Bringing the Gigabit revolution to UK towns and cities...Mesch and Mark Collins of a portfolio of...

CityFibre Infrastructure Holdings plcAnnual Review 2014

Bringing the Gigabit revolution to UK towns and cities

CityFibre designs, builds, owns and operates dark fibre optic networks in mid‑sized cities and larger towns across the UK. The Group operates a shared wholesale utility infrastructure model. It provides dark fibre assets capable of delivering gigabit connectivity for use by multiple service providers across distinct market segments, including public sector ICT, business market connectivity, mobile backhaul and consumer broadband.

£46.5mTotal equity raised

£11.1mNew contracts signed (+95%)

105%Revenue growth

91%Network footprint growth

01CityFibre Infrastructure Holdings plc Annual Review 2014

In our first year as a public company, we’ve gathered significant operational momentum, delivering major achievements in terms of new projects, partners and financing.

Key Highlights

Strong revenue growth in existing footprintContinued successful commercialisation

> Connected customer sites doubled, to 885 as at 31 December 2014. Reseller and service providers on-net up to 25 from 2 at the start of 2014

> £1.2m in new contract value added on the York CORE network, bringing the cumulative total to £7.3m

New footprint expansion > Peterborough: 90km anchor network

completed, 106 Council sites and 100 business customers on-net today

> Coventry: Acquisition of 180km Coventry Metro Area Network asset, adding 62% additional fibre footprint to the CityFibre portfolio

> Kirklees: First PSN framework win in conjunction with partner Easynet

> Aberdeen: First new city anchor based on aggregation of business segment demand, in partnership with Internet For Business

Fibre-to-the-Home > Landmark joint venture agreement

with Sky and TalkTalk to deploy a trial city-wide Fibre-to-the-Home (FTTH) network in York

> Project currently in-build, employing innovative deployment technologies to reduce costs

Mobile > UK’s first dark Fibre-to-the-Tower

deployment with EE, Three UK and MBNL, under a national framework agreement

> First deployment in Kingston-upon-Hull currently under way

Financial growthStrong trading across the business

> Revenue up 105% to £3.8m > Gross profit increased 121%

to £3.3m > New contracts totalling £11.1m

in value signed

Capital formationEstablished a strong balance sheet and investor base

> Raised £16.5m on admission to AIM

> Successful secondary share placing of £30m taking equity raised in period to £46.5m

> Cash and short-term deposits at period end of £33.2m

Contents01 Key Highlights02 At a Glance04 Builder of Gigabit Cities06 Chairman and Chief

Executive’s Statement08 Market Overview10 Business Model and Strategy12 Financial Review14 Peterborough Gigabit City15 Coventry Gigabit City16 Key Management

02 CityFibre Infrastructure Holdings plc Annual Review 2014

At a Glance

Corporate Timeline

Founded by an acquisition in 2011, CityFibre is the UK’s leading independent provider of fibre optic infrastructure, bringing much needed supplier diversity to service providers, integrators and carriers in medium-sized cities and larger towns across the country.

2011January 2011The Group is founded through the acquisition of several established fibre optic businesses.

2012October 2012CityFibre launches Gigler ISP brand in Bournemouth as proof-of-concept gigabit residential service provider.

December 2012CityFibre launches the York CORE network in the city as part of a strategic partnership with City of York Council.

2013November 2013CityFibre announces a strategic partnership agreement with Peterborough City Council, entailing the construction of a 90km fibre network connecting 106 council sites and schools.


CityFibre was founded in early 2011, with the acquisition led by founders Greg Mesch and Mark Collins of a portfolio of existing fibre network assets in over 50 towns and cities across the UK. These assets included the 94km network in York originally built to serve public sector sites throughout the city, as well as a Fibre-to-the-Home (FTTH) network passing 20,000 homes in Bournemouth.

Today CityFibre controls more than 543 route kilometres of fibre networks, serving 60 towns and cities in the UK. The Group manages over 200 long-term contracts with local authorities, public sector organisations and businesses, typically in conjunction with third party service provider partners.

The Group’s vision is to build “Gigabit Cities”, delivering a fibre optic infrastructure network which can provide greater data capacity and offer local authorities, businesses and consumers connectivity speeds significantly faster than legacy copper broadband services.

The Group is currently the largest independent provider of fibre infrastructure to secondary cities in the UK, which are home to 75% of digital businesses in the UK, providing gigabit capable infrastructure capable of revolutionising local economies. CityFibre currently owns significant fibre network assets in 13 major metropolitan areas, including Bath, Bournemouth, Coventry, Derby, Dundee, Hull, Newcastle, Peterborough and York, creating an established market presence from which the Group can leverage growth through provision to its more than 25 service provider partners covering the public sector, mobile network operator, business and consumer segments.

CityFibre went public in a £16.5m initial public offering on the London Stock Exchange’s AIM market in January 2014, and the Group subsequently raised an additional £30m on a secondary private placing in May 2014. The Group enjoys a well-diversified shareholder base comprised of global blue chip institutional investors.

2014January 2014CityFibre is listed on AIM with an IPO price of 60p per share.

April 2014CityFibre announces new joint venture company with Sky and TalkTalk to deploy a new fibre-to-the-home network in the City of York, plus potentially two further cities in due course.

May 2014The Group raises £30m in a secondary share offering via private placing, solidifying its financial position to capitalise on accelerating growth opportunities.

June 2014CityFibre acquires Coventry City Council’s 180km metro fibre network as part of a strategic partnership with the Council to extend and upgrade the existing Coventry CORE network.

