Arqiva Year ending 30 June 2014 results presentation Copyright Arqiva Limited 2014 1
Disclaimer This material has been prepared by and is the sole responsibility of Arqiva Broadcast Holdings Limited and its subsidiaries (the Company ) and has been prepared for information only and has not been verified, approved or endorsed by any arranger, lead manager, bookrunner, underwriter or other advisors retained by the Company. No representation or warranty, either express or implied, is given or made by any person in relation to the fairness, accuracy, completeness or reliability of the information or any opinions contained herein and no reliance whatsoever should be placed on such information or opinions. No responsibility or liability is or will be accepted by the Company or by any of its respective directors, officers, servants, advisers, agents or affiliates as to or in relation to the accuracy, sufficiency or completeness of this document or the information forming the basis of the document or for any reliance placed on the document by any person whatsoever. No representation or warranty, expressed or implied, is or will be made as to the achievement or reasonableness of, and no reliance should be placed on, any projection, targets, estimates, forecasts and nothing in this document should be relied on as a promise or representation as to the future. The financial information set forth in this presentation 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. Furthermore, percentage figures included in this presentation have not been calculated on the basis of rounded figures but have been calculated on the basis of such amounts prior to rounding. This material should not be regarded by recipients as a substitute for the exercise of their own judgement and assessment. Any opinions expressed in this material are subject to change without notice and neither the Company nor any other person is under any obligation to update or keep current the information contained herein. This material, which does not purport to be comprehensive, has not been independently verified by the Company or any other party. The document does not constitute an audit or a due diligence review and should not be construed as such. No representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, law or other regulation may restrict the distribution of this document in certain jurisdictions. Accordingly, recipients of this material should inform themselves about and observe all applicable legal and regulatory requirements. This document does not constitute an offer to sell or an invitation to purchase securities in any jurisdiction. This document is being distributed on the basis that each person in the United Kingdom to whom it is issued is reasonably believed to be such a person as is described in Article 19 (Investment professionals) or Article 49 (High net worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or is a person to whom this document may otherwise lawfully be distributed. Persons who do not fall within such descriptions may not act upon the information contained in this document. Copyright Arqiva Limited 2014 2
Contents A Executive summary B Divisional review C Financial results D Financing E Summary Copyright Arqiva Limited 2014 3
Executive summary Copyright Arqiva Limited 2014 4
Overview of activities Five divisions A Executive summary Terrestrial Broadcast TV and radio broadcast and infrastructure services Revenues FY 2014 1 : 827m Telecoms Leading independent site share provider Over 1,100 TV towers covering 98.5% of the population delivering DTT c. 8,600 active licensed wireless sites, critical for Mobile Network Operators to meet coverage obligations Satellite and Media Leading UK teleport operator 1. Financial year end 30 th June 2014.. Smart/M2M A newly formed division focussing on smart metering and machine to machine (M2M) opportunities Digital Platforms Leading provider of Freeview channels for broadcasters 5 teleports and c.80 satellite uplink dishes Note: All operational data as at 30-Jun-2014 Smart metering provider for 9.3m homes and businesses in Scotland and Northern England once rollout is complete Copyright Arqiva Limited 2014 5 Owner of 2 out of the 3 commercial Digital Terrestrial Television spectrum multiplexes and 2 new DVB-T2 HD capable multiplexes
