Last checked at 28 Jan 2022 07:08
28 January 2022
Heathrow Funding Limited
Heathrow Finance plc
Publication of December 2021 Investor Report Update
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 Update to various parties pursuant to the terms of the Common Terms Agreement entered into on 18 August 2008 (the “CTA”).
The Investor Report Update is also being distributed by Heathrow Finance plc to various parties pursuant to Heathrow Finance plc’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 31 October 2018 and due 2024 and the £300 million 4.125% Senior Secured Notes dated 12 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 plc’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 Investor Report Update 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 Update includes an updated forecast for 2022 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, together with key business updates. Additional information specific to Heathrow Finance is set out in Appendix 6.
DECEMBER 2021 INVESTOR REPORT UPDATE On 10 December 2021 we published our Investor Report setting out the forecast financial performance and ratios for Heathrow (SP) in 2022, together with key business updates. Additional information specific to Heathrow Finance was also set out. As we were awaiting a decision from the CAA in respect of the 2022 aeronautical charge at the time of publication, we prepared our 2022 forecast based on the tariffs set out in our aeronautical charge consultation document on 31 August 2021. The CAA have now published their final decision on the 2022 interim charge (see below), so we are issuing an update to our forecast financial performance and ratios in 2022 to reflect the revised charge. This update should be read in conjunction with the Investor Report published in December.
2022 AERONAUTICAL CHARGE On 16 December 2021, the CAA published a statement setting out an interim charge of £30.19 (nominal) for 2022. We are extremely disappointed in this decision from the CAA. It relies on rushed analysis and will undermine passenger experience at the UK's hub airport. As we detailed in the December Investor Report, there are material and basic errors in many aspects of the CAA’s assessment which we have set out in our response to their Initial Proposals and which risks leaving Heathrow without sufficient cashflow to support investment in improving passenger service and resilience. We will continue to work with the CAA to resolve these issues ahead of its final decision later in 2022.
2022 UPDATED FINANCIAL FORECAST Our 2022 financial forecast remains based on a traffic forecast of 45.5 million passengers. The reduction in aeronautical charge of approximately £7 per passenger has led to a reduction in revenue of £307m versus the December report to £2,187m (£2,494m previously). The forecast for operating costs remains unchanged at £1,147m. Our forecast for Adjusted EBITDA has therefore also reduced by £307m to £1,040m (£1,347m previously). No covenant breaches are forecast in 2022 at Heathrow (SP) or Heathrow Finance.
Based on the CAA’s interim 2022 price there is a risk to covenants and credit metrics in 2022 if cashflows from passengers are more than 15% below forecast. However, this is only a holding price which will be reviewed at the time of the final settlement later this year. We have identified material and basic errors in the CAA’s analysis, which, if corrected, would lead to a higher charge in the final decision and protect financeability. The CAA has a duty to ensure Heathrow is financeable and this will be one of the key issues for the H7 regulatory settlement. Please refer to updated appendices 2, 3 and 6 for more details.
HEATHROW’S RESPONSE TO THE CAA’S INITIAL PROPOSALS AND RBP UPDATE 2 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. In our submission and RBP Update 2, we set out our responses to the CAA’s policy proposals and H7 building block forecasts and provided our updated view of passenger volumes and cost and revenue forecasts for the H7 period. Key updates include:
Our plan for the next five years will deliver the quick, easy and reliable journeys that consumers want, with only a 2% increase in ticket prices;An H7 charge of £41.95 (2018p) reflecting new forecasts of opex, commercial revenues and a revised passenger forecast of 317.1m over the H7 period; Opportunity to reduce charge to £34 (2018p) if the CAA sets the right regulatory policies to enable deferral of regulatory depreciation beyond H7; furthermore, a properly structured risk sharing mechanism would implicitly lower the charge when volumes increase;A pre-tax WACC of 8.5%; A capital plan of £4.1bn (2018p), allowing us to invest in key programmes such as Regulated Security Compliance and the refurbishment of the Terminal 2 baggage system; Continuing to request a full RAB adjustment of £2.5bn to fully implement the CAA’s regulatory framework following the impact of COVID-19; andProposed changes to the CAA’s risk sharing mechanism to ensure it reflects the commercial revenue risk inherent in the single till model.The CAA will continue its H7 process through 2022 and, as the next step, we expect them to publish their Final Proposals in Q2 2022.
2021 PERFORMANCE UPDATE On 11 January 2022, we published our December traffic figures. These showed that we welcomed only 19.4 million passengers to Heathrow in 2021 – less than one quarter of 2019 and 2.7 million below 2020 levels. At least 600,000 passengers cancelled travel plans from Heathrow in December due to Omicron and the uncertainty caused by swiftly imposed government travel restrictions. We will provide a full review of 2021 performance when we report our annual results on 23 February 2022
The December 2021 Investor Report Update document is available in pdf format at the following link: http://www.rns-pdf.londonstockexchange.com/rns/9646Z_1-2022-1-28.pdf
The Investor Report Update 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 2021consolidated financial statements of Heathrow Finance plc for the six months ended 30 June 2021
For investor enquiries please contact Tim Allen, Head of Debt Investor Relations and Corporate Finance, +44 7568 604 873
Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation and exceptional items