August 2014CityFibre signs agreement with Easynet to enable local authorities around the country to benefit from transformational gigabit fibre network solutions under the government’s Public Services Network (PSN) framework, beginning with the Metropolitan Borough of Kirklees in Yorkshire.

September 2014CityFibre announces plans to build a city-wide, pure fibre network in Aberdeen creating Scotland’s first Gigabit City, in partnership with local business ISP Internet For Business.

November 2014CityFibre signs UK’s first dark Fibre-to-the-Tower deal – a national framework with EE, Three and MBNL.

04

CityFibre’s vision is to build Gigabit Cities throughout the UK. Through the deployment of a fit-for-purpose, transformational pure fibre infrastructure, we are at the forefront of bringing the benefits of gigabit speed connectivity across entire communities today.

Gigabit networks not only deliver cutting-edge consumer services, but more importantly increase governmental efficiency, supporting a new era of digital public services, enhancing educational capabilities and improving healthcare delivery. Our networks have the potential to spark the UK’s economy, helping businesses to compete globally by unlocking access to new services. When gigabit connectivity ultimately reaches the home, residents can enjoy significantly improved broadband services enriching their quality of life.

Builder of Gigabit Cities

The digital revolution is now firmly upon us. Government, businesses and citizens are now increasingly becoming aware of the importance of digital infrastructure in the UK’s towns and cities. Digital connectivity is either a barrier to growth and innovation or a catalyst for economic and social development.

Peterborough Gigabit City > 106 public sector sites connected > 100 connected businesses

York Gigabit City > £7.3m in contracted revenues

to date > Over 200 connected customer sites

Coventry Gigabit City > 180km network acquired > Encouraging pre-registered

business demand

Aberdeen Gigabit City > 52km network in-build > First new city build based on

business demand

>200Long-term contracts


543kmTotal network route

60Towns and cities served

885Customer sites connected

“ Fast broadband has become a utility to businesses. Companies wouldn’t contemplate moving to an area where electricity is only available for a few hours a day and, more and more, companies will go where the broadband infrastructure helps them to do business. Today, that means ultra-fast broadband services.”

Martin King-TurnerManaging Director of the National B2B Centre

“ For businesses in Coventry, ultra-fast networks are an absolute imperative. They are competing, not just on a city level or on a national level, but on an international stage now.”

Martin ReevesChief Executive at Coventry City Council


We are very pleased to present the first full year financial results for CityFibre Infrastructure Holdings plc (“CityFibre” or the “Group”), following its admission to AIM on 17 January 2014 and have been extremely pleased with the pace and breadth of the Group’s development over the past year. During this period the Group delivered new milestone contracts across our four key vertical markets, as well as two ground-breaking deals through the Joint Venture agreement with Sky UK Limited (“Sky”) and TalkTalk Group Limited (“TalkTalk”), and the national framework agreement with EE Limited (“EE”), Hutchison 3G UK Limited (“Three UK”) and Mobile Broadband Network Limited (“MBNL”). New city wins were also ahead of our expectations outlined at the time of the IPO in January 2014, reiterating the huge demand for dark fibre solutions across the UK.

Financial summaryRevenue for the period was £3.8m, ahead of market expectations at the time of the secondary share placing in June 2014. Gross margin of 85% marks an improvement of four percentage points during the period and demonstrates the high operating leverage inherent in the dark fibre business model. Adjusted EBITDA loss of £3.6m was also in line with our expectations, as the business continues to invest in resources to support its strong growth trajectory. The business added £11.1m in new contracted revenue during the period, reflecting the greater-than-expected number of project wins during the course of 2014. Net cash outflow before financing, and amounts placed on short-term deposit, of £8.9m reflects the high levels of capital investment and incremental resourcing undertaken by the Group to secure future growth.

Financial positionFollowing two successful equity offerings during 2014, with gross proceeds totalling £46.5m, the Group remains well-capitalised, with cash and investments at the end of the period of £33.2m, which includes £29.0m on short-term deposit. As announced in early January 2015, the Board has identified debt funding as a priority issue in the ongoing capital formation of the Group and has appointed EY as advisor in this capacity. The Group has made good headway in discussions with potential lenders in pursuit of a flexible funding structure and will advise in due course as to the progress of the debt-funding process.

Operating reviewThe Group’s two main objectives during 2014 were as follows:

> To both secure adequate equity funds and create a capital structure capable of delivering our growth aspirations; and

> To secure new anchor projects across all four of the market verticals which it serves (namely public sector, mobile, business and consumer segments).

The Company was admitted to trading on AIM on 17 January 2014, raising an initial £16.5m and establishing a strong platform from which to expand our operational footprint. Following an acceleration in new addressable business opportunities in the first half of the year, the Group raised an additional £30.0m in a secondary share placing, which closed on 9 June 2014. The two equity raises equipped the Group with a strong statement of financial position, as well as a diverse shareholder base to support its future growth prospects.

Over the period, CityFibre has demonstrated its capability to anchor new projects through a number of different methods and across a number of different market verticals, including two groundbreaking projects for the UK market:

> On 15 April 2014, CityFibre announced a Joint Venture (“JV”), with Sky and TalkTalk, to develop a trial Fibre-to-the-Home network in the City of York. The JV, which is owned 33.3% equally by the three partners, leverages CityFibre’s existing York metro network in deploying FTTH throughout the city. The announcement was the first example of two large established service providers collaborating to procure dark fibre infrastructure from a new alternative provider; and

> On 13 November 2014, it was announced that CityFibre had signed a national framework agreement to supply dark Fibre-to-the-Tower to major mobile network operators EE, Three UK and MBNL.

