Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited

Transcription

1 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 1

2 CONTENTS Page FORWARD LOOKING STATEMENTS... 3 INDUSTRY AND MARKET INFORMATION... 4 DESCRIPTION OF BUSINESS... 5 FINANCIAL RESULTS AND RECENT DEVELOPMENTS... 6 EXECUTIVE SUMMARY... 7 Financial Overview... 7 Recent Developments since 30 September Financial Results for the six months ended 31 December Profit and Loss Capital expenditure Net cash flows Contractual obligations and Commitments Appendix Note Regarding EBITDA and Reconciliation of EBITDA to Net Cash Inflow From Operating Activities Summary Corporate and Financing Structure CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 OF ABPL AND AGPL Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 2

3 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 THIS FINANCIAL REPORT IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR INFORMATION PURPOSES ONLY. THIS FINANCIAL REPORT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS MATERIAL TO A PROSPECTIVE INVESTOR. This document is not a prospectus for any securities or transaction. Investors should only subscribe for any securities on the basis of information in a relevant prospectus and not on the basis of any information provided herein. This document does not disclose all the risks and other significant issues related to an investment in any securities/transaction. Prior to transacting, potential investors should ensure that they fully understand the terms of any securities/transaction and any applicable risks. This Financial Report has been prepared pursuant to Condition 4.5 of the Junior Notes ( 600m of notes issued by Arqiva Broadcast Finance plc) and pursuant to Paragraph 5.1 and Paragraph 5.4 of Schedule 2 of the CTA and certain information reporting covenants of the Notes. The date of this Financial Report is 23 February Unless otherwise defined herein, capitalised terms have the meanings given in the final offering prospectus for the multicurrency programme for the issuance of Senior Notes dated 21 February This Financial Report has been prepared by the Group (Arqiva Broadcast Parent Limited, Arqiva Group Parent Limited and their subsidiaries) and may be amended and supplemented and may not be relied upon for the purposes of entering into any transaction. Although the Group has taken all reasonable care to ensure that the information herein is accurate and correct, neither of the Group, nor any of its respective directors, officers, employees, shareholders, affiliates, agents, advisers, other representatives (collectively, Representatives) makes any additional representation, warranty or undertaking, express or implied, as to the fairness, accuracy, completeness or correctness of the information or the opinions contained herein or any other material discussed in the Financial Report. The financial information set forth in this Financial Report has been subjected to rounding adjustments for ease of presentation. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables may not conform exactly to the total figure given for that column or row. Percentage figures included in this Financial Report have not been calculated on the basis of rounded figures but have been calculated on the basis of such amounts prior to rounding. The views reflected herein are solely those of the Group and are subject to change without notice. All estimates, projections, valuations and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein and may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results and to the extent that they are based on historical information, they should not be relied upon as an accurate prediction of future performance. Certain analysis is presented herein and is intended solely for purposes of indicating a range of outcomes that may result from changes in market parameters. It is not intended to suggest that any outcome is more likely than another, and it does not include all possible outcomes or the range of possible outcomes, one of which may be that the investment value declines to zero. FORWARD LOOKING STATEMENTS This Financial Report contains various forward-looking statements regarding events and trends that are subject to risks and uncertainties that could cause the actual results and financial position of the Group to differ materially from the information presented herein. When used in this Financial Report, the words estimate, project, intend, anticipate, believe, expect, should and similar expressions, as they relate to the Group, are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Save as otherwise required by any rules or regulations, the Group does not undertake any obligations publicly to release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The risks and uncertainties referred to above include: actions or decisions by governmental and regulatory bodies, or changes in the regulatory framework in which the Group operates, which may impact the ability of the Group to carry on its businesses; changes or advances in technology, and availability of resources such as spectrum, necessary to use new or existing technology, or customer and consumer preferences regarding technology; Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 3

4 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 the performance of the markets in the UK, the EU and the wider region in which the Group operates; the ability of the Group to realise the benefits it expects from existing and future projects and investments it is undertaking or plans to or may undertake; the ability of the Group to develop, expand and maintain its broadcast and telecommunications infrastructure; the ability of the Group to obtain external financing or maintain sufficient capital to fund its existing and future investments and projects; the Group s dependency on only a limited number of key customers for a large percentage of its revenue; and expectations as to revenues not under contract. INDUSTRY AND MARKET INFORMATION This Financial Report may include market share and industry data which the Group obtained from industry publications and surveys, industry reports prepared by consultants, internal data and customer feedback. None of the third party sources has made any representation, express or implied, and has not accepted any responsibility, with respect to the accuracy or completeness of any of the information contained in this Financial Report. These third party sources generally state that the information they contain has been obtained from sources believed to be reliable. However, these third party sources also state that the accuracy and completeness of such information is not guaranteed and that the projections they contain are based on significant assumptions. As the Group does not have access to all of the facts and assumptions underlying such market data, statistical information and economic indicators contained in these third party sources, the Group is unable to verify such information and cannot guarantee its accuracy, fairness or completeness. Similarly, internal surveys, industry forecasts and market research have not been independently verified. In addition, certain information in this Financial Report may not be based on published data obtained from independent third parties or extrapolations thereof but on information and statements reflecting the Group s best estimates based upon information obtained from trade and business organisations and associations, consultants, and other contacts within the industries in which the Group operates, as well as information published by the Group s competitors. Such information is based on the following: (i) in respect of the Group s market position, information obtained from trade and business organisations and associations and other contacts within the industries in which the Group operates, and (ii) in respect of industry trends, the Group s senior management team s business experience and experience in the industry and the markets in which the Group operates. The Group cannot assure you that any of the assumptions that it has made in compiling this data are accurate or correctly reflect the Group s position in its markets. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 4

