Heathrow6.45% S Regulatory News (88BX)

20 December 2019

Heathrow Funding Limited

Heathrow Finance plc

Publication of December 2019 Investor Report

On behalf of Heathrow Airport Limited, Heathrow Express Operating Company Limited, Heathrow (AH) Limited and Heathrow (SP) Limited, LHR Airports Limited (as 'Security Group Agent') is today distributing its semi-annual Investor Report to various parties pursuant to the terms of the Common Terms Agreement entered into on 18 August 2008.

The Investor Report is also being distributed by the Security Group Agent and Heathrow Finance plc to various parties pursuant to Heathrow Finance plc's £250 million 5.75% Senior Secured Notes dated 16 October 2014 and due 2025, £275 million 3.875% Senior Secured Notes dated 8 June 2017 and due 2027, £300 million 4.75% Senior Secured Notes dated 7 November 2018 and due 2024 and the £300 million 4.125% Senior Secured Notes dated 19 November 2019 and due 2029 (the 'Heathrow Finance Bonds') and pursuant to Heathrow Finance plc's Facilities Agreements dated 5 October 2016, 14 September 2018, 22 November 2018, 23 November 2018, 1 February 2019, 8 May 2019, 16 August 2019 and 2 December 2019. In addition, the final facility raised by ADI Finance 2 Limited dated 6 July 2017 was migrated to Heathrow Finance plc on 15 March 2019 (the 'Heathrow Finance Facilities Agreements').

The Investor Report contains information relevant to creditors of both Heathrow (SP) Limited (and its subsidiaries) and Heathrow Finance plc.

The attention of potential readers of the Investor Report is drawn to page 2 of the document which contains an Important Notice, including in relation to certain forward-looking statements included in the Investor Report, and contains a description of the basis on which the operational and financial information included in the document has been prepared.

The Investor Report includes an updated forecast for 2019 and 2020 for the financial performance of Heathrow (SP) Limited prepared on a consolidated basis, forecast nominal debt and financial ratios for Heathrow (SP) Limited and Heathrow Finance plc. Heathrow (SP) Limited, through its indirect subsidiary, Heathrow Airport Limited, owns Heathrow airport.

Our final forecast for 2019 comprises of an Adjusted EBITDA forecast of £1,910 million, up 4.0% on 2018, remaining in line with our previous Investor Report. This excludes a BREXIT contingency allowance which we have reduced since the June Investor Report from £35 million to £9 million, due to confirmation of an extended aviation contingency plan and Heathrow's unique position in the European aviation market. All forecast ratios have been calculated inclusive of this allowance. While we hope that this contingency will remain too prudent, we believe it is right to retain it given the ongoing uncertainty over BREXIT. Including the contingency, we forecast Adjusted EBITDA to be £1,901 million in 2019, up 3.5% on 2018. We remain confident that BREXIT will not have a material impact on Heathrow airport even if the UK were to exit the EU without a deal.

Our traffic forecast of 80.8 million, up 0.9 on 2018 and remains broadly in line with the 80.9 million in the previous Investor Report. The increase is a result of stronger load factors, increased seat capacity and slightly higher movements through a recovery of cancelled flights from last year and additional flights in the summer 2019 schedule.

In 2020 we forecast our Adjusted EBITDA to decline 2.7%, driven by a reduction in Aeronautical revenue of 2.8% as we see the impact of the commercial airline deal materialise and per passenger charges fall from £22.68 in 2019 to £21.87 in 2020. We forecast operating costs to increase 3.6% to £1,206 million in 2020 as we continue to invest in the future growth of the business, whilst underlying operating costs per passenger remains in line in real terms. RAB is forecast to be £17.7 billion at the end of 2020, as we progress our expansion plans, invest in the growth of passenger capacity whilst still operating on the two-runway model and maintain the ongoing asset management programme of the existing airport estate.

Overall, the General Election result is positive for Heathrow. The business will now get certainty on Brexit and the Conservative's manifesto confirmed the new Government's support for expansion, subject to meeting environmental concerns. It is unlikely the Government will want to reopen difficult issues and their focus will likely be elsewhere in 2020. We will continue to move forward with the delivery of the project phase. The next milestone is the publication of our initial business plan over the next few weeks

The CAA's recent announcement is an important milestone in expanding Heathrow and connecting all of Britain to global growth. It increases certainty for our local communities and the job creation, increased trade and lower airfares that expansion delivers. We will now review the detail to ensure it will unlock the initial £1.5 - 2 billion of private investment over the next two years at no cost to the taxpayer. Whilst this is a step forward, the CAA has delayed the project timetable by at least 12 months. We now expect to complete the third runway between early 2028 and late 2029.

The Investor Report document is available in pdf format at the following link:

http://www.rns-pdf.londonstockexchange.com/rns/5692X_1-2019-12-19.pdf

The Investor Report is available from today via the Heathrow Investor Centre at https://www.heathrow.com/company/investor-centre/reports/investor-reports

Pursuant to the terms of the Common Terms Agreement, the Security Group Agent is today also distributing the consolidated financial information of Heathrow (SP) Limited for the six months ended 30 June 2019.

Pursuant to the terms of the Heathrow Finance Bonds and the Heathrow Finance Facilities Agreements, Heathrow Finance plc is today also distributing its consolidated financial statements for the six months ended 30 June 2019.

(1) Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, BREXIT contingency and exceptional items

For investor enquiries please contact either investors@heathrow.com or Sally Ding, Director of Treasury and Corporate Finance on +44 (0)7525 825516.