Cityfibre Regulatory News (CITY)

CITYFIBRE INFRASTRUCTURE HOLDINGS PLC

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

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

CityFibre Infrastructure Holdings Plc (AIM: CFHL), the leading designer, builder, owner, and operator of wholesale fibre optic infrastructure enabling gigabit connectivity in UK towns and cities, is pleased to report half year results for the Group for the period ended 30 June 2014.

Financial Highlights:

· First half results ahead of expectations at the IPO;

· Revenue increased 45.6% to £1.3m, driven by new projects and incremental contract growth on existing assets;

· Gross profit increased 49.3% to £1.0m, with margin expansion from 80% to 82%, reflecting high operating leverage of passive fibre network assets;

· Adjusted EBITDA loss of £2.0m, reflecting increased activity connected to new city wins;

· Acquisition of property, plant and equipment of £2.1m, up from £0.4m in H1 2013;

· Strong balance sheet following successful IPO and oversubscribed secondary placing raising £46.5m before expenses from institutional investors;

· Cash balance at period end of £37.2m

Operating Highlights:

· Signed a landmark joint venture agreement ("JV") with BSkyB ("Sky") and TalkTalk on 15 April 2014 to deploy a trial city-wide Fibre-to-the-Home (FTTH)/Fibre-to-the-Premises (FTTP) network in York and appointed Fujitsu as build partner;

· Acquisition of Coventry Metro Area Network asset closed on 3 June 2014, adding over 300 connected customer sites and 62% additional fibre footprint to the CityFibre portfolio;

· Connected customer sites up 76%, to 817 as at 30 June 2014 from 465 in December 2013. Reseller and service providers on-net up to 16 from two at the start of the year;

· Post period end city wins in Kirklees and Aberdeen, full year target of three new city wins achieved to date;

· CityFibre's pro forma fibre footprint (assuming successful completion of in-progress projects in Peterborough, Kirklees, and Aberdeen) will exceed 680 route kilometres of local access fibre and connect over 1,200 customer sites when complete. This expanded footprint will represent an addressable market of over 2,400 public sector sites, 1,200 cell sites, 40,000 businesses and 600,000 homes;

· Strong momentum expected to continue for the remainder of the year, particularly with regard to new city wins and further commercialization of existing assets.

Greg Mesch, CEO of CityFibre, commented:

"We entered this year with the objective of securing a strong capital base and delivering key projects across all our core market areas. We are on track to deliver on all of our objectives. We have raised £46.5m from institutional investors, secured three new city wide fibre based anchor projects, and are on schedule and on budget with the Peterborough deployment, where business pre-registrations have vastly exceeded our expectations.

"Moreover, the developments in the first six months of the year underline our expanding range of methods for anchoring new city wide fibre networks - via acquisition, partnering with Public Service Network (PSN) framework suppliers, and aggregation of business segment demand via local ISPs. And of course we are delighted to be in a FTTH/FTTP trial agreement with Sky and TalkTalk and in the first phase of the deployment in the trial on our existing asset in York, which we believe further validates our shared infrastructure model.

"We are pleased with the ongoing progress which these results and the recent announcements illustrate. Not only has the Company exceeded expectations of contract wins set at the time of the IPO in January, but we have also already attained the revised full year growth expectations set at the secondary placing in May. Our four key market segments of public sector, mobile, business and consumers remain robust as consumers of fibre and we are extremely pleased with the progress across all these market segments."

For further information, please contact:

Notes to Editors:

About CityFibre:

CityFibre enables gigabit connectivity through designing, building, owning, and operating fibre optic network infrastructure. It is the largest independent provider of fibre infrastructure to mid-sized cities and major towns across the UK, providing gigabit-capable infrastructure for enterprise and public sector organisations, service providers, mobile network operators and businesses.

The Company owns and operates 490 route kilometres of local access networks serving over 800 customer locations in 57 towns and cities in the UK, including York, Coventry, Peterborough, Sheffield, Newcastle, Dundee, Bath, Derby and Doncaster.

