Connected. Always.Registered number 05254001 Arqiva Group Limited
Annual Report For the year ended 30 June 2019 Annual Report for the year ended 30 June 2019
Corporate information
As at the date of this report: Group website: Registered Ofiice www.arqiva.com Crawley Court Winchester Group Board of Directors Independent Auditors Hampshire Simon Beresford-Wylie PricewaterhouseCoopers LLP, Savannah SO21 2QA (Chief Executive Officer) House, 3 Ocean Way, Southampton, Mark Braithwaite United Kingdom SO14 3TJ Company Registration Number Frank Dangeard 05254001 (appointed 10 September 2018) 1 Mike Darcey Company Directors: (appointed 10 September 2018) Peter Adams Sally Davis Mark Braithwaite Paul Donovan Frank Dangeard (appointed 10 September 2018) (appointed 10 September 2018) Martin Healey Mike Darcey Neil King (appointed 10 September 2018) Nathan Luckey Sally Davis Peter Adams (alternate) Paul Donovan (appointed 10 September 2018) Mike Parton (Chairman) Max Fieguth Christian Seymour (appointed 30 November 2018) Max Fieguth (alternate) Martin Healey (appointed 30 November 2018) Neil King Sean West (Chief Financial Officer) (appointed 15 May 2019) Nathan Luckey Mike Parton Christian Seymour Deepu Chintamaneni (resigned 30 November 2018) Paul Dollman (resigned 10 September 2018) Damian Walsh (resigned 10 September 2018) Company secretary: Jeremy Mavor
1 In respect of Arqiva Group Limited, the ultimate parent company of the Group
Arqiva Group Limited Annual Report for the year ended 30 June 2019
Cautionary statement
This annual report contains various The risks and uncertainties referred to the ability of the Group to develop, forward-looking statements regarding above include: expand and maintain its broadcast events and trends that are subject to and telecommunications infrastructure; risks and uncertainties that could cause actions or decisions by governmental the ability of the Group to obtain the actual results and financial position and regulatory bodies, or changes external financing or maintain sufficient of the Group to differ materially from the in the regulatory framework in which capital to fund its existing and future information presented herein. When used the Group operates, which may impact investments and projects; in this report, the words “estimate”, the ability of the Group to carry “project”, “intend”, “anticipate”, “believe”, on its businesses; the Group’s dependency on only a “expect”, “should” and similar expressions, limited number of key customers for as they relate to the Group, are intended to changes or advances in technology, a large percentage of its revenue; and identify such forward-looking statements. and availability of resources such Readers are cautioned not to place undue as spectrum, necessary to use expectations as to revenues not reliance on these forward-looking new or existing technology, or under contract. statements, which speak only as of the date customer and consumer preferences hereof. Save as otherwise required by any regarding technology; rules or regulations, the Group does not the performance of the markets undertake any obligations publicly to in the UK, the EU and the wider release the result of any revisions to these region in which the Group operates; forward-looking statements to reflect events or circumstances after the date the ability of the Group to realise hereof or to reflect the occurrence the benefits it expects from existing of unanticipated events. and future projects and investments it is undertaking or plans to or may undertake;
Guidance note to the annual report: In this document, references to ‘Arqiva’ and ‘the Group’ refer to Arqiva Group Limited (‘AGL’) and its subsidiaries and business units as the context may require. References to the ‘Company’ refer to the results and performance of Arqiva Group Limited as a standalone entity. A reference to a year expressed as 2019 is to the financial year ended 30 June 2019. This convention applies similarly to any reference to a previous or subsequent financial year. Additionally, references to ‘current year’, ‘this year’ and ‘the year’ are in respect of the financial year ended 30 June 2019. References to the ‘prior year’ and ‘last year’ are to the financial year ended 30 June 2018.
Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva Group Limited Annual Report for the year ended 30 June 2019
Contents
Arqiva in 2019 01 Highlights 03
Chairman’s introduction 05
Strategic report 08 Chief Executive’s statement 09 Business overview 11 Business model and business units 13 Strategic overview 17 Business update 19 Financial review 21 Key performance indicators 27 Spotlight: Terrestrial Broadcast 29 Spotlight: Satellite and Media 31 Spotlight: Telecoms & M2M 33 Corporate responsibility 35 Modern Slavery act: Slavery and Human Trafficking Statement 39
Governance 41 Board of Directors and Senior Executive Management 43 Principal risks and uncertainties 47 Directors’ report 52 Statement of Directors’ responsibilities 56
Group financial statements 57 Independent Auditors’ report to the members of Arqiva Group Limited 58 Consolidated income statement 67 Consolidated statement of comprehensive income 68 Consolidated statement of financial position 69 Consolidated statement of changes in equity 70 Consolidated cash flow statement 71 Notes to the Group financial statements 72
Company financial statements 131 Directors’ report for Arqiva Group Limited (‘the Company’) 131 Company statement of financial position 132 Company statement of changes in equity 133 Notes to the company financial statements 134
Cover Image: Built in 1962, the communications tower at Croydon is 499ft high and provides radio services to the surrounding area, as well as providing back up for Digital Television for the nearby Crystal Palace tower.
Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva in 2019
Arqiva is the leading independent telecom towers operator and sole terrestrial broadcast network provider in the United Kingdom, holding significant investments in essential com- munications infrastructure. This non-replicable asset base across Arqiva’s business units, as described below, will support Arqiva’s leading position for the foreseeable future.
Market leader for commercial DTT spectrum owning two of the three c.1,150 main national commercial multiplexes2, TV transmission sites covering giving videostream capacity of 32 98.5% of the UK population with channels, and a further two HD the DTT1 platform capable multiplexes
c.1,500 c.8,000 radio transmission sites, including the 5 roll-out of 19 new DAB3 services for SDL4 active licensed macro cellular sites during the year
satellite dishes accessing... 700MHz Clearance activities completed c.80 on 613 sites, now over 60% through the ...40+ satellites programme from 5 teleports distributing 1,100 TV channels internationally
Smart network to cover up to 12 million UK Access to 200,000+ municipal street premises, with 99% network coverage and furniture sites for the provision of Small over 400,000 smart meters sold to date Cells in 14 London Boroughs
1 Refers to the Digital Terrestrial Television platform, best known for supporting Freeview. 2 Main national commercial multiplexes refers to those considered to be most established. 3 Refers to Digital audio broadcasting 4 Refers to Sound Digital Limited 5 Reference to 8,000 sites includes contractual options on the assignment of sites; hereafter referred to as ‘circa 8,000 active licensed macro sites’.
01 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Key activities in the execution of Arqiva’s strategy include:
Reinforcing DTT’s long-term position Growing the Satellite data Investing in new technologies through as the most popular TV platform communications business in UK our transformation programme in the UK by continuing to support utilities and international energy, to ensure our infrastructure is platform development; aeronautical and maritime sectors; underpinned by operational excellence Expanding channel choice, optimising Strengthening Arqiva’s position as the and an efficient cost base; DTT multiplex utilisation, and working UK’s leading independent telecoms Maintaining the robustness of Arqiva’s with the TV manufacturing market sites provider by increasing the capital structure, with a long-term through Digital UK and Freeview to Group’s site portfolio and maintaining debt platform which has an average ensure that the hybrid DTT/IP service long term contracts with MNOs; debt maturity of over 5 years, and remain the default technology; Developing a ‘lean towerco’ investment grade credit rating over Managing the seamless execution of operating model; our senior debt; the 700MHz Clearance programme to Preparing to be a leading partner Investing in employees and meet target completion date in 2021; within the 5G ecosystem; challenging the workplace culture to maintain high levels of employee Continuing to develop digital DAB Growing the value of the engagement in a great place to work. radio as an attractive medium for M2M business within the utilities listeners and planning for the expected sector through the provision of eventual phase-out of analogue radio; smart metering; Helping broadcasters and rightsholders Consolidation of the broadcast to navigate and exploit the trends business areas to provide a more underlying the video market; streamlined and efficient service to our customers;
See also See also Strategic Overview: Business Model and Pages 17-18 Business Units: Pages 13-15
Arqiva Group Limited 02 Annual Report for the year ended 30 June 2019
Highlights
With major programmes at a peak throughout 2018 and 2019, Arqiva has continued to deliver growth in revenue and EBITDA. This growth has been delivered despite a decline in operating profit and operating cash flows after capital and financial investment due to phasing of programmes for example reducing capital expenditure.
Revenue EBITDA1 Operating cash flow after capital Operating profit £m £m and financial investment activities2 £m £m CAGR 5.9% CAGR 6.6%
CAGR 3.9% CAGR 16.1% 884.7 943.8 976.0 999.5 424.4 467.0 523.7 526.4 226.6 332.5 410.8 355.8 271.1 284.5 330.0 320.5
2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
Compound Annual Growth Rate (‘CAGR’)
Key influences on revenue growth3 (£m):
Group revenue has increased 2.4%, with the primary increases being in Telecoms towers, smart networks, DTT and radio. These have been offset by decreases reflecting changes in the business, in particular where major programmes activity, for example Installation Services, decrease as the projects near completion.
1010 10.5 5.3 1000 6.6 0.4 +2.4% 990 41.6 Reported 16.2 980 23.7 999.5 Revenue £m Revenue 970 976.0 1.0 960
950 2018 Telecoms Customer Disposed Smart Satellite DTT and 700MHz Other 2019 reported Towers installations businesses networks and radio (TB) Clearance reported (Tel M2M) (Tel M2M) (Tel M2M) (Tel M2M) Media (TB) (SM)
1 EBITDA is a non-GAAP measure and refers to ‘earnings before 2 Operating cash flow after capital and financial investment 3 Key drivers are stated along with the operating segment in interest, tax, depreciation and amortisation’. This includes ad- activities is a non-GAAP measure and represents the net cash which these business streams are aligned, i.e. Terrestrial Broadcast justments for certain other items charged to operating profit that generated by the business after investment in capital items. This (‘TB’), Telecoms & M2M (‘TelM2M’) and Satellite and Media do not reflect the underlying business performance. See page 23 represents the remaining cash available to service the capital (‘SM’). The ‘disposed businesses’ principally relate to Tel M2M, for where this measure is fully explained and reconciled back to structure of the business, or the return of cash to shareholders in whilst ‘other movements’ reflect a number of smaller movements operating profit as presented in the income statement. the form of dividends. A full reconciliation between this measure across the business as a whole. Further information and narrative and net cash generated from operations is presented on page 24. is included in the financial review on page 21.
03 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Revenue by operating segment £m Contracted Order Book £bn
Terrestrial Broadcast Terrestrial Broadcast £491.3m (2018: £489.3m) £3.3bn (2018: £3.5bn) Telecoms & M2M Total Telecoms & M2M Total £385.0m (2018: £353.2m) £999.5m £1.2bn (2018: £1.5bn) £4.7bn
Satellite & Media Satellite & Media £123.2m (2018: £133.5m) £0.2bn (2018: £0.2bn)
Highlights during the year include: Continuing the delivery phase of Refinancing of the Group’s £600m Revenue growth for the year of the smart energy metering contract, 9.5% coupon junior bonds, due 2.4%, including organic growth and implementing incremental in 2020, raising £625m of new of 2.5%1; contract change requests, finishing bonds, maturing in 2023 with Peak activity in the delivery of the the year in line with milestones and a coupon of 6.75%. 700MHz Clearance programme network coverage of circa 99%; in accordance with key programme 0.5% increase in EBITDA including milestones, with work completed EBITDA growth in the Telecoms on 613 sites thus far; & M2M (2.5%) and Terrestrial Broadcast (0.2%) business units;
1 Organic growth refers to the underlying performance of the business excluding the impact of non-core business areas which were disposed in the current or comparative period (e.g. the Group’s Inbuilding business within the Telecoms & M2M business unit).
Arqiva Group Limited 04 Annual Report for the year ended 30 June 2019
Chairman’s introduction
“The delivery of our Growth in Financial Performance in the industry in line with consumer The 2019 financial year has seen trends. From 1 July 2019, the Group major capital programmes the group maintain another year of will therefore be structured into two has progressed, meeting revenue growth for the business. This operating divisions (Media Networks milestones and having demonstrates the continued success and Telecoms & M2M) supported by and hard work of our people in being central corporate functions. a positive impact on the able to adapt and take advantage of financial performance opportunities within our markets. There Changes to the Board has been continued investment in our In 2019, we welcomed Frank Dangeard, of the business.” core broadcast and telecoms markets in Mike Darcey and Paul Donovan order to maintain our infrastructure and to the Board. Frank Dangeard has the unique position that this places us in. been appointed as an Independent Non-executive director and replaces The delivery of our major capital Paul Dollman as chair of the audit programmes has progressed, meeting committee. Mike Darcey has been milestones and having a positive impact appointed by Frequency Infrastructure on the financial performance of the Communications Assets Limited and business. However, as these programmes Paul Donovan is a joint appointment mature, and in some cases move by IFM Investors and Motor Trades towards completion, our activity in these Association of Australia. The three areas will reduce and we must focus on new directors succeed Paul Dollman how we can further develop and leverage and Damian Walsh who have left during our platforms. the year. We thank Paul and Damian This year we have seen the Group for their contribution to Arqiva. undergo an operating review to refine and focus our business model around Change in Chief Financial Officer our core business areas. Effective in the During the year Jane Aikman, Chief new financial year, this change brings Financial Officer (CFO) left the business. together our Terrestrial Broadcast, I would like to take this opportunity to Satellite and Media and Networks parts thank her for her contribution to the of the business in to one single business business. Sean West has been appointed unit, Media Networks. This will allow as Chief Financial Officer. Sean joined us to combine the knowledge of the Arqiva in 2015 and previously held different areas and better serve our the role of Director of Treasury customers, putting us in a position to be and Corporate Finance. able to adapt and respond to changes
05 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Outlook and maintain the unique service at the forefront of decision making in As we move in to the new financial capabilities that our critical national the markets in which we operate to year we will continue our focus on the infrastructure provides. We must focus build on the trends and opportunities core broadcast and telecoms markets, on our strategic objectives (see page that they offer. working with our customers to deliver 17 for further information) and continue As a final note, on behalf of the Board, high quality and innovative services. to adapt and look for opportunities in I would like to thank all our employees Infrastructure projects such as 700MHz dynamic markets as people continue across the business for their dedication Clearance, 4G installations and the to consume increasing amounts of and hard work. It is our people which are smart energy metering network are data and watch and listen to content central to our continued success as at advanced stages of their respective across various platforms. a business. roll-outs and as the contracts move The Group also continues with its in to new phases, we will continue to FutureFit transformation programme, adapt to the needs of our markets. We moving into the next phase of delivery will also maintain communication with as we standardise and streamline our our stakeholders to be well positioned processes, achieve efficiencies and for developments in our core markets improve customer service. for example 5G preparations, analogue There will be challenges in the market Mike Parton radio switchover and changing TV trends. but as we work with key stakeholders, Chairman Our new business unit model, along including government, regulatory bodies September 2019 with further transformation across the and our customers, we can build strong Group place us in a strong position relationships and ensure we remain
Arqiva Group Limited 06 Annual Report for the year ended 30 June 2019
07 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Strategic report
Chief Executive’s Statement 09
Business review Business overview 11 Business model and business units 13 Strategic overview 17 Business update 19
Performance review Financial review 21 Key performance indicators 27 Spotlight: Terrestrial Broadcast 29 Spotlight: Satellite and Media 31 Spotlight: Telecoms & M2M 33
Business sustainability Corporate responsibility 35 Modern Slavery Act: Slavery and Human Trafficking Statement 39
Arqiva Group Limited 08 Annual Report for the year ended 30 June 2019
Chief Executive’s Statement
“Arqiva’s financial results Our revenue growth has been driven Operational delivery from Telecoms & M2M (9.0%) and Looking across the business, customer for the year reflect strong Terrestrial Broadcast (0.4%). This has delivery has remained strong in 2019. performance that we been achieved through increased The 700MHz Clearance programme has have delivered across the revenues from the core telecoms continued with peak activity through towers business, through increased site the year. Arqiva is responsible for a business but there have numbers and continued 4G installation wide range of services required as part still been challenges.” activity, and the Group’s smart metering of the programme including spectrum network as well as continued high planning, network design, programme 2019 has been another successful activity levels on the 700MHz Clearance management, infrastructure changes, year for Arqiva. This is down to the programme and high utilisation on our service continuity, asset replacement hard work and commitment displayed DTT multiplexes in Terrestrial Broadcast. and retuning of broadcast transmitters by our colleagues in some challenging Satellite and Media revenues have to enable broadcasters to move into markets as we continue to deliver however decreased (down 7.7%) a lower frequency. Activity is however expected to decrease over the coming strong performance in the service having been impacted by non-renewal year as the programme remains on delivery to our customers. of contracts, rationalisation of services track for completion in 2021. and pricing pressures within the Financials product portfolio. Our smart energy metering contract The financial results for the year reflect for the North of England and Scotland With major projects at peak levels the strong performance that we have is now in full deployment. The Arqiva throughout 2018 and 2019, our financial delivered across the business. Revenue network is now at 99% coverage and results have been at their strongest in has continued to grow, up 2.4%1. transmitting millions of messages each Arqiva’s history. While some of these Whilst operating profit has decreased month between the energy companies projects now begin to mature or move 2.9%, EBITDA has increased 0.5%2. and consumer gas and electricity meters. towards completion, such revenues are Although the growth represents strong New meters are being installed every expected to decline in the near future, performance, there have still been day with roll-out expected to accelerate however the core telecoms towers and challenges, in particular within our significantly over the next 12 months. broadcast businesses provide strong and Satellite and Media markets. DTT remains a popular medium within predictable revenue streams with long the broadcast market. During the term infrastructure investments and year, the Freeview app has launched customer contracts a key feature. connecting consumers to live and With a contracted order book of on demand content from BBC, ITV, £4.7bn, inflation linked pricing and Channel 4, 5 and UKTV Play. This app the opportunities for utilisation that demonstrates the Groups development our unique infrastructure provides, capabilities having been at the Arqiva is in a strong position in forefront of the app development. the market. We have continued to Installation services for 4G roll- invest in new infrastructure across out, helping MNOs meet coverage broadcast and mobile networks requirements, has continued but at lower in order to support an efficient activity levels during the year as the roll- platform for future opportunities. out approaches completion. We continue our engagement with the MNOs on planning for 5G roll-out in the near future.
1 Reported revenues of £999.5m in 2019, and £976.0m in 2018 2 Referencing operating profit (2019: £320.5m; 2018: £330.0) and EBITDA as reported on page 21 (2019: £526.4m; 2018: £523.7m)
09 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Our strategy for growth listening to more content, we need to Management Board Changes During 2019, we reviewed the operating focus on how to utilise hybrid-IP products During the year, Matthew Brearley, model of the business and made the and reach emerging platforms as well Director of People and Organisation, left decision to consolidate the Terrestrial as continuing to maintain traditional the business with Neil Taplin appointed Broadcast and Satellite & Media parts TV broadcast services for both free- as his successor. On behalf of the Board, of the business, along with our Networks to-view live and on demand TV. The I would like to thank Matthew for his team, in to a combined customer strategy of refining our business model contribution to Arqiva. Neil moves to facing business unit ‘Media Networks’ to bring together Terrestrial Broadcast, this position from his role as Director of from 1 July 2019 (see page 15 for Satellite & Media and Networks is a Operations in the Terrestrial Broadcast more information). These portfolio key step in being able to achieve this, business. I also welcome Sean West and organisational changes that have providing a more aligned team and to the management board as Chief been announced are now live as we ability to deliver for our customers. We Financial Officer, from his role of Director enter the next financial year. These will also continue to deliver the 700MHz of Treasury and Corporate Finance changes, designed to better support Clearance programme to clear spectrum having replaced Jane Aikman in May our customers, are fundamental to to be used for mobile data services and 2019. our ability to respond to the dynamic also look at how we can work with the Outlook conditions of the markets in which we Government and Broadcasters on the As we continue into the next financial operate. As our markets mature, and our review of analogue radio switchover year, there will be challenges ahead. major programmes progress from recent and how our DAB network can be Whilst we have a strong customer base peak activity, we will continue to face utilised for this. we face changing markets and project challenges and need to adapt. Within Within the Telecoms & M2M business, completions and therefore we continue the telecoms market, increasing mobile we will continue to deliver on our smart to be proactive in meeting our data demand continues and 5G presents metering contracts. With the initial customer’s needs, both in terms of additional technological opportunities parts of the contract having been about developing new products to supporting but also operational challenges to installing and establishing the network, the existing services. install and support even greater levels we now move forward with a focus on of telecoms equipment on our network supplying more devices for installation of towers. Within the broadcast industry which can communicate via the network. there are continued changes within our Whilst there are also uncertainties in markets and changing viewer habits the future of the Telecoms industry, impacting how content is delivered. our strategy going forward is to be In order to respond to these changes, truly customer focused, to change and we need to be increasingly aware of develop our capabilities, systems and Simon Beresford-Wylie the pressures our customers are facing, processes and transform our estates to Chief Executive Officer working with them to understand how be able to respond to their needs. This September 2019 best we can serve them. Within Media includes investment to enable 5G as Networks, everyone is watching and MNOs start to deploy this technology.
Arqiva Group Limited 10 Annual Report for the year ended 30 June 2019
Business overview
The UK’s leading independent telecom sites operator and sole UK terrestrial broadcast tower network.
Arqiva is one of the UK’s leading its customers, as well as fees for the UK and our business is driven from communications infrastructure and engineering services and new projects. this region; therefore, while the nature media service providers, with a strong Arqiva’s services tend to be mission- of Britain’s exit from the European market position, diverse revenue critical for its customers, as well as Union is still uncertain, we have minimal streams and long-life assets. providing the network coverage exposure to international markets The Group is an independent provider necessary for the fulfilment of the and foreign exchange. of telecom towers, with circa 8,000 universal service obligations (‘USOs’) The Group has invested significant active licensed macro cellular sites, for Terrestrial Broadcast and Telecoms sums into its infrastructure and has and the only national provider customers set out in their operating £1.7bn of property, plant and equipment of terrestrial television and radio licences from the UK government. at 30 June 2019. Arqiva is financed broadcasting. Arqiva has invested In addition, the Group completes various through a mixture of equity and long- significantly allowing it to develop engineering projects for customers such term debt, with an average debt maturity its communications infrastructure as technological upgrades, installations profile of over 5 years. The Group’s senior and technology as markets evolve. and coverage or compression upgrades. debt has an investment grade (BBB) Arqiva is independent and reliable. Whilst we have a small overseas rating from Standard and Poor’s and Arqiva earns network access and presence, Arqiva’s assets, operations Fitch and junior debt a B-/B2 rating transmission service revenues from and markets are predominantly within from Fitch and Moody’s.
Attractive UK A market leader High barriers to entry communications infrastructure market
DTT is the most popular TV The following key competitive Arqiva owns critical national platform in the UK covering positions make Arqiva the UK infrastructure that enables 98.5% of the population; and market leader: MNOs and PSBs1 to meet their Continued data traffic growth The largest independent government mandated universal and proliferation of mobile provider of telecom towers coverage obligations. devices driving coverage and with c.8,000 active licensed The Group’s unique site locations capacity requirements and macro cellular sites; and national footprint play a demand for telecoms towers Sole provider of terrestrial crucial role in supporting these and small cells; television network access coverage obligations; including (Freeview); our increased exclusive access to municipal street furniture across Owner of 2 of the 3 main 14 London Boroughs. national commercial multiplexes; and Significant investment would be required to replicate the Pre-eminent role in radio infrastructure, including UK broadcasting both locally planning permissions to erect and nationally. new masts. Arqiva also has long established relationships with its customers spanning more than 80 years.
1 Refers to Public Service Broadcasters (‘PSBs’)
11 Arqiva Group Limited Annual Report for the year ended 30 June 2019
A pioneer in an always on, Given the exponential growth of connected devices from smartphones always connected world. and tablets to connected TVs and development of the smart meters Arqiva’s history can be traced back to network, there is an ever-increasing 1922 when it broadcast the world’s first demand for data communication. It is national radio service. In 1936 it carried essential that businesses and consumers the BBC’s first television broadcast. In have access to seamless, uninterrupted 1978 it enabled Europe’s first satellite communications and broadcast quality TV test. By the 1990s Arqiva was working content anywhere and at any time. with the UK’s mobile operators to bring mobile telecommunications to Every day Arqiva’s infrastructure and UK businesses and consumers. In the technology enable millions of people 2000s, it launched the UK’s national and machines to connect wherever they DAB radio and digital terrestrial television are through television, radio, mobile network. Most recently, Arqiva has played phones or through machine-to-machine a pioneering role in the roll-out of the activities. Arqiva’s television and radio national smart energy metering network, services reach some of the most isolated has supported the continued roll-out individuals and communities in the UK, of 4G data coverage, and is actively helping to bridge the digital divide. Arqiva planning for the future of 5G. strives continually to find ingenious new ways to support its customers. The Group’s technology and infrastructure, combined with its Investing to ensure the UK history and experience, enable it to work with everyone from MNOs (such has the communications as BT-EE, Vodafone, O2 and Three), infrastructure it needs to to independent radio groups to major thrive in an increasingly broadcasters (such as the BBC, ITV, Sky, Turner and CANAL+), to utility companies connected world. such as Thames Water and to the Data Communications Company (DCC).
Arqiva Group Limited 12 Annual Report for the year ended 30 June 2019
Business model and business units
Arqiva owns and operates a portfolio of cellular sites, TV and radio transmission sites supporting broadcast and communications across the UK.
Arqiva seeks to maximise shareholder value by investing in its considerable site portfolio to not just maintain its reliability, but also to maximise its potential. Accordingly Arqiva has a wide range of service capabilities including: Broadcast transmission from DTT, radio and satellite multiplexes; Satellite transmission; its towers; Machine-to-machine network Small cells services; and Telecommunications from active connectivity supporting Fibre cable connections. licensed macro sites; smart networks;
For the year ended 30 June 2019, our business is aligned into the following customer-facing business units, supported by the Group’s corporate functions:
Terrestrial Broadcast
Terrestrial Broadcast owns the Within the Terrestrial Broadcast division, In addition, the business unit infrastructure and sites for the the Group utilises its network of circa operates more than 1,500 transmission transmission of terrestrial TV and 1,150 TV sites to carry Freeview into circa sites for radio, providing coverage radio, operates the Group’s licensed 24 million households every day, making to circa 90% of the UK population. multiplexes, and delivers related it the UK’s most popular TV platform. Arqiva is a shareholder in and operator engineering projects. The business Arqiva’s network is of significant national for both commercial national DAB unit holds a regulated position as the strategic importance providing coverage radio multiplexes and it is the service sole provider of network access for to 99% of the UK’s population. provider for the BBC national DAB radio terrestrial television broadcasting. Arqiva is a market leader in commercial multiplex. Broadcasting contributes The Group is currently earning revenue DTT spectrum, owning the licences significant and stable cash flows to the on delivery of the programme to for two of the three main national Group with a long-term contracted, clear the 700MHz frequency range commercial DTT multiplexes, enabling substantially RPI-linked, order book of television signals, so that it can leading broadcasters such as UKTV, Sky, of £3.3bn which includes major be used for mobile data. CBS and Turner to deliver broadcasting contracts running as far as 2035. content using our channel capacity. Arqiva also owns both HD-enabled DTT multiplex licences that provide services to Freeview and other DTT- related platforms including Youview.
1013 Arqiva Group Limited Annual Report for the year ended 30 June 2019 Telecoms & M2M
Telecoms & M2M controls a large which Arqiva earns site share revenues With a focus on innovation, Arqiva portfolio of active licensed macro and delivers equipment upgrades for continues to embrace the fast developing sites and generates revenues from the roll-out of new technologies. These M2M sector for which Arqiva utilises site share arrangements as well as towers are central to achievement of its Flexnet network across our smart installation services for the roll-out of Mobile Network Operators’ contractual metering contracts with utility and water 4G data capabilities and other site and obligations and requirements to provide companies. The Group has invested in equipment upgrades. This business unit up to 98% 4G coverage. building M2M networks, which are now also generates revenues with respect Arqiva has access to municipal street supporting a major energy metering to the build and operation of the smart furniture sites for the provision of Small contract spanning 15 years and covering ‘machine-to-machine’ networks and Cells and commercial wireless networks more than 9 million premises, and a other data transmission services including across 14 London Boroughs. water metering contract which will small cells, and other M2M applications. cover 3 million homes in an initial phase Although installation services from of 6 years, with likely extension for an The Telecoms & M2M division is the 4G are declining in line with achievement additional 10 years. Arqiva has invested UK’s largest independent provider of of roll-out, the core telecoms towers substantially in infrastructure as a result wireless towers, with circa 8,000 active business and M2M network continue of these contracts, which now result in licensed macro cellular sites. It works to be key areas for the Group, with recurring cash flows during the long-term with major blue-chip customers including an with an order book of £1.2bn operational phases of the networks. BT-EE, Vodafone, Telefonica O2 and for the business unit with some Three UK through the MBNL and CTIL contracts running as far as 2024. network sharing agreements, from
Satellite and Media
Satellite and Media owns and operates Arqiva manages the distribution of more network delivers content to the world’s teleports at key locations in the UK, as than 1,100 international TV channels major DTH platforms including Sky well as an international terrestrial fibre for high profile customers including Al and Freesat as well as the increasingly distribution network, media facilities and Jazeera, Discovery, BT Sport, Sky, NBCU, popular IPTV, mobile and web TV leased satellite capacity. These enable Sony and Turner , including coverage platforms. Satellite and Media has an the business to provide customers with of high-profile sporting events. Arqiva’s order book of £0.2bn which is comprised a comprehensive range of services to operation of reliable and secure VSAT1 of short- to medium- term contracts deliver their data content, broadcasts communications networks across the extending out to 2026. and media services internationally. globe utilises a world class satellite and During the year, Arqiva announced The Satellite and Media division is fibre network, providing real-time critical that following a review of its Satellite the UK’s leading independent owner communications to remote locations, and Media portfolio it will run down its and operator of teleports and media including oil and gas exploration. Arqiva occasional use operations during 2019 management facilities serving many uses its expertise and experience to and 2020 and its playout operations of the world’s largest multi-channel enable it to keep pace with rapidly will also cease. broadcasters and sports-rights changing dynamics and technology organisations, as well as providing data advancements, thereby underpinning the connectivity to the utilities and natural longevity and success of the Satellite and resources sectors. Media business. Arqiva’s global satellite
Corporate
Corporate functions comprise Finance, Legal & Regulatory, Information Technology and Connectivity and People & Organisation.
See also See also See also Strategic Overview: Key Performance Indicators: Spotlights: Page 17 Page 27 Page 29
1 Refers to ‘Very Small Aperture Terminal’ (‘VSAT’)
Arqiva Group Limited 14 Annual Report for the year ended 30 June 2019
Business model and business units
Change in Business Units
During the year, management conducted This alignment will bring together our better to the growing demand for ‘hybrid’ a review of the operating model of the capabilities and skills across Terrestrial offerings based on virtualised platforms business and identified benefits from the Broadcast, Satellite and Media and and IP networks. consolidation of the Terrestrial Broadcast Networks to face in to the broadcast This change has also allowed us to and Satellite & Media business units. sector, enabling us to serve our customers rationalise teams where duplication Effective from 1 July 2019 these two seamlessly irrespective of which existed, whilst aligning the priorities of the business units were merged in to a single distribution platform the customer is networks team with our customer plans customer facing business unit, to be using. The new business unit will provide particularly as the skills and expertise of known as Media Networks. The Networks terrestrial and satellite networks to leading the networks team become ever more team, previously within the Corporate content owners and network providers important as customers explore the business unit will also move in to the utilising our broadcast and IP knowledge opportunities that internet delivered Media Networks business. and satellite skills and allow us to respond services offer.
The following diagram demonstrates how our new operating model has changed:
Terrestrial Broadcast Satellite and Media 2018 727 people 2018 376 people 2019 734 people 2019 350 people
Media Networks Telecoms & M2M
To include ownership and operation of the Group’s national digital terrestrial Control of macro sites and networks for TV multiplexes and DVB-T2 multiplexes and media content delivery. telecommunications, machine-to-machine and 2020* 1,166 people other data transmissions. 2018 480 people 2019 428 people, 2020*428 people
Supported by:
Central Functions 2018: 505 people Re-alignment *Represents the number of people 2019: 500 people aligned to each business unit of employees effective from 1July 2019 2020*: 418 people
1015 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva Group Limited 16 Annual Report for the year ended 30 June 2019
Strategic overview
Vision Strategy Arqiva’s vision is to be central to every vital connection that Arqiva’s strategy is to reinforce its position as the leading people in the UK make, every day. UK communications infrastructure company, whilst Arqiva’s core values guide how people work together ensuring supporting the development of a vibrant digital economy. we go the extra mile to help our customers reach their The Group’s strategy is summarised by the following customers and audiences: strategic priorities: Looking for ingenious and smarter ways to support our 1. Grow a financially successful business, leveraging existing customers; embracing change and fresh thinking to find infrastructure assets and customer relationships with solutions that add real value; selective investment to maximise value by securing long- Working with each other and customers in a term scalable growth opportunities. straightforward way to ensure that Arqiva is always 2. Simplify and standardise our technology, platforms and efficient, effective and understood, keeping things simple processes to optimise costs, improve efficiency and drive and clear and acting with integrity; and superior returns. Bringing expertise and passion to collaborative working 3. Help Arqiva’s customers prosper and succeed by to provide a cohesive service to customers. delivering superior services in the most cost-efficient way. 4. Be a great place to work by continuing to invest in our people, building the Group’s knowledge and growing its expertise, led by a dynamic senior management team with a clear vision and proven track record.
