Positioning for future profit growth and operational efficiencies - Year ending 30 June 2016 results presentation - Arqiva
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Year ending 30 June 2016 results presentation
Positioning for future profit growth and operational
efficiencies
Copyright © Arqiva Limited 2016 1
Disclaimer
This presentation has been prepared by and is the sole responsibility of Arqiva Group Limited and its subsidiaries (the “Company”). This material has been prepared by and is the sole responsibility of the Company
and has been prepared for information and update purposes only and does not constitute or form part of a prospectus or offering memorandum or of any offer for sale or subscription of, or solicitation of any offer to
buy or subscribe for, any securities nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. This presentation has not been verified and no
representation or warranty, either express or implied, is given or made by any person in relation to the fairness, accuracy, completeness, correctness 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 as to or in relation to the accuracy, sufficiency, completeness or
correctness of this document or the information forming the basis of the document or for any reliance placed on the document by any person whatsoever. No representation or warranty, expressed or implied, is or will
be made as to the achievement or reasonableness of, and no reliance should be placed on, any projection, targets, estimates, forecasts and nothing in this document should be relied on as a promise or representation
as to the future.
The financial information set forth in this presentation has been subjected to rounding adjustments for ease of presentation. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables may
not conform exactly to the total figure given for that column or row. Furthermore, percentage figures included in this presentation have not been calculated on the basis of rounded figures but have been calculated on
the basis of such amounts prior to rounding.
This material should not be regarded by recipients as a substitute for the exercise of their own judgement and assessment. Any opinions expressed in this material are subject to change without notice and neither the
Company nor any other person is under any obligation to update or keep current the information contained herein. This material, which does not purport to be comprehensive, has not been independently verified by
the Company or any other party. The document does not constitute an audit or a due diligence review and should not be construed as such.
Certain information and statements constitutes "forward-looking statements". These statements, which contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the
directors of the Company’s beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors: actions or
decisions by governmental and regulatory bodies, or changes in the regulatory framework in which the Company operates; changes or advances in technology and availability of resources such as bandwidth
spectrum, necessary to use new or existing technology, or consumer preferences regarding technology; the changing business or other market conditions and the prospectus for growth anticipated by the management
of the Company; the Company’s ability to realise the benefits it expects from existing and future projects and investments it is undertaking or plans to or may undertake; the Company’s ability to develop, expand and
maintain its telecommunications infrastructure; the Company’s ability to obtain external financing or maintain sufficient capital to fund existing and future investments and projects; the Company’s dependency on only a
limited number of key customers for a large percentage of its revenue; and expectations as to revenues under contract. These and other factors could adversely affect the outcome and financial effects of the plans
and events described herein. As a result, you are cautioned not to place undue reliance on such forward-looking statements. The Directors disclaim any obligation to update their view of such risks and uncertainties
or to publicly announce the result of any revisions to the forward-looking statements made herein, except where it would be required to do so under applicable law. Past performance should not be taken as an
indication or guarantee of future results.
Certain industry and market data in this presentation was obtained from various external sources that the Company believes to be reliable, but the Company has not verified such data with independent sources and
there can be no assurance as to the accuracy or completeness of the included information. Accordingly, the Company makes no representation as to the accuracy or completeness of that data, and such data involves
risks and uncertainties and is subject to change based on various factors.
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By attending and/or reading this presentation you agree to be bound by the foregoing limitations and conditions.
