Arqiva Broadcast Parent Limited file(Arqiva Broadcast Parent Limited and its subsidiaries) and may...

Arqiva Broadcast Parent Limited

Financial Report First quarter ending 30 September 2013

Arqiva Broadcast Parent Limited Financial Report – First quarter ending 30 September 2013

This Financial Report is delivered pursuant to Condition 4.5 of the Junior Notes.

The date of this Financial Report is 20 November 2013. Unless otherwise defined herein, capitalised terms have the meanings given in the final offering memorandum for the Junior Notes dated 21 February 2013.


Arqiva Broadcast Parent Limited 3

CONTENTS Page

FORWARD LOOKING STATEMENTS............................................................................................... 4 INDUSTRY AND MARKET INFORMATION ....................................................................................... 5 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS ...................................................................................................................... 6 EXECUTIVE SUMMARY .............................................................................................................. 6

Financial Overview ................................................................................................................... 6 Recent Developments ............................................................................................................... 6

Description of Business ................................................................................................................ 8 Financial Results for the Three Month Period to 30 September 2013 ............................................ 9

Profit and Loss .......................................................................................................................... 9 Capital expenditures ............................................................................................................... 13 Net cash flows ........................................................................................................................ 14 Contractual Obligations and Commitments.............................................................................. 16

Market Risk Disclosure ............................................................................................................... 18 Critical Accounting Policies .............................................................................................................. 19 Appendix I ....................................................................................................................................... 22

Description of Certain Income Statement Line Items ............................................................... 22 Note Regarding EBITDA and Reconciliation of EBITDA to Net Cash Inflow From Operating Activities ................................................................................................................................. 25 Summary Corporate and Financing Structure .......................................................................... 26

CONDENSED CONSOLIDATED AUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS

ENDED 30 SEPTEMBER 2013 OF ABPL ........................................................................... 27 For three months ended 30 September 2013 .............................................................................. 27



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 and certain information reporting covenants of the Notes. This Financial Report has been prepared by the Group (Arqiva Broadcast Parent Limited and its 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, or 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;

• 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 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.

Any forward looking statements contained in this Financial Report speak only as at the date of this Financial Report. Without prejudice to any requirements under applicable laws and regulations, the Group expressly disclaims any obligation or undertaking to disseminate after the date of this Financial Report any updates or revisions to any forward looking statements contained herein to reflect any change in expectations thereof or any change in events, conditions or circumstances on which any such forward looking statement is based.

INDUSTRY AND MARKET INFORMATION This Financial Report includes market share and industry data which the Group obtained from industry publications and surveys, industry reports prepared by consultants, internal data and customer feedback. The market, economic and industry data has primarily been derived and extrapolated from publicly available information from sources including Ofcom, BARB, Digital UK, Digital Television Multiplex Operators Limited (combined into Digital UK on 1 January 2013), HM Treasury, operator data and websites, broadcaster reports, and the UK government. 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 is not 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 competes, 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 competes, 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.



MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and the related notes to those consolidated financial statements contained elsewhere in this Financial Report. Some of the statements contained below, including those concerning future revenues, costs, capital expenditures, acquisitions and financial condition, 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.”

Results of operations for prior years or the recent period are not necessarily indicative of the result to be expected for any future period. 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. EXECUTIVE SUMMARY Financial Overview For the three months ended 30 September 2013, turnover for the Group was £203.1 million, representing a 1.9% increase from £199.4 million in the prior year period. This was primarily due to the inclusion of turnover from the WiFi business following the acquisition of Spectrum Interactive, Local TV and an increase in the number of DTT video streams sold, which partially offset the small reductions in Terrestrial Broadcast. EBITDA for the Group was £98.8 million, representing a 1.1% increase from £97.7 million in the prior year period due to revenue growth.

The Group’s capital expenditure was £33.5 million, representing a 30.4% increase from £25.7 million in the prior year period. The overall increase was principally as a result of increased spending in connection with new contract wins and business such as WiFi, Local TV, the HD Multiplexes, MIP, and Satellite.

Recent Developments Smart Metering Smart Metering is a government mandated project to install smart energy meters in every home in Great Britain in order to improve efficiency by helping consumers to monitor their gas and electricity usage. On 20 September 2013, Arqiva signed the contract to provide smart metering communications for the North region with the Data and Communications Company – a new statutory body. This region covers circa10 million premises in Scotland and the North of England. The solution includes Sensus technology that has been successfully deployed internationally in more than 16 million smart meters and devices. It is capable of supporting the evolution of smart services more broadly, including locations deep inside buildings that other communications technologies have struggled to reach.

BBC Radio In August 2013, the Group won its bid to provide the BBC with analogue and digital radio services, as well as for the next phase of the digital radio build-out. The contract includes radio transmission services for the BBC’s analogue and core National Digital Audio Broadcast (DAB) networks. One of the key sub-projects is to deliver 162 DAB Stations for the BBC by the end of 2015 and the first station is due to go on-air in December 2013. The contract term runs for 17 years for the DAB networks and 7 years for the analogue services. Arqiva will also build out the BBC National DAB network, increasing coverage in the UK. The contract covers some of the UK’s most popular radio stations on analogue and digital radio, including BBC Radio 1, 2, 3 and 4, BBC 5 Live and BBC regional radio stations.



New High Definition (HD) Multiplexes Ofcom issued the 12 year licence for the use of 600 MHz spectrum (550 to 606 MHz) to Arqiva on 29 July 2013, subject to it being used for DTT Multiplexes using DVB-T2/MPEG4 technology which will enable a significant increase in the number of high definition channels broadcast on the DTT/Freeview platform. The HD Multiplexes will aim to provide 70% national coverage using Arqiva’s 30 top sites by summer 2014 and do not compete directly with the existing Multiplexes as the services on the new Multiplexes will only be available to viewers with HD (DVB-T2) TV sets/set top boxes. The licence will run until 2026 with a minimum duration to 31 December 2018. Ofcom is also likely to consult on the clearing of DTT from the 700 MHz spectrum for possible mobile use and the possible use of the spectrum in the 600 MHz after the minimum duration of the new HD Multiplexes licence has lapsed. Arqiva has commenced the build of the new HD Multiplex network and is aiming for an early launch providing significant coverage using its top 10 sites. Active discussions with a number of Public Service Broadcasters and commercial broadcasters regarding the carriage of additional HD channels from their portfolios are underway.

