Arqiva Broadcast Parent Limited · Financial Report – Second quarter ending 31 December 2013 This Financial Report is delivered pursuant to Condition 4.5 of the Junior Notes. The

Arqiva Broadcast Parent Limited

Financial Report Second quarter report covering the six months ending 31 December 2013


Financial Report – Second quarter ending 31 December 2013

This Financial Report is delivered pursuant to Condition 4.5 of the Junior Notes.

The date of this Financial Report is 26 February 2014. Unless otherwise defined herein, capitalised terms have the meanings given in the final offering memorandum for the Junior Notes dated 21 February 2013.



Arqiva Broadcast Parent Limited 3

CONTENTS

Page

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

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................................................................................................................... 6

EXECUTIVE SUMMARY ................................................................................................................... 7

Financial Overview ....................................................................................................................... 7

Recent Developments since 30 September 2013 .......................................................................... 7

Financial Results for the Six Month Period to 31 December 2013 ..................................................... 10

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

Capital expenditures ................................................................................................................... 14

Net cash flows ............................................................................................................................ 15

Contractual Obligations and Commitments ................................................................................. 17

Contingent Liabilities ................................................................................................................... 17

Off-Balance Sheet Arrangements ............................................................................................... 17

Description of Business ................................................................................................................... 19

Critical Accounting Policies .............................................................................................................. 20

Appendix I ....................................................................................................................................... 23

Description of Certain Income Statement Line Items ................................................................... 23

Note Regarding EBITDA and Reconciliation of EBITDA to Net Cash Inflow From Operating Activities ..................................................................................................................................... 25

Summary Corporate and Financing Structure.............................................................................. 26

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 OF ABPL............................................................................................................ 27




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 certain information reporting covenants of the Notes. This Financial Report has been prepared by the Group (Arqiva Broadcast Parent Limited and its 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, BARB, 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 competes, 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.




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 six months ended 31 December 2013 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, 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.”

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

Financial Overview

For the six months ended 31 December 2013, turnover for the Group was £403.1 million, a slight reduction from £404.3 million in the same period in the prior year. The decrease was principally due to a reduction in Terrestrial project and Satellite revenues partially offset by increases in Telecoms and Digital Platforms. EBITDA for the Group was £200.1 million, representing a 1.7% decrease from £203.6 million in the same period in the prior year, principally due to a reduction in project related revenues in the Terrestrial business which were partially offset by growth in Telecoms and Digital Platforms revenues. Profit on ordinary activities before taxation and interest for the Group was £63.6 million, representing a 4.8% increase from £60.7 million in the same period in the prior year primarily due to a reduction in exceptional administrative expenses. The Group’s capital expenditure was £75.1 million, compared to £50.9 million 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 30 September 2013

O2/Vodafone joint venture - Cornerstone Telecommunications Infrastructure Limited

This joint venture between Telefonica O2 and Vodafone pools both companies’ network infrastructure and will create a shared grid of 18,500 masts, which will represent an increase of more than 40% in points of presence for each operator. The companies expect that this will result in a 10% overall reduction in the total number of sites used by both operators. In November 2013, Arqiva signed a ten year framework contract with CTIL and its parents O2 Telefonica and Vodafone. This deal will allow the operators to consolidate their 2G / 3G networks on Arqiva’s sites, and rollout 4G LTE services. Under the contract the Group will provide the installation services on its own sites, which it expects to lead to increased installation services revenue. The Group has started to receive a pipeline of orders for upgrade activities.

Smart metering

Smart metering is a government-mandated project to install smart energy meters in every home in the UK in order to improve energy efficiency by helping customers monitor energy use. 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 Arqiva entity that won the contract for smart metering is a newly established company, Arqiva Smart Metering Limited (ASML) and this sits outside the senior and junior financing groups. ASML has contracted with Arqiva Limited (which is within the senior financing group) for the provision of the core network, sites and spectrum that will support the delivery of this contract. The procurement and financing of the communications hubs (which allow information to be sent to and from meters inside the property) sits outside the senior and junior financing group. The senior financing group is expected to charge a substantial majority of the smart metering contract revenue to ASML.

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 have been achieved to date.

New High Definition (HD) Multiplexes

The Group commenced construction of the new Freeview HD Multiplex network in August 2013 and reached 50% population coverage as at the end of January 2014. Rollout is currently in line with plans




and the Group has been successful in meeting all contractual obligations to date. It is on target to achieve 65% population coverage by the end of March 2014 and expects to finally reach 70% through its top 30 sites by June 2014. The new HD services will only be available to viewers with HD television sets or set-top boxes and maximum coverage upon rollout completion is expected to be 70%, compared to 90% and 98.5% for commercial and Public Service Broadcasting (PSB) channels, respectively, on other Multiplexes.

Since the service started, five new channels have been launched on the new HD Multiplexes: Al Jazeera Arabic, Al Jazeera English HD, BBC News HD, BBC 4 HD and CBeebies HD. Active discussions are underway with a number of PSBs and commercial broadcasters regarding the carriage of additional HD channels from their portfolios.

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 December 2013, 18 local TV sites were successfully completed and ready for transmission, in line with the contract. Local TV in London is scheduled to be launched in March 2014.

WiFi international roaming

International roaming partnerships are wholesale WiFi agreements and are seen by the Group as a precursor and a parallel activity to signing wholesale agreements with major UK operators which will help increase revenues. The Group is aiming to sign roaming agreements for WiFi with as many international partners as possible and it currently has long-standing roaming agreements with Boingo, I-Pass and Skype. In order to facilitate inter-connection the Group is now using third-party “hubs” to connect new roaming partners. It has so far connected two of these, namely BSG and Aicent, in addition to new roaming partners including Vodafone Global Services, H3G Hong Kong and China Mobile Hong Kong, and is expecting to steadily add more new roaming partners. As at the date of this report, the sale of WiFi infrastructure capacity for a wholesale mobile offering is still in discussion with a number of operators.

Satellite contract wins

Since 30 September 2013, the Satellite business has secured new business wins with a total contract value of circa £26 million with major international customers including NBC, Al Jazeera, Fox International and others, providing a variety of satellite services from its UK based facilities.

Acquisition of multi-platform TV specialist

On 6 February 2014 the Group acquired Capablue Limited, 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 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.




New maintenance and facilities contract

In December 2013, the Group signed a new circa £13 million per annum maintenance and facilities contract with Carillion plc for a four year period commencing in April 2014. This is a strategic deal that will generate substantial savings and will enable further optimisation of the supply chain.

Business re-alignment

On 1 October 2013, Arqiva implemented its newly aligned organisational structure. The new structure will help to further improve customer service by more closely integrating operational service delivery with the customer facing units. The key changes were:

A move to five product and customer led divisions; o Digital Platforms o Terrestrial Broadcast o Smart Metering (including machine to machine) o Satellite o Telecoms

Splitting of Business Operations (which provided engineering, delivery and maintenance services for the Group was split vertically between the relevant product and customer led business units);

Creation of a new Technology division following the appointment of Cameron Rejali, the new Chief Technology Officer in August 2013 to drive new product development and manage shared services across the Group;

Customer facing divisions being supported by central corporate functions comprising; o Finance o Strategy and Business Development o People and Organisation o Commercial

The new structure will also give management of customer facing units increased responsibility for their end-to-end services and provide a stronger platform for business growth.

Institutional term loan and sterling bond issue

During January 2014, the Group completed a £180 million term loan from institutional investors, the proceeds of which were used to make a £180 million part repayment of the 3-year term bank facilities. At the same time, the Group restructured interest rate swaps (IRS) with a £180 million nominal value to match the 10-year maturity of the institutional term loan. In early February 2014, the Group closed a £164 million 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 £57.5 million of the original £800 million, 3-year term facility, put in place at the time of refinancing remains outstanding following the US Private Placement in 2013, and the fixed rate bond issue and Institutional Term Loan in 2014. The outstanding amount for the 5-year loan is £786 million.




FINANCIAL RESULTS FOR THE SIX MONTH PERIOD TO 31 DECEMBER 2013

Profit and Loss

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

Year Ended Six Months Ended 30 June 31 December

2012

2013

2012

2013

(unaudited)

(£ millions)

Continuing Operations

Turnover (including share of joint venture) ........................... 843.8 827.4 409.3 410.3

Less share of joint venture turnover..................................... (12.2) (8.4) (5.0) (7.2)

Group turnover ................................................................. 831.7 819.0 404.3 403.1

Cost of sales ....................................................................... (314.5) (291.1) (145.2) (148.5)

Gross profit ....................................................................... 517.1 527.9 259.1 254.6

Depreciation ....................................................................... (99.7) (105.7) (51.6) (57.0) Amortisation ........................................................................ (155.2) (158.7) (79.3) (78.9) Operating expenses ............................................................ (114.5) (111.7) (56.0) (54.6) Exceptional administrative expenses ................................... (23.7) (28.3) (11.9) (2.3)

Group operating profit ...................................................... 124.1 123.5 60.3 61.8

Share of operating profit in joint venture and associates ...................................................................... 3.9 1.7 0.3 1.4

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

128.0 125.2 60.6 63.2

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

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

128.1 125.3 60.7 63.6

Interest receivable and similar income ................................. 1.7 1.0 0.2 1.1 Net bank and other loan interest.......................................... (221.3) (240.4) (109.9) (129.7) Other interest ...................................................................... (32.4) (57.7) (18.5) (29.0) Share of joint venture interest payable ................................ (2.3) (1.0) (1.1) (0.8)

(

Net third party interest payable ........................................ (254.3) (298.1) (129.3) (158.4) Interest payable to parent undertakings ............................... (242.5) (267.8) (120.7) (168.2)

Loss on ordinary activities before taxation ..................... (368.6) (440.5) (189.3) (263.0)

Tax on loss on ordinary activities ......................................... 16.5 17.2 10.0 1.4

Loss on ordinary activities after taxation ........................ (352.1) (423.3) (179.3) (261.6) Equity minority interests ...................................................... (0.1) (0.3) (0.1) (0.1)

Loss for the financial year ................................................ (352.2) (423.6) (179.4) (261.7)




Turnover

For the six months ended 31 December 2013, turnover for the Group was £403.1 million, a slight reduction from £404.3 million in the same period in the prior year. The decrease was principally due to a reduction in Terrestrial project and Satellite revenues partially offset by increases in Telecoms and Digital Platforms.

