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ityFibre Infrastructure Holdings plc A

nnual Report 2016

CityFibre Infrastructure Holdings plc Annual Report 2016

Contents:

CityFibre designs, builds, operates and owns independent, full fibre communications infrastructure across the UK.It has major metro duct and fibre footprints in over 40 cities across the UK and a national long distance network that connects these cities to major data centres across the UK and to key peering points in London.

The company has an extensive customer base spanning service integrators, enterprise and consumer service providers and mobile operators.

Providing a portfolio of active and dark fibre services, CityFibre’s networks address 28,000 public sites, 7,800 mobile masts, 280,000 businesses and 4 million homes.

CityFibre is based in London, United Kingdom, and its shares trade on the AIM Market of the London Stock Exchange (AIM: CITY).

Strategic Report01 Highlights02 At a glance04 Chairman’s statement06 Operating review08 Market overview09 Our products10 Business model11 Partner engagement12 KCOM asset acquisition14 Case study Peterborough16 Case study Edinburgh18 Financial review22 Principal risks & uncertainties

Corporate Governance24 Corporate governance report 26 Corporate social responsibility27 Health, safety, environment and quality28 Board of Directors31 Key management32 Director’s’ report33 Directors’ remuneration report

Financial Statements 37 Independent auditor’s report38 Consolidated statement of incomprehensive income 39 Consolidated statement

of financial position40 Consolidated statement of changes in equity41 Consolidated statement of cash flows42 Notes to the consolidated

financial statements61 Company statement

of financial positionn62 Company statement

of cash flows63 Company statement of

changes in equity64 Notes to the company financial statements66 Network mapsIBC Company Information

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Strategic Report

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overnanceFinancial Statem

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Highlights15.4m

88%

54

Turnover up 140% (2015: £6.4m)

Gross margin further expanded (2015: 86%)

Service provider relationships numbered (2015: 41)

Audited full-year results for the year ended 31 December 2016

CityFibre has fast become a one stop shop for fibre connectivity that is a breath of fresh air in the carrier market.

Andy Rawnsley Chief Architect Gamma

Find out more about how we operate cityfibre.com

1 Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, also excluding share-based payments and significant non-recurring expenses

2 Initial contract value (ICV) is the total contracted customer revenues receivable up to the first contract break point

Financial Highlights• Turnover up 140%, to £15.4m

(2015: £6.4m) • Gross profit of £13.5m, up 145%• Gross margin further expanded to 88%

(2015: 86%) • Adjusted EBITDA1 profit of £2.5m

(2015: £2.9m loss)• Initial Contract Value2 (‘ICV’) of

£75.5m added in the period, up 225% from £23.2m in 2015

• Net loss after tax of £12.6m (2015: £6.4m loss)

Operating Highlights• New and acquired connections totalled

5,063, up from 1,100 in 2015

• Direct fibre connected customer premises up to 3,962, from 1,200 in 2015

• Completed route kilometres of ducted fibre increased to 3,383km, from 743km in 2015

• Service provider relationships numbered 54 at period end, up from 41 in 2015

• Readmission to AIM on 14 January 2016 via £80.0m equity placing at 50p per share

• Closing of acquisition of metro and long distance duct and fibre assets from KCOM for £90.0m (the ‘Network Assets’) on 18 January 2016

• Total funding package of £180.0m secured to fund the acquisition and future development of the assets, comprising £80.0m from the equity placing, alongside £100.0m in committed debt facilities

• Closing of acquisition of metro fibre network assets of Redcentric plc on 23 September 2016

2 CityFibre Infrastructure Holdings plc Annual Report 2016

Strategic Report

We design, build, operate and own independent, full fibre communications infrastructure across the UK. Our mission is to build a nation of Gigabit Cities, using ubiquitous full fibre connectivity to transform public sector services, unleash business potential, and spark economic development. We are well on our way.

When our customers choose our networks to underpin their connectivity needs, they are choosing not to rely on ‘next best’ technology or a copper based Victorian age infrastructure built before the internet was ever imagined.

We carefully plan our networks to accommodate a city’s current and future demands for bandwidth. Each new site connected, helps to grow the network’s reach, extending its benefits to new areas and new uses as the digital world continues to evolve at pace.

CityFibre at a glance

+2,244km

4260+1,139km

Metro access dark fibre and duct

Cities with ducted metro fibre networks

UK cities network presence

Long-distance fibre and duct network linking major city footprints to peering points in London, Manchester, Leeds and Birmingham and over 100 data centres across the UK

• Formation of CityFibre through platform acquisition of existing fibre optic network assets across the UK

• Peterborough anchor contract won, establishing CityFibre’s second major city project

• CityFibre IPO and admission to AIM

• Formation of York FTTH JV with Sky and TalkTalk

• Coventry network acquired

• Anchor contracts won in Kirklees and Aberdeen

• Won the UK’s first dark fibre-based FTTT network contract in Hull

• Newport and Edinburgh anchor contracts

• Announced acquisition of national network assets of KCOM

• Closing of KCOM asset acquisition, adding 1,100km of metro assets in 24 cities and a 1,100km national long distance network to the CityFibre footprint

• Southend and Stirling anchor contracts

• Completed York FTTH trial, confirming economics and demand metrics

• Acquisition of Redcentric plc fibre network assets

• Partner First customer portal launched

Our network today:

A history of CityFibre

Homepage buttons

Products

Market segments Others

Businesses Cell sites Public Sector Sites

Homes Data Centres

Whitepaper

Network

Long distance network

Major metro footprints

Gigabit cities

Exchange

News

News Features Categories Popular topics

Network Working with us

Industries (Solutions?)

Products

Products


Metro Dark Fibre

Long distance Ethernet

Premium Business

Broadband

Internet leased lines

Solutions

Education Healthcare Data Centres

Emergency Services

Finance

Large Enterprise

WiFi Wayleave

Local Government

Mobile Residential SMEsMobile

Co-lo sites

Signature

YouTube LinkedIn Twitter

GigaBitSpeed

Cloud Computing

Upload

Site Survey Installation Tick Attention/Important

upload/download

Future built

Ultra fastupload

Communication Remote Data Storage

Diverse Connectivity

Link Resilient

Metro Dark Fibre

Homepage buttons

Products



Homes Data Centres

Whitepaper

Network



Gigabit cities

Exchange

News




Products

Products


Metro Dark Fibre


Premium Business

Broadband


Solutions


Emergency Services

Finance

Large Enterprise

WiFi Wayleave

Local Government


Co-lo sites

Signature


GigaBitSpeed

Cloud Computing

Upload


upload/download

Future built

Ultra fastupload



Link Resilient

Metro Dark Fibre

Homepage buttons

Products



Homes Data Centres

Whitepaper

Network



Gigabit cities

Exchange

News




Products

Products


Metro Dark Fibre


Premium Business

Broadband


Solutions


Emergency Services

Finance

Large Enterprise

WiFi Wayleave

Local Government


Co-lo sites

Signature


GigaBitSpeed

Cloud Computing

Upload


upload/download

Future built

Ultra fastupload



Link Resilient

Metro Dark Fibre

Homepage buttons

Products



Homes Data Centres

Whitepaper

Network



Gigabit cities

Exchange

News




Products

Products


Metro Dark Fibre


Premium Business

Broadband


Solutions


Emergency Services

Finance

Large Enterprise

WiFi Wayleave

Local Government


Co-lo sites

Signature


GigaBitSpeed

Cloud Computing

Upload


upload/download

Future built

Ultra fastupload



Link Resilient

Metro Dark Fibre

Homepage buttons

Products



Homes Data Centres

Whitepaper

Network



Gigabit cities

Exchange

News




Products

Products


Metro Dark Fibre


Premium Business

Broadband


Solutions


Emergency Services

Finance

Large Enterprise

WiFi Wayleave

Local Government


Co-lo sites

Signature


GigaBitSpeed

Cloud Computing

Upload


upload/download

Future built

Ultra fastupload



Link Resilient

Metro Dark Fibre

3cityfibre.com

Strategic Report

Corporate G


ents

280,0007,80028,0004m

Businesses

Macro cell sites

Public sector sites

Homes

Transforming public sector services

Driving economic growth

Enabling 5G & IoT innovation

Unleashing business potential

Our network addresses: Our network today:

ReadingPortsmouthSouthamptonBournemouthBath

WakefieldDoncasterRotherhamSheffield

AberdeenDundeeStirlingEdinburgh

GlasgowAyr

NottinghamPeterboroughLeicesterNorthamptonCambridgeMilton KeynesSouthendLondonSloughMaidenheadBracknell

DerbyBirmingham

Coventry

HarrogateBradford

HalifaxHuddersfieldManchester

SwindonNewport

Bristol

Weston-S’-MareExeter

Plymouth

NewcastleYorkLeedsHull


Strategic Report

Chairman’s statement

I am pleased to present this third set of full year financial results for CityFibre. I have joined as Non-executive Chairman at a pivotal moment in the Group’s development, as it finds itself at the heart of the “Full Fibre” investment revolution taking shape in the UK.

It was a year of great progress for the Group, with significant revenue growth and a move to being EBITDA positive on an adjusted basis. Our footprint expanded to 42 cities driven by organic growth and two significant acquisitions, and we grew our customer base to 54 service providers – both great measures of progress compared with 2015. I was drawn to join the Group by such rapid growth and positive development, and I look forward to leading its Board into an exciting fibre future. Overview of results The Group added £75.5m in new ICV1 during the period, an improvement of 225% from 2015, reflecting both strong organic new business as well as the initial revenue commitment on the assets acquired from KCOM in January 2016 and Redcentric in September 2016. Revenue for the period was £15.4m (2015: £6.4m), up 140% versus the prior year. Excluding the contribution from the KCOM and Redcentric revenue commitments, revenue growth was 63%. Gross margin of 88% marks an improvement of two percentage points during the period and demonstrates the improving operating leverage inherent in the business model as we continue to focus on writing highly profitable new business. Adjusted EBITDA2 profit of £2.5m is in line with expectations. Financial positionCash and cash equivalents at the end of the period totalled £16.7m. The Group had drawn £59.8m of its £100.0m debt facilities as at 31 December 2016. Accordingly, net debt stood at £43.1m at period end.

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1 Initial contract value (ICV) is the total contracted customer revenues receivable up to the first contract break point

2 See p1 for definition of Adjusted EBITDA

StrategyThe Group’s strategy is to commercialise our network assets via the addition of incremental contracted connections, driving higher asset utilisation and financial returns over time. Additionally, the Group looks to expand its national network coverage footprint further via organic and inorganic development, with a medium-term target of 50 cities. This equates to an addressable market of approximately 10,000 mobile cell site locations, 35,000 public sector sites, 350,000 businesses and across 5 million homes. Board and employeesThere were no changes to the composition of the Group’s Board in the period, and committee membership remained unchanged from last year.

Peter Manning announced his intention to step down from his role as Non-Executive Chairman on 26 September 2016 and left on 13 January 2017. The Directors and I would like to thank Peter for his great leadership and support during his tenure at CityFibre and wish him well in his future endeavours.

Whilst we are fundamentally an asset-heavy infrastructure business, the quality of that infrastructure in both design and operation is down to the vision, abilities and commitment of our senior executives, managers and employees. The success of the business so far, and the positioning for a very exciting future, is due to their contribution and I would like to thank them for their consistent hard work and support.

OutlookThe Group set new milestones in its development and expansion in 2016, and the Board expects this to continue. New initiatives such as the Business Parks FTTP commercialisation programme open up new avenues for activity which we expect to expand the overall market opportunity, and we remain confident that the Group’s extensive asset footprint offers a powerful platform for large-scale expansion into both FTTT and FTTH over the longer term. We believe the experience and resources of the Group’s executives, management and employees uniquely enable it to become a national force in the rapidly evolving fibre infrastructure arena. Current trading continues in line with management’s expectations.

Chris StoneNon-executive Chairman24 April 2017


Strategic Report

CEO’s statement Operating review

The Group accelerated its footprint expansion during 2016, via a combination of acquisitions, organic new city growth and incremental sales on existing and acquired assets. In addition, CityFibre completed two landmark network deployments for the UK market – the Fibre-to-the-Tower (‘FTTT’) network build in Hull and the Fibre-to-the-Home (‘FTTH’) trial in York.

Operating key performance indicatorsThrough a combination of organic sales and acquisitions, the Group added 5,063 new connections sold in the period, with initial contract value (ICV) of £75.5m. This compares to 1,100 connections and ICV of £23.2m in the year to 31 December 2015. Of the new connections added in the period, 58% were organic new sales.

The Company also significantly increased the number of connected premises served to 3,962, from 1,200 in the prior period.

At period end the Group had 3,383km of network assets in service, up from 743 kilometres at the end of 2015.

Service provider relationships totalled 54 at period end, up from 41 at the end of 2015.

Acquisition of KCOM network assetsOn 18 January 2016, the Group closed the transformational acquisition of certain national fibre infrastructure assets of KCOM Group plc for a total consideration of £90.0m, together with an equity placing to raise £80.0 million, as well as the conclusion of an agreement for up to £100.0m of committed debt facilities to part-fund the acquisition and support the commercialisation of the acquired assets. The national infrastructure acquired by CityFibre comprised approximately 1,100 route kilometres of ducted metro fibre assets in 24 towns and cities, 21 of which were additive markets for the Group, and a national long distance network totalling approximately 1,100 route kilometres of two-way ducting and fibre that connects 22 towns and cities and offers connectivity into key data centres and wholesale internet peering points in London. The cash consideration of £90.0m is estimated by the Directors to represent a 45% discount to costs of replicating the networks. Under the terms of the acquisition, CityFibre will provide KCOM with access to the acquired infrastructure for a term up to fifteen years, subject to a minimum term of five years and a minimum revenue of £5.0m per annum for those five years.

The acquisition immediately expanded CityFibre’s footprint of deep ducts and fibre to 37 cities and major towns across the UK, providing full fibre connectivity for use by regional and national service providers and mobile operators as a competitive wholesale alternative to BT Openreach.

Since the acquisition closed, CityFibre has successfully completed agreements with service provider launch partners on 14 of the acquired city footprints, including Bristol, Leeds, Bradford, Milton Keynes, Northampton, Reading, Bracknell, Sheffield, Rotherham, Doncaster, Leicester, Nottingham, Maidenhead and Slough. This equates to 1,786 connections sold and total ICV of £23.7m. When all connections are delivered across the 14 cities, management estimates average business penetration of 5.0%.

Acquisition of Redcentric network assetsOn 26 September 2016 the Group announced the acquisition of the entire portfolio of metro fibre network assets of Redcentric plc, for a cash consideration of £5.0m. The networks comprise 137km of duct and fibre networks serving 188 Redcentric customer connections, with principal footprints covering Cambridge, Portsmouth, and Southampton, along with complementary incremental coverage in the existing CityFibre footprints of Nottingham, Derby and Northampton.

Under the terms of the acquisition, the vendor agreed to a lease-back revenue commitment of £4.5m over 10 years, for the ongoing delivery of service to its existing customers. With this agreement, CityFibre expanded its metro fibre presence to 40 cities, including 25 of the top 30 cities outside Greater London.

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New city expansion CityFibre signed two new city anchor contracts in 2016:• In March CityFibre signed a £3.2m,

10-year deal with Southend-on-Sea Borough Council to provide 120 connections to key council sites over a newly-built 50km network. This project is the largest in the UK based on Passive Infrastructure Access (‘PIA’) to the BT Openreach network, and to date has made promising progress.

