Heathrow6.45% S Regulatory News (88BX)

23 June 2022

Heathrow Funding Limited

Heathrow Finance plc

Publication of June 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 "Heathrow Finance Bonds"), a note purchase agreement dated 14 September 2018 (the "Note Purchase Agreement") and pursuant to Heathrow Finance's facilities agreements dated 6 July 2017, 22 November 2018, 23 November 2018, 1 February 2019, 8 May 2019, 16 August 2019 and 2 December 2019 (the "Heathrow Finance Facilities Agreements").

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 for the financial performance of Heathrow SP prepared on a consolidated basis, forecast nominal debt and financial ratios for Heathrow SP and Heathrow Finance. Heathrow SP, through its indirect subsidiary, Heathrow Airport Limited, owns Heathrow airport.

This report sets out the forecast financial performance and ratios for Heathrow (SP) in 2021 and 2022, together with key business updates. Additional information specific to Heathrow Finance is set out in Appendix 6.

Following an extremely challenging two years, we have seen a steady traffic increase in 2022. 20.1 million passengers travelled through Heathrow in the first five months, in line with our forecast we set out in the last December Investor Report. As part of our longstanding ramp up plan, we reopened Terminal 4 and are increasing our own security, engineering and services teams, and supporting other employers across the airport with their recruitment. While we rebuild capacity from the pandemic, resources remain tight, in line with other airports in the UK and Europe. We are working closely with airlines and ground handlers to match supply and demand. This has made the difference at Heathrow in being able to get passengers away over Easter and the Jubilee half term.

We have further revised our traffic outlook since our interim passenger forecast was published in April with 2022 Q1 results. Our updated base case is that 54.4 million passengers, 67% of 2019 levels, are forecasted to travel through Heathrow in 2022, representing a significant increase to 2021 when travel restrictions were in place most of the year. This takes account of the latest short-term outlook in terms of airline schedules, bookings and short-term capping of demand based on capacity. The 8.96 million increase in passengers compared to our December 2021 guidance of 45.5 million reflects stronger than expected demand. However, the degree of uncertainty is still significant so we continue to consider a range in our forecasts, from a low case of 57% recovery to a high case of 77% recovery against 2019.

Following the increase in passenger outlook, our 2022 Adjusted EBITDA is expected to increase 257% to £1,370m versus 2021. Revenue is forecast to grow by 114% to £2,593 million compared to £1,214 million in 2021, with aeronautical revenue increasing 206% and retail revenue by 213%. We forecast operating costs to increase 47% to £1,223 million in 2022 versus 2021 as we continue to invest ahead of the growth and in part driven by steep inflation in utilities costs as a consequence of higher energy prices. RAB is forecast to be £22 billion at the end of 2022 compared to £21.6 billion published in the previous investor report, due to higher inflation.

Prudent financing action has increased liquidity to c.£3.5 billion as at 31 May 2022, sufficient to meet all obligations into 2025 under our current base case traffic forecast or until May 2023 in the extreme no revenue scenario. No covenant breaches are forecast in 2022 at Heathrow (SP) or Heathrow Finance, and the key historical and forecast financial ratios for 2021 and 2022 respectively comply with Trigger Event ratios.

We submitted our response to the CAA's Initial Proposals on 17 December 2021. Alongside our response, we also submitted the second update to our Revised Business Plan (RBP), known as RBP Update 2. Our RBP Update 2 set out a £41.95 (2018p) charge to deliver for passengers in H7 - in contrast to the CAA's Initial Proposals charge range of £22.94 - 32.19 (2018p) (£24.50- 34.40 (2020p)). Our plan has been carefully crafted over the past two years and less than the equivalent of a 2% increase in ticket prices will enable us to deliver the level of service that passengers want, drive the sector's recovery and equip the UK with the hub airport it needs to thrive. We are expecting the CAA to publish its Final Proposals for the next regulatory period imminently and we will review it and update the market in due course.

To reflect the uncertainty on traffic, 2022 charges and quantum of RAB adjustment, we have also tested financial covenants based on a combined revenue reduction of 15% versus our base case and the interim RAB adjustment of £300m only. In this scenario, referred to as the sensitivity case in this document, no covenant breaches occur in 2022 at Heathrow (SP) or Heathrow Finance although credit rating metrics could be compromised. Please refer to appendices 2, 3 and 6 for more details.

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

http://www.rns-pdf.londonstockexchange.com/rns/9294P_1-2022-6-23.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 statements of Heathrow (SP) Limited for the year ended 31 December 2021

- consolidated financial statements of Heathrow Funding Limited for the year ended 31 December 2021

- consolidated financial statements of Heathrow Finance plc for the year ended 31 December 2021

- regulatory accounts for Heathrow Airport Limited for the year ended 31 December 2021

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