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 2013

CityFibre Infrastructure Holdings Plc (AIM: CFHL), a leading owner, builder and operator of fibre optic infrastructure enabling gigabit connectivity in UK cities, is pleased to report pro forma results for the Group for the year ended 31 December 2013. These results are for CityFibre Holdings Limited, which was acquired by CityFibre Infrastructure Holdings plc in January 2014 as part of an IPO restructuring immediately prior to the Company's admission to trading on AIM.

Financial Highlights:

· Revenue increased 9.7% to £1.9m

· Gross profit increased 24.0% to £1.5m

· Administrative expenses fell 7.9% to £5.7m

· New contracts with a total value of £4.7m were signed during the period

Operating and Post Period End Highlights:

· The UK's largest independent provider of fibre network infrastructure, to mid-sized cities and major towns with over 29,000 kms of fibre and duct access network connecting 465 customer sites in 56 UK towns and cities, as well as a Fibre-to-the-Home ("FTTH") network passing 20,000 homes in Bournemouth.

· Continued momentum of the Company's Gigabit City UK roll-out:

o Signed a 20-year contract with Serco in November 2013 to provide fibre connectivity to over 100 locations in Peterborough: to date over 500 Peterborough businesses have signed up to the pre-registration campaign "Gig Up," and partnership agreement with local service provider Businesscoms is expected to drive contract conversions. The Peterborough network deployment has commenced on schedule.

o Awarded preferred bidder status by Coventry City Council for the acquisition of the 140 kms Coventry Metropolitan Area Network (MAN) fibre optic asset in April 2014. Pending successful completion of the acquisition Coventry will become CityFibre's largest network asset with an addressable business market of over 9,000 potential customers, and increasing the Company's total fibre network footprint by 48%.

o Joint venture agreement ("JV") signed with BSkyB and TalkTalk to deploy a FTTH network in York, leveraging CityFibre's existing asset. This JV marks the first example of large ISPs procuring broadband infrastructure at scale from an alternative service provider. The JV intends to select another two cities for deployment in due course.

· CityFibre board further strengthened through the appointment of industry veteran Peter Manning as Non- Executive Chairman in September 2013, and Sally Davis, previously CEO of BT Wholesale, as Non-Executive Director in February 2014.

· Successful IPO and admission to trading on AIM on 17 January 2014, raising approximately £16.5m before expenses to i) grow services and profitability at existing assets, including York, ii) to deploy 90 kms of metro fibre infrastructure into Peterborough, iii) to acquire further metro fibre infrastructure in excess of 100kms, and iv) for working capital purposes and project pipeline.

· Conditional placing announced today to raise approximately £30m (before expenses) to further strengthen the Company's balance sheet and enable the Company to exploit an accelerating pipeline of projects and incremental opportunities to those foreseen at IPO.

· New business pipeline remains strong with high level of interest in CityFibre from secondary cities across the UK, of which management believe there are approximately 100 addressable opportunities.

Greg Mesch, CEO of CityFibre, commented:

"We are delighted to be announcing our maiden results as a public company, which highlight the Company's strategic progress. Following our successful IPO, we have a strong base from which to exploit a number of exciting near term opportunities and to continue to pursue our medium term growth ambitions.

"The proposed placing announced today alongside these results reflects an acceleration in the opportunities presented to the Company and provides further balance sheet strength and financial flexibility in pursuing them."

"We've made a strong start toward delivering our 2014 objectives. We have broken ground in Peterborough on schedule and are seeing strong interest from the local business community, with over 500 businesses pre-registering since the introduction of the "Gig Up" campaign. Our preferred bidder status for the Coventry network is a significant milestone which demonstrates our ability to grow through acquisition as well as organically. Furthermore, the signing of an FTTH Joint Venture agreement with BSkyB and TalkTalk marks a watershed opportunity to change the status quo in UK broadband infrastructure. The need for pure fibre connectivity continues to drive our business and we look forward to updating both the market and our shareholders on our strategic progress over the coming months."