Copyright © Arqiva Limited 2016 2
Liliana Solomon Chief Financial Officer Copyright © Arqiva Limited 2016 3
Contents
A Executive summary
B Divisional review
C Detailed financials
D Financing
Copyright © Arqiva Limited 2016 4
Executive summary Copyright © Arqiva Limited 2016 5
A Executive summary
Arqiva at a glance
Critical UK
communications
MARKET LEADER IN LARGEST
infrastructure SOLE PROVIDER OF COMMERCIAL INDEPENDENT
TERRESTRIAL TV AND DIGITAL WIRELESS TOWERS
We enable Mobile Network RADIO TRANSMISSION TERRESTRIAL PORTFOLIO
Operators and Public Service TELEVISION (DTT)
Broadcasters to meet their National provider of government Market leader for commercial Circa 8,0001 active licensed
Government mandated universal regulated network access and spectrum used for wireless towers/sites, critical
for Mobile Network Operator
managed transmission services transmission of DTT. Owner
coverage obligations for terrestrial TV and radio of 2 out of the 3 national (MNO) coverage obligations
broadcasting. Over 1,150 TV commercial DVB-T
towers covering 98.5% of multiplexes plus 2 HD
population capable DVB-T2 multiplexes
SMALL CELLS AND LEADING POSITION A LEADER IN
IN-BUILDING IN SMART METERING SATELLITE SERVICES
DISTRIBUTED AND MACHINE TO
ANTENNA SYSTEMS MACHINE (M2M)
(DAS)
Leading position in providing Providing smart metering Largest owner of independent
neutral host In-Building using our Flexnet solution for satellite uplink infrastructure
solutions and access to a gas, electricity and water and satellite distribution
large estate of municipal smart meters services in the UK. Business
Note - Operational Data as at 30 June 2016 includes 5 teleports and c. 80
The map above indicates location of Arqiva’s Terrestrial street furniture sites for the
provision of Small Cells in satellite uplink dishes
Broadcast towers
London and other major cities
1. Includes contractual options
Copyright © Arqiva Limited 2016 Company confidential 6
A Executive summary
Financial performance
Solid growth in earnings and cashflow
Key financials Full year to Full year to
Year on year Summary
June 16 June 15
change • Revenue up 3% year on year due to new DTT
results results
channel sales in Terrestrial Broadcast, full year impact of
improved pricing on long term DTT channel renewals, and
Revenue £884m £857m 3%
in Telecoms & M2M the growth in 4G installation services
and higher Smart Metering revenues
EBITDA2,3 £428m £420m 2%
• Reported EBITDA up 2% year on year due to
Working capital £(49)m £(37)m 33% increased revenues and operating expense reductions from
our efficiencies programme. The prior year had benefitted
from c£20m of one-off smart metering milestone and site
Capital expenditure £(163)m £(195)m 16%
share project revenues at high margins, which if excluded,
result in a year on year EBITDA growth of c7%
Net cashflow after
working capital and £216m £188m 15%
• Net free cashflow after working capital and
capex3 capex up 15% year on year principally due to lower
capex spend and EBITDA growth offsetting higher working
Senior net debt £2,464m £2,426m capital investment during the financial year
Senior leverage4 5.75x 5.74x • Senior net debt and senior leverage
outperformed guidance principally due to £16m
Senior Cashflow5 ICR 2.31x 2.35x proceeds received from disposal of payphones business
Orderbook £5.9bn £6.2bn • Senior Cashflow Interest Coverage Ratio (ICR)
slightly lower than prior year. Benefit of higher
Notes cashflow in FY 16 from EBITDA growth was offset by
- The financials reported in this presentation have been prepared in accordance with IFRS including the historical comparators.
In previous reported periods the financials were reported in accordance with UK GAAP. See page 18 for further details of the increased interest charges due to higher drawings on our
impact of the change in accounting standards. capital expenditure facility and other fees
1. The Guidance was provided in the “Year ending 30 June 2015 results presentation” in September 2015
2. “EBITDA” refers to earnings before interest, tax, depreciation and amortisation
3.
4.
“EBITDA” and “Net cashflow after working capital and capex” above exclude exceptional costs
For covenant reporting purposes senior leverage is calculated based on an EBITDA of £428.4m (FY 15: £422.4m on a
• Orderbook value at £5.9bn as at 30 June 2016
covenant adjusted basis) and senior net debt as per values shown above slightly lower than prior year mainly due to lower projected
5. For the purposes of senior cashflow ICR cashflow is defined as EBITDA as per note 4 above less: maintenance capex, net
corporation tax paid and issuer profit amount payable RPI on future inflation-linked contracted revenues
Copyright © Arqiva Limited 2016 Company confidential 7
A Executive summary
Contracted orderbook
Our orderbook stands at £5.9bn as at 30 June 2016 and drives our recurring revenue base
Orderbook by business unit Overview
• The Group’s orderbook as at 30 June 2016 stood at £5.9bn. The
slight year on year decline mainly resulted from impact of lower
projected RPI on value of inflation-linked contracted revenues
• The orderbook comprises contracts covering DTT and radio
transmission, site sharing, smart metering (energy and water),
satellite and other infrastructure services
• The Group is focused on growth opportunities in its targeted, core
£5.9bn
infrastructure areas
Contract additions/renewals in the year of £0.5bn
Panasonic
Revenue visibility
Note – the orderbook represents the aggregate of expected contracted revenues over
respective contract lives. The total does not include cash inflows which will be recognised • c90% of Arqiva’s expected FY 17 revenues were contracted as at
as “other income” in particular a large proportion of the 700MHz cash inflows 1 July 2016
Arqiva is delivering contracts won over several years whilst focusing growth in its core infrastructure areas
Copyright © Arqiva Limited 2016 8
A Executive summary
Highlights from the year
Activity Update
CEO,
Simon Beresford-Wylie was appointed in August 2015. During the year Simon has embedded continuous
Simon
improvement and efficiency initiatives into the organisational structure and driven the focus on the core
Beresford-
business.