• In December, the Group signed a seven-year, £1.7m contract with new partner MLL Telecom to deliver 33 connections over 20km of newly-built network on behalf of Stirling Council.

Incremental sales on existing assetsDuring 2016 CityFibre sold a total of 1,060 new connections on its legacy network assets (i.e., those not acquired from either KCOM or Redcentric), for a total ICV of £17.2m. Principal transactions among these were:• A 20-year, £2.0m contract with Serco for

220 CCTV and urban traffic control sites on behalf of Peterborough City Council on the Company’s existing network in Peterborough. This deployment extends the network into a number of new business parks in the city;

• A 10-year, £2.0m contract with Capita for 109 school connections on the existing network asset in Aberdeen;

• A five-year, £0.7m, 63-site contract on its existing Coventry network with partner Pinacl Solutions on behalf of the Coventry Clinical Commissioning Group. This is CityFibre’s largest contract to date in the healthcare segment. The NHS has 209 clinical commissioning groups across the UK.

Partner channel expansionThe Group grew its service provider partner universe from 41 to 54 during the year, marking another year of significant channel expansion. Significant new partners added in 2016 included Exa Networks, Gamma Communications, KCOM, Level3, Onecom, Redcentric, and SSE Enterprise Telecoms. The Group also made great strides in its channel management systems, implementing a range of new online tools and services under its Partner First programme and introducing standard products, pricing and service level agreements (SLAs) across its entire enlarged footprint. Continued expansion of the partner channel remains a key strategic priority of the Group.

Fibre-to-the Tower (Mobile)In July 2016 the final sites went live on CityFibre’s 56km Hull network constructed on behalf of MBNL, Three UK and EE. Three UK subsequently reported a 380% increase in data throughput on the new network, taking the city’s 4G experience from the UK’s worst to amongst the best in the world. CityFibre’s existing footprint is capable of addressing an estimated 7,800 macro cell sites, and the Company anticipates that the number of small cells required under the future 5G specification may be five times the number of macro sites in service today. A dark fibre-based solution for cell site connectivity is gaining broader adoption in the global industry as it offers better long-range visibility on opex and complete control of technology roadmap versus a managed leased line service.

Fibre-to-the-Premises in business parksIn November 2016, the Group announced a commercial initiative to deploy Fibre-to-the-Premises (‘FTTP’) in business parks across its footprint. Company analysis shows that within its footprint there are over 500 business parks classified as “near-net,” with 300 of these “on-net”. The Company estimates there are 22,000 businesses located within these 500 parks, many of which suffer from poor internet connectivity today, in some cases as low as 10Mbps. CityFibre will make its full range of products available to business parks but is also introducing an entry-level lower cost product which is anticipated to retail at £120 per month, in order to respond to demand in the market sitting between poor quality copper products and dedicated fibre leased lines.

Fibre-to-the-Home (Residential)The Group completed construction of the York Fibre-to-the-Home (‘FTTH’) trial in its joint venture with Sky and TalkTalk in 2016, passing approximately 14,000 homes. Use of the existing CityFibre York metro network asset, in constructing the FTTH distribution network, delivered significant savings in terms of time and deployment costs. As at 31 December 2016, active customer penetration on the footprint had reached 21.4% on a blended basis and continues its strong growth in 2017, reaching 26.1% as at 31 March 2017. With over 2,250km of metro assets under management, the Directors believe CityFibre’s existing assets form a unique and compelling platform for a large-scale FTTH rollout potentially addressing 4m homes.

National long distance networkThe Group has seen encouraging interest from carriers in its acquired 1,100km national network. In April 2016 the Group signed a £2.3m regional capacity agreement with SSE Enterprise Telecoms for a connection between Reading and Slough, and in December it signed a 25-year national dark fibre core network migration agreement with Gamma Telecom, utilising the Company’s national long-distance network and metro interconnects to provide a 1,300 kilometre national route connecting 15 major data centres and BT exchanges in London and major regional hubs. The Directors believe the national network to be a very significant strategic asset for the Group, with the potential to accelerate commercial opportunities in the national carrier and mobile arenas, and in the metro networks themselves.

Employees The Group ended the year with 143 full-time equivalent staff (FTEs), versus 105 as at the end of 2015.

Greg MeschChief Executive Officer24 April 2017


Strategic Report

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Market overview

However, historical underinvestment in incumbent communications networks places the UK near bottom of the infrastructure league tables, as shown in the figure below.

Over the past year, the task of improving the UK’s digital infrastructure has become a priority for both the Government and the sector regulator. In February 2016, Ofcom published its Digital Communication Review, signalling a strategic shift towards full-fibre and a reduction of the country’s dependency on Openreach. In October 2016, the Government set out policies that place ‘full fibre and 5G’ at the centre of the UK’s digital strategy - backed by £1.1 billion of support for the building of competitive fibre infrastructure.

Forecasts indicate that approximately two-thirds of total IP traffic will originate or terminate within urban metro networks by 2019, highlighting the importance of digital infrastructure in the UK’s towns

and cities. Whereas London supports a competitive fibre infrastructure market, the availability of alternative fibre infrastructure outside of London remains limited. As a result, the pressing need to improve digital connectivity in regional towns and cities is a priority for Government. Ofcom’s strategic review calls for a new, full-fibre foundation that brings competition to BT and Virgin across 40% of the country, encompassing the majority of the UK’s urban communities.

CityFibre’s strategy to invest in fibre infrastructure in towns and cities outside of London positions the Company at the centre of the ‘full fibre’ movement, and best placed to address this demand. With significant network presence in 42 regional towns and cities, including 25 of the 30 most populated cities outside of London, CityFibre’s mission is to dramatically improve connectivity across the public sector, business, mobile and consumer markets through its Gigabit City vision.

Government puts ‘full-fibre’ at the heart of Britain’s digital communications.

First-class digital infrastructure is the backbone of a modern, thriving economy. As data traffic worldwide continues its rapid growth, the infrastructure that carries our digital communications becomes critical.

The UK boasts one of the highest levels of internet adoption in the world, with internet-related economic activity accounting for a larger proportion of GDP than in any other G20 member nation. As a service based economy, the importance of digital infrastructure to Britain is clear. Indeed, the challenges and opportunities generated by the UK’s exit from the European Union intensify this need, as the necessity to thrive on the international stage becomes all-the-more pertinent.

FTTP FTTB/VDSL

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Source: Analysys Mason, November 2016

Fibre coverage to premises in OECD nations, end-2016 (% of premises passed)

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Our products

CityFibre offers a range of full fibre-based connectivity solutions for service providers, carriers, systems integrators, mobile operators and data centres, covering both passive and active services.

Traditionally, most service providers have purchased a managed service-based leased line from a wholesale provider. Such active services wrap both the physical infrastructure (fibre) and the service component (electronics and software) into a “plain vanilla” product offering, which presents no flexibility to the service provider.

However, in recent years carriers have come to increasingly prefer a dark fibre solution.

Dark fibre offers theoretically unlimited capacity to the service provider, as the only constraints in data transmission relate to the electronic equipment used at either end of the fibre strand. This feature allows the service provider to provision services specific to its customers’ needs, while maintaining visibility of cost in the underlying infrastructure.

Recognising that the market comprises of carriers and service providers who require both active and dark fibre services, our product portfolio accommodates both.

Metro dark fibreOur metro dark fibre networks are capacity-rich and based on a ducted/sub-ducted ring architecture, with strategically placed Points-of-Presence (PoPs) across our cities. This allows a variety of use cases, including bespoke private fibre rings, exchange-to-exchange interconnect, business connectivity and the connection of hundreds of public sector sites – thus underpinning digital transformation and public service integration. Dark fibre is also vital for mobile operators who otherwise face the challenges of delivering the future platform for 5G and Internet of Things alongside cost-prohibitive managed services.

Long distance dark fibreOur 1,100km national long distance network provides a dark fibre option for carriers or service providers looking for intercity or full national fibre connectivity. The ducted and sub-ducted network connects 22 of our metro network footprints with key internet peering points in London, Manchester, Birmingham and Leeds, as well as more than 100 data centres.

Metro FTTPCityFibre’s Metro GIG Connect products are active leased line commodities based on a Gigabit Passive Optical Network (GPON) architecture, in which a single fibre is shared by a maximum of eight end customers. The Metro GIG Connect comes in 500Mbps and 1Gbps variants, offering an attractive middle ground between traditional business broadband products and dedicated Ethernet leased lines. We offer a fault-repair time of eight hours as standard, recognising that modern businesses should never be expected to survive more than one day without indispensable connections to the rest of the world.

Metro point-to-point EthernetOur GIG Hub product is an aggregation solution which allows our service provider partners to connect multiple local access circuits (such as the GIG Connect products mentioned above) into a single 1Gbps or 10Gbps circuit. This allows for the aggregation of traffic to a remote handover point up to 20km away, and potentially further. This is a valuable tool for service providers looking to migrate clusters of customers off of legacy services and onto CityFibre’s network, or alternatively to drive geographically targeted customer acquisition programmes.

Mobile network solutionsOur existing 42-city footprint offers a significant platform for Fibre-to-the-Tower solutions for mobile network operators, whether for large-scale migration of cell sites off existing solutions, partial integration with their own transmission assets, or small cell deployments. Mobile network operators are also welcome anchor tenants for new network build in cities where we aren’t present today.


Strategic Report

Business model and strategy

Residents Ultimate potential for gigabit speed fibre to the home deployment

SMEs Next generation gigabit speed fibre services small and medium sized businesses

Mobile Full fibre backhaul connectivity for 4G/LTE mobile networks

Enterprise World-class full fibre digital connectivity for large companies

Smart city applications Enables city-wide Wi-Fi, traffic control and high definition CCTV solutions

Public sector Ultra-fast connections to council sites, schools, NHS sites, community hubs and sheltered accommodation

A Gigabit City brings benefits to all

We were founded by infrastructure experts and today’s team is packed with some of the best brains in the industry.

Partnering with and supporting local providers to serve local businesses with affordable enterprise-grade connectivity is a vital part of our city-based approach.

CityFibre is a wholesale-only, shared infrastructure fibre network owner, making CityFibre’s infrastructure available for use by its partners in any sector of the broad telecom/ICT market – integrators serving the public sector, service providers catering to the business market, mobile networks, consumer ISPs, national carriers and data centre operators.

The Group’s investment in full fibre optic infrastructure positions CityFibre at the heart of the Government’s digital strategy, which promotes ‘full fibre and 5G’ as the preferred methods of digital connectivity.

CityFibre offers both dark fibre-based and Ethernet-based connectivity solutions. Dark fibre enables partners to use CityFibre’s unlit fibre strands, over which they can configure services to their end customers as their preference suits, by providing the electronics and service management systems themselves. This is an increasingly popular option worldwide, as it offers the service provider greater visibility and control of future service costs. CityFibre’s range of innovative Ethernet-based services are available in many of our cities and provide an expanded, addressable market for CityFibre’s infrastructure.

The Company’s metro fibre networks are built on the basis of its Well-Planned City (WPC) design methodology.

Under the WPC, CityFibre designs and builds networks with a goal of driving maximum asset utilisation across its market verticals: the public sector, business, mobile and consumer.

By taking a detailed view of where the demand points are within the city, and dimensioning its network design to provide optimal routing past as many of them as possible, CityFibre ensures that its networks are always within easy reach of the next new customer connection.

This is the essence of the CityFibre WPC model: to build and manage networks which generate high returns on incremental investment, as well as also driving steadily improving deployment economics as the network expands to accommodate new customers.

CityFibre’s success is its growing channel partner network, which numbered 54 at the end of 2016. These range from local and regional service providers, to national carriers and systems integrators.

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With a significantly expanded footprint to commercialise in 2016, CityFibre adopted a new approach to its Channel Partner management. The CityFibre Partner First Programme is a vital, coordinated, company-wide effort to ensure that our partners are not only successful in their delivery of commitments, but crucially enjoy working with us too. The programme has introduced new platforms, processes and content across the board.

Partner engagement — Partner first

SMEs Next generation gigabit speed fibre services small and medium sized businesses

Mobile Full fibre backhaul connectivity for 4G/LTE mobile networks

Enterprise World-class full fibre digital connectivity for large companies

Partner PortalOur new partner portal uses a standard web interface for online availability checking, quoting and ordering.

Product collateralWe have introduced new product sheets and marketing battle cards for our service provider partners, on top of documentation around Service Level Agreements, fair usage policies and our future product road map.

Marketing and communicationsWe have introduced formal partner logo and brand guidelines; structured on-boarding and training; structured communications around product updates and portal feature development; as well as a central library for all CityFibre content for download and use.

Partner engagement We have introduced online partner forums and a regular partner survey.

We like to buy direct and be in control. CityFibre absolutely supports that. Theirs is both a fresh build and fresh approach, from a team that’s focused on solutions not excuses.

Richard Nicol CEO Commsworld

CityFibre is making rapid progress in increasing asset utilisation and yield across the acquired networks

In January 2016 CityFibre completed the transformational acquisition of 24 metro networks and a 1,100km national long distance network from KCOM Group plc, for a cash consideration of £90.0m.

With fewer than two active customer connections per kilometre on average across the networks at the time the assets transferred to CityFibre’s control, there was clearly great scope to boost tenancy and utilisation through incorporating the assets into CityFibre’s wholesale shared infrastructure model.

Beginning with Bristol in January 2016, the Group set about a programme of rapid commercialisation of the assets, building on the anchor customers and revenue commitment from the KCOM transaction. Over the remainder of the year, CityFibre brought a further 13 acquired city networks into commercial production with service provider partners, selling 1,786 new connections for a total initial contract value of over £22.0m.

In September 2016 the Group announced the acquisition of the entire portfolio of metro fibre network assets of Redcentric plc, for a cash consideration of £5.0m. The networks comprise 137km of duct and fibre networks serving 188 Redcentric customer connections, with principal footprints covering Cambridge, Portsmouth, and Southampton, along with complementary incremental coverage in the existing CityFibre footprints of Nottingham, Derby and Northampton. These networks are to be brought into full commercial production during 2017.

In addition, the Group closed its first transactions on the acquired long distance network, delivering a route from Reading to Slough to SSE Enterprise Telecoms and a full national core network to Gamma, connecting 15 major BT exchanges and data centres via 1,300km of CityFibre assets. The Group continues to see strong interest from national carriers in the long distance network.

Case study Transformational expansion

Acquisitions significantly extend CityFibre’s footprint

141,786+£22.0m

acquired city networks into commercial production

new connections

ICV added on the acquired metro footprint

Bradford / Bracknell / Bristol / Doncaster / Leeds / Leicester /Maidenhead / Milton Keynes / Northampton / Nottingham / Reading / Rotherham / Sheffield / Slough

Acquired Metro Assets Commercialised to date:

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Before & After Acquisition

Coventry

Huddersfield

NewportBristol

Weston-S’-Mare

NewcastleYork

Hull

BournemouthBath

AberdeenDundee

GlasgowAyr

Peterborough

Derby

Coventry

HarrogateBradford


SwindonNewport

Bristol


Plymouth


Reading

BournemouthBath


AberdeenDundee

GlasgowAyr

NottinghamPeterboroughLeicesterNorthampton

Milton Keynes

Slough

Bracknell

EdinburghEdinburgh

Coventry

Huddersfield

NewportBristol

Weston-S’-Mare

NewcastleYork

Hull

BournemouthBath

AberdeenDundee

GlasgowAyr

Peterborough

Derby

Coventry

HarrogateBradford


SwindonNewport

Bristol


Plymouth


Reading

BournemouthBath


AberdeenDundee

GlasgowAyr

NottinghamPeterboroughLeicesterNorthampton

Milton Keynes

Slough

Bracknell

EdinburghEdinburgh

This transformational acquisition extended CityFibre’s metro network footprint to 21 additional cities and added a national long distance network connecting 22 cities.

