Capital Raising Prospectus 2017 Securing the UK s Digital Future

Transcription

1 Capital Raising Prospectus 2017 Securing the UK s Digital Future

2 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 ( FSMA ) if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser. If you sell or have sold or otherwise transferred all of your Existing Ordinary Shares, please send this document, and Form of Proxy at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee, except that such documents should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the United States and any of the other Excluded Territories. The distribution of this document, any other offering or publicity material relating to the Placing and/or the Offer for Subscription and/or any Application Forms into jurisdictions other than the United Kingdom may be restricted by law or regulation. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. In particular, subject to certain exceptions, such documents should not be distributed, forwarded to or transmitted in or into the United States or any other Excluded Territory. The transfer of the New Ordinary Shares may also be so restricted by law or regulation. Any failure to comply with these restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction. The New Ordinary Shares are not transferable except in accordance with, and the distribution of the foregoing documents is subject to, the restrictions set out in section 5 of Part 2 of this document. No action has been taken by CityFibre, Citi, finncap, Liberum, Macquarie or Rothschild, that would permit an offer of the New Ordinary Shares, or possession, distribution, forwarding or transmission of the foregoing documents in or into any jurisdiction where action for that purpose is required, other than the United Kingdom. CityFibre Infrastructure Holdings plc (Incorporated and registered in England and Wales, with registered number ) Proposed Placing of 363,636,364 Placing Shares at 55 pence per Placing Share Proposed Offer for Subscription of up to 27,272,727 Offer for Subscription Shares at 55 pence per Offer for Subscription Share Notice of General Meeting Sole Global Co-ordinator, Joint Bookrunner and Joint Underwriters Nominated Advisor and Joint Bookrunner and Joint Underwriters Joint Bookrunner and Joint Underwriters Joint Bookrunner and Joint Underwriters Financial Advisor AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the official list of the United Kingdom Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules for Companies to have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange on admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or approved the contents of this document. This document, which comprises a prospectus and a circular relating to CityFibre Infrastructure Holdings plc and the Capital Raising and an AIM admission document, has been prepared in accordance with the Prospectus Rules of the UK Listing Authority made under section 73A of FSMA, has been approved by the Financial Conduct Authority in accordance with section 85 of FSMA, and is made available to the public in accordance with Rule 3.2.4(3) of the Prospectus Rules. This document is available at and a printed copy of this document is available on request and free of charge from the Company and finncap.

