Arqiva announces another successive year of record results

UK, London, 12 September 2017: Arqiva*, the UK’s largest independent towers provider and communications infrastructure group, announces excellent results for the year ended 30 June 2017, with another year of record revenues and earnings.

Arqiva provides communications infrastructure used by mobile telecoms network operators, TV and radio broadcasters, and satellite TV broadcasters. The company has taken a leading role in the deployment of machine-to-machine (M2M) connectivity devices, including smart meters for energy and water. As a 5G pioneer, Arqiva launched and is currently operating Europe’s first fixed wireless access (FWA) trial in London in partnership with Samsung.

Financial Highlights

• Strong organic earnings and cashflow growth delivered by all business units
• Revenue for the group up 7% on a reported basis and 9% on a like for like basis (after disposal of non-core businesses)
• Corporate costs have remained flat over the past two years supporting strong earnings growth
• FutureFit, the transformation programme to deliver efficient ways of working and cost savings, has delivered over £20m of gross savings in the year and is driving further efficiencies
• Successful completion of £1.1bn senior debt refinancing in November 2016 (investment grade ratings reaffirmed)
• Reduction of EBITDA to senior net debt from 5.7x to 5.1x

Operational Highlights

Good progress during reporting year on operational delivery of major projects included:

• 700 MHz spectrum clearance on schedule
• Digital Audio Broadcasting (DAB) network coverage achieved 97% of the population for BBC and is expected to reach 91% for commercial local DAB by December 2017
• In M2M, smart energy communications network now live for Data and Communications Company (DCC) in the North of England and Scotland. Accelerating roll out of smart water meter network for Thames Water, and trial for Anglian Water underway.
• In Telecoms, there was strong delivery in 4G installation services. The 5G FWA (Fixed Wireless Access) trial launched in July 2017 and is demonstrating exciting future capabilities

Simon Beresford-Wylie, CEO, said:
“It has been an excellent year for Arqiva, with another year of record results driven by strong operating performances in each of our core business areas.

“The strength of our financial performance reflects the capital investment decisions made over recent years and is driven by the success of major programme rollouts, including 700MHz clearance, DAB, 4G and smart metering. Combined with our growth strategy, we continue to see the benefits of our ‘FutureFit’ transformation programme, which is reducing our cost base and helping us to better meet the needs of our customers. In addition, Arqiva has long term contracts in place with a number of significant blue chip customers which support our long term financial stability.

“Whilst we continue to focus on our critical national infrastructure, we are also looking to the future with our successful 5G FWA trial, in partnership with Samsung. The trial is a great example of Arqiva’s focus on market opportunities and our commitment to helping the UK become a vibrant digital economy.”

Outlook

Connectivity is key to the UK’s productivity. All three business areas; Terrestrial Broadcast, Telecoms and Satellite & Media are delivering strong results. The order book stands at £5.7 billion as at 30 June 2017 and we see opportunities in each of our businesses to continue to deliver profitable growth.

As announced earlier this year, Arqiva’s shareholders are jointly undertaking a strategic review of their investment which may lead to a transaction involving their interests in Arqiva. There is no certainty that the strategic review will result in any transaction. A further announcement will be made as and when appropriate.

Business Review

Terrestrial Broadcast revenues increased 6.3%

Terrestrial Broadcast includes our TV and radio broadcast and infrastructure services and our digital platforms business where we are the leading provider of Freeview channels for broadcasters.

Orderbook

£3.9 bn

The growth is driven by several factors including recurring revenues from new channels on the digital terrestrial television (DTT) multiplexes, new video streams on our multiplexes, radio contracts resulting from the DAB rollout, and increased activity related to the continuing clearance of the 700 MHz spectrum.

We are responsible for developing the technical solution for the Freeview Play service. The Freeview DTT platform is important to broadcasters with sales of Freeview Play TVs and set-top boxes continuing to increase. This highlights the attractiveness of hybrid DTT/IP TV services in the UK where DTT is the underlying delivery mechanism supplemented by a variety of OTT services on top. Arqiva had capacity of 31 videostreams on its main multiplexes, all of which were utilised.

As part of the BBC New Radio Agreement, Arqiva is delivering the DAB rollout programme for the BBC. Arqiva has built 162 of the 163 new transmitters and is helping the BBC to reach the UK national DAB network coverage target of more than 97% of the population.

Arqiva is progressing with the delivery of commercial local DAB. This is part of an initiative to meet the local DAB coverage threshold of 90%, set by the UK Government which was achieved in September 2016 with the completion of 185 new sites. As at 30 June 2017, Arqiva had completed upgrades at 215 of the 221 sites required. The remainder are expected to be completed by December 2017, taking local DAB coverage to over 91%.

