TIDM88BX TIDM10FX TIDMTTM
RNS Number : 2226M
Heathrow
27 July 2017
27 July 2017
Heathrow (SP) Limited
Results for the six months ended 30 June 2017
-- Heathrow delivered strong service and better value for
passengers - record punctuality and baggage reliability supported
its highest Q2 Airport Service Quality score of 4.16 - and
passenger charges fell 2.3%
-- New Flybe services and new long haul destinations like
Portland and New Orleans enhance domestic connectivity and open new
trading routes to British exporters
-- Booming activity with all-time records in passenger traffic -
up 3.9% to 37.1 million - and cargo - up 9.1% to 0.82 million
tonnes
-- Strong financial performance with revenue up 4.1% to GBP1,374
million and Adjusted EBITDA up 6.9% to GBP835 million reflecting
renewed strengthening of retail momentum
-- Over GBP1 billion in debt financing completed, enhancing
resilience and simplifying Heathrow's debt financing
arrangements
-- New partnership with Transport for London increases
sustainable transport options for passengers with Crossrail serving
all terminals from 2019
-- Working with airlines, Heathrow is making good progress
towards meeting the Government's challenge to deliver expansion
with airport charges close to current levels
At or for six months ended 2017 2016 Change
30 June (%)
------------------------------------ ------- ------- -------
(GBPm unless otherwise
stated)
Revenue 1,374 1,320 4.1
Adjusted EBITDA(1) 835 781 6.9
EBITDA(2) 909 769 18.2
Cash generated from operations 820 700 17.1
Cash flow after investment
and interest(3) 200 76 n.m
Pre-tax profit(4) 102 75 36.0
------------------------------------ ------- ------- -------
Heathrow (SP) Limited consolidated
net debt(5) 12,454 11,908 4.6
Heathrow Finance plc consolidated
net debt(5) 13,132 13,005 1.0
Regulatory Asset Base(5) 15,485 15,237 1.6
------------------------------------ ------- ------- -------
Passengers (m)(6) 37.1 35.7 3.9
Retail revenue per passenger
(GBP)(6) 8.43 7.84 7.6
------------------------------------ ------- ------- -------
Notes 1-6: see page 2
John Holland-Kaye, Chief Executive Officer of Heathrow,
said:
"Heathrow's strong start to 2017 is a boon for Britain - our
passengers are getting better value and service, more British trade
is flying high on new trading links and our expansion plans are on
track. The Government set us the challenge to expand Britain's hub
while keeping airport charges close to current levels. Working with
airlines, we are making good progress to meet this challenge whilst
delivering all our local commitments and the global connections our
country needs."
Notes
(1) Adjusted EBITDA is earnings before interest, tax,
depreciation & amortisation, certain re-measurements and
exceptional items
(2) EBITDA is earnings before interest, tax, depreciation and amortisation
(3) Cash flow after investment and interest is cash generated
from operations after net capital expenditure and net interest
paid
(4) Pre-tax profit before exceptional items and certain re-measurements
(5) 2016 net debt and RAB figures at 31 December 2016. Nominal
net debt excluding intra-group loans and including inflation-linked
accretion
(6) Changes in passengers and retail revenue per passenger are
calculated using unrounded passenger numbers
Heathrow (SP) Limited owns Heathrow airport and together with
its subsidiaries is referred to as the Group. Heathrow Finance plc,
also referred to as Heathrow Finance, is the parent company of
Heathrow (SP) Limited.
For further information please contact
Heathrow
Media enquiries Weston Macklem +44 7525 825516
Investor enquiries Christelle Lubin +44 2087 459947
Conference call to be held for creditors and credit analysts on
27 July 2017 at 3.00pm (UK time), 4.00pm (Central European time),
10.00am (Eastern Standard Time), hosted by John Holland-Kaye, Chief
Executive Officer and Javier Echave, Chief Financial Officer.
Dial-in details: UK local/standard international: +44 (0)20 3139
4830; North America: +1 718 873 9077. Participant PIN code:
53511830#
The presentation can be viewed at the Investor Centre at
heathrow.com and online during the event at:
https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID=ec556c67b30864feadf79c8f31b608cc4
using event password: 680376
Disclaimer
These materials contain certain statements regarding the
financial condition, results of operations, business and future
prospects of Heathrow. All statements, other than statements of
historical fact are, or may be deemed to be, "forward-looking
statements". These forward-looking statements are statements of
future expectations and include, among other things, projections,
forecasts, estimates of income, yield and return, pricing, industry
growth, other trend projections and future performance targets.
These forward-looking statements are based upon management's
current assumptions (not all of which are stated), expectations and
beliefs and, by their nature are subject to a number of known and
unknown risks and uncertainties which may cause the actual results,
prospects, events and developments of Heathrow to differ materially
from those assumed, expressed or implied by these forward-looking
statements. Future events are difficult to predict and are beyond
Heathrow's control, accordingly, these forward-looking statements
are not guarantees of future performance. Accordingly, there can be
no assurance that estimated returns or projections will be
realised, that forward-looking statements will materialise or that
actual returns or results will not be materially lower than those
presented.
All forward-looking statements are based on information
available at the date of this document, accordingly, except as
required by any applicable law or regulation, Heathrow and its
advisers expressly disclaim any obligation or undertaking to update
or revise any forward-looking statements contained in these
materials to reflect any changes in events, conditions or
circumstances on which any such statement is based and any changes
in Heathrow's assumptions, expectations and beliefs.
These materials contain certain information which has been
prepared in reliance on publicly available information (the "Public
Information"). Numerous assumptions may have been used in preparing
the Public Information, which may or may not be reflected herein.
Actual events may differ from those assumed and changes to any
assumptions may have a material impact on the position or results
shown by the Public Information. As such, no assurance can be given
as to the Public Information's accuracy, appropriateness or
completeness in any particular context, or as to whether the Public
Information and/or the assumptions upon which it is based reflect
present market conditions or future market performance. The Public
Information should not be construed as either projections or
predictions nor should any information herein be relied upon as
legal, tax, financial or accounting advice. Heathrow does not make
any representation or warranty as to the accuracy or completeness
of the Public Information.
All information in these materials is the property of Heathrow
and may not be reproduced or recorded without the prior written
permission of Heathrow. Nothing in these materials constitutes or
shall be deemed to constitute an offer or solicitation to buy or
sell or to otherwise deal in any securities, or any interest in any
securities, and nothing herein should be construed as a
recommendation or advice to invest in any securities.
This document has been sent to you in electronic form. You are
reminded that documents transmitted via this medium may be altered
or changed during the process of electronic transmission and
consequently neither Heathrow nor any person who controls it (nor
any director, officer, employee not agent of it or affiliate or
adviser of such person) accepts any liability or responsibility
whatsoever in respect of the difference between the document sent
to you in electronic format and the hard copy version available to
you upon request from Heathrow.
Any reference to "Heathrow" means Heathrow (SP) Limited (a
company registered in England and Wales, with company number
6458621) and will include its parent company, subsidiaries and
subsidiary undertakings from time to time, and their respective
directors, representatives or employees and/or any persons
connected with them.
Heathrow (SP) Limited
Consolidated results for the six months ended 30 June 2017
Contents
1 Key business developments
1.1 Passenger traffic
1.2 Transforming customer service
1.3 Beating the plan
1.4 Investing in Heathrow
1.5 Sustainable growth
1.6 Expansion
2 Financial review
2.1 Basis of presentation of financial results
2.2 Income statement
2.3 Cash flow
2.4 Recent financing activity
2.5 Financing position
2.6 Pension scheme
2.7 Outlook
Appendix 1 Financial information
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
General information and accounting policies
Notes to the consolidated financial information
1 Key business developments
1.1 Passenger traffic
In the six months ended 30 June 2017, traffic rose 3.9% to 37.1
million passengers (2016: 35.7 million).
(Millions) 2017 2016 Change
(%)
--------------------- ----- ----- -------
UK 2.3 2.2 2.7
Europe 15.5 15.0 3.1
North America 8.2 8.1 1.6
Asia Pacific 5.4 5.2 5.7
Middle East 3.6 3.2 13.1
Africa 1.5 1.5 (0.1)
Latin America 0.6 0.6 4.1
--------------------- ----- ----- -------
Total passengers(1) 37.1 35.7 3.9
--------------------- ----- ----- -------
(1) Calculated using unrounded passenger figures
For the six months ended 30 June 2017, traffic grew 3.9% to 37.1
million passengers (2016: 35.7 million). More resilient
macro-economic conditions and airline stimuli to boost demand
propelled traffic to a new record high in the first half of 2017.
