|
For immediate release |
24 April 2018 |
CITYFIBRE INFRASTRUCTURE HOLDINGS PLC
('CityFibre' or the 'Group' or the 'Company')
AUDITED FULL-YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017
CityFibre (AIM: CITY), the largest alternative provider of wholesale full fibre infrastructure in the UK, today reports audited full-year results for the Group for the year ended 31 December 2017.
Financial Highlights:
· Turnover increased 126%, to £34.8m (2016: £15.4m), of which £15.4m is attributable to the consolidation of Entanet's results for the five month post acquisition period
· Gross profit increased 48.4% to £20.1m (2016: £13.5m), of which Entanet contributed £3.8m. Gross profit up £2.8m (21%), excluding the contribution from Entanet
· Gross margin of 57.8% (2016: 88.1%). Excluding the impact of Entanet, gross margin of 84.5%
· Adjusted EBITDA1 of £4.5m (2016: £2.5m)
· Initial Contract Value2 ('ICV') of £26.3m added in the period, with a further minimum volume commitment from Vodafone over the initial 10 year period expected to exceed £200m
· Net loss after tax increased to £16.6m (2016: £12.6m)
Operating Highlights:
· £201.8m fundraising to fund growth of the Group's full fibre network and the acquisition of Entanet, a provider of wholesale fibre connectivity and communications services to business internet service providers
· Strategic partnership with Vodafone to deliver FTTP to up to 5 million homes by 2025
· Cumulative on-net connections sold (ex-FTTP and Entanet) up 27% versus 2016, to 9,204
· Cumulative on-net connections delivered (ex-FTTP and Entanet) up 26% versus 2016, to 4,975
· Entanet's off-net leased lines estate up 14%, to 3,954 from 3,456 in 2016
· Total route kilometres of fibre infrastructure expanded to 3,740km, versus 3,383km in 2016
Post-Period Highlights:
· Milton Keynes, Aberdeen and Peterborough announced as the initial three FTTP cities under the first phase of the Vodafone partnership
· Construction underway in Milton Keynes, with Aberdeen and Peterborough in advanced planning phase
· Debt refinancing process progressing well, closing expected H2 2018
· Coventry, Edinburgh, Huddersfield and Stirling will be the next cities to benefit from the deployment of the full fibre broadband programme. The investment in these new cities, together with Milton Keynes, Aberdeen and Peterborough, will bring Vodafone and CityFibre's FTTP roll-out above the half a million premises, and brings CityFibre's committed infrastructure investment in the project to at least £315m.
1 Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, also excluding share-based payments and
significant non-recurring expenses.
2 Initial contract value ('ICV') is the total contracted customer revenues receivable up to the first contract break point.
Greg Mesch, Chief Executive of CityFibre, commented:
"I am delighted to report that CityFibre has made excellent strategic progress throughout 2017, a year in which we moved a step closer to realising our long-held vision of a full fibre future across the UK. We continued to make significant headway within the public sector market and we now are well-positioned to benefit from a more supportive public policy environment, including the DIIF and LFFN initiatives.
"We've strengthened our positioning in the business segment following the acquisition of Entanet, which brings a well-developed wholesale channel and service delivery platform that advances us several years in our evolution. Entanet is placing increasing volumes of new business on-net with CityFibre each month.
"We completed 2017 by signing a landmark FTTH agreement with Vodafone, which is the most significant alternative communications infrastructure development in the UK in at least 30 years.
"CityFibre is now firing across all our key market verticals and our focus is firmly on programme delivery and continued commercialisation."
The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
For further information, please contact:
|
CityFibre Infrastructure Holdings plc |
|
|
Greg Mesch, Chief Executive Officer |
Tel: 020 3510 0602 |
|
Terry Hart, Chief Financial Officer |
|
|
James Enck, Head of Investor Relations |
Tel: 0333 150 6283 |
|
|
|
|
finnCap (Nomad and Joint Broker) |
|
|
Stuart Andrews / Christopher Raggett (Corporate Finance) |
Tel: 020 7220 0500 |
|
Simon Johnson (Corporate Broking) |
|
|
|
|
|
Liberum (Joint Broker) |
|
|
Steve Pearce / Richard Bootle |
Tel: 020 3100 2000 |
|
|
|
|
Vigo Communications |
|
|
Jeremy Garcia / Fiona Henson |
Tel: 020 7830 9701 |
About CityFibre:
CityFibre is the national builder of Gigabit Cities, the UK's largest alternative provider of wholesale fibre network infrastructure. It has major metro duct and fibre footprints in 42 cities across the UK and a national long distance network that connects these cities to major data-centres across the UK and to key peering points in London.
The Company has an extensive customer base spanning service integrators, enterprise and consumer service providers and mobile operators. Providing a portfolio of active and dark fibre services, CityFibre's networks address 28,000 public sites, 7,800 mobile masts, 280,000 businesses and 4 million homes.
CityFibre is based in London, United Kingdom, and its shares trade on the AIM Market of the London Stock Exchange (AIM: CITY). Further information on the Company can be found at www.cityfibre.com
Chairman's statement
It is my pleasure to present CityFibre's audited financial results for the year to 31 December 2017, during which time the Company has made substantial progress in its strategy of delivering full fibre deployment across its sizeable UK footprint.
In the past year, the UK telecommunications infrastructure market has undergone what I can only describe as a "seismic change" with regard to "fibre adoption", with the pace of change accelerating daily. Since it was founded in 2011, CityFibre's strategy has been focused on establishing a shared wholesale fibre infrastructure throughout the UK, capable of serving the business community, the public sector, mobile/wireless connectivity, and ultimately the residential broadband market.
Following decades of underinvestment, both the industry and government have at last awakened to the importance of full fibre internet infrastructure for the future of the nation's economy, and the Directors and I believe CityFibre has been the 'lightning rod' in driving awareness and forcing this dramatic shift.