For further information, please contact:

Notes to Editors:

CityFibre owns, builds and operates a fibre optic infrastructure. It is the largest independent provider of fibre infrastructure to mid-sized cities and major towns, providing gigabit capable infrastructure for enterprise and public sector organisations, service providers, mobile network operators and businesses.

CityFibre has the opportunity to use the deployed fibre optic infrastructure to deliver high speed internet either directly to users, or more typically, indirectly via third party service providers.

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

To find out more, please visit: www.cityfibre.com

STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2013

The Directors present their strategic report with the audited consolidated and parent company financial statements for the year ended 31 December 2013.

The principal activity of the CityFibre Holdings Limited group of Companies ('CityFibre' or the 'Group') is to own, build and operate fibre optic infrastructure and to manage long-term fibre optic cable contracts throughout the UK. CityFibre is the largest independent provider of fibre infrastructure to mid-sized cities and major towns, providing gigabit capable infrastructure for enterprise and public sector organisations, service providers, mobile network operators and businesses.

On 17 January 2014 the Group's shares were admitted to trading on AIM. In order to facilitate this a new group, a new parent company was incorporated, CityFibre Infrastructure Holdings plc. The £16.5 million proceeds of this fundraising will be used to expand the Group's fibre optic infrastructures.

Introduction

The year ended 31 December 2013 was a transformational year for CityFibre, culminating in the successful IPO and admission to trading on AIM in January 2014. The Group has made significant progress to date and continues to generate substantial market traction. The IPO marked a step change for the team at CityFibre and the start of the next phase of growth for the Group. Significant progress has already been made in York and Bournemouth and the launch of the network deployment in Peterborough with strong registration of interest from local businesses, along with preferred bidder status in Coventry, provide a glimpse of what the Board believe can be achieved across the UK.

The conclusion of a Joint Venture agreement with BSkyB and TalkTalk in April 2014 to deploy a fibre-to-the-home (FTTH) and fibre-to-the-premises (FTTP) network in York also marks another new critical step in the Group's development.

Business background

The Group controls more than 29,000 kms of fibre and duct access, serving 56 towns and cities in the UK. The Group manages over 120 long-term contracts with local authorities, public sector organisations and businesses (typically in conjunction with third party service provider partners), which currently generate annual run-rate revenues of approximately £2.0m.

The Group is currently the largest independent provider of fibre infrastructure to mid-sized cities and major towns in the UK, providing gigabit capable infrastructure for enterprise and public sector organisations, service providers, mobile network operators and businesses. CityFibre currently owns fibre in 11 major metropolitan areas, including Bath, Bournemouth, Derby, Dundee, Sheffield, Newcastle and York, creating an established market presence from which the Group can leverage growth through provision to service providers covering the public sector, mobile network operator, business and consumer segments.

CityFibre's most extensive network asset is in the City of York, where the Group owns and operates a 111 km network. The initial network deployment of 95km went into service in 2011 under a contract with Pinacl Solutions, ICT provider to City of York Council. Subsequently, the Group has made further investments in the York network backed by incremental contracts, extending its infrastructure to more public sector and business customers, and generating £1.79m in additional contracted revenue as at 31 December 2013.. In Bournemouth, the Company also owns a FTTH network passing over 20,000 homes, and a service provider business, Gigler, which delivers gigabit speed broadband services to residential and business customers.

On 13 November 2013, CityFibre announced its intention to construct a 90 km fibre infrastructure network in Peterborough having secured a partnering agreement with Peterborough City Council and a 20-year contract with its ICT services provider, Serco. Commencement of work in Peterborough occurred on 23 April 2014.

Key business activities include, or are intended to include:

• 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 business-focused service providers to enable gigabit speed services to their customers.

• 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.

• 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.

• Point-to-Point Dark Fibre - Fibre connectivity between two 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.

Growth strategy

CityFibre'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 facilitate "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.

The Group typically pursues a three-stage approach to developing Gigabit Cities, comprising the following:

Phase One - Aggregated 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.