Aircraft were meaningfully fuller with average load factor
increasing 2.7 percentage points to 75.8% (2016: 73.1%) while the
average number of seats per passenger aircraft also ticked up 0.7%
to 212.1 (2016: 210.6).
Intercontinental traffic was the key driver of traffic growth,
increasing 4.7%, with load factors improving significantly.
Intercontinental traffic growth was particularly robust on routes
serving the Middle East where passenger numbers increased 13.1%
reflecting more flights and larger aircraft, including additional
A380 services from Emirates, Etihad and Qatar Airways and British
Airways' relaunched Tehran service in 2016. Momentum in this region
has been increasing since the second half of 2016. The 5.7% rise in
Asia Pacific traffic was driven by substantial growth in load
factor on existing routes serving Malaysia, Thailand and Singapore
and new or increased services to Indonesia, Philippines and
Vietnam. North American traffic recovered from a slow first quarter
to outpace last year's traffic volume by 1.6% benefitting from
fuller planes. Latin American traffic grew 4.1%, due to more
flights and fuller aircraft serving the region.
European passengers increased by 3.1% due to extra flights and
larger planes with notable growth on routes to Belgium, Portugal,
Denmark, Italy and Russia. Flybe's new Scottish services
contributed to the 2.7% growth in domestic traffic.
Over 30% of the UK's non-EU exports by value pass through
Heathrow today. In the six months ended 30 June 2017, Heathrow's
cargo volumes increased 9.1% to 0.82 million tonnes, one of the
strongest periods in the last 5 years in terms of year on year
performance, with notable increases on North America and the Middle
East.
1.2 Transforming customer service
Heathrow continued to deliver its world-class passenger service,
maintaining its record service quality score for the second quarter
of the year of 4.16 while 83% of passengers surveyed rated their
Heathrow experience 'Excellent' or 'Very Good' (2016: 82%).
Heathrow has been ranked first among major European hub airports
for service quality in this survey for twelve successive
quarters.
Heathrow received other recognition for its high service
standards, being named the 'Best Airport in Western Europe' for the
third consecutive year at the Skytrax World Airport Awards. The
award, voted for globally by passengers, came in addition to
Heathrow being voted 'Best Airport for Shopping' for the eighth
consecutive time.
Improvements to passengers' journeys through the airport
continue. Passengers continue to enjoy efficient queuing to pass
through security, passing through central security within the five
minute period prescribed under the Service Quality Rebate ('SQR')
scheme 97.7% of the time (2016: 97.7%) compared with a 95% service
standard. The service quality regime penalty threshold was not
triggered in the first six months of 2017 in respect of any
performance standard. And for the first time in the current
regulatory period Heathrow earned a modest level of bonuses under
the SQR scheme.
Punctuality improved with 83.2% of flights departing within 15
minutes of schedule (2016: 80.6%). Baggage performance also
improved significantly with the misconnect rate down to 11 bags per
1,000 passengers (2016: 13), reflecting enhanced operational
resilience. Heathrow achieved its best ever monthly baggage
performances of 7 bags and 8 bags per 1,000 passengers in February
2017 and April 2017 respectively, beating the previous record of 9
bags per 1,000 passengers set in October 2016.
1.3 Beating the plan
Heathrow's business plan for the current regulatory period is
intended to improve customer service, strengthen operational
resilience and deliver an ambitious programme of cost efficiencies
and revenue growth. Heathrow is on track to deliver the targeted
GBP600 million of cost efficiencies over the period to the end of
2018.
The benefits of investment in Terminal 5 retail outlets,
completion of Terminal 4 retail redevelopment and new car parking
capacity continue to flow through strongly with over GBP250 million
secured out of the
GBP300 million incremental commercial revenue target set for the
period to the end of 2018.
1.4 Investing in Heathrow
Heathrow invested GBP318 million in the first six months of 2017
on a variety of programmes to improve the passenger experience,
airport resilience and work through a broad asset replacement
programme.
Passengers should benefit from improvements delivered in
Terminal 4 including increased space in the immigration hall to
ease congestion and the opening of a new Gucci store marking the
completion of the luxury retail redevelopment. In Terminal 5,
premium passengers will enjoy the new "First Wing" offering a fast
track route with dedicated security lanes to British Airways'
lounge. Additional self-boarding gates also came into operation in
Terminal 5 which should reduce boarding times as Heathrow extends
automation across the passenger journey and enhances efficiency for
airlines. New combined body-scanner/metal detectors were also
installed in Terminal 5 to enhance the transfer security
experience. Airfield improvements continued to meet increased A380
operations with additional taxiway widening and stand modifications
now substantially completed.
1.5 Sustainable growth
Earlier this year, Heathrow launched "Heathrow 2.0", its new
sustainability leadership plan, which aspires to make the airport a
centre of excellence in sustainable aviation. The strategy sets out
ambitious goals to reduce the airport's and the industry's
environmental impacts while maximising economic opportunities
throughout the UK.
In July 2017, Heathrow, Transport for London ('TfL') and the
Department for Transport reached an agreement that will boost rail
connectivity to the airport. The new partnership will increase
sustainable transport options for passengers with Crossrail serving
all terminals from 2019.
In June 2017, Heathrow published its "Sustainability 2016
performance report". The report bridges the progress made against
the Responsible Heathrow 2020 commitments and the four pillars
stretching Heathrow's ambitions in Heathrow 2.0. Key highlights
include 455 new apprenticeships pledged through the Heathrow
Academy, the Heathrow Skills Task Force launched to help develop
the skills and training needed to build and operate an expanded
airport and a 37% reduction in carbon emissions from energy used in
Heathrow's buildings compared to 1990, well ahead of a target of
34% reduction by 2020.
Also in June 2017, Heathrow's Terminal 2 was awarded the
Buildings Research Establishment's BREEAM sustainable building
certification recognising the terminal's key credentials such as
the energy centre, one of the UK's largest private biomass
initiatives, which is designed to provide 20% of the renewable
energy used at Terminal 2.
In May 2017, Heathrow launched the new Fly Quiet and Clean
League Table which rates airlines based on seven noise and
emissions criteria. Every three months, the 50 busiest airlines at
Heathrow will be publicly ranked on their work to reduce emissions
and noise in their operations. The new league table is an expanded
version of the successful Heathrow Fly Quiet programme, which has
tracked airlines' noise performance since 2013 and incentivised
airlines to use their quieter aircraft types and operating
procedures at the airport. As part of the airport's efforts to
reduce the number of late flights, and to provide more predictable
periods of noise respite for local residents, the league table also
includes a new metric tracking unscheduled airline operations
between 11:30pm and 4:30am.
1.6 Expansion
1.6.1 Introduction
Stakeholder engagement on Heathrow expansion continues to
intensify following the government's decision in late 2016.
Significant recent developments include the government's progress
in delivering its Airports National Policy Statement ('NPS'),
Heathrow's engagement with airlines on the design of new runway
capacity and the CAA developing the regulatory framework to support
capacity expansion.
1.6.2 Airports National Policy Statement
The government's national consultation on its draft NPS was
launched in February 2017 and concluded in May 2017. Over 70,000
responses were made to the government's consultation. The draft NPS
together with the consultation responses are expected to be
considered by the transport select committee following the
Parliamentary summer recess prior to submission of a final NPS to a
vote in Parliament in the first half of 2018. Earlier in July,
Lilian Greenwood was appointed as the new chairman of a transport
select committee following the recent UK general election. There is
overwhelming cross-party support in Westminster for expanding
Britain's hub with the latest poll showing that nearly 3-in-4 MPs
in the new Parliament back expanding Heathrow while strong
opposition has dropped to its lowest level of only 8%.
1.6.3 Airline engagement
We have been refining our plans for expansion since the
independent Airports Commission commenced its in-depth study almost
five years ago. Last year we announced that we were optimising our
plans to improve passenger experience, reduce costs and deliver the
benefits of Heathrow expansion earlier.
Continuing to work with airlines, neighbours and wider
communities, we are making good progress to meet the Secretary of
State's challenge to expand Britain's hub while keeping charges
close to current levels and meeting our local commitments. We have
identified potential further savings through this work by looking
at the location and configuration of the terminals along with
different phasing options. We will continue refining our plans and
release various options at our first planning consultation later
this year.
