TIDM88BX TIDM62CD
RNS Number : 6386D
Heathrow
28 October 2015
28 October 2015
Heathrow (SP) Limited
Results for the nine months ended 30 September 2015
-- Demand at Heathrow continues to grow with traffic up 2.3% to
a record 56.9 million passengers
-- Service quality well ahead of other European hubs during a
record summer with five separate days where Heathrow welcomed over
a quarter of a million passengers per day
-- Robust financial results with revenue up 4.1% to GBP2.1
billion and EBITDA up 4.4% to GBP1.2 billion
-- Continued focus on delivering operating efficiencies:
successful consultation on pension changes has reduced costs,
enabling continuation of final salary scheme
-- Strong momentum for expansion. Heathrow is ready to get on
quickly to deliver economic growth and jobs for Britain
Heathrow (SP) Limited owns Heathrow airport and together with
its subsidiaries is referred to as the Group. Heathrow Finance plc,
referred to as Heathrow Finance, is the parent company of Heathrow
(SP) Limited.
Nine months ended 30 September 2015 2014 Change (%)
------------------------------------ -------- -------- -----------
(GBPm unless otherwise stated)
Revenue 2,068 1,986 4.1
Adjusted EBITDA(1) 1,224 1,172 4.4
Cash generated from operations 1,156 1,112 4.0
Cash flow after investment and
interest(2) 177 (48) n.m
Pre-tax profit 552 73 n.m
------------------------------------ -------- -------- -----------
Heathrow (SP) Limited consolidated
net debt(3) 11,720 11,653 0.6
Heathrow Finance plc consolidated
net debt(3) 12,720 12,560 1.3
Regulatory Asset Base(3) 14,891 14,860 0.2
------------------------------------ -------- -------- -----------
Passengers (m)(4) 56.9 55.7 2.3
Net retail income per passenger
(4) 6.66 6.34 5.0
------------------------------------ -------- -------- -----------
Notes (1) to (4) see page 2.
John Holland-Kaye, Chief Executive Officer of Heathrow,
said:
"Expansion at Heathrow fills the gap in the UK's long-term
economic plan, by connecting all of Britain to global growth.
"Today's strong set of results demonstrates that we're moving
closer to our goal of giving passengers the best airport service in
the world and that we're well-placed to make the private investment
to fund expansion. Let's make it happen."
Notes
(1) Adjusted EBITDA is earnings before interest, tax,
depreciation & amortisation, certain re-measurements and
exceptional items
(2) Cash flow after investment and interest is cash generated
from operations after net capital expenditure and net interest
paid
(3) 2014 net debt and RAB figures at 31 December 2014. Nominal
net debt excluding intra-group loans and including inflation-linked
accretion
(4) Changes in passengers and net retail income per passenger
are calculated using unrounded passenger data
For further information please contact
Heathrow
Media enquiries Nathan Fletcher +44 77 3014 7892
Investor enquiries Anne Hurn +44 20 8745 9947
A conference call will be held for creditors and credit analysts
on 28 October 2015 at 3.00pm (UK time), 4.00pm (Central European
time), 11.00am (Eastern Standard Time), hosted by Michael Uzielli,
Chief Financial Officer.
Dial-in details: UK local/standard international: +44 (0)20 3139
4830; North America: +1 718 873 9077. Participant PIN code:
93545870#
The presentation can be viewed at the Heathrow Investor Centre
at heathrow.com and online during the event, using event password:
655462 at:
https://arkadin-trial.webex.com/arkadin-trial/j.php?MTID=m1300b0f341b255dcae00de7fd1ec493a
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 nine months ended 30 September
2015
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 Responsible Heathrow
1.6 Winning support for expansion
2 Financial review
2.1 Basis of presentation of financial results
2.2 Income statement
2.3 Cash flow
2.4 Pension scheme
2.5 Recent financing activity
2.6 Financing position
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
Heathrow's passenger traffic by geographic segment for the nine
months ended 30 September 2015:
(Millions) 2015 2014 Change (%)(1)
--------------------- ----- ----- --------------
UK 4.0 3.9 0.8
Europe 23.7 22.8 4.0
North America 13.1 12.9 1.4
Asia Pacific 7.9 7.9 (0.4)
Middle East 4.8 4.6 5.5
Africa 2.5 2.7 (6.6)
Latin America 0.9 0.8 8.9
--------------------- ----- ----- --------------
Total passengers(1) 56.9 55.7 2.3
--------------------- ----- ----- --------------
(1) Calculated using unrounded data
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:01 ET (07:01 GMT)
For the nine months ended 30 September 2015, traffic grew 2.3%
to 56.9 million passengers (2014: 55.7 million). There was a 2.0%
increase in the average number of seats per aircraft to 208.1
(2014: 204.0). The average load factor was 76.9% (2014: 77.2%),
reflecting the increase in seat capacity. The summer period was
particularly strong and, in the three months ended 30 September
2015, 21.4 million passengers used Heathrow, a rise of 3.9%
compared with the same period last year.
European traffic accounts for a significant proportion of the
growth in 2015, with almost one million more passengers than in the
first nine months of 2014. The increase is largely driven by
British Airways' success in filling its substantially increased
short haul seat capacity. Domestic traffic increased 0.8%.
Intercontinental traffic was up 1.0%, with more flights operated
and on average more seats per flight. A380 long haul aircraft now
account for over 20 arrivals and departures per day by eight
airlines. Traffic on routes serving the Middle East grew 5.5%
reflecting more flights and larger aircraft, whilst increased North
American frequencies led to 1.4% more traffic. Latin American
traffic grew 8.9% mainly reflecting Avianca's new route to
Colombia. The slight reduction on Asia Pacific routes partly
reflects the impact of competition from other international hubs,
although there was significant growth on routes serving China and
Hong Kong, where traffic increased 7.3%. In March, Vietnam Airlines
moved its London operations from Gatwick to Heathrow, following Air
China's switch last year.
Over a quarter of UK exports by value pass through Heathrow.
Cargo volume passing through Heathrow was 1.1 million metric
tonnes, in line with last year. Growth in cargo from routes serving
North America offset reductions from the Middle East and Asia
Pacific regions.
1.2 Transforming customer service
In 2015, Heathrow has delivered its best ever passenger service
with 81% of passengers surveyed rating their overall experience as
'Excellent' or 'Very Good' (2014: 77%). For a seventh consecutive
quarter Heathrow has achieved a service quality score above 4.00
whilst increasing passenger numbers. The independent Airport
Service Quality (ASQ) survey directed by Airports Council
International (ACI) puts Heathrow well ahead of major European hub
airports. The result reflects strong overall operational
performance and high levels of satisfaction across key passenger
service attributes.
Heathrow continues to be recognised for its high standards, most
recently receiving the '2015 Airport of the Year' award at the
Independent Travel Awards. The Independent Travel Awards combined
thousands of public votes and an expert panel of judges to select
the winners. In March 2015, Heathrow was named 'Best Airport in
Western Europe' for the first time at the Skytrax World Airport
Awards. The award, voted for globally by passengers, came in
addition to Terminal 5 being voted the world's 'Best Airport
Terminal' for the fourth year in a row and Heathrow being voted
'Best Airport for Shopping' for the sixth consecutive year.
Heathrow was also awarded ACI Europe's prestigious Best Airport
Award for the second time.
Improvements have been made to ease passengers' journeys through
the airport with significant capital investment in security and
baggage to ease the flow of passengers and facilitate seamless
transfers between terminals. In immigration, 15 new generation
biometric electronic passport gates have been installed across
Heathrow, enabling a more efficient and secure clearance through
Border Control.
As part of the focus on increasing the resilience of operations,
the first two of four new enhanced Instrument Landing Systems
(eILS) have been implemented at Heathrow, the first UK airport to
adopt the new system. The eILS is based on new navigation
technology and provides Heathrow with the capability to increase
the number of aircraft that can land in low visibility giving
improved safety, resilience and punctuality to airfield operations.
Heathrow is also the world's first airport to introduce a system to
separate arriving aircraft by time rather than distance. This
system improves the airport's performance on windy days enabling a
more complete schedule, better punctuality and fewer disrupted
passengers.