17 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Key steps in the execution of Arqiva’s strategy include: Consolidation of the broadcast business areas to provide Reinforcing DTT’s long-term position as the most popular a more streamlined and efficient service to our customers; TV platform in the UK by continuing to support the Investing in new technologies through our transformation development of the hybrid DTT/IPTV platform, expanding programme to ensure our infrastructure is underpinned the range of catch up services available as well as serving by operational excellence and an efficient cost base; the needs of a pay-lite audience base; Maintaining the robustness of Arqiva’s capital structure, Expanding channel choice, thereby supporting with a long term debt platform which has an average debt DTT multiplex utilisation, and working with the TV maturity of over 5 years, and an investment grade credit manufacturing market through Digital UK and Freeview rating over our senior debt; to ensure that the hybrid DTT/IP service remain the Investing in employees and challenging the workplace default technology; culture to maintain high levels of employee engagement Managing the seamless execution of the 700MHz in a great place to work. Clearance programme to meet target completion date in 2021; 2019 Progress Continuing to develop digital DAB radio as an attractive Grow a financially successful business medium for listeners and planning for the expected 2019 has continued an upward trend in financial eventual phase-out of analogue radio, rolling out DAB to fill performance with revenue and EBITDA both up. the remaining coverage gaps, and positioning DAB as the Net operating cash generation. default replacement network for analogue services; Helping broadcasters and rightsholders to navigate the Simplify and standardise our technology, trends underlying the video market. These trends include platforms and processes ‘hybrid’ consumer behaviour, increasing operational Operating costs reduced, owing to cost saving initiatives. complexity and the need for operational and commercial Transformation programme progressing with reviews flexibility – over satellite, IP/Fibre and internet for content of IT systems and infrastructure. aggregation, processing and delivery; Help Arqiva’s customers prosper and succeed Growing the Satellite data communications business in Big successes in service reliability with instances of over UK utilities and international energy, aeronautical and 1,500 days without avoidable outage. maritime sectors through Arqiva’s market leading UK Strong programme delivery across the portfolio including teleport and managed service capability; the 700MHz Clearance programme. Strengthening Arqiva’s position as the UK’s leading independent telecoms sites provider by increasing Be a great place to work by continuing to invest in our people the Group’s site portfolio and maintaining long term Holders of Investors in People Gold award. contracts with MNOs; New approach to diversity and inclusion with training Developing a ‘lean towerco’ operating model making provided to line managers. greater use of automation and outsourcing arrangements; Mental health first aiders trained across the business. Preparing to be a leading partner within the 5G ecosystem via our portfolio of high-quality towers, rooftops, street furniture concessions and small cells combined with an industry leading planning & delivery capability; Growing the value of the M2M business within the utilities sector through the provision of smart metering, monitoring and control products that operate from a scalable platform;
Arqiva Group Limited 18 Annual Report for the year ended 30 June 20182019
Business update
The Group’s contracted order book network. The solution will enable UK Digital radio (DAB) value at 30 June 2019 was £4.7bn Power Networks’ engineers to operate Since the start of this year, the Sound (2018: £5.2bn). In the year the Group equipment remotely to restore customers’ Digital multiplex (a Joint Venture with won circa £470m of new contracts. power supplies quickly in the event of Bauer and Wireless Group) has operated A significant proportion of the value a power cut and also to monitor and at 100% utilisation following the launch of this orderbook relates to medium to receive regular status updates from the of two Virgin Radio stations. Arqiva’s long-term contracts which includes DTT field. With expertise in cyber security and Digital One national multiplex also and radio transmission, site sharing and extensive knowledge of communication remains fully utilised. We continue to smart metering, as well as satellite and networks for critical national infrastructure market capacity on the 23 local multiplex other infrastructure services. The Group companies, Arqiva’s technical team licences which the Group owns and remains focused on growth opportunities designed a solution that meets UK Power occupancy has increased year on year. in targeted, core infrastructure areas. Networks’ needs to monitor and control At the UK Radio Festival in May 2019, the distribution power network robustly. the Minister for Digital and Creative Media Networks (formerly Terrestrial Industries confirmed the start of the Broadcast and Satellite and Media) 700 MHz Clearance and DTT spectrum government’s review of radio and The 700 MHz Clearance project remains Consolidation of Terrestrial Broadcast its transition to digital platforms. on track. The scope of the project is to and Satellite and Media The government has consulted with clear the 700MHz spectrum band (694 On 1 July 2019, the Group combined the Arqiva and other stakeholders about MHz to 790 MHz) of DTT use, so that it former Terrestrial Broadcast and Satellite the review’s structure and key inputs. can be auctioned by Ofcom and used for and Media Business units, as well as the Government aims to conclude the review mobile data. The overall programme is corporate network teams into a newly by “the middle of next year”. expected to complete by late 2021 and merged business unit, Media Networks. the Group continues to earn revenues This was part of a strategy to ensure high Reduced focus on Playout and closure and cash flows as delivery milestones levels of service quality for our customers, of Occasional Use are successfully completed. At 30 June enabling us to serve customers seamlessly Our plans to reduce focus on Playout 2019, 66% of Clearance events had and irrespective of which distribution and traditional Occasional Use satellite been successfully completed including platform the customer is using. This has distribution and uplinking are progressing the conclusion of Clearance events in enabled us to rationalise teams where well. We continue to support our Playout Wales. Over 350 relay antennas have duplication existed, whilst aligning the customers in the interim period as we run been completed out of 415 across priorities of the networks team with our down our activities in this area and expect the whole country. customers’ plans. We expect the skills and to exit the business by the end of calendar year 2020. Our traditional Occasional Use expertise of the networks team to become Digital Platforms channel utilisation satellite distribution business closed, as ever more important as customers explore As at 30 June 2019, the Group had planned, at the end of June 2019. These the opportunities that internet delivered capacity of 32 video streams on its main relatively subscale areas provided minimal services offer. (DVB-T) multiplexes. In the short term, contribution to the Group’s overall we expect that utilisation may reduce as New multi-year agreement with UK earnings and cashflow. We successfully a small number of customers reviewing Power Networks completed our repositioning to focus their channel portfolios. The Group In May 2019, Arqiva announced that it on providing managed services for live continues actively review all opportunities had been selected by Britain’s biggest events focusing on the growth areas of and remains confident in optimising electricity distributor, UK Power Networks, content acquisition, contribution and the medium and long term value of to provide a new state-of-the-art IP and fibre delivery. its DTT multiplexes. Contracts in this Broadband Global Area Network (BGAN) business area are still typically 3-6years in solution for their secondary Supervisory duration. Control and Data Acquisition (SCADA)
1019 Arqiva Group Limited Annual Report for the year ended 30 June 20182019
Telecoms & M2M developments year, but at a reduced volume. reflecting smart network across their supply area, the advanced stage of the build out of pivotal for the delivery of their next Small cells and pilot network this network. five year business plan. Whilst the UK small cells market remains The Group continues to support the in its early stages, demand continues to Other business developments grow. Arqiva has hundreds of small cells preparations of the DCC and their users Transformation update deployed and operational across London ahead of the mass roll-out of SMETS2 The Group’s company-wide and three out of the four UK mobile meters which is expected during late 2019 transformation programme, ‘FutureFit’ network operators (MNOs) have deployed when the latest models of compliant is progressing strongly as it moves into small cells on Arqiva managed street Smart Meters become available to its next phase of delivery. Through assets. The service is equally suitable Energy Suppliers. this transformation programme, for 5G as it is for 4G. Smart water metering rollout – Arqiva continues to streamline and The Group continues to progress plans for Thames Water standardise its processes, rationalise and a 5G small cells pilot trial (the UK’s largest) Since April 2015, Arqiva has delivered modernise IT systems, achieve significant in the London Borough of Hammersmith a smart metering network that enables efficiencies and improve customer & Fulham, which will also involve the the collection, management and service. creation of a 15km high density fibre transfer of metering data for Thames We continue to invest in new network. Live services will run from the Water. At 30 June 2019, there were technologies to secure our infrastructure second half of the 2019 calendar year. over 407,000 meters installed and further and improve our ways of working with over 8 million meter readings being 4G roll-out with the deployment of an enhanced delivered per day it is the largest smart The Group is approaching the completion digital workplace. We have completed water metering network in the UK. The of 4G roll-out. 8,694 4G equipment a full migration to a mobile enabled network comprised 98 sites out of the upgrades were completed across Arqiva workforce and continue to enhance our 106 required for full network coverage sites as at 30 June 2019 since roll-out collaboration tools and capabilities with across the entire Thames Water London began in 2014. the deployment of new applications to region with completion expected all laptops and smartphones. We expect Major customer contract during summer 2019. to make further investment as planning is We have a major MNO customer contract well underway for the complete overhaul maturing in late 2019. Negotiations to Smart water metering trial of our Service, Asset Management, define our commercial relationship past contracts – Anglian Water Network Management and ERP systems. this date, are ongoing. Since June 2016, Arqiva has been operating smart water metering trials This will transform our core operational Smart energy metering rollout for Anglian Water in two of their regions. delivery model across the full range of The Group’s smart metering These trials are part of Anglian Water’s our products and services. communication network in the North of strategy for a long-term smart metering CFO change England and Scotland has been live since programme and the delivery of our In May 2019, Jane Aikman, Chief November 2016. service has enabled Anglian to realise the Financial Officer, left Arqiva and was significant benefits of improved leakage The Arqiva network currently covers replaced s by Sean West, previously our detection, and consumer engagement, 99.25% of premises and is expected Director of Treasury & Corporate Finance. whilst also informing their business plans. to reach final coverage of 99.5% by Prior to joining Arqiva, Sean held senior As at 30 June 2019, over 17,500 meters summer 2020. DCC continue to submit corporate finance and treasury positions were operational under these trials change requests that reflect new industry at the Intermediate Capital Group (ICG) and Anglian Water has seen 358,000 requirements planned to be delivered and LandSec and brings a wealth of litres per day less customer leakage. in November 2019 and June 2020, experience across a range of industries Consequently, Anglian has announced The Group expects change requests and financial markets. to continue into the new financial a procurement tender process for a full
Arqiva Group Limited 20 Annual Report for the year ended 30 June 2019
Financial review
Headline financials
Revenue EBITDA Operating profit 2.4% to 0.5% to 2.9% to £999.5m £526.4m £320.5m Loss before tax Operating cash flow Operating cash flow after capital and financial investment activities 82.4% to 17.3% to 13.4% to £(365.5)m £471.1m £355.8m loss includes non-cash charges (net) of £662.7m (2018: £493.2m) – see page 23)
Financial performance
For the year ended 30 June 2019, revenue for the Group was £999.5m, an increase of 2.4% from £976.0m in the prior year. Revenue includes £0.6m (prior year £1.6m) from the Group’s former Inbuilding Solutions business disposed of during the year. Excluding the effect on financial performance of this disposal, organic revenue growth from the continuing business was 2.5%. The trend of reported revenue growth has continued. Over the four years to 30 June 2019 compound annual revenue growth is 3.9%.
Revenue by operating segment 30 June 2019 30 June 20181 Variance £m £m % Terrestrial Broadcast 491.3 489.3 0.4 Telecoms & M2M 385.0 353.2 9.0 Satellite and Media 123.2 133.5 (7.7) Total 999.5 976.0 2.4 Terrestrial Broadcast revenues increased the programme progresses, activity is Installation Services revenue, generated by 0.4% from £489.3m to £491.3m expected to reduce on this programme from assisting MNOs in meeting coverage year on year. Revenue on contracts has in the next financial year. Revenues also requirements, has decreased in the year increased through the year, resulting from include £2.5m for the Group’s Connected with annual revenue of £27.9m in 2019 increased DAB activity as well as RPI linked Solutions, reported within the Satellite and (2018: £51.6m). This is as a result of lower increases on broadcast contracts. These Media business unit in previous years. levels of activity in this area in line with increases have been partially offset by a Telecoms & M2M revenues increased expectations as the 4G roll-out reaches reduction in other engineering projects by 9.0% from £353.2m to £385.0m completion and is expected to continue due to phasing of projects. The 700MHz year on year. Excluding the effect of the at further reduced volumes in to the next Clearance programme has maintained Group’s Inbuilding Solutions business financial year. This reduction has been revenue compared to the prior year disposed in the year which contributed replaced with growth from the Group’s with high levels of activity in both 2018 £1.6m to revenue in 2018 and £0.6m core telecoms towers business driven by and 2019, with the programme at its in 2019, the Telecoms & M2M business increased site numbers under the Group’s peak and 613 sites now completed. As experienced revenue growth of 9.3%. control and associated activities. Revenue
1 Figures for 30 June 2018 throughout this report have been restated in the year for the impact of adoption of the new accounting standard IFRS 15 Revenue from contracts with custom- ers. IFRS 15 was adopted with a transition date of 1 July 2017. See note 33 of the financial statements for a full explanation of the effect of changes in accounting policy in the year.
21 Arqiva Group Limited Annual Report for the year ended 30 June 2019
from the M2M business has also continued and pricing pressures, however overall future financial years, centred on our to increase through the delivery phase of contract renewal rates remain robust for approach to simplify and standardise our the programme and due to incremental the remainder of the core business. The technology, platforms and processes. change request activity agreed in the year decreases were, however, partially offset by EBITDA is a non-GAAP measure and with the installation of the network now the rollout of new HD channels within the refers to ‘earnings before interest, tax, near completion. Moving forward the focus UK DTH business. depreciation and amortisation and will be on the delivery of the devices for Gross profit was £643.2m, representing includes add-backs for certain items the energy industry which will then be able a 0.6% decrease from £646.8m in the charged to operating profit that do to communicate via the network. prior year. Gross profit from the continuing not reflect the underlying business Satellite and Media continues to operate business1 decreased by 0.4% year on performance. A reconciliation of EBITDA in a competitive market with revenue year. The change in margin was as a to operating profit is provided on page 23. reductions in 2019 of 7.7% from £133.5m result of changes in product mix with EBITDA for the Group was £526.4m, to £123.2m year on year. Revenues were revenue growth offset by increased representing a 0.5% increase from impacted largely due to the strategic programme costs. £523.7m in the prior year, explained by decision to exit a low margin managed Other operating expenses before the increase in revenues resulting from service contract, reduced focus on Playout exceptional items were £116.8m, strong programme delivery, and operating and Occasional Use products (from which down 5.1% from £123.1m in the prior cost savings partially offset by lower the Group expects to be fully exited year. The decrease is due to savings gross margins due to changes in sales from over the next couple of years), as realised through our FutureFit efficiency mix. This performance reflects another well as the transfer of the reporting of programme and one-off consultancy year of EBITDA growth benefitting romf revenues from the Connected Solutions costs incurred in the prior year not peak levels of project activity with an into Terrestrial Broadcast (£2.5m). The repeated. The FutureFit programme annualised growth rate over the past business was also impacted by some non- continues to progress with high levels 4 years of 5.9%. renewals of contracts, capacity reductions of transformation activity expected in
EBITDA by operating segment 30 June 2019 30 June 2018 Variance £m £m % Terrestrial Broadcast 363.4 362.6 0.2 Telecoms & M2M 188.4 183.8 2.5 Satellite and Media 30.1 33.8 (10.9) Other2 (55.5) (56.5) (1.8) Total 526.4 523.7 0.5
EBITDA for the Group’s Terrestrial by changes in sales mix with reductions The decrease in other costs versus the Broadcast business was £363.4m, in Installation Services more than offset prior year is reflective of continued focus representing a 0.2% increase from by increases in site share as well as on cost management. £362.6m in the prior year. The growth was increases in incremental change requests Depreciation (2019: £184.1m; 2018: mainly due to increased DAB and digital relating to the smart metering contracts. £166.3m) and amortisation (2019: platforms activity as well as 700MHz EBITDA for the Satellite and Media £15.8m; 2018: £16.7m) were collectively Clearance programme with activity on the business was £30.1m which was a 9.2% higher year on year. This was due programme at its peak during the year. 10.9% decrease from £33.8m in the to an increase in the underlying tangible EBITDA for the Group’s Telecoms & prior year. The decrease reflects the asset base of the Group (particularly in M2M business was £188.4m, a 2.5% challenges of the market with the connection with Smart Metering contracts increase from £183.8m in the prior revenue reductions described above and the 700 MHz Clearance programme) year. This increase has been driven and rationalisation of services. and the accelerated depreciation and
1 Excluding the financial effect of the disposed non-core business areas outlined above – 2019 gross margin: £0.1m; 2018 gross margin: £0.8m. 2 Other refers to the Group’s corporate business unit. See pages 13-14 for a description of the Group’s business units and the activities involved.
Arqiva Group Limited 22 Annual Report for the year ended 30 June 2019
Financial review
amortisation on certain assets (particularly to reorganisation costs as the Group Operating profit for the year was asset replacements connected with the executes its FutureFit operational £320.5m, a decrease of 2.9% from 700MHz Clearance programme and non- efficiency programme and reorganisations £330.0m in the prior year. Whilst EBITDA core business areas in connection with as the Group focuses on its core business generated increased, this has been offset the Groups operating review). model. The increase has been partially by increased depreciation, amortisation Exceptional items charged to operating offset by a £2.0m profit (2018: £nil) on and exceptional charges. profit were £13.5m, up from £11.1m in disposal of non-core assets (and the A reconciliation between operating profit 2018. These costs relate predominantly associated contracts) in relation to the and EBITDA is presented below: Group’s InBuilding solutions business. Reconciliation between operating profit and EBITDA 30 June 2019 30 June 2018 £m £m Operating profit 320.5 330.0 Exceptional items charged to operating profit 13.5 11.1 Depreciation 184.1 166.3 Amortisation 15.8 16.7 Impairment - 4.4 Share of results of associates and joint ventures - (0.2) Other income (7.5) (4.6)
EBITDA 526.4 523.7 Finance costs (net of finance income) The Group reported £37.1m losses within economic hedge to the Group’s US$ were £648.9m, an increase of 4.2% from other gains and losses in the year (2018: denominated debt. Also included within £622.8m in the prior year. The increase £92.4m gains). This principally arises other gains and losses is a loss incurred was primarily due to the compounding from negative fair value movements in the year of £14.3m (2018: £nil) in effect of interest on outstanding (loss of £13.7m; 2018: gains of £90.3m) relation to premium paid on the early shareholder loan note principal and recognised in respect of derivative refinancing of the Group’s junior bonds accrued interest, partially offset by contracts, which are not hedge accounted, in September 2018. decreases in bank and other loan interest attributable to changes in market yields Loss before tax was £365.5m, an following the refinancing in September and credit spreads. A £9.1m loss (2018; increase from a loss of £200.4m in the 2018 and repayments of debt principal £2.0 gain) was recognised in relation to prior year. The loss before tax is reported that have been made during the year. foreign exchange movements on foreign after non-cash charges of £662.7m denominated debt instruments, however (2018: £493.2m) as shown below: the cross- currency swaps provides an
Reconciliation between loss before tax and profit before Year ended Year ended tax and non-cash charges/(gains) 30 June 2019 30 June 2018 £m £m Loss before tax (365.5) (200.4) Depreciation 184.1 166.3 Amortisation 15.8 16.7 Impairment - 4.4 Share of results of associates and joint ventures - (0.2) Accrued interest on shareholder loan notes 409.7 360.2 Other non-cash financing costs 1 30.3 38.2 Foreign exchange revaluations on financing 9.1 (2.0) Fair value movements on derivative financial instruments 13.7 (90.3) Exceptional profit on disposal of joint venture - (0.1) Total non-cash charges 662.7 493.2
1 Includes amortisation of debt issue costs, unwinding of discount on provisions and imputed interest
23 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Adjusted profit before tax and non-cash charges 297.2 292.8 Net cash inflow from operating activities Net capital expenditure and financial expenditure on significant capital £471.1m, representing a decrease of investment was £115.3m, representing projects such as the 700MHz Clearance 17.3% from £569.8m in the prior year. a decrease of 27.4% from the prior programme as it progresses. This decrease is owing to a working year. The net financial investment of the Total cash flow for the year was a capital outflow driven by the utilisation Group includes consideration received in £27.7m outflow (2018: £1.5m inflow). of cash received in advance during prior respect of the assets and contracts of the The decrease is predominantly years (decreasing contract liabilities) and Group’s Inbuilding business. due to the decrease in cash inflows timing of payments typical with historical Operating cash flow after capital and from operating activities explained trends of the business. In the prior year financial investment activities1 was above. This has been partially offset the operating cash inflow was higher due £355.8m, a decrease of 13.4% from by reductions in cash outflows on to working capital inflows arising from £410.8m in the prior year. The overall financing activities due to lower capital one off additional contract liabilities decrease in the year is principally owing expenditure and financing activities recognised from Telecoms & M2M and to changes in working capital versus the due to lower net debt repayments Terrestrial Broadcast customers. prior year partially offset by decreased and interest paid.
Reconciliation between net cash inflow from operating activities and operating 30 June 2019 30 June 2018 cash inflow after capital and financial investment activities £m £m
Net cash inflow from operating activities 471.1 569.8
Purchase of tangible and intangible assets (122.8) (165.1) Sale of tangible assets 7.5 0.3 Disposal of investment - 5.2 Loans to joint ventures - 0.6 Net capital expenditure and financial investment (115.3) (159.0)
Operating cash flow after capital and financial investment activities 355.8 410.8
Financial position
Net liabilities were £3,762.6m, representing an increase of 11.2% from £3,383.3m in the prior year. The net liability position is primarily driven by the capital structure reflecting the shareholder loan notes, borrowings and derivative financial instruments held and increasing due to the increase in accrued interest on shareholder loan notes of £409.7m. Our assessment of going concern is set out on page 26.
1 Net cash inflow from operating activities after net capital expenditure and financial investment, and net proceeds/costs on the disposal/acquisition of subsidiary under- takings and other related investments
Arqiva Group Limited 24 Annual Report for the year ended 30 June 2019
Financial review
Financing
The Group established its Whole Business maturity profile. The Group continues senior debt at BBB, and Fitch and Securitisation (‘WBS’) structure in to hold significant levels of financing Moody’s confirmed the junior debt February 2013, and since then it has incurring costs thereon. rating at B-/B2. continued to refinance elements of Standard and Poors and Fitch At 30 June 2019 the Group’s debt its debt structure further extending its reconfirmed their rating of Arqiva’s finance1 comprised:
Falling due <1 year 1-2 years 2-5 years >5 years Total £m £m £m £m £m Facilities drawn 35.0 1.3 - 12.8 49.1 Finance lease obligations 0.8 1.6 1.8 8.2 12.4 Senior term debt 20.0 - 370.0 - 390.0 Senior bonds and notes 443.4 117.9 406.8 834.1 1,802.2 Junior bonds - - 625.0 - 625.0 Shareholder loan notes - - - 2,148.1 2,148.1
Total 499.2 120.8 1,403.6 3,003.2 5,026.8
Included within the above is £4,011.8m Refinancing Covenants of fixed rate debt and £1,015.0m of In September 2018, the Group The Group continues to comply with floating rate debt of which £272.4m refinanced its £600m bonds, due in all financial covenant requirements is US$ denominated. The Group holds 2020, raising £625m of new bonds including the following historic covenant interest rate swaps (including inflation- which mature in 2023. These notes have ratio requirements at the senior linked interest rate swaps) and cross- a coupon of 6.75%. The Group incurred financing level: currency swaps to hedge its interest rate a fee of £14m on the early repayment and foreign currency exposures. This of the refinanced bonds and £8m of fees hedging strategy is employed to ensure and expenses associated with the issue the certainty of future interest cash flows. of the new notes.
Senior debt level financial covenant ratios 30 June 2019 30 June 2018
Maximum allowed ratio of net debt to EBITDA 7.50 7.50 Actual ratio of net debt to EBITDA 4.11 4.42
Minimum allowed ratio of cash flow2 to interest 1.55 1.55 Actual ratio of cash flow to interest 2.92 2.78
1 Excluding unamortised debt issue costs 2 ‘Cash flow’ as defined under the Group’s financing common terms agreement, i.e. this is not a GAAP measure.
25 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Liquidity
To ensure it has sufficient available funds and derivative financial instruments with processes, which include a regular review for working capital requirements and balances currently spread across a range of counterparty credit ratings. Risk in planned growth, the Group maintains of major financial institutions, which have this area is limited further by setting a cash reserves and access to undrawn satisfactory credit ratings assigned by maximum level and term for deposits committed facilities to cover forecast international credit rating agencies. The with any single counterparty. requirements. The Group carefully levels of credit risk are monitored through manages the credit risk on liquid funds the Group’s on-going risk management
Drawings on facilities at 30 June 2019 Total Facility Drawn Available £m £m £m
Working capital facility 140.0 35.0 105.0 Capital expenditure facility 250.0 - 250.0 Liquidity facility 250.0 - 250.0
Other facilities1 31.6 14.1 17.5 Total 671.6 49.1 622.5
Going concern
The Group meets its day-to-day working repayments. The Group has sufficient reason the Directors are confident capital and financing requirements financial resources which, together with that the Group has adequate resources through the net cash generated from its internally generated cash flows, will to continue in operational existence operations. The Group performs a review continue to provide sufficient sources for the foreseeable future. Thus they of going concern through a review of of liquidity to fund its current operations, continue to adopt the going concern forecasting including cash flow forecasts including its contractual and commercial basis of accounting in preparing this and considering the requirements commitments both in terms of capital financial information. of capital expenditure and debt programmes and financing. For this
1 Includes the Comms Hub Receivables Purchasing facility and Fee Facility established to support the Group’s smart energy metering contract; with the facilities held within entities that sit outside the main Whole Business Securitisation (‘WBS’) financing group.
Arqiva Group Limited 26 Annual Report for the year ended 30 June 2019
Key performance indicators
The Group uses a combination of financial and non-financial key performance indicators (‘KPIs’) to measure progress against its strategic priorities.
The Group’s strategic priorities centre around: Growing a financially successful Simplification and standardisation Helping our customers prosper business (financial success); of our approach to efficiency and succeed (our customers); and (driving increasing returns); Being a great place to work (our people). See page 17 for further details on our strategic priorities
Financial success and driving increasing returns… Revenue Definition – Revenue is presented as per the financial statements, and in accordance with IFRS 15. Result – Revenue has increased 2.4% from the prior year (2019: £999.5m; 2018: £976.0m) and 3.9% on an annualised basis over the past four years. The primary drivers of this continued growth were increased activity on the Group’s smart energy metering contracts through the delivery phase due to incremental change requests agreed with the installation of the network now near completion and core telecoms towers business, benefitting from greater site numbers and/or greater capacity 700 800 900 1000 £m utilisation. 700MHz Clearance has also reached its peak activity during 2018 and 2019 2016 2017 2018 2019 with activity expected to reduce in to the next financial financial year.
EBITDA Definition – EBITDA is a non-GAAP measure and refers to ‘earnings before interest, tax, depreciation and amortisation’ and includes add-backs for certain items charged to operating profit that do not reflect the underlying business performance. See page 23 for its reconciliation to operating profit. Result – EBITDA grew 0.5% from the prior year (2019: £526.4m; 2018: £523.7m) and demonstrates consecutive growth over the past four years with 5.9% on an annualised basis. The growth in the year was not as high as the growth in revenue due to shifts in sales mix and phasing of work on the Group’s significant contracts. 300 400 500 600 £m 2016 2017 2018 2019
Operating cash flow after capital Definition – Operating cash flow after capital investment activities represents and financial investment the cash generated after the spending required to maintain or expand its asset base. This is calculated as the net cash flow from operations minus the net cash flow from capital expenditure and financial investment. See page 24 for its reconciliation to net cash flow from operations. Result – The cash generated was £355.8m, down 13.4% from the prior year. The decrease was driven by working capital outflows as a result of utilisation of contract liabilities deferred income partially offset by lower capital expenditure due to phasing of 0 200 400 600 £m programmes. Annualised growth over the past four years remains positive at 16.1%. 2016 2017 2018 2019
27 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Our customers…
Delivery on our customer promises The Smart Metering M2M 700MHz Clearance. As of 30 June The Group has continued to meet its contract, where Release 2.0 went 2019, 60 out of 104 Main Station contractual milestones and continues to live in November 2018. Various Clearance events and 553 out of 908 engage with all contract stakeholders to improvements in the capability Relay Clearance events have been meet future milestones. This includes: of the network and communications completed. The programme remains hubs continue to be made, including on track to clear the 700MHz development of the Dual Band frequency in 2021. Communications Hub and network coverage has now reached c. 99% in line with requirements;
Network availability
Own TV Combined Definition – Arqiva strives to provide consistently high service levels and look to Multiplex Network manage and monitor the total annual level of network availability across both TV Availability Availability and radio infrastructure as a percentage across all multiplexes. 99.99% 99.99% 2019 Result – Through careful management Arqiva has consistently been able to achieve 2018 99.99% 99.99% excellent levels of network availability. 2017 99.99% 99.99% 2016 99.99% 99.99% 2015 99.99% 99.99%
Our people…
Investors in Definition – The Group takes part in the ‘Investors in People’ accreditation for people award which more than 16,000 UK businesses take part. Since our last assessment the 2018 Gold award criteria have undergone a significant overhaul to include new, even more 2017 Silver rigorous criteria. 2016 Gold Result - Arqiva holds an Investors in People Gold Award. This is the highest level of 2015 Gold Investors in People Recognition available. Achieving the Gold Award is an outstanding 2014 Gold recognition of the commitment and hard work put in by many colleagues across the business. It reflects the commitment to our values, clear focus on individual and team objectives aligned with business goals, focus on systems and process improvements.
Arqiva Group Limited 28 Annual Report for the year ended 30 June 2019
Spotlight: Terrestrial Broadcast
c.1150 c.8001 4 TV transmission sites radio transmission sites DTT multiplex licences
Services delivered multiplexes. Included within this business The Group’s radio and TV The Terrestrial Broadcast business unit is the Group’s DTT multiplex broadcast operations (network unit provides transmission services business, which owns and operates two access and managed transmission) and infrastructure for all terrestrial of the three main national commercial are regulated by Ofcom on behalf TV broadcasters and more than digital terrestrial TV multiplexes, plus two of the wholesale broadcast customers. 90% of the UK’s radio transmission, DVB-T2 multiplexes (capable of providing None of the Group’s other business including ownership interests in the additional services including HD content). units are regulated. two commercial national digital radio
Our customers include...
Business snapshot
Revenue EBITDA Headcount £m £m (FTEs) 422.4 491.3 308.0 363.4 653 734 393.6 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
There was growth in Terrestrial Broadcast Increased DAB activity; RPI-link ed increases on broadcast as a result of: service contracts; and High channel utilisation in digital platforms; Peak activity on the 700MHz Clearance programme
1 Total number of broadcast sites are circa 1,500, some of which overlap to broadcast both TV and radio signals.
29 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva Group Limited 30 Annual Report for the year ended 30 June 2019
Spotlight: Satellite and Media
80 We deliver via earth stations teleports satellite to 5 accessing 5 continents 24/7 >40 satellites
Services delivered offer a satellite and fibre distribution management and other over-the-top The Satellite and Media business unit network to distribute customers’ data services). Additionally, it can offer provides a range of services to transmit and programming, including c.50% secure and reliable satellite data content around the globe. It holds five of all channels on the Sky platform. communications to remote and hostile award winning teleports which represent Its media management services include locations. These customisable end-to- a significant barrier to entry in the watermarking and advert placement, end solutions are currently provided to market. Arqiva provides customers with and connected TV services (including energy and aeronautical organisations. up-linking and down-linking services to video on demand, streaming, metadata
Our customers include...
Business snapshot
Revenue EBITDA Headcount £m £m (FTEs) 146.0 123.2 32.1 30.1 389 350 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
Satellite and Media continues to be Change in focus away from Playout Non-renewal of contracts; a competitive market which has resulted and Occasional use services; Pricing pressures; and in decreased revenue and earnings Strategic decision to exit a low New HD channel sales growth for the year. During the year the business margin managed service contract; has experienced:
31 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Market environment – smartphones and tablets alongside services on-top. New hybrid-IP products Media Networks traditional TV sets. Customers continue are therefore essential to being able to With digital radio listening figures over to embrace OTT services and Internet monetise content for broadcast customers 50%, in May the Minister for Digital and Protocol (IP) delivered content. Smart and keep up with the emerging demands Creative Industries, confirmed the start TV’s and set-top boxes continue to be of the market. of the government’s review of radio important as they provide the end-user Hybrid TV platforms provide viewers and its transition to digital platforms. with a seamless experience regardless with a connected TV experience offering The government has consulted with of the delivery method. Growth in these more choice, functionality and content Arqiva and other stakeholders about the other platforms requires the broadcast and as a result adding a plethora of review’s structure and key inputs and the market to be able to offer opportunities additional ways to add commercial value review is expected to be completed by to deliver flexible networks and cloud- for broadcast providers. Hybrid TV and the middle of next year. Arqiva continues based solutions to deliver content in virtualisation are growth areas in the to be in discussions with regard to more dynamic ways. market. Arqiva is a leader in virtualised industry changes in this area and the The DTT platform, which is broadcast services having launched a new consumer Group’s DAB network places the business primarily under the Freeview brand name, OTT service to provide core managed in a prominent position to support continues to be key within the industry teleport and fibre services along with DAB as the long-term successor in the in the delivery of content to households. scalable IP streaming services. digital radio market. This platform remains attractive in the Across the broadcast industry, consumer UK for Hybrid DTT / IP TV service where trends are changing with people having DTT remains the underlying delivery access to video and audio content mechanism that has a core free-to-air in increasingly different ways, with linear content base with a variety of OTT
Arqiva Group Limited 32 Annual Report for the year ended 30 June 2019
Spotlight: Telecoms & M2M
c. 200,000 c.8,000 >12million municipal street active licensed furniture sites in Premises to be covered macro sites 14 London Boroughs by our smart networks
Services delivered (‘site-share’). Arqiva also works with the Utilising the Group’s sites, Arqiva is Arqiva’s physical infrastructure gives MNOs to upgrade networks to support building machine-to-machine networks mobile operators access to circa 8,000 4G and future mobile services such as as part of long-term contracts to provide active sites forming the Group’s core 5G (‘installation services’). a smart energy metering network for telecom tower business. Space on Arqiva is a provider of outdoor small cells approximately 9.3 million premises in towers and street furniture are licensed infrastructure with exclusive access to Scotland and the north of England, and to national MNOs and other wireless street infrastructure in major UK cities a smart water metering network for network operators to enable complete including 14 London Boroughs. customers in the south of England. mobile communications networks
Our customers include...
Business unit snapshot
Revenue EBITDA Headcount £m £m (FTEs) 316.3 385.0 132.8 188.4 609 428 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
There was growth in Telecoms & M2M Greater revenues from incremental Decreasing activity on Installation revenues and earnings principally changes requests agreed in the Services as volumes reduce as 4G as a result of: year in relation to the smart energy roll-out reaches completion. Continued increased revenues metering contract; and and earnings from the core telecoms towers business due to higher site assignments;
33 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Market environment and site access for upgrades as the Code With growing reliance on data, The new Electronic Communications continues to be implemented. telecommunications street furniture is Code continues to be a key factor In December 2018, Arqiva and CityFibre being recognised as a vital component in the industry. The Code was revealed details of the UK’s largest of infrastructure for current and next designed to facilitate the installation pilot of wholesale, 5G-ready small cell generation telecoms equipment, and maintenance of electronic infrastructure. The pilot project in the including outdoor small cells. The Group communications networks in the UK. London Borough of Hammersmith continues to actively develop its outdoor The latest updates intend to enhance and Fulham is creating 15km high small cells proposition. Arqiva’s solution investment in the digital infrastructure in density fibre network, which provides uses low power base stations to provide order to meet public demand for more the bandwidth for MNOs to explore street level network capacity to MNOs, extensive coverage, better connectivity advanced technology including 5G. particularly in dense urban areas. and faster services. Whilst MNOs will be The fibre network will provide MNOs impacted in terms of providing increased the ability to deploy small cells quickly geographic coverage Arqiva may be and easily to connect businesses and further impacted through rent reviews residents to the ultra-fast 5G network.
Arqiva Group Limited 34 Annual Report for the year ended 30 June 2019
Corporate responsibility
Arqiva endeavours to conduct its business in a way that benefits its customers, suppliers, employees, shareholders and the communities in which it operates. Three values are at the heart of the organisation. They were developed by the Group’s employees and are therefore owned by its people.