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

Six Months Ended 31 December

2012

2013

% Change

(unaudited)

(£ millions)

Terrestrial Broadcast ............................................... 141.1 131.8 (6.6%)

Satellite .................................................................... 86.7 84.6 (2.4%)

Digital Platforms ...................................................... 63.6 67.0 5.4%

Telecoms .................................................................. 112.9 119.0 5.3% Smart Metering......................................................... - 0.7 -

Total Group turnover ............................................... 404.3 403.1 (0.3%)

Terrestrial Broadcast

Turnover for the Group’s Terrestrial Broadcast business during the six months ended 31 December 2013 was £131.8 million, representing a 6.6% reduction from £141.1 million 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 six months ended 31 December 2013 was primarily due to the Group successfully completing the Channel 61/62 Clearance programme and certain other major 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 six months ended 31 December 2013 was £84.6 million which was a reduction of 2.4% from £86.7 million in the same period in the prior year. This was due to the closure of the Outside Broadcast business in September 2012 and the ending of some low margin wholesale space contracts. This also resulted in a reduction in cost of sales limiting the decline in gross profit.

Digital Platforms

Turnover for the Group’s Digital Platforms division during the six months ended 31 December 2013 was £67.0 million, a 5.4% increase on revenues in the same period in the prior year of £63.6 million. Increased revenues are primarily due to additional channel sales on the existing national Multiplexes.

Telecoms

Turnover for the Group’s Telecoms division during the six months ended 31 December 2013 was £119.0 million, a 5.3% increase from the prior period revenues of £112.9 million.

Turnover for the Group’s Site Share and WiFi businesses during the six months ended 31 December 2013 was £108.6 million representing a 6.1% increase from £102.4 million 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 six months ended 31 December 2013 was £10.4 million in line with revenues in the same period in the prior year of £10.5 million.

Smart Metering

On 20 September 2013, Arqiva Smart Metering Ltd, 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 December 2013 of £0.7 million represent services provided by Arqiva Ltd to Arqiva Smart Metering Limited as part of the initial design and development of the network infrastructure.

Cost of Sales

For the six months ended 31 December 2013, cost of sales for the Group was £148.5 million, representing a 2.3% increase from £145.2 million 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.

Gross profit

For the six months ended 31 December 2013, gross profit for the Group was £254.6 million, representing a 1.7% decrease from £259.1 million in the same period in the prior year due to a reduction in project related revenues such as 61/62 Clearance partially offset by a growth in Telecoms and Digital Platforms revenues described above. Many of the resources used on those projects are now deployed on projects such as smart metering and new HD Multiplexes.

EBITDA

For the six months ended 31 December 2013, EBITDA for the Group was £200.1 million, representing a 1.7% decrease from £203.6 million in the same period in the prior year, explained by the movements described above. 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 six months ended 31 December 2013 was £57.0 million, representing a 10.5% increase from £51.6 million in the same period in the prior year. The increase in the underlying level of depreciation relates to the capitalisation of a number of one off items relating to broadcast and satellite assets, and the capitalisation of a number of major IT projects including the R12 Oracle Upgrade.

Amortisation

Amortisation for the Group during the six months ended 31 December 2013 was £78.9 million, in line with the cost in the same period in the prior year of £79.3 million.

Operating expenses

Operating expenses for the Group during the six months ended 31 December 2013 excluding exceptional items were £54.6 million, representing a 2.5% decrease from £56.0 million in the same period in the prior year. An inflation linked increase on headcount costs was offset by higher labour capitalisation and tight cost control, leading to an overall reduction in operating expenses.




Exceptional administrative expenses

Exceptional administrative expenses for the Group during the six months ended 31 December 2013 were £2.3 million, representing an 80.7% decrease from £11.9 million during the six months ended 31 December 2012. The same period in the prior year was higher due to one-off costs, including the smart metering contract bid and severance costs.

Share of operating profit in joint ventures and associates

Share of operating profit in joint ventures and associates for the Group during the six months ended 31 December 2013 was a £1.4 million profit which was an increase from £0.3 million in the same period in the prior year due to improved results in the last quarter for the associate undertaking.

Income from investments

Income from investments for the Group during the six months ended 31 December 2013 was £0.4 million, an increase from £0.1 million 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, and are therefore excluded from the consolidation in accordance with accounting standards.

Interest receivable and similar income

Interest receivable and similar income during the six months ended 31 December 2013 was £1.1 million, compared to £0.2 million 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

Bank loan interest for the Group during the six months ended 31 December 2013 was £129.7 million, compared to £109.9 million in the same period in the prior year, primarily due to an increase in the debt and swap margins following the Group’s refinancing in February 2013.

Other interest

Other interest payable for the Group during the six months ended 31 December 2013 was £29.0 million, compared to £18.5 million in the same period in the prior year, due primarily to the amortisation of debt issue costs arising from refinancing. Other interest payable is primarily non-cash but includes £0.6 million relating to cash payments for finance leases.

Share of joint venture interest payable

Share of joint venture interest payable for the Group during the six months ended 31 December 2013 was £0.8 million, a decrease from £1.1 million in the same period in the prior year. This is primarily due to a decrease in the interest bearing liabilities of the joint venture.

Interest payable to parent undertakings

Interest payable to parent undertakings for the Group during the six months ended 31 December 2013 was £168.2 million, compared to £120.7 million 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. £148.2 million of the £168.2 million charge was non-cash. £20.0 million was settled in cash in the period.

Tax on loss on ordinary activities

Tax on loss on ordinary activities during the six months ended 31 December 2013 was a £1.4 million credit, compared to a £10.0 million 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 six months ended 31 December 2013 was 0.5% which was lower than the Group’s effective tax rate of 5.4% 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 six months to 31 December 2013. 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.

Equity minority interests

For the six months ended 31 December 2013, the equity minority interest not attributable to the Group was £0.1 million and in line with 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.

Loss for the financial period

Loss for the six months ended 31 December 2013 was £261.7 million, compared to a £179.4 million loss in the same period in the prior year. This movement was primarily due to the increase in interest payable of £77.8 million.

Capital expenditures

The Group’s operations are capital intensive and the Group requires maintenance capital expenditure as well as investment capital expenditure to support its growth and development. The capital expenditure reported for the year ended 30 June 2013, and the six month period ended 31 December 2013 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:

Six Months Ended Year Ended 30 June 31 December

2012(2)

2013(2)

2012(2)

2013(2)

(unaudited) (£ millions)

Maintenance .................................................................. 30.2 43.9 14.1 12.2 DSO .............................................................................. 72.5 25.5 6.2 8.8 Growth contracted .......................................................... 59.3 59.4 32.0 46.0 Growth non-contracted ................................................... - 9.8 - 3.5 Sale of fixed assets(1) ...................................................... (0.5) (4.3) (4.2) (0.2) Capital creditors/accruals ............................................... - (12.3) 2.8 4.8

Total net capital expenditure and financial investment ........................................................................ 161.5 122.0 50.9 75.1

(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 six months ended 31 December 2013 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.

For the six months ended 31 December 2013, the Group’s capital expenditure and financial investment was £75.1 million, compared to £50.9 million in the same period in the prior year. Maintenance capital expenditure comprised of maintenance of site infrastructure and IT estate in both




periods. The overall increase in total capital expenditure and financial investment compared with the six months ended 31 December 2012 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 Group’s statement of cash flows for the periods presented:

Six Months Ended

Year Ended 30 June 31 December

2012

2013

2012

2013

(unaudited)

(£ millions)

Consolidated cash flow data

Net cash inflow from operating activities ................................. 378.5 349.2 88.3 98.4 Dividends from investments .................................................... 0.1 0.1 0.1 0.4 Returns on investment and servicing of finance ...................... (171.5) (171.8) (88.7) (118.3) Tax paid ................................................................................. (0.2) (0.2) (0.2) - Net capital expenditure and financial investment..................... (161.5) (122.0) (50.9) (75.1) Acquisitions and disposals...................................................... (2.1) (29.0) (27.9) (0.7) Equity dividends paid ............................................................. (0.2) (0.1) - - Financing ............................................................................... 3.2 15.7 29.4 27.7

Increase /(Decrease) in cash ................................................ 46.4 41.9 (49.9) (67.6)

Net cash inflow from operating activities

For the six months ended 31 December 2013, the Group’s net cash inflow from operating activities was £98.4 million, consisting of EBITDA of £200.1 million, less exceptional items of £2.3 million and negative movements in working capital of £99.4 million. This net cash inflow was an 11.4% increase from £88.3 million in the same period in the prior year mainly due to higher exceptional costs and a greater working capital requirement.