Heathrow has had its busiest days ever in 2015 and achieved
strong levels of service performance in the first nine months of
the year. In relation to individual service standards, departure
punctuality (the proportion of aircraft departing within 15 minutes
of schedule) was 77.2% (2014: 79.2%) and the baggage misconnect
rate was 19 per 1,000 passengers (2014: 19). The main challenges
for punctuality during the period were restrictions and delays in
European airspace. Passengers passed through central security
within the five minute period prescribed under the Service Quality
Rebate scheme 97.4% of the time (2014: 95.8%) compared with a 95%
service standard.
1.3 Beating the plan
At the same time as transforming customer service, Heathrow is
focused on beating the business plan for the 2014-2018 regulatory
period by delivering an ambitious programme of efficiencies and
increased revenue. This programme aims to enhance Heathrow's
competitive position and deliver an appropriate return for its
financial stakeholders.
Heathrow has performed well in the regulatory period to date,
making a fast start in implementing efficiency and revenue
initiatives. By the end of 2014, Heathrow had secured cost
efficiencies expected to be worth GBP280 million over the
settlement period out of a target of over GBP600 million and
revenue initiatives forecast to generate an additional GBP100
million over the period.
Progress has continued in 2015 including the early closure of
Terminal 1, improvements to pension costs, enhancements to security
productivity and initiatives to improve energy consumption. In
April, Heathrow entered into a 10 year strategic partnership
agreement with NATS to incentivise improved resilience, noise and
punctuality performance whilst reducing costs. A voluntary
severance scheme and revised new entrant pay levels within the
security operations were introduced in 2015. At the end of October
over 250 security officers will have left Heathrow as part of this
initiative.
Following consultation, changes were implemented to the terms of
the company's defined benefit pension scheme which reduce ongoing
costs and enable the scheme to remain open. The changes, which
apply to the scheme's active members, include introduction of an
annual cap on future increases to pensionable pay, a lower benefit
accrual rate and a cap on annual increases to pension payments at
retirement.
Taking these initiatives into account, the cost efficiencies
secured for the regulatory period are estimated to be almost GBP400
million, which is strong progress towards the GBP600 million
target. However, given the pressure on revenues from the low
inflation environment, Heathrow is driving for further efficiencies
across all areas of its business to achieve its objective of
beating the plan.
1.4 Investing in Heathrow
Heathrow invested GBP450 million in the first nine months of
2015 on programmes to improve the passenger experience and airport
resilience, as part of the GBP650 million capital expenditure plan
for 2015.
For passengers, the focus has been on delivering faster and
smoother journeys through the airport. The Terminal 3 Integrated
Baggage facility continues to transition airline baggage operations
onto the system through to May 2016. Passengers will benefit from
increased baggage connection reliability and the ability to check
bags in earlier and it is a key step in moving Heathrow towards the
goal of fully integrated and inter-connected baggage facilities
across all terminals. Heathrow completed its introduction of
parallel loading security lanes in Terminals 4 and 5 and has
increased the number of body scanners. These enhancements speed up
the time to pass through security.
The retail offer in Terminal 5 has been enhanced, giving
passengers even greater choice, with new luxury outlets including
Louis Vuitton and Bottega Veneta. This project received the award
for Best Retail Architecture in London at the UK Property
Awards.
On the airfield, improvements have been made to meet increased
airline demand for operating A380 aircraft at Heathrow. In June,
further taxiways were opened to A380 aircraft and work to widen
additional taxiways to the north of the airfield is due for
completion at the end of the year. This investment will drive
significant improvement in taxi times and reduce emissions and
congestion. A significant programme is in progress to refurbish and
enhance the passenger road access tunnels into the central terminal
area. Works largely take place overnight and will be complete in
late 2016. The programme includes further strengthening of the
tunnels as well as improved lighting and more efficient
ventilation.
1.5 Responsible Heathrow
Responsible Heathrow 2020 sets the ambition for Heathrow to
become one of the most responsible airports in the world. Heathrow
has made significant progress in recent years and in June Heathrow
was awarded the Eco-Innovation Award by ACI Europe. This award
commended Heathrow for the progress made in reducing emissions from
the airport. The award also recognises Heathrow for having the
world's largest single-site car sharing scheme, the UK's first
publicly accessible hydrogen refuelling site and an unrivalled
public transport system linking passengers to surrounding
communities and central London.
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:01 ET (07:01 GMT)
Heathrow's Blueprint for Reducing Emissions sets out a ten-point
plan for working with partners to reduce emissions from aircraft,
vehicles and buildings, as well as being a catalyst for meeting EU
and UK Government air quality limits in the local area around
Heathrow. Over the last five years, Heathrow has reduced total
nitrogen oxides (NOx) emissions by 16% and Heathrow is leading the
way for the airport community by cutting emissions from its own
fleet vehicles, changing diesel pool cars to full battery electric
cars and installing electric vehicle infrastructure in 2015. In
September 2015, Heathrow signed an open letter calling for
governments to support the aviation industry approach to climate
change, including improved efficiency in air traffic management,
accelerating research for alternative fuels and new technology.
Heathrow continues to drive down energy demand and costs through
energy efficient technology and building management systems while
developing innovative, high performance low cost and carbon energy
supply options for Heathrow's future.
Heathrow's Blueprint for Noise Reduction sets the challenge for
Heathrow and its partners to collaborate to be quieter, sooner. In
2015, over 99% of movements were operated by the quietest category
of aircraft. Revenue from fines for aircraft breaching noise levels
is invested in local communities via the Heathrow Community Fund.
In September 2015, trials began for aircraft to operate a steeper
approach angle at Heathrow. This requires no modifications to
aircraft equipment or specific pilot training. The trial is
approved by the CAA and is planned to run until March 2016. Recent
experience at Frankfurt airport has indicated that slightly steeper
approach angles may reduce noise for people living nearby.
1.6 Winning support for expansion
On 1 July 2015, the Airports Commission clearly and unanimously
recommended Heathrow's new North West runway plan, following three
years of extensive and robust consultation, evidence gathering and
analysis. It recognises the unique role that Heathrow plays as
Britain's only hub airport. The Commission recommended that
Heathrow expansion is the only solution to help British businesses
compete for global growth and support a truly national recovery
built on exports, skills and investment. The Commission also
confirmed that Heathrow's new plan can be delivered while reducing
its local and environmental impacts. It confirmed that it can be
delivered within carbon and air quality limits and with
significantly fewer people impacted by aircraft noise than
today.
Support for Heathrow's expansion continues to grow. More people
in the twelve constituencies local to the airport (Populus August
2015) support expansion than oppose expansion, as do local
authorities Spelthorne and Slough and over 100,000 members of the
campaign group Back Heathrow. British business strongly supports
expansion at Heathrow, including the British Chambers of Commerce,
more than 30 local Chambers of Commerce from across the whole of
the UK as well as high profile UK business groups including the
Confederation of British Industry, Institute of Directors, CityUK,
Federation of Small Business and London First.
Only Heathrow can connect the whole of the UK with the growing
markets of the world. Today, Heathrow has 82 long-haul connections,
one of only six airports in the world that have regular flights to
over 50 long-haul destinations. With expansion, Heathrow can
support up to 40 new long-haul connections to emerging growth
markets around the world. The economic benefit to the UK of
expanding Heathrow is up to GBP211 billion, creating 180,000 jobs
nationally, 40,000 new jobs locally and double the number of
apprenticeships to 10,000 opportunities.
Heathrow is by far the largest wholly-privately funded airport
in the world. Heathrow has successfully attracted global investors
to fund GBP11 billion of investment over the last decade and
Heathrow's expansion proposal is expected to involve privately
funded investment of GBP16 billion. Heathrow intends to fund the
expansion as an integral part of the existing business through its
established and scalable financing platform and intends to target
its current investment grade credit ratings. The major funding
requirement is not expected until planning consent is obtained,
which is expected by 2020, with the new runway operational from
2025.
The CAA has published a note on its current thinking with
respect to regulatory issues of airport expansion, reflecting the
long-term nature of capacity expansion and the need to provide an
appropriate degree of regulatory certainty. Following a clear
indication from Government that capacity expansion will take place
at Heathrow, the CAA will first seek to consult with stakeholders
on any developments to the current regulatory structure, before
engaging in statutory consultation on any necessary changes to
provide longer term certainty.
