arqiva broadcast parent limited and arqiva group parent ......arqiva broadcast parent limited and...

Arqiva Broadcast Parent Limited and

Arqiva Group Parent Limited

Financial Report Third quarter report covering the nine months ending 31 March 2014

Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited Financial Report – Third quarter ending 31 March 2014

This Financial Report is delivered pursuant to Condition 4.5 of the Junior Notes and pursuant to Paragraph 5.2 and Paragraph 5.5 of Schedule 2 of the Common Terms Agreement (“CTA”). Attached as Appendix II is the Quarterly Investor Report delivered in the form set out by Schedule 7 of the CTA, delivered as required by Paragraph 5.2 of Schedule 2 of the CTA for the Senior Notes.

The date of this Financial Report is 28 May 2014. Unless otherwise defined herein, capitalised terms have the meanings given in the final offering prospectus for the multicurrency programme for the issuance of Senior Notes dated 21 February 2013.


Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited 3

CONTENTS

Page

FORWARD LOOKING STATEMENTS ................................................................................................... 4

INDUSTRY AND MARKET INFORMATION ........................................................................................... 5

DESCRIPTION OF BUSINESS .............................................................................................................. 6

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ......................................................................................................................................... 7

EXECUTIVE SUMMARY ........................................................................................................................ 8

Financial Overview ............................................................................................................................. 8

Recent Developments since 31 December 2013 .............................................................................. 8

Financial Results for the Nine Month Period to 31 March 2014 ........................................................... 10

Profit and Loss ................................................................................................................................. 10

Capital expenditures ........................................................................................................................ 16

Net cash flows .................................................................................................................................. 17

Contractual Obligations and Commitments ..................................................................................... 21

Contingent Liabilities ........................................................................................................................ 21

Off-Balance Sheet Arrangements .................................................................................................... 22

Critical Accounting Policies ................................................................................................................... 24

Appendix I ............................................................................................................................................. 27

Description of Certain Income Statement Line Items ...................................................................... 27

Note Regarding EBITDA and Reconciliation of EBITDA to Net Cash Inflow From Operating Activities ........................................................................................................................................... 30

Summary Corporate and Financing Structure ................................................................................. 32

Appendix II – Schedule 7 for Arqiva Group Parent Limited .................................................................. 33

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 31 MARCH 2014 OF ABPL AND AGPL .................................................................................................... 39



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 pursuant to Paragraph 5.1 and Paragraph 5.4 of Schedule 2 of the CTA and certain information reporting covenants of the Notes. This Financial Report has been prepared by the Group (Arqiva Broadcast Parent Limited, Arqiva Group Parent Limited and their subsidiaries) and may be amended and supplemented and may not be relied upon for the purposes of entering into any transaction. Although the Group has taken all reasonable care to ensure that the information herein is accurate and correct, neither of the Group, nor any of its respective directors, officers, employees, shareholders, affiliates, agents, advisers, other representatives (collectively, Representatives) makes any additional representation, warranty or undertaking, express or implied, as to the fairness, accuracy, completeness or correctness of the information or the opinions contained herein or any other material discussed in the Financial Report.

The financial information set forth in this Financial Report has been subjected to rounding adjustments for ease of presentation. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables may not conform exactly to the total figure given for that column or row. Percentage figures included in this Financial Report have not been calculated on the basis of rounded figures but have been calculated on the basis of such amounts prior to rounding.

The views reflected herein are solely those of the Group and are subject to change without notice. All estimates, projections, valuations and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein and may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results and to the extent that they are based on historical information, they should not be relied upon as an accurate prediction of future performance. Certain analysis is presented herein and is intended solely for purposes of indicating a range of outcomes that may result from changes in market parameters. It is not intended to suggest that any outcome is more likely than another, and it does not include all possible outcomes or the range of possible outcomes, one of which may be that the investment value declines to zero. FORWARD LOOKING STATEMENTS

This Financial Report contains various forward-looking statements regarding events and trends that are subject to risks and uncertainties that could cause the actual results and financial position of the Group to differ materially from the information presented herein. When used in this Financial Report, the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to the Group, are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Save as otherwise required by any rules or regulations, the Group does not undertake any obligations publicly to release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The risks and uncertainties referred to above include:

actions or decisions by governmental and regulatory bodies, or changes in the regulatory framework in which the Group operates, which may impact the ability of the Group to carry on its businesses;

changes or advances in technology, and availability of resources such as spectrum, necessary to use new or existing technology, or customer and consumer preferences regarding technology;

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, 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 operates, as well as information published by the Group’s competitors. Such information is based on the following: (i) in respect of the Group’s market position, information obtained from trade and business organisations and associations and other contacts within the industries in which the Group operates, and (ii) in respect of industry trends, the Group’s senior management team’s business experience and experience in the industry and the markets in which the Group operates. The Group cannot assure you that any of the assumptions that it has made in compiling this data are accurate or correctly reflect the Group’s position in its markets.



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 strong market positions, diverse revenue streams, long-life assets and a significant proportion of revenues coming from long term contracts.

The Group has the following key competitive positions:

• regulated position as the sole UK national provider of network access (NA) and managed transmission services (MTS) for terrestrial television broadcasting, the most popular television broadcast platform in the UK. The Group owns and operates all television transmission towers used for digital terrestrial television (DTT or Freeview) broadcasting in the UK under long term contracts with Public Service Broadcaster customers (who depend on the Group to meet the obligations in their licences to extend coverage to 98.5% of the UK population) as well as commercial broadcasters. The Group recently upgraded the UK’s DTT network through the £600m digital switchover (DSO), which it completed under budget and on schedule in October 2012;

• market leader for commercial spectrum on Freeview, 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 35 out of 61 commercially broadcast SD DTT channels in the UK as at 31 March 2014. The Group believes the constrained number of DTT video streams, 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 31 March 2014, 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, providing an alternative for customers who do not contract directly with BSkyB for uplinking services or who choose to use Arqiva as an uplink provider to their own UK DTH satellite capacity. The Group has over 40% market share in terms of the number of transponders accessed from their uplink infrastructure as at 31 March 2014;

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



• Sole provider of Smart Metering communications for approximately 9.3 million homes in Scotland and northern England under a 15-year contract for the provision of electricity and gas smart metering utilising 842 wireless sites.

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 for the year ended 30 June 2013 and the Group’s unaudited condensed consolidated financial statements for the nine months ended 31 March 2014 and the related notes to those consolidated financial statements. Some of the statements contained below, including those concerning future revenues, costs, capital expenditures, acquisitions and financial condition, may contain forward-looking statements. As such statements involve inherent uncertainties, actual results may differ materially from the results expressed in or implied by such forward-looking statements. A discussion of such uncertainties is provided under “Forward Looking Statements.”

Where the financial results for both Arqiva Broadcast Parent Limited and Arqiva Group Parent Limited are identical, the financial tables and commentaries have been presented in this report only once and should be viewed as referring to both groups. Where the financial results are different, the financial tables include a break to separate the results and separate commentaries have been provided under the appropriate sub-headings.

