For immediate release 28 September CITYFIBRE INFRASTRUCTURE HOLDINGS PLC ( CityFibre or the 'Group' or the 'Company')

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1 For immediate release 28 September 2015 CITYFIBRE INFRASTRUCTURE HOLDINGS PLC ( CityFibre or the 'Group' or the 'Company') UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015 Demand for gigabit connectivity remains strong CityFibre (AIM: CFHL), the leading designer, builder, owner, and operator of wholesale fibre optic infrastructure enabling gigabit connectivity in UK towns and cities, is pleased to report half year results for the Group for the period ended 30 June Financial Highlights: Turnover up 115% year-over-year in the period, to 2.7m (H m); Further gross margin expansion to 86%, from 85% in financial year 2014; Adjusted EBITDA loss reduced 8% year-over-year, to 1.8m (H m loss); New contracts with total contract value ( TCV ) of 8.1m added, versus 11.1m for full financial year 2014; Unrealised TCV at period end 27.0m, from 21.1m as at 31 December 2014; Period end cash, cash equivalents, and short term deposits of 26.2m. Operating Highlights: Strong new city momentum via contract wins in Newport and Edinburgh; Total core metro network route fibre kilometres increased by 14% over the period, to 618km; Total customer connections up 15% over the period, to 1,017; Service provider relationships rose to 33, from 16 at H1 2014; Significant commercial progress across network footprint o 4.1m Edinburgh anchor contract for 200 business migrations signed with local partner Commsworld; o 1.0m in incremental TCV added on Peterborough CORE, bringing the total cumulative TCV on the network to 5.8m, a 45% increase over the original anchor; o Record incremental sales in York, bringing the total cumulative TCV on the network to 8.0m, an increase of 88% over the original anchor; Ongoing progress with FTTH JV partnership - o Phase One of York FTTH build proceeding on track; o Retail propositions launched by Sky and TalkTalk, first customers to be connected imminently; Over 35km of network infrastructure build completed in the UK s first dark FTTT deployment; Ongoing positive discussions with potential lenders. 1

2 Post-period Highlights: Kingston-upon-Hull network build now substantially complete - o Additional TCV of 0.6m added, bringing total incremental TCV on the asset this year to 1.1m, an increase of 36% over anchor TCV; 19-year framework with initial seven-year commitment of 5.6m for Edinburgh PSN anchor contract for 294 council sites signed with local partner Commsworld; Full 19-year lifetime TCV of Edinburgh up to 16.2m in total taking TCV added year-to-date to 25.5m; The business continues to trade in line with expectations. Greg Mesch, CEO of CityFibre, commented: We are delighted to report a strong six months trading for the Group, as demonstrated by the nearly equal contributions made to TCV growth from new anchor contracts and incremental sales on existing assets. Our ability to further expand our UK footprint has been clearly demonstrated so far this year by our two anchor contract wins in Edinburgh, which together are the equivalent value of more than two of our previous city projects combined. Our other projects continue to exceed expectations in terms of incremental business added on top of anchor contracts, with both Peterborough and Hull already demonstrating a faster rate of commercialisation than expected. Alongside this growth we expanded gross margin by a further one percentage point over financial year 2014 s level, and four percentage points year-over-year, demonstrating our commitment to a disciplined approach to new business. We continue to see strong demand for our services and remain well-positioned to deliver further growth and gain ongoing market traction during the remainder of 2015." 2

