TIDMCITY
RNS Number : 1874D
CityFibre Infrastructure Hldgs PLC
25 April 2017
For immediate release 25 April 2017
CITYFIBRE INFRASTRUCTURE HOLDINGS PLC
('CityFibre' or the 'Group' or the 'Company')
AUDITED FULL-YEAR RESULTS FOR THE YEARED 31 DECEMBER 2016
CityFibre (AIM: CITY), a leading designer, builder, owner, and
operator of fibre optic infrastructure in UK towns and cities,
today reports audited full-year results for the Group for the year
ended 31 December 2016.
Financial Highlights:
-- Turnover up 140%, to GBP15.4m (2015: GBP6.4m)
-- Gross profit of GBP13.5m, up 145%
-- Gross margin further expanded to 88% (2015: 86%)
-- Adjusted EBITDA* profit of GBP2.5m (2015: GBP2.9m loss)
-- Initial Contract Value ('ICV') of GBP75.5m added in the
period, up 225% from GBP23.2m in 2015
-- Net loss after tax of GBP12.6m (2015: GBP6.4m loss)
Operating Highlights:
-- New connections sold and acquired 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 GBP80.0m equity placing at 50p per share
-- Closing of acquisition of metro and long distance duct and
fibre assets from KCOM for GBP90.0m (the 'Network Assets') on 18
January 2016
-- Total funding package of GBP180.0m secured to fund the
acquisition and future development of the assets, comprising
GBP80.0m from the equity placing, alongside GBP100.0m in committed
debt facilities
-- Closing of acquisition of metro fibre network assets of Redcentric plc on 23 September 2016
* Adjusted EBITDA is earnings before interest, tax, depreciation
and amortisation, also excluding share-based payments and
significant non-recurring expenses. Further detail is set out in
the Financial Review section of this document.
Greg Mesch, Chief Executive of CityFibre, commented:
"2016 was truly a transformational year for CityFibre. Alongside
delivering on our stated growth strategy, the acquired network
footprint has accelerated our original business plan by up to seven
years. Over the last twelve months we have more than doubled our
contracted revenue base, added twenty nine new cities and increased
our service provider partner base to 54.
"CityFibre now has significant presence in 42 cities across the
UK and the rapid commercialisation of the Group's assets underlines
the strong demand for an alternative to BT Openreach at a national
level. We continue to see significant levels of demand from both
business and public services sectors alongside increasing interest
from mobile operators and residential broadband providers.
"With the regulatory and political landscapes now both favouring
alternative fibre investment, CityFibre has never been better
placed to capitalise on expanding its existing footprint and a
growing number of near term strategic opportunities. Current
trading continues in line with management's expectations."
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
For further information, please contact:
CityFibre Infrastructure Holdings www.cityfibre.com
plc
Greg Mesch, Chief Executive Officer Tel: 020 3510
0602
Terry Hart, Chief Financial Officer
James Enck, Head of Investor Relations Tel: 0333 150
6283
finnCap (Nomad and Joint Broker) www.finncap.com
Stuart Andrews / Christopher Raggett Tel: 020 7220
(Corporate Finance) 0500
Simon Johnson (Corporate Broking)
Liberum (Joint Broker) www.liberum.com
Steve Pearce / Richard Bootle Tel: 020 3100
2000
Vigo Communications www.vigocomms.com
Jeremy Garcia / Fiona Henson Tel: 020 7830
9701
About CityFibre:
CityFibre is the national builder of Gigabit Cities, as the UK's
largest alternative provider of wholesale fibre network
infrastructure. It has major metro duct and fibre footprints in 42
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).
Further information on the company can be found at
www.cityfibre.com
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 GBP75.5m in new ICV(1) 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 GBP15.4m (2015: GBP6.4m), 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 EBITDA(2) profit of
GBP2.5m is in line with expectations.
Financial position
Cash and cash equivalents at the end of the period totalled
GBP16.7m. The Group had drawn GBP59.8m of its GBP100.0m debt
facilities as at 31 December 2016. Accordingly, net debt stood at
GBP43.1m at period end.
Strategy
The 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 employees
There 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.
Outlook
The 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 Stone
Non-executive Chairman
24 April 2017
(1) Initial contract value (ICV) is the total contracted
customer revenues receivable up to the first contract break
point
(2) Adjusted EBITDA is earnings before interest, tax,
depreciation and amortisation, also excluding share-based payments
and significant non-recurring expenses. Further detail is set out
in the Financial Review section of this document.
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 indicators
Through a combination of organic sales and acquisitions, the
Group added 5,063 new connections sold in the period, with initial
contract value ('ICV') of GBP75.5m. This compares to 1,100
connections and ICV of GBP23.2m 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 3,383 kilometres 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 assets
On 18 January 2016, the Group closed the transformational
acquisition of certain national fibre infrastructure assets of KCOM
Group plc for a total consideration of GBP90.0m, together with an
equity placing to raise GBP80.0 million, as well as the conclusion
of an agreement for up to GBP100.0m 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 GBP90.0m 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 GBP5.0m 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 GBP23.7m.