Ingenious Finding ingenious and smarter ways to support our customers Straightforward Talking and acting in a clear and straightforward way to make sure we’re always effective and understood Collaborative Bringing expertise and passion to collaborate as one team and go that extra mile
Arqiva never underestimates the 1. Corporate focus – together pleasing with in excess of £25k raised. contribution its people make to its we are stronger Further activity is already planned for the business and its customers’ businesses. Arqiva is connected with universities and remainder of 2019 and beyond. That’s why the values guiding how schools to invest in the future of Science, its people work were defined by its Technology, Engineering and Maths 2. Community focus – building employees. Values ‘champions’ from (STEM). The Group has active intern, community across the company led workshops with apprentice and graduate schemes and Arqiva’s ‘Connected Communities’ their colleagues to ensure everyone had STEM ambassadors who support local programme supports teams of colleagues the opportunity to contribute to the schools and encourage visits from schools to get involved in volunteer work for local decision-making process. to Arqiva’s main sites to stimulate their charities. The Group also works with The Group believes it has a role to interest in STEM subjects as a key step office teams across our sites in supporting play in shaping its dynamic industry. It to their future career. charities local to them. actively engages with government, trade Arqiva began supporting Cancer 3. Employee focus – supporting associations and other industry players Research UK (CRUK) as its recognised as it knows that to keep its customers personal contribution national corporate charity in July 2019. connected it must continually work to Charitable donations Colleagues are asked to get involved identify and develop the ideas that will During the year, the Group made a in a number of ways: enable society’s wireless digital future. number of charitable donations including The Group has four focus areas to ensure 1. Participate in an Arqiva- to local charities and those that also that it acts responsibly, ethically and organised event. matter to Arqiva’s people. Contributions safely in everything that we do 2. Matched funding if they participate were made as part of a matched funding 1. Corporate focus – together in any CRUK event. scheme to match employee fundraising we are stronger 3. Taking on a personal challenge. for charitable events in which they 2. Community focus – building The first events in support of CRUK took participate. The Group also supports community place on 25 July 2019 when colleagues the Give as you Earn scheme, working in partnership with the Charities Aid 3. Employee focus – supporting personal from three sites at Emley Moor, Romsley contribution and Crawley organised their own Race for Foundation which manages the scheme. 4. Business focus – being a responsible Life and took on local routes of around employer 5k. Reaction to these first events has been
35 Arqiva Group Limited Annual Report for the year ended 30 June 2019
4. Business Focus – being a cups and plastic water cups have been This is a government backed, industry responsible employer removed from across our sites. supported scheme to help organisations guard against the most common Environment Health and safety cyber threats and demonstrate their The Group is committed to complying The Group is committed to complying commitment to cyber security. Arqiva has with all applicable environmental with applicable health and safety held this certification since November legislation and annually assesses the legislation, and to continual 2016 and recertifies annually. Moving environmental impact of its activities, improvement in achieving a high forward, Arqiva is working to align its products and services and aims through standard of health, safety and welfare Business continuity and Disaster recovery active environment management to in its operations and for all those in plans to ISO22301 certification. reduce any negative impacts. The Group the organisation and others who may operates an environmental management be affected by its activities. The Group Employees system which is accredited to the operates a safety management system The average number of persons international standards ISO14001 and that is accredited to the international employed by the Group during the ISO50001, the latter being the voluntary standard OHSAS18001. The Board of year was 2,012 (2018: 2,088). Arqiva International Standard for “Energy Directors regularly review health and recognises the significant contribution Management Systems”. safety reports in relation to the Group’s of its employees and makes every effort Energy consumption is a key area activities, employees and contractors. to create a rewarding and engaging of interest for the Group given it is working environment. As part of the Group’s ongoing a significant consumer of electricity. commitment to the wellbeing of its The Group’s policy is to provide Arqiva’s energy policy reflects the employees, a number of employees have equal opportunities for all employees, company’s commitments to improving been trained during the year as mental irrespective of race, nationality, gender, energy efficiency by: health first aiders. sexual orientation, marital status, religion Reducing energy consumption, or political belief, disability or age. Investing in energy efficient Information security During the year, the Group has launched technology, and Due to the critical importance of Arqiva’s a new approach to diversity and inclusion sites and systems to the Arqiva Group, Monitoring carbon emissions. including provision of training to its customers and, in some cases, as part line managers. One of Arqiva’s business aims is to of the Critical National Infrastructure, The Group continues to address training reduce carbon emissions and energy the Group takes information security and development requirements for costs whilst complying with energy very seriously. employees at all levels within the legislation. The Group is always looking Arqiva is ISO27001 certified in organisation. The Board also reviews at new and innovative ways of driving relation to its Information Security future management requirements and down its carbon footprint. Responsible Management System for all platforms succession plans on an on-going basis. management of energy has a key role and services (end to end) for its key UK The Arqiva Employee Board (‘AEB’) has in minimising environmental impacts and international locations. This allows continued throughout the year. The AEB and is embedded within Arqiva. Arqiva to compete for new business is a democratically elected Board that Additionally it investigates how emerging which requires ISO27001 accreditation acts as a voice for employees across technologies and ingenious ways of and it can confidently demonstrate Arqiva and provide a clear and direct link working can help it and its customers its robustness of security controls and between the Group’s employees and become more environmentally friendly. compliance with this internationally Senior Executive Management. The AEB As new technologies emerge and legacy recognised standard. Through continues to meet on a monthly basis to equipment is replaced Arqiva looks for independent review and accreditation, discuss key matters such as performance the most environmentally-friendly ways supported by internal monthly audits, management, or efficiencies and process to dispose of redundant hardware. Arqiva can confidently demonstrate its in order to develop responsive action During 2019, the Group kicked off our commitment to security and its adoption plans. The AEB (as well as the Senior campaign to reduce reliance on single- of secure working practices. Executive Management) also interacts use plastics. As part of this recycling Additionally Arqiva has maintained its with representatives of BECTU regarding journey single use plastic hot drinks Cyber Security Essentials accreditation. employee matters.
The table below provides a breakdown of the gender of Directors and employees:
Female Number / % Male Number / %
Board of Directors 1 / 7% 13 / 93%
Senior Executive Management - 6 / 100%
Group Employees 362 / 18% 1,650 / 82%
Arqiva Group Limited 36 Annual Report for the year ended 30 June 2019
Corporate responsibility
The Group’s employee forums provide management participate in a long-term Anti-Bribery and Anti-Corruption an effective channel for communication incentive plan which is typically 3 years In conjunction with the UK Bribery and collective consultation across the in duration and is designed to recognise Act 2010, the Group has adopted a Group. They play an important role in the value of strategic initiatives being Code of Conduct for employees, which enabling employees to help the Group undertaken by the Group during the incorporates all its anti-corruption policies manage change effectively. The goals long-term incentive plan period. As with and procedures. The policies apply to of each forum are to act as the formal the annual bonus scheme, the Group all Arqiva employees employed on both consultative body for its part of the must achieve a minimum threshold of a permanent and temporary basis. business within Arqiva, provide a voice financial performance before a bonus The Code of Conduct also sets out the to management on employee issues, becomes payable under the long-term policies and procedures on the giving initiate and support division-wide social incentive plans which is then calculated and receiving of gifts and hospitality. activities, and promote consultation based upon the 3-year Group financial Taxation and sharing information. KPIs of EBITDA and operating cash The Group’s approach to tax is to ensure Significant emphasis is placed on performance. All such arrangements compliance with all legal and statutory employee communication. The are cash-based incentive schemes obligations. Arqiva is committed Group intranet ‘The Hub’ makes which operate against documented to maintaining a transparent and information available to employees performance targets and are reviewed constructive working relationship with on all matters including company at least annually by the Remuneration HM Revenue & Customs and with local performance, growth, and issues Committee (which comprises members tax authorities in the jurisdictions in affecting the industry. The embedded of the Board of Directors). which it operates. The total contribution values “ingenious, straightforward, and Gender Pay Gap to UK tax receipts including business collaborative – Always”, continue to In March, Arqiva published our second rates and NI paid by both Arqiva and form the fundamental basis of all Arqiva annual gender pay gap report including employees, totalled £83.2m for the business conduct and communication. details on why we have a pay gap and financial year (2018: £76.6m). Arqiva’s monthly employee e-magazine the actions we are taking. The report The Arqiva Group is a primarily UK – ‘Stay Connected’ brings together demonstrates a reduction versus the based infrastructure group; while there recent news and events as well as the gender pay gap reported in the prior are some trading operations outside most important things employees year demonstrating the actions we are of the UK these generate less than need to know for the month ahead. taking are enabling us to go in the right 1% of operating profit and there are The Group wants all its employees direction. The full report is available on no tax planning activities undertaken to benefit from its success and growth the Company website at www.arqiva.com which seek to reduce the Group’s UK as a business. The annual bonus profits or revenues by transferring scheme recognises the importance Modern Slavery Act revenue or profit out of the UK. The of high performance and is designed Arqiva is committed to ensuring Group’s small trading entities overseas to reward employees for achieving that there is no modern slavery deal directly with customers in their targets and constantly improving overall or human trafficking in its supply area of residence and fulfil their tax performance, in line with the values. chains or in any part of its business. requirements in the local jurisdictions. The scheme takes into account the The supplier Code of Conduct reflects targets that have been set by the Group. the commitment to acting ethically This report was approved by the Board of The Group must achieve a minimum and with integrity in all business Directors on September 2019 and EBITDA before a bonus becomes payable relationships and to implement and 25 signed on its behalf by: which is then calculated based upon the enforce effective systems and controls financial KPIs of EBITDA and operating to ensure slavery and human trafficking cash performance. The bonus payment is not taking place anywhere in supply for the 2019 financial year will be chains. The full statement is included made in September 2019. In addition, on page 39 and is also available on the Frank Dangeard certain members of senior executive company website at www.arqiva.com. 25 September 2019
37 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva Group Limited 38 Annual Report for the year ended 30 June 2019
Modern Slavery Act: Slavery and Human Trafficking Statement
Overarching Statement Our Supply Chains Our Policies on Slavery and This statement sets out the steps we The Arqiva Supply Chain works in Human Trafficking are implementing to combat slavery partnership with our suppliers, ensuring We are committed to ensuring that there and human trafficking. We remain we meet our internal customer needs. is no modern slavery or human trafficking committed to further improving our The Arqiva values of Ingenious, in our supply chains or in any part of practices in the future to combat Straightforward and Collaborative are our business. Suppliers are required slavery and human trafficking. core to how we interact with suppliers to comply with our Supplier Code of whether a high volume preferred Conduct, which reflects our commitment Organisation’s Structure supplier or one-time only supplier. to acting ethically and with integrity We are a communications infrastructure We have an exceptionally diverse range in all our business relationships and to and media services provider, operating of services and goods that are required implementing and enforcing effective at the heart of the broadcast, satellite by the business and sourced by our systems and controls to ensure slavery and mobile communications markets. Procurement team including: and human trafficking is not taking place We’re at the forefront of network anywhere in our supply chains. solutions and services in the digital Transmission – Arqiva has world. We provide much of the numerous transmission sites Due Diligence Processes for Slavery infrastructure behind television, radio, throughout the UK; and Human Trafficking satellite and wireless communications Construction – Arqiva undertakes As part of our initiative to identify and in the UK and have a significant a broad range of construction mitigate risk we: presence in Ireland, mainland activities from small changes aim to identify and assess Europe, Asia and the USA. to the construction of new potential risk areas in our own transmission towers; Arqiva Limited and Arqiva Services business and our supply chains; Limited, and their respective subsidiaries, Maint enance & Repairs; try to mitigate the risk of slavery and Arqiva Smart Metering Limited are IT software and managed services; and human trafficking occurring part of the Arqiva group which has its Satellite Capacity; and in our own business and our head office in the UK. We have over supply chains; 2,000 employees and operate in the Corporate facilities (encompassing UK, Ireland, mainland Europe, Asia stationery, recruitment, legal and monitor potential risk areas in our and the USA. professional fees). own business and our supply chains; Arqiva Limited and Arqiva Services where possible we build long Limited (including their respective standing relationships with suppliers subsidiaries) and Arqiva Smart Metering and make clear our expectations Limited each have an annual turnover of their business behaviour; of in excess of £36 million. expect our suppliers to comply with the Modern Slavery Act 2015 and have their own suitable anti-slavery and human trafficking policies and processes; and encourage the reporting of concerns and support the protection of whistle blowers.
39 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Supplier Adherence to our Values Steps taken during the financial year c) Our Whistleblowing policy has We have zero tolerance to slavery and to 30 June 2019 been refreshed and re-modelled as human trafficking. We expect all those In the past financial year, we have taken a ‘Speak-Up Policy; and an internal in our supply chain to comply with those the following steps to ensure that slavery audit of its implementation has values and our Supplier Code of Conduct. and human trafficking is not taking place been undertaken. Company-wide Our Procurement team, reporting in in our supply chains, and in any part of communications reminding all to our CFO, is responsible for promoting our own business: employees of the policy and how and ensuring compliance with the a) We have continued to progress a to report concerns have been issued. Modern Slavery Act 2015 as part re-qualification process for all of our d) Our template supply contracts of our supplier relationships. suppliers, using our e-procurement have been updated and refresher system. The re-qualification process training has been provided to Training includes revised background checks our Procurement team to ensure To ensure a high level of understanding and either (a) confirmation of that appropriate provisions are of the risks of modern slavery and human acceptance of the Arqiva Supplier included when new contracts trafficking in our supply chains and our Code of Conduct (which covers are entered into. business, all directors and members modern slavery and human of the Management Board have been trafficking); or (b) demonstration Statement briefed on the subject and we continue that the Supplier has its own to assess training needs for all relevant equivalent policies covering modern This statement is made pursuant to members of our staff. slavery and human trafficking. section 54(1) of the Modern Slavery Act 2015 and constitutes Arqiva Limited, Our Effectiveness in combating In addition, all incoming suppliers now go through the e-procurement Arqiva Services Limited and Arqiva Smart Slavery and Human Trafficking Metering Limited’s slavery and human We will use the following key system requiring these confirmations at the outset of the trafficking statement for the financial performance indicators (KPIs) to measure year ending 30 June 2019. how effective we have been to ensure contractual relationship. Purchase that slavery and human trafficking is not Orders cannot be placed with new Note: The signed statement is taking place in any part of our business suppliers before the confirmation available on the company website or supply chains: has been given. at www.arqiva.com use of robust supplier selection b) For FYE 30 June 2019, 97.5% process including supplier of suppliers by spend value questionnaires and compliance with in the last financial year have Arqiva’s Supplier Code of Conduct; confirmed compliance with modern slavery and human trafficking use of our payroll systems. requirements. Pending formal confirmation from the remaining 2.5% of suppliers, a risk analysis has been carried out on those suppliers. All are considered to be either low or minor risk suppliers due to the nature of the supplies and the make-up of the relevant organisation. A process has been agreed to obtain the remaining confirmations, failing which the suppliers will be placed on hold and no further purchase orders issued.
Arqiva Group Limited 40 Annual Report for the year ended 30 June 2019
Governance
Board of Directors and Senior Executive Management 43 Principal risks and uncertainties 47 Directors’ report 52 Statement of Directors’ responsibilities 56
41 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva Group Limited 42 Annual Report for the year ended 30 June 2019
Board of Directors and Senior Executive Management
Ownership Investors (14.8%) and the Motor in Toronto which invests the assets The Company is owned by a consortium Trades Association of Australia (5.2%). of the Canada Pension Plan. The of shareholders comprising Canada There is no ultimate controlling party Canada Pension Plan Investment Pension Plan Investment Board (48%), of the Company, as defined by IAS 24 Board was incorporated as a federal Macquarie European Infrastructure ‘Related parties’. Crown corporation by an Act of Fund II (25%) plus other Macquarie There are two investor companies which Parliament in December 1997. managed funds (1.5%), Health Super are related parties with the Group, in Macquarie European Infrastructure Investments Pty Limited (5.5%), IFM accordance with IAS 24, by virtue of Fund II (‘MEIF II’) (25%), an significant shareholding in the Group: investment fund managed by Board committee membership F requency Infrastructure the Macquarie Group. Macquarie Communications Assets Limited European Infrastructure Fund II is a A Audit and Risk Committee (‘FICAL’) (48%), a company wholesale investment fund focusing N Nomination Committee controlled by the Canada Pension on investments in high-quality R Remuneration Committee Plan Investment Board. The infrastructure businesses across O Operational Resilience Canada Pension Plan Investment Europe. Macquarie Group Limited Board is a professional investment is listed in Australia (ASX:MQG Committee Chairman management organisation based ADR:MQBKY).
Arqiva Board of Directors The Group’s Board of Directors1 is comprised of the following officers who were in office (on behalf of the shareholder consortium) during the year and up to the date of the signing of the annual report and financial statements:
Mike Parton, Chairman and Frank Dangeard, Independent Sally Davis, Independent Nomination Committee Chairman Non-Executive Director and Audit and Non-Executive Director and Mike has brought a wealth of experience Risk Committee Chairman Remuneration Committee Chairman from his background in telecoms and In the telecom, media and technology sector, With over 30 years in the TMT sector Sally technology. Mike started his career as Frank has held various positions at Thomson has held a number of senior product, strategy a Chartered Management Accountant, S.A., including Chairman & CEO, and was and chief executive roles including being a working for a number of UK technology Deputy CEO of France Telecom. He served on former Chief Executive of BT Wholesale, one companies including ICL, GEC, STC the boards of SonaeCom and Orange, and was of the four operating divisions of BT. Prior to and Marconi. Deputy Chairman of Telenor. He is currently on this, Sally had an early product management the board of Symantec (US). In the financial career at Mercury Communications before A NR sector, he was a Managing Director of SG becoming a director at NYNEX during its Warburg and Chairman of SG Warburg France. merger with Bell Atlantic to become Verizon. He served on the boards of Crédit Agricole Sally is also a Non-Executive CIB and Home Credit. He is currently on the Director of the Boards of Telenor; board of the RBS Group (UK), and Chairman Logitech; and City Fibre Holdings. of NatWest Markets (UK). Frank also held board positions at EDF, RPX and various listed R and non-listed companies in Europe, the US, India and the Middle-East. 1 See page 131 for the directors of Arqiva Group Limited, the company, who held office during the A O year and up to the date of this report.
43 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Arqiva Board of Directors (continued)
Simon Beresford-Wylie, Chief Executive Officer Sean West, Chief Financial Officer Simon brings a wealth of experience gained Between 2009 and 2012, Simon was CEO Sean was appointed as Chief Financial Officer from over 30 years in the information of Elster Group (SE). He led the company in May 2019 having joined Arqiva in 2015 as technology, broadcast and telecoms sectors. through a period of growth and also a Director of Treasury and Corporate Finance. successful listing on the New York Stock He previously helped guide the strategy Sean has a background in all areas of corporate Exchange. Additionally 11 years with the and operations of Samsung Electronics’ finance and financing, and as Director of Treasury Nokia Corporation saw him latterly serving network business in Seoul, Korea. Prior to and Corporate Finance was responsible for all on the Group Executive Board responsible for this he was CEO of UK-based Digital Mobile aspects of the Group’s capital structure. the Group’s Network Business. He was also Spectrum Limited (DMSL) – also known as the founding CEO of Nokia Siemens Networks Prior to joining Arqiva, Sean held senior corporate At800 – which was established as a 4G licence which today accounts for around 90% of finance and treasury positions at the Intermediate condition by Ofcom and is responsible for Nokia’s global revenues and profits. Capital Group (ICG) and LandSec and brings a mitigating interference issues that arise as wealth of experience across a range of industries a consequence of the co-existence of DTT and financial markets. television and 4G mobile in the 800MHz band.
Appointed by Frequency Infrastructure Communications Assets Limited:
Mike Darcey, Director Martin Healey, Director Neil King, Director Mike was appointed on 10th September 2018. Martin heads up the Real Assets Strategy Neil runs the European infrastructure business Group at Canada Pension Plan Investment at CPP Investment Board. He has over twenty Mike has over 25 years’ experience in the Board. He is a member of CPPIB’s global five years of experience in the infrastructure technology, media and telecommunications committee for equity investments into real market, including ten years at 3i as a founding industry with numerous positions held ranging estate, infrastructure and power & renewables, partner in its infrastructure investment from CEO of News International to COO of as well as real estate debt. business before joining CPPIB in 2015. British Sky Broadcasting Group. He has also provided strategic advisory services to a range Since joining CPPIB, Martin has led the Neil is also a non-executive director at of clients in the media industry. development of several new investment Interparking S.A., a European car parking programs, making CPPIB’s first real estate business which is in CPPIB’s infrastructure Mike has served or is currently serving on investments into a number of new countries investment portfolio. Boards including Dennis Publishing (UK) Ltd and sectors. He founded the Private Real (Chairman), M247 (Chairman), Home Retail Estate Debt group in 2010. N R Group (Senior Independent Director) and Sky New Zealand (Director). Prior to joining CPPIB in 2005, Martin held transactional roles in the real estate investing, N commercial lending and investment banking industries based in the UK, Canada and the United States.
A O
Arqiva Group Limited 44 Annual Report for the year ended 30 June 2019
Board of Directors and Senior Executive Management
Appointed by Frequency Infrastructure Communications Assets Limited: (continued)
Peter Adams, Director (alternate) Peter is a Principal in the Infrastructure group at CPP Investment Board, based in London. Prior to joining CPP Investment Board in September 2010, Peter was with the Boston Consulting Group, where he advised clients in the U.S., Canada and Europe on strategy and operations.
Appointed by Macquarie European Infrastructure Fund II:
Nathan Luckey, Director Mark Braithwaite, Director Nathan is a Managing Director in Macquarie Infrastructure and Mark is a Senior Managing Director in Macquarie Infrastructure and Real Assets, and holds a number of non-executive directorship Real Assets. Mark was previously Chief Financial Officer of Thames roles for companies within MIRA’s investment portfolio. Nathan is Water, the UK’s largest water and wastewater services company. Prior a qualified Mechanical Engineer, with expertise across the utilities, to joining Thames Water, Mark was Finance Director of the customer telecommunications, transportation and media sectors. and energy divisions at EDF Energy plc, and before that held a number of senior Finance positions at Seeboard plc. Mark has other non- O executive directorship roles for companies within MIRA’s investment portfolio and is also a trustee of Leadership through Sport & Business, a UK social mobility and employability charity.
A N R
Appointed by IFM Investors:
Christian Seymour, Director Max Fieguth, Director (alternate) Christian is Head of Infrastructure at IFM Investors, responsible Max is responsible for asset management of existing for the business expansion in Europe and oversight of IFM’s existing investments for IFM Investors, as well as supporting the execution European asset portfolio, of which Conyers Trust Company is of infrastructure transactions. Prior to joining IFM Investors, Max an investment vehicle. worked as a Consultant in the Operations Practice at McKinsey and prior to that at Bechtel on a number of infrastructure projects. A N R O He holds a Masters in Mechanical Engineering from Imperial College London, an MBA from INSEAD and is a Chartered Engineer with the Institution of Mechanical Engineers in the UK.
45 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Board of Directors and Senior Executive Management
Appointed by IFM Investors and Motor Trades Association of Australia (joint appointment):
Paul Donovan, Director and Operational Resilience Chairman Paul was appointed on 10th September 2018. Paul is currently CEO of the CH Foundation, a not for profit organisation. He has over twenty years’ experience in senior executive roles across the technology, media and telecommunications sectors, as a member of the Executive Committee at Vodafone Group, and as CEO at eircom Group and Odeon and UCI Cinemas. Paul holds an MBA from Bradford University where he is also an Honorary Doctor.
A R O
Senior Executive Management (also includes the Chief Executive Officer and the Chief Financial Officer on page 44)
David Crawford, Managing Director, Steve Holbrook, Managing Director, Alex Pannell, Commercial Director, Telecoms & M2M Media Networks Video & Data, Media Networks Appointed Arqiva Managing Director Arqiva since 1995, heading the Arqiva since 2012, appointed to the Telecoms & M2M in April 2018, recently formed Media Networks Management Board in 2018 within previously managing Director of business, previously Managing Satellite and Media our Satellite and Media business director Terrestrial Broadcast Director in BT Wholesale Commercial leadership roles at Other previous positions at Mercury Other previous positions at Cable & Wireless and Capita Communications, Kingston Satellite Concert Communications Other previous positions at Services, British Aerospace and Jardine Matheson and Bain British Telecom International
Neil Taplin, Director of People Clive White, Group Jeremy Mavor, General Counsel and Organisation Transformation Director Appointed to the Arqiva Management Appointed Director of People and Arqiva since April 2018 Board in January 2018, having joined Organisation in October 2018, previously Previous transformation positions at the Company in 2013 Director of Operations in the Terrestrial RSA, Lloyds Banking Group, Accenture, Previously solicitor at Allen & Overy broadcast business having been with AT&T Global Network and BSkyB Arqiva since 2015 Senior operations roles at Virgin Media
Arqiva Group Limited 46 Annual Report for the year ended 30 June 2019
Principal risks and uncertainties
Arqiva’s approach to risk management is Arqiva aims to embed risk Arqiva has adopted ISO31000 as its as follows: management principles into the Enterprise Risk Management standard culture of the organisation. and ISO Guide 73 terminology. Arqiva Arqiva recognises that the effective has also adopted the ISO 27000 series management of risk is essential to Enterprise wide management of risk for Information Security including ISO/ achieve its business objectives. is important for Arqiva to meet its IEC 27005 for Security Risk Management corporate objectives and for it to protect Arqiva adopts an Enterprise Risk which operates within the Arqiva future competitive advantage. The ERM Framework. Our statements Management (‘ERM’) approach, strategic importance of risk management which is recognised as ‘best practice’ and principles are linked to our process is recognised by top performing through our risk management framework. for top performing companies. companies and is an important part Managing risk is a core responsibility of good corporate governance. Arqiva of management at all levels and subscribes to the Enterprise Risk is a key component of governance Management approach to managing and compliance. its risk profile.
a) Create value b) Integral part of organisation of process Mandate and commitment c) Part of decision making Establishing the d) Explicitly addresses context uncertainty Design of e) Systematic, structured framework for and timely managing risk Risk identification f) Based on the best available information
g) Tailored Continual Implementing h) Takes human and improvement of risk Risk analysis cultural factors into the framework management account
i) T ransparent and Monitoring and review inclusive Monitoring and Risk evaluation Communication and consultation Communication j) Dynamic, iterative and review of the responsive to change framework k) Facilities continual improvement and Risk treatment enhancement of the organisation
PRINCIPLES FRAMEWORK PROCESS
47 Arqiva Group Limited Annual Report for the year ended 30 June 2019
The Managing Director of each effectively and on a timely basis. Risks most significant business risks into a business unit has responsibility for are formally discussed with the Chief corporate risk register for scrutiny at maintaining and updating their line of Executive Officer as part of the existing quarterly Senior Executive Management business risk register, which includes quarterly business performance reviews and Audit Committee meetings. The utilising the standardised approach to highlighting the significance of the link Senior Executive Management takes risk assessment and risk monitoring. between performance and effective recommendations for ensuring the The Group’s centralised Audit and risk management. The Audit and Risk risk management framework remains Risk function provides training and function works with the Chief Executive effective going forward. support to ensure risks are captured Officer to review and consolidate the
Business Unit Management: Senior Executive Management: Audit and Risk function / Audit First defence is the day to day Quarterly review of the corporate committee: controls and processes put in place risk register to include review of Independent business assurance by management to identify risks risk management policies, setting provided over the effectiveness and develop mitigating actions. of risk appetite, monitoring of the Group’s system of internal compliance and reporting of controls and processes, and significant risks to the Board of the effectiveness of the risk Directors. management framework.
Arqiva Group Limited 48 Annual Report for the year ended 30 June 2019
Principal risks and uncertainties
Management have identified the following risks as the most significant business risks affecting the Group, presented together with identified mitigating actions. *Business units have been abbreviated as follows: Media Networks (‘MN’), Telecoms & M2M (‘T’)
Risk type Business Description of risk / Management of risk / uncertainty Recent developments Units* uncertainty Reputational All Bad publicity damages Arqiva’s The Group carefully engages with Arqiva has continued to achieve its target reputation and customer and its customers to ensure that project result for ‘network availability’ (see business partner confidence milestones are carefully managed and page 28) and has continued to meet and its ability to do business as management regularly review the its contractual milestones on its major a result of: progress status of all projects. contractual programmes (see page 28). A major event or incident Through continuous measurement The Group maintained ISO27001 impacting our services; of operational KPIs and addressing certification regarding information security Untimely delivery on major shortfalls in performance through and holds periodic reviews of the security projects; process excellence the risk around environment and training to employees. service reliability is carefully managed. Repeated unexpected Business Continuity Working Group service outages; The Group has in place a crisis continues to meet on a monthly basis Security breach on management plan for public relations and will test and roll out the Disaster networks; or and external communications to provide Recovery plan. support should there be any major Major network or Continued capital expenditure in the year events. This is regularly monitored equipment failure or to improve infrastructure. obsolescence or inability and reviewed. Continuing to implement the to configure to comply The Group continues to invest transformation programme across the with information in its infrastructure. security standards. business including IT systems to ensure they are up to date and supported through support of Transformation board and regular meetings with the Management Board
Health and All Risk of an incident causing Training and rescue skills courses are During the year, Arqiva maintained its safety death or serious injury during required on an annual basis for field compliance with OHSA518001 regarding site works or engineering. employees, and rescue kits are provided. safety management. Risk of mental health issues Arqiva maintains and regularly Mental health strategy has been as a result of significant reviews its policy on workplace safety implemented including improving general organisational changes. and site security. awareness particularly amongst line managers. A team of mental health first aiders have been trained and are available across the organisation.
49 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Risk type Business Description of risk / Management of risk / uncertainty Recent developments Units* uncertainty Technological MN Developments in alternative DTT retains the largest share of Arqiva remains in dialogue with broadcast technologies, such as broadcast transmission in the UK, and relevant stakeholders for the review internet connected TV, which IPTV remains constrained by limited into timeframes for full analogue competes against the Group’s high speed broadband uptake and radio switchover. DTT transmission business; or variable reliability levels. In addition Arqiva has completed upgrades to the the evolution of DAB against Arqiva has mitigated some of this risk by DAB network to remain in a strong Arqiva’s existing analogue radio investing in YouView TV Limited, a joint position to support a future switch over. transmission business. venture formed to develop and promote the DTT platform, together with its The business model of Arqiva has been involvement in Freeview Play. reviewed to ensure focus on core markets. The alignment of the Terrestrial Broadcast Arqiva has been rolling out national and and Satellite and Media business units commercial local DAB in line with its has been established to be able to bring ‘New Radio Agreement’ with the BBC a more streamlined approach to changes and government targets which helps to in the market with regards to new ensure it remains at the forefront of this developments in content delivery. future technological change.
Political T, MN Change in government plans, Arqiva maintains regular dialogue with Arqiva has successfully agreed scope policy or priorities could lead to its stakeholders to ensure the delivery change requests on its smart energy unforeseen changes in scope on of its programmes are efficient, timely metering programme with its customer major engineering programmes and to specification. Where specification demonstrating the customer’s continued and licensing. changes occur Arqiva provides a detailed focus on network roll out. assessment of the potential costs of the The uncertainty over a deal Arqiva has continued to achieve its target scope change and seeks an informed for Britain’s exit from the result for ‘network availability’ (see recovery of those costs through European Union heightens page 28) and has continued to meet mechanisms in its contracts. the uncertainty over future its contractual milestones on its major policy and economic conditions Arqiva’s assets and operations remain contractual programmes (see page 28). and pressure on future predominantly in the UK and therefore Arqiva has continued engagement with refinancing requirements. its business has minimal exposure Ofcom regarding licensing arrangements. to the changing relationships with international markets. Additionally we Debt markets have continued to be expect the infrastructure Arqiva provides monitored for accessibility and open to continue to be demanded and that dialogue maintained with ratings these services evolve as markets and agencies. Evolving commercial consumer tastes evolve. negotiations are closely monitored.
Operational All Information, networks and The Group maintains an ISO27001 Arqiva has implemented detection and systems, or communications certification regarding information prevention solutions on networks. infrastructure may be subjected security, which includes Cloud Security Arqiva has continued to pass its quarterly to cyber security threats leading Services. Employee training on security reviews and has consequently to a loss or corruption of data, information security is mandatory and retained its ISO certification. penalties and impacting the quarterly reviews are undertaken by operational capacity of Arqiva. external consultants to examine the Communication and training have robustness of the security environment. been maintained with employees to Critical transmission ensure awareness of potential cyber structures or IT infrastructure Arqiva ensures data is regularly backed security threats. supporting key operational up and Business Continuity Plans have processes could fail leading been established for each key site and Site inspections are completed to operational outages. each business area. A Business Recovery with a focus on older sites and Working Group meets regularly to structural maintenance plans stress test these plans and continually have been implemented. review the Group’s approach to disaster recovery and operational resilience.
Arqiva Group Limited 50 Annual Report for the year ended 30 June 2019
Principal risks and uncertainties
Risk type Business Description of risk / Management of risk / uncertainty Recent developments Units* uncertainty Operational T, MN The scale and complexity of Arqiva maintains a robust oversight Arqiva has continued to meet its (continued) Arqiva’s major programmes of the delivery of its major programmes. contractual milestones on its major bear an inherent risk of This includes identifying the key contractual programmes (see page 28). unforeseen delays through the personnel and resources required supply chain and therefore for delivery and working closely challenges to delivery. with its suppliers and customers to ensure that these requirements are sufficiently available.
All Customer relationships, Arqiva recognises the importance of Arqiva has continued to focus on operations and project its people and seeks to make Arqiva supporting individuals with increased delivery could be damaged if a rewarding and enjoyable place to support and training for new managers there were significant loss of work. The Group operates a competitive and emerging talent. people with critical skills and annual bonus plan for all employees Regular meetings are held to knowledge unique to Arqiva’s and a long-term incentive plan for identify critical issues and ensure competitive position. its leadership team. Additionally the timely intervention. Group operates formal retention and succession planning in knowledge- Retention plans have continued to critical areas of the business. be implemented for key individuals particularly through significant organisational changes.
Demand T The level of demand for wireless The Group monitors the demand for Arqiva is continuing to support the MNOs communications and impact mobile data which continues to grow in focussing on products essential to on demand for access to the and indications are that spectrum their strategy and maintaining active Group’s towers and keeping capacity, and antenna deployments, engagement with customers particularly competitive in the market. will need to increase to cope with surrounding contract renewals. this demand. Arqiva has maintained strong customer engagement and remain actively engaged with customers to be able to continue delivery and service excellence.
Financial Details of the financial risks and details of mitigating factors are set out in the Directors’ report on page 52.
51 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Directors’ report
The Directors of Arqiva Group Limited companies, financing companies and going business activities and strategy of (‘AGL’), registered company number other holding companies. the Group, Arqiva is exposed to a variety 05254001, (“the Company”) and its of financial risks that include financing subsidiaries (“the Group”) submit the The Directors’ report for the Company risk, purchase price risk, credit risk, annual report and audited consolidated is set out on page 131. liquidity risk, interest rate risk and foreign financial statements (“financial exchange risk. Financial risk management statements”) in respect of the year The key financial risks affecting the The principal risks and uncertainties of ended 30 June 2019. Group are set out below together the Group have been outlined previously with a summary of how these risks The Company is a holding company with in this section of the report (see page are managed: an investment in a group of operating 49). As a result of these, as well as the on-
Risk type Description of risk / uncertainty Management of risk / uncertainty Interest rate risk Exposure to interest rate risk due to The Group uses derivative contracts to hedge its exposure to rising interest rates. The borrowing variable rate bank debt. Group maintains a hedging policy to manage interest rate risk and to ensure the certainty of future interest cash flows and compliance with debt covenants. It currently has fixed rate hedging, split between interest rate swaps and inflation-linked interest rate swaps. The Group has, however, elected not to apply hedge accounting meaning gains or losses are recognised through the income statement as fair values fluctuate (2019: £13.7m losses; 2018: £90.3m gains). Interest rate swaps convert variable rate interest costs to fixed rate interest costs while inflation swaps convert fixed rate interest costs to RPI-linked costs, which fluctuate in line with the RPI index as do a significant proportion of the Group’s revenue contracts.
Financing The Group will need to refinance at least The Group mitigates this risk by the strength of the stable long term investment grade risk part of its debt as it matures and may capital structure in place, our BBB ratings reflect our strong ability to service and repay need additional financing to cover capital debt from our cash flows over a reasonable period of time, maintaining debt with expenditure and certain other expenses a variety of medium and long term maturities, so that over time we do not have a to support its growth plans. The Group significant concentration of debt due for refinancing in any given year, and aiming to cannot be certain that such financing refinance debt well in advance of the maturity date. will be readily available on attractive or With regards to covenants the Group maintains financial covenant monitoring and historically comparable terms. modelling, both retrospectively and prospectively and maintains regular dialogue with Breach of debt covenants and/or a credit ratings agencies. downgrade in our rating could impact the availability of finance or the comparability of terms
Credit risk The Group is exposed to credit risk on This is managed through appropriate credit checking procedures prior to taking on new customer receivables. 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 uncollectible debts. The Group is exposed to counterparty The Group carefully manages the credit risk on liquid funds and derivative financial risks in its financing operations. instruments with balances currently spread across a range of major financial institutions which have satisfactory credit ratings assigned by international credit ratings agencies. The levels of credit risk are monitored through the Group’s on-going 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.
Arqiva Group Limited 52 Annual Report for the year ended 30 June 2019
Directors’ report
Risk type Description of risk / uncertainty Management of risk / uncertainty Liquidity risk Ensuring the Group has sufficient The Group maintains cash reserves and access to undrawn committed facilities to cover available funds for working capital forecast requirements. As at 30 June 2019 the Group had £20.3m cash and £355.0m requirements and planned growth. available undrawn facilities to meet planned growth and working capital requirements. In addition, the Group has £250.0m of liquidity facilities available to cover senior interest payments if required and a £30.0m facility to support ‘Comms Hub Receivables Purchasing’. The Board consider the availability and adequacy of working capital funding requirements in conjunction with forming its long-term financial plan for the business.
Purchase Energy is a major component of A large proportion of this is managed via pass-through arrangements to customers. The price risk the Group’s cost base and is subject Group’s residual exposure to fluctuations in the electricity price is managed by forward to price volatility. purchasing the majority of power requirements. Key revenue and cost milestones are set on larger projects to ensure the financial risks of volatile market pricing are mitigated.