3 CityFibre Infrastructure Holdings plc Greg Mesch, Chief Executive Officer Tel: Terry Hart, Chief Financial Officer James Enck, Head of Investor Relations Tel: finncap (Nomad and Joint Broker) Stuart Andrews / Christopher Raggett (Corporate Finance) Tel: Simon Johnson (Corporate Broking) Liberum (Joint Broker) Steve Pearce / Steven Tredget / Richard Bootle Tel: Vigo Communications Jeremy Garcia / Fiona Henson Tel: About CityFibre: CityFibre enables gigabit connectivity through designing, building, owning, and operating fibre optic network infrastructure. It is the largest independent wholesale provider of fibre infrastructure to mid-sized cities and major towns across the UK, providing gigabit-capable infrastructure for enterprise and public sector organisations, service providers, mobile network operators and businesses. The Group owns and operates 618 route kilometres of local access networks serving 1,017 customer connections in 61 towns and cities in the UK, including Aberdeen, Bath, Bournemouth, Coventry, Derby, Doncaster, Dundee, Edinburgh, Huddersfield, Kingston-upon-Hull, Newcastle, Newport, Peterborough, Sheffield, and York. To date the Company has launched five Gigabit City projects in York, Peterborough, Coventry, Aberdeen, and Edinburgh, where city-wide pure fibre networks known as COREs bring world-class Internet connectivity and the benefits of gigabit speeds to every aspect of the city s community. The Company has also delivered the UK s first dark fibre-based Fibre-to-the-Tower network in Kingston-upon-Hull, under a national framework agreement with MBNL, Three UK and EE. The CityFibre COREs are deployed using the Company s Well Planned City (WPC) design philosophy, in which its city-wide core fibre infrastructure is designed with thousand-strand fibre cables in dual ducts optimally routed to serve the present and future demand of the public sector, mobile base stations, business park estates, and ultimately designed to serve as feeder and distribution network for Fibre-to-the- Home deployments. CityFibre is also a founding member of a joint venture with TalkTalk and Sky. Established in early 2014, the collaboration aims to prove the viability of gigabit speed Fibre-to-the-Premises (FTTP) networks and services for homes and businesses. Work is currently underway to connect tens of thousands of homes and businesses in York to a future-proof FTTP modern digital infrastructure. CityFibre is based in London, United Kingdom, and its shares trade on the AIM Market of the London Stock Exchange (AIM: CFHL). To find out more, please visit: 3

4 Operational Review The six months to 30 June 2015 saw the Group continue to generate substantial market traction, both in terms of new city expansion and further commercialisation of existing assets and assets-under-construction. The Group added 8.1m in incremental total contract value ( TCV ) in the six months to 30 June 2015, comprising 4.6m in new city anchor contracts and 3.5m in further commercialisation of existing assets and assets-underconstruction. This compares favourably to 11.1m added during the whole of financial year At period end, total unrealised TCV stood at 27.0m. At period end, the Group had trading relationships with 33 service provider and reseller partners, up from 16 at the end of the first half of 2014, demonstrating the continuing progress of CityFibre s wholesale utility infrastructure model and demand for future-proof infrastructure. Customer connections at period end totaled 1,017, an increase of 15% since 31 December 2014, and 25% yearover-year, reflecting incremental customer growth in York, as well as the completion of the Peterborough anchor and initial incremental customer additions in the business market. CityFibre added 75 route kilometres of core metro network to its existing footprint during the period, giving a total of 618km, an increase of 14% since 31 December 2014, and representing year-over-year growth of 26%. Principal drivers of footprint expansion were the completion of the final phases of network construction in Peterborough, ongoing projects in Kingston-upon-Hull, Kirklees, and Aberdeen, as well as incremental successbased network expansion in York. The Group is on track to expand its footprint to approximately 1,000 route kilometres and 1,900 connected customer premises at completion of projects under construction and/or contractually committed. This represents more than threefold growth in scale since admission to AIM in January The Group s most developed network project, the York CORE, delivered record incremental TCV growth of 0.8m in the period (+28% vs. 30 December 2014). This takes total cumulative TCV on the network to 8.0m, an increase of 88% over the initial anchor TCV. The evolution of the York project is a strong endorsement of the benefits of CityFibre s shared infrastructure model: With 350 customer connections sold at period end, the York CORE network is approaching a density of connected customers sites of 2.8 per route kilometre, a level significantly higher than that seen in most metro fibre models; Annual run-rate recurring revenues on the York CORE at the end of period were 0.9m, an increase of nearly 170% above the level at the time the network entered full commercial production; Strong growth in connected customer sites, TCV and recurring revenues, whilst incurring incremental capex over the anchor build of only 1.6m, taking the cumulative TCV-to-capex coverage ratio up to 132% (vs. 94% at the time of the anchor contract and 118% at 30 June 2014). The Peterborough CORE, CityFibre s first project to be completed and commercialised after its IPO, added 1.0m in incremental TCV during the period, increasing cumulative incremental TCV to over 1.7m, an increase of 45% over the anchor TCV for the project. Post period-end, this has increased by a further 0.3m on a year-to-date basis, taking incremental TCV above 2.1m, a more than 50% uplift from the anchor. With 259 customer connections sold at period end, Peterborough is already approaching 2.7 connected customer sites per route kilometre. As a Group, we are pleased to report that the pace of commercialisation in Peterborough to date is significantly faster than that experienced historically in York. At period end the Group had completed over 35km of network infrastructure for the UK s first dark fibre-based FTTT deployment in Kingston-upon-Hull, under its national framework agreement with MBNL, Three UK and EE. 4