When all connections are delivered across the 14 cities, management
estimates average business penetration of 5.0%.
Acquisition of Redcentric network assets
On 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 GBP5.0m. 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 GBP4.5m 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.
New city expansion
CityFibre signed two new city anchor contracts in 2016:
-- In March CityFibre signed a GBP3.2m, 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, GBP1.7m 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 assets
During 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 GBP17.2m. Principal
transactions among these were:
-- A 20-year, GBP2.0m 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, GBP2.0m contract with Capita for 109 school
connections on the existing network asset in Aberdeen;
-- A five-year, GBP0.7m, 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 expansion
The 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 56
kilometre 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 parks
In 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 GBP120 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 network
The Group has seen encouraging interest from carriers in its
acquired 1,100km national network. In April 2016 the Group signed a
GBP2.3m 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 Mesch
Chief Executive Officer
24 April 2017
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.
Profit and loss
Revenue increased by 140% to GBP15.4m (2015: GBP6.4m), 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.
2016 2015
GBP'000 GBP'000
Organic revenue 10,436 6,408
KCOM & Redcentric 4,927 -
commitments
Total Revenue 15,363 6,408
-------------------- --------- ---------
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 GBP18.7m from GBP11.7m in the
prior period. Excluding non-recurring costs, depreciation and
amortisation, and share-based payments charges, underlying
administrative costs were GBP11.1m, representing growth of 31% from
GBP8.4m 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 GBP7.9m (2015: GBP6.1m). 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 GBP1.0m 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 GBP7.6m (2015: GBP3.2m) and are
detailed below:
-- Depreciation increased by GBP1.9m, to GBP3.6m, 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 GBP6.6m, 3.0m greater
than the actual charge for the year.
-- During the year the Group incurred acquisition and
integration costs totalling GBP1.9m. These costs were incurred
primarily to execute the KCOM asset acquisition.
-- Non-recurring costs also included GBP0.9m 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 GBP0.9m, up from
GBP0.3m 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 GBP0.4m
(2015: GBP0.2m), reflecting further development of the Group's
network and financial management systems.
Operating loss improved to GBP5.1m (2015: GBP6.2m), largely
driven by increased gross profit of GBP13.5m (2015: GBP5.5m),
countered by the increase in administrative costs outlined
above.
The adjusted EBITDA profit of GBP2.5m is in line with
expectations and a significant improvement on the prior period
adjusted EBITDA loss of GBP2.9m. A reconciliation of operating
profit to adjusted EBITDA appears below.
Loss after tax was GBP12.6m (2015: GBP6.4m), which includes
financing costs of GBP7.3m (2015: GBP0.3m).
Balance sheet
The increase in property, plant and equipment (PPE), excluding
those acquired from KCOM and Redcentric, totalled GBP23.0m,
comprising GBP22.0m of network assets. These consisted primarily of
the GBP19.3m construction of the Group's key Gigabit City projects
in Hull, Kirklees, Aberdeen, Edinburgh, and Glasgow. The remaining
GBP2.7m 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
GBP90.6m, which included GBP0.6m of transaction costs. Of this,
GBP86.9m was classified as PPE, while GBP3.7m was classified as
inventory. GBP5.0m was spent acquiring the network assets of
Redcentric plc, of which was GBP0.1m 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 GBP3.8m to GBP4.0m during the year. The
principal cause of this increase was the classification of GBP3.6m
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 GBP0.7m (2015:
GBP0.6m). 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 GBP2.4m,
compared to a net outflow of GBP5.4m in 2015. However, when
excluding the GBP3.6m classification of network assets acquired
from KCOM as inventory, the adjusted net inflow of GBP1.2m reflects
a GBP6.6m improvement versus the prior year on a like-for-like
basis. GBP2.4m 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 GBP16.7m.
During the year the Group drew down GBP59.8m on the capex
facility entered into with Proventus Capital Partners III AB.
KCOM asset acquisition
On 18 January 2016 the Group completed the transformational
GBP90.0m 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 GBP80.0m equity placing of
160,000,000 new Ordinary Shares at 50p per Ordinary Share, along
with committed debt facilities of GBP100.0m extended by Proventus
AB, of which GBP35.0m 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 GBP5.0m per annum for those five years.
The acquired assets have been recognised on the enlarged Group's
balance sheet principally as network assets, with GBP3.6m
attributable to inventory which reflects the opportunity for sales
of indefeasible rights of use over the national network.
