Heathrow6.45% S Regulatory News (88BX)

16 December 2022

Heathrow Funding Limited

Heathrow Finance plc

Publication of December 2022 Investor Report

On behalf of Heathrow Airport Limited, Heathrow Express Operating Company Limited, Heathrow (AH) Limited and Heathrow (SP) Limited ("Heathrow SP"), 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 (as amended) (the "CTA").

The Investor Report is also being distributed by Heathrow Finance plc ("Heathrow Finance") to various parties pursuant to Heathrow Finance's £250 million 5.75% Senior Secured Notes dated 13 October 2014 and due 2025, £275 million 3.875% Senior Secured Notes dated 5 June 2017 and due 2027, £300 million 4.75% Senior Secured Notes dated 5 November and due 2024 and the £300 million 4.125% Senior Secured Notes dated 15 November 2019 and due 2029.

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

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 2022 and 2023 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.

This report sets out the forecast financial performance and ratios for Heathrow (SP) in 2022 and 2023, together with key business updates. Additional information specific to Heathrow Finance is set out in Appendix 6.

2022 finally saw the end of all UK travel restrictions and, as the aviation sector has recovered from the impact of the pandemic, we have seen a strong recovery in traffic at Heathrow through the year. 55.7 million passengers travelled through the airport in the first eleven months of 2022. As a result of the ramp-up plan we initiated in Q4 last year, we had all operations open before the Summer peak. The temporary departing passenger cap which we put in place in July successfully improved passenger journeys and was removed at the end of October without compromising service. Building back to full capacity remains our top priority. Team Heathrow has already recruited 16,000 people since last November and we continue to work alongside airlines and their ground handlers to boost recruitment next year. The work we have undertaken since summer means that we head into the winter peak without any restrictions on passenger numbers. Despite potential strike action by Border Force this month, our aim is to protect full operating schedules and the vast majority of passengers will be unaffected.

For 2022, we anticipate traffic to be 61.4 million - at the upper end of the 60 - 62 million guidance we published with our Q3 results and 7 million higher than the forecast in our June Investor Report. This is just over 75% of 2019 levels. Given the strong traffic outturn, adjusted EBITDA is forecast to be £1,678 million, an increase of £308 million versus the June forecast. This reflects higher revenue as demand has recovered, with operating costs flat versus the June forecast. Our liquidity position remains strong, and we expect to finish the year with £4.3 billion of cash and committed facilities available, sufficient to meet all obligations until 2025 under our base case.

We have also set out our financial forecast for 2023. This is based on 67.2 million passengers, representing further recovery to 83% of 2019 levels. Adjusted EBITDA is forecast to increase by 4% to £1,747 million. In respect of aeronautical revenue, we have prepared our financial forecast using a charge of £31.57, in line with the 2023 interim price cap proposal published by the CAA on 8th December. Our RAB is forecast to be £22.1 billion at the end of 2022 and £22.8 billion at the end of 2023 as we progress our investment plans. This assumes we receive a full RAB adjustment of £2.5 billion (2018p) as set out in our responses to the CAA's H7 proposals. We have also shown year end ratios, assuming no further RAB adjustment, in the footnotes to slides 18, 20 and 23.

On 28th June 2022, the CAA published its Final Proposals for the H7 period. This proposed an average charge of £24.14 (2020 CPI) across the period. Our analysis shows that the CAA's proposals, as currently set out, are not deliverable or financeable due to errors in the CAA's forecasts of key regulatory building blocks. If these errors are not rectified, it will restrict investment in the UK's hub airport when the country's economic recovery needs it most. We responded to the CAA's Final Proposals on 9th August 2022, detailing why implementation of its Final Proposals would result in an airport that falls far short of what our passengers expect. We are clear on the key outcomes consumers expect in H7 - in advance of its final decision the CAA must reconsider its forecast of the key regulatory building blocks to ensure the price control is a deliverable and investable proposition which can deliver on these outcomes. The H7 decision is already over 12 months late against the original plan and we lack clarity on the final timeline; we currently expect the CAA to issue the final determination for the H7 review together with the associated licence modifications early in the new year.

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

http://www.rns-pdf.londonstockexchange.com/rns/9191J_1-2022-12-15.pdf 

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

By way of reminder, pursuant to the CTA, the Heathrow Finance Bonds, Note Purchase Agreement and the Heathrow Finance Facilities Agreements (as appropriate), the following is available on the Heathrow Investor Centre:

- consolidated financial information of Heathrow (SP) Limited for the six months ended 30 June 2022

- consolidated financial statements of Heathrow Finance plc for the six months ended 30 June 2022

For investor enquiries please contact Tim Allen, Head of Debt Investor Relations and Corporate Finance, +44 7568 604 873

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