5 Post period-end, network construction of 62km is now substantially complete. The Hull CORE network added its first incremental business during the period in March 2015, via a 0.5m agreement with local wireless broadband service provider Purebroadband for fibre connectivity to 12 of its wireless hub sites in the city, thus adding 16% incremental TCV to the project. Post period-end, CityFibre completed an agreement with Hull-based wireless broadband ISP Connexin covering 19 hub sites with a TCV of 0.6m. From these two deals alone, incremental TCV on the Hull CORE has risen to 36% prior to completion of the network build. On 3 March 2015, CityFibre announced the signing of a 4.1m contract with Edinburgh-based service provider Commsworld, to deploy an initial 50km of new network in the city to serve 200 Commsworld business customers. Construction of the network, the fifth in CityFibre s Gigabit City programme, is currently underway. With the announcement post period-end of the Edinburgh PSN award, bringing an additional 100km network expansion covering 294 sites, Edinburgh is now the largest of CityFibre s Gigabit City projects. Upon completion, the network will connect at least 500 sites across 150km of future-proof, pure fibre network infrastructure, and is the single largest pure fibre city roll-out in the UK. The initial seven-year term of the Edinburgh PSN contract carries a TCV of 5.6m, and this, coupled with additional new business added across the CityFibre footprint post period-end, takes new TCV added year-to-date to 14.9m. Based on a potential lifetime TCV of the Edinburgh PSN contract across the full 19-year term, this figure rises to 25.5m. The Group s FTTH joint venture with Sky and TalkTalk in York continued its positive trajectory during the period. With the first tranche of homes now completed, the construction of the remaining homes covered by Phase One of the project is now well advanced. Both Sky and TalkTalk have launched retail propositions in the market under the joint branding concept Ultra Fibre Optic or UFO. The first customers are to be connected imminently. Regulatory environment The UK telecommunications market is undergoing a transformation in order to deliver the investment required to satisfy the needs of consumers, businesses, government and carriers, as well as the broader economy, in decades to come. As part of this process, OFCOM is currently engaged in a number of regulatory review exercises and consultations, with a view to ensuring an appropriate framework which encourages investment, innovation, and fairer competition. These reviews and consultations, along with the ongoing CMA review of BT s proposed acquisition of EE, may result in fundamental changes to regulation of markets in which CityFibre is active. As a major investor in the UK s communications infrastructure, CityFibre is actively engaged in these consultations and review processes, in order to promote an appropriate and fair environment for competition and investment. As a result of this engagement, the Group expects to incur limited one-off expenses with respect to professional fees. To date management have seen no change in the development of the new business pipeline or ongoing negotiations with partners or potential partners related to the potential changes in the regulatory framework. Outlook The Board is pleased with the Company s development in the first half of the financial year and remains confident in the prospects for the Group. Current trading is consistent with the Board s expectations at the beginning of the year, and the Board expects full year trading to be in line with market expectations. 5

6 Financial review Profit and loss Turnover of 2.7m for the period represents growth of 115% versus the comparable prior period, primarily driven by contributions from new metro anchor city contracts. Gross profit of 2.3m marks a 126% year-over-year improvement over the prior half year, with gross margin expanding to 86%, an improvement of four percentage points over the comparable prior period, and one percentage point versus full financial year This continued improvement in gross margin underlines management s commitment to highly profitable new business in managing the order book. Growth in recurring administrative expenses of 23% year-over-year, to 5.1m, in the period, reflects management s ongoing investment in resourcing the business for growth. Group FTE headcount at period end was 96. Adjusted EBITDA loss for the period declined by 8%, to 1.8m from 2.0m in the comparable prior period. A reconciliation to EBITDA is shown overleaf: 6

7 EBITDA reconciliation Six months to Six months to Twelve months 30 Jun Jun 2014 to 31 Dec 2014 Operating loss per interim accounts (2,776) (4,023) (7,450) Add-back: Depreciation ,393 Amortisation EBITDA (1,898) (3,373) (5,943) Share-based payments charge ,393 One-off bonuses One-off costs relating to fundraising activities Adjusted EBITDA (1,816) (1,973) (3,643) 7