Foreign The Group operates from UK sites and Management regularly monitor the impact of foreign exchange risks and assess the exchange risk predominantly in the UK market. While need to put any mitigating financial instruments in place. During the year cross currency some customer and supplier contracts are swaps were in place to fix the exchange rate in relation to US Dollar denominated private denominated in other currencies (mainly placement notes. Details of the cross-currency swaps are provided in note 25. US Dollars and Euros), the majority of the Group’s revenues and costs are sterling based, and accordingly exposure to foreign exchange is limited.
Internal control over and regulatory issues (including whistle- on 10th September 2018 and has financial reporting blowing arrangements), and reviewing been appointed as Chairman of the The Board of Directors review the the effectiveness of the Group’s internal Committee, replacing Paul Dollman who effectiveness of the Group’s systems controls and internal audit function. The resigned as Director on the same date. of internal control, including risk internal audit function agrees its annual During his executive career in the management systems and financial and audit plan with the Audit Committee telecoms, media and technology sector, operational controls (see page 47). and regularly reports its finding and Frank Dangeard has held various recommendations to it. positions at Thomson S.A., including Audit and Risk Committee The Committee is authorised to seek Chairman & CEO, and was Deputy CEO The Audit and Risk Committee is any information it requires from any of France Telecom. Prior to that, he was chaired by Frank Dangeard, an employee of the Company in order to Chairman of SG Warburg France and a independent non-executive director, perform its duties, and to obtain any Managing Director of SG Warburg. He and includes representation from the external legal or other professional is a member of the boards of Symantec Board of Directors. The Audit and Risk counsel it requires. (US), RPX (US) and the RBS Group (UK) Committee monitors the integrity and Chairman of NatWest Markets of the Group’s financial statements Meetings of the Committee are attended, (UK). Previously he served on the board and the effectiveness of the external at the invitation of the Chairman of the of Crédit Agricole CIB, Home Credit, audit process. It has the responsibility Committee, by the external auditors, Electricité de France, Orange, SonaeCom for ensuring that an appropriate the Chief Executive Officer, the Chief and as Deputy Chairman of Telenor. relationship exists between the Group Financial Officer and representatives A graduate from Ecole des Hautes Etides and the external auditors, including a from the business as required. Commerciales (Prix Jouy-Entreprise), review of non-audit services and fees. In September 2018, the Board rotated the Paris Institut d’Etudes Politiques the role of Chairman of Audit and Risk In addition, it has responsibilities (Lauréat) and the Harvard Law School Committee. Frank Dangeard joined of oversight of risk management (HLS Fellow, Fulbright Scholar). procedures, monitoring compliance Arqiva as an independent non-executive
53 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Internal audit of the Senior Executive Management. with the Group continues and the The Audit and Risk Committee is Additional oversight is extended to appropriate training arranged. It is the responsible for reviewing the work setting and monitoring reward and policy of the Group that the training, undertaken by the Group’s internal audit incentive policies, including the group- career development and promotion function, assessing the adequacy of wide annual bonus scheme, long-term of a disabled person, should, as far as the function’s resource and the scope incentive scheme, and reviewing and possible, be identical to that of a person of its procedures. The Group’s internal making recommendations in relation who does not suffer from a disability. audit plan incorporates an annual to wider reward policies. Further information on how Arqiva rolling review of business activities, and supports its employees can be found incorporates both financial and non- Nomination Committee on page 36. financial controls and procedures. The Nomination Committee, chaired by Mike Parton, is established to Political donations External audit give oversight to the size, structure No political donations were made during The Audit and Risk Committee is and composition (including skills, the year (2018: none). responsible for making recommendations experience, independence, knowledge to the Board on the appointment, and diversity) of the Board to ensure Research and development The Group performs research and re-appointment and removal of the that the continued leadership ability development into new products and Group’s external auditor. The Committee is sufficient to allow the business to technology, the costs of which are makes an assessment of the auditors’ compete effectively in the market. This capitalised in accordance with the independence and objectivity taking also includes oversight of the succession Group’s accounting policy where they into account the relationship with planning for directors (and other senior meet the criteria for capitalisation. the auditors as a whole, including the management where appropriate). The research costs expensed in the provision of any non-audit services. Operational Resilience Committee year were £6.1m (2018: £4.3m). PwC were re-appointed as external The Operational Resilience Committee, In addition, the Group carries out auditor in 2016 following a competitive chaired by Paul Donovan, has oversight research and development as part tender process. of the adequacy and effectiveness of of its contract bid processes and The auditors have provided certain the operational resilience strategies these costs are expenses as part of non-audit services, principally in relation and procedures of the Group (including the bid costs unless the development to assurance services for financing principles, policies and practices adopted expenditure can be capitalised. The bid transactions and certain non-audit in complying with all statutory, and costs expensed during the year total assurance. The Audit and Risk Committee sub-statutory, standards and regulatory £2.9m (2018: £2.7m). considers the acceptability of all non- requirements in respect of safety, Development costs incurred as part audit services with the auditors in health and environment (‘SHE’) matters of capital expenditure projects, which advance of commencement of work affecting the activities of the Group). support customer contracts, are included to confirm acceptability and ensures This includes consideration and risk with the total project spend within that appropriate safeguards of audit management of areas of significant property, plant and equipment. The independence are established and and individual cyber security, physical Group’s capital expenditure in the applied, such as partner rotation. security, business continuity and SHE risk. year was £134.3m (2018: £174.4m) and includes capitalised labour of Remuneration Committee Equal opportunities policy £42.1m (2018: £51.5m). Other The Remuneration Committee, chaired Applications for employment by disabled development costs would be capitalised by Sally Davis, is established to make persons are always fully considered, within intangible assets. In the year, recommendations to the Board regarding bearing in mind the respective aptitudes development costs capitalised total executive remuneration, including and abilities of the applicant concerned. £2.1m (2018: £5.6m), with amortisation pension rights, and to recommend In the event of members of staff of £3.5m (2018: £2.8m) charged against and monitor the level and structure becoming disabled, every effort is such capitalised development costs. of remuneration for each member made to ensure that their employment
Arqiva Group Limited 54 Annual Report for the year ended 30 June 2019
Directors’ report
Overseas branches The Directors have considered the Directors Indemnities The Group has trading branches based Group’s profit and cash flow forecasts The Company has provided an indemnity in the Isle of Man, the Channel Islands alongside the Group’s current funding for its Directors and the Company and France. requirements, including the repayment Secretary, which is a qualifying third profile of borrowings, and facilities party indemnity for the purposes of the Events after the reporting date available to the Group. The Directors Companies Act 2006. The indemnity There have been no events since continue to be confident that the was in force during the full financial year the balance sheet date which would Group will have adequate resources to and up to the date of approval of the have a material impact on the Group continue in operational existence for the financial statements. and require adjustment within the foreseeable future and consequently financial statements. adopt a going concern basis in preparing Disclosure of information the consolidated financial statements. to the Independent Auditors Dividends and transfers to reserves The Directors of the Group in office The Company has declared no Future developments at the date of approval of this report dividends in the year (2018: none). The Group plans to continue to invest in confirm that: Group companies which include a its business units in accordance with its So far as the Directors are non-controlling interest, Now Digital strategy. Further detail is contained within aware there is no relevant audit (East Midlands) Limited and South West the Strategic report on pages 17-18. information of which the Auditors Digital Radio Limited, declared dividends are unaware; and in the year of £0.8m and £nil respectively Ownership and Directors (2018: £0.3m and £0.1m respectively). A description of the ownership of the E ach Director has taken all the The consolidated loss for the year of Group and the Board of Directors holding steps that he ought to have taken £377.4m (2018: profit of £10.8m) office during the year and up to the date as a Director to make himself was transferred to reserves. of signing of the financial statements can aware of any relevant audit be found on page 43. information and to establish Going Concern that the Company’s Auditors At 30 June 2019, Mike Parton was the The Strategic report includes information are aware of that information. Group’s independent Chairman. Jeremy on the structure of the business, our Mavor is the Company Secretary. business environment, financial review On behalf of the Board for the year and uncertainties facing For details on the background of the the Group. Notes 21,23 and 25 of Board of Directors and the Senior the consolidated financial statements Executive Management please refer include information on the Group’s cash, to page 43. Frank Dangeard borrowings and derivatives; and financial Details of the statutory directors of the Director risk management information presented Company are shown on page 131. 25 September 2019 within this report.
55 Arqiva Group Limited Annual Report for the year ended 30 June 2019
Statement of Directors’ responsibilities
The Directors are responsible for preparing the annual The Directors are also responsible report and the financial statements in accordance with for safeguarding the assets of the Group and Company and hence applicable law and regulations. for taking reasonable steps for the prevention and detection of fraud Company law requires the Directors In preparing the financial statements, the and other irregularities. to prepare such financial statements Directors are required to: The Directors are responsible for for each financial year. Under that law Select suitable accounting policies keeping adequate accounting records the directors have prepared the Group and then apply them consistently; that are sufficient to show and financial statements in accordance explain the Group and Company’s with International Financial Reporting State whether applicable IFRSs as transactions and disclose, with Standards (IFRSs) as adopted by the adopted by the European Union reasonable accuracy, at any time the European Union and Company financial have been followed for the Group financial position of the Company and statements in accordance with United financial statements and United the Group and enable them to ensure Kingdom Generally Accepted Accounting Kingdom Accounting Standards, that the financial statements comply Practice (United Kingdom Accounting comprising FRS 101, have been with the Companies Act 2006. Standards, comprising FRS 101 followed for the Company financial “Reduced Disclosure Framework”, and statements, subject to any material The Directors are responsible for the applicable law. Under Company law the departures disclosed and explained maintenance and integrity of the directors must not approve the financial in the financial statements; company’s website. Legislation in statements unless they are satisfied that Make judgements and accounting the United Kingdom governing the they give a true and fair view of the state estimates that are reasonable and preparation and dissemination of of affairs of the Group and Company prudent; and financial statements may differ from and of the profit or loss of the Group and Prepare the financial statements on legislation in other jurisdictions. Company for that period. the going concern basis unless it is inappropriate to presume that the Company will continue in business.
Arqiva Group Limited 56 Annual Report for the year ended 30 June 2019
Financial Statements
Group financial statements Independent Auditors’ report to the members of Arqiva Group Limited 58 Consolidated income statement 67 Consolidated statement of comprehensive income 68 Consolidated statement of financial position 69 Consolidated statement of changes in equity 70 Consolidated cash flow statement 71 Notes to the Group financial statements 72
Company financial statements Directors’ report for Arqiva Group Limited (‘the Company’) 131 Company statement of financial position 132 Company statement of changes in equity 133 Notes to the Company financial statements 134
57 Arqiva Group Limited Annual Report and Consolidated Financial Statements 2019 Independent Auditors’ report to the Members of Arqiva Group Limited
Report on the audit of Accounting Practice (United Basis for opinion Kingdom Accounting the financial statements Standards, comprising FRS We conducted our audit in 101 “Reduced Disclosure accordance with International Opinion Framework”, and applicable Standards on Auditing (UK) (“ISAs In our opinion: law); and (UK)”) and applicable law. Our responsibilities under ISAs (UK) are Arqiva Group Limited’s Group the financial statements have further described in the Auditors’ financial statements and been prepared in accordance responsibilities for the audit of the Company financial statements with the requirements of the financial statements section of our (the “financial statements”) Companies Act 2006. give a true and fair view of the report. We believe that the audit state of the Group’s and of the We have audited the financial evidence we have obtained is Company’s affairs as at 30 statements, included within the sufficient and appropriate to June 2019 and of the Group’s Annual Report, which comprise: the provide a basis for our opinion. loss and cash flows for the Consolidated and Company year then ended; statements of financial position as Independence at 30 June 2019; the Consolidated the Group financial statements income statement and the We remained independent of the have been properly prepared Consolidated statement of Group in accordance with the in accordance with comprehensive income, the ethical requirements that are International Financial Consolidated cash flow statement, relevant to our audit of the Reporting Standards (IFRSs) as and the Consolidated and financial statements in the UK, adopted by the European Company statements of changes in which includes the FRC’s Ethical Union; equity for the year then ended; and Standard and we have fulfilled our other ethical responsibilities in the Company financial the notes to the financial accordance with these statements have been statements, which include a requirements. properly prepared in description of the significant accordance with United accounting policies. Kingdom Generally Accepted
58 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Our audit approach Overview Overall Group materiality: £16.7m (2018: £16.5m), based on 5% of profit before interest, tax, exceptional items and other gains and losses. Overall Company materiality: £17.7m (2018: £17.6m), based on 1% of total assets before impairment. For the Group financial statements we performed an audit of the complete financial information of 10 entities and the consolidation. We also conducted audit procedures on specific line items for 4 entities. The audit work performed gave us coverage of 98% of revenue and 91% of profit before interest, tax, exceptional items and other gains and losses. All entities have been audited by the Group team and hence no component auditor has been involved in the audit of the Consolidated financial statements. Revenue and profit recognition on complex contracts (Group), and fraud in revenue (All revenue streams) Accruals and provisions, including amounts relating to infrastructure, decommissioning of sites and bonuses (Group). Valuation of financial instruments (Group). Classification of exceptional items (Group). Impairment of intangible assets, goodwill (Group) and investments in subsidiaries (Company). Recognition of deferred tax asset (Group)
The scope of our audit evaluating whether there was had the greatest effect on: the evidence of bias by the directors overall audit strategy; the As part of designing our audit, we that represented a risk of material allocation of resources in the determined materiality and misstatement due to fraud. audit; and directing the efforts of assessed the risks of material the engagement team. These misstatement in the financial Key audit matters matters, and any comments we statements. In particular, we Key audit matters are those make on the results of our looked at where the directors matters that, in the auditors’ procedures thereon, were made subjective judgements, for professional judgement, were of addressed in the context of our example in respect of significant most significance in the audit of audit of the financial statements accounting estimates that the financial statements of the as a whole, and in forming our involved making assumptions and current period and include the opinion thereon, and we do not considering future events that are most significant assessed risks of provide a separate opinion on inherently uncertain. As in all of material misstatement (whether or these matters. This is not a our audits we also addressed the not due to fraud) identified by the complete list of all risks identified risk of management override of auditors, including those which by our audit. internal controls, including
Key audit matter How our audit addressed the key audit matter Revenue and profit recognition on complex contracts We obtained schedules for each contract and for each deliverable showing the amount of revenue and Group gross margin for the year to 30 June 2019 and for all prior years for which the contract was in operation Refer to page 76, page 84 and page 86 (note 3- and all future years for which there are performance significant accounting policies – revenue obligations under the contract. We compared the recognition, note 4- critical accounting total amounts of revenue to the contract and judgements and key sources of estimation determined that the performance obligations were separately identified and performed testing over the
Arqiva Group Limited (company reg 05254001) 59 Annual Report and Consolidated Financial Statements 2019
Key audit matter How our audit addressed the key audit matter uncertainty – revenue recognition and note 5 – amounts of revenue allocated to each performance revenue and segmental information). obligation to ensure the revenue recognition is appropriate. The Group has a number of complex customer contracts which are delivered in phases over a For each element of revenue we assessed the extent number of accounting periods. These contracts of performance of deliverables that had been include smart metering contracts, contracts with achieved in the year, and the amount of revenue telecommunications network operators for access recognised, by, for example, reviewing the evidence to communications infrastructure and contracts of milestone achievement and amounts invoiced, for the clearance of spectrum. discussion with project managers, and assessing management estimates used to determine the As a result the accounting for revenue and profit revenue recognised, verifying estimated costs to recognition is complex. There are multiple come with third party evidence where available or elements involved and a degree of management corroborating with other available information within judgement in determining the separate the business if appropriate. deliverables, the related revenue and costs to complete and therefore the margin to be For revenue and margin recognised on a percentage recognised. of completion basis we assessed the costs incurred to date and forecast for the relevant deliverable, to determine the percentage of completion. We ensured the amount of revenue recognised was consistent with this calculation.
Where contract variations arose we assessed the appropriateness and timing of the recognition of the related revenues by obtaining an understanding of the reason for the variations and the timing of their delivery and validated this to the signed contract variation addendums.
We assessed whether the revenue recognised on the contracts was in line with the Group accounting policies and IFRS 15, and assessed the amount of transition adjustments arising on implementation of IFRS15.
For the profit recognised we compared the current year margin percentage with the past profit percentage and forecast percentage margins for the deliverable, obtaining explanations for variations where necessary.
Our testing did not identify any material differences in relation to revenue and profit recognition on these complex contracts.
Fraud in revenue recognition For all of revenue, we performed risk based testing over a sample of journals to revenue which do not Group follow the expected posting entries. For the journals selected we have traced back to supporting Refer to page 76, page 84 and page 86 (note 3- documentation without exception. significant accounting policies – revenue recognition, note 4- critical accounting
60 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Key audit matter How our audit addressed the key audit matter judgements and key sources of estimation We performed testing over the year end accrued and uncertainty – revenue recognition and note 5 – deferred revenue which included agreeing amounts revenue and segmental information). to supporting documentation such as underlying contracts and invoices. The Group has recorded £999.5m of revenue (2018: £976.0m). There is a risk that revenue may We did not identify any issues as a result of our work be fraudulently recorded and may not exist. performed.
We assessed the risk of fraud in revenue recognition and determined this to differ between non-complex, recurring revenue and revenue from complex contracts.
For non-complex recurring revenue we determined risk of fraud in revenue recognition to be primarily at a journals level including the recognition of year end accrued and deferred revenue.
For complex contracts there is additional risk surrounding the fraud in revenue recognition due to the complexities and judgements involved. The additional testing performed over these has been described in the key audit matter above.
Accruals and provisions On a sample basis, we tested the accounting for accruals and provisions to supporting documentation Group and have challenged management where judgement has been applied, to corroborate the reasonableness Refer to page 84 and page 117 (note 4- critical of assumptions made with either historic accounting judgements and key sources of performance or alternative evidence. This included: estimation uncertainty – provisions and contingent liabilities and note 26 – provisions). for rent, rates and power, understanding the processes for identifying and aggregating Arqiva’s business results in recognising complex accruals and testing on a sample basis for accruals and provisions including those related to accuracy and completeness by agreeing to infrastructure across the extensive asset portfolio, supporting documentation; for the various bonus accruals and decommissioning decommissioning provision we obtained provisions. management’s calculations and assumptions and confirmed that the methodology applied is As there is an element of estimation involved, appropriate. We assessed the reasonableness of there is considered to be a risk that these balances the assumptions in conjunction with the asset may not be appropriately determined. plan, decommissioning cost estimates and actual experience, and the appropriateness of the discount rate; for bonuses, we agreed the assumptions used to the current year outcome and, where relevant, to the long term plan which has been approved by the board.
From our work, we have not identified any material differences or where the rationale for recognition of an accrual/provision was not considered appropriate.
Arqiva Group Limited (company reg 05254001) 61 Annual Report and Consolidated Financial Statements 2019
Key audit matter How our audit addressed the key audit matter Valuation of financial instruments We engaged our valuations experts to assist with the audit of the counter parties’ valuations of each Group interest rate swap, cross currency swap and inflation Refer to page 80, page 85 and page 111 (note 3- linked swap, and management’s adjustments for significant accounting policies – financial counter party credit risk of those instruments. This instruments, note 4- critical accounting recalculated the fair value using our internal judgements and key sources of estimation valuation model for every instrument which was then uncertainty – fair value measurements and compared to the amount recognised in the financial valuation processes and note 25 –financial statements. instruments and risk management). There were no material differences arising between The Group holds a number of derivative financial the Group fair values of derivative financial instruments comprising interest rate, cross statements recognised and our valuations. currency and inflation linked swaps, in relation to the financing of the Group. These derivative financial instruments are significantly out of the money. The Group accounts for the valuations of those instruments using valuations provided by the counter party institutions with adjustments made by management for counter party credit risk. This is considered a key audit matter due to the complexity of the valuations and the quantum of balances involved. Classification of exceptional items We assessed the disclosed accounting policy for compliance with accounting standards and for Group consistency of application. Refer to page 92 (note 7 – exceptional items). We scanned the listing of exceptional items for costs Costs of £13.5m have been classified as that appeared unusual to us in the context of the exceptional items in the current year financial accounting policy and tested a sample of items to statements. assess whether such items were appropriately One of the Group's financial reporting KPIs is classified. EBITDA prior to exceptional items. There is a risk We considered our knowledge of the business, one- that some non-exceptional costs could have been off transactions that have occurred during the year incorrectly classified as exceptional costs. and results of other audit procedures to gain comfort over completeness of the exceptional items. Our testing did not identify any material misstatements in the amounts or presentation of exceptional items. Impairment of intangible assets, goodwill (Group) We obtained an understanding of the allocation of and investments in subsidiaries (Company) goodwill to business units in management’s Refer to page 85, page 97 and page 99 (note 4- impairment model and assessed its appropriateness. critical accounting judgements and key sources of We tested the impairment model, assessing its estimation uncertainty – Impairment of goodwill, mathematical accuracy, the accuracy of inputs to the note 14 –goodwill and note 15 – other intangible model and the reasonableness of the assumptions assets) and page 137 (note 4 – Investments). applied by management in assessing the valuation of IAS 36 ‘Impairment of assets’ requires intangibles and goodwill for each business unit. management to prepare annual impairment These included the assumptions for revenue and cost
62 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Key audit matter How our audit addressed the key audit matter reviews in respect of all indefinite lived intangible growth, capital expenditure and the discount rate assets, such as goodwill. used. The Group’s intangible assets and goodwill are We involved our valuations experts to evaluate the material, amounting to £2,026m, and the discount rate used to calculate the present value of impairment reviews performed over these include the cash flows and confirmed this was calculated a number of assumptions which are subject to using an acceptable methodology and in line with management judgement. what we would expect. The Company has investments in subsidiaries of We reviewed management’s sensitivity analysis and £128m as at 30 June 2019. This is net of an performed our own sensitivity analysis considering impairment recognised in the year totalling various scenarios impacting key assumptions, £1,639m. including forecast cash flows, terminal growth rate and discount rates. Based on this testing, we considered whether the carrying value of these intangibles was adequately supported by the value-in-use impairment model prepared by management, and found there to be a significant level of headroom. For the Company’s investment in subsidiaries we have compared the higher of value in use and fair value less costs to sell with the carrying value of the investments held. When considering recoverable value we have agreed key estimates to supporting evidence including verifying the appropriateness of the assumptions for revenue and cost growth, capital expenditure and the discount rate used, where applicable. Our testing did not identify any material differences to the position reflected in the financial statements. Recognition of deferred tax asset We obtained management’s detailed workings which Group set out the various elements of the deferred tax asset Refer to page 84 and page 105 (note 4- critical and rationale as to why these should or should not accounting judgements and key sources of be recognised and assessed the appropriateness of estimation uncertainty – deferred tax and note this in conjunction with our taxation specialists. 20 –deferred tax) We challenged management’s assumptions in In the prior year, a deferred tax asset of £209.5m relation to tax losses and the evidence available to was recognised following the introduction of support the recognition of losses arising in various legislation which restricts interest deductions. In entities, including consideration of whether specific the current year, £11m was utilised, leaving a steps are required in order to enable the value of the deferred tax asset at yearend of £198.5m which losses to be realised and the stage of Arqiva’s steps has been assessed for recoverability as part of towards recovery. our yearend procedures. A further £200.2m of potential deferred tax assets have not been We obtained management’s forecast of taxable recognised as they are not considered to be profits and agreed those to the approved long term recoverable. plan. The calculations of the forecast taxable profits were reviewed, and an analysis of the sensitivity of There are management judgements involved in the utilisation horizon to variations in EBITDA was the determination of the elements of the considered. deferred tax asset to recognise and the value of As a result of our work performed no material differences were noted in respect of the amount of
Arqiva Group Limited (company reg 05254001) 63 Annual Report and Consolidated Financial Statements 2019
Key audit matter How our audit addressed the key audit matter that recognition, including the extent to which deferred tax asset recognised in the financial there are foreseeable taxable profits. statements at 30 June 2019.
How we tailored the audit scope units; Terrestrial Broadcast, quantitative thresholds for Telecoms & M2M and Satellite materiality. These, together with We tailored the scope of our audit and Media, supported by the qualitative considerations, helped to ensure that we performed Group’s corporate functions. In us to determine the scope of our enough work to be able to give an FY20, these will be aligned into audit and the nature, timing and opinion on the financial two customer-facing business extent of our audit procedures on statements as a whole, taking into units; Telecoms & M2M and the individual financial statement account the structure of the Media Networks. In addition there line items and disclosures and in Group and the Company, the are a number of entities which evaluating the effect of accounting processes and provide financing to the misstatements, both individually controls, and the industry in which operations. and in aggregate on the financial they operate. statements as a whole. Materiality Arqiva Group Limited’s business is Based on our professional carried out through two principal The scope of our audit was judgement, we determined trading subsidiaries, aligned into influenced by our application of materiality for the financial three customer-facing business materiality. We set certain statements as a whole as follows:
Group financial statements Company financial statements Overall materiality £16.7m (2018: £16.5m). £17.7m (2018: £17.6m). How we determined it 5% of profit before interest, tax, 1% of total assets before impairment. exceptional items and other gains and losses. Rationale for Based on our professional judgement, Based on our professional judgement, benchmark applied profit before interest, tax, exceptional total assets is an appropriate measure items and other gains and losses is an to assess the performance of the appropriate measure to assess the Company and is a generally accepted performance of the Group, and is a auditing benchmark. generally accepted auditing benchmark.
For each component in the scope Certain components were audited to them misstatements identified of our Group audit, we allocated a to a local statutory audit during our audit above £0.75m materiality that is less than our materiality that was also less than (Group audit) (2018: £0.75m) and overall Group materiality. The our overall Group materiality. £0.75m (Company audit) (2018: range of materiality allocated £0.75m) as well as misstatements across components was between We agreed with the Audit below those amounts that, in our £1.8m and £15.9m. Committee that we would report view, warranted reporting for qualitative reasons.
64 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 Conclusions relating to audit opinion or, except to the prepared in accordance with extent otherwise explicitly stated applicable legal requirements. going concern in this report, any form of In light of the knowledge and assurance thereon. ISAs (UK) require us to report to understanding of the Group and you when: In connection with our audit of Company and their environment the financial statements, our obtained in the course of the the directors’ use of the responsibility is to read the other audit, we did not identify any going concern basis of information and, in doing so, material misstatements in the accounting in the preparation consider whether the other Strategic Report and Directors’ of the financial statements is information is materially Report. not appropriate; or inconsistent with the financial the directors have not statements or our knowledge Responsibilities for the disclosed in the financial obtained in the audit, or otherwise statements any identified appears to be materially financial statements and material uncertainties that misstated. If we identify an the audit may cast significant doubt apparent material inconsistency or about the Group’s and material misstatement, we are Responsibilities of the directors Company’s ability to required to perform procedures to for the financial statements continue to adopt the going conclude whether there is a As explained more fully in the concern basis of accounting material misstatement of the Statement of Directors’ for a period of at least twelve financial statements or a material Responsibilities set out on page months from the date when misstatement of the other 56, the directors are responsible the financial statements are information. If, based on the work for the preparation of the financial authorised for issue. we have performed, we conclude statements in accordance with the that there is a material We have nothing to report in applicable framework and for misstatement of this other respect of the above matters. being satisfied that they give a information, we are required to true and fair view. The directors However, because not all future report that fact. We have nothing are also responsible for such events or conditions can be to report based on these internal control as they determine predicted, this statement is not a responsibilities. guarantee as to the Group’s and is necessary to enable the With respect to the Strategic Company’s ability to continue as a preparation of financial Report and Directors’ Report, we going concern. For example, the statements that are free from also considered whether the terms on which the United material misstatement, whether disclosures required by the UK Kingdom may withdraw from the due to fraud or error. Companies Act 2006 have been European Union are not clear, and In preparing the financial included. it is difficult to evaluate all of the statements, the directors are potential implications on the Based on the responsibilities responsible for assessing the Group’s trade, customers, described above and our work Group’s and the Company’s ability suppliers and the wider economy. undertaken in the course of the to continue as a going concern, audit, ISAs (UK) require us also to disclosing as applicable, matters Reporting on other report certain opinions and related to going concern and matters as described below. using the going concern basis of information accounting unless the directors The other information comprises Strategic Report and Directors’ either intend to liquidate the all of the information in the Report Group or the Company or to Annual Report other than the In our opinion, based on the work cease operations, or have no financial statements and our undertaken in the course of the realistic alternative but to do so. auditors’ report thereon. The audit, the information given in the Auditors’ responsibilities for the directors are responsible for the Strategic Report and Directors’ audit of the financial other information. Our opinion on Report for the year ended 30 June statements the financial statements does not 2019 is consistent with the Our objectives are to obtain cover the other information and, financial statements and has been accordingly, we do not express an reasonable assurance about
Arqiva Group Limited (company reg 05254001) 65 Annual Report and Consolidated Financial Statements 2019 whether the financial statements agreed to describe our audit we have not received all the as a whole are free from material approach, including information and misstatement, whether due to communicating key audit matters. explanations we require for fraud or error, and to issue an our audit; or Use of this report auditors’ report that includes our adequate accounting opinion. Reasonable assurance is This report, including the records have not been kept a high level of assurance, but is opinions, has been prepared for by the Company, or returns not a guarantee that an audit and only for the Company’s adequate for our audit have conducted in accordance with members as a body in accordance not been received from ISAs (UK) will always detect a with Chapter 3 of Part 16 of the branches not visited by us; material misstatement when it Companies Act 2006 and for no or exists. Misstatements can arise other purpose. We do not, in certain disclosures of from fraud or error and are giving these opinions, accept or directors’ remuneration considered material if, individually assume responsibility for any specified by law are not or in the aggregate, they could other purpose or to any other made; or reasonably be expected to person to whom this report is influence the economic decisions shown or into whose hands it may the Company financial of users taken on the basis of come save where expressly agreed statements are not in these financial statements. by our prior consent in writing. agreement with the accounting records and A further description of our Other required reporting returns. responsibilities for the audit of the Companies Act 2006 exception We have no exceptions to report financial statements is located on reporting arising from this responsibility. the FRC’s website at: www.frc.org.uk/auditorsresponsibi Under the Companies Act 2006 lities. This description forms part we are required to report to you of our auditors’ report. In our if, in our opinion: engagement letter, we also
Graham Lambert (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Southampton 25 September 2019
66 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 Consolidated income statement
Year ended 30 June 2019 Year ended 30 June 20181 Notes Pre-exceptional Exceptional Pre-exceptional Exceptional items items Total items items Total £m £m £m £m £m £m
Revenue 5 999.5 - 999.5 976.0 - 976.0 Cost of sales (356.3) -(356.3) (329.2) -(329.2) Gross profit 643.2 - 643.2 646.8 - 646.8
Depreciation 16 (184.1) - (184.1) (166.3) - (166.3) Amortisation 15 (15.8) - (15.8) (16.7) - (16.7) Impairment 15,16 - - - (4.4) - (4.4) Other operating expenses2 7 (116.8) (13.5) (130.3) (123.1) (11.1) (134.2) Total operating expenses (316.7) (13.5) (330.2) (310.5) (11.1) (321.6) Other income 7.5 - 7.5 4.6 - 4.6 Share of results of associates and 17 - - - 0.2 - 0.2 joint ventures
Operating profit 6,7 334.0 (13.5) 320.5 341.1 (11.1) 330.0
Finance income 9 3.0 - 3.0 1.8 - 1.8 Finance costs 10 (651.9) - (651.9) (624.6) -(624.6) Other gains and losses 7,11 (37.1) -(37.1) 92.3 0.1 92.4 Loss before tax (352.0) (13.5) (365.5) (189.4) (11.0) (200.4) Tax 12 (11.9) 211.2 (Loss)/profit for the year (377.4) 10.8
Attributable to: Owners of the Company (377.7) 10.4 Non-controlling interests 0.3 0.4 (377.4) 10.8
All results are from continuing operations. Further comments on consolidated income statement line items are presented in the notes to the financial statements.
Figures at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’.
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’ and a change in presentation of tax. See notes 2 and 33 for further information. 2 Exceptional items are presented to assist with the understanding of the Group’s performance. See note 7 for further information.
Arqiva Group Limited (company reg 05254001) 67 Annual Report and Consolidated Financial Statements 2019 Consolidated statement of comprehensive income
Year ended Year ended 30 June 2019 30 June 20181
Note £m £m
(Loss)/profit for the year (377.4) 10.8
Items that will not be reclassified subsequently to profit or loss Actuarial (losses)/gains on defined benefit pension schemes 30 (5.1) 10.8 Movement on deferred tax relating to pension schemes 0.9 (1.8) (4.2) 9.0 Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations 2.5 0.1 Total other comprehensive (loss)/income (1.7) 9.1
Total comprehensive (loss)/income (379.1) 19.9
Attributable to: Owners of the Company (379.4) 19.5 Non-controlling interests 0.3 0.4 (379.1) 19.9
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See notes 2 and 33 for further information.
68 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 Consolidated statement of financial position
30 June 2019 30 June 20181
Note £m £m
Non-current assets Goodwill 14 1,978.4 1,980.0 Other intangible assets 15 47.3 59.0 Property, plant and equipment 16 1,711.1 1,770.4 Deferred tax 20 198.5 209.5 Retirement benefits 30 22.0 20.6 Interest in associates and joint ventures 17 0.1 0.1 3,957.4 4,039.6
Current assets Trade and other receivables 18 192.9 232.4 Contract assets2 18 70.1 66.6 Cash and cash equivalents 21 20.3 48.0 283.3 347.0
Total assets 4,240.7 4,386.6
Current liabilities Trade and other payables 22 (176.3) (219.7) Contract liabilities2 22 (182.1) (175.3) Borrowings 23 (1,762.5) (991.7) Provisions 26 (6.2) (2.8) (2,127.1) (1,389.5)
Net current liabilities (1,843.8) (1,042.5)
Non-current liabilities Contract liabilities2 22 (287.2) (314.0) Borrowings 23 (4,512.4) (4,970.8) Derivative financial instruments 25 (1,001.8) (1,030.8) Provisions 26 (74.8) (64.8) (5,876.2) (6,380.4)
Total liabilities (8,003.3) (7,769.9)
Net liabilities (3,762.6) (3,383.3)
Equity Share capital 653.9 653.9 Share premium 315.6 315.6 Accumulated losses (4,732.4) (4,350.5) Translation reserve (0.7) (3.2) Total equity attributable to owners of the Parent (3,763.6) (3,384.2) Non-controlling interest 1.0 0.9 Total equity (3,762.6) (3,383.3)
These financial statements on pages 67 to 131 were approved by the Board of Directors and authorised for issue on 25 September 2019. They were signed on its behalf by:
Frank Dangeard – Director
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See notes 2 and 33 for further information. 2 Contract assets and contract liabilities are presented separately following adoption of IFRS 15 on 1 July 2018. See notes 18 and 22 to the consolidated financial statements.
Arqiva Group Limited (company reg 05254001) 69 Annual Report and Consolidated Financial Statements 2019 Consolidated statement of changes in equity
Total Equity
attributable to Non- Share Share Accumulated Translation owners of the controlling Total
Note capital* premium losses reserve Parent interests equity £m £m £m £m £m £m £m
X Balance at 1 July 20171 653.9 315.6 (4,369.9) (3.3) (3,403.7) 0.6 (3,403.1) Profit for the year - - 10.4 - 10.4 0.4 10.8 Other comprehensive income -- 9.0 0.1 9.1 - 9.1 Total comprehensive income - - 19.4 0.1 19.5 0.4 19.9 Dividends paid 13 -- - - - (0.1) (0.1) Balance at 30 June 20181 653.9 315.6 (4,350.5) (3.2) (3,384.2) 0.9 (3,383.3) (Loss) / profit for the year - - (377.7) - (377.7) 0.3 (377.4) Other comprehensive (loss) / - - (4.2) 2.5 (1.7) - (1.7) income Total comprehensive (loss) / income - - (381.9) 2.5 (379.4) 0.3 (379.1) Dividends paid 13 - - - - - (0.2) (0.2) Balance at 30 June 2019 653.9 315.6 (4,732.4) (0.7) (3,763.6) 1.0 (3,762.6)
*Comprises 653,928,000 (2018: 653,928,000) authorised, issued and fully paid ordinary shares of £1 each.
