2023 was a strong year for Heathrow with passenger numbers recovering to 79.2 million, an increase of 29% on the previous year and the third highest in our history. We were rated the "best airport in Europe" and reclaimed our position as "the most connected airport in the world", underscoring the pivotal role Heathrow plays in connecting all of Britain to global growth.

From a financial perspective, the increase in passengers resulted in an Adjusted EBITDA of £2.2 billion and we returned a small adjusted profit before tax of £38 million after three years of losses. We successfully raised £780 million of new funding, including our first sustainability-linked bond. This supported our year end liquidity position of £3.8 billion, and with gearing remaining below pre-pandemic levels, our balance sheet remained strong.

In March, the CAA published their final decision on the H7 price control. We chose to appeal to the CMA certain parts of the CAA's decision, including the WACC allowance, the £300 million RAB adjustment and the application of an additional K-factor. Unfortunately, the CMA determined that the CAA was not wrong in most of the aspects of the final decision, which had been subject to appeal. Three specific elements have been referred to the CAA for further consideration, including the additional K-factor, although the CMA have indicated that they do not expect any changes which may arise to have a material impact on the final decision.

While the final decision sets a more challenging settlement under which to operate, we continued to progress our next phase of investment in the airport with £636 million of capital additions during the year. Work commenced across all six capital programmes with projects including the first new security lanes going live, the appointment of a lead contractor to replace the T2 baggage system and ongoing runway resurfacing work.

With an ongoing commitment to sustainability, we were pleased to be the first airport to achieve science-based validation from the SBTi for our 2030 carbon reduction goals, confirming they are consistent with a 1.5-degree carbon reduction trajectory. We also expanded our Sustainable Aviation Fuel (SAF) initiatives, building on the success of the previous year's incentive scheme. Our SAF incentive was set at 1.5% of the airport's fuel. Slightly less was delivered due to delays in supply, however we have plans for continued growth to 2.5% in 2024. We have seen a clear sign of the growing adoption of SAF with the world's first 100% SAF powered transatlantic flight departing Heathrow to New York in November, a landmark achievement for the UK aviation industry. With our financing framework directly linked to our sustainability strategy, Heathrow 2.0, we are making significant strides towards our carbon reduction targets "in the air" and "on the ground".

Our overall success is highly dependent on our colleagues, which is why we prioritise making Heathrow a great place to work and provide career opportunities that allow people to reach their full potential. As we welcomed back even more passengers during the year and with detailed planning and close collaboration across all Team Heathrow, we rebuilt resourcing to capture this increased demand. Despite experiencing industrial action in April and May, our contingency plans enabled us to maintain the airport's smooth operation and we successfully signed a new two-year pay deal with our front-line colleagues.

We have started to see the benefit of the investments made in recruitment and training over the past two years, with much improved service for our customers. We achieved a score of 3.99 out of 5.00 in the global Airport Service Quality (ASQ) survey, which was an improvement over the previous year, despite having almost one-third more passengers. We also made significant progress in security performance, with 92.8% of direct passengers passing through security within 5 minutes, compared to 69.4% in 2022. Our baggage connection rates remained stable, and we were able to reduce the gap between departures and arrivals punctuality from 11.2% in 2022 to 3.6% in 2023.

Lastly, in October, John Holland-Kaye stepped down after nine years as Chief Executive Officer. During his time, he transformed customer service at Heathrow, built a strong and diverse team and established Heathrow as a leader in sustainability. At the same time, our dedicated colleagues have exhibited exceptional commitment, working tirelessly in close collaboration with all Team Heathrow partners. Their collective efforts have played a pivotal role in supporting the recovery and with the pandemic now firmly behind us, we have a great foundation on which to build an even stronger hub for the United Kingdom.

Thomas Woldbye - Heathrow CEO

Strategic priorities

The following performance metrics provide a picture on each of the four priorities, Mojo, Transforming Customer Service, Beating the Plan and Sustainable Growth, for the full year ended 31 December 2023. All indicator definitions are available in the glossary section of this report.

MOJO

(1)      For the year ended 31 December 2023

(2)      Lost time injuries include verbal and physical abuse absence from 2023.