Local TV Local TV is a government initiative, implemented by Ofcom with oversight from the BBC Trust, to establish local television in the UK. On 29 July 2013, Comux, the Multiplex operator licensee, awarded the Group a 12-year contract, under which the Group will be responsible for delivering Local TV across 19 high population areas of the UK by providing the primary transmission services, including network access and managed transmissions. The first location is under development and all 19 sites are due to have completed by end of June 2014.

O2/Vodafone joint venture - Cornerstone Telecommunications Infrastructure Limited This new joint venture creates a shared grid of 18,500 masts, representing an increase of more than 40% in points of presence for each operator. The companies expect that this will result in a 10% overall reduction in the total number of sites used by both operators.

Arqiva still remains in commercial discussions with CTIL and the Group expects to manage the negotiations concerning this network sharing with O2 and Vodafone within its current financial projections.

Business Re-alignment On 1 October 2013, Arqiva implemented its newly aligned organisational structure. The key changes were:

• Moving to five product and customer led divisions o Digital Platforms o Terrestrial Broadcast o Smart Metering (including machine to machine) o Satellite o Telecoms

• Business Operations unit, which provided engineering, delivery and maintenance services for the Group split up vertically between the relevant product and customer led business units

• Creation of a new Chief Technology Office (CTO) function following the appointment of a new Chief Technology Officer in August 2013 to drive new product development and manage shared services across the Group.

• The customer facing divisions will be supported by central corporate functions comprising; o Finance o Strategy and Business Development o People and Organisation o Commercial

The new structure will help to further improve service delivery by more closely integrating operational service delivery with the customer facing units. It will also give management of customer facing units increased responsibility for their end-to-end services and provide a stronger platform for business growth.



Description of Business

The Group is the UK’s national provider of essential 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 over two-thirds of the Group’s gross profits for the year ended 30 June 2013), supported by diverse revenue streams, long-life assets and a significant proportion of revenues being driven by 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 or Freeview) broadcasting in the UK under 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 recently upgraded the UKs DTT network as a result of the £600 million digital switchover (DSO), which it completed under budget and on schedule in October 2012;

• market leader for commercial spectrum on DTT, owning two of the three commercial Standard Definition (SD) Multiplexes (out of a total of six existing DTT Multiplexes) plus two new High Definition (HD) DTT Multiplexes (recently awarded for additional HD services on Freeview) used for transmission of DTT services in the UK. The Group carries 31 out of 53 total commercially broadcast SD DTT channels in the UK as at 30 June 2013. The Group believes the constrained number of DTT video streams at approximately 50, compared to approximately 500 and approximately 250 channels available over satellite and cable respectively, makes these streams particularly attractive to broadcasters;

• ownership of over 90% of the radio transmission towers for terrestrial broadcasting in the UK and operator of the only commercial national digital radio Multiplex and, as at 30 June 2013, 26 of the 58 local radio Multiplexes;

• largest independent (non-MNO) portfolio of wireless tower sites in the UK, which are licensed to national Mobile Network Operators (MNOs) and other wireless network operators. The Group has approximately 25% of the total active licensed macrocell site market and approximately four times the active licensed macrocell sites of the next largest independent operator as at 30 June 2013. It holds a strong and difficult to replicate position in rural and suburban regions where cost, economies of scale, planning permission restrictions and regulations that limit a landlord’s ability to terminate the leases for the Group’s sites provide barriers to entry for competitors;

• a new presence in managed networks via the Mobile Infrastructure Project, a government initiative to expand and improve coverage to regions of the UK which currently have either no mobile access or mobile access of poor quality, with the ultimate goal of providing service to 75% of the 0.3% of premises currently in regions without 2G outdoor coverage;

• significant WiFi infrastructure presence following both the Group’s acquisition of WiFi infrastructure provider Spectrum Interactive Limited, as well as recent successes in winning bids to provide WiFi services at London Heathrow Airport and in a number of London boroughs;

• 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, with a 45% market share of channels uplinked as at 30 June 2013;

• significant proportion of revenue attached to long term contracts with automatic RPI-linked increases; and

• sole provider of Smart Metering communications for approximately 10 million homes in Scotland and northern England under a 15-year contract for the provision of electricity and gas smart metering utilising 842 sites.



Financial Results for the Three Month Period to 30 September 2013

Profit and Loss The following table sets forth certain of the Group’s profit and loss data for the periods indicated:

Year Ended Three Months Ended 30 June 30 September

2012

2013

2012

2013

(unaudited)

(£ millions)

Continuing Operations

Turnover (including share of joint venture) ............. 843.8 827.4 202.6 205.9 Less share of joint venture turnover ....................... (12.2) (8.4) (3.2) (2.8)

Group turnover .................................................... 831.7 819.0 199.4 203.1 Cost of sales ......................................................... (314.5) (291.1) (74.8) (76.8)

Gross profit ......................................................... 517.1 527.9 124.6 126.3

Depreciation .......................................................... (99.7) (105.7) (24.5) (30.1) Amortisation .......................................................... (155.2) (158.7) (38.5) (39.3) Operating expenses .............................................. (114.5) (111.7) (27.1) (27.5) Exceptional administrative expenses ..................... (23.7) (28.3) (5.4) (1.4)

Group operating profit ........................................ 124.1 123.5 29.1 28.0 Share of operating profit / (loss) in joint venture

and associates .................................................. 3.9 1.7 0.6 0.5 1

Total operating profit: Group and share of joint venture and associates .......................... 128.0 125.2 29.7 28.5

Income from investments ...................................... 0.1 0.1 0.1 0.1

Non-operating profit exceptional items ................... - - - -

Profit on ordinary activities before taxation and interest ..................................................... 128.1 125.3 29.8 28.6

Interest receivable and similar income ................... 1.7 1.0 0.2 0.6 Net bank and other loan interest ............................ (221.3) (240.4) (49.4) (60.9) Other interest ........................................................ (32.4) (57.7) (8.3) (14.2) Share of joint venture interest payable ................... (2.3) (1.0) (0.4) (0.1)

Net third party interest payable .......................... (254.2) (298.0) (57.9) (74.6) Interest payable to parent undertakings ................. (242.5) (267.8) (61.1) (83.3)

Loss on ordinary activities before taxation ....... (368.6) (440.5) (89.2) (129.3)

Tax on loss on ordinary activities ........................... 16.5 17.2 4.7 0.1

Loss on ordinary activities after taxation .......... (352.1) (423.3) (84.5) (129.2) Equity minority interests ........................................ (0.1) (0.3) (0.1) (0.1)

Loss for the financial year .................................. (352.2) (423.6) (84.6) (129.3)



Turnover For the three months ended 30 September 2013, turnover for the Group was £203.1 million, representing a 1.9% increase from £199.4 million during the three months ended 30 September 2012. This increase was primarily due to the full quarter effect of turnover from the WiFi business following the acquisition of Spectrum Interactive Limited in October 2012, winning the contract for the provision of Local TV and an increase in the number of DTT video streams sold, which partially offset a slight decrease in turnover for the Group’s Terrestrial Broadcast business unit in connection with the Group’s completion of certain engineering projects.