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Building network density and financial returns

Case study Peterborough

Connection analysis

October 2013• Announcement of the

Gigabit City Project, a £9m investment

November 2013• Strategic partnership with

Peterborough City CouncilFebruary 2014• Launch of the Gig Up

Peterborough campaign• Over 100 businesses

register in 20 days

April 2014• Network construction begins

in the city centre

September 2014• First businesses receive

Gigabit services

March 2015• Initial network build complete• Over 100 council sites now

connected• Over 100 businesses sign

order forms for services

July 2016• Peterborough Council adds

additional CCTV and WiFi 220 sites to the network

March 2014• First service provider

partner launches services

July 2014• First 10 Council sites go live

including the Town Hall and Central Library

October 2014• 25% of the city’s

businesses register through the Gig Up campaign

July 2015• All major business parks

now connected

For some time, Peterborough City Council had been exploring strategies to transform the delivery of its own ICT. Becoming frustrated by its reliance on increasingly inadequate digital infrastructure and expensive leased line connectivity from incumbent suppliers, the city actively engaged with CityFibre alongside ICT provider Serco, to explore how a dedicated network build could solve its problems.

In October 2013, CityFibre signed a £4.0m strategic partnership with Peterborough City Council to deliver a 90km network in conjunction with Serco.

Subsequently, CityFibre continued to sell connections on the network over the next two years, adding further extensions to the network and driving higher network density and utilisation. These included, as at 31 December 2016, 250 business connections and 225 additional council sites (principally CCTV and urban traffic control sites).

The total contract value of these incremental connections was £5.6m, versus incremental capex of only £3.3m, for a coverage ratio of 167%. This demonstrates the improvement in economics as the network expands from the initial core build.

In total, by the end of 2016, CityFibre had sold 581 cumulative connections on the Peterborough network for total contract value of £9.6m, while incurring total capex of £7.2m, for a coverage ratio of 133%. Notably, several of the network extensions included in the CCTV project take the network into new business parks and commercial zones, again showing the ability of the model to fund potential future revenue streams.

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As one of the UK’s fastest growing cities and with a thriving economy, it is vital that Peterborough’s companies have what they need to succeed. Access to infrastructure is key to that success, and in this digital age, none more so than fast IT accessibility.Steve BowyerChief ExecutiveOpportunity Peterborough

Achievements

In aggregating demand for public sector use, CityFibre secured a 20-year contract with Serco, the council’s ICT provider, to provide a dark fibre network to over 100 education and council sites

Over 1000 businesses have registered for services via the Gig-Up Peterborough campaign

First connections went live ahead of schedule, in July 2014

Six large business parks have now been incorporated into the network design as a result of the high levels of demand

Construction of the network was completed in under 1 year

Five business ISPs are now signed up and are pro-actively selling gigabit speed internet to businesses

A combination of the success of the “Gig-Up” demand aggregation with the contracts secured with Serco will ensure a rapid payback on CityFibre’s investment, providing a stable and sustainable ‘fit for purpose’ digital infrastructure with capability to expand even further into the wider geographic area

The new fibre connections transform the council’s digital capabilities whilst delivering a £5.0m saving

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Case study Edinburgh

Since the new network has arrived we’ve seen tremendous demand from businesses across all sectors. Ultra-fast, gigabit connectivity will soon become the standard across the UK, driving productivity and innovation. The City of Edinburgh is now leading the way, but none of this would’ve been possible without CityFibre’s investment.

Richard Nicol CEO Commsworld

691Conections sold

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The UK’s first capital Gigabit City project

In May 2015 CityFibre, in partnership with Scottish internet service provider Commsworld, announced the construction of a 50km city-wide fibre network in Edinburgh.

The aim was to empower data hungry businesses and unleash unlimited speeds using full fibre technology. All the while minimising disruption and ensuring the city remained ‘open for business’. In September 2015 Edinburgh’s Gigabit City network ambition tripled to 150km when the City Council added its own requirement for a further 100km of fibre. The seven-year deal, featuring options to extend to a maximum of 19 years, has a lifetime contract value of £16m.

Key sites benefitting from CityFibre’s investment include council offices, community centres and libraries. Over 130 schools have also been provided with diverse connectivity at speeds 50-100 times faster and around 17,000 businesses also have the opportunity to benefit as the network grows.

Connection analysis

May 2015• Announcement of the

Gigabit City Project• Launch of the “Gig-Up

Edinburgh” campainJune 2015• Over 200 ‘Gig Up

Edinburgh’ campaign pre-registrations

• Network construction begins in the city centreAugust 2015

• All works suspended for the Edinburgh Festival

October 2015• First wave of businesses

receive live Gigabit Services

May 2016• Commsworld temporarily

boost EICC connection to 10gb/s to support the Insomnia Gaming Festival.

October 2016• On target to conclude 150km

construction, ahead of schedule

September 2015• Over 300 ‘Gig Up

Edinburgh’ campaign pre-registrations

• Agreed 100km extension to connect 324 Edinburgh City Council sites, via CGI contract

January 2016• Bulk network build

phase begins; scaling up workforce to excavate and construct at speed

August 2016• All works suspended for

the Edinburgh Festival

Beyond 2016• On-demand network

extension to continue – supporting Edinburgh’s growing business community

Public and private sector customers worked in partnership to achieve this transformational project for Edinburgh

130km of the 150km network was built within in a nine-month window – using a plan that excavated multiple streets across the city in parallel

During same period CityFibre delivered a 59km network build in Aberdeen – demonstrating scale of construction capability in Scotland

Critical public sector sites were connected to the new network in time for the switch off of the previous contract

Highly sensitive network build was undertaken in areas of conservation. This included careful protection (including offsite secure storage) & reinstatement of precious cobbles.

Achievements


Strategic Report

CFO Financial review

Financial results for 2016 reflect a year of strong organic and acquisition growth and a move to positive Adjusted EBITDA, reflecting the scale benefits of the enlarged Group. The Group continued to invest in resourcing the business to commercialise its expanded footprint. A summary of the financial performance for the year is given below.

Financial Measures 2016 results and narrative

Profit and loss Revenue increased by 140% to £15.4m (2015: £6.4m), driven by the continued expansion in footprint, incremental revenues from both existing and new cities, and contributions from the KCOM and Redcentric leaseback agreements, as shown in the table below. Excluding commitments from KCOM and Redcentric, revenue growth was 63%. Key drivers of organic revenue growth included a greater contribution from the Edinburgh project, which was completed in 2016, as well as continued strong incremental sales on existing assets, including revenue from those assets acquired during the year.

Gross margin increased by two percentage points, to 88%, from 86% in 2015, reflecting the continuing addition of highly profitable new business on the assets during the period.

Administrative costs increased to £18.7m from £11.7m in the prior period. Excluding non-recurring costs, depreciation and amortisation, and share-based payments charges, underlying administrative costs were £11.1m, representing growth of 31% from £8.4m in the prior year. The movements in headline administrative costs include:• Staff costs, excluding share-based payments and the one-off bonuses paid with respect to work

performed on the KCOM transaction, increased by 30% to £7.9m (2015: £6.1m). Average headcount was 116 staff, up from 83 in 2015. The increase is primarily due to the addition of engineering and operational staff, reflecting the expanded number of projects under way on the organic and acquired network footprints.

• Other general administrative costs increased by £1.0m as a result of the expanded number of new and in-life projects.

Total non-recurring costs, depreciation and amortisation, and share-based payments charges were £7.6m (2015: £3.2m) and are detailed below:• Depreciation increased by £1.9m, to £3.6m, due to the substantial increase in the asset base

through acquisitions and completed construction projects. The Group conducted a review of its network asset depreciation policy during the year. Duct assets are typically the longest lived assets in telecommunications networks, with asset lives now typically assessed by companies in the industry, including the largest UK company, to be of the order of 40 years. Taking into account these assets are relatively new, have a long life and there is now enhanced evidence of the durability of these assets, CityFibre updated its accounting estimate accordingly. If this change in useful economic life had not been made depreciation would have been £6.6m, 3.0m greater than the actual charge for the year.

• During the year the Group incurred acquisition and integration costs totalling £1.9m. These costs were incurred primarily to execute the KCOM asset acquisition.

2016 £’000

2015 £’000

Organic revenue 10,436 6,408

KCOM & Redcentric commitments 4,927 -

Total Revenue 15,363 6,408

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Administrative costs • Non-recurring costs also included £0.9m of legal and professional fees relating to the presentation of the Group’s position on regulatory activities particularly pertinent to CityFibre. During 2016 Ofcom launched the Strategic review of Digital Communications (including a review of the structure of BT and Openreach) and the Business Connectivity Market Review (including consideration of availability and pricing of fibre products). Fees included additional work required in relation to a referral to the Competition Appeal Tribunal (‘CAT’) following on from the Group’s original appeal. The Group will continue to engage advisors and take actions necessary to ensure its position is properly presented and protected.

• Share-based payment charges increased to £0.9m, up from £0.3m in 2015 due to an LTIP award in the year and a full year’s charge for share options awarded in the prior year.

• The amortisation charge for the year increased to £0.4m (2015: £0.2m), reflecting further development of the Group’s network and financial management systems.

Operating loss improved to £5.1m (2015: £6.2m), largely driven by increased gross profit of £13.5m (2015: £5.5m), countered by the increase in administrative costs outlined above.

The adjusted EBITDA profit of £2.5m is in line with expectations and a significant improvement on the prior period adjusted EBITDA loss of £2.9m. A reconciliation of operating profit to adjusted EBITDA appears on page 20.

Loss after tax was £12.6m (2015: £6.4m), which includes financing costs of £7.3m (2015: £0.3m).

Balance sheet The increase in property, plant and equipment (PPE), excluding those acquired from KCOM and Redcentric, totalled £23.0m, comprising £22.0m of network assets. These consisted primarily of the £19.3m construction of the Group’s key Gigabit City projects in Hull, Kirklees, Aberdeen, Edinburgh, and Glasgow. The remaining £2.7m of network asset build was to support additional customer connections in existing cities, as well as enabling the assets acquired during the year.

Total amount spent on the acquisition of assets from KCOM was £90.6m, which included £0.6m of transaction costs. Of this, £86.9m was classified as PPE, while £3.7m was classified as inventory. £5.0m was spent acquiring the network assets of Redcentric plc, of which was £0.1m was classified as inventory.

In evaluating accounting treatment it was concluded that the KCOM and Redcentric transactions qualified as an acquisition of assets due to CityFibre only acquiring assets, not the associated business processes. Furthermore, the assets were not revenue generating without the separate commercial agreements.Inventory increased by £3.8m to £4.0m during the year. The principal cause of this increase was the classification of £3.6m of network assets as inventory, on the basis that these assets will be made available for IRU sales in future years.

Intangible assets additions in the year totalled £0.7m (2015: £0.6m). This primarily reflects expenditure on systems required to manage the network assets and the end to end purchasing and sales processes.

Cash flow Operating cashflow for the period was a net outflow of £2.4m, compared to a net outflow of £5.4m in 2015. However, when excluding the £3.6m classification of network assets acquired from KCOM as inventory, the adjusted net inflow of £1.2m reflects a £6.6m improvement versus the prior year on a like-for-like basis. £2.4m of this improvement relates to phasing of construction projects spanning the 2015 year end which led to a working capital requirement not replicated in 2016. At the year-end the cash balance was £16.7m.

During the year the Group drew down £59.8m on the capex facility entered into with Proventus Capital Partners III AB.

KCOM asset acquisition On 18 January 2016 the Group completed the transformational £90.0m acquisition of network assets from KCOM Group plc.

The acquisition constituted a reverse takeover under Rule 14 of the AIM Rules for Companies, requiring re-admission to AIM, which occurred on 14 January 2016. The acquisition was funded by an £80.0m equity placing of 160,000,000 new Ordinary Shares at 50p per Ordinary Share, along with committed debt facilities of £100.0m extended by Proventus AB, of which £35.0m was utilised in the asset purchase. Under the terms of the acquisition, CityFibre will provide KCOM with access to the acquired infrastructure for a term up to fifteen years, subject to a minimum term of five years and minimum revenue of £5.0m per annum for those five years. The acquired assets have been recognised on the enlarged Group’s balance sheet principally as network assets, with £3.6m attributable to inventory which reflects the opportunity for sales of indefeasible rights of use over the national network.


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Credit facilities On 14 December 2015, Group subsidiary company CityFibre Limited (as borrower) entered into a facility agreement with Proventus Capital Partners III AB (as agent and security agent) (the ‘Facility Agreement’). The lenders are funds managed by Proventus Capital Management AB or Proventus Capital Partners III and affiliated funds.

The facility agreement comprises three main facilities:• a £35.0m term loan facility which was drawn upon deal completion to partly fund the Acquisition;• a £35.0m term capex facility which will be used to finance permitted growth capital expenditure by

reference to contracted revenues under customer contracts and permitted acquisitions and which will be available for two years; and

• a £30.0m super senior revolving credit facility (‘RCF’) which will be used for the same purposes as the capex facility and up to £5.0m towards general corporate and working capital purposes and which will be available for five years and 11 months.

In addition, the Facility Agreement contains a £65.0m accordion facility which may be made available by any lender under the term facilities at its discretion to refinance loans under the RCF.

The term loan facilities carry a margin of 10% above LIBOR, and the RCF carries a margin of 4.5% above LIBOR. A ratchet mechanism based on leverage levels may bring these margins down to 8% and 4% respectively.

The term loan facilities may be drawn subject to certain ratios relating to capex coverage and yield, and are thus aligned with the interests of shareholders, in that the Group may only make use of the facilities to fund projects with expected returns above the set hurdle rates.

The term facilities do not amortise and are payable in full seven years from the date of the Facility Agreement. The RCF will terminate six years from the date of the Facility Agreement.

Reconciliation of operating profit to adjusted EBITDA

Year to 31-Dec-16£’000

Year to 31-Dec-15£’000

Operating loss per accounts Add back: DepreciationAmortisation

(5,141)

3,572358

(6,159)

1,707233

EBITDA (1,211) (4,219)

Fees in connection with Regulatory reviewShare-based payments chargeOperational and financing costs in respect of the Acquisition and the Joint Venture

904908

1,884

220343

736

Adjusted EBITDA 2,485 (2,920)

CFO Financial reviewcontinued

Terry Hart Chief Financial Officer 24 April 2017

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Principal risks and uncertainties

The UK telecommunications services and infrastructure market continues to evolve rapidly in order to meet demand for ever better digital connectivity.

By pledging £1.1b of financial support to the sector, Government policy has signalled the need for a decade of investment in ‘full fibre and 5G’, as it places digital communications at the heart of its industrial strategy. At the same time, Ofcom’s strategy to reduce the UK’s dependency on BT Openreach is leading to a period of reform in which Openreach will be legally separated from BT Group. As a result, the market in which CityFibre operates remains highly dynamic, presenting both opportunities and risks to CityFibre’s competitive position.