5 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 DESCRIPTION OF BUSINESS The Group is the UK s national provider of essential terrestrial television and radio broadcast infrastructure as well as a key provider of communications services to major distributors of media and wireless voice and data services in the UK. The Group s core tower business (comprising terrestrial broadcast and wireless site share infrastructure) generates predictable operating profits (which management estimates constituted circa two-thirds of the Group s gross profits for the year ended 30 June 2014), supported by strong market positions, diverse revenue streams, long-life assets and a significant proportion of revenues coming from long term contracts. The Group has the following key competitive positions: regulated position as the sole UK national provider of network access ( NA ) and managed transmission services ( MTS ) for terrestrial television broadcasting, the most popular television broadcast platform in the UK. The Group owns and operates all television transmission towers used for digital terrestrial television ( DTT ) broadcasting in the UK and has long-term contracts with public service broadcaster ( PSB ) customers (who depend on the Group to meet the obligations under their licences to extend coverage to 98.5% of the UK population) as well as commercial broadcasters. The Group upgraded the UK s DTT network through the 600m digital switchover ( DSO ), which it completed within budget and on schedule in October 2012; market leader for commercial spectrum used for transmission of digital terrestrial television ( DTT ), owning two of the three main national commercial Multiplexes (out of a total of six) plus two new High Definition ( HD ) capable DTT (DVB-T2) Multiplexes (for additional HD/SD services on Freeview in the DVB-T2 format i.e. Freeview HD compatible sets). DTT video streams in the UK are more valuable to broadcasters than either satellite and cable video streams, due to DTT s extensive viewer coverage and more limited supply of commercial channels as compared to approximately 250 channels on cable and 500 on satellite; regulated position as the sole UK national provider of network access ( NA ) and managed transmission services ( MTS ) for radio broadcasting, ownership of over 90% of the radio transmission towers for terrestrial broadcasting in the UK and operator of the sole, existing national commercial digital radio Multiplex and, as at 31 December 2014, 26 of the 57 local radio Multiplexes; a large rural and suburban network of towers which is attractive to all operators and with an average of 2.5 tenants per active licensed site. Landlords ability to terminate leases is restricted by protections under the Landlord & Tenant Act (where applicable) or under the Electronic Communications Code ( ECC ) which is currently being consulted on; sole provider for smart metering communication services in Northern England and Scotland to provide a network to connect smart meters to DCC Systems (Data and Communications Company, a body licensed by statute) for approximately 9.3 million homes. Building on the success securing the smart metering communication services contract, Arqiva has also established a Smart Metering M2M (machine-to-machine) business division to address opportunities in the smart water metering, and machine-to-machine markets. In April 2014 Arqiva announced the signature of a partnership deal with SIGFOX, a leading international Internet of Things ( IoT ) business, and has begun the construction of the UK s first national low-power, low-bandwidth IoT network using SIGFOX technology; largest owner of independent satellite uplink infrastructure and satellite distribution services in the UK in terms of the number of channels uplinked for UK Direct-to-Home ( DTH ) satellite broadcast that serves as an alternative for customers who do not wish to use BSkyB's uplinking services or who choose to use Arqiva as an uplink provider to their own UK DTH Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 5

6 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 satellite capacity. The Group has over 40% market share in terms of the number of transponders accessed from their uplink infrastructure as at 31 December 2014; one of the largest providers of WiFi in the UK with circa 26,000 deployed access points, and provision of WiFi services in 35 airports and 10 London boroughs; and a significant proportion of revenue from long-term contracts with automatic RPI-linked increases. FINANCIAL RESULTS AND RECENT DEVELOPMENTS The following discussion of the Group s financial condition and results of operations should be read in conjunction with the Group s audited consolidated financial statements for the year ended 30 June 2014 and the Group s unaudited condensed consolidated financial statements for the six months ended 31 December 2014 and the related notes to those consolidated financial statements. Some of the statements contained below, including those concerning future revenues, costs, capital expenditures, acquisitions and financial condition, may contain forward-looking statements. As such statements involve inherent uncertainties, actual results may differ materially from the results expressed in or implied by such forward-looking statements. A discussion of such uncertainties is provided under Forward Looking Statements. Where the financial results for both Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited are identical, the financial tables and commentaries have been presented in this report only once and should be viewed as referring to both groups. Where the financial results are different, the financial tables include a break to separate the results and separate commentaries have been provided under the appropriate sub-headings. Results of operations for the prior year or the recent period are not necessarily indicative of the result to be expected for any future period. Some of the performance indicators and ratios reported herein, such as EBITDA, are not financial measures defined in accordance with IFRS, or UK GAAP and, as such, may be calculated by other companies using different methodologies and having different results. Therefore, these performance indicators and ratios are not directly comparable to similar figures and ratios reported by other companies. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 6

7 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 EXECUTIVE SUMMARY The Financial Overview and Recent Developments discussed in this section relate to both Arqiva Broadcast Parent Limited ( ABPL ) and Arqiva Group Parent Limited ( AGPL ), together the Group. The trading results of the two consolidation groups are identical but with different financing structures. Commentary relates to both ABPL (including senior and junior debt) and AGPL (senior debt only) unless specified otherwise. Items discussed in the Financial Results section from page 10 onwards which relate to both ABPL and AGPL have been shaded for ease of reference. Financial Overview For the six months ended 31 December 2014 turnover for the Group was 420.8m, an increase of 4.4% from 403.1m in the prior year period. The increase was primarily due to the recognition of 13.9m revenue for the DCC Smart Metering contract rollout (for which the majority of cash will be collected in later years as per the contract terms), growth in Installation Services and Site Share project revenues in Telecoms, together with contract renewals and higher utilisation of capacity within Digital Platforms. This growth was partially offset by a reduction in one-off project revenues in Terrestrial Broadcast and in the exit of low margin wholesale space business in Satellite and Media. EBITDA for the Group pre-exceptional items was 206.3m, representing a 3.1% increase from 200.1m in the prior year period, due to the gross profit on the increased revenues discussed above, partially offset by an increase in operating costs to support the delivery of new contracts and pursuit of growth opportunities. EBITDA for the Group post-exceptional items was 206.0m, an increase of 4.1% compared with the prior year period result of 197.8m. In the prior year, exceptional costs of 2.3m related to reorganisation costs and loss on disposal of fixed assets. Exceptional items in the current period relate to losses on disposal of fixed assets ( 0.3m). Profit on ordinary activities before taxation and interest for the Group was 70.4m, a 10.7% increase from 63.6m in the prior year period. Net cash inflow from operating activities for the six month period to 31 December 2014 was 146.7m, compared to the prior year period of 98.4m. This increase was primarily due to movements in working capital and additional EBITDA generated. The working capital outflow of 59.4m for the six month period to 31 December 2014 was 39.9m favourable to that of the same period in the prior year, in which there was an outflow of 99.3m. This positive variance was largely due to a payment from a major customer received earlier than in the prior year, together with other minor timing differences. Net capital expenditure and financial investment in the six month period to 31 December 2014 was 111.8m compared with the same six month period in the prior year of 75.1m. The increase was principally as a result of spending in connection with contract wins such as Smart Metering and digital radio coverage extension for the BBC. Recent Developments since 30 September 2014 Smart metering rollout progress In September 2013, Arqiva signed a 15-year contract with the Data and Communications Company (the DCC, a body licensed by statute) to provide communications infrastructure to connect smart meters to DCC Systems for approximately 9.3 million homes and small businesses in Scotland and northern England. Since the award of the contract, Arqiva has consistently met all of its contracted milestones on time and to the required standard. Datacentres have been built and tested; a service management centre has been established; a key 25% network coverage milestone was achieved by 31 December 2014; good progress is being made to achieve 40% by 1 April 2015 and a purpose built Centre of Excellence Test facility is now conducting Pre-Integration Testing of the solution. In addition, the prototype for the Communications Hub to be installed in every home has been built and has achieved CE certification (meets EU legislation and EU safety, health or environmental requirements). In the six Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 7

