-THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU NO. 596/2014).

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION. NO PUBLIC OFFER OF SECURITIES IS BEING MADE BY VIRTUE OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING IN THIS ANNOUNCEMENT SHALL CONSTITUTE OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR ANY SECURITIES REFERRED TO HEREIN NOR SHOULD IT FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY CONTRACT OR COMMITMENT WHATSOEVER.

INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF THE INFORMATION IN THE PLACING PROOF OF THE PROSPECTUS (THE "P-PROOF") AND THE PROSPECTUS TO BE PUBLISHED BY CITYFIBRE INFRASTRUCTURE HOLDINGS PLC IN CONNECTION WITH THE PLACING AND OFFER FOR SUBSCRIPTION. COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE FROM THE REGISTERED OFFICE OF CITYFIBRE INFRASTRUCTURE HOLDINGS PLC.

5 July 2017

CityFibre Infrastructure Holdings PLC

Placing to raise minimum gross proceeds of £185 million

Offer for Subscription to raise up to a further £15 million

-  Commencement of FTTH network build in 5 to 10 UK towns & cities

-  Acquisition of Entanet, provider of wholesale communications services

-  Expansion of full fibre metro networks into new towns & cities

CityFibre Infrastructure Holdings PLC ("CityFibre" or the "Company"), a designer, builder, owner and operator of fibre optic infrastructure in UK towns and cities, today announces that it intends to raise minimum gross proceeds of £185 million at 55 pence per share, fully underwritten by Citigroup, finnCap, Liberum and Macquarie (the "Banks") (the "Firm Placing"), with the intention to raise further proceeds through an accelerated bookbuilding process which will be launched immediately following this announcement (the "ABB Placing") (together, the "Placing").  In addition, the Company intends to raise further gross proceeds of up to £15 million through a non-underwritten offer for subscription (the "Offer for Subscription").

The Company is pleased with the support of its new and existing shareholders, including Woodford Investment Management Ltd who has agreed to subscribe for 65,454,545 shares in the Firm Placing for a total consideration of £36.0 million.

The net proceeds of the Placing and the Offer for Subscription (together, the "Capital Raising") will be used to fund the growth of the Company's full fibre network in the UK, including:

·     The expansion of CityFibre's fibre metro networks from 42 UK towns and cities today to not less than 50 towns and cities by 2020;

·   The commencement of construction of Fibre to the Home ("FTTH"), addressing the residential market, in five to ten UK towns and cities during 2018; and

·   In support of the Company's strategy to focus on wholesale fibre services and accelerate the commercialisation of CityFibre's fibre assets, the acquisition of Entanet International Limited ("Entanet"), a provider of wholesale communications services, for a consideration of £29 million in cash (on a cash free, debt free basis and subject to adjustments).

Growth in data traffic is driving demand for investment in digital communications infrastructure and particularly in fibre optic broadband networks. The UK has one of the highest levels of internet adoption in the world, but lags behind nearly all OECD nations in terms of fibre infrastructure. Recent UK government and regulatory policy for greater competition and investment has resulted in a promising pipeline of projects for which CityFibre, as a builder and wholesaler of full fibre infrastructure, is well positioned.

Today's announcement follows CityFibre's successful participation in the FTTH trial in York. The trial demonstrated strong demand from Internet Service Providers ("ISPs") and consumers for gigabit speed FTTH services, and showed the propensity for consumers to switch to FTTH connections.  The York trial demonstrates the commercial viability of FTTH in the UK.  CityFibre is now in advanced negotiations with ISPs that will market full-fibre broadband services to consumers, deployed over its networks.

The acquisition of Entanet, which has approximately 1,500 channel partners having conducted business with it in the 12 months ending 31 December 2016, will substantially increase the Company's wholesale capabilities and its relationships with service providers, thereby extending CityFibre's channels to market.  By combining CityFibre's fibre infrastructure with Entanet's established wholesale products, systems and relationships with Channel Partners, the Company expects to realise synergies of over £3 million per annum within three years.

CityFibre will extend its current metro footprint selectively, ensuring that each new metro project is anchored by long term contracts that deliver a satisfactory return on the capital investment required and that cover a substantial portion of projected capital expenditure. The same policy will apply to the extension or expansion of existing town and city networks to serve public sector, business and mobile customers.

 

Placing details

·     Fully underwritten Firm Placing of 336,363,636 Placing Shares in the Company, representing approximately 126.6% of CityFibre's existing issued ordinary share capital, to both existing and new institutional investors and raising gross proceeds of minimum £185 million

·     Potential to increase the Placing through an accelerated bookbuilding process, to  commence immediately following this announcement, with the intention to raise further proceeds

·     The Placing is to be made at 55 pence per Placing Share, representing a 9.09% discount to the Closing Price of 60.50 pence per Ordinary Share on 4 July 2017

·     New Ordinary Shares in respect of which firm commitments are obtained from investors in the ABB Placing will be underwritten by the Banks upon completion  

Offer for Subscription details

·     A non underwritten Offer for Subscription to raise up to £15 million, comprising up to 27,272,727 Offer for Subscription Shares, will be open to certain qualifying shareholders of the Company

·     The Offer for Subscription is to be made at 55 pence per Offer for Subscription Share, representing a 9.09% discount to the Closing Price of 60.50 pence per Ordinary Share on 4 July 2017

·     Expected to open on or around 11 July 2017, alongside the publication of the Prospectus

A Prospectus containing full details of the Capital Raising is expected to be published on or around 11 July 2017 and a General Meeting in connection with the Capital Raising will be held on or around 27 July 2017.  Shareholders' approval is required for the Capital Raising, including the Placing and the Offer for Subscription, by way of a special resolution. 

An application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to AIM, and it is expected that Admission will become effective and dealings in the New Ordinary Shares will commence on or around 28 July 2017.  The Prospectus will be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/nsm following publication. 

Greg Mesch, Chief Executive Officer of CityFibre, said:

"We are building Gigabit Britain, driven by growing demand from Internet Service Providers and their customers to switch to full-fibre infrastructure. Our announcement to enter the residential market is the first step in our vision to bring gigabit connectivity to millions of UK homes and small businesses.

"This is about more than just better broadband - this is about future-proofing the digital infrastructure we've all come to rely on at work, at school, at home and in our communities. It's also about stimulating the market, creating jobs and growth. The Government and Ofcom recognise that investment in alternative fibre networks will catalyse growth in the UK's digital economy as well as reduce the country's reliance on BT Openreach.

"With Entanet now part of the CityFibre family, our combined offering will accelerate the take-up of services over our growing network footprints, leveraging Entanet's enviable channel partner network and continuing to transform digital connectivity for thousands of UK businesses.

"Today's capital raising also better positions CityFibre to undertake larger projects coming forward with the public sector as well as mobile operators in readiness for their small-cell roll-outs and 5G services."

Citigroup Global Markets Limited ("Citigroup" or "Citi") is acting as Sole Global Coordinator, Joint Bookrunner and Joint Underwriter, while Macquarie Capital (Europe) Limited ("Macquarie"), Liberum Capital Limited ("Liberum") and finnCap Ltd ("finnCap") are together acting as Joint Bookrunners and Joint Underwriters in connection with the Capital Raising.  N M Rothschild & Sons Limited ("Rothschild") is acting as financial adviser.

The preceding summary should be read in conjunction with the full text of the following announcement, together with the Prospectus.   

The person responsible for making this announcement on behalf of the Company is Terry Hart.

Enquiries

CityFibre Infrastructure Holdings plc                                                          +44 (0)845 293 0774

Greg Mesch, Chief Executive Officer

Terry Hart, Chief Financial Officer

James Enck, Head of Investor Relations      

Vigo Communications                                                                                    +44 (0)20 7830 9703
Jeremy Garcia
Fiona Henson 
Natalie Jones

Citigroup Global Markets Limited                                                              +44 (0) 207 986 4000
Sole Global Co-ordinator, Joint Bookrunner and Joint Underwriter
Stuart Field
Alex Carter
Sumit Guha

finnCap Ltd                                                                                                    +44 (0)20 7220 0500
Joint Bookrunner and Joint Underwriter
Stuart Andrews
Christopher Raggett
Simon Johnson

Liberum                                                                                                            +44 (0)20 3100 2000
Joint Bookrunner and Joint Underwriter

Steve Pearce
Richard Bootle
Cameron Duncan

Macquarie Capital                                                                                        +44 (0) 203 037 2000
Joint Bookrunner and Joint Underwriter
Ben Bailey
Alex Reynolds 

Rothschild                                                                                                       +44 (0)20 7280 5000
Financial Advisor
Anton Black
Peter Nicklin
Noel Monro 

Important information

The capitalised terms set out in this announcement are as defined in the Appendix.

This announcement does not constitute a prospectus. Nothing in this announcement should be interpreted as a term or condition of or form a part of, and should not be construed as, any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities or the solicitation of an offer to buy or subscribe for any securities of the Company, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities in the Company must be made only on the basis of the information contained in the P-Proof and the Prospectus.

This announcement and the information contained herein is not for release, publication or distribution, directly or indirectly, in whole or in part, in or into or from the United States, Australia, Canada, Japan, New Zealand or any other jurisdiction where to do so might constitute a violation of the relevant laws or regulations of such jurisdiction.

This announcement does not constitute or form part of any offer to sell, or any solicitation of an offer to buy, securities in the United States. Securities may not be offered or sold in the United States absent (i) registration under the U.S. Securities Act of 1933, as amended (the "Securities Act") or (ii) an available exemption from registration under the Securities Act. The Placing Shares and the Offer for Subscription Shares have not been and will not be registered under the Securities Act or under the securities laws of any state or other jurisdiction of the United States and may not be offered, sold, resold or delivered, directly or indirectly, in or into the United States absent registration except pursuant to an exemption from or in a transaction not subject to the registration requirements of the Securities Act. No public offering of the Placing Shares and the Offer for Subscription Shares is being made in the United States.

The Placing and Offer for Subscription is being made (i) outside the United States in offshore transactions (as defined in Regulation S under the Securities Act ("Regulation S")) meeting the requirements of Regulation S under the Securities Act; and (ii) to a limited number of "qualified institutional buyers" within the meaning of Rule 144A under the Securities Act as well as to a limited number of other investors, in transactions that are exempt from or not subject to the registration requirements of the Securities Act. Persons receiving this announcement (including custodians, nominees and trustees) must not forward, distribute, mail or otherwise transmit it in or into the United States or use the United States mails, directly or indirectly, in connection with the Placing and Offer for Subscription.

This announcement does not constitute an offer to sell or issue or a solicitation of an offer to buy or subscribe for Placing Shares and Offer for Subscription Shares in any jurisdiction including, without limitation, the United States, Australia, Canada, Japan, New Zealand or any other jurisdiction in which such offer or solicitation is or may be unlawful (an "Excluded Jurisdiction"). This announcement and the information contained herein are not for publication or distribution, directly or indirectly, to persons in an Excluded Jurisdiction unless permitted pursuant to an exemption under the relevant local law or regulation in any such jurisdiction. No action has been taken by the Company, Citi, finnCap, Rothschild, Liberum, Macquarie or any of their respective affiliates that would permit an offer of the Placing Shares or New Ordinary Shares or possession or distribution of this announcement or any other publicity material relating to such Placing Shares or Offer for Subscription Shares in any jurisdiction where action for that purpose is required. Persons receiving this announcement are required to inform themselves about and to observe any such restrictions.

This announcement is directed at and is only being distributed to: (A) persons in member states of the European Economic Area who are "qualified investors", as defined in article 2.1(e) of the Prospective Directive (Directive 2003/71/EC) as amended, (B) if in the United Kingdom, persons who (i) have professional experience in matters relating to investments who fall within the definition of "investment professionals" in article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the "FPO") or fall within the definition of "high net worth companies, unincorporated associations etc." in article 49(2)(a) to (d) of the FPO and (ii) are "qualified investors" as defined in section 86 of FSMA or (C) otherwise to persons to whom it may otherwise lawfully be communicated (each, a "Relevant Person"). No other person should act or rely on this announcement and persons distributing this announcement must satisfy themselves that it is lawful to do so. By accepting the terms of this announcement, you represent and agree that you are a Relevant Person.

Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of this announcement should seek appropriate advice before taking any action.

Certain statements in this announcement are forward-looking statements which are based on the Company's expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which may use words such as "aim", "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, include all matters that are not historical facts. These forward-looking statements involve risks, assumptions and uncertainties that could cause the actual results of operations, financial condition, liquidity and dividend policy and the development of the industries in which the Company's businesses operate to differ materially from the impression created by the forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given those risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by the Financial Conduct Authority ("FCA"), the AIM Rules, the Disclosure Guidance and Transparency Rules, the London Stock Exchange or applicable law or relevant regulation, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Any indication in this announcement of the price at which the Ordinary Shares have been bought or sold in the past cannot be relied upon as a guide to future performance. Persons needing advice should consult an independent financial adviser. No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

Citigroup Global Markets Limited ("Citi"), which is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the FCA, is acting as sole global co-ordinator, Joint Bookrunner and Joint Underwriter to CityFibre and no one else in connection with the Capital Raising, and will not be responsible to any person other than CityFibre for providing the regulatory and legal protections afforded to clients of Citi nor for providing advice in relation to the contents of this announcement or any matter, transaction or arrangement referred to in it.

finnCap Ltd ("finnCap"), which is authorised and regulated in the United Kingdom by the FCA, is acting for CityFibre and for no one else in connection with the Capital Raising and will not be responsible to anyone other than CityFibre for providing the legal and regulatory protections afforded to clients of finnCap or for affording advice in relation to the Capital Raising, or any other matter, transaction or arrangement referred to in this announcement.

N M Rothschild & Sons Limited ("Rothschild"), which is authorised and regulated in the United Kingdom by the FCA, is acting for CityFibre and for no one else in connection with the Capital Raising and will not be responsible to anyone other than CityFibre for providing the protections afforded to clients of Rothschild or for providing any advice in relation to the Capital Raising, or any other matter, transaction or arrangement referred to in this announcement.

Liberum Capital Limited ("Liberum"), which is authorised and regulated in the United Kingdom by the FCA, is acting for CityFibre and for no one else in connection with the Capital Raising and will not be responsible to anyone other than CityFibre for providing the legal and regulatory protections afforded to clients of Liberum or for affording advice in relation to the Capital Raising, or any other matter, transaction or arrangement, referred to in this announcement.

Macquarie Capital (Europe) Limited ("Macquarie"), which is authorised and regulated in the United Kingdom by the FCA, is acting for CityFibre and for no one else in connection with the Capital Raising and will not be responsible to anyone other than CityFibre for providing the protections afforded to clients of Macquarie or for providing advice in relation to the Capital Raising, or any matter referred to in this announcement.

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

 

CityFibre Infrastructure Holdings PLC

Placing to raise minimum gross proceeds of £185 million

Offer for Subscription to raise up to a further £15 million

-  Commencement of FTTH network build in 5 to 10 UK towns & cities

-  Acquisition of Entanet, provider of wholesale communications services

-  Expansion of full fibre metro networks into new towns & cities

 

1. Introduction

CityFibre Infrastructure Holdings PLC, a designer, builder, owner and operator of fibre optic infrastructure in UK towns and cities, today announces that it intends to raise minimum gross proceeds of £185 million at 55 pence per share, fully underwritten by Citi, finnCap, Liberum and Macquarie (the "Firm Placing"), with the intention to raise further proceeds through an accelerated bookbuilding process which will be launched immediately following this announcement (the "ABB Placing") (together, the "Placing").  In addition, the Company intends to raise further gross proceeds of up to £15 million through a non-underwritten Offer for Subscription.

The net proceeds of the Capital Raising will be used to fund the growth of the Company's full fibre network in the UK, including expansion of its metro networks to not less than 50 towns and cities by 2020 and the commencement of construction of Fibre to the Home in five to ten of these towns and cities during 2018. In support of the Company's strategy to focus on wholesale fibre services, part of the proceeds will also be used to fund the acquisition of Entanet, a provider of wholesale communications services.

The Capital Raising comprises the issue of a minimum of 336,363,636 Placing Shares at a price of 55 pence per Placing Share (the "Offer Price") pursuant to the Firm Placing and up to 27,272,727 New Ordinary Shares at the Offer Price pursuant to the Offer for Subscription (together representing 136.9% of the existing issued ordinary share capital of the Company, and 57.8% of the enlarged issued ordinary share capital immediately following completion of the Capital Raising assuming the minimum number of Placing Shares are issued and the Offer for Subscription is taken up in full).  In addition, the Capital Raising comprises an accelerated bookbuilding process at the Offer Price, which will be launched immediately following this announcement.

The Board believes the Capital Raising, which is subject to Shareholder approval, to be in the best interests of CityFibre and the Shareholders as a whole.

2. Background to and reasons for the Capital Raising

Since its formation in 2011, CityFibre has become established as an independent provider of wholesale fibre infrastructure for internet service providers as well as for mobile operators. CityFibre provides fibre connectivity services through designing, building, owning, and operating fibre optic network infrastructure. The Group is a wholesale operator of fibre networks in towns and cities outside London. The Group provides open access, shared fibre infrastructure that enables gigabit-capable connectivity for internet service providers and mobile network operators, who in-turn deliver digital connectivity solutions to their end customers spanning the public sector, business, and residential markets.

The Company now has a presence in 42 towns and cities in the UK providing infrastructure that is an alternative to Openreach. Having demonstrated its capability to deploy fibre infrastructure to address market demand, the Company now has opportunities to accelerate and expand its fibre network, and is undertaking the Capital Raising in order to capitalise on those opportunities.

Growth in global data transmission is driving continued investment in digital communications infrastructure, and particularly in fibre optic broadband networks. Global IP traffic is forecasted to grow at a compounded rate of 22% per annum between 2015 and 2020, driven by adoption of higher-speed broadband and the proliferation of digital connectivity devices, digital services and cloud computing.  

The UK has one of the highest levels of internet adoption in the world, but in terms of fibre infrastructure it lags behind nearly all OECD nations. As of December 2016, 79% of premises in Spain and 70% of premises in Portugal had access to full fibre broadband. In contrast, the UK's coverage of full fibre was approximately 2% of premises (Source: Ofcom plans for a full-fibre future, Ofcom). The broadband network in the UK is currently heavily reliant on copper connections. Together Openreach, the infrastructure division of BT plc, and Virgin Media Limited have announced plans to extend fibre infrastructure to, in aggregate, four million premises by 2020, which would only increase the percentage of UK premises with fibre access to 15%, well below many other OECD nations.