Business strategy A Executive summary Leverage existing skills and infrastructure to deliver growth, building on stable core business DVB-T2 multiplexes YouView Hybrid TV 700MHz Clearance Capablue acquisition Develop our people Invest in the future of television Invest behind the growth of mobile data Simplify and standardise to optimise costs and efficiency Maximise value for existing customers Invest in other growth opportunities that leverage our assets and capabilities Substantial majority of growth capex incurred only when revenues contracted Copyright Arqiva Limited 2014 6
Headline financials A Executive summary ( m, FY-end 30 June) 2014 2013 Change % Revenue 827 819 1% EBITDA 408 416 (2)% Working capital (60) (41) (46)% Operating cashflow 348 376 (8)% Capex (146) (122) 20% Net cashflow after capex 202 254 (20)% Senior leverage 5.77x 5.37x Junior leverage 7.16x 6.73x Copyright Arqiva Limited 2014 7
Highlights - Contract wins A Executive summary Terrestrial Broadcast BBC contract wins for: Analogue radio contract renewal (7 year term) in August 2013 following a competitive bidding process A renewal for digital radio services with contract duration of 17 years Next phase of the digital radio build-out Telecoms A new 10 year site share contract signed with CTIL (Vodafone/O2) in June 2014 Wholesale WiFi contract signed with Virgin Media in April 2014 Digital Platforms Renewal of three BSkyB founder channels on Freeview from November 2014 Satellite and Media Digital satellite services for ITV Playout services for Turner and NBCU Smart Metering/M2M Smart Metering (North region) contract win in September 2013 for electricity and gas Copyright Arqiva Limited 2014 8
Highlights - Orderbook A Executive summary 0.5bn orderbook increase to 6.1bn The Group s contracted orderbook value at 30 June 2014 was 6.1bn compared to 5.6bn in June 2013. For the period post 30 June 2014 (i.e. excluding FY 14) this was an increase of 1.1bn ( 5.0bn to 6.1bn) Orderbook consists largely of long term, inflation-linked contracts with blue-chip broadcasters, MNOs and the Smart Metering contract with DECC Copyright Arqiva Limited 2014 9
Highlights - Business development A Executive summary Major progress on business growth opportunities during the year including: Partnership agreement with Sigfox to roll out an Internet of Things IoT network in ten major UK cities using Ultra Narrow Band technology Smart Water Metering trials with Thames Water and South Staffs Water New DVB-T2 multiplexes capable of broadcasting additional Freeview channels in HD Acquisition of Capablue Ltd to enhance IP and connected TV capabilities Organisational re-alignment and Management Board strengthened Enhanced customer focus, service delivery and cost transparency Two new Managing Directors (David Crawford, Satellite; Cameron Rejali, Technology) Cost savings anticipated from a new maintenance and facilities contract signed with Carillion plc Average debt maturity extended from 6 to 9 years since February 2013 3 year bank facility refinanced fully during the year 300m USPP issuance in July 2014 used to refinance 5 year bank facility, leaving only 353m outstanding Copyright Arqiva Limited 2014 10
Divisional Review Copyright Arqiva Limited 2014 11
Terrestrial Broadcast Strategy Maximise value for existing customers: TV and radio transmission is largely regulated Benefits from long term inflation-linked contracts Augment contracted revenue with projects (e.g. local TV build out) Increase DAB network coverage Develop 700 MHz Clearance plans with Ofcom New customer contracts BBC analogue and digital radio contracts won in August 2013 for 7 year and 17 year durations respectively Recent/market developments B Divisional review Ofcom consultation in May 2014 on future use of the 700 MHz band. Ofcom and the recently published European Commission s High Level Group report support DTT use of below 700 MHz until at least 2030. Ofcom consultation response submitted in August Licence for second national DAB multiplex advertised by Ofcom in July 2014. Arqiva to (i) provide transmission services reference offer and (ii) separately bid for the multiplex licence with other parties Revenue analysis Contract with Arqiva s Digital Platforms in July 2013 to roll out two new DVB-T2 (HD capable) multiplexes and provide transmission services Orderbook value stable at 3.7bn* * Excludes intercompany revenues from Digital Platforms Copyright Arqiva Limited 2014 12