The following table sets forth the Group’s turnover by division and business unit for the periods indicated:

Three Months Ended 30 September

2012

2013

% Change

(unaudited)

(£ millions)

Turnover by division and business unit

Broadcast and Media 113.2 111.6 (1.4)%

Terrestrial Broadcast .......................................... 69.1 67.8 (1.9)% Satellite ............................................................. 44.1 43.8 (0.7)%

Digital Platforms ............................................... 31.4 32.6 3.8% Telecoms ........................................................... 54.8 58.9 7.5%

Site Share and WiFi ........................................... 49.2 53.8 9.3% Secure Solutions................................................ 5.6 5.1 (8.9)%

Total Group turnover ........................................ 199.4 203.1 1.9%

Broadcast and Media Turnover for the Group’s Broadcast and Media division during the three months ended 30 September 2013 was £111.6 million, which was a 1.4% reduction from £113.2 million in the prior year period. The main movements in turnover for Terrestrial Broadcast and Satellite are detailed below.

Terrestrial Broadcast Turnover for the Group’s Terrestrial Broadcast business during the three months ended 30 September 2013 was £67.8 million, representing a 1.9% reduction from £69.1 million in the prior year period. This was primarily due to a decrease in project-related revenues, which vary from period to period depending on the volume of contract work the Group has ongoing. The decrease in project-related revenues in the three months ended 30 September 2013 was primarily due to the Group successfully completing the Channel 61/62 Clearance programme and certain other major broadcast projects. These reductions were partially offset by revenues from the new Local TV contract and RPI linked increases on existing DTT TV and radio contracts.

Satellite Turnover for the Group’s Satellite business during the three months ended 30 September 2013 was £43.8 million which was broadly in line with the prior year period as revenues start to stabilise following the declining trend in recent years.

Digital Platforms Turnover for the Group’s Digital Platforms division during the three months ended 30 September 2013 was £32.6 million, representing a 3.8% increase from £31.4 million in the prior year period, due primarily to an increased number of video streams sold during the period together with inflation linked fee increases.



Telecoms Turnover for the Group’s Telecoms division during the three months ended 30 September 2013 was £58.9 million, representing a 7.5% increase from £54.8 million in the prior year period as detailed below.

Site Share and WiFi Turnover for the Group’s Site Share and WiFi businesses during the three months ended 30 September 2013 was £53.8 million representing a 9.3% increase from £49.2 million in the prior year period, due primarily to the inclusion of turnover from the WiFi business following the acquisition of Spectrum Interactive, increased activity in Installation Services and RPI linked increases on site share contracts.

Secure Solutions (previously Government)

Turnover for the Group’s Secure Solutions area during the three months ended 30 September 2013 was £5.1 million representing an 8.9% reduction from £5.6 million during the three months ended 30 September 2012, primarily due to the prior year period benefitting from one-off sales relating to installation of equipment for a local police authority.

Cost of Sales For the three months ended 30 September 2013, cost of sales for the Group was £76.8 million, representing a 2.7% increase from £74.8 million in the prior year period, due primarily to the increase in WiFi and Installation Service costs as a result of the corresponding increases in turnover for these business areas as described above.

Gross profit For the three months ended 30 September 2013, gross profit for the Group was £126.3 million, representing a 1.4% increase from £124.6 million in the prior year, due primarily to the increase in turnover detailed above.

EBITDA For the three months ended 30 September 2013, EBITDA for the Group was £98.8 million, representing a 1.1% increase from £97.7 million in the prior year period, also due primarily to the increase in turnover detailed above. 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 Appendix I.

Depreciation Depreciation for the Group during the three months ended 30 September 2013 was £30.1 million, representing a 22.9% increase from £24.5 million the prior year period. The increase in the underlying level of depreciation is due primarily to investment in the DSO programme which resulted in additional DSO assets commencing service and in addition there were £4 million one-off items in the quarter to 30 September 2013.

Amortisation Amortisation for the Group during the three months ended 30 September 2013 was £39.3 million, representing a 2.1% increase from £38.5 million in the prior year period, due primarily to additional amortisation of goodwill on new acquisitions. The amortisation charge in both three month periods continues to be driven mainly by the goodwill amortisation of the acquisitions of NTL Broadcast and National Grid Wireless.

Operating expenses Operating expenses for the Group during the three months ended 30 September 2013 were £27.5 million, representing a 1.5% increase from £27.1 million in the prior period. An inflation linked increase on headcount costs was partially offset by higher labour capitalisation and tight cost control.



Exceptional administrative expenses Exceptional administrative expenses for the Group during the three months ended 30 September 2013 were £1.4 million, representing a 74.1% decrease from £5.4 million during the three months ended 30 September 2012. The prior year period was higher due to one-off costs, such as Smart Metering contract bid and severance costs.

Share of operating profit in joint ventures and associates Share of operating profit in joint ventures and associates for the Group during the three months ended 30 September 2013 was a £0.5 million profit which was a small decrease from £0.6 million in the prior year period.

Income from investments Income from investments for the Group during the three months ended 30 September 2013 was £0.1 million, which was in line with the prior year period. This amount relates to dividend payments received from investments in companies over which the Group does not have control, and are therefore excluded from the consolidation in accordance with accounting standards.

Interest receivable and similar income Interest receivable and similar income during the three months ended 30 September 2013 was £0.6 million, compared to £0.2 million in the prior year period, due primarily to an increase in finance income receivable on the accounting for the defined benefit pension plan under FRS17 ‘Retirement Benefits’.

Net bank and other loan interest Bank loan interest for the Group during the three months ended 30 September 2013 was £60.9 million, representing a 23.3% increase from £49.4 million in the prior year period, primarily due to an increase in the debt and swap margins following the Group’s refinancing in February 2013.

Other interest

Other interest payable for the Group during the three months ended 30 September 2013 was £14.2 million, representing a 71.1% increase from £8.3 million in the prior year period, due primarily to the amortisation of debt issue costs arising on refinancing. Other interest payable is primarily non-cash but includes £0.3 million relating to cash payments for finance leases.