Both Ofcom, the communications regulator, and the previous UK government have introduced policies supporting the rollout of fibre across the UK.  For example, in February 2016 Ofcom outlined its strategy to promote investment in new fibre infrastructure whilst reducing the industry's dependence on Openreach, targeting the creation of a new fibre infrastructure connecting to 40% or more UK premises.   As a builder of 'full fibre' infrastructure (meaning there is no copper or co-axial cable used for the provision of data connectivity services in CityFibre's networks) CityFibre is well positioned to take advantage of these policy and regulatory changes.

CityFibre's strategy to deploy high capacity fibre infrastructure across many UK towns and cities, offering wholesale access to internet service providers and mobile operators, is aligned to continued demand for fibre infrastructure across four primary market verticals:

·     Public sector - fibre connectivity to council buildings, schools, hospitals, CCTV;

·     Business - fibre connections to enterprises and SMEs (often referred to as Fibre to the Premises - FTTP);

·     Mobile operators - fibre connections to mobile base stations and small cells for 4G and future 5G mobile services (often referred to as Fibre to the Tower - FTTT); and

·     Consumers - fibre connections to homes (often referred to as Fibre to the Home - FTTH).

CityFibre has grown its network, organically and through acquisition, to 42 UK towns and cities with 3,383 kilometres of ducted network. In addition, over the past two years the Company has undertaken three successful pilot projects:

·     Deployment of Fibre to the Tower (FTTT) in Hull with MBNL, Three and EE - marking the UK's first city-wide deployment of dark fibre infrastructure to mobile base stations;

·     Deployment of Fibre to the Home (FTTH) in York in conjunction with Sky and TalkTalk-demonstrating the opportunity to expand CityFibre's metro networks to full fibre connections for small businesses and homes; and

·     Deployment of a new fibre infrastructure in Southend-on-Sea that uses Openreach's ducts for some parts of the fibre networks construction - demonstrating the Company's ability to integrate its network with Openreach infrastructure and reduce overall construction costs.

Having demonstrated its capability to deploy infrastructure to address the demands of the Company's four primary market verticals, including FTTT and FTTH, CityFibre has an opportunity to accelerate and expand its operations.  Recent UK government policy for greater competition and investment in 'full fibre' networks has resulted in a promising pipeline of projects.

The Directors believe that there are significant opportunities to grow the Company's fibre network and its customer base and is undertaking the Capital Raising to support these opportunities. The Company will seek to extend its current metro footprint selectively, ensuring that each new metro project is anchored by long term contracts that deliver a satisfactory return on the capital investment required and that cover a substantial portion of projected capital expenditure. The same policy will apply to the extension or expansion of existing town and city networks to serve public sector, business and mobile customers. In relation to the construction of Fibre to the Home, the Company will work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, and would only proceed with construction if there were to be sufficiently robust demonstrations of demand. In support of the Company's strategy to focus on wholesale fibre services, part of the proceeds of the Placing will also be used to fund the Entanet Acquisition.

3. Use of Proceeds from the Capital Raising

Of the net proceeds of the Capital Raising, £29 million (on a cash free debt free basis and subject to adjustments) will be used to acquire Entanet, substantially increasing the Company's wholesale capabilities and its relationships with Channel Partners, especially in the business and consumer market verticals, thereby extending CityFibre's channels to market.

CityFibre intends to apply the balance of the net proceeds to fund the growth of the Company's full fibre network across UK towns and cities, serving its four primary market verticals of public sector, mobile, business and consumer.

It is the Directors' intention that following the Capital Raising, the Company will pursue its growth opportunities without drawing down further on its existing debt facilities and will seek to refinance its existing debt facilities during 2018 with a higher level of leverage, in order to optimise its capital structure to fund its future growth.

In particular, the Company plans to apply the net proceeds of the Capital Raising:

·     to expand the construction of CityFibre's metro fibre infrastructure to no less than 50 towns and cities by 2020;

·     to increase metro connectivity in existing towns and cities;

·     to initiate the Company's FTTH plan in a select number of towns and cities within CityFibre's existing or expanded metro footprint, with the intention of commencing construction of an FTTH network in five to ten of these towns and cities during 2018, delivering approximately 300 to 400 FTTH cabinets by the end of 2018; and

·     to pursue opportunities for, and commence the deployment of, FTTT connectivity to mobile base stations and small cells

The markets in which CityFibre operates are dynamic and the opportunities potentially significant. The Company will review opportunities as they mature and deploy the net proceeds accordingly. To expand its fibre infrastructure in line with its strategy, an indicative use of proceeds, assuming the minimum Firm Placing and full take up under the Offer for Subscription, is as follows:

·     acquisition and integration of Entanet - approximately 17% of the net proceeds  

·     expand metro infrastructure to new towns and cities, and expand metro connectivity in existing towns and cities (including potential deployment of FTTT connectivity) - 35% to 40% of the net proceeds  

·     commence the construction of FTTH - 40% to 50% of the net proceeds  

In assessing potential competing demands for capital, the Company intends to maintain its financial discipline. CityFibre's fibre infrastructure in each town and city is targeted to operate at gross margins of approximately 90%.  At maturity (being approximately 5 to 7 years after first cabinet construction) the metro infrastructure is targeted to deliver a revenue yield on net capital expenditure of greater than 25% on a town or city basis.  FTTH infrastructure is targeted at maturity to deliver a revenue yield on net capital expenditure of 18 to 22% per cabinet.  In both cases, revenue yield is the recurring annual revenue generated measured against the cumulative capital expenditure net of up-front fees paid by the customer for fibre connections.

3.1  Extend CityFibre's footprint to more towns and cities

The Company currently owns and operates metro fibre networks in 42 towns and cities. CityFibre seeks to secure anchor contracts to support entry into no less than eight new towns and cities, bringing the total footprint to no less than 50 towns and cities by 2020. The Directors believe that in the long term the Company could target up to 100 towns and cities.

Market demand for new fibre infrastructure is giving rise to an accelerated expansion opportunity. For example, the previous UK government's policy for 'full fibre' is set to encourage local authorities to aggregate demand for fibre connectivity to public sector locations. In this regard, £740 million of the £1.14 billion stimulus announced by the Chancellor in November 2016 is to be directed to local fibre projects, with potential for local authorities to anchor new full fibre networks.

3.2  Increase Metro connectivity within CityFibre's footprint

In every town and city where CityFibre has established a metro fibre infrastructure, the Company's strategy is to add fibre connections to more premises and grow market share. CityFibre intends to work closely with internet service providers to increase the use of CityFibre's metro fibre products across public sector and business market verticals. In particular:

·     Growth in Public Sector - Currently the Company has major public sector contracts in nine of its current 42 towns and cities. Recent UK government policy for full fibre connected public sector sites presents an opportunity to expand coverage through more local authority contracts.

·     Expansion to Business Parks - Enterprise and SME users in business parks remain underserved by legacy networks. On 29 November 2016 the Company announced the proposed expansion of its network to approximately 500 business parks that are located near to CityFibre's metro networks in its current metro footprint. The Company intends to accelerate this expansion following the Capital Raising.

·     Increase Channel Partners - As a wholesale provider, the Company currently has 54 Channel Partners that use its networks to provide data services to their end customers. These Channel Partners principally comprise internet service providers, connectivity resellers and service integrators and address key markets including, business, public sector, consumer and data centres. CityFibre seeks to expand the number of Channel Partners with which it works and continues to invest in its IT systems, platforms and marketing programmes to support its partners.

·     Expand Ethernet Product Portfolio - CityFibre will develop its portfolio of connectivity services through the introduction of wholesale Ethernet products that complement existing dark fibre services. This will widen the addressable market for the use of CityFibre's infrastructure across its current and expanded footprint and open up the opportunity to attract national internet service providers who seek city-to-city Ethernet services.

3.3  Commence Rollout of Fibre to the Home

International benchmarks provide considerable weight to the need for, and success of, FTTH deployments worldwide. The UK currently ranks amongst the lowest of OECD nations for premises that are directly connected with fibre.

The Group's successful FTTH trial in York through its joint venture with Sky and TalkTalk, YorkCo, demonstrated the ability to expand CityFibre's metro infrastructure to Fibre to the Home. The Company now intends to expand its fibre infrastructure to residential households in a select number of towns and cities within CityFibre's current footprint. Subject to completion of the Capital Raising, construction is scheduled to commence in five to ten of these towns and cities during 2018.

The deployment of FTTH has been central to both UK government and Ofcom policies, and CityFibre is well positioned to exploit this opportunity. The York trial demonstrated CityFibre's ability to deploy FTTH connectivity cost effectively and that its Channel Partners were able to offer full fibre broadband to their customers at attractive retail prices, thereby demonstrating the propensity for consumers to switch to FTTH connections. Of those homes in York whose boundaries are passed by the FTTH network constructed by YorkCo, more than 27% subscribed for an internet service from Sky or TalkTalk on the new YorkCo FTTH network by 31 May 2017, with the highest cabinet penetration now exceeding 40%. In undertaking its FTTH plan, CityFibre intends to work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, hence mitigating deployment risks by ensuring there is sufficient demand ahead of construction. The use of Openreach ducts and poles for some parts of the deployment (as proven by the Group's trial in Southend-on-Sea) provides an opportunity to lower construction costs for the FTTH deployment.

CityFibre is now in advanced discussions with a number of consumer focused Channel Partners who are keen to take advantage of near gigabit speed broadband delivered on CityFibre's full fibre infrastructure.

3.4   The Opportunity for Fibre to the Tower

Fibre connectivity to mobile base stations is referred to as Fibre to the Tower (FTTT), or 'mobile backhaul'.  Growth in mobile data is influencing mobile operators to seek higher bandwidth fibre connections to base stations with further demand to connect a large number of 'small cells' over time as mobile operators prepare for 5G services by 2020.

FTTT uses the same high capacity metro infrastructure deployed for the public sector and business market verticals. CityFibre is well positioned to serve the connectivity of mobile operators within its existing and expanded metro footprint, and has demonstrated this capability through its citywide FTTT deployment in Hull for MBNL, Three and EE. The Directors estimate there are approximately 7,300 mobile base stations within its existing footprint, with future potential for 36,500 or more small cells. The Company continues actively to explore opportunities with mobile operators who seek a transition to dark fibre based FTTT connections within CityFibre's existing or expanded metro footprint. Entry to further new towns and cities, if that potential arises, is intended to follow CityFibre's anchor tenancy model.

3.5  Experience in Building and Operating Fibre Infrastructure

The Group's strategy to accelerate its expansion is supported by CityFibre's management capabilities and relationships with suppliers and civil engineering contractors. The Directors believe that the Group has established the capabilities to co-ordinate and manage fibre infrastructure construction at national scale, as demonstrated through its existing presence in 42 towns and cities. The Group will increase the number of employees only where essential, and it will continue to work with select engineering partners to deliver and operate CityFibre's national infrastructure.

4.  Entanet acquisition

The Company has conditionally agreed to purchase the entire issued share capital of Entanet for a cash consideration of £29 million (on a debt free cash free basis and subject to adjustments). The consideration is payable on completion of the Entanet Acquisition, other than £4.65 million which is deferred (£3 million of which is deferred by the Company in respect of indemnity claims for up to 24 months from completion of the Entanet Acquisition and the balance of £1.65 million, which is due to certain management sellers, is deferred for up to 12 months in connection with certain leaver provisions set out in the agreement). The Company proposes to finance the Entanet Acquisition by utilising part of the net proceeds of the Placing. The Entanet Acquisition is conditional on the passing of the Resolutions to approve the Capital Raising and Admission.

4.1   Overview of Entanet acquisition

CityFibre's strategy is to become the leading alternative wholesale full fibre network provider to Openreach. As demand for fibre connectivity grows in the UK, CityFibre sees opportunities to expand and accelerate its network, channels to market and product portfolio.

Entanet is a wholesale communications provider that uses third party networks owned by other suppliers such as Openreach, to deliver a wide range of connectivity and telecommunication products and services to internet service providers, including broadband, Ethernet, private and wide area networks, IP and PSTN telephony, colocation, hosting and associated services.

The Directors believe the Entanet Acquisition will bring together two complementary wholesale capabilities: CityFibre's national wholesale fibre infrastructure and Entanet's established wholesale product portfolio and commercial relationships with an extensive number of internet service providers. Entanet would, following the acquisition, become a primary route for CityFibre to market its full fibre connectivity through Entanet's network of internet service providers.

4.2   Reasons for the Entanet Acquisition and Future Strategy

Entanet's strategy is focused on the development and growth of wholesale communications services. It packages data communications products, including broadband and leased line internet connectivity, IP telephony and hosting services and makes these products and services available nationally, with approximately 1,500 Channel Partners that serve the business and residential markets having acquired circuits from Entanet in the 12 months ended 31 December 2016.

The Directors believe that the Entanet Acquisition will significantly enhance the Company's wholesale fibre capability and accelerate its future growth. By combining CityFibre's fibre infrastructure with Entanet's established wholesale products, systems and relationships with Channel Partners, the Company expects to realise the following synergies and benefits, estimated by the Directors to deliver cost synergies of over £3 million per annum within three years of completion of the Entanet Acquisition:

·     Increase Relationships with Channel Partners - The acquisition is expected to give CityFibre access to new Channel Partners due to Entanet's existing position as a wholesale provider with approximately 1,500 Channel Partners having acquired circuits from Entanet in the 12 months ended 31 December 2016. This represents a significant potential increase in CityFibre's indirect routes to market.

·     Achieve Significant Migration Synergies - Entanet's services operate on the networks of a number of suppliers, including BT Wholesale, Openreach, Virgin Media, Colt Technology and Vodafone. It currently services over 45,000 broadband connections and over 3,500 leased lines. A proportion of these connections originate and/or terminate in CityFibre's existing or expanded city footprint, giving rise to the opportunity to migrate these connections to the Company's fibre infrastructure over time.

·     Trading and Support Interfaces - The acquisition is expected to give CityFibre access to Entanet's wholesale systems that provide a layer of automated order and billing capabilities as well as customer portals and support systems.

·     Complementary Products - The acquisition is expected to enable CityFibre to utilise Entanet's wholesale product portfolio enhancing CityFibre's own wholesale fibre capabilities.

·     National Ethernet Capability - The national networks leased by Entanet from other suppliers support the end-to-end Ethernet capabilities that are required as part of CityFibre's product development. The acquisition is expected to accelerate both the timescale and scope of CityFibre's Ethernet strategy, enabling faster take up of the Company's fibre connectivity by national Channel Partners.

The acquisition is expected to enable Entanet to offer the delivery of wholesale services across CityFibre's fibre infrastructure in both existing and future metro towns and cities, providing differentiated gigabit speed full fibre connectivity services through its established base of Channel Partners.  One-off integration costs in respect of Entanet are expected to be approximately £3 million.

The Capital Raising is not conditional on the Entanet Acquisition completing.  If, for any reason, the Entanet Acquisition Agreement is terminated prior to Admission, the proceeds of the Capital Raising which were allocated to fund the Entanet Acquisition will be utilised by the Company for the other purposes described in this announcement.  Oakley Advisory Limited acted as financial advisor to CityFibre on the acquisition of Entanet.

5.  Current Trading, Trends and Prospects

The Company continued its network footprint expansion throughout 2016, through a combination of acquisitions, organic growth and incremental sales on existing and acquired assets.

In 2017, CityFibre continued to focus on growing revenues and connections across its existing footprint, as well as undertaking selective investments in new towns and cities. Financial performance relating to metro towns and cities was in line with management's expectations. At the end of May 2017, the Company had entered into contracts with Channel Partners, enabling CityFibre to launch business services into seven further towns and cities, and securing in excess of £8.3 million of new contracted revenue. Furthermore, the unrealised value of its contracts was £102.2 million, giving the Company good visibility of future income.

The profile of CityFibre's growth is characterised by securing a relatively small volume of larger value contracts that provide fibre connectivity to multiple sites. This is supplemented by securing smaller contracts at various times for individual fibre connections from existing Channel Partners. Therefore, timing of the larger contracts can affect month by month performance. The Company secured few large contracts in the first quarter of 2017, with a higher number of larger contracts expected in the second quarter and throughout the second half of 2017. The strong and growing pipeline of opportunities means that the Company expects to deliver overall 2017 financial performance in line with management expectations.

5.1   Expansion to new towns and cities

In January 2017, CityFibre announced its intention to construct a new fibre network in Stirling having secured a seven-year anchor contract to provide full fibre connectivity to the public sector, followed in March 2017 with anchor contracts in the business market vertical to construct new networks in Cheltenham and Gloucester, two locations located near to the Company's national long distance network.

CityFibre will continue to seek opportunities to enter new towns and cities underpinned by suitable anchor contracts. The Directors believe that current trading activity and its pipeline of opportunities will enable the Company to progress towards its stated medium-term target to reach no less than 50 towns and cities by 2020.

5.2   Expansion in existing towns and cities

In its existing towns and cities, CityFibre is undertaking investments in active platforms to provide wholesale Ethernet services to complement its current dark fibre offering. The Company is on track to deliver its active platforms into not less than five further towns and cities in the first half of 2017, and is targeting to expand Ethernet services to a further six towns and cities by the end of the year.

In expanding its Ethernet services to the business market vertical, CityFibre intends to enter into launch partner contracts with Channel Partners to provide fibre connectivity to more businesses in its existing footprint. In April 2017 CityFibre announced contracts to support construction in Slough, Maidenhead and Wakefield followed in May 2017 with contracts in Plymouth and Exeter. These launch partner contracts demonstrate that CityFibre is making further progress to commercialise the network assets acquired from KCOM and Redcentric Solutions Limited in 2016.

In the public sector, the Directors believe that recent government policy for full fibre, together with planned government stimulus to encourage local government to anchor new full fibre core metro networks, will accelerate opportunities for fibre connectivity to more public sector sites. CityFibre is engaged in a significant number of discussions with local authorities and Channel Partners and is building a pipeline of public sector opportunities with the potential for contracts to be awarded to the Company in the second half of 2017 and beyond.

5.3    FTTT and FTTH

In 2016 CityFibre completed two landmark network deployments for the UK market: the FTTT network construction in Hull and the FTTH trial in York. As a result, the Company is now exploring opportunities to deploy FTTT and FTTH in more UK towns and cities, and is progressing commercial negotiations with mobile operators and major Channel Partners accordingly.

CityFibre has engaged in commercial discussions with major internet service providers and a number of smaller internet service providers, to secure Channel Partner relationships intended to provide full fibre broadband services to consumers using CityFibre's future FTTH infrastructure. These discussions are advanced and may or may not lead to binding agreements in due course.

The Company has engagement with Channel Partners across all four primary market verticals, supported by market demands for fibre connectivity and policies that encourage the deployment of full fibre and 5G infrastructure to many homes and businesses. The Directors believe that CityFibre is well positioned to exploit these opportunities and to continue to expand its operations.