To date the Company has launched four Gigabit City projects in York, Peterborough, Coventry and Aberdeen, where city-wide pure fibre networks known as 'COREs' following CityFibre's "Well-Planned City" design principles bring world-class Internet connectivity and the benefits of gigabit speeds to every aspect of the city's community.

CityFibre is also a proud member of a joint venture with TalkTalk and Sky. Established in early 2014, the collaboration aims to prove the viability of gigabit speed Fibre-to-the-Home (FTTH) and Fibre-to-the-Premises (FTTP) networks and services for homes and businesses. Trial work is currently underway to connect tens of thousands of homes and businesses in York to a future-proof FTTP modern digital infrastructure.

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

Overview

The six months to 30 June 2014 saw the Group continue to generate substantial market traction. Following a successful IPO and admission to AIM in January, and an oversubscribed secondary share placing in June, the Group is well-capitalised for developing new market opportunities, having raised £46.5m during the year.

The first half also saw the Company pass three key operating milestones: the successful launch of the Peterborough project, the acquisition of the Coventry Metro Area Network, and the formation of the York FTTP Joint Venture with Sky and TalkTalk. Post period end, the Group closed two new contracts in Kirklees and Aberdeen, which means the Company has met its full year target with respect to new business in the first nine months.

Pro forma for announced projects, CityFibre's fibre footprint (including in-progress projects in Peterborough, Kirklees, and Aberdeen) will exceed 680 route kilometres of local access fibre and connect over 1,200 customer sites when projects currently in development are completed. This expanded footprint will represent an addressable market of over 2,400 public sector sites, 1,200 cell sites, 40,000 businesses and 600,000 homes.

This enhanced scope of the Group's footprint, which has more than doubled since the IPO in January, underscores management's commitment to gaining a critical mass of revenue-generating assets. Complementing the growth in footprint scope, the number of resellers on-net today has grown to 16, from two at the beginning of 2014.

CityFibre's engagement with Government and local authorities continues to strengthen due to the importance of the Company's wholesale fibre networks in supporting digital infrastructure policy and economic development aims.

The Group's new business pipeline remains robust, with the Company in advanced discussions regarding a number of projects.

Operational Review

On 15 April 2014, CityFibre announced a Joint Venture, with BSkyB and TalkTalk, to develop a trial FTTH/FTTP network in the City of York. The JV, which is owned 33.3% equally by the three partners, will leverage CityFibre's existing 111km York metro network in deploying FTTP throughout the city. A contract with construction partner Fujitsu was signed on 23 September 2014, with mobilisation of the project starting now.

Pursuant to the Group's contract with Serco in Peterborough, signed in November 2013, construction of the 90km network began on schedule in mid-April, and is on track for completion in December. The results of the "Gig Up Peterborough" pre-registration campaign have far exceeded management expectations, with over 1,000 area businesses having registered interest to date, representing approximately 25% of all businesses in the City. Over 40 businesses have already converted to binding contracts via CityFibre's network of service provider partners, several months before the network's targeted completion date. Based on the results to date, the Board is confident that its long-term targets for market penetration in the business segment will be exceeded.

On 3 June 2014, the Group closed the acquisition of the Coventry Metro Area Network (MAN) asset, which currently serves over 300 Council sites and schools in the city. The acquisition increased CityFibre's total footprint of metro local access fibre networks by approximately 62% and opened up a market of over 9,000 businesses to commercial development. The Company has subsequently rebranded the network as the Coventry CORE and launched a "Gig Up" campaign to register interest from the business community ahead of the full commercialisation of the network, and the Board is encouraged by the initial response.

CityFibre has continued its strong momentum post the end of the reporting period. On 11 August 2014, the Group announced a contract with national service provider Easynet, as a supplier to its Public Service Network (PSN) project in the Metropolitan Borough of Kirklees, West Yorkshire. The long-term contract encompasses a 72km build to connect 176 public sector sites in the communities of Huddersfield, Dewsbury and Batley. This 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.