Heathrow is preparing to deliver expansion. Local surveys of
road traffic have started and the potential supply chain has been
engaged to identify current and future skills requirements.
Heathrow will continue to work with communities, airlines and all
stakeholders to build on the Airports Commission's clear
recommendation for Heathrow's expansion.
The Government is reviewing the Airports Commission's
recommendation and is expected to respond by the end of the
year.
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) consolidated accounts are prepared under
International Financial Reporting Standards ('IFRS'). From 1
January 2015 the Group changed its treatment of actuarial gains and
losses on the Heathrow Airport Holdings Limited group's (the 'HAH
Group') defined benefit pension scheme. Net actuarial gains and
losses are now presented within other comprehensive income rather
than as an exceptional item in the income statement. See Basis of
preparation in Appendix 1 for further information.
2.2 Income statement
2.2.1 Overview
In the nine months ended 30 September 2015 the Group earned a
GBP419 million profit after tax (2014: GBP49 million).
2015 2014
Nine months ended 30 September GBPm GBPm
------------------------------------------------------ --------------- -------
Revenue 2,068 1,986
Operating costs before depreciation and amortisation (844) (814)
Adjusted EBITDA(1) 1,224 1,172
Exceptional items 232 (111)
Depreciation and amortisation (513) (387)
Operating profit before certain re-measurements 943 674
Fair value gain on investment properties
(certain
re-measurements) 62 16
Operating profit 1,005 690
Net finance costs before certain re-measurements (525) (600)
Fair value gain/(loss) on financial instruments 72 (17)
------------------------------------------------------ --------------- -------
Net finance costs (453) (617)
Profit before taxation 552 73
Taxation (133) (24)
------------------------------------------------------ --------------- -------
Profit after taxation 419 49
------------------------------------------------------ --------------- -------
(1) Adjusted EBITDA is earnings before interest, tax,
depreciation & amortisation, certain re-measurements and
exceptional items
2.2.2 Revenue
In the nine months ended 30 September 2015, revenue totalled
GBP2,068 million (2014: GBP1,986 million).
2015 2014 Change
Nine months ended 30 September GBPm GBPm (%)
-------------------------------- ------ ------ -------
Aeronautical income 1,299 1,261 3.0
Retail income 393 371 5.9
Other income 376 354 6.2
-------------------------------- ------ ------ -------
Total revenue 2,068 1,986 4.1
-------------------------------- ------ ------ -------
2.2.2.1 Aeronautical income
In the nine months ended 30 September 2015, aeronautical income
increased 3.0% to GBP1,299 million (2014: GBP1,261 million) and the
average aeronautical income per passenger increased 0.7% to
GBP22.82 (2014: GBP22.66).
Traffic growth contributed GBP29 million to the increase in
aeronautical income and tariff changes contributed GBP16 million.
The non-recurrence of the significant K factor recovery in the
second half of last year largely offset the non-repeat of capital
triggers and rebates in the first half of last year.
The rate of growth slowed in the third quarter reflecting the
delay in tariff changes at the start of the regulatory period,
which resulted in nine months of tariff changes being collected
over the final six months of 2014, together with the absence of the
significant K factor recovery of last year.
2.2.2.2 Retail income
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:01 ET (07:01 GMT)
In the nine months ended 30 September 2015, retail income
increased 5.9% to GBP393 million (2014: GBP371 million). Net retail
income ('NRI') grew 7.4% to GBP379 million (2014: GBP353 million)
and NRI per passenger rose 5.0% to GBP6.66 (2014: GBP6.34).
2015 2014 Change
Nine months ended 30 September GBPm GBPm (%)
-------------------------------- ----- ----- -------
Car parking 80 73 9.6
Duty and tax-free 93 94 (1.1)
Airside specialist shops 75 68 10.3
Bureaux de change 37 32 15.6
Catering 34 29 17.2
Other retail income 74 75 (1.3)
-------------------------------- ----- ----- -------
Gross retail income 393 371 5.9
-------------------------------- ----- ----- -------
Retail expenditure (14) (18) (22.2)
-------------------------------- ----- ----- -------
Net retail income 379 353 7.4
-------------------------------- ----- ----- -------
Car parking has continued to perform well in 2015. The growth
reflects increased car parking capacity, including the
award-winning Terminal 2 multi-storey car park and the new
800-space Terminal 5 business car park which opened in February
2015. In addition, continued yield management and a broader product
offering have contributed to the growth.
Growth in airside specialist shops has been strong throughout
2015, with double-digit growth in luxury store income following the
successful opening of the redeveloped luxury retail stores in
Terminal 5. Brands including Louis Vuitton, Cartier, Rolex, Fortnum
& Mason, Bottega Veneta and Hermes further strengthen
Heathrow's unrivalled airport shopping experience. Performance in
duty and tax free stores was impacted in part by the store
redevelopment in Terminal 5 which, now open, will deliver benefit
through the remainder of 2015.
Catering has performed strongly, driven mainly by enhancements
in Terminal 5 and the strong offering in Terminal 2 which includes
The Perfectionists' Café, created by multi-award winning chef
Heston Blumenthal, and YO! Sushi.
2.2.2.3 Other income
In the nine months ended 30 September 2015, other income
increased 6.2% to GBP376 million (2014: GBP354 million). The
increase was driven by growth in utility charges and higher
property rental income following the opening of Terminal 2. In
addition, Heathrow Express is stimulating demand through an
increased product range including advance purchase tickets and
promotions such as 'Kids Go Free'.
2.2.3 Adjusted operating costs
In the nine months ended 30 September 2015, adjusted operating
costs increased 3.7% to GBP844 million (2014: GBP814 million).
Adjusted operating costs exclude depreciation, amortisation and
exceptional items.
2015 2014 Change
Nine months ended 30 September GBPm GBPm (%)
-------------------------------- ----- ----- -------
Employment costs 291 286 1.7
Maintenance expenditure 140 128 9.4
Utility costs 69 70 (1.4)
Rent and rates 104 98 6.1
General expenses 226 214 5.6
Retail expenditure 14 18 (22.2)
Total 844 814 3.7
-------------------------------- ----- ----- -------
Cost control has been strong in 2015, with a small decrease in
underlying costs. Overall costs reflect around GBP46 million
related to the incremental operation of Terminal 2 and the start of
Terminal 3 baggage facility operations, offset by over GBP20
million of savings from the wind-down of Terminal 1. A net GBP7
million was also incurred on expansion planning activities.
Underlying performance reflects ongoing focus on employment
costs, with increased productivity achieved within operations, as
well as the benefit of lower overall headcount compared to last
year. These efficiencies are partially offset by inflation, as well
as higher pension costs which are due to reduce with the agreed
changes to the defined benefit pension scheme. Maintenance and
engineering costs continue to benefit from the new consolidated
baggage systems operations and maintenance agreement, which is
delivering substantial benefit over the regulatory period.
The downward trend in underlying costs is expected to continue
as the full benefit flows through from recently completed
initiatives.
2.2.4 Operating result
For the nine months ended 30 September 2015, the Group recorded
an operating profit before certain re-measurements of GBP943
million (2014: GBP674 million).
2015 2014 Change
Nine months ended 30 September GBPm GBPm (%)
------------------------------------------------- ------- ------- -------
Adjusted EBITDA 1,224 1,172 4.4
Depreciation and amortisation (513) (387) 32.6
Exceptional items 232 (111) n.m.
Operating profit before certain re-measurements 943 674 39.9
------------------------------------------------- ------- ------- -------
In the nine months ended 30 September 2015, Adjusted EBITDA
increased 4.4% to GBP1,224 million (2014: GBP1,172 million),
resulting in an Adjusted EBITDA margin of 59.2% (2014: 59.0%).
Depreciation increased substantially to GBP513 million (2014:
GBP387 million). The increase in depreciation mostly reflects the
start of depreciation of Terminal 2, the new Terminal 3 Integrated
Baggage facility, along with increased depreciation of Terminal
1.
2.2.5 Exceptional items
In the nine months ended 30 September 2015, there was a net
exceptional credit of GBP232 million (2014: GBP111 million charge)
to the income statement.