8 Balance Sheet The Group s balance sheet remained strong in the period, with total assets of 66.7m, of which cash, cash equivalents and short-term deposits totalled 26.2m at period end. Net property, plant and equipment grew by 22% year-over-year, to 35.1m, reflecting the Group s ongoing investment in new Gigabit City projects and success-based incremental capex in existing city networks. Trade and other receivables increased by only 4% from the position as at 31 December 2014, reflecting disciplined working capital management. Interest-bearing loans and borrowings fell during the period to 2.1m from 2.6 as at 31 December 2014, due to further amortization payments on the Citibank facility. Negotiations with potential lenders are developing in a satisfactory manner, and the Group will notify the market of any material developments in due course. Cashflow Cash outflow from operations during the period declined by 29% year-over-year, to 2.2m, reflecting the stronger underlying performance of the business. Investment in property, plant and equipment for the period totalled 3.3m, comprising ongoing projects in Kirklees, Aberdeen, Kingston-upon-Hull, Newport, and the final stage of construction in Peterborough. The balance of cash outflows from the business were principally debt service and repayment costs of 0.6m. 8

9 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Six Months ended 30 June Six months to 30 June 2015 (Unaudited) Six months to 30 June 2014 (Unaudited) Twelve months to 31 December 2014 (Audited) Continuing operations Revenue 2,687 1,252 3,844 Cost of sales (366) (226) (568) Gross profit 2,321 1,026 3,276 Other administrative expenses (5,097) (5,049) (10,726) Total administrative expenses (5,097) (5,049) (10,726) Operating loss (2,776) (4,023) (7,450) Finance cost (147) (172) (344) Finance income Share of post-tax losses of equity accounted Joint Venture (32) - (42) Loss on ordinary activities before taxation (2,839) (3,616) (7,057) Income tax Loss for the financial period and total comprehensive losses attributable to the equity holders of the parent company (2,824) (3,601) (7,026) Loss per share Basic and diluted loss per share (0.03) (0.07) (0.09) 9

10 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Assets At 30 June 2015 (Unaudited) At 30 June 2014 (Unaudited) At 31 December 2014 (Audited) Non-current assets Property, plant and equipment 35,058 28,705 31,778 Intangible assets Investment in Joint Venture ,465 28,988 33,160 Current assets Inventory Trade and other receivables 3,883 7,696 3,720 Investment in short-term deposits 14,000-29,000 Cash and cash equivalents 12,233 37,187 4,186 Total current assets 30,199 45,000 36,989 Total assets 66,664 73,988 70,149 Equity Issued capital 1,113 1,111 1,111 Share Premium 63,243 63,241 63,243 Share warrant reserve Share-based payments reserve Merger reserve Profit and loss account (18,506) (5,655) (15,680) Total equity 47,121 59,686 49,863 Liabilities Non-current liabilities Interest bearing loans and borrowings 1,190 2,124 1,814 Deferred revenue 9,912 7,671 10,083 Deferred consideration Deferred tax Total non-current liabilities 11,541 10,241 12,343 Current liabilities Interest bearing loans and borrowings Deferred revenue 2,894 1,620 2,023 Trade and other payables 4,194 1,791 5,130 Total current liabilities 8,002 3,977 7,943 Total liabilities 19,543 14,302 20,286 Total equity and liabilities 66,664 73,988 70,149 10

11 CONSOLIDATED STATEMENT OF CASH FLOWS For the Six Months Ended 30 June Six months to 30 June 2015 (Unaudited) Six months to 30 June 2014 (Unaudited) Twelve months to 31 December 2014 (Audited) Cash flows from operating activities Loss before tax (2,839) (3,616) (7,057) Amortisation of intangibles Finance income (115) (579) (779) Finance costs Depreciation Share-based payments charge ,393 (Increase)/decrease in inventory - (36) 21 Decrease/(increase) in receivables (1,946) (Decrease)/increase in payables (295) (772) 3,146 Right of use income (131) - (161) Profit on disposal of PPE - - (62) Share of loss from associated company Tax paid Net cash utilised in operating activities (2,217) (3,119) (3,552) Cash flows from investing activities Interest received Investment in short-term deposits - - (29,000) Receipts from short-term deposits 15, Acquisition of intangibles (54) - (324) Acquisition of property, plant and equipment (3,283) (2,053) (4,499) Capitalised staff costs (878) (96) (544) Net cash utilised in investing activities 10,908 (2,130) (34,336) Cash flows from financing activities Proceeds from issue of share capital - 46,521 46,523 Costs of issuing share capital - (2,839) (2,839) Repayment of warrant reserve - (700) (700) Repayment of borrowings (538) (696) (940) Interest paid (106) (136) (256) Net cash received from financing activities (644) 42,150 41,788 Net increase in cash and cash equivalents 8,047 36,901 3,900 Cash and cash equivalents at beginning of period 4, Cash and cash equivalents at end of period 12,233 37,187 4,186 11