Digital Platforms Strategy Recent/market developments B Divisional review Build a market-leading, one-stop broadcast service proposition underpinned by three strategic objectives: Maximise standalone value of DTT via capacity sales on existing multiplexes and platform investment (Freeview / YouView) Build complementary IP capability via leadership in Hybrid TV, embracing IPTV and integrating into DTT experience Deliver a route to long-term use of 600Mhz spectrum only for DTT New DVB-T2 multiplexes Reached target 72% coverage by June 2014 Hybrid TV / Arqiva Connect TV offering Enables Arqiva to offer PayTV, Video on Demand and analytics, together with traditional streaming services Capablue acquisition Enables Arqiva to offer linear and non-linear video distribution across DTT, Satellite Direct to Home, and via the Internet to multiple devices Freeview Connected Freeview consortium to develop a new connected-tv service New customer contracts Revenue analysis BSkyB 3 founder channel renewal completed in June 2014 providing a significant revenue uplift from November 2014 6 new channels on DVB-T2 (HD enabled) multiplex 8 new hybrid TV channels Orderbook value stable at 0.4bn Copyright Arqiva Limited 2014 13
Telecoms Strategy Recent/market developments B Divisional review Site share Further increase in site portfolio (e.g. MIP) Installation Services to assist 4G rollout Play key role in MNO consolidation plans WiFi/Small Cells Position Arqiva to benefit from urban data demand. WiFi footprint enables Arqiva to extend its offering to MNOs, MVNOs and FNOs Secure solutions Develop managed networks proposition for emergency services New customer contracts WiFi WiFi service now live at a number of important sites, including Heathrow Airport Exclusive rights for 7 London boroughs and 4 other UK cities One of the largest providers in the UK with 24,000 deployed access points 4G/LTE network rollout 4G auction completed and network rollouts underway. Strong pipeline of installation services orders following completion of new Arqiva/CTIL contract Revenue analysis A new 10 year site share contract signed in June 2014 with CTIL (Vodafone/O2) replacing the framework agreement signed in November 2013 and adding to the contracted orderbook Wholesale WiFi contract of 4 years signed in April 2014 with Virgin Media Orderbook value increased to 1.2bn Copyright Arqiva Limited 2014 14
Satellite and Media Strategy Recent/market developments B Divisional review Increasingly focused on higher margin services and progressively exiting commodity wholesale space services. Provide services in international markets including US and EMEA using UK infrastructure to target growth New Managing Director, David Crawford appointed in February 2014 Digital Cinema business disposed of in April 2014 Capacity focus on margin improvement and lowering cost of sales New customer contracts New customer contracts were signed including Digital satellite services for ITV Playout services for Turner and NBCU Revenue analysis Orderbook value remains at 0.3bn Copyright Arqiva Limited 2014 15