Share of joint venture interest payable

Share of joint venture interest payable for the Group during the three months ended 30 September 2013 was £0.1 million, a decrease from £0.4 million in the prior year period, due primarily to a decrease in the interest bearing liabilities of the joint venture.

Interest payable to parent undertakings

Interest payable to parent undertakings for the Group during the three months ended 30 September 2013 was £83.3 million, compared to £61.1 million in the prior year period. This increase was due primarily to an increase in the principal amount of intercompany loans payable by the Group in connection with the refinancing, as well as the capitalisation of interest accrued both before and after the refinancing. The charge for the period was non-cash.

Tax on loss on ordinary activities

Tax on loss on ordinary activities during the three months ended 30 September 2013 was a £0.1 million credit, compared to a £4.7 million credit in the prior year period, due to a reduction in the deferred tax credit. The Group’s effective tax rate during the three months ended 30 September 2013 was nil which was lower than the Group’s effective tax rate of 4.9% in the prior year period. This was due primarily to a reduction in the UK corporation tax rate and the tax charge in respect of the pension movement in the three months to September 2013. The deferred tax credit generated in the Group during each period represents a reduced level of capital allowances claimed in respect of the Group’s



fixed assets in comparison with Group depreciation policy. Such allowances are available to be claimed in future periods.

Equity minority interests

For the three months ended 30 September 2013, the equity minority interest not attributable to the Group was £0.1 million and in line with the prior year period. This relates to the share of Now Digital (East Midlands) Limited and South West Digital Radio Limited which is not owned by the Group.

Loss for the financial period

Loss for the three months ended 30 September 2013 was £129.3 million, compared to a £84.6 million loss in the prior year period. This movement was primarily due to the increase in interest payable.

Capital expenditures The Group’s operations are capital intensive and the Group requires maintenance capital expenditure as well as investment capital expenditure to support its growth and development. The capital expenditure reported for the year ended 30 June 2013, and the three month periods ended 30 September 2012 and 2013 reflects the new definitions following refinancing. 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 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 there is no signed customer contract at the time at which it is incurred and reported. As the above are reported on an incurred basis, capital creditors/accruals reflect the timing difference to arrive at “cash capital expenditure”. The prior year period is reported based on definitions as per the previous financing arrangements.

The table below sets out the Group’s capital expenditures for the periods stated:

Three Months Ended Year Ended 30 June 30 September

2012

2013(2)

2012(2)

2013(2)

(unaudited) (£ millions)

Maintenance ....................................................... 30.2 43.9 7.3 6.4 DSO ................................................................... 72.5 25.5 7.4 4.5 Growth contracted ............................................... 59.3 59.4 8.9 15.1 Growth non-contracted ........................................ - 9.8 0.8 2.1 Sale of fixed assets(1) ........................................... (0.5) (4.3) - - Capital creditors/accruals .................................... - (12.3) 1.3 5.4

Total net capital expenditure and financial investment ............................................................. 161.5 122.0 25.7 33.5

(1) Sales of fixed assets for the year ended 30 June 2013 relates to the proceeds from the disposal of the Outside Broadcast assets in Satellite

(2) Capital expenditure for year ended 30 June 2013 and for the three months ended 30 September 2013 reflect the new definitions following refinancing. Prior year financials are reported as per previous definitions, therefore they are not directly comparable for maintenance and growth capital expenditure categories.

For the three months ended 30 September 2013, the Group’s capital expenditure and financial investment was £33.5 million, representing a 30.4% increase from £25.7 million in the prior year period. Maintenance capital expenditure comprised of maintenance of site infrastructure and IT estate in both periods. The overall increase in total capital expenditure and financial investment compared with the three months ended 30 September 2012 was principally as a result of increased spending in



connection with new contract wins and business such as WiFi, Local TV, the HD Multiplexes, MIP, and Satellite. Net cash flows The following table sets forth information regarding the Group’s statement of cash flows for the periods presented:

Three Months Ended

Year Ended 30 June 30 September

2012

2013

2012

2013


Consolidated cash flow data

Net cash inflow from operating activities ........................ 378.5 349.2 54.7 25.6 Dividends from investments ........................................... 0.1 0.1 0.1 0.1 Returns on investment and servicing of finance ............. (171.5) (171.8) (26.5) (35.0) Tax paid ........................................................................ (0.2) (0.2) (0.2) - Net capital expenditure and financial investment............ (161.5) (122.0) (25.7) (33.5) Acquisitions and disposals............................................. (2.1) (29.0) (3.8) (0.4) Equity dividends paid .................................................... (0.2) (0.1) - Financing ...................................................................... 3.3 15.7 2.1 (1.7)

(Decrease)/increase in net cash ................................. 46.3 41.9 0.7 (44.9)

Net cash inflow from operating activities For the three months ended 30 September 2013, the Group’s net cash inflow from operating activities was £25.6 million, consisting of EBITDA of £98.8 million, less exceptional items of £1.4 million and negative movements in working capital of £71.8 million. This was a 53.2% decrease from £54.7 million in the prior year period mainly due to a greater working capital requirement in the three months ended 30 September 2013.

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 movement Working capital is part of “Net cash inflow 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 and imputed interest).

The table below sets out the Group’s calculation of working capital as at the dates indicated.

Year Ended 30 June

Three Months Ended

30 September

2012

2013

2012

2013

(unaudited)

(£ millions) Net Decrease/(increase) in debtors ......... (11.1) (6.1) (10.8) 0.3 Net increase/(decrease) in creditors ........ 10.2 (25.0) (26.0) (71.4) Net increase/(decrease) in provisions ..... 0.3 (9.4) (0.8) (0.7)

Total working capital movement .......... (0.6) (40.5) (37.6) (71.8)

The components of the Group’s working capital are:

• Net Decrease/(increase) in debtors comprising trade debtors, prepayments and accrued income;



• Net increase/(decrease) in creditors including trade creditors, sundry creditors, VAT creditors, accruals, and deferred income less than and greater than one year; and

• Net increase/(decrease) in provisions include provisions less than and greater than one year.