2015 2014
Nine months ended 30 September GBPm GBPm
-------------------------------------------- ----- ------
Pension scheme: changes to terms 236 -
Pension scheme: actuarial gains and losses - (93)
Restructuring (4) -
Terminal 2 operational readiness - (18)
Exceptional pre-tax charge 232 (111)
-------------------------------------------- ----- ------
During the period, the Company agreed changes to the HAH Group's
defined benefit pension scheme effective from 1 October 2015. The
changes include the introduction of an annual cap of 2% on future
increases to pensionable pay for active members. The change results
in a one-off reduction of GBP236 million in the scheme's
liabilities, as measured under IAS19, and is classified as an
exceptional item in the income statement. There is no immediate
cash flow impact as a result of these changes. As noted in the
basis of preparation, from 1 January 2015 the Group has changed its
treatment of actuarial gains and losses on the defined benefit
pension scheme and no longer reports these as an exceptional item
in the income statement.
2.2.6 Taxation
The tax charge arising on ordinary activities for the nine
months ended 30 September 2015 was
GBP133 million based on a profit before tax of GBP552 million.
The charge results in an effective tax rate for the period of 24.1%
compared to the UK statutory rate of 20.25%. The difference is
primarily due to permanent differences mainly arising from
non-qualifying depreciation and non-deductible expenses.
Legislation was substantively enacted on 26 October 2015 that
the standard rate of corporation tax in the UK would change from
20% to 19% with effect from 1 April 2017 and to 18% from 1 April
2020.
2.3 Cash flow
2.3.1 Summary cash flow
In the nine months ended 30 September 2015, there was an
increase of GBP15 million in cash and cash equivalents compared
with an increase in 2014 of GBP416 million.
At 30 September 2015, the Group had GBP281 million of cash and
cash equivalents compared with GBP266 million at 31 December 2014,
and term deposits of GBP450 million (31 December 2014: GBP170
million).
2015 2014
Nine months ended 30 September GBPm GBPm
------------------------------------------- ------ ------
Cash generated from operations 1,156 1,112
Net cash from operating activities 1,160 1,102
------------------------------------------- ------ ------
Purchase of property, plant and equipment
and other assets (474) (689)
Net increase in term deposits (280) -
Increase in group deposits (27) -
Disposal of Stansted airport - (2)
Net cash used in investing activities (781) (691)
Summary cash flow continued
Dividends paid (289) (295)
Proceeds from issuance of bonds 1,022 1,276
Repayment of bonds (619) (513)
Issuance of term note 80 100
Net repayment of revolving credit facilities - (55)
Repayment of facilities and other financing
items (33) (37)
Increase in amount owed to Heathrow Finance
plc 125 -
Settlement of accretion on index-linked
swaps (145) -
Net interest paid (505) (471)
---------------------------------------------- ------ ------
Net cash (used in)/from financing activities (364) 5
---------------------------------------------- ------ ------
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Net increase in cash and cash equivalents 15 416
---------------------------------------------- ------ ------
Cash generated from operations after capital
expenditure and net interest paid 177 (48)
---------------------------------------------- ------ ------
The lower increase in cash and cash equivalents in part reflects
a GBP280 million increase in term deposits, compared to no increase
in the same period last year.
2.3.2 Cash flow from operating activities
In the nine months ended 30 September 2015, cash flow from
operating activities increased 4.0% to GBP1,156 million (2014:
GBP1,112 million). The following reconciles Adjusted EBITDA to cash
flow from operating activities.
2015 2014
Nine months ended 30 September GBPm GBPm
----------------------------------------------------- ------- -------
Adjusted EBITDA 1,224 1,172
Exceptional: Restructuring (4) -
Exceptional: Terminal 2 operational readiness - (18)
(Increase)/decrease in receivables (19) 6
Decrease in payables (24) (27)
Decrease in provisions (2) (3)
Difference between pension charge and contributions (19) (18)
Cash flow from operating activities 1,156 1,112
----------------------------------------------------- ------- -------
2.3.3 Capital expenditure
In the nine months ended 30 September 2015, the cash impact of
capital investment was GBP474 million (2014: GBP689 million)
consistent with gross additions to fixed assets of GBP437 million
(2014: GBP539 million).
2.3.4 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 repurchase of share capital; and
payments of fees, interest or principal on any intercompany
loans.
In the nine months ended 30 September 2015, net restricted
payments of GBP229 million (gross restricted payments GBP354
million) were made by the Group which principally funded GBP143
million of the GBP225 million in quarterly dividends paid to the
Group's ultimate shareholders, GBP16 million of interest payments
at ADI Finance 2 Limited ('ADIF2') and GBP65 million of interest
payments on the debenture between Heathrow (SP) and Heathrow
Finance plc (2014: GBP350 million including GBP194 million in
quarterly dividends, GBP55 million of interest payments on the
debenture, GBP16 million to fund interest payments at ADIF2 and
GBP85 million cash retained elsewhere in the HAH Group).
2.4 Pension scheme
The HAH Group operates a defined benefit pension scheme, the BAA
Pension Scheme, which closed to new members in June 2008. Following
consultation with members in current service, changes were
implemented to the terms of the scheme which reduce liabilities and
enable the scheme to remain open. The changes, which only apply to
the scheme's active members, include the introduction of an annual
cap of 2% on future increases to pensionable pay, a change to the
annual benefit accrual rate from 1/54th to 1/60th of pensionable
pay and a cap of 2.5% on annual increases to pension payments at
retirement.
At 30 September 2015, taking into account the above changes
effective from 1 October 2015, the defined benefit pension scheme
had a surplus of GBP165 million (31 December 2014: GBP199 million
deficit), as measured under IAS19. The movement is principally due
to a reduction of GBP236 million in past service benefit as a
result of the introduction of the annual cap of 2% on future
increases in pensionable pay. The remaining movement mainly
reflects the scheme's receipt of a GBP50 million commutation
payment following the sale of the HAH Group's non-Heathrow airports
at the end of 2014 and net actuarial gains exceeding current
service costs and the interest expense.
2.5 Recent financing activity
Heathrow continues to focus on optimising the Group's long-term
cost of debt as well as building further duration, diversification
and resilience into its debt financing.
Since the start of 2015 Heathrow has raised over GBP1.2 billion
in term debt. In February, a EUR750 million, 15 year public bond
with a fixed rate coupon of 1.5% was issued, significantly
extending Heathrow's maturity profile in the Euro market. In May, a
C$500 million, 10 year public bond with a fixed rate coupon of
3.25% was issued, deepening Heathrow's presence in the Canadian
market.
Heathrow has also raised GBP300 million of long-term private
placements. This includes GBP150 million of 15 and 20 year sterling
funding, of which GBP80 million was drawn in July 2015 and GBP70
million in October 2015. At the end of 2014, Heathrow raised a
GBP115 million, 21 year Class B private placement, which was drawn
in September 2015. This private placement has since been increased
by GBP65 million, which will be drawn during 2016. The NOK1 billion
transaction completed earlier in the year, with a 12.5 year
maturity and a fixed coupon of 2.65%, takes the number of currency
markets Heathrow has accessed to six.
During this year, GBP100 million has been raised at Heathrow
Finance, consisting of GBP50 million in a 10 year loan facility
which was drawn in July 2015 and a GBP50 million loan facility to
2020, which was agreed in September and will be drawn in March
2016.
In June 2015, a GBP300 million bond and a US$500 million (GBP319
million) bond issued by Heathrow Funding Limited in 2012 matured
and were repaid. Heathrow also completed a bond repurchase
programme, buying back Heathrow Finance 2017 and 2019 notes with a
nominal value of GBP32 million and GBP12 million respectively, at a
cash cost of GBP49 million.
2.6 Financing position
2.6.1 Debt and liquidity at Heathrow (SP) Limited
The Group's nominal net debt was GBP11,720 million at 30
September 2015, an increase of 0.6% since the end of 2014 (31
December 2014: GBP11,653 million), comprising GBP11,821 million in
bond issues, GBP328 million in term notes and loan facilities,
GBP302 million in index-linked derivative accretion and cash at
bank and term deposits of GBP731 million. Nominal net debt
consisted of GBP10,050 million in senior net debt and GBP1,670
million in junior debt.