CityFibre is a key player in driving change in the UK's digital infrastructure. The Group's achievements to date include the delivery of the UK's first Fibre-to-the-Tower ('FTTT') solution based on dark fibre, the single largest Fibre-to-the-Premises ('FTTP') deployment, and signing an agreement with Vodafone for a mass roll-out of Fibre to the Home ('FTTH') to potentially 20% of the UK (c.5million homes), with the first phase being at least one million homes across c.12 UK cities.
In July 2017, the Group completed a £201.8m equity raise timed with the anticipation of closing a large scale anchor agreement with one or more large service providers for FTTP deployment across our footprint, thus allowing us to begin the rollout of FTTP across our existing cities.
Over the course of 2017, CityFibre completed three strategically pivotal transactions. In August 2017, CityFibre acquired Entanet, a provider of wholesale communication services. CityFibre will be able to leverage Entanet's established wholesale channel alongside its unique and compelling infrastructure proposition.
In November 2017, the Group achieved a hugely significant milestone, signing a historic agreement with Vodafone to build full fibre infrastructure to at least one million and up to five million homes in the UK, marking one of the most significant investments in UK communications infrastructure in the past three decades.
We remain focused and enthusiastic about the prospect of capitalising on our extensive existing network footprint to deliver future proof full fibre connectivity to customers across all four of our key markets.
We also announced on 24 April 2018 a recommended cash offer from a consortium made up of Antin Infrastructure Partners and West Street Infrastructure Partners for CityFibre at 81p per share.
Overview of results
Group turnover of £34.8m represents headline growth of 126% compared to the prior financial year, with a strong contribution of £15.4m from the consolidation of Entanet from August 2017. Excluding the contribtion from Entanet, CityFibre continued to generate strong organic annual revenue growth of 25.8% to £19.3m (2016: £15.4m), despite a hiatus in activity in public sector procurement activities during the first three quarters of the year.
Group Adjusted EBITDA increased 80% to £4.5m (2016: £2.5m), reflecting the strong gross margin foundation of the business.
The Group ended the period with gross cash of £157.0m and thus remains strongly capitalised as it enters into the first phase of FTTP deployment with Vodafone, as well as continued organic city expansion and further development of existing city footprints.
Gross debt at period end was £65.3m. The Company currently has no intention to further draw from existing facilities, which it intends to refinance early in the third quarter of financial year 2018.
Outlook
The Group continues to make significant progress in achieving its strategic vision, and the Directors and I congratulate our staff on their commitment, tenacity and hard work in bringing the Group to this critical juncture in its development. We completed 2017 with considerable momentum, delivering sizable public sector contracts in the period, further demonstrating the demand for next generation infrastructure.
Clearly our primary focus in 2018 is on execution, delivering on our early stage commitments to Vodafone under our joint FTTP project and continuing to generate strong organic growth through the expanded wholesale channel. The Directors and Management continue to assess our resourcing as we move into this new phase of delivery, against the background of a rapidly evolving UK fibre infrastructure market.
I'm pleased to report that the strong momentum generated in H2 2017 has continued into 2018. We have begun the execution of our Vodafone committements in addition to securing new business wins through both Entanet and additional enterprise and public sector sales traction.
The drive towards competitive supply of fibre infrastructure continues to shape the policy environment in which CityFibre operates. CityFibre has driven positive changes to policy and regulation, and I anticipate further investments in 2018 as the Government and Ofcom consider any further changes necessary to foster accelerated rollout of full fibre nationwide.
Chris Stone
Non-executive Chairman
24 April 2018
CEO Review
Operating review
CityFibre delivered another year of strong operational progress in 2017, including the acquisition of Entanet, the signing of our largest-ever public sector contract in Glasgow, and the landmark agreement with Vodafone to kick-start FTTH deployment to up to 5 million homes. We have ended the year with a vastly enhanced platform for expansion, which is now entirely focused on execution and delivering full fibre capability to our end users. Our progress since our IPO has been rapid and we firmly believe CityFibre's highly distruptive approach to fibre investment has delivered a lightning bolt that the UK market has been waiting for.
We are now firmly at the centre of almost unstoppable momentum as the UK finally wakes up to the gigabit revolution and remain keenly focused on executing our growth objectives.
Entanet acquisition
In July 2017, the Group announced the proposed acquisition of the entire issued share capital of Entanet Holdings Limited ('Entanet') for a cash consideration of £29.0m (on a debt free cash free basis and subject to adjustments).
Entanet is a wholesale communications provider which uses third party networks owned by other suppliers to deliver a wide range of connectivity and telecommunication products and services to Channel Partners, including broadband, Ethernet, private and wide area networks, IP and PSTN telephony, colocation, hosting and associated services.
The Directors believe the Entanet acquisition brings together two complementary wholesale capabilities: CityFibre's national wholesale fibre infrastructure and Entanet's established wholesale product portfolio and commercial relationships with Channel Partners. Entanet has become the primary route for CityFibre to market its full fibre connectivity through Entanet's network of Channel Partners.
Entanet's business model 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.
The acquisition will 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. The Board is delighted with the progress demonstrated by Entanet since acquisition, and confirms it is trading in line with expectations.
Fundraising
In July 2017 - in conjunction with the Entanet acquisition - the Group also announced an intention to raise up to £185.0m in new equity via an accelerated book-build and private placement, along with up to a further £15.0m via an Offer for Subscription, totalling up to £200.0m in gross proceeds. The accelerated book-build was oversubscribed, generating £200.0m in gross proceeds, with a further £1.8m generated through the Offer for Subscription, resulting in total gross proceeds of £201.8m.
Use of proceeds identified by the Group included the acquisition of Entanet, further investment in construction of network in both new and existing cities, and initial investment in its FTTP initiative.
Vodafone FTTH partnership
On 9 November 2017, the Group announced the signing of a major strategic partnership with Vodafone. Under the agreement CityFibre will provide full fibre connectivity in the first phase to a minimum of one million UK homes in twelve existing CityFibre towns and cities, with the potential to extend this to up to five million UK homes (approximately 50 towns and cities and representing 20% of the current UK broadband market) by 2025.