3 The Existing Ordinary Shares have been admitted to trading on AIM. Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that admission of the New Ordinary Shares on AIM will become effective, and dealings in the New Ordinary Shares on AIM will commence, at 8.00 a.m. on 28 July The New Ordinary Shares are not dealt in on any other recognised investment exchange and no application has been, or is intended to be, made for the New Ordinary Shares to be admitted to trading on any other such exchange. It is emphasised that no application is being made for the admission of the New Ordinary Shares to the Official List. The whole of this document should be read. Shareholders and any other persons contemplating an acquisition of New Ordinary Shares should review the section of this document entitled Risk Factors for a discussion of certain factors that should be considered when deciding on what action to take in relation to the Placing and/or the Offer for Subscription or deciding whether or not to subscribe for or acquire New Ordinary Shares. In making an investment decision each investor must carry out their own examination, analysis and enquiry of the Company and the terms of the Capital Raising, including the merits and risks involved. The latest time and date for application and payment in full for the Offer for Subscription Shares under the Offer for Subscription is a.m. on 26 July The procedure for application and payment is set out in Part 2 of this document and, if relevant, also in the Application Form which is set out at the back of this document. Notice of a General Meeting of the Company to be held at a.m. on 27 July 2017 at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon St, London EC4N 6AF is set out at the end of this document. A Form of Proxy for use in connection with the General Meeting is enclosed and, to be valid, should be completed and returned as soon as possible, by post to Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH or by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE, by not later than a.m. on 25 July Return of Forms of Proxy will not prevent Shareholders from attending the General Meeting. Citigroup Global Markets Limited ( Citi ), which is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the FCA, is acting as sole global co-ordinator, Joint Bookrunner and Joint Underwriter to CityFibre and no one else in connection with the Capital Raising, and will not be responsible to any person other than CityFibre for providing the regulatory and legal protections afforded to clients of Citi nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it. finncap Ltd ( finncap ), which is authorised and regulated by the FCA, is acting as Nominated Adviser, Joint Bookrunner and Joint Underwriter to CityFibre and no one else in connection with the Capital Raising, and will not be responsible to any person other than CityFibre for providing the regulatory and legal protections afforded to clients of finncap nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it. The responsibilities of finncap, as Nominated Adviser under the AIM Rules for Nominated Advisers, are owed solely to London Stock Exchange and are not owed to CityFibre or any Director or to any other person in respect of their decision to acquire New Ordinary Shares in reliance of any part of this document. Liberum Capital Limited ( Liberum ), which is authorised and regulated by the FCA, is acting as Joint Bookrunner and Joint Underwriter to CityFibre and no one else in connection with the Capital Raising and will not be responsible to any person other than CityFibre for providing the regulatory and legal protections afforded to clients of Liberum, nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it. Macquarie Capital (Europe) Limited ( Macquarie ), which is authorised and regulated by the FCA, is acting as Joint Bookrunner and Joint Underwriter to CityFibre and no one else in connection with the Capital Raising and will not be responsible to any person other than CityFibre for providing the regulatory and legal protections afforded to clients of Macquarie, nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it. N M Rothschild & Sons Limited ( Rothschild ), which is authorised and regulated by the FCA, is acting as financial adviser to CityFibre and no one else in connection with the Capital Raising, and will not be responsible to any person other than CityFibre for providing the regulatory and legal protections afforded to clients of Rothschild nor for providing advice in relation to the contents of this document or any matter, transaction or arrangement referred to in it. Apart from the responsibilities and liabilities, if any, which may be imposed on Citi, finncap, Liberum, Macquarie and Rothschild by FSMA or the regulatory regime established thereunder or otherwise under law, Citi, finncap, Liberum, Macquarie and Rothschild do not accept any responsibility whatsoever for the contents of this document, and no representation or warranty, express or implied, is made by Citi, finncap, Liberum, Macquarie and Rothschild in relation to the contents of this document, including its accuracy, completeness or verification or regarding the legality of any investment in the New Ordinary Shares by any person under the laws applicable to such person or for any other statement made or purported to be made by it, or on its behalf, in connection with CityFibre, the New Ordinary Shares or the Capital Raising and nothing in this document is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. To the fullest extent permissible Citi, finncap, Liberum, Macquarie and Rothschild accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any such statement. NOTICE TO OVERSEAS PERSONS This document does not constitute an offer of, or a solicitation to subscribe for or purchase, any securities in any jurisdiction in which such offer or solicitation is unlawful or to any person to whom it is unlawful to make such offer or solicitation. Shareholders in the United States, subject to certain exemptions, may not subscribe for or acquire any New Ordinary Shares in connection with the Capital Raising. The Existing Ordinary Shares and the New Ordinary Shares have not been and will not be registered under the US Securities Act, or under the securities laws of any state or other jurisdiction of the United States and may not be offered, sold, pledged, taken up, resold, transferred or delivered, directly or indirectly, into or within the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. The New Ordinary Shares offered outside the United States are being offered in reliance on Regulation S under the US Securities Act. The New Ordinary Shares offered inside the United States are being offered in reliance on an exemption from the registration requirements of the US Securities Act. There will be no public offer of the New Ordinary Shares in the United States. i