1.6.4 CAA consultation
The CAA continues to consult on how Heathrow will be regulated
through expansion. In June 2017, it issued a consultation document
entitled 'Consultation on the core elements of the regulatory
framework to support capacity expansion at Heathrow'. The
consultation builds on previous consultations such as 'Strategic
Themes for the Review of Heathrow Airport's Charges (H7)' launched
in March 2016 and 'Economic Regulation of the new runway and
capacity expansion at Heathrow airport: consultation on CAA
priorities and timetable' launched in January 2017. Responses to
the consultation are requested by 22 September 2017.
The consultation includes a decision to further extend
Heathrow's Q6 regulatory period by at least a year to 31 December
2020 although the CAA is yet to decide the basis for tariffs in
this extra year. Various options for determining tariffs are under
consideration including a simple roll-over of the Q6 tariff of
RPI-1.5% (as applies to the extension of Q6 to 31 December 2019
already implemented) or some form of adjustment to reflect more
recent actual performance on key regulatory building blocks rather
than assumptions used at the start of Q6. The CAA also leaves open
the option for further extension to Q6 depending on the overall
expansion timetable. The CAA has said it will update its thinking
on extensions in late 2017 with a final decision as soon as
practicable in 2018 once the position on designation of the NPS is
clearer.
The CAA clearly states that the regulatory framework needs to
consider equally the fundamental objectives of affordability and
financeability. For example, the consultation references both
objectives in discussing profiling of returns and depreciation or
potential incentives or risk sharing mechanisms relating to, for
example, cost of debt and passenger forecasts. It also suggests
further consideration of specific measures to support
financeability such as minimum creditworthiness and strengthened
liquidity requirements.
The latest consultation builds on the strength of the current
regulatory framework, proposing the continued use of the regulatory
asset base ('RAB') as the cornerstone of the regulatory framework
and a single till approach to determine tariffs.
In terms of more specific topics, the CAA's consultation
addresses the future basis for determining the cost of debt
allowance included in Heathrow's allowed cost of capital as well as
marking progress on the inflation measure to be used in the H7
determination and the H7 regulatory review timetable.
In relation to cost of debt, consistent with other UK
regulators, the CAA continues to advocate a transition in H7 to
partially or wholly using a suitable debt index to determine the
allowance for debt costs rather than a fixed allowance.
On inflation, the CAA acknowledges the advantages of longer term
transition to consumer price index ('CPI') rather than retail price
index ('RPI') based regulation. However, it proposes a gradual
transition in the interests of stability while capacity expansion
occurs. The CAA highlights the lack of a market for CPI-linked debt
and that a switch to CPI based regulation could lead to higher
short term airport charges. Given this, its initial policy for H7
is to continue to use RPI to calculate allowed returns and the RAB,
with an open question on whether RPI or CPI is used to calibrate
the price control, for example, the tariff formula.
The consultation comments on a number of other areas where work
will continue over the coming months. These include the cost of
capital for H7 where it intends to give initial views on likely
ranges for both 2 and 3 runway scenarios later in 2017. The CAA is
explicit about the likely increase in risk associated with
expansion and that this should be adequately rewarded. In a similar
timeframe the CAA plans to consider the regulatory treatment of
early stage 'Category C' costs. These costs relate, for example, to
land acquisition, detailed surveying or design or very early
construction that may be incurred before planning consent is
granted for expansion in the interests of an efficient construction
programme.
Given the extension of Q6 by at least one year, we now expect to
issue our initial H7 business plan in December 2018. We expect
further CAA consultations or updates in late 2017 or early
2018.
2 Financial review
2.1 Basis of presentation of financial results
Heathrow (SP) Limited ('Heathrow (SP)') is the holding company
of a group of companies that owns Heathrow airport and operates the
Heathrow Express rail service (the 'Group'). Heathrow (SP)'s
consolidated accounts are prepared under International Financial
Reporting Standards ('IFRS').
2.2 Income statement
2.2.1 Overview
In the six months ended 30 June 2017, the Group's operating
profit before certain re-measurements was GBP503 million (2016:
GBP421 million) and its profit after tax was GBP246 million (2016:
GBP201 million loss).
2017 2016
Six months ended 30 June GBPm GBPm
--------------------------------------- ------ ------
Excluding certain re-measurements
Revenue 1,374 1,320
Operating costs before depreciation
and amortisation (539) (539)
--------------------------------------- ------ ------
Adjusted EBITDA(1) 835 781
Depreciation and amortisation (332) (360)
--------------------------------------- ------ ------
Adjusted operating profit 503 421
Net finance costs (401) (346)
--------------------------------------- ------ ------
Adjusted profit before tax 102 75
Tax charge on profit before certain
re-measurements (30) (24)
Including certain re-measurements
Fair value gain/(loss) on investment
properties 74 (12)
Fair value gain/(loss) on financial
instruments 135 (295)
Tax (charge)/credit on certain
re-measurements (35) 55
Profit/(loss) after tax 246 (201)
--------------------------------------- ------ ------
(1) Adjusted EBITDA is earnings before interest, tax,
depreciation and amortisation, certain re-measurements and
exceptional items. Management uses Adjusted EBITDA to monitor the
performance of the segments as it believes it more accurately
reflects the underlying financial performance of the Group's
operations. For the six months ended 30 June 2017, Adjusted EBITDA
was GBP835 million and EBITDA was GBP909 million. For the six
months ended 30 June 2016, Adjusted EBITDA was GBP781 million and
EBITDA was GBP769 million.
2.2.2 Revenue
In the six months ended 30 June 2017, revenue increased 4.1% to
GBP1,374 million (2016: GBP1,320 million).
2017 2016 Change
Six months ended 30 June GBPm GBPm (%)
-------------------------- ------ ------ -------
Aeronautical 814 802 1.5
Retail 313 280 11.8
Other 247 238 3.8
-------------------------- ------ ------ -------
Total revenue 1,374 1,320 4.1
-------------------------- ------ ------ -------
2.2.2.1 Aeronautical
In the six months ended 30 June 2017, aeronautical revenue
increased 1.5% to GBP814 million (2016:
GBP802 million). Heathrow delivered better value for passengers
and airlines with lower charges as average aeronautical revenue per
passenger declined 2.3% to GBP21.92 (2016: GBP22.44).
Traffic growth of 3.9% generated GBP30 million incremental
revenue. This was offset by a lower price due to the regulatory
RPI-1.5% pricing formula and adjustments to reflect lower capital
expenditure than forecast in the original regulatory settlement. In
addition, yield dilution in the period compounded by concentration
in the same period last year resulted in GBP11 million lower
revenue.
2.2.2.2 Retail
In the six months ended 30 June 2017, retail revenue increased
11.8% to GBP313 million (2016: GBP280 million). Retail revenue per
passenger rose 7.6% to GBP8.43 (2016: GBP7.84) with stronger growth
in the second quarter of 8.7%.
2017 2016 Change
Six months ended 30 GBPm GBPm (%)
June
-------------------------- ----- ----- -------
Duty and tax-free 70 62 12.9
Airside specialist shops 63 51 23.5
Bureaux de change 24 24 -
Catering 26 22 18.2
Other retail income 43 37 16.2
Car parking 58 55 5.5
Other services 29 29 -
-------------------------- ----- ----- -------
Total retail revenue 313 280 11.8
-------------------------- ----- ----- -------
In addition to increased passenger traffic, growth in retail
income reflected benefits, particularly in duty and tax-free and
airside specialist shops, from the depreciation of sterling since
June 2016. Catering also saw strong growth driven by increased
passenger traffic, the redevelopment of Terminal 5 catering outlets
and more passengers choosing to buy food from terminals before
boarding their flights. Higher car rental and VIP income drove
other retail income higher. The redevelopment of Terminal 4's
luxury retail offering, completed in late 2016, also contributed to
growth.
2.2.2.3 Other
In the six months ended 30 June 2017, other revenue was up 3.8%
to GBP247 million (2016:
GBP238 million).
2017 2016 Change
Six months ended 30 GBPm GBPm (%)
June
------------------------- ----- ----- -------
Other regulated charges 113 110 2.7
Heathrow Express 63 59* 6.8
Property and other 71 69* 2.9
Total other revenue 247 238 3.8
------------------------- ----- ----- -------
* The segment revenue for both Heathrow Express and Property and
other have been re-stated to reflect more accurately the
performance of the underlying Heathrow Express business and to
present segmental revenue on a basis consistent with adjusted
EBITDA reported for Heathrow Express. There is no effect on total
revenue as a result of this restatement.