Wylie
Leadership Liliana Solomon joined Arqiva in May 2016 as its new CFO. Liliana brings substantial experience in the
New CFO telecoms industry, having performed CEO and CFO roles for a series of blue chip and private equity backed
Liliana businesses. She held CEO and CFO roles in Vodafone in Europe and was CFO for Cable & Wireless in UK,
Solomon Europe, Asia and US, and CFO for T Mobile in the UK. In addition to having accountability for Arqiva’s
financial management and operations, Liliana also leads the procurement function.
New Contracted
Secured £0.5bn of new contracts and renewals since 30 June 2015 across all business areas
business orderbook
• Satellite news gathering trucks – assets disposed in July 2015
Exit from non- • Secure solutions – sale completed in December 2015
Disposals core businesses • Payphones business – sale completed in December 2015
• WiFi business – reached an agreement in September 2016 for the sale of this business
• 700 MHz spectrum clearance commenced
Terrestrial • Arqiva DTT multiplex capacity increased and fully utilised
Broadcast • Digital Audio Broadcasting (DAB) network rollout coverage at 97% and 85% for the BBC and commercial
local DAB respectively
• 4G rollout - completed circa 3,250 4G upgrades for MNOs up to 30 June 2016 since rollout began in 2014
• Small cells and indoor distributed antenna systems (DAS) – trials with all MNOs and commercial orders
Telecoms
agreed with one MNO
Delivery • Mobile Infrastructure Project (MIP) - completed
• Smart energy metering - North - rollout of programme now exceeding 80% coverage
• Smart water metering - Two major programme implementation phases of Thames Water contract have
M2M
been completed and the service is now live. All milestones achieved to schedule.
• Internet of Things (IoT) trials ongoing
Satellite and • Service excellence programme has facilitated major contract wins and enhanced customer delivery
Media • Margin management through cost savings and efficient management of capacity
Copyright © Arqiva Limited 2016 Company confidential 9
A Executive summary
Our focus areas
• Delivered key customer projects
• Achieved operational savings by reducing headcount, overheads and supplier costs through a range of
initiatives including:
o Streamlined the organisation structure by reducing 5 distinct business units to 3 and downsized
some of our corporate functions
o Refocus on core infrastructure activities
Strong progress o Reorganised internal teams to drive efficiency
this year in … o Drove process improvements, system developments and systems upgrades
o Saved costs in third party services through renegotiation with suppliers , reduced usage and
consolidation of services
o Closed the defined pension benefit scheme to future accruals in January 2016
• Exited non-core and sub-scale business areas including satellite news gathering, secure solutions,
payphones and WiFi
• Efficient delivery of high quality services to all our customers
• Successful completion of smart metering and DAB network rollouts, and ramp up of the 700 MHz
Clearance project
• Investing in and modernising our DTT platform in order to reinforce Arqiva’s position as national provider
of transmission services and to extend service life
Going forward, our • Build on our position of leading independent mobile tower provider
focus is on … • Targeted investment in selective areas of growth including small cells and M2M communications
• Improved discipline in the deployment of capital resources
• Further projects to drive efficiencies and cost savings:
o Strengthen our procurement capabilities
o Removal of excess capacity in connectivity, transponders and IT
o Reduce property related overheads through site consolidation and disposals
• Growing earnings, cashflows and increasing the investment returns for our shareholders
Copyright © Arqiva Limited 2016 Company confidential 10A Executive summary
Key developments in our markets
Market Update and/or implications for Arqiva
developments
“Brexit” • Arqiva is predominantly UK based and has very limited foreign currency exposure
Growth in demand for • Opportunity for Arqiva to:
o Drive growth in small cells and support development of 5G
mobile data and other
o Invest in infrastructure
connectivity solutions o Drive growth from M2M initiatives
DTT spectrum policy • The World Radio Conference (WRC) in November agreed that there is no regulatory change is expected over the medium term to the
update at World Radio spectrum to be used by DTT following the 700 MHz Clearance and the position would not be reviewed again until 2023 at the earliest.