6.  Structure and principal terms and conditions of the Capital Raising

6.1   Structure of the Capital Raising

Introduction

The Company proposes to raise minimum gross proceeds of £185 million by way of the Firm Placing, with the opportunity to raise further proceeds through the ABB Placing which will be launched immediately following this announcement (together, the "Placing").  In addition, the Company intends to raise further gross proceeds of up to £15 million by way of the Offer for Subscription. The decision to structure the Capital Raising by way of a combination of a Placing and Offer for Subscription takes into account a number of factors, including the total net proceeds to be raised. The Board believes that the Placing, as part of the Capital Raising enables the Company to satisfy demand from new investors as well as current Shareholders wishing to increase their positions combined with the ability for Shareholders to participate in the Offer for Subscription in order to mitigate the effect of the dilution arising from the Placing. Shareholders' approval is required for the Capital Raising, including the Placing and the Offer for Subscription, by way of a special resolution.

Pricing

The Offer Price represents a 9.09% discount to the Closing Price of 60.50 pence on 4 July 2017 (being the last Business Day before the announcement of the Capital Raising). The Offer Price (including the size of the discount) has been determined, following discussions with both existing Shareholders and Placees identified prior to this announcement, to be at the level which the Board considers appropriate to ensure the success of the Capital Raising.

Dilution

The Firm Placing (assuming the minimum amount of £185 million is raised through the Firm Placing) will: (i) result in 336,363,636 Placing Shares being issued and the number of Ordinary Shares being increased from a total of 265,672,644 Ordinary Shares (as at the Reference Date) to a total of 602,036,280 Ordinary Shares, representing an increase of 126.6%; and (ii) reduce the proportional ownership and voting interest in the Ordinary Shares of the Shareholders (as at the Reference Date) by 55.9%.

The Offer for Subscription will result in up to 27,272,727 Offer for Subscription Shares being issued and the number of Ordinary Shares being increased (assuming the Offer for Subscription is taken up in full) from a total of: (i) 265,672,644 Ordinary Shares to a total of 292,945,371 Ordinary Shares (disregarding the issue of the Placing Shares), representing an increase of 10.3%; or (ii) 602,036,280 Ordinary Shares (taking into account the issue of the minimum number of Placing Shares) to a total of 629,309,007 Ordinary Shares, representing an increase of 4.5%.

Following completion of the Capital Raising, Shareholders who do not (or cannot) participate in the Placing or the Offer for Subscription will suffer a dilution of approximately 57.8% (assuming the Offer for Subscription is taken up in full and excluding any potential impact due to the ABB Placing).

6.2  The Placing                                                              

Under the Firm Placing, the Underwriters have agreed to procure Placees for an aggregate of 336,363,636 Placing Shares at the Offer Price. The Placing is expected to raise gross proceeds of a minimum £185 million, fully underwritten by the Underwriters on the terms and conditions of the Underwriting Agreement, with the opportunity to raise further proceeds through an accelerated bookbuilding process which will be launched immediately following this announcement.  The Placing is conditional upon (among other things): (i) the Resolutions being passed at the General Meeting; (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission); and (iii) Admission becoming effective on or around 28 July 2017 (or such later date as the Company and the Underwriters may agree). If the conditions are not satisfied then the Capital Raising will not proceed. In those circumstances, the Entanet Acquisition will also not proceed.

An application will be made to the London Stock Exchange for the Placing Shares to be admitted to AIM. It is expected that Admission will become effective and dealings in the Placing Shares will commence on or around 28 July 2017.

The Placing Shares will, when issued, rank pari passu in all respects with, and will carry the same voting and dividend rights as, the Existing Ordinary Shares and the Offer for Subscription Shares.

6.3   The Offer for Subscription

Up to 27,272,727 Offer for Subscription Shares are being made available under the Offer for Subscription, which may only be open to certain qualifying shareholders of the Company, at the Offer Price (representing 10.3% of the Company's existing issued share capital and 4.3% of the Company's enlarged issued share capital following completion of the Capital Raising, assuming in both cases that the Offer for Subscription is taken up in full). The terms and conditions for the Offer for Subscription, and the latest time and date for receipt of completed Application Forms and payment in full under the Offer for Subscription, will be set out in the Prospectus and should be read carefully before an application is made. Investors should consult their respective stockbroker, bank manager, solicitor, accountant or other financial adviser if they are in any doubt about the terms and conditions of the Capital Raising.

If valid applications are received under the Offer for Subscription for more than the maximum number of Offer for Subscription shares available, applications shall be allocated in such manner as the Directors may determine, in their absolute discretion, although the Directors anticipate such allocations will be made pro rata to the shareholdings of those qualifying shareholders validly applying for Offer for Subscription Shares.

The Offer for Subscription is not underwritten by the Underwriters or by anyone else.

The Offer for Subscription is conditional upon (among other things) (i) the Resolutions being passed at the General Meeting; (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and (iii) Admission becoming effective on or around 28 July 2017 (or such later date as the Company and the Underwriters may agree).

An application will be made to the London Stock Exchange for the Offer for Subscription Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Offer for Subscription Shares will commence on or around 28 July  2017.

The Offer for Subscription Shares will, when issued and fully paid, rank pari passu in all respects with, and will carry the same voting and dividend rights as, the Existing Ordinary Shares and the Placing Shares.

7.  Admission and Settlement

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. Admission is expected to take place on or around 28 July  2017.

To be traded on AIM, securities must be eligible for electronic settlement. Following Admission, the New Ordinary Shares will be eligible for CREST settlement. CREST is a paperless settlement system enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument in accordance with the CREST Regulations.

Accordingly, following Admission, settlement of transactions in the New Ordinary Shares may take place within the CREST system if a Shareholder so wishes. CREST is a voluntary system and Shareholders who wish to receive and retain share certificates are able to do so.

For more information concerning CREST, Shareholders should contact their brokers or Euroclear at 33 Cannon Street, London EC4M 5SB or by telephone on +44 (0) 207 849 0000.

The ISIN number of the Ordinary Shares will remain GB00BH581H10. The TIDM code will remain CITY following Admission.

8.  Dividend Policy

The objective of the Directors is to achieve capital growth for Shareholders through the continued expansion of CityFibre's fibre infrastructure and the growth of revenue and profits generated from the use of the infrastructure. Consequently, they do not anticipate that the Company will pay dividends to Shareholders in the short to medium term.

As the Company's strategy is for the realisation of yield generating infrastructure, the Directors will keep this position under review and would intend, at an appropriate stage in the future, to pay a proportion of profits in each year to Shareholders by way of dividend.

9.  Related Party Transactions

Woodford Investment Management Ltd is a related party of the Company for the purposes of the AIM Rules by virtue of its status as a "substantial shareholder" (as such term is defined in the AIM Rules) as it beneficially owns or controls, directly or indirectly, 10% or more of the Existing Ordinary Shares. Woodford Investment Management Ltd has agreed to subscribe for 65,454,545 Placing Shares, conditional on Admission. Taking into account the related party transaction noted above, the Directors consider, having consulted with the Company's nominated advisor, finnCap, that the terms of the Placing with Woodford Investment Management Ltd is fair and reasonable insofar as the Company's shareholders are concerned.

10.   Overseas Shareholders

The attention of Overseas Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of, or are located in, countries other than the United Kingdom, is drawn to the information in the Terms and Conditions for the Placing and the Prospectus.

Notwithstanding any other provision, the Company reserves the right to permit any Shareholder on the register at the Record Date to participate in the Offer for Subscription if the Company in its sole and absolute discretion is satisfied that the transaction in question will not violate applicable laws.

11.   Taxation

Certain information about UK and US taxation in relation to the Capital Raising will be set out in the Prospectus. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the United Kingdom and the United States, you should consult your own independent tax adviser without delay.

12.   Directors' Recommendation and Intentions

The Board is fully supportive of the Capital Raising. Chris Stone, CityFibre's Chairman, has agreed to subscribe for 1,181,818 Placing Shares at the Offer Price. Although he is a related party to the Company by virtue of being a Director, his subscription is not of sufficient size to constitute a related party transaction. In accordance with the terms of the offer of appointment to Chris Stone as non-executive Director, the Company has committed to grant a "matching award" to Chris Stone equal to the same number of Ordinary Shares as represent the number of Placing Shares he subscribes for.

The Board believes that the Capital Raising is in the best interests of the Company and the Shareholders as a whole.  Accordingly, the Board unanimously recommends that you vote in favour of all of the Resolutions to be proposed at the General Meeting in order to effect the Capital Raising, as they intend to do in respect of their own beneficial shareholdings held at the time of the General Meeting, amounting to 4,469,398 Ordinary Shares in aggregate as at the Reference Date (representing approximately 1.68% of the Company's existing issued ordinary share capital).

13.  Abridged expected timetable of principal events¹

Each of the times and dates below is indicative only and may be subject to change:

 

Announcement of the Capital Raising	5 July  2017
Prospectus published, Forms of Proxy despatched and Application Forms despatched	on or around 11 July   2017
Offer for Subscription opens	on or around 11 July 2017
General Meeting	on or around 27 July  2017
Announcement of results of the Capital Raising	on or around 27 July  2017
Completion and Admission and dealings in New Ordinary Shares, fully paid, commence on the London Stock Exchange	on or around 28 July  2017
New Ordinary Shares credited to CREST stock accounts	on or around 28 July  2017
Expected despatch of definitive share certificates for the New Ordinary Shares in certificated form	by 11 August 2017

 

¹ The times and dates set out in the expected timetable of principal events above and mentioned in this document, the Prospectus and any other document issued in connection with the Capital Raising are subject to change by the Company, in which event details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange and, where appropriate, to Shareholders

 

14.  Additional information on CityFibre

14.1  CityFibre's business model characteristics  

CityFibre operates a business model whereby it seeks to enter a town or city via an anchor contract with a Channel Partner that serves the public sector or business market verticals, a mobile operator or via an acquisition. Its strategy is to build or acquire an anchor metro network to service the initial contract and then expand the network through the provision of fibre connectivity to more premises in its three primary metro market verticals: public sector, business and mobile. Once deployed, the metro network may be expanded to FTTH, serving a fourth market vertical, consumer, as described below. Through its strategy to enter and grow metro networks, CityFibre typically seeks:

·     customer contract value from the initial contract to cover a substantial proportion of the capital expenditure to either construct or acquire the network;

·     targeted gross margins of approximately 90% on subsequent incremental business;

·     capital expenditure on incremental connections in the town or city having a targeted payback of less than three years ("payback" being the period of time it takes to generate gross margin on an incremental connection equal to the net capital expenditure required to connect it);

·     targeted recurring revenue yield (net of upfront fees paid by customers for the fibre connection) on net capital expenditure in a town or city in excess of 25% at maturity (being approximately 5 to 7 years after first cabinet construction); and

·     targeted recurring revenue yield on anchor contracts of approximately 10%.

Following construction or acquisition of the anchor network, through further densification of the network CityFibre seeks to lower its average capital cost per additional connection, and provide additional yield on capital employed in the town or city.

The Directors expect most Channel Partner contracts for fibre connectivity will renew at the end of their initial term with low rates of churn. Contract renewals typically do not require further expenditure by CityFibre.

CityFibre's business model in relation to new towns and cities anchored through FTTT connections to mobile base stations, or for the rollout of FTTH to consumers, is expected to follow a similar approach:

FTTT

·     Anchor contracts with mobile operators for FTTT will be pursued where the contract value, to cover a proportion of the capital expenditure associated with network construction, is deemed acceptable by the Directors.

·     Consideration may include a combination of up-front connection fees and ongoing rental fees, with CityFibre having flexibility to tailor the commercial structure of contracts.

FTTH

·     Construction of FTTH is expected to commence in five to ten towns and cities within CityFibre's existing or expanded metro footprint in 2018, based on the delivery of approximately 300 to 400 FTTH cabinets served by CityFibre's existing metro infrastructure by the end of 2018

·     In undertaking its FTTH plan, CityFibre intends to work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, hence mitigating deployment risks by ensuring there is sufficient demand ahead of construction

14.2  Market opportunity

The UK boasts one of the highest levels of internet adoption in the world, with internet-related economic activity accounting for a larger proportion of Gross Domestic Product than in any other G20 member nation. The sector continues to grow strongly and in 2015 the digital sector represented 7.1% of UK GVA and accounted for 4.4% of UK jobs and 9.5% of UK enterprises (Source: Government Response to the Business, Innovation and Skills Committee's Second Report, 2016-2017). The number of digital technology jobs in the UK has grown at more than twice the rate of non-digital technology sectors (Source: TechCity conference, 21 March 2017).

As a digital economy, the UK has attracted investment in digital technology, reaching £6.8 billion in 2016. This was more than 50% greater than the investment in digital technology in any other European country in 2016 (Source: Tech Nation 2017 Report, Tech City UK). The Directors believe that the UK government will remain keen to preserve this momentum in order to promote growth in the UK economy. The economic contribution of the UK digital technology worker is large and growing, almost twice as high as the non-digital technology worker (Source: Tech Nation 2017 Report, Tech City UK).

Data growth in the UK will continue to rise as internet and data communications users continue to adopt digital applications. There remains strong demand for digital infrastructure and higher speed connectivity across all four of CityFibre's targeted market verticals:

·     Public sector - The use of digital technologies in education and healthcare, for example, means that public services require higher bandwidth connectivity. In a number of CityFibre's projects with local authorities, fibre connections are provided to schools, council sites and hospitals. Furthermore, the Company is supplying full fibre connections for CCTV and other public sector applications.

·     Business - Alongside the development and growth of digital services and the digital economy, businesses' dependency on digital infrastructure has continued to rise to the point that 94% Of small business owners consider a reliable internet connection critical to the success of their business (Source: Federation of Small Businesses, February 2016). Dependency on inadequate digital connectivity remains a major concern for many businesses. According to the figures published by the Federation of Small Businesses, 14% of small businesses considered lack of reliable and fast broadband connectivity to be their main barrier to growth and, at the time of the report's publication in July 2014, 45,000 small businesses (1% of the UK's 4.5 million small businesses) had to rely on a dial-up connection. In the nation's business parks, almost half of small businesses are unable to receive speeds above 10Mbps (Source: Connected Nations Report 2015, Ofcom).

·     Consumer - The use of internet delivered entertainment services such as Netflix, Now TV and Amazon Prime is driving the need for higher bandwidth connection to the home, and demand for fibre connections will increase, for example, as the adoption of ultra-high definition smart televisions proliferate. Furthermore, as workers increasingly use their homes as a place of work, broadband connections must also support the data needs of accessing a business's IT systems remotely.

·     Mobile - According to Cisco's forecasts, global mobile data traffic will increase sevenfold between 2016 and 2021, a compound annual growth rate of 47% The average mobile network connection will increase threefold to reach 20.4 Mbps in the same time period. According to UK government figures, this expected growth in mobile data will drive the need for high bandwidth fibre connectivity to mobile base stations and future small cells

The trend for increasing global data, fuelled by society's increasing use of the internet for digital applications and content alongside the proliferation of connected devices simultaneously connected to the internet, is creating the need for higher bandwidth connectivity at home, at work and on the move. The Directors believe that these trends will drive investment in modern full fibre infrastructure in markets in which the Group operates.

Full fibre infrastructure is capable of supporting significantly increased bandwidth services when compared to legacy copper or copper-fibre hybrid networks. As data consumption and therefore demand continue to rise, full fibre's data transmission capabilities can be easily upgraded by replacing the active electronics attached to each end of the fibre rather than upgrading the physical infrastructure itself. A further benefit is the reliability of full fibre networks which significantly exceeds that of other network technologies. Reliability is essential as dependency on infrastructure increases.

Supply of fibre-optic infrastructure internationally and in the UK

As a predominately service-based economy, the importance of digital infrastructure to the UK is clear. However, the UK is near the bottom of the full fibre infrastructure league tables amongst OECD nations.

The investment in, and availability of, fibre to the premises networks to homes and businesses has been a priority for many OECD countries, in particular in Asia where Japan and South Korea now benefit from near ubiquitous coverage of full fibre. In some European countries, major investment programmes by communications providers have resulted in extensive deployments in full fibre broadband. As of December 2016, 79% of premises in Spain and 70% of premises in Portugal had access to full fibre broadband. In contrast, the UK's coverage of full fibre was approximately 2% of premises (Source: Ofcom plans for a full-fibre future, Ofcom).

The UK benefits from a number of competitive fibre suppliers (including Openreach, Virgin Media, Colt Technology Services Group Limited, CenturyLink Limited, SSE Energy Supply Limited, and Zayo Group LLC) for national long distance networks that connect major cities across the country, however at the local access network level the market is dominated by the two incumbent operators, Openreach and Virgin Media.

Whilst Openreach and Virgin Media offer some full fibre connectivity in the leased line market, the majority of their customers, in particular in the 'last mile' local access networks, are served using connectivity to premises based on either copper wires or copper co-axial cables.

Supply of wholesale infrastructure in the UK

In the UK fixed line access market there is a notable absence of any significant wholesale competitor to Openreach, which is mandated to offer wholesale access in all areas and markets where it is deemed to hold a dominant market position.

Whereas London supports a competitive market of alternative fibre infrastructure providers via metropolitan area networks, the availability to service providers of alternative wholesale infrastructure outside London is limited.

The reasons for this include the following:

·     Virgin Media's network infrastructure is not generally made available to third party service providers on a wholesale basis, especially to homes and small businesses.

·     Historical network investment by alternative network operators in the UK has been less significant than in other international markets, resulting in very limited wholesale competition to Openreach outside London.

In recognition of this lack of competitive infrastructure outside the capital, Ofcom applies wholesale access regulation to Openreach across the UK. Openreach's obligation to make its networks open to competition has resulted in a significant growth of Channel Partners that compete with BT, and each other, at a retail level.  However, they are largely dependent on the use of Openreach's networks for connectivity to premises.

As demand for higher speed connectivity increases, the Directors believe the opportunity for CityFibre as an alternative wholesale fibre infrastructure provider to UK towns and cities outside London is significant. The Group's current footprint of 42 towns and cities is estimated by the Directors to provide the Group with a total addressable market of approximately 43,800 public sector sites, 349,400 businesses, an estimated 7,300 cell sites, and 4.4 million homes.

The Directors further estimate that the proposed expansion of its network to 50 towns and cities would provide the Group with a total addressable market of approximately 52,000 public sector sites, 420,000 businesses, an estimated 8,700 cell sites and 5.2 million homes.

Government polices to encourage supply of full fibre networks

CityFibre's market opportunity stems from the current lack of full fibre infrastructure within the UK where, as described above, the UK lags behind nearly all OECD nations in the provision of fibre infrastructure.