Other regulated charges reflect a pass through to airlines of
Heathrow's costs in areas such as utilities and baggage system
operations and maintenance. The year on year performance primarily
reflects an increase in baggage costs due to higher passenger
numbers. Additional performance in other revenue reflects growth
from Heathrow Express, driven by the introduction of a more
sophisticated pricing strategy and traffic growth. During June
Heathrow Express achieved the milestone of carrying one hundred
million passengers since its launch in June 1998.
2.2.3 Operating costs
In the six months ended 30 June 2017, operating costs excluding
depreciation, amortisation and exceptional items were flat at
GBP539 million (2016: GBP539 million) or 3.7% lower on a per
passenger basis at GBP14.52 (2016: GBP15.08). Adjusting utilities
costs for a one-off GBP14 million credit previously reported in
2016 and for GBP7 million in expansion-related costs that started
being capitalised, underlying operating costs were down 1.3% or
5.0% on a per passenger basis.
2017 2016 Change
Six months ended 30 June GBPm GBPm (%)
-------------------------- ----- ----- -------
Employment 180 178 1.1
Operational 122 131 (6.9)
Maintenance 83 86 (3.5)
Business rates 64 63 1.6
Utilities 44 30 46.7
Other 46 51 (9.8)
Total operating costs 539 539 -
-------------------------- ----- ----- -------
Significant cost efficiencies in people-related areas were
offset primarily by the impact of inflation and higher costs
related to managing higher passenger numbers while maintaining
service standards and operational resilience. A combination of
benefits from the renegotiated NATS contract, efficiencies from
other third party supplies and lower insurance costs in the year to
date drove operational costs down. The rise in business rates
reflects general national trends with Heathrow remaining one of the
UK's highest business rate payers.
Higher utility costs are due to the non-recurrence of a one-off
GBP14 million credit in 2016 following the renegotiation of
contractual terms for the provision of electricity distribution
infrastructure services. The recurrent benefits from this
renegotiation and focus on energy demand management continue to
drive underlying savings year on year that are broadly offset by
inflation impacts.
Other costs decreased mainly due to the fact that in relation to
expansion, following the UK Government's decision in late 2016 to
support Heathrow expansion, costs have started to be capitalised
rather than being expensed. These costs amounted to GBP7 million in
the first half.
2.2.4 Operating profit
For the six months ended 30 June 2017, the Group recorded an
operating profit before certain re-measurements of GBP503 million
(2016: GBP421 million).
2017 2016 Change
Six months ended 30 June GBPm GBPm (%)
------------------------------- ------ ------ -------
Adjusted EBITDA 835 781 6.9
Depreciation and amortisation (332) (360) (7.8)
Adjusted operating profit 503 421 19.5
------------------------------- ------ ------ -------
In the six months ended 30 June 2017, Adjusted EBITDA increased
6.9% to GBP835 million (2016: GBP781 million), resulting in an
Adjusted EBITDA margin of 60.8% (2016: 59.2%). Depreciation and
amortisation decreased to GBP332 million (2016: GBP360 million).
This was driven by a combination of various assets, mainly in
Terminal 3, becoming fully depreciated during 2016 as well as a
build-up in the value of assets in the course of construction where
depreciation will commence once the relevant assets come into
operational use over the coming years.
2.2.5 Taxation
For the six months ended 30 June 2017, the profit before tax and
certain re-measurements of GBP102 million (2016: GBP75 million)
resulted in a tax charge of GBP30 million (2016: GBP24 million).
This results in an effective tax rate of 29.4% (2016: 32.0%),
compared to the UK statutory rate of 19.25% (2016: 20.0%). The
effective tax rate being higher than the statutory rate reflects
the fact that a substantial proportion of Heathrow's capital
expenditure does not qualify for tax relief. The total tax charge
recognised was GBP65 million (2016: GBP31 million credit) based on
the profit before tax of GBP311 million (2016: GBP232 million
loss), which includes the impact of certain re-measurements.
2.3 Cash flow
2.3.1 Summary cash flow
In the six months ended 30 June 2017, there was a decrease of
GBP64 million in cash and cash equivalents compared with an
increase of GBP60 million in the six months ended 30 June 2016.
2017 2016
Six months ended 30 June GBPm GBPm
----------------------------------------- ------ ------
Cash generated from operations 820 700
Taxation:
Corporation tax paid (18) (18)
Net cash from operating activities 802 682
----------------------------------------- ------ ------
Purchase of property, plant and
equipment (309) (295)
Purchase of intangible assets (9) (8)
Decrease in term deposits 368 195
Increase in group deposits - (19)
Interest received 3 3
----------------------------------------- ------ ------
Net cash from/(used in) investing
activities 53 (124)
----------------------------------------- ------ ------
Dividends paid to Heathrow Finance
plc (466) (227)
(Decrease)/increase in amount
owed to Heathrow Finance plc (140) 95
Proceeds from issuance of bonds,
term notes and other financing 878 344
Repayment of bonds and facilities
and other financing items (876) (320)
Settlement of accretion on index-linked
swaps (10) (86)
Swap restructuring - 20
Interest paid (305) (324)
----------------------------------------- ------ ------
Net cash used in financing activities (919) (498)
----------------------------------------- ------ ------
Net (decrease)/increase in cash
and cash equivalents (64) 60
----------------------------------------- ------ ------
Cash generated from operations
after capital expenditure and
net interest paid 200 76
----------------------------------------- ------ ------
At 30 June 2017, the Group had GBP228 million (31 December 2016:
GBP660 million) of cash, cash equivalents and term deposits, of
which cash and cash equivalents were GBP216 million (31 December
2016: GBP280 million).
2.3.2 Cash generated from operations
In the six months ended 30 June 2017, cash generated from
operations increased 17.1% to GBP820 million (2016: GBP700
million). The following table reconciles Adjusted EBITDA to cash
from operations.
2017 2016
Six months ended 30 June GBPm GBPm
-------------------------------------------- ----- -----
Adjusted EBITDA 835 781
Increase in receivables and inventories(1) (11) (46)
Increase/(decrease) in payables 13 (8)
Decrease in provisions (7) (3)
Difference between pension charge
and cash contributions (10) (24)
Cash generated from operations 820 700
-------------------------------------------- ----- -----
(1) Excludes movement in group deposits
2.3.3 Dividends/restricted payments
The financing arrangements of the Group and 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.
In the six months ended 30 June 2017, Heathrow's ultimate
shareholders received GBP188 million (2016: GBP150 million) in
dividends reflecting the continued strong performance achieved by
the business including delivering better value for airlines and
passengers and significantly improving service. Total restricted
payments paid by Heathrow (SP) Limited in the period amounted to
GBP641 million (net) or GBP766 million (gross). Other than the
GBP179 million payment made by Heathrow (SP) to Heathrow Finance to
fund dividends to ultimate shareholders, net restricted payments
related mainly to meeting GBP35 million (2016: GBP36 million) of
interest on the debenture between Heathrow (SP) and Heathrow
Finance, GBP10 million (2016: GBP16 million) of interest payments
at ADI Finance 2 Limited ('ADIF2') and a net GBP417 million
distributed to Heathrow Finance to meet a GBP265 million bond
maturity on 1 March 2017 and temporarily repay GBP275 million in
various loan facilities.
2.4 Recent financing activity
Heathrow continues to focus on maintaining a strong liquidity
position and optimising its long-term cost of debt as well as
ensuring duration, diversification and resilience in its debt
financing. Heathrow's debt financing strategy for the remainder of
its current regulatory period is expected to have a strong focus on
ensuring its relatively limited funding requirements are targeted
at maintaining its presence in existing public markets whilst
capitalising selectively on private placement opportunities.
In 2017, Heathrow has raised over GBP1.0 billion of debt
financing globally comprising just over GBP700 million in Class A
debt, a GBP275 million bond issued by Heathrow Finance and a GBP75
million term loan facility initially held at ADI Finance 2 Limited
('ADIF2') which will migrate to Heathrow Finance by 2019.
Completion of the Heathrow Finance bond and the ADIF2 term loan
facility will enable Heathrow to simplify its debt financing from
four layers to three no later than 2019.
In terms of Class A debt raised since the start of 2017, the
highlight has been the issue in June 2017 of a EUR500 million, 15
year public bond with a fixed rate coupon of 1.875% which further
strengthens Heathrow's presence in this market. The transaction
closed after the period end. Also in June 2017, a GBP100 million
private placement from non-sterling sources which was signed in
March 2017 was drawn and will mature in 2033 and 2037. In March
2017, Heathrow drew in full a GBP418 million term loan initially
signed with a group of banks in June 2016 and increased by GBP68
million in early 2017. Finally, in July 2017 Heathrow entered into
a GBP100 million 7 year term loan facility that is not expected to
be drawn until July 2018.