Smart Metering/M2M Strategy New Smart/M2M division set up as a result of successful smart metering bid Division will deliver the Smart Metering contract and progress new business opportunities in adjacent smart and machine-to-machine (M2M) markets such as: Water Grids Health New customer contracts 15 year Smart Metering contract for electricity and gas signed in September 2013 to provide communications infrastructure to connect smart meters for c9.3m homes and small businesses in Scotland and northern England. Total contract value of 0.5bn Recent/market developments On target with all Smart Metering contract milestones as at 30 June 2014 Partnership agreement with Sigfox in April 2014 to develop ultra narrow band network for Internet of Things Water metering trials with Thames Water and South Staffs Water during the year Financial performance (revenues) B Divisional review Orderbook value increases by 0.5bn Copyright Arqiva Limited 2014 16
Financial results detail Copyright Arqiva Limited 2014 17
Revenue by division C Financial results ( m, FY-end 30 June) 2011 2012 2013 2014 CAGR % Terrestrial Broadcast 260 267 284 258 (0)% Digital Platforms 110 122 132 139 8% Satellite and Media 214 197 171 163 (9)% Telecoms 242 246 232 252 1% Smart M2M - - - 14 - Revenue 826 832 819 827 0% Copyright Arqiva Limited 2014 18
P&L summary C Financial results ( m, FY-end 30 June) 2014 2013 % ABPL and AGPL (Junior and Senior) Revenue 827 819 1% Cost of sales (301) (291) 4% Gross Profit 525 528 (0)% Opex (117) (112) (5)% EBITDA 408 416 (2)% Exceptional costs (7) (28) 74% Depreciation and Amortisation (280) (264) (6)% Share of operating profit in joint ventures 3 2 59% Profit on ordinary activities before tax and interest 124 125 (1)% Copyright Arqiva Limited 2014 19
P&L summary C Financial results ( m, FY-end 30 June) 2014 2013 2014 2013 Profit on ordinary activities before tax and interest ABPL (Junior) AGPL (Senior) 124 125 124 125 Net bank loan and other interest (256) (240) (199) (205) Other net interest (59) (58) (56) (54) Loss on ordinary activities after interest (191) (173) (131) (134) Exceptional financing expense (112) - (112) - Interest payable to parent undertakings (342) (268) (404) (324) Loss on ordinary activities before taxation (645) (441) (647) (458) Tax 18 17 18 17 Equity minority interests 0 0 0 0 Loss for the financial year (627) (424) (629) (441) Copyright Arqiva Limited 2014 20
Cashflow summary ( m, FY-end 30 June) 2014 2013 2014 2013 ABPL (Junior) AGPL (Senior) EBITDA 408 416 408 416 Exceptional costs (7) (28) (7) (28) Working capital (60) (41) (60) (41) Other 2 2 2 2 Net cash inflow from operating activities 343 349 342 349 Net capital expenditure and financial investment (146) (122) (146) (122) Net cash flow after capex 197 227 196 227 Returns on investment and servicing of finance (234) (269) (173) (231) Dividends from investments 0 0 0 0 Tax paid (0) (0) (0) (0) Acquisitions and disposals (4) (29) (4) (29) Equity dividends paid - (0) - (0) Net cash flow before financing (41) (71) 20 (33) Financing (28) 113 (89) 74 (Decrease)/increase in cash (69) 42 (69) 42 C Financial results Copyright Arqiva Limited 2014 21
Limited maintenance capex and substantial majority of growth capex contract-related C Financial results Smart, 48m Satellite, 31m Radio, 16m T2 muxes, 13m WiFi, 7m Local TV, 5m Digital Platforms, 2m Site share, 1m Capital creditors/accruals, (19)m Sale of fixed assets, (8)m [1] Net other, 10m 1 Growth capex also includes cash sales of fixed assets and change in capital creditors. Copyright Arqiva Limited 2014 22
Covenant reporting C Financial results October 2013 certificate (projected) 30 Jun 14 30 Jun 15 September 2014 certificate (actual) September 2014 certificate (projected) EBITDA* 412m 409m 420m Senior Net debt 2,441m 2,359m 2,479m FY 15 guidance Revenue 3% - 4% growth EBITDA 420m Working capital (50)m Cash capex (200)m Senior leverage 5.92x 5.77x 5.90x Junior leverage N/A 7.16x N/A Senior ICR 2.23x 2.27x 2.19x Junior ICR N/A 1.70x N/A * Per covenant reporting definitions Copyright Arqiva Limited 2014 23
Financing Copyright Arqiva Limited 2014 24