1 Figures as at 1 July 2017 and 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See notes 2 and 33 for further information.
70 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 Consolidated cash flow statement
Note Year ended Year ended 30 June 2019 30 June 2018 £m £m
Net cash inflow from operating activities 27 471.1 569.8
Investing activities Interest received 2.2 1.3 Purchase of tangible assets 5 (120.3) (161.4) Purchase of intangible assets 5 (2.5) (3.7) Sale of tangible assets 7.5 0.5 Proceeds on disposal of investments - 5.2 Loans to joint ventures - 0.6 Net cash outflow from investing activities (113.1) (157.5)
Financing activities Raising of external borrowings 23 636.9 1.0 Repayment of external borrowings 23 (737.2) (124.3) Repayment of finance lease capital 23 (0.7) (0.4) Movement in borrowings (101.0) (123.7) Interest paid (219.1) (227.5) Interest element of finance lease rentals (0.9) (1.0) Cash settlement of principal accretion on inflation-linked swaps 25 (44.3) (58.6) Redemption premium of Junior Bonds upon refinancing (14.3) - Debt issue costs and facility arrangement fees (7.7) - Cash inflow on redemption of swaps 1.6 - Net cash outflow from financing activities (385.7) (410.8)
(Decrease)/increase in cash and cash equivalents (27.7) 1.5 Cash and cash equivalents at the beginning of the financial year 48.0 46.5 Cash and cash equivalents at end of year 21 20.3 48.0
Arqiva Group Limited (company reg 05254001) 71 Annual Report and Consolidated Financial Statements 2019 Notes to the Group financial statements
1 General information, authorisation of financial statements and Statement of Compliance
Arqiva Group Limited (‘AGL’) (‘the 30 June 2019 comprise the Accounting Standards ("IAS") and Company’) is a private company Company and its subsidiaries interpretations issued by the limited by shares and (together the "Group"). International Accounting incorporated in England, in the Standards Board ("IASB") and its United Kingdom (‘UK’) under the The nature of the Group’s committees) as adopted for use in Companies Act 2006 under operations and its principal the European Union ("EU") and registration number 05254001. activities are set out in the the Companies Act 2006. The address of the registered strategic report on pages 8 to 42. office is Crawley Court, The Company has elected to Winchester, Hampshire, England Statement of Compliance prepare its financial statements in SO21 2QA. The consolidated financial accordance with FRS 101 Reduced statements have been prepared in Disclosure Framework. These are These consolidated financial accordance with International presented on pages 132 to 143. statements of the Company and Financial Reporting Standards its subsidiaries for the year ended ("IFRS") (including International
2 Adoption of new and revised Standards
New and revised Standards
The group applied IFRS 15 and IFRS 9 for the first time in the current year. The nature and effect of the changes as a result of adoption of these new accounting standards are described in note 33.
The following additional new and revised Standards and Interpretations have also been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements.
IFRIC 22 Foreign Currency Transactions and Advance Consideration
Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to IAS 40 Transfer of Investment Property
Annual improvements 2014-2016 cycle Includes amendments to IFRS 12
72 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
At the date of authorisation of these financial statements, the following Standards and Interpretations which were in issue but not applicable for these financial statements:
Effective for annual periods Effective for Arqiva beginning on or after: year ending: IFRS 16 Leases 1 January 2019 30 June 2020 IFRIC 23 Uncertainty over Income Tax 1 January 2019 30 June 2020 Treatments Amendments to IFRS9 Prepayment Features with 1 January 2019 30 June 2020 Negative Compensation Amendments to IAS Long-term Interests in 1 January 2019 30 June 2020 28 Associates and Joint Ventures Annual Improvements Various standards 1 January 2019 30 June 2020 to IFRS Standards 2015 – 2017 Cycle Amendments to IAS Plan Amendment, Curtailment 1 January 2019 30 June 2020 19 or Settlement
Impact Assessment of new options or similar rights. Under will both increase, as payments Standards IAS 17, liabilities are generally made at both lease inception not recorded for future and subsequently will be With the exception of IFRS16, the operating lease payments, characterised as repayments of new standards are not expected which have been disclosed as lease liabilities and interest. to have a significant impact on the commitments, see note 28 Net cash flows will not be amounts reported in these “Financial commitments and impacted by IFRS 16. financial statements. contingent liabilities”. Lease costs will be recognised Lessee accounting for finance IFRS 16 Leases in the form of depreciation of leases will be similar under IFRS IFRS 16 “Leases” was issued in the right of use asset and 16 to existing IAS 17 accounting. January 2016 to replace IAS 17 interest on the lease liability. Lessor accounting under IFRS 16 “Leases” and has been endorsed This will result in a material is also similar to existing IAS 17 by the EU. The standard is increase to reported EBITDA. accounting and is expected to be effective for accounting periods Lease liabilities will generally materially the same for the Group. beginning on or after 1 January be discounted at the 2019 and was adopted by the incremental borrowing rate of The Group will adopt IFRS 16 on a Group on 1 July 2019. the relevant Group entity modified retrospective basis with although the interest rate no restatement of prior period IFRS 16 changes lease accounting implicit in the lease will be results. On transition, remaining for lessees and will have a material used when it is readily payments payable under lease impact on the Group’s financial determinable. Interest charges arrangements will be discounted statements, in particular: will typically be higher in the using an appropriate rate and Lease agreements will give rise early stages of a lease and will recognised as lease liabilities. to the recognition of an asset reduce over the term. Under Right-of-use assets will be representing the right to use IAS 17, operating lease rentals recognised equivalent to the lease the leased item and a liability have been expensed on a liability, adjusted for any pre- for future lease payments. The straight-line basis over the existing prepaid lease payments liability recorded for future lease term within operating and accrued lease expenses. lease payments will be for expenses (see note 6 amounts payable for the “Operating profit”). A high volume of transactions will ‘reasonably certain’ period of Net cash inflows from be impacted by IFRS 16 and the lease, which may include operating activities and material judgements will be future lease periods for which payments classified within cash required in identifying and the Group has extension flow from financing activities accounting for leases. The group
Arqiva Group Limited (company reg 05254001) 73 Annual Report and Consolidated Financial Statements 2019 is well progressed in Lease terms under IFRS 16 office equipment excluding IT implementing the new standard. may exceed the minimum equipment. lease period and include The Group’s current estimate of The most significant judgements optional lease periods where the primary pre-tax financial in applying IFRS 16 relate to lease it is reasonably certain that impact of these changes on the identification, fixed and variable an extension option or similar consolidated statement of payments and the determination right will be exercised or that financial position on adoption is of the lease term: a termination option will not the recognition of an additional For most contracts there is be exercised by the Group. lease liability at 1 July 2019 of limited judgement in Significant judgement is between £295 million and £315 determining whether an required in determining million. The additional lease agreement contains a lease; whether optional periods liability does not equal the however, the change in should be included in the operating lease commitment definition of a lease mainly lease term taking into disclosed in note 28 primarily relates to the concept of account the leased asset’s because lease terms determined control. IFRS 16 distinguishes nature and purpose and under IFRS 16 include the impact between leases and service potential for replacement of discounting and the probability contracts on the basis of and any plans that the Group of renewal. whether the use of an has in place for future use of identified asset is controlled the asset. The right of use asset recognised by the lessee. Control is at 1 July 2019 is expected to be considered to exist if the The lease terms for land and slightly higher than the lease customer has: buildings, subject to the non- liability, as the value of existing o The right to obtain cancellable period and rights and lease prepayments added to the substantially all of the options in each individual balance is expected to exceed the economic benefits from contract, are generally judged to value of accruals and provisions the use of an identified be the longer of the minimum for onerous leases that are asset; and lease term and between 2 and 10 deducted. Overall, these o The right to direct the use years, with terms at the top end of transactions are expected to have of that asset. this range if the lease relates to no material impact on Group Where the Group has assets that are critical to the retained earnings. contracts for the use of fibre delivery of major customer and other fixed contracts. The impact on the consolidated telecommunication lines, The Group will apply the following income statement for the year to judgement is required to practical expedients allowed 30 June 2020 will depend on determine whether the under IFRS 16: factors that may occur during the Group controls the line and Initial direct costs of lease year including new leases entered has a lease. arrangements will be into, changes or reassessments of Some lease contracts include excluded from the initial the Group’s existing lease elements of consideration right-of-use asset; portfolio and changes to which are fixed and variable. The Group will rely on its exchange rates or discount rates. For these contracts onerous lease assessments However, the operating lease judgement is required to under IAS 37 to impair right- charges incurred in the year to 30 determine to what extent any of-use assets recognised on June 2019 were £67.7 million (see of the variable consideration adoption instead of note 6 “Operating profit”). is in substance fixed performing a new consideration according to These impacts are based on the impairment assessment for IFRS 16. Where variable assessments undertaken to date. those assets on adoption consideration is in substance The exact financial impacts of the and; fixed consideration it is accounting changes of adopting The Group will be taking the included in the valuation of IFRS 16 at 1 July 2019 may be short term or low value the lease liability and right of revised. expedients in IFRS 16 for use asset.
74 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
3. Significant accounting policies
Basis of preparation Company and entities controlled the equity method of accounting The financial framework which by the Company (its subsidiaries, in accordance with IAS 28 now applies to entities preparing together the Group) made up to ‘Investments in Associates and financial statements in accordance 30 June 2019. Joint Ventures’. with legislation, regulation or accounting standards applicable Control is achieved when the Going concern in the UK and the Republic of Company: Historically the Group has Ireland is FRS 100, Application of has demonstrable power reported losses and has a Financial Reporting Requirements, over the relevant activities of significant net liability position on which was issued in November the investee; the Statement of Financial 2012. is exposed, or has rights, to Position, caused primarily by debt variable return from its and the related financing costs. The financial statements have involvement with the However, the Group has been prepared in accordance with investee; and continued to generate strong the Companies Act 2006 as has the ability to use its operating cashflows. applicable to companies applying power to affect its returns. International Financial Reporting The Group meets its day-to-day Standards (IFRS) and in The Company reassesses whether working capital and financing accordance with interpretations or not it controls an investee if requirements through the net issued by the IFRS Interpretations facts and circumstances indicate cash generated from its Committee (IFRS IC) as adopted that there are changes to one or operations. The Group has access by the European Union. more of the three elements of to sufficient financial resources control listed above. which, together with internally The financial statements have generated cash flows, will been prepared on the historical Consolidation of a subsidiary continue to provide sufficient cost basis, except for the valuation begins when the Company sources of liquidity to fund its of financial instruments that are obtains control over the current operations, including its measured at fair values at the end subsidiary and ceases when the contractual and commercial of each reporting period, as Company loses control of the commitments as set out in note explained in the accounting subsidiary. Specifically, the results 28. In addition, forecast covenant policies below. Historical cost is of subsidiaries acquired or compliance remains strong. For generally based on the fair value disposed of during the year are this reason the Directors are of the consideration given in included in the consolidated confident that the Group has exchange for goods and services. income statement from the date adequate resources to continue in The principal accounting policies the Company gains control until operational existence for the adopted are set out below. These the date when the Company foreseeable future. Thus they policies have been applied ceases to control the subsidiary. continue to adopt the going consistently across the concern basis of accounting in comparative financial periods Intra-group profits have been preparing these financial included within these financial eliminated. Undertakings, other statements. statements. than subsidiary undertakings, in which the Group has an Segmental reporting The Company’s financial investment representing not less Operating segments are reported statements have been prepared than 20% of the voting rights and in a manner consistent with the under FRS 101 and are included in over which it exerts significant internal reporting provided to the this report – see page 132. influence are treated as associated chief operating decision maker. undertakings. Where the Group The chief operating decision Basis of consolidation has an investment that has joint maker, who is responsible for the The consolidated financial control, this is treated as a joint allocation of resources and statements incorporate the venture. Associates and joint assessment of performance of the financial statements of the ventures are accounted for using operating segments, has been
Arqiva Group Limited (company reg 05254001) 75 Annual Report and Consolidated Financial Statements 2019 identified as collectively the Board received in advance is discounted, and machine-to-machine of Directors, which includes the reflecting a significant financing connectivity. Chief Executive Officer and the component, it is reflected within Chief Financial Officer. revenue and interest payable and For long-term services contracts similar charges on a gross basis. revenue is recognised on a Revenue recognition Revenue recognised in advance of straight-line basis over the term of Revenue represents the gross cash being received or an invoice the contract. However, if the inflow of economic benefit for being raised is recognised as performance pattern is other than services provided utilising Arqiva’s accrued income within contract straight line, revenue is communications infrastructure, assets and subsequently recognised as services are completion of significant reclassified to receivables once an provided, usually on an output or engineering projects and the sale invoice is raised. Invoices are network coverage basis. Such of communications equipment. issued in line with contract terms. revenues include Smart metering Revenue is stated net of value network build and service added tax. Revenue is measured The group does not have any operation. at the fair value of the material obligations in respect of consideration received or returns, refunds or warranties. Pre-contract costs incurred in the receivable. initial set up phase of a contract The following summarises the are deferred. These costs are then On inception of a contract, performance obligations we have recognised in the income performance obligations are identified, and provides statement on a straight-line basis identified for each of the distinct information on the timing of when over the remaining contractual goods or services that have they are satisfied and the related term, unless the pattern of service promised to be provided to the revenue recognition policy. The delivery indicates a different customer. The consideration revenue expected to be profile is appropriate. These costs specified in the contract is recognised in future periods for are directly attributable to specific allocated to each performance contracts in place at 30 June 2019 contracts, relate to future activity, obligation identified based on that contain unsatisfied will generate future economic their relative standalone selling performance obligations is benefits and are assessed for prices and is recognised as included in note 5. recoverability on a regular basis. revenue as they are satisfied. Costs related to delivering Determining the standalone services under long-term Rendering of services selling price often requires contractual arrangements are judgement and may be derived Performance obligations under expensed as incurred. from regulated prices, list prices, a contracts for the rendering of Delivery of engineering projects cost-plus derived price, or the services are identified for each price of similar products when distinct service or deliverable for Arqiva provides support to its sold on a standalone basis by which the customer has customers by undertaking various Arqiva or a competitor. In some contracted and are considered to engineering projects. Contracts cases it may be appropriate to use be satisfied over the time period for the delivery of engineering the contract price when this that the services or deliverables projects are split into specific represents a bespoke price that are delivered. Revenue is performance obligations. would be the same for a similar recognised over time in line with Performance obligations relating customer in a similar the service provision over the to services are satisfied over the circumstance. contractual period and time period that services are appropriately reflects the pattern delivered, performance Cash received or invoices raised in by which the performance obligations relating to the advance are taken to deferred obligation is satisfied. Such provision of assets are satisfied at income and recognised as revenues include television and the point in time that control contract liabilities, and radio transmission services, tower passes to the customer. Revenue subsequently recognised as site share charges to mobile from such projects, which are revenue when the services are network operators, small cells, long-term (greater than 12 provided. Where consideration network provision, media services, months) contractual
76 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 arrangements, is recognised the time of the sale, and a interests in the acquiree, and the based on satisfaction of the contract asset is recognised for fair value of the acquirer's identified performance the amount due from the previously held equity interest in obligations using the percentage customer that will be recovered the acquiree (if any) less the net of of completion method. The stage over the contract period. Revenue the acquisition-date amounts of of completion is based on the to be recognised is calculated by the identifiable assets acquired portion of costs incurred as a reference to the relative and the liabilities assumed. percentage of total costs. Profit is standalone selling price of the recognised, if the final outcome equipment. Goodwill is not amortised but is can be assessed with reasonable reviewed for impairment at least certainty, by including revenue Business combinations, annually or where there is and related costs in the income including goodwill indication of impairment. statement as contract activity Acquisitions of subsidiaries and progresses. businesses are accounted for On disposal of a subsidiary, the using the acquisition method. The attributable amount of goodwill is A loss on a fixed price contract is consideration transferred in a included in the determination of recognised immediately when it business combination is measured the profit or loss on disposal. becomes probable that the at fair value, which is calculated as contract cost will exceed the total the sum of the acquisition-date Intangible assets contract revenue. fair values of assets transferred by Intangible assets are initially Sale of communications equipment the Group, liabilities incurred by recognised at cost and are Performance obligations from the the Group to the former owners of subsequently carried at cost less sale of communications the acquiree and the equity accumulated amortisation and any equipment provided as part of interest issued by the Group in accumulated impairment losses. customer contracts are satisfied exchange for control of the Amortisation is charged to the and revenue is recognised at the acquiree. Acquisition-related costs income statement on a straight point in time that control passes are recognised in profit or loss as line basis over the estimated to the customer, which is typically incurred. useful life of the asset, on the upon delivery and acceptance by following bases: the customer. In some cases, Goodwill is measured as the sum payment is not received in full at of the consideration transferred, the amount of any non-controlling
Asset Description Estimated Useful Life Licences Length of the licence period (no more than 20 years) Development costs 10 years Access rights Length of the agreement (no more than 20 years) Software 5-10 years
Arqiva Group Limited (company reg 05254001) 77 Annual Report and Consolidated Financial Statements 2019
Expenditure on research activities listed above. Where no internally- Assets in the course of is recognised as an expense in the generated intangible asset can be construction for production, period in which it is incurred. recognised, development supply or administrative purposes, expenditure is recognised in profit are carried at cost, less any An internally-generated intangible or loss in the period in which it is recognised impairment loss. The asset arising from development incurred. cost of self-constructed assets (or from the development phase includes the cost of materials and of an internal project) is Subsequent to initial recognition, direct labour. Labour costs are recognised if, and only if, all of the internally-generated intangible capitalised within the cost of an following conditions have been assets are reported at cost less asset to the extent that they are demonstrated: accumulated amortisation and directly attributable to the the technical feasibility of accumulated impairment losses, construction of the asset. The completing the intangible on the same basis as intangible value capitalised captures all asset so that it will be assets that are acquired elements of employee benefits as available for use or sale; separately. defined by IAS 19. the intention to complete the intangible asset and use or An intangible asset is Cost includes professional fees sell it; derecognised on disposal, or and, for qualifying assets, the ability to use or sell the when no future economic benefits borrowing costs capitalised in intangible asset; are expected from use or disposal. accordance with the Group’s how the intangible asset will Gains or losses arising from de- accounting policy. Depreciation of generate probable future recognition of an intangible asset, these assets, on the same basis as economic benefits; measured as the difference other property assets, commences the availability of adequate between the net disposal when the assets are ready for their technical, financial and other proceeds and the carrying amount intended use. resources to complete the of the asset, are recognised in development and to use or profit or loss when the asset is Freehold land is not depreciated. sell the intangible asset; and derecognised. the ability to measure reliably Depreciation is recognised so as the expenditure attributable Property, plant and equipment to write off the cost or valuation to the intangible asset during Property, plant and equipment are of assets (other than freehold land its development. stated at historical purchase cost and properties under (which includes costs directly construction) less their residual The amount initially recognised attributable to bringing the assets values over their useful lives, using for internally-generated intangible into working condition), being fair the straight-line method, on the assets is the sum of the value for tangible assets acquired following bases: expenditure incurred from the on acquisition, less accumulated date when the intangible asset depreciation and any provision for first meets the recognition criteria impairment.
Asset Description Estimated Useful Life Freehold buildings 20 – 80 years Leasehold buildings Length of lease (typically between 20-80 years) Plant and equipment - Communications infrastructure network 8 – 100 years - Network computer equipment 3 – 20 years - Motor vehicles 3 – 5 years
78 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The estimated useful lives, generating units for which a Financial instruments residual values and depreciation reasonable and consistent Financial assets and financial method are reviewed at the end allocation basis can be identified. liabilities are recognised in the of each reporting period, with the Group’s statement of financial effect of any changes in estimate An intangible asset with an position when the Group becomes accounted for on a prospective indefinite useful life, such as a party to the contractual basis. goodwill, is tested for impairment provisions of the instrument. at least annually and whenever Assets held under finance leases there is an indication that the Financial assets and financial are depreciated over the shorter asset may be impaired. liabilities are initially measured at of their lease term and their fair value. Transaction costs that expected useful lives (on the same Recoverable amount is the higher are directly attributable to the basis as owned assets). of fair value less costs to sell, and acquisition or issue of financial value in use. In assessing value in assets and financial liabilities An item of property, plant and use, the estimated future cash (other than financial assets and equipment is derecognised upon flows are discounted to their financial liabilities at fair value disposal or when no future present value using a pre-tax through profit or loss) are added economic benefits are expected to discount rate that reflects current to or deducted from the fair value arise from the continued use of market assessments of the time of the financial assets or financial the asset. The gain or loss arising value of money and the risks liabilities, as appropriate, on initial on the disposal of an asset is specific to the asset for which the recognition. Transaction costs determined as the difference estimates of future cash flows directly attributable to the between the sales proceeds and have not been adjusted. acquisition of financial assets or the carrying amount of the asset, financial liabilities at fair value and is recognised in the income If the recoverable amount of an through profit or loss are statement. asset (or cash-generating unit) is recognised immediately in profit estimated to be less than its or loss, presented as an ‘other Impairment of non-financial carrying amount, the carrying gain or loss’. assets amount of the asset (or cash- At each reporting period date, the generating unit) is reduced to its All financial assets are recognised Group reviews the carrying recoverable amount. An and derecognised on a trade date amounts of its tangible and impairment loss is recognised where the purchase or sale of a intangible assets to determine immediately in profit or loss. financial asset is under a contract whether there is any indication whose terms require delivery of that those assets have suffered an Where an impairment loss the financial asset within the impairment loss. If any such subsequently reverses, the timeframe established by the indication exists, the recoverable carrying amount of the asset (or market concerned. amount of the asset is estimated cash-generating unit) is increased to determine the extent of the to the revised estimate of its The Group’s financial assets are impairment loss (if any). Where recoverable amount, but so that classified into the following the asset does not generate cash the increased carrying amount specified categories: financial flows that are independent from does not exceed the carrying assets ‘at fair value through profit other assets, the Group estimates amount that would have been or loss’ (‘FVTPL’), ‘held-to- the recoverable amount of the determined had no impairment maturity’ investments, ‘available- cash-generating unit to which the loss been recognised for the asset for-sale’ (AFS) financial assets and asset belongs. When a reasonable (or cash-generating unit) in prior ‘loans and receivables’. The and consistent basis of allocation years. A reversal of an impairment classification depends on the can be identified, corporate assets loss is recognised immediately in nature and purpose of the are also allocated to individual profit or loss unless the financial assets and is determined cash-generating units, or impairment relates to goodwill, in at the time of initial recognition. otherwise they are allocated to which case it cannot be reversed. the smallest group of cash-
Arqiva Group Limited (company reg 05254001) 79 Annual Report and Consolidated Financial Statements 2019
Loans and receivables are non- The Group’s financial liabilities settle the present obligation at derivative financial assets with are classified as either financial the balance sheet date, taking into fixed or determinable payments liabilities ‘at FVTPL’ or ‘other account the risks and that are not quoted in an active financial liabilities’ according to uncertainties surrounding the market. They are initially the substance of the contractual obligation. Where a provision is recognised at fair value and arrangements entered into. measured using the cash flows subsequently carried at amortised estimated to settle the present cost using the effective interest Borrowings obligation, its carrying amount is method. They are included in Interest-bearing bank loans the present value of those cash current assets, except for and overdrafts are recorded at flows (when the effect of the time maturities greater than 12 months the proceeds received, net of value of money is material). after the reporting date, which are direct issue costs. Finance classified as non-current assets. charges, including premiums When some or all of the economic The Group’s loans and receivables payable on settlement or benefits required to settle a comprise trade and other redemption, and direct issue provision are expected to be receivables and cash and cash costs are accounted for on an recovered from a third party, a equivalents: accruals basis to the income receivable is recognised as an statement using the effective asset if it is virtually certain that Trade receivables interest method, and are reimbursement will be received Trade receivables do not carry added to the carrying amount and the amount of the receivable any interest and are stated at of the instrument to the extent can be measured reliably. their nominal value as reduced that they are not settled in the by appropriate allowances for period in which they arise. Decommissioning provisions are estimated irrecoverable recognised within provisions for amounts. Impairment of Trade other payables liabilities and charges and irrecoverable amounts is based Trade and other payables are included within property, plant on an expected credit loss not interest bearing and are and equipment, where the costs model. initially recorded at fair value of dismantling assets are and subsequently measured at considered material. The amounts Contract assets amortised cost using the recognised within property, plant Contract assets are amounts effective interest method. and equipment are depreciated owed for future services from They are included in current over the useful economic life of signed contracts. Revenue is liabilities, except for maturities the asset. The provisions are measured at the amount greater than 12 months after discounted to reflect the time receivable under the contract. the reporting date, which are value of money where material. It is discounted to present classified as non-current value if deferred payments liabilities. When the probability that the have been agreed and the Group will be required to settle an impact of discounting is Provisions obligation or a reliable estimate material. Provisions are recognised cannot be made of the amount of when the Group has a present the obligation the Group discloses Cash and cash equivalents obligation (legal or a contingent liability in the notes Cash and cash equivalents constructive) as a result of a to the financial information. comprise cash on hand and past event, it is probable that demand deposits and other the Group will be required to The Group enters into a variety of short-term highly liquid settle that obligation and a derivative financial instruments investments that are readily reliable estimate can be made to manage its exposure to interest convertible to a known amount of the amount of the rate and foreign exchange rate of cash and are subject to an obligation. risk, including foreign exchange insignificant risk of change in forward contracts, interest rate value. The amount recognised as a swaps and cross currency swaps. provision is the best estimate of the consideration required to
80 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Derivative financial instruments into account the characteristics of statement because it excludes are recognised at fair value at the the asset or liability if market items of income or expense that date the derivative contract is participants would take those are taxable or deductible in other entered into and are revalued at characteristics into account when years and it further excludes items fair value at each balance sheet pricing the asset or liability at the that are never taxable or date. The fair value of these measurement date. Fair value for deductible. The Group’s liability instruments is determined from measurement and/or disclosure for current tax is calculated using the expected future cash flows purposes in these financial tax rates that have been enacted discounted at a risk-adjusted rate. statements is determined on such or substantively enacted by the The future cash flows are a basis. Exceptions to this balance sheet date. estimated based on forward principle have been made for (interest/inflation/exchange) rates leasing transactions that are Deferred tax observable from rates and yield within the scope of IAS 17, and Deferred tax is the tax expected to curves at the end of the reporting measurements that are be payable or recoverable on period, and contract rates. The approximations to fair value but differences between the carrying difference between the fair value are not fair value, such as value in amounts of assets and liabilities in at the risk-adjusted rate and the use in IAS 36. the financial information and the fair value at the risk-free rate is In addition, for financial reporting corresponding tax bases used in used to determine the debit purposes, fair value the computation of taxable profit, valuation adjustment and/or measurements are categorised and is accounted for using the credit valuation adjustment to into Level 1, 2 or 3 based on the balance sheet liability method. these instruments. The Group degree to which the inputs to the Deferred tax liabilities are does not apply hedge accounting fair value measurements are generally recognised for all principles. observable and the significance of taxable temporary differences and the inputs to the fair value deferred tax assets are recognised A derivative is presented as a non- measurement in its entirety, which to the extent that it is probable current asset or a non-current are described as follows: that taxable profits will be liability if the remaining maturity Level 1 inputs are quoted available against which deductible of the instrument is more than 12 prices (unadjusted) in active temporary differences can be months and it is not expected to markets for identical assets utilised. be realised or settled within 12 or liabilities that the entity months. Otherwise derivatives are can access at the The carrying amount of deferred presented as current assets or measurement date; tax assets is reviewed at each current liabilities. Where Level 2 inputs are inputs, balance sheet date and reduced derivatives have an amortising other than quoted prices to the extent that it is no longer profile, the fair value of the included within Level 1, that probable that sufficient taxable element (i.e. the notional are observable for the asset profits will be available to allow all principal) that matures within 12 or liability, either directly or or part of the asset to be months is presented as a current indirectly; and recovered. asset or current liability. Level 3 inputs are unobservable inputs for the Deferred tax is calculated at the Fair value measurement asset or liability. tax rates that are expected to IFRS 13 defines fair value as the apply in the period when the price that would be received to Taxation liability is settled or the asset is sell an asset or paid to transfer a The tax expense represents the realised based on tax laws and liability in an orderly transaction sum of the tax currently payable rates that have been enacted or between market participants at and deferred tax. substantively enacted at the the measurement date, regardless balance sheet date. Deferred tax is of whether that price is directly Current tax charged or credited in the income observable or estimated using The tax currently payable is based statement, except when it relates another valuation technique. In on taxable profit for the year. to items charged or credited in estimating the fair value of an Taxable profit differs from net other comprehensive income, in asset or a liability, the Group takes profit as reported in the income which case the deferred tax is also
Arqiva Group Limited (company reg 05254001) 81 Annual Report and Consolidated Financial Statements 2019 dealt with in other comprehensive statement. Curtailments gains and produce a constant rate of return income. losses are accounted for as a past- on the net cash investments. service cost. Deferred tax assets and liabilities Rental income from operating are offset when there is a legally Net-interest expense or income is leases is recognised on a straight- enforceable right to set off current recognised within finance income line basis over the term of the tax assets against current tax (see note 9). relevant lease. Initial direct costs liabilities and when they relate to incurred in negotiating and income taxes levied by the same The retirement benefit obligation arranging an operating lease are taxation authority and the Group recognised in the consolidated added to the carrying amount of intends to settle its current tax statement of financial position the leased asset and recognised assets and liabilities on a net represents the deficit or surplus in on a straight-line basis over the basis. the Group’s defined benefit lease term. schemes. Any surplus resulting Retirement benefits from this calculation is limited to The Group as lessee Defined contribution schemes the present value of any economic Assets held under finance leases For defined contribution schemes, benefits available in the form of are recognised as assets of the the amount charged to the refunds from the schemes or Group at their fair value or, if income statement in respect of reductions in future contributions lower, at the present value of the pension costs and other post- to the schemes. minimum lease payments, each retirement benefits is the determined at the inception of the contribution payable in the year. A liability for a termination benefit lease. The corresponding liability Differences between contributions is recognised at the earlier of to the lessor is included in the payable for the year and when the entity can no longer statement of financial position as contributions actually paid are withdraw the offer of the a finance lease obligation. shown as either accruals or termination benefit and when the Lease payments are apportioned prepayments in the statement of entity recognises any related between finance expenses and financial position. restructuring costs. reduction of the lease obligation so as to achieve a constant rate of Defined benefit schemes Leases interest on the remaining balance Defined benefit schemes are Leases are classified as finance of the liability. Finance expenses funded, with the assets of the leases whenever the terms of the are recognised immediately in scheme held separately from lease transfer substantially all the profit or loss, unless they are those of the Group, in separate risks and rewards of ownership to directly attributable to qualifying trustee administered funds. the lessee. All other leases are assets, in which case they are Pension scheme assets are classified as operating leases. capitalised in accordance with the measured at fair value and Group’s general policy on liabilities are measured on an The Group as lessor borrowing costs. Contingent actuarial basis using the projected Equipment leased to customers rentals are recognised as expenses unit method and discounted at a under finance leases is deemed to in the periods in which they are rate equivalent to the current rate be sold at normal selling price and incurred. this value is recognised as revenue of return on a high quality at the inception of the lease. The corporate bond of equivalent Rentals payable under operating associated asset is recognised currency and terms to the scheme leases are charged to income on a within cost of sales at the liabilities. straight-line basis over the term of inception of the lease. Receivables the relevant lease except where The Plan closed to future accrual under finance leases represent another more systematic basis is of benefits on 31 January 2016. outstanding amounts due under more representative of the time Prior to closing the scheme to these agreements, less finance pattern in which economic future accrual, the Group charges allocated to future benefits from the lease asset are presented current and past service periods. Finance lease interest is consumed. Contingent rentals costs within cost of sales and recognised over the primary arising under operating leases are administrative expenses (see note period of the lease so as to recognised as an expense in the 30) in its consolidated income period in which they are incurred.
82 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
In the event that lease incentives the consolidated statement of business. These items are are received to enter into financial position and transferred therefore presented separately on operating leases, such incentives to profit or loss on a systematic the face of the income statement. are recognised as a liability. The and rational basis over the useful aggregate benefit of incentives is lives of the related assets. Foreign currencies recognised as a reduction of Transactions in foreign currencies rental expense on a straight-line Operating profit and are translated at the exchange basis over the lease term, except exceptional items rate ruling at the date of the where another systematic basis is Operating profit is stated after transaction, except in the case of more representative of the time exceptional items, including certain financing transactions pattern in which economic restructuring costs, impairment where hedging arrangements are benefits from the leased asset are and after the share of results of in place and transactions are consumed. associates but before finance recorded at the contracted rate. income and finance costs. Government grants Monetary assets and liabilities Government grants are not Exceptional items are those that denoted in foreign currencies are recognised until there is are considered to be one-off, retranslated at the exchange rate reasonable assurance that the non-recurring in nature or ruling at the balance sheet date or Group will comply with the material, either by magnitude or the contracted rate if applicable. conditions attaching to them and nature, that the Directors believe Any exchange differences arising that the grants will be received. that they require separate are taken to the income disclosure to avoid the distortion statement. Transactions in the Government grants are of underlying performance, for income statement of overseas recognised in profit or loss on a example one-off impairments, operations are translated using an systematic basis over the periods redundancy programmes, average exchange rate. in which the Group recognises as restructuring and costs related to expenses the related costs for significant corporate finance Exchange differences on which the grants are intended to activities. The Directors believe the translation of overseas compensate. Specifically, resulting EBITDA represents subsidiaries are recognised government grants whose primary underlying performance, through the statement of condition is that the Group should excluding significant one-off and comprehensive income in the purchase, construct or otherwise non-recurring events, that more Group’s translation reserve. acquire non-current assets are fairly represents the on-going recognised as deferred revenue in trading performance of the
4 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s relevant. Actual results may differ Critical judgements and key accounting policies, which are from these judgements, estimates sources of estimation described in note 3, the directors and assumptions. uncertainty in applying the are required to make judgements, Group’s accounting policies estimates and assumptions about The judgements, estimates and the carrying amounts of assets underlying assumptions are The following are the critical and liabilities that are not readily reviewed on an on-going basis. judgements and those involving apparent from other sources. Revisions are recognised in the estimations that the Directors period in which the estimate is have made in the process of The judgements, estimates and revised. applying the Group’s accounting associated assumptions are based policies and that have the most on historical experience and other significant effect on the amounts factors that are considered to be recognised in financial statements.