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 GBP35.0m term loan facility which was drawn upon deal
completion to partly fund the Acquisition;
-- a GBP35.0m 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 GBP30.0m super senior revolving credit facility ('RCF')
which will be used for the same purposes as the capex facility and
up to GBP5.0m 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 GBP65.0m
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 Year to
31 Dec 31 Dec
2016 2015
GBP'000 GBP'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
and the Joint Venture 1,884 736
Adjusted EBITDA 2,485 (2,920)
consolidated statement of comprehensive income
For the Year Ended 31 December 2016
Note 2016 2015
GBP'000 GBP'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 45 170
Finance 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 2016 2015
Basic and diluted loss per 25 GBP(0.05) GBP(0.06)
share
----------- -----------
Consolidated Statement of Financial Position
Company number 08772997
As at 31 December 2016
Note 2016 2015
Assets GBP'000 GBP'000
Non-current assets
Property, plant and equipment 9 155,159 43,987
Intangible assets 10
Investment in Joint Venture 11
1,211 905
433 609
---------- ----------
156,803 45,501
---------- ----------
Current assets
Inventory 12 3,986 190
Trade and other receivables 13 8,070 5,994
Cash and cash equivalents 16,722 9,731
---------- ----------
Total current assets 28,778 15,915
Total assets 185,581 61,416
---------- ----------
Equity
Issued capital 16 2,713 1,113
Share premium 137,943 63,243
Share warrant reserve 17 85 85
Share-based payments reserve 2,100 1,081
Merger reserve 331 331
Retained earnings (34,628) (22,044)
---------- ----------
Total equity 108,544 43,809
---------- ----------
Liabilities
Non-current liabilities
Interest bearing loans and
borrowings 18 55,280 -
Deferred revenue 19 11,091 9,746
Deferred consideration 15 450 448
Total non-current liabilities 66,821 10,194
Current liabilities
Deferred revenue 19 2,864 2,152
Trade and other payables 20 7,352 5,261
---------- ----------
Total current liabilities 10,216 7,413
---------- ----------
Total liabilities 77,037 17,607
---------- ----------
Total equity and liabilities 185,581 61,416
---------- ----------
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2016
Share-
based
Share Share Share payments Merger Retained
warrant
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 owners
New ordinary shares issued 2 - - - - - 2
Issue 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
--------- --------- ---------- ---------- --------- ---------- ----------
Comprehensive income
Loss and total comprehensive
income for the year - - - - - (12,584) (12,584)
--------- --------- ---------- ---------- --------- ---------- ----------
Transactions with owners
New ordinary shares issued 1,600 78,400 - - - - 80,000
Cost 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 cash flows
For the Year Ended 31 December 2016
2016 2015
GBP'000 GBP'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
activities
Interest received 73 222
Receipts from short-term
deposits - 29,000
Acquisition 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 - 17
Capitalised labour costs (2,946) (2,404)
----------- ----------
Net cash from investing activities (115,027) 13,782
----------- ----------
Cash flows from financing
activities
Proceeds from the issue of 80,000 -
share capital
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 5,545
Cash and cash equivalents
at beginning of period 9,731 4,186
Cash and cash equivalents
at end of period 16,722 9,731
ACCOUNTING POLICIES
The financial information for the years ended 31 December 2016
and 2015 presented in this preliminary announcement does not
constitute the company's statutory accounts for those periods. The
financial information for those periods has, however, been derived
from the company's statutory accounts. The company's Annual Report
and Accounts for the year ended 31 December 2015 has been audited
and filed with the Registrar of Companies. The company's Annual
Report and Accounts for the year ended 31 December 2016 has been
audited and will be filed with the Registrar of Companies in due
course. The Independent Auditors' Report on the company's Annual
Report and Accounts for the years ended 31 December 2016 and 2015
was unqualified and did not draw attention to any matters by way of
emphasis and did not contain statements under s498(2) or (3) of the
Companies Act 2006.
The 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 Group
CityFibre 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 accounting
The financial statements 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 standards
New 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.
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 goods
In 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 services
Contracts 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 customers
Deferred 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 consolidation
The 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 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.
Revenue
Revenue 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 equipment
Property, 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 years
Network assets 40 years
- Duct
Network assets 20 years
- Cabling
Plant and machinery 5 years
Fixtures and fittings 3 years
Motor 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 GBP6,595,000, which
is GBP3,023,000 greater than the depreciation recognised during the
year.
Intangible assets
Customer 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 assets
Whenever 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.
Inventory
Inventory 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 costs
Finance 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.
Financial liabilities and equity
Financial 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.
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 assets
Trade 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 equivalents
Cash 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.
Key judgements and sources of estimation uncertainty
The 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
equipment
The 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 and the Company's property, plant and
equipment at 31 December 2016 are disclosed in note 9 to the
financial statements.
Impairment of non-current assets
Property, 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 inventory
Certain 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 revenues
Installation 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKQDDKBKBKQB
(END) Dow Jones Newswires
April 25, 2017 02:00 ET (06:00 GMT)
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