As an illustration, CityFibre's contract with Pinacl Solutions in the City of York, to deploy 95 kms of fibre to connect 105 council sites, carried a total contract value of £4.2m over 10 years versus a capex cost of £4.5m, equating to a coverage ratio of 94%.

Phase Two - Targeted 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, and it believes it can achieve utilisation from a minimum of 7.5% of these businesses within five years. 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%.

The Group's York network is currently in Phase Two of development. Since the initial £4.2m contract went live in 2011, CityFibre has added £1.79m in incremental contracted revenues from new connections serving public sector sites, businesses and data centres, of which £1.31m was delivered during 2013. Such incremental revenues typically generate a high return on incremental capex.

Phase Three - Consumer and SME 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, BSkyB, and TalkTalk marks the beginning of Phase Three of the strategy in York. The JV will deploy 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 July 2015.

Operational Review

In November 2013, CityFibre announced it had been awarded a £4m, 20-year contract by Serco, the ICT provider to Peterborough City Council, to provide fibre connectivity to over 100 locations in Peterborough. The roll out, which commenced in April 2014, will see 90km of core dark fibre infrastructure deployed through the city, bringing the benefits of gigabit speeds first to schools and other public sector locations, and subsequently to key business districts, data centres and mobile base-stations. In March 2014, CityFibre commenced a partnership with local business ISP, Businesscoms, to market high capacity leased line products to the Peterborough business market, where over 500 companies have pre-registered interest to date.

CityFibre's showcase network in York enjoyed a year of strong incremental demand during 2013, as the City of York Council, via its managed service provider, Pinacl Solutions, added new connections to the network, including schools and CCTV camera locations. In addition, CityFibre's national partnership with Level(3) and local service provider York Data Services, delivered leased lines to business customers in York. Total contracted revenues delivered on the York asset increased by £1.31m in 2013. The network ended 2013 with more than 180 connected customer end points, an increase of 75% versus the original anchor contract which went live in 2011.

In Bournemouth, the Group's FTTH network continued to deliver the fastest residential broadband speeds available in the UK market, via its Gigler ISP subsidiary. Gigler also introduced business class products during the course of 2013. Gigler ended 2013 with 170 customers across both the residential and business segments. Gigler's pricing is based on data usage rather than speed, with packages ranging in price from £25 to £50 per month.

Revenue generation on CityFibre's other metropolitan local access fibre networks remained stable during the period, as the Group largely focused its attention on the development of the York and Peterborough projects. It is the intention of the Group in future to selectively pursue incremental extensions of its smaller network assets in line with contracted revenue demand and strategic commercial opportunities.

In January 2014, CityFibre Infrastucture Holdings plc acquired CityFibre Holdings Limited and was admitted to the AIM market on the London Stock Exchange. Gross proceeds of £16.5m (£14.8m net of transaction and advisory fees) were raised, significantly strengthening the Group's balance sheet and giving it financial flexibility adequate to allow it to pursue it growth aspirations.

On 4 April 2014, CityFibre was named by Coventry City Council as preferred bidder to acquire the Council's 140 km Coventry Wide Area Network (WAN) asset, which currently serves over 300 Council sites and schools in the city. The transaction received final Council approval on 10 April, subject to contract. Pending a successful closing of the transaction, the acquisition will increase CityFibre's total footprint of metro local access fibre networks by 48% and open up a market of over 9,000 businesses to commercial development.

On 15 April 2014, CityFibre announced a JV, with BSkyB and TalkTalk, to develop a FTTH network in the City of York. The JV, which will be owned 33.3% equally by the three partners, will leverage CityFibre's existing 111 km York metro network in deploying FTTH throughout the city. The development marks the first time that major ISPs have chosen to procure broadband infrastructure from an alternative provider, which further underscores CityFibre's unique market positioning. The JV partners intend to announce in due course an additional two cities earmarked for future deployments.

Development pipeline

The Directors believe that the Group's existing pipeline represents a compelling opportunity. Management currently estimate there are more than 100 cities and towns that would be potential targets to build out fibre optic infrastructure. The Group's primary criteria when deciding whether to tender will be the return on equity of the anchor contract coupled with a projection of returns on incremental capex beyond the anchor contract. The Group is at varying levels of discussions and negotiations with partners and service providers in connection with the provision of these contracts.

