Classification: Public Heathrow (SP) Limited Results for year ended 31 December 2017 22 February 2018
Classification: Public 2017 highlights
Classification: Public 2017 – A record year for Heathrow • Excellent service standards complement strong Operational operational performance 1 highlights • Skytrax best Airport in Western Europe • 78.0 million passengers, seventh successive record year • Revenue of £2,884 million, up 2.7% and Adjusted EBITDA of £1,760 million, up 4.6% Financial 2 performance • Strong cost control and better value • Over £1.0 billion in debt financing completed while simplifying capital structure • Raising service standards and operational resilience Strategic • Focusing on further cost efficiency and revenue 3 aims development • Good momentum in progressing expansion delivery 3
Classification: Public Another record year for Heathrow • 2017: another year of record traffic Passenger traffic by market – growth driven by stronger load factors, up 2017 versus 2016 2.0ppt to 78.0% UK • Long haul traffic key growth driver Europe 4.8m North America 32.4m +3.3% – up 3.6% driven by Middle East and Asia Pacific 17.4m +2.4% +1.1% – Middle East up 9.5% due to A380s/new M. East Asia Pacific services 7.6m 11.3m – Asia Pacific up 4.5% on growth in existing +9.5% +4.5% markets Africa Latin America 3.2m 1.3m • Strong growth in short haul +0.2% +5.5% – notable continental Europe increases due to fuller, larger planes – domestic traffic growth with Flybe services to Scotland 78.0 million passengers – increased domestic discount from January 2018 +3.1% • Cargo volume increased 10.2%, to 1.7 million tonnes, mainly due to North America and Middle East 4
Classification: Public Heathrow resilient whilst at capacity Top 10 busiest global airports Passenger traffic at European hubs 2017 versus 2007 Year on year growth in traffic for 12 months to 31 December 2017 Global ranking Passengers (m) 104 1st Atlanta +7.7% 89 1st 2nd 96 Beijing 9th 54 +6.1% +5.9% +5.4% 3rd 88 Dubai +5.0% 24th 34 4th 85 Los Angeles 5th 62 +3.1% 5th 83 Haneda 4th 67 6th 80 Chicago O'Hare 2nd 76 7th 78 Heathrow Heathrow Istanbul Charles de Madrid Frankfurt Schiphol 3rd 68 Gaulle Annual 73 8th Hong Kong 53.4 63.7 69.5 64.5 68.4 passengers (m) 78.0 47 14th Runways 2 3 4 4 6 4 9th 70 Shanghai 34th 29 69 10th Ch. de Gaulle 60 6th 2017 2007 5
Classification: Public Record service standards complemented by robust operations Quarterly passenger satisfaction Passenger satisfaction European ranking Q4 2006 – Q4 2017 Q4 2017 4.50 4.20 4.18 4.30 ASQ score (out of 5) ASQ score (out of 5) 4.00 4.10 3.80 3.90 3.60 3.70 3.40 3.50 3.20 3.30 Q4-06 Q2-07 Q4-07 Q2-08 Q4-08 Q2-09 Q4-09 Q2-10 Q4-10 Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13 Q2-14 Q4-14 Q2-15 Q4-15 Q2-16 Q4-16 Q2-17 Q4-17 LHR European competitors European comparators Heathrow European top quartile European average Departures Baggage performance within 15 minutes of schedule misconnect rate per 1,000 passengers 50 90% 40 80% 79% 40 80% 30 70% 14 63% 20 10 60% 10 0 50% 2007 2016 2017 2007 2016 2017 Best Airport in Western Europe 2016 Europe’s Best Airport Terminal 5 – World’s Best Airport Terminal (over 40millionpassengers) World’s Best Independent Airport Lounge 6
Classification: Public Heathrow 2.0 flagship goals Our proposal 7
Classification: Public Heathrow expansion on track - update Completed To come Heathrow Government CAA final report Heathrow • CAA consultation on expansion to Secretary of consultation CAA regulatory framework State on airline 1 launched (Jun 2017) engagement • CAA policy update and consultation on expansion regulatory framework (Dec 2017) 2017 2018 2019 2020 2021 Government NPS Heathrow Heathrow submits CAA initial • Government consultation on decision to ‘designated’ consultation Development proposals Government draft National Policy Statement grant DCO by 2 Consent Order for H7 (‘NPS’) (Feb 2017) decision to grant Government (DCO) application regulation DCO • NPS consultation 2 (Oct 2017) • Parliamentary scrutiny commences (Oct 2017) 8