In May 2017, Heathrow Finance returned to the bond market for
the first time since October 2014, raising GBP275 million in a
highly successful 10 year public bond with a fixed rate coupon of
3.875%. In June 2017, the last undrawn GBP75 million of Heathrow
Finance term loans agreed in 2016 was drawn.
Since the start of 2017, Heathrow has repaid EUR700 million
(GBP584 million) and CHF400 million (GBP272 million) Class A bonds
in January 2017 and February 2017 respectively. In March 2017,
Heathrow Finance repaid a GBP265 million bond and in June 2017, it
also temporarily repaid GBP275 million in loan facilities as it
looks to optimise its interest costs over the balance of 2017. This
is the reason for the increase in Class A and B gearing ratios
since March 2017 (see section 2.5.4) which will unwind once these
facilities are redrawn around the end of 2017. Finally, earlier in
July, GBP310 million of existing loan facilities at ADIF2 were
repaid.
2.5 Financing position
2.5.1 Debt and liquidity at Heathrow (SP) Limited
At 30 June 2017, the Group's nominal net debt was GBP12,454
million (31 December 2016: GBP11,908 million) and comprised
GBP11,117 million in bond issues, GBP937 million in other term
debt, GBP360 million outstanding under revolving credit facilities
and GBP268 million in index-linked derivative accretion offset by
GBP228 million in cash and term deposits. Nominal net debt
comprised GBP10,636 million in senior net debt and GBP1,818 million
in junior debt.
The average cost of the Group's nominal gross debt at 30 June
2017 was 3.90% (31 December 2016: 4.08%). This includes interest
rate, cross-currency and index-linked hedge impacts and excludes
index-linked accretion. Including index-linked accretion, the
Group's average cost of debt at 30 June 2017 was 5.51% (31 December
2016: 5.22%). The reduction in the average cost of debt excluding
index-linked accretion since the end of 2016 is mainly due to the
replacement in 2017 of relatively high cost maturing legacy debt
with newer lower cost debt. The increase in the average cost of
debt including index-linked accretion since the end of 2016 has
been driven by recent increases in inflation with the annual rate
of retail price index ('RPI') inflation increasing from a low of
0.9% in March 2016 to 3.5% in June 2017. The average life of the
Group's gross debt as at 30 June 2017, adjusted for the EUR500
million bond issue that closed shortly after the period end, was
11.7 years.
Nominal debt excludes any restricted cash and the debenture
between Heathrow (SP) and Heathrow Finance. It includes all the
components used in calculating gearing ratios under the Group's
financing agreements including index-linked accretion.
The accounting value of the Group's net debt was GBP12,550
million at 30 June 2017 (31 December 2016: GBP12,189 million). This
includes GBP216 million of cash and cash equivalents and GBP12
million of term deposits as reflected in the statement of financial
position and excludes accrued interest.
Heathrow expects to have sufficient liquidity to meet all its
obligations in full until September 2019. The obligations include
forecast capital investment (including expected investment over the
period related to potential expansion), debt service costs, debt
maturities and distributions. This liquidity position takes into
account GBP2.1 billion in undrawn loan facilities and term debt as
well as cash resources at 30 June 2017 together with expected
operating cash flow over the period.
2.5.2 Debt at Heathrow Finance plc
The consolidated nominal net debt of Heathrow Finance increased
1.0% to GBP13,132 million (31 December 2016: GBP13,005 million).
This comprises the Group's GBP12,454 million nominal net debt,
Heathrow Finance's gross debt of GBP1,038 million and cash held at
Heathrow Finance of GBP360 million.
2.5.3 Net finance costs and net interest paid
In the six months ended 30 June 2017, the Group's net finance
costs before certain re-measurements, from operations, were GBP401
million (2016: GBP346 million) and net interest paid was GBP302
million (2016: GBP321 million). Reconciliation from net finance
costs on the income statement to net interest paid on the cash flow
statement is provided below.
2017 2016
Six months ended 30 June GBPm GBPm
------------------------------------ ------ -----
Net finance costs before certain
re-measurements 401 346
Amortisation of financing fees and
other items (14) (13)
Borrowing costs capitalised 27 15
Underlying net finance costs 414 348
Non-cash accretion on index-linked
instruments (121) (41)
Other movements 9 14
Net interest paid 302 321
------------------------------------ ------ -----
Underlying net finance costs were GBP414 million (2016: GBP348
million) after adjusting for capitalised borrowing costs of GBP27
million (2016: GBP15 million) and non-cash amortisation of
financing fees, discounts and fair value adjustments of debt of
GBP14 million (2016: GBP13 million). The increase in underlying net
finance costs reflects higher index-linked accretion due to higher
inflation in the period.
Net interest paid in the period was GBP302 million (2016: GBP321
million) of which GBP267 million (2016: GBP285 million) related to
external debt. The remaining GBP35 million (2016: GBP36 million) of
interest paid related to the debenture between Heathrow (SP) and
Heathrow Finance.
Net interest paid is lower than underlying net finance costs
primarily due to non-cash accretion on index-linked
instruments.
Included within certain re-measurements is a GBP135 million fair
value gain on financial instruments (2016: GBP295 million loss)
driven primarily by an upwards shift in long term sterling swap
rates compared to a reduction in rates in the prior year following
the outcome of the UK's referendum on membership of the European
Union in June 2016.
2.5.4 Financial ratios
The Group and Heathrow Finance continue to operate comfortably
within required financial ratios.
Gearing ratios under the Group's financing agreements are
calculated by dividing consolidated nominal net debt by Heathrow's
Regulatory Asset Base ('RAB') value. Heathrow's RAB was GBP15,485
million at 30 June 2017 (31 December 2016: GBP15,237 million).
At 30 June 2017, the Group's senior (Class A) and junior (Class
B) gearing ratios were 68.7% and 80.4% respectively (31 December
2016: 66.7% and 78.2% respectively; 31 March 2017: 67.9% and 79.3%
respectively) compared with trigger levels of 70.0% and 85.0% under
its financing agreements. The increase in Class A and B gearing
ratios since 31 December 2016 and 31 March 2017 reflects Heathrow's
strategy to optimise its interest costs over the balance of 2017 by
effectively temporarily repaying debt at ADIF2 with Class A and B
debt. At 30 June 2017, Heathrow Finance's gearing ratio was 84.8%
(31 December 2016: 85.4%; 31 March 2017: 85.5%). This compares to a
covenant level of 90.0% under its financing agreements.
2.6 Pension scheme
Heathrow operates a defined benefit pension scheme, the BAA
Pension Scheme, which closed to new members in June 2008. At 30
June 2017, the defined benefit pension scheme, as measured under
IAS 19, had a deficit of GBP163 million (31 December 2016: GBP79
million deficit). The GBP84 million change in the first half of
2017 is primarily due to a net actuarial loss of GBP94 million
(reflecting primarily a combination of slightly lower discount
rates derived from corporate bond yields and returns on scheme
assets being lower than allowed for in the income statement) and
charges to the income statement of GBP15 million, partly offset by
GBP25 million of cash contributions to the scheme.
2.7 Outlook
The outlook for Heathrow's Adjusted EBITDA performance for 2017
remains consistent with the figure of GBP1,735 million set out in
the Investor Report published on 27 June 2017 which was based on a
traffic forecast of 76.7 million for the year.