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.

Year Ended 30 June

Six Months Ended 31 December

2012

2013

2012

2013

(unaudited)

(£ millions)

Net (increase)/decrease in debtors ...................................... (11.1) (6.1) (28.4) 2.9 Net increase/(decrease) in creditors ..................................... 10.2 (25.0) (73.6) (98.6) Net increase/(decrease) in provisions .................................. 0.3 (9.4) (1.4) (3.7)

Total working capital movement ....................................... (0.6) (40.5) (103.4) (99.4)




The components of the Group’s working capital are:

• Net (increase)/decrease in debtors comprising trade debtors, prepayments and accrued income;

• Net increase/(decrease) in creditors including trade creditors, sundry creditors, VAT creditors, accruals, and deferred income less than and greater than one year; and

• Net increase/(decrease) 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 third quarter of the fiscal year. In addition, annual staff bonus payments are made in the first quarter of the fiscal year. As a result, the Group’s cash inflow from operations in the second half of the fiscal year, historically, has been nearly double the amount of the first half of the fiscal year, which is reflected in the working capital fluctuation. Consequently, working capital tends to be significantly negative in the first half of the year as a higher proportion of profit and loss revenues are non-cash.

The Group’s working capital movement for the six months ended 31 December 2013 was negative £99.4 million and broadly reflected the expected position for the period. This compared to a movement of negative £103.4 million in the same period in the prior year.

Dividends from investments

During the six months to 31 December 2013, the Group received a dividend from MXR Holdings Limited of £0.1m (six months to 31 December 2012: £0.1m), 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 (six months to 31 December 2012: £nil).

Net cash outflow from returns on investment and servicing of finance

For the six months ended 31 December 2013, the Group’s return on investment and servicing of finance was an outflow of £118.3 million, excluding dividends considered above, consisting of £0.3 million in interest received, less £118.0 million in interest paid to external sources, and less £0.6 million from the interest element of finance lease rentals.

Tax paid

For the six months ended 31 December 2013 the Group’s tax paid was £nil.

Acquisitions and disposals

For the six months ended 31 December 2013, the cash flow from the Group’s acquisitions and disposals was an outflow of £0.7 million, relating to the deferred consideration on the acquisition of Digital One Limited.

Equity dividends paid

For the six months ended 31 December 2013, the Group’s equity dividends paid were £nil.

Net cash flow from financing

For the six months ended 31 December 2013, the Group’s net financing inflow was £27.7 million. This included the drawdown of £50.0 million from the revolving credit facility during the period, which was offset by £2.0 million payment of debt issue costs, £0.3 million in the capital element of finance lease payments and £20.0 million of outflow related to borrowings from parent undertakings. This £20.0 million 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 six months ended 31 December 2013 the Group’s decrease in net cash was £67.6 million due to the above factors. Contractual Obligations and Commitments

The following table sets out the payments due by period under the Group’s contractual obligations as at 31 December 2013:

Payments due by Period

Total

Less than 1 Year

1 to 3 Years

3 to 5 Years

More than 5 Years

(unaudited)

(£ millions) Senior debt – A ........................................................... 400.0 - 400.0 - - Senior debt – B ........................................................... 786.0 - - 786.0 - Senior bonds .............................................................. 1,148.5 - - - 1,148.5 Junior bonds ............................................................... 600.0 - - - 600.0 Trade creditors ........................................................... 64.1 64.1 - - - Accrued liability on inflation rate swap ......................... 41.0 - 41.0 - - Finance lease obligations1 .......................................... 14.2 0.3 0.7 0.9 12.3 Capital commitments .................................................. 37.8 36.5 1.3 - - Operating lease commitments .................................... 136.4 17.7 28.9 19.8 70.0 Other creditors............................................................ 389.0 279.0 27.4 25.9 56.7

Total non-Group ....................................................... 3,617.0 397.6 499.3 832.6 1,887.5

Amounts owed to Group undertakings ........................ 3,606.9 260.1 - - 3,346.8

Total .......................................................................... 7,223.9 657.7 499.3 832.6 5,234.3

(1) The above amounts exclude future interest payments associated with these liabilities 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. Off-Balance Sheet Arrangements

The Group has not used 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. 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 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 interest rate swaps and inflation swap agreements covering a total notional value of £2,625.0 million in order to hedge its exposure to variable interest rates. £1,312.5 million had been hedged via interest rate swaps and £1,312.5 million 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 £2,334.5 million of senior debt. As part of the refinancing £289.3 million of interest rate swaps were terminated and the remaining £2,335.7 million of notional swaps were restructured.

Inflation linked swaps (ILS)

£1,312.5 million of fixed and variable rate debt is hedged via three classes of inflation linked swaps which fix interest at an average rate of 2.9498% indexed with RPI. In addition, the principal amount of these swaps increases with RPI. One class of these swaps with a nominal value of £235.0 million has a 10 year mandatory break clause, whilst the remaining two classes are break-free. The maturity date for all three classes of inflation swaps is April 2027. The accrued principal accretion on inflation linked swaps as at 28 February 2013 amounting to £286.5 million was paid at the refinancing date.

Interest rate swaps (IRS)

£1,023.2 million of variable rate debt is now hedged via two classes of interest rate swaps at an average fixed rate of 5.7926%. The interest rate swaps have 3 year and 5 year mandatory break clauses co-terminus with the variable rate bank debt.

The Group has purchased Swap Options with a total principal value equal to the current interest rate swaps (£1,023.2 million). The options are exercisable at maturity in 3 years and 5 years, (co-terminus with the interest rate swaps and floating rate bank debt) and hedge the Group’s exposure for the duration of the interest rate swaps to a decline in LIBOR below 1% at the point of the mandatory breaks in 3 and 5 years' time.

An amount of £41.0 million (December 2012: £277.3 million, June 2013: £20.2 million) reflecting accrued liabilities under the inflation swaps 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 December 2013 (excluding the inflation swap accrual), is a liability of £1,325.4 million which comprises £1,006.8 million in relation to the RPI linked swaps, £294.1 million in relation to the interest rate swaps, and £24.5 million in relation to the cross currency swaps (December 2012: total £1,115.8 million, June 2013: total £1,412.3 million), 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.

Private Placement hedging arrangements

Arqiva Financing No. 1 Limited (AF1) has entered into a further £1,148.5 million 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 million Notes and the £398.5 million Private Placement Notes issued by Arqiva PP Financing Plc (‘APPF’). In addition, AF1 entered into USD 358.0 million (£235.5 million 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.




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 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 under 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 £600 million digital switchover (DSO), which it completed under budget and on schedule in October 2012;

• market leader for commercial spectrum on DTT, 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 33 out of 56 commercially broadcast SD DTT channels in the UK as at 31 December 2013. The Group believes the constrained number of DTT video streams at approximately 50, 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 December 2013, 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 that serves as an alternative for customers who do not contract directly with BSkyB’s for uplinking services or who chose 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 December 2013;

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




• provision of smart metering network, build and maintenance for ASML, the 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.

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 £6.5 million of revenue and £11.4 million 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 and inflation swaps to reduce its exposure to fluctuations in variable interest rates on its debt. 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 its 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 £17.4 million. Gross plan liabilities at the valuation date were £130.5 million compared to gross plan assets of £113.1 million. Arqiva Limited agreed with the trustee to make deficit recovery payments into the Plan of £5.7 million in July 2013, £5.7 million in July 2014 and £4.1 million 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”.

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 accrued liabilities 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.