8 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 months ended 31 December 2014 the Group recognised 13.9m revenues relating to project management services provided by Arqiva Limited (within the WBS financing group) to Arqiva Smart Metering Limited ( ASML ) including revenues in relation to progress towards the completion of the DCC design and development milestone as part of the construction of the network infrastructure. The design of the Communications Hub is dependent on certain industry specifications provided by the Department of Energy and Climate Change ( DECC ). One such specification (the Great Britain Companion Specification) has changed materially in recent months, causing delay to the overall UK Smart Metering programme. DCC has consulted with industry on re-planning options, which are subject to a change control process. Arqiva is supporting the delivery of an industry-wide plan and as part of this is providing support for the development of a single integrated DCC-wide plan (integrated with other suppliers) that DCC will then recommend to the Secretary of State for approval during February The timing of Arqiva s network build will be unaffected. Internet of Things network rollout In April 2014, Arqiva signed a deal with SIGFOX, a leading international IoT business to build a national IoT network on a staged basis, starting with ten major UK cities, using SIGFOX technology. As at 31 December 2014, Arqiva had launched coverage in the ten major UK cities. Discussions with potential customers are on-going. Digital Platforms Multiplex utilisation As at 31 December 2014, all 28 streams on Arqiva s two main DVB-T Multiplexes were fully utilised, following the renewal of all founder streams and a strong period of sales bringing a number of new customers and brands onto the Freeview DTT platform confirming its on-going attractiveness to broadcasters for them to obtain the largest possible audiences. New channel launches since last summer on the main DVB-T Arqiva Multiplexes include TruTV, TBN, CBS Action, and TinyPop. These renewals and new channels have added a net 250m of contracted revenues to Arqiva s orderbook since 30 June 2014, leading to the highest ever contracted revenue figure for the Digital Platforms division of circa 0.6bn as at 31 December Freeview update Freeview is the UK s biggest digital television provider, delivering TV content over DTT. In June 2014, as part of an effort to develop the platform further the Freeview consortium announced plans to develop a connected TV service which will make catch-up and on-demand TV available to a mass market giving viewers even more choice in how they access TV programmes. It has recently been announced that this new service will be called Freeview Play. In November 2014, Arqiva s Digital Platforms division was awarded the contract to build Freeview Play s metadata aggregation engine and service following a competitive selection process by Digital UK. The aim is for manufacturers to launch a new range of Freeview Play enabled televisions and boxes which consumers will be able to buy in store. Consumers will be able to watch the service via their TV aerial and current broadband provider without being tied to a contract. Arqiva is committed to ensuring Freeview remains a strong and competitive player in the changing TV landscape. The service will be built by Arqiva s Connected Solutions business, utilising the expertise of its recently acquired Capablue business. DTT spectrum update The DTT platform currently uses spectrum in the MHz bands. Plans are being developed by Ofcom and industry stakeholders to clear 700MHz (694 MHz to 790 MHz) to use for mobile data. The Group is currently undertaking a capability assessment for Ofcom to identify the work required to modify the existing DTT network infrastructure to meet the requirements for the 700MHz Clearance. From this assessment, the Group will provide Ofcom with the output reports during the current financial year detailing the technical requirements and costs for the programme. This information will then be used to develop the final plans for the 700 MHz Clearance programme. In addition, major European nations (fourteen in total including UK, France, Spain and Italy) and a recent consultation prepared by European Member States and the European Commission in November 2014 support a European common proposal to ensure that there is no change to the Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 8

9 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 existing regulatory arrangements for terrestrial broadcast spectrum in the MHz range. The proposal is to reserve this range for terrestrial broadcast use and continue to exclude mobile services in this band across Europe. This is the position that the Group anticipates Europe collectively will align behind at the World Radio Conference ( WRC ) meeting in November Digital radio coverage extension for the BBC The Group has been progressing with the delivery of the programme under the BBC New Radio Agreement ( NRA ), and has now completed the upgrades to the analogue radio network. The build out of the Phase 4 BBC National DAB network continues and as at 31 December 2014, Arqiva had put 69 new transmitters on air increasing the BBC s UK DAB network coverage beyond 95% of the population. By the time the project is completed in December 2015, the BBC national DAB network will reach 97% of the population via a total of 392 transmitters. WACC review The Office of the Adjudicator Broadcast has published a review of the cost of capital applicable to broadcast transmission which is now the subject of a consultation process with Arqiva s television and radio broadcast customers. The cost of capital is used in the process of setting the prices for Arqiva s Network Access contracts. The last time the cost of capital was determined was in The report proposes a cost of capital of 7.50%, real pre-tax, compared with the existing rate of 7.71%. It is important to note that the report proposes the new cost of capital should apply to new contracted capital expenditure only. The review will not result in any change to the return allowed on existing investments already made under existing contracts, or to the cost of capital applied to existing infrastructure, which will remain at 7.71% real. We do not expect the new cost of capital applicable to new Reference offers following the completion of this review to have a material impact on the Group s financial position or prospects. 4G rollout and Mobile Infrastructure Project update The four main Mobile Network Operators ( MNO ) are all increasing their 4G network capability. Arqiva in turn is being contracted to carry out a large volume of antenna and feeder upgrade projects for its customers. The Group will therefore report a significant increase in Installation Services revenue this year and next year compared to the year ended 30 June To date the Group has completed circa 520 4G upgrades across Arqiva managed sites. The order book remains healthy with a further circa 5,300 upgrades to Arqiva managed sites requested from the mobile operators over the next 2-3 years based on current rollout plans. The Mobile Infrastructure Project ( MIP ) is a strategic programme funded by the Government with the ultimate goal of providing service to areas without any mobile coverage services ( not-spots ). In May 2013, Arqiva was awarded the contract for the project by the Department of Culture and Media and Sport ( DCMS ) to provide mobile network planning and deployment services to build infrastructure (cellular and backhaul transmission) which the MNOs will utilise. The DCMS intends to invest up to 150m to improve mobile coverage. Initial work on the programme has taken longer than anticipated due to the external challenges of bringing coverage to such rural and remote areas. The main challenges were difficulties in connecting to the MNOs networks and identifying not-spot areas that should be covered under the project. The Group currently has 116 sites in the acquisition phase and is working closely with the DCMS and MNOs to ensure successful delivery of the build phase. Operating Model Review We have been working with external consultants to benchmark our cost base and review the profitability of our services. The outcome of this review will enable us to continue to deliver a first class service for our customers with a more efficient cost base, and to rationalise our product offering. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 9