The Group’s working capital movement is seasonal in nature due to the different contractual timings of receipts and payments. The Group invoices the majority of its Site Share customers annually in advance, and these billings and subsequent cash collections are mainly centred upon the third quarter of the fiscal year. In addition, annual staff bonus payments are made in the first quarter of the fiscal year. As a result, the Group’s cash inflow from operations in the second half of the fiscal year, historically, has been approximately double the amount of the first half of the fiscal year, which is reflected in the working capital fluctuation. Consequently, working capital tends to be significantly negative in the first half of the year as a higher proportion of profit and loss revenues are non-cash.

The Group’s working capital movement for the three months ended 30 September 2013 was negative £71.8 million and reflected the expected position for the period. This represented an adverse movement from negative £37.6 million in the prior year period largely due to timing of payments being different from the prior year period. Working capital requirements are expected to remain high in the next quarter and in line with historical levels by the half year, before improving in the second half of the year due to the seasonal variations described above.

Dividends from investments For the three months ended 30 September 2013, the Group’s dividends from associates were £0.1 million, consisting of amounts received from the Group’s investment in MXR Holdings Limited, a company which owns and operates several regional digital radio Multiplexes within the UK.

Net cash outflow from returns on investment and servicing of finance For the three months ended 30 September 2013, the Group’s return on investment and servicing of finance was an outflow of £35.0 million, consisting of £0.2 million in interest received, less £34.9 million in interest paid to external sources, and less £0.3 million from the interest element of finance lease rentals.

Tax paid For the three months ended 30 September 2013, the Group’s tax paid was £nil.

Acquisitions and disposals

For the three months ended 30 September 2013, the cash flow from the Group’s acquisitions and disposals was an outflow of £0.4 million, relating to the deferred consideration on the acquisition of Digital One Limited.

Equity dividends paid

For the three months ended 30 September 2013, the Group’s equity dividends paid were £nil.

Net cash flow from financing For the three months ended 30 September 2013, the Group’s net financing outflow was £1.7 million, consisting of £1.6 million payment of debt issue costs and £0.1 million in the capital element of finance lease payments. Net cash flow from financing differs to that 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.

Decrease in net cash For the three months ended 30 September 2013 the Group’s decrease in net cash was £44.9 million due to the above factors.



Contractual Obligations and Commitments The following table sets out the payments due by period under the Group’s contractual obligations as at 30 September 2013:

Payments due by Period

Total

Less than 1 Year

1 to 3 Years

3 to 5 Years

More than 5 Years


Senior debt – A ........................................................... 400.0 - 400.0 - - Senior debt – B ........................................................... 786.0 - - 786.0 - Senior bonds .............................................................. 1,148.5 - - - 1,148.5 Junior bonds ............................................................... 600.0 - - - 600.0 Trade creditors ........................................................... 54.4 54.4 - - - Accrued liability on interest rate swap ......................... 26.7 - 26.7 - - Finance lease obligations1 .......................................... 14.4 0.4 0.7 0.9 12.4 Capital commitments .................................................. 23.0 23.0 - - - Operating lease commitments .................................... 143.2 18.7 30.3 21.5 72.6 Other creditors............................................................ 397.7 283.8 27.4 26.4 60.2

Total non-Group ....................................................... 3,593.9 380.3 485.1 834.8 1,893.7

Amounts owed to Group undertakings ........................ 3,542.2 195.4 - - 3,346.8

Total .......................................................................... 7,136.1 575.7 485.1 834.8 5,240.5

(1) These amounts exclude future interest payments associated with these liabilities

Average interest rates on borrowed funds after adjusting to include the principal accretion on inflation index linked swaps were 5.11%, 4.83% and 6.53% in the fiscal years ended 30 June 2011, 2012 and 2013 respectively.

Contingent Liabilities Under the terms of the Group’s external debt facilities, the Company has provided security over substantially all of its fixed and other assets by way of a Whole Business Securitisation structure.

Off-Balance Sheet Arrangements The Group has not used special purpose vehicles or similar financing arrangements on an historical basis. In addition, the Group has not had and does not have off-balance sheet arrangements with any of its affiliates. The Group uses Interest Rate Swaps (IRS), Inflation Linked Swaps (ILS) and cross-currency swaps to reduce its exposure to fluctuation in variable interest rates on its debt and to inflation on its revenue contracts. Receipts and payments on the swaps are recognised as they are incurred over the life of the instruments. 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 for foreign currency transactions, and the changes in the fair value of such derivatives are not recognised, and the gain or loss on the settlement of such contracts is incorporated in the profit and loss account.

Prior to refinancing, the Group had interest rate swaps and inflation swap agreements covering a total notional value of £2,625.0 million in order to hedge its exposure to variable interest rates. £1,312.5 million had been hedged via interest rate swaps and £1,312.5 million had been hedged via RPI linked swaps. The swaps had a mandatory break clause at the earlier of any refinancing of the Group's senior facilities or April 2014.

In February 2013, the Group refinanced its debt raising £2,334.5 million of senior debt. As part of the refinancing £289.3 million of interest rate swaps were terminated and the remaining £2,335.7 million of notional swaps were restructured.



Inflation linked swaps (ILS) £1,312.5 million of fixed and variable rate debt is hedged via three classes of inflation linked swaps which fix interest at an average rate of 2.9498% indexed with RPI. In addition, the principal amount of these swaps increases with RPI. One class of these swaps with a nominal value of £235.0 million has a 10 year mandatory break clause, whilst the remaining two classes are break-free. The maturity date for all three classes of inflation swaps is April 2027. The accrued principal accretion on inflation linked swaps as at 28 February 2013 amounting to £286.5 million was paid at the refinancing date.

Interest rate swaps (IRS) £1,023.2 million of variable rate debt is now hedged via two classes of interest rate swaps at an average fixed rate of 5.7926%. The interest rate swaps have 3 year and 5 year mandatory break clauses co-terminus with the variable rate bank debt.

The Group has purchased Swap Options with a total principal value equal to the current interest rate swaps (£1,023.2 million). The options are exercisable at maturity in 3 years and 5 years, (co-terminus with the interest rate swaps and floating rate bank debt) and hedge the Group’s exposure for the duration of the interest rate swaps to a decline in LIBOR below 1% at the point of the mandatory breaks in 3 and 5 years' time.

An amount of £26.7 million (September 2012: £261.7 million, June 2013: £20.2 million) reflecting accrued liabilities under the inflation swaps since the refinancing is included within creditors. This amount is calculated on an accruals basis. The remaining fair value of the interest rate, inflation and cross currency swaps at 30 September 2013 (excluding the inflation swap accrual), is a liability of £1,393.3 million which comprises £1,040.2 million in relation to the RPI linked swaps, £329.6 million in relation to the interest rate swaps, and £23.5 million in relation to the cross currency swap (September 2012: total £1,081.3 million, June 2013: total £1,412.3 million), which is not recognised on the balance sheet in accordance with Group accounting policy and UK GAAP. This fair value is calculated on a mark to market basis.