Vodafone has entered into a 20 year framework agreement and made a minimum volume-based commitment for ten years, which scales over the period, maturing at 20% of homes passed. In turn Vodafone has been granted a period of marketing exclusivity, city by city, for consumer grade FTTH services largely during the construction period. Over 20 years the first phase of the agreement for one million homes is estimated by the Company to be worth over £500m. The FTTP network will be fully owned by CityFibre and ultimately made available to all service providers on a wholesale basis.
Thus far, Milton Keynes, Aberdeen and Peterborough have been identified as the first towns to benefit from full fibre connectivity, and further cities will be announced over the coming months, with construction having already commenced in Milton Keynes.
We expect to commence construction in the first five to ten towns and cities in 2018, with the minimum first phase of the agreement ultimately delivering full fibre access in twelve towns and cities, passing one million UK homes. Construction of the first phase is expected to be largely complete in around four years.
The total capital cost of the first phase is expected to be in the range of £500m to £700m. This includes the cost of the network rollout past one million homes, the cost to connect up homes requesting a service, the costs to connect up business premises within the footprint of the FTTP network construction, internal capitalised labour costs and Point-of-Presence ('PoP') costs.
The agreement includes a framework under which both parties could agree to extend the construction programme to pass up to five million homes by 2025. At five million homes, fulfilment of the full framework would represent c.20% of the current UK fixed residential and business broadband market and meet 50% of the Government's target of ten million homes with gigabit-ready full fibre access.
While the agreement relates only to the delivery of FTTP, the rollout of full fibre local networks will deliver a greater capillarity to the CityFibre network providing significant cost advantages to the Company's wholesale services for both dark fibre and active (mostly Ethernet) services across all CityFibre's market verticals. The Company will continue to sell, largely through third party Channel Partners, into the public sector, enterprise and carrier verticals and directly handles mobile and consumer national service and content providers. The extended footprint will also serve SMEs and businesses through Entanet's wholesale communications provision to Channel Partners.
Having dense fibre networks places CityFibre's network infrastructure in closer proximity to all types of user premises and will deliver a cost advantage to the Company's bidding on future business across all market verticals.
Public Sector Momentum
In 2017, the Company continued to demonstrate its strength in the PSN (Public Sector Network) space, and successfully converted a number of contracts in the second half of the year.
The Group began the year with by signing a seven-year contract with MLL Telecom, to supply a public services network to the City of Stirling. The initial contract value ('ICV') of £1.7m required the initial construction of 20km of new network to connect 33 sites across the council's estate.
In December, the Group announced a further agreement with Capita, the ICT provider to Aberdeen City Council, to connect additional core public sector sites within the city boundary to CityFibre's metro network. The initial contract is for 15 years, with a cumulative ICV of £1.7m. The contract will extend CityFibre's Aberdeen network to an additional 57 public sector locations, with approximately 17km of incremental network extension, taking total route kilometres of network in the city to over 100km.
This additional network extension brings the total public sector sites served in Aberdeen to 166, and total sites sold in Aberdeen to 425. Cumulative ICV booked on the Aberdeen network now totals £6.8m, of which public sector contract value now totals £3.7m.
Also in December, CityFibre announced its largest public sector award to date, extending its existing Gigabit City network in Glasgow to an additional 506 Glasgow City Council ('GCC') owned sites in an agreement with a lifetime value of up to £15.7m over 19 years. The deal represents CityFibre's largest project to date and the largest UK public services metro network award in 2017.
The construction of an additional 243km of new core network infrastructure will be required to connect the 506 sites across the GCC estate, along with 15 BT exchange-to-exchange links. This will supplement the existing core metro infrastructure in Central Glasgow built to satisfy existing contracts in the enterprise and public sector market verticals.
Business customers
Over the course of 2017, the Group maintained a strong focus on the commercialisation of networks through the conversion of business customers. With the acquisition of Entanet, the Group is now well placed to leverage Entanet's customer base and drive greater traction across this industry vertical.
All network extensions are designed and deployed under CityFibre's Well Planned City methodology, which provides the backbone for transformative digital initiatives across further enterprise FTTP, as well as FTTT for mobile operators, and for a potential extensive FTTP build across the city in future.
The Company will continue 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 invested capital and that cover a substantial portion of projected capital expenditure. Similar policies on returns and capex coverage apply to both new-metro and densified-metro routes to network expansion.
Key operating metrics
|
|
2017 |
2016 |
|
|
Cumulative on-net connections sold (ex-FTTP) |
9,204 |
7,281 |
+27% |
|
Cumulative on-net connections delivered (ex-FTTP) |
4,975 |
3,962 |
+26% |
|
Total km of fibre infrastructure |
3,740 |
3,383 |
+11% |
|
Off-net leased lines sold by Entanet |
3,954 |
3,456 |
+14% |
Employees
The Group ended the year with 303 full-time equivalent staff ('FTEs'), versus 143 as at the end of 2016. 108 employees were welcomed to the Group from Entanet on the acquisition date.
Greg Mesch
Chief Executive Officer
24 April 2018
Financial Review
Financial results for 2017 reflect a year of continued organic growth, the acquisition of Entanet and the significant strengthening of the Group balance sheet through the completion of the £201.8m fundraising on 28 July 2018. The Group accelerated the investment in resourcing the business to commercialise its expanded footprint and in preparation for the FTTP expansion.
Profit and loss
Revenue increased by 126.3% to £34.8m (2016: £15.4m), driven by contributions from the Entanet Group acquired, the continued expansion in footprint and incremental revenues from both existing and new cities, as shown in the table below. Excluding Entanet, revenue growth was 25.8% (2016: 63%). Revenue growth is largely attributable to the full-year effect of projects signed in 2016 and new sales contracts signed in 2017.
|
|
2017 |
2016 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Organic revenue |
19,320 |
15,363 |
|
Entanet Group contributions |
15,448 |
- |
|
|
|
|
|
Total Revenue |
34,768 |
15,363 |
Gross margin decreased by 30 percentage points, to 58%, from 88% in 2016, reflecting the lower margin revenue of Entanet Group being added in 2017. The underlying CityFibre business experienced a reduction in gross margin to 84.5%, a slight reduction compared to 2016. The reasons for this are twofold; 1.2% is attributable to costs of sales on asset sales, and the balance is related to enabling more cities to provide active services resulting in higher levels of network operations, colocation, backhaul and related costs. The gross margin per city will increase significantly over time as new customers are added to these active networks.