The average cost of the Group's nominal gross debt at 30
September 2015 was 4.40% (31 December 2014: 4.59%). 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 September 2015 was 4.91% (31
December 2014: 5.70%). The reduction in the average cost of debt
since the end of 2014 is mainly due to the lower cost of debt
raised in 2015 and lower inflation at 30 September 2015.
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 GBP10,782
million at 30 September 2015 (31 December 2014: GBP10,792 million).
This includes GBP281 million of cash and cash equivalents and
GBP450 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 up to March 2017. The obligations include
forecast capital investment, debt service costs, debt maturities
and distributions. The liquidity forecast takes into account nearly
GBP2.3 billion in undrawn loan facilities and cash resources at 30
September 2015, GBP185 million in committed term debt financing to
be drawn after 30 September 2015 and the expected operating cash
flow over the period.
2.6.2 Debt at Heathrow Finance plc
The consolidated nominal net debt of Heathrow Finance was
GBP12,720 million at 30 September 2015, an increase of 1.3% since
the end of 2014 (31 December 2014: GBP12,560 million). This
comprises the Group's nominal net debt of GBP11,720 million,
Heathrow Finance's gross debt of GBP1,009 million and cash held at
Heathrow Finance of GBP9 million.
2.6.3 Regulatory Asset Base ('RAB')
Heathrow's RAB at 30 September 2015 was GBP14,891 million
compared to GBP14,860 million at 31 December 2014. RAB figures are
used in calculating the gearing ratios under the Group's financing
agreements.
2.6.4 Net finance costs and net interest paid
In the nine months ended 30 September 2015, the Group's net
finance costs before certain re-measurements were GBP525 million
(2014: GBP600 million) and net interest paid was GBP505 million
(2014: GBP471 million). Reconciliation from net finance costs on
the income statement to net interest paid on the cash flow
statement is provided below.
2015 2014
Nine months ended 30 September GBPm GBPm
-------------------------------------------------- ----- ------
Net finance costs before certain re-measurements 525 600
Amortisation of financing fees and other
items (11) (27)
Amortisation on bond redemption - (61)
Borrowing costs capitalised 14 80
Underlying net finance costs 528 592
Non-cash accretion on index-linked instruments (49) (128)
Other movements 26 7
Net interest paid 505 471
-------------------------------------------------- ----- ------
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Underlying net finance costs were GBP528 million (2014: GBP592
million) after adjusting for capitalised borrowing costs of GBP14
million (2014: GBP80 million) and non-cash amortisation of
financing fees, discounts and fair value adjustments of debt of
GBP11 million (2014: GBP27 million). The reduced underlying net
finance costs mainly reflect lower index-linked accretion due to
low inflation.
Net interest paid in the period was GBP505 million (2014: GBP471
million) of which GBP440 million (2014: GBP416 million) related to
external debt. The remaining GBP65 million (2014: GBP55 million) of
interest paid related to the debenture between Heathrow (SP) and
Heathrow Finance.
2.6.5 Financial ratios
The Group and Heathrow Finance continue to operate comfortably
within required financial ratios.
At 30 September 2015, the Group's senior (Class A) and junior
(Class B) gearing ratios (nominal net debt to RAB) were 67.5% and
78.7% respectively (31 December 2014: 68.0% and 78.4% respectively)
compared with trigger levels of 70.0% and 85.0% under its financing
agreements. Heathrow Finance's gearing ratio was 85.4% (31 December
2014: 84.5%) compared to a covenant level of 90.0% under its
financing agreements. The increase in Heathrow Finance gearing
since 31 December 2014 principally reflects the effects of the
recent low inflation environment on Heathrow's RAB.
2.7 Outlook
Heathrow expects EBITDA in 2015 to be GBP1.6 billion. Following
the strong traffic performance in the summer, Heathrow annual
traffic for 2015 is now expected to be around 75 million
passengers, which would lead to a small outperformance in EBITDA
performance.
Appendix 1 - Financial information
Heathrow (SP) Limited
Consolidated income statement
for the nine months ended 30 September 2015
Unaudited Unaudited Audited
Nine months ended Nine months ended Year ended
30 September 2015 30 September 2014 31 December 2014
----------------------------------------------- ----------------------------------------------- -----------------------------------------------
Before certain Certain Before certain Certain Before certain Certain
re-measurements re-measurements(a) Total re-measurements re-measurements(a) Total re-measurements re-measurements(a) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Continuing
operations
Revenue 1 2,068 - 2,068 1,986 - 1,986 2,692 - 2,692
Operating costs 2 (1,125) - (1,125) (1,312) - (1,312) (1,899) - (1,899)
Other operating
items
Fair value
gains on
investment
properties 62 62 16 16 46 46
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Operating profit 943 62 1,005 674 16 690 793 46 839
Analysed as:
Operating profit
before
exceptional Items 711 62 773 785 16 801 995 46 1,041
Exceptional items 3 232 - 232 (111) (111) (202) - (202)
Financing
Finance income 178 - 178 173 - 173 234 - 234
Finance costs (703) - (703) (773) - (773) (1,038) - (1,038)
Fair value
gain/(loss)
on
financial
instruments 72 72 (17) (17) (154) (154)
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Net finance costs 4 (525) 72 (453) (600) (17) (617) (804) (154) (958)
Profit/(loss)
before tax 418 134 552 74 (1) 73 (11) (108) (119)
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Taxation 5 (106) (27) (133) (24) - (24) 7 14 21
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Profit/(loss)
for the
period
from
continuing
operations 312 107 419 50 (1) 49 (4) (94) (98)
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Profit from
discontinued
operations - - - 3 - 3 3 - 3
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
Profit/(loss) for
the period 312 107 419 53 (1) 52 (1) (94) (95)
------------------ --------------- ------------------ ---------- --------------- ------------------ ---------- --------------- ------------------ ----------
(a) 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 fair value hedging relationship;
and the associated tax impact of these and similar cumulative prior
year items.
Heathrow (SP) Limited
Consolidated statement of comprehensive income
for the nine months ended 30 September 2015
Unaudited Unaudited Audited
Nine months Nine months
ended ended Year ended
30 September 30 September 31 December
2015 2014 2014
GBPm GBPm GBPm
------------------------------------- -------------- -------------- -------------
Profit/(loss) for the period 419 52 (95)
------------------------------------- -------------- -------------- -------------
Items that will not be subsequently
reclassified to the consolidated
income statement:
Tax relating to retirement benefits (13) - (4)
Tax relating to indexation of
operating land - 1 1
Net actuarial gain on retirement
benefit schemes 65 - -
------------------------------------- -------------- -------------- -------------
Items that may be subsequently
reclassified to the consolidated
income statement:
Cash flow hedges:
Loss taken to equity (118) (149) (174)
Transferred to income statement 148 162 163
------------------------------------- -------------- -------------- -------------
Other comprehensive profit/(loss)
for the period net of tax 82 14 (14)
------------------------------------- -------------- -------------- -------------
Total comprehensive profit/(loss)
for the period(a) 501 66 (109)
------------------------------------- -------------- -------------- -------------
(a) Attributable to owners of the parent.