Private Placement hedging arrangements On the 27 June 2013, AF1 entered into £398.5 million of Floating / Fixed Interest Rate Swaps to overlay the above RPI swaps, amending the cash flow characteristics to align to the fixed payable coupon on the £398.5 million Private Placement Notes issued by Arqiva PP Financing Plc (‘APPF’). In addition, AF1 entered into USD 358.0 million (£235.5 million equivalent) 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 1.52.



Market Risk Disclosure

The Group’s operations expose it to a variety of financial risks that include the effects of changes in price, credit risk, liquidity risk, cash flow interest rate risk and foreign exchange risk. The Group’s overall risk management programme seeks to minimise potential adverse effects as noted below.

Price risk Energy is a major component of the Group’s cost base. A large proportion of this is managed via pass-through arrangements to customers. The Group’s residual exposure to fluctuations in the electricity price is managed by forward purchasing the majority of power requirements up to 18 months in advance. Key revenue and cost milestones are set on larger projects so that changes in power costs are known in advance and can be hedged, in order to ensure the financial risks of volatile pricing are mitigated.

Credit risk The Group is exposed to credit risk on customer receivables which is managed through appropriate credit checking procedures prior to taking on new customers; and higher risk customers paying in advance of services being provided. Performance is closely monitored to ensure agreed service levels are maintained reducing the level of queried payments and mitigating the risk of uncollectable debts.

Liquidity risk To ensure it has sufficient available funds for working capital requirements and planned growth, the Group maintains cash reserves and access to undrawn committed facilities to cover forecast requirements. As at 30 September 2013 the Group had £100 million available working capital facilities and £75.5 million cash available to cover short term cash flow timing differences if required, together with a £400 million capital expenditure facility. In addition, the Group has £200 million of liquidity facilities available to cover senior interest payments and a £28.5 million cash reserve to cover junior interest if required. Details of the debt maturity profile are provided in note 16 of the condensed consolidated interim financial statements. The Group carefully manages the credit risk on liquid funds and derivative financial instruments with balances currently spread across a range of major financial institutions which have satisfactory credit ratings assigned by international credit rating agencies. The levels of credit risk are monitored through the Group’s ongoing risk management processes, which include a regular review of the credit ratings. Risk in this area is limited further by setting a maximum level and term for deposits with any single counterparty.

Financing risk The Group will need to refinance at least part of its debt as it matures and may need additional financing to cover capital expenditure and certain other expenses to support its growth plans. The Group cannot be certain that such financing will be readily available on attractive or historically comparable terms. The Group mitigates this risk by the strength of the stable long term investment grade capital structure in place, our BBB rating (from Standard & Poors and Fitch) which reflects our strong ability to raise cash and repay debt from our cash flows over a reasonable period of time, maintaining an active dialogue with lenders and investors, maintaining debt with a variety of medium and long term maturities so that over time we do not have a significant concentration of debt due for refinancing in any given year, and aiming to refinance debt well in advance of the maturity date.

Cash flow interest risk The Group has variable rate bank debt and uses interest rate and inflation swaps to hedge its exposure to rising interest rates. The Group maintains a hedging policy to manage interest rate risk and to ensure the certainty of future interest cash flows. It currently has fixed rate hedging, split between interest rate swaps and inflation swaps. Interest rate swaps convert variable rate interest costs to fixed rate interest costs while inflation swaps convert fixed or variable rate interest costs to RPI-linked costs, which fluctuate in line with the RPI index as do a proportion of the Group's



revenue contracts. Details of the interest rate profile of the Group’s liabilities are provided in note 16 of the condensed consolidated interim financial statements.

Foreign exchange risk The Group operates from UK sites and predominantly in the UK market, but has some transactions denominated in foreign currency. While some customer and supplier contracts are denominated in other currencies (mainly US Dollars and Euros), the majority of the Group’s revenues and costs are sterling based, and accordingly exposure to foreign exchange risk is limited. Management regularly monitor the impact of foreign exchange risks and assess the need to put any mitigating financial instruments in place. During the year, forward foreign exchange contracts were used to fix the exchange rate for certain overseas revenue contracts, and cross currency swaps were taken out to fix the exchange rate in relation to US Dollar denominated Senior bonds. Details of the cross currency swaps are provided in the Private Placement Hedging Arrangements paragraph above. CRITICAL ACCOUNTING POLICIES

Turnover

Turnover, which is stated net of value added tax, includes the value of charges made for transmission services, distribution services, products, facilities leasing, research and development contracts, external network services to national and international telecommunication operators, other contracts, rents from properties and charges made under site sharing agreements.

Turnover is recognised as services are provided. Cash received or invoices raised in advance is taken to deferred income and recognised as turnover when service is provided. Where consideration received in advance is discounted, the effect of the time value of money, where material, is reflected within turnover and interest payable and similar charges. During the financial year ended 30 June 2013 £6.5 million of revenue and £11.4 million of interest expense was recognised as a result of the time value of money. Turnover recognised in advance of cash received or invoices raised is taken to accrued income.

Derivative financial instruments

The Group uses interest rate and inflation swaps to reduce its exposure to fluctuations in variable interest rates on its debt. Receipts, payments and accreting liabilities on interest rate and inflation swaps are recognised on an accruals basis, over the life of the instrument. Deferred derivative close out costs are also recognised within Other interest which relate to costs incurred in February 2013 on the termination of interest rate swap instruments pursuant to the Group's refinancing and are deferred to reflect the economic substance of the Group’s original hedging strategy. Changes in the fair value of derivatives, however, are not recognised. Amounts received and paid under interest rate and inflation swaps are shown net under financing costs, where they are part of the same legal agreement and settled net in practice. The Group utilises forward foreign exchange contracts to hedge the value of its foreign currency transactions. In addition, the Group utilises cross currency swaps to hedge the principal and interest payments due under the USD tranche of the Private Placement against variations in foreign exchange and interest rates. 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.

Leasing Commitments

Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have passed to the Group, are capitalised in the balance sheet and depreciated over their useful economic lives or the lease term, if shorter.

The capital elements of future lease obligations are recorded as liabilities, while the interest elements are charged to the profit and loss account over the period of the lease to produce a constant rate of charge on the balance of capital repayments outstanding.