Administrative costs increased to £27.8m from £18.7m in 2016. Excluding non-recurring costs, depreciation and amortisation, and share-based payments charges, underlying administrative costs were £15.6m, representing growth of 41% from £11.1m in the prior year. Of this, Entanet contributed £2.3m; without this underlying administrative costs were £13.3m. This was a modest increase of 19.8% largely driven by increasing the Group's FTTP capabilities.
The movements in underlying administrative costs include:
· Staff costs, excluding share-based payments and transaction related costs in respect of the fundraising activities and strategic transactions, increased by 30% to £10.3m (2016: £7.9m). Average headcount was 189 staff (142 excluding the impact of Entanet), up from 116 in 2016. The increase is primarily due to the addition of Entanet staff, being £1.8m.
· The Group commenced a significant programme of investment in its FTTP capabilities; some existing employees were refocused onto this workstream, with costs of c.£1.0m attributable to this workstream included in the staff costs analysed above.
· Other general administrative costs increased by £0.2m as a result of the expanded number of new and in-life projects. In particular, pursuing the Vodafone contract was a key activity.
Total non-recurring costs, depreciation and amortisation, and share-based payments charges were £12.2m (2016: £7.6m) and are detailed below:
· Depreciation increased by £1.7m, to £5.2m, due to the full year increase in the asset base through acquisitions and significant in-year completed construction projects.
· During the year the Group incurred transaction costs totalling £3.6m, up from £1.9m in the prior period. These costs were incurred primarily to execute the fundraising, Entanet Group acquisition and Vodafone contract in 2017 and the KCOM asset acquisition in 2016.
· Non-recurring costs also included £1.1m of legal and professional fees relating to the presentation of the Group's position on regulatory activities particularly pertinent to CityFibre, up from £0.9m in 2016. The Group will continue to engage advisors and take actions necessary to ensure its position is properly presented and protected.
· Share-based payment charges increased to £1.5m, up from £0.9m in 2016 due to LTIP awards in the year and a full year's charge for share options awarded in the prior year.
· The amortisation charge for the year increased to £0.7m (2016: £0.4m), reflecting further development of the Group's network and financial management systems and the acquisition of finite life intangible assets as a part of the Entanet Group purchase.
Operating loss increased to £7.7m (2016: £5.1m), largely driven by increased administrative expenses of £27.8m (2016: £18.7m), countered by the increase in gross profit of £20.1m (2016: £13.5m).
The adjusted EBITDA profit of £4.5m is in line with expectations and a significant improvement on the prior period adjusted EBITDA profit of £2.5m. A reconciliation of operating profit to adjusted EBITDA appears below.
Loss after tax was £16.6m (2016: £12.6m), which includes financing costs of £8.7m (2016: £7.3m).
Entanet acquisition
On 1 August 2017 the Group completed the acquisition of Entanet. Under the terms of the sale and purchase agreement, the consideration was £29.0m on a debt-free and cash-free basis with an adjustment for working capital movements between the dates of offer and completion. Total consideration on completion was £31.7m, of which £2.3m is expensed as compensation to employees in the 12-18 months post-completion. The consideration, of £29.4m, comprised £19.0m cash and £10.4m of settled debt. Included in the £19.0m cash consideration was £2.4m of deferred consideration payable in 12-24 months following completion.
The acquired assets have been recognised on the enlarged Group's balance sheet principally as Goodwill and other Intangibles, with £2.6m attributable to property, plant and equipment (PPE).
Balance sheet
The increase in PPE, excluding those acquired from the Entanet Group purchase, totalled £25.6m, of which £24.7m related to the construction of new network assets. These consisted primarily of the £15.3m construction of key Gigabit City projects in Aberdeen, Edinburgh, Glasgow, Leeds, Peterborough and Southend. The remaining £9.4m of network asset build was to support additional customer connections in existing towns and cities, as well as enabling the assets for commercialisation.
Total amount spent on the acquisition of Entanet was £29.4m, of this, £10.4m settled loans due from the Entanet Group to the previous owners. There were £1.4m of transaction costs, which have been expensed. Of the consideration, £17.7m was classified as Goodwill and £6.1m other identifiable Intangibles, while £2.6m was classified as PPE. Deferred consideration to management sellers remaining as employees is being expensed over the period of deferral.
Intangible assets additions in the year totalled £24.7m (2016: £0.7m). This primarily reflects the acquisition made for Entanet.
Cash flow
Operating cashflow for the period was a net outflow of £0.3m, compared to a net outflow of £2.4m in 2016. At the year-end the cash balance was £37.0m (2016: £16.7m), with a further £120.0m held on short-term deposit (2016: £nil); these increases are primarily as a result of the share issue. These assets are being managed in line with the Group's treasury policy, with £137.5m on deposit at the year-end in a mix of notice and fixed-term treasury accounts.
The Group's closing cash balance was £157.0m. This cash is being managed in line with the Group's treasury policy, with £137.5m on deposit at the year-end in a mix of notice and fixed-term treasury accounts.
Acquisition of Entanet and £200m fundraising
On 5 July 2017, the Group announced a proposed £201.8m fundraising and the proposed acquisition of the entire issued share capital of Entanet Holdings Limited ('Entanet') for a cash consideration of £29 million (the 'Acquisition') to be financed by a partial use of net proceeds.
The acquisition received shareholder approval at the General Meeting on 27 July 2017, and the transaction subsequently closed on 1 August 2017.
The fundraising provided significant cash resources for the acceleration of network deployments, in addition to the acquisition of Entanet.
Debt refinancing process
On 14 December 2015, CityFibre Limited (as borrower) entered into the Facility Agreement with Proventus Capital Partners III AB (as agent and security agent). The Lenders are funds managed by Proventus Capital Management AB or Proventus Capital Partners III and affiliated funds.