Throughout 2023 we continued to grow the organisation, with a focus on upskilling our colleagues and offering career development through new opportunities. Our career and talent strategy focuses on identifying potential, offering career support and a range of learning and development programmes, underpinned by an effective and efficient resourcing service that facilitates internal mobility. We introduced new leadership development programmes, an internal careers advice service and a colleague internship programme, aimed at giving colleagues experience in different functions to grow their capability. In total during the year, we promoted 594 colleagues (2022: 576) and had 2,465 individuals engaged in training and development programmes (2022: 285).

We also remain committed to the safety of our passengers and colleagues to ensure everyone goes home safely every day. For the year ended 31 December 2023 our lost time injuries metric was 0.41 (2022: 0.35), an increase compared to 2022. The increase was predominantly due to loss time injuries being reported for verbal and physical abuse incidents. As we focus on continuous improvement, close call internal reporting has continued to increase, and we have finished above the 2023 target.

TRANSFORM CUSTOMER SERVICE

(1)         For the year ended 31 December 2023

In 2023, we achieved an overall ASQ rating of 3.99 out of 5.00 (2022: 3.97). This shows a slight improvement compared to 2022 despite a 28.6% increase in total passenger numbers. Overall, 74% of passengers surveyed between January and December rated their overall satisfaction with Heathrow as either 'Excellent' or 'Very good', marking a slight improvement compared to 2022 (2022: 73%), with the proportion of 'Poor' ratings remaining low at just 1%.

For the year ended 31 December 2023, satisfaction with the Helpfulness/Attitude of Airport Staff ('QSM') remained stable at 4.38, despite handling more than 17 million passengers over the year. Overall, 95% of passengers rated Helpfulness/ Attitude of Airport Staff as 'Excellent/Good', again consistent with last year. The proportion of 'Poor/Extremely Poor' ratings remained low at 1%.

Overall operational resilience was strong in 2023. Security performance has been very good, with 92.8% (2022: 69.4%) of direct passengers passing through security within 5 minutes. Despite a significant increase in demand and unfavourable external factors including weather, strikes and airspace congestion, we have improved overall punctuality during the year. Since the start of the winter schedule, we have seen a stronger performance with departure punctuality exceeding arrival punctuality, proving good turnaround performance. This has also been reflected in the punctuality gap between departures and arrivals, narrowing from 11.2% in 2022 to 3.6% in 2023. Flights are considered punctual if they have left the stand within 15 minutes of their schedule or arrived on stand within 15 minutes. Baggage connection performance has remained stable at 98.1% (2022: 98.0%).

BEAT THE PLAN

Passenger traffic

(1)         For the year ended 31 December 2023

(2)        Calculated using rounded passenger figures

(1)         For the year ended 31 December 2023

(2)        Calculated using rounded passenger figures

(3)        Cargo tonnage includes mail volumes

Passenger Traffic - In 2023, Heathrow welcomed 79.2 million passengers, an increase of 17.6 million compared to the prior year (2022: 42.2 million increase). This included a very strong Christmas period with our busiest ever December. We outperformed all other European hubs by being rated as the "best airport in Europe" and the world's "most connected" hub.

Our main markets continued to demonstrate strong performance, with our transatlantic routes performing particularly well. New York (JFK) maintained its position as our most popular destination, serving over three million passengers for the first time since 2019. In total, we had 24 routes which served over a million passengers this year. Latin America, Africa and Asia Pacific also experienced a significant rebound in traffic figures, in particular the Asia Pacific region, considering that borders only fully reopened earlier in the year. Terminal 5 experienced its busiest year ever, with more than 33 million passengers. By the end of the year, we were connected to 207 destinations in 88 countries and territories, up from 189 and 84 respectively last year.

Passenger air transport movements ("ATMs") grew by 22.6%, slightly behind the increase in passenger numbers. This resulted from aircraft operating with slightly higher seats per ATM (221 compared to 218 in the prior year) and higher load factors (79.6% compared to 77.0% in the prior year). This combination of higher load factors and the use of bigger aircrafts provides further opportunities for growth.

Our cargo tonnage, including mail, experienced an increase of 2.2% compared to 2022. Despite the return of belly hold capacity to normal levels on numerous routes, cargo tonnage continues to lag due to the global air cargo industry grappling with the impacts of various macroeconomic factors, which have led to subdued demand.

Finally, we saw an increase in inbound tourism during 2023, and the percentage of business travel also recovered slightly, rising from 26% in 2022 to 27% in 2023. This figure, while on the rise, remains below the pre-pandemic level of 32% in 2019.