4 The Company, Citi, finncap, Liberum, Macquarie and Rothschild do not make any representation to any offeree, subscriber or acquirer of the New Ordinary Shares regarding the legality of an investment in the New Ordinary Shares by such offeree, subscriber or acquirer under the law applicable to such offeree, subscriber or acquirer. Each investor should consult with his or its own advisers as to the legal, tax, business, financial and related aspects of an acquisition of the New Ordinary Shares. The New Ordinary Shares and this document have not been recommended, approved or disapproved by the SEC, any state securities commission in the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the New Ordinary Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States. The New Ordinary Shares may not be offered, sold, pledged, taken up, resold, transferred or delivered, directly or indirectly, within any of the Excluded Territories (excluding, for these purposes, the United States) except pursuant to an applicable exemption from registration and in compliance with any applicable securities laws. There will be no public offer of the New Ordinary Shares in any of such Excluded Territories. EXCEPT AS OTHERWISE PROVIDED FOR HEREIN, NEITHER THIS DOCUMENT NOR THE APPLICATION FORM CONSTITUTES AN OFFER OF NEW ORDINARY SHARES TO ANY PERSON WITH A REGISTERED ADDRESS, OR WHO IS LOCATED OR RESIDENT, IN THE UNITED STATES OR ANY OF THE OTHER EXCLUDED TERRITORIES. The Underwriters may arrange for any Placing Shares not taken up in the Placing to be offered and sold only (i) outside the United States in accordance with Regulation S under the US Securities Act or (ii) inside the United States to persons reasonably believed to be qualified institutional buyers ( QIBS ) within the meaning of Rule 144A under the US Securities Act in reliance on an exemption from the registration requirements of the US Securities Act. Any such persons are notified that such offers may be made in reliance on the exemption from the registration requirements of the US Securities Act provided by Rule 144A. The New Ordinary Shares sold in reliance on Rule 144A are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the US Securities Act and applicable securities laws. In jurisdictions where the shares are subject to restrictions on transferability and resale, such shares may not be transferred or resold except as permitted under applicable securities laws and regulations. Prospective subscribers should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. In addition, until 40 days after Admission, an offer, sale or transfer of the New Ordinary Shares into or within the United States by a dealer (whether or not participating in the Capital Raising) may violate the registration requirements of the US Securities Act. All Overseas Persons and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this document or any Application Form, if and when received, or any other document to a jurisdiction outside the United Kingdom should read section 5 of Part 2 of this document. ENFORCEABILITY OF US JUDGMENTS THE COMPANY IS A PUBLIC LIMITED COMPANY INCORPORATED UNDER THE LAWS OF ENGLAND AND WALES. MOST OF THE DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY RESIDE OUTSIDE THE UNITED STATES. IN ADDITION, ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY, THE DIRECTORS AND THE COMPANY S EXECUTIVE OFFICERS ARE LOCATED OUTSIDE THE UNITED STATES. AS A RESULT, IT MAY NOT BE POSSIBLE FOR INVESTORS TO EFFECT SERVICE OF PROCESS WITHIN THE UNITED STATES UPON ANY OF THE COMPANY, THE DIRECTORS OR EXECUTIVE OFFICERS OF THE COMPANY LOCATED OUTSIDE OF THE UNITED STATES OR TO ENFORCE AGAINST THEM ANY JUDGMENTS OF US COURTS, INCLUDING JUDGMENTS PREDICATED UPON CIVIL LIABILITIES UNDER THE SECURITIES LAWS OF THE UNITED STATES OR ANY STATE OR TERRITORY WITHIN THE UNITED STATES. THERE IS SUBSTANTIAL DOUBT AS TO THE ENFORCEABILITY IN THE UNITED KINGDOM IN ORIGINAL ACTIONS, OR IN ACTIONS FOR ENFORCEMENT OF JUDGMENTS OF US COURTS, BASED ON THE CIVIL LIABILITY PROVISIONS OF US FEDERAL SECURITIES LAWS. IN ADDITION, PUNITIVE DAMAGES IN ACTIONS BROUGHT IN THE UNITED STATES OR ELSEWHERE MAY BE UNENFORCEABLE IN ENGLAND AND WALES. FOR INVESTORS IN AUSTRALIA ONLY: This prospectus is not a prospectus under Chapter 6D.2 of the Australian Corporations Act 2001 (Cth) (Corporations Act) and has not been lodged with the Australian Securities & Investments Commission. This prospectus is intended for distribution in Australia only to persons to whom it is lawful to offer the securities without a prospectus, because one or more of the exceptions set out in section 708 of the Corporations Act applies. No securities will be issued or sold in circumstances that would require the giving of a prospectus under Chapter 6D.2 of the Corporations Act. You should contact your adviser if you are uncertain as to whether a prospectus is required for the offer to you. The Company is not licensed to provide financial product advice in Australia in relation to the securities. You are recommended to seek your own advice from your lawyer, accountant or other professional adviser before investing. No cooling off period applies in relation to this offer under the Corporations Act. NOTICE TO EEA INVESTORS In relation to each EEA State (except for the United Kingdom) which has implemented the Prospectus Directive (each a relevant member state ), no New Ordinary Shares have been offered or will be offered pursuant to the Capital Raising to the public in that relevant member state prior to the publication of a prospectus in relation to the New Ordinary Shares which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, offers of New Ordinary Shares may be made to the public in that relevant member state at any time: (A) to any legal entity which is a qualified investor as defined in the Prospectus Directive; ii