Furthermore, the full fibre investment plans currently announced by Openreach and Virgin Media targeting, in aggregate, four million premises by 2020 amounts to less than 15% of total UK premises, lower than current full fibre coverage in Chile, Turkey and Mexico based on OECD figures. The low coverage of full fibre infrastructure in the UK has triggered a shift towards policies that support greater competition and investment in alternative fibre networks.

In February 2016 the communications regulator, Ofcom, published its Digital Communications Review, outlining its strategy to promote investment in new fibre infrastructure whilst reducing the industry's dependence on Openreach. It detailed its proposal on how best to achieve this aim in July 2016 where it stated:

"Network competition is the most effective spur for continued investment in high quality, fibre-based networks. At present, about half the country has access to two network providers. We have suggested that a good long-term outcome would be to achieve full competition between three or more networks for around 40% of premises, with competition from two providers in many areas beyond that."

(Source: Strengthening Openreach's strategic and operational independence, Ofcom, 26 July 2016).

Another key consultation proposal by Ofcom to promote competitive investment in full fibre broadband networks was to make it easier for competitors to access Openreach's ducts and poles to expedite and reduce the cost of construction of new fibre networks.

In November 2016, as part of its Autumn Statement, the previous UK government announced its policy for 'full fibre and 5G', pledging £1.14 billion of financial support for competitive fibre infrastructure and 5G projects, comprising:

·     £740 million - to encourage local authorities to support competitive local full fibre and 5G projects. For example, the government's policy for 'full fibre' is set to encourage local authorities to aggregate demand for fibre connectivity to public sector locations with potential for local authorities to anchor new full fibre networks.

·     £400 million - to be invested by the government into a Digital Infrastructure Investment Fund (DIIF), which is intended to be matched by other institutional investors creating a fund of at least £800 million to be invested into competitive full fibre infrastructure projects.

In the Autumn Statement the government also announced 100% business rates relief for new full-fibre infrastructure for a 5 year period from 1 April 2017, which is designed to support full fibre roll out to more homes and businesses. Furthermore the Conservative Party manifesto for the 2017 general election in the United Kingdom contained a pledge to ensure there are major fibre core metro networks in over 100 towns and cities in the UK by 2022.

CityFibre is well positioned to benefit from these policies. For example, the 5 year business rates relief will apply to new fibre networks built by CityFibre. CityFibre in is discussion with the government to explore opportunities for the DIIF to play a role in supporting CityFibre's expansion plans in the future.

The Directors believe the changes to regulation to promote fibre infrastructure competition, supported by recent government policies and funding to stimulate further investment in new full fibre infrastructure, provide a positive backdrop for CityFibre to expand its operations to address the supply of fibre infrastructure to service the growing demand for high speed fibre connectivity from its Channel Partners.

14.3 CityFibre's strengths and its strategy for growth

Key strengths

As an established wholesale operator, with a focus on building, operating and commercialising full fibre networks across the UK, the Group has a number of key strengths that can be summarised as follows:

·     Commitment to full fibre - Full fibre infrastructure has significant performance benefits compared to both legacy copper and co-axial cable networks. The Group's focus on this technology choice provides clarity and efficiency to the design, construction and operation of its networks. Full fibre represents a single solution to the current and future bandwidth requirements of CityFibre's four primary market verticals of public sector, business, mobile, and consumer. The Company does not operate any legacy copper network for the provision of data connectivity services.

·     Alignment to government's policy objectives - The Group's focus on full fibre investment in towns and cities, coupled with a wholesale approach that is an alternative to Openreach, is aligned to the UK government's policy goals and Ofcom's strategic objectives.

·     Established market presence - The Group's metro infrastructure presence in 42 towns and cities provides an established platform from which it can continue to expand to serve customers across the public sector, business and mobile operator market verticals. These metro networks also provide the backbone required to support the rollout of FTTP and FTTH, accelerating CityFibre's ability to construct FTTP and FTTH networks cost effectively.

·     High quality, diversified customer base and wholesale model - As a wholesale operator, the Group has an established and diversified base of Channel Partners including public sector integrators, business ISPs, mobile operators and consumer ISPs. CityFibre currently benefits from relationships with 54 Channel Partners. However, as an open access infrastructure provider, there are significant opportunities to expand the number of partners and thereby accelerate revenue growth.

·     Proven anchor tenancy approach - The Group's current national footprint demonstrates its anchor tenancy approach that mitigates market entry risks, through securing long term anchor contracts with Channel Partners that cover a substantial portion of capital expenditure prior to construction commencing, and by aggregating demand ahead of construction, or through select purchase and leaseback of existing fibre infrastructure. CityFibre's track record of successful anchor contracts in its four primary market verticals positions the Group well to expand to new towns and cities.

·     Cost advantages compared to Openreach and Virgin Media - Compared to traditional copper and cable based networks, a full fibre infrastructure can be expected to benefit from higher reliability and lower operating costs. Furthermore, as a new provider, CityFibre's operations are established with platforms that run an efficient fibre only network, thus providing cost advantages compared to incumbent operators.

·     Strong management with a proven track-record of entrepreneurship - CityFibre's management team has considerable experience of establishing and developing high growth communications infrastructure based companies. Together with its construction partners, the Group has the expertise in place to exploit the large scale opportunity for full fibre infrastructure across the UK.

The Directors believe that the Group's strengths outlined above position the Company well to expand its operations and accelerate the construction of its network to new locations. Against the backdrop of legacy copper and cable infrastructure provided by Openreach and Virgin Media, the Group has the potential to exploit the significant opportunities for competitive full fibre, in line with recent UK government policy and supported by strong market demand.

Strategy for growth

The Group has established a strategy to grow and commercialise its full fibre network as follows:

·     Extend CityFibre's footprint to more towns and cities - Currently the Group has metro fibre networks in 42 UK towns and cities. Market demand for new fibre infrastructure is giving rise to an accelerated expansion opportunity. In the short to medium term, CityFibre seeks to secure anchor contracts to support entry into no less than eight new towns and cities, bringing the total footprint to no less than 50 UK towns and cities by 2020. CityFibre believes that there is a longer term opportunity to expand its footprint to approximately 100 towns and cities.

·     Increasing returns from existing assets - Working in collaboration with its growing portfolio of Channel Partners, CityFibre intends to increase the amount of network in its footprint, expanding connectivity to more end customer sites in its four primary market verticals and increasing returns from its existing assets.

·     Increase metro connectivity within CityFibre's footprint - CityFibre will seek to increase the supply of full fibre connectivity across its four primary market verticals. For example, the Group has secured public sector contracts in nine of its current 42 towns and cities. The recent UK government policy direction for full fibre connected public sector sites presents the opportunity to expand coverage through more local authority contracts. Furthermore, enterprise and SME users located in business parks remain underserved by legacy networks, and this is providing an opportunity for the Group to rollout full fibre infrastructure to approximately 500 business parks that are located near to CityFibre's metro networks in its current metro footprint.

·     Commence rollout of Fibre to the Home (FTTH) - The deployment of FTTH has been a key element of government policy on communications infrastructure. The Group's successful FTTH trial in York demonstrated the ability to expand CityFibre's metro infrastructure to full fibre connections to homes and CityFibre's ability to deploy FTTH connectivity cost effectively. The Channel Partners were able to offer full fibre broadband to their customers at attractive retail prices, thereby demonstrating the propensity for consumers to switch to FTTH connections. Based on the success of the York trial, the Group now intends to commence the construction of fibre infrastructure to residential households in a select number of towns and cities within CityFibre's current footprint.

·     Secure opportunities for Fibre to the Tower (FTTT) - Fibre connectivity to mobile base stations is referred to as Fibre to the Tower (FTTT), or 'mobile backhaul'. Growth in mobile data is influencing operators to seek higher bandwidth fibre connections to base stations with further demand to connect a large number of 'small cells' over time as mobile operators prepare for 5G services by 2020. As FTTT can be provided using the same high capacity metro infrastructure deployed for public sector and business market verticals, CityFibre is well positioned to serve the connectivity of mobile operators, having demonstrated its FTTT capabilities in the successful pilot in Hull for MBNL, Three and EE. The Group continues actively to explore opportunities with mobile operators that seek a transition to dark fibre based FTTT connections within CityFibre's existing or expanded city footprint.

The execution of the above strategy is expected to enable CityFibre to grow its full fibre footprint into new towns and cities, as well as expand penetration and yield across its footprint. In support of the Group's strategy, the Company further plans to:

·     Increase Channel Partners - As a wholesale provider, CityFibre  expects to expand the number of Channel Partners as well as invest in IT platforms to support Channel Partners. Currently the Group has 54 Channel Partners that use CityFibre 's fibre infrastructure. The Entanet Acquisition gives CityFibre  access to new Channel Partners due to Entanet's existing position as a wholesale provider with approximately 1,500 Channel Partners having conducted business with Entanet in the 12 months ended 31 December 2016. This represents a significant increase in CityFibre's indirect routes to market.

·     Expand Ethernet product portfolio - CityFibre will develop its portfolio of connectivity services through the introduction of wholesale Ethernet products that complement existing dark fibre services. This is expected to widen the addressable market for the use of CityFibre's infrastructure across its current and expanded footprint and open up the opportunity to attract national Channel Partners who seek city-to-city Ethernet services. Entanet's national network supports end-to-end Ethernet capabilities that are required as part of CityFibre's product development. The acquisition significantly accelerates both the timescale and scope of CityFibre's Ethernet strategy, enabling faster take up of the Group's fibre connectivity by national Channel Partners in all four primary market verticals.

·     Ensure efficient network design - The Group seeks to optimise network design through accurate demand mapping, in order to design a high capacity fibre architecture that will efficiently support both current and future demand across all four primary market verticals, including FTTH.

·     Exploit third party duct infrastructure where appropriate - Where available on beneficial terms, CityFibre will seek to make use of third party duct infrastructure where appropriate. For example, CityFibre has made use of local authority owned ducts in some of its existing towns and cities. Furthermore, the use of Openreach ducts and poles for some parts of the deployment (as proven by the Group's trial in Southend-on-Sea) provides the opportunity to lower FTTH construction costs.

·     Develop partnerships with key suppliers and civil engineering contractors - The Group's strategy to accelerate its expansion will be supported by CityFibre's management capabilities and relationships with suppliers and civil engineering contractors. The Group has proven its capabilities to co-ordinate and manage fibre infrastructure construction, as demonstrated in the construction and expansion of metro networks in 42 towns and cities. The Group will increase the number of employees only where essential, and it will continue to work with select engineering partners to deliver and operate CityFibre's national infrastructure.

·     Pursue select acquisitions of fibre infrastructure assets and complementary businesses - Where appropriate to the acceleration of its strategy, the Group will consider growth opportunities through acquisition of fibre assets (similar to its past acquisitions of KCOM's national infrastructure and Redcentric Solutions Limited's metro fibre assets), or complementary businesses.

The Directors believe that the Group's strategy will enable the Group to accelerate its growth and respond to the market opportunity for full fibre across the UK. This strategy is also expected to establish CityFibre as a leading alternative wholesale full fibre network provider to Openreach in its chosen markets, with a large footprint of long term yield generating fibre network assets.

14.4 CityFibre's Network, Wholesale Products and Customers

In line with the Group's strategy, CityFibre's networks are full fibre networks that do not use any copper wires or co-axial cables for the provision of data connectivity services. Wholesale connectivity services provided by CityFibre to its Channel Partners are provided across its fibre infrastructure, enabling end-to-end fibre connectivity and the delivery of the fibre optic connection all the way to the premises.

Overview of the Network

As at 31 December 2016, CityFibre operated 2,244 kilometres of metro local access duct and fibre networks across 42 towns and cities, as well as a 1,139 kilometre national long distance network connecting 22 towns and cities to data centres in London and the UK regions, as illustrated in the map below.

CityFibre's typical metro local access network comprises two or four 90 millimetre ducts, each capable of housing four or more sub-ducts. The ducts and sub-ducts house fibre optic cables that provide fibre connectivity. CityFibre's metro local access networks are a combination of assets acquired in 2011, 2014, and 2016, as well as network constructed by CityFibre.

In both the networks it has built and those it has acquired, CityFibre typically enjoys significant underutilised duct capacity in the metro local access networks, meaning that the infrastructure can be upgraded to higher capacity by installing new fibre cables in empty duct space. This is a standard process in the operation of fibre optic infrastructure for wholesale fibre services to multiple customer segments.

The national long distance network, acquired in January 2016, was built between 2000 and 2001 and has a "figure of 8" configuration, stretching from Manchester and Leeds in the north to Bristol and London in the south. The long distance network generally consists of two 90 millimetre ducts, each of which has capacity for four sub-ducts. Current utilisation of the long distance network is low, so this offers significant incremental capacity which CityFibre will seek to exploit in capturing emerging opportunities with mobile operators and other Channel Partners seeking city-to-city, regional, or national dark fibre connectivity.

Expansion of Local Access Networks to Address Demand

CityFibre's typical strategy is to enter a town or city through the construction or acquisition of a core metro infrastructure, and then expand the network to address incremental demand from its wholesale Channel Partners. To illustrate CityFibre's network expansion methodology, the following is an overview of its network deployment in Peterborough:

·     New anchor network construction - The original 90 kilometre anchor network was designed and built by CityFibre in response to an initial anchor contract with Serco Plc (the IT provider to Peterborough City Council) to connect 106 public sector sites in Peterborough. Construction was completed in March 2015.

·     Incremental business demand and network extension - As the anchor network was under construction, CityFibre and its Channel Partners serving the business market began a demand aggregation campaign, which is ongoing. As at 28 February 2017, this activity generated the sale of 258 new business connections on the network, which necessitated incremental network construction to expand the network to new areas of the city. The cost of this incremental construction is recovered in part through connection charges, and in part through monthly rental charges.

·     Incremental public sector demand and further network extension - In 2016 CityFibre secured a further public sector contract to connect 220 CCTV and traffic control sites in the city to full fibre. This requires an additional 24 kilometres of network extension.

CityFibre's design methodology is to construct its network most effectively and efficiently to service its customers across all four primary market verticals. In the case of Peterborough, the configuration of the network built for the public sector anchor contract was constructed to take it close to areas of business demand, in turn enabling CityFibre and its partners to connect businesses efficiently. Additionally, the CCTV network extension takes the CityFibre network into business districts previously unserved by CityFibre, effectively supporting the cost of building closer to new potential business customers.

Through optimising network design and extension in this manner, CityFibre's incremental costs to connect customers continually reduce over time as the networks become denser, thus offering a lower cost to connect new customers. Furthermore, expansion in this manner takes into account future FTTT connectivity to mobile base stations as well as future capacity requirement to support FTTH.

CityFibre's Wholesale Fibre Connectivity Products

CityFibre offers a range of full fibre-based connectivity products for service providers, carriers, systems integrators, mobile operators and data centres, covering both passive and active services. Active services is a term used to describe the provision or sale of any services in which the electronics and ability to transmit data are included alongside access to the fibre optic cable, typically enabling Ethernet connectivity and access to Internet services.

Passive services is the term used to describe the provision or sale of access to a raw, un-lit fibre optic cable. When purchasing a passive service, a Channel Partner is required to add their own electronics to either end of the fibre in order to enable the transmission of data and the provision of services to their end customer. Traditionally, most service providers have purchased an active service in the form of a managed service-based leased line from a wholesale provider. Such active services incorporate both the physical infrastructure (fibre) and the service component (electronics and software) into a standardised product, which presents no flexibility to the service provider. However, in recent years Channel Partners increasingly prefer a dark fibre solution.

Dark fibre is the raw unlit fibre and offers very high bandwidth capacity to the service provider, as the only constraints in data transmission relate to the electronic equipment used at either end of the fibre strand. This feature allows the service provider to provision services specific to its customers' needs, while maintaining visibility of cost in the underlying infrastructure. Recognising that the market comprises Channel Partners who require both active and dark fibre services, the Group's product portfolio accommodates both.

Passive dark fibre connectivity products comprise:

·     Metro point-to-point dark fibre - CityFibre's metro dark fibre networks provide abundant capacity for data transmission and are based on a ducted/sub-ducted ring architecture, with Points-of-Presence (PoPs) across its towns and cities. This allows a variety of uses, including bespoke private fibre rings, connections between internet exchanges, business connectivity and the connections for public sector sites such as schools and hospitals.

·     FTTT point-to-point dark fibre - This is essentially the same product as metro dark fibre but is provided to mobile operators to enable fibre connectivity to base stations and small cells. Dark fibre is increasingly important for mobile operators who are seeking to migrate away from traditional incumbent leased line circuits or restricted capacity microwave connections.

·     Long distance dark fibre - CityFibre's 1,139 kilometre national long distance network provides a dark fibre option for carriers or service providers looking for intercity or regional fibre connectivity or who wish to construct their own active long distance networks. The ducted and sub-ducted network connects CityFibre's metro network in 22 of its towns and cities to strategic data centres in London and the UK regions.

Active Ethernet based fibre connectivity products:

·     Metro GIG Connect - Ethernet based internet connectivity circuits at either 500 Mbps or 1 Gbps. These are suited to high bandwidth applications, such as cloud computing, that require IP transit capabilities and direct connectivity to the internet.

·     Metro GIG Hub - This is an aggregation solution which allows CityFibre's service provider partners to connect multiple local access circuits (such as the GIG Connect products mentioned above) into a single 1Gbps or 10Gbps circuit. This allows for the aggregation of traffic to a remote handover point up to 20 kilometres away, and potentially further. This is a valuable tool for service providers looking to migrate clusters of customers from legacy services and onto CityFibre's network, or alternatively to drive geographically targeted customer acquisition programmes.

CityFibre's Customers

CityFibre is a provider of wholesale connectivity services. CityFibre does not provide retail services to end users, but instead provides full fibre connectivity in a wholesale model to Channel Partners, who in turn use the Group's fibre infrastructure to provide solutions to their customers.

CityFibre currently has active relationships with 54 Channel Partners, encompassing national and international carriers serving the enterprise market, national and local service providers catering to the needs of small and medium-sized businesses, systems integrators and ICT specialists serving the public sector, mobile carriers and mobile infrastructure operators, and consumer ISPs. CityFibre's market is divided into the four primary market verticals detailed below.

Public Sector

When CityFibre commenced business in 2011, it was almost exclusively focused on the suppliers of ICT services to the public sector. The public sector remains a key market vertical for CityFibre, comprising approximately 30% of connected customer premises, and approximately 25% of new connections sold in the year to 31 December 2016. Key Channel Partners in the public sector market vertical include Pinacl Solutions UK Ltd, Serco Limited, Interoute Communications Limited, Logicalis UK Ltd, Commsworld Limited and Exa Networks Limited.