Conference 2015 This is positive for the Group and safeguards the use of our DTT spectrum
• The Government published its White Paper in May 2016, outlining its proposals for the renewal of the BBC's Royal Charter
Publication of BBC
• It was proposed that the BBC be awarded a 11 year charter and Government sees the licence fee (which will increase in line with
White Paper inflation until 2021-22) as the most appropriate funding mechanism during that period
• Steady demand for linear TV (89%1 viewing share) and ongoing support for the PSB environment. Daily linear TV viewing in the UK
remains at over 3 hours per day2
Robust demand for • TV advertising revenues have increased for six consecutive years3 in the UK
DTT services and • Whilst the viewing share of IPTV, Over the Top (OTT) and video on demand has continued to climb, particularly amongst younger
hybrid DTT/broadband viewers , DTT is still the most popular platform in the UK2
services in the face of • There has been an increase in hybrid TV products in the market which combine DTT with connected TV services including Freeview
increasing Play, Youview (BT TV and Talk Talk TV), NOW TV (Sky) and EE TV. Vodafone TV also due to be launched
IP/broadband TV • Hybrid services underline continuing popularity of DTT as a core free-to-air linear foundation to which a variety of OTT services can be
share added
• Arqiva continues to embrace this fast evolving landscape through its support of Freeview Play’s development which is being taken up
by more manufacturers, its HD offering on Freeview, and its support for Youview and connected TV and media management services
• Percentage of adults owning a DAB set in the home has increased from 38% in 2011 to 56% in 20161 . Over 82% of new cars sold and
40% of new commercial vehicles sold were fitted with a DAB receiver as standard1
DAB receiver • Overall digital listening across all platforms has reached 44% and DAB’s share of radio listening across all platforms in the UK has
ownership and increased from 24% in 2014 to 31% in 20162
listening share • The Group has achieved network coverage of 97% and 85% for BBC national DAB and commercial local DAB respectively
continues to increase • Arqiva is also a partner in Sound Digital, a joint venture which owns the second national commercial multiplex which launched new
services on DAB in March 2016.
• No date has been set for analogue switch off. Arqiva continues to receive revenues for both DAB and analogue services
Sources: 1. BARB (as at 27 June 2016); 2. Ofcom Communications Market Report August 2016; 3 Thinkbox (a marketing body comprising Channel 4, ITV, Sky Media, Turner Media
Innovations and UKTV);
Copyright © Arqiva Limited 2016 Company confidential 11Business Review Copyright © Arqiva Limited 2016 12
B Divisional review
Overview of activities
Organisation, activities and key customers
Satellite &
Terrestrial Broadcast Telecoms & M2M
Media
Terrestrial Digital Telecoms Smart M2M Leading UK teleport
Broadcast Platforms Leading Smart metering, operator and media
TV and radio Leading provider of independent machine to machine management
broadcast & Freeview provider of site (M2M) provider
infrastructure channels for share with and Internet of
services broadcasters developing small Things (IoT)
cells estate
Revenue Revenue Revenue Revenue Revenue
£254m £168m £284m £33m £145m
Key customers: Key customers: Key customers: Key customers: Key customers:
Note - Revenues shown are for the full year to 30 June 2016 and total £884m for the overall ABPLGroup
Copyright © Arqiva Limited 2016 13B Divisional review
Terrestrial Broadcast update
Strategy Operation delivery
• Reinforce DTT's long term market leading position as the 700 MHz spectrum • Contracts agreed in February 2016 and programme
most popular TV platform in the UK clearance commenced triggering revenue recognition and billing
• Respond to evolving TV ecosystem by modernising DTT underway • Cash flows expected over the period 2016 to 2022
Continued DTT
platform capabilities and developing capacity through • It was agreed at the WRC-15 that there will be no
investment DTT spectrum
compression change to the allocation in the 470-694 MHz frequency
• Ensure long-term use of sub 694MHz spectrum for DTT safeguarded
band. No further review until 2023
following 700 MHz clearance
• Capacity on main multiplexes increased by 2
• Extend DAB coverage further, strengthen DAB as a platform videostreams during the year to 30 – all currently fully
Extend DAB Channel sales on
for the future and plan for an eventual digital radio switchover utilised
radio coverage, DTT multiplexes
• Drive new radio revenues across multiplexes and increase • HD services also being broadcast on Freeview using
utilisation and
capacity utilisation, including on the new second National Arqiva DVB-T2 multiplexes
revenues
DAB multiplex DAB radio rollout • BBC UK DAB and commercial local DAB network
progressing coverage increased to 97% and 85% respectively
• A focus on delivering high quality services to • Second national DAB network launched ahead of
Efficiency
our customers efficiently schedule in March 2016
£422m
Orderbook additions Revenue analysis £404m
£9m
£8m
New orderbook additions in the year to 30 June 2016 included: • Overall year on year growth driven by £89m
£93m Engineering
projects