Operating lease payments for assets leased from third parties are charged to the profit and loss account on a straight line basis over the period of the lease.

Equipment leased to customers under finance leases is deemed to be sold at normal selling price and this value is taken to turnover at the inception of the lease. Debtors under finance leases represent



outstanding amounts due under these agreements, less finance charges allocated to future periods. Finance lease interest is recognised over the primary period of the lease so as to produce a constant rate of return on the net cash investments.

Recent and Prospective Changes in Accounting Policies

To the best of the Group’s knowledge, there are no accounting standards applicable to it that will require a prospective change in any of its accounting policies.

Basis of Preparation

The condensed consolidated interim financial statements have been prepared in accordance with the Companies Act 2006 and applicable UK accounting standards under the historical cost convention. In order to show a true and fair view, the Group’s policy in respect of merger accounting departs from the requirements of the Companies Act 2006. Details of the departures are given in the condensed consolidated interim financial statements.

Basis of Consolidation

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by the Group and the results of all controlled entities. Businesses acquired, previously held externally to the Group, are accounted for as acquisitions with effect from the date control passes. Those disposed of are accounted for up until the date of disposal. Intra group profits have been eliminated. Undertakings, other than subsidiary undertakings, in which the Group has an investment representing not less than 20% of the voting rights and over which it exerts significant influence are treated as associated undertakings. Associates are accounted for using the equity method of accounting in accordance with FRS 9, “Associates and joint ventures”. Joint ventures are accounted for using the gross equity method. The consolidated financial statements include the appropriate share of those undertakings’ results and reserves.

Pensions

Defined benefit schemes are funded, with the assets of the scheme held separately from those of the Group, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and terms to the scheme liabilities.

Any defined benefit asset or liability is presented separately on the face of the balance sheet and net of deferred tax.

In the year to June 2009, Arqiva Limited operated two defined benefit pension schemes, the Arqiva Defined Benefit Pension Plan (the Plan) and the Arqiva Services Limited Pension Scheme (the Scheme). The Scheme merged into the Plan on 31 December 2009. Therefore, as from 30 June 2010, there is now a single defined benefit pensions arrangement operating, with Arqiva Limited as the sponsor. On this basis the disclosure for the schemes has been combined

The assets of the scheme are held separately from those of Arqiva Limited in trustee-administered funds.

The triennial valuation of the Group’s defined benefit pension obligations as at 30 June 2011, for actuarial funding purposes, has resulted in an assessed deficit of £17.4 million. Gross plan liabilities at the valuation date were £130.5 million compared to gross plan assets of £113.1 million. Arqiva Limited has agreed with the trustee to make deficit recovery payments into the Plan of £5.7 million in July 2013, £5.7 million in July 2014 and £4.1 million in July 2015, after taking into account payments already made under the previous recovery plan since the date of the valuation. See Note 25 to the Group’s audited condensed consolidated financial statements for year ended 30 June 2013.

Tangible fixed assets and depreciation

Tangible fixed assets are stated at original purchase cost (which includes costs directly attributable to bringing the assets into working condition), being fair value for tangible fixed assets acquired on acquisition, less accumulated depreciation and any provision for impairment.



In accordance with FRS 15 ‘Tangible fixed assets’, directly attributable finance costs are capitalised where assets take a significant period of time to become ready for use.

Depreciation is provided on a straight line basis at rates calculated to write off the cost or valued amount, less estimated residual value, of assets over their estimated useful economic lives. The useful economic lives of the assets have been determined taking into account the expected rate of technological developments, market requirements and expected use of the assets. The selected depreciation rates are regularly reviewed to ensure they remain appropriate to the Group’s circumstances.

Asset Description Estimated Useful Life Freehold buildings 60 – 70 years Leasehold buildings Length of lease Plant and equipment - Communications infrastructure network 8 – 100 years - Network computer equipment 3 – 20 years - Motor vehicles 3 – 5 years

Freehold land is not depreciated.

Capital work in progress is not depreciated until construction is complete and the asset is capable of operating in the manner intended by the Group in accordance with FRS 15.

Provisions

The provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.

Decommissioning provisions are recognised within provisions for liabilities and charges and included within fixed assets, where the costs of dismantling assets are considered material. The amounts recognised within fixed assets are depreciated over the useful economic life of the asset. The provisions are discounted to reflect the time value of money where material.

Goodwill

Purchased goodwill is capitalised and amortised on a straight line basis over its estimated useful life, which is considered to be no longer than 20 years. The Group capitalises costs associated with the acquisition of subsidiaries within goodwill.



APPENDIX I Description of Certain Income Statement Line Items Turnover

Turnover, which is stated net of value added tax, includes the value of charges made for transmission services, distribution services, products, facilities leasing, research and development contracts, external network services to national and international telecommunication operators, other contracts, rents from properties, capital works contributions from third parties and charges made under site sharing agreements.

Turnover and profit for the Group are recognised when services are provided. Cash received in advance from customers is accounted for as deferred income and recognised as turnover when service is provided. Where consideration received in advance is discounted, the effect of the time value of money, where material, is reflected within turnover and interest payable and similar charges. Turnover recognised in advance of cash received is accounted for as accrued income. See “Critical Accounting Policies”.

Broadcast and Media Turnover for the Group’s Broadcast and Media division comprises turnover from the Group’s Terrestrial Broadcast and Satellite sub-divisions.

Terrestrial Broadcast Turnover for the Group’s Terrestrial Broadcast business primarily comprises turnover from digital television broadcasting, analogue television broadcasting (up to the date of the completion of the DSO), digital and analogue radio broadcasting, and radio Multiplex services provided for Ofcom and broadcast clients.

Satellite Turnover for the Group’s Satellite business primarily comprises turnover from the UK DTH platform, satellite distribution platforms, satellite managed networks and other activities (media management, digital cinema, events, satellite data communications, wholesale space and an international fibre network).

Digital Platforms Turnover for the Group’s Digital Platforms division comprises turnover generated from sales of broadcast channel slots for DTT, radio and data services on the Group’s existing two licensed DTT Multiplexes and hybrid (IPTV) TV.

Telecoms Turnover for the Group’s Telecoms division primarily comprises turnover from the Group’s Site Share and Secure Solutions businesses.

Site Share and WiFi Turnover for the Group’s Site Share business primarily comprises turnover from wireless site share primarily to MNOs and their joint ventures as well as to customers who are not themselves MNOs, such as Airwave. Services provided through site share include site licensing, site access, network services and installation services. The Group’s WiFi infrastructure business is one of the UKs largest WiFi hotspot providers.

