Cityfibre Regulatory News (CITY)

CITYFIBRE INFRASTRUCTURE HOLDINGS PLC

('CityFibre' or the 'Group' or the 'Company')

AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

CityFibre (AIM: CITY), a leading designer, builder, owner, and operator of fibre optic infrastructure in UK towns and cities, today reports full-year results for the Group for the year ended 31 December 2015.

Financial Highlights:

· Turnover up 67%, to £6.4m (2014: £3.8m)

· Gross profit of £5.5m, up 68%

· Gross margin further expanded to 86% (2014: 85%) 

· Adjusted EBITDA loss of £2.9m, down from £3.6m in 2014

· Total Contract Value ('TCV') of £23.2m added in the period, up 109% from £11.1m in 2014

· Net loss after tax of £6.4m, improving from £7.0m in 2014

Operating Highlights:

· Direct fibre connected customer premises up to 1,200, from 885 in the prior period

· Completed route kilometres of ducted fibre increased to 743km, from 543km in 2014

· Service provider relationships numbered 41 at period end, up from 25 in 2014

· Three new city-wide metro duct and fibre infrastructure construction projects won: Newport, Edinburgh and Glasgow

· Master Services Agreement signed with Vodafone allowing for delivery of dark fibre across its footprint

· Joint Venture with Sky and TalkTalk progressing with delivery of gigabit speed FTTH within target economics. Sky and TalkTalk's Ultra Fibre Optic (UFO) brand launched to residential customers

· Acquisition of 24 city metro and national network assets (outside Hull and East Yorkshire) (the 'Acquisition') from KCOM Group plc ('KCOM'), for a consideration of £90.0m in cash

Post Period End Highlights:

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

· Closing of acquisition of metro and long distance duct and fibre assets from KCOM (the 'Network Assets') on 18 January 2016

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

· Combined footprint (including projects under construction) of 2,150 route kilometres of metro duct and fibre assets and 1,100 route kilometre national ducted backbone network, addressing 26,000 public sector sites, 7,400 cell sites, 260,000 businesses and 3.7m homes in 37 towns and cities

· Southend-on-Sea anchor contract secured, 50km network to serve 120 public sector sites

· First new business on the acquired national long haul Network Asset in deal with SSE Enterprise Telecoms

· Year-to-date 2016 showing strong momentum, with £37.5m in new TCV including revenue committed under the Acquisition, 101 new customer connections and 107 kilometres added on the legacy CityFibre footprint, and 450 connections sold on the acquired metro footprint within 90 days of the acquisition close

· First quarter 2016 moved into positive adjusted EBITDA

Greg Mesch, Chief Executive of CityFibre, commented:

"I'm very pleased to report this set of results for 2015, a year which saw the Group fully deliver on its organic growth strategy, as well as making a truly transformational acquisition which advances our footprint expansion by five to seven years. We have more than doubled the contracted revenue on the books, added three new cities, and increased our service provider partner base to 41 relationships. The addition of the former KCOM assets to the portfolio now gives us significant presence in 37 cities across the UK, and now opens up our wholesale model to 24 of the top 30 cities outside London. So far in 2016, we've demonstrated rapid commercialisation of the acquired assets, which further underlines the strong demand for an alternative to BT Openreach at a national level."

For further information, please contact:

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 37 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 26,000 public sites, 7,400 mobile masts, 260,000 businesses and 3.7 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 very pleased to present this second set of full year financial results for CityFibre Infrastructure Holdings plc ('CityFibre' or the 'Group'). It was a truly momentous year for the Group, with significant footprint expansion on both an organic and inorganic basis. We entered three new markets - Newport, Edinburgh and Glasgow - with Edinburgh comprising two anchor deals with lifetime total contract value ('LTCV') of c.£20.0m, at a very high capex coverage level. We continued to gain traction with both local/regional and national service provider partners, who numbered 41 at the year end.

The year culminated in our announcement of the acquisition of certain national network assets from KCOM Group plc, an acquisition which accelerates our expansion by between five and seven years, more than doubles our metro network footprint, adds a 1,100km national core network to our portfolio, and establishes CityFibre as a national alternative to Openreach with significant presence in 37 UK towns and cities.