• 700 MHz clearance new DTT channel sales, full year impact
• New DTT channels and/or renewals from: of improved pricing on long term DTT
o Ideal World channel renewals, DAB rollout and 700
o UKTV MHz Clearance programme Radio
o Sony commencement
o QVC
o Fox £307m £320m
o Discovery
TV
• Various commercial radio contracts (Transmission
and Digital
Platforms)
FY 15 FY 16
Copyright © Arqiva Limited 2016 14B Divisional review
Telecoms & M2M update
Strategy Operation delivery
• Non-core business areas exited including Secure Solutions,
• Strengthen Arqiva’s position as leading independent tower Disposals
payphones and WiFi
Mobile towers provider by increasing number of sites and maintaining long 4G rollout • 4G installation services activity and revenues at highest levels
term contracts with MNOs and MIP ever; Government program of 75 sites in not-spot areas completed
• Be a leading UK provider of indoor distributed antenna • Commercial roll-out of small cells for a UK MNO underway
Small cells and systems (DAS) and small cells by leveraging Arqiva street Small cells
• Canary Wharf and its Crossrail station equipped with a 2G/3G/4G
in-building DAS infrastructure exclusive concessions and DAS expertise and DAS
DAS system
gained in prime locations Smart and • Smart North - rollout exceeded 80% network coverage. Additional
• Grow the value of our M2M business by leveraging our two M2M
Smart meters change requests will materially increase scope and value of overall
key UK networks, namely, Flexnet for smart meters (gas,
and M2M contract
electricity and water) and Sigfox for Low Power Wide Area
business • Thames Water smart meters - the network went live in May 2016
solutions and IoT and smart water meters are now deployed at scale (c 60,000)
• Anglian Water smart meters – contract won in July 2016 and
Arqiva Flexnet solution being used for initial trial
Orderbook additions Revenue analysis £299m
£317m
£7m
£18m £5m
• Site share – slight headline £33m
New orderbook additions in the year to 30 June 2016 included: £8m
decrease due to one-off projects in £18m £22m
• Smart metering North change requests
prior year £23m Secure Solutions
• Thames Water
• Installation services – increase £31m
£51m
Other
• Installation services
driven by 4G rollout
• WiFi/small cells contracts Smart M2M
• Secure Solutions – business sold
in December 2015 WiFi
• Smart M2M – uplift from new Installation services
recurring revenues relating to
£202m £199m Site share and
network availability for the Smart utilities
Metering North contract plus the
Thames smart water metering
contract
FY 15 FY 16
Copyright © Arqiva Limited 2016 15B Divisional review
Satellite and Media update
Strategy Operation delivery
• Develop “Service Excellence” initiative to drive operational Service • Best service year ever, reflecting focus on our “Service
Efficient efficiency and serve top tier customers excellence Excellence” initiative
operations • Create new saleable capacity through improved • Low margin satellite news gathering (SNG) business sold in
compression July 2015
• Focus on maintaining high asset utilisation
Margin Margin
• Exit of low margin wholesale business almost complete
• Focused on higher margin services and complete exit of
improvement management
• Under-utilised transponders were handed back during the
lower margin commoditised wholesale space services year and renegotiated with suppliers
• Drive incremental UK DTH growth from demand for HD
UKDTH growth • Significant gains achieved from deploying improved
channels compression technology
International • Drive growth from provision of Managed Services across HD and
markets • Dedicated HD service launched for UK DTH
international markets using UK infrastructure UKDTH
Expand media • Continued expansion of media management capability • Suite of new IP and OTT products launched by building off
management including video-on-demand, streaming, IP and OTT the capability introduced from the Capablue acquisition in
and IP metadata management and other OTT 2014
capability services
Orderbook additions Revenue analysis
£160m
£153m
£7m £145m
£140m £3m
New orderbook additions in the year to 30 June 2016 included contracts • Year on year headline decrease due to £36m
from: termination of certain low margin £120m
£34m
• Al Jazeera contracts in Distribution Platforms and
• Turner Wholesale Space £100m Wholesale space and
other
• NBCu • Revenue has stabilised over the past
Events and OU,
• Panasonic year and additional focus on capacity £80m
£52m
£51m media management
utilisation and management of cost Managed Networks
and Data Comms
base has limited the impact on EBITDA £60m Distribution Platforms
(as shown on page 19) £16m £13m
UK DTH
£40m
£20m £42m £44m
‐
FY 15 FY 16
Copyright © Arqiva Limited 2016 16Detailed financials Copyright © Arqiva Limited 2016 17
C Detailed financials
Presentation of our financials –
transition to IFRS
• In previous reporting periods Arqiva reported its financial results in accordance with UK GAAP. For the
full year to 30 June 2016 the Group has adopted IFRS for its consolidated financial statements and
Background the financial report, in accordance with the new financial reporting requirements of FRS 100,
Application of Financial Reporting Requirements. The comparative information within this presentation
and accompanying reports have been restated accordingly..