The Peterborough CORE project, signed in November 2013, commenced construction in April 2014 and was completed in March 2015. During construction, CityFibre ran a pre-registration campaign, “Gig Up Peterborough” to measure interest and demand in the local business market. The results of this campaign far exceeded management expectations, with over

Chairman and Chief Executive’s Statement

During this period the Group delivered new milestone contracts across our four key vertical markets, as well as two ground-breaking deals.

Greg Mesch Co-founder and Chief Executive Officer

Peter ManningChairman


1,000 businesses having registered interest to date, representing approximately 25% of all businesses in Peterborough. As at 31 December 2014, 64 businesses were signed to contracts and either connected or in the process of being connected.

The acquisition of the Coventry Metro Area Network (MAN) asset in June 2014 added 306 additional public sector sites to CityFibre’s base, increased our total footprint of metro local access fibre networks by approximately 62%, and opened up a market of over 9,000 businesses to commercial development.

Another landmark for CityFibre was the Kirklees Public Services Network (PSN) win in August 2014, in conjunction with leading national service provider Easynet Enterprise Services Limited (“Easynet”). This 72km build to connect 176 public sector sites in communities including Huddersfield, Dewsbury and Batley marks the first PSN procurement to incorporate a significant dark fibre component, and also represents CityFibre’s first engagement as a supplier to a successful PSN framework bid.

The Group made further headway in the business connectivity market during the second half of the year, announcing an anchor contract in Aberdeen with locally-based service provider Internet For Business (“IFB”) for an initial deployment of 52km of network. The deal constitutes a new city network anchoring mechanism based on aggregation of contracted business revenues, an approach which the Group believes has great potential for replication across the UK.

In November, CityFibre was pleased to announce a national framework agreement with leading mobile players EE and Three UK, along with their infrastructure joint venture MBNL, for the deployment of dark Fibre-to-the-Tower. The first deployment under the framework agreement is currently underway in Kingston-upon-Hull, comprising 62km of network.

Board and employeesOver the course of 2014, the CityFibre Board was greatly enhanced with the addition of two Non-Executive Directors:

> Sally Davis, former CEO of BT Wholesale, joined the Board of CityFibre in February 2014, and chairs the Remuneration Committee; and

> Stephen Charlton, former Managing Director at Fortress Investment Group, was appointed to the Board in November 2014, and chairs the Audit Committee.

Massimo Prelz Oltramonti stepped down from the Board in September 2014, to pursue other opportunities, and the Board wishes to thank him again for his contribution to the Group.

In response to the strong pipeline of business, CityFibre has also enhanced its wider team over the period, with the addition of experienced and talented professionals across the commercial, technical, and financial functions of the Group.

StrategyThe Group made significant headway in its Gigabit City strategy in the period, securing four new city projects and adopting new anchoring mechanisms including asset acquisition, partnership with PSN framework providers, aggregation of business market demand, and large-scale partnership with mobile infrastructure providers. We are pleased to have succeeded in diversifying the means of entry into new cities, as this had been identified as a key priority for CityFibre.

Beyond winning new contracts, the other key element of the Gigabit City strategy is successful commercialisation of the asset via additional contracted revenues which generate high returns on incremental capex. Here, the Group also continues to perform strongly. Its most commercially mature city project, the York CORE, added £1.2m in new contracted revenues during the period, the highest level seen in any year since the project’s launch. On a cumulative basis, the York CORE project now stands at Total Contract Value (TCV)/capex of 124%, up from 94% at the time of the original anchor contract.

The recently completed Peterborough CORE network build has already delivered 102 contracted business customers as at 20 March 2015, and the pre-registration campaign on the acquired Coventry CORE network is also showing a promising trajectory.

Ultimately, the Gigabit City strategy aspires to deliver fibre to virtually every residential and commercial premises in a city. The formation during 2014 of the Group’s JV with Sky and TalkTalk is a strong first step in this direction, which the Board views as a critical milestone in the Group’s long-term strategic development.

OutlookSince its admission to AIM, CityFibre has seen strong demand across all four of its market verticals, delivering new city wins at a pace ahead of market expectations. The Group continues to gain significant traction in the first quarter of 2015, announcing two new city deployments (Newport and Edinburgh) and delivering £6.0m in new contracts at high capex coverage levels. We are excited that the scale of projects currently in the pipeline is larger than originally anticipated.

The Board has therefore ensured that the business has a scaled platform from which to capitalise on these and other growth opportunities. As such, the Group continues to invest in key staff across the commercial, technical and programme management functions of the business to deliver the near term growth objectives.

We look forward to updating the market on our progress and further city wins in the current financial year.

Peter ManningNon-Executive Chairman20 March 2015

Greg MeschChief Executive20 March 2015


Global IP traffic forecast to growby 157% from 2013A to 2018F, CAGR of 21%

Explosive data growth continuesExabytes per month

Source: CityFibre and Cisco data

00 17F

16F

15F

14E

13121110090807060504030201 18F

120

90

60

30

0

150

Internet economy as a percentage of 2016 GDP

Source: CityFibre and A.T. Kearney data

Mexico

G-20

US

India

Japan

EU-27

China

South Korea

UK

Germany 4.04.2

5.3

5.4

5.6

5.6

5.7

6.9

8.0

12.4

Average internet connection speed ranking EMEA (Mbps)

Source: CityFibre and Akamai data 2014

Sweden

Netherlands

Ireland

Czech Republic

Finland

Norway

Belgium

Israel

Romania

Denmark

UK

Switzerland 14.514.114.013.9

12.311.711.411.411.411.3

11.210.7

Behind this growth in the consumer space lies a dramatic proliferation of internet-connected devices and the huge popularity of over-the-top video services such as Netflix, Amazon Prime Video, BBC iPlayer and many others.

