Arqiva confirms sale plan

Arqiva, the UK’s largest independent towers company and communications infrastructure group, announces continuing strong revenue and EBITDA growth for the nine months to 31 March 2017.

• Revenue growth of 11% from continuing operations (excluding disposals, principally WiFi and Secure Solutions), Reported revenue growth of 8% Revenue in Terrestrial Broadcast up 8%
• Revenue in Telecoms and M2M up 11%
• Satellite and Media revenues up 3%
• EBITDA up 12% at £351 million
• EBITDA margin improved at 50%
• Operating cash flow after investing activities £326m, an increase of £155m on the prior year period

Arqiva provides the communications infrastructure used by mobile telecoms network operators, TV and radio broadcasters, and satellite TV broadcasters. Arqiva has taken a leading role in the deployment of machine-to-machine connectivity devices, such as smart meters for energy and water. It is a 5G pioneer and is operating the first European fixed wireless access (FWA) trial in London this summer in partnership with Samsung.
Simon Beresford-Wylie, CEO, commenting on the results said:

“Arqiva’s strong financial results are driven by excellent operating performances in terrestrial broadcast, telecoms and M2M.

“The visibility of revenues with a contracted order book of close to £6 billion, inflation-linked pricing, and the opportunity to increase utilisation of our infrastructure, places Arqiva in a very strong position to continue to deliver stable profitable growth. Our ongoing and significant investment in digital broadcast infrastructure; 4G, 5G, in-building solutions and small cells underlines Arqiva’s commitment to ensuring that the UK truly has a vibrant and globally competitive economy.

“Alongside our growth strategy, our transformation programme, ‘FutureFit‘, is lowering our cost base; aligning the way we work to better reflect market developments and the needs of our customers; and strengthening our ability to deliver complex projects.”

Shareholder strategic review

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.

Arqiva reports in three divisions: Terrestrial Broadcast; Telecoms & M2M; and Satellite and Media.

Revenue in Terrestrial Broadcast up 8%

The growth was driven by multiple factors: recurring revenues from new channels on the Digital terrestrial television (DTT) multiplexes; additional new video streams on our main multiplexes, radio contracts resulting from the Digital Audio Broadcasting (DAB) rollout, the continuing clearance of the 700 MHz spectrum, and RPI linked increases on broadcast contracts.

In March 2017 Freeview announced that sales of Freeview Play TVs and set-top boxes surpassed the one million mark. This is a strong indication of the attractiveness of hybrid DTT / IP TV services in the UK where DTT is the underlying delivery mechanism that has a core free-to-air linear content base with a variety of OTT services on-top.

As at 31 March 2017 Arqiva’s two main DVB-T Multiplexes had 31 videostreams, all of which are utilised. Ongoing high levels of Multiplex utilisation demonstrates the on-going attractiveness to broadcasters of the Freeview DTT platform.

The Group is delivering the DAB rollout programme for the BBC. By 31 March 2017, Arqiva had built 161 new transmitters for the BBC since rollout began to reach the targeted UK national DAB network coverage of more than 97% of the population. The final 2 sites of the 163 required to deliver the current phase of the programme are expected to be complete by June 2017.

Arqiva is progressing with the delivery of Commercial local DAB. The programme is part of an initiative to meet the local DAB coverage threshold of 90% set by the UK Government and achieved in September 2016 with the completion of 185 new sites. Arqiva is delivering new transmitters or upgrades at 221 sites and by 31 March 2017 had completed 208 sites. The final sites for this phase will be completed during summer 2017 taking local DAB coverage to over 91%.
Arqiva’s DAB Multiplexes have continued to show high utilisation levels due to strong demand for radio services and radio listening in the UK.

The 700 MHz clearance programme has been a strong driver of revenue growth in the Terrestrial Broadcast business during this financial year. Arqiva is responsible for the spectrum planning, network design, programme management, infrastructure changes, service continuity, asset replacement and retuning of broadcast transmitters to enable broadcasters to move to a lower frequency.