Contracts with suppliers to the public sector typically range in duration from seven to as long as 20 years. As at 31 December 2016, CityFibre had significant public sector contracts in nine towns and cities, including both delivered connections and contractually committed connections.

Business Sector

CityFibre has commercial relationships with a wide range of Channel Partners who serve the business market within its network. These range from highly localised providers such as Triangle Networks Limited or Between the Lines Communication Ltd, to regional players such as Commsworld Limited and Exa Networks Limited, to national operators such as Onecom Limited and Gamma Telecom Ltd. CityFibre typically provides these customers with either an active product or dark fibre solution, depending on the preferences of the Channel Partner.

Contracts with business Channel Partners typically range from three to six years and are usually paid in monthly instalments. CityFibre currently has contracts with Channel Partners to provide fibre connectivity to businesses in 25 of the 42 towns and cities within its existing footprint.

In some circumstances, CityFibre has partnered with business Channel Partners who have provided a commitment to use CityFibre's network in a town or city, once constructed by CityFibre. For example, in Aberdeen and Edinburgh, CityFibre's initial networks were constructed in response to aggregated demand from business Channel Partners, and once built the networks benefited from subsequent orders from the public sector.

Mobile Operators

In 2014 CityFibre signed a framework agreement with Three, EE and MBNL to provide dark fibre-based backhaul connectivity to mobile base stations. The first deployment was completed in Hull in early 2016, connecting 37 macro cell sites to a 56 kilometre dark fibre network, the first of its kind in the UK. Three UK subsequently reported a 380% increase in data throughput when the network was launched into service.

CityFibre has established active dialogue with mobile network operators in the UK, who are evaluating their future network architecture and connectivity needs in light of high mobile data growth from 4G and future deployments of 5G and small cells. The Directors believe it is likely that dark fibre connectivity will be preferred for FTTT applications and the Group is confident that its network of fibre infrastructure in its 42 towns and cities provides an attractive platform for mobile operators evaluating migration to an alternative network based on dark fibre.

Consumer FTTH

In 2014 CityFibre entered into a joint venture with Sky and TalkTalk to construct an FTTH network in York. Having successfully completed the trial, the Directors believe there is significant opportunity to deploy FTTH infrastructure effectively and efficiently in selected towns and cities where CityFibre has an extensive metro network. Following the success of the York trial, CityFibre is now engaged in active dialogue with a number of consumer focused Channel Partners who are keen to take advantage of near gigabit speed broadband delivered on CityFibre's full fibre infrastructure.

14.5  CityFibre's Expansion Strategy

The demand for digital infrastructure, coupled with proposals for full fibre and greater network level competition, is providing an environment in which the Group can consider its expansion strategy. Having established a presence in 42 towns and cities, and undertaken successful trials of FTTT and FTTH, the Company's network growth plan is based on expansion of its metro presence, as well as extension of the metro infrastructure toward FTTH for consumers.

Metro expansion, including FTTT for mobile

CityFibre's expansion strategy is to accelerate the rollout of CityFibre's metro fibre infrastructure to no less than 50 towns and cities by 2020. Therefore, CityFibre will target expansion of its metro network presence to no less than eight new towns and cities supported by anchor contracts to support this expansion. These anchor contracts will be targeted from one or more of the three primary market verticals linked to metro connectivity: public sector, business and FTTT mobile connectivity.

FTTT uses the metro fibre infrastructure to connect to mobile stations and is a standard metro network product. Contracts with mobile operators for FTTT connectivity may result in CityFibre providing connectivity within its existing footprint as well as expansion to new towns and cities.

In considering metro expansion to new towns and cities, CityFibre's management intends to maintain its established financial discipline for anchor contracts, in particular its focus on targeting gross margins in excess of 90% and an initial contract value that covers a substantial proportion of the network construction costs.

FTTH expansion to consumers

CityFibre's FTTH rollout strategy is to deploy fibre to homes as an extension of its metro infrastructure. For example, the metro duct infrastructure is constructed or adapted to take into account the future fibre capacity for FTTH and also the locations of FTTH street cabinets that will be located on or near to the metro network. The metro network itself is used to carry FTTH fibre cables from centrally located points of presence (POPs) within a city to the FTTH street cabinets located in residential areas.

Compared to greenfield network construction, the presence of CityFibre's metro infrastructure provides time and cost benefits to its planned FTTH rollout. This results from a proportion of the network infrastructure required for FTTH already being established through the metro infrastructure in the 42 towns and cities where CityFibre has a presence.

CityFibre's strategy for FTTH rollout is based on the deployment of cabinets, connected to the metro infrastructure, that are capable of providing fibre connectivity to 350 to 450 premises per cabinet. The number of premises in a city will dictate the maximum number of FTTH cabinets required, although in order to optimise the economics of any deployment, CityFibre will retain flexibility to determine the speed of rollout and the areas where FTTH infrastructure will be deployed.

The York Trial

In 2014, CityFibre announced the formation of a joint venture with Sky and TalkTalk, YorkCo, to deploy an FTTH network in York. This trial aimed to demonstrate the suitability of CityFibre's metro infrastructure to support the expansion of full fibre connectivity to homes. CityFibre's existing metro network in York was a result of CityFibre's anchor contract on behalf of the City of York Council for 105 council sites and schools. CityFibre subsequently added 175 net incremental public sector and business connections to its York metro network and as at 31 December 2016, CityFibre's metro network infrastructure in York comprised more than 125 kilometres of network, connecting 280 council sites and businesses. Construction of the FTTH network, passing 13,582 homes, supervised by CityFibre's technical teams, was completed by 31 May 2017.

The project demonstrated CityFibre's approach to constructing an FTTH network through the incorporation of CityFibre's existing metro infrastructure. The FTTH network in York was expanded at a cost of less than £500 per home whose boundary was passed by the network. The Directors estimate that the use of CityFibre's existing metro network delivered cost savings of 20 to 25% (compared to constructing all the network including the metro element) and reduced the time to construct the network by 12 to 18 months.

Furthermore, the trial demonstrated demand from Channel Partners to offer near gigabit speed FTTH services, as well as the propensity for consumers to switch to FTTH connections. The York trial demonstrates the commercial viability of FTTH in the UK. CityFibre's Channel Partners in York offer connection speeds of up to 940Mbps for prices ranging from £21.70 to £48.99 per month. By comparison, BT's Unlimited Infinity 2 FTTC product available in York has a maximum advertised download speed of 76Mbps and a 19Mbps upload speed at a price of £44.99 per month. Virgin Media's coaxial cable-based 300Mbps product offers a maximum advertised download speed of 300Mbps and a 20Mbps upload speed at a price of £47 per month.

The differentiated and competitively priced CityFibre FTTH product has been well-received in the York market. As at 31 May 2017, of the 13,582 homes in York whose boundaries are passed by the FTTH network constructed by YorkCo, 3,684, being more than 27%, had subscribed for an internet service from Sky or TalkTalk on the new network, with the highest cabinet penetration now exceeding 40%.

The YorkCo joint venture agreement contained a restriction on CityFibre, preventing it from participating in any trial or rollout of FTTH services to residential customers in any other part of the UK. This restriction applied for 12 months after the commercial launch of the York fibre network. The restriction has now expired.

International Benchmarks

FTTH deployments in Europe demonstrate fast growth in user subscriptions to full fibre broadband services.

According to the FTTH Council Europe, there will be more than 36 million FTTH connections in use across Europe by 2019, with penetration expected to exceed 40% of homes passed in several countries which were early adopters of FTTH. For example, household penetration in Latvia is expected to reach 60% By 2019, followed by Sweden (51%), Spain (50%), Norway (49%), Romania (48%), and Portugal (46%). Altnet fibre builders will deliver the highest proportion of FTTH lines. (Source: 'FTTH in Europe Forecast 2016-2019: Behind The Numbers', FTTH Council Europe, 16th May 2017).

Regulated Duct and Pole Access

Ofcom's consultation on proposed changes to duct and pole access regulations, announced in April 2017, is designed to encourage the use of Openreach's physical infrastructure in the deployment of competitive full fibre networks. In 2016, CityFibre commenced its deployment of full fibre infrastructure in Southend-on-Sea, trialing the use Openreach ducts for part of the network construction to lower construction costs. Construction of the Southend network substantially completed in March 2017 and demonstrated a 27% reduction in forecast capital expenditure resulting from the selected use of Openreach duct for parts of the network construction.

The Directors believe that incorporating the use of Openreach ducts and poles in selected parts of the construction of CityFibre's infrastructure will lead to a reduction in FTTH network construction costs. Accordingly, the Group's planned rollout of FTTH infrastructure will be optimised through infrastructure constructed by CityFibre that is supplemented in part with use of Openreach ducts and poles where appropriate.

CityFibre's Planned FTTH Rollout

Following the success of the York and Southend trials the Directors believe there is an opportunity to deploy FTTH infrastructure effectively and efficiently in towns and cities where CityFibre has an extensive metro footprint. In this regard, and following the Capital Raising, it is the Group's intention to commence a larger scale FTTH deployment.

Following detailed planning of the FTTH infrastructure, CityFibre expects that construction will commence in five to ten towns and cities within its existing or expanded metro footprint during 2018 delivering approximately 300 to 400 FTTH cabinets by the end of 2018. The construction period will depend on the number of premises in each town or city, with an average duration expected to be in the region of 20 months to 24 months per town or city.

CityFibre intends to work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, hence mitigating deployment risks by ensuring there is sufficient demand ahead of construction.

Following the expiry of the restrictions in the YorkCo joint venture agreement, CityFibre has engaged in commercial discussions with major ISPs and a number of smaller ISPs to secure Channel Partner relationships that are intended to provide full fibre broadband services to consumers using CityFibre's future FTTH infrastructure. These discussions are advanced and may or may not lead to a binding agreement in due course. Such agreements potentially will include exclusivity for a period of time or other preferential terms in response to penetration commitments that may be made by Channel Partners.

If entered into, these agreements would be consistent with CityFibre's strategy. If CityFibre gains firm commitments from Channel Partners supporting FTTH expansion beyond the plans outlined in this announcement, the Company could be required to raise further debt or equity capital in the longer term.

Illustrative Economics of the FTTH Rollout

CityFibre will rollout FTTH on a cabinet by cabinet basis. Each FTTH street cabinet is capable of providing fibre connectivity to 350 to 450 premises per cabinet, being approximately 90% homes and approximately 10% SME businesses per cabinet. The total capital expenditure, based on self-build and the selected use of Openreach duct and pole access, is estimated by the Directors to be approximately £170,000 to £200,000 per cabinet (net of up-front fees paid by customers for fibre connections), being approximately 75 to 85% fixed capital expenditure (enabling construction of the FTTH infrastructure to the boundary of all premises served by the cabinet) and 15 to 25% success based capital expenditure (for construction from the boundary into the premises that have subscribed for an FTTH connection).

CityFibre expects that the wholesale price charged to its Channel Partners will be competitive in the context of the range of 40 Mbps to 300 Mbps wholesale broadband products provided by Openreach. Assuming early subscriber penetration growing in line with the York FTTH trial and international benchmarks the Directors estimate subscriber penetration to reach at least 50% within five years, with payback per cabinet (being the period of time it takes to generate gross margin from connections equal to the net capital expenditure required to construct the FTTH cabinet) targeted to occur within seven to nine years of the start of construction. The revenue yield on net capital expenditure is targeted to be approximately 18% to 22% per cabinet at maturity, being five to seven years following cabinet construction. Revenue yield is defined as the recurring annual revenue generated per cabinet, measured against the capital expenditure per cabinet, net of up-front fees paid by the customers for fibre connections.

CityFibre expects that construction will commence in five to ten towns and cities within its existing or expanded metro footprint during 2018. An illustrative city rollout will deliver approximately 200 cabinets over a 20 to 24 month period that pass approximately 80,000 premises. CityFibre expects to invest approximately £35 to £40 million of aggregate net capital expenditure (net of up-front fees paid by customers for fibre connections) until maturity of the illustrative city, being within five to seven years after the commencement of the first cabinet construction. The Directors believe that the construction of FTTH will enable CityFibre to scale its customer base more rapidly than a metro-only offering and will enhance the Company's barriers to entry in its chosen markets. In addition the Directors believe that an FTTH revenue stream, derived from strong relationships with Channel Partners, would further enable the Company to target re-financing of its existing debt facilities in 2018 with a higher level of leverage, in order to optimise its capital structure to fund its future growth.

As the FTTH network deploys a near ubiquitous fibre infrastructure over time throughout the relevant town or city, there are potential cost efficiencies for CityFibre's broader portfolio of metro fibre products delivered to locations in or near residential areas in all four primary market verticals: public sector, business, mobile and consumer.

14.6  Regulation and Government Policy

The Group operates within a UK market that the Directors believe is widely regarded as having an advanced and sophisticated regulatory and policy environment for telecommunications and broadband. A recent focus of government and regulatory policy has been to accelerate both the capability and the speed of construction of full fibre networks by promoting effective competition, accompanied by targeted public intervention.

Ofcom's strategy, as set out in its Digital Communications Review (DCR) of 2016, is to transition the market from dependence on the legacy network of Openreach towards a 'full fibre' future spearheaded by competitive FTTP investment. CityFibre is a potential beneficiary of this change of approach.

It remains the case, however, that Ofcom regulation, governed by the EU Common Regulatory Framework, is at present largely focused on interventions that mandate access to incumbents' legacy networks. Ofcom conducts periodic market reviews to determine potential competition issues, and in particular the market dominance of incumbent networks. In the UK context, Ofcom continues to find that Openreach has Significant Market Power (SMP) and in order to protect against potential abuse of its SMP position, the regulator imposes access conditions and price regulation, in particular to the local access networks operated by Openreach.

The periodic market reviews that are relevant to CityFibre are the Business Connectivity Market Review (BCMR) and the Wholesale Local Access Market Review (WLAMR).

Business Connectivity Market Review

The BCMR, which analyses the availability of networks and competition in the leased lines market, concluded in 2016 and is based on analysis largely conducted before publication of Ofcom's strategic change in direction to competitive fibre, which was announced in Ofcom's DCR. As a result, the BCMR continued to focus almost exclusively on regulating access to Openreach's existing network, with mandated price reductions to Openreach's portfolio of Ethernet leased line products together with the obligation for Openreach to introduce a local access dark fibre product from October 2017.

BT, TalkTalk and CityFibre have each lodged appeals relating to different parts of the new BCMR regulation with the Competition Appeal Tribunal. CityFibre's appeal is further described in the Prospectus.

Wholesale Local Access Market Review

The WLAMR, published in March 2017, aligns more closely with the policy direction of the DCR. In particular, it signals future deregulation of broadband markets as a spur to market participants to build or buy access to full fibre networks of the kind that CityFibre constructs. In this regard, Ofcom proposes new price regulation for Openreach's entry level 40Mbps broadband product and allows Openreach price freedom on broadband products above 40Mbps. Ofcom's strategy, as stated in the WLAMR, is to encourage service providers to make decisions to move away from the continued use of Openreach access infrastructure, and in turn construct or consume alternative full fibre infrastructure.

Revised Duct and Pole Access Regulations

As part of the WLAMR, Ofcom has also published consultation proposals to reduce construction costs for new FTTH networks by mandating access to Openreach's existing ducts and overhead poles (DPA). It is expected that the new regulation will lift some current usage restrictions such that DPA can be used for leased lines and broadband connections, and that there will be improvements to information sharing that make it easier for BT's competitors to construct new full fibre networks. CityFibre is expected to be a beneficiary of the revised DPA regulations.

The Common Regulatory Framework

The Common Regulatory Framework is itself under review with a re-orientation of the draft legislation designed to encourage FTTP/FTTH construction. The current draft of the revision, published in October 2016 and now called the Electronic Communications Code, includes a presumption against regulation of open access fibre networks as in CityFibre's business model, along with stronger incentives to invest in FTTP/FTTH.

Government Policy

The previous UK government announced that £1.14 billion of public money will be used to promote faster and more widespread construction, adoption and use of 'full fibre' networks. This includes the establishment of a Digital Infrastructure Investment Fund for new FTTH projects, to encourage public procurement of full fibre based services and vouchers for businesses who wish to purchase full fibre connectivity. Digital infrastructure is at the heart of a new, proactive industrial strategy set out by the government in March 2017. The Directors believe that CityFibre is well positioned to be a beneficiary of these measures.

The previous government also introduced revisions to legislation that allow the government to set out its 'full fibre' strategy in a way that requires Ofcom to take account of the government's strategy in exercising its functions and duties. CityFibre considers that this signalled the government's intention to ensure that regulation and industrial strategy are fully aligned behind the 'full fibre' policy goal.

The Directors believe this strategy will continue under the current Conservative government following the 8 June 2017 general election in the UK.

 

 

 

15.  Selected key historical financial information of Entanet

The selected historical financial information relating to Entanet for the eleven month period ended 31 December 2014 and the financial years ended 31 December 2015 and 31 December 2016 as set out in the following tables has been extracted without material adjustment from the audited financial information which will be set out in the Prospectus:

Consolidated income statement

	Period ended 31 December	Year ended 31 December
	2014 £000	2015 £000	2016 £000
Turnover	25,753	31,887	35,754
Cost of sales	(19,650)	(24,075)	(28,637)
Gross profit	6,103	7,812	7,117
Administrative expenses	(5,298)	(4,405)	(6,403)
Operating profit	805	3,407	714
Finance income	15	13	15
Finance charges	(1,987)	(1,087)	(1,136)
(Loss)/profit before taxation	(1,167)	2,333	(407)
Taxation	27	298	144
(Loss)/profit for the period/year	(1,140)	2,631	(263)

 

 

 

Consolidated balance sheet

	As at 31 December
	2014 £000	2015 £000	2016 £000
Assets
Non-current assets	9,579	9,068	9,221
Current assets	5,065	10,219	8,057
Total assets	14,644	19,287	17,278
Liabilities
Non-current liabilities	(10,075)	(11,545)	(10,319)
Current liabilities	(4,149)	(4,991)	(4,471)
Total liabilities	(14,224)	(16,536)	(14,790)
Net assets	420	2,751	2,488
Equity
Share capital	25	25	25
Share premium	625	625	625
Merger reserve	300	-	-
Retained earnings	(530)	2,101	1,838
Total equity	420	2,751	2,488

 

Consolidated statement of cash flows

	Period ended 31 December	Year ended 31 December
	2014 £000	2015 £000	2016 £000
Net cash inflow from operating activities	1,136	2,838	1,705
Net cash inflow (outflow) from investing activities	919	(561)	(765)
Net cash (outflow) from financing activities	(416)	(1,342)	(1,345)
Net increase (decrease) in cash and cash equivalents	1,639	935	(405)
Cash and cash equivalents at the beginning of the period/year	5	1,644	2,579
Cash and cash equivalents at the end of the year	1,644	2,579	2,174

 

The following significant changes in Entanet's financial condition and operating results occurred in the eleven month period ended 31 December 2014, and the years ended 31 December 2015 and 2016.