Mobile internet traffic is growing three times faster than internet traffic as a whole, underlining the growth in intensity of usage as smartphones and tablets have become a global mass market.

In the business and public sector markets, the rapid adoption of cloud-based services as well as greater data-intensity of usage patterns are key drivers of traffic growth.

Against this background of explosive data growth, consumers, businesses, government and service providers all variously struggle with issues of capacity, price/performance, and availability of fit-for-purpose infrastructure.

In some cases, the level of utilisation of current generation broadband connections is already pushing or exceeding the capabilities of what these legacy technologies based on copper or coaxial cable can deliver.

Various technological enhancements to these legacy technologies have been proposed, but they remain largely unproven, given the inherent variation in performance of the underlying copper or coaxial transmission medium.

The only proven technology capable of scaling with bandwidth demand and delivering a consistent level of performance for all users, is pure optical fibre, end-to-end.

However, the UK ranks at the bottom of the league table against all other European countries, and many in Asia- Pacific, in terms of pure fibre network adoption. This lack of investment in new future-proof technology is worrisome, given the significance of the internet to the UK economy.

The UK as a whole generates a higher proportion of GDP from the internet economy than any other advanced nation, estimated at more than 10%. This puts the internet economy on a par with all financial services in the UK, or all of the country’s trade with the European Union.

And it’s not just the headline national figures which should give pause for thought. Poor connectivity hits hard at a local level, from business to business. Research from the UK Federation of Small Business indicates that only 15% of small businesses are satisfied with their current connectivity arrangements, though a clear majority identifies broadband as a key element in the long term prospects for their business.

As regional cities and towns across the UK work hard to redevelop their local economies and improve their attractiveness to businesses and residents versus the overwhelmingly dominant London and Southeast region, they have in common one key handicap versus the national capital – diversity of supply in fibre connectivity.

As a result, service providers catering to public sector bodies and businesses are wholly reliant upon the national incumbent’s product suite, pricing, and technology roadmap. Given these constraints, their ability to differentiate on either product or pricing is inherently limited.

The only solution capable of delivering long-term improvements in both performance and economics for service providers across all segments of the connectivity space – public sector, mobile, business and residential – is one based upon dark fibre. CityFibre, with its Gigabit City vision for the UK, has established itself as the partner of choice in this arena.

Market Overview

Global internet traffic volumes trebled in the 2010–14 period, and industry forecasts expect that traffic will grow at a compound annual growth rate of 21% to 2018.

09

Dark fibre explained

Fibre optic cables are the globally acknowledged enablers of superior, future-proof internet connectivity. These cables are comprised of fine strands of glass, each roughly the width of a human hair, which can transmit theoretically unlimited amounts of data, unlike legacy technologies such as copper and coaxial cables.

The only constraints to data transmission over fibre are the optoelectronic appliances placed at either end of the cable to “light” it. Current industry standards provide optoelectronics solutions capable of delivering relatively affordable “lit fibre” connections of up to 10Gbps. For context, a 10Gbps connection would allow an entire full-length feature film in High Definition to be downloaded in four seconds.

However, as user demand continues to grow, and advances in optical manufacturing drive reductions in unit costs, we may naturally expect electronics to deliver even faster connections to carriers, service providers and end users in future.

As electronics evolves, the one key factor which doesn’t change is the superior transmission capacity of the underlying fibre optic cable, which in its “unlit” form (i.e., before the optoelectronic equipment connected) is called “dark fibre.”

The dark fibre business model is an attractive one, due to its simplicity, cost advantages, and significant operating leverage.

Key features include: > Long economic lifetime, of at least 20 years, and possibly

as much as 40 years. > No cost or technology risk associated with advancements

in optical networking technologies. > Low operating and maintenance costs. > Near-infinite transmission capacity in each fibre strand. > Significant latent capacity – a single fibre optic cable may

contain up to 1,008 fibre strands. > Shared infrastructure model with abundant capacity for

multiple customers across various market segments. > Complete flexibility for the customer to differentiate services

and user experience.


A unique shared infrastructure model based on delivering high ROI from driving maximum network utilisation across public sector, business, mobile and residential broadband market verticals.

CityFibre’s core business activities cover four principal fibre product offerings:

> Point-to-Point Dark Fibre – Fibre connectivity between two or more points; for example a data centre connecting to another data centre. A CityFibre customer purchasing point-to-point dark fibre will typically commit to a multi-year lease contract and install its own optical equipment to transmit data via the fibre.

> Fibre-to-the-Premises (FTTP) – Fibre connectivity between an office building, public sector or other location and the internet. These fibre connections are leased under multi-year contracts to public sector-focused or business-focused service providers to enable gigabit speed services to their customers, and may comprise either dark fibre or basic Ethernet service.

Phase OneAggregated Demand

The Group commences operations in a city by first aggregating demand for long-term contacts to build a network to provide initial fibre capacity. This contract may come via partnership with an ICT provider to the public sector, or potentially a mobile infrastructure provider or broadband connectivity provider, and typically, the Group will seek to secure revenues that will meet 50-100% of the cost of building the network in the phase one deployment. A large volume of fibre capacity is deployed and the utilisation of the network under the anchor contract will usually be less than 5% of the total fibre capacity.