Arqiva debt position D Financing As at 30 th June 2014 m Maturity Structure USPP Transaction As at 24 th July 2014 Leverage SENIOR Public Bonds (BBB/BBB) 1 400 Dec-32 400 Public Bonds (BBB/BBB) 1 Jun-35 350 350 (exp. Jun-20) USPP USD tranche 236 2 Jun-25 236 WBS Platform USPP GBP tranche 163 Jun-25 300 463 EIB Loan 190 Jun-24 190 Institutional Term Loan 180 Feb-38 (exp. Dec 23) Public Bonds (BBB/BBB) 1 164 Dec-37 (exp. Jun-30) 164 Subtotal 1,683 1,983 Bank Term Loan 653 5 year facility (Feb-18) Finco (300) 353 TOTAL DRAWN SENIOR DEBT 2,336 2,336 5.77x EBITDA 3 JUNIOR Junior Notes (B- / B3) 4 600 2020 600 TOTAL TERM DEBT 2,936 2,936 7.16x EBITDA 3 180 1. Fitch / S&P 2. GBP swapped equivalent amount of $358m issue 3. Net leverage as per the latest covenant compliance certificates published September 2014, as at 30 June 2014 4. Fitch / Moody s Copyright Arqiva Limited 2014 25
Inflation-linked swaps D Financing Inflation-linked swaps now convert fixed rate bond and USPP liabilities into inflation linked liabilities Swaps match inflation exposure in Arqiva s long term revenue contracts Coupon and principal amount both accrete with RPI Financing structure ensures no crystallisation of mark-to-market position Notional c. 1.3bn Maturity 2027 Inflation accretion Repayments every 3 years Only 235m have break in 2023 First payment in 2015 c. 100m 2 Mark To Market Ranking [1] ( 978.5m) Super senior to senior debt (but carries no voting or enforcement rights) 1. MTM reported as at 30 June 2014 excluding accretion. 2. Management estimate Copyright Arqiva Limited 2014 26
Interest Rate Swaps D Financing Finco swaps with breaks progressively replaced with new swaps in WBS with no breaks 370m swaps restructured in FY 14 to match new Institutional Term Loan and EIB debt New Swaps mature in 2024 with no breaks 112m exceptional cost recorded Funded by 105m cash premium receipt and 7m cash Platform Swap amount Maturity Break Underlying Debt Premium 30/6/14 Mark to Market 30/6/14 Finco 653m 2027 2018 Bank Loan - (218.6)m Finco Subtotal 653m (218.6)m WBS 180m 2024 None ITL (45.1)m - WBS 190m 2024 None EIB (60.2)m - WBS Subtotal 370m (105.3)m - Total 1,023m (105.3)m (218.6)m Further 300m swaps restructured in July 2014 to match new USPP debt. Premium received matched breakage cost of 100.8 million Remaining swaps in Finco of 353m with mark-to-market of (128)m as at 31 August 2014 1 Including new credit charge Copyright Arqiva Limited 2014 27
Adequate headroom versus financial covenants and strong liquidity Ratios (maintenance tests) Forward and backward looking Senior Net Debt to EBITDA Ratio Financial covenant ratios and senior trigger events Historic (Jun 14) Projected (Jun 15) 5.77x 5.90x Senior Cashflow DSCR 2.27x 2.19x Senior Cashflow ICR 2.27x 2.19x Senior Modified Net Debt to EBITDA Ratio [2] 5.77x 5.90x Trigger Threshold Trigger: 6.50x Trigger: 1.30x Trigger [1] : 1.9/2.0x Consequence of Trigger Senior Trigger Event: Distribution lockup If > 6.00x then no distributions other than to pay Junior interest Event of Default Threshold 7.50x (Historic test) 1.05x (Historic test) 1.55x (Historic test) D Financing Junior leverage 7.16x N/A Liquidity facilities m Maturity Facility Senior capex facility 400 30 June 18 Senior working capital facility 100 30 June 18 Senior liquidity facility 200 February 15 1. 1.90x from December 2013 to June 2014 and 2.0x from December 2014. 2. Applicable for as long as the Finco Facilities are outstanding. Copyright Arqiva Limited 2014 28
Summary Significant new contract wins delivered during the year Contracted orderbook value increased to 6.1bn at 30 June 2014 versus 5.6bn at 30 June 2013 Good progress made on business growth opportunities including Entry into the Internet of Things market Rollout of DVB-T2 HD capable multiplexes Acquisition of Capablue Ltd Smart Water Metering trials Organisation re-aligned to improve customer service and Management Board strengthened Smart Metering/M2M division set up following the successful win of the Smart Metering gas and electricity contract to progress business opportunities in adjacent smart and machine-to-machine (M2M) markets Financial highlights Revenue 1% up EBITDA 2% down Senior debt at 2,336m Total term debt at 2,936m Senior debt/ebitda 5.77x Financing highlights 3 year bank facility fully repaid and only 353m outstanding on the 5 year facility Interest rate swaps restructured leaving only 353m with breaks in 2018 E Summary Copyright Arqiva Limited 2014 29
Copyright Arqiva Limited 2013