Secure Solutions (previously Government) Turnover for the Group’s Secure Solutions business primarily arises from providing mission-critical communications solutions to public sector organisations throughout the UK and Ireland, including frontline emergency services. Major customers include the Royal National Lifeboat Institution, the Maritime and Coastguard Agency, the UK Border Agency and certain UK police authorities, including



two of the UK’s largest police forces, the Metropolitan Police (through BAE Systems Detica) and Strathclyde Police.

Cost of sales Cost of sales accounts for those costs that are either variable in line with changes in turnover or can be directly attributable to a single customer. This includes third-party project and power costs. Cost of sales also includes items such as the cost of rent, business rates, satellite and video stream capacity and charges relating to the movement of data around the Group’s infrastructure, for example to the main transmission towers and multiplexing sites.

Depreciation Depreciation includes depreciation of owned fixed assets, impairment of owned fixed assets and depreciation of assets held under finance leases.

Amortisation Amortisation includes amortisation of goodwill in respect of subsidiaries that arises upon consolidation and amortisation of intangible assets. The amortisation charge is largely driven by goodwill amortisation which mainly relates to the acquisitions of NTL Broadcast by Macquarie Communications Infrastructure Group and National Grid Wireless by Arqiva in 2005 and 2007 respectively. The goodwill is amortised on a straight line basis over its estimated useful life, which is considered to be no longer than 20 years.

Operating expenses Operating expenses represent operating costs of the business that are not directly variable in line with changes in turnover, such as staff costs not associated with the maintenance of customer contracts or networks and the majority of corporate support costs. Such costs include the salaries and wages of employees, licence and operating arrangement fees, sales and marketing costs, travel and consultancy fees.

Exceptional administrative expenses Exceptional administrative expenses are one-off items where the earnings or charges are not considered to be indicative of the Group’s ongoing operations.

Net third party interest payable Net third party interest payable includes, net bank loan interest, other interest and share of joint venture interest payable.

Interest receivable and similar income includes bank interest, finance lease interest receivable and other interest.

Bank loan interest includes bank loan interest and swap payments (including accrued liabilities on the ILS).

Other interest Other interest includes the amortisation of debt issue costs, finance lease interest payable, imputed interest on advance payments from customers (relating to cash receipts collected in advance for some long-term contracts) and deferred derivative close out costs, relating to costs incurred in February 2013 on the termination of interest rate swap instruments pursuant to the Group's refinancing. These derivative close out costs are deferred to reflect the economic substance of the Group’s original hedging strategy. Other interest is almost entirely non-cash while a small cash element relates to payments for finance leases.

Joint venture turnover Share of joint venture turnover represents the Group’s percentage share of turnover generated by its joint venture companies. Joint ventures are accounted for using the gross equity method. The



Condensed Consolidated Interim Financial Statements include the appropriate share of those undertakings’ results and reserves.

Interest payable to parent undertakings 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 2033. In addition, further funds have been advanced by parent undertakings on a subordinated basis which facilitated the repayment of previous bank facilities. Under the terms of the subordinated loan agreement, these loans have maturity dates of 20 years, 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.

Non-operating profit exceptional items Non-operating profit exceptional items represent those material items derived from events or transactions which require separate disclosure in the profit and loss accounts under accounting standards in order to present fairly the results for the financial period. Fundamental reorganisation is a subset of non-operating profit exceptional items.



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 ongoing 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:

Three Months Ended

30 September 2012

Three Months Ended

30 September 2013


Group operating profit..……………………………… 29.1 28.0 Depreciation…………………………………………….. 24.5 30.1 Amortisation……………………………………………... 38.5 39.3 Exceptional administrative expenses………………... 5.4 1.4 Other (including loss on disposal of fixed assets and non-interest finance costs including bank charges). 0.2 - EBITDA………………………………………….……… 97.7 98.8

A reconciliation of EBITDA to the net cash inflow from operating activities is provided below:

Three Months Ended

30 September 2012

Three Months Ended

30 September 2013


EBITDA………………………………………………… 97.7 98.8 Exceptional costs…………………………………….. (5.4) (1.4) Working capital………………………………………... (37.6) (71.8) Other (including loss on disposal of fixed assets and non-interest finance costs including bank charges). - - Net cash inflow from operating activities……… 54.7 25.6


Summary Corporate and Financing Structure

Hedges

Junior Group

Senior Financing Group

Arqiva Senior Finance

Limited

Arqiva Group Parent Limited

Arqiva Group Intermediate Limited

Arqiva Group Holdings Limited

Hedges, Capex,

Working Capital & Liquidity Facilities

distribution of dividends

Arqiva Financing No. 3 plc

ArqivaBroadcast

IntermediateLimited

Notes Arqiva Broadcast

Finance plc

Subordinated Loans

Fixed and floating charge

Arqiva Broadcast

Parent Limited

Shareholder Loan Notes

Intercompany Loans

Intermediate HoldCo

Subordinated Guarantee

Liquidity Facility & Hedges

Arqiva Financing plc

Senior Secured Notes

Subsidiaries (including Arqiva Limited and Arqiva

Services Limited)

Arqiva Financing No.1 Limited

Senior Term Facilities

Intercompanyloans

Arqiva Financing

No. 2 Limited

Intermediate HoldCo

Guarantee

Senior FinCo/ Borrower Loans

Senior Issuer/Borrower Loans

Assets

Fixed charge



Guarantors

Arqiva companies which are neither issuers or guarantors.

Issuers

Main Parties:

• Parent Guarantor: Arqiva Broadcast Parent Limited

• Intermediate Guarantor: Arqiva Financing No. 2 Limited

• Issuer: Arqiva Broadcast Finance plc

• Intermediate HoldCo: Arqiva Broadcast Intermediate Limited

• Senior Parent: Arqiva Parent Group Limited

• Senior Borrower: Arqiva Financing No. 1 Limited

• Senior FinCo: Arqiva Senior Finance Limited

• Senior Issuer: Arqiva Financing plc

Arqiva Broadcast Holdings Limited

Arqiva PP Financing

plc


CONDENSED CONSOLIDATED AUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2013 OF ABPL For three months ended 30 September 2013

Arqiva Broadcast Parent Limited file(Arqiva Broadcast Parent Limited and its subsidiaries) and may...

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Transcript of Arqiva Broadcast Parent Limited file(Arqiva Broadcast Parent Limited and its subsidiaries) and may...