10 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Financial Results for the six months ended 31 December 2014 Profit and Loss The following table shows certain of the Groups profit and loss data for the periods indicated: Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Continuing Operations Turnover (including share of joint venture) Less share of joint venture turnover (5.9) (7.2) (13.9) Group turnover Cost of sales (158.2) (148.5) (301.3) Gross profit Depreciation (57.9) (57.0) (122.6) Amortisation (78.8) (78.9) (157.8) Operating expenses (56.5) (54.6) (117.1) Exceptional administrative expenses (0.3) (2.3) (7.4) Group operating profit Share of operating profit in joint ventures and associates Total operating profit: Group and share of joint ventures and associates Income from investments Profit on ordinary activities before taxation and interest At this point the profit and loss account diverges between ABPL and AGPL. For the line items below profit on ordinary activities before taxation and interest for each consolidation level, please see the commentary on page 14 onwards. Turnover For the six months ended 31 December 2014 turnover for the Group was 420.8m, a 4.4% increase from 403.1m in the prior year period. The increase was primarily due to the recognition of revenue for the DCC Smart Metering contract rollout of 13.9m (for which the majority of cash will be collected in later years as per the contract terms). There has also been growth in Telecoms primarily due to growth in Installation Services and Site Share project revenues, together with contract renewals and higher utilisation of capacity within Digital Platforms. This revenue growth was partially offset by a reduction in project revenues within Terrestrial Broadcast and the lower run rate seen in Satellite and Media due to the expected reduction in low margin wholesale space revenues. For the avoidance of doubt, the Smart Metering financials included in this report refer solely to the ABPL and AGPL financials. They do not include any revenue earned outside of these junior and senior financing groups. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 10

11 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 The following table shows the Group s turnover by division for the periods indicated: Turnover by Division Six Months Ended 31 December % Change (unaudited) millions Terrestrial Broadcast (6.0) Satellite and Media (9.5) Digital Platforms Telecoms Smart Metering (M2M) n/m Total Group Turnover Terrestrial Broadcast Turnover for the Group s Terrestrial Broadcast business during the six months ended 31 December 2014 was 123.9m, representing a 6.0% decrease from 131.8m in the prior year period. The reduction was principally due to the prior year period benefitting from one-off Local TV project revenues; higher engineering project related activities and some 800 MHz Clearance programme revenues which declined during the course of the prior year following the completion of this project. These reductions were partially offset by RPI linked increases on the existing DTT TV and radio transmission contracts. Satellite and Media Turnover for the Satellite and Media business during the six months ended 31 December 2014 was 76.6m which was a 9.5% decrease from 84.6m in the prior year period. The decrease is primarily due to the exit in the low margin wholesale space business along with some smaller variances across other Satellite products. These reductions have been largely offset by a reduction in cost of sales relating to satellite capacity costs thereby limiting the gross profit impact. Digital Platforms Digital Platforms turnover during the six months ended 31 December 2014 was 70.6m, a 5.4% increase on revenues of 67.0m in the prior year period. This increase is principally a result of recently contracted renewals with customers such as with Sky, together with new channel launches resulting in higher capacity utilisation. Telecoms Turnover for the Group s Telecoms division during the six months ended 31 December 2014 was 135.8m, a 14.1% increase from the prior year period revenues of 119.0m. The increase is primarily attributable to increased Installation Services activity relating to the MNOs current 4G network rollout and site upgrades, and WiFi growth including service fee revenues. This was partially offset by a decrease in Secure Solutions turnover, as the prior period had some one-off revenues in relation to the installation of paging systems. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 11

12 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Smart Metering (M2M) Revenue for the six months ended 31 December 2014 was 13.9m compared to prior year period revenues of 0.7m. Revenues represent project management services provided by Arqiva Limited, within the WBS financing group, to ASML including revenues in relation to progress towards completion of the DCC design and development milestone, as part of the construction of the network infrastructure. Cost of Sales For the six months ended 31 December 2014, cost of sales for the Group was 158.2m, an increase of 6.5% from 148.5m in the prior year period. In the current period, cost of sales has increased at a higher rate than turnover primarily due to an increase in Telecoms cost of sales relating to Installation Services reflecting the lower margin associated with this revenue, offset by savings seen in satellite capacity costs. Gross profit For the six months ended 31 December 2014, gross profit for the Group was 262.6m, representing a 3.1% increase from 254.6m in the prior year period, owing to the items discussed above. Depreciation Depreciation for the Group during the six months ended 31 December 2014 was 57.9m, in line with the prior period figure of 57.0m. Amortisation Amortisation for the Group during the six months ended 31 December 2014 was 78.8m, in line with the prior year period figure of 78.9m. Operating expenses Operating expenses for the Group during the six months ended 31 December 2014 excluding exceptional items were 56.5m, a 3.5% increase from the prior year period costs of 54.6m due to the increased costs of supporting the delivery of new contracts and pursuit of growth activities. EBITDA For the six months ended 31 December 2014, EBITDA pre-exceptional costs for the Group was 206.3m, representing a 3.1% increase from 200.1m in the prior year period, explained by the increase in gross profit partially offset by increased operating costs as the Group gears up to deliver new contracts and business opportunities. EBITDA for the Group post-exceptional items was 206.0m for the six months ended 31 December 2014, an increase of 4.1% compared with the prior year period result of 197.8m. For reconciliation of Group operating profit to EBITDA, see Note Regarding EBITDA and Reconciliation from EBITDA to Net Operating Cash Inflow From Operating Activities in the Appendix. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 12