Overview of results

The Group added £23.2m in new TCV during the period, an improvement of 109% from 2014, due to both strong new city wins as well as incremental sales growth in existing cities. Revenue for the period was £6.4m (2014: £3.8m), up 67% versus the prior year period. Gross margin of 86% marks an improvement of one percentage point during the period and demonstrates the improving operating leverage inherent in the dark fibre business model as we continue to focus on writing highly profitable new business. Adjusted EBITDA loss of £2.9m is in line with expectations and marks a reduction of 20% over the previous period.

Financial position

Cash and cash equivalents at the end of the period totalled £9.7m. In anticipation of the close of the Acquisition early in 2016, the Group redeemed the outstanding portion of the Citibank credit facility, totalling £1.7m, in December 2015. As a result, the Group had no interest bearing liabilities at 31 December 2015.

Strategy

The Group continues to execute its "anchor-then-commercialise" strategy across all market verticals. The addition of the Network Assets to the portfolio of cities gives us enhanced scale and relevance to our service provider partners, both local/regional and national, and KCOM becomes our largest customer, anchoring across 24 footprints, 21 of which are entirely new to CityFibre.

The Group has a stated medium term aspiration to expand to 50 cities, comprising an addressable market of approximately 10,000 mobile cell site locations, 35,000 public sector sites, 350,000 businesses and 5 million homes. Additionally, the Group aims to have relationships with approximately 100 service provider partners within three years, from 46 today.

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. The Board did create a non-statutory sub-committee dedicated to Risk and Strategy, reflecting the many and various changes and proposed changes affecting the structure and function of the UK broadband infrastructure market. This committee considers, amongst other items, the potential long-term impacts on the Group of Ofcom rulings around regulated dark fibre pricing and measures to protect the interests of shareholders.

The Group's resources during the second half of financial year 2015 were intensely focused on closing the Acquisition and associated financing projects. The senior executives, managers and employees of CityFibre have significantly contributed to the creation of the enlarged Group. I would like to thank them for their consistent hard work and support, particularly during the acquisition, fundraising and re-admission to AIM.

CityFibre is fully supportive of apprenticeship schemes, employee volunteering within the local community, and has selected The Stroke Association as its charity of choice for 2016.

Outlook

The Board is enthusiastic about the Group's prospects in 2016 and believes that management's investment in both organic and inorganic footprint expansion in 2015 positions it strongly for future growth. Our aspiration is to successfully launch up to 10 Gigabit Cities in the course of 2016 across the acquired footprint, as well as continue to selectively pursue green-field organic opportunities. 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. We continue to assess the potential impacts of recent Ofcom decisions around availability and pricing of dark fibre, and to explore possible risk mitigation, including appeal.

Peter Manning

Chairman

15 April 2016

Operating review

The Group continued to expand its network footprint coverage during the financial year, adding three new cities to its growing portfolio of projects. Service provider relationships continued to expand, with an increase to 41 at period end, up from 25 in December 2014. Notable amongst the additions to the service provider roster was Vodafone Limited, which delivered its first order under a national Master Services Agreement ('MSA') with CityFibre in October 2015.

We closed out the year with the announcement of the Acquisition on 14 December 2015. The transaction gives the Group an estimated national market coverage of c.15% on a pro forma basis, and a presence in 21 entirely new markets, with a deep-ducted metro and long-haul footprint three times larger than the organic footprint we have been developing since the founding of the Group in 2011. The Group is now strongly positioned in the rapidly evolving wholesale fibre infrastructure market as the largest national alternative to Openreach, and the only player of significant scale with extensive metro duct and fibre infrastructure.

Network footprint expansion

On 4 February 2015, the Group announced a partnership with Logicalis, the global provider of IT solutions and managed services, to construct a 40-site 'Community Safety Network' - a high capacity resilient duct infrastructure with a pure fibre ring - in Newport, Wales' third largest city. The project was awarded under the UK's Public Services Network (PSN) framework and is the first for CityFibre in Wales, marking the second win for CityFibre's dark fibre solutions in partnership with an accredited provider to the framework following the deal with Easynet in the metropolitan borough of Kirklees, announced in August 2014.