The Board’s dedicated Risk and Strategy committee, established in 2015, reviews matters of strategy, competition, regulation and public policy which may have a material impact on the Group’s future prospects. The committee briefs the Board on its findings on a regular basis and makes recommendations on mitigation strategies. The following list of risks, though detailed, should not be taken as comprehensive.

Regulation In February 2016, Ofcom published its Strategic Review of Digital Communications, signalling a clear direction for investment in alternative fibre networks and increased infrastructure competition to Openreach. In support of this strategy, and in addition to the legal separation of Openreach from BT Group, regulation is enabling greater access to physical infrastructure; in particular access to ducts, poles and fibre. Ofcom has mandated regulated access to BT’s dark fibre from October 2017, and is seeking to improve access to BT’s ducts and poles, to reduce barriers to competitive fibre infrastructure build. The Directors acknowledge that these changes to regulation could give rise to more competition in the wholesale fibre space, or enable larger ISPs to build fibre networks using duct and pole infrastructure. Conversely, CityFibre itself may stand to benefit from access to this infrastructure as a means of lowering deployment costs for new fibre networks. For the foreseeable future, Ofcom will continue to impose price regulation on Openreach which affects the pricing in the broader market. It is acknowledged that Openreach’s pricing and access obligations, resulting from Ofcom’s regulation, may adversely affect the Group. In recognition of the regulatory risks, the Group has continued to engage advisors and take actions necessary to ensure its position is properly represented and protected.

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Technology Fibre optic technology is widely acknowledged as being superior in terms of symmetrical data transmission capacity to other fixed line bearer media, such as copper or coaxial cable. However, technologies designed to improve the performance of incumbent copper infrastructure are now being deployed at scale. For example, Openreach has recently announced plans to deploy G.Fast technology to improve the performance of its copper based broadband services. Furthermore, the Board acknowledges that high capacity wireless and 5G mobile services may in time emerge as a competitive threat in some markets, whilst in themselves demanding more robust and widespread fibre infrastructure to an increasing number of wireless cells.

Competition As far as the Directors are aware, CityFibre remains the only group in the UK pursuing a business model based on wholesale shared fibre infrastructure serving towns and cities. The Directors acknowledge that the attractive potential financial returns offered by this business model may in due course attract a direct competitor, potentially stimulated by Government’s policy aim for investment in full fibre and 5G in the decade ahead. While continually seeking targeted acquisitions, the Group continues to invest in people, processes and commercial relationships, which the Directorsbelieve give it a unique and defendable competitive position.

Interest rates and covenant compliance At the end of the financial year, the Group had drawn £59.8m from its senior secured credit facilities with lenders Proventus Capital Management AB and Proventus Capital Partners III. These require periodic interest payments, based on a margin above the London Interbank Offered Rate (“LIBOR”). Any significant rise in LIBOR would increase the amount of interest payable in the relevant period, thus negatively impacting Group liquidity. The facility agreement also provides for certain covenants which are tested quarterly, which must be complied with during the life of the facilities and which relate to leverage, interest service cover, loan to value of tangible net assets and minimum cash at Group level. A more detailed description of the credit facilities is found in the Group’s AIM admission document dated 14 December 2015. The Group monitors covenant compliance on an ongoing basis and has implemented an interest rate hedging policy on behalf of the Board.


Corporate Governance

Corporate governance report

Although companies whose shares are traded on AIM are not required to follow guidelines in the UK Corporate Governance Code issued by the Financial Reporting Council, the Directors recognise the value and importance of high standards of corporate governance and are committed to embedding high standards of Corporate Governance throughout the Group.

Board constitution and procedures As at 31 December 2016, the Board comprised the Non-Executive Chairman, the Chief Executive Officer, the Chief Financial Officer, the Director of Strategy and Public Affairs, and four Non-Executive Directors.

The Non-Executive Directors are all considered by the Board to be independent of management and freely able to exercise their independent judgement in all matters related to the Board. Any conflicts of interest are declared at the start of each Board meeting.

Board meetings were convened at least monthly throughout 2016. Board meetings have been held at CityFibre’s registered office. Directors are provided with briefing papers in advance of each meeting, and all Directors have been able to participate fully and on an informed basis in all Board decisions. Any specific actions arising during meetings agreed by the Board are followed up and reviewed at subsequent Board meetings to ensure their completion. The Group’s General Counsel is also its Company Secretary and acts as secretary to the Board and its subsidiaries, and all the directors have access to his advice and services.

The Board has established an Audit Committee, a Remuneration Committee and Risk & Strategy Committee which operate in line with their respective terms of reference. Given the Group’s size, there is not a separate Nominations Committee, but a sub-committee of the Board was formed in the period to consider a suitable replacement to Peter Manning, who resigned as Non-Executive Chairman in January 2017 before Chris Stone was appointed as Non-Executive Chairman of the Board in February 2017.

Board operation The roles of the Chairman and the Chief Executive Officer are separated, clearly defined and their respective responsibilities are summarised below.

Non-Executive Chairman The Chairman provides leadership to the Board. He is responsible for setting the agenda for Board meetings, ensuring that the Board receives appropriate materials that it needs to properly participate in Board meetings in a timely fashion, and that the Board has sufficient time to discuss issues on the agenda, especially those relating to strategy and risk management.

Chief Executive Officer The Chief Executive Officer is ultimately responsible for operational management of the Group and its employees on a day-to-day basis. He is also responsible for the execution of strategy approved by the Board and the implementation of Board decisions.

How the Board functions The Board is collectively responsible for the long-term success of the Group. The Board provides leadership for CityFibre within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board considers the management team’s proposals for strategy and, following a consideration of those proposals, determines how best to support the executive team in executing the strategy, and ensures that the necessary resources are in place for the management team to execute that strategy. An important part of the Board’s role is the review of management performance, which is discussed against budget and strategy at the monthly Board meetings.

2016 has been a year of building on the Board’s firm foundation of Corporate Governance.Christopher Gawn Company Secretary

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Responsibility and delegation The Board delegates authority for day-to-day management of the Company under a set of formally adopted delegated authorities but has specifically reserved a number of matters for Board consideration and approval. These include: • Overall leadership of CityFibre and

setting CityFibre’s values and standards • Approval of CityFibre’s long-term

objectives and commercial strategy • Approval of the annual operating and

capital expenditure budgets and any changes to them

• Governance of major investments, acquisitions, or capital projects

• The extension of CityFibre’s activities into any new business or geographic areas

• Any decision to cease any material operations

• Changes in CityFibre’s capital structure or management and control structure

• Approval of the annual report and accounts and preliminary and half-yearly financial statements

• Approval of treasury policies, including the use of financial derivatives

• Ensuring the maintenance of a sound system of internal control and risk management

• Changes to the size, composition or structure of the Board and its committees

The Board has delegated certain of its responsibilities to committees. These committees comprise the Audit Committee, the Remuneration Committee, and the Risk & Strategy Committee.

Audit Committee The Audit Committee comprises Stephen Charlton (Chair) and Leo van Doorne. The Committee is responsible for ensuring that the Group’s financial performance is properly audited and reported on, making recommendations to the Board on the appointment of auditors, reviewing the scope and findings of the audit and approving audit fees. The Committee is also responsible for monitoring and reviewing the effectiveness of the Group’s financial control and reporting environment and meets with Executive Directors and management as well as meeting privately with the external auditors.

Remuneration Committee The Remuneration Committee comprised Sally Davis (Chair) and Peter Manning during the period (Chris Stone was appointed as Non-Executive Chairman in February 2017 and has since been appointed to the Committee following Peter Manning’s resignation). The Committee meets at least twice a year and reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to the remuneration of the Executive Directors and senior management, including bonus awards, share incentive plans and objectives. The Committee also reviews and makes recommendations to the Board on the overall remuneration policy of the Group, including the design of any performance related pay schemes, share incentive schemes and employee benefit structures. No Executive Director is invited to participate in discussions relating to their own remuneration.

Risk and Strategy Committee In recognition of potential changes in the regulatory and competitive landscape in the UK broadband infrastructure market, the Board established a Risk and Strategy Committee in 2015, comprising Gary Mesch (Chair), Sally Davis and Mark Collins. The committee meets regularly to review matters of strategy, competition, regulation and public policy which may affect the Group’s future development. The committee briefs the Board on its findings on a regular basis and where necessary makes recommendations on risk mitigation strategies.

Board tenure The Directors were all appointed at the AGM in 2015. Under Article 60 of CityFibre’s articles of association, one third of the Directors are required to stand for re-appointment by shareholders at the AGM, and at the Company’s 2016 AGM Sally Davis and Stephen Charlton were re-elected as Non-Executive Directors of the Company.

Insurance and indemnity In accordance with Article 145 of CityFibre’s articles of association, CityFibre’s Directors and officers are entitled to an indemnity from CityFibre against liabilities incurred by them in the actual or purported exercise of their duties, or exercise of their powers, including liability incurred in defending any proceedings (whether civil or criminal) which relate to anything done or omitted to be done and in which judgement is given in his favour, or in which he is acquitted, or which are otherwise disposed of.

In addition, CityFibre has purchased and maintains Directors’ and officers’ liability insurance cover against certain legal liabilities and costs for claims incurred in respect of any act or omission in the execution of their duties.

Board balance The Board comprises individuals with wide business experience gained in various industry sectors related to CityFibre’s business, and it is the intention of the Board to ensure that the balance of the Directors reflects the changing needs of that business. The Board considers that it is of a size and has the balance of skills, knowledge, experience and independence that is appropriate for CityFibre’s business. While not having a specific policy regarding the constitution and balance of the Board, potential new directors are considered on their own merits with regard to their skills, knowledge, experience and credentials. Female candidates or candidates from any particular ethnic or national background would each be considered equally. The Non-Executive Directors contribute their considerable collective experience and wide-ranging skills to the Board and provide a valuable independent perspective; where necessary constructively challenging proposals, policy and practices of executive management.

Approval This statement on corporate governance was approved on behalf of the Board on 24 April 2017 and signed on its behalf.

Christopher Gawn Company Secretary



Corporate social responsibility

CityFibre’s greatest asset is its people. Their dedication and determination to change the status quo for internet connectivity in the UK is the foundation of CityFibre’s agile culture. This continued commitment to making a societal difference is further exhibited through a Company-wide commitment to charity and environmental responsibility. In 2016 CityFibre established an employee-led Corporate Social Responsibility (CSR) committee to identify and deliver key objectives in CSR.

Notable achievements in 2016 included:• Successful certification under the ISO 14001 Environmental

Management System standard• Creation of a cycle-to-work scheme for employees • Identification and selection of a charity (The Stroke Association)• Participation by staff in a number of sponsored fun-runs and

bike rides• Company charity bake-off competition

CityFibre operates a work placement scheme, helping young people make decisions about their future and gain an understanding of a professional workplace.

CityFibre also encourages staff to volunteer for worthy causes of their choosing. From 2016, each CityFibre employee is allotted one day of annual leave for the purposes of volunteering. A number of employees supported the Sikh Welfare & Awareness Team in their food distribution activities amongst the homeless in London. The Company also took steps towards a more sustainable workplace, initiating an overhaul of its waste disposal and recycling systems in branch offices as part of its ISO 14001 Environmental Management System standard certification.

Where possible, the Group rents accommodation for employees in cities where a specific project is under way, in order to minimise travel. It also makes use of video conferencing and other collaboration tools to the same end.

Other initiatives include procuring only Fair Trade tea and coffee, as well as educating employees on the importance of responsible electricity use. These various initiatives will be further expanded in 2017.

CityFibre’s charity of the year for 2017 is Mind, a mental health charity.

ISO14001£4,500Successful certification under the ISO 14001 Environmental Management System standard

Money raised for The Stroke Association

Creation of a cycle-to-work scheme for employees

Notable achievements in 2016 included:

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CityFibre is committed to achieving the highest standards in HSEQ management systems. During 2016, the Group embarked on the process of seeking to be compliant with the following International Standards Organisation (ISO) standards:

Health, safety, environment and quality

Quality ISO 9001:2008Provides a framework and set of principles that ensure a common-sense approach to the management of our organisation to consistently satisfy customers and other stakeholders. Certification to this international standard demonstrates our commitment to maintain the highest standards of quality and customer satisfaction. CityFibre achieved certification to this international standard without non-conformance in November 2016.

Environmental ISO 14001:2004The principal management system standard which specifies the requirements for the formulation and maintenance of an Environmental Management System. This helps to control our environmental aspects, reduce impacts and ensure legal compliance. CityFibre achieved certification to this international standard without non-conformance in November 2016.

OH&S ISO 18001:2007The International Occupational Health and Safety Management Standard. It provides a framework for the effective management of OH&S including all aspects of risk management and legal compliance. CityFibre achieved certification to this standard without nonconformance in November 2016.

Business Continuity ISO 22301:2012The International Standard for Business Continuity Management (BCM). It provides a practical framework for setting up and managing an effective business continuity management system.

The BCM framework helps to fortify the organisation and safeguard it from a wide range of potential threats and disruptions including technology failure, sudden loss of critical resources, natural disasters, terrorist attack and other emergency situations. Information Security ISO 27001:2013The international standard for Information Security Management Systems (ISMS). It has been adopted globally. The standard provides a framework for an ISMS that enables the continued accessibility, confidentiality and integrity of information as well as legal compliance. Implementation is an ideal response to customer and legal requirements such as the Data Protection Act and potential security threats including vandalism/terrorism, fire, misuse, theft, and viral attack. CityFibre is anticipated to become certified to this international standard by early 2017.



Board of Directors

Chris Stone Non-Executive Chairman

After starting his career in strategy consulting with Bain & Co, Chris has spent the last 25 years primarily in the Software and IT Services industries. From October 1999 until December 2011, Chris served as Chief Executive Officer of Northgate Information Solutions plc, and built a market leader in specialist software, outsourcing and information technology (IT) services to the human resources, local government, education and public safety markets across 5 continents with revenues of over £850 million and employing over 10,000 people. Enterprise value grew from £30 million to £1.5 billion. Most recently, he was the Chief Executive of Radius Worldwide from 2013 to June 2016, leading the acquisition and integration of four businesses in the USA, UK, India and Brazil to create the world leader in International Business Support Services.

Chris has also previously held senior roles at Accenture, Electronic Data Systems, Digital Equipment Company, Fitness First and CSR, where he served as Non-Executive Director and Chairman of the Remuneration Committee.

Terry Hart Chief Financial Officer

Terry has over 25 years of financial and operations experience, and since 2000 has specialised in telecoms infrastructure. As UK Finance Director of Easynet Group plc, he provided the financial leadership to manage the business through high growth, including the first national roll-out to hundreds of towns and cities of unbundled broadband. Terry later became UK MD of Easynet and managed its successful sale to BSkyB. More recently Terry was CEO of Telstra International EMEA. Terry was Finance Director of Serco Aviation and trained as a Chartered Accountant with BDO.