Arqiva Group Limited (company reg 05254001) 83 Annual Report and Consolidated Financial Statements 2019
Revenue recognition Deferred tax the Group and within the industry as a whole. Critical accounting judgements: Critical accounting judgements:
In applying the Group’s revenue The largest element of deferred tax The carrying values of intangibles recognition policy, as set out in that requires judgement relates to are disclosed in note 15, and note 3, judgements are made in tax losses carried forward (see note those for property, plant and respect of certain areas including: 20). equipment are disclosed in note determination of distinct Applicable accounting standards 16. contract components and permit the recognition of deferred performance obligations; tax assets only to the extent that Provisions and contingent the recognition of a significant future taxable profits will be liabilities financing component. generated to utilise the tax losses Critical accounting judgements: carried forward. The aforementioned judgements As disclosed in note 26, the are consistently applied across Useful lives for property, plant Group’s provisions principally similar contracts. and equipment and intangibles relate to obligations arising from contractual obligations, Critical accounting estimates: Key estimations: restructuring and property Depreciation or amortisation is remediation plans and In applying the Group’s revenue charged to the income statement decommissioning obligations. recognition policy, as set out in based upon the useful lives note 3, estimations are made in The identification of such selected. This assessment requires respect of certain areas including: obligations in the context of daily estimation of the period over operations which require measurement of variable which the Group will derive provisions to be made requires consideration; benefit from these assets. judgement. in the application of the percentage of completion Management monitor and assess Judgement is also required to approach to long-term the appropriateness of useful distinguish between provisions and contractual arrangements economic lives, such lives may contingent liabilities. which relies on estimates of also be impacted by external total expected contract market changes. In the event that Key estimations: revenues and costs, as well as such a change were to result in a Estimates have been made in reliable measurement of the revision of useful economic lives respect of the probable future progress made towards this could result in a change to obligations of the Group. These completion. the annual depreciation charge estimates are reviewed annually to going forwards. In the theoretical reflect current economic Key estimates are regularly scenario whereby medium and conditions and strategic plans. monitored throughout the long term useful economic lives of relevant contractual periods with property, plant and equipment The decommissioning provisions reference to the stage of were to be reduced by one year are reviewed annually and are completion and any applicable the estimated impact on the calculated based upon expected customer milestone acceptance. depreciation charge for the year is costs and past costs incurred on This is particularly relevant to the approximately £24m, with a similar sites as determined by site approach for significant reduction in depreciation in later and project management, as well engineering projects, such as the years. as assessments made by internal 700MHz clearance programme, experts (see note 26). which typically contain a The Group manages its property, programme build phase and a plant and equipment on a Management have estimated the long-term operational phase. portfolio basis through a central impact of reducing the estates team. This team contains decommissioning timetable by one qualified surveyors who have a year to be £0.2m in relation to the wealth of experience working for unwinding of provision discounting or, if all site
84 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 decommissioning was recognised founded on five-year projections recognised at fair value and are in line with potential earlier built on financial plans approved subsequently depreciated over expiration dates, a sensitivity of up by the Board. The cash flow their useful life (see note 16). to £15-20m. projections take account of past In estimating the fair value of an experience, and are based on asset or a liability, the Group uses Management also exercises management’s best estimates of market-observable data to the judgement in measuring the future developments based on extent it is available. Where Level 1 exposures to contingent liabilities contracted growth and necessary inputs are not available, the Group (see note 28) through assessing expenditure to maintain the assets uses estimation techniques in the likelihood that a potential required to generate that accordance with the requirements claim or liability will arise, and in expected revenue. Cash flows of IFRS 13. This includes the quantifying the possible range of beyond the planning period are assessment of the fair value financial outcomes. extrapolated using an expected adjustments with respect to credit terminal growth rate.The key risk (specifically debt/credit Impairment of goodwill assumptions underlying the valuation adjustments to the fair changes in value in use involve Critical accounting judgements: value of the derivative liabilities) estimates of the discount rate for which the Group incorporates The carrying amount of the (with reference to weighted market-observable data into its Group’s goodwill is reviewed at average costs of capital), valuation techniques. each statement of financial projected cash flows and terminal position date to determine growth rate. Information about the valuation whether there is any indication of techniques and inputs used in impairment, in compliance with the The carrying amount of goodwill at determining the fair value of Group’s accounting policies. the statement of financial position various assets and liabilities are disclosed in notes 14 and 25. Judgement is used to identify date is disclosed in note 14. indicators of impairment and their impact upon the goodwill Fair value measurements and balances. valuation processes Key estimations Key estimations: Some of the Group's assets and Deciding the recoverable amount liabilities are measured at fair value of a line of business to which for financial reporting purposes, goodwill is attributed involves including pension assets and management estimates. The liabilities (see note 30), derivatives recoverable amount is the higher (see note 25). A proportion of the of the fair value less costs to sell, Telecoms fixed asset additions are and the value in use. The Group determines these values using methods based on discounted cash flows. These discounted cash flows are
Arqiva Group Limited (company reg 05254001) 85 Annual Report and Consolidated Financial Statements 2019
5 Revenue and segmental information
The Group derives its revenue from the rendering of services, engineering projects, and the sale of communications equipment. See note 3 for the accounting policies adopted.
The following tables disaggregate revenue from contracts with customers by our major service lines and by reportable segment.
Terrestrial
Broadcast Telecoms & M2M Satellite and Media Total
Year ended 30 June 2019 £m £m £m £m
Rendering of services 448.3 334.0 123.2 905.5 Engineering projects 43.0 27.9 - 70.9 Sale of goods - 23.1 - 23.1 Revenue 491.3 385.0 123.2 999.5
Terrestrial Broadcast Telecoms & M2M Satellite and Media Total
£m £m £m £m Year ended 30 June 20181
Rendering of services 445.8 292.4 133.5 871.7 Engineering projects 43.5 51.6 - 95.1 Sale of goods - 9.2 - 9.2 Revenue 489.3 353.2 133.5 976.0
Revenue expected to be recognised in future periods, included in our order book, for performance obligations that are not complete (or are partially complete) as at 30 June 2019 is £4,650.2m (2018: £5,215.5). The anticipated timing of recognition of this revenue is as follows:
< 1 year 1-2 years 2 – 5 years 5-10 years > 10 years Total
Year ended 30 June 2019 £m £m £m £m £m £m
Rendering of services 662.0 505.3 1,241.9 1,361.7 636.5 4,407.4 Engineering projects 40.3 6.7 1.1 - - 48.1 Sale of goods 40.0 41.6 93.6 18.8 0.7 194.7
Revenue 742.3 553.6 1,336.6 1,380.5 637.2 4,650.2
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 Revenue from contracts.
86 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
< 1 year 1-2 years 2 – 5 years 5-10 years > 10 years Total
Year ended 30 June 2018 £m £m £m £m £m £m
Rendering of services 768.8 622.9 1,274.8 1,440.1 858.0 4,964.6 Engineering projects 39.4 36.6 5.9 - - 81.9 Sale of goods 27.0 39.5 127.1 14.0 3.0 210.6 Revenue 835.2 699.0 1,407.8 1,454.1 861.0 5,257.1
Contract assets and liabilities The Group has recognised the following assets and liabilities in relation to contracts with customers:
30 June 2019 30 June 20181
£m £m
Contract assets Current 70.1 66.6
Contract liabilities Current 182.1 175.3 Non-current 287.2 314.0 469.3 489.3
£230.4m of the contract liability in contract asset and liability other receivables in the balance recognised at 30 June 2018 was balances during the year. sheet and totalled £2.2m (2018: recognised as revenue during the £2.4m). Amortisation recognised year. Impairment losses of £0.3m In addition to the contract as a cost of providing services were recognised on contract balances disclosed above, the during the period were £0.2m assets during the year. Other than group has also recognised an (2018: £0.2m). business-as-usual movements asset in relation to costs to fulfil a there were no significant changes contract. This is presented within
Segmental reporting Information reported to the business units, supported by ‘Other’ segment refers to our Group’s Chief Operating Decision central corporate functions which corporate business unit, which is Maker (‘CODM’) (which is are non-revenue generating. The non-revenue generating. collectively the Group’s Board of Group’s reportable segments Information regarding the nature Directors, including the CEO and under IFRS 8 are therefore: of these business units is CFO) for the purposes of resource Terrestrial Broadcast; contained on pages 13 to 15 allocation and the assessment of Telecoms & M2M; and within the Strategic report. segmental performance is focused Satellite and Media. on the three customer-facing
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information.
Arqiva Group Limited (company reg 05254001) 87 Annual Report and Consolidated Financial Statements 2019
Year ended 30 June 2019 Terrestrial Telecoms & Satellite and Other Consolidated
Broadcast M2M Media £m £m £m £m £m
Revenue 491.3 385.0 123.2 - 999.5
Segment result* (EBITDA) 363.4 188.4 30.1 (55.5) 526.4
Depreciation and amortisation (199.9) Exceptional items (13.5) Other income 7.5 Operating profit 320.5
Finance income 3.0 Finance costs (651.9) Other gains and losses (37.1) Loss before tax (365.5)
Year ended 30 June 20181 Terrestrial Telecoms Satellite and Other Consolidated
Broadcast & M2M Media £m £m £m £m £m
Revenue 489.3 353.2 133.5 - 976.0
Segment result* (EBITDA) 362.6 183.8 33.8 (56.5) 523.7
Depreciation and amortisation (183.0) Impairment (4.4) Exceptional items (11.1) Share of results of joint ventures and associates 0.2 Other income 4.6 Operating profit 330.0
Finance income 1.8 Finance costs (624.6) Other gains and losses 92.4
Loss before tax (200.4)
*Segment result is defined as total operating profit before the items set out below.
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 Revenue from contracts.
88 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
EBITDA1 is a key measure of the Group’s financial performance. A reconciliation of the reported EBITDA to the operating profit is provided below:
Year ended Year ended 2 30 June 2019 30 June 2018 £m £m
Operating profit 320.5 330.0 Depreciation 16 184.1 166.3 Amortisation 15 15.8 16.7 Impairment 15, 16 - 4.4 Exceptional items charged to operating profit 7 13.5 11.1 Other income (7.5) (4.6) Share of results of joint ventures and associates 17 - (0.2) EBITDA 526.4 523.7
The accounting policies of the measure reported to the Group’s allocating resources between reportable segments are the same CODM for the purpose of segments, the CODM monitors as the Group’s accounting policies resource allocation and the capital expenditure of described in note 3. assessment of segment property, plant and equipment performance. and intangible assets (presented Segmental result represents the on a cash basis) planned and EBITDA earned by each segment For the purpose of monitoring utilised by each segment, an without allocation of the central segment performance and analysis of which is shown below. administration costs. This is the
Terrestrial Telecoms Satellite Other* Consolidated
Broadcast & M2M and Media
£m £m £m £m £m
Capital expenditure: For the year ended 30 June 2019 55.2 26.1 5.9 35.6 122.8 For the year ended 30 June 2018 73.2 48.9 10.2 32.8 165.1
*Includes maintenance capex which is managed centrally and not allocated to individual business segments.
Note: the above is presented on a cash basis and therefore cannot be agreed directly to the capital additions presented in notes 15 and 16. The total balance comprises property, plant and equipment of £120.3m (2018: £161.4m) and intangible assets of £2.5m (2018: £3.7m) as referred to in the cash flow statement.
1 EBITDA is a non-GAAP measure and refers to ‘earnings before interest, tax, depreciation and amortisation’ and includes add-backs for certain items charged to operating profit that do not reflect the underlying business performance. The table above reconciles this adjusted profit measure back to operating profit as presented in the income statement. 2 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information.
Arqiva Group Limited (company reg 05254001) 89 Annual Report and Consolidated Financial Statements 2019
As disclosed in the Business model and business units section of the annual report on page 13, from 1 July 2019 onwards the group will change the reportable operating segments. The following table shows how results reported this year would be split under the new reporting segments:
Media Networks Telecoms & M2M Other Total
Year ended 30 June 2019 £m £m £m £m
Rendering of services 571.5 348.5 - 920.0 Engineering projects 43.0 27.9 - 70.9 Sale of goods - 8.6 - 8.6 Revenue 614.5 385.0 - 999.5
EBITDA 390.0 188.4 (52.0) 526.4
Capital Expenditure 61.1 26.1 35.6 122.8
Geographical information The UK is the Group’s country of domicile and the Group generates the majority of its revenue from external customers in the UK. The geographic analysis of revenue is on the basis of the country of origin in which the customer is invoiced.
The following revenue was generated from external customers:
Year ended Year ended 30 June 2019 30 June 20181 £m £m
UK 988.0 964.7 Rest of European Economic Area (EEA) 8.1 8.6 Rest of World 3.4 2.7 Revenue 999.5 976.0
The Group holds non-current assets (excluding financial instruments, deferred tax assets and pension surplus) in the following geographical locations:
30 June 2019 30 June 20181
£m £m
UK 3,734.6 3,806.1 Rest of European Economic Area (EEA) 2.3 2.6 Rest of World - 0.8 3,736.9 3,809.5
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 Revenue from contracts.
90 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Information about major customers Included in the revenues arising from Terrestrial Broadcast are revenues of £141.7m (2018: £139.2m) which arose from sales to a major customer. Additionally, Telecoms & M2M revenues include £156.1m (2018: £163.0m) from a major customer.
No other single customers contributed 10% or more to the Group’s revenue in the aforementioned financial years. 6 Operating profit
Operating profit for the year has been arrived at after (crediting) / charging:
Year ended Year ended 30 June 2019 30 June 20181
£m £m
Net foreign exchange gains (0.4) (0.5) Research and development costs 6.1 4.3 Depreciation of property, plant and equipment: Owned assets 183.4 163.2 Assets held under finance lease 0.7 0.5 Profit on disposal of property, plant and equipment (0.1) (0.1) Amortisation of intangible assets 15.8 16.7 Grant income (16.3) (13.6) Operating lease rentals 67.7 61.2 Employee costs (see note 8) 104.0 102.1
Services provided by the Group’s Auditors and network firms
During the year the Group obtained the following services from the Group’s Auditors at costs as detailed below:
Group Group Year ended Year ended 30 June 2019 30 June 2018 £m £m
Fees payable to Company Auditors for the audit of parent company and consolidated 0.1 0.1 financial statements Fees payable for the audit of the Company’s subsidiaries 0.4 0.3 Other audit fees 0.1 0.1 Non-audit services Other assurance services 0.3 1.1 Other services 0.1 - Total cost of services provided by the Group’s Auditors 1.0 1.6
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information
Arqiva Group Limited (company reg 05254001) 91 Annual Report and Consolidated Financial Statements 2019
7 Exceptional items
The Group recognises exceptional items which are considered to be one-off and non-recurring in nature or material items which require disclosure by virtue of their size or incidence for the financial statements to give a true and fair view. Further information is disclosed in note 3.
(Loss)/profit before tax is stated after (charging)/crediting:
Note Year ended Year ended 30 June 2019 30 June 2018
£m £m
Operating expenses: Reorganisation and severance (13.5) (1.8) Corporate finance activities (2.0) (9.3) Profit on disposal of assets 2.0 - (13.5) (11.1) Other gains and losses: Profit on disposal of investment 11 - 0.1 -0.1 Total exceptional items (13.5) (11.0)
Reorganisation and severance Corporate finance activity costs Profit on disposal of investments expenses include costs relating to relate to costs associated with one in the prior year related to the reorganisation of the Business off projects. disposal of the Group’s 22.5% Unit structure and delivery of the shareholding in Arts Alliance Group’s FutureFit programme. Profit on disposal of assets relates Media Investment Limited, a joint This is a one-off transformation to the disposal of the trade and venture. programme that will help Arqiva associated assets of a non-core streamline processes, modernise business stream within the The amounts included within IT systems and achieve significant Telecoms and M2M business unit. exceptional items above are cost efficiencies and savings. deductible for the purpose of taxation.
92 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
8 Employees
The average monthly number of persons (representing ‘full-time equivalents’) employed by the Group during the year was as follows:
Year ended Year ended 30 June 2019 30 June 2018 Number Number
UK 1,979 2,049 Non-UK 33 39 Total employees 2,012 2,088
Year ended Year ended 30 June 2019 30 June 2018 Number Number
Terrestrial Broadcast 734 727 Telecoms & M2M 428 480 Satellite and Media 350 376 Corporate functions 500 505 Total employees 2,012 2,088
Their aggregate remuneration comprised:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Wages and salaries 123.2 129.7 Social security costs 12.9 13.1 Other pension costs 10.0 10.8 Total staff costs 146.1 153.6 Own work capitalised (42.1) (51.5) Income statement expense 104.0 102.1
Arqiva Group Limited (company reg 05254001) 93 Annual Report and Consolidated Financial Statements 2019
9 Finance income
Year ended Year ended 30 June 2019 30 June 2018
£m £m
Bank deposits 0.3 0.5 Finance lease interest receivable 0.3 0.2 Other loans and receivables 2.4 1.1 Total finance income 3.0 1.8
Other loans and receivables includes £0.6m (2018: £0.2m) in relation to net finance income on the defined benefit pension scheme.
10 Finance costs
Year ended Year ended 30 June 2019 30 June 2018
£m £m
Interest on bank overdrafts and loans 89.8 97.1 Other loan interest 121.2 131.7 Bank and other loan interest 211.0 228.8
Amortisation of debt issue costs 8.2 10.2 Interest on obligations under finance leases 0.9 1.0 Shareholder loan note interest 409.7 360.2 Other interest 17.9 23.6 Total interest payable 647.7 623.8 Less amounts included in the cost of qualifying assets - (3.5) Unwinding of discount on provisions (see note 26) 4.2 4.3 Total finance costs 651.9 624.6
The shareholder loan notes carry fixed interest rates of between 13.0% and 14.0%, payment of which can be deferred at the option of the Group subject to certain conditions, qualification of which are subject to bi- annual review (see note 23).
Borrowing costs included in the cost of qualifying assets during the prior year arose on the general borrowing pool and were calculated by applying a capitalisation rate on expenditure on such assets equal to the Group’s effective interest rate for capital expenditure.
94 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
11 Other gains and losses
Notes Year ended Year ended 30 June 2019 30 June 2018
£m £m
Foreign exchange (loss)/gain on financing (9.1) 2.0 Fair value (loss)/gain on derivative financial instruments 25 (13.7) 90.3 Redemption premium on refinancing (14.3) - Other (losses) / gains (37.1) 92.3
Exceptional profit on disposal of investment 7, 29 - 0.1 Exceptional other gains - 0.1
Total other (losses) / gains (37.1) 92.4
Foreign exchange on financing arises on the revaluation of the Group’s US dollar denominated debt (see note 23).
Fair value gains and losses on derivative financial instruments reflect the re-measurement of the Group’s derivative financial instruments (see note 25).
Arqiva Group Limited (company reg 05254001) 95 Annual Report and Consolidated Financial Statements 2019
12 Tax
Year ended Year ended 30 June 2019 30 June 20181
£m £m
UK Corporation tax: - Current year - 0.1 Total current tax - 0.1
Deferred tax (see note 20): - Origination and reversal of temporary differences (43.2) (19.6) - Change in unrecognised deferred tax assets 56.6 19.6 - Recognition of deferred tax asset - (211.3) - Prior period adjustment (0.5) - - Impact of rate change (1.0) - Total deferred tax 11.9 (211.3)
Total tax charge / (credit) for the year 11.9 (211.2)
UK Corporation tax is calculated at a rate of 19.0% (2018: 19.0%) of the estimated taxable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The (credit) / charge for the year can be reconciled to the loss in the income statement as follows:
Year ended Year ended 30 June 2019 30 June 20181
£m £m
Loss before tax on continuing operations (365.5) (200.4) Tax at the UK Corporation tax rate of 19.0% (2018: 19.0%) (69.4) (38.1) Tax effect of expenses that are not deductible in determining taxable profit (a) 26.2 16.2 Change in unrecognised deferred tax assets (b) 56.6 19.6 Recognition of previously unrecognised deferred tax asset (c) - (211.3) Prior period adjustment (0.5) - Impact of change in tax rate (1.0) 2.4 Total tax charge / (credit) for the year 11.9 (211.2)
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information..
96 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The main rate of UK corporation the changes in the tax losses in assets being accelerated and tax was 19.0% during the year. In the year and deferred tax their realisation therefore the Finance Act 2016 it was deduction on interest being assessed as probable. enacted that the main rate of UK expenses which have not been These relate primarily to corporation tax would be further recognised as a deferred tax financial instruments, fixed reduced to 17.0% from 1 April asset. asset temporary differences 2020. UK deferred tax has been (c) Finance (No. 2) Act 2017 was and tax losses. valued at 17.0% (30 June 2018: substantively enacted on 31 17.0%) as this is the rate at which Tax in Consolidated Statement October 2017 and introduced the deferred tax balances are of Comprehensive Income new rules to restrict the forecast to unwind. deductibility of interest costs There is a tax credit of £0.9m (2018 (a) Expenses that are not from 1 April 2017. The overall charge of £1.8m) in respect of the deductible in determining effect of these changes was actuarial movement of £5.1m taxable profit principally relate that certain previously (2018: £10.8m) in the Consolidated to interest payable on unrecognised deferred tax Statement of Comprehensive shareholder loan notes. assets were recognised at 30 Income. (b) Change in unrecognised June 2019, as a result of the deferred tax assets includes forecast utilisation of these 13 Dividends
Year ended Year ended 30 June 2019 30 June 2018 £ per share £m £ per share £m
Now Digital (East Midlands) Limited 75.0 0.2 30.0 0.1 Total dividends payable to minority interests 0.2 0.1
The above amounts represent dividends declared and paid to non-controlling interest shareholders by Group companies. No dividends were paid to AGL shareholders.
14 Goodwill
£m
Cost: At 1 July 2017 and 1 July 2018 1,980.4 Disposals (1.6) At 30 June 2019 1,978.8
Accumulated impairment losses: At 1 July 2017 and 1 July 2018 0.4 Disposals - At 30 June 2019 0.4
Carrying amount: At 30 June 2019 1,978.4
At 30 June 2018 1,980.0
Arqiva Group Limited (company reg 05254001) 97 Annual Report and Consolidated Financial Statements 2019
Goodwill acquired in a business These are the smallest identifiable relation to the disposal of non- combination is allocated, at groups of assets that generate core assets (and associated acquisition, to the cash generating cash inflows that are largely contracts) within the Telecoms & units (‘CGUs’) that are expected to independent of the cash inflows M2M CGU. benefit from that business from other groups of assets, and to combination. The CGUs that have which goodwill is allocated. The carrying value of goodwill as associated goodwill are Telecoms at the balance sheet date by the On 23 October 2018, the Group & M2M and Media Networks. principal CGUs is shown as disposed of £1.6m of goodwill in follows:
30 June 2019 30 June 2018 £m £m
Media Networks 1,339.6 1,339.6 Telecoms & M2M 638.8 640.4 Total 1,978.4 1,980.0
The above table has been rates are based on internal and are benchmarked to externally presented under the new external growth forecasts. Changes available data. The pre-tax reportable operating segments as to cash flows are based on past discount rate used is 8.0% (2018: of 1 July 2019 as this is the basis practices and expectations of 8.0%). under which the business future changes in the market. forecasts, operating plans and Projected cash flows and the Terminal growth rates annual impairment model has ‘recoverable amount’ The terminal growth rate is been prepared. The Group tests The value in use of each CGU is determined based on the long- goodwill annually for impairment, determined from the cash flow term growth rates of the markets or more frequently if there are forecasts derived from the most in which the CGU operates (2019: indications that goodwill might be recent financial forecasts approved 1.5%; 2018: 1.4%). The growth rate impaired. The recoverable amounts by the Board for the next five has been benchmarked against of the CGUs are determined from years. They reflect management’s externally available data. This rate value-in-use calculations (‘VIU’). expectations of revenue, EBITDA does not exceed the average long- The key assumptions for the VIU growth, capital expenditure and term growth rate for the relevant calculations are those regarding working capital based on past markets. the discount rates, growth rates experience and future expectations and expected changes to cash of performance. Sensitivities flows during the year for which There is headroom in all CGUs. No management has detailed plans. Discount rate reasonably possible change in the Management estimates discount The pre-tax discount rate applied key assumptions would cause the rates using pre-tax rates that to the cash flow forecasts are carrying amount of the goodwill by reflect current market assessments derived using the capital asset CGU to exceed the recoverable of the time value of money and the pricing model for comparable amount based upon the VIU. risks specific to the CGUs. Growth businesses. The assumptions used
98 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
15 Other intangible assets
Licences Development Access rights Software Total
costs £m £m £m £m £m Cost At 1 July 2017 15.1 13.6 15.4 77.6 121.7 Additions 0.4 3.1 - 0.2 3.7 Transfers from AUC (note 16) - 2.5 - 21.4 23.9 Disposals - (0.5) - (0.9) (1.4) At 30 June 2018 15.5 18.7 15.4 98.3 147.9 Additions - 2.5 - - 2.5 Transfers from AUC (note 16) - (0.4) - 2.0 1.6 Disposals - (0.1) - (0.1) (0.2) At 30 June 2019 15.5 20.7 15.4 100.2 151.8
Accumulated amortisation At 1 July 2017 4.5 3.5 15.4 49.4 72.8 Amortisation 1.3 2.6 - 12.8 16.7 Impairment - 0.2 - 0.6 0.8 Disposals - (0.5) - (0.9) (1.4) At 30 June 2018 5.8 5.8 15.4 61.9 88.9 Amortisation 1.3 3.5 - 11.0 15.8 Disposals - (0.1) - (0.1) (0.2) At 30 June 2019 7.1 9.2 15.4 72.8 104.5
Carrying amount At 30 June 2019 8.4 11.5 - 27.4 47.3
At 30 June 2018 9.7 12.9 - 36.4 59.0
Development costs in respect of products and services that are being developed by the Group are being capitalised in accordance with IAS 38. These are amortised over their expected useful life once the product or service has been commercially launched.
Other intangible assets are recognised at cost and are amortised over their estimated useful lives.
Arqiva Group Limited (company reg 05254001) 99 Annual Report and Consolidated Financial Statements 2019
16 Property, plant and equipment
Freehold land Leasehold Plant and Assets under Total and buildings buildings equipment the course of construction (AUC) £m £m £m £m £m Cost At 1 July 20171 337.4 153.5 2,045.9 89.4 2,626.2 Additions - - 20.9 150.8 171.7 Completion of AUC 1.4 0.9 104.9 (107.2) - Transfers to other intangibles (note 15) (0.2) - - (23.7) (23.9) Disposals (0.7) (1.8) (49.1) - (51.6) At 30 June 20181 337.9 152.6 2,122.6 109.3 2,722.4 Additions 0.1 - 18.9 112.8 131.8 Completion of AUC 4.2 1.2 119.1 (124.5) - Transfers to other intangibles (note 15) - - - (1.6) (1.6) Disposals - - (32.1) - (32.1) At 30 June 2019 342.2 153.8 2,228.5 96.0 2,820.5
Accumulated depreciation At 1 July 20171 36.2 56.6 740.4 - 833.2 Depreciation 6.5 4.8 155.0 - 166.3 Impairment - - 3.6 - 3.6 Disposals (0.3) (1.8) (49.0) - (51.1) At 30 June 20181 42.4 59.6 850.0 - 952.0 Depreciation 6.4 4.7 173.0 - 184.1 Impairment - - - - - Disposals - - (26.7) - (26.7) At 30 June 2019 48.8 64.3 996.3 - 1,109.4
Carrying amount At 30 June 2019 293.4 89.5 1,232.2 96.0 1,711.1
At 30 June 20181 295.5 93.0 1,272.6 109.3 1,770.4
Freehold land included above but £5.9m) included within leasehold property, plant and equipment not depreciated amounts to £179.4m buildings. amounting to £26.4m (2018: £47.8m) (2018: £179.4m). – see note 28 for further details. During the year, £nil (2018: £3.5m) of The Group’s current and non-current interest was capitalised, as set out in Included within plant and equipment assets have been pledged as security note 10. The carrying value of are telecommunications assets under the terms of the Group’s capitalised interest included within initially recognised on a fair value external debt facilities (see note 23). property, plant and equipment was basis at a value of £61.4m (2018: In addition, the Group’s obligations £16.0m (2018: £17.0m). £48.6m) and accumulated under finance leases (see note 24) depreciation of £15.5m (2018: are secured by the lessors’ title of At 30 June 2019, the Group had £10.0m). Fair value was determined the leased assets, which have a entered into contractual using observable inputs (fair value carrying amount of £5.2m (2018: commitments for the acquisition of hierarchy level 2).
1 Figures as at 1 July 2017 and 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’.
100 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
17 Interest in associates and joint ventures
In addition to the subsidiary undertakings (see the notes to the Company financial statements on page 134) the Group holds the following interests in associates and joint ventures:
Percentage Country of Year Company Principal activities Registered office of ordinary incorporation end shares held
Joint ventures Media House Peterborough Ownership and United Business Park, Lynch Wood, Sound Digital Limited operation of UK DAB 31-Dec 40.0% Kingdom Peterborough, United radio multiplex licence Kingdom, PE2 6EA United Open source IPTV 10 Lower Thames Street, Third YouView TV Limited 31-Mar 14.30% Kingdom development Floor, London, EC3R 6YT Associate undertakings: Bidding for UK DAB 96a, Curtain Road, London, United Muxco Limited digital radio multiplex EC2A 3AA 31-Dec 25.0% Kingdom licences DTT Multiplex Operators United 27 Mortimer Street, London, Transmission services 31-Mar 25.0% Limited Kingdom England, W1T 3JF United 27 Mortimer Street, London, Digital UK Limited Transmission services 31-Dec 25.0% Kingdom England, W1T 3JF United 2nd Floor 27 Mortimer Street, DTV Services Limited Freeview market services 31-May 20.0% Kingdom London, England, W1T 3JF United 30 Leicester Square, London, MXR Holdings Limited Transmission services 31-Mar 12.0% Kingdom WC2H 7LA
Share of results of associates and resulting in a £0.1m profit on on an annual basis, or more joint ventures was £nil (2018: disposal recognised in other gains frequently should indicators arise, £0.2m) for the year with the and losses as an exceptional item. and believe that the carrying interest in associates and joint values of the investments are ventures being £0.1m (2018: There are no other associates or supported by the underlying trade £0.1m). joint ventures that are considered and net assets. material, either individually or in In the prior year, on 26 October aggregate, to the Group’s position Transactions with associates and 2017, the Group sold its 22.5% or performance. joint ventures in the year are shareholding in Arts Alliance disclosed in note 31 Media Investment Limited. The Directors consider the carrying Consideration received was £5.2m value of the Group’s investments .
Arqiva Group Limited (company reg 05254001) 101 Annual Report and Consolidated Financial Statements 2019
18 Trade and other receivables
30 June 2019 30 June 20181 £m £m
Trade and other receivables Trade receivables 94.4 119.6 Other receivables 5.6 9.0 Prepayments 91.2 101.8 Amounts receivable from finance lease arrangements (see note 19) 1.7 2.0 192.9 232.4
Contract assets – accrued income2 70.1 66.6
The ageing of the Group’s net trade receivables which are past due but not impaired is as follows:
30 June 2019 30 June 2018 £m £m
Up to 30 days overdue 5.4 23.1 Up to 90 days overdue 3.1 6.1 Between 91 and 150 days overdue 0.9 0.6 More than 150 days overdue - 0.1 9.4 29.9
Trade receivables and contract assets are stated after deducting allowances for doubtful debts, as follows:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Allowance at 1 July 7.4 10.8 Amounts utilised (0.7) (4.0) Provided during the year 0.2 0.6 Allowance at 30 June 6.9 7.4
The group applies the IFRS 9 receivables and contract assets are losses experienced over the five simplified approach to measuring grouped based on similar credit year period prior to the period expected credit losses using a risk aging. The contract assets have end. The historical loss rates are lifetime expected credit loss similar risk characteristics to the then adjusted for current and provision for trade receivables and trade receivables for similar types forward-looking information on contract assets. of contracts. macroeconomic factors effecting the Group’s customers. To measure expected credit losses The expected loss rates are based on a collective basis, trade on the Group’s historical credit
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 Revenue from contracts with customers. See note 33 for further information 2 Contract assets relate to accrued income balances. These balances have been reclassified as contract assets on the adoption of IFRS 15.
102 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The groups’ expected loss rate for receivables is between 0.4% and 1.3%. At 30 June 2019 the lifetime expected loss provision for trade receivables and contract assets is as follows:
Current Up to 30 Up to 90 Between More than Total days days 91 and 150 150 days overdue overdue days overdue overdue £m £m £m £m £m £m
Gross carrying amount - Trade receivables 85.5 5.8 3.4 2.2 4.2 101.1 - Contract assets 70.4 - - - - 70.4
Loss provision - Expected 0.7 - - - 0.1 0.8 Loss provision - Specific - 0.4 0.3 1.3 4.1 6.1 0.7 0.4 0.3 1.3 4.2 6.9
£0.3m of the £6.9m lifetime specific risk. Management will the date credit was initially granted expected loss provision relates to make an assessment of the level of up to the reporting date. Before the contract assets. provision based on the Group accepting any new customer, the policy. Adjustments to the Group uses an external credit In addition to the expected credit calculated level of provision will be scoring system to assess the loss model, the Group’s policy is to made accordingly. potential customer’s credit quality. also consider a specific provision For further information on how the for trade receivables outstanding In determining the recoverability of Group manages credit risk see for more than 30 days beyond the a trade receivable the Group note 25. agreed terms, or where the considers any change in the credit business environment indicates a quality of the trade receivable from
Arqiva Group Limited (company reg 05254001) 103 Annual Report and Consolidated Financial Statements 2019
19 Finance lease receivables
30 June 2019 30 June 2018 £m £m
Gross amounts receivable under finance leases: Within one year 0.5 0.5 In the second to fifth years inclusive 1.5 1.7 After five years 0.2 0.5 2.2 2.7 Less: unearned finance income (0.5) (0.7) Present value of minimum lease payments receivable 1.7 2.0
Net amounts receivable under finance leases: Within one year 0.3 0.3 In the second to fifth years inclusive 1.2 1.3 After five years 0.2 0.4 Present value of minimum lease payments receivable 1.7 2.0
Analysed as: Non-current finance lease receivables 1.4 1.7 Current finance lease receivables 0.3 0.3 Total finance leases 1.7 2.0
The Group entered into finance leasing arrangements for certain sites. The average outstanding term of finance leases entered in to is 4.8 years at 30 June 2019 (2018: 5.8 years).
104 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
20 Deferred tax
The balance of deferred tax recognised at 30 June 2019 is £198.5m (2018: £209.5m). The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Tax losses Accelerated Derivative Other Total Deferred tax assets tax financial temporary depreciation instruments differences £m £m £m £m £m
At 1 July 2017 - - - - - Credited to the income statement1 15.8 34.3 152.5 10.4 213.0 At 30 June 20181 15.8 34.3 152.5 10.4 213.0 (Charged) / credited to the income statement (0.8) (9.4) 1.5 (2.1) (10.8) At 30 June 2019 15.0 24.9 154.0 8.3 202.2
Retirement Total Deferred tax liabilities benefits £m £m
At 1 July 2017 - - Charged to the income statement 1.7 1.7 Charged to statement of comprehensive income 1.8 1.8 At 30 June 2018 3.5 3.5 Charged to the income statement 1.1 1.1 Credited to statement of comprehensive income (0.9) (0.9) At 30 June 2019 3.7 3.7
Deferred tax assets are not which the deferred tax balances interest costs from 1 April 2017. recognised unless it is probable are forecast to unwind. Due to the impact of these that there are sufficient taxable changes, significant previously No deferred tax liability is profits against which they will be unrecognised deferred tax assets recognised on temporary realised. The Group has an were assessed as being differences of £nil (2018: £nil) unrecognised deferred tax asset of recoverable during the year ended relating to the unremitted £200.2m (2018: £148.3m). This is in 30 June 2018. earnings of overseas subsidiaries respect of tax losses of £65.2m as the Group is able to control the This was a result of the forecast (2018: £65.2m) and deferred timings of the reversal of these utilisation of these assets being interest expenses £135.0m (2018: temporary differences and it is accelerated and their realisation £83.1m). These deferred tax assets probable that they will not reverse therefore being assessed as may be carried forward in the foreseeable future. probable. A net deferred tax asset indefinitely. Temporary differences arising in of £209.5m was therefore This value has been calculated connection with interests in recognised as at 30 June 2018. based on the UK corporation tax associates are insignificant. This asset relates primarily to rate of 17.0% (2018: 17.0%); the financial instruments, fixed asset Finance (No. 2) Act 2017 was rate substantively enacted at the temporary differences and tax substantively enacted on 31 balance sheet date effective from losses. October 2017 and introduced new 1 April 2020, which is the rate at rules to restrict the deductibility of
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information.
Arqiva Group Limited (company reg 05254001) 105 Annual Report and Consolidated Financial Statements 2019
There remains an unrecognised The forecasts used for deferred Group in the foreseeable future. deferred tax asset of £200.2m tax asset recognition are the same The recognised deferred tax asset (2018: £148.3m). This asset has as those used in the Group’s is not considered to be materially not been recognised since it is not impairment testing. It is not exposed to the performance of probable that these assets will be considered probable that the the Group based on reasonably able to be utilised against future remaining unrecognised deferred possible trading forecasts. taxable profits of the Group. tax asset can be utilised by the
21 Cash and cash equivalents
30 June 2019 30 June 2018 £m £m
Cash at bank 9.2 10.4 Short term deposits 11.1 9.1 Restricted cash - 28.5 Total cash and cash equivalents 20.3 48.0
22 Trade and other payables
30 June 2019 30 June 20181 £m £m
Current Trade and other payables Trade payables 50.0 61.6 Taxation and social security 20.1 24.6 Other payables 5.9 18.2 Accruals 100.3 115.3 176.3 219.7
Contract Liabilities – deferred income2 182.1 175.3
Non-current Contract Liabilities – deferred income2 287.2 314.0
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information. 2 Contract liabilities relate to deferred income balances. These balances have been reclassified as contract liabilities on the adoption of IFRS 15.