Heathrow (SP) Limited
Consolidated statement of financial position
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as at 30 September 2015
Unaudited Unaudited(1) Audited(1)
30 September 30 September 31 December
2015 2014 2014
Note GBPm GBPm GBPm
Assets
Non-current assets
Property, plant and
equipment 11,287 11,386 11,349
Investment properties 2,124 1,989 2,054
Intangible assets 107 96 114
Retirement benefit 165 - -
surplus(1)
Derivative financial
instruments 164 123 172
Trade and other receivables 23 34 23
----------------------------- ----- -------------- -------------- -------------
13,870 13,628 13,712
----------------------------- ----- -------------- -------------- -------------
Current assets
Inventories 11 9 10
Trade and other receivables 296 283 290
Current income tax
assets - - 18
Derivative financial
instruments - - 2
Term deposits 450 170 170
Cash and cash equivalents 281 340 268
----------------------------- ----- -------------- -------------- -------------
1,038 802 758
----------------------------- ----- -------------- -------------- -------------
Total assets 14,908 14,430 14,470
----------------------------- ----- -------------- -------------- -------------
Liabilities
Non-current liabilities
Borrowings 6 (12,590) (11,673) (11,877)
Derivative financial
instruments (1,247) (1,287) (1,328)
Deferred income tax
liabilities (1,120) (1,043) (1,023)
Retirement benefit (30) - -
obligation(1)
Provisions (2) (1) (10)
Trade and other payables (12) (3) (2)
----------------------------- ----- -------------- -------------- -------------
(15,001) (14,007) (14,240)
----------------------------- ----- -------------- -------------- -------------
Current liabilities
Borrowings 6 (612) (908) (933)
Derivative financial
instruments (30) (12) (1)
Current income tax (43) - -
liabilities
Provisions(1) - (194) (232)
Trade and other payables (400) (378) (454)
----------------------------- ----- -------------- -------------- -------------
(1,085) (1,492) (1,620)
----------------------------- ----- -------------- -------------- -------------
Total liabilities (16,086) (15,499) (15,860)
----------------------------- ----- -------------- -------------- -------------
Net liabilities (1,178) (1,069) (1,390)
----------------------------- ----- -------------- -------------- -------------
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 (291) (297) (321)
Retained earnings 2,361 2,476 2,179
----------------------------- ----- -------------- -------------- -------------
Total shareholder's
deficit (1,178) (1,069) (1,390)
----------------------------- ----- -------------- -------------- -------------
(1) As explained in the basis of preparation section,
liabilities or assets relating to retirement benefits are now
presented as an external obligation or surplus, previously they
were treated as an intercompany liability.
Heathrow (SP) Limited
Consolidated statement of changes in equity
for the nine months ended 30 September 2015
Attributable to owners of the Company (unaudited)
-----------------------------------------------------------------
Cash flow
Share Share Merger hedge Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- --------- ---------- ---------- --------
1 January 2014 11 499 (3,758) (310) 2,722 (836)
------------------------- --------- --------- --------- ---------- ---------- --------
Comprehensive income:
Profit for the period 49 49
Other comprehensive
income:
Fair value gains
on cash flow
hedges net of tax 13 13
Total comprehensive
income 13 49 62
------------------------- --------- --------- --------- ---------- ---------- --------
Transaction with
owners:
Dividends paid (295) (295)
------------------------- --------- --------- --------- ---------- ---------- --------
Total transaction
with owners (295) (295)
------------------------- --------- --------- --------- ---------- ---------- --------
30 September 2014 11 499 (3,758) (297) 2,476 (1,069)
------------------------- --------- --------- --------- ---------- ---------- --------
1 January 2015 11 499 (3,758) (321) 2,179 (1,390)
------------------------- --------- --------- --------- ---------- ---------- --------
Comprehensive income:
Profit for the period 419 419
Other comprehensive
income:
Fair value gains
on cash flow
hedges net of tax 30 30
Net actuarial gains
on retirement benefit
schemes 52 52
Total comprehensive
income 30 471 501
------------------------- --------- --------- --------- ---------- ---------- --------
Transaction with
owners:
Dividends paid (289) (289)
------------------------- --------- --------- --------- ---------- ---------- --------
Total transaction
with owners (289) (289)
------------------------- --------- --------- --------- ---------- ---------- --------
30 September 2015 11 499 (3,758) (291) 2,361 (1,178)
------------------------- --------- --------- --------- ---------- ---------- --------
Heathrow (SP) Limited
Consolidated statement of cash flows
for the nine months ended 30 September 2015
Unaudited Unaudited Audited
Nine months Nine months
ended ended Year ended
30 September 30 September 31 December
2015 2014 2014
Note GBPm GBPm GBPm
---------------------------- ----- ------------- ------------- ------------
Cash flows from operating
activities
Cash generated from
operations 8 1,156 1,112 1,525
Taxation(1) 4 (10) (19)
---------------------------- ----- ------------- ------------- ------------
Net cash from operating
activities 1,160 1,102 1,506
---------------------------- ----- ------------- ------------- ------------
Cash flows from investing
activities
Net capital expenditure (474) (689) (853)
Net increase in term
deposits (280) - (170)
Increase in group deposits (27) - -
Disposal of Stansted
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Airport Limited - (2) (2)
---------------------------- ----- ------------- ------------- ------------
Net cash used in investing
activities (781) (691) (1,025)
---------------------------- ----- ------------- ------------- ------------
Cash flows from financing
activities
Dividends paid 7 (289) (295) (445)
Proceeds from issuance
of bonds 1,022 1,276 1,276
Repayment of bonds (619) (513) (513)
Issuance of term notes 80 100 100
Net repayment of revolving
credit facilities - (55) (80)
Payment of facilities
and other items (33) (37) (54)
Increase in amount owed
to Heathrow Finance
plc 125 - 165
Settlement of accretion
on index-linked swaps (145) - (185)
Net interest paid (505) (471) (573)
---------------------------- ----- ------------- ------------- ------------
Net cash (used in)/from
financing activities (364) 5 (309)
---------------------------- ----- ------------- ------------- ------------
Net increase in cash
and cash equivalents 15 416 172
Cash and cash equivalents
at beginning of period 266 94 94
---------------------------- ----- ------------- ------------- ------------
Cash and cash equivalents
at end of period 281 510 266
---------------------------- ----- ------------- ------------- ------------
Represented by:
Cash and cash equivalents 281 510 268
Overdrafts - - (2)
---------------------------- ----- ------------- ------------- ------------
Cash and cash equivalents
at end of period 281 510 266
---------------------------- ----- ------------- ------------- ------------
(1) Includes group relief received of GBP18 million (nine months
ended 30 September 2014: GBP10 million paid; year ended 31 December
2014: GBP19 million paid).
Heathrow (SP) Limited
General information and accounting policies
for the nine months ended 30 September 2015
General information
The financial information set out herein does not constitute the
Group's statutory financial statements for the year ended 31
December 2014 or any other period. Statutory financial statements
for the year ended 31 December 2014 have been filed with the
registrar of Companies on 20 March 2015. The annual financial
information presented herein for the year ended 31 December 2014 is
based on, and is consistent with, the audited consolidated
financial statements of Heathrow (SP) Limited (the 'Group') for the
year ended 31 December 2014. The auditors' report on the 2014
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.
These interim financial reports have been prepared and approved
by the directors in accordance with International Accounting
Standard 34 Interim Financial Reporting ('IAS 34') as issued by the
IASB and as adopted by the EU. These are the third interim
financial reports in compliance with IAS 34 and therefore do not
include a reconciliation of equity and reconciliation of total
comprehensive income at, and for the period ending, 30 September
2014 from UK GAAP, the previous accounting regime under which the
Group used to report. Reconciliations from previous GAAP to IFRS
for comparative periods and as at transition are available in the
consolidated financial statements of Heathrow (SP) Limited for the
year ended 31 December 2014 and in the first interim financial
reports in compliance with IAS 34 for the period ended 31 March
2015. 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 2014.
Pension accounting
From 1 January 2015, the Group has changed the method of
accounting for retirement benefit schemes. Before 31 December 2014,
the Group recorded its share of the liability on the Heathrow
Airport Holdings Limited group's (the 'HAH Group') defined benefit
schemes ('the schemes'). This was recognised as a provision payable
to the legal sponsor of the schemes, being LHR Airports Limited.
Additionally, the Group recorded its share of the actuarial gains
and losses on the schemes and presented this within exceptional
items in the income statement.
Following the disposal of Aberdeen, Glasgow and Southampton
airports by the HAH Group in December 2014, the directors have
reassessed the Group's relationship with the legal sponsor of the
schemes given that the HAH Group's sole operating business is now
Heathrow. The directors have determined, after taking into account
the Shared Service Agreement, employment relationships and the
funding risk associated with the schemes, that the Group now acts
as principal in relation to these schemes. As a result, the Group
now recognises an external asset or liability, in relation to the
schemes, on its statement of financial position as non-current
under the caption of Retirement benefit surplus or Retirement
benefit obligation and no longer records an intercompany provision
to LHR Airports Limited. Additionally, it is now considered
appropriate for the Group to record actuarial gains and losses on
the external scheme within other comprehensive income. This differs
from the prior periods where the Group recorded a share of the
actuarial gains and losses, as an exceptional item in the Group's
income statement. There is no impact on cash or net assets as a
result of this change.