Interest payable to parent undertakings

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:

Six Months

Ended

31 December

2012

Six Months Ended

31 December

2013

(unaudited)

(£ millions)

Group operating profit..……………………………… 60.3 61.8

Exceptional costs…………………………………….. (11.9) (2.3)

Depreciation…………………………………………….. 51.6 57.0

Amortisation……………………………………………... 79.3 78.9

Other (including loss on disposal of fixed assets and

operational bank charges). 0.5 0.1

EBITDA………………………………………….……… 203.6 200.1

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

Six Months

Ended

31 December

2012

Six Months Ended

31 December

2013

(unaudited)

(£ millions)

EBITDA………………………………………………… 203.6 200.1

Exceptional costs…………………………………….. (11.9) (2.3)

Working capital………………………………………... (103.4) (99.4)

Net cash inflow from operating activities……… 88.3 98.4



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

distribution of

dividends

Arqiva

Financing No. 3 plc

Arqiva

Broadcast

Intermediate

Limited

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

Fixed and

floating charge

Fixed and

floating

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



CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 OF ABPL


Registered number 08085823

Condensed Consolidated Interim Financial Statements

For the six months ended 31 December 2013

Arqiva Broadcast Parent Limited Condensed Consolidated Interim Financial Statements – Six months ended 31 December 2013


Table of Contents Directors’ report ................................. ............................................................................................................. 1

Consolidated interim profit and loss account ...... ........................................................................................ 6

Consolidated interim balance sheet ................ .............................................................................................. 8

Statement of group total recognised gains and losse s .............................................................................. 9

Consolidated interim cash flow statement .......... ....................................................................................... 10

Notes to the financial statements ................. ............................................................................................... 11

1 General information ............................................................................................................................................ 11

2 Directors’ responsibilities .................................................................................................................................... 11

3 Basis of preparation ............................................................................................................................................ 11

4 Estimates ............................................................................................................................................................ 11

5 Financial risk management ................................................................................................................................. 12

6 Turnover and segmental reporting ...................................................................................................................... 13

7 Exceptional items ............................................................................................................................................... 14

8 Interest receivable and similar income ............................................................................................................... 14

9 Interest payable and similar charges .................................................................................................................. 14

10 Tax on loss on ordinary activities ........................................................................................................................ 15

11 Intangible assets ................................................................................................................................................. 16

12 Tangible assets .................................................................................................................................................. 16

13 Debtors ............................................................................................................................................................... 17

14 Cash at bank and in hand ................................................................................................................................... 17

15 Creditors: amounts falling due within one year ................................................................................................... 17

16 Creditors: amounts falling due after more than one year .................................................................................... 18

17 Provisions for liabilities and charges ................................................................................................................... 20

18 Reconciliation of movement in shareholders’ deficit ........................................................................................... 20

19 Cash flow from operating activities ..................................................................................................................... 20

20 Analysis of changes in net debt .......................................................................................................................... 21

21 Capital commitments .......................................................................................................................................... 21

22 Contingent liabilities ............................................................................................................................................ 21

23 Related party disclosures ................................................................................................................................... 21

24 Pension Commitments ....................................................................................................................................... 22

25 Controlling parties ............................................................................................................................................... 22



Directors’ report

The Directors of Arqiva Broadcast Parent Limited, registered company number 08085823, (‘the Company’) and its subsidiaries (‘the Group’) provide the following report and condensed consolidated interim financial statements (‘financial statements’), in respect of the six months ended 31 December 2013. Business overview The Group is the sole owner and operator of the UK's nationwide terrestrial TV infrastructure and the major owner and operator of the UK’s radio infrastructure, with over 90% of the radio transmission towers in the UK and is the operator of the only commercial national digital radio multiplex. The Group's activities have been key to the technological evolution from analogue to digital based services and are critical to all terrestrial TV and Radio broadcasters. Digital Terrestrial TV (‘DTT’) remains the platform of choice in the UK covering 98.5% of the population. The Group holds spectrum licences for two of the three national commercial DTT multiplexes plus two new HD multiplexes, selling space for channel programming on the Freeview platform. Arqiva owns, manages and operates teleports and media hubs at key locations, together with multiplexes and an international fibre network, and leases significant satellite capacity on behalf of customers. The Group is the UK's largest independent provider of wireless towers which are critical to mobile network operators’ licence obligations to provide national coverage. Revenue from the Group’s tower portfolio is secured by contracts with each of the major UK mobile operators. Planning restrictions create high barriers to entry. While the mobile industry has experienced continued network consolidation amongst the mobile network operators, significant growth in demand for mobile data is expected to fuel continued investment in mobile infrastructure, supported by the recent release of spectrum for 4G services. Growth in smartphones and mobile-enabled devices along with faster download speeds has led to a rapid increase in the demand for mobile data services. Arqiva has invested in WiFi infrastructure, where it now has distribution rights in a number of key locations including the majority of UK airports and a number of key London boroughs. Recent Developments since 30 September 2013

O2/Vodafone joint venture - Cornerstone Telecommunic ations Infrastructure Limited

This joint venture between Telefonica O2 and Vodafone pools both companies’ network infrastructure and will create a shared grid of 18,500 masts, which will represent an increase of more than 40% in points of presence for each operator. The companies expect that this will result in a 10% overall reduction in the total number of sites used by both operators. In November 2013, Arqiva signed a ten year framework contract with CTIL and its parents O2 Telefonica and Vodafone. This deal will allow the operators to consolidate their 2G / 3G networks on Arqiva’s sites, and rollout 4G LTE services. Under the contract the Group will provide the installation services on its own sites, which it expects to lead to increased installation services revenue. The Group has started to receive a pipeline of orders for upgrade activities.

Smart metering

Smart metering is a government-mandated project to install smart energy meters in every home in the UK in order to improve energy efficiency by helping customers monitor energy use. 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 Arqiva entity that won the contract for smart metering is a newly established company, Arqiva Smart Metering Limited (ASML) and this sits outside the senior and junior financing groups. ASML has contracted with Arqiva Limited (which is within the senior financing group) for the provision of the core network, sites and spectrum that will support the delivery of this contract. The procurement and financing of the communications hubs (which allow information to be sent to and from meters inside the property) sits outside the senior and junior financing group. The senior financing group is expected to charge a substantial majority of the smart metering contract revenue to ASML.

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 have been achieved to date.



New High Definition (HD) Multiplexes

The Group commenced construction of the new Freeview HD Multiplex network in August 2013 and reached 50% population coverage as at the end of January 2014. Rollout is currently in line with plans and the Group has been successful in meeting all contractual obligations to date. It is on target to achieve 65% population coverage by the end of March 2014 and expects to finally reach 70% through its top 30 sites by June 2014. The new HD services will only be available to viewers with HD television sets or set-top boxes and maximum coverage upon rollout completion is expected to be 70%, compared to 90% and 98.5% for commercial and Public Service Broadcasting (PSB) channels, respectively, on other Multiplexes.

Since the service started, five new channels have been launched on the new HD Multiplexes: Al Jazeera Arabic, Al Jazeera English HD, BBC News HD, BBC 4 HD and CBeebies HD. Active discussions are underway with a number of PSBs and commercial broadcasters regarding the carriage of additional HD channels from their portfolios.

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 December 2013, 18 local TV sites were successfully completed and ready for transmission, in line with the contract. Local TV in London is scheduled to be launched in March 2014.

WiFi international roaming

International roaming partnerships are wholesale WiFi agreements and are seen by the Group as a precursor and a parallel activity to signing wholesale agreements with major UK operators which will help increase revenues. The Group is aiming to sign roaming agreements for WiFi with as many international partners as possible and it currently has long-standing roaming agreements with Boingo, I-Pass and Skype. In order to facilitate inter-connection the Group is now using third-party “hubs” to connect new roaming partners. It has so far connected two of these, namely BSG and Aicent, in addition to new roaming partners including Vodafone Global Services, H3G Hong Kong and China Mobile Hong Kong, and is expecting to steadily add more new roaming partners. As at the date of this report, the sale of WiFi infrastructure capacity for a wholesale mobile offering is still in discussion with a number of operators.

Satellite contract wins

Since 30 September 2013, the Satellite business has secured new business wins with a total contract value of circa £26 million with major international customers including NBC, Al Jazeera, Fox International and others, providing a variety of satellite services from its UK based facilities.

Acquisition of multi-platform TV specialist

On 6 February 2014 the Group acquired Capablue Limited, 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 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.

New maintenance and facilities contract

In December 2013, the Group signed a new circa £13 million per annum maintenance and facilities contract with Carillion plc for a four year period commencing in April 2014. This is a strategic deal that will generate substantial savings and will enable further optimisation of the supply chain.



Business re-alignment

On 1 October 2013, Arqiva implemented its newly aligned organisational structure. The new structure will help to further improve customer service by more closely integrating operational service delivery with the customer facing units. The key changes were:

• A move to five product and customer led divisions; o Digital Platforms o Terrestrial Broadcast o Smart Metering (including machine to machine) o Satellite o Telecoms

• Splitting of Business Operations (which provided engineering, delivery and maintenance services for the Group was split vertically between the relevant product and customer led business units);

• Creation of a new Technology division following the appointment of Cameron Rejali, the new Chief Technology Officer in August 2013 to drive new product development and manage shared services across the Group;

• Customer facing divisions being supported by central corporate functions comprising; o Finance o Strategy and Business Development o People and Organisation o Commercial

The new structure will also give management of customer facing units increased responsibility for their end-to-end services and provide a stronger platform for business growth.

Institutional Term Loan and Sterling bond issue

During January 2014, the Group completed a £180 million term loan from institutional investors, the proceeds of which were used to make a £180 million part repayment of the 3-year term bank facilities. At the same time, the Group restructured interest rate swaps (IRS) with a £180 million nominal value to match the 10-year maturity of the institutional term loan. In early February 2014, the Group closed a £164 million 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 floating/fixed rate swaps to overlay inflation-linked swaps (IRS) onto the new issuance. Future developments and growth opportunities The Arqiva Group will continue to operate and invest in communications infrastructure, maximising the value of the core businesses and to explore appropriate growth opportunities which represent a strategic fit with our existing businesses and infrastructure assets. The key steps management are taking to execute our strategy are as follows:

• Maximising the value of each of the strong core businesses to increase turnover and cash flow by offering additional services to existing and new customers;

• Investing in the future of DTT by supporting ventures such as YouView, video on-demand services, hybrid TV

and the high definition capability on Freeview;

• Investing in WiFi infrastructure to benefit from urban mobile data growth;

• Focusing on higher margin products and exiting low margin businesses;

• Investing in growth opportunities that leverage the Group’s existing assets, pursuing scalable growth opportunities; and

• Improving processes to become more efficient and customer focused.