Turnover grew from £25.8 million in the period ended 31 December 2014 to £31.9 million in the year ended 31 December 2015. The majority of growth was driven by increasing demand for Ethernet circuits, either as standalone connectivity or as the backbone of wider network solutions. Gross profit, which excludes core network costs grew from £6.1 million in the period ended 31 December 2014 to £7.8 million in the year ended 31 December 2015, representing a 24.5% gross margin. Although this was an improvement on the prior year there was an increase in margin pressure during 2015 arising from aggressive pricing by competitors, continued price deflation particularly in smaller capacity circuits and the increasing ease with which customers can obtain online quotes for circuits from competing wholesalers.

During 2015, an exceptional item of £1.9 million income was recognised within administrative expenses, being the settlement of certain claims against a former shareholder and certain parties connected to that shareholder. Underlying EBITDA excluding exceptional items increased to £3.1 million in the year ended 31 December 2015 at a similar margin to the prior period.

Turnover grew from £31.9 million in the year ended 31 December 2015 to £35.8 million in the year ended 31 December 2016. The growth was largely driven by demand for Ethernet circuits, both in standalone connectivity and in IP based network solutions. There was also significant growth in Entanet's broadband base as a result of strong demand from a large consumer-focussed Channel Partner. Gross profit reduced from £7.8 million in the year ended 31 December 2015 to £7.1 million in the year ended 31 December 2016, representing a 19.9% gross margin. The fall in gross margin, from 24.5% in the year ended 31 December 2015, was driven predominantly by the direct acquisition cost of the growth in the consumer broadband base. The reduction in gross margin and increased investment in operational and developmental resources led to a reduction in underlying EBITDA excluding exceptional items from £3.1 million in the year ended 31 December 2015 to £2 million in the year ended 31 December 2016.

There has been no significant change in Entanet's financial or trading position since 31 December 2016, the date of the last annual report and audited accounts of Entanet.

The selected historical financial information relating to Entanet International for the seven weeks ended 20 February 2014 as set out in the following tables has been extracted without material adjustment from the audited financial information in the Prospectus:

 

Income statement

	For the period ended 20 February 2014	For the period ended 31 December 2014
	£000	£000
Revenue	4,072	25,753
Cost of sales	(2,985)	(19,650)
Gross profit	1,087	6,103
Administrative expenses	(479)	(3,876)
Depreciation	(65)	(460)
Operating profit	543	1,767
Finance income	-	19
Finance expense	-	(5)
Profit before taxation	543	1,781
Taxation	(125)	30
Profit for the period	418	1,811
Other comprehensive income	-	-
Total comprehensive profit for the period	418	1,811

 

Balance Sheet

	As at 20 February 2014	As at 31 December 2014
	£000	£000
Assets
Non-current assets	1,318	1,853
Current assets	6,196	6,713
Total assets	7,514	8,566
Liabilities
Non-current liabilities	-	(202)
Current liabilities	(5,079)	(4,118)
Total liabilities	(5,079)	(4,320)
Net assets	2,435	4,246
Equity
Issued share capital	200	200
Retained profits	2,235	4,046
	2,435	4,246

 

 

 

Statement of cash flows

Net cash inflow/(outflow) from operating activities	2,028	(325)
Net cash outflow from investing activities	(44)	(608)
Net cash outflow from financing activities	(343)	(154)
Net increase/(decrease) in cash and cash equivalents	1,641	(1,087)
Cash and cash equivalents beginning of period	1,046	2,687
Cash and cash equivalents at end of period	2,687	1,600

 

16. Selected key pro forma financial information

 

The following unaudited pro forma statement of net assets and pro forma income statement (the "Pro Forma Financial Information") have been prepared to show the effect on the consolidated net assets of the Group had the Entanet Acquisition occurred on 31 December 2016 and the effect on the income statement of the Group had the Entanet Acquisition occurred on 1 January 2016.

The Pro Forma Financial Information has been prepared for illustrative purposes only and in accordance with Annex II of the Prospectus Directive Regulation, and should be read in conjunction with the notes set out below. Due to its nature, the Pro Forma Financial Information addresses a hypothetical situation and, therefore, does not represent the Group's actual financial position or results.

Pro forma income statement

	Adjustments
	The Group Year ended 31 December 2016 (1)	Entanet Year ended 31 December 2016 (2)	Other adjustments (3)	Pro forma earnings of the Enlarged Group
	£000	£000	£000	£000
Revenue	15,363	35,754	-	51,117
Cost of sales	(1,827)	(28,637)	-	(30,464)
Gross profit	13,536	7,117	-	20,653
Total administrative expenses	(18,677)	(6,403)	(4,987)	(30,067)
Operating (loss) profit	(5,141)	714	(4,987)	(9,414)
Finance income	45	15	-	60
Finance cost	(7,341)	(1,136)	-	(8,477)
Share of post-tax losses of equity accounted Joint Venture	(147)	-	-	(147)
Loss before taxation	(12,584)	(407)	(4,987)	(17,978)
Income tax	-	144	-	144
Loss for the year and total comprehensive income	(12,584)	(263)	(4,987)	(17,834)

 

 

 

Notes:

1. The results of the Group for the year ended 31 December 2016 have been extracted without material adjustment from the financial statements of the Group for the year ended 31 December 2016 which will be set out in the Prospectus.

2. The results of Entanet have been extracted without material adjustment from the financial information on Entanet for the year ended 31 December 2016 which will be set out in the Prospectus.

3. This adjustment comprises the estimated costs of the Entanet Acquisition and the estimated costs of the Placing that cannot be set off against the share premium account.

4. No account has been taken of the effects of any synergies and of the costs for measures taken to achieve those synergies that may have arisen had the acquisition occurred on 1 January 2016 and that may subsequently have affected the results of the Group in the year ended 31 December 2016.

5. No account has been taken of the trading performance of either the Group or Entanet since 31 December 2016 nor of any other event save as disclosed above.

6. Save for the costs of the Entanet Acquisition and the Capital Raising, the pro forma income statement adjustments are expected to have a continuing effect on the Enlarged Group.

Pro forma statement of net assets

		Adjustments
	The Group Year ended 31 December 2016 (1)		Entanet Year ended 31 December 2016 (2)	Entanet Acquisition (3)	Net Placing proceeds (4)	Pro forma earnings of the Enlarged Group
	£000		£000	£000	£000	£000
Assets
Non-current assets
Property, plant and equipment	155,159		2,684	-	-	157,843
Intangible assets	1,211		6,537	15,859	-	23,607
Investment in Joint Venture	433		-	-	-	433
	156,803		9,221	15,859	-	181,883
Current assets
Inventory	3,986		-	-	-	3,986
Trade and other receivables	8,070		5,883	-	-	13,953
Cash and cash equivalents	16,722		2,174	(29,000)	176,313	166,209
Total current assets	28,778		8,057	(29,000)	176,313	184,418
Total assets	185,581		17,278	(13,141)	176,313	366,031
Liabilities
Non-current liabilities
Interest bearing loans and borrowings	(55,280)		(10,186)	10,186	-	(55,280)
Deferred revenue	(11,091)		-	-	-	(11,091)
Deferred consideration	(450)		-	-	-	(450)
Deferred tax	-		(133)	-	-	(133)
Total non-current liabilities	(66,821)		(10,319)	10,186	-	(66,954)
Current liabilities
Interest bearing loans and borrowings	-		(467)	467	-	-
Deferred revenue	(2,864)		-	-	-	(2,864)
Trade and other payables	(7,352)		(4,004)	-	-	(11,356)
Total current liabilities	(10,216)		(4,471)	467	-	(14,220)
Total liabilities	(77,037)		14,790)	10,653	-	(81,174)
Net assets	108,544		2,488	(2,488)	176,313	284,857

                          

Notes:

1. The net assets of the Group at 31 December 2016 have been extracted without material adjustment from the financial statements of the Group for the year ended 31 December 2016, set out in Prospectus.

 

Adjustments

2. The net assets of Entanet have been extracted without material adjustment from the financial information on Entanet for the year ended 31 December 2016 which will be set out in the Prospectus.

3. An adjustment has been made to reflect the estimated intangible assets arising on the Entanet Acquisition. For the purposes of this pro forma information, no adjustment has been made to the separate assets and liabilities of Entanet to reflect their fair value. The difference between the net assets of Entanet as stated at their book value at 31 December 2016 and the estimated consideration has therefore been presented as a single value in "Intangible assets". The net assets of Entanet will be subject to a fair value restatement as at the effective date of the transaction. Actual intangible assets included in the Group's next published financial statements may therefore be materially different from those included in the pro forma statement of net assets.

The estimated consideration for Entanet is £29 million (on a debt free and cash free basis and subject to adjustments), of which a proportion will be used to repay Entanet's indebtedness. It has been assumed that all of the deferred consideration will be payable in cash.

	£000
Consideration payable in cash	29,000
Repayment of debt	(10,653)
Consideration for Entanet's equity	18,347
Book value of net assets of Entanet as at 31 December 2016	(2,488)
Estimated intangible assets arising on the transaction	15,859

 

The repayment of debt is based on the balance outstanding at 31 December 2016. The actual balance repaid is likely to differ from this amount.

4. The Firm Placing will raise net proceeds of £176.3 million (£185 million gross proceeds less estimated expenses of £8.7 million). No account has been taken of any proceeds from the ABB Placing or the Offer for Subscription.

5. No account has been taken of the financial performance of the Group or Entanet since 31 December 2016 nor of any other event save as disclosed above. 

 

Appendix 1 - Definitions

The following definitions apply throughout this announcement, unless the context otherwise requires:

"Act"		the Companies Act 2006 (as amended)
"Admission"		admission of the New Ordinary Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules
"AIM"		the market of that name operated by the London Stock Exchange
"AIM Rules"		the rules for companies whose securities are admitted to trading on AIM, as published by the London Stock Exchange from time to time
"Application Form"		the application to be comprised within the Prospectus in respect of the Offer for Subscription
"BCMR"		Business Connectivity Market Review published by Ofcom on 28 April 2016
"Board"		the board of directors of the Company as constituted from time to time
"BT"		BT Group plc
"BT Wholesale"		the BT Wholesale and Ventures division of BT providing network products and services to client communication providers
"Business Day"		any day (other than a Saturday or Sunday or public holiday) on which banks are open for business in London
"Canada"		Canada, its possessions and territories and all areas subject to its jurisdiction or any political subdivision thereof
"Capital Raising"		the Placing and the Offer for Subscription
"certificated" or "in certificated form"		where a share or other security is not in uncertificated form (that is, not in CREST)
"Channel Partners"		internet service providers, connectivity resellers and service integrators
"Citi"		Citigroup Global Markets Limited
"CityFibre" or "Company"		CityFibre Infrastructure Holdings plc (registered number 08772997) of 15 Bedford Street, London WC2E 9HE
"Closing Price"		the closing middle market quotation of an Existing Ordinary Share as derived from the Daily Official List
"CREST"		the relevant system, as defined in the CREST Regulations (in respect of which Euroclear is the operator as defined in the CREST Regulations)
"CREST member"		a person who has been admitted to Euroclear as a system member (as defined in the CREST Regulations)
"CREST Regulations"		the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), as amended
"Daily Official List"		the daily official list of the London Stock Exchange
"Digital Communications Review"		the report, Initial Conclusions from the Strategic Review of Digital Communications, published by Ofcom on 25 February 2016
"Directors"		The directors of the Company, and "Director" means any one of them
"Disclosure Guidance and Transparency Rules"		the Disclosure Guidance and Transparency Rules published by the FCA
"EBITDA"		earnings before interest, taxes, depreciation and amortisation
"EE"		EE Limited
"Enlarged Group"		the Company and its subsidiaries following completion of the Entanet Acquisition
"Entanet Acquisition"		the Company's proposed acquisition of the entire issued share capital of Entanet pursuant to the Entanet Acquisition Agreement
"Entanet Acquisition Agreement"		the agreement dated 5 July 2017 between Yun-Ju Elsa Chen and others and the Company relating to the Entanet Acquisition
"Entanet"		Entanet Holdings Limited, a company incorporated in England and Wales with registered number 07902027 and whose registered office is at Stafford Park 6, Telford, Shropshire, TF3 3AT and, where the context requires, its subsidiary undertaking Entanet International
"Entanet International"		Entanet International Limited, a company incorporated in England and Wales with registered number 03274237 and whose registered office is at Stafford Park 6, Telford, Shropshire, TF3 3AT, being a wholly owned subsidiary of Entanet
"EU"		the European Union first established by the treaty made at Maastricht on 7 February 1992
"Euroclear"		Euroclear UK and Ireland Limited, a company incorporated under the laws of England and Wales under number 2872738, which operates CREST
"Excluded Territories"		Australia, Canada, Japan, New Zealand, the United States and any other jurisdiction where the extension or availability of the Capital Raising (and any other transaction contemplated thereby) would breach any applicable law or regulation
"Existing Ordinary Shares"		the 265,672,644 Ordinary Shares in issue as at the Reference Date
"Financial Conduct Authority" or "FCA"		the Financial Conduct Authority of the United Kingdom
"financial year"		for a particular year, the financial year of the Company ending on 31 December in such year and in respect of which audited accounts have been prepared
"finnCap"		finnCap Ltd
"FSMA"		the Financial Services and Markets Act 2000 (as amended)
"General Meeting"		the general meeting of the Company to be convened in connection with the Capital Raising pursuant to the Notice of General Meeting
"Group"		the Company, its subsidiaries and subsidiary undertakings, and "member of the Group" shall be construed accordingly
"ISIN"		International Securities Identification Number
"Joint Bookrunners"		Citi, finnCap, Liberum and Macquarie
"KCOM"		KCOM Group plc
"Liberium"		Liberum Capital Limited
"London Stock Exchange"		London Stock Exchange plc, together with any successors thereto
"Macquarie"		Macquarie Capital (Europe) Limited
"MAR"		the EU Market Abuse Regulation (EU/596/2014)
"MBNL"		Mobile Broadband Network Limited
"New Ordinary Shares"		the new Ordinary Shares to be issued by the Company pursuant to the Capital Raising
"Notice of General Meeting"		the notice convening the General Meeting to be set out in the Prospectus
"OECD"		the Organisation for Economic Co-operation and Development
"Ofcom"		the independent regulator and competition authority for the UK communications industries
"Offer for Subscription"		the invitation, which may only be to Qualifying Shareholders to subscribe for the Offer for Subscription Shares at the Offer Price on the terms and subject to the conditions to be set out in the Prospectus and the Application Form
"Offer for Subscription Shares"		the New Ordinary Shares to be issued by the Company pursuant to the Offer for Subscription
"Offer Price"		55 pence per New Ordinary Share
"Openreach"		the infrastructure division of BT Group plc that will be incorporated into a new legal entity within BT Group plc in accordance with undertakings agreed with Ofcom
"Ordinary Shares"		the ordinary shares of 1 pence each in the share capital of the Company
"Overseas Shareholder"		a Shareholder with a registered address outside the United Kingdom or who is a citizen or resident of a country outside the United Kingdom
"Placees"		the persons with whom Placing Shares are placed
"Placing"		the placing of Placing Shares as described in this document
"Placing Shares"		the New Ordinary Shares to be issued by the Company pursuant to the Placing at the Offer Price
"Prospectus"		The prospectus to be published by the Company in connection with the Capital Raising
"Qualifying Shareholders"		holders of Ordinary Shares on the register of members of the Company at the Record Date
"Record Date"		the Business Day immediately prior to publication of the Prospectus (unless altered by CityFibre in consultation with the Underwriters and notified to the London Stock Exchange and, where appropriate, Qualifying Shareholders)
"Reference Date"		4 July 2017, being the last practicable date prior to the date of this announcement
"Regulation S"		Regulation S under the US Securities Act
"Resolutions"		the resolutions to be proposed at the General Meeting, as set out in the Notice of General Meeting
"Rothschild"		N M Rothschild & Sons Limited
"Rule 144A"		Rule 144A under the US Securities Act
"Securities Act"		the US Securities Act of 1933, as amended
"Shareholder(s)"		holder(s) of Ordinary Shares
"Sky"		Sky UK Limited
"sterling" or "pounds sterling"		the lawful currency of the United Kingdom
"stock account"		an account within a member account in CREST to which a holding of a particular share or other security in CREST is credited
"subsidiary" or "subsidiary undertaking" or "undertaking"		each have the meanings given by the Act
"TalkTalk"		TalkTalk Telecom Group plc
"TIDM"		Tradable Instrument Display Mnemonic
"Three"		Hutchinsom 3G UK Limited
"UK" or "United Kingdom"		the United Kingdom of Great Britain and Northern Ireland
"Underwriters" or "Joint Underwriters"		Citi, finnCap, Liberum and Macquarie
"Underwriting Agreement"		the conditional underwriting agreement dated 5 July 2017 between the Company and the Underwriters in relation to the Capital Raising
"US" or "United States"		the United States of America, its territories and possessions, any State of the United States and the District of Columbia and all other areas subject to its jurisdiction
"US Exchange Act"		the US Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated under such Act
"US GAAP"		generally accepted accounting principles in the United States
"US Securities Act"		the US Securities Act of 1933, as amended, and the rules and regulations promulgated under such Act
"Virgin Media"		Virgin Media Limited
"YorkCo"		Bolt Pro Tem Limited, the joint venture company established by CityFibre, Sky and TalkTalk for the York FTTH trial

 

                                                                                                 

 

 

 

 

 

Appendix 2 - Terms and Conditions of the Placing 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

IMPORTANT INFORMATION ON THE PLACING FOR INVITED PLACEES ONLY.

NOTHING IN THIS APPENDIX SHOULD BE INTERPRETED AS A TERM OR CONDITION OF OR FORM A PART OF, AND SHOULD NOT BE CONSTRUED AS, ANY OFFER TO PURCHASE, OTHERWISE ACQUIRE, SUBSCRIBE FOR, SELL OR OTHERWISE DISPOSE OF ANY SECURITIES OR THE SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR ANY SECURITIES OF THE COMPANY, NOR SHOULD IT OR ANY PART OF IT FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY CONTRACT OR COMMITMENT WHATSOEVER. ANY DECISION TO PURCHASE, OTHERWISE ACQUIRE, SUBSCRIBE FOR, SELL OR OTHERWISE DISPOSE OF ANY SECURITIES IN THE COMPANY MUST BE MADE ONLY ON THE BASIS OF THE INFORMATION CONTAINED IN THE PLACING PROOF OF THE PROSPECTUS (THE "P-PROOF") AND THE PROSPECTUS TO BE PUBLISHED BY THE COMPANY.