Appendix 1 Financial information
Heathrow (SP) Limited
Consolidated income statement
for the six months ended 30 June 2017
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
--------------------------------------------- --------------------------------------------- ---------------------------------------------
Before Before Before Certain
certain Certain certain Certain certain re-measurements(a)
re-measurements re-measurements(a) Total re-measurements re-measurements(a) Total re-measurements Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------------- ------------------ -------- --------------- ------------------ -------- --------------- ------------------ --------
Revenue 1 1,374 - 1,374 1,320 - 1,320 2,807 - 2,807
Operating costs 2 (871) - (871) (899) - (899) (1,794) - (1,794)
Other operating
items
Fair value
gain/(loss)
on
investment
properties - 74 74 - (12) (12) - 44 44
---------------- --------------- ------------------ -------- --------------- ------------------ -------- --------------- ------------------ --------
Operating profit 503 74 577 421 (12) 409 1,013 44 1,057
Financing
Finance
income 101 - 101 110 - 110 218 - 218
Finance
costs (502) - (502) (456) - (456) (964) - (964)
Fair value
gain/(loss)
on
financial
instruments - 135 135 - (295) (295) - (524) (524)
---------------- --------------- ------------------ -------- --------------- ------------------ -------- --------------- ------------------ --------
Net finance
costs 3 (401) 135 (266) (346) (295) (641) (746) (524) (1,270)
Profit/(loss)
before
tax 102 209 311 75 (307) (232) 267 (480) (213)
Tax
(charge)/credit
before change
in
tax rate (30) (35) (65) (24) 55 31 (67) 83 16
Change in tax
rate - - - - - - - 53 53
Taxation 4 (30) (35) (65) (24) 55 31 (67) 136 69
---------------- --------------- ------------------ -------- --------------- ------------------ -------- --------------- ------------------ --------
Profit/(loss)
for
the period 72 174 246 51 (252) (201) 200 (344) (144)
---------------- --------------- ------------------ -------- --------------- ------------------ -------- --------------- ------------------ --------
(a) Certain re-measurements consist of: fair value gains and
losses on investment property revaluations and disposals; gains and
losses arising on the re-measurement and disposal of financial
instruments, together with the associated fair value gains and
losses on any underlying hedge items that are part of a fair value
hedging relationship, the effects of the changes in tax rate and
the associated tax impact of these and similar cumulative prior
year items.
Heathrow (SP) Limited
Consolidated statement of comprehensive income
for the six months ended 30 June 2017
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------------------ ----------- ----------- -------------
Profit/(loss) for the
period 246 (201) (144)
------------------------------------ ----------- ----------- -------------
Items that will not be
subsequently reclassified
to the consolidated income
statement:
Actuarial loss on pensions
net of tax:
(Loss)/gain on plan assets (36) 340 501
Increase in scheme liabilities (43) (354) (688)
Tax relating to indexation
of operational land - - 1
Change in deferred tax
due to tax rate change - - 6
Items that may be subsequently
reclassified to the consolidated
income statement:
Cash flow hedges:
(Losses)/gains taken to
equity (76) 213 264
Transferred to income
statement 80 (223) (241)
Change in deferred tax
due to tax rate change - - (7)
Other comprehensive loss
for the period net of
tax (75) (24) (164)
------------------------------------ ----------- ----------- -------------
Total comprehensive income/(loss)
for the period(a) 171 (225) (308)
------------------------------------ ----------- ----------- -------------
(a) Attributable to owners of the parent.
Heathrow (SP) Limited
Consolidated statement of financial position
as at 30 June 2017
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
Note GBPm GBPm GBPm
Assets
Non-current assets
Property, plant
and equipment 11,348 11,214 11,306
Investment properties 2,274 2,144 2,200
Intangible assets 119 125 122
Retirement benefit - 111
surplus -
Derivative financial
instruments 480 613 676
Trade and other
receivables 23 30 27
------------------------- ----- ---------- ---------- -------------
14,244 14,237 14,331
------------------------- ----- ---------- ---------- -------------
Current assets
Inventories 11 11 11
Trade and other
receivables 282 292 271
Derivative financial
instruments 147 42 78
Term deposits 12 355 380
Cash and cash
equivalents 216 232 280
------------------------- ----- ---------- ---------- -------------
668 932 1,020
------------------------- ----- ---------- ---------- -------------
Total assets 14,912 15,169 15,351
------------------------- ----- ---------- ---------- -------------
Liabilities
Non-current liabilities
Borrowings 5 (13,298) (12,468) (13,240)
Derivative financial
instruments (1,410) (1,223) (1,419)
Deferred income
tax liabilities (867) (956) (849)
Retirement benefit
obligations (199) (28) (114)
Provisions (9) (2) (9)
Trade and other
payables (9) (11) (8)
------------------------- ----- ---------- ---------- -------------
(15,792) (14,688) (15,639)
------------------------- ----- ---------- ---------- -------------
Current liabilities
Borrowings 5 (897) (1,578) (1,241)
Derivative financial - (4) -
instruments
Provisions (6) (2) (12)
Current income
tax liabilities (44) (37) (30)
Trade and other
payables (447) (387) (408)
------------------------- ----- ---------- ---------- -------------
(1,394) (2,008) (1,691)
------------------------- ----- ---------- ---------- -------------
Total liabilities (17,186) (16,696) (17,330)
------------------------- ----- ---------- ---------- -------------
Net liabilities (2,274) (1,527) (1,979)
------------------------- ----- ---------- ---------- -------------
Equity
Capital and reserves
Share capital 11 11 11
Share premium 499 499 499
Merger reserve (3,758) (3,758) (3,758)
Cash flow hedge
reserve (264) (294) (268)
Retained earnings 1,238 2,015 1,537
------------------------- ----- ---------- ---------- -------------
Total shareholder's
deficit (2,274) (1,527) (1,979)
------------------------- ----- ---------- ---------- -------------
Heathrow (SP) Limited
Consolidated statement of changes in equity
for the six months ended 30 June 2017
Attributable to owners of the Company
----------------------------------------------------------------
Cash
flow
Share Share Merger hedge Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- --------- --------- ---------- --------
1 January 2016 11 499 (3,758) (284) 2,457 (1,075)
-------------------------- --------- --------- --------- --------- ---------- --------
Comprehensive
income:
Loss for the period (201) (201)
Other comprehensive
income:
Fair value losses
on cash flow
hedges net of
tax (10) (10)
Actuarial loss
on pensions net
of tax:
Gain on plan assets 340 340
Increase in scheme
liabilities (354) (354)
Total comprehensive
income (10) (215) (225)
-------------------------- --------- --------- --------- --------- ---------- --------
Transaction with
owners:
Dividends paid
to Heathrow Finance
plc (227) (227)
-------------------------- --------- --------- --------- --------- ---------- --------
Total transaction
with owners (227) (227)
-------------------------- --------- --------- --------- --------- ---------- --------
30 June 2016 11 499 (3,758) (294) 2,015 (1,527)
-------------------------- --------- --------- --------- --------- ---------- --------
1 January 2017 11 499 (3,758) (268) 1,537 (1,979)
-------------------------- --------- --------- --------- --------- ---------- --------
Comprehensive
income:
Profit for the
period 246 246
Other comprehensive
income:
Fair value losses
on cash flow
hedges net of
tax 4 4
Actuarial loss
on pensions net
of tax:
Loss on plan assets (36) (36)
Increase in scheme
liabilities (43) (43)
Total comprehensive
income 4 167 171
-------------------------- --------- --------- --------- --------- ---------- --------
Transaction with
owners:
Dividends paid
to Heathrow Finance
plc (466) (466)
-------------------------- --------- --------- --------- --------- ---------- --------
Total transaction
with owners (466) (466)
-------------------------- --------- --------- --------- --------- ---------- --------
30 June 2017 11 499 (3,758) (264) 1,238 (2,274)
-------------------------- --------- --------- --------- --------- ---------- --------
Heathrow (SP) Limited
Consolidated statement of cash flows
for the six months ended 30 June 2017
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 31 December
30 June June 2016 2016
2017
Note GBPm GBPm GBPm
----------------------------- ----- ---------------------------------- ----------------------------- -------------
Cash flows from operating
activities
Cash generated from
operations 6 820 700 1,652
Taxation:
Corporation tax paid (18) (18) (45)
Group relief paid - - (15)
Net cash from operating
activities 802 682 1,592
----------------------------- ----- ---------------------------------- ----------------------------- -------------
Cash flows from investing
activities
Purchase of:
Property, plant and
equipment (309) (295) (660)
Intangible assets (9) (8) (14)
Decrease in term deposits(1) 368 195 170
Increase in group
deposits(2) - (19) (26)
Interest received 3 3 4
Net cash from/(used
in) investing activities 53 (124) (526)
----------------------------- ----- ---------------------------------- ----------------------------- -------------
Cash flows from financing
activities
Dividends paid to
Heathrow Finance plc (466) (227) (596)
(Decrease)/increase
in amount owed to
Heathrow Finance plc (140) 95 260
Proceeds from issuance
of bonds - 344 829
Repayment of bonds (856) (300) (734)
Proceeds from issuance
of other term debt 518 - 90
Drawdown of revolving 360 - -
credit facilities
Repayment of facilities
and other financing
items (20) (20) (44)
Swap restructuring - 20 20
Settlement of accretion
on index-linked swaps (10) (86) (188)
Interest paid (305) (324) (595)
Net cash used in financing
activities (919) (498) (958)
----------------------------- ----- ---------------------------------- ----------------------------- -------------
Net (decrease)/increase
in cash and cash
equivalents (64) 60 108
Cash and cash equivalents
at beginning of period 280 172 172
Cash and cash equivalents
at end of period 216 232 280
----------------------------- ----- ---------------------------------- ----------------------------- -------------
(1) Term deposits with an original maturity of over three months
are invested at Heathrow Airport Limited and Heathrow (AH)
Limited.