The Group intends to focus on a range of new projects, such as the build-out of WiFi and small cells infrastructure and smart metering, which leverage its existing resources and infrastructure position as outlined below.



WiFi and small cells

The WiFi and small cells project involves the acquisition and development of a portfolio of independent wireless hotspots. Through its acquisition of Spectrum Interactive Limited (now called Arqiva WiFi & Small Cells), the Group has obtained a portfolio of approximately 15,500 access points in over 2,100 locations, including hotels, restaurants and leisure outlets, as well as airports, airline lounges, motorway service stations and other public locations.

Investment in WiFi to date includes the successful acquisition of sites at London Heathrow Airport and a number of regional airports, Bourne Leisure, Enterprise Inns (which operates 6,000 pubs) and in a number of London boroughs. As a consequence, from acquisition of Spectrum Interactive Limited up to 30 June 2013 the Group has grown its overall portfolio by 36% to 3,300 live locations and the number of deployed access points by 34% to 21,000. The Group intends to use this portfolio to offer wholesale mobile data capacity to network operators, giving them an opportunity to offload data from traditional networks onto WiFi infrastructure. The growing demand for mobile data services places the MNOs' traditional wireless networks under increasing stress, which could be alleviated by increased utilisation of WiFi infrastructure. As at the date of this report, the sale of WiFi infrastructure capacity for a wholesale mobile offering is still in discussion with a number of operators.

Additional services to DTT clients

The Group is developing MHEG-IC technology to enable the continued development of the interactivity of Multiplex technology through the use of live streaming IP channels. This is expected to expand further the range of interactive services available to consumers of Freeview, and the Group intends to offer broadcasters a greater array of such interactive products through this service.

Smart metering and machine-to-machine communications

The Group intends to leverage its success in winning the contract for provision of communication services for smart metering for gas and electricity in Scotland and northern England by pursuing other opportunities based on similar infrastructure and long-range radio communications technology. Potential opportunities include: smart water metering, currently under active consideration by a number of water utility companies; smart grid monitoring of wholesale utility distribution networks; and telehealth solutions.

Broadcasting engineering projects

The Group is uniquely positioned in the UK to deliver broadcasting engineering projects, such as the recent DSO, on behalf of government and other major customers. There are a number of major projects currently anticipated, most notably the clearance of DTT from the 700 MHz spectrum and the DRS, in which the Group expects to participate.



Financial results In the six months ending 31 December 2013 the Group delivered turnover of £403.1m (six months ending 31 December 2012 £404.3m) and generated a gross profit of £254.6m (six months ending 31 December 2012: £259.1m). Group operating profit pre exceptional items was £64.1m (six months ending 31 December 2012: £72.2m). The decrease was primarily caused by a reduced level of broadcast engineering project revenues in the six months ending 31 December 2013 compared with the prior period, and an increase in depreciation relating to the capitalisation of assets relating to various broadcast and IT projects. Post exceptional items, Group operating profit was £61.8 million (2012: £60.3m) due to significantly lower exceptional costs during the period. The key measure of the Group’s financial performance used by management is EBITDA. EBITDA is defined as operating profit, before share of profit from joint ventures and associates, profit or losses on the disposal of fixed assets, depreciation, amortisation, interest and exceptional items but after operational bank charges. EBITDA for the six months ended 31 December 2013 was £200.1m (six months to 31 December 2012: £203.6m). EBITDA for the year ended 30 June 2013 was £416.3m. A reconciliation of the reported EBITDA to the financial statements is provided below:

Six months ended

31 December 2013

£’m

Six months ended

31 December 2012

£’m

Year ended

30 June 2013

£’m

Operating profit before exceptional items 64.1 72.2 151.8

Depreciation of fixed assets 57.0 51.6 105.7

Amortisation 78.9 79.3 158.7

Other (including loss on disposal of fixed assets and

operational bank charges)

0.1 0.5 0.1

EBITDA 200.1 203.6 416.3

Other significant KPIs for the Group are the level of network availability across both TV and radio infrastructure. When significant engineering projects are underway, such as Smart Metering, the measurement of milestones on these contracts also forms part of our KPIs. The target combined network availability for the Group is 99.95% and the actual network availability achieved was 99.99% during the six months to 31 December 2013 (six months to 31 December 2012: 99.98%). In addition, the Group’s own TV multiplexes have a target availability of 99.95% and the actual availability achieved was 99.99% during the six months ended 31 December 2013 (six months to 31 December 2012: 99.99%). Going concern The Group adopts the going concern basis in preparing the financial statements based on the future cash flow forecasts of the Group and available facilities. The Directors are confident that the Group will have adequate resources to continue in operational existence for the foreseeable future. On behalf of the Board

Peter Shore Director

Crawley Court Crawley Winchester Hampshire SO21 2QA 24 February 2014



Consolidated interim profit and loss account

Six months to 31 December 2013

Unaudited


Unaudited

Year ended 30 June 2013

Audited

Note Pre exceptional

items

Exceptional

items

Total

Pre exceptional

items

Exceptional

items

Total

Pre exceptional

items

Exceptional

items

Total

£’m £’m £’m £’m £’m £’m £’m £’m £’m

Continuing operations

Turnover (including share of joint ventures)

410.3 - 410.3 409.3 - 409.3

827.4 - 827.4

Less: share of joint ventures’ turnover (7.2) - (7.2) (5.0) - (5.0) (8.4) - (8.4)

Group turnover 6 403.1 - 403.1 404.3 - 404.3 819.0 - 819.0

Cost of sales (148.5) - (148.5) (145.2) - (145.2) (291.1) - (291.1)

Gross profit 254.6 - 254.6 259.1 - 259.1 527.9 - 527.9

Depreciation (57.0) - (57.0) (51.6) - (51.6) (105.7) - (105.7)

Amortisation (78.9) - (78.9) (79.3) - (79.3) (158.7) - (158.7)

Other administrative expenses 7 (54.6) (2.3) (56.9) (56.0) (11.9) (67.9) (111.7) (28.3) (140.0)

Total administrative expenses (190.5) (2.3) (192.8) (186.9) (11.9) (198.8) (376.1) (28.3) (404.4)

Group operating profit 64.1 (2.3) 61.8 72.2 (11.9) 60.3 151.8 (28.3) 123.5

Share of operating profit in joint ventures and associates 1.4 - 1.4 0.3 - 0.3

1.7 - 1.7

Total operating profit : Group and

share of joint ventures and associates 65.5 (2.3) 63.2 72.5 (11.9) 60.6

153.5 (28.3) 125.2

Income from investments 0.4 - 0.4 0.1 - 0.1 0.1 - 0.1

Profit on ordinary activities before interest and taxation 65.9 (2.3) 63.6 72.6 (11.9) 60.7

153.6 (28.3) 125.3

The profit and loss account is continued on the following page.




Unaudited


Unaudited

Year ended 30 June 2013

Audited

Note Pre exceptional

items

Exceptional

items

Total

Pre exceptional

items

Exceptional

items

Total

Pre exceptional

items

Exceptional

items

Total

£’m £’m £’m £’m £’m £’m £’m £’m £’m

Profit on ordinary activities before interest and taxation 65.9 (2.3) 63.6 72.6 (11.9) 60.7

153.6 (28.3) 125.3

Interest receivable and similar income 8 1.1 - 1.1 0.2 - 0.2 1.0 - 1.0

Interest payable and similar charges 9 (326.9) - (326.9) (249.1) - (249.1) (565.8) - (565.8)

Share of joint venture interest payable (0.8) - (0.8) (1.1) - (1.1) (1.0) - (1.0)

Loss on ordinary activities before taxation

(260.7) (2.3) (263.0) (177.4) (11.9) (189.3)

(412.2) (28.3) (440.5)

Tax on loss on ordinary activities 10 1.4 10.0 17.2

Loss on ordinary activities after taxation

(261.6) (179.3)

(423.3)

Equity minority interests (0.1) (0.1) (0.3)

Loss for the financial period 18 (261.7) (179.4) (423.6)



Consolidated interim balance sheet

Note

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013 Audited

£’m

Fixed assets

Intangible assets 11 1,941.7 2,098.1 2,018.6

Tangible assets 12 1,671.7 1,629.1 1,658.3

Investments

Investments in joint venture

- Share of gross assets 19.9 15.9 17.0

- Share of gross liabilities (18.3) (16.3) (15.8)

- Goodwill on acquisition 8.6 9.0 8.7

Investment in associated undertakings 0.1 0.1 0.1

10.3 8.7 10.0

3,623.7 3,735.9 3,686.9

Current assets

Debtors 13 253.5 252.0 254.8

Cash at bank and in hand 14 81.3 28.6 148.9

Total current assets 334.8 280.6 403.7

Creditors: amounts falling due within one year 15 (603.5) (2,042.3) (496.6)