SUSTAINABLE GROWTH

Heathrow 2.0 - Connecting People and Planet is our sustainability strategy in which we focus on the environmental, social and governance ('ESG') issues where the airport needs to make the biggest difference by 2030. We recognise that success against our goals and targets is only possible by working collaboratively with partners.

2023 saw another strong year of recovery after the pandemic and we have been able to make considerable progress towards our sustainability goals.

Net zero aviation - Decarbonising the aviation sector remains a key priority for Heathrow and we have stretching goals to reduce carbon emissions from flights by up to 15% by 2030. To support this, we continue to make Sustainable Aviation Fuel ('SAF') a regular feature of fuel supply at the airport. We aim to progressively increase the volume of SAF used by airlines at the airport each year through our incentive scheme, targeting 11% by 2030, ahead of the UK Government's 2025 proposed mandate of 10% by 2030. We have seen a clear sign of the growing adoption of SAF with the world's first 100% SAF-powered transatlantic flight taking off from Heathrow to New York in November. SAF has a fundamental role to play in aviation's pathway to net zero, but currently there's not enough supply. For net zero to be a reality, we need the Government and industry to work together to kickstart a domestic SAF industry.

In July, Heathrow became the first airport in the world to launch an innovative Sustainability Linked Bond ('SLB'). The SLB is linked to Heathrow 2.0, specifically to our carbon reduction targets 'in the air' and 'on the ground'. Underpinning the bond performance is our Science Based Targets Initiative ('SBTi') accreditation which validates that Heathrow's carbon reduction goals are aligned with a 1.5-degree pathway. The mechanism is particularly progressive as it incorporates Heathrow's scope 3 emissions, most materially those relating to emissions from aircraft, which account for 99% of Heathrow's carbon footprint.

As well as focusing on reducing our direct carbon impact during 2023, we worked hard to ensure our supply chain also reflect our sustainability objectives. We launched a balanced scorecard to clearly communicate priorities and standards to our strategic suppliers. The scorecard focuses on several key areas, including net zero, social value, community, local innovation and growth. It will help us collect baseline data so we can then monitor and engage with our supply chain on sustainability issues.  

A great place to live and work - We are committed to Heathrow being a great place to live and work. It is critical to ensure our airport is a diverse and inclusive workplace for all and that we provide the skills, education and long-term employment opportunities that make the airport the local employer of choice.

We successfully launched our Giving Back Programme at the start of the year which outlines how we will reach our commitment to benefit a million local people by 2030. This will be achieved through eight community investment initiatives to connect our community to the opportunities they need and want. Across the year over 1,000 Heathrow colleagues participated in the Giving Back Programme by volunteering over 3,800 hours of their time to support local schools, education partners and community groups. Through our Heathrow World of Work programme, we also delivered 5,340 (2022: 3,037) experiences of workdays to local young people from primary school to University age.

To further our support our partners, the 25th Heathrow Business Summit was held in November, and attended by over 450 guests and over 45 exhibitors. The event aimed to connect local SMEs with Heathrow's key suppliers and identify tangible opportunities to do business in the future. An awards ceremony celebrated the contribution our supply chain makes to Heathrow's continuing success.

We continued to deliver our Equality, Diversity and Inclusion ('ED&I') strategy through initiatives including dedicated learning intervention and our established mentoring platform. We also launched a colleague-facing campaign focused on the concept of belonging and encouraged a diverse range of colleagues to share positive stories about the inclusive culture at Heathrow. Our colleague engagement survey results show a 6% year-on-year increase in colleagues feeling Heathrow is inclusive to all.

As aviation has recovered, it has presented a unique opportunity for the airport to create employment for our local communities. We delivered and supported 3,117 (2022: 2,746) employment opportunities across the year. These opportunities represent a significant achievement towards our longer-term goal of 10,000 opportunities.

Key regulatory developments - In March, the CAA published its final decision for the H7 price control period - after a process and period of consultation and decision making, which saw delays of around 18 months, lasting in total over six years.

Heathrow, British Airways, Virgin Atlantic and Delta submitted appeals, and in October, the CMA published its final determination on these appeals. Overall, the CMA considered that the CAA was not wrong in most of the aspects of its final decision which had been subject to appeal. However, the CMA considered that the CAA had erred on three specific elements:

-              The CAA's mechanistic implementation of the AK Factor, which was introduced by the CAA to claw back revenue which, in its view, was 'over-recovered' against the maximum allowable yield in 2020 and 2021.