Arqiva is playing a central role, working closely with major broadcasters and Ofcom, and is on track to successfully deliver the 700 MHz clearance programme by May 2020. The programme will enable broadcasters to move into a lower frequency, clearing the 700MHz band for auction to the mobile network providers. Arqiva is responsible for the spectrum planning, network design, programme management, infrastructure changes, service continuity, asset replacement and retuning of broadcast transmitters.

Telecoms and M2M revenues increased by 9%

In Telecoms and M2M, Arqiva is the leading independent provider of wireless sites, outdoor small cells and DAS (distributed antenna systems) and a market leader in the provision of communications networks for gas, electricity and water smart metering and low power wide area IoT.

Growth in Telecoms revenues is driven by Arqiva’s core telecoms towers business, with increased site numbers and installation services, helping Mobile Network Operators (MNOs) to meet their coverage requirements. The increase in M2M revenues is attributed to recurring network availability charges on Arqiva’s smart energy metering contract as well as additional revenues from meter sales in relation to the smart metering contracts with Thames Water.

Revenues for installation services have significantly increased year-on-year as Arqiva continues to carry out large volumes of antenna and feeder upgrade projects for the four MNOs as they continue to increase their 4G network coverage. Since rollout began in 2014, Arqiva has completed 6,787 4G equipment upgrades to date.

Arqiva is well placed to play a leading role in the emergence of 5G technology in the UK. We are currently conducting, in partnership with Samsung, the first European 5G trials using fixed wireless access in the 28GHz spectrum. Arqiva already owned a large block of nationwide 28GHz spectrum and acquired more in the year to enhance its capacity in London. The ongoing trial in London showcases what superfast connectivity will mean for UK businesses and residents and demonstrate Arqiva’s commitment to ensuring that the UK succeeds in its efforts to become 5G ready.

Arqiva has been actively developing its outdoor small cells proposition, using low power base stations to provide street level network capacity to MNOs, particularly in dense urban areas. Arqiva is also developing initiatives to explore how to make deployment easier and cheaper and expects to receive commercial orders during the current financial year from two MNOs.

Arqiva added Kingston-upon-Thames to its London borough concessions in 2017, giving access to further sites. Arqiva now has 14 London borough concessions, supporting the growth of our small cells proposition allowing people to continue using the connected functions of their smartphones, tablets and other mobile devices without interruptions. Small cells are units that can be installed onto street furniture and the sides of buildings to boost mobile capacity in areas where demand is particularly high or existing coverage is poor.

Arqiva’s smart metering communication network for the North of England and Scotland went live in late 2016. This was part of a 15-year contract signed in September 2013 with the Data and Communications Company (“DCC”) to create and operate the network for the new SMETS 2 smart meters. This network is successfully transmitting and receiving test messages between DCC users (the energy companies) and consumer electricity and gas meters. Arqiva has achieved 88% coverage of premises in line with its contractual commitments. Recurring revenues increased under the contract as additional streams were triggered on achievement of go-live.

Following the successful delivery of a smart metering fixed network infrastructure and associated water meters, Thames Water is accelerating its smart metering network deployment across London. With over 195,000 meters currently live, this decision will help to achieve coverage of three million homes several years earlier than originally planned. Arqiva is targeting full network coverage across London by the end of 2018.

Satellite & Media revenues up 1.6%

In Satellite and Media, Arqiva is the leading UK teleport operator and media management provider.
Satellite & Media revenues benefited from new High Definition (HD) channel sales, a new agreement with Al Jazeera Media Network for global teleport and distribution services and foreign exchange gains. During the year, Arqiva signed an exclusive multi-year partnership with a multi-platform media company to distribute live video sports content to international broadcasters. Revenue improvements were partially offset by the continuing impact of exiting the low margin wholesale business and the termination of other low margin contracts.

Continued cost efficiencies through ‘FutureFit’

Launched in October 2016, ‘FutureFit’ is a transformation programme designed to deliver improved customer service and strengthen our ability to execute complex projects, by streamlining processes and modernising systems. With a focus on third party expenditure, the programme is targeted to achieve cost efficiencies of c. £60m per annum in gross savings by 2020. To date, Arqiva has delivered over £20m of gross annual savings in the current year and is focused on driving further efficiencies.

Debt reporting

These results, as outlined at the beginning of the release, are Arqiva Group Limited figures. Arqiva has listed debt. The debt reporting is based on results from a sub-consolidation, so debt investors will see some slight variation in the reported numbers in the statement issued to them.

*Arqiva Group Limited (‘AGL’) registered company number 05254001, is a holding company with an investment in a group of operating companies, financing companies and other holding companies. These financial results are the financial results of AGL.