tax charge.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the year ended 31 December 2018
5 Borrowings
Audited Audited
31 December 31 December
2018 2017
GBPm GBPm
----------------------------------------------- ------------- -------------
Current borrowings
Secured
Heathrow Airport Limited debt:
Loans 17 33
Heathrow Funding Limited bonds:
4.600% EUR750 million due 2018 - 665
6.250% GBP400 million due 2018 - 399
4.000% C$400 million due 2019 230 -
----------------------------------------------- ------------- -------------
Total current (excluding interest
payable) 247 1,097
Interest payable - external 213 239
Interest payable - owed to group undertakings 36 27
----------------------------------------------- ------------- -------------
Total current 496 1,363
----------------------------------------------- ------------- -------------
Non-current borrowings
Secured
Heathrow Funding Limited bonds
4.000% C$400 million due 2019 - 235
6.000% GBP400 million due 2020 399 398
9.200% GBP250 million due 2021 260 266
3.000% C$450 million due 2021 256 260
4.875% US$1,000 million due 2021 783 748
1.650%+RPI GBP180 million due 2022 213 206
1.875% EUR600 million due 2022 549 545
5.225% GBP750 million due 2023 691 683
7.125% GBP600 million due 2024 593 592
0.500% CHF400 million due 2024 310 293
3.250% C$500 million due 2025 281 286
4.221% GBP155 million due 2026 155 155
6.750% GBP700 million due 2026 693 693
2.650% NOK1,000 million due 2027 90 90
3.400% C$400 million bond due 2028 232 -
7.075% GBP200 million due 2028 198 198
4.150% A$175 million due 2028 99 -
2.500% NOK1,000 million due 2029 79 81
3.782% C$400 million bond due 2030 229 -
1.500% EUR750 million due 2030 629 624
6.450% GBP900 million due 2031 853 851
Zero-coupon EUR50 million due January
2032 59 57
1.366%+RPI GBP75 million due 2032 85 82
Zero-coupon EUR50 million due April
2032 58 56
1.875% EUR500 million due 2032 447 442
4.171% GBP50 million due 2034 50 50
Zero-coupon EUR50 million due 2034 50 49
1.061%+RPI GBP180 million due 2036 197 191
1.382%+RPI GBP50 million due 2039 56 55
3.334%+RPI GBP460 million due 2039 626 608
1.238%+RPI GBP100 million due 2040 111 107
5.875% GBP750 million due 2041 738 738
2.926% GBP55million due 2043 55 -
4.625% GBP750 million due 2046 742 742
1.372%+RPI GBP75 million due 2049 85 82
2.750% GBP400 million due 2049 392 392
0.147%+RPI GBP160 million due 2058 164 -
Heathrow (SP) Limited
Notes to the consolidated financial information
for the year ended 31 December 2018
5 Borrowings continued
Audited Audited
31 December 31 December
2018 2017
GBPm GBPm
----------------------------------------------- ------------- -------------
Total bonds 11,507 10,855
Heathrow Airport Limited debt:
Class A1 term loan due 2020 418 416
Class A2 term loan due 2024 100 -
Term note due 2026-2037 585 439
Loans 12 29
Unsecured
Debenture payable to Heathrow Finance plc 2,191 1,828
----------------------------------------------- ------------- -------------
Total non-current 14,813 13,567
----------------------------------------------- ------------- -------------
Total borrowings (excluding interest payable) 15,060 14,664
----------------------------------------------- ------------- -------------
6 Cash generated from operations
Audited Audited
Year ended Year ended
31 December 2018 31 December 2017
GBPm GBPm
-------------------------------------------------------- ------------------------------ ----------------------------
Operating activities
Profit before tax 422 579
Adjustments for:
Finance costs 791 642
Finance income (2) (3)
Depreciation and amortisation 743 691
Fair value gain on investment properties (117) (149)
Working capital changes:
Increase in inventories and trade and other receivables (46) (6)
Increase in trade and other payables 11 8
Decrease in provisions - (7)
Difference between pension charge and cash
contributions (15) (22)
Cash generated from operations 1,787 1,733
-------------------------------------------------------- ------------------------------ ----------------------------
Glossary
ADI Finance 2 Limited - 'ADIF2'
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
Departure punctuality - percentage of flights departing within
15 minutes of schedule
Gearing ratios - under the Group's financing agreements are
calculated by dividing consolidated nominal net debt by Heathrow's
Regulatory Asset Base ('RAB') value
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 90.0% until Heathrow Finance 2019
Notes either mature, are repaid or consent is obtained to change
covenant level from when covenant moves to 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 - percentage of passengers passing through
central security within five-minute period prescribed under Service
Quality Rebate 'SQR' scheme
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 DBGDDSGDBGCG
(END) Dow Jones Newswires
February 21, 2019 02:01 ET (07:01 GMT)
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