Telecoms and M2M revenues increased by 11%

Growth was driven by the Group’s core telecoms towers and increased site numbers and associated activities; Installation Services activities to help MNOs in meeting coverage requirements; and the M2M business. The rise in M2M revenues resulted from recurring network availability charges on the smart energy metering contract, together with additional revenues from meter sales in relation to its smart metering contracts with Thames Water and Anglian Water.

In March 2017, the UK Government released “A 5G Strategy for the UK” supporting the views of the National Infrastructure Commission report. The strategy lays out the ambition and actions required to create an environment that positions the UK as a “global leader in the next generation of mobile technologies and digital communications”. The report states that to deliver the high speed, high capacity capabilities of 5G will likely require a significant number of small cells to be deployed.

In February 2017 Arqiva announced a partnership deal with Samsung to run the first UK 5G field trials using fixed wireless access in the 28GHz spectrum owned by the Group. The trial will operate in London in the summer and Arqiva will showcase its solution and demonstrate what superfast connectivity will mean for UK business and residents.

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

Arqiva continues to evolve its M2M and IoT business by leveraging its network to a broader range of industry sectors and is targeting sectors such as utility infrastructure, asset management and smart buildings.

Arqiva has been building a smart metering communication network in the North of England and Scotland as part of a 15-year contract signed in September 2013 with the Data and Communications Company (“DCC”). This network is successfully transmitting and receiving test messages between DCC users (the energy companies) and consumer electricity and gas meters. The rollout of the service is expected to accelerate during 2017 following service user testing. Arqiva is achieving 88% coverage of premises in line with our contractual commitments. Recurring revenues increased under the contract as additional streams were triggered on achievement of go-live.

In March 2015, Arqiva signed a contract with Thames Water for the provision of smart metering fixed network infrastructure and associated water meters that enable the collection, management and transfer of metering data. The contract is for an initial six-year term extendable up to a total of 16 years covering 3 million homes when fully deployed. The service is currently live with over 160,000 meters installed to date, an increase of circa 35,000 since December 2016. Thames Water is accelerating the smart metering network deployment with the objective of achieving coverage of 3 million homes several years earlier than originally planned. Arqiva is targeting completion by the end of 2018.

In July 2016, Arqiva won a contract with Anglian Water for the delivery and monitoring of a smart water metering fixed network trial to facilitate the deployment and operation of 7,500 new water meters. This is a four-year contract and is part of Anglian Water’s plans for a long-term smart metering programme. With the coverage network build complete, the trial went live in December 2016. To date over 5,500 smart water meters have been installed.

During April 2017 Arqiva added Kingston upon Thames to its London borough concessions, giving the Group access to further sites. This supports Arqiva’s strategy of developing its small cells proposition and brings the Group’s total concessions to 15.

The four MNOs continue to increase their 4G network coverage. Arqiva is carrying out large volumes of antenna and feeder upgrade projects and at 31 March 2017 completed 6,058 equipment upgrades. A further circa 3,100 upgrades are in progress or have been requested by the MNOs over the next 12 months.

Satellite and Media revenues up 3%

Satellite and Media revenues benefited from new HD channel sales, a new agreement with Al Jazeera Media Network for global teleport and distribution services and foreign exchange gains. These revenue improvements were partially offset by the continuing impact of exiting the low margin wholesale business and the termination of other low margin contracts.

‘FutureFit’

‘FutureFit’ is a transformation programme that will help Arqiva streamline processes, modernise IT systems and achieve significant cost efficiencies and savings. In this nine-month period ‘FutureFit’ delivered £15m of additional gross savings. Good progress is being made to secure the next tranche of savings with the aim of delivering further gross savings of over £50m per annum by 2020. Key developments in the year include a reduction in leased line costs; the elimination of excess satellite transponder capacity; and cost reductions in several other operating cost areas.