Phase TwoTargeted Growth

Following construction of the network the Group targets incremental public sector customer sites (such as schools, the NHS, WiFi and CCTV providers), businesses and mobile base stations, to build up utilisation of the remaining 95% of the network that is available for use. CityFibre’s detailed approach to network planning means that, where possible, the route of the network deployed to serve the initial contract is optimised to bring it within close proximity of other potential addressable customers. The Group’s target is for 80% of local businesses to be within reach of a typical network. Due to the density of the initial network deployment, incremental connections to the network typically require significantly lower capex, resulting in coverage ratios well above 100%.

Phase ThreeConsumer and Business market

Over time the Group will seek to leverage the local access fibre network in a city to penetrate the residential and small business FTTH/FTTP market, on the basis of contractual commitments from service providers active in these segments.

The JV between CityFibre, Sky and TalkTalk marks the beginning of Phase three of the strategy in York. The JV is deploying an FTTH network in the city, leveraging the existing CityFibre asset in York to reduce deployment costs and speed time-to-market. It is anticipated that the network will see a commercial service launch in 2015.

Creating a Gigabit City:

> Fibre-to-the-Tower (FTTT) – Fibre connectivity between a mobile operator’s cell site and its core network. These fibre connections are leased under multi-year contracts to mobile operators and wireless providers enabling high-speed mobile data services such as 4G.

> Fibre-to-the-Home (FTTH) – Fibre connectivity between a home and the internet. These fibre connections can be leased under multi-year contracts to consumer service providers to enable gigabit speed broadband to their consumer customers.

Growth strategyCityFibre’s approach to deploying and commercialising fibre infrastructure is based on pre-committed long-term contracts in towns and cities lacking in alternative networks, which provides a good environment for investment in long-term yield generating infrastructure.

The Group’s vision is to construct “Gigabit Cities,” delivering a fibre optic infrastructure network which can provide greater data capacity and offer local authorities, businesses and consumers connectivity speeds significantly faster than legacy copper broadband services. The Directors believe that, as has been demonstrated in more developed fibre markets worldwide, the availability of a state-of-the-art fibre network to serve all aspects of a city’s economy can bring long-term transformative socioeconomic benefits. The Board believes there is an increasing market opportunity to deploy and commercialise fibre optic infrastructure in many towns and cities, especially those where current communications infrastructure is poor and infrastructure competition is low.

Business Model and Strategy

1 2 3


Consumer ISPs:Gigabit fibre to the home

SME ISPs:Gigabit fibre for small businesses

Mobile operators

Business & enterprise market

Additional public sector:CCTV, traffic control, Wi-Fi etc

Public sector network providers:Schools, NHS, council sites etc

The final frontierWith an extensive and high-density network already covering the city and providing a high-capacity backbone capable of serving a large residential market, CityFibre is in an ideal position to build right into each home on a more economical basis – delivering consumer ISPs a GPON-based distribution network under highly attractive contractual terms.

Harvesting increasing network densityA typical Gigabit City may have 3,000 – 10,000 businesses, the vast majority of which are SME/SOHO concerns. Demand is aggregated via local and national SME-focused ISPs, including both point-to-point additions to the core metro local access network and extensions into a Gigabit Passive Optical Network (GPON) design.

A natural network extensionA well-planned and optimised anchor contract network is routed past the majority of mobile cell sites in a Gigabit City, to provide maximum future flexibility. This makes connecting the sites a relatively capex-light “no-brainer,” with high incremental returns. Alternatively, mobile cell sites could also be a alternative anchoring opportunity.

Significantly higher operating leverageLarge business and enterprise customers are targeted via national reseller channel partners, leveraging the increasingly dense network footprint. Alternatively, aggregated business demand around office parks and commercial districts may be an alternative anchoring opportunity in its own right.

Improving return profileAdditional council sites (public Wi-Fi, CCTV, traffic control, blue light service) are added to the core metro local access network via integrator partners, also under long-term contracts, but with much lower incremental unit capex, and thus shorter payback periods.

A solid foundationTypically c.100 public sector sites (schools, libraries, data centres, etc.) are connected under a long-term anchor contract with a systems integrator, with contracted revenues providing 50–100% coverage of the initial build cost, but utilising only a fraction of the deployed fibre capacity in the core metro local access network. Optimised network design offers maximum flexibility for future capacity utilisation.


Terry HartChief Financial Officer

The adjusted EBITDA loss is in line with expectations at £3.6m, a 21.9% increase on the prior period adjusted EBITDA loss of £3.0m, and this is largely attributable to increased resource costs to expand the business.

One-off finance income of £0.6m arose on conversion of loan notes at the IPO. Finance costs have fallen from £2.1m to £0.3m in the period also due to conversion of loan notes.

The resultant loss on ordinary activities before taxation was £7.0m in the period, versus £6.3m in the prior period.

EquityDuring the period the Group successfully raised £46.5m (before expenses) in new equity through the completion of an IPO in January followed by a secondary placing in June.

On 17 January 2014, CityFibre Infrastructure Holdings plc was admitted to trading on AIM via an IPO, which generated gross proceeds of £16.5m (£14.9m net proceeds). Following this placing there were a total of 52,314,648 ordinary shares in issue.

As part of this process, the loan note investments in CityFibre Holdings Limited, a subsidiary of the Company, were hived up into CityFibre Infrastructure Holdings plc. The loan notes, together with accrued interest and applicable discounts, converted into ordinary shares valued at £14.7m at the IPO placing price of 60p per share.

On 9 June 2014, the Company generated gross proceeds of £30.0m (£28.7m net proceeds) via the issue of 42,857,142 new ordinary shares at a placing price of 70p per ordinary share.