13 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Exceptional administrative expenses Exceptional administrative expenses for the Group during the six months ended 31 December 2014 were 0.3m, representing an 87.0% decrease from 2.3m during the prior year period. The costs in the prior year period were largely due to reorganisation costs and loss on disposal of fixed assets. Exceptional items in the current period relate to losses on the disposal of fixed assets. Share of operating profit in joint ventures and associates Share of operating profit in joint ventures and associates for the Group for the six months ended 31 December 2014 was a 1.3m profit which was in line with profit of 1.4m in the same period in the prior year. Income from investments Income from investments for the Group during the six months ended 31 December 2014 was nil compared with 0.4m income in the prior year period. This prior period amount related to dividend payments received from investments in companies over which the Group does not have control or dominant influence, and are therefore excluded from the consolidation in accordance with accounting standards until the point a dividend is declared. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 13

14 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Note: The P&L line items for ABPL and AGPL mainly diverge at this point and are therefore discussed separately below for the two consolidation levels. ABPL Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Profit on ordinary activities before taxation and interest Interest receivable and similar income Exceptional financing income Net bank and other loan interest (118.9) (129.7) (255.7) Other interest (25.7) (29.0) (60.1) Share of joint venture interest payable (0.6) (0.8) (1.5) Exceptional financing expenses (100.5) - (112.3) Net third party interest payable and similar charges (243.6) (158.4) (427.3) Interest payable to parent undertakings (184.3) (168.2) (341.4) Loss on ordinary activities before taxation (357.5) (263.0) (645.1) Tax on loss on ordinary activities (0.6) Loss on ordinary activities after taxation (358.1) (261.6) (626.9) Equity minority interests (0.1) (0.1) (0.3) Loss for the financial period (358.2) (261.7) (627.2) Interest receivable and similar income Interest receivable and similar income during the six months ended 31 December 2014 was 1.1m, compared to 1.1m in the same period in the prior year, due primarily to the accounting for the defined benefit pension plan under FRS17 Retirement Benefits. Exceptional financing income In the six months ended 31 December 2014, the Group received 1.0m proceeds on disposal of a Swap Option, discussed further in the interest rate swaps ( IRS ) section of this report on page 24. Net bank and other loan interest Net bank and other loan interest for the Group during the six months ended 31 December 2014 was 118.9m compared to 129.7m in the prior year period, a reduction of 10.8m. 7.5m of this reduction was due to the restructure of IRS between Arqiva Senior Finance Limited ( ASF ) and Arqiva Financing No 1 Limited ( AF1 ) (as discussed on page 24 and 25). A proportion of the swap coupon payments previously accounted for in net bank and other loan interest is now treated as a capital repayment against a swap premium amount recorded on the balance sheet. The 7.5m capital repayment can also be seen in the cashflow statement. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 14

15 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 The increase in the inflation swap accretion of 18.2m (2013: 20.8m), resulted in a further 2.6m reduction in the net bank and other loan interest compared to the prior year period. Other interest Other interest payable for the Group during the six months ended 31 December 2014 was 25.7m, compared to 29.0m in the prior year period. Other interest payable is primarily non-cash. Included within the non-cash charges is the amortisation of certain debt issue costs and derivative close-out costs. These charges have reduced ( 14.5m to 31 December 2014; 18.9m to 31 December 2013) following an acceleration of amortisation during the year ended 30 June 2014 in line with the refinancing of the underlying debt. Share of joint venture interest payable Share of joint venture interest payable for the Group during the six months ended 31 December was 0.6m (2013: 0.8m). Exceptional financing costs During July 2014, the Group restructured certain IRS, when 300.0m of the 5 year term debt was refinanced by a US Private Placement floating rate debt issue. An exceptional cost of 100.5m was incurred in relation to the breaking of IRS agreements. The termination payments were fully funded by a 100.5m premium received for entering into the replacement IRS. Interest payable to parent undertakings Interest payable to parent undertakings for the Group during the six months ended 31 December 2014 was 184.3m, compared to 168.2m in the prior year period. This increase was due to the increase in the principal amount of subordinated intercompany loans, owing to the accrual of interest deferred in accordance with the terms of the loans. Tax on loss on ordinary activities Tax on loss on ordinary activities during the six months ended 31 December 2014 was a 0.6m charge, compared to a 1.4m credit in the prior year period, primarily due to an increased overseas tax charge as historic overseas tax losses have now been fully utilised. Equity minority interests For the six months ended 31 December 2014, the equity minority interest not attributable to the Group was 0.1m in line with the prior year period. This relates to the share of Now Digital (East Midlands) Limited and South West Digital Radio Limited that is not owned by the Group. Loss for the financial period Loss for the six months ended 31 December 2014 was 358.2m, compared to a 261.7m loss in the prior year period. This movement was primarily due to the 100.5m exceptional financing expense incurred in relation to the breaking of IRS which was fully funded by a 100.5m premium receipt for entering into the replacement IRS. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 15

16 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 AGPL Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Profit on ordinary activities before taxation and interest Interest receivable and similar income Exceptional financing income Net bank and other loan interest (90.5) (101.3) (198.8) Other interest (23.8) (27.3) (56.5) Share of joint venture interest payable (0.6) (0.8) (1.5) Exceptional financing expenses (100.5) - (112.3) Net third party interest payable and similar charges (213.3) (128.4) (366.9) Interest payable to parent undertakings (215.8) (199.8) (403.9) Loss on ordinary activities before taxation (358.7) (264.6) (647.2) Tax on loss on ordinary activities (0.6) Loss on ordinary activities after taxation (359.3) (263.2) (629.1) Equity minority interests (0.1) (0.1) (0.3) Loss for the financial period (359.4) (263.3) (629.4) Interest receivable and similar income Interest receivable and similar income during the six months ended 31 December 2014 was 1.1m, compared to 1.0m in the same period in the prior year, due primarily to the accounting for the defined benefit pension plan under FRS17 Retirement Benefits. Exceptional financing income In the six months ended 31 December 2014, the Group received 1.0m proceeds on disposal of a Swap Option, discussed further in the IRS section of this report on page 24. Net bank and other loan interest Net bank and other loan interest for the Group during the six months ended 31 December 2014 was 90.5m, compared to 101.3m in the prior year period, a reduction of 10.8m. 7.5m of this reduction was due to the restructure of IRS between Arqiva Senior Finance Limited ( ASF ) and Arqiva Financing No 1 Limited ( AF1 ) (as discussed on page 24 and 25). A proportion of the swap coupon payments previously accounted for in net bank and other loan interest is now treated as a capital repayment against a swap premium amount recorded on the balance sheet. The 7.5m capital repayment can also be seen in the cashflow statement. The increase in the inflation swap accretion of 18.2m (2013: 20.8m), resulted in a further 2.6m reduction in the net bank and other loan interest compared to the prior year period. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 16