As at 31 December the Group had drawn in total £65.3m from the existing facilities.
The Directors believe the Group is now at a stage in its development to achieve a lower cost of capital through refinancing its existing debt facilities. The Company has appointed Rothschild as lead adviser in this process, which is well-advanced. It is the intention of the Directors to complete this process in the second half of 2018.
Reconciliation of operating loss to adjusted EBITDA
|
|
Year to |
Year to |
|
|
31 Dec 2017 |
31 Dec 2016 |
|
|
£'000 |
£'000 |
|
Operating loss per accounts |
(7,675) |
(5,141) |
|
Add back: |
|
|
|
Depreciation |
5,230 |
3,572 |
|
Amortisation |
659 |
358 |
|
EBITDA |
(1,786) |
(1,211) |
|
|
|
|
|
Fees in connection with regulatory review |
1,150 |
904 |
|
Share-based payments charge |
1,502 |
908 |
|
Transaction-related fees |
3,619 |
1,884
|
|
Adjusted EBITDA |
4,485 |
2,485 |
Subsequent event
On 24 April 2018 the Board recommended a cash offer from a consortium made up of Antin Infrastructure Partners and West Street Infrastructure Partners for CityFibre at 81p per share.
Terry Hart
Chief Financial Officer
24 April 2018
consolidated statement of comprehensive income
For the Year Ended 31 December 2017
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
Revenue |
|
34,768 |
15,363 |
|
Cost of sales |
|
(14,677) |
(1,827) |
|
Gross profit |
|
20,091 |
13,536 |
|
|
|
|
|
|
Total administrative expenses |
|
(27,766) |
(18,677) |
|
|
|
|
|
|
OPERATING LOSS |
|
(7,675) |
(5,141) |
|
|
|
|
|
|
Finance income |
|
72 |
45 |
|
Finance cost |
|
(8,743) |
(7,341) |
|
Share of post-tax losses of equity accounted Joint Venture |
|
(227) |
(147) |
|
|
|
|
|
|
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION |
|
(16,573) |
(12,584) |
|
|
|
||
|
|
|
|
|
|
Income tax |
|
- |
- |
|
|
|
||
|
LOSS FOR THE YEAR AND TOTAL COMPREHENSIVE INCOME |
|
(16,573) |
(12,584) |
|
|
|
|
|
|
Loss per share |
|
2017 |
2016 |
|
|
|
|
|
|
Basic and diluted loss per share |
|
£(0.04) |
£(0.05) |
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Financial Position
Company number 08772997
As at 31 December 2017
|
|
|
2017 |
2016 |
|
Assets |
|
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment Intangible assets Investment in Joint Venture Total non-current assets |
|
178,135 |
155,159 |
|
25,276 |
1,211 |
||
|
204 |
433 |
||
|
203,615 |
156,803 |
||
|
|
|
||
|
Current assets |
|
|
|
|
Inventory |
|
3,784 |
3,986 |
|
Trade and other receivables |
|
20,082 |
8,070 |
|
Investment in short-term deposits |
|
120,000 |
- |
|
Cash and cash equivalents |
|
36,961 |
16,722 |
|
Total current assets |
|
180,827 |
28,778 |
|
|
|
|
|
|
Total assets |
|
384,442 |
185,581 |
|
|
|
||
|
Equity |
|
|
|
|
Share capital |
|
6,383 |
2,713 |
|
Share premium |
|
328,450 |
137,943 |
|
Share warrant reserve |
|
85 |
85 |
|
Share-based payments reserve |
|
3,642 |
2,100 |
|
Merger reserve |
|
331 |
331 |
|
Retained earnings |
|
(51,201) |
(34,628) |
|
Total equity |
|
287,690 |
108,544 |
|
|
|
||
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Interest bearing loans and borrowings |
|
61,541 |
55,280 |
|
Deferred revenue |
|
12,580 |
11,091 |
|
Deferred tax |
|
723 |
- |
|
Deferred consideration |
|
- |
450 |
|
Total non-current liabilities |
|
74,844 |
66,821 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Deferred revenue |
|
4,354 |
2,864 |
|
Trade and other payables |
|
17,554 |
7,352 |
|
Total current liabilities |
|
21,908 |
10,216 |
|
|
|
|
|
|
Total liabilities |
|
96,752 |
77,037 |
|
|
|
|
|
|
Total equity and liabilities |
|
384,442 |
185,581 |
These financial statements were approved by the Board of Directors and authorised for issue on 24 April 2018. They were signed on its behalf by:
W G Mesch
Director
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2017
|
|
|
|
|
Share-based |
|
|
|
|
|
Share |
Share |
Share warrant |
payments |
Merger |
Retained |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
earnings |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 January 2016 |
1,113 |
63,243 |
85 |
1,081 |
331 |
(22,044) |
43,809 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
Loss and total comprehensive income for the year |
- |
- |
- |
- |
- |
(12,584) |
(12,584) |
|
Transactions with owners |
|
|
|
|
|
|
|
|
New ordinary shares issued |
1,600 |
78,400 |
- |
- |
- |
- |
80,000 |
|
Cost of issuing new ordinary shares |
- |
(3,700) |
- |
- |
- |
- |
(3,700) |
|
Share-based payments |
- |
- |
- |
1,019 |
- |
- |
1,019 |
|
Balance at 31 December 2016 |
2,713 |
137,943 |
85 |
2,100 |
331 |
(34,628) |
108,544 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
Loss and total comprehensive income for the year |
- |
- |
- |
- |
- |
(16,573) |
(16,573) |
|
Transactions with owners |
|
|
|
|
|
|
|
|
New ordinary shares issued |
3,670 |
198,169 |
- |
- |
- |
- |
201,839 |
|
Cost of issuing new ordinary shares |
- |
(7,662) |
- |
- |
- |
- |
(7,662) |
|
Share-based payments |
- |
- |
- |
1,542 |
- |
- |
1,542 |
|
Balance at 31 December 2017 |
6,383 |
328,450 |
85 |
3,642 |
331 |
(51,201) |
287,690 |
Consolidated statement of cash flows
For the Year Ended 31 December 2017
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
Loss before tax |
|
(16,573) |
(12,584) |
|
Amortisation of intangibles |
|
659 |
358 |
|
Share-based payments |
|
1,502 |
908 |
|
Finance income |
|
(72) |
(45) |
|
Finance costs |
|
8,743 |
7,341 |
|
Depreciation |
|
5,230 |
3,572 |
|
Right of use income |
|
1 |
29 |
|
Decrease/(increase) in inventory |
|
203 |
(3,797) |
|
Increase in receivables |
|
(5,827) |
(3,023) |
|
Increase in payables |
|
5,642 |
4,145 |
|
Transaction costs |
|
- |
582 |
|
Share of loss from associated company |
|
227 |
147 |
|
|
|
(265) |
(2,367) |
|
Tax paid |
|
- |
- |
|
Net cash utilised in operating activities |
|
(265) |
(2,367) |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Interest received |
|
72 |
73 |
|
Investment in short-term deposits |
|
(120,000) |
- |
|
Acquisition of intangible assets |
|
(579) |
(517) |
|
Acquisition of property, plant and equipment |
|
(21,597) |
(110,560) |
|
Costs of acquiring property, plant and equipment |