Results of operations for 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

The Financial Overview and Recent Developments discussed in this section relates to both Arqiva Broadcast Parent Limited (‘ABPL’) and Arqiva Group Parent Limited (‘AGPL’). The trading results of the two consolidation groups are comparable but with different financing structures. Commentary relates to both ABPL and AGPL unless specified otherwise. Financial Overview

For the nine months ended 31 March 2014, turnover for the Group was £609.0m, an increase from £608.0m in the same period in the prior year. The increase was primarily due to the recognition of milestone revenue for the Smart Metering solution design of £9.0m (for which the cash will be collected in later years as per the contract terms), and growth within Telecoms related to new business areas of WiFi and Mobile Infrastructure Project, offset by a reduction in project revenues within Terrestrial Broadcast. EBITDA for the Group was £301.9m, representing a 2.0% decrease from £308.0m in the same period in the prior year, principally due to a reduction in project related revenues in the Terrestrial business which was partially offset by growth in Telecoms and Digital Platforms revenues and the recognition of revenue milestones in Smart Metering. Despite a reduction in EBITDA, the group has recorded an increase profit on ordinary activities due to a reduction in exceptional administrative expenses partially offset by an increased depreciation charge. Profit on ordinary activities before taxation and interest for the Group was £97.4m, representing a 6.4% increase from £91.5m. The Group’s net cash outflow on capital expenditure was £114.1m, compared to £84.6m in the same period in the prior year. The increase was principally as a result of increased spending in connection with new contract wins and business such as Smart Metering, WiFi, Local TV, the new HD Multiplexes, MIP, and Satellite projects which will generate additional revenues and EBITDA in future periods.

Recent Developments since 31 December 2013

WiFi contract win with a mobile virtual network operator (MVNO)

On 6 April the Group signed a 4 year contract to provide wholesale WiFi services to a leading UK MVNO. The opportunity is part of the Group’s strategy to drive growth from its WiFi business by extending its footprint and wholesale offering to fixed, mobile and virtual mobile network operators (FNOs, MNOs and MVNOs). The contract will enable the MVNO to offer WiFi services to its customers.

Sigfox partnership agreement signed

The Group is developing a position as a leading provider of machine-to-machine connectivity. In April 2014, we signed a deal with SIGFOX, a leading international Internet of Things (IoT) business. Under the deal, the Group will build a national IoT network on a staged basis, starting with ten major UK cities, using SIGFOX technology. The new network will provide nationwide low-power connectivity through an Ultra Narrow Band radio network between “things” (often referred to as machine-to-machine communications or M2M). Low-power consumption allows batteries and equipment to last longer, avoiding the cost and inconvenience of replacing devices. This significantly expands the range of devices that can be connected, increasing the benefits to consumers and businesses alike and it positions the Group at the forefront of the fastest growing part of the IoT communications market. Digital Cinema disposal

Following a product review of Digital Cinema, the Group deemed it to be a non-core part of the satellite business and decided to sell it to focus on other higher margin growth areas. In April 2014 the Group sold its digital cinema delivery network in the UK and Europe to a French-owned digital cinema specialist, YMAGIS. The Digital Cinema business previously generated circa £1.0m p.a of revenues.



Smart metering

On 20 September 2013, Arqiva signed a 15-year contract with the Data and Communications Company (the DCC, a body licensed by statute) to provide smart metering communications for approximately 9.3 million homes and small businesses in Scotland and northern England, utilising 842 wireless sites under one of three regional contracts awarded.

The smart metering contract became effective in December 2013 on completion of financing commitments specific to the contract. Work is underway to build the network required to deliver the service, and all DCC contract milestones due were achieved as at 31 March 2014.

During the quarter the Group completed its network solution design and was thus able to recognise £9.0m revenue in line with the stage of completion.

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 station went live in November 2013 in Grimsby. At the end of March 2014, 20 local TV sites were successfully completed and ready for transmission, in line with the contract. Local TV in London was launched on 31 March 2014.

Integration of Capablue Limited following acquisition

Capablue Limited is a provider of end-to-end software development and multiscreen solutions to broadcasters, TV platforms and brands. These solutions enable content to be distributed across the internet, allowing content providers to distribute video content to any device or screen (including smart mobile phones, tablets, games consoles etc). With the rapid growth of both high-speed broadband and internet-connected devices, significant opportunities are emerging to find new, complementary ways to deliver content to and enhance content for consumers.

The acquisition of Capablue Limited on 6 February 2014 uniquely positions Arqiva as the only company with the capability to offer linear and non-linear video distribution across DTT, Satellite Direct to Home, and via the Internet. Following this acquisition the Group has been proceeding with integration and developing new opportunities.

Financing developments

During January 2014, the Group completed a £180m term loan from institutional investors, the proceeds of which were used to make a £180m part repayment of the 3-year term bank facilities. At the same time, the Group restructured interest rate swaps (IRS) with a £180m nominal value to match the 10-year maturity of the institutional term loan. As part of the restructure, the IRS in ASF (Arqiva Senior Finance Limited) were terminated which resulted in a Mark-to-Market termination payment of £52.1m. This has been reported as Exceptional Financing expenses in the ABPL and AGPL accounts. The termination payment was partially funded by the £45.1m premium received from entering into a replacement IRS in AF1 (Arqiva Financing No. 1 Limited). The £7.0m difference between the termination costs paid and premium received on IRS replacement was due to the shortening of the maturity from 13 years to 10 years, and was cash settled by the Group.

In early February 2014, the Group also closed a £164m fixed rate, public bond issue. The bond priced with a 203 basis point spread to the reference gilt and has an expected maturity of 2030. Proceeds from the issuance were again used to repay a portion of the 3-year term bank facility. The Group entered into new on-market floating/fixed rate swaps in order to overlay existing inflation-linked swaps (ILS) onto the new fixed-rate issuance. As at 31 March 2014 only £57.5m of the original £800m 3-year term facility put in place at the time of refinancing remained outstanding following the US Private Placement in 2013, and the fixed rate bond issue and Institutional Term Loan in 2014.



FINANCIAL RESULTS FOR THE NINE MONTH PERIOD TO 31 MARCH 2014

Profit and Loss

The following table sets forth certain of the Groups’ profit and loss data for the periods indicated:

Year Ended Nine Months Ended 30 June 31 March

2012 2013 2013

2014

(unaudited)

(£ millions)

Continuing Operations

Turnover (including share of joint venture) ........ 843.8 827.4 616.3 620.4Less share of joint venture turnover .................. (12.2) (8.4) (8.3) (11.4)

Group turnover ................................................. 831.7 819.0 608.0 609.0Cost of sales ...................................................... (314.5) (291.1) (218.9) (224.1)

Gross profit ...................................................... 517.1 527.9 389.1 384.9

Depreciation ....................................................... (99.7) (105.7) (80.5) (86.4)Amortisation ....................................................... (155.2) (158.7) (118.8) (118.2)Operating expenses ........................................... (114.5) (111.7) (81.4) (83.1)Exceptional administrative expenses................. (23.7) (28.3) (18.7) (2.8)

Group operating profit .................................... 124.1 123.5 89.7 94.4Share of operating profit in joint venture and

associates ...................................................... 3.9 1.7 1.7 2.6

Total operating profit: Group and share of joint venture and associates ......................

128.0 125.2 91.4 97.0

Income from investments ................................... 0.1 0.1 0.1 0.4

Profit on ordinary activities before taxation and interest ..................................................

128.1 125.3 91.5 97.4

Note: The P&L line items above are identical for both ABPL and AGPL and divergethereafter as shown below.