THIS APPENDIX DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER TO SELL, OR ANY SOLICITATION OF AN OFFER TO BUY, SECURITIES TO THE PUBLIC IN THE UNITED STATES. SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT (I) REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR (II) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. THE PLACING SHARES AND THE OFFER FOR SUBSCRIPTION SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, RESOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES ABSENT REGISTRATION EXCEPT PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. NO PUBLIC OFFERING OF THE PLACING SHARES AND THE OFFER FOR SUBSCRIPTION SHARES IS BEING MADE IN THE UNITED STATES.

THE PLACING IS BEING MADE (I) OUTSIDE THE UNITED STATES IN OFFSHORE TRANSACTIONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ("REGULATION S")) MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT; AND (II) TO A LIMITED NUMBER OF "QUALIFIED INSTITUTIONAL BUYERS" WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT WHO HAVE EXECUTED A US INVESTOR LETTER AND DELIVERED THE SAME TO A JOINT UNDERWRITER OR ONE OF THEIR RESPECTIVE AFFILIATES, IN TRANSACTIONS THAT ARE EXEMPT FROM OR NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. PERSONS RECEIVING THIS ANNOUNCEMENT (INCLUDING CUSTODIANS, NOMINEES AND TRUSTEES) MUST NOT FORWARD, DISTRIBUTE, MAIL OR OTHERWISE TRANSMIT IT IN OR INTO THE UNITED STATES OR USE THE UNITED STATES MAILS, DIRECTLY OR INDIRECTLY, IN CONNECTION WITH THE PLACING AND OFFER FOR SUBSCRIPTION.

THIS APPENDIX DOES NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR A SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR PLACING SHARES AND OFFER FOR SUBSCRIPTION SHARES IN ANY JURISDICTION INCLUDING, WITHOUT LIMITATION, THE UNITED STATES (SUBJECT TO THE EXCEPTIONS REFERRED TO HEREIN), AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS OR MAY BE UNLAWFUL (AN "EXCLUDED JURISDICTION"). THIS APPENDIX AND THE INFORMATION CONTAINED HEREIN ARE NOT FOR PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, TO PERSONS IN AN EXCLUDED JURISDICTION UNLESS PERMITTED PURSUANT TO AN EXEMPTION UNDER THE RELEVANT LOCAL LAW OR REGULATION IN ANY SUCH JURISDICTION. NO ACTION HAS BEEN TAKEN BY THE COMPANY, CITIGROUP, FINNCAP, LIBERUM, MACQUARIE, ROTHSCHILD OR ANY OF THEIR RESPECTIVE AFFILIATES THAT WOULD PERMIT AN OFFER OF THE PLACING SHARES OR NEW ORDINARY SHARES OR POSSESSION OR DISTRIBUTION OF THIS ANNOUNCEMENT OR ANY OTHER PUBLICITY MATERIAL RELATING TO SUCH PLACING SHARES OR OFFER FOR SUBSCRIPTION SHARES IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED. PERSONS RECEIVING THIS ANNOUNCEMENT ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY SUCH RESTRICTIONS.

THIS ANNOUNCEMENT (WHICH IS FOR INFORMATION PURPOSES ONLY) AND THE TERMS AND CONDITIONS SET OUT IN THIS APPENDIX ARE DIRECTED AT: (A) PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA WHO ARE "QUALIFIED INVESTORS", AS DEFINED IN ARTICLE 2.1(E) OF THE PROSPECTIVE DIRECTIVE (DIRECTIVE 2003/71/EC) AS AMENDED, (B) IF IN THE UNITED KINGDOM, PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS WHO FALL WITHIN THE DEFINITION OF "INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 AS AMENDED (THE "FPO") OR FALL WITHIN THE DEFINITION OF "HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS ETC." IN ARTICLE 49(2)(A) TO (D) OF THE FPO AND (II) ARE "QUALIFIED INVESTORS" AS DEFINED IN SECTION 86 OF FSMA OR (C) OTHERWISE TO PERSONS TO WHOM IT MAY OTHERWISE LAWFULLY BE COMMUNICATED (EACH, A "RELEVANT PERSON"). NO OTHER PERSON SHOULD ACT OR RELY ON THIS ANNOUNCEMENT AND PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. BY ACCEPTING THE TERMS OF THIS ANNOUNCEMENT, YOU REPRESENT AND AGREE THAT YOU ARE A RELEVANT PERSON.

 

EACH PLACEE SHOULD CONSULT WITH ITS OWN ADVISERS AS TO LEGAL, TAX, BUSINESS AND RELATED ASPECTS OF AN ACQUISITION OF PLACING SHARES.

Persons who are invited to and who choose to participate in the Placing by making an oral or written offer (which includes email) to acquire Placing Shares, including any individuals, funds or others on whose behalf a commitment to acquire Placing Shares is given (the Placees), will: (i) be deemed to have read and understood this Announcement, including the Appendix, in its entirety; and (ii) be making such offer on the terms and conditions contained in the Appendix, including being deemed to be providing (and shall only be permitted to participate in the Placing on the basis that they have provided) the confirmations, representations, warranties, acknowledgements and undertakings set out herein.

In particular each such Placee confirms, represents, warrants and acknowledges that:

(a)      it is a Relevant Person (as defined above) and undertakes that it will acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business;

(b)      it is and, at the time the Placing Shares are acquired, will be either: (i) outside the United States and is acquiring the Placing Shares in an "offshore transaction" in accordance with Regulation S under the Securities Act (Regulation S); or (ii) a "qualified institutional buyer" (a QIB) as defined in Rule 144A under the Securities Act (Rule 144A), which is acquiring the Placing Shares for its own account or for the account of one or more QIBs, each of which is acquiring beneficial interests in the Placing Shares for its own account and has duly executed a US Investor Letter and delivered the same to a Joint Underwriter or one of their respective affiliates; if acquiring the Placing Shares for the account of one or more other persons, it has full power and authority to make the representations, warranties, agreements and acknowledgements herein on behalf of each such account; or

(c)      if it is a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, that it understands the resale and transfer restrictions set out in this Appendix and that any Placing Shares acquired by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of securities to the public other than an offer or resale in a member state of the EEA which has implemented the Prospectus Directive to Qualified Investors, or in circumstances in which the prior consent of the Joint Underwriters has been given to each such proposed offer or resale.

The Company and the Joint Underwriters will rely on the truth and accuracy of the foregoing confirmations, acknowledgments, representations, warranties and acknowledgements.

The Placing Shares are being offered and sold outside the United States in accordance with Regulation S. Any offering to be made in the United States will be made to a limited number of QIBs pursuant to an exemption from registration under the Securities Act in a transaction not involving any public offering.

Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of the Appendix or the Announcement of which it forms part should seek appropriate advice before taking any action.

Each Joint Underwriter is acting for City Fibre and no one else in connection with the Capital Raising and the Placing, and will not be responsible to any person other than City Fibre for providing the regulatory and legal protections afforded to clients of the respective Joint Underwriter nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it.

Details of the Placing and the Underwriting Agreement

The Placing

The Placing is part of the proposed Capital Raising and consists of (i) a proposed firm placing of Placing Shares at the Offer Price (the "Firm Placed Shares") comprising minimum gross proceeds of £185 million and fully underwritten by the Joint Underwriters (the "Firm Placing"), and (ii) a proposed placing on a reasonable endeavours basis of Placing Shares at the Offer Price (the "ABB Placed Shares") to eligible institutional investors by way of an accelerated bookbuilding process, to be launched immediately following this announcement (the "ABB Placing" and, together with the Firm Placing, the "Placing". 

ABB Placed Shares in respect of which firm commitments are obtained from investors in the ABB Placing will be underwritten by the Joint Underwriters from the time of the results announcement of the ABB Placing, but the Joint Underwriters will not be obliged to take up New Ordinary Shares in respect of which Placees are not procured in the ABB Placing. There is therefore no guarantee that a minimum amount will be raised through the ABB Placing.

In addition to the Placing, the Capital Raising includes the Offer for Subscription for up to £15 million, which will not be underwritten by the Joint Underwriters or anyone else and which may only made available to Qualifying Shareholders, once an FCA-approved prospectus ("Prospectus") is published by the Company in connection with the Capital Raising, currently anticipated to be on or around 11 July 2017. The Placing and the Capital Raising are conditional, inter alia, on (i) the Underwriting Agreement becoming unconditional in all respects and not being terminated in accordance with its terms before Admission, and (ii) Admission occurring.  Further details of the conditions to the Placing and the Capital Raising are described in Paragraph "Conditions to the Placing and the Capital Raising" below.

The Firm Placing and the Underwriting Agreement

The Joint Underwriters and the Company have entered into the Underwriting Agreement under which each Underwriter has severally undertaken, on the terms and subject to the conditions set out in the Underwriting Agreement (as further described in Paragraph "Conditions of the Placing and the Capital Raising" below), to use its reasonable endeavours to procure Placees for the Firm Placed Shares at the Offer Price. In accordance with the terms of the Underwriting Agreement, to the extent any Placee fails to take up its allocation of Firm Placed Shares at the Offer Price, the Joint Underwriters have severally agreed to take up such Firm Placed Shares in their respective Relevant Proportions (as defined in the Underwriting Agreement) and the Company agrees to allot and issue such Firm Placed Shares to the Joint Underwriters accordingly, in each case at the Offer Price and on the terms set out in the Underwriting Agreement.

The ABB Placing and the Underwriting Agreement

Pursuant to the Underwriting Agreement, the Joint Underwriters have also severally undertaken, on the terms and subject to the conditions set out in the Underwriting Agreement, to use their reasonable endeavours to procure Placees for the ABB Placed Shares at the Offer Price through an accelerated bookbuilding process to eligible institutional investors to be launched immediately following this Announcement. The Joint Underwriters will only be obliged to take up ABB Placed Shares in their respective Relevant Proportions to the extent that commitments from Placees are received in respect of such ABB Placed Shares following completion of the bookbuild.

The Firm Placed Shares and the ABB Placed Shares

The Firm Placed Shares and the ABB Placed Shares will, when issued, be subject to the Articles, be credited as fully paid and rank pari passu in all respects with, and be identical to, the Existing Ordinary Shares of the Company and the Offer for Subscription Shares to be allotted under the Offer for Subscription, including the right to receive all dividends and other distributions declared, made or paid after Admission.

Each Placee that participates in the Firm Placing or (as applicable) the ABB Placing will be required to pay to the Joint Underwriters, on the Company's behalf, an amount equal to the product of the Offer Price and the number of Placing Shares that such Placee is required to be allotted under the Firm Placing or (as applicable) the ABB Placing, in accordance with the terms set out in or referred to in this Appendix. Each Placee's obligation to be allotted and pay for Placing Shares under the Firm Placing or (as applicable) the ABB Placing will be owed to each of the Company and to the Joint Underwriters. Each Placee will be deemed to have read this Appendix in its entirety. No Joint Underwriter nor any respective holding company thereof, any subsidiary thereof, any subsidiary of any such holding company, any branch, affiliate or associated undertaking of any such company nor any of their respective directors, partners, officers, agents and employees (each a "Representative") will have any liability (to the maximum extent permitted by applicable legislation and regulations) to Placees or to any person other than the Company in respect of the Placing or the Capital Raising.

Application for Admission

Application will be made to the London Stock Exchange for admission of the Placing Shares allotted pursuant to the Firm Placing and the ABB Placing, and the Offer for Subscription Shares to be allotted to Qualifying Shareholders under the Offer for Subscription, to trading on AIM.

It is expected that Admission will take place on or before 8.00 a.m. (London time) on or around 28 July 2017 and that dealings in the Placing Shares allotted pursuant to the Firm Placing and the ABB Placing, and the Offer for Subscription Shares allotted under the Subscription for Offer, will commence at that time.

ABB Placing process

The Joint Underwriters will today commence the process for the ABB Placing (the "Bookbuild Process") to determine demand for participation in the ABB Placing by Placees. This Appendix gives details of the terms and conditions of, and the mechanics of participation in, the ABB Placing by Placees. No commissions will be paid to Placees or by Placees in respect of any ABB Placed Shares they subscribe for.

The Joint Underwriters (in consultation with the Company) shall be entitled to effect the ABB Placing by such alternative method to the Bookbuild Process as they may, in their absolute discretion, determine.

Principal terms of the Bookbuild Process and ABB Placing

Each of the Joint Underwriters (whether through itself or any of its affiliates) is arranging the ABB Placing on behalf of the Company for the purpose of using its reasonable endeavours to procure Placees at the Offer Price for the ABB Placed Shares. Each Joint Underwriter is acting exclusively for the Company and no one else in connection with the matters referred to in this Announcement, including the ABB Placing, and will not be responsible to anyone other than the Company for providing the afforded to the customers of each Joint Underwriter or for providing advice in relation to any matters described in this Announcement.

Participation in the ABB Placing will only be available to persons who may lawfully be, and are, invited to participate by the Joint Underwriters.

The Offer Price is a fixed price of 55 pence per New Ordinary Share allotted under the ABB Placing.

Each prospective Placee's allocation of ABB Placed Shares will be confirmed orally by or on behalf of the Joint Underwriters and a contract note or electronic confirmation will be dispatched or verbal confirmation given as soon as practicable thereafter as evidence of such Placee's allocation and commitment. The terms and conditions of this Appendix will be deemed incorporated into such contract note, electronic communication or verbal confirmation. Oral confirmation of a prospective Placee's allocation will constitute an irrevocable legally binding commitment upon that person (who at that point will become a Placee) in favour of the Company and the Joint Underwriters to subscribe for the number of ABB Placed Shares allocated to it at the Offer Price on the terms and conditions set out in this Appendix and in accordance with the Articles. An offer to acquire ABB Placed Shares, which has been communicated by a prospective Placee to any Joint Underwriter which has not been withdrawn or revoked prior to the time the Bookbuild Process closes shall not be capable of withdrawal or revocation without the consent of the Joint Underwriters.

Irrespective of the time at which a Placee's allocation pursuant to the ABB Placing is confirmed, settlement for all ABB Placed Shares to be acquired pursuant to the ABB Placing will be required to be made at the same time, on the basis explained below under Paragraph "Registration and Settlement" of this Appendix.

All obligations under the ABB Placing will be subject to fulfilment or (where applicable) waiver of amongst other things, the conditions referred to below under Paragraph "Conditions of the Placing" of this Appendix and to the Placing not being terminated on the basis referred to below under Paragraph "Right to terminate under the Underwriting Agreement" of this Appendix.

By participating in the ABB Placing, each Placee will agree that its rights and obligations in respect of the ABB Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee.

Each Placee's obligations will be owed to the Company, and to the Joint Underwriters. Following the oral confirmation referred to above, each Placee will also have an immediate, separate, irrevocable and binding obligation, owed to the Joint Underwriters as agents of the Company and to the Company, to pay the Joint Underwriters in cleared funds an amount equal to the product of the Offer Price and the number of ABB Placing Shares such Placee has agreed to acquire. Subject to the paragraph below, the Joint Underwriters will procure the allotment of the ABB Placing Shares to Placees who participate in the ABB Placing.

Each Placee who participates in the ABB Placing acknowledges and agrees that the Company is responsible for the allotment of the ABB Placed Shares to the Placees and that no Joint Underwriter shall have any liability to Placees for the failure of the Company to fulfil those obligations.

Registration and Settlement

If Placees are allocated Placing Shares pursuant to either the Firm Placing or the ABB Placing they will be sent a contract note or electronic confirmation or will receive verbal confirmation which will confirm the number of such Placing Shares at the Offer Price and the aggregate amount owed by them to the Joint Underwriters. Each Placee will be deemed to agree that it will do all things necessary to ensure that delivery and payment is completed in accordance with either the standing CREST or certificated settlement instructions which they have in place with the relevant Joint Underwriter or otherwise as the Joint Underwriters may direct.

Settlement of transactions in the Placing Shares to be allotted pursuant to the Firm Placing and the ABB Placing following (and subject to) Admission will take place within the CREST system. Settlement through CREST will be on a T+3 basis unless otherwise notified by Citigroup (acting on behalf of the Joint Underwriters) and is expected to occur on or around 28 July 2017 (the "Settlement Date"). Settlement will be on a delivery versus payment basis. However, in the event of any difficulties or delays in the admission of the Placing Shares allotted pursuant to the Firm Placing and the ABB Placing to CREST or the use of CREST in relation to the Placing generally, the Company and the Joint Underwriters may agree that such Placing Shares should be issued in certificated form. The Joint Underwriters reserve the right to require settlement for the Placing Shares, and to deliver the Placing Shares to Placees, by such other means as they deem necessary if delivery or settlement to Placees is not practicable within the CREST system or would not be consistent with regulatory requirements in a Placee's jurisdiction.

Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above, in respect of either CREST or certificated deliveries, at the rate of interest at a rate equal to the London Inter-Bank Offered Rate for seven day deposits in sterling plus 2 per cent. per annum, or as determined by the Joint Underwriters in their absolute discretion.

If Placees do not comply with their obligations the Joint Underwriters may sell any or all of the Placing Shares allocated to them under the Firm Placing or (as applicable) the ABB Placing on their behalf and retain from the proceeds, for their own account and benefit, an amount equal to the Offer Price of each such Placing Share sold plus any interest due. Placees will, however, remain liable for any shortfall below the Offer Price and for any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon the sale of the relevant Placing Shares on their behalf.

If Placing Shares allotted under the Firm Placing or (as applicable) the ABB Placing are to be delivered to a custodian or settlement agent, Placees must ensure that, upon receipt, the conditional contract note, electronic confirmation or verbal confirmation is copied and delivered immediately to the relevant person within that organisation. Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. Placees will not be entitled to receive any fee or commission in connection with the Placing.

Conditions of the Placing and the Capital Raising

The Placing and the Capital Raising are conditional upon:

(a)      the Underwriting Agreement becoming unconditional in all respects by, and not being terminated in accordance with its terms before Admission; and

(b)      Admission occurring.