On 3 September 2014, the Company announced a contract signing with Aberdeen-based service provider Internet For Business ("IFB") for an initial deployment of 50km of network in Aberdeen, backed by a contractual commitment from IFB to migrate and upsell a significant proportion of its existing business customers onto the new infrastructure. The deal forms the cornerstone of CityFibre's Gigabit City strategy for Aberdeen, which management envisage will eventually entail a deployment of a citywide fibre network. Aberdeen is a key strategic city for the Group, given its strong economic fundamentals and complete lack of broadband cable infrastructure. IFB brings nearly two decades of operational expertise and highly valuable local market knowledge to the project. 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.

Corporate

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

Driven by an expanding and accelerating new business pipeline, the Company opted to further bolster its balance sheet in order to increase its flexibility in addressing new market opportunities. On 3 June 2014, the Group closed a £30m secondary placing of new ordinary shares at a price of 70p per share. The offering was oversubscribed and strongly supported by both IPO investors and new institutions, further increasing the breadth and depth of the Company's institutional investor base. This brings CityFibre's total equity raised as a public company to £46.5m before fees. The Directors now consider the Company to be adequately capitalised to fulfil its near-term pipeline, and the Company will continue to regularly review its optimal capital structure to enhance shareholder returns.

Massimo Prelz Oltramonti has resigned as a non-executive director, with immediate effect. The Board wishes to thank Mr. Prelz Oltramonti for his contribution to the Company over the past two-and-a-half years, and to wish him well in his future endeavours. The Board has initiated the search for a replacement for Mr. Prelz Oltramonti and further announcements regarding non-executive appointments will be made in due course.

Outlook

The Board is pleased with the Company's development in the first half of the financial year and remains confident in the medium term prospects for the Group. Current trading is ahead of the Board's expectations at the beginning of the year. The Directors expect full year results to be in line with market expectations.

Financial Review

Results for the period relate to the trading of CityFibre Infrastructure Holdings plc. CityFibre Infrastructure Holdings plc acquired CityFibre Holdings Limited 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 £1.3m 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 Company's portfolio of metro fibre networks at period end was 817, up from 465 at 31 December 2013.

Revenue growth of 45.6% compared with the first six months of 2013 largely arose from expansion of existing networks, together with initial revenues from the Peterborough project. In the six months to June 2014, the York network added £0.4m in new contracted revenues, bringing the total level of contracted revenues to cumulative capex to 118%, up from 110% at 30 June 2013.

Gross profit of £1.0m has improved by 49.3%, reflecting gross margins in excess of 90% on owned infrastructure projects, which is partly diluted by certain projects which bear the cost of legacy service contracts. All new fibre projects generate a very high margins with low on-going maintenance costs.

Administrative costs increased to £5.0m in the six months to 30 June 2014 from £2.8m in the prior period. These include non-recurring costs of £0.9m in relation to professional fees associated with fundraising activities and staff bonuses in respect to prior years. Other administrative costs were £4.1m in the period, which includes non-cash share-based payment charges of £0.5m recognised in relation to the share option issues. Labour costs increased to £2.1m in the period from £1.7m in the prior period.

The Board has invested in a senior management team and an organisational structure that is positioned to expand the business, and since the previous year end, this has resulted in significant business development progress, which the Directors expect to continue. New projects secured already this year in Coventry, Kirklees and Aberdeen will contribute significantly to future revenues. At period end, Group headcount was 43, up from 32 at 31 December 2013.

The adjusted EBITDA loss is in line with expectations at £2.0m, a 33.0% increase on the prior period adjusted EBITDA loss of £1.5m, this is largely attributable to increased resource costs to expand the business. Similarly, loss on ordinary activities before taxation of £3.6m is a 22.0% increase from the prior period EBITDA loss of £3.0m.

One-off finance income of £0.6m arose on conversion of loan notes at the IPO. Interest charges have fallen from £0.9m to £0.2m in the period also due to conversion of loan notes.

The resultant loss on ordinary activities before taxation was £3.6m in the period, versus £3.0m in the prior period.

A reconciliation to EBITDA is shown overleaf:

Equity

During the period the Company 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 (£14.8m net proceeds) from the issue of 52,314,648 new ordinary shares at 60p per ordinary share.