During the period, the Company agreed changes to the HAH Group's
defined benefit pension scheme effective from 1 October 2015. The
changes include the introduction of an annual cap of 2% on future
increases to pensionable pay for active members. The changes result
in a one-off reduction of GBP236 million in the scheme's
liabilities, as measured under IAS19, and is classified as an
exceptional item in the income statement. There is no immediate
cash flow impact as a result of these changes. As noted in the
basis of preparation, from 1 January 2015 the Group has changed its
treatment of actuarial gains and losses on the defined benefit
pension scheme and no longer reports these as an exceptional item
in the income statement.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
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 EBITDA basis, before certain re-measurements, and both pre and
post exceptional items.
The reportable segments derive their revenues from a number of
sources comprising aeronautical, retail, property and facilities
(including property income and utilities income), 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
nine months ended 30 September 2015 and is broken down into 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 EBITDA on a pre and post exceptional
basis and a reconciliation to the consolidated profit for the
period.
Table (b) and table (c) detail comparative information to table
(a) for the nine months ended 30 September 2014 and the year ended
31 December 2014 respectively.
Table (a) Segment revenue EBITDA
----------------------------------------------------------- -------------------------------------
Unaudited
Nine months
ended Property Total Pre Operating Post
30 September & external exceptional exceptional exceptional
2015 Aero-nautical Retail facilities Other revenue items items items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- --------------- ----------- ---------- ------- -------- ----------- ----------- -----------
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Heathrow 1,299 393 226 54 1,972 1,168 232 1,400
Heathrow
Express 96 96 56 - 56
Continuing
operations 1,299 393 226 150 2,068 1,224 232 1,456
Reconciliation to statutory
information
Unallocated income and
expenses
Depreciation and amortisation (513)
-------------------------------------------------------------------------- ----------- ----------- -----------
Operating profit (before certain
re-measurements) 943
Fair value gain on investment properties
(certain re-measurements) 62
-------------------------------------------------------------------------- ----------- ----------- -----------
Operating profit 1,005
Finance income 178
Finance costs (703)
Fair value gain on financial instruments
(certain re-measurements) 72
--------------------------------------------------------------------------
Profit before tax 552
-------------------------------------- ---- ------------------ ------- ----------- ----------- -----------
Taxation before certain re-measurements (106)
Taxation (certain re-measurements) (27)
---------------------------------------------------------------- ------- ----------- ----------- -----------
Taxation (133)
Profit for the period 419
---------------------------------- -------- ------------------ ------- ----------- ----------- -----------
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
1 Segment information continued
Table (b) Segment revenue EBITDA
----------------------------------------------------------- -------------------------------------
Unaudited
Nine months
ended Property Total Pre Operating Post
30 September & external exceptional exceptional exceptional
2014 Aero-nautical Retail facilities Other revenue items items items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- --------------- ----------- ---------- ------- -------- ----------- ----------- -----------
Heathrow 1,261 371 208 52 1,892 1,119 (111) 1,008
Heathrow
Express 94 94 53 - 53
Continuing
operations 1,261 371 208 146 1,986 1,172 (111) 1,061
Reconciliation to statutory
information
Unallocated income and
expenses
Depreciation and amortisation (387)
-------------------------------------------------------------------------- ----------- ----------- -----------
Operating profit (before certain
re-measurements) 674
Fair value gain on investment properties
(certain re-measurements) 16
-------------------------------------------------------------------------- ----------- ----------- -----------
Operating profit 690
Finance income 173
Finance costs (773)
Fair value gain on financial instruments
(certain re-measurements) (17)
--------------------------------------------------------------------------
Profit before tax 73
-------------------------------------- ---- ------------------ ------- ----------- ----------- -----------
Taxation before certain re-measurements (24)
Taxation (certain re-measurements) -
---------------------------------------------------------------- ------- ----------- ----------- -----------
Taxation (24)
Profit for the period 49
---------------------------------- -------- ------------------ ------- ----------- ----------- -----------
Profit from discontinued
operations 3
-------------------------------------------- ------------------ ------- ----------- ----------- -----------
Consolidated profit
for the period 52
---------------------------------- -------- ------------------ ------- ----------- ----------- -----------
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
1 Segment information continued
Table (c) Segment revenue EBITDA
----------------------------------------------------------- -------------------------------------
Audited
Year ended Property Total Pre Operating Post
31 December & external exceptional exceptional exceptional
2014 Aero-nautical Retail facilities Other revenue items items items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- --------------- ----------- ---------- ------- -------- ----------- ----------- -----------
Heathrow 1,706 503 285 69 2,563 1,493 (202) 1,291
Heathrow
Express 129 129 74 - 74
Continuing
operations 1,706 503 285 198 2,692 1,567 (202) 1,365
Reconciliation to statutory
information
Unallocated income and
expenses
Depreciation and amortisation (572)
-------------------------------------------------------------------------- ----------- ----------- -----------
Operating profit (before certain
re-measurements) 793
Fair value gain on investment properties
(certain re-measurements) 46
-------------------------------------------------------------------------- ----------- ----------- -----------
Operating profit 839
Finance income 234
Finance costs (1,038)
Fair value loss on financial instruments
(certain re-measurements) (154)
--------------------------------------------------------------------------
Loss before tax (119)
-------------------------------------- ---- ------------------ ------- ----------- ----------- -----------
Taxation before certain re-measurements 7
Taxation (certain re-measurements) 14
---------------------------------------------------------------- ------- ----------- ----------- -----------
Taxation 21
Loss for the year - continuing operations (98)
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Profit from discontinued
operations 3
-------------------------------------------- ------------------ ------- ----------- ----------- -----------
Consolidated loss for
the year (95)
---------------------------------- -------- ------------------ ------- ----------- ----------- -----------
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
2 Operating costs - ordinary
Unaudited Unaudited
Nine months Nine months Audited
ended ended Year ended
30 September 30 September 31 December
2015 2014 2014
GBPm GBPm GBPm
-------------------------------- -------------- -------------- -------------
Employment costs 291 286 391
Maintenance expenditure 140 128 178
Utility costs 69 70 95
Rent and rates 104 98 132
General expenses 226 214 305
Retail expenditure 14 18 24
-------------------------------- -------------- -------------- -------------
Total adjusted operating costs 844 814 1,125
Depreciation and amortisation 513 387 572
Exceptional items (Note 3) (232) 111 202
-------------------------------- -------------- -------------- -------------
Total operating costs 1,125 1,312 1,899
-------------------------------- -------------- -------------- -------------
3 Operating exceptional items
Unaudited Unaudited
Nine months Nine months Audited
ended ended Year ended
30 September 30 September 31 December
2015 2014 2014
GBPm GBPm GBPm
---------------------------------- -------------- -------------- -------------
Pension credit: change to
terms (236) - -
Pension charge: actuarial
losses - 93 176
Terminal 2 operational readiness - 18 18
Restructure 4 - 8
Total operating exceptional
items (232) 111 202
---------------------------------- -------------- -------------- -------------
Operating costs - exceptional: other
During the period, the Company agreed changes to the HAH Group's
defined benefit pension scheme effective from 1 October 2015. The
changes include the introduction of an annual cap of 2% on future
increases to pensionable pay for active members. The changes result
in a one-off reduction of GBP236 million in the scheme's
liabilities, as measured under IAS19, and is classified as an
exceptional item in the income statement. There is no immediate
cash flow impact as a result of these changes. As noted in the
basis of preparation, from 1 January 2015 the Group has changed its
treatment of actuarial gains and losses on the defined benefit
pension scheme and no longer reports these as an exceptional item
in the income statement.
From 1 January 2015 the Group has changed its treatment of
actuarial gains and losses on the Group's defined benefit pension
scheme. The net actuarial gains and losses are now presented within
other comprehensive income rather than as an exceptional item in
the income statement, as explained in the basis of preparation.
Previously, movements in the Group's share of pension
obligations were recorded as exceptional items. For the nine months
ended 30 September 2014 and the year ended 31 December 2014 a
non-cash pension charge was recorded of GBP93 million and GBP176
million respectively.
Operational readiness costs were associated with managing the
opening of Terminal 2. Costs for the nine months ended 30 September
2014 and for the year ended 31 December 2014 were GBP18 million.
These costs were primarily for familiarisation, induction and
training and the ramp up of operational costs as Terminal 2
approached its opening on 4 June 2014.