|
- |
(1,077) |
|
Acquisition of subsidiary (net of cash acquired) |
|
(15,333) |
- |
|
Capitalised labour costs |
|
(3,382) |
(2,946) |
|
Net cash in investing activities |
|
(160,819) |
(115,027) |
|
Cash flows from financing activities |
|
|
|
|
Proceeds from the issue of share capital |
|
201,839 |
80,000 |
|
Costs of issuing share capital |
|
(7,662) |
(3,562) |
|
Debt finance costs paid |
|
- |
(5,320) |
|
Repayment of borrowings |
|
(10,421) |
- |
|
Drawdown of borrowings |
|
5,500 |
59,800 |
|
Interest paid |
|
(7,933) |
(6,533) |
|
Net cash utilised from financing activities |
|
181,323 |
124,385 |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
20,239 |
6,991 |
|
Cash and cash equivalents at beginning of period |
|
16,722 |
9,731 |
|
Cash and cash equivalents at end of period |
|
36,961 |
16,722 |
ACCOUNTING POLICIES
The financial information for the years ended 31 December 2017 and 2016 presented in this preliminary announcement does not constitute the Company's statutory accounts for those periods. The financial information for those periods has, however, been derived from the Company's statutory accounts. The Company's Annual Report and Accounts for the year ended 31 December 2016 has been audited and filed with the Registrar of Companies. The Company's Annual Report and Accounts for the year ended 31 December 2017 has been audited and will be filed with the Registrar of Companies in due course. The Independent Auditors' Report on the Company's Annual Report and Accounts for the years ended 31 December 2017 and 2016 was unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.
The principal accounting policies applied in the preparation of these consolidated financial statements are summarised below. They have all been applied consistently throughout the year and preceding period.
CityFibre Infrastructure Holdings PLC (the "Company") is a company registered in England and Wales.
Basis of accounting
The financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") and their interpretations issued by the International Accounting Standards Board ("IASB"), as adopted by the European Union. They have also been prepared with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Adoption of new and revised standards
New standards and amendments to existing standards that have been published and are mandatory for the first time for the financial year beginning 1 January 2017 have been adopted but had no significant impact on the Group and Company. New standards, amendments to standards and interpretations which have been issued but are not yet effective (and in some cases had not been adopted by the EU) for the financial year beginning 1 January 2017 have not been early adopted in preparing these financial statements. The implications of these new accounting standards on the Group have been evaluated, and the main standards which may be relevant to the Group are set out below:
IFRS 9 "Financial Instruments" - (effective for 2018 reporting)
IFRS 9 is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and de-recognition requirements for financial instruments. Key changes to accounting requirements under IFRS 9 which may be relevant to the Group include the requirement to apply a new impairment model based on expected loss in recognising impairment of financial assets including current receivables and loans to related parties. This may result in the recognition of additional impairment losses against the carrying values of these financial assets, at a point in time which is earlier than under the current accounting policies.
The Group plans to adopt the new standard on the required effective date and will not restate comparative information. During 2017, the Group has performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9.
The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. Furthermore, the Group does not expect a significant impact on the revised impairment requirements of IFRS 9 given the low level of historical incurred losses and the nature of the Group's customers.
The new standard also introduces expanded disclosure requirements. These are expected to change the nature and extent of the Group's disclosures about its financial instruments particularly in the year of the adoption of the new standard.
IFRS 15 "Revenue from Contracts with Customers" - (effective for 2018 reporting)
IFRS 15 establishes a five-step model to be applied to all contracts with customers and is based on the principle that revenue is recognised when control of a good or service transfers to a customer. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. Furthermore, it provides new guidance on whether revenue should be recognised at a point in time or over time. The standard also introduces new guidance on costs of fulfilling and obtaining a contract, specifying the circumstances in which such costs should be capitalised. Costs that do not meet the criteria must be expensed when incurred, or accounted for in line with any other standard that they fall within the scope of.
The actions needed to implement IFRS 15 in the organisation have been finalised and the quantitative impacts determined, except for the determination of the final IFRS 15 disclosures to be included in the Annual Report for 2018. These will be finalised in the coming year. This quantitative assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 as the Group adopts IFRS 15. The following main impacted areas were identified:
(i) Installation services
Currently the Group recognises revenue from installation services, which is normally generated based upon a percentage of construction performed. Under IFRS 15, installation revenues will not be considered a separate performance obligation, and as such no installation service revenues will be recognised; these are considered part of the main promise to provide network services and hence will be recognised over the period during which such service is granted. Installation services are not considered a separate performance obligation due to the more detailed guidance IFRS 15 provides on the nature of a distinct good or service.