12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Share premium Warrant reserve Share Warrant Reserve Share-based payments reserve Merger reserve Retained Earnings Total Balance at 1 January (2,054) (965) Loss and total comprehensive income for the period (3,601) (3,601) Issue of new ordinary shares 1,050 65, ,035 Issue of shares held by the JSOP (6,600) (6,600) Costs of issuing new ordinary shares - (2,948) (2,948) Exercise of share warrants (204) Share warrant charge Share based payments Group reconstruction 58 (389) Repayment of warrant reserve - - (700) (700) Balance at 30 June ,111 63, (12,255) 53,086 Loss and total comprehensive income for the period (3,425) (3,425) Share warrant credit (80) (80) Exercise of share warrants Share based payments Balance at 31 December ,111 63, (15,680) 49,863 Loss and total comprehensive income for the period (2,824) (2,824) Issue of new ordinary shares Issue of shares held by the JSOP (2) (2) Share based payments Balance at 30 June ,113 63, (18,506) 47,121 12

13 NOTES TO THE INTERIM FINANCIAL STATEMENTS ACCOUNTING POLICIES CityFibre Infrastructure Holdings plc (the Company ) is a company registered in England and Wales. The interim financial statements for the period ended 30 June 2015 comprise the Company and its subsidiaries (together referred to as the Group ). The principal accounting policies applied in the preparation of these interim financial statements are summarised below. They have all been applied consistently throughout the current and preceding period. Basis of preparation The financial information presented in this preliminary announcement has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards issued by the International Accounting Standards Board, as adopted by the European Union. The principal accounting policies adopted in the preparation of the financial information in this preliminary announcement are unchanged from those used in the annual report and accounts for the year ended 31 December 2014 and are consistent with those that the company expects to apply in its financial statements for the year ended 31 December The financial information for the periods ended 30 June 2014 and 30 June 2015 presented in this preliminary announcement does not constitute the company s statutory accounts for those periods, and are unaudited. The company s Annual Report and Accounts for the year ended 31 December 2014 has been audited and filed with the Registrar of Companies. The Independent Auditors' Report on the company s Annual Report and Accounts for the year ended 31 December 2014 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 Basis of accounting The financial statements of the Company have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ( IFRS ) and their interpretations issued by the International Accounting Standards Board ( IASB ), as adopted by the European Union. They have also been prepared with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Group has not adopted any Standards or Interpretations in advance of the required implementation dates. It is not expected that adoption of Standards or Interpretations which have been issued by the IASB but are not yet effective will have a material impact on the interim financial statements. Basis of consolidation The interim financial statements incorporate the results of CityFibre Infrastructure Holdings plc and all of its subsidiary undertakings as at 30 June The results of subsidiary undertakings are included from the date of acquisition. The accounting treatment in relation to the addition of CityFibre Infrastructure Holdings plc as a new UK holding Company of the Group falls outside the scope of the IFRS 3 Business Combinations. The share scheme arrangement constituted a combination of entities under common control as CityFibre Infrastructure Holdings plc, due to all shareholders of CityFibre Holdings Limited being issued shares in the same proportion, and the continuity of ultimate controlling parties. The reconstructed Group was consolidated using merger accounting principles as outlined in Financial Reporting Standard 6 ( FRS ) Acquisitions and Mergers (UK) and treated the reconstructed group as if it had always been in existence. Any difference between the nominal value of shares issued in the share exchange and the book value of the shares obtained is recognised in a merger reserve. 13