• Goodwill is no longer amortised and is instead reviewed annually for impairment;
• Fair value of derivatives are fully recognised on the balance sheet on a risk-adjusted mark to market
valuation basis. It should be noted that any balance sheet liability created by the mark-to-market of
our swaps is a notional one, being crystallised only in the event that Arqiva chose at its discretion to
Impact on
buy the swap contracts back before their maturity and terminate them
financial
• Certain software and capitalised development costs have been reclassified and treated as
statements*
intangible assets
• Deferred tax follows a different measurement basis from UK GAAP, however as at 30 June 2016 no
deferred tax asset was recognised on the balance sheet (regardless of the adoption of IFRS).
• Other minor presentational differences in the financial statements.
• None
Impact on
• The conversion to IFRS has not created a difference in EBITDA, net debt or interest payable for the
covenants
purpose of calculating the covenant compliance ratios.
Note
* For a reconciliation of the historical financial performance from UK GAAP to IFRS see note 34 (First time adoption of IFRS) of the Arqiva BroadcastParent Limited and
Arqiva Group Parent Limited financial statements
Copyright © Arqiva Limited 2016 Company confidential 18C Detailed financials
Historical trend by division
Revenue EBITDA 2% CAGR
3% CAGR
£1,000m £420m £428m
£500m £408m
£884m £33m
£857m £31m (7)% CAGR
£827m £36m
£800m £145m (7)% CAGR £400m
£153m
£167m £149m £134m (5)% CAGR
£147m
£300m
£600m £317m 9% CAGR
£299m
£266m
£200m
£400m 6% CAGR
£296m £308m
£276m
£100m
£200m £394m £404m £422m 4% CAGR
-
FY 14 FY 15 FY 16 5% CAGR
- £(50)m £(58)m £(45)m
FY 14 FY 15 FY 16 £(100)m
Terrestrial Broadcast Telecoms & M2M Satellite and Media Terrestrial Broadcast Telecoms & M2M
Satellite and Media Corporate costs
Key highlights
• Revenue growth over three years has been driven by smart metering, installation services and Digital Platforms
• EBITDA growth over the same period has been driven by revenue growth and savings in operating expenses arising from headcount savings (due
to change from 5 business units to 3) and efficiencies. The revenue mix changed over this period and has impacted the EBITDA profile as follows:
• Terrestrial Broadcast continues to be underpinned by long term TV and radio contracts, including more recently the 700 MHz clearance.
EBITDA growth has mainly been driven by additional Digital Platforms channel sales and DAB rollout
• Telecoms & M2M reported year on year headline reductions in EBITDA due to:
o FY15 benefitting from one–off (c£20m) smart metering milestone and site share project revenues at high margins and
o FY16 seeing the disposal of Secure Solutions and increased investment in installation services to address operational challenges
The Telecoms & M2M business is now underpinned by the commencement in mid FY 16 of recurring and ongoing revenues from the smart
energy and smart water metering contracts with DCC and Thames Water respectively, which contributed over £10m in earnings in the year
• Satellite and Media revenue decline impact on EBITDA has been partly mitigated by cost and margin management
• Corporate costs have declined due to headcount savings and efficiencies
Copyright © Arqiva Limited 2016 19C Detailed financials
Income statement summary (1)
(£m, FY-end 30 June) 2016 2015 % Key highlights
ABPL and AGPL (Junior and Senior) • Revenue 3% up year on year due to
growth in 4G installation services, new DTT
Revenue 884 857 3% channel sales, full year impact of improved pricing
on long term DTT channel renewals, and higher
Cost of sales (344) (306) (12)% Smart Metering revenues
Gross Profit 541 551 (2)% • Gross profit 2% down year on year due
to a shift in the sales mix mainly driven by an
Operating expenses (112) (131) 14% increase in Installation Services revenues and
M2M meter sales which carry a lower gross
EBITDA* 428 420 2% margin
Exceptional costs (14) (11) (22)% • EBITDA 2% up year on year due to
increased revenues and materially lower
Exceptional impairment - (39) - operating expenses
Depreciation (128) (113) (14)% • Exceptional costs up year on year due to
reorganisation costs
Amortisation (10) (8) (27)% • Exceptional impairment (non-cash)
charges of £(39)m in prior year due to
Share of results of associates and joint impairment of non-current assets relating to non-
0 2 (96)%
ventures and other income core business areas
Operating profit 276 251 10% • Operating profit increased due to EBITDA
growth and absence of impairment charges in
contrast to prior year
*“EBITDA” refers to earnings before interest, tax, depreciation and amortisation. For covenant reporting purposes EBITDA is reported as
£428m (FY 15: £422m)
Copyright © Arqiva Limited 2016 20C Detailed financials
Income statement summary (2)
(£m, FY-end 30 June) 2016 2015 2016 2015 ABPL key highlights
• Net bank loan and other interest £7m up
ABPL (Junior) AGPL (Senior) year on year due to higher drawings on the capital
expenditure facility and additional duration fees
Operating profit 276 251 276 251 associated with the 5-year bank debt due in 2018
Finance income 1 3 1 3 • Other net interest £4m down year on year
due to lower non-cash amortisation of debt issue
Net bank loan and other charges
(225) (218) (168) (161)
interest
• Other gains and losses (non-cash) £35m
Other net interest (33) (36) (29) (33) down year on year principally due to net changes
in the fair value of the Group’s swaps resulting from
Other gains and losses (0) (36) (0) (36) increased uncertainty and volatility in global markets.