17 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Other interest Other interest payable during the six months ended 31 December 2014 was 23.8m, compared to 27.3m in the prior year period. Other interest payable is primarily non-cash. Included within the noncash charges is the amortisation of certain debt issue costs and derivative close-out costs. These charges have reduced ( 12.7m to 31 December 2014; 17.2m to 31 December 2013) following an acceleration of amortisation during the year ended 30 June 2014 in line with the refinancing of the underlying debt. Share of joint venture interest payable Share of joint venture interest payable for the Group during the six months ended 31 December 2014 was 0.6m, comparable to the 0.8m payable in the prior year period. Exceptional financing costs During July 2014, the Group restructured certain IRS, when 300.0m of the 5 year term debt was refinanced by a US Private Placement floating rate debt issue. This exceptional cost comprises 100.5m incurred in relation to the breaking of IRS agreements. The termination payments were fully funded by a 100.5m premium received for entering into the replacement IRS. Interest payable to parent undertakings Interest payable to parent undertakings for the Group during the six months ended 31 December 2014 was 215.8m, compared to 199.8m in the prior year period. This increase is due primarily to an increase in the principal amount of intercompany loans owed by the Group, owing to the accrual of interest deferred in accordance with the terms of the loans m of the 215.8m charge was noncash. 28.5m was settled in cash in the period and used to pay interest on the 600.0m junior bonds. Tax on loss on ordinary activities Tax on loss on ordinary activities during the six months ended 31 December 2014 was a 0.6m charge, compared to a 1.4m credit in the prior year period, primarily due to an increased overseas tax charge as historic overseas tax losses have now been fully utilised. Equity minority interests For the six months ended 31 December 2014, the equity minority interest not attributable to the Group was 0.1m, compared to 0.1m in the prior year period. This relates to the share of Now Digital (East Midlands) Limited and South West Digital Radio Limited that is not owned by the Group. Loss for the financial period Loss for the six months ended 31 December 2014 was 359.4m, compared to a 263.3m loss in the prior year period. This movement was primarily due to the 100.5m exceptional financing expense incurred in relation to the breaking of IRS which was fully funded by a 100.5m premium receipt for entering into the replacement IRS. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 17

18 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Capital expenditure The capital expenditure discussed in this section relates to both ABPL and AGPL. The Group s operations are capital intensive and the Group requires maintenance capital expenditure as well as growth capital expenditure to support its current business and future development. Maintenance capital expenditure is expenditure that is incurred to deliver cost-savings, productivity enhancements, to extend the useful life of existing fixed assets, or replace worn out and obsolete fixed assets with new ones in order to support existing contracts; Growth contracted is capital expenditure that is incurred to deliver new or renewal revenues and which is supported by a signed customer contract; Growth - non-contracted is capital expenditure that is incurred to deliver revenues and which is supported by a business case but on which there is no signed customer contract at the time at which it is incurred and reported. Capital creditors/accruals reflect the timing difference to arrive at net capital expenditure and financial investment. The table below sets out the Group s capital expenditures for the periods stated: Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Maintenance DSO Growth contracted Growth non-contracted Subtotal capital expenditure Sale of fixed assets (1) (0.2) (0.2) (8.1) Capital creditors/accruals (18.5) Net capital expenditure and financial investment (1) Sales of fixed assets for the year ended 30 June 2014 related to the disposal of the Warwick corporate office and the sale of the Digital Cinema assets in Satellite and Media. For the six months ended 31 December 2014, net cash capital expenditure and financial investment was 111.8m, compared to 75.1m in the prior year period. Maintenance capital expenditure comprised of maintenance of site infrastructure and the IT estate in both periods, which was higher in the prior period due to significant IT upgrades. In the prior year there were also substantial maintenance costs incurred as part of the development of a number of corporate sites. The overall increase in total capital expenditure and financial investment compared with the same period in the prior year was principally as a result of increased spending in connection with Smart Metering. The capital creditors and accruals relate to Smart Metering and other capital expenditure, which were accrued at 30 June 2014 and settled in the quarter ended 30 September 2014 as they became due for payment. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 18

19 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Net cash flows The following tables show information regarding the ABPL and AGPL statement of cash flows: ABPL Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Consolidated cash flow data Net cash inflow from operating activities Returns on investment and servicing of (111.0) (120.3) (234.2) finance Dividends from investments Dividends paid to minority interests (0.2) - - Tax paid (0.4) - (0.4) Net capital expenditure and financial (111.8) (75.1) (145.9) investment Acquisitions and disposals - (0.7) (3.8) Financing (27.7) Increase / (Decrease) in cash 6.4 (67.6) (69.0) AGPL Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Consolidated cash flow data Net cash inflow from operating activities Returns on investment and servicing of (82.5) (87.1) (172.6) finance Dividends from investments Dividends paid to minority interests (0.2) - - Tax paid (0.4) - (0.4) Net capital expenditure and financial (111.8) (75.1) (145.9) investment Acquisitions and disposals - (0.7) (3.8) Financing 54.6 (3.5) (89.0) Increase / (Decrease) in cash 6.4 (67.6) (69.1) For reconciliation of Group operating profit to EBITDA, see Note Regarding EBITDA and Reconciliation from EBITDA to Net Operating Cash Inflow From Operating Activities in the Appendix. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 19