Greg Mesch Chief Executive Officer

Greg is founder of CityFibre with over 25 years of experience designing, building, and operating fibre infrastructure, and has grown five companies from start-up to very stable and successful firms. Greg is experienced in the building of high growth fibre optic telecoms companies. Greg was Chief Operating Officer of ESAT Telecom in Ireland, building from scratch the largest fixed line competitor to then Telecom Eireann (IPO on NASDAQ and subsequently purchased by BT for over €1 billion) and founder and Chief Operating Officer of Versatel Telecom NV, building one of the largest fibre based infrastructures in the Dutch, Belgian, and German markets. Versatel listed on the NASDAQ and the Dutch AEX exchange and was purchased by Tele2 and Apax for over $1.5 billion. Greg was also Non-Executive Director of EU Networks from 2009 to 2011. Greg has an MBA from Denver University.

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Leo van Doorne Non-Executive Director

Leo is the former managing director of NeSBIC venture funds. NeSBIC was the founding venture investor in Versatel Telecom NV where Leo was Chairman through the firm’s rapid growth. Currently he is CEO and major shareholder of Optics Innovation Group B.V. and Managing Director of Pallieter RENEFF B.V. Leo holds numerous directorships, including Pallieter Group B.V. (non-executive Chairman), Ballast Nedam NV, Diana Capital SGECR SA, Shanxi Guangyu LED Lighting Co. Ltd. and Global BSN LLC (The Business Sustainability Network). He is also a board member of Foundation Thomas van Villanova and a member of the Advisory Boards of Verder International B.V. and of the Foundation Eindhoven City Marketing (EHV365). Leo holds a Law Degree from the University of Utrecht.

Mark Collins Director, Public Policy

Mark is co-founder of CityFibre with over 20 years of telecoms strategy and regulatory experience. Mark founded Equador Consulting, a firm specialising in the development of early stage telecoms companies including Virgin Media, Sprint, ESAT Telecom, Versatel Telecom, Completel and others. Equador was recognised in 2000 by the Sunday Times Fast-track 100 awards as the UK’s fastest growing TMT firm, and was sold to CH2M-HILL in 2002. Mark was founder and CEO of the mobile media firm Muzicall, recognised in 2009 as the UK’s second fastest growing mobile media firm. He holds a degree in electronics and telecommunications gained as a sponsored student of GEC Telecommunications.

Gary Mesch Non-Executive Director

Gary Mesch has been the founder and Managing Director of several successful data and telecom companies operating in the U.S. and Europe. He founded Versatel telecom in 1995 in Amsterdam and served as CEO and then Chairman until 2002. Versatel grew to become an infrastructure-based telecom operator throughout The Netherlands, Belgium, and Germany. In 2005 Versatel was purchased by Tele2 of Sweden and Apax for over €1.5 billion. Prior to Versatel, Gary was Managing Director of Open Skies Inc., a consulting company based in Amsterdam.



Board of Directorscontinued

Sally Davis Non-Executive Director

Sally brings over 25 years of telecommunications and media experience from both Europe and North America and has served as a Non-Executive Director for a number of FTSE and NASDAQ quoted companies. Sally has been voted one of the top 100 Global Telecoms executives in Global Telecoms Business. Sally joined CityFibre having previously been CEO of BT Wholesale (2007-2011), a division within BT which generated revenues of over £4bn in 2011. She held a number of roles whilst at BT, including President of Global product (2001-05) and Director, Group Internet & Multimedia (1999-2001). Prior to BT, Sally has worked across the telecommunications industry and her experience includes NYNEX/Bell/Verizon (1993-99) where she worked both in the UK and U.S, Cable London and Mercury Communications. Sally is currently a Non-Executive Director of Logitech, a Swiss computer peripherals company, quoted on both NASDAQ and the SIX Swiss Exchange, and Telenor, the major Norwegian telecoms operator with significant mobile operations in 13 markets (including India, Thailand and Malaysia).

Stephen Charlton Non-Executive Director

Stephen, a Chartered Accountant, brings to the Board more than 30 years of experience in the financial and investment arena, encompassing accounting, investment management, banking, equity and debt capital markets, real estate and private equity. From 2004 to 2010, Stephen was a Managing Director within a subsidiary of Fortress Investment Group, a diversified global investment manager. During his distinguished career, Mr. Charlton held CFO and CEO positions within two of Fortress Investment Group’s listed portfolio companies, Gagfah S.A. and Eurocastle Investment Limited, where he oversaw debt financing/refinancing totalling more than €10 billion and equity raises within the public markets of €1.5 billion, as well as creating efficient capital structures with low cost of capital. Immediately prior to joining Fortress, Stephen spent almost ten years as CFO of Gordian Knot, a UK investment manager. Stephen is currently CFO of PEAC, a European asset finance company.

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John Franklin Operations Director

John is a 26-year veteran of the telecommunication infrastructure sector. John has developed and run operational teams covering all functional areas across engineering, delivery, systems and service management. Having worked both in the UK and internationally he brings significant experience in delivering operational services for high growth companies. Prior to joining CItyFibre, John was COO of London based pan European metro fibre operator euNetworks. Previously he enjoyed a distinguished 10 year career in senior managerial positions at Level(3) Communications ultimately as SVP – Capacity Management and Deployment.

Elaine Humphreys Human Resources Director

Elaine has held HR and operational roles in firms across a variety of sectors and at varying stages in their development in the UK and overseas. For the past 11 years, she has specialised in human resources strategy and organisational development in rapid growth high tech companies. Prior to joining CityFibre, Elaine created the human resource function at Venda Limited where she helped double the workforce in three years whilst leading the company’s culture change agenda, readying them for the sale to NetSuite in 2014.

Rob Hamlin Commercial Director

Rob has over 15 years’ experience in growing infrastructure-based telecoms, media and technology companies. Prior to joining CityFibre Rob worked as Enterprise Director and Strategy Director at Arqiva, the largest broadcast transmission and tower operator in the UK, during which time the business grew revenues by over 150%. He was instrumental in securing the commercial contracts and regulatory framework to support the £630m investment in the digital upgrade of the terrestrial TV network in the UK. He was part of the senior team that secured the £2.5bn acquisition of National Grid Wireless and related £3.5bn debt financing. Rob also served as Non-Executive Director on the board of YouView, the leading internet connected TV proposition in partnership with BT, TalkTalk, the BBC, ITV, Channel 4, and Five. Earlier in his career Rob was in the investment banking team at Macquarie, led Corporate Development at the international IT provider Logicalis, and held a range of management consulting roles.

Key management



Directors’ report

Directors’ responsibilitiesThe directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that year. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

In preparing these financial statements, the directors are required to:• select suitable accounting policies and then apply them

consistently;• make judgements and accounting estimates that are reasonable

and prudent;• state whether they have been prepared in accordance with IFRSs

as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Statement as to disclosure of information to auditorsAll of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group’s Auditor for the purposes of their audit and to establish that the Auditor is aware of that information. The Directors are not aware of any relevant audit information of which the Auditor is unaware.

AuditorBDO LLP have expressed their willingness to continue in office, will be proposed for reappointment at the Company’s forthcoming Annual General Meeting in accordance with Section 489 of the Companies Act 2006.

On behalf of the Board.Terry Hart Chief Financial Officer 24 April 2017

Directors The Directors who served during the year were as follows:

Peter Manning (resigned 13 January 2017)Greg Mesch Terry Hart Mark Collins Gary Mesch Leo van Doorne Sally Davis Stephen Charlton

Chris Stone was appointed as Non-Executive Chairman of the Company on 28 February 2017.

Emoluments and compensations paid to the Directors is set out in the Directors’ Remuneration Report.

Significant shareholdings As at 31 December 2016, the Company has been advised of the following interests in more than 3% of its ordinary share capital:Woodford Investment Management 17.0%Odey Asset Management 14.6%Jupiter Asset Management 9.6%Polar Capital 4.0%Employee Benefit Trust 3.8%Close Brothers Asset Management 3.7%Herald Investment Management 3.2%

A list of current significant shareholdings may be found on the Company’s website.

Corporate governance Details of corporate governance are included in the Directors’ Statement on Corporate Governance.

Going concern Under company law, the Company’s Directors are required to consider whether it is appropriate to prepare financial statements on the basis that the Group and Company are a going concern.

As part of the normal business practice the Group prepares annual and four year plans and, in reviewing this information, the Company’s Directors are satisfied that the Group and the Company have reasonable resources and future cash flows to enable them to continue in business for the foreseeable future. For this reason, the Company and Group continue to adopt the going concern basis in preparing the financial statements.

Future outlookThe future outlook is detailed in the Chairman’s Statement as part of the Strategic Report.

Annual general meetingSee the Company’s website for details of the Company’s Annual General Meeting.

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Directors’ remuneration report

Remuneration Committee There were two Non-Executive Directors members of the Remuneration Committee during the financial year: Sally Davis (Chair of the Remuneration Committee) and Peter Manning (Chair of the Board). There were no changes in the composition or chairmanship of the Remuneration Committee during the year. The Executive Directors, Head of Human Resources and Company Secretary are invited to attend meetings of the Committee where appropriate but no Director is involved in any decisions relating to their own remuneration.

The Committee is responsible for setting the framework and policy for the remuneration of the Executive Directors and designated senior executives. It determines specific elements of their remuneration, their contractual terms and, where necessary, compensation arrangements. The Committee keeps itself informed of all relevant developments and best practice in the field of executive remuneration and seeks advice from external advisers when it considers it is appropriate.

Remuneration policy The Group’s remuneration policy is designed to ensure that the remuneration packages attract, motivate and retain directors and senior managers of high calibre and to reward them for enhancing value to shareholders. The Company’s policy is that a substantial proportion of the total potential remuneration of the Executive Directors should be performance-related and aligned to performance measures that benefit all shareholders and promotes the long-term success of the Company. The performance measurement of the Executive Directors and the determination of their annual remuneration package, including performance targets, are undertaken by the Remuneration Committee. There are three main elements of the remuneration package for Executive Directors and other senior management: fixed pay (i.e. basic annual salary, benefits and pension), annual bonus payments; and long-term incentives.

The remuneration of the Non-Executive Directors is determined by the Board excluding the Non-Executive Directors.

Basic salary and benefits in kind Salary is normally reviewed annually, or when responsibilities change. In deciding the appropriate levels, the Committee takes into account factors which it considers necessary including Group and individual performance, market levels of, and trends in, executive remuneration and relative pay levels within the Group. In addition to basic salary, each Executive Director is provided with a car allowance, private medical, life assurance, income protection and access to a number of salary exchange schemes.

Annual performance-related bonus Each Executive Director’s remuneration package includes a performance-related bonus. The maximum bonus potential is normally capped at no more than 100% of basic salary. Pay-outs are based on sliding scale Revenue and adjusted EBITDA targets and performance against individual/strategic objectives. Details of the bonus awards for the year ended 31 December 2016 are set out overleaf.

Long-Term Incentives The Company operates the CityFibre Long Term Incentive Plan (‘LTIP’) as its primary senior executive incentive arrangement. The LTIP seeks to motivate and retain Executive Directors and other senior management within the Group. The key terms of the LTIP are as follows: • awards will normally be granted annually; • awards will normally be structured as nil cost options; • awards will only normally vest (i.e. become exercisable) subject

to continued service and to the extent that relevant performance targets are met; and

• performance targets will normally be based on share price and financial metrics (e.g. revenue and adjusted EBITDA) although may include strategic targets.

The first set of awards to Directors under the LTIP were granted in February 2016. Full details of the awards will be set out in next year’s Directors’ Remuneration Report.

LTIP awards are not available to Non-Executive Directors. The Company also operates a number of other share schemes (see details of past share awards overleaf) although there is no intention to operate them for Executive Directors going forward following the introduction of the LTIP.

Pensions Terry Hart is the only executive to currently receive a pension provision (4% of salary).

Directors’ contracts It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing for a maximum of 12 months’ notice period.

Non-executive Directors All Non-Executive Directors have service contracts with an indefinite term subject to between one and three-month notice periods. Their remuneration is determined by the Board taking into account their duties and the level of fees paid to Non-Executive Directors of similar companies.



Directors’ remuneration report continued

Directors’ detailed emoluments for the year ended 31 December 2016

Salary £’000

Benefits5 £’000

Pension £’000

Bonus 1, 2 £’000

Total £’000

Executive Directors

Greg Mesch 20162015

290265

1111

––

377181

678457

Terry Hart3 20162015

195172

1010

87

23889

451278

Mark Collins 20162015

170170

1010

––

10954

289234

Non-Executive Directors

Peter Manning4 20162015

6060

––

––

––

6060

Gary Mesch 20162015

2020

––

––

––

2020

Leo van Doorne 20162015

2020

––

––

––

2020

Sally Davis 20162015

3535

––

––

––

3535

Steve Charlton 20162015

3535

––

––

––

3535

Total 2016 825 31 8 724 1,588

2015 777 31 7 324 1,139

1. The annual bonus for the year ended 31 December 2016 was assessed based on Revenue and adjusted EBITDA targets and performance against individual/strategic objectives.

2. In 2016 executives also received a one-off bonus for performance in respect of the financing activities related to, and the acquisition of, KCOM network assets. These bonuses totalled £254,000.

3. Terry Hart’s salary increased from £175,000 to £215,000, effective from 1 July 2016.4. In addition to the base Non-Executive Director fees, the Company paid £12,000 (2015: £29,000) to BJC Networks Ltd, a company owned and controlled

by Peter Manning, the chairman, in respect of consultancy fees.5. Benefits comprise a car allowance and health insurance.

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1. Enterprise Management Incentive scheme (described in 14 January 2014 AIM Admission Document).2. Unapproved Share Option scheme (described in 14 January 2014 AIM Admission Document).3. Joint Share Ownership Plan (described in 23 May 2014 Circular).4. Service related vesting conditions with a share price hurdle.5. Awards vest based on service and share price targets.6. Share issued under the JSOP are jointly owned by the holder and an employee benefit trust, with the holder beneficially interested in any value above

a £1 ‘hurdle’. The Company also granted cash awards to participants in accordance with the JSOP terms which will deliver a cash payment on vesting and release of the JSOP shares, of an amount equal to the difference between the exercise price and hurdle.

7. Awards vest on service targets and the following specific targets: 50% vest based on a share price target, 25% vest based on a revenue target, and 25% vest based on an adjusted EBITDA target.