106 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
23 Borrowings
Denominated currency 30 June 2019 30 June 2018 £m £m
Within current liabilities: Finance lease obligations (see note 24) Sterling 0.8 0.7 Bank loans - Senior debt Sterling 20.0 - - Other facilities Sterling - 1.1 Bank facility Sterling 35.0 55.0 Senior bonds and notes (amortising) Sterling 413.8 58.1 US Dollar 29.6 19.1
Accrued interest on junior and senior financing1 Sterling 14.9 19.0 Accrued interest on shareholder loan notes2 Sterling 1,248.4 838.7 Borrowings due within one year 1,762.5 991.7
Within non-current liabilities: Bank loans 382.4 442.8 - Senior debt Sterling 370.0 445.0 - Issue costs Sterling (1.7) (3.3) - Other facilities Sterling 14.1 1.1 Other loans 1,970.3 2,367.5 - Senior bonds, notes and private placements Sterling 1,116.0 1,524.1 US Dollar 242.8 253.8 - Junior bonds Sterling 625.0 600.0 - Issue costs Sterling (13.5) (10.4) Shareholder loan notes Sterling 2,148.1 2,148.1 Finance lease obligations (see note 24) Sterling 11.6 12.4 Borrowings due after more than one year 4,512.4 4,970.8
Analysis of total borrowings by currency: Sterling 6,002.5 5,689.6 US Dollar 272.4 272.9 Total borrowings 6,274.9 5,962.5
Included within the £6,274.9m (2018: £5,962.5) are debt issue costs of £15.2m (2018: £13.7m). Total borrowings excluding these amounts are £6,290.1m (2018: £5,976.2m), which comprise debt principal and interest, the maturity of which is included in the table below.
1 The balance at 30 June 2019 includes £7.6m (2018: £7.3m) interest receivable under swap arrangements associated with the underlying financing. 2 Interest payments on shareholder loan notes have been deferred as disclosed within section (i) on page 110.
Arqiva Group Limited (company reg 05254001) 107 Annual Report and Consolidated Financial Statements 2019
30 June 2019 30 June 2018 £m £m
Borrowings falling due within: One year 1,762.5 991.7 One to five years1 1,524.4 3,646.8 More than five years 3,003.2 1,337.7 Total 6,290.1 5,976.2
The weighted average interest rate confident that the senior notes In addition, there is a further of borrowings (excluding will be refinanced when required £534m of borrowings with legal shareholder interest as described or that existing undrawn facilities, expected maturity dates between above) is 7.29% (2018: 7.89%). together with commercially 2023 and 2030 which also benefit available additional facilities, will from such provisions with legal Bank loans form part of the be available to repay the notes. backstop maturity dates between Group’s senior debt. Other loans 2037 and 2038. These balances comprise the Group’s senior The notes have an expected are disclosed as falling due in-line bonds and notes and junior maturity of June 2020 and have with the earlier legal expected bonds. therefore been disclosed as falling maturity date. due within one year, there is Included within borrowings due however provision for this debt A summary of the movement in within one year are annual instrument to remain beyond the borrowings during the financial amortising debt repayments expected maturity and the legal year is given below: together with £350m of senior backstop maturity of the notes is notes with an expected maturity 2035. of June 2020. The Group is
Borrowings: Reference At 1 July Amounts Amounts Revaluations At 30 June 2018 drawn repaid 2019 down £m £m £m £m £m
Bank loans – working capital facility (a) 55.0 - (20.0) - 35.0 Senior debt – institutional term loan (b) 180.0 - - - 180.0 Senior debt – European Investment Bank (c) 190.0 - - - 190.0 Senior debt – bank term loan (d) 75.0 - (55.0) - 20.0 Other facilities (e) 2.2 11.9 - - 14.1 Senior bonds, notes and US private placement (f) 1,855.1 - (62.2) 9.3 1,802.2 Junior bonds (g) 600.0 625.0 (600.0) - 625.0 Total bank loans and private placements 2,957.3 636.9 (737.2) 9.3 2,866.3 Finance lease obligations (h) 13.1 - (0.7) - 12.4 Shareholder loan notes (i) 2,148.1 - - - 2,148.1 Total borrowings 5,118.5 636.9 (737.9) 9.3 5,026.8
1 At 30 June 2019 this category includes £2,148.1m shareholder loan notes repayable between September 2024 and September 2025.
108 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The Group’s borrowings outlined £1.6m fee facility that matures by issuer of all of the Group’s private in the table above incorporate: June 2021 which was £1.3m drawn placement notes. as at June 2019 (June 2018: (a) capital expenditure and £1.1m). These loans have floating The fair value of the quoted senior working capital facilities (2019: rates of interest with margins bonds based upon observable £35.0m outstanding; 2018: ranging from LIBOR + 1.20% to market prices (fair value hierarchy £55.0m) with an expected 2.50%. level 1) was £965.7m (2018: maturity date of March 2021. Both £989.1m) whilst their carrying of these facilities are floating rate (f) a combination of publicly value was £874.0m (2018: in nature with a margin over listed bonds and US private £900.7m). LIBOR of between 130 and 205 placement notes. bps. Arqiva Financing No1 Limited The fair value of fixed rate privately (‘AF1’) is the borrower under all of As at 30 June 2019, the Group has placed senior debt determined these arrangements. £874.0m (2018: £900.7m) sterling from observable market prices for denominated bonds outstanding quoted instruments as a proxy The Group has £605.0m (2018: with fixed interest rates ranging measure (fair value hierarchy level £585.0m) of undrawn senior debt between 4.04% and 5.34%. These 2) was £456.1m (2018: £464.4m) facilities available. These facilities bonds are repayable between whilst their carrying value was are at floating interest rates. For June 2019 and December 2032 £429.8m (2018: £435.9m). further information on the and are listed on the London The remaining £498.5m (2018: Group’s liquidity risk Stock Exchange. Arqiva Financing £518.5m) of senior debt relates to management, see note 25. Plc is the issuer of all the Group’s other unquoted borrowings. senior listed bonds. (b) an institutional term loan The directors consider the fair (2019: £180.0m outstanding; 2018: The remaining senior notes relate value of all other un-quoted £180.0m) with an expected to a number of US private borrowings to be a close maturity date of December 2023 placement issues in both sterling approximate to their carrying (c) a loan from the European and US dollars with fixed and amount. Investment Bank (2019: £190.0m floating interest rates. The Group outstanding; 2018: £190.0m) with has £498.5m (2018: £518.5m) of (g) Junior bonds of £625.0m an expected maturity date of June sterling denominated floating rate represent amounts raised from 2024 US private placements that are the issuance of notes by Arqiva amortising in nature with Broadcast Finance Plc. These (d) a bank term loan (2019: repayments due between notes have a fixed interest rate of £20.0m outstanding; 2018: December 2019 and December 6.75% and are repayable in £75.0m) with an expected 2029. These instruments have a September 2023. These notes are maturity date of June 2020 (with margin over LIBOR of between listed on the Luxembourg Market an additional mechanism to 210 and 220 bps. and have interest cover and debt prepay portions of this earlier if leverage covenants attached. surplus funds are available); In addition, the Group has issued These junior bonds were £429.8m (2018: £435.9m) of fixed refinanced in October 2018 from (e) financing facilities in Arqiva rate US private placements in the previously held bonds of Smart Financing Limited (a Group sterling and US dollar £600.0m at 9.5%, which were company) established in denominated notes. At the repayable in March 2020. The December 2013 that support the hedged rate these are valued at Group continues to comply with Group’s smart energy metering £384.6m (2018: 398.5m). These all covenant requirements. contracts by financing the notes have fixed interest rates purchase of communication hubs. which range between 4.101% and The fair value of the quoted junior 4.420% and have amortising bonds based upon observable This £30m facility matures in June repayment profiles commencing market prices (fair value hierarchy 2028 and £12.8m was drawn at December 2018 with a final level 1) was £673.2m (2018: the end of June 2019 (June 2018: maturity date of June 2025. Arqiva £622.7m) whilst their carrying £1.2m). There is also an associated PP Financing Plc (‘APPF’) is the
Arqiva Group Limited (company reg 05254001) 109 Annual Report and Consolidated Financial Statements 2019 value was £625.0m (2018: are subject to bi-annual review, during the current or previous £600.0m). applicable to the capital and year. The shareholder loan notes unpaid interest. The Group has carry a fixed rate of interest (h) obligations under finance exercised this option to defer ranging between 13.0% and 14.0% leases are as defined within note interest payments since 2009. applicable to the capital and 24. un-paid interest which can be The Group’s senior bonds and deferred at the option of the (i) shareholder loan notes which notes are structured within a Group subject to certain are unsecured, are listed on the Whole Business Securitisation conditions, qualification of which Channel Islands Stock Exchange, package (WBS). These are subject to bi-annual review. are repayable between September instruments have covenants 2024 and September 2025, and attached, principally an interest The Group has exercised this cannot be called upon early. The cover ratio and a debt leverage option to defer interest payments shareholder loan notes carry a ratio. The Group continues to since June 2009. fixed rate of interest ranging comply with all covenant The value of the interest deferred between 13% and 14% which can requirements. on the shareholder loan notes at be deferred at the option of the 30 June 2019 was £1,248.4m (2018: Group subject to certain There have been no breaches of £838.7m). conditions, qualification of which the terms of the loan agreements
24 Obligations under finance leases
Future minimum payments under finance leases are as follows:
30 June 2019 30 June 2018 £m £m
Within one year 1.7 1.7 In more than one year, but not more than five years 6.4 6.5 After five years 10.1 11.7 Total gross payments 18.2 19.9 Less finance charges included above (5.8) (6.8) Total obligations under finance leases 12.4 13.1
Analysed as: Net amounts due for settlement within one year 0.8 0.7 Net amounts due for settlement after one year 11.6 12.4 Total obligations under finance leases 12.4 13.1
The fair value of the Group’s lease obligations is approximately equal to their carrying amount.
The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.
110 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
25 Financial instruments and risk management
Capital risk management the income statement within ‘other transactional foreign The Group manages its capital to gains and losses’. Net amounts exchange exposures. ensure that entities in the Group paid in the year (excluding The Group does not enter into or will be able to continue as a going termination amounts) on interest trade financial instruments, concern while maximising the rate swaps (together with similar including derivative financial return to shareholders through the amounts under the cross currency instruments, for speculative optimisation of the debt and and index linked swaps) are purposes. equity balance. reported as a component of net Foreign currency risk bank and other loan interest within management The capital structure of the Group finance costs. consists of net debt (as set out in The Group principally operates note 27; see note 21 for cash and Financial risk management from UK sites and predominantly cash equivalents and note 23 for The Group’s treasury function in the UK market, but has some borrowings) and equity of the provides services to the business, overseas subsidiaries and Group (comprising issued capital co-ordinates access to domestic transactions denominated in and share premium, reserves, and international financial markets, foreign currencies. While some retained earnings and non- monitors and manages the customer and supplier contracts controlling interests). financial risks relating to the are denominated in other operations of the Group using currencies (mainly US dollars Levels of debt are maintained on financial instruments wherever it is (‘USD’) and Euro), the majority of an ongoing basis to ensure that no appropriate to do so. The treasury the Group’s revenue and costs are breaches occur and repayments function reports directly into the Sterling based and accordingly can be and are made as necessary Chief Financial Officer and the exposure to foreign exchange risk with refinancings carried out as Group’s Board of Directors and the is limited. required. Audit Committee, an independent Foreign currency exchange risk can
function with a scope that includes be subdivided into two Significant accounting policies monitoring the risks and policies components, transactional risk and Details of significant accounting implemented to mitigate risk translation risk: policies and methods adopted exposures. The main risks (including criteria for recognition, Transactional risk: The Group's addressed by financial instruments the basis of measurement and the policy is to hedge material are interest rate risk and foreign bases for recognition of income transactional currency exposures currency exchange risk. The and expenses) for each class of via the use of forward foreign Group’s policies in respect of these financial asset and financial liability exchange contracts. The risks remain unchanged are disclosed in full in note 3. measurement and control of this throughout the year. risk is monitored on a Group–wide The Group’s derivatives (i.e. The Group enters into a variety of basis. interest rate swaps and cross- derivative financial instruments to currency swaps) are measured on a Translation risk: The Group manage its exposure to foreign fair value through profit and loss translates overseas results and net currency and interest rate risk, basis. Whilst the Group’s assets in accordance with the including: derivatives act as an effective accounting policy in note 3. Given - Interest rate swaps, including hedge in economic terms, hedge the Group predominantly operates inflation-linked interest rate accounting principles are not in the UK, there is a relatively small swaps, to mitigate the risk of applied. This means that the exposure with overseas entities movement in interest rates; Group’s derivatives are recognised accounting for only (0.7)% (2018: - Cross-currency swaps to at their risk-adjusted fair value (i.e. (0.3)%) of operating profit and mitigate the risk of currency risk-adjusted Mark-to-Market 0.1% (2018: 0.1%) of total assets exposures on foreign value) at the date they are entered for the Group. denominated borrowings; and into and are revalued at each - Forward foreign exchange balance sheet date, with gains and contracts to manage losses being reported separately in exchange risks arising from
Arqiva Group Limited (company reg 05254001) 111 Annual Report and Consolidated Financial Statements 2019
The Sterling equivalents of the carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities (excluding hedged US dollar-denominated borrowings) at the year-end were as follows:
30 June 2019 30 June 2018 £m£m
Monetary assets: - US Dollar 3.0 3.7 - Euro 12.3 9.2 - Other (including SGD*) 1.4 1.0 Total 16.7 13.9
Monetary liabilities: - US Dollar (0.3) (0.6) - Euro (4.2) (5.2) - Other (including SGD*) - (0.1) Total (4.5) (5.9)
* refers to Singapore dollar, being the most frequently transacted currency within ‘other monetary assets and liabilities’.
Foreign currency denominated cash balances have a weighted average interest rate of 0.0% (2018: 0.0%).
During the year cross currency interest cash flows. The Group growth, the Group maintains cash swaps (nominal value 2019: USD has fixed rate hedging, split reserves and access to undrawn 345.5m; 2018: USD 358.0m) were between IRS and ILS. IRS convert committed facilities to cover used to fix the exchange rate to variable rate interest costs to fixed forecast requirements. The Group $1.52/£1 in relation to US dollar- rate interest costs while ILS carefully manages the denominated senior notes convert fixed or variable rate counterparty credit risk on liquid (nominal value 2019: USD 345.5m; interest costs to RPI-linked costs, funds and derivative financial 2018: USD 358.0m). This provides which fluctuate in line with the RPI instruments with balances an effective economic hedge of index as do a portion of the currently spread across a range of the foreign currency impact on Group’s revenue contracts. These major financial institutions, which the Sterling cost of future interest swaps are entered into on terms have satisfactory credit ratings and capital repayment obligations. (including maturity) that mirror assigned by international credit the debt instrument they hedge, rating agencies. The levels of After taking into account our and therefore act as an effective credit risk are monitored through hedging activities, management economic hedge. the Group’s ongoing risk does not consider there to be a management processes, which material residual exposure to As the Group uses hedging to include a regular review of exchange rates. Accordingly no maintain fixed interest rates on all counterparty credit ratings. Risk sensitivity analysis has been of its material borrowings in this area is limited further by presented. (excluding revolving facilities), setting a maximum level and term there is minimal exposure on the for deposits with any single Interest rate risk management interest expense to interest rate counterparty. The Group has variable rate bank movements. A rise or fall in and US private placement debt interest rates would therefore not The Group is due to repay or and uses interest rate swaps (‘IRS’) materially impact the interest refinance £4.2bn of debt in the and inflation-linked swaps (‘ILS’) expense payable by the Group. next 5 years to 30 June 2024. to hedge its exposure to rising Regular reviews are performed to interest rates. The Group Liquidity risk management assess headroom between interest maintains a hedging policy to To ensure it has sufficient and capital repayments against manage interest rate risk and to available funds for working capital forecast cash flows, thus ensure the certainty of future requirements and planned monitoring the liquidity risk and
112 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 the Group’s ability to repay the The amounts presented in respect debt. of the non-derivative financial The amounts presented in respect liabilities represent the gross of the Group’s derivative financial The following tables set out the contractual cash flows on an un- instruments represent their fair maturity profile of the Group’s discounted basis. Accordingly, value and are accordingly non-derivative financial liabilities these amounts may not reconcile consistent with the amounts and derivative financial liabilities. directly with the amounts included in the statement of disclosed in the statement of financial position. financial position.
Amounts falling due Total Interest financial Between to be liability per 30 June 2019 Within one and Between After incurred statement one two two and five Effect of in future of financial year years five years years Total discounting periods position £m £m £m £m £m £m £m £m
Trade payables 50.0 - - - 50.0 - - 50.0 Provisions 8.0 0.8 1.6 178.3 188.7 (107.7) - 81.0 Borrowings* 500.5 119.6 1,403.6 3,003.2 5,026.9 - - 5,026.9 558.5 120.4 1,405.2 3,181.5 5,265.6 (107.7) - 5,157.9
Interest on borrowings** 125.8 107.0 255.9 142.6 631.3 - (616.4) 14.9
Interest rate swaps 51.8 49.9 129.3 65.5 296.5 (20.6) - 275.9 Inflation linked interest rate 139.8 98.6 330.8 350.1 919.3 (151.9) - 767.4 swaps Cross-currency swaps (5.2) (9.2) (25.5) (10.6) (50.5) 9.0 - (41.5) 186.4 139.3 434.6 405.0 1,165.3 (163.5) - 1,001.8
Total financial liability 870.7 366.7 2,095.7 3,729.1 7,062.2 (271.2) (616.4) 6,174.6
*Borrowings are presented as per note 23 but excluding accrued interest, which is presented separately in these tables, and finance lease obligations which are analysed separately in note 24. **Excludes accrued interest on shareholder loan notes for which interest payments can be deferred at the option of the Group.
Included within borrowings due within one year are annual amortising debt repayments together with £350m of senior notes with an expected maturity of June 2020, the refinancing of which is disclosed in note 23.
Arqiva Group Limited (company reg 05254001) 113 Annual Report and Consolidated Financial Statements 2019
Amounts falling due Total financial Interest liability 30 June 2018 Between to be per Within one and Between After incurred statement one two two and five Effect of in future of financial year years five years years Total discounting periods position £m £m £m £m £m £m £m £m
Trade payables 61.6 - - - 61.6 - - 61.6 Provisions 3.2 1.2 3.6 169.1 177.1 (109.5) - 67.6 Borrowings* 133.3 1,102.2 2,541.4 1,328.5 5,105.4 - - 5,105.4 198.1 1,103.4 2,545.0 1,497.6 5,344.1 (109.5) - 5,234.6
Interest on borrowings** 142.7 126.8 189.2 198.9 657.6 - (638.6) 19.0
Interest rate swaps 58.1 49.1 127.0 91.1 325.3 (27.6) - 297.7 Inflation linked interest rate 84.4 85.9 284.1 427.4 881.8 (126.7) - 755.1 swaps Cross-currency swaps (4.1) (4.0) (20.4) (14.4) (42.9) 20.9 - (22.0) 138.4 131.0 390.7 504.1 1,164.2 (133.4) - 1,030.8
Total financial liability 479.2 1,361.2 3,124.9 2,200.6 7,165.9 (242.9) (638.6) 6,284.4
*Borrowings are presented as per note 23 but excluding accrued interest, which is presented separately in these tables, and finance lease obligations which are analysed separately in note 24. **Excludes accrued interest on shareholder loan notes for which interest payments can be deferred at the option of the Group.
The table below outlines the additional financing facilities available to the Group:
30 June 2019 30 June 2018 £m£m
Secured bank facilities: - Amount utilised 35.0 55.0 - Amount unutilised 605.0 585.0 Total 640.0 640.0
When debt has been refinanced monitored to ensure agreed value through profit and loss) the the Group has also restructured service levels are maintained, Group’s financial assets and the associated swaps to reflect the reducing the level of queried financial liabilities are recognised new maturity profile. payments and mitigating the risk and measured following the loans of uncollectable debts. Expected and receivables recognition Credit risk management impairment for trade receivables category. The Group is exposed to credit are calculated based on historical risk on customer receivables, default rates. Details of this The weighted average interest which is managed through credit- provision are shown in note 18. rate of fixed rate financial checking procedures prior to liabilities at 30 June 2019 was taking on new customers and Financial instruments 5.3% (2018: 6.1%) and the higher risk customers paying in With the exception of derivative weighted average period of advance of services being financial instruments (which are funding was 4.6 years (2018: 5.0 provided. Performance is closely recognised and measured at fair years).
114 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Within the Group’s financial amounts of £873.5m (2018: Group’s fixed rate debt (namely liabilities were borrowings of £976.5m) which hedge the fixed rate sterling bonds and the £6,260.0m (2018: £5,943.5m) (see interest obligations of the Group’s fixed rate US Private Placement note 23), which includes £937.6m floating rate debt. The average issues) and in order to ensure that (2018: £1,050.5m) with floating fixed rate on these instruments is the cash flow characteristics align rate interest and the remainder 6.8% (2018: 7.0%). The swap with these instruments, the Group with fixed rate interest (prior to contracts have termination dates has entered into £1,312.5m of the hedging arrangements that match the maturities of the fixed to floating rate interest rate described previously). underlying floating rate debt swaps to match the cash flows on instruments (see note 23). both the fixed rate debt The Group’s financial assets instruments and the index linked comprise cash and cash The Group has also entered into swaps set out above. equivalents of £20.3m (2018: index linked swaps (notional £48.0m) and loans and receivables amounts of £1,312.5m) where the The Group also holds USD 345.5m of £192.9m (2018: £234.6m) as Group receives floating and pays (2018: USD 358.0m) of cross- presented in notes 21 and 18 fixed interest obligations to an currency swaps to fix the Sterling respectively. average rate of 2.906% indexed cost of future interest and capital with RPI. The notional amounts of repayment obligations relating to Derivative financial instruments these swaps increase with RPI and the US dollar denominated private The Group seeks to manage the these accretion amounts are cash placement issue at an exchange exposures of its debt payment settled annually, most recently in rate of 1.52. obligations through a June 2019 (£44.3m; 2018: £58.6m). combination of index linked, All of these instruments have a The fair value of the interest rate, interest rate and cross currency maturity date of April 2027; except inflation and cross currency swaps swaps. for a notional amount of £235.0m at 30 June 2019 is a liability of which have a mandatory break £1,001.8m (2018: £1,030.8m). This At the year end, the Group held clause in 2023. These instruments fair value is calculated using a interest rate swaps with notional were established to hedge the risk-adjusted discount rate.
Arqiva Group Limited (company reg 05254001) 115 Annual Report and Consolidated Financial Statements 2019
The following table details the fair value of financial instruments recognised on the statement of financial position within non-current liabilities:
30 June 2019 30 June 2018 £m £m
Interest rate swaps (275.9) (297.7) Inflation-linked interest rate swaps (767.4) (755.1) Cross-currency swaps 41.5 22.0 Total (1,001.8) (1,030.8)
Change in fair value recognised in the income statement: - Attributable to changes in market conditions (7.9) 106.3 - Attributable to changes in perceived credit risk (5.8) (16.0) Total (loss) / gain recognised in the income statement (13.7) 90.3 Cash settlement of principal accretion on inflation-linked swaps 44.3 58.6 Cash inflow on redemption of swaps (1.6) - Total change in fair value 29.0 148.9
Where possible, the Group seeks derived from quoted prices Interest rate swaps, inflation rate to match the maturity of any (unadjusted) in active swaps and cross-currency swaps derivative contracts with that of markets for identical assets (as disclosed above) are all classed debt instruments that it has or liabilities; as level 2 on the fair value issued. In some of the Group’s - Level 2 fair value hierarchy. In each case the items derivative instruments, break measurements are those are valued based upon discounted clauses have been included to derived from inputs other cash flow. Future cash flows are both match underlying facility than quoted prices included estimated based on forward maturities and to optimise the within Level 1 that are (interest/ inflation/ exchange) availability and cost of hedging observable for the asset or rates observable from rates and lines with the Group’s derivative liability, either directly (i.e. as yield curves at the end of the counterparties. prices) or indirectly (i.e. reporting period, and contract derived from prices); and rates, discounted at a risk- Fair value hierarchy - Level 3 fair value adjusted rate. Financial instruments that are measurements are those measured subsequent to initial derived from valuation recognition at fair value are techniques that include grouped into levels 1 to 3 based inputs for the asset or liability on the degree to which the fair that are not based on value is observable: observable market data - Level 1 fair value (unobservable inputs). measurements are those
116 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
26 Provisions
Decommissioning Restructuring Remediation Other Total
£m £m £m £m £m
At 1 July 2018 60.7 0.2 5.2 1.5 67.6 Income statement expense 0.5 5.3 - 2.1 7.9 Additions created through 4.9 - - - 4.9 property, plant and equipment Unwind of discount 3.8 - 0.4 - 4.2 Released (1.1) - (0.2) (0.2) (1.5) Utilised (0.2) (1.8) (0.1) - (2.1) At 30 June 2019 68.6 3.7 5.3 3.4 81.0
30 June 2019 30 June 2018 £m £m
Analysed as: Current 6.2 2.8 Non-current 74.8 64.8 81.0 67.6
Provisions are made for remaining useful economic life identified as being required across decommissioning costs where the ranges up to 18 years. a number of the Group’s sites and Group has an obligation to restore is expected to be utilised over the sites and the cost of restoration is The restructuring provision relates next one to ten years. not recoverable from third parties. to the costs of exceptional The decommissioning provisions activities to reorganise the Group Other provisions represent a are reviewed annually and and FutureFit transformation variety of smaller items which are calculated using expected costs as costs. expected to be utilised over the determined by site and project next one to three years. management. The provision is in The remediation provision relation to assets of which the represents the cost of works
Arqiva Group Limited (company reg 05254001) 117 Annual Report and Consolidated Financial Statements 2019
27 Notes to the cash flow statement
Reconciliation from operating profit to net cash from operating activities:
Year ended Year ended 30 June 2019 30 June 20181 £m £m
Operating profit 320.5 330.0
Adjustments for: Depreciation of property, plant and equipment 184.1 166.3 Amortisation of intangible assets 15.8 16.7 Impairment charges - 4.4 (Profit)/loss on disposal of property, plant and equipment (0.1) 0.1 Other income (7.5) (4.6) Share of results of associates and joint ventures - (0.2) Operating cash flows before movements in working capital 512.8 512.7
Decrease in receivables 41.5 3.4 (Decrease)/increase in payables (87.5) 66.5 Increase/(decrease) in provisions 4.4 (12.6) Cash generated from operating activities 471.2 570.0 Taxes paid (0.1) (0.2) Net cash from operating activities 471.1 569.8
Analysis of changes in financial liabilities:
Other changes Changes in Changes in including financing foreign Changes in accrued At 1 July cash flows exchange fair value interest (Non- At 30 2018 (Cash) (Non-cash) (Non-cash) cash) June 2019 £m £m £m £m £m £m
Current borrowings (Note 23) 134.0 (82.7) - - 449.2 500.5 Non-current borrowings (Note 23) 4,970.8 (18.1) 9.3 - (450.6) 4,511.4 Accrued interest on borrowings 857.7 (219.2) (0.4) - 625.2 1,263.3 (Note 23) Derivative financial instrument 1,030.8 (42.7) - 13.7 - 1,001.8 Liabilities (Note 25) Total 6,993.3 (362.7) 8.9 13.7 623.8 7,277.0
The movements above do not include issue costs associated with entering the borrowing arrangements (see note 23).
1 Figures as at 30 June 2018 have been restated for the adoption of IFRS 15 ‘Revenue from contracts with customers’. See note 33 for further information.
118 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
28 Financial commitments and contingent liabilities
Financing commitments Under the terms of the Group’s external debt facilities, the Group has provided security over substantially all of its assets by way of a Whole Business Securitisation structure.
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:
30 June 2019 30 June 2018 £m £m
Within one year 25.7 45.4 Within two to five years 0.7 2.4 Total capital commitments 26.4 47.8
Operating leases Future minimum operating lease payments for the Group in relation to non-cancellable operating leases for land, buildings and other infrastructure locations fall due as follows:
30 June 2019 30 June 2018 £m £m
Within one year 48.0 33.9 Within two to five years 119.5 95.9 After five years 76.8 131.5 Total future minimum operating lease payments 244.3 261.3
Other annual lease commitments fall due:
30 June 2019 30 June 2018 £m £m
Within one year 1.2 1.1 Within two to five years 1.8 1.9 Total future minimum operating lease payments 3.0 3.0
In addition, the Group has various service supply agreements for circuits connectivity which amount to £24.0m per annum (2018: £24.0m).
Arqiva Group Limited (company reg 05254001) 119 Annual Report and Consolidated Financial Statements 2019
29 Disposal of business
On 26 October 2017, the Group sold its 22.5% shareholding in Arts Alliance Media Investment Limited, a joint venture. The total gross consideration was £5.8m, satisfied by cash and cash equivalents. This total consideration is in respect of sales proceeds of £5.2m and repayment of a loan of £0.6m. The profit on disposal of £0.1m was recognised in other gains and losses as an exceptional item.
30 Retirement benefits
Defined contribution scheme being the outstanding Trustees of the Plan are required Arqiva Limited has operated a contributions to the Defined by law to act in the interests of Defined Contribution Scheme Contribution Scheme. the Plan and of all relevant during the year, for those stakeholders in the Plan. The employees who are not members Defined benefit plan Trustees are responsible for the of the Group’s Defined Benefit In the year to 30 June 2019, the investment policy with regards the Plan. Contributions payable in Group operated one Defined assets of the Plan. respect of this Scheme for the Benefit Plan, sponsored by Arqiva year were £10.0m (2018: £10.8m). Limited. The Defined Benefit Plan The Plan typically exposes the The assets of the Scheme are held is administered by a separate Group to risks such as: investment outside of the Group. entity that is legally separated risk, interest rate risk, longevity from the Group, and therefore the risk, and salary risk. An amount of £1.3m (2018: Plan assets are held separately £1.3m) is included in accruals from those of Arqiva Limited. The
Investment risk The present value of the defined benefit Plan liability for IAS19 purposes is calculated using a discount rate determined by reference to high quality corporate bond yields, which is different to how the Plan assets are invested. Currently the Plan has a relatively balanced investment in equity securities, debt instruments and real estate. Due to the long-term nature of the Plan liabilities, the trustees of the Plan consider it appropriate that a reasonable portion of the Plan assets should be invested in equity securities to leverage the expected return generated by the Plan assets. Interest risk A decrease in the bond interest rate will increase the valuation of the Plan’s IAS19 liability but this will be partially offset by an increase in the value of the Plan’s corporate bond investments. Longevity risk The present value of the defined benefit Plan liability is calculated by reference to a best estimate of the mortality of Plan participants both during and after their retirement. An increase in the life expectancy of the Plan participants will increase the Plan’s assessed liability. Salary risk The present value of the defined benefit Plan liability is calculated by reference to the future salaries of Plan participants. As such, an increase in the salary of the Plan participants will increase the Plan’s liability.
The Plan closed to the future The most recent triennial actuarial IAS19 defined benefit liability, and accrual of benefits on 31 January funding valuation of the Plan the related current service cost 2016. The weighted average assets and the present value of and past service cost, have been duration of the expected benefit the defined benefit liability was measured using the projected unit payments from the Plan is around carried out as at 30 June 2017 by credit method based on roll- 19 years. an independent firm of consulting forward updates to the latest actuaries. The present value of the triennial valuation figures.
120 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The principal assumptions used for the purposes of the actuarial valuations were as follows:
30 June 2019 30 June 2018
Key assumptions Discount rate 2.40% 2.80% Price inflation (RPI) 3.20% 3.00% Life expectancy of a male / female age 60 (current pensioner) 26.0yrs / 28.1yrs 26.6yrs / 28.6yrs Life expectancy of a male / female age 60 (future pensioner) 27.6yrs / 29.7yrs 28.1yrs / 30.2yrs Other linked assumptions Price inflation (CPI) 2.10% 1.90% Pension increases (RPI with a minimum of 3% and maximum of 5%) 3.70% 3.60% Pension increases (RPI with a maximum of 10%) 3.20% 3.00% Salary growth n/a n/a
Amounts recognised in the consolidated income statement in respect of the defined benefit plan were as follows:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Components of defined benefit costs recognised in profit or loss 0.6 0.2 0.6 0.2
The net interest item above has been included within finance income (see note 9). The re-measurement of the net defined benefit liability is included in the statement of comprehensive income.
Amounts recognised in the statement of comprehensive income in respect of the defined benefit plan were as follows:
Year ended Year ended 30 June 2019 30 June 2018
£m £m
Return on Plan assets excluding Interest Income 20.2 1.8 Experience gains arising on the Plan’s liabilities 0.2 4.4 Actuarial (losses) / gains arising from changes in financial assumptions (24.8) 3.3 Actuarial (losses) / gains arising from changes in demographic assumptions (0.7) 1.3 (5.1) 10.8
Arqiva Group Limited (company reg 05254001) 121 Annual Report and Consolidated Financial Statements 2019
The amount included in the statement of financial position arising from the Group’s obligations in respect of its defined benefit plan was as follows:
30 June 2019 30 June 2018 £m £m
Fair value of Plan assets 259.4 239.0 Present value of defined benefit Plan liabilities (237.4) (218.4) Surplus at 30 June 22.0 20.6
The Group have considered the impact of IFRIC14 and in line with the Plan’s Rules, the Group is able to recognise the Plan’s surplus in its entirety.