Net current liabilities (268.7) (1,761.7) (92.9)

Total assets less current liabilities 3,355.0 1,974.2 3,594.0

Creditors: amounts falling due after more than one year 16 (6,304.4) (4,403.9) (6,274.4)

Provisions for liabilities and charges 17 (51.2) (60.0) (54.1)

Net liabilities excluding pension deficit (3,000.6) (2,489.7) (2,734.5)

Pension deficit 24 (1.2) (2.8) (2.3)

Net liabilities including pension deficit (3,001.8) (2,492.5) (2,736.8)

Capital and reserves

Share capital 0.1 0.1 0.1

Merger reserve (188.5) (188.5) (188.5)

Profit and loss reserve (2,814.0) (2,304.4) (2,548.9)

Total shareholders’ deficit 18 (3,002.4) (2,492.8) (2,737.3)

Minority interest 0.6 0.3 0.5

Capital employed (3,001.8) (2,492.5) (2,736.8)

The accompanying notes are an integral part of these condensed consolidated interim financial statements. These condensed consolidated interim financial statements were approved by the Board of Directors on 24 February 2014 and were signed on its behalf by:

Peter Shore - Director



Statement of group total recognised gains and losse s

Six months to

31 December 2013

Unaudited

£’m

Six months to

31 December 2012

Unaudited

£’m

Year ended

30 June 2013

Audited

£’m

(Loss) / profit for the financial period

- Group (262.3) (178.6) (424.3)

- Joint Ventures 0.6 (0.8) 0.7

Loss for the financial period (261.7) (179.4) (423.6)

Actuarial (loss) on pension scheme (5.1) (0.4) (0.5)

Movement on deferred tax relating to pension scheme 1.2 0.1 0.1

Exchange adjustment offset in reserves (translation of foreign investments)

0.5 0.1 (0.2)

Total recognised losses for the period (265.1) (179.6) (424.2)

Total recognised (losses) / profit for the period

- Group (265.7) (178.8) (424.9)

- Joint Ventures 0.6 (0.8) 0.7

Total recognised losses for the period (265.1) (179.6) (424.2)



Consolidated interim cash flow statement

Note

Six months to

31 December 2013

Unaudited

£’m

Six months to

31 December 2012

Unaudited

£’m

Year ended

30 June 2013

Audited

£’m

Net cash inflow from operating activities 19 98.4 88.3 349.2

Returns on investment and servicing of finance

Interest received 0.3 0.2 0.6

Interest paid to external sources (118.0) (88.3) (171.3)

Interest element of finance lease rentals (0.6) (0.6) (1.1)

Dividends from associates 0.4 0.1 0.1

Dividends paid to minority interests - - (0.1)

(117.9) (88.6) (171.8)

Tax paid - (0.2) (0.2) Capital expenditure and financial investment

Purchase of tangible fixed assets (74.4) (55.1) (125.7)

Purchase of intangible fixed assets (0.7) - (0.6)

Sale of tangible fixed assets - 4.2 4.3

(75.1) (50.9) (122.0)

Acquisitions and disposals

Purchase of subsidiary undertakings (0.7) (28.7) (29.7) Cash acquired with subsidiary undertakings - 0.5 0.5

Sale of fixed asset investments - 0.3 0.2

(0.7) (27.9) (29.0) Financing

Finance lease capital (0.3) (0.2) (0.5)

Loans to joint ventures - - (0.1)

Borrowings from parent undertakings (20.0) (62.3) 656.6

Repayment of external borrowings - - (3,751.0)

Raising of external borrowings 50.0 91.9 3,334.5

Debt issue costs and facility arrangement fees (2.0) - (97.2)

Deferred derivative close out costs - - (98.1)

Restricted cash - - (28.5)

27.7 29.4 15.7

(Decrease) / increase in cash 20 (67.6) (49.9) 41.9



Notes to the financial statements

1 General information

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 June 2013 were approved by the board of directors on 4 October 2013 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. A copy of the audited financial statements for the year ended 30 June 2013 can be obtained from the Company Secretary at Crawley Court, Crawley, Winchester, Hampshire, SO21 2QA.

2 Directors’ responsibilities

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

3 Basis of preparation

These condensed consolidated interim financial statements for the six months ended 31 December 2013 have been prepared in accordance with best practice as derived from IAS 34, ‘Interim financial reporting’. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 June 2013, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The accounting policies adopted are consistent with the audited financial statements for the financial year ended 30 June 2013.

4 Estimates

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenues and costs. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the Group’s accounting policies and the significant judgements made by management in applying key estimations were the same as those that applied to the consolidated financial statements for the year ended 30 June 2013. The business is not subject to any significant seasonal trends.



5 Financial risk management

The Group’s operations expose it and the Company to a variety of financial risks that include price risk, credit risk, liquidity risk, cash flow interest risk and foreign exchange risk. The Group’s risk management programme seeks to minimise potential adverse effects as set out below. Price risk Energy is a major component of the Group’s cost base. A large proportion of this is managed via pass-through arrangements to customers. The Group’s residual exposure to fluctuations in the electricity price is managed by forward purchasing the majority of power requirements up to 18 months in advance. Key revenue and cost milestones are set on larger projects to ensure the financial risks of volatile market pricing are mitigated. Credit risk The Group is exposed to credit risk on customer receivables which is managed through appropriate credit checking procedures prior to taking on new customers; and higher risk customers paying in advance of services being provided. Performance is closely monitored to ensure agreed service levels are maintained reducing the level of queried payments and mitigating the risk of uncollectable debts. Liquidity risk To ensure it has sufficient available funds for working capital requirements and planned growth, the Group maintains cash reserves and access to undrawn committed facilities to cover forecast requirements. As at 31 December 2013 the Group had £100m working capital facilities, against which £50m has been drawn, and £81.3m cash available to cover short term cash flow timing differences if required, together with a £400m capital expenditure facility. In addition, the Group has £200m of liquidity facilities available to cover senior interest payments and a £28.5m cash reserve to cover junior interest if required. Details of the debt maturity profile are provided in note 16. The Group carefully manages the credit risk on liquid funds and derivative financial instruments with balances currently spread across a range of major financial institutions which have satisfactory credit ratings assigned by international credit rating agencies. The levels of credit risk are monitored through the Group’s ongoing risk management processes, which include a regular review of the credit ratings. Risk in this area is limited further by setting a maximum level and term for deposits with any single counterparty. Financing risk The Group will need to refinance at least part of its debt as it matures and may need additional financing to cover capital expenditure and certain other expenses to support its growth plans. The Group cannot be certain that such financing will be readily available on attractive or historically comparable terms. The Group mitigates this risk by the strength of the stable long term investment grade capital structure in place, our BBB ratings (from Standard & Poors and Fitch) which reflect our strong ability to raise cash and repay debt from our cash flows over a reasonable period of time, maintaining an active dialogue with lenders and investors, maintaining debt with a variety of medium and long term maturities so that over time we do not have a significant concentration of debt due for refinancing in any given year, and aiming to refinance debt well in advance of the maturity date. Interest rate risk The Group has variable rate bank debt and uses interest rate and inflation swaps to hedge its exposure to rising interest rates. The Group maintains a hedging policy to manage interest rate risk and to ensure the certainty of future interest cash flows. It currently has fixed rate hedging, split between interest rate swaps and inflation swaps. Interest rate swaps convert variable rate interest costs to fixed rate interest costs while inflation swaps convert fixed or variable rate interest costs to RPI-linked costs, which fluctuate in line with the RPI index as do a proportion of the Group's revenue contracts. Details of the interest rate profile of the Group’s liabilities are provided in note 16. Foreign exchange risk The Group operates from UK sites and predominantly in the UK market, but has some transactions denominated in foreign currency. While some customer and supplier contracts are denominated in other currencies (mainly US Dollars and Euros), the majority of the Group’s revenues and costs are sterling based, and accordingly exposure to foreign exchange risk is limited. Management regularly monitor the impact of foreign exchange risks and assess the need to put any mitigating financial instruments in place. During the year, forward foreign exchange contracts were used to fix the exchange rate for certain overseas revenue contracts, and cross currency swaps were used to fix the exchange rate in relation to US Dollar denominated Senior bonds. Details of the cross currency swaps are provided in note 16.



6 Turnover and segmental reporting

The geographical split of turnover by destination is shown below: Six months to

31 December 2013

Unaudited

£’m

Six months to

31 December 2012

Unaudited

£’m

Year ended

30 June 2013

Audited

£’m

UK 338.6 352.6 726.7

Continental Europe (including Republic of Ireland) 34.5 31.1 55.0

Rest of world 30.0 20.6 37.3

Group turnover 403.1 404.3 819.0

Segmental reporting The Group has organised its business into five customer facing units, supported by a technology division and central corporate functions. This structure is used to provide the following segmental reporting in relation to Group turnover. Terrestrial

£’m

Satellite

£’m

Telecoms

£’m

Digital Platforms

£’m

Smart Metering £’m

Total

£’m

Group turnover

Six months to 31 December 2013 - Unaudited 131.8 84.6 119.0 67.0 0.7 403.1

Six months to 31 December 2012 - Unaudited 141.1 86.7 112.9 63.6 - 404.3

Year ended 30 June 2013 - Audited 284.0 170.7 232.3 132.0 - 819.0

The majority of assets employed are part of a shared infrastructure network common to all operating business units. An allocation of such assets or costs to the business units is not performed as part of the normal reporting process within the business. In the absence of a suitable allocation methodology and given the size of the shared assets and costs, the Directors are of the opinion that additional segmental reporting would not provide meaningful information to the users of the financial statements and would be seriously prejudicial and therefore not be in the best interests of the Group.