(2) Group deposits are amounts with LHR Airports Limited due in
less than one year or on demand.
Heathrow (SP) Limited
General information and accounting policies
for the six months ended 30 June 2017
General information
The financial information set out herein does not constitute the
Group's statutory financial statements for the year ended 31
December 2016 or any other period. Statutory financial statements
for the year ended 31 December 2016 have been filed with the
registrar of Companies on 24 February 2017. The annual financial
information presented herein for the year ended 31 December 2016 is
based on, and is consistent with, the audited consolidated
financial statements of Heathrow (SP) Limited (the 'Group') for the
year ended 31 December 2016. The auditors' report on the 2016
financial statements was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statements under
section 498(2) or (3) of the Companies Act 2006.
Accounting policies
Basis of preparation
The consolidated financial statements of Heathrow (SP) Limited
have been prepared in accordance with IFRS as issued by the
International Accounting Standards Board ('IASB') and as adopted by
the European Union ('EU') and prepared under the historical cost
convention, except for investment properties, derivative financial
instruments and financial liabilities that qualify as hedged items
under a fair value hedge accounting system. These exceptions to the
historical cost convention have been measured at fair value in
accordance with IFRS and as permitted by the Fair Value Directive
as implemented in the Companies Act 2006. The accounting policies
adopted in the preparation of this consolidated financial
information are consistent with those applied by the Group in its
audited consolidated financial statements for the year ended 31
December 2016.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the six months ended 30 June 2017
1 Segment information
Management has determined the reportable segments of the
business based on those contained within the monthly reports
reviewed and utilised by the relevant Board for allocating
resources and assessing performance. These segments relate to the
operations of Heathrow and Heathrow Express.
The performance of the above segments is measured on a revenue
and Adjusted EBITDA basis, before certain re-measurements.
The reportable segments derive their revenues from a number of
sources including aeronautical, retail, other regulated charges
('ORCs') and other products and services (including rail income),
and this information is also provided to the Board on a monthly
basis.
Table (a) details total revenue from external customers for the
six months ended 30 June 2017 and is broken down into aeronautical,
retail, ORCs and other in respect of the reportable segments. No
information in relation to inter-segmental revenue is disclosed as
it is not considered material. Also detailed within table (a) is
Adjusted EBITDA and a reconciliation to the consolidated profit for
the period.
Table (b) and table (c) detail comparative information to table
(a) for the six months ended 30 June 2016 and the year ended 31
December 2016 respectively.
Table (a) Segment revenue
-------------------------------------------------
Unaudited
Six months
ended Total
30 June external Adjusted
2017 Aeronautical Retail ORCs Other revenue EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------- ----- ------ ---------- ---------
Heathrow 814 313 113 71 1,311 828
Heathrow
Express - - - 63 63 7
------------- ------- ----- ------ ---------- ---------
Continuing
operations 814 313 113 134 1,374 835
Reconciliation to statutory information:
Unallocated income and expense
Depreciation and amortisation (332)
---------------------------------------------------------------- ---------
Operating profit (before certain re-measurements) 503
Fair value gain on investment properties
(certain re-measurements) 74
---------------------------------------------------------------- ---------
Operating profit 577
Finance income 101
Finance costs (502)
Fair value gain on financial instruments
(certain re-measurements) 135
Profit before tax 311
Taxation before certain re-measurements (30)
Taxation (certain re-measurements) (35)
---------------------------------------------------------------- ---------
Taxation (65)
Profit for the period 246
---------------------------------------------------------------- ---------
Heathrow (SP) Limited
Notes to the consolidated financial information
for the six months ended 30 June 2017
1 Segment information continued
Table (b) Segment revenue
------------------------------------------------- ---------
Unaudited
Six months Total
ended external Adjusted
30 June 2016 Aeronautical Retail ORCs Other revenue EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------- ----- ------ ---------- ---------
Heathrow 802 280 110 69* 1,261 782
Heathrow
Express 59* 59 (1)
------------- ------- ----- ------ ---------- ---------
Continuing
operations 802 280 110 128 1,320 781
Reconciliation to statutory information:
Unallocated income and expense
Depreciation and amortisation (360)
------------------------------------------------------------------ ---------
Operating profit (before certain re-measurements) 421
Fair value loss on investment properties
(certain re-measurements) (12)
------------------------------------------------------------------ ---------
Operating profit 409
Finance income 110
Finance costs (456)
Fair value loss on financial instruments
(certain re-measurements) (295)
------------------------------------------------------------------ ---------
Loss before tax (232)
------------------------------------------------------------------ ---------
Taxation before certain re-measurements (24)
Taxation (certain re-measurements) 55
------------------------------------------------------------------ ---------
Taxation 31
Loss for the period (201)
------------------------------------------------------------------ ---------
Table (c) Segment revenue
------------------------------------------------- ------------------
Audited
Year ended Total
31 December external Adjusted
2016 Aeronautical Retail ORCs Other revenue EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------- ----- ------ ---------- ------------------
Heathrow 1,699 612 232 144* 2,687 1,616
Heathrow
Express 120* 120 66
------------- ------- ----- ------ ---------- ------------------
Continuing
operations 1,699 612 232 264 2,807 1,682
Reconciliation to statutory information:
Unallocated income and expense
Depreciation and amortisation (669)
----------------------------------------------------------------- ------------------
Operating profit (before certain re-measurements) 1,013
Fair value gain on investment properties
(certain re-measurements) 44
----------------------------------------------------------------- ------------------
Operating profit 1,057
Finance income 218
Finance costs (964)
Fair value loss on financial instruments
(certain re-measurements) (524)
Loss before tax (213)
Taxation before certain re-measurements (67)
Taxation (certain re-measurements) 136
----------------------------------------------------------------- ------------------
Taxation 69
Loss for the year (144)
----------------------------------------------------------------- ------------------
* Segment revenue for both Heathrow and Heathrow Express have
both been re-stated to reflect more accurately the performance of
the underlying Heathrow Express business and to present segmental
revenue on a basis consistent with Adjusted EBITDA reported for
Heathrow Express. There was no effect on total revenue as a result
of this restatement.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the six months ended 30 June 2017
2 Operating costs - ordinary
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------------- ------------ ------------ -------------
Employment 180 178 373
Operational 122 131 265
Maintenance 83 86 176
Business rates 64 63 128
Utilities 44 30 74
Other 46 51 109
------------------------------- ------------ ------------ -------------
Total adjusted operating
costs 539 539 1,125
Depreciation and amortisation 332 360 669
------------------------------- ------------ ------------ -------------
Total operating costs 871 899 1,794
------------------------------- ------------ ------------ -------------
3 Financing
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
----------------------------- --------------------- ---------------------------- -------------
Finance income
Interest receivable
on derivatives not in
hedge relationship 99 105 209
Interest on deposits 2 3 5
Net pension finance
income - 2 4
101 110 218
----------------------------- --------------------- ---------------------------- -------------
Finance costs
Interest on borrowings:
Bonds and related hedging
instruments(1) (244) (288) (591)
Bank loans and overdrafts
and related hedging
instruments (70) (28) (56)
Interest payable on
derivatives not in hedge
relationship(2) (178) (116) (275)
Facility fees and other
charges (4) (6) (9)
Net pension finance (2) - -
costs
Interest on debenture
payable to Heathrow
Finance plc (31) (33) (67)
Unwinding of discount
on provisions - - (1)
----------------------------- --------------------- ---------------------------- -------------
(529) (471) (999)
Less: capitalised borrowing
costs(3) 27 15 35
----------------------------- --------------------- ---------------------------- -------------
(502) (456) (964)
----------------------------- --------------------- ---------------------------- -------------
Net finance costs before
certain re-measurements (401) (346) (746)
----------------------------- --------------------- ---------------------------- -------------
Fair value gain/(loss)
on financial instruments
Interest rate swaps:
not in hedge relationship 51 (202) (122)
Index-linked swaps:
not in hedge relationship 72 (113) (436)
Cross-currency swaps:
ineffective portion
of cash flow hedges 2 28 10
Cross-currency swaps:
ineffective portion
of fair value hedges 10 (8) 24
135 (295) (524)
----------------------------- --------------------- ---------------------------- -------------
Net finance costs (266) (641) (1,270)
----------------------------- --------------------- ---------------------------- -------------
(1) Includes accretion of GBP22 million (six months ended 30
June 2016: GBP8 million; year ended 31 December 2016: GBP26
million) on index-linked bonds.