The reconciliation of the statement of financial position over the year is as follows:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Surplus at 1 July 20.6 7.1 Amount recognised in profit or loss 0.6 0.2 Amount recognised in Other Comprehensive Income (5.1) 10.8 Company contributions 5.9 2.5 Surplus at 30 June 22.0 20.6
The present value of the plan liabilities has moved over the year as follows:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
1 July (218.4) (234.0) Contributions by employees (0.9) (0.7) Interest cost (5.9) (6.4) Benefits paid 13.1 13.7 Experience gains arising on the Plan’s liabilities 0.2 4.4 Actuarial (losses) / gains arising from changes in financial assumptions (24.8) 3.3 Actuarial (losses) / gains arising from changes in demographic assumptions (0.7) 1.3 30 June (237.4) (218.4)
122 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The fair value of the plan assets has moved over the year as follows:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
1 July 239.0 241.1 Interest income 6.6 6.6 Return on Plan assets excluding interest income 20.1 1.8 Contributions by employer 5.9 2.5 Contributions by employees 0.9 0.7 Benefits paid (13.1) (13.7) 30 June 259.4 239.0
The major categories and fair values of Plan assets at the end of the reporting year for each category are as follows:
30 June 2019 30 June 2018 £m £m
Equity instruments 92.1 85.5 Diversified growth funds 19.4 18.8 Corporate bonds 19.7 20.0 Government bonds 127.7 112.2 Cash and equivalents 0.5 2.5 Total 259.4 239.0
The majority of the Plan’s equity will also be partially hedged by the deficit contributions of £3.4m in and debt instruments have quoted Plan’s corporate bond holding. October 2018, and a further £5.4m prices in active markets. is due by 31 July 2019. No amounts within the fair value of The Plan includes holdings of gilts the Plan assets are in respect of the Sensitivity Analysis and corporate bonds, which are Group’s own financial instruments intended to partially hedge the or any property occupied by, or The assumptions considered to be financial risk from liability valuation assets used by, the Group. the most significant are the movements associated with discount rate adopted, inflation changes in gilt and corporate bond Following completion of the represented by RPI, and the yields. IAS19 liability movements funding valuation as at 30 June longevity assumptions. from changes in the discount rate 2017, Arqiva Limited agreed to pay
Arqiva Group Limited (company reg 05254001) 123 Annual Report and Consolidated Financial Statements 2019
The sensitivity of the 2019 year end results to changes in the three key assumptions is shown below:
Funding Position Discount rate decrease of RPI increase of 0.1% Longevity assumption 0.1% increase of 1 year
Increase in Plan liabilities £5.0m £3.5m £7.8m
The sensitivity of the 2018 year end results to changes in the three key assumptions is shown below:
Funding Position Discount rate decrease of RPI increase of 0.1% Longevity assumption 0.1% increase of 1 year
Increase in Plan liabilities £4.2m £3.1m £6.4m
This sensitivity analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
31 Related party transactions
Balances and transactions between ventures and entities under reflects related party relationships the Company and its subsidiaries, common influence are disclosed at that date. which are related parties, have been below. eliminated on consolidation and are Trading transactions not disclosed in this note. The disclosure of transactions with During the year ended 30 June 2019 related parties reflects the periods the Group entered into the Transactions with the Group’s in which the related party following transactions with related pension scheme are disclosed in relationships exist. The disclosure of parties who are not members of the note 30. Transactions between the amounts outstanding to/from Group: Group and its associates, joint related parties at the reporting date
Sale of goods and services Purchase of goods and services Year ended Year ended Year ended Year ended 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £m £m £m £m
Associates - - 6.3 6.6
Joint ventures 3.9 3.5 2.5 2.3
Entities under common influence - 0.9 - 0.7
3.9 4.4 8.8 9.6
All transactions are on third-party payable to associates was £0.4m Remuneration of Directors and terms and all outstanding balances, (2018: £nil). key management personnel with the exception of the amount The remuneration of the Directors outstanding referenced below, are As at 30 June 2019 the amount and key management personnel of interest free, un-secured and are payable to joint ventures was £0.2m the Group is set out below in not subject to any financial (2018: £0.2m). aggregate for each of the guarantee by either party. categories specified in IAS 24 As at 30 June 2019, the amount Related Party Disclosures As at 30 June 2019, the amount receivable from entities under receivable from associates was common influence was £nil (2018: £0.3m (2018: £nil) and the amount £nil)
124 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Short-term employee benefits 4.6 4.1
Termination benefits 0.9 1.1
Post-employment benefits 0.2 0.3
5.7 5.5
One member of the Directors and connection with their service Investor transactions key management personnel (2018: agreements. There are two investor companies, one) is a member of the Group’s FICAL and MEIF II, which are related defined benefit pension scheme Further information in respect of parties with the Group in (see note 30). the remuneration of the Company’s accordance with IAS 24, by virtue of statutory Directors, including the significant shareholding in the The members of the Directors and highest paid Director, has been Group. Refer to the Directors’ report key management personnel had no provided on page 135. for further details of these investor material transactions with the companies. Group during the year, other than in
30 June 2019 MGIF II * MEIF II + Macquarie FICAL + Prism *
£m £m £m £m
Shareholder loan notes 12.8 626.6 9.3 1,208.4
Shareholder loan note interest for the year 2.0 104.3 3.6 201.2
Accrued shareholder loan note interest 4.7 237.3 20.1 457.7 *A related party by virtue of common influence. + An investor company and a related party by virtue of significant shareholding (as at 30 June 2019).
30 June 2018 MGIF II * MEIF II + Macquarie FICAL + Prism *
£m £m £m £m
Shareholder loan notes 12.8 626.6 9.3 1,208.4
Shareholder loan note interest for the year 1.8 91.7 3.1 176.9
Accrued shareholder loan note interest 2.7 133.0 16.5 256.5 *A related party by virtue of common influence. + An investor company and a related party by virtue of significant shareholding (as at 30 June 2019).
32 Controlling parties
The Company is owned by a consortium of shareholders including Canada Pension Plan Investment Board, Macquarie European Infrastructure Fund II, other Macquarie managed funds and minorities.
The Company is the parent company of the largest group to consolidate these financial statements.
Arqiva Group Limited (company reg 05254001) 125 Annual Report and Consolidated Financial Statements 2019
33 Effects of changes in accounting policies
The Group adopted IFRS 9 and IFRS 15 with a transition date of 1 July 2017 As a result of the adoption of IFRS 15 and the changes in the revenue accounting policy, prior year financial statements were restated. The adoption of IFRS 9 has not impacted the figures previously reported.
The following tables show the adjustments recognised for each line item of the financial statements affected.
Adjustments 30 June 2018 As originally 30 June 2018 Presented IFRS 15 As restated £m £m £m
Revenue a, b 974.2 1.8 976.0 Cost of sales (329.2) - (329.2) Gross profit 645.0 1.8 646.8
Depreciation b (163.7) (2.6) (166.3) Amortisation (16.7) - (16.7) Impairment (4.4) - (4.4) Other operating expenses (134.2) - (134.2) Total operating expenses (319.0) (2.6) (321.6) Other income 4.6 - 4.6
Share of results of associates and joint ventures 0.2 - 0.2
Operating profit 330.8 (0.8) 330.0
Finance income 1.8 - 1.8 Finance costs (624.6) - (624.6) Other gains and losses 92.4 - 92.4 Loss before tax (199.6) (0.8) (200.4) Tax c 209.3 1.9 211.2 Profit/(loss) for the year 9.7 1.1 10.8
Attributable to: Owners of the Company 9.3 1.1 10.4 Non-controlling interests 0.4-0.4 9.7 1.1 10.8
There was no further impact on other comprehensive income as a result of the adoption of IFRS 15 ‘Revenue from contracts with customers’.
126 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Adjustments 30 June 2018 As originally 30 June 2018 Presented IFRS 15 As restated £m £m £m
Non-current assets Goodwill 1,980.0 - 1980.0 Other intangible assets 59.0 - 59.0 Property, plant and equipment b 1,750.2 20.2 1770.4 Deferred tax 207.6 1.9 209.5 Retirement benefits 20.6 - 20.6 Interest in associates and joint ventures 0.1 - 0.1 4,017.5 22.1 4039.6
Current assets Trade and other receivables b, d 322.4 (90.0) 232.4 Contract assets d - 66.6 66.6 Cash and cash equivalents 48.0 - 48.0 370.4 (23.4) 347.0
Total assets 4,387.9 (1.3) 4386.6
Current liabilities Trade and other payables a (394.5) 174.8 (219.7) Contract liabilities d - (175.3) (175.3) Borrowings (991.7) - (991.7) Provisions (2.8) - (2.8) (1,389.0) (0.4) (1,389.5)
Net current liabilities (1018.6) (23.8) (1,042.5)
Non-current liabilities Other payables (including deferred revenue) d (307.4) 307.4 - Contract liabilities a, d - (314.0) (314.0) Borrowings (4,970.8) -(4,970.8) Derivative financial instruments (1,030.8) -(1,030.8) Provisions (64.8) - (64.8) (6,373.8) (6.6) (6,380.4)
Total liabilities (7,762.8) (7.0) (7,769.8)
Net liabilities (3,375.0) (8.3) (3,383.3)
Equity Share capital 653.9 - 653.9 Share premium 315.6 - 315.6 Accumulated losses a, b, c (4,342.2) (8.3) (4,350.5) Translation reserve (3.2) - (3.2) Total equity attributable to owners of the Parent (3,375.9) (8.3) (3,384.2) Non-controlling interest 0.9 - 0.9 Total equity (3,375.0) (8.3) (3,383.3)
Arqiva Group Limited (company reg 05254001) 127 Annual Report and Consolidated Financial Statements 2019
Adjustments 1 July 2017 As originally 1 July 2017 Presented IFRS 15 As restated £m £m £m
Non-current assets Goodwill 1,980.0 - 1,980.0 Other intangible assets 48.9 - 48.9 Property, plant and equipment b 1,770.2 22.8 1,793.0 Deferred tax - - - Retirement benefits 7.1 - 7.1 Interest in associates and joint ventures 5.1 - 5.1 3,811.3 22.8 3,834.1
Current assets Trade and other receivables b, d 324.7 (97.6) 227.1 Contract assets d - 72.9 72.9 Cash and cash equivalents 46.5 - 46.5 371.2 (24.7) 346.5
Total assets 4,182.5 (1.9) 4,180.6
Current liabilities Trade and other payables a (420.0) 222.1 (197.9) Contract liabilities d - (222.5) (222.5) Borrowings (592.2) - (592.2) Provisions (18.8) - (18.8) (1,031.0) (0.4) (1,031.4)
Net current liabilities (659.8) (25.1) (684.9)
Non-current liabilities Other payables (including deferred revenue) d (186.4) 186.4 - Contract liabilities a, d - (193.5) (193.5) Borrowings (5,122.1) -(5,122.1) Derivative financial instruments (1,179.7) -(1,179.7) Provisions (57.0) - (57.0) (6,545.2) (7.1) (6,552.3)
Total liabilities (7,576.2) (7.5) (7,583.7)
Net liabilities (3,393.7) (9.4) (3,403.1)
Equity Share capital 653.9 - 653.9 Share premium 315.6 - 315.6 Accumulated losses a,b,c (4,360.5) (9.4) (4,369.9) Translation reserve (3.3) - (3.3) Total equity attributable to owners of the Parent (3,394.3) (9.4) (3,403.7) Non-controlling interest 0.6 - 0.6 Total equity (3,393.7) (9.4) (3,403.1)
128 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The impact on the groups accounting policies and the nature of the adjustments resulting from the adoption of IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments are described below:
IFRS 15 Revenue from Contracts with Customers (IFRS 15)
IFRS 15 has replaced IAS 18 d) The company has changed Completed contracts have Revenue (IAS 18) and IAS 11 the presentation of certain not been restated. Construction Contracts as well as amounts in the statement Completed contracts are various interpretations previously of financial position to those contracts which: issued by the IFRS Interpretations reflect the terminology of o began and ended Committee. It has impacted the IFRS 15. Accrued income of within the same Group in the following ways: £90.0m has been annual reporting reclassified as contract period; or a) Under IFRS 15 certain assets being the right to o were completed by contracts are captured by consideration in exchange 30 June 2017. the ‘variable consideration’ for goods or services that For completed contracts rules and a change in total the entity has transferred to that have variable transaction price is a customer, when that right consideration, the therefore adjusted is conditioned on transaction price at the date retrospectively. something other than the the contract was completed b) Under IFRS 15 certain passage of time. Deferred has been used instead of contracts have been income of £174.8m estimating variable assessed under different (current) and £307.4m consideration amounts in distinct performance (non-current) has been comparative periods. obligations. Treatment of reclassified as contract When identifying satisfied the costs and revenue liabilities being the and unsatisfied associated should therefore obligation to transfer goods performance obligations, be aligned with the rest of or services to a customer determining the transaction the contract resulting in the for which the entity has price and allocating the associated costs being received consideration from transaction price to capitalised and revenue the customer. performance obligations, recognised over the the Group has considered duration of the contract. The Group chose to adopt IFRS 15 only the aggregate effect of c) Tax impact of adjustments on a fully retrospective basis, all contract modifications noted. enabling it to take advantage of the made before 1 July 2018. following transitional provisions:
Arqiva Group Limited (company reg 05254001) 129 Annual Report and Consolidated Financial Statements 2019
IFRS 9 Financial Instruments (IFRS 9)
IFRS 9 has changed the rules Refinancings undertaken by the the forward-looking ‘expected concerning the classification, group have been reviewed and any credit loss’ model measurement and recognition of changes in debt have been introduced by IFRS 9, in contrast to financial assets and determined to be debt the backward-looking ‘incurred financial liabilities, introduced new extinguishments and new debt credit loss’ model used under IAS rules for hedge accounting and rather than modified terms of 39. As a result we now recognise a debt modifications and a new existing debt. As such there has loss allowance for all expected impairment model for financial been no impact of the adoption of credit losses on initial recognition of assets. IFRS 9 on this area of the financial financial assets, including trade statements. receivables and the contract assets Prior to the implementation of IFRS recognised on transition to IFRS 15. 9 the majority of the Groups assets The new impairment model under The groups’ expected loss rate for and liabilities were classified as fair IFRS 9 requires the recognition of receivables is between 0.4% and value through profit or loss or impairment provisions against 1.3%. The new impairment model amortised cost, the adoption of financial assets based on an does not require retrospective IFRS 9 has not changed the expected credit loss model rather application and therefore has not classification of the groups assets than incurred credit losses as impacted the results previously and liabilities and as such there has previously required. We have reported. been no impact on these balances revised the methodologies we use upon implementation. to impair financial assets to reflect
130 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 Directors’ report for Arqiva Group Limited (‘the Company’)
The Directors of Arqiva Group Dividends and transfers to - Neil King Limited, registered company reserves - Martin Healey number 05254001, (‘the Company’) The Directors do not propose to - Frank Dangeard (appointed 10 submit the following annual report pay a dividend (2018: nil). The loss September 2018) and financial statements in respect for the financial year £1.640.8m - Michael Darcey (appointed 10 of the year ended 30 June 2019. (2018: £1.6m) was charged to September 2018) reserves. - Paul Donovan (appointed 10 Business review and principal September 2018) activities Financial risk management - Maximilian Fieguth (appointed The Company acts as an ultimate Due to the straightforward nature 30 November 2018) holding company of the Arqiva of the Company’s operations, it is Group Limited (‘AGL’) group (‘the exposed to limited financial risks. Jeremy Mavor is the Company Group’) of companies. The Group’s financial risk Secretary. management programme is The Company has made a loss for detailed on page 47. Directors’ indemnities the financial year of £1,640.8m The Company has provided an (2018: £1.6m) and has net assets of Future developments and going indemnity for its Directors and the £116.4m (2019: £1,757.2m). concern Company Secretary, which is a It is the intention of the Company qualifying third party indemnity The loss in the year relates primarily to continue to act as the Group’s provision for the purposes of the to the impairment of the ultimate holding company. Companies Act 2006. Company’s investment in Arqiva Financing No. 3 Plc, detailed on The Company adopts the going Disclosure of information to the page 142. concern basis in preparing its independent auditors financial statements on the basis of The Directors of the Company in Principal risks and uncertainties the future profit, cash flows and office at the date of approval of this and key performance indicators available resource of the Group report confirm that: (‘KPIs’) which lead the Directors of the - so far as the Directors are From the perspective of the Company to be confident that the aware there is no relevant Company, the principal risks and Company will have adequate audit information of which the uncertainties arising from its resources to continue in operational Auditors are unaware; and activities are integrated with the existence for the foreseeable future. - each Director has taken all the principal risks and uncertainties of steps that he ought to have Directors the Group and are not managed taken as a Director to make The following held office as separately. Accordingly, the himself aware of any relevant directors of the Company during principal risks and uncertainties of audit information and to the year and up to the date of this the Group, which include those of establish that the Company’s report: the Company, are discussed on Auditors are aware of that - Mike Parton pages 49 to 53. information. - Mark Braithwaite - Christian Seymour Given the straightforward nature of - Peter Adams (alternate) the Company’s activities, the On behalf of the Board - Damian Walsh (resigned 10 Directors are of the opinion that September 2018) analysis using KPIs is not necessary - Nathan Luckey for an understanding of the - Sally Davis development, performance or - Deepu Chintamaneni (alternate) position of the business. The KPIs of (resigned 30 November 2018) Frank Dangeard - Director the Group are discussed on pages - Paul Dollman (resigned 10 25 September 2019 29 and 30. September 2018)
Arqiva Group Limited (company reg 05254001) 131 Annual Report and Consolidated Financial Statements 2019 Company statement of financial position
Note 30 June 2019 30 June 2018
£m £m
Non-current assets
Deferred tax 3 1.6 1.6
Investments 4 128.0 1,767.0
Receivables 5 3.0 2.7
132.6 1,771.3
Payables 6 (16.2) (14.1)
Net current liabilities (16.2) (14.1)
Net assets 116.4 1,757.2
Equity
Share capital 653.9 653.9
Share premium 315.6 315.6
Retained earnings (853.1) 787.7
Total equity 116.4 1,757.2
The accounting policies and notes on page 135 form part of these financial statements.
The result for the financial year for the Company was a loss of £1,640.8m (2018: £1.6m loss).
During the year the Company incurred an impairment charge of £1,639.0m relating to the investment in a direct subsidiary of the Company, Arqiva Financing No. 3 Plc, as disclosed in note 4 to the financial statements.
These financial statements on pages 133 to 143 were approved by the Board of Directors on 25 September 2019 and were signed on its behalf by:
Frank Dangeard - Director
132 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019 Company statement of changes in equity
Share capital* Share premium Retained earnings Total equity £m £m £m £m
Balance at 1 July 2017 653.9 315.6 789.3 1,758.8
Loss for the financial year - - (1.6) (1.6)
Balance at 30 June 2018 653.9 315.6 787.7 1,757.2
Loss for the financial year - - (1,640.8) (1,640.8)
Balance at 30 June 2019 653.9 315.6 (853.1) 116.4
*Comprises 653,928,000 (2018: 653,928,000) authorised, issued and fully paid ordinary shares of £1 each.
Arqiva Group Limited (company reg 05254001) 133 Annual Report and Consolidated Financial Statements 2019 Notes to the Company financial statements 1 Arqiva Group Limited accounting policies and other information
Basis of preparation Standard 101, 'Reduced Disclosure the Company’s income statement As used in these financial Framework' ('FRS 101'). The has not been presented. statements and associated notes, financial statements have been Accounting policies have been the term ‘Company’ refers to Arqiva prepared on a going concern basis applied consistently throughout. Group Limited. under the historical cost convention and in accordance with the New and revised Standards and Arqiva Group Limited is a private Companies Act 2006. The Group’s Interpretations have been adopted company limited by shares financial statements (Arqiva Group in the current year, a list of which incorporated in United Kingdom. Limited and its subsidiaries) are can be found in note 2 of the Group The registered address of the available online at www.arqiva.com. financial statements. There is no Company is Crawley Court, material impact on the Company. Winchester, Hampshire, SO21 2QA. The requirements have been The following disclosure applied in accordance with the exemptions, as permitted by The Financial Statements of the requirements of the Companies Act paragraph 8 of FRS 101, have been Company have been prepared in 2006. As permitted by Section taken in these Company financial accordance with Financial Reporting 408(3) of the Companies Act 2006, statements and notes:
EU-adopted IFRS Relevant disclosure exemptions IAS 1 Presentation of The requirements of paragraphs 10(d), 10(f), 16, 38A, 38B to D, 40A to D, 111 and financial statements 134 to 136 IAS 7 Statement of Cash All disclosure requirements. Flows IAS 24 Related Party The requirements of paragraph 17; the requirement to disclose related party Disclosures transactions entered into between two or more members of a Group, provided that any subsidiary party to the transaction is wholly owned by such a member.
Accounting policies Other information Investments Employees Audit fees Investments in subsidiaries and The Company had no employees The audit fee in respect of the associates are shown at cost less during the year (2018: none). None Company and fees payable to provision for impairment. of the Directors (2018: none) were PricewaterhouseCoopers LLP for remunerated by the Company. non-audit services were not specific Cash and cash equivalents to the Company and are disclosed Cash includes cash at bank and in Their individual remuneration in the notes to the Group financial hand and bank deposits repayable reflects the services they provide to statements (see note 6). on demand. the Company, its subsidiaries and a number of other entities outside of Dividends the Group. It is therefore not Dividend distributions are possible to make an accurate recognised as a liability in the year apportionment of each Director’s in which the dividends are remuneration in respect of their approved by the Company’s service to the Company except shareholders. where sums are paid to third parties in respect of their services. There Share capital were no such sums paid in the year Ordinary shares are classified as (2018: none). equity.
134 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
Critical accounting estimates and Where there is indication of with reference to cash flow judgements impairment, the recoverable forecasts prepared by management amount is estimated as the higher which cover a 5 year period. Key estimates of fair value less costs of disposal and value in use. In assessing value The application of the Company’s Impairment of investments in Group in use, the estimated future cash accounting policies does not undertakings flows are discounted to their require any other critical Management review the carrying present value using a pre-tax judgements or any sources of amounts of the investments to discount rate that reflects current estimation uncertainty. determine whether there is any market assessments of the time indication of impairment. value of money. This is prepared
2 Directors’ remuneration
The aggregate of the amount paid to the Directors in respect of their services as a Director of the Group are set out below:
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Aggregate remuneration 0.5 0.4
Amounts due under long term incentive plans - 1.0
Total remuneration 0.5 1.4
Certain of the Directors were service to the Company and the There are no directors to whom representatives of the Company’s Group except where sums are paid retirement benefits accrued in shareholders and their individual to third parties in respect of their respect of qualifying services (2018: remuneration reflects the services services, of which there were £nil none). they provide to the Company, its (2018: £nil) in relation to the subsidiaries and a number of other Company. Accordingly, no Highest paid director entities outside of the Group. It is remuneration in respect of these Included in the above is not possible to make an accurate Directors is recognised in the remuneration in respect of the apportionment of each Director’s Company. highest paid Director of: remuneration in respect of their
Year ended Year ended 30 June 2019 30 June 2018 £m £m
Aggregate remuneration 0.3 1.3
Total remuneration 0.3 1.3
Arqiva Group Limited (company reg 05254001) 135 Annual Report and Consolidated Financial Statements 2019
3 Deferred tax
The balance of deferred tax recognised at 30 June 2019 is £1.6m (2018: £1.6m). The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Other temporary Total Deferred tax assets differences £m £m
At 30 June 2018 1.6 1.6 Credited to the income statement - - At 30 June 2019 1.6 1.6
Deferred tax assets are not sheet date effective from 1 April ended 30 June 2018. This is a result recognised unless it is probable that 2020, which is the rate at which the of the forecast utilisation of these there are sufficient taxable profits deferred tax balances are forecast to assets being accelerated and their against which they will be realised. unwind. realisation therefore being assessed The Company has an unrecognised as probable. A net deferred tax Finance (No. 2) Act 2017 was deferred tax asset of £nil (2018: £nil). asset of £1.6m has therefore been substantively enacted on 31 This is in respect of other temporary recognised within these financial October 2017 and introduced new differences of £nil (2018: £nil). These statements as at 30 June 2019. rules to restrict the deductibility of deferred tax assets may be carried interest costs from 1 April 2017. forward indefinitely. Due to the impact of these changes, This value has been calculated based previously unrecognised deferred on the UK corporation tax rate of tax assets were assessed as being 17.0% (2018: 17.0%); the rate recoverable during the period substantively enacted at the balance
136 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
4 Investments
The Company’s subsidiary investments (held indirectly unless stated) are shown below:
Company Country of Principal activities Year end Percentage of incorporation ordinary shares held
ABHL Digital Limited United Kingdom Holding company 30-Jun 100% ABHL Digital Radio Limited United Kingdom Holding company 30-Jun 100% ABHL Multiplex Limited United Kingdom Dormant company 30-Jun 100% Aerial UK Limited United Kingdom Holding company 30-Jun 100% Arqiva (Scotland) Limited United Kingdom Transmission services 30-Jun 100% Arqiva Aerial Sites Limited United Kingdom Management of aerial sites 30-Jun 100% Arqiva Broadcast Finance Plc United Kingdom Financing vehicle 30-Jun 100% Arqiva Broadcast Intermediate Limited United Kingdom Holding company 30-Jun 100% Arqiva Broadcast Limited United Kingdom Dormant company 30-Jun 100% Arqiva Broadcast Parent Limited United Kingdom Holding company 30-Jun 100% Arqiva Communications Limited United Kingdom Dormant company 30-Jun 100% Arqiva Defined Benefit Pension Plan United Kingdom Pension company 30-Jun 100% Trustees Limited
Arqiva Digital Limited United Kingdom Dormant company 30-Jun 100% Arqiva Finance Limited United Kingdom Dormant company 30-Jun 100% Arqiva Financing No. 1 Limited United Kingdom Holding company 30-Jun 100% Arqiva Financing No. 2 Limited United Kingdom Holding company 30-Jun 100% Arqiva Financing No. 3 Plc United Kingdom Holding company 30-Jun 99.99% (held directly) Arqiva Financing Plc United Kingdom Financing vehicle 30-Jun 100% Arqiva Group Holdings Limited United Kingdom Holding company 30-Jun 100% Arqiva Group Intermediate Limited United Kingdom Holding company 30-Jun 100% Arqiva Group Parent Limited United Kingdom Holding company 30-Jun 100% Arqiva Holdings Limited United Kingdom Holding company 30-Jun 100% Arqiva Inc. USA Satellite transmission 30-Jun 100% Arqiva International Holdings Limited United Kingdom Holding company 30-Jun 100% Arqiva Limited United Kingdom Transmission services 30-Jun 100% Arqiva Limited Ireland Transmission services 30-Jun 100% Arqiva Media Limited United Kingdom Dormant company 30-Jun 100% Arqiva Mobile Broadcast Limited United Kingdom Dormant company 30-Jun 100% Arqiva Mobile Limited United Kingdom Dormant company 30-Jun 100% Arqiva Mobile TV Limited United Kingdom Dormant company 30-Jun 100% Arqiva No. 10 Limited United Kingdom Dormant company 30-Jun 100% Arqiva No. 11 Limited United Kingdom Dormant company 30-Jun 100% Arqiva No. 2 Limited United Kingdom Transmission services 30-Jun 100% Arqiva No. 3 Limited United Kingdom Transmission services 30-Jun 100% Arqiva No. 4 Limited United Kingdom Dormant company 30-Jun 100% Arqiva Pension Trust Limited United Kingdom Dormant company 31-Mar 100% Arqiva PP Financing Plc United Kingdom Financing vehicle 30-Jun 100% Arqiva Pte Limited Singapore Satellite transmission 30-Jun 100% Arqiva Public Safety Limited United Kingdom Dormant company 30-Jun 100% Arqiva SAS France Satellite transmission 30-Jun 100% Arqiva Satellite Limited United Kingdom Dormant company 30-Jun 100% Arqiva Senior Finance Limited United Kingdom Financing vehicle 30-Jun 100% Arqiva Services Limited United Kingdom Transmission services 30-Jun 100%
Arqiva Group Limited (company reg 05254001) 137 Annual Report and Consolidated Financial Statements 2019
Company Country of Principal activities Year end Percentage of incorporation ordinary shares held
Arqiva Smart Financing Limited United Kingdom Financing vehicle 30-Jun 100% Arqiva Smart Holdings Limited United Kingdom Holding company 30-Jun 100% Arqiva Smart Metering Limited United Kingdom Smart metering 30-Jun 100% Arqiva Smart Parent Limited United Kingdom Holding company 30-Jun 100% Arqiva SRL Italy Satellite transmission services 30-Jun 100% Arqiva Swing Limited United Kingdom Dormant company 30-Jun 100% (held directly) Arqiva Telecommunications Asset United Kingdom Dormant company 30-Jun 100% Development Company Limited
Arqiva Telecoms Investment Limited United Kingdom Holding company 30-Jun 100% Arqiva Transmission Limited United Kingdom Dormant company 30-Jun 100% Arqiva UK Broadcast Holdings Limited United Kingdom Holding company 30-Jun 100% Arqiva Wireless Limited United Kingdom Dormant company 30-Jun 100% Capablue Limited United Kingdom Dormant company 30-Jun 100% Cast Communications Limited United Kingdom Dormant company 30-Jun 100% Connect TV (Scotland) Limited United Kingdom Dormant company 30-Jun 100% Connect TV Limited United Kingdom Dormant company 30-Jun 100% Digital One Limited United Kingdom Transmission services 30-Jun 100% Inmedia Communications (Holdings) United Kingdom Dormant company 30-Jun 100% Limited
Inmedia Communications Group Limited United Kingdom Dormant company 30-Jun 100% Inmedia Communications Limited United Kingdom Dormant company 30-Jun 100% J F M G Limited United Kingdom Dormant company 30-Jun 100% Macropolitan Limited United Kingdom Dormant company 30-Jun 100% Now Digital (East Midlands) Limited United Kingdom Transmission services 30-Jun 80.0% Now Digital (Oxford) Limited United Kingdom Dormant company 30-Jun 100% Now Digital (Southern) Limited United Kingdom Transmission services 30-Jun 100% Now Digital Limited United Kingdom Transmission services 30-Jun 100% NWP Spectrum Holdings Limited United Kingdom Holding company 30-Jun 100% Primrose No.1 Limited United Kingdom Dormant company 30-Jun 100% (held directly) Scanners (Europe) Limited United Kingdom Dormant company 30-Jun 100% Scanners Television Outside Broadcasts United Kingdom Dormant company 30-Jun 100% Selective Media Limited United Kingdom Dormant company 30-Jun 100% South West Digital Radio Limited United Kingdom Transmission services 30-Jun 66.67% Spectrum Interactive (UK) Limited United Kingdom Dormant company 30-Jun 100% Spectrum Interactive GmbH Germany Dormant company 30-Jun 100% Spectrum Interactive Limited United Kingdom Holding company 30-Jun 100%
138 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
With the following exceptions, the registered office of each of the subsidiary companies listed was Crawley Court, Winchester, Hampshire, SO21 2QA:
Company Registered office
c/o The Corporation Trust Company, Corporation Trust Centre, 1209 Orange Street, Arqiva Inc. Wilmington, DE19801, United States of America.
Arqiva Pte Limited 8 Marina Boulevard #05-02, Marina Bay Financial Centre, 018981, Singapore.
Arqiva SAS Tour Vendome 204, Rond Point du Pont De Sevres, 92100, Boulogne, France.
Arqiva SRL c/o Studio Bandini & Associati, Via Calabria 32, Rome, Italy.
Arqiva (Ireland) Limited Unit 9 Willborough, Clonshaugh Industrial Estate, Dublin 17, Co. Dublin, Ireland.
Arqiva (Scotland) Limited c/o Morton Fraser, Quartermile 2, 2 Lister Square, Edinburgh, EH3 9GL, Scotland.
Primrose No. 1 Limited 8th Floor, The Met Building, 22 Percy Street, London, W1T 2BU, England.
In addition to the subsidiary undertakings the Company indirectly holds the following interests in associates and joint ventures:
Percentage Country of Company Principal activities Registered office Year end of ordinary incorporation shares held
Joint ventures Media House Peterborough Ownership and operation United Business Park, Lynch Wood, Sound Digital Limited of UK DAB radio multiplex 31-Dec 40.0% Kingdom Peterborough, United Kingdom, PE2 licence 6EA
United Open source IPTV 10 Lower Thames Street, Third YouView TV Limited 31-Mar 14.3% Kingdom development Floor, London, EC3R 6YT
Associate undertakings: Bidding for UK DAB 96a, Curtain Road, London, EC2A United Muxco Limited digital radio multiplex 3AA 31-Dec 25.0% Kingdom licences
DTT Multiplex Operators United 27 Mortimer Street, London, Transmission services 31-Mar 25.0% Limited Kingdom England, W1T 3JF
United 27 Mortimer Street, London, Digital UK Limited Transmission services 31-Dec 25.0% Kingdom England, W1T 3JF
United 2nd Floor 27 Mortimer Street, DTV Services Limited Freeview market services 31-May 20.0% Kingdom London, England, W1T 3JF
United 30 Leicester Square, London, WC2H MXR Holdings Limited Transmission services 31-Mar 12.0% Kingdom 7LA
Arqiva Group Limited (company reg 05254001) 139 Annual Report and Consolidated Financial Statements 2019
The following companies within the Group will adopt the Department for Business, Energy and Industrial Strategy (BEIS) audit exemption for the year ended 30 June 2019. As the ultimate parent company, AGL has guaranteed the debts and liabilities held within these companies as required under section 479A of the Companies Act 2006.
Company Company registration number
Arqiva Group Intermediate Limited 08126989
Arqiva Group Holdings Limited 08221064
Arqiva UK Broadcast Holdings Limited 05254048
Arqiva Telecoms Investment Limited 03696564
Arqiva Scotland Limited SC365509
Arqiva Aerial Sites Limited 01460772
ABHL Digital Limited 03538787
ABHL Digital Radio Limited 03573732
Digital One Limited 03537636
Now Digital Limited 03546921
Now Digital (Southern) Limited 03654065
Arqiva Financing No 2 Limited 06137899
Arqiva International Holdings Limited 08753024
Arqiva No 2 Limited 03922958
Arqiva No 3 Limited 02973983
Arqiva Senior Finance Limited 08127157
Arqiva Smart Holdings Limited 08723422
Arqiva Smart Parent Limited 08723419
NWP Spectrum Holdings Limited 04412123
Selective Media Limited 06579687
Spectrum Interactive Limited 04440500
Aerial UK Limited 02333949
140 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
The following dormant companies within the Group will take the exemption from preparing and filing financial statements for the year ended 30 June 2019 (by virtue of s394A and s448A of Companies Act 2006 respectively). As the ultimate parent company, AGL has guaranteed the various debts and liabilities held within these companies as required under section 394C of the Companies Act 2006.
Company Company registration number
ABHL Multiplex Limited 05138188
Arqiva Mobile TV Limited 04107732
Arqiva Public Safety Limited 03341257
Arqiva Broadcast Limited 03844675
Arqiva Communications Limited 02928653
Arqiva Digital Limited 03120642
Arqiva Finance Limited 03347387
Arqiva Media Limited 02826184
Arqiva Mobile Broadcast Limited 02816853
Arqiva Mobile Limited 03246721
Arqiva No 4 Limited 02903056
Arqiva No 10 Limited 05393073
Arqiva No 11 Limited 05393079
Arqiva Satellite Limited 02192952
Now Digital (Oxford) Limited 06314242
Arqiva Swing Limited 07140424
Arqiva Telecommunications Asset Development Company Limited 03956595
Arqiva Transmission Limited 03598122
Arqiva Wireless Limited 03055844
Capablue Limited 06962172
Cast Communications Limited 05097626
Connect TV Limited 07403839
Connect TV (Scotland) Limited SC403631
Inmedia Communications (Holdings) Limited 02755211
Inmedia Communications Group Limited 05097612
Inmedia Communications Limited 05097623
JFMG Limited 03297317
Macropolitan Limited 05401565
Primrose No.1 Limited 07046887
Scanners (Europe) Limited 02833712
Scanners Television Outside Broadcasts Limited 03391685
Spectrum Interactive (UK) Limited 03500162
Arqiva Group Limited (company reg 05254001) 141 Annual Report and Consolidated Financial Statements 2019
The Company held the following investments in subsidiaries:
Total
£m
Cost
At 1 July 2018 1,767.0
Impairment (1,639.0)
At 30 June 2019 128.0
Carrying value
At 30 June 2019 128.0
At 30 June 2018 1,767.0
The Directors consider the carrying value of the Company’s investments in its subsidiaries on an annual basis, or more frequently should indicators arise.
During the year the Company incurred an impairment charge of £1,639.0m relating to a direct subsidiary of the Company, Arqiva Financing No. 3 Plc, as disclosed in note 4 to the financial statements. This calculation is considered to be a critical accounting estimate, as the value of the Company’s investment in Arqiva Financing No. 3 Plc is sensitive to future cash flow projections, specifically in relation to the debt financing operations of Arqiva Group Limited. Reductions identified in the future cash flows of this subsidiary would result in a further impairment of the investment.
Following the impairment of the Company’s investment in Arqiva Financing No.3 Plc, management believe the carrying values of the investments are supported by the underlying trade and net assets.
5 Receivables
Amounts receivable from other Group entities are unsecured, interest-free, and repayable on demand.
6 Payables
30 June 2019 30 June 2018
£m £m
Amounts payable to other Group entities 11.0 3.8
Accruals 5.2 10.3
Total 16.2 14.1
The Company has no payables falling due after more than one year. Amounts payable to other Group entities are unsecured, interest-free, and repayable on demand.
142 Arqiva Group Limited (company reg 05254001) Annual Report and Consolidated Financial Statements 2019
7 Related parties
The Company has applied the provisions within FRS 101 to be exempt from the disclosure of transactions entered into, and balances outstanding, with a Group entity which is wholly-owned by another Group entity.
8 Controlling parties
The Company is owned by a consortium of shareholders including Canada Pension Plan Investment Board, Macquarie European Infrastructure Fund II, other Macquarie managed funds and minorities.
The Company is the parent company of the largest group to consolidate these financial statements.
Arqiva Group Limited (company reg 05254001) 143