-              The CAA made an error in a relatively minor aspect of its cost of debt calculation.

-              In the passenger forecast, the CAA was wrong in relation to the calculation of the shock factor.

The CMA has issued an order to the CAA for these three elements to be reconsidered in sufficient time for any amendments to be incorporated into the price cap from 2025. The CAA has committed to reviewing the three elements during H1 2024.

Earlier in the year, Heathrow provided a submission to the Department for Transport's (DfT) independent review into the effectiveness and efficiency of the CAA - with the final publication delivered in July 2023. With the ongoing H7 process and subsequent CMA appeals taking place at that time, it did not allow for sufficient analysis into the delivery of the CAA's economic regulatory functions. However, amongst its recommendations, the DfT set out that the CAA's process for conducting economic regulation should be reviewed - considering the process, governance and 'mechanics' of its economic regulation activity.

We expect the CAA to complete its lessons learned review in the first half of 2024 - before the commencement of any discussions on the next regulatory period. The CAA timelines for H8 are also uncertain and have not been communicated, although we expect to see an initial timetable set out in Spring 2024.

Alongside the DfT's independent review into the CAA, there are several cross-government consultations and calls for evidence via the Department for Business and Trade (DBT) which are seeking to review and improve the UK's economic regulation framework and to boost future infrastructure investment. Heathrow welcomes the review, analysis and collaboration in this area and supports further proposals and developments in 2024.

Expansion developments - We are conducting an internal review of the work we have carried out and the different circumstances we find the aviation industry in, and this will enable us to progress with appropriate recommendations and ways forward. The Government's ANPS continues to provide policy support for our plans for a third runway and the related infrastructure required to support an expanded airport.

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'), which owns and operates Heathrow Airport, and Heathrow Express Operating Company Limited ('Hex Opco') which operates the Heathrow Express rail service. Heathrow SP's Consolidated Financial Statements are prepared in accordance with UK adopted international accounting standards.

The financial information presented within these condensed consolidated financial statements has been prepared on a going concern basis. More detail can be found in the going concern statement on page 17.

Alternative performance measures

Management uses Alternative Performance Measures ('APMs') to monitor the performance of the segments as it believes this more appropriately reflects the underlying financial performance of the Group's operations. These remain consistent with those included and defined in the Annual Report and Financial Statements for the year ended 31 December 2023.

Summary performance

For the year ended 31 December 2023, the Group's revenue increased by 26.6% to £3,687 million (2022: £2,913 million). Adjusted EBITDA increased 32.3% to £2,228 million (2022: £1,684 million). The Group recorded a £522 million profit after tax (2022: £114 million).

(1)      Revenue does not contain any adjustments for non-GAAP items.

(2)      Adjusted operating costs exclude depreciation, amortisation, fair value adjustments on investment properties and exceptional items which are explained further in note 2.

(3)      Adjusted EBITDA is profit before interest, taxation, depreciation, amortisation, fair value adjustments on investment properties and exceptional items.

(4)      Adjusted operating profit excludes fair value adjustments on investment properties and exceptional items.

(5)      Certain re-measurements consist of: fair value gains and losses on investment property revaluations, 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 cash flow, fair value and economic hedging relationship and the associated tax impact on these, including the impact of the UK corporation tax rate change.

(6)      Adjusted profit/(loss) before and after tax excludes fair value adjustments on investment properties and financial instruments, exceptional items and the associated tax impact of these, including the impact of the UK corporation tax rate change.

Revenue

For the year ended 31 December 2023, revenue increased to £3,687 million (2022: £2,913 million), a 26.6% increase compared to 2022.

(1)         Revenue does not contain any adjustments for non-GAAP items.

Aeronautical revenue increased by 31.6%. This is predominantly due to higher passenger numbers and the increase in aero charges. Our aeronautical yield per passenger was £31.25 (2022: £30.50), consistent with price caps set by the CAA for 2023.

Airport retail revenue increased by 23.8%, driven by higher departing passengers, car parking revenue, terminal drop off, premium passenger services and the mix of retail services available in 2023. Income per passenger decreased 3.8% to £8.81 (2022: £9.16), as passengers increased their usage of public transport post-pandemic and following the opening of the Elizabeth Line.