7 Exceptional items

Loss on ordinary activities before taxation is stated after (charging) / crediting: Six months to

31 December 2013

Unaudited

Six months to

31 December 2012

Unaudited

Year ended

30 June 2013

Audited

£’m £’m £’m

Administrative expenses

- Reorganisation and severance (3.2) (6.0) (7.3)

- Corporate finance activities (including refinancing) - (0.8) (3.1)

- Contract bid costs relating to Smart Metering - - (15.6)

- Other one off activities 0.9 (5.1) (2.3)

Total exceptional items (2.3) (11.9) (28.3)

Other one off activities include costs relating to other business change projects, and the release of an accrual from previous periods during the six months ended 31 December 2013. The above amounts are deductible for the purpose of taxation.

8 Interest receivable and similar income Six months to

31 December 2013

Unaudited

Six months to

31 December 2012

Unaudited

Year ended

30 June 2013

Audited

£’m £’m £’m

Bank interest 0.2 0.1 0.3

Finance lease interest receivable 0.1 0.1 0.3

Other interest 0.8 - 0.4

Total interest receivable 1.1 0.2 1.0

9 Interest payable and similar charges Six months to

31 December 2013

Unaudited

Six months to

31 December 2012

Unaudited

Year ended

30 June 2013

Audited

£’m £’m £’m

Bank loan interest 76.1 110.1 209.8

Other loan interest – Senior and Junior bonds 53.6 - 30.8

Less: Capitalised interest - (0.2) (0.2)

Net bank and other loan interest 129.7 109.9 240.4

Amortisation of debt issue costs 14.1 10.8 37.0

Release of deferred derivative close out costs 4.8 - 3.1

Interest payable to parent undertakings 168.2 120.7 267.8

Finance lease interest payable 0.6 0.5 1.1

Other interest 9.5 7.2 16.4

Total interest payable 326.9 249.1 565.8



Included within bank loan interest is the increase in the accrued liabilities on the Group’s inflation swaps of £20.8m (2012: £22.1m) (see note 16). Excluding this amount the net bank and other loan interest was £108.9m (2012: £87.8m). For the six months ending 31 December 2013 the cash outflow in relation to the above interest payable is disclosed in the consolidated interim cash flow statement on page 10 within total returns on investment and servicing of finance, and interest paid to parent undertakings of £20.0m within financing.

10 Tax on loss on ordinary activities

Six months to

31 December 2013

Unaudited

Six months to

31 December 2012

Unaudited

Year ended

30 June 2013

Audited

£’m £’m £’m

Analysis of tax credit for the period

Current tax

UK corporation tax - 0.1 0.1

Overseas tax 0.1 0.2 0.3

Total current tax 0.1 0.3 0.4

Deferred tax

Origination and reversal of timing differences (4.7) (10.6) (16.8)

Deferred tax on pension liability charged to profit and loss account 0.4 (0.1) 0.1

Impact of rate change 2.8 0.4 0.7

Prior year adjustment - - (1.6)

Total deferred tax (1.5) (10.3) (17.6)

Tax on loss on ordinary activities (1.4) (10.0) (17.2)

The tax on loss on ordinary activities is recognised based on management’s estimate of the weighted average annual corporate income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 30 June 2014 excluding the deferred tax on the pension movement is 0.7% (the estimated tax rate for the six months to 31 December 2012 was 5.4%). This rate is less than the statutory tax rate mainly due to current year tax losses surrendered to other group companies for nil consideration and disallowed interest expense in the Group.



11 Intangible assets

Licences Development costs Access rights Goodwill Total

£’m £’m £’m £’m £’m

Cost

At 1 July 2013 4.6 1.0 22.9 3,066.2 3,094.7

Additions 1.7 - - - 1.7

At 31 December 2013 6.3 1.0 22.9 3,066.2 3,096.4

Accumulated amortisation

At 1 July 2013 2.6 1.0 15.7 1,056.8 1,076.1

Charge for the period 0.3 - 0.8 77.5 78.6

At 31 December 2013 2.9 1.0 16.5 1,134.3 1,154.7

Net book value

At 31 December 2013 3.4 - 6.4 1,931.9 1,941.7

At 30 June 2013+ 2.0 - 7.2 2,009.4 2,018.6

At 31 December 2012 1.6 - 0.9 2,095.6 2,098.1

+ Balances at 30 June 2013 are disclosed within the audited financial statements for the year ended 30 June 2013

12 Tangible assets

Freehold land and buildings

Leasehold buildings Plant and equipment

Assets under the course of

construction

(AUC)

Total

£’m £’m £’m £’m £’m

Cost At 1 July 2013 328.6 114.1 1,483.6 200.6 2,126.9

Additions of AUC - - - 70.4 70.4

Completion of AUC 7.1 1.7 77.3 (86.1) -

Disposals - - (0.2) - (0.2)

At 31 December 2013 335.7 115.8 1,560.7 184.9 2, 197.1

Accumulated depreciation

At 1 July 2013 31.9 20.5 416.2 - 468.6

Charge for the period 2.3 2.2 52.5 - 57.0

Disposals - - (0.2) - (0.2)

At 31 December 2013 34.2 22.7 468.5 - 525.4

Net book value

At 31 December 2013 301.5 93.1 1,092.2 184.9 1, 671.7

At 30 June 2013+ 296.7 93.6 1,067.4 200.6 1,658.3

At 31 December 2012* 387.6 49.9 1,191.6 - 1,629.1

+ Balances at 30 June 2013 are disclosed within the audited financial statements for the year ended 30 June 2013 * 31 December 2012 balances have been restated for reclassifications between categories, following a review of the structure of asset categories in the underlying asset registers, and to classify assets under the course of construction under a separate heading in line with best practice guidance. These reclassifications have no impact on the total cost, accumulated depreciation or net book value as previously reported.



13 Debtors

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Trade debtors 93.4 109.4 89.8

Amounts owed by Group undertakings 0.2 0.4 0.2

Amounts owed by Joint ventures 0.1 - 0.1

Other debtors 6.6 8.7 7.5

Prepayments and accrued income 116.1 105.4 122.0

Deferred tax asset 37.1 28.1 35.2

Total debtors 253.5 252.0 254.8

Included within prepayments is £14.4m (December 2012: £nil, June 2013: £16.6m) relating to prepaid facility fees and arrangement fees on undrawn facilities.

14 Cash at bank and in hand

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Cash at bank 19.8 4.3 12.5

Short term deposits 33.0 24.3 107.9

Cash at bank and in hand 52.8 28.6 120.4

Restricted cash 28.5 - 28.5

Total cash at bank and in hand 81.3 28.6 148.9

The restricted cash balance relates to a reserve account required to cover one semi-annual interest payment on the £600.0m of junior bonds which mature in 2020.

15 Creditors: amounts falling due within one year

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Bank loans – working capital facility 50.0 64.3 -

Trade creditors 64.1 43.9 68.4

Amounts owed to Group undertakings 260.1 1,690.0 112.1

Other taxes and social security costs 12.8 11.5 15.2

Other creditors 11.5 15.0 9.3

Accruals and deferred income 204.7 217.1 291.1

Finance lease obligations 0.3 0.5 0.5

Total creditors: amounts falling due within one yea r 603.5 2,042.3 496.6

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. These balances are included within creditors: amounts falling due after more than one year (see note 16).



16 Creditors: amounts falling due after more than o ne year

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Bank Loans

Senior debt 1,186.0 2,776.5 1,186.0

Junior debt - 315.7 -

Accrued liability on inflation rate swap 41.0 277.3 20.2

Less: issue costs (23.2) (6.3) (31.7)

1,203.8 3,363.2 1,174.5

Other Loans

Senior bonds 1,148.5 - 1,148.5

Junior bonds 600.0 - 600.0

Less: issue costs (28.4) - (31.8)

Deferred derivative close out costs (90.2) - (95.0)

1,629.9 - 1,621.7

Other creditors 0.3 1.3 1.2

Amounts owed to Group undertakings 3,346.8 903.4 3,346.8

Less: issue costs - (0.3) -

Accruals and deferred income 109.7 122.1 116.2

Finance lease obligations 13.9 14.2 14.0

Total creditors: amounts falling due after more tha n one year 6,304.4 4,403.9 6,274.4

The deferred derivative close out costs 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. 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 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.

Maturity of loans The total loans analysed below represent total creditors: amounts falling due after more than one year before issue costs, deferred derivative close out costs, accruals and deferred income, amounts owed to group undertakings and other creditors, and including finance lease obligations falling due within one year together with working capital facility loans (see note 15).