Date of grant

Type of award

Share price at grant(pence)

Exercise price

(pence)

Awards at 1 January

2016 Granted Lapsed Exercised

Awards at 31 Decem-

ber 2016

Greg Mesch 16/1/14 EMI1 n/a 60 462,962 - - - 462,962

23/5/14 JSOP3,4 77 606 1,405,306 - - - 1,405,306

23/5/14 JSOP3,5 77 606 1,868,269 - - - 1,868,269

9/6/14 JSOP3,5 74.75 706 2,006,039 - - - 2,006,039

17/2/16 LTIP7 51 - - 1,610,000 - - 1,610,000

Terry Hart 16/1/14 EMI1 n/a 60 462,962 - - - 462,962

23/5/14 JSOP3,4 77 606 70,829 - - - 70,829

23/5/14 JSOP3,5 77 606 533,791 - - - 533,791

9/6/14 JSOP3,5 74.75 706 696,760 - - - 696,760

17/2/16 LTIP7 51 - - 950,000 - - 950,000

Mark Collins 16/1/14 EMI1 n/a 60 462,962 - - - 462,962

23/5/14 JSOP3,4 77 606 204,276 - - - 204,276

23/5/14 JSOP3,5 77 606 667,239 - - - 667,239

9/6/14 JSOP3,5 74.75 706 429,865 - - - 429,865

17/2/16 LTIP7 51 - - 690,000 - - 690,000

Peter Manning 23/5/14 JSOP3,4 77 606 667,238 - - - 667,238

9/6/14 JSOP3,4 74.75 706 358,221 - - - 358,221

Gary Mesch 16/1/14 USOS2 n/a 60 160,137 - - - 160,137

9/6/14 USOS2 74.75 70 71,644 - - - 71,644

Leo van Doorne 16/1/14 USOS2 n/a 60 160,137 - - - 160,137

9/6/14 USOS2 74.75 70 71,644 - - - 71,644

Sally Davis 23/5/14 JSOP3,4 77 65.56 160,137 - - - 160,137

9/6/14 JSOP3,4 74.75 706 71,644 - - - 71,644

Steve Charlton 22/1/15 JSOP3,4 66 666 231,781 - - - 231,781


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Independent auditor’s report to the members of CityFibre Infrastructure Holdings plc

Opinion on other matters prescribed by the Companies Act 2006In our opinion, based on the work undertaken in the course of the audit:• the information given in the strategic report and directors’ report

for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exceptionIn the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the parent

company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Nicole Martin (senior statutory auditor)For and on behalf of BDO LLP, statutory auditorLondonUnited Kingdom

24 April 2017BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

We have audited the financial statements of CityFibre Infrastructure Holdings plc for the year ended 31 December 2016 which comprise the consolidated and parent company statements of financial position, the consolidated statement of comprehensive income, the consolidated and parent company statements of cash flows, the consolidated and parent company statements of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorsAs explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's (FRC's) Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the FRC's website at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statementsIn our opinion: • the financial statements give a true and fair view of the state of

the group's and the parent company's affairs as at 31 December 2016 and of the group's loss for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006, and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Financial Statements



Consolidated statement of comprehensive income

Note2016

£’0002015 £’000

Revenue 2 15,363 6,408

Cost of sales (1,827) (888)Gross profit 13,536 5,520

Total administrative expenses (18,677) (11,679)

Operating Loss 3 (5,141) (6,159)Finance income 6 45 170Finance cost 7 (7,341) (278)

Share of post-tax losses of equity accounted Joint Venture 11 (147) (126)Loss on ordinary activities before taxation (12,584) (6,393)

Income tax 8 - 31

Loss for the year and total comprehensive income (12,584) (6,362)

Loss per share Note2016

£’0002015 £’000

Basic and diluted loss per share 25 £(0.05) £(0.06)

Notes 1 to 29 form part of these financial statements.

For the year ended 31 December 2016

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Consolidated statement of financial position

Note2016

£’0002015 £’000

AssetsNon-current assetsProperty, plant and equipment 9 155,159 43,987Intangible assets 10 1,211 905Investment in Joint Venture 11 433 609Total non-current assets 156,803 45,501

Current assetsInventory 12 3,986 190Trade and other receivables 13 8,070 5,994Cash and cash equivalents 16,722 9,731Total current assets 28,778 15,915Total assets 185,581 61,416

Equity Issued capital 16 2,713 1,113Share premium 137,943 63,243Share warrant reserve 17 85 85Share-based payments reserve 2,100 1,081Merger reserve 331 331Retained earnings (34,628) (22,044)Total equity 108,544 43,809

LiabilitiesNon-current liabilitiesInterest bearing loans and borrowings 18 55,280 -Deferred revenue 19 11,091 9,746Deferred consideration 15 450 448Total non-current liabilities 66,821 10,194

Current liabilitiesDeferred revenue 19 2,864 2,152Trade and other payables 20 7,352 5,261Total current liabilities 10,216 7,413Total liabilities 77,037 17,607Total equity and liabilities 185,581 61,416

These financial statements were approved by the Board of Directors and authorised for issue on 24 April 2017.They were signed on its behalf by:

W G Mesch Director


For the year ended 31 December 2016



Sharecapital

£’000

Sharepremium

£’000

Share warrantreserve

£’000

Share-based

paymentsreserve

£’000

Mergerreserve

£’000

Retainedearnings

£’000Total £’000

Balance at 1 January 2015 1,111 63,243 85 773 331 (15,680) 49,863

Comprehensive income

Loss and total comprehensive income for the year - - - - - (6,362) (6,362)Transactions with ownersNew ordinary shares issued 2 - - - - - 2Issue of share held by JSOP - - - - - (2) (2)

Share-based payments - - - 308 - - 308

Balance at 31 December 2015 1,113 63,243 85 1,081 331 (22,044) 43,809


Loss and total comprehensive income for the year - - - - - (12,584) (12,584)Transactions with ownersNew ordinary shares issued 1,600 78,400 - - - - 80,000Cost of issuing new ordinary shares - (3,700) - - - - (3,700)

Share-based payments - - - 1,019 - - 1,019

Balance at 31 December 2016 2,713 137,943 85 2,100 331 (34,628) 108,544


Consolidated statement of changes in equityFor the Year Ended 31 December 2016

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Consolidated statement of cash flows For the Year Ended 31 December 2016

2016 £’000

2015 £’000

Cash flows from operating activities

Loss before tax (12,584) (6,393)

Amortisation of intangibles 358 233

Share-based payments 908 343

Finance income (45) (170)

Finance costs 7,341 278

Depreciation 3,572 1,707

Right of use income 29 (224)

Increase in inventory (3,797) (107)

Increase in receivables (3,023) (1,990)

Increase in payables 4,145 837

Transaction costs 582 -

Share of loss from associated company 147 126

(2,367) (5,360)

Tax paid - -

Net cash utilised in operating activities (2,367) (5,360)

Cash flows from investing activitiesInterest received 73 222Receipts from short-term deposits - 29,000Acquisition of intangible assets (517) (350)Acquisition of property, plant and equipment (110,560) (12,703)Costs of acquiring property, plant and equipment (1,077) -Proceeds on disposal of property, plant and equipment - 17Capitalised labour costs (2,946) (2,404)Net cash from investing activities (115,027) 13,782

Cash flows from financing activitiesProceeds from the issue of share capital 80,000 -Costs of issuing share capital (3,562) -Debt finance costs paid (5,320) -Drawdown of borrowings 59,800 -Repayment of borrowings - (2,604)Interest paid (6,533) (273)Net cash utilised in financing activities 124,385 (2,877)

Net increase in cash and cash equivalents 6,991 5,545Cash and cash equivalents at beginning of period 9,731 4,186

Cash and cash equivalents at end of period 16,722 9,731




Notes to the consolidated financial statements

In applying IFRS 15, the company’s initial views on the key changes to accounting requirements under IFRS 15 which may be relevant to the group include:

(a) Sale of goodsIn relation to IRU contracts with customers in which sale of inventory assets are the only performance obligation, revenue recognition under IFRS 15 is likely to occur at a point in time when control of the asset has transferred to the customer; this generally occurs on execution of the IRU contracts with customers. This would not be a material change from the current accounting treatment.

(b) Installation servicesContracts with customers in which installation services are provided over the period of construction of the asset could be subject to future changes in accounting treatment. The group considers these revenues would continue to be recognised over time under IFRS 15. Further analysis needs to be performed on the appropriate timing of revenue recognition.

(c) Network lease services Contracts with customers in which network lease services are provided to customers are likely to be recognised over time under IFRS 15 from the time that the network service becomes available for use by the customer. This would not be a material change from the current accounting treatment.

(d) Finance costs on upfront payments from customersDeferred revenue is currently recognised within liabilities when customers are invoiced by the group in advance of services being provided. Under IFRS 15, there may be a requirement to recognise a finance cost in connection with payments received up front from customers ahead of services being provided.

IFRS 16 “Leases” – (effective for 2019 financial report)IFRS 16 will require the Group to recognise leases on its premises as both an asset and a rental commitment in its consolidated statement of financial position, but is not expected to have material effect on the Group’s results.

The implications of these accounting standards on CityFibre Infrastructure Holdings plc are expected to be evaluated in more detail during the financial year 2017.

Basis of consolidationThe consolidated financial statements incorporate the results of CityFibre Infrastructure Holdings PLC and all of its subsidiary undertakings as at 31 December 2016. The results of subsidiary undertakings are included from the date of acquisition.

CityFibre Infrastructure Holdings PLC was incorporated on 13 November 2013, and on 11 January 2014 it acquired the issued share capital of CityFibre Holdings Limited by way of a share-for-share exchange. The latter had five wholly owned subsidiaries: CityFibre Networks Limited, Fibrecity Holdings Limited, Gigler Limited, CityFibre Metro Networks Limited and Fibrecity Bournemouth Limited. The consideration for the acquisition was satisfied by the issue of 115,383 Ordinary Shares in CityFibre

1. ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these consolidated financial statements are summarised below. They have all been applied consistently throughout the year and preceding period.

Nature of GroupCityFibre Infrastructure Holdings PLC (the “Company”) is a company registered in England and Wales. The consolidated financial statements for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group”).

Basis of accountingThe financial statements of the Group have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (“IFRS”) and their interpretations issued by the International Accounting Standards Board (“IASB”), as adopted by the European Union. They have also been prepared with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Adoption of new and revised standardsNew standards and amendments to existing standards that have been published and are mandatory for the first time for the financial year beginning 1 January 2016 have been adopted but had no significant impact on the Group and Company. New standards, amendments to standards and interpretations which have been issued but are not yet effective (and in some cases had not been adopted by the EU) for the financial year beginning 1 January 2016 have not been early adopted in preparing these financial statements. The implications of these new accounting standards on the Group and Company have not yet been fully evaluated. The main accounting standards which may be relevant to the Group are set out below:

IFRS 9 “Financial Instruments”- (effective for 2019 financial report)IFRS 9 is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and de-recognition requirements for financial instruments. Key changes to accounting requirements under IFRS 9 which may be relevant to the group and company include the requirement to apply a new impairment model based on expected loss in recognising impairment of financial assets including current receivables and loans to related parties. This may result in the recognition of additional impairment losses against the carrying values of these financial assets, at a point in time which is earlier than under the current accounting policies.

IFRS 15 “Revenue from Contracts with Customers”- (effective for 2018 financial report)IFRS 15 was issued in May 2014 and establishes a five step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

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Infrastructure Holdings PLC to the shareholders of CityFibre Holdings Limited.

The accounting treatment in relation to the addition of CityFibre Infrastructure Holdings plc as a new UK holding Company of the Group falls outside the scope of the IFRS 3 ‘Business Combinations’. The share scheme arrangement constituted a combination of entities under common control. The reconstructed Group was consolidated using merger accounting principles as outlined in Financial Reporting Standard 6 (“FRS”) Acquisitions and Mergers (UK) and treated the reconstructed Group as if it had always been in existence. Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained is recognised in a merger reserve.

The Company has taken advantage of merger relief available under Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity.

Joint venturesJoint ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

These consolidated financial statements include the Group’s share of the total recognised gains and losses of a joint venture using the equity method, from the date that significant influence commenced, based on present ownership interests, less any impairment losses. Under the equity method, investments in joint ventures are carried in the Consolidated Statement of Financial Position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the investment and the Group’s share of any gain on contribution of assets to the joint venture.

RevenueRevenue represents network lease sales and installation sales to external customers, sales of internet services to residential customers, and recharge of work performed for the joint venture at invoiced amounts less value added tax or local taxes on sales. Where revenue arising from installation and connection services is separable from network lease services, these elements are recognised as if they were separate contracts.

Network lease revenue is recognised evenly over the period to which the services are provided, and is recognised from the date at which the network service becomes available for use by the customer.

Installation revenue is recognised on a percentage completion basis over the period of construction of the asset, from post-contract signature mobilisation to customer handover. Management apply a straight line basis as this closely approximates revenue recognised on a stage of completion basis and the effort required to deliver services to customers.

It is considered by management that the above revenue recognition policies are suitable for recognising revenue arising from the Group’s key market verticals.

Revenue attributable to infrastructure sales in the form of Indefeasible-Rights-of-Use (“IRUs”) with characteristics which qualify the transaction as an outright sale, or transfer of title agreements, are recognised at the later of delivery or acceptance by the customer.

Accrued income is recognised when services are provided in advance of the customer being invoiced.Deferred revenue is recognised when services are invoiced in advance of the period over which the services are provided.

Revenue from internet services provided to residential customers is recognised on a monthly basis, commencing when services are provided.

Revenue from work performed for the JV is recognised during the period to which the work relates.

All revenue streams are wholly attributable to the principal activity of the Group and arise solely within the United Kingdom.

Property, plant and equipmentProperty, plant and equipment are stated at cost, net of depreciation and any provisions for impairment. Where network assets are acquired as part of a contract including a provision of services, the asset is initially recognised at fair value to include the value of these services. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Leasehold property 5 yearsNetwork assets – Duct 40 yearsNetwork assets – Cabling 20 years Plant and machinery 5 yearsFixtures and fittings 3 yearsMotor vehicles 3 years

Useful economic lives and residual values are assessed annually. Any impairment in value is charged to the statement of comprehensive income.

During the year the estimated useful economic life of Duct was changed from 20 years to 40 years, as management considered this to be a better reflection of the period over which economic benefit is derived from the assets. Taking into account these assets are relatively new, have a long life and there is now enhanced evidence of the durability of these assets, CityFibre updated its accounting estimate during the year. Using the previous useful economic life, the depreciation for the year would have been £6,595,000, which is £3,023,000 greater than the depreciation recognised during the year.



Financial liabilities and equity are classified according to the substance of the financial instrument’s contractual obligations, rather than the financial instrument’s legal form.Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability. The Group’s ordinary shares are classified as equity instruments. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Financial assetsTrade and other receivables are initially recorded at their fair value and subsequently carried at amortised cost, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Bad debts are written off when identified.

Cash and cash equivalentsCash and cash equivalents comprise cash at bank and cash in hand, and short-term highly liquid investments with an original maturity of three months or less.

Share-based paymentsThe Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value at the grant date is determined using two different models. For share options that include market-based vesting criteria, the Monte Carlo model has been used, with the expense recognised over the expected vesting period of the options. For all other options the Black-Scholes model has been used, with the calculated value expensed over the vesting period. The value of the expense is dependent upon certain key assumptions including the expected future volatility of the Group’s share price at the date of the grant.

The Group also issues cash-settled share-based payments to certain employees. The payments are measured at fair value at the date of the grant, and are subsequently revalued at each balance sheet date, using the Monte Carlo model.

TaxationCurrent tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the date of the statement of financial position.

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.

Deferred taxation liabilities are recognised on all taxable temporary differences. Deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Intangible assetsCustomer contracts, which have arisen through business combinations, are assessed by reviewing their net present value of future cash flows. Customer contracts are amortised over their useful life not exceeding six years.

Software costs that are directly attributable to IT systems controlled by the Group are recognised as intangible assets and the costs are amortised over their useful lives not exceeding three years. Amortisation is included in general administrative costs in the statement of comprehensive income.

Impairment of non-current assetsWhenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset’s carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset’s carrying amount.

InventoryInventory is stated at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in, first out basis. Inventory includes equipment necessary to install fibre optic networks and also includes the cost of specific network assets allocated for sale under indefeasible right of use (IRU) agreements.

Net realisable value is based on estimated selling price less additional costs to completion and disposal.

Certain network assets were classified as inventory assets during the year. The Group intends to sell these network capacity assets on a regular basis where it is considered to be a strategically viable product.