ABPL line items: Interest receivable and similar income .............. 1.7 1.0 0.7 1.5Net bank and other loan interest ........................ (221.3) (240.4) (174.1) (193.2)Other interest ..................................................... (32.4) (57.7) (32.3) (42.1)Share of joint venture interest payable .............. (2.3) (1.0) (1.0) (1.5)Exceptional financing expenses……………….. - - - (52.1)

Net third party interest payable ...................... (254.3) (298.1) (206.7) (287.4)Interest payable to parent undertakings ............ (242.5) (267.8) (186.3) (253.5)

Loss on ordinary activities before taxation .. (368.6) (440.5) (301.5) (443.5)

Tax on loss on ordinary activities ....................... 16.5 17.2 21.3 10.0

Loss on ordinary activities after taxation ..... (352.1) (423.3) (280.2) (433.5)

Equity minority interests ..................................... (0.1) (0.3) (0.1) (0.2)

Loss for the financial year .............................. (352.2) (423.6) (280.3) (433.7)



AGPL line items: Year Ended Nine Months Ended

30 June 31 March

2012 2013 2013

2014

(unaudited)

(£ millions) Interest receivable and similar income .............. 1.7 1.0 0.7 1.5Net bank and other loan interest ....................... (197.0) (204.9) (152.9) (150.7)Other interest ..................................................... (30.0) (54.1) (29.6) (39.4)Share of joint venture interest payable ............. (2.3) (1.0) (1.0) (1.5)Exceptional financing

expenses………………… - - - (52.1)

Net third party interest payable ..................... (227.6) (259.0) (182.8) (242.2)Interest payable to parent undertakings ............ (293.6) (324.2) (227.1) (300.6)

Loss on ordinary activities before taxation .. (393.1) (457.9) (318.4) (445.4)

Tax on loss on ordinary activities ...................... 16.5 17.2 21.1 10.0

Loss on ordinary activities after taxation ..... (376.5) (440.7) (297.3) (435.4)

Equity minority interests .................................... (0.1) (0.3) (0.1) (0.2)

Loss for the financial year .............................. (376.6) (441.0) (297.4) (435.6)

Where items discussed in the rest of the report relate to both ABPL and AGPL they have been shaded for clarity.

Turnover

For the nine months ended 31 March 2014, turnover for the Group was £609.0m, a slight increase from £608.0m in the same period in the prior year. The increase was primarily due to the recognition of milestone revenue for the Smart Metering solution design of £9.0m, and growth within Telecoms and Digital Platforms, offset by a reduction in Terrestrial project and Satellite revenues.

For the avoidance of doubt, the Smart Metering financials included in this report refer solely to the ABPL and AGPL financials. They do not include any revenue earned outside of these senior and junior financing groups.

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

Nine Months Ended 31 March

2013 2014

% Change

(unaudited)

(£ millions)

Terrestrial Broadcast ........................................... 210.4 194.5 (7.6%)

Satellite .................................................................. 128.1 124.2 (3.0%)

Digital Platforms ................................................... 98.1 100.6 2.5%

Telecoms ............................................................... 171.4 180.7 5.4% Smart Metering ..................................................... - 9.0 -

Total Group turnover ........................................... 608.0 609.0 0.2%



Terrestrial Broadcast

Turnover for the Group’s Terrestrial Broadcast business during the nine months ended 31 March 2014 was £194.5m, representing a 7.6% reduction from £210.4m in the same period in the prior year. 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 nine months ended 31 March 2014 compared with the prior period is due to the Group successfully completing the Channel 61/62 Clearance programme and certain other 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 nine months ended 31 March 2014 was £124.2m which was a decrease of 3.0% from £128.1m in the same period in the prior year. The impact of the closure of the Outside Broadcast business in September 2012 and the ending of some low margin wholesale space contracts has now tailed off to leave the division with a steady run rate. A reduction in satellite capacity costs has also led to an improved gross profit.

Digital Platforms

Turnover for the Group’s Digital Platforms division during the nine months ended 31 March 2014 was £100.6m, a 2.5% increase on revenues in the same period in the prior year of £98.1m. Increased revenues are primarily due to additional channel sales on the original national Multiplexes (C and D).

Telecoms

Turnover for the Group’s Telecoms division during the nine months ended 31 March 2014 was £180.7m, a 5.4% increase from the prior period revenues of £171.4m. Turnover for the Group’s Site Share and WiFi businesses during the nine months ended 31 March 2014 was £164.9m representing a 6.0% increase from £155.6m in the same period in the prior year, due primarily to the inclusion of turnover from the WiFi business within the Group following the acquisition of Spectrum Interactive in October 2012, increased activity in Installation Services and RPI linked increases on Site Share contracts, together with the commencement of revenues from the Mobile Infrastructure Project. Turnover for the Group’s Secure Solutions business during the nine months ended 31 March 2014 was £15.8m in line with revenues in the same period in the prior year.

Smart Metering

On 20 September 2013, Arqiva Smart Metering Limited (‘ASML’), a company outside of the senior and junior financing groups, signed the contract to provide Smart Metering communications for the North region. Revenues for the period to 31 March 2014 of £9.0m represent services provided by Arqiva Limited to Arqiva Smart Metering Limited for the design and development milestone, as part of the construction of the network infrastructure.

Cost of Sales

For the nine months ended 31 March 2014, cost of sales for the Group was £224.1m, representing a 2.4% increase from £218.9m in the same period in the prior year due primarily to the increase in WiFi, Mobile Infrastructure Project and Installation Service costs as a result of the corresponding increases in turnover for these business areas as described above. Cost of sales has increased at a higher rate than revenue due to some high gross margin project-related revenue streams, such as clearance, ending in the current year.

Gross profit

For the nine months ended 31 March 2014, gross profit for the Group was £384.9m, representing a 1.0% decrease from £389.1m in the same period in the prior year due to a reduction in project related revenues discussed above, such as 61/62 Clearance partially offset by a growth in Telecoms, Smart Metering and Digital Platforms revenues. Many of the resources used on those projects are now deployed on projects such as smart metering and new HD Multiplexes.



EBITDA

For the nine months ended 31 March 2014, EBITDA for the Group was £301.9m, representing a 2.0% decrease from £308.0m in the same period in the prior year, explained by the decrease in gross profit together with increased operating costs as the group gears up to deliver new contracts and business opportunities. 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 nine months ended 31 March 2014 was £86.4m, representing a 7.3% increase from £80.5m in the same period in the prior year. The increase in the level of depreciation relates to a number of one off items relating to broadcast and satellite assets, and the capitalisation of a number of major IT projects including the Oracle R12 Upgrade.

Amortisation

Amortisation for the Group during the nine months ended 31 March 2014 was £118.2m, in line with the cost in the same period in the prior year of £118.8m.

Operating expenses

Operating expenses for the Group during the nine months ended 31 March 2014 excluding exceptional items were £83.1m, slightly higher than the prior period costs of £81.4m. An inflation linked increase on headcount costs and some extra investment to support the delivery of new contracts and business opportunities, was partially offset by higher labour capitalisation, continued tight cost control and some benefits from a balance sheet review.

Exceptional administrative expenses

Exceptional administrative expenses for the Group during the nine months ended 31 March 2014 were £2.8m, representing an 85.0% decrease from £18.7m during the nine months ended 31 March 2013. The costs in the same period in the prior year were higher due to the Smart Metering contract bid and level of severance costs.

Exceptional financing costs

Exceptional financing costs comprise £52.1m incurred in relation to the breaking of interest rate swap (‘IRS’) agreements in Arqiva Senior Finance Limited (‘Finco’) during the nine months ended 31 March 2014 (nine months ended 31 March 2013, £nil). These costs were partially paid using a premium of £45.1m received from the new hedge counterparties for entering into replacement IRS in Arqiva Financing No 1 Limited (‘the Borrower’). The difference of £7.0m between the premium received on the replacement IRS and the termination costs paid was cash settled by the Group. The transfer of the swaps has resulted in a charge to the profit and loss account, owing to the fact that the termination payment of the relevant Finco hedges has been recognised immediately, whereas the premium received for entering into the replacement IRS has been recorded on the balance sheet and will be amortised over the 10 year life of the replacement IRS.

Share of operating profit in joint ventures and associates

Share of operating profit in joint ventures and associates for the Group during the nine months ended 31 March 2014 was a £2.6m profit which was an increase from £1.7m in the same period in the prior year due to improved results in the last nine months for the associate undertaking.

Income from investments

Income from investments for the Group during the nine months ended 31 March 2014 was £0.4m, an increase from £0.1m income in the same period in the prior year. This amount relates to dividend payments received from investments in companies over which the Group does not have control or dominant influence, and are therefore excluded from the consolidation in accordance with accounting standards until the point a dividend is declared.