Costs associated with the Group's change programmes were GBP4
million in the nine months ended 30 September 2015 and GBP8 million
in the year ended 31 December 2014. The charge related to severance
and pension payments associated with a restructuring programme.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
4 Financing
Unaudited Unaudited
Nine months Nine months Audited
ended ended Year ended
30 September 30 September 31 December
2015 2014 2014
GBPm GBPm GBPm
------------------------------------------- -------------- -------------- -------------
Finance income
Interest receivable on derivatives
not in hedge relationship 175 171 231
Interest on deposits 3 2 3
178 173 234
------------------------------------------- -------------- -------------- -------------
Finance costs
Interest on borrowings:
Bonds and related hedging instruments(1) (431) (445) (592)
Bank loans and overdrafts and
related hedging instruments (37) (47) (75)
Amortisation on bond redemption(2) - (61) (62)
Interest payable on derivatives
not in hedge relationship(3) (186) (245) (323)
Facility fees and other charges (6) (11) (14)
Net pension finance costs (5) (2) (3)
Interest on debenture payable
to Heathrow Finance plc (52) (41) (57)
Unwinding of discount on provisions - (1) (1)
------------------------------------------- -------------- -------------- -------------
(717) (853) (1,127)
Less: capitalised borrowing
costs(4) 14 80 89
------------------------------------------- -------------- -------------- -------------
(703) (773) (1,038)
------------------------------------------- -------------- -------------- -------------
Net finance costs before certain
re-measurements (525) (600) (804)
------------------------------------------- -------------- -------------- -------------
Fair value gain/(loss) on financial
instruments
Interest rate swaps: ineffective
portion of cash flow hedges (8) 2 3
Interest rate swaps: not in
hedge relationship 2 (74) (196)
Index-linked swaps: not in hedge
relationship(5) 61 48 26
Cross-currency swaps: ineffective
portion of cash flow hedges (13) 4 9
Cross-currency swaps: ineffective
portion of fair value hedges 30 2 3
Fair value re-measurements of
foreign exchange contracts and
currency balances - 1 1
------------------------------------------- -------------- -------------- -------------
72 (17) (154)
------------------------------------------- -------------- -------------- -------------
Net finance costs (453) (617) (958)
------------------------------------------- -------------- -------------- -------------
(1) Includes accretion of GBP6 million (nine months ended 30
September 2014: GBP18 million; year ended 31 December 2014: GBP20
million) on index-linked bonds.
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(2) Amortisation on bond redemption includes a one-off non-cash
GBP61 million amortisation charge recognised at maturity of the
EUR750 million bond in September 2014. The amount should have been
amortised over the period since 2010 when the bond formed part of a
fair value hedging relationship. A deferred tax credit of GBP12
million relating to the amortisation charge has been recognised
within the tax charge.
(3) Includes accretion of GBP43 million (nine months ended 30
September 2014: GBP110 million; year ended 31 December 2014: GBP139
million) on index-linked swaps.
(4) 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 5.28% (nine months ended
30 September 2014: 5.89%; year ended 31 December 2014: 5.87%) to
expenditure incurred on such assets.
(5) Reflects the impact on the valuation of movements in implied
future inflation and interest rates and accounting adjustment in
respect of accretion.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
5 Taxation
Unaudited Unaudited
Nine months Nine months Audited
ended ended Year ended
30 September 30 September 31 December
2015 2014 2014
GBPm GBPm GBPm
-------------------------------- -------------- -------------- -------------
UK corporation tax
Current tax at 20.25% (2014:
21.5%) (56) (4) 13
Deferred tax
Current year (77) (20) 8
Taxation (charge)/credit for
the period (133) (24) 21
-------------------------------- -------------- -------------- -------------
The tax charge for the nine months ended 30 September 2015
results in an effective tax rate of 24.1%, reflecting the tax
charge arising on ordinary activities of GBP133 million based on a
profit before tax of GBP552 million. The effective tax rate for the
period differs from the UK statutory rate of 20.25% primarily due
to permanent differences mainly arising from non-qualifying
depreciation and non-deductible expenses.
For the nine months ended 30 September 2014, the effective tax
rate was 32.8%, reflecting the tax charge arising on ordinary
activities of GBP24 million based on a profit before tax of GBP73
million. The effective tax rate for the period differs from the UK
statutory rate of 21.5% primarily due to permanent differences
mainly arising from non-qualifying depreciation and non-deductible
expenses.
The tax credit for the year ended 31 December 2014 resulted in
an effective tax rate of 17.6%, reflecting the tax credit arising
on ordinary activities of GBP21 million based on a loss before tax
of GBP119 million. The effective tax rate for the period differs
from the UK statutory rate of 21.5% primarily due to permanent
differences mainly arising from non-qualifying depreciation,
non-deductible expenses and the release of a provision.
Legislation was substantively enacted on 26 October 2015 that
the standard rate of corporation tax in the UK would change from
20% to 19% with effect from 1 April 2017 and to 18% from 1 April
2020. Deferred tax assets and liabilities are recognised at the tax
rates that are expected to apply when the asset is realised or the
liability is settled, based on tax rates that have been
substantively enacted by the balance sheet date. The Heathrow (SP)
Limited consolidated net deferred tax liabilities as at 31 December
2014 were GBP1,023 million and a 1% change in the tax rate would
result in a GBP51 million reduction in this balance.
Heathrow (SP) Limited
Notes to the consolidated financial information
for the nine months ended 30 September 2015
6 Borrowings
Unaudited Unaudited Audited
30 September 30 September 31 December
2015 2014 2014
GBPm GBPm GBPm
----------------------------------- -------------- -------------- -------------
Current borrowings
Secured
Loans 39 39 39
Bonds:
3.000% GBP300 million due 2015 - 300 300
2.500% US$500 million due 2015 - 308 320
12.450% GBP300 million due - -
2016 309
----------------------------------- -------------- -------------- -------------
348 647 659
Unsecured
Bank overdrafts - - 2
----------------------------------- -------------- -------------- -------------
Total current (excluding interest
payable) 348 647 661
Interest payable - external 257 256 251
Interest payable - owed to
group undertakings 7 5 21
----------------------------------- -------------- -------------- -------------
Total current 612 908 933
----------------------------------- -------------- -------------- -------------
Non-current borrowings
Secured
Bonds:
12.450% GBP300 million due
2016 - 322 318
4.125% EUR500 million due 2016 365 381 381
4.375% EUR700 million due 2017 516 543 542
2.500% CHF400 million due 2017 271 257 257
4.600% EUR750 million due 2018 526 543 545
6.250% GBP400 million due 2018 399 398 398
4.000% C$400 million due 2019 196 218 219
6.000% GBP400 million due 2020 397 396 397
9.200% GBP250 million due 2021 274 269 275
3.000% C$450 million due 2021 226 243 248
4.875% US$1,000 million due
2021 695 630 670
1.650%+RPI GBP180 million due
2022 194 193 193
1.875% EUR600 million due 2022 453 477 485
5.225% GBP750 million due 2023 655 647 649
7.125% GBP600 million due 2024 590 589 589
3.250% C$500 million due 2025 249 - -
4.221% GBP155 million due 2026 154 155 155
6.750% GBP700 million due 2026 691 691 691
2.650% NOK1,000 million due 77 - -
2027
7.075% GBP200 million due 2028 198 198 198
1.500% EUR750 million due 2030 508 - -
6.450% GBP900 million due 2031 855 847 855
Zero-coupon EUR50 million due
January 2032 44 44 44
1.366%+RPI GBP75 million due
2032 77 76 76
Zero-coupon EUR50 million due
April 2032 43 43 44
4.171% GBP50 million due 2034 50 50 50
Zero-coupon EUR50 million due
2034 38 39 39
1.061%+RPI GBP115 million due 115 - -
2036
1.382%+RPI GBP50 million due
2039 51 51 51
3.334%+RPI GBP460 million due
2039 574 572 575
1.238%+RPI GBP100 million due
2040 100 100 100
5.875% GBP750 million due 2041 741 740 743
4.625% GBP750 million due 2046 742 742 742
1.372%+RPI GBP75 million due
2049 77 76 76
----------------------------------- -------------- -------------- -------------
11,141 10,530 10,605
Heathrow (SP) Limited
Notes to the consolidated financial information
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