20 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Net cash inflow from operating activities For the six months ended 31 December 2014, ABPL and AGPL s net cash inflow was 6.4m consisting of cash from operating activities, less capital expenditure, financing costs and other movements shown overleaf. For a reconciliation of net cash flows to EBITDA, see Note Regarding EBITDA and Reconciliation from EBITDA to Net Operating Cash Inflow From Operating Activities in the Appendix. Working capital is part of Net cash outflow from operating activities in the Group s summary consolidated cash flow statement. The Group defines working capital movement as the movement in current assets, current liabilities and certain long term liabilities including deferred income and provisions greater than one year that form part of the Group s net cash inflow from operating activities (but excluding non-working capital movements that are included in the balance sheet movements for these areas such as capital creditors, imputed interest and movements on intercompany loan and interest balances). Whilst the Group s business is not seasonal in nature, its working capital movement is seasonal. The Group invoices and collects a proportion of its Site Share revenues annually in advance in the third quarter of the fiscal year from a major MNO. The remainder of Site Share revenues are billed evenly across the year. Annual staff bonus payments are made in the first quarter of our financial year. Working capital in the current financial year will also be negatively impacted by Smart Metering revenue recognition, mainly in the first half of the year, with cash only received in later years. The Group s cash inflow from operations is expected to be lower during the first half of the year compared with the second half of the financial year. The table below sets out the Group s working capital position as at the dates shown: Six Months Ended 31 December Year Ended 30 June (unaudited) millions (audited) millions Net (increase) / decrease in debtors (1.6) Net decrease in creditors (55.1) (98.5) (68.8) Net decrease in provisions (2.7) (3.7) (7.7) Total working capital movement (59.4) (99.3) (59.9) The components of the Group s working capital are: Net movement in debtors comprising trade debtors, prepayments and accrued income; Net movement in creditors including trade creditors, sundry creditors, VAT creditors, accruals, and deferred income less than and greater than one year; and Net movement in provisions includes provisions less than and greater than one year. The working capital movement for the six months ended 31 December 2014 was negative 59.4m, compared to a movement of negative 99.3m in the prior year period. The six months ended 31 December 2014 working capital outflow of 59.4m consisted of: an increase in accrued income of circa 12.0m, primarily in relation to revenue recognition for Smart Metering (for which the cash will be collected in later periods as per the contract terms) of 11.0m; the release of circa 35.0m in deferred income, principally where certain of our Telecoms customers have paid in advance; Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 20

21 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 the unwinding of the accrual for the annual bonus and long term incentive plan payment of circa 10.0m made in September 2014; and other timing differences. The movement in working capital since the same period in the prior year is a favourable movement of 39.9m. This primarily comprises a payment from a major customer received earlier than in the prior year, and some other smaller timing differences. Dividends from investments During the six months ended 31 December 2013 the Group received a dividend of 0.1m from MXR Holdings Limited, a company which owns and operates several regional digital radio Multiplexes within the UK, and a dividend from YouView TV Limited, a joint venture, of 0.3m. No dividends were received in the six months ended 31 December Tax paid For the six months ended 31 December 2014 the Group s tax paid was 0.4m (2013: 0.4m). Acquisitions and disposals For the six months ended 31 December 2014, the cash outflow from the Group s acquisitions and disposals was nil (2013: 0.7m relating to the deferred consideration on the acquisition of Digital One Limited). Equity dividends paid For the six months ended 31 December 2014, the Group s equity dividends paid were 0.2m to the minority interest shareholders of Now Digital (East Midlands) Limited, a subsidiary within the group (2013: nil). Note: The Consolidated cashflow line items diverge at some points and therefore are discussed separately below for the two consolidation levels. ABPL line items: Returns on investment and servicing of finance For the six months ended 31 December 2014, the Group s returns on investment and servicing of finance was an outflow of 111.0m (2013: outflow of 120.3m), consisting of 0.2m in interest received, less 107.4m in interest paid to external sources, less debt issue costs of 3.3m and less 0.5m from the interest element of finance lease rentals. Returns on investment and servicing of finance differs to the interest and financing expenses within the profit and loss account due primarily to non-cash charges in the profit and loss account in respect of the amortisation of debt issue costs, imputed interest, accretion liabilities and movements in the amount of accrued interest balances. Financing For the six months ended 31 December 2014, the Group s net financing inflow was 83.1m (2013: inflow of 29.7m). The inflow was primarily due to a drawing down of 90.0m of working capital facility. Increase in cash For the six months ended 31 December 2014 the ABPL Group s increase in net cash was 6.4m (2013: decrease of 67.6m) due to the above factors. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 21

22 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 AGPL line items: Returns on investment and servicing of finance For the six months ended 31 December 2014, the Group s returns on investment and servicing of finance was an outflow of 82.5m (2013: outflow of 87.1m), consisting of 0.1m in interest received, less 78.8m in interest paid to external sources, less 3.3m debt issue costs, and less 0.5m from the interest element of finance lease rentals. Returns on investment and servicing of finance differs to the interest and financing expenses within the profit and loss account due primarily to non-cash charges in the profit and loss account in respect of the amortisation of debt issue costs, imputed interest, accretion liabilities and movements in the amount of accrued interest balances. Financing For the six months ended 31 December 2014, the Group s net financing inflow was 54.6m (2013: outflow of 3.5m). The difference was primarily due to a drawing down of 90.0m of working capital facility. There was a 28.5m repayment of borrowings from parent undertakings, paid to the ABPL group. This outflow was a permitted payment under the terms of the senior financing and was used to settle interest due on the 600.0m junior notes. Increase in cash For the six months ended 31 December 2014 the Group s increase in net cash was 6.4m (2013: decrease of 67.6m) due to the above factors. Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 22

23 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Contractual obligations and Commitments The following table sets out the payments due by period under the contractual obligations as at 31 December 2014 for ABPL and AGPL: ABPL Payments due by Period Total Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 Years (unaudited) ( millions) Senior debt 2018 term loan facility Senior debt Institutional Term Loan Senior debt European Investment Bank Senior bonds and US Private Placement... 1, ,570.7 Junior bonds Working capital facility Premium on Swap Issuance Trade creditors Accrued liability on inflation rate swap Finance lease obligations Capital commitments Operating lease commitments Other creditors Total non-group... 3, ,790.3 Amounts owed to Group undertakings... 3, ,346.8 Total... 7, , ,137.1 AGPL Payments due by Period Total Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 Years (unaudited) ( millions) Senior debt 2018 term loan facility Senior debt Institutional Term Loan Senior debt European Investment Bank Senior bonds and US Private Placement... 1, ,570.7 Working capital facility Premium on Swap Issuance Trade creditors Accrued liability on inflation rate swap Finance lease obligations Capital commitments Operating lease commitments Other creditors Total non-group... 3, ,190.3 Amounts owed to Group undertakings... 4, ,990.0 Total... 7, , ,180.3 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 23