As a result, under IFRS 15 such revenues will be recognised in the statement of comprehensive income later and over the longer network service period, as opposed to the shorter installation period. This change will only materially impact the Build and management of transformational fibre optic infrastructure segment.
The overall impacts of these changes are outlined below under (ii).
(ii) Network services
Currently the Group recognises revenue from network services over time, from the time that the service becomes available for use by the customer. In future periods, there will not be a material change from the current accounting treatment. However, now that revenues previously allocated to installation services are now considered part of the main promise to provide network services, the amount of revenue recognised over the network service period will increase, as noted above.
The expected impacts of the changes outlined in (i) and (ii) are:
- An additional amount of £2,218,000 of deferred revenue will be recognised, and a reduction of £3,835,000 in accrued revenue will be recognised; the combined effect will be reflected as a decrease in retained earnings at the date of transition being 1 January 2017.
- Revenue for the year ended 31 December 2017 will decrease by the amount of £4,108,000.
- An additional amount of £692,000 of deferred revenue, and a reduction of £3,416,000 in accrued revenue, will be recognised at 31 December 2017.
- The net impact in equity at 31 December 2017 will be a £10,162,000 reduction.
(iii) Finance costs on upfront payments from customers
Deferred revenue is currently recognised within liabilities when customers are invoiced by the group in advance of services being provided. Under IFRS 15, there is a requirement to recognise a finance cost in connection with payments received up front from customers ahead of services being provided.
The expected impacts of the change are:
- Finance cost for the year ended 31 December 2017 will increase by £181,000.
- Revenue for the year ended 31 December 2017 will increase by £181,000.
(iv) Accounting for certain costs incurred in fulfilling and obtaining a contract
Under IFRS 15, the incremental costs of obtaining a contract with a customer are recognised as an asset if the entity expects to recover them.
In 2017, the Group expensed costs of £496,000 related to sales commissions paid to employees. These costs qualify as incremental costs of obtaining a contract and are expected to be recovered. They will therefore be eligible for capitalisation under IFRS 15 and recognised as a contract asset and amortised over the average contract term.
The expected impacts of the change are:
- A contract asset will be recognised amounting to £976,000 and reflected as an increase in retained earnings at the date of transition being 1 January 2017.
- Expenses for the year ended 31 December 2017 will decrease by £360,000 in respect of expensed sales commissions in 2017.
- The net impact in equity at 31 December 2017 will be a £1,112,000 increase.
(v) Presentation
The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in the Group's financial statements. Many of the disclosure requirements in IFRS 15 are new and the Group has assessed that the impact of some of them will be significant. In particular, the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements made; primarily, how the transaction price has been allocated to the performance obligations, and where there is a significant financing component.
(vi) Transition
IFRS 15 must be applied for periods beginning on or after 1 January 2018 and it is fully endorsed by the EU. The Group decided to adopt IFRS 15 in its consolidated financial statements for 2018 reporting, using the full retrospective transition approach which means that the cumulative impact of the adoption will be recognised in retained earnings as of 1 January 2017 and all comparatives presented will be restated. The standard will only be applied to contracts that are not completed as of the 1 January 2017.
The Group intends to use the following practical expedients on transition:
- completed contracts that begin and end within the same annual reporting period will not be revised; and
- for all reporting periods presented before the 1 January 2017, the Group will not disclose the amount of the transaction price allocated to the remaining performance obligations or identify when it expects to recognise that amount as revenue.
IFRS 16 "Leases" - (effective for 2019 reporting)
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.
The accounting for lessors will not significantly change.
The Group is still in the process of quantifying the implications of this standard. However, we expect the following indicative impacts:
- There is expected to be an increase in total assets, as leased assets which are currently accounted for off balance sheet (i.e. classified as operating leases under IAS 17) will be recognised on balance sheet.
- There is expected to be an increase in debt, as liabilities relating to existing operating leases are recognised. This is still under review. The increase in total debt will have an impact on gearing ratios.
- Operating lease expenditure will be reclassified and split between depreciation and finance costs, therefore EBITDA will increase. Future depreciation and finance costs for our historic leases are also affected by our choice of transition method, which is still under review.
- Operating cash flow will increase under IFRS 16 as the element of cash paid attributable to the repayment of principal will be included in financing cash flow. The net increase/decrease in cash and cash equivalents will remain the same.
- There may be a corresponding effect on tax balances in relation to all of the above impacts.
Basis of consolidation
The consolidated financial statements incorporate the results of CityFibre Infrastructure Holdings PLC and all of its subsidiary undertakings as at 31 December 2017. The results of subsidiary undertakings are included from the date of acquisition.
CityFibre Infrastructure Holdings PLC was incorporated on 13 November 2013, and on 11 January 2014 it acquired the issued share capital of CityFibre Holdings Limited by way of a share-for-share exchange. The latter had five wholly owned subsidiaries: CityFibre Networks Limited, Fibrecity Holdings Limited, Gigler Limited, CityFibre Metro Networks Limited and Fibrecity Bournemouth Limited. The consideration for the acquisition was satisfied by the issue of 115,383 Ordinary Shares in CityFibre Infrastructure Holdings PLC to the shareholders of CityFibre Holdings Limited.
The accounting treatment in relation to the addition of CityFibre Infrastructure Holdings plc as a new UK holding Company of the Group falls outside the scope of the IFRS 3 'Business Combinations'. The share scheme arrangement constituted a combination of entities under common control. The reconstructed Group was consolidated using merger accounting principles as outlined in Financial Reporting Standard 6 ("FRS") Acquisitions and Mergers (UK) and treated the reconstructed Group as if it had always been in existence. Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained is recognised in a merger reserve.
The Company has taken advantage of merger relief available under Companies Act 2006 in respect of the share for share exchange as the issuing company has secured more than 90% equity in the other entity.
On 1 August 2017 it acquired the issued share capital of Entanet Holdings Limited by way of a cash purchase. Entanet Holdings Limited had one wholly owned subsidiary: Entanet International Limited. The consideration for the acquisition was satisfied by the transfer of £19,019,000 from CityFibre Infrastructure Holdings PLC to the shareholders of Entanet Holdings Limited and £10,421,000 in settlement of debt acquired.