During the period, the Group has issued share options over 15,579,902 shares to employees and management, of which 9,927,527 have been issued to an employee benefit trust by way of a joint share ownership plan. At the end of the period, the total number of ordinary shares in issue amounted to 105,440,863.

The Directors believe that the Group’s progress in fundraising activities during the period enables CityFibre to approach the future with a strengthened capital structure as it executes the business plan communicated to the market.

Financial Review

CityFibre Infrastructure Holdings plc acquired CityFibre Holdings Limited on 9 January 2014. The results reflect the first year of trading post-IPO. The comparative results for the year to 31 December 2013 relate to the trading performance of the CityFibre Holdings Limited group of companies.

Financial performanceRevenue of £3.8m was generated primarily from secure long-term contracts and largely from counterparties serving public sector end-customers with a very high propensity to renew at the end of the contract term. The total number of connected customer premises across the Group’s portfolio of metro fibre networks at period end was 885, an increase of 90% from 31 December 2013.

Revenue growth of 105% year-on-year arose from expansion of existing networks, with initial revenues from new contract wins commencing in the second half of the period. The York CORE network added £1.2m in new contracted revenues during the period, bringing the total level of contracted revenues to cumulative capex to 124%, up from 94% under the original anchor contract.

Gross profit of £3.3m increased by 117%, with gross margin expanding from 81% to 85% during the period, reflecting the high operating leverage inherent in the operation of dark fibre networks.

Administrative costs increased to £10.7m in the period from £5.7m in the prior period. The movements include:

> Share-based payment charges of £1.4m recognised in relation to the share option issues in the year (there was no charge in the prior year);

> Non-recurring costs of £0.9m; £0.3m in relation to professional fees associated with fundraising activities and staff bonuses of £0.6m in respect of performance leading up to the IPO;

> Staff costs increased by £1.6m, excluding the share-based payment charges and staff bonuses detailed above, compared to the prior year. On a like-for-like basis staff costs disclosed in note 4, excluding share-based payments, increased by 32%;

> Depreciation and amortisation increased by £0.3m compared to the prior year; and

> Other general administrative costs increased by £0.8m in the year.

The Group has made a number of key appointments in the year and invested in an organisational structure that is positioned to expand the business. During the period this has resulted in significant business development progress, which the Directors expect to continue. At period end, Group full-time equivalent (FTE) headcount was 76, up from 33 at 31 December 2013.


Financial positionProperty, plant and equipment (PPE) is stated after depreciation at £31.8m (2013: £19.3m), primarily reflecting in-progress construction in Peterborough, incremental contract growth in York and the legacy footprint, the acquisition of the Coventry MAN network asset and the first phase of the Hull network construction.

The £0.8m investment in associated companies reflects the Group’s 33.3% stake in the York FTTH JV company (Bolt Pro Tem Limited), arising from the contribution of a right-of-use over the Group’s York network asset to the JV (see note 11). The Group provides services to the JV, which are recharged as performed.

Acquisition of PPE totalled £14.1m, comprising the £9.2m fair value of the acquired Coventry MAN network and £4.9m of other capital expenditure, largely relating to new projects and incremental contracts. Services over the Coventry MAN network are provided to Coventry

City Council over the 15 year contract term. The difference between the fair value of the network and the consideration, of which some was deferred (see note 15), has been recognised as deferred revenue (see note 1).

After the completion of the IPO all convertible loan notes were converted into equity, exercising the derivative conversion option included in the loan notes, following an agreed settlement plan with loan note holders. Additionally in January 2014, the fair value of the warrant reserve of £0.7m was discharged by means of cash settlement (see note 18).

At the period end, the Group had an outstanding loan with Citibank of £2.6m, net of unamortised issue costs, secured on certain long-term revenues and assets.

CashflowOperating cashflow for the period was a net outflow of £3.6m, this includes a working capital benefit of £1.2m and

one-off items in respect of bonuses of £0.6m and professional fees in respect of fundraising of £0.3m; otherwise, operating cashflow reflects EBITDA, after taking account of a share-based payments charge of £1.4m.

Net proceeds from the IPO and secondary placing were £43.6m. Other principal movements in financing cashflow included a payment of £0.7m to extinguish outstanding warrants, together with £1.1m in repayments, including interest, in respect to the Citibank facility. The Group’s closing cash position at the end of the period was £33.2m, of which £29.0m was on short-term deposit.

Terry HartChief Financial Officer20 March 2015

Case Study: Fibre-to-the-Tower

The problemIn the city of Kingston upon Hull, major UK mobile network operators EE and Three UK, along with their infrastructure management subsidiary MBNL, were seeking an alternative to their existing solutions for connecting cellular towers back to their core networks – one which could provide them with superior price/performance characteristics, as well as flexibility for expanding capacity in future.

The solutionEE, Three UK and MBNL opted for CityFibre’s dark fibre solution for improving the connectivity of their cell sites in Hull, and in November 2014 signed a long-term contract with the

Group for the UK’s first dark Fibre-to-the-Tower (FTTT) deployment. The 62km network currently under construction by CityFibre will connect a significant number of sites for the operators, primarily in central Hull, delivering the significantly enhanced price, performance and scalability metrics they desire.

Moreover, the Hull deployment is the first under a national framework agreement between CityFibre and the three leading mobile network operators, with the potential to migrate thousands of cell sites away from existing managed Ethernet leased lines services in favour of CityFibre’s dark FTTT solution.