Note: The P&L line items for ABPL and AGPL diverge at this point as shown in the Profit and Loss table and are therefore discussed separately below for the two consolidation levels.

ABPL line items:

Interest receivable and similar income

Interest receivable and similar income during the nine months ended 31 March 2014 was £1.5m, compared to £0.7m in the same period in the prior year, due primarily to the accounting for the defined benefit pension plan under FRS17 ‘Retirement Benefits’.

Net bank and other loan interest

Net Bank and other loan interest for the Group during the nine months ended 31 March 2014 was £193.2m, compared to £174.1m in the same period in the prior year. The increase in the year was primarily due to an increase in the Junior and Senior debt margins following the Group’s refinancing in February 2013. This was partially offset by a reduction in inflation swap accretion in the period and the reduction in swap contracts at refinancing.

Other interest

Other interest payable for the Group during the nine months ended 31 March 2014 was £42.1m, compared to £32.3m in the same period in the prior year. The increase was due primarily to the amortisation of deferred derivative close out costs relating to the termination of interest rate swaps in February 2013, and commitment fees on new facilities. Other interest payable is primarily non-cash but includes £0.8m relating to cash payments for finance leases.

Share of joint venture interest payable

Share of joint venture interest payable for the Group during the nine months ended 31 March 2014 was £1.5m (£1.0m payable in the same period in the prior year).

Interest payable to parent undertakings

Interest payable to parent undertakings for the Group during the nine months ended 31 March 2014 was £253.5m, compared to £186.3m in the same period in the prior year. This rise was due primarily to an increase in the principal amount of intercompany loans payable by the Group resulting from the refinancing, as well as the capitalisation of interest accrued both before and after the refinancing. £233.1m of the £253.5m charge was non-cash. £20.4m was settled in cash in the period.

Equity minority interests

For the nine months ended March 2014, the equity minority interest not attributable to the Group was £0.2m, compared to £0.1m in the same period in the prior year. This relates to the share of Now Digital (East Midlands) Limited and South West Digital Radio Limited that is not owned by the Group.

Tax on loss on ordinary activities

Tax on loss on ordinary activities during the nine months to 31 March 2014 was a £10.0m credit, compared to a £21.3m credit in the same period in the prior year, due to a reduction in the deferred tax credit. The Group’s effective tax rate during the nine months ended 31 March 2014 was 2.6% which was lower than the Group’s effective tax rate of 7.1% in the same period in the prior year. This was due primarily to the reduction of the Group’s deferred tax asset as a result of the enacted reduction in the UK corporation tax rate and the tax charge in respect of the pension movement in the nine months to 31 March 2014. 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.



Loss for the financial period

Loss for the nine months ended 31 March 2014 was £433.7m, compared to a £280.3m loss in the same period in the prior year. This movement was primarily due to the increase in interest payable of £96.1m, and the £52.1m cost incurred in relation to the breaking of Swap Agreements.

AGPL line items:

Interest receivable and similar income

Interest receivable and similar income during the nine months ended 31 March 2014 was £1.5m, compared to £0.7m in the same period in the prior year, due primarily to the accounting for the defined benefit pension plan under FRS17 ‘Retirement Benefits’.

Net bank and other loan interest

Net bank and other loan interest for the Group during the nine months ended 31 March 2014 was £150.7m, compared to £152.9m in the same period in the prior year. This slight decrease was primarily due to lower inflation swap accretion and the reduction in swap contracts at refinancing, offsetting higher interest costs on the new bank debt and bonds.

Other interest

Other interest payable for the Group during the nine months ended 31 March 2014 was £39.4m, compared to £29.6m in the same period in the prior year. The increase was due primarily to the amortisation of deferred derivative close out costs relating to the termination of interest rate swaps in February 2013, and commitment fees on new facilities. Other interest payable is primarily non-cash but includes £0.8m relating to cash payments for finance leases.

Share of joint venture interest payable

Share of joint venture interest payable for the Group during the nine months ended 31 March 2014 was £1.5m, comparable to the £1.0m payable in the same period in the prior year.


Interest payable to parent undertakings for the Group during the nine months ended 31 March 2014 was £300.6m, compared to £227.1m in the same period in the prior year. This rise 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. £217.8m of the £300.6m charge was non-cash. £82.8m was settled in cash in the period of which £61.6m was used by ABPL to pay interest on external borrowings.

Equity minority interests

For the nine months to 31 March 2014, the equity minority interest not attributable to the Group was £0.2m, in line with the £0.1m paid in the same period in the prior year. This relates to the share of Now Digital (East Midlands) Limited and South West Digital Radio Limited that is not owned by the Group.

Tax on loss on ordinary activities

Tax on loss on ordinary activities during the nine months ended 31 March 2014 was a £10.0m credit, compared to a £21.1m credit in the same period in the prior year, due to a reduction in the deferred tax credit. The Group’s effective tax rate during the nine months ended 31 March 2014 was 2.6% which was lower than the Group’s effective tax rate of 6.7% in the same period in the prior year. This was due primarily to the reduction of the Group’s deferred tax asset as a result of the enacted reduction in the UK corporation tax rate and the tax charge in respect of the pension movement in the nine months to 31 March 2014. 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.

Loss for the financial period

Loss for the nine months ended 31 March 2014 was £435.6m, compared to a £297.4m loss in the same period in the prior year. This movement was primarily due to the increase in intercompany interest payable of £86.1m, and the £52.1m cost incurred in relation to the breaking of Swap Agreements.

Capital expenditures

The capital expenditures discussed in this section relate to both ABPL and AGPL. The Group’s operations are capital intensive and the Group requires maintenance capital expenditure as well as growth capital expenditure to support its current business and future development. The capital expenditure reported for the year ended 30 June 2013, and the nine month period ended 31 March 2014 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. The items above are reported on an incurred basis. Capital creditors/accruals reflect the timing difference to arrive at “cash capital expenditure”. The prior periods are reported based on definitions as per the previous financing arrangements.

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

Nine Months Ended Year Ended 30 June 31 March

2012(2) 2013(2) 2013(2)

2014(2)

(unaudited) (£ millions)

Maintenance .......................................................... 30.2 43.9 29.3 16.0DSO ...................................................................... 72.5 25.5 18.3 11.2Growth contracted ................................................. 59.3 59.4 30.6 89.0Growth non-contracted ......................................... - 9.8 6.4 6.2Sale of fixed assets(1) ............................................. (0.5) (4.3) (4.2) -Capital creditors/accruals ...................................... - (12.3) 4.2 (8.3)

Total net capital expenditure and financial investment ................................................................ 161.5 122.0 84.6 114.1

(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 nine months ended 31 March 2013 and 2014 reflects 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. Capital expenditure excludes entries which are non-cash within fixed asset additions.