Revenue
Revenue represents network lease sales and installation sales to external customers, sales of internet services to residential customers, and recharge of work performed for the joint venture at invoiced amounts less value added tax or local taxes on sales. Where revenue arising from installation and connection services is separable from network lease services, these elements are recognised as if they were separate contracts.
Network service revenue is recognised evenly over the period to which the services are provided, and is recognised from the date at which the network service becomes available for use by the customer.
Installation revenue is recognised on a percentage completion basis over the period of construction of the asset, from post-contract signature mobilisation to customer handover. Installation revenues are a proportion of the total contract value; management assess this and give appropriate consideration to a range of factors in determining installation revenues on a contract by contract basis. Factors include contract length, technical challenges in delivering the contract and assessment of any associated local economic issues. Management apply a straight-line basis as this closely approximates revenue recognised on a stage of completion basis and the effort required to deliver services to customers.
It is considered by management that the above revenue recognition policies are suitable for recognising revenue arising from the Group's key market verticals.
Revenue attributable to infrastructure sales in the form of Indefeasible-Rights-of-Use ("IRUs") with characteristics which qualify the transaction as an outright sale, or transfer of title agreements, are recognised at the later of delivery or acceptance by the customer.
Accrued income is recognised when services are provided in advance of the customer being invoiced.
Deferred revenue is recognised when services are invoiced in advance of the period over which the services are provided.
Revenue from internet services provided to residential customers is recognised on a monthly basis, commencing when services are provided.
Revenue from work performed for the JV is recognised during the period to which the work relates.
All revenue streams are wholly attributable to the principal activity of the Group and arise solely within the United Kingdom.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any provisions for impairment. Where network assets are acquired as part of a contract including a provision of services, the asset is initially recognised at fair value to include the value of these services. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:
|
Leasehold property |
5 years |
|
Network assets - Duct |
40 years |
|
Network assets - Cabling |
20 years |
|
Plant and machinery |
5 years |
|
Fixtures and fittings |
3 years |
|
Motor vehicles |
3 years |
Useful economic lives and residual values are assessed annually. Any impairment in value is charged to the statement of comprehensive income.
Intangible assets
Customer contracts, which have arisen through business combinations, are assessed by reviewing their net present value of future cash flows. Customer contracts are amortised over their useful life not exceeding nine years.
Software costs that are directly attributable to IT systems controlled by the Group are recognised as intangible assets and the costs are amortised over their useful lives not exceeding five years.
Brand assets, which have arisen through business combinations, are assessed by reviewing their net present value of future cash flows. Brands are amortised over their useful life not exceeding fifteen years.
Amortisation is included in general administrative costs in the statement of comprehensive income.
Goodwill, which has arisen through a business combination, is measured at cost less any accumulated impairment losses.
Impairment of non-current assets
Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset's carrying amount.
The carrying values of property, plant and equipment and intangible assets other than goodwill, within a cash generating unit, are reviewed for impairment only when events indicate the carrying value may be impaired. Impairment indicators include both internal and external factors. Examples of internal factors include analysing performance against budgets and assessing absolute financial measures for indicators of impairment. Examples of external considerations assessed for indications of impairment include wider economic factors.
Where impairment indicators are present, the recoverable amounts of assets are measured. Asset recoverability requires assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets, using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of uncertain matters. In particular, management has regard to assumptions in respect of revenue mix and growth rates.
Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in, first out basis. Inventory includes equipment necessary to install fibre optic networks and also include the cost of specific network assets allocated for sale under IRU agreements, rather than for use in the group's network service provision business.
Net realisable value is based on estimated selling price less additional costs to completion and disposal.
Finance costs
Finance costs are charged to the profit and loss account over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance costs include issue costs, which are initially recognised as a reduction in the proceeds of the associated capital instrument.
Financial liabilities and equity
Financial liabilities, including trade payables and bank loans, are recognised when the Group becomes party to the contractual arrangements of the instrument and are recorded at amortised cost using the effective interest method. All related interest charges on loans are recognised as an expense in 'finance cost' in the statement of comprehensive income.
Financial liabilities and equity are classified according to the substance of the financial instrument's contractual obligations, rather than the financial instrument's legal form.
Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary shares are classified as equity instruments. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.
Financial assets
Trade and other receivables are initially recorded at their fair value and subsequently carried at amortised cost, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and cash in hand, and short-term highly liquid investments with an original maturity of three months or less.
Short term deposits
Short-term deposits comprise investment amounts placed on deposit with major banks for either fixed terms or maturity notice periods which exceed 3 months and are less than 12 months.
Key judgements and sources of estimation uncertainty
The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or where assumptions or estimates are significant to the financial statements are detailed below.
Revenue recognition of installation revenues
Installation revenues are a proportion of the total contract value; management assess this and give appropriate consideration to a range of factors in determining installation revenues on a contract by contract basis. Factors include contract length, technical challenges in delivering the contract and assessment of any associated local economic issues.
Classification of network assets as inventory
Certain network assets have been classified as inventory assets during the prior year. Management believes this classification continues to be appropriate given that the Group intends to sell network capacity assets on a regular basis where it is considered to be a strategically viable product.
Assessment of useful economic lives of property, plant and equipment
The Group depreciates the property, plant and equipment, using the straight-line method, over their estimated useful lives. The estimated useful life reflects management's estimate of the period that the Group intends to derive future economic benefits from the use of the Group's property, plant and equipment. Changes in the expected level of usage and technological developments could affect the useful economic lives of these assets which could then consequentially impact future depreciation charges. Details of the change in useful economic life of duct assets in the prior reporting period and the carrying amounts of the Group's property, plant and equipment at 31 December 2017 will be disclosed in the Company's statutory accounts.
Impairment of non-current assets
Where impairment indicators are present, the recoverable amounts of assets are measured. Asset recoverability requires assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets, using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of uncertain matters. In particular, management has regard to assumptions in respect of revenue mix and growth rates.