Proposed Placing

CityFibre has today announced a placing of £30m by way of a placing of 42,857,142 new ordinary shares at an issue price of 70 pence per new ordinary share.

The net proceeds of the placing will be used to:

· fund the Company's growth where it has existing assets;

· fund an accelerated pipeline of aggregate lease commitments in new cities;

· provide additional resources to accommodate the opportunities with BSkyB and TalkTalk; and

· support the construction of fibre infrastructure to seed other pipeline opportunities.

Please see the separate announcement made by CityFibre today for further details of the terms and conditions of the placing.

Outlook

Over the past 12 months, the Group has continued to secure new infrastructure lease contracts in both the public sector and business markets as highlighted by the successful contract awards in Peterborough and, more recently, the preferred bidder status in Coventry. These, coupled with the recent announcement of the JV agreement with BSkyB and TalkTalk, provide further evidence of the growth in demand for CityFibre's expertise in the field of transformational fibre infrastructure projects.

Current trading continues in line with our expectations and our pipeline continues to grow beyond that originally articulated during our IPO and the progress of our current infrastructure projects is gathering renewed momentum. The Board remains confident in the medium term prospects for the Group.

Financial Review

Results for the period relate to the trading of CityFibre Holdings Limited, which was acquired by CityFibre Infrastructure Holdings plc on 11 January 2014. The results primarily reflect the business and trading relating to long-term contracts and infrastructure assets acquired from a platform acquisition in 2011.

Profit and loss

Revenue of £1.9m is generated from secure long-term contracts (typically in excess of 7 years) and largely from public sector end-customers with a very high propensity to renew at the end of the contract term. During the period there were no customer cancellations.

Revenue growth of 9.7% in the year was organic and largely arose from projects located in York, making use of the existing York metro network. In the year to 31 December 2013, the York network added £1.3m in new contracted revenues delivered, bringing the total level of contracted revenues to cumulative capex to 113%, up from 107% in the previous period.

Fibre projects typically generate a very high margin with very low on-going maintenance costs. Gross profit of £1.5m has improved by 24.0%, reflecting gross margins on owned infrastructure projects of in excess of 90%, which is partly diluted by certain projects which bear the cost of legacy service contracts.

Administrative expenses are scaled to position the business for growth and to take advantage of the long-term opportunities offered by the UK market. The Board have invested in a senior management team and an organisational structure positioned to expand the business and since the year end this has been borne out by significant business development progress, which the Directors expect to continue. Overheads required to manage the exisiting contracts on an on-going basis are only a small portion of total administrative expenses.

The EBITDA loss of £3.0m is a 26.8% reduction on the prior period loss. Loss on ordinary activities before taxation of £6.3m is a 2.8% reduction from the prior period and includes interest of £1.7m relating to convertible loans. The loan notes converted into equity at IPO, with no cash repayment.

Balance sheet

Fixed assets are stated after depreciation at £19.3m. In the opinion of the Directors, the reinstatement value of the infrastructure assets is in excess of £25.0m.

At the period end, the Group had an outstanding loan with Citibank of £3.3m secured on certain long-term revenues and assets. The loan facility has a termination date of February 2017.

In January 2014 the loan note investments in the Company were hived up into CityFibre Infrastructure Holdings plc. The loan notes and accrued interest had a value of £14.7m at 31 December 2013. These were converted into shares at the IPO placing price of 60p per share after taking into account conversion discounts applicable to the loan notes.

Additionally in January 2014, the share warrant reserve was discharged for £0.7m by means of cash settlement.

These transactions enable CityFibre to approach the future with a strengthened capital structure as it looks to execute the business plan communicated to the market.

Cashflow

During 2013 the business was loss-making and cashflow requirements were funded by loan note subscriptions totalling £3.6m. Payments of £0.6m were made to repay the principal of the Citibank loan, in addition to interest of £0.3m.