24 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 As part of the Group s refinancing, the majority of the balances with group undertakings have been formalised under a single subordinated loan agreement with the direct parent company which has a long term maturity date of Under the terms of the subordinated loan agreement, these loans cannot be recalled earlier than the final maturity date other than with the agreement of the borrower, and interest can be deferred if the borrower does not have sufficient available cash flow. The Group continues to defer these amounts in accordance with the terms of the loans, which are presented as being due within one year. Contingent Liabilities Under the terms of the Group s external debt facilities, it has provided security over substantially all of its fixed and other assets by way of a Whole Business Securitisation structure. Financing During July 2014, the Group completed a US Private Placement floating rate debt issue of 300.0m, with a final expected maturity of 15 years and a weighted average life of 11.5 years. The proceeds of this loan were utilised to repay a portion of the 5-year term bank facility. As at 31 December 2014 the outstanding balance on the 2018 term bank facility was 353.5m. Off-Balance Sheet Arrangements The Group does not, and has not used off-balance sheet special purpose vehicles or similar financing arrangements on an historical basis. In addition, the Group has not had and does not have offbalance sheet arrangements with any of its affiliates. The Group uses IRS, Inflation Linked Swaps ( ILS ) and cross-currency swaps to reduce its exposure to fluctuations in variable interest rates on its debt and currency movements on its US dollar debt. Receipts, payments and accreting liabilities on interest rate and inflation swaps are recognised on an accruals basis, over the life of the instrument. Changes in the fair value of such derivatives are not required to be recognised under UK GAAP, but are instead disclosed in the notes. Amounts received and paid under the swaps are shown at net value under financing costs, where they are part of the same legal agreement and settled at net value in practice. Accreting liabilities on ILS are recognised on an accruals basis. The Group also utilises forward purchase contracts to hedge certain foreign currency transactions. The changes in the fair value of such derivatives are not recognised, and the gain or loss on settlement is taken to the profit and loss account. Inflation linked swaps 1,312.5m of fixed rate debt is hedged via three classes of ILS which either directly or via overlay swaps, fix interest at an average rate of 2.95%, indexed with RPI. In addition, the principal amount of these swaps increases with RPI. One class of these swaps with a nominal value of 235.0m has a mandatory break clause in 2023, whilst the remaining two classes are break-free. The maturity date for all three classes of ILS is April The accretion of 78.1m at 31 December 2014 will be settled in cash at 30 June 2015 together with the further accretion to that date. Interest rate swaps 1,023.2m of variable rate debt is now hedged via four tranches of IRS contracted by ASF and AF1 at an average fixed rate of 6.21%. The ASF IRS (nominal value 353.5m) have mandatory break clauses in 2018 co-terminus with the ASF variable rate bank debt. The IRS held by AF1 (combined notional principle of 670.0m) have maturity dates co-terminus with the Institutional Term Loan ( ITL ), European Investment Bank ( EIB ) loan and US Private Placement 300.0m loans. A premium on swap issuance of 196.6m (31 December 2013: nil) is recorded within creditors. During the 2014 financial year, the Group paid total termination costs of 112.6m and received a total premium of 105.6m for entering into replacement IRS in the Borrower, following the termination of existing equivalent swaps in ASF reflecting the refinancing of the underlying debt in ASF. These transactions resulted in a cash cost of 7.0m during the year ended 30 June In July 2014, on raising of the 300.0m floating rate US Private Placement issue, an additional premium of 100.5m was received by AF1 for entering into replacement IRS and used to fund the Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 24

25 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 whole mark-to-market payment of 100.5m due by ASF at termination of the equivalent IRS. As at 31 December 2014, the outstanding premium amount after repayments of 9.2m was 196.6m. The restructure of the swaps and transfer from ASF to AF1 has resulted in a charge to the profit and loss account, owing to the fact that the termination payment of the relevant ASF (Finco) hedges has been recognised immediately, whereas the premium received for entering into the new IRS in AF1 has been recorded on the balance sheet and will be amortised over the 11.5 year weighted average life of the new IRS. The fair value of the interest rate, inflation and cross currency swaps at 31 December 2014 (excluding the inflation swap accrual and the premium on swap issuance), is a liability of 1,215.8m which comprises 954.1m in relation to the RPI linked swaps, 243.9m in relation to the IRS, and 17.8m in relation to the cross currency swap (31 December 2013: total 1,325.4m). This fair value calculated on a Mark-to-Market basis is not recognised on the balance sheet in accordance with Group accounting policy and UK GAAP accounting standards. The Group held Swap Options with a total notional principal amount of 410.7m at 31 December 2014 ( 1,023.2m 31 December 2013). The options are exercisable at maturity (co-terminus with the floating rate bank debt drawn in February 2013) on 29 February 2016 and 28 February 2018, and hedge the Group s exposure for the duration of the IRS to a decline in LIBOR below 1%. During the 6 month period to 31 December m of the notional principal amount of the Swap Option was sold for a value of 1.0m. Cross Currency Swaps AF1 has entered into USD 358.0m of cross-currency swaps to fix the Sterling cost of future interest and capital repayment obligations relating to the USD tranche of the Private Placement at an exchange rate of Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 25

26 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 APPENDIX Note Regarding EBITDA and Reconciliation of EBITDA to Net Cash Inflow From Operating Activities EBITDA is presented to aid understanding of the Group s results of operations and financial condition. The Group defines EBITDA as Group operating profit (taken from the Group s consolidated profit and loss data) before depreciation and amortisation, exceptional administrative expenses and one-off items where the earnings or charges are not considered to be indicative of the Group s on-going operations. EBITDA is a supplemental measure of financial performance that is not required by, nor presented in accordance with, UK GAAP. EBITDA is not a measure of performance under UK GAAP and investors should not consider EBITDA as an alternative to (a) operating profit or profit for the period (as determined in accordance with UK GAAP) as a measure of the Group s operating performance, (b) cash flows from operating investing and financing activities as a measure to meet the Group s cash needs or (c) any other measures of performance under generally accepted accounting principles. Investors should exercise caution in comparing EBITDA as reported by the Group to EBITDA of other companies. EBITDA has been included in this Financial Report because it is a measure that the Group s management uses to assess the Group s operating performance. The following table provides a reconciliation of profit on ordinary activities before interest to EBITDA for the periods indicated: Six months ended 31 December (Unaudited) ( millions) Group operating profit Exceptional administrative expenses Depreciation Amortisation Other (including operational bank charges) EBITDA A reconciliation of EBITDA to the net cash inflow from operating activities is provided below: Six months ended 31 December (Unaudited) ( millions) EBITDA Exceptional costs... (0.3) (2.3) Working capital... (59.4) (99.3) Other (0.1) Net cash flow from operating activities Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 26

27 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 Summary Corporate and Financing Structure Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 27

28 Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report Six months ended 31 December 2014 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2014 OF ABPL AND AGPL Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 28

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