For the nine months ended 31 March 2014, the Group’s capital expenditure and financial investment was £114.1m, compared to £84.6m in the same period in the prior year. Maintenance capital expenditure comprised of maintenance of site infrastructure and IT estate in both periods, which was considerably higher in the prior period due to significant IT upgrades. The overall increase in total capital expenditure and financial investment compared with the same period in the prior year was principally as a result of increased spending in connection with new contract wins and business such



as Smart Metering, WiFi, Local TV, the new HD Multiplexes, MIP, and Satellite projects which will generate additional revenues and EBITDA in future periods. Net cash flows

The following table sets forth information regarding the ABPL and AGPL statement of cash flows for the periods presented:

Nine Months Ended

Year Ended 30 June 31 March

2012 2013 2013

2014

(unaudited)

(£ millions)

ABPL line items:

Consolidated cash flow data

Net cash inflow from operating activities .................... 378.5 349.2 261.4 204.3Dividends from investments ....................................... 0.1 0.1 0.1 0.4Returns on investment and servicing of finance ........ (171.5) (171.8) (112.9) (149.4)Tax paid ...................................................................... (0.2) (0.2) (0.2) (0.4)Net capital expenditure and financial investment ....... (161.5) (122.0) (84.6) (114.1)Acquisitions and disposals ......................................... (2.1) (29.0) (28.3) (4.0)Equity dividends paid .................................................. (0.2) (0.1) - -Financing .................................................................... 3.2 15.7 20.6 (30.8)

Increase /(Decrease) in cash ................................... 46.4 41.9 56.1 (94.0)

AGPL line items:

Consolidated cash flow data

Net cash inflow from operating activities ............................ 378.5 349.3 256.1 204.3Dividends from investments ............................................... 0.1 0.1 0.1 0.4Returns on investment and servicing of finance ................ (147.2) (155.4) (91.7) (87.8)Tax paid.............................................................................. (0.2) (0.2) (0.2) (0.4)Net capital expenditure and financial investment .............. (161.5) (122.0) (84.6) (114.1)Acquisitions and disposals ................................................. (2.1) (29.0) (28.3) (4.0)Equity dividends paid ......................................................... (0.2) (0.1) - -Financing ............................................................................ (21.0) (0.8) 4.5 (92.5)

Increase /(Decrease) in cash ........................................... 46.4 41.9 55.9 (94.0)

The cash flow line items discussed below relate to both ABPL and AGPL until specified otherwise, and have been shaded for clarity. Net cash inflow from operating activities

For the nine months ended 31 March 2014, the Group’s net cash inflow from operating activities was £204.3m, consisting of EBITDA of £301.9m, less exceptional items of £2.8m and negative movements in working capital of £94.8m.

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.

ABPL

Year Ended 30 June


2012 2013 2013

2014

(unaudited)

(£ millions)

Net increase in debtors ........................... (11.1) (6.1) (14.2) (50.9)Net increase/(decrease) in creditors ....... 11.4 (25.2) (10.6) (37.7)Net increase/(decrease) in provisions..... 0.3 (9.4) (3.7) (6.2)

Total working capital movement ......... 0.6 (40.7) (28.5) (94.8)

AGPL

Year Ended 30 June


2012 2013 2013

2014

(unaudited)

(£ millions)

Net increase in debtors ............................ (11.1) (6.1) (14.2) (50.9)Net increase/(decrease) in creditors + ..... 11.4 (25.2) (15.6) (37.7)Net increase/(decrease) in provisions...... 0.3 (9.4) (3.7) (6.2)

Total working capital movement .......... 0.6 (40.7) (33.5) (94.8)

+ The net decrease in creditors during the Nine Months Ended 31 March 2013 was £5m greater in AGPL, due to debt interest payable on the Junior Loan Notes prior to the 2013 refinancing. The components of the Group’s working capital are:

• Net movement in debtors comprising trade debtors, prepayments and accrued income;

• Net movement in creditors including trade creditors, sundry creditors, VAT creditors, accruals, and deferred income less than and greater than one year; and

• Net movement in provisions includes provisions less than and greater than one year.

The 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 or bi-annually in advance, and the cash collections are mainly centred upon the end of the third quarter and start of the fourth quarter of the fiscal year. In addition, annual staff bonus payments are made in the first quarter of the fiscal year.

The ABPL working capital movement for the nine months ended 31 March 2014 was negative £94.8m, compared to a movement of negative £28.5m in the same period in the prior year. For AGPL the working capital movement was negative £94.8m compared to negative £33.5m in the prior year.

The principal reasons for the increased requirement in working capital for both companies were as follows:

Following a new agreement with Cornerstone Telecommunications Infrastructure Limited (CTIL), the nine months to 31 March 2014 saw a lower cash collection. This was due to a billing harmonisation with the respective parent companies of CTIL, namely Vodafone and O2 which resulted in £20m lower cash receipts compared to the prior year period due to a different billing profile;

A further £17m of customer receipts were received in April 2014 which were received in March 2013 in the prior year;

Following the successful completion of Smart Metering milestones, the Group was able to recognise £9m of revenues in the third quarter for which the cash will be collected in later years as per the agreed contracted terms;



Other movements of £15m were mainly due to timing of payments being different at the beginning of the two financial years.

Dividends from investments

During the nine months to 31 March 2014, the Group received a dividend of £0.1m (nine months to 31 March 2013: £0.1m) from MXR Holdings Limited, a company which owns and operates several regional digital radio Multiplexes within the UK, and a dividend from YouView TV Limited, a joint venture, of £0.3m (nine months to 31 March 2013: £nil).

Tax paid

For the nine months ended 31 March 2014 the Group’s tax paid was £0.4m.

Acquisitions and disposals

For the nine months ended 31 March 2014, the cash flow from the Group’s acquisitions and disposals was an outflow of £4.0m, relating to the deferred consideration on the acquisition of Digital One Limited and the purchase of Capablue Limited in February 2014.

Equity dividends paid

For the nine months ended 31 March 2014, the Group’s equity dividends paid were £nil.

Note: The Consolidated cashflow line items diverge at this point and therefore are discussed separately below for the two consolidation levels.

ABPL line items:

Net cash outflow from returns on investment and servicing of finance

For the nine months ended 31 March 2014, the Group’s returns on investment and servicing of finance was an outflow of £149.4m, excluding dividends considered above, consisting of £0.5m in interest received, less £149.1m in interest paid to external sources and less £0.8m from the interest element of finance lease rentals.

Net cash flow from financing

For the nine months ended 31 March 2014, the Group’s net financing outflow was £30.8m. This included the raising of £344.0m of external borrowings and a premium on swap issuance of £45.1m, offset by a £52.1m cash outflow on close out of swaps, £4.3m payment of debt issue costs, £0.4m cost from the capital element of finance lease payments, £0.2m loans to joint ventures, £20.4m repayment of borrowings from parent undertakings and a repayment of £342.5m of external borrowings.

The £20.4m repayment of borrowings from parent undertakings was a permitted payment under the terms of the junior bonds. 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 cash

For the nine months ended 31 March 2014 the Group’s decrease in net cash was £94.0m due to the above factors.



AGPL line items:

Net cash outflow from returns on investment and servicing of finance

For the nine months ended 31 March 2014, the Group’s returns on investment and servicing of finance was an outflow of £87.8m, excluding dividends considered above, consisting of £0.4m in interest received, less £87.4m in interest paid to external sources and less £0.8m from the interest element of finance lease rentals.

Net cash flow from financing

For the nine months ended 31 March 2014, the Group’s net financing outflow was £92.5m. This included the raising of £344.0m of external borrowings and a premium on swap issuance of £45.1m, offset by a £52.1m cash outflow on close out of swaps, £4.3m payment of debt issue costs, £0.4m cost from the capital element of finance lease payments, £0.2m loans to joint ventures, £82.1m of outflow related to borrowings from parent undertakings and a repayment of £342.5m of external borrowings. This £82.1m paid by the AGPL group was used by the ABPL group to pay £61.6m of interest on external borrowings, and £20.4m was paid to the parent undertakings of the ABPL group, as discussed in the ABPL commentary above. This outflow was a permitted payment under the terms of the junior bonds

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 cash

For the nine months ended 31 March 2014 the Group’s decrease in net cash was £94.0m due to the above factors.