On 3 March 2015, CityFibre announced an agreement with leading Scottish network service provider, Commsworld, for the first phase of deployment of an extensive double-ducted pure fibre network infrastructure in Edinburgh. The initial 50km build is backed by a contractual commitment from Commsworld to migrate a significant proportion of its large existing base of business customers onto CityFibre's new fit-for-purpose infrastructure.

Our FTTH trial in York continues to progress, with CityFibre's reference design and economics successfully validated. In May, our joint venture partners, Sky and TalkTalk, unveiled their jointly developed brand identity, "Ultra Fibre Optic" ('UFO') and have recently launched commercial propositions into the York market.

On 8 September 2015, the Group announced the signing of a 100km extension to its previously announced Edinburgh Gigabit City project in a 294-site, £5.6m deal, also with Commsworld. The seven-year deal, with options to extend to a maximum of 19 years and an LTCV of £16.0m, represents CityFibre's largest contract win to date and is one of the largest metro UK public services network awards in recent years. When completed CityFibre will own over 150km of deep-ducted fibre infrastructure across Edinburgh, future-proofing the city. The contract is part of a wider £186.0m outsourced ICT procurement for the council won by global ICT firm CGI, which will create the single largest pure fibre city roll-out in the UK.

On 6 October 2015, the Group announced the first contract under a Master Services Agreement ('MSA') with Vodafone Limited. The MSA sets out standard contractual terms under which CityFibre may supply fibre connectivity to parts of Vodafone UK's national estate of mobile cell site locations, selected corporate customer locations, as well as additional interexchange connectivity to support the enhancement of its national network. This first call-off under the agreement is in the City of York, utilizing CityFibre's existing 125km metro fibre network for inter-exchange connectivity.

On 26 November 2015, CityFibre announced the selection of Glasgow as its next Gigabit City project. The 10-year deal with Highland Network Limited ('HighNet') will see the Inverness-based business ISP migrate 100 of its existing customers onto a new fibre network under construction by CityFibre in Central Glasgow. This first phase of what is anticipated to be a significant network deployment programme in the city carries a TCV of £3.0m, with high TCV/capex coverage. Separately, HighNet also committed to migrate a minimum of 50 customers onto the CityFibre network in Aberdeen. 

On 14 December 2015, the Group announced the acquisition of certain national duct and fibre infrastructure assets of KCOM Group plc (the 'Acquisition') for a total proposed consideration of £90.0m together with an underwritten equity placing to raise £80.0m), as well as the conclusion of an agreement for up to £100.0m of committed debt facilities to part-fund the acquisition and support the commercialisation of the acquired assets. The acquisition closed on 18 January 2016.

The national infrastructure acquired by CityFibre comprises approximately 1,100 route kilometres of ducted metro fibre assets in 24 towns and cities, 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 acquired assets do not include KCOM's network assets in Hull and East Yorkshire. The consideration of £90.0m in cash is estimated by the Directors to represent a 45% discount to costs of replicating the networks.

Under the terms of the Acquisition, CityFibre will provide KCOM with access to the acquired infrastructure for a term up to fifteen years, subject to a minimum term of five years and a minimum revenue of £5.0m per annum for those five years. 

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

As at 31 December 2015, CityFibre's duct and fibre network footprint comprised 743km (2014: 543km) serving 1,200 customer premises, up from 885 in 2014.

Employees

The Group ended the year with 105 full-time equivalent staff (FTEs), versus 76 as at the end of 2014.

Post period events

The Acquisition and associated Placing were approved at the general meeting of the Group held on 12 January 2016. The Acquisition completed on 18 January 2016.

The Acquisition constituted a reverse takeover under Rule 14 of the AIM Rules for Companies, requiring de-listing and readmission, which occurred on 14 January 2016. The Group issued 160,000,000 new Ordinary Shares at a price of 50p per Ordinary Share, raising £80.0m before fees and expenses. The resulting number of shares in issue following admission was 265,672,644.