Exceptional other gains and
14 1 14 1 • Exceptional other gains and losses of £14m
losses
relate to profit on disposal of payphone business.
Loss on ordinary activities
34 (35) 95 26
after external interest • Interest payable to parent undertakings
Interest payable to parent £290m down year on year due to ABPL being
(85) (375) (129) (438) released from £3,302m of intercompany loans
undertakings
previously due to its immediate parent, on 30 June
2015
Loss on ordinary activities
(50) (410) (34) (412)
before taxation • Tax charge – prior year period included de-
recognition of £57m of the Group’s deferred tax asset
Tax 0 (57) 0 (57)
• Accounting loss of £50m principally due to
Loss for the financial year (50) (467) (34) (469) £255m of non-cash items including depreciation,
amortisation, interest payable to parent undertakings
and other net interest charges
Copyright © Arqiva Limited 2016 21C Detailed financials
Cashflow summary
(£m, FY-end 30 June) 2016 2015 2016 2015 ABPL key highlights
ABPL (Junior) AGPL (Senior) • Net cash flow after working capital
and capex £25m up year on year
EBITDA 428 420 428 420 principally due to reduced capex spend and
Exceptional costs and other (13) (11) (13) (11) EBITDA growth offsetting the higher
investment in working capital
Working capital (49) (37) (49) (37)
Net cash inflow from • Disposals relate to proceeds in connection
366 371 366 371
operating activities with payphones business
Net capital expenditure and
(163) (195) (163) (195) • Net interest paid £2m up year on
financial investment year principally due to additional interest
Net cash flow after paid on the capital expenditure facility (drawn
202 177 202 177
working capital and capex down in June 2015) and the duration fee
associated with its 5-year bank debt.
Disposals 16 - 16 -
Other net investments - 1 - 1 • Principal accretion on ILS £49m
Net interest paid and financing down year on year due to a change from
(231) (229) (174) (172)
charges triennial to an annual payment profile.
Principal accretion on ILS (26) (75) (26) (75)
• External borrowings - £5m draw-down
Net cash flow before
(38) (127) 18 (70) on working capital facility which was
financing subsequently repaid in July 2016
Movement in external
5 120 5 120
borrowings
Financing - parent undertakings - - (57) (57)
(Decrease) in cash (34) (7) (34) (7)
Copyright © Arqiva Limited 2016 22C Detailed financials
Capex lower than prior year
Growth capex breakdown:
FY16 FY15
• Smart metering – energy
£63m £57m
and water
• Radio £37m £23m
• MIP and site share £17m £11m
• Satellite and Media £13m £17m
• Terrestrial engineering £10m £12m
• WiFi £2m £3m
• Other smart M2M £1m £4m
• Capital creditors/accruals £(3)m £34m
• Sales of fixed assets £(6)m £(1)m
• Net other £9m £14m
£143m £174m
Growth capex Maintenance capex
[1]
The overall decrease in growth capex was principally due to
short term cash flow timing differences in capital
Note - Growth capex also includes cash sales of fixed assets and change in capital creditors/accruals and actual payments for smart metering
creditors as shown in the table opposite and other capex at the beginning of the year ended 30 June
2015
Copyright © Arqiva Limited 2016 23C Detailed financials
Covenant reporting
30 Jun ‘16 30 Jun ‘17 Key highlights
September September • Leverage and ICR ratios
September
2015 2016 were better than guidance
2016 certificate
certificate certificate principally due to £16m proceeds
(projected)
(projected) (actual) received from disposal of
payphones business
EBITDA* £428m £428m £441m
Senior net debt £2,480m £2,464m £2,440m
Senior leverage 5.79x 5.75x 5.53x
Junior leverage N/A 7.08x N/A
Senior ICR 2.25x 2.31x 2.29x
Junior ICR N/A 1.75x N/A
Note – All financials are reported as per covenant reporting definitions
*“EBITDA” refers to earnings before interest, tax, depreciation and amortisation and is reported as per covenant reporting definitions.