Other revenue increased by 9.8%, driven by increased passenger numbers contributing to Heathrow Express revenue growth and an increase in property revenue following renewals of terminal facility leases on improved terms, as well as new lets.

Adjusted operating costs

Adjusted operating costs increased 18.7% to £1,459 million (2022: £1,229 million).

(1)         Unadjusted operating costs for the year were £1,980 million (2022: £2,054 million). This included depreciation & amortisation of £730 million (2022: £770 million), a fair value gain on investment properties of £209 million (2022: £69 million loss) and in 2022 an exceptional item gain of £14 million.

Employment costs have increased in line with rebuilding capacity for higher passenger numbers. This includes costs associated with additional colleagues, overtime, recruitment, and training. The rise in operational costs is mainly due to third-party resourcing, supporting operational resilience, and "Measure, Target, Incentive" rebates incurred (previously known as Service Quality Rebates). The increase in maintenance is largely driven by terminal cleaning and conservation of terminal, airside, and baggage areas. Finally, utilities and other costs have been impacted by higher consumption and higher energy prices. Adjusted operating costs per passenger decreased by 7.7% to £18.42 (2022: £19.96) given the large increase in passenger numbers over the year.

Operating profit and Adjusted EBITDA

For the year ended 31 December 2023, the Group recorded an operating profit of £1,707 million (2022: £859 million). The increase in operating profit was mainly driven by higher revenue.

Adjusted EBITDA was £2,228 million (2022: £1,684 million), resulting in an Adjusted EBITDA margin of 60.4% (2022: 57.8%).

Profit after tax

For the year ended 31 December 2023, the Group recorded a profit before tax of £701 million (2022: £169 million) and a profit after tax of £522 million (2022: £114 million).

Net finance costs before certain re-measurements decreased to £1,460 million (2022: £1,598 million) primarily because of a significant year on year decrease in RPI from 14% to 5.3%, reducing accretion expenses. This was partially offset by a higher swap interest expense, following the end of the benefit received from the swap reprofiling programme put in place to manage cash flows and covenant compliance through the pandemic.

Non-cash fair value gains on financial instruments of £454 million (2022: £908 million) follows a smaller reduction in index-linked swap liabilities than in the prior year. The liability is measured with reference to market expectations of inflation and interest rates, and inflation forwards decreased by an average of 69bps and interest rate forwards decreased by an average of 45bps in the year.

Taxation

The total Group tax charge for the year was £179 million (2022: £55 million), resulting in an effective tax rate of 25.5% (2022: 32.5%). This is made up of:

·      A tax charge on profits before certain re-measurements of £32 million (2022: £119 million tax credit) equating to an effective tax rate before certain re-measurements of 84.2% (2022: 17.4%). The tax charge is significantly higher (2022: lower) than implied by the statutory rate of 23.5% (2022: 19%) due to depreciation which is unallowable for tax purposes. As the profit before tax and certain re-measurements for the year is relatively small, this unallowable depreciation has a significant distorting impact on the effective tax rate before certain re-measurements.

·      A tax charge of £147 million (2022: £200 million) arising from fair value gains on derivative financial instruments and investment property revaluations.

·      The tax charge for 2022 also included a £26 million tax credit relating to the substantive enactment of the increase in the corporation tax rate from 19% to 25%, which took effect from 1 April 2023. The increase was substantively enacted in Finance Act 2021 and the effect of the rate increase was reflected in the deferred tax balances in the financial statements in 2022.

The Group paid £1 million in corporation tax in the year (2022: £1 million).

Cash position

At 31 December 2023, the Heathrow SP Group had £1,941 million (31 December 2022: £1,833 million) of cash and cash equivalents and term deposits, of which cash and cash equivalents were £191 million (31 December 2022: £285 million).

This equated to a £94 million decrease in cash and cash equivalents for the year, compared with a £69 million increase in the year ended 2022.

Cash generated from operations

For the year ended 31 December 2023, cash generated from operations increased to £2,092 million (2022: £1,719 million). The following table reconciles Adjusted EBITDA to cash generated from operations.

Capital expenditure

Total cash spent on capital expenditure in the year ended 31 December 2023, which includes movements in capital creditors, was £604 million (2022: £442 million). Total capital additions were £636 million (2022: £457 million). Our H7 capital investment plan is centred around six core programmes which will run throughout the regulatory period - asset management and compliance, replacing the Terminal 2 baggage system, next generation security, investing in our commercial proposition, investing in carbon and sustainability to deliver our net zero goals and investment to improve efficiency and service.