14 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. The carrying value of the investment is carried at the nominal value of the shares issued. Joint ventures Joint ventures are joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. These interim financial statements include the Group s share of the total recognised gains of a JV using the equity method, from the date that significant influence commenced, based on present ownership interests. Under the equity method, investments in JVs are carried in the Consolidated Statement of Financial Position at cost as adjusted for post-acquisition changes in the Group s share of the net assets of the JV, less any impairment in the value of the investment and the Group s share of any gain on contribution of assets to the JV. Initially, the investment in the JV is recognised at the fair value of the assets contributed and the services provided by the Group to the JV. Subsequently a share of the profits, made on services provided and disposal of property, plant and equipment to the JV, are eliminated against the value of the investment; the share of profits is determined by the Group s share of ownership of the JV. 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 JV at invoiced amounts less value added tax or local taxes on sales. Where revenue arising from installation and connection services is separable from network lease services, these elements are recognised as if they were separate contracts. Network lease revenue is recognised evenly over the period to which the invoicing relates, and is recognised from the date at which the network service becomes available for use by the customer. Installation revenue is recognised on a straight line basis over the period of construction of the asset, from postcontract signature mobilisation to customer handover. Management believes this is the best reflection of the effort required to deliver services to customers. 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 related. The Group has provided the JV with a right-of-use over certain network assets in York; revenue is recognised to the extent that this relates to the provision of services to the JV. The assets contributed under the right-of-use are treated as being disposed of by the Group. 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 Network assets 5 years 20 years 14

15 Plant and machinery Fixtures and fittings Motor vehicles 5 years 3 years 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 six years. Internally generated website costs that are directly attributable to websites controlled by the Group are recognised as intangible assets and the costs are amortised over their useful lives, not exceeding three years. Amortisation is included in general administrative costs in the statement of comprehensive income. Impairment of 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. 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. Net realisable value is based on estimated selling price less additional costs to completion and disposal. Finance costs Finance costs are charged to profit over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance costs include issue costs, which are initially recognised as a reduction in the proceeds of the associated capital instrument. Operating leases Rentals paid under operating lease commitments are charged to income on a straight line basis over the lease term. Financial liabilities and equity Most of the Group s financial liabilities, including its trade payables and bank loans are initially recognised at their fair value, net of any issue costs, and subsequently measured 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 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. 15

16 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 investments Short-term investments are amounts held on cash deposit at financial institutions. Share based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value at the grant date is determined using two different models. For share options that include market-based vesting criteria, the Monte Carlo model has been used, with the expense recognised over the expected life of the options. For all other options the Black- Scholes model has been used, with the calculated value expensed over the vesting period. The value of the expense is dependent upon certain key assumptions including the expected future volatility of the Group s share price at the date of the grant. The Group also issues cash-settled share-based payments to certain employees. The payments are measured at fair value at the date of the grant, and are subsequently revalued at each balance sheet date, using the Monte Carlo model. All goods and services received in exchange for the grant of any share warrants are measured at their fair values. In the absence of information on the fair value of the services provided, the fair value of services received in return for the warrant issued is measured by reference to the fair value of the warrant issued. The fair value of the warrant was estimated by management using the Black-Scholes model. Taxation Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the date of the statement of financial position. Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred taxation liabilities are recognised on all taxable temporary differences. Deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted at the statement of financial position date. The carrying value of deferred taxation assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available against which taxable temporary differences can be utilised. Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Pension Costs Contributions to the group s defined contribution pension scheme are charged to the statement of comprehensive income in the period in which they become payable. 16

17 Joint Share Ownership Plan (JSOP) As the company is deemed to have control of its JSOP trust, it is treated as a subsidiary and consolidated for the purposes of the interim financial statements. The JSOP s assets (other than investments in the company's shares), liabilities, income and expenses are included on a line-by-line basis in the interim financial statements. The ESOP's investment in the company's shares is deducted from equity in the consolidated statement of financial position as if they were treasury shares. Key judgments and sources of estimation uncertainty The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or where assumptions or estimates are significant to the financial statements are detailed below. The Group depreciates the PPE, 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 PPE. 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. Installation revenue, which is deemed separately identifiable from network lease revenue, is recognised on a straight line 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. The value of network assets acquired from third parties are recorded at fair value. This is assessed with reference to a range of factors, including original cost, market value and services provided over the network. The value of the investment in the JV is calculated based on the market value of an equivalent share in the JV. The value of assets contributed to the JV has been calculated based on the proportion of the network that is to be used by the JV. Significant customer contracts for network lease sales have been deemed to be service contracts, with revenue recognised as per the revenue recognition policy. Management do not consider the nature of the contracts to be an indefeasible right of use (IRU). 17