Copyright © Arqiva Limited 2016 24Financing Copyright © Arqiva Limited 2016 25
D Financing
Arqiva debt position
As at 30 June 2016 £m Maturity Structure Leverage
SENIOR
Public Bonds (BBB/BBB) 1 400 Dec-32
Jun-35
Public Bonds (BBB/BBB) 1 350
(exp. Jun-20)
Dec-37
Public Bonds (BBB/BBB) 1 164
(exp. Jun-30)
USPP 1 – USD tranche 2 236 Jun-25
USPP 1 – GBP tranche 163 Jun-25 WBS Platform
USPP 2 300 Jun-29
Feb-38
EIB Loan 190
(exp. Jun 24)
Feb-38
Institutional Term Loan 180
(exp. Dec 23)
Capex and working capital facility 125
Subtotal 2,108
Bank Term Loan 353 Feb-18 FinCo
TOTAL DRAWN SENIOR DEBT4 2,461 5.75x EBITDA3
JUNIOR
Junior Notes (B- / B3)5 600 Mar-20
TOTAL DRAWN DEBT 3,061 7.08x EBITDA3
Note – all values are reported at their carrying value unless specified otherwise
1. Fitch / S&P
2. Sterling equivalent of US $358 in principal amount, swapped into sterling at an exchange rate of US $1.52
3. Net leverage as per the latest covenant compliance certificates published September 2016, as at 30 June 2016
4. Total drawn senior debt on this page represents gross debt. On a covenant reporting basis, gross debt is adjusted for finance lease and deduction of total cash balance to
arrive at a reported senior net debt value in the certificate of £2,464m as per page 24
5. Fitch / Moody’s
Copyright © Arqiva Limited 2016 Company confidential 26D Financing
Inflation linked swaps (ILS)
► ILSs convert fixed rate liabilities into inflation linked liabilities
► ILSs match inflation exposure in Arqiva’s revenue contracts
► Coupon and principal amount accrete with RPI
► ILSs are overlaid on fixed rate bond and PP debt
£1.1bn notional has no mandatory break
Notional c. £1.3bn £0.2bn notional has break in 2023
Maturity 2027
[1]
Fair value £(746m)
Super senior to senior debt (but
Seniority carries no voting or enforcement
rights)
Long term structural hedge – no crystallisation of MTM if not terminated early
1. IFRS risk adjusted mark to market reported as at 30 June 2016
Copyright © Arqiva Limited 2016 Company confidential 27D Financing
Interest rate swaps (IRS)
Arqiva has interest rate swaps covering £1,023m of notional principal value of which £670m is in WBS
and £353m in FinCo
FinCo swaps with breaks being progressively replaced with new swaps in WBS with no breaks
£670m swaps now restructured to match underlying EIB, ITL and USPP2 floating rate facilities
Underlying [1]
Platform Notional Maturity Break Fair value
Debt
FinCo £353m 2027 2018 5 year bank £(157)m
FinCo Subtotal £353m £(157)m
WBS £180m 2024 None ITL £(64)m
WBS £190m 2024 None EIB £(79)m
WBS £300m 2029 None USPP 2 £(142)m
WBS Subtotal £670m £(285)m
Total £1,023m £(442)m
Long term structural hedge – no crystallisation of MTM if not terminated early
1. IFRS risk adjusted mark to market reported as at 30 June 2016
Copyright © Arqiva Limited 2016 28D Financing
Adequate headroom versus financial
covenants and strong liquidity
Financial covenant ratios and senior trigger events
Ratios (maintenance
tests) Historic Projected Trigger Consequence of Event of Default
Forward and backward (Jun 16) (Jun 17) Threshold Trigger Threshold
looking
Senior Net Debt to EBITDA Trigger: 7.50x (Historic
5.75x 5.53x
Ratio 6.50x Senior Trigger test)
Trigger: Event: 1.05x (Historic
Senior Cashflow DSCR 2.31x 2.29x
1.30x Distribution lock- test)
Trigger: up 1.55x (Historic
Senior Cashflow ICR 2.31x 2.29x
2.0x test)
Senior Modified Net Debt to If > 6.00x then no distributions
5.75x 5.53x
EBITDA Ratio[1] other than to pay Junior interest
Junior leverage 7.08x N/A
Liquidity facilities
£m Maturity
Facility
Senior capex facility 400 2 February ’18
Senior working capital facility 100 February ’18
Senior liquidity facility 200 February ‘17
1. Applicable for as long as the FinCo Facilities are outstanding
2. As at 30 June 2016, £120m of the senior capex facility and £5m of the working capital facility were drawn.
Copyright © Arqiva Limited 2016 29Q&A Copyright © Arqiva Limited 2016 30
Copyright © Arqiva Limited 2013
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