Contractual Obligations and Commitments

The following table sets out the payments due by period under the contractual obligations as at 31 March 2014 for ABPL and AGPL: ABPL line items:

Payments due by Period

Total

Less than1 Year

1 to 3 Years

3 to 5 Years

More than5 Years


Senior debt – A (3 year term facilities) .......................... 57.5 - 57.5 - - Senior debt – B (5 year term facilities) .......................... 786.0 - - 786.0 - Senior debt - ITL ........................................................... 180.0 - - - 180.0 Senior bonds ................................................................. 1,312.5 - - 13.9 1,298.6Junior bonds………………………………………………. 600.0 - - - 600.0 Premium on Swap Issuance 45.1 3.6 8.0 8.6 24.9 Trade creditors .............................................................. 59.3 59.3 - - - Accrued liability on inflation rate swap .......................... 50.8 - 50.8 - - Finance lease obligations .............................................. 14.1 0.2 0.8 0.9 12.2 Capital commitments ..................................................... 46.2 32.7 13.5 - - Operating lease commitments ...................................... 135.5 17.4 29.1 19.9 69.1 Other creditors .............................................................. 457.0 345.9 28.7 27.1 55.3

Total non-Group .......................................................... 3,744.0 459.1 188.4 856.4 2,240.1

Amounts owed to Group undertakings .......................... 3,692.1 345.3 - - 3,346.8

Total .............................................................................. 7,436.1 804.4 188.4 856.4 5,586.9

AGPL line items:

Payments due by Period

Total

Less than1 Year

1 to 3 Years

3 to 5 Years

More than5 Years


Senior debt – A ............................................................. 57.5 - 57.5 - - Senior debt – B ............................................................. 786.0 - - 786.0 - Senior debt - ITL ........................................................... 180.0 - - - 180.0 Senior bonds ................................................................. 1,312.5 - - 13.9 1,298.6Junior bonds……………………………………………… - - - - - Premium on Swap Issuance 45.1 3.6 8.0 8.6 24.9 Trade creditors .............................................................. 59.3 59.3 - - - Accrued liability on inflation rate swap .......................... 50.8 - 50.8 - - Finance lease obligations .............................................. 14.1 0.2 0.8 0.9 12.2 Capital commitments ..................................................... 46.2 32.7 13.5 - - Operating lease commitments ...................................... 135.5 17.4 29.1 19.9 69.1 Other creditors .............................................................. 457.0 345.9 28.7 27.1 55.3

Total non-Group .......................................................... 3,144.0 459.1 188.4 856.4 1,640.1

Amounts owed to Group undertakings .......................... 4,341.5 351.5 - - 3,990.0Total .............................................................................. 7,485.5 810.6 188.4 856.4 5,630.1

Contingent Liabilities

Under the terms of the Group’s external debt facilities, it has provided security over substantially all of its fixed and other assets by way of a Whole Business Securitisation structure. Financing Structure During January 2014, the Group completed a £180.0m term loan from institutional investors, the proceeds of which were used to make a £180.0m part repayment of the 3-year term bank facilities.



In early February 2014, the Group closed a £164.0m fixed rate, public bond issue. The bond priced with a 203 basis point spread to the reference gilt and has an expected maturity of 2030. Net proceeds from the issuance were again used to repay a portion of the 3-year term bank facility. Only £57.5m of the original £800.0m 3-year term facility, put in place at the time of refinancing remains outstanding. The outstanding amount for the 5-year loan is £786.0m.

The Group has not used off-balance sheet special purpose vehicles or similar financing arrangements on an historical basis. In addition, the Group has not had and does not have off-balance sheet arrangements with any of its affiliates. Off-Balance Sheet Arrangements

The Group uses Interest Rate Swaps (‘IRS’), Inflation Linked Swaps (‘ILS’) and cross-currency swaps to reduce its exposure to fluctuations in variable interest rates on its debt, to inflation on its revenue contracts and currency movements on its US dollar debt. 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 to hedge certain foreign currency transactions. 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 the 2013 refinancing, the Group had IRS and ILS agreements covering a total notional value of £2,625.0m in order to hedge its exposure to variable interest rates. £1,312.5m had been hedged via IRS and £1,312.5m 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 junior and senior debt. As part of the refinancing £289.3m of IRS were terminated and the remaining £2,335.7m of notional swaps were restructured. Inflation linked swaps (ILS)

£1,312.5m of fixed rate debt is hedged via three classes of ILS which fix interest at an average rate of 2.95% indexed with RPI. In addition, the principal amount of these swaps increases with RPI. One class of these swaps with a nominal value of £235.0m has a 10 year mandatory break clause, whilst the remaining two classes are break-free. The maturity date for all three classes of ILS is April 2027. The accrued principal accretion on inflation ILS as at 28 February 2013 amounting to £286.5m was paid at the refinancing date.

Interest rate swaps (IRS)

£1,023.2m of variable rate debt is now hedged via two classes of IRS at an average fixed rate of 5.79%. £843.2m of the IRS have 3 year and 5 year mandatory break clauses co-terminus with the variable rate bank debt. The balance of £180m has no break clauses.

An amount of £50.8m (March 2013: £7.8m, June 2013: £20.2m) reflecting accrued liabilities under the ILS since the refinancing is included within creditors. This amount is calculated on an accruals basis. The fair value of the interest rate, inflation and cross currency swaps at 31 March 2014 (excluding the inflation swap accrual and the premium on swap issuance), is a liability of £1,296.9m (March 2013: total £1,648.1m, June 2013: total £1,412.3m) which comprises £1,000.4m in relation to the ILS, £268.6m in relation to the IRS, and £27.9m in relation to the cross currency swaps, 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.

In January 2014, the Group received a premium of £45.1 m for entering into replacement IRS in the Borrower following the termination of equivalent swaps in Finco at the time when the ASF debt was refinanced by the ITL in the Borrower. The Group used this premium to partially fund the Mark-to-Market payment of £52.1m due at termination of the equivalent IRS in Finco with the balance funded



with cash. The premium of £45.1m recorded as debt reflects the Mark-to-Market of the new IRS at inception.

The transfer of the swaps from ASF to AF1 has resulted in a charge to the profit and loss account, owing to the fact that the termination payment of the relevant Finco hedges has been recognised immediately, whereas the premium received for entering into the new IRS in the Borrower has been recorded on the balance sheet and will be amortised over the 10 year life of the new IRS.

The Group has purchased Swap Options with a total principal value equal to the current IRS (£843.2m). The options are exercisable at maturity in 3 years and 5 years, (co-terminus with the IRS and floating rate bank debt) and hedge the Group’s exposure for the duration of the IRS to a decline in LIBOR below 1% at the point of the mandatory breaks in 3 and 5 years' time.

Private Placement hedging arrangements

AF1 has entered into a further £1,148.5m of Floating / Fixed Interest Rate Swaps to overlay the above RPI swaps, amending the cash flow characteristics to align to the fixed coupon payable on the £750.0m Notes and the £398.5m Private Placement Notes issued by Arqiva PP Financing Plc (‘APPF’). In addition, AF1 entered into USD 358.0m (£235.5m 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.



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 are 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 £6.5m of revenue and £11.4m 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 swaps to reduce its exposure to fluctuations in variable interest rates on its debt and inflation swaps to reduce its exposure to inflation on revenue contracts. 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 certain 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 during the current or following financial year.



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.

Since 30 June 2010, there has been 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, resulted in an assessed deficit of £17.4m. Gross plan liabilities at the valuation date were £130.5m compared to gross plan assets of £113.1m. Arqiva Limited agreed with the trustee to make deficit recovery payments into the Plan of £5.7m in July 2013, £5.7m in July 2014 and £4.1m 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 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

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”.

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 in October 2012), digital and analogue radio broadcasting, and radio Multiplex services provided for Ofcom and broadcast clients, as well as one off engineering projects such as Clearance.

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. Revenue is also commencing from the award of the license for new HD Muxes.

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 other customers 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

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.



Smart Machine to Machine (M2M)

The Group’s Smart M2M division is a newly formed business unit, being set up as a result of its successful smart metering bid as well as the wider opportunities the Group will pursue in this space.