Finance costsFinance costs are charged to profit over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance costs include issue costs, which are initially recognised as a reduction in the proceeds of the associated capital instrument.

Operating leases Rentals paid under operating lease commitments are charged to income on a straight line basis over the lease term.

Financial liabilities and equityFinancial liabilities, including trade payables and bank loans, are recognised when the Group becomes party to the contractual arrangements of the instrument and are recorded at amortised cost using the effective interest method. All related interest charges on loans are recognised as an expense in ‘finance cost’ in the statement of comprehensive income.

Notes to the consolidated financial statementscontinued

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Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted at the statement of financial position date. The carrying value of deferred taxation assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available against which taxable temporary differences can be utilised. Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Pension CostsContributions to the Group’s defined contribution pension scheme are charged to the statement of comprehensive income in the period in which they become payable.

Key judgements and sources of estimation uncertaintyThe preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or where assumptions or estimates are significant to the financial statements are detailed below.

Assessment of useful economic lives of property, plant and equipmentThe Group depreciates the property, plant and equipment, using the straight-line method, over their estimated useful lives. The estimated useful life reflects management’s estimate of the period that the Group intends to derive future economic benefits from the use of the Group’s property, plant and equipment. Changes in the expected level of usage and technological developments could affect the useful economic lives of these assets which could then consequentially impact future depreciation charges. The carrying amounts of the Group’s property, plant and equipment at 31 December 2016 are disclosed in note 9 to the financial statements.

Impairment of non-current assetsProperty, plant and equipment is recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Network assets comprises assets purchased at cost and fair value and built at cost, together with capitalised labour directly attributable to the cost of construction.

The carrying values of property, plant and equipment and intangible assets other than goodwill, within a cash generating unit, are reviewed for impairment only when events indicate the carrying value may be impaired. Impairment indicators include both internal and external factors. Examples of internal factors include analysing performance against budgets and assessing absolute financial measures for indicators of impairment. Examples of external considerations assessed for indications of impairment include wider economic factors.

Where impairment indicators are present, the recoverable amounts of assets are measured. Asset recoverability requires assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets, using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of uncertain matters. In particular, management has regard to assumptions in respect of revenue mix and growth rates.

Classification of network assets as inventoryCertain network assets have been classified as inventory assets during the year. Management believes this classification is appropriate given that the Group intends to sell network capacity assets on a regular basis where it is considered to be a strategically viable product.

Revenue recognition of installation revenuesInstallation revenues are a proportion of the total contract value; management assess this and give appropriate consideration to a range of factors in determining installation revenues on a contract by contract basis. Factors include contract length, technical challenges in delivering the contract and assessment of any associated local economic issues.

In addition to the above matters, refer to note 28 for the accounting treatment for the KCOM asset acquisition.

2. SEGMENTAL REPORTINGThe Group’s operations relate to the management of transformational fibre optic infrastructure and as such the Group has only one segment.

All turnover from operations, non-current assets and liabilities arose in the United Kingdom.

During the year the entity received revenues of £4,906,000 and £1,539,000 (2015: £772,000 and 729,000) from two major customers arising in the Group’s only identified segment.




3. OPERATING LOSSOperating loss is after charging/(crediting):

2016 £’000

2015 £’000

Operating lease income (8,915) (2,374)

Depreciation of property, plant and equipment 3,572 1,707

Amortisation of intangibles 358 233

One-off transaction costs (see note 27) 1,884 -

Operating lease costs

Land and buildings 328 407

Others 1,024 132

The analysis of auditor’s remuneration is as follows:2016

£’0002015 £’000

Fees payable for the audit of the Group’s annual financial statements 35 35

Fees payable for the audit of the Group’s subsidiaries’ financial statements 121 100

Total audit fees 156 135

Tax services 48 81

Assurance services 5 2

Corporate finance services - 28

Total non-audit services 53 111

Total fees 209 246

4. STAFF COSTSThe average number of staff employed (including directors) by the Group during the financial year amounted to:

2016 No

2015 No

Sales 16 14

Operations 78 54

Administration 22 15

116 83

The aggregate payroll costs of the above were:2016

£’0002015 £’000

Wages and salaries 7,351 5,131

Social security costs 1,117 809

Other pension costs 270 119

Share-based payments 908 343

9,646 6,402

The analysis of payroll costs above includes only expensed costs. Capitalised staff costs for 2016 are £2,201,000 (2015: £1,468,000).Wages and salaries for 2016 include one-off bonuses totaling £861,000 in respect of work performed for the KCOM asset acquisition.

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5. SHARE-BASED PAYMENTSDuring the year the Company granted share options to key personnel to purchase shares in the entity.

The number and weighted average exercise prices of share options are as follows:

Weighted average exercise price 2016

Number of options2016

Weighted average exercise price 2015

Number of options 2015

Outstanding at the beginning of the period £0.56 17,304,504 £0.63 15,208,314

Granted during the period £0.00 5,052,857 £0.07 2,344,670

Forfeited during the period £0.54 (987,670) £0.61 (248,480)

Outstanding at the end of the period 21,369,691 £0.56 17,304,504

The options outstanding at 31 December 2016 have an exercise price in the range of £nil to £0.70 and a weighted average remaining contractual life of 7.9 years.

At 31 December 2016, 1,226,391 of the options had vested, but were not exercisable as the options are only exercisable 12 months after the vesting date (2015: 2,122,428).

Details of movements in share options in 2016 are as follows:

Number of options

Outstanding at beginning

of period GrantedForfeited/ exercised

Outstanding at end of period

Exercisable at end of period

Exercise price £ Grant date Expiry date

1,538,235 - (152,245) 1,385,990 885,494 £0.60 16 January 2014 16 January 2024

1,388,886 - - 1,388,886 1,388,886 £0.60 16 January 2014 16 January 2024

1,361,166 - (453,722) 907,444 226,861 £0.60 16 January 2014 16 January 2024

160,137 - - 160,137 84,517 £0.66 23 May 2014 23 May 2024

667,238 - - 667,238 352,153 £0.60 23 May 2014 23 May 2024

1,680,411 - - 1,680,411 1,680,411 £0.60 23 May 2014 23 May 2024

3,069,299 - - 3,069,299 767,324 £0.60 23 May 2014 23 May 2024

1,231,028 - - 1,231,028 615,514 £0.70 09 June 2014 09 June 2024

3,863,434 - (243,590) 3,619,844 - £0.70 09 June 2014 09 June 2024

231,781 - - 231,781 70,822 £0.66 22 January 2015 22 January 2025

2,112,889 - (138,113) 1,974,776 - £nil 21 December 2015 21 December 2025

- 5,052,857 - 5,052,857 - £nil 17 February 2016 17 February 2026

17,304,504 5,052,857 (987,670) 21,369,691 6,071,982

The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on two models: the Black-Scholes model and the Monte Carlo Model. The Monte Carlo model is used to value share options that include market-based vesting conditions, while the Black-Scholes model is used to value all other options. The expected life of the option (4 years) is used as an input into both of these models; expectations of early exercise are incorporated into both models.



Fair value of share options and assumptions 2016 2015

Weighted average fair value of options granted during the year £0.34 £0.50

Weighted average share price £0.59 £0.65

Weighted average exercise price £0.43 £0.56

Expected volatility (expressed as weighted average volatility) 30% 30%

Option life 4 4

Expected dividends - -

Risk-free interest rate (based on national government bonds) 0.5% 0.5%

These assumptions are used in both the Black-Scholes and Monte Carlo models.

The expected volatility is based on the historic volatility of the share price (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information.

2016 £’000

2015 £’000

Total expense recognised as employee and consultants costs 908 343

Total liability recognised on cash-settled elements of share option awards 545 654

6. FINANCE INCOME

2016 £’000

2015 £’000

Interest on bank deposits 45 170

45 170

7. FINANCE COSTS

2016 £’000

2015 £’000

Interest on bank loans 7,339 245

Other interest 2 33

7,341 278


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8. TAXATION

2016 £’000

2015 £’000

Current tax

UK corporation tax based on the results for the year at 20.00% (2015: 20.25%) - -

Total current tax - -

Deferred tax

Temporary differences on which deferred tax has been recognised - 29

Effect of change in tax rates - 2

Tax on loss on ordinary activities - 31

Factors affecting current tax creditThe tax assessed for the year differs from the standard rate of corporation tax in the UK of 20.00% (2015: 20.25%) as follows:

2016 £’000

2015 £’000

Loss on ordinary activities before taxation (12,584) (6,393)

Tax on loss on ordinary activities at standard rate (2,517) (1,295)

Factors affecting charge

Effect of change in tax rates (3) 2

Expenses not deductible for tax purposes 375 102

Origination of temporary differences on which no deferred tax has been recognised 2,030 337

Effect of tax losses not recognised - 885

Property, plant and equipment differences 114 -

Total tax - 31

Factors that may affect future tax chargesThe standard rate of UK corporation tax will reduce to 19% effective 1 April 2017.



9. PROPERTY, PLANT AND EQUIPMENT

Leasehold property

£’000

Network assets

£’000

Plant and machinery

£’000

Fixtures and fittings

£’000

Motor vehicles

£’000Total£’000

Cost

At 1 January 2015 99 34,901 415 143 20 35,578

Additions 2 13,828 64 39 - 13,933

Disposals - (17) - - (8) (25)

At 31 December 2015 101 48,712 479 182 12 49,486

At 1 January 2016 101 48,712 479 182 12 49,486

Additions - 113,821 941 23 - 114,785

Recategorisation - (340) 340 - - -

Disposals - (41) - - - (41)

At 31 December 2016 101 162,152 1,760 205 12 164,230

Accumulated depreciation

At 1 January 2015 79 3,326 325 50 20 3,800

Charge in the year 17 1,609 61 20 - 1,707

Disposals - - - - (8) (8)

At 31 December 2015 96 4,935 386 70 12 5,499

At 1 January 2016 96 4,935 386 70 12 5,499

Charge in the year 2 3,342 196 32 - 3,572

Recategorisation - (2) 2 - - -

At 31 December 2016 98 8,275 584 102 12 9,071

Net book value

At 31 December 2016 3 153,877 1,176 103 - 155,159

At 31 December 2015 5 43,777 93 112 - 43,987

Included in network assets above are network assets under construction and not yet depreciated which are held at a cost of £733,000 (2015: £8,537,000) at the date of the statement of financial position.

Impairment reviews were carried out on the group’s network assets at 31 December 2016. Recoverable values for the city network assets and the network asset acquired from KCOM were determined using value in use (VIU) models which calculated the net present value of the future cash flows from the network assets over the useful economic lives of the assets. Assumptions have been made in the VIU models regarding future annual growth rates in revenues over years 1 to 5. The revenue forecasts are based on management approved budgets until 2022 which reflect increases in revenues associated with the commercialisation of a major asset acquired in the year and the group’s other assets which are newly built assets. Management have assessed that the recoverable values of the network assets exceed their carrying amounts at 31 December 2016. In performing sensitivity analysis on the forecasts, revenue forecasts were adjusted downwards by 10% and recoverable values were such that no impairment would occur.


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10. INTANGIBLES

Website costs£’000

Customer contracts

£’000

Software costs£’000

Total£’000

Cost

At 1 January 2015 54 580 302 936

Additions 14 - 589 603

At 31 December 2015 68 580 891 1,539

At 1 January 2016 68 580 891 1,539

Additions 30 - 649 679

Disposals (35) - - (35)

At 31 December 2016 63 580 1,540 2,183

Accumulated amortisation

At 1 January 2015 22 379 - 401

Amortisation 25 90 118 233

At 31 December 2015 47 469 118 634

At 1 January 2016 47 469 118 634

Amortisation 6 101 251 358

Disposals (20) - - (20)

At 31 December 2016 33 570 369 972

Net book value

At 31 December 2016 30 10 1,171 1,211

At 31 December 2015 21 111 773 905



11. INVESTMENT IN JOINT VENTUREThe following entity has been included in the consolidated financial statements using the equity method:

Name Country of incorporation Proportion of ownership interest held

Bolt Pro Tem Ltd UK 33%

The summarised financial information is as follows:

Year ended 31 December 2016 2016 £’000

Loss from continuing operations (442)

Other comprehensive income -

Total comprehensive income (442)

Investment in Joint Venture 2016 £’000

As at 1 January 2016 609

Elimination of related party profit (29)

Share of comprehensive loss for the year of the equity accounted JV (147)

As at 31 December 2016 433

12. INVENTORY

2016 £’000

2015 £’000

Completed assets held-for-sale 3,583 -

Raw materials and consumables 403 190

3,986 190

Inventory is stated net of an impairment provision of £nil (2015: £nil).

13. TRADE AND OTHER RECEIVABLES

2016 £’000

2015 £’000

Trade receivables 2,828 800

Other debtors 974 2,862

Prepayments 433 311

Accrued income 3,835 2,021

8,070 5,994

Trade receivables are stated net of a doubtful debt provision of £29,000 (2015: £28,000).


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14. DEFERRED TAX

2016 £’000

2015 £’000

Balance at start of period - 31

Credit for the period - (31)

Balance at end of period - -

Deferred tax assets have not been recognised in respect of the following items:

2016 £’000

2015 £’000

Difference of taxation allowances over depreciation on fixed assets 682 793

Tax losses available 4,956 4,022

5,638 4,815

Deferred tax assets have not been recognised on the basis that it is uncertain that future taxable profits will be available against which the Group can utilise the benefits there from.

15. DEFERRED CONSIDERATION

£’000

Balance at start of period 448

Recognised through income statement 2

450

Deferred consideration arose on the acquisition of the Coventry MAN network. This balance has been discounted over the three year period until the consideration is payable.



16. CALLED UP SHARE CAPITAL

2016 £’000

2015 £’000

265,672,644 ordinary shares of £0.01 each (2015: 105,672,644) 2,656 1,056

5,653,865 deferred ordinary shares of £0.01 each (2015: 5,653,865) 57 57

2,713 1,113

2016 Number

Ordinary shares (issued)

Balance at start of period 105,672,644

14/01/2016 – New ordinary shares issued for cash of £0.50 per share 160,000,000

Balance at end of period 265,672,644

On 22 January 2015, the Company issued 231,781 ordinary shares to an employee benefit trust by way of a joint share ownership plan. The shares were issued at the nominal price of 1p per share.

On 14 January 2016, the Company generated gross proceeds of £80.0m (£76.3m net proceeds) via the issue of 160,000,000 new ordinary shares at a placing price of 50p per ordinary share.

17. RESERVESShare premiumThis relates to the excess of consideration received for ordinary share capital issued above the nominal value of the shares.

Share-based payments reserveThis relates to the accumulated share-based payments costs recognised through profit and loss for equity settled financial instruments (share options) which have not vested prior to the reporting date.

Retained earnings/accumulated lossesThis relates to the accumulated retained earnings/accumulated losses for the current year and prior years.

Share warrant reserveThis relates to warrants issued to certain investors in CityFibre Holdings Limited to acquire shares in the Company.


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18. INTEREST BEARING LOANS AND BORROWINGS

2016 £’000

2015 £’000

Bank loan 55,280 -

55,280 -

Due within one year - -

Due after one year 55,280 -

55,280 -

The Group received a gross bank loan of £59.8 million during 2016. The bank loan carries interest at 10.0% over LIBOR, LIBOR having a floor of 1%, and has a term of 7 years.