During the year, we invested across these six core programmes to ensure the airport's safety, resilience and compliance whilst continuing to invest in our customer proposition and strategic initiatives. We saw our next generation security programme start work across all terminals within the estate. Further drivers of capital expenditure have been the investment in our cargo and main tunnel projects connecting vehicles and passengers across the estate, our runway resurfacing projects and ensuring our assets remain resilient with a new virtual contingency facility.

We also invested £3 million in the period (2022: £3 million) on projects related to expansion under the property hardship scheme. Expansion-related capital expenditure includes Category B costs associated with the consent process and early Category C costs predominantly relating to early design costs. As at 31 December 2023, £506 million of expansion related assets in the course of construction are recognised on the balance sheet, of which £396 million are Category B and £110 million are Category C (after £10 million of re-work impairment recognised in 2020 and including capitalised interest). In addition, £111 million of expansion related assets are recognised within investment properties.

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.

For the year ended 31 December 2023, total restricted payments (gross and net) made by Heathrow SP amounted to £200 million (2022: £1.1 billion). This funded scheduled interest payments on debt held at Heathrow Finance and ADI Finance 2 Limited. No payments to ultimate shareholders were made during the financial year.

RECENT FINANCING ACTIVITY

In the year ended 31 December 2023, we raised £780 million of new Class A debt. This funding complements our robust liquidity position and provides additional duration and diversification to our £16 billion debt portfolio.

Class A financing activities included:-

·      the scheduled repayment of a £750 million public bond in February;

·      £85 million of new private placement debt in July, with maturities in 2038 and 2043;

·      the issuance of our debut Sustainability-Linked Bond in July, a €650 million 10-year trade using the 2030 Sustainability Performance Targets as set out in our Sustainability Linked Bond Framework;

·      the exercise of an option in September to extend our Revolving Credit Facility by one year, extending the maturity to 2027;

·      the issuance of a dual tranche £140 million wrapped bond in November, with maturities in 2056 and 2057; and

·      finally, in December, we received unanimous lender approval for the conversion of our Revolving Credit Facility and Working Capital Facility to a Sustainability Linked Loan.

During the year, we made early paydowns of accretion on our inflation swaps totalling £484 million. In December, we redeemed in full the outstanding £750 million of debt held at ADI Finance 2 Limited. 

FINANCING POSITION

Debt and liquidity at Heathrow (SP) Limited

At 31 December 2023, Heathrow SP's consolidated nominal net debt was £14,795 million (31 December 2022:
£14,579 million). It comprised £14,155 million in bond issues,
£1,665 million in other term debt, £807 million in index-linked derivative accretion and £64 million of additional lease liabilities post-transition to IFRS 16. This was offset by qualifying cash and term deposits under the financing documentation of £1,896 million. Nominal net debt comprised £12,607 million in senior net debt and £2,188 million in junior debt.

The average cost of Heathrow SP's nominal gross debt as at 31 December 2023 was 3.68% (31 December 2022: 3.64%). This includes interest rate, cross-currency and index-linked hedge costs and excludes index-linked accretion. Including index-linked accretion, Heathrow SP's average cost of debt at 31 December 2023 was 9.11% (31 December 2022: 10.53%). The decrease in the average cost of debt including index-linked accretion since the end of 2022 is due to inflation cooling off from its peak. This led to lower accretion accruals in our inflation-linked debt and swap portfolios compared to the comparable period.

The average life of Heathrow SP's gross debt as at31 December 2023 was 10.2 years (31 December 2022:
10.3 years).

Nominal net debt excludes any restricted cash, non-qualifying deposits 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 and additional lease liabilities entered since the transition to IFRS 16.

The Group has sufficient liquidity to meet its forecast needs for at least the next 12 months. In making this assessment, the Directors have considered both the Heathrow SP Group of companies, as well as the wider Heathrow Finance plc group of companies (the "Heathrow Finance Group"). This includes operating cashflows under the base case business plan and capital investment, debt service costs, debt maturities and repayments. This liquidity position takes into account £2,371 million in cash resources across the Heathrow Finance Group as well as undrawn revolving credit facilities of £1,386 million.       