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Maturity of loans

Within one year 50.3 64.8 0.5

In more than one year, but not more than five years 1,228.7 3,520.6 1,207.7

In more than five years 1,760.7 12.8 1,761.0

Total loans 3,039.7 3,598.2 2,969.2



Bank loans and other loans All senior bank debt represents amounts borrowed by Arqiva Senior Finance Limited ('ASF') under a Senior Facility Agreement, of which £1,586.0m was drawn at 28 February 2013. On 27 June 2013, £400.0m of this facility was repaid with the proceeds of a US Private Placement transaction. Arqiva Financing No 1 Limited (‘AF1’) has further undrawn facilities of £650.0m available following the drawdown of £50.0m from the revolving credit facility during the period. The loans have floating interest rates which range between LIBOR + 2.25% to LIBOR + 2.75% during the initial three years of the facilities, increasing to LIBOR + 4.00% by the end of the agreement. The senior debt was originally for terms of three and five years. The senior bonds include amounts raised from the issuance of £750.0m Notes by Arqiva Financing Plc ('AF') rated BBB by Standard & Poors and Fitch on 22 February 2013. These Notes have fixed interest rates which range between 4.04% and 4.882% and are repayable between June 2020 and December 2032. These Notes are listed on the London Market. The remaining senior bonds were raised on 27 June 2013 by Arqiva PP Financing Plc (‘APPF’) through a US Private Placement transaction raising £398.5m in a combined sterling and US dollar denominated offering. The proceeds of this offering were applied to the early repayment of the medium term bank loans referred to above. These Notes have fixed interest rates which range between 4.101% and 4.420% and have amortising repayment profiles commencing December 2018 with an end maturity date of June 2025. All junior bonds represent amounts raised from the issuance of Notes by Arqiva Broadcast Finance Plc ('ABF'). These Notes have a fixed interest rate of 9.5% and are repayable in March 2020. These Notes are listed on the Luxembourg Market. These financing instruments have certain covenants attached, including an interest cover ratio and a debt leverage ratio, and benefit from security over substantially all of the Group’s assets under a Whole Business Securitisation structure. The Group continues to comply with all covenant requirements. Derivative financial instruments The Group has entered into interest rate swaps and inflation swap agreements covering a total principal value of £2,335.7m in order to hedge its exposure to variable interest rates and inflation exposure in its revenue contracts. £1,023.2m of variable rate debt is hedged via two classes of interest rate swaps at an average fixed rate of 5.7926%. The interest rate swaps have 3 year and 5 year mandatory break clauses co-terminus with the variable rate bank debt. £1,312.5m of fixed and variable rate debt is hedged via three classes of inflation linked swaps which fix interest at an average rate of 2.9498% 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 inflation swaps is April 2027. The Group has purchased Swap Options with a total principal value equal to the current interest rate swaps (£1,023.2m). The options are exercisable at maturity in 3 years and 5 years, (co-terminus with the interest rate swaps and floating rate bank debt) and hedge the Group’s exposure for the duration of the interest rate swaps to a decline in LIBOR below 1% at the point of the mandatory breaks in 3 and 5 years' time. 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 APPF. In addition, AF1 entered into USD 358.0m 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. An amount of £41.0m (December 2012: £277.3m, June 2013: £20.2m) reflecting accrued liabilities under the inflation swaps 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 December 2013 (excluding the inflation swap accrual), is a liability of £1,325.4m which comprises £1,006.8m in relation to the RPI linked swaps, £294.1m in relation to the interest rate swaps, and £24.5m in relation to the cross currency swaps (December 2012: total £1,115.8m, June 2013: total £1,412.3m), 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.



17 Provisions for liabilities and charges

Onerous contracts

Decommissioning

Restructuring Remediation and maintenance

Other Total

£’m £’m £’m £’m £’m £’m

At 1 July 2013 2.2 37.2 3.5 10.4 0.8 54.1

Charged to profit and loss account

- - (3.2) - - 0.9

Released to profit and loss account

- (0.1) 0.9 (3.4) - (3.5)

Changes relating to movements in the discounted amount

- 0.8 - - - 0.8

Utilised (0.6) - 2.8 (0.1) - (1.1)

At 31 December 2013 1.6 37.9 4.0 6.9 0.8 51.2

18 Reconciliation of movement in shareholders’ defi cit

Six months to

31 December 2013

Unaudited

£’m

Six months to

31 December 2012

Unaudited

£’m

Year ended

30 June 2013

Audited

£’m

Loss for the financial period (261.7) (179.4) (423.6)

Capital contribution - - 0.1

Other recognised gains and losses relating to the period (3.4) (0.2) (0.6)

Net change in shareholders’ deficit (265.1) (179.6) (424.1)

Opening shareholders’ deficit (2,737.3) (2,313.2) (2,313.2)

Closing shareholders’ deficit (3,002.4) (2,492.8) (2,737.3)

19 Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities:

Six months to

31 December 2013

Unaudited

£’m

Six months to

31 December 2012

Unaudited

£’m

Year ended

30 June 2013

Audited

£’m

Operating profit 61.8 60.3 123.5

Depreciation charge 57.0 51.6 105.7

Amortisation charge 78.9 79.3 158.7

Loss on disposal of tangible fixed assets - 0.5 1.9

Decrease / (increase) in debtors 2.9 (28.4) (6.1)

Decrease in creditors (98.5) (73.6) (25.1)

Decrease in provisions (3.7) (1.4) (9.4)

Net cash inflow from operating activities 98.4 88.3 349.2



20 Analysis of changes in net debt

Note At 30 June 2013

£’m

Cash flows

£’m

Non-cash changes

£’m

At 31 December 2013

£’m

Cash at bank and in hand 14 120.4 (67.6) - 52.8

Loans to joint ventures 13 0.1 - - 0.1

Amounts owed by Group undertakings 13 0.2 - - 0.2

Debt due within one year 15 (112.1) (30.0) (168.0) (310.1)

Debt due after one year 16 (6,143.0) 2.0 (39.5) (6,180.5)

Finance leases 15,16 (14.5) 0.3 - (14.2)

Total (6,148.9) (95.3) (207.5) (6,451.7)

Major non-cash changes include movements in inter-company balances representing interest charges rolled-up into loan capital, a movement in accrued liability on interest rate and inflation swaps and a movement in unamortised debt issue costs.

21 Capital commitments Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as a liability are payable as follows:

31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Within one year 36.5 26.3 19.8

Within two to five years 1.3 - -

Total capital commitments 37.8 26.3 19.8

Commitments due within one year include £11.9m in relation to the Smart Metering contract (six months to 31 December 2012: £nil).

22 Contingent liabilities Under the terms of the Group’s external debt facilities, the Group has provided security over substantially all of its fixed and other assets by way of a Whole Business Securitisation structure.

23 Related party disclosures On a consolidated basis transactions and balances between Group entities have been eliminated in full and are therefore not disclosed in accordance with the guidance of FRS 8 ‘Related party disclosures’. Related party transactions: During the six months to 31 December 2013, the Group received a dividend from MXR Holdings Limited of £0.1m (six months to 31 December 2012: £0.1m) and a dividend from YouView TV Limited, a joint venture, of £0.3m (six months to 31 December 2012: £nil). The Group paid subscriptions of £1.3m (six months to 31 December 2012: £1.4m) to DTV Services Limited, an associate undertaking, and £3.2m (six months to 31 December 2012: £3.7m) to YouView TV Limited.



24 Pension Commitments Defined benefit scheme In the period to 31 December 2013, the Group operated one defined benefit scheme, sponsored by Arqiva Limited. The assets of the scheme are held separately from those of Arqiva Limited in trustee administered funds. The scheme is closed to new members. At 31 December 2012 and 2013 an update was performed (by an independent firm of qualified actuaries, Lane Clark and Peacock LLP) to the FRS17 actuarial valuations performed as at 30 June 2012 and 2013. The following amounts have been included within operating profit: Six months to

31 December 2013

Unaudited

£’m

Six months to

31 December 2012

Unaudited

£’m

Year ended

30 June 2013

Audited

£’m

Current service cost (employer only) 2.3 2.5 4.7

Settlement - 0.2 0.6

Total operating charge 2.3 2.7 5.3

The amounts recognised in the balance sheet were as follows: 31 December 2013

Unaudited

£’m

31 December 2012

Unaudited

£’m

30 June 2013

Audited

£’m

Total fair value of assets 160.2 139.0 147.1

Present value of scheme liabilities (161.7) (142.7) (150.1)

Gross pension (liability) (1.5) (3.7) (3.0)

Deferred tax asset 0.3 0.9 0.7

Net pension (liability) (1.2) (2.8) (2.3)

25 Controlling parties The Company’s immediate parent company is Arqiva Financing No 3 Plc (‘AF3’). Arqiva Broadcast Holdings Limited (‘ABHL’) is the ultimate UK parent undertaking. ABHL is owned by a consortium of shareholders comprising Canada Pension Plan Investment Board, Macquarie European Infrastructure Fund II plus other Macquarie managed funds, Health Super Investments, Industry Funds Management and the Motor Trades Association of Australia. There is no ultimate controlling party of the Company, as defined by FRS 8.

Documents

Arqiva Broadcast Parent Limited · Financial Report – Second quarter ending 31 December 2013 This Financial Report is delivered pursuant to Condition 4.5 of the Junior Notes. The