Post balance sheet events and liquidity

On 17 January 2014, CityFibre Infrastructure Holdings plc was admitted to trading on AIM via an IPO, which generated gross proceeds of £16.5m (£14.8m net proceeds) via the issue of 27,736,609 new ordinary shares at a subscription price of 60p per ordinary share.

consolidated statement of comprehensive income

For the Year ended 31 December 2013

Loss per share

Consolidated Statement of Financial Position

Company number 07488363

As at 31 December 2013

Consolidated Statement of Changes in Equity

For the Year ended 31 December 2013

Consolidated statement of cash flows

For the Year Ended 31 December 2013

Notes to the Consolidated Financial Statement

Basis of preparation

The financial information set out above does not constitute the Group's statutory information for the years ended 31 December 2013 or 2012, but is derived from those accounts. The Group's consolidated financial information has been prepared in accordance with accounting policies consistent with those adopted for the year ended 31 December 2013. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's annual general meeting. The auditor has reported on these accounts, their reports were unqualified and did not contain statements under the Companies Act 2006, s498(2) or (3).

1. NATURE OF OPERATIONS AND GOING CONCERN

CityFibre Holdings Limited (the "Company") is a company registered in England and Wales. The consolidated financial statements for the year ended 31 December 2013 comprise the Company and its subsidiaries (together referred to as the "Group").

The principal activity of the Group is the provision and management of transformational fibre optic infrastructure throughout the United Kingdom. The Group's registered office and principal place of business is 15 Bedford Street, London, WC2E 9HE.

The Group's ability to continue as a going concern is dependent on its ability to maintain its network assets and to manage current operations such that sufficient working capital is available for the Group to meet its obligations as they fall due. Through the use of current cash reserves and a letter of support received from CityFibre Infrastructure Holdings plc, management is satisfied that the Group will have sufficient working capital for the forthcoming 12 months. On 17 January 2014 the Group listed its shares on AIM (see note 28). The £16.5 million proceeds will be used to expand the Group's fibre optic infrastructure. The Directors have concluded that the Group is a going-concern.

2. ACCOUNTING POLICIES

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.

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. These are the Group's first financial statements prepared under IFRS (see note 29 for explanation of transition to IFRS). 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. It is not expected that adoption of Standards or Interpretations which have been issued by the IASB but are not yet effective will have a material impact on the financial statements.

Basis of consolidation

The consolidated financial statements incorporate the results of CityFibre Holdings Limited and all of its subsidiary undertakings as at 31 December 2013 using the acquisition method of accounting. The results of subsidiary undertakings are included from the date of acquisition.

Revenue

Network lease revenue represents sale to external customers at invoiced amounts less value added tax or local taxes on sales. Network lease revenue is recognised evenly over the period to which the invoicing relates. Network lease revenue is recognised from the date at which the network service becomes available for use by the customer. Network lease revenue is wholly attributable to the principal activity of the group and arises 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. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Leasehold property 5 years

Network assets 20 years

Plant and machinery 5 years

Fixtures and fittings 3 years

Motor vehicles 3 years

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

Intangible assets

Customer contracts are assessed by reviewing their net present value of future cash flows. Customer contracts are amortised over their useful life not exceeding six years.

Website costs that are directly attributable to websites 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 intangible assets other than goodwill and property, plant and equipment

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

Inventory

Inventory is stated at the lower of cost and net realisablevalue. Cost is based on the cost of purchase on a first in, first out basis.

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

Finance costs

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

Leasing and hire purchase

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

Revenue received from operating leases is credited to income on a straight line basis over the lease term.

Financial liabilities and equity

Financial liabilities are recognised when the Group becomes party to the contractual arrangements of the instrument and are recorded at amortised cost using the effective interest method.

All related interest charges are recognised as an expense in 'finance cost' in the statement of comprehensive income.

Financial liabilities and equity are classified according to the substance of the financial instrument's contractual obligations, rather than the financial instrument's legal form.

Financial instruments containing an embedded derivative are recognised at fair value. Changes in fair value are recognised as an expense in 'finance cost' in the statement of comprehensive income.

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.