By accepting the obligations set out herein, you agree that any exercise by Citigroup (acting on behalf of the Joint Underwriters) of any right to terminate the Underwriting Agreement shall be within Citigroup's absolute discretion and that neither Citigroup nor any of the Joint Underwriters shall have any liability to you whatsoever in connection with any decision to exercise or not to exercise any such right, to waive (or not waive) any condition to the Underwriting Agreement or to extend (or refuse to extend) the time for satisfaction of any such condition. The right is reserved in Citigroup's absolute discretion, acting on behalf of the Joint Underwriters, to agree with the Company to extend the time for the satisfaction of all or any of the conditions of the Underwriting Agreement, and otherwise to adjust the timetable for the implementation of the Placing and/or the Capital Raising to take account of any change of circumstances that may arise on or after the date of signing the Underwriting Agreement, save that such extension may not run beyond 31 August 2017 (being the "Long Stop Date" as defined in the Underwriting Agreement). All times and dates referred to herein are therefore subject to adjustment in accordance with that reservation.

The obligations of the Joint Underwriters under the Underwriting Agreement are conditional, inter alia, upon:

(a)      no event referred to in section 87G(1) of FSMA arising between the time of publication of the Prospectus and Admission;

(b)      any supplementary prospectus required to be published prior to Admission being approved by the Joint Underwriters and formally approved by the UKLA and published prior to Admission;

(c)      the passing of the Resolutions without amendment at the General Meeting (and not, except with the prior written consent of Citigroup (acting on behalf of the Joint Underwriters), at any adjournment thereof);

(d)      each of the warranties therein and any statement made in (inter alia) the Prospectus not being untrue, inaccurate or misleading in any respect when made, nor becoming untrue, in accurate or misleading by reference to the facts existing at that time, in each case prior to Admission;

(e)      there not having occurred prior to Admission a material adverse change in, or any development reasonably likely to involve a prospective material adverse change in or affecting, the condition (financial, operational, legal or otherwise) or the earnings or business affairs or business prospects of the CFHL Group, whether or not arising in the ordinary course of business; and

(f)       Admission taking place by not later than 8.00 a.m. on the 31 August 2017 (being the Long Stop Date under the Underwriting Agreement) or such later time and/or date (not being later than that Long Stop Date) as the Company and the Joint Underwriters may agree.

If the above conditions have not been satisfied before the Long Stop Date, or the Underwriting Agreement is not entered into, or is terminated, the Placing and the Capital Raising will not proceed and all of your liabilities in connection with the Firm Placing or (as applicable) the ABB Placing under these terms and conditions shall cease and determine and no party shall have any claim against the other and any monies previously paid by you will be returned without interest to you by cheque or to the account of the drawee bank from which they were originally debited and at your risk.

Termination of the Placing

The Underwriting Agreement may be terminated by Citigroup (acting on behalf of the Joint Underwriters) before Admission where, inter alia, there has been a breach of any of the warranties contained in the Underwriting Agreement or where there has occurred a material adverse change or an event of force majeure.

By accepting the obligations set out in these terms and conditions, you agree that any exercise by Citigroup (acting on behalf of the Joint Underwriters) of any right to terminate the Underwriting Agreement shall be within Citigroup's absolute discretion and that neither Citigroup nor any of the Joint Underwriters shall have any liability to you whatsoever in connection with any decision to exercise or not to exercise any such right, to waive (or not waive) any condition to the Underwriting Agreement or to extend (or refuse to extend) the time for satisfaction of any such condition. The right is reserved in Citigroup's absolute discretion, acting on behalf of the Joint Underwriters, to agree with the Company to extend the time for the satisfaction of all or any of the conditions of the Underwriting Agreement, and otherwise to adjust the timetable for the implementation of the Placing and/or the Capital Raising to take account of any change of circumstances that may arise on or after the date of signing the Underwriting Agreement, save that such extension may not run beyond 31 August 2017 (being the Long Stop Date under the Underwriting Agreement). All times and dates referred to herein are therefore subject to adjustment in accordance with that reservation.

Representations, warranties and further terms

By participating in the Placing, you (and any person acting on your behalf) acknowledge,  confirm, agree, represent, warrant and undertake to the Joint Underwriters and the Company and their respective Representatives that:

1        You have read this Announcement in its entirety and acknowledge that your participation in the Placing shall be governed by the terms and conditions set out in this Appendix;

2        You will subscribe at the Offer Price for such number of Placing Shares as is allocated to you under the Placing and in accordance with the terms and conditions set out in this Appendix;

3        You will pay the full subscription amount as and when required in respect of all Placing Shares allocated to you in accordance with such terms and will do all things necessary on your part to ensure that payment for such shares and their delivery to you or at your direction is completed in accordance with the standing CREST instructions (or, where applicable, standing certificated settlement instructions) that you have in place with any Joint Underwriter with its agreement;

4        To the extent that you are a Qualifying Shareholder of the Company as at the Record Date, you will not apply for any New Ordinary Shares to be issued under the Offer for Subscription;

5        You understand that the contents of the P-Proof and the Prospectus are the responsibility of the Company and that none of the Joint Underwriters nor any of their respective Representatives has or shall have any liability for any information, representation or statement contained in the P-Proof or the Prospectus or any information previously published in respect of the Company and will not be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in the P-Proof or the Prospectus or omission therefrom;

6        You understand that none of the Joint Underwriters nor any of their respective Representatives has or shall have any liability for any publicly available or filed information or representation in relation to the Company, provided that nothing in this paragraph excludes the liability of any person for fraud;

7        To the fullest extent permissible by law, none of the Joint Underwriters nor any of their respective Representatives shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise). None of the Joint Underwriters are acting for you and that you do not expect any of the Joint Underwriters to have any duties or responsibilities to you for providing protections afforded to their customers or clients under the rules of the Financial Conduct Authority and that you are not, and will not be, a customer or client of any of the Joint Underwriters as defined by the Rules of the Financial Conduct Authority. Likewise, no Joint Underwriter will treat any payment by you pursuant to the Placing as client money governed by the rules of the Financial Conduct Authority's Conduct of Business Sourcebook. Payments by you to any Joint Underwriter are as banker and not as trustee and, as a result, the money will not be held in accordance with the client money rules of the Financial Conduct Authority's Conduct of Business Sourcebook;

8        None of the Joint Underwriters nor any of their respective Representatives are making any recommendation to you nor advising you regarding the suitability or merits of your participation in the Placing or entering into any transaction connected with them, and that, for the purposes of the Rules of the Financial Conduct Authority you do not expect any of the Joint Underwriters to have any duties or responsibilities similar or comparable to the Rules of the Financial Conduct Authority regarding best execution, suitability or otherwise;

9        Save for the information contained in the P-Proof, you have not relied on any information given or any representations, warranties, undertakings (express or implied) or statements, written or oral, made at any time by or on behalf of the Company or any of the Joint Underwriters or by any subsidiary, holding company, branch or associate of the Company or any of the Joint Underwriters, or any of their respective Representatives or any other person in connection with the Placing, the Company and its subsidiaries or the Placing Shares and that, in making your application under the Placing, you will be relying solely on the information in the P-Proof and on other information concerning the Company which has been publicly announced to a Regulatory Information Service (as defined in the AIM Rules for Companies) by or on behalf of the Company prior to the date of this Announcement and the information and terms and conditions contained in this Announcement and you will not be relying on any representations, warranties, undertakings or statements by the Company or any of the Joint Underwriters or any of their respective Representatives other than as expressly set out in this Appendix;

10      Your acceptance of your participation in the Placing on the terms set out in this Appendix is binding on you and is irrevocable and will not be capable of revocation, rescission or termination by you except in the event that Citigroup, acting on behalf of the Joint Underwriters, terminates the Underwriting Agreement prior to Admission;

11      The exercise by Citigroup, acting on behalf of the Joint Underwriters, of any of their rights to terminate the Joint Underwriters' obligations under the Underwriting Agreement and the exercise of any right or discretion or waiver conferred on Citigroup, acting on behalf of the Joint Underwriters, under the Underwriting Agreement (including any such right or discretion conferred as agent or trustee) shall be in the absolute discretion of Citigroup, acting on behalf of the Joint Underwriters, and none of the Joint Underwriters nor any of their respective Representatives need make any reference to you and shall not have any liability to you whatsoever in connection with any decision to exercise or not exercise any such rights. No Bank shall be responsible or liable for the actions or omissions of the Company or any other Bank or any of their respective Representatives;

12      Should any stamp duty or stamp duty reserve tax be payable on your subscription for Placing Shares, this will be to your account and neither the Company nor any of the Joint Underwriters will be responsible in respect thereof and if any such person is obliged by law to pay any such tax, they shall be entitled to recover it from you;

13      All times and dates referred to in this Appendix are subject to adjustment in accordance with the absolute discretion reserved by Citigroup, acting on behalf of the Joint Underwriters, in the Underwriting Agreement and the Joint Underwriters shall notify you of any such amendments. Save as provided, time shall be of the essence as regards obligations pursuant to this Appendix;

14      No action has been taken by you to permit the distribution of this Announcement in any jurisdiction outside the United Kingdom;

15      You have not taken any action or omitted to take any action which will or may result in any of the Joint Underwriters or the Company, or any of their respective Representatives acting in breach of any law or regulatory requirements of any territory or jurisdiction in connection with your participation in the Placing;

16      You are a person of a kind described in articles 19(5) or 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, and in section 86(1)(a) of FSMA (qualified investors) or a person to whom it is otherwise lawful to offer a participation in and communicate with regarding the Placing;

17      You agree that you have no rights against any of the Joint Underwriters or the Company, or any of their respective directors and employees or proposed directors of the Company, under the Underwriting Agreement pursuant to the Contracts (Rights of Third Parties) Act 1999;

18      You understand that the P-Proof has not been, the Prospectus will not be and this Announcement has not been approved by a person authorised under section 21 of FSMA;

19      You are (or will be, as the context may require) entitled to acquire the Placing Shares comprising your participation in the Placing under the laws of all jurisdictions which apply to you and you have fully observed such laws and have obtained all necessary consents and authorities to enable you to give your commitment to subscribe for the Placing Shares comprising your participation in the Placing and to perform your obligations under any contract which has been or may be entered into by you in connection with the Placing.

The confirmations, warranties, representations and undertakings in paragraphs 1 to 19 (inclusive) and 22 to 38 (inclusive) will survive completion of the Placing.

20      No person receiving a copy of this Announcement in any territory other than the United Kingdom may treat it either as constituting an offer or invitation to him to purchase or subscribe for Placing Shares nor should he in any event purchase Placing Shares unless such an invitation or purchase complies with any registration or other legal or regulatory requirements in the relevant territory. It is the responsibility of any person outside the United Kingdom wishing to purchase Placing Shares to satisfy himself that, in doing so, he complies with the laws of any relevant territory in connection with such purchase and that he obtains any requisite governmental or other consents and observes any other applicable formalities. 

21      This Announcement does not constitute an offer to sell, or the solicitation of an offer to buy or to subscribe for, Placing Shares in any jurisdiction in which such an offer or solicitation is unlawful nor will any of them be distributed in or into the United States, Australia, Canada, Japan, New Zealand, or the Republic of South Africa except in transactions or in a manner exempt from or not subject to the registration requirements of those countries' securities legislation.

22      The Existing Ordinary Shares, Placing Shares and Offer for Subscription Shares have not been and will not be registered under the United States Securities Act 1933, as amended (the "US Securities Act") or the relevant securities legislation in Australia, Canada, Japan, New Zealand or the Republic of South Africa and therefore the Placing Shares may not be offered, sold, transferred or delivered directly or indirectly in or into the United States or in or into Australia, Canada, Japan, New Zealand or the Republic of South Africa or their respective territories and possessions, except, in the case of the United States, pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. United States means the United States of America, its territories and possessions, and state of the United States, and the District of Columbia. You warrant, acknowledge and undertake that: (i) you are not within the United States, Australia, Canada, Japan, New Zealand or the Republic of South Africa and are purchasing the Placing Shares outside the United States in an offshore transaction meeting the requirements of Regulation S under the US Securities Act ("Regulation S") and are not a citizen of Australia, Canada, Japan, New Zealand or the Republic of South Africa or, if inside the United States, you are a "qualified institutional buyer" as defined in Rule 144A under the US Securities Act and you have duly executed a US Investor Letter and delivered the same to a Joint Underwriter or one of their respective affiliates; (ii) you have not offered, sold or delivered and will not offer to sell or deliver any of the Placing Shares to persons within the United States, directly or indirectly, or into Australia, Canada, Japan, New Zealand or the Republic of South Africa; (iii) neither you, your affiliates, nor any persons acting on your behalf, have engaged or will engage in any directed selling efforts (as defined in Regulation S) with respect to the Placing Shares; (iv) you are not taking up the Placing Shares for resale in or into the United States, Australia, Canada, Japan, New Zealand or the Republic of South Africa; and (v) you will not distribute any offering material, directly or indirectly, in or into the United States, Australia, Canada, Japan, New Zealand or the Republic of South Africa or to any persons resident in such countries. Unless defined elsewhere in this Appendix, terms and expressions used in this paragraph have the meanings given to them by Regulation S.

23      By participating in the Placing you warrant that you: (i) have the necessary capacity and authority to acquire the Placing Shares and are entitled to enter into and to perform your obligations in accordance with the terms and conditions set out in this Announcement; (ii) may lawfully acquire the Placing Shares comprising your participation in the Placing; (iii) have complied with all relevant laws of all relevant territories; (iv) obtained all requisite government or other consents which may be required in connection with your participation in the Placing; (v) complied with all requisite formalities and (vii) not taken any action or omitted to take any action which will or may result in any of the Joint Underwriters, the Company, or any of their respective Representatives acting in breach of the legal or regulatory requirements of any territory in connection with the Placing and your participation in the Placing.

24      By participating in the Placing , you confirm that, to the extent applicable to you:

(g)      you are aware of your obligations in connection with the Criminal Justice Act 1993 and Part VIII of FSMA and you have complied with those obligations;

(h)      if you are making payment or acting on behalf of a third party you have identified such third party in accordance with the Money Laundering Regulations 2017, the money laundering provisions of the Criminal Justice Act 1993, the Terrorism Act 2000, the Anti-Terrorism Crime and Security Act 2001, the Proceeds of Crime Act 2002 and the Terrorism Act 2006 and that you have complied fully with your obligations pursuant thereto; and

(i)       you are a person falling within one or more of the categories of persons set out in Article 19(5) (Investment Professionals) or Article 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and also within section 86(1)(a) of FSMA (qualified investors).

25      You are not, and are not acting or applying as nominee or agent for, a person who is or may be liable to stamp duty or stamp duty reserve tax ("SDRT") in respect of any acquisition of shares (or agreement to acquire) or other securities at a rate in excess of 50p per £100 (including, without limitation, under sections 67, 70, 93 or 96 of the Finance Act 1986 concerning depository receipts and clearance services). For the avoidance of doubt, if this confirmation is incorrect, additional stamp duty or SDRT may be payable for which none of the Joint Underwriters nor the Company will be responsible and if, as a result, any of those persons is obliged by law to pay any such stamp duty or SDRT, they shall be entitled to receive it from you. You should be aware that taxation levels, bases and reliefs can change and that any tax you may pay (and available reliefs) will depend on each shareholder's personal circumstances. If you are in any doubt about the tax treatment of the Placing Shares you should consult your tax adviser or an independent financial adviser or other person authorised by the Financial Conduct Authority who specialises in advising on the acquisition or disposal of shares and other securities.

26      You warrant that you and each person or body (including, without limitation, any local authority or the managers of any pension fund) on whose behalf you accept your participation in the Placing or to whom you allocate any Placing Shares in whole or in part has the capacity and authority to enter into and to perform its obligations as a Placee of the Placing Shares comprised therein and will honour those obligations and, if a company, you are a valid and subsisting company and have all the necessary corporate capacity and authority to execute your obligations in connection with this Announcement.

27      You warrant and represent that you have not offered or sold and will not offer or sell any Placing Shares to persons in the United Kingdom in circumstances which would result in the Placing Shares being offered to the public in the United Kingdom within the meaning of section 85(1) of FSMA.

28      Your purchase of the Placing Shares does not trigger in the jurisdiction in which you are resident:

(a)      any obligation to prepare or file a prospectus or similar document or any other report with respect to such purchase;

(b)      any disclosure reporting obligation of the Company; or

(c)      any registration or other obligation on the part of the Company.

29      The offer and sale to you of the Placing Shares was not made through an advertisement of the Placing Shares in printed media of general and regular paid circulation, radio or television or any other form of advertisement.

30      You shall (or shall procure that your nominee shall, if appropriate) make notification to the Company of interests in Ordinary Shares in accordance with Chapter 5 of the Disclosure and Transparency Rules, to be received by the Company within two Business Days of becoming the holder of your Placing Shares.

31      You acknowledge that no securities commission or similar regulatory authority has reviewed or passed on the merits of the Placing Shares and that there is no government or other insurance covering the Placing Shares and there are risks associated with the purchase of the Placing Shares.  

32      You warrant and represent that, in the event that you are conditionally subscribing for Placing Shares comprising your Placing Participation in the capacity of either an advisory investment manager or an execution only broker on behalf of private clients, neither you, nor your directors, employees, affiliates or agents will make or direct the offer of any of the Placing Shares to more than five persons.

33      You warrant and represent to the Joint Underwriters that, in the event that you are not conditionally subscribing for Placing Shares comprising your participation in the Placing in the capacity of either an advisory investment manager or an execution only broker on behalf of private clients, neither you, nor your directors, employees or agents have offered or sold and will not offer or sell any Placing Shares to persons in the United Kingdom in circumstances which would result in the Placing Shares being offered to the public in the United Kingdom within the meaning of section 85(1) of FSMA.

34      You acknowledge that, if you participate in the Placing, you will be providing personal information to the Company and the Company's share registry. The Company is permitted to collect, hold and use that information to assess and process the Form of Confirmation, service your needs as a shareholder, facilitate distribution of payments and make corporate communications to you as a shareholder. The information may be disclosed if required by law or by any applicable rules or regulations including those of AIM and/or the LSE. You can access, correct and update your personal information by contacting the Company.

35      You acknowledge that, by participating in the Placing, you irrevocably appoint any director or employee of any Joint Underwriter as your agent for the purpose of executing and delivering to the Company and/or its registrars any document on your behalf necessary to enable you to be registered as the holder of the Placing Shares allocated to you pursuant to the Placing.

36      You agree to be bound by the terms of the Articles.

37      You acknowledge that the value of shares can fluctuate in value in money terms and accordingly that you may not realise, on disposal by you of those of the Placing Shares to be subscribed by you, the full amount or any part of your investment.

38      You acknowledge and understand that the Company, the Joint Underwriters and their respective Representatives will rely upon truth and accuracy of the foregoing confirmations, acknowledgements, undertakings, warranties, representations and agreements.

39      The agreement contained herein and these terms and conditions shall be governed by and construed in accordance with English law and you irrevocably agree that the Courts of England are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the same (including any dispute, claim or matter relating to any non-contractual obligations arising out of or in connection with this Announcement).