CityFibre’s partnership with EE, Three UK and MBNL is a huge endorsement of mobile network operators’ growing need for scalable and flexible bandwidth solutions for cell site connectivity. A recent survey of global operators undertaken by industry publication Heavy Reading confirms that two thirds envisage that dark fibre-based solutions will play a significant role in their technology road maps for cell site connectivity in future. As the established partner of choice for mobile operators in the UK, CityFibre is well positioned to capitalise on this huge market opportunity.

“With our customers’ data usage rising all the time, driven on by the rapidly growing adoption of 4G, a more flexible and cost effective backhaul capacity solution is hugely important so that we can keep giving a world-leading mobile experience. This is a completely new model for the industry, set to provide a much-needed change to the economics of capacity management.”

Fotis Karonis Chief Technology Officer at EE


Peterborough CORE

Reproduced from Ordnance Survey digital map data © Crown copyright 2014. All rights reserved. Licence number 0100031673.

LEGEND:

By Date DescriptionRev.

FTTH cabinet feeder upgrade

A1

Cell site - Vodafone

Additional incremental project build

Business/Commercial Area

Peterborough core site

FTTH build area under consideration

Cell site - MBNL

Peterborough core network

Drawn by:

Checked by:

Date:

Date:

Project

24/09/2014

24/09/2014JS

JM

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

It was not only the public sector that was struggling with its connectivity. Many businesses throughout the city were being suffocated by a lack of bandwidth and some business parks were languishing to the extent that businesses were leaving in a search for adequate connectivity. Local campaign group ‘Yes to Fibre’ highlighted the connectivity issues suffered by thousands of Peterborough’s businesses and had already gathered over 200 businesses to petition for access to a pure fibre network.

SolutionCityFibre worked closely with Peterborough City Council and Serco to develop a plan to build a new city-wide fibre infrastructure for use by both business and the public sector. Based on a strong initial indication of demand, CityFibre proposed a private sector investment to build a local access fibre network throughout the city, beginning its transformation into a Gigabit City.

CityFibre announced the Peterborough Gigabit City project in November 2013. The project embraces a comprehensive fibre strategy to bring gigabit speed connectivity to all of Peterborough’s businesses, public sector users and to lay the foundation for future expansion to Fibre-to-the-Home.

The first phase of the network project began in April 2014 and was completed on time and on budget in February 2015. With over 90km of new duct and fibre infrastructure deployed to CityFibre’s “Well Planned City” approach, a design methodology that ensures sufficient network and fibre capacity for current and future needs providing an efficient and future-proof open access network.

In support of the project CityFibre and Peterborough City Council entered into a 20-year strategic partnership to ensure the city maximises the benefits from CityFibre’s private investment in the city. The network, known as the Peterborough CORE, is demand-led. This means that beyond the initial build, roll-out will be triggered in areas with sufficient demand from the public or private sectors. In order to maximise the reach of the CORE, CityFibre launched the “Gig-Up Peterborough” demand aggregation campaign to stimulate support from local businesses and ISPs. At the end of 2014 1,000 businesses had pre-registered their interest on the Peterborough CORE website, with 64 being converted to binding contracts.

Case Study: Peterborough Gigabit City

Peterborough is CityFibre’s first Gigabit City project delivered from anchor contract to completed build. It is widely utilised by both public and private sector and has transformed the city’s digital capabilities.

“ If we are to attract new businesses into the city and allow existing businesses to continue to flourish, then a higher emphasis must be placed on the infrastructure links of the future.”

Neil DarwinChief Executive of Opportunity Peterborough


ChallengeWith hundreds of public sector sites and schools requiring connectivity, Coventry City Council relied on a multitude of separate contracts with the city’s incumbent provider. As the number of sites requiring connectivity increased and their bandwidth demands continued to grow exponentially, the Council found itself penalised by conventional pricing mechanics, disincentivising them from committing to the high speed services they needed.

In 2008, in a forward-thinking effort to take control of their connectivity, the Council decided to commission a bespoke, city-wide fibre network enabling them to provide near unlimited speeds on a future-proof digital infrastructure. The “Invest to Save” project enabled the Council to provide a high speed, low cost, scalable data network and internet access for schools, libraries and other Council establishments. It also enabled it to eliminate the significant cost of line rental to commercial broadband providers.

Systems Integrator Optilan was chosen to design and build the network. A 142km Metro Area Network was deployed and Optilan was retained to light and manage it on behalf of the council. Over the next few years the network was extended to approximately 180km.

Despite the success of the project in terms of connectivity and cost efficiency, Coventry City Council began to explore options that would enable it to hand over the operation and support of the network to a commercial vehicle with the expertise necessary to maximise its benefit to the city.

SolutionIn June 2014, CityFibre was given permission to acquire the network, entering into a strategic partnership with Coventry City Council. This long-term agreement gave the council a right of access to continue provision of services to its estate. CityFibre promptly launched

the network under the Coventry CORE brand, joining its growing stable of CORE metro networks.

In order for the network to support next generation connectivity services for the city’s business community, central to CityFibre’s plans to extend and commercialise the asset, a meter by meter survey of the network, its duct and fibre cables was conducted and an extensive programme of network upgrades was begun.

As with all its Gigabit City projects, CityFibre began a pre-registration campaign to map demand. With support from the council and Coventry and Warwickshire Chamber of Commerce, the GigUp Coventry campaign was launched at an event attended by more than 50 local businesses.

Mapping demand enables CityFibre to identify clusters or areas such as business parks to which the network could be extended. Once identified, demand can be aggregated to the point that a compelling business case can be created, and the network extension to the area can be approved. CityFibre actively stimulates demand in these areas to ensure the network continues to grow, bringing it within reach of more businesses and increasing its profitability.