Smart M2M is responsible for building a new smart network and delivering the energy smart metering communications service for Scotland and the north of England, as well as managing engagement with the energy industry and other key stakeholders. The business unit will also create and progress new business opportunities in adjacent smart and machine-to-machine (M2M) markets. This incorporates many fast developing areas including smart water metering, smart grids and a wide set of potential M2M applications.

Cost of sales

Cost of sales includes third-party project costs, power, 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 the accrued liability movement for the period representing the principal accretion 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.


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.



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:

Nine Months

Ended

31 March 2013

Nine Months

Ended

31 March 2014


Operating profit before exceptional items 108.4 97.2 Depreciation…………………………………………….. 80.5 86.4

Amortisation……………………………………………... 118.8 118.2 Other (including loss on disposal of fixed assets and operational bank charges). 0.3 0.1

EBITDA………………………………………….……… 308.0 301.9



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

Nine Months

Ended

31 March 2013

Nine Months

Ended

31 March 2014


EBITDA………………………………………………… 308.0 301.9 Exceptional costs……………………………………… (18.7) (2.8)

Working capital………………………………………... (28.5) (94.8) Other……………………………………………………. 0.6 - Net cash inflow from operating activities……… 261.4 204.3

Reconciliation for AGPL:

Nine Months

Ended

31 March 2013

Nine Months

Ended

31 March 2014


EBITDA………………………………………………… 308.0 301.9 Exceptional costs……………………………………… (18.7) (2.8)

Working capital………………………………………... (33.5) (94.8) Other……………………………………………………. 0.3 - Net cash inflow from operating activities……… 256.1 204.3



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 &

ITL

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

Intercompany

loans

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 Group Parent 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


35

APPENDIX II – SCHEDULE 7 FOR ARQIVA GROUP PARENT LIMITED

FORM OF INVESTOR REPORT/QUARTERLY INVESTOR REPORT

Template for Investor Report

To: The Issuer Security Trustee, the Rating Agencies and the Paying Agents General Overview 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 strong market positions, diverse revenue streams, long-life assets and a significant proportion of revenues coming from long term contracts.

The Group has the following key competitive positions:

• regulated position as the sole UK national provider of network access (NA) and managed transmission services (MTS) for terrestrial television broadcasting, the most popular television broadcast platform in the UK. The Group owns and operates all television transmission towers used for digital terrestrial television (DTT or Freeview) broadcasting in the UK under long term contracts with Public Service Broadcaster customers (who depend on the Group to meet the obligations in their licences to extend coverage to 98.5% of the UK population) as well as commercial broadcasters. The Group recently upgraded the UK’s DTT network through the £600m digital switchover (DSO), which it completed under budget and on schedule in October 2012;

• market leader for commercial spectrum on Freeview, 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 35 out of 61 commercially broadcast SD DTT channels in the UK as at 31 March 2014. The Group believes the constrained number of DTT video streams, 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 31 March 2014, 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, providing an alternative for customers who do not contract directly with BSkyB for



uplinking services or who choose to use Arqiva as an uplink provider to their own UK DTH satellite capacity. The Group has over 40% market share in terms of the number of transponders accessed from their uplink infrastructure as at 31 March 2014;

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

• Sole provider of Smart Metering communications for approximately 9.3 million homes in Scotland and northern England under a 15-year contract for the provision of electricity and gas smart metering utilising 842 wireless sites.

Business developments

WiFi contract win with a mobile virtual network operator (MVNO)

On 6 April the Group signed a 4 year contract to provide wholesale WiFi services to a leading UK MVNO. The opportunity is part of the Group’s strategy to drive growth from its WiFi business by extending its footprint and wholesale offering to fixed, mobile and virtual mobile network operators (FNOs, MNOs and MVNOs). The contract will enable the MVNO to offer WiFi services to its customers.

Sigfox partnership agreement signed

The Group is developing a position as a leading provider of machine-to-machine connectivity. In April 2014, we signed a deal with SIGFOX, a leading international Internet of Things (IoT) business. Under the deal, the Group will build a national IoT network on a staged basis, starting with ten major UK cities, using SIGFOX technology. The new network will provide nationwide low-power connectivity through an Ultra Narrow Band radio network between “things” (often referred to as machine-to-machine communications or M2M). Low-power consumption allows batteries and equipment to last longer, avoiding the cost and inconvenience of replacing devices. This significantly expands the range of devices that can be connected, increasing the benefits to consumers and businesses alike and it positions the Group at the forefront of the fastest growing part of the IoT communications market.

Digital Cinema disposal

Following a product review of Digital Cinema, the Group deemed it to be a non-core part of the satellite business and decided to sell it to focus on other higher margin growth areas. In April 2014 the Group sold its digital cinema delivery network in the UK and Europe to a French-owned digital cinema specialist, YMAGIS. The Digital Cinema business previously generated circa £1.0m p.a of revenues.

Smart metering

On 20 September 2013, Arqiva signed a 15-year contract with the Data and Communications Company (the DCC, a body licensed by statute) to provide smart metering communications for approximately 9.3 million homes and small businesses in Scotland and northern England, utilising 842 wireless sites under one of three regional contracts awarded.

The smart metering contract became effective in December 2013 on completion of financing commitments specific to the contract. Work is underway to build the network required to deliver the service, and all DCC contract milestones due were achieved as at 31 March 2014.

During the quarter the Group completed its network solution design and was thus able to recognise £9.0m revenue in line with the stage of completion.

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 station went live in November 2013 in Grimsby. At the end of March 2014, 20 local TV sites were successfully completed and ready for transmission, in line with the contract. Local TV in London was launched on 31 March 2014.



Integration of Capablue Limited following acquisition

Capablue Limited is a provider of end-to-end software development and multiscreen solutions to broadcasters, TV platforms and brands. These solutions enable content to be distributed across the internet, allowing content providers to distribute video content to any device or screen (including smart mobile phones, tablets, games consoles etc). With the rapid growth of both high-speed broadband and internet-connected devices, significant opportunities are emerging to find new, complementary ways to deliver content to and enhance content for consumers.

The acquisition of Capablue Limited on 6 February 2014 uniquely positions Arqiva as the only company with the capability to offer linear and non-linear video distribution across DTT, Satellite Direct to Home, and via the Internet. Following this acquisition the Group has been proceeding with integration and developing new opportunities.

Financing developments

During January 2014, the Group completed a £180m term loan from institutional investors, the proceeds of which were used to make a £180m part repayment of the 3-year term bank facilities. At the same time, the Group restructured interest rate swaps (IRS) with a £180m nominal value to match the 10-year maturity of the institutional term loan. As part of the restructure, the IRS in ASF (Arqiva Senior Finance Limited) were terminated which resulted in a Mark-to-Market termination payment of £52.1m. This has been reported as Exceptional Financing expenses in the ABPL and AGPL accounts. The termination payment was partially funded by the £45.1m premium received from entering into a replacement IRS in AF1 (Arqiva Financing No. 1 Limited). The £7.0m difference between the termination costs paid and premium received on IRS replacement was due to the shortening of the maturity from 13 years to 10 years, and was cash settled by the Group.

In early February 2014, the Group also closed a £164m fixed rate, public bond issue. The bond priced with a 203 basis point spread to the reference gilt and has an expected maturity of 2030. Proceeds from the issuance were again used to repay a portion of the 3-year term bank facility. The Group also entered into new on-market floating/fixed rate swaps in order to overlay existing inflation-linked swaps (ILS) onto the new fixed rate issuance.

As at 31 March 2014 only £57.5m of the original £800m 3-year term facility put in place at the time of refinancing remained outstanding.

Maintenance Capex Expenditure

For the nine months ended 31 March 2014, the Group’s maintenance capital expenditure was £16.0m which comprised of maintenance of site infrastructure, properties and IT estate.