Overall, year-to-date in 2016 the Company displays strong momentum:

· adding £37.5m in TCV (including the £25.0m minimum commitment from the Acquisition);

· connecting 101 new customer premises and delivering 107 kilometres of new build on the legacy CityFibre footprint;

· contracts signed for 450 additional connections and TCV of £6.4m already sold on the acquired footprints in Bristol, Leeds and Bradford less than 90 days after closing the acquisition;

· selling the first capacity on the acquired national long haul network in a £2.3m deal with SSE Enterprise Telecoms;

· winning a £3.2m contract for 120 sites across a 50km new build in Southend-on-Sea, our 37th city;

· turning adjusted EBITDA positive in Q1.

Greg Mesch

Chief Executive Officer

15 April 2016

Financial Review

Financial results for 2015 reflect a year of strong organic growth and improved performance in EBITDA as the business model showed the initial benefits of scaling. In addition, it was necessary to invest in resource to secure the Acquisition, together with preparing the organisation for the post-acquisition integration and commercialisation of those assets. The Group is well positioned and fully financed to attain its medium term objectives. A summary of the financial performance for the year is given below.

Profit and loss

Revenue increased by 67% to £6.4m (2014: £3.8m), driven by the continued expansion in footprint along with the delivery of incremental revenues from both existing and new cities. Notably revenues from the business vertical improved by £1.0m.

Gross margin increased by one percentage point, to 86%, from 85% in 2014, reflecting the high profitability of new business added during the period.

Operating loss decreased to £6.2m (2014: £7.5m), largely driven by increased gross profit of £5.5m (2014: £3.3m).

Administrative costs increased to £11.7m from £10.7m in the prior period. The movements include:

· Staff costs excluding share-based payments increased to £6.1m (2014: £4.7m). This included non-recurring costs of £0.6m in relation to the Acquisition and non-recoverable operational costs in respect to the York FTTH trial. Average headcount was 83 staff, up from 46 in 2014, largely as a result of the full year effect of an expansion through the second half of 2014. The increase is primarily due to the addition of operational staff, reflecting the expanded number of projects under way.

· Other general administrative costs increased by £0.3m as a result of the expanded number of new and in-life projects.

· Share-based payment charges reduced by £1.1m to £0.3m. The prior year included exceptional share option awards associated with the IPO and secondary placing in June 2014.

· Depreciation increased by £0.3m as new assets were brought into service.

· Total non-recurring costs were £1.0m in 2015 and are detailed below.

· Excluding non-recurring costs, depreciation and amortisation, and share-based payments charges, underlying growth in administrative costs was 22%.

Loss after tax improved to £6.4m from £7.0m in 2014. This reflects investment to establish, operate and expand the business.

The adjusted EBITDA loss of £2.9m is in line with expectations and a 20% improvement on the prior period adjusted EBITDA loss of £3.6m. A reconciliation of operating profit to adjusted EBITDA appears below.

Non-recurring costs in the period totalled £1.0m. During the year the Group made an additional investment in resources of £0.6m, primarily to execute the Acquisition, but also to establish an enlarged organisational structure to enable the business to successfully integrate and commercialise the assets. In addition certain non-recoverable operational costs were incurred in respect to the York FTTH trial.

Costs included £0.2m of legal and professional fees in relation to ensuring current regulatory reviews fairly take into account the Group's competitive position. During the year Ofcom announced a strategic review of the structure of BT (the Strategic Review of Digital Communications) and a review of the availability and pricing of fibre products (the Business Connectivity Market Review).

Other non-recurring costs related to the Acquisition.

Balance sheet

Acquisition of property, plant and equipment (PPE) totalled £13.9m, comprising £13.8m of network assets. These consisted primarily of the £11.4m construction of the Group's key Gigabit City projects in Peterborough, Hull, Kirklees, Aberdeen, Edinburgh, and Glasgow. The remaining £2.4m of network asset build was to support additional customer connections in existing cities.

Intangible assets additions in the year totalled £0.6m. This primarily reflects expenditure on systems required to manage the network assets and the end to end sales process.