A portfolio of Internet Service Provider partners and resellers were quick to sign-up to sell services over the Coventry CORE. Able to offer services up to 100 times faster than the UK’s average speed, the partners have identified and exploited the potential for them to differentiate their services, providing them with a significant competitive advantage.

To date, pre-registration and demand aggregation activities have driven nearly 400 registrations of interest from Coventry businesses, and a number of business districts are now planned for connection to the network.

Case Study: Coventry Gigabit City

CityFibre’s acquisition of Coventry City Council’s metro fibre network has provided its biggest active fibre footprint. With over 300 council sites taking services, CityFibre is further commercialising the asset providing connectivity to Coventry’s business community.

“ As a Gigabit City, Coventry can now set itself alongside the most digitally advanced locations around the world and we look forward to the numerous social and economic advantages that such a status will bring; driving economic investment and catalysing business start-ups.”

Cllr Damian Gannon, Coventry City Council


Greg Mesch Co-founder and Chief Executive OfficerWith over 25 years of telecom, internet and technology-based experience behind him and five companies successfully built from start-up phase, Greg is an expert when it comes to business plan development, management team building and the capital formation of high growth, fibre-optic based telecom companies.

Greg had extensive involvement in the founding of Esat Telecom, assisting in its early stage capital formation, its core product positioning and network implementation. Esat was later sold to BT for over €1 billion. He went on to make the founding investment in Versatel Telecom NV. Versatel operated in Holland, Belgium and Germany building one of the largest fibre-based infrastructures in those markets. He was instrumental in the development of its business plan, recruiting the core management teams and raising over €1.5 billion in capital.

Mark CollinsCo-founder and Director of Strategy and Public AffairsMark Collins has over 20 years’ of experience in the telecommunication industry. He was founder of Equador Consulting, a firm specialising in the development of early stage telecoms companies including Esat Telecom, Versatel Telecom, NTL and Completel. Equador was recognised in 2000 as the UK’s fastest growing TMT company in the Sunday Times Fast-track 100 awards. More recently, Mark was founder and CEO of the mobile media firm Muzicall, recognised in 2009 as the UK’s second fastest growing mobile media firm.

Terry HartChief Financial OfficerTerry Hart has over 20 years’ experience in Financial, Commercial and Operational roles, and since 2000 has specialised in telecoms and technology. As UK Finance Director of Easynet Group plc, Terry provided the financial leadership to manage the business through high growth, including the management of the investment programme for the first national roll-out of unbundled broadband and its launch to consumers and businesses. Terry later became UK Managing Director and prepared the business for the successful sale to BSkyB.

More recently Terry was CEO and previously CFO of Telstra International EMEA, where he significantly improved business performance through restructuring and repositioning the company to focus on large managed services contracts. Earlier in his career, Terry was FD of Serco Aviation and trained as a Chartered Accountant with BDO.

Rob HamlinDirector of Business DevelopmentRob Hamlin has over 12 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 the BT, TalkTalk, the BBC, ITV, Channel 4, and Five.

Key Management


James Thomas Director of OperationsJames Thomas has over 20 years’ experience in the telecoms and technology sector, having been most recently the CFO of euNetworks, a metro fibre business, where he oversaw the raising of €73m of financing and two successful acquisitions. James also was the Group Finance Director for TalkTalk Telecom Group Plc and the Finance Director of the TalkTalk business through its period of hyper-growth whilst owned by the Carphone Warehouse. Prior to this, James worked for Deloitte and Andersen as a management consultant, providing strategy, operational and financial services to technology, media and telecoms clients. He is a qualified chartered accountant, having qualified with Arthur Andersen, and has a Master of Business Administration from Manchester Business School.

John FranklinDirector of EngineeringJohn Franklin is a 24-year veteran of the telecommunication and telecommunication infrastructure sectors. Prior to joining CityFibre, John was COO of London-based pan-European metro fibre operator euNetworks, managing engineering, IT, procurement, service delivery and service management across multiple countries. John previously enjoyed a distinguished 10-year career in senior managerial positions at Level(3) Communications, ultimately managing a 500+ employee team as Senior Vice President of Capacity Management & Deployment. He has also held senior technical roles at BT Group, Ericsson and Alcatel-Lucent.

Seamus GivenDirector of ConstructionSeamus Given is an expert in the field of fibre-optic network planning and implementation, with over 20 years’ experience in design and construction of international Telecoms networks. He has occupied roles as MD and Group Contracts Director of Ashbourne Communications and Broadband Services International whilst also co-founding Leap Broadband, a wireless operator providing business services in Ireland. Most recently he also co-founded Industria, a leading provider of broadband network and entertainment solutions to operators throughout Europe.

James Enck Head of Corporate Development and Investor RelationsJames Enck has 18 years of broad capital markets experience in the telecom arena. As a sell-side equity analyst, he covered the European incumbent, altnet and cable space, with a focus on emerging disruptive technology themes. He later joined a $3bn principal investing group within Merrill Lynch, covering the full TMT spectrum across the capital structure, from senior debt to private equity. He has served as an adviser to KPN, Voicesage, Seim & Partner, Wentworth Capital, STL Partners, and Diffraction Analysis, and in 2009 he co-authored a ground-breaking OECD report into the economic benefits of NGA.

CityFibre Infrastructure Holdings plc15 Bedford StreetLondon WC2E 9HET: 0845 293 0774

www.cityfibre.com

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