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

On 9 June 2014, CityFibre Infrastructure Holdings plc 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 Company 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. This resulted in a loan of £6.6m being made to the Employee Benefit Trust, shown in other debtors. At the end of the period, the total number of shares in issue amounted to 105,437,900 ordinary shares.

The Directors believe that the Company'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.

Balance Sheet

Fixed assets are stated after depreciation at £28.7m, reflecting in-progress construction in Peterborough, incremental contract growth in York and the legacy footprint, as well as the acquisition of the Coventry MAN network asset.

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

Following the completion of the IPO, all convertible loan notes were converted into equity. Additionally in January 2014, the warrant reserve of £0.7m was discharged by means of cash settlement. 

At the period end, the Group had an outstanding loan with Citibank of £3.0m secured on certain long-term revenues and assets.

Cashflow

Operating cashflow for the period was a net outflow of £3.1m, including one-off items in respect of bonuses of £0.6m, professional fees in respect of fundraising of £0.3m; otherwise, operating cashflow reflects EBITDA, together with a small working capital movement of £0.2m.

Acquisition of property, plant and equipment totalled £2.1m, comprising both capital expenditure relating to new projects and incremental contracts, as well as the acquisition of the Coventry MAN network.

Net proceeds from the IPO and secondary placing were £43.7m. Other principal movements in financing cashflow included a payment of £0.7m to extinguish outstanding warrants, together with £0.8m in repayments of principal and interest in respect to the Citibank facility. The Group's closing cash position at the end of the period was £37.2m.

consolidated statement of comprehensive income

For the Six Months ended 30 June

Loss per share

Consolidated Statement of Financial Position

Consolidated statement of cash flows

For the Six Months Ended 30 June

Consolidated Statement of Changes in Equity

Notes to the Interim Financial Statements

1. Accounting policies

The principal accounting policies applied in the preparation of these interim financial statements are summarised below. They have all been applied consistently throughout the period and preceding period.

Basis of accounting

The financial information presented in this Interim Report has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards issued by the International Accounting Standards Board, as adopted by the European Union. The principal accounting policies adopted in the preparation of the financial information in this Interim Report are unchanged from those used in the financial information for the year ended 31 December 2013 that was contained in the Company's listing circular dated 27 June 2014 (www.cityfibre.com) and are consistent with those that the Company expects to apply in its financial statements for the year ended 31 December 2014.

The financial information for the year ended 31 December 2013 presented in this Interim Report does not constitute the Company's statutory accounts for that period. The financial information for that period has been derived from the statutory accounts of CityFibre Holdings Limited, the group's ultimate parent company before the group reconstruction that resulted in the incorporation of the Company on 13 November 2013. The Annual Report and Accounts of CityFibre Holdings Limited for the year ended 31 December 2013 were audited and have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Accounts of CityFibre Holdings Limited for the year ended 31 December 2013 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 financial information for the periods ended 30 June 2014 and 30 June 2013 is unaudited and has not been reviewed by the Company's auditors.

Basis of consolidation

The consolidated financial statements incorporate the results of CityFibre Holdings Limited and all of its subsidiary undertakings as at 30 June 2014 using the acquisition method of accounting. The results of subsidiary undertakings are included from the date of acquisition. There has been no change to the entities included in the consolidated financial statements as a result of the adoption of IFRS 10 - Consolidated financial statements.

Revenue

Revenue represents network lease and installation sales to external customers 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 invoicing relates, and is recognised from the date at which the network service becomes available for use by the customer. Installation revenue is recognised over the period of construction of the asset.

Network lease revenue and installation revenue 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. 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. Inventory includes equipment necessary to install fibre optic networks.

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 recognised as a reduction in the proceeds of the associated capital instrument.

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.

Share based payments

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value at the grant date is determined using the Black-Scholes model and is expensed over the vesting period. The value of the expense is dependent upon certain key assumptions including the expected future volatility of the Group's share price at the date of the grant.

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 as follows.

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.

2. Non-recurring administrative expenses