Equity instruments

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary shares are classified as equity instruments.

Share warrants

All goods and services received in exchange for the grant of any share warrants are measured at their fair values. In the absence of information on the fair value of the services provided, the fair value of services received in return for the warrant issued is measured by reference to the fair value of the warrant issued. The fair value of the warrant was estimated by management based on the estimate of the company's value and length of the warrant.

Taxation

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

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

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

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

Pension Costs

Contributions to the group's defined contribution pension scheme are charged to the statement of comprehensive income in the period in which they become payable.

Financial risk management

The Group's operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is exposed to interest rate risk, liquidity risk and credit risk. Financial risk management is an integral part of the way the Company is managed. Financial risk management policies are set by the Board. The Group does not hold or use derivative financial instruments.

(i) Interest rate risk

Interest rate risk arising from borrowing at variable rates is not hedged.

(ii) Liquidity risk

Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

(iii) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from trade receivables. It is the Group's policy to assess the credit risk of new customers before entering contracts and the Group is not exposed to material concentrations of credit risk on its trade receivables.

Credit risk associated with cash balances is managed by transacting with financial institutions with high quality credit ratings. Accordingly the Group's associated credit risk is limited. The Group has no significant concentration of credit risk. The Group's maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position.

Capital management

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. Management's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

Management seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Group is not subject to externally imposed capital requirements.

Key judgments 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 area involving a higher degree of judgement or complexity, or where assumptions or estimates are significant to the financial statements is:

• The Group depreciates the property, plant and equipment, using the straight-line method, over their estimated useful lives after taking into account their estimated residual values. 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. The residual value reflects management's estimated amount that the Group would currently obtain from the disposal of the asset, after deducting the estimated costs of disposal, as if the asset were already of the age and in the condition expected at the end of its useful life. Changes in the expected level of usage and technological developments could affect the useful economic lives and the residual values 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 2013 are disclosed in Note 9 to the financial statements

3. SHARE BASED PAYMENTS

In January 2013 the Company issued 21,798 EMI share options to Group employees at an exercise price of £0.001 per share of which 4,627 vested immediately and were exercised in February 2013. In August 2013 the company issued 360 EMI options at an exercise price of £0.45 per share.

There is no material share based payment charge arising from these options.

4. PROPERTY, PLANT AND EQUIPMENT

Included in network assets above are network assets under construction and not yet depreciated which are held at a cost of £1,131,000 (2012: £1,127,000) at the date of the statement of financial position.

5. TAXATION

Factors affecting current tax credit

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 23.25% (2012: 24.5%) as follows:

Factors that may affect future tax charges

The standard rate of UK corporation tax will reduce to 21% effective 1 April 2014 and to 20% effective 1 April 2015.

6. INTANGIBLE ASSETS

7. DISPOSAL OF SUBSIDIARIES

The Group disposed of the entire share capital of Fibrecity Dundee Limited in 2012 for £nil consideration. The fair value of the net liabilities disposed of was £425,000.

On 24 May 2012 the Group placed Fibrecity Dundee Limited into liquidation. The effective disposal of liabilities of Fibrecity Dundee Limited resulted in the crystallisation of a gain for the group of £425,000.

8. INTEREST BEARING LOANS AND BORROWINGS

On 14 April 2011 the Company issued up to £5 million secured convertible loan notes. These were fully subscribed during 2011. The loan notes carry an interest rate of 15% and are convertible into a variable number of Ordinary shares dependent on the conversion date. At 31 December 2013 this would have represented 98% of the issued share capital (2012: 55.7%).

On 16 April 2012 the Company issued up to £10 million secured convertible loan notes. Of these, £6.4 million (2012 £2.6 million) of convertible loan notes were subscribed at 31 December 2013. The loan notes carry an interest rate of 15% up to the date of the first anniversary, 20% between the first and second anniversaries and 25% from the second anniversary onwards. The loan notes are convertible into a variable number of shares dependent on the conversion date and the price achieved in a financing by the Company.