Growth Capex Expenditure

For the nine months ended 31 March 2014, the Group’s growth capital expenditure of £106.4m comprised of £11.2m relating to DSO capital expenditure, £89.0m relating to growth contracted capital expenditure and £6.2m relating to growth non-contracted capital expenditure. The overall increase in total capital expenditure and financial investment compared with the nine months ended 31 March 2013 was principally a result of increased spending in connection with new contract wins and business such as Smart Metering, WiFi, Local TV, the new HD Multiplexes, MIP, and Satellite projects which will generate additional revenues and EBITDA in future periods.

Financing

On 28 February 2013, the Group (through Arqiva Financing plc) sold £750.0m aggregate principal amount of Senior Notes under its multicurrency programme for the issuance of notes, and concurrently (through Arqiva Broadcast Finance plc) sold £600.0m of Junior Notes, which are structurally subordinated to the Senior Notes. The proceeds from the Senior and some of the Junior Notes (together, the Notes) together with £867.0m of existing cash and new shareholder funding were used to refinance part of the Group’s existing senior and junior debt, and to meet related hedging and transaction costs. The Notes were offered and sold to qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A under the U.S. Securities Act of 1933, as



amended (Rule 144A), and to persons other than U.S. persons in offshore transactions in reliance on Regulation S thereunder.

Concurrently with the offering of the Notes the Group, operating through a financing vehicle (Senior Finco), entered into senior term facilities (the Senior Term Facilities) providing £1,586.0m on a committed basis. The Group also entered into a liquidity facility (the Senior Liquidity Facility), providing in aggregate up to £200.0m to permit drawings to allow the Group to service interest and scheduled principal due under the Senior Term Facilities and the Senior Secured Notes, as well as certain senior ranking expenses owed to other transaction parties.

The Group has also entered into a capital expenditure facility (the Senior Capex Facility) providing for borrowing up to an aggregate £400.0m, and a working capital facility (the Senior Working Capital Facility) providing for borrowing up to an aggregate of £100.0m on a revolving basis.

On 22 February 2013, the Group entered into a Common Terms Agreement (the CTA) which set out representations, warranties and covenants given by the Group under the Senior Notes and the Senior Facilities. The CTA establishes information covenants requiring the provision of information by the Group on an annual and quarterly basis to certain other parties to the CTA, and financial covenants requiring certain financial conditions to be met by the Group.

Prior to the closing of the Senior Financing, the Group had a hedging portfolio of a notional amount of approximately £2.6 billion (the Senior Existing Hedges). This portfolio comprised approximately £1.3 billion of interest rate swaps and approximately £1.3 billion of inflation linked swaps (ILS). On 28 February 2013, the Group terminated approximately £0.3 billion of the interest rate swaps, and retained approximately £1.0 billion of the notional amount, together with £1.3 billion ILS and amended their terms. During June 2013, the Group completed a US Private Placement transaction raising £398.5m in a combined sterling (£163.0m) and US Dollar denominated (£235.5m equivalent) offering, the proceeds of which have been applied to the early repayment of a portion of the Senior term bank facilities. The Group entered into USD358.0m (£235.5m 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. During January 2014, the Group completed a £180m term loan from institutional investors, the proceeds of which were used to make a £180m part repayment of the 3-year term bank facilities. At the same time, the Group restructured interest rate swaps (IRS) with a £180m nominal value to match the 10-year maturity of the institutional term loan. As part of the restructure, the IRS in ASF (Arqiva Senior Finance Limited) were terminated which resulted in a Mark-to-Market termination payment of £52.1m. This has been reported as Exceptional Financing expenses in the ABPL and AGPL accounts. The termination payment was partially funded by the £45.1m premium received from entering into a replacement IRS in AF1 (Arqiva Financing No. 1 Limited). The difference between the termination costs paid and premium received on IRS replacement was due to the shortening of the maturity from 13 years to 10 years, and was cash settled by the Group. In early February 2014, the Group also closed a £164m fixed rate, public bond issue. The bond priced with a 203 basis point spread to the reference gilt has an expected maturity of 2030. Proceeds from the issuance were again used to repay a portion of the 3-year term bank facility. The Group also entered into floating/fixed rate swaps to overlay inflation-linked swaps (ILS) onto the new issuance. Only £57.5m of the original £800.0m 3-year term facility, put in place at the time of refinancing remains outstanding. The outstanding amount for the 5-year loan is £786.0m.

The Group has not used off-balance sheet special purpose vehicles or similar financing arrangements on an historical basis. In addition, the Group has not had and does not have off-balance sheet arrangements with any of its affiliates. To facilitate the refinancing the Group effected a corporate restructuring, which included reorganisation of the legal entity structure among certain of the Group’s existing and newly established subsidiaries. Upon completion of the corporate restructuring, on 28 February 2013, Arqiva Group Parent Limited (the “Company”) acquired the entire issued share capital of Arqiva Financing No



1 Limited (AF1) for an amount of £1 from Arqiva Broadcast Intermediate Limited (ABIL). The Company financed this transaction (the Transaction) via the issue of additional share capital. Because the substantive effect of the Transaction was a group reorganisation resulting in a change to the identity of the holding company, the Group has consolidated the results of AF1 under the principles of merger accounting in accordance with FRS 6 “Acquisitions and Mergers”. The audited financial information for the year ended 30 June 2013 is reported for Arqiva Group Parent Limited. The audited financial information for the year ended 30 June 2012 is reported for AF1 to reflect the corporate structure at the time of the refinancing and maintain consistency with the financial reporting in the final prospectus for the multicurrency programme for the issuance of Senior Notes dated 21 February 2013. Current Hedging Position

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, to inflation on its revenue contracts and currency movements on its US dollar debt. 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 certain 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 IRS and ILS agreements covering a total notional value of £2,625.0m in order to hedge its exposure to variable interest rates. £1,312.5m had been hedged via IRS and £1,312.5m 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 £2,334.5m of senior debt. As part of the refinancing £289.3m of IRS were terminated and the remaining £2,335.7m of notional swaps were restructured. Inflation linked swaps (ILS)

£1,312.5m of fixed rate debt is hedged via three classes of ILS which fix interest at an average rate of 2.95% indexed with RPI. In addition, the principal amount of these swaps increases with RPI. One class of these swaps with a nominal value of £235.0m has a 10 year mandatory break clause, whilst the remaining two classes are break-free. The maturity date for all three classes of ILS is April 2027. The accrued principal accretion on inflation ILS as at 28 February 2013 amounting to £286.5m was paid at the refinancing date.

Interest rate swaps (IRS)

£1,023.2m of variable rate debt is now hedged via two classes of IRS at an average fixed rate of 5.79%. £843.2m of the IRS have 3 year and 5 year mandatory break clauses co-terminus with the variable rate bank debt. The balance of £180m has no break clause.

An amount of £50.8m (March 2013: £7.8m, June 2013: £20.2m) reflecting accrued liabilities under the ILS since the refinancing is included within creditors. This amount is calculated on an accruals basis. The fair value of the interest rate, inflation and cross currency swaps at 31 March 2014 (excluding the inflation swap accrual and the premium on swap issuance), is a liability of £1,296.9m (March 2013: total £1,648.1m, June 2013: total £1,412.3m) which comprises £1,000.4m in relation to the ILS, £268.6m in relation to the IRS, and £27.9m in relation to the cross currency swaps, 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.

In January 2014, the Group received a premium of £45.1 m for entering into replacement IRS in the Borrower following the termination of equivalent swaps in Finco at the time when the ASF debt was refinanced by the ITL in the Borrower. The Group used this premium to partially fund the Mark-to-



CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 31 MARCH 2014 OF ABPL AND AGPL

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