This loan carries covenants that relate to the leverage, interest cover and ratio of net debt to PPE of CityFibre Limited and CityFibre Networks Limited, as well as the cash balance of CityFibre Holdings Limited. The Group is in compliance with its covenants for the year, and is forecast to remain in compliance with its covenants for future periods to 30 April 2018.

Maturity analysis 2016 £’000

2015 £’000

Bank and other loans

In one year or less or on demand - -

In more than one year but not more than two years - -

In more than two years but not more than five years - -

In more than five years 55,280 -

55,280 -

19. DEFERRED REVENUE

Period of performance obligation 2016 £’000

2015 £’000

Deferred revenue

In one year or less or on demand 2,864 2,152

In more than one year but not more than two years 1,251 982

In more than two years but not more than five years 3,176 2,393

In more than five years 6,664 6,371

13,955 11,898



20. TRADE AND OTHER PAYABLES

2016 £’000

2015 £’000

Trade payables 1,091 1,880

Other taxation and social security 302 270

Other creditors 2,027 1,127

Share-based payments liability (note 5) 545 654

Accruals 3,387 1,330

7,352 5,261

21. OPERATING LEASESLeases as lessorThe Group leases its network assets under operating leases which give the lessee the right to control the use of the asset. The leases are for period of between 1 and 20 years.

At the end of the reporting period, the future minimum lease payments receivable under non-cancellable operating leases are receivable as follows:

2016 £’000

2015 £’000

Within one year 8,496 2,024

In two and five years 24,026 5,753

After five years 2,034 277

34,556 8,054

Leases as lesseeAt the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable as follows:

Land and buildings Other items

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Within one year 271 315 276 117

In two to five years 303 369 274 209

After five years - - 118 -

574 684 668 326


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22. CAPITAL COMMITMENTS

2016 £’000

2015 £’000

Contracted but not provided for 33,242 21,010

33,242 21,010

Capital commitments include amounts in relation to sales contracts signed in 2016 for which construction will take place in 2017.

23. FINANCIAL INSTRUMENTSThe Group’s financial instruments comprise borrowings, cash and cash equivalents and various items such as trade receivables and payables that arise directly from its operations. The main purpose of these instruments is to raise finance for operations. The Group has not entered into derivatives transactions during the year; the Group regularly reviews hedging and treasury requirements. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and credit risk. Operations are financed through working capital management and external loan funding.

Liquidity riskIn order to maintain liquidity to ensure that sufficient funds were available for ongoing operations and future developments, the Group uses long-term finance in the form of a bank loan. This loan carries covenants that relate to the leverage, interest cover and ratio of net debt to PPE of CityFibre Limited and CityFibre Networks Limited, as well as the cash balance of CityFibre Holdings Limited.

The Group’s trade payables, other payables and accrued expenses are generally due between one and three months and the Company’s other financial liabilities were due as follows:

Interest bearing loans and borrowings - gross payments 2016 £’000

2015 £’000

Due within one year 7,645 -

Due within one to two years 7,645 -

Due within two to three years 7,645 -

Due within three to four years 7,645 -

Due within four to five years 7,645 -

Due within five to six years 67,089 -

105,314 -

Future payments of interest have been calculated based on the principal at 31 December 2016 and the prevailing interest rate. Future payments do not reflect either reductions in interest rates as the Group de-leverages, or is able to borrow at more favourable rates.



23. FINANCIAL INSTRUMENTS (CONTINUED)Interest rate riskAs at 31 December 2016 the bank loan is the only financial instrument subject to interest rate risk; management do not consider this risk to be material.

Credit riskThe Group’s principal financial assets are bank balances and cash, trade and other receivables and investments. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of financial position are net of allowances for doubtful debts. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

Trade receivable ageing 2016 £’000

2015 £’000

Under 30 days overdue 1,576 169

Between 31 to 60 days overdue 446 296

Between 61 to 90 days overdue 497 163

Over 90 days overdue 309 172

2,828 800

A provision of £1,000 was made against doubtful receivables during the year and the balance of the provision was £29,000 at 31 December 2016 (2015: £28,000).

Cash and cash equivalents are held in sterling in UK banks.

Fair valuesIn management’s opinion there is no material difference between the book value and fair value of any of the Group’s financial instruments.

Classes of financial instrumentsThe classes of financial instruments are the same as the line items included on the face of the statement of financial position and have been analysed in more detail in the notes to the accounts. All the Group’s financial assets are categorised as loans and receivables and all financial liabilities are measured at amortised cost.

24. RELATED PARTY TRANSACTIONSThe Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries.

Company Country of incorporation Principal activities

% holding of ordinary

share capital

CityFibre Holdings Limited UK Provision of telecommunication networks 100

CityFibre Networks Limited UK Provision of telecommunication networks 100

Fibrecity Holdings Limited UK Holding company 100

Gigler Limited UK Provision of internet services in Bournemouth 100

CityFibre Metro Networks Limited UK Holding company 100

Fibrecity Bournemouth Limited UK Provision of telecommunication networks within Bournemouth

100

CityFibre Limited UK Provision of telecommunication networks 100

All subsidiaries are registered at the following address: 15 Bedford Street, London, WC2E 9HE.

All transactions with subsidiary undertakings in the year eliminate on consolidation.


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Transactions with key management personnelThe key management personnel are the directors and members of the executive management team.

Key management compensation was as follows:

Key management personnel

Key management personnel

Highest paid director

Highest paid director

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Fees 1,459 1,502 290 265

Benefits in kind 55 50 11 11

Pension contributions 19 22 - -

Bonus 1,253 566 377 181

Termination fees 70 - - -

Share-based payments 548 282 180 94

3,404 2,422 858 551

Social security costs 368 285 92 63

Total emoluments 3,772 2,707 950 614

Bonuses paid in 2016 included one-off amounts in respect of the KCOM Group plc transaction, as well as a bonus in respect of work performed in 2016.

During the year, the Group was charged £12,000 (2015: £29,000) by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. Of this, £1,000 (2015: £20,000) was owed at the year-end.

During the year, the Group was charged £89,000 (2015: £255,000) by Teleconsult (2011) Ltd, a company owned and controlled by Seamus Given, a member of key management personnel during the year, in respect of consultancy fees. Of this, £nil (2015: £17,000) was owed at the year-end.

At 31 December 2016 and 31 December 2015 the directors did not consider there to be an ultimate controlling party.

During the year the Group charged Bolt Pro Tem Ltd, an associate of CityFibre Holdings Ltd, £756,000 (2015: £610,000) in respect of services provided. Of this, £91,000 (2015: £102,000) was receivable at the year-end.

25. EARNINGS PER SHAREBasic earnings per share The calculation of basic earnings per share is based on the loss attributable to ordinary shareholders and the weighted average number of Ordinary Shares outstanding during the year calculated as follows:

2016 £’000

2015 £’000

Loss for the period attributable to ordinary shareholders used in basic and diluted earnings per share (12,584,000) (6,362,000)

Weighted average number of shares used in basic and diluted earnings per share 259,989,584 105,656,134

Basic and diluted earnings per share £(0.05) £(0.06)

Potentially issuable shares are not considered to be dilutive because the Group made a loss in 2016 and 2015. Options, shares and warrants referred to in notes 5, 16, and 17 could have an effect on future reported earnings per share.



26. PENSIONSA defined contribution pension scheme is operated by the Group on behalf of the employees of the Group. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension charge represents contributions payable by the Group to the fund and amounted to £270,000 (2015: £119,000). Contributions totalling £29,000 (2015: £15,000) were payable to the fund at the period end and are included in creditors.

27. ADJUSTED EBITDAIn addition to measuring total performance in the consolidated statement of comprehensive income, the Group discloses additional analysis which the directors believe enhances the understanding of the underlying operating results of the Group. Items which are excluded from underlying operating results are as follows:

• Exceptional items are one off costs or income and not expected to recur in future periods.• Share-based payments are non-cash costs relating to remuneration of staff and the directors.• Depreciation is a non-cash cost relating to the amortisation of property plant and equipment.• Amortisation and impairment charges are non-cash costs relating to the amortisation and impairment of goodwill and intangible assets.

The following table shows the calculations of EBITDA and adjusted EBITDA:

Year to 31-Dec-16

£’000

Year to31-Dec-15

£’000

Operating loss per accounts (5,141) (6,159)

Add back:

Depreciation 3,572 1,707

Amortisation 358 233

EBITDA (1,211) (4,219)

Fees in connection with regulatory review 904 220

Share-based payments charge 908 343

Operational and financing costs in respect of the Acquisition 1,884 536

Operational and financing costs in respect of the Joint Venture - 200

Adjusted EBITDA 2,485 (2,920)

28. ACQUISITION OF NETWORK FROM KCOMOn 18 January 2016 the Group completed the acquisition of certain network assets from KCOM Group plc. The acquisition constituted a reverse takeover under Rule 14 of the AIM Rules for Companies, requiring de-listing and readmission, which occurred on 14 January 2016.

The acquisition of assets for £90.0m resulted in CityFibre adding network assets and inventory onto its balance sheet.

The acquisition was funded by an £80m placing of new equity at 50p per share and a loan facility of £100m with Proventus Capital Partners III AB, of which £35m was utilised in the asset purchase, the balance of £65m has been made available as a working capital facility for capital projects.

The Group treated this transaction as an acquisition of assets, as per IAS 16, rather than a business combination as per IFRS 3. Completion occurred on 18 January 2016, therefore this acquisition was recognised in 2016.

29. SUBSEQUENT EVENTSNo material subsequent events have occurred subsequent to the reporting date.


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Note2016

£’0002015 £’000

AssetsNon-current assets

Investments C4 134,299 49,414

Total non-current assets 134,299 49,414

Current assets

Trade and other receivables C5 6,750 7,534

Cash and cash equivalents C6 542 8,523

Total current assets 7,292 16,057

Total assets 141,591 65,471

Equity

Issued capital 16 2,713 1,113

Share premium 137,943 63,243

Share-based payments reserve C9 2,100 1,081

Share warrant reserve 17 85 85

Retained earnings (1,814) (1,359)

Total equity 141,027 64,163

Liabilities

Current liabilities

Trade and other payables C7 564 1,308

Total current liabilities 564 1,308

Total liabilities 564 1,308

Total equity and liabilities 141,591 65,471

The parent company loss for the year was £455,000 (2015: £472,000).

These financial statements were approved by the Board of Directors and authorised for issue on 24 April 2017. They were signed on its behalf by:

W G MeschDirector

Notes C1 to C10 form part of these financial statements.

Company statement of financial positionAs at 31 December 2016 Company number 08772997



Note2016

£’0002015 £’000

Cash flows from operating activities

Loss before tax (455) (472)

Finance income (18) (167)

Decrease/(increase) in receivables 114 (807)

(Decrease)/increase in payables (1,052) 931

Net cash utilised in operating activities (1,411) (515)

Cash flows from investing activities

Interest received 18 219

Loan to subsidiary (23,145) (22,975)

Capital contribution to subsidiary (59,881) -

Receipts from short term deposits - 29,000

Net cash from investing activities (83,008) 6,244

Cash flows from financing activities

Proceeds from the issue of share capital 80,000 -

Costs of issuing share capital (3,562) -

Net cash from financing activities 76,438 -

Net increase in cash and cash equivalents (7,981) 5,729

Cash and cash equivalents at beginning of period 8,523 2,794

Cash and cash equivalents at end of period C6 542 8,523


Company statement of cash flows For the Year Ended 31 December 2016

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Company statement of changes in equityFor the Year Ended 31 December 2016

Share capital£’000

Share premium

£’000

Share warrant reserve

£’000

Share-based payments

reserve£’000

Retained earnings

£’000

Total£’000

As at 1 January 2015 1,111 63,243 85 773 (887) 64,325


Loss and total comprehensive loss for the year - - - - (472) (472)

Transactions with owners

Shares issued 2 - - - - 2

Share-based payments - - - 308 - 308

Balance at 31 December 2015 1,113 63,243 85 1,081 (1,359) 64,163


Loss and total comprehensive loss for the year - - - - (455) (455)

Transactions with owners

Shares issued 1,600 78,400 - - - 80,000

Transaction costs - (3,700) - - - (3,700)

Share-based payments - - - 1,019 - 1,019

Balance at 31 December 2016 2,713 137,943 85 2,100 (1,814) 141,027




Notes to the company financial statementsFor the Year Ended 31 December 2016

C1. ACCOUNTING POLICIESThe accounting policies of the Company are consistent with those adopted by the Group with the addition of the following: InvestmentsInvestments are stated at their cost less impairment losses.

C2. LOSS OF PARENT COMPANYAs permitted by section 408 of the Companies Act 2006, the income statement of the parent Company is not presented as part of these financial statements.

C3. DEFERRED TAXThe Company has unrecognised deferred taxation of £53,000 (2015: £55,000) in respect of tax losses. The Company has not recognised any deferred tax asset due to lack of certainty over recovery of the asset.

C4. INVESTMENTS

Investment£’000

Loan£’000

2016£’000

Balance at 1 January 2016 58 49,356 49,414

Loan to subsidiary undertaking - 25,004 25,004

Capital contribution to subsidiary undertaking 59,881 - 59,881

Balance at 31 December 2016 59,939 74,360 134,299

SubsidiariesThe subsidiary undertakings of the Company at 31 December 2016 are disclosed in note 24. The Company made a loan of £74,360,000 to its subsidiary, CityFibre Holdings Limited. The loan is unsecured, non-interest bearing and repayable on demand but not expected to be received within one year.

C5. TRADE AND OTHER RECEIVABLES

2016 £’000

2015 £’000

Other receivables 6,626 7,422

Prepayments and accrued income 124 112

6,750 7,534

Other receivables include a loan to the Employee Benefit Trust of £6.6m for the subscription of shares in respect to the joint share ownership plan.

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C6. CASH AND CASH EQUIVALENTS

2016 £’000

2015 £’000

Cash at bank and in hand and short term deposits 542 8,523

542 8,523

C7. TRADE AND OTHER PAYABLES

2016 £’000

2015 £’000

Trade payables - 1

Accruals and deferred income 19 653

Share-based payments liability 545 654

564 1,308

C8. RELATED PARTY TRANSACTIONSThe Company has a related party relationship with its subsidiaries and with its directors and executive officers (see note 24).

Transactions with subsidiary undertakingsTransactions with subsidiary undertakings are disclosed in note C4.

There are no other related party transactions.

C9. SHARE-BASED PAYMENTSThe share-based payments costs have been borne by CityFibre Holdings Limited.

See Note 5 for details of the share options issued.

C10. FINANCIAL INSTRUMENTSThe main financial instruments for the Company are intercompany loan receivables and other receivables of £6.6m due from the Employee Benefit Trust.

The directors do not consider there to be a material risk of impairment with respect to these loan receivables which are due from related parties.


Network maps

Peterborough metro network113km

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Network maps

Edinburgh metro network150km


Network maps

Leeds metro network153km

Company information Directors C M R Stone (appointed 28 February 2017)W G MeschT A HartM G CollinsS M DavisR G MeschL W A M Van DoorneS Charlton

Secretary and registered officeC L Gawn 15 Bedford Street London WC2E 9HE

Company number08772997

AuditorsBDO LLP 55 Baker Street London W1U 7EU

CityFibre 15 Bedford StreetLondon WC2E 9HET 0845 293 0774

www.cityfibre.com

CityFibre Infrastructure H

oldings plc Annual R

eport 2016

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