Classification: Public Good momentum in progressing expansion delivery • CAA encouraged by progress made in Heathrow Expansion hits new milestone with Heathrow’s and airline engagement on affordability while first consultation launched in January 2018 retaining financeability at its heart – improved scheme options through airline engagement – emerging £14 billion option, £2.5 billion below scheme presented to Airports Commission – maintains local commitments & passenger experience • Heathrow’s first planning consultation unveils options for feedback – infrastructure design options e.g. phasing new terminal capacity construction, different runway lengths – airspace design principles – aligned with environmental commitments – launched 17 January 2018; closes 28 March 2018 • Government confirms support for expansion as ‘strategically important for Britain’ – national policy statement (NPS) consultation concluded – transport select committee scrutiny of NPS ongoing – parliamentary vote on NPS expected in H1 2018 – broad cross party support (>70% of MPs) maintained 9
Classification: Public CAA progresses expansion regulatory framework CAA extends Q6 and progresses H7 • Appropriate balance of financeability and regulatory framework affordability are fundamental to expansion regulatory construct • Q6 extended at least a further year to end of 2020 – extension beyond 2020 may be considered to better align with expansion process – RPI-0% price path favoured by CAA while various options are considered to reflect Q6 outperformance • Other focus areas of the CAA’s December consultation being considered by Heathrow – PwC’s preliminary expansion WACC range – cost of debt indexation for new debt only – core inflation index to remain RPI until at least 2025 – early category C costs information requirements • Expected next steps – responses by 2 March 2018; next update in April 2018 – CAA’s initial proposals for H7 regulation in late 2019 10
Classification: Public Financial review
Classification: Public Financial highlights Versus 2016 2017 2016 (£ million) 2,807 Revenue 2,884 +2.7% 1,125 Operating costs 1,124 -0.1% 1,760 1,682 Adjusted EBITDA +4.6% Capital expenditure 687 674 +1.9% Change Dec Dec from 2016 2017 31 Dec 16 Consolidated nominal net debt 11,908 Heathrow (SP) 12,372 +3.9% 13,005 Heathrow Finance 13,674 +5.1% 15,786 15,237 RAB +3.6% 12
Classification: Public Strong traffic and retail momentum boost revenues Analysis of revenue (£m) • Record traffic boosts aeronautical revenue 2,807 2,884 while delivering better value for passengers +2.7% – up: traffic growth – down: lower tariff (RPI-1.5% formula); yield dilution 1,716 1,699 • Strong momentum in retail income growth +1.0% – increased airside participation and greater spend per participating passenger – surging traffic and sterling depreciation boosted 659 612 +7.7% revenue, particularly duty and tax-free and airside specialist shops 496 2.6% 509 – catering income growth driven by Terminal 5 food 2016 2017 outlet redevelopment and increased passenger participation before boarding Aeronautical Retail Other – Terminal 4 luxury retail redevelopment started contributing to growth – Heathrow Express’ strong performance driven by 2016 Change Per passenger (£) 2017 higher traffic numbers and enhanced pricing strategy Aeronautical revenue 22.45 22.00 -2.0% Retail revenue 8.09 8.45 4.5% 13
Classification: Public Robust cost performance Analysis of operating costs (£m) • Operating costs 3.1% lower on a per passenger basis 1,125 1,124 -0.1% – achieved whilst welcoming 2.3 million extra passengers and maintaining world class service 373 374 0.3% – cost reductions mainly in operational costs – new NATS contract, other third party suppliers and lower insurance claims -4.9% 265 252 – people cost marginally higher due to higher traffic, pay rise and initiatives enabling future efficiencies 176 176 - – higher utility costs driven by non-recurrent one-off 126 128 -1.6% credit in 2016 196 183 7.1% • On track to deliver £600 million Q6 2016 2017 efficiencies Employment Operational Maintenance – energy demand management, recurrent savings Business rates Utilities & Other from renegotiated contracts and organisational change Per passenger (£) 2016 2017 Change 14.87 -3.1% Operating costs 14.41 14
Classification: Public Operating cash flow significantly exceeds capital expenditure and interest payments Heathrow (SP) nominal net debt January 2017 – December 2017 13,050 495 12,800 12,550 59 12,300 (£m) 687 1,733 12,050 686 12,372 11,800 11,908 11,550 270 11,300 Opening Capital Net interest paid Cash flow from Index-linked Net Tax/other Closing (1 January 2017) expenditure on external debt operations accretion dividends/debt (31 December payments 2017) 15
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