Debt at Heathrow Finance plc

The consolidated nominal net debt of Heathrow Finance increased to £16,806 million (31 December 2022: £15,786 million). This comprised Heathrow SP's £14,795 million nominal net debt, Heathrow Finance's nominal gross debt of £2,364 million and offset by qualifying cash and term deposits under the financing documentation held at Heathrow Finance of £353 million.

Financial ratios

At 31 December 2023, Heathrow SP and Heathrow Finance continue to operate within the required financial ratios from the common terms agreement. Heathrow Finance's gearing ratio has now returned below pre-pandemic levels. Gearing ratios and interest coverage ratios are defined within the Glossary.

At 31 December 2023, Heathrow's RAB was £19,804 million (31 December 2022: £19,182 million). Heathrow SP's senior (Class A) and junior (Class B) gearing ratios were 63.7% and 74.7% respectively (31 December 2022: 64.9% and 76.0% respectively) with respective trigger levels of 72.5% and 85%. Heathrow Finance's gearing ratio was 84.9% (31 December 2022: 82.3%) with a covenant of 92.5%.

In the year ended 31 December 2023, the Group's senior and junior interest cover ratios were 3.72x and 3.24x respectively (2022: 10.97x and 6.97x respectively) compared to trigger levels of 1.40x and 1.20x under its financing agreements. Heathrow Finance's interest cover ratio was 2.86x (2022: 4.44x) compared to a covenant level of 1.00x under its financing agreements.

PENSION SCHEME

We operate a defined benefit pension scheme (the 'BAA Pension Scheme') which closed to new members in June 2008. At 31 December 2023, the defined benefit pension scheme, as measured under IAS 19, was funded at 95.6% (31 December 2022: 96.3%). This translated into a deficit of £128 million (31 December 2022: £104 million). The £24 million decrease in the deficit in the year is largely due to total actuarial losses of £24 million attributable to an increase in liabilities and experience losses reflecting actual inflation in 2023 offset by a gain on assets and gains from changes in the underlying demographic assumptions, as well as; service costs of £10 million; a finance charge of £4 million; and, contributions paid in the year. In the 12 months ended 31 December 2023, we contributed £14 million (31 December 2022: £29 million) into the defined benefit pension scheme. No deficit repair contributions have been paid in the 12 months (31 December 2022: £15 million). The Directors believe that the scheme has no significant plan-specific or concentration risks.

CLIMATE CHANGE

Climate change will have a significant impact on the aviation industry and Heathrow in the years to come, and we have both a responsibility to continue to be ambitious in our endeavours to take carbon out of flying, as well as a responsibility to minimise risk to the business in the long-term. As part of our work over Climate-Related Financial Disclosures ('CFD') as described in our Annual Report and Financial Statements, we have considered our transition risks and have ensured that they are factored fully and consistently into our future financial long-term forecasts for those areas of the balance sheet whose recoverability is assessed based on expected future cash flows, including property, plant and equipment, expansion assets in the course of construction, intangible assets, investment properties and deferred tax assets. In addition, we have ensured that the useful economic lives of our existing assets are appropriate, particularly with regard to the physical risks identified in the CFD as well as with regard to our net zero sustainability strategy as described in our Annual Report and Financial Statements.

KEY MANAGEMENT CHANGES

There have been no key management changes since the last results announcement on 26 October 2023.

ULTIMATE SHAREHOLDER UPDATE

On 28 November 2023, Ferrovial announced that an agreement has been reached for the sale of its entire stake (c.25%) in FGP Topco Limited, the parent company of Heathrow Airport Holdings Limited, for £2,368 million. The agreement has been reached with two different buyers, Ardian and The Public Investment Fund (PIF), who would acquire Ferrovial's shareholding in c.15% and c.10% stakes respectively, through separate vehicles.

On 16 January, Ferrovial announced that, pursuant to the FGP Topco Shareholders Agreement, certain other FGP Topco shareholders have exercised their tag-along rights which resulted in 60% of the total issued share capital of FGP Topco being available for sale. The parties are currently investigating options to satisfy the exercised rights.

While we acknowledge the existence of a change of control clause in the bonds issued by Heathrow Finance plc. and the continuing nature of the negotiations, we are not at this time privy to any information that would lead us to believe that the change of control clause would be triggered.

OUTLOOK

The performance outlook for 2024 remains consistent with the forecasts published in our Investor Report on 15 December 2023. We will continue to monitor performance and provide a further update on our Q1 results in April.