The Group received a bank loan of £4.5 million during 2012. The bank loan carries interest at 7.5% over LIBOR and is repayable in quarterly installments over five years with a balancing payment due on 31 March 2017. The bank loan is secured on the assets of the group.

The bank loan is stated net of unamortised finance costs of £257,000 (2012: £333,000). The group has charged the Consolidated statement of comprehensive income issue costs of £76,000 (2012 - £66,000) in respect to these facilities. These costs are allocated to the income statement over the term of the facility at a constant rate on the carrying amount.

9. FINANCIAL INSTRUMENTS

The Group's financial instruments comprise borrowings, cash and cash equivalents and various items such as trade receivables and payables that arise directly from its operations. The main purpose of these instruments is to raise finance for operations. The Group has not entered into derivatives transactions nor does it trade in financial instruments as a matter of policy. The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and credit risk. Managements' policy on each is described in Note 2. Operations are financed through working capital management and external loan funding.

Liquidity risk

In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group uses long-term finance in the form of bank and convertible loans and the Group is looking to secure additional funds from a forthcoming financing.

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

Interest rate risk

Interest rate risk arising from borrowing at variable rates is not hedged as management do not consider the risk to be significant

Interest rate risk showing a 1% increase on floating rate liabilities is as follows:

Credit risk

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

A provision of £37,000 was made against doubtful receivables during the year and the balance of the provision was £37,000 at 31 December 2013 (2012- £40,000).

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

Financial assets

The floating rate financial assets comprise interest earning bank deposits at rates set by reference to the prevailing LIBOR or equivalent to the relevant country. The Company has no fixed rate deposits.

Fair values

In management's opinion there is no material difference between the book value and fair value of any of the Company's financial instruments.

Classes of financial instruments

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

10. RELATED PARTY TRANSACTIONS

The Company has a related party relationship with its subsidiaries, its directors and the directors of its subsidiaries.

Subsidiaries

The subsidiary undertakings of the company at 31 December 2013 were as follows:

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

Transactions with key management personnel

The directors, Chief Financial Officer, Business Development Director, Operations Director and Head of Wholesale are considered to be the key management personnel.

During the year, CityFibre Holdings Limited paid £nil (2012: £42,000) to Perspect Consulting, a company owned and controlled by Mark Collins, a director, in respect of fees for a consultant.

At 31 December 2013 the directors regarded the company's ultimate controlling party as W G Mesch.

Loan notes

At 31 December 2013 loan notes (including accrued interest) of £7,717,000 (2012: £5,784,000) had been issued to related parties.

11. EARNINGS PER SHARE

Basic earnings per share

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

Loss attributable to ordinary shareholders

Potentially issuable shares are not considered to be dilutive because the group made a loss in 2012 and 2013.

Shares, warrants and convertible loan notes referred to in notes 19 and 21 will have an effect on future reported earnings per share.

12. SUBSEQUENT EVENTS

On 17 January 2014 the Group listed its shares in AIM. In order to facilitate this a new group company was incorporated, CityFibre Infrastructure Holdings plc, which was listed. On 10 January 2014 CityFibre Infrastructure Holdings plc acquired the entire share capital of CityFibre Holdings Limited. The £16.5 million proceeds of this fundraising before expenses was raised from the issue of 27,653,276 ordinary shares of £0.01 each and will be used to expand the Group's fibre optic infrastructures. The total number of Ordinary Shares in issue at Admission to AIM was 52,314,648.

In January 2014 the loan note investments in the Company were hived up into CityFibre Infrastructure Holdings plc. The loan notes and accrued interest had a value of £13,929,000 at 31 December 2013. Upon listing, these were converted into shares at the IPO price of 60p per share after taking into account any conversion discounts.

Additionally in January 2014, the share warrant reserve was discharged for £700,000 by means of cash settlement. 

On 12 May 2014 the Group agreed to issue 338,583 new ordinary shares of one penny each at a price of one penny per Warrant Share pursuant to the exercise of warrants granted to a consultant to the Company. The new shares were admitted to trading on 16 May 2014. As a result, the total number of outstanding Ordinary Shares with voting rights in the Company is 52,653,231.