Cash flow

Operating cashflow for the period was a net outflow of £5.4m, an increase of £1.8m versus the prior year. There was a working capital cost of £1.3m in 2015 compared to a £1.2m benefit in the prior year due to an expanded number of construction projects spanning the 2015 year end which led to a working capital requirement. At the year-end the cash balance was £9.7m.

Shortly prior to year end, the Group made a payment of £1.7m to Citibank to redeem the remaining balance outstanding on its loan facility, in advance of the new debt financing put in place in support of the acquisition.

At the year end the Group had no external bank debt.

Shares

On 22 January 2015, the Company issued 231,781 ordinary shares to the Nedgroup Trust (Jersey) Limited (the "Trustee"), in its capacity as the trustee of the CityFibre Employee Benefit Trust. The JSOP Shares will be held by the Trustee for the joint benefit of itself and Stephen Charlton, Non-Executive Director, with Mr. Charlton being beneficially interested in any value in each of the JSOP Shares above 100p.

On 21 December 2015 the Company granted nil-cost options over a total of 2,112,889 ordinary shares under the Long Term Incentive Plan (LTIP) adopted at the Company's AGM on 20 April 2015. The award which covers 2015 has been made to employees excluding Directors in line with the intention set out in the Company's AIM Admission Document published on 14 December 2015.

KCOM asset acquisition

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

The Acquisition constituted a reverse takeover under Rule 14 of the AIM Rules for Companies, requiring re-admission to AIM, which occurred on 14 January 2016.

The acquisition was funded by an £80m equity placing of 160,000,000 new Ordinary Shares at 50p per Ordinary Share, along with committed debt facilities of £100.0m extended by Proventus AB, of which £35.0m was utilised in the asset purchase.

Under the terms of the Acquisition, CityFibre will provide KCOM with access to the acquired infrastructure for a term up to fifteen years, subject to a minimum term of five years and a minimum revenue of £5.0 m per annum for those five years. 

The acquired assets will be recognised on the enlarged Group's balance sheet principally as network assets, with a minor value attributable to stock to reflect the opportunity for sales of indefeasible rights of use over the national network.

Following the transaction the Group immediately became profitable at the adjusted EBITDA level.

Credit facilities

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

The facility agreement comprises three main facilities:

· a £35.0m term loan facility which was drawn upon deal completion to partly fund the Acquisition;

· a £35.0m term capex facility which will be used to finance permitted growth capital expenditure by reference to contracted revenues under customer contracts and permitted acquisitions and which will be available for two years; and

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

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

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

The Term 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.

Terry Hart

Chief Financial Officer

15 April 2016

Reconciliation of operating profit to adjusted EBITDA

Consolidated statement of comprehensive income

For the Year Ended 31 December 2015

Consolidated statement of financial position

As at 31 December 2015

Consolidated statement of changes in equity

For the Year Ended 31 December 2015

Consolidated statement of cash flows

For the Year Ended 31 December 2015

ACCOUNTING POLICIES

The financial information for the years ended 31 December 2014 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 2014 has been audited and filed with the Registrar of Companies. The company's Annual Report and Accounts for the year ended 31 December 2015 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 2014 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 2015 comprise the Company and its subsidiaries (together referred to as the "Group").

Basis of accounting

The financial statements of the Company 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.

The Group has not adopted any Standards or Interpretations in advance of the required implementation dates.The directors note that the following accounting standards will take effect for future accounting periods:

- IFRS 15 Revenue from Contracts with Customers (effective in 2018)

- IFRS 9 Financial Instruments (effective in 2018)

- IFRS 16 Leases (effective in 2019)

The Group intends to examine the potential impact of the adoption of these standards for the Group during 2016.

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 2015. 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 as CityFibre Infrastructure Holdings plc, due to all shareholders of CityFibre Holdings Limited being issued shares in the same proportion, and the continuity of ultimate controlling parties. 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 recognized 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 mobilization 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.

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:

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

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.

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.

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 2015 are disclosed in Note 9 to the financial statements.

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 value of the Group's network assets in the early stages of construction is cost less any depreciation charged once the asset comes into use.

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.

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.