(2) Includes accretion of GBP99 million (six months ended 30
June 2016: GBP33 million; year ended 31 December 2016: GBP113
million) on index-linked swaps.
(3) Capitalised interest included in the cost of qualifying
assets arose on the general borrowing pool and is calculated by
applying an average capitalisation rate of 5.12% (six months ended
30 June 2016: 4.79%; year ended 31 December 2016: 4.89%) to
expenditure incurred on such assets.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the six months ended 30 June 2017
4 Taxation
Unaudited Unaudited Audited
Six months ended Six months ended 30 Year ended 31 December
30 June 2017 June 2016 2016
Before Before
certain Certain Before Certain certain Certain
re- re- certain re- re- re-
measurements measurements Total re-measurements measurements Total measurements measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------- ------------- ------ ---------------- ------------- ------ ------------- ------------- ------
UK corporation
tax
Current tax
charge
at 19.25%
(2016:
20.0%) (32) - (32) (24) - (24) (56) (2) (58)
Under provision
in respect to
prior years - - - - - - (1) - (1)
Deferred tax
Current year
(charge)/credit 2 (35) (33) - 55 55 (8) 89 81
Prior year
charge - - - - - - (2) (4) (6)
Change in UK
corporation
tax rate -
impact
on deferred tax
assets and
liabilities - - - - - - - 53 53
Taxation
(charge)/credit
for the period (30) (35) (65) (24) 55 31 (67) 136 69
----------------- ------------- ------------- ------ ---------------- ------------- ------ ------------- ------------- ------
For the six months ended 30 June 2017, the profit before tax and
certain re-measurements of GBP102 million (2016: GBP75 million)
resulted in a tax charge of GBP30 million (2016: GBP24 million).
This results in an effective tax rate of 29.4% (2016: 32.0%),
compared to the UK statutory rate of 19.25% (2016: 20%). The higher
effective tax rate reflects the fact that a substantial proportion
of Heathrow's capital expenditure does not qualify for tax relief.
The total tax charge recognised was GBP65 million (2016: GBP31
million credit) based on the profit before tax of GBP311 million
(2016: GBP232 million loss), which includes the impact of certain
re-measurements.
The Finance (No 2) Act 2015 enacted reductions in the main rate
of UK corporation tax from 20% to 19% from 1 April 2017 and from
19% to 18% from 1 April 2020. The Finance Act 2016 enacted a
further 1% reduction in the main rate of corporation tax to 17%
from 1 April 2020. Consequently the Group's significant deferred
tax balances, which were previously provided at 18%, were
re-measured in 2016 at the future tax rate at which the Group
believes the timing differences will reverse. This resulted in a
net reduction in the deferred tax liability and a corresponding net
deferred tax credit of GBP53 million being recognised in the income
statement.
In December 2016 and January 2017 the UK government published
draft legislation on the new interest deductibility regime, in
response to the Organisation for Economic Co-operation and
Development (OECD) reports on base erosion and profit shifting
(BEPS). In this, the new corporate interest restriction would be
effective from 1 April 2017 and interest deductions would be
limited to 30% of tax based EBITDA, with the ability to apply a
group ratio rule (GRR) and a public infrastructure exemption (PIE).
Whilst the legislation could impact the future tax charge of the
group, Heathrow expects to be largely protected from the 30% of tax
EBITDA cap through the use of the PIE and GRR. Although the draft
legislation was not included in the Finance Act 2017, it will be
included in the Finance Bill 2017 (No. 2) to be enacted later this
year.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the six months ended 30 June 2017
5 Borrowings
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------------ ---------- ---------- -------------
Current borrowings
Secured
Heathrow Funding Limited
bonds:
4.125% EUR500 million -
due 2016 - 416
4.375% EUR700 million
due 2017 - 584 598
2.500% CHF400 million
due 2017 - 309 318
4.600% EUR750 million -
due 2018 650 -
----------------------------- ---------- ---------- -------------
Total bonds 650 1,309 916
Heathrow Airport Limited
loans 33 39 36
------------------------------ ---------- ---------- -------------
Total current (excluding
interest payable) 683 1,348 952
Interest payable - external 195 208 266
Interest payable - owed
to group undertakings 19 22 23
------------------------------ ---------- ---------- -------------
Total current 897 1,578 1,241
------------------------------ ---------- ---------- -------------
Non-current borrowings
Secured
Heathrow Funding Limited
bonds:
4.600% EUR750 million
due 2018 - 606 627
6.250% GBP400 million
due 2018 399 399 399
4.000% C$400 million
due 2019 236 231 240
6.000% GBP400 million
due 2020 398 397 398
9.200% GBP250 million
due 2021 269 276 272
3.000% C$450 million
due 2021 266 271 274
4.875% US$1,000 million
due 2021 789 811 833
1.650%+RPI GBP180 million
due 2022 203 196 199
1.875% EUR600 million
due 2022 540 529 534
5.225% GBP750 million
due 2023 680 663 669
7.125% GBP600 million
due 2024 591 590 591
0.500% CHF400 million
due 2024 310 320 314
3.250% C$500 million
due 2025 295 307 303
4.221% GBP155 million
due 2026 155 155 155
6.750% GBP700 million
due 2026 692 691 692
2.650% NOK1,000 million
due 2027 91 95 93
7.075% GBP200 million
due 2028 198 198 198
2.500% NOK1,000 million
due 2029 81 - 85
1.500% EUR750 million
due 2030 609 630 614
6.450% GBP900 million
due 2031 850 852 850
Zero-coupon EUR50 million
due January 2032 55 50 52
1.366%+RPI GBP75 million
due 2032 80 78 79
Zero-coupon EUR50 million
due April 2032 55 50 52
4.171% GBP50 million
due 2034 50 50 50
Zero-coupon EUR50 million
due 2034 48 44 46
1.061%+RPI GBP180 million
due 2036 186 181 183
1.382%+RPI GBP50 million
due 2039 53 52 53
3.334%+RPI GBP460 million
due 2039 597 579 587
1.238%+RPI GBP100 million
due 2040 105 102 103
5.875% GBP750 million
due 2041 739 739 738
4.625% GBP750 million
due 2046 742 742 742
1.372%+RPI GBP75 million
due 2049 80 78 79
2.750% GBP400 million
due 2049 392 - 392
------------------------------ ---------- ---------- -------------
10,834 10,962 11,496
------------------------------ ---------- ---------- -------------
Heathrow (SP) Limited
Notes to the consolidated financial information
for the six months ended 30 June 2017
5 Borrowings continued
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------------ ---------- ---------- -------------
Secured continued
Heathrow Airport Limited
debt:
Revolving credit facilities 360 - -
Term notes: GBP440 million
due 2026-2037 439 250 339
Loans 462 78 62
Unsecured
Debenture payable to
Heathrow Finance plc 1,203 1,178 1,343
------------------------------ ---------- ---------- -------------
Total non-current 13,298 12,468 13,240
------------------------------ ---------- ---------- -------------
Total borrowings (excluding
interest payable) 13,981 13,816 14,192
------------------------------ ---------- ---------- -------------
6 Cash generated from operations
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ------------
Operating activities
Profit/(loss) before
tax 311 (232) (213)
Adjustments for:
Fair value (gain)/loss
on financial instruments (135) 295 524
Finance costs 502 456 964
Finance income (101) (110) (218)
Depreciation and amortisation 332 360 669
Fair value (gain)/loss
on investment properties (74) 12 (44)
Working capital changes:
Increase in trade and
other receivables (11) (46) (19)
Increase/(decrease)
in trade and other payables 13 (8) 13
(Decrease)/increase
in provisions (7) (3) 7
Difference between pension
charge and cash contributions (10) (24) (31)
Cash generated from
operations 820 700 1,652
-------------------------------- ---------- ---------- ------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAEXKALAXEAF
(END) Dow Jones Newswires
July 27, 2017 02:02 ET (06:02 GMT)
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