Arqiva Year ending 30 June 2014 results presentation · The financial information set forth in this...

Copyright © Arqiva Limited 2014 1

Arqiva

Year ending 30 June 2014 results presentation


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.

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Disclaimer


Contents

Executive summary

Divisional review

Financial results

Financing

Summary

A

B

C

D

E


Executive summary


Overview of activities – Five divisions

Digital PlatformsSatellite and Media

Terrestrial Broadcast Telecoms

TV and radio broadcast and infrastructure services

Leading independent siteshare provider

Leading UK teleport operator

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

Owner of 2 out of the 3 commercial Digital Terrestrial Television spectrum multiplexes and 2 new DVB-T2 HD capable multiplexes

5 teleports and c.80 satellite uplink dishes

Revenues FY 20141: £827m

1. Financial year end 30th June 2014..

Note: All operational data as at 30-Jun-2014

Smart/M2M

A newly formed division focussing on smart metering and machine to machine

(M2M) opportunities

Smart metering provider for 9.3m homes and businesses in Scotland and Northern England once rollout is complete

Executive summaryA

Leading provider of Freeview channels for broadcasters


Business strategy

DVB-T2 multiplexesYouView

Hybrid TV700MHz Clearance

Capablue acquisition

Leverage existing skills and infrastructure to deliver growth, building on stable core business

Invest behind the growth of mobile data

Develop our people

Simplify and standardise to optimise costs and efficiency

Maximise value for existing customers

Invest in other growth

opportunities that leverage

our assets and capabilities

Invest in the future of television

Substantial majority of growth capex incurred only when revenues contracted

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

Headline financialsA Executive summary


Highlights - Contract winsTerrestrial BroadcastBBC 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

A Executive summary


Highlights - Orderbook £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

A Executive summary


Highlights - Business development 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

A Executive summary


Divisional Review


Terrestrial BroadcastB Divisional review

Strategy Recent/market developments 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

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

New customer contracts Revenue analysis BBC analogue and digital radio contracts won in

August 2013 for 7 year and 17 year durations respectively

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


Digital PlatformsStrategy Recent/market developments 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

B Divisional review


TelecomsStrategy Recent/market developments 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

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

New customer contracts 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 2014with Virgin Media

Orderbook value increased to £1.2bn

B Divisional review


Satellite and MediaStrategy Recent/market developments 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 Revenue analysis New customer contracts were signed including

• Digital satellite services for ITV• Playout services for Turner and NBCU

Orderbook value remains at £0.3bn

B Divisional review


Smart Metering/M2MStrategy Recent/market developments 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

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

New customer contracts Financial performance (revenues) 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

Orderbook value increases by £0.5bn

B Divisional review


Financial results detail


(£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%

Revenue by divisionC Financial results


P&L summary

(£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)%

C Financial results


(£m, FY-end 30 June) 2014 2013 2014 2013ABPL (Junior) AGPL (Senior)

Profit on ordinary activities before tax and interest 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)

C Financial results

P&L summary


Cashflow summary(£m, FY-end 30 June) 2014 2013 2014 2013

ABPL (Junior) AGPL (Senior)EBITDA 408 416 408 416Exceptional 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 0Tax 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


Limited maintenance capex and substantial majority of growth capex contract-related

1 Growth capex also includes cash sales of fixed assets and change in capital creditors.

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

• Net other, £10m[1]


Covenant reportingC Financial results

30 Jun ‘14 30 Jun ‘15October2013 certificate (projected)

September 2014 certificate (actual)

September 2014 certificate (projected)

EBITDA* £412m £409m £420m

Senior Net debt £2,441m £2,359m £2,479m

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

FY 15 guidance

Revenue 3% - 4% growth

EBITDA £420m

Working capital £(50)m

Cash capex £(200)m

* Per covenant reporting definitions


Financing


Arqiva debt position

As at 30th June 2014 £m Maturity Structure USPP Transaction As at 24th July 2014 Leverage

SENIOR

Public Bonds (BBB/BBB) 1 400 Dec-32 400

Public Bonds (BBB/BBB) 1 350 Jun-35 (exp. Jun-20) 350

USPP – USD tranche 236 2 Jun-25WBS Platform

236 USPP – GBP tranche 163 Jun-25 300 463EIB Loan 190 Jun-24 190

Institutional Term Loan 180 Feb-38 (exp. Dec 23) 180

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 EBITDA3

JUNIORJunior Notes (B- / B3)4 600 2020 600TOTAL TERM DEBT 2,936 2,936 7.16x EBITDA3

1. Fitch / S&P2. GBP swapped equivalent amount of $358m issue3. Net leverage as per the latest covenant compliance certificates published September 2014, as at 30 June 20144. Fitch / Moody’s

D Financing


Inflation-linked swaps

► 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

Mark To Market (£978.5m)

RankingSuper senior to senior debt (but carries no voting or enforcement rights)

Only £235m have break in 2023

First payment in 2015 c. £100m2

[1]

1. MTM reported as at 30 June 2014 excluding accretion.2. Management estimate

D Financing


Interest Rate Swaps 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

1 Including new credit charge

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

D Financing

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


Adequate headroom versus financial covenants and strong liquidity

Financial covenant ratios and senior trigger eventsRatios (maintenance tests)Forward and backward looking

Historic(Jun 14)

Projected (Jun 15)

Trigger Threshold

Consequence of Trigger

Event of Default Threshold

Senior Net Debt to EBITDA Ratio 5.77x 5.90x Trigger:

6.50x 7.50x (Historic

test)

Senior Cashflow DSCR 2.27x 2.19x Trigger: 1.30x

1.05x (Historictest)

Senior Cashflow ICR 2.27x 2.19x Trigger[1] : 1.9/2.0x

1.55x (Historictest)

Senior Modified Net Debt to EBITDA Ratio[2] 5.77x 5.90x If > 6.00x then no distributions

other than to pay Junior interest

Junior leverage 7.16x N/A

Senior Trigger Event:

Distribution lock-up

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.

£m MaturityFacilitySenior capex facility 400 30 June ’18Senior working capital facility 100 30 June ’18Senior liquidity facility 200 February ‘15

Liquidity facilities

D Financing


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

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