5 (B) to fewer than 100 or, if the relevant member state has implemented the relevant provision of the PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in such relevant member state; or (C) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Ordinary Shares shall result in a requirement for the publication by the Company, Citi, finncap, Liberum, Macquarie or Rothschild of a prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in that relevant member state. For this purpose, the expression offer of any New Ordinary Shares to the public in relation to any New Ordinary Shares in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Capital Raising and any New Ordinary Shares to be offered so as to enable an investor to decide to subscribe for or acquire any New Ordinary Shares, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state. NOTICE TO ALL INVESTORS Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in this document for any purpose other than considering an investment in the New Ordinary Shares is prohibited. By accepting delivery of this document, each offeree of the New Ordinary Shares agrees to the foregoing. The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor should consult his or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice. Without limitation, the contents of Company s website do not form part of this document. Capitalised terms have the meanings ascribed to them in Part 14 of this document entitled Definitions. The date of this document is 11 July iii

6 CONTENTS Page SUMMARY... 1 RISK FACTORS PRESENTATION OF INFORMATION EXPECTED TIMETABLE OF PRINCIPAL EVENTS DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS CAPITAL RAISING STATISTICS QUESTIONS AND ANSWERS ABOUT THE CAPITAL RAISING WHERE TO FIND HELP PART 1 LETTER FROM THE CHAIRMAN OF CITYFIBRE INFRASTRUCTURE HOLDINGS PLC PART 2 TERMS AND CONDITIONS OF THE OFFER FOR SUBSCRIPTION PART 3 INFORMATION ON CITYFIBRE PART 4 SELECTED FINANCIAL AND OTHER INFORMATION PART 5 OPERATING AND FINANCIAL REVIEW OF CITYFIBRE PART 6 INFORMATION ON ENTANET PART 7 UNAUDITED PRO-FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP PART 8 TAXATION PART 9 INFORMATION CONCERNING THE NEW ORDINARY SHARES PART 10 ADDITIONAL INFORMATION PART 11 HISTORICAL FINANCIAL INFORMATION OF THE GROUP PART 12 HISTORICAL FINANCIAL INFORMATION ON ENTANET PART 13 HISTORICAL FINANCIAL INFORMATION ON ENTANET INTERNATIONAL PART 14 DEFINITIONS PART 15 GLOSSARY OF TECHNICAL TERMS NOTICE OF GENERAL MEETING APPLICATION FORM NOTES ON HOW TO COMPLETE THE APPLICATION FORM

7 SUMMARY Summaries are made up of disclosure requirements known as Elements. These Elements are numbered in Sections A-E (A.1-E.7). This summary contains all the Elements required to be included in a summary for this type of (i) issuer and (ii) issue of securities. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element might be required to be addressed in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of the words not applicable. A.1 Warning Section A Introductions and warnings This summary should be read as an introduction to this document. Any decision to invest in the New Ordinary Shares should be based on consideration of this document as a whole. Where a claim relating to the information contained in this document is brought before a court, the claimant investor might, under the national legislation of the member states of the EEA, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in such securities. A.2 Resale or final placement of securities through financial intermediaries Not applicable. No consent has been given by the Company or any person responsible for drawing up this prospectus to the use of this prospectus for subsequent resale or final placement of securities by financial intermediaries. B.1 Legal and commercial name Section B Issuer CityFibre Infrastructure Holdings plc (the Company ). B.2 Domicile/legal form/legislation under which the issuer operates/ country of incorporation The Company is a public limited company, incorporated on 13 November 2013 in England and Wales with its registered office situated in England and Wales. The Company operates under the Companies Act B.3 Current operations/principal activities/principal markets CityFibre provides fibre connectivity services through designing, building, owning, and operating fibre optic network infrastructure. The Group is a wholesale operator of fibre networks in towns and cities outside London. The Group provides open access, shared fibre infrastructure that enables gigabit-capable connectivity for Channel Partners and mobile network operators, who in-turn deliver digital connectivity solutions to their end customers spanning the public sector, business, mobile operator and residential markets. CityFibre operates across the UK, and currently has full fibre optic metropolitan area networks in 42 towns and cities including: Aberdeen, Bristol, Coventry, Edinburgh, Glasgow, Manchester, Milton Keynes, Peterborough, and York. Furthermore, the Company owns and operates a long distance fibre-optic network that interconnects 22 of its current towns and cities. CityFibre is a provider of full fibre infrastructure, meaning there is no copper or co-axial cable used for the provision of data connectivity services in CityFibre s networks. This sets it apart from other infrastructure competitors, notably Openreach and Virgin Media, who rely heavily on legacy copper and co-axial cables for connecting to premises on all but a small percentage of their networks. 1

8 B.4a CityFibre s network is constructed to provide high capacity fibre infrastructure that serves four primary market verticals: Š Š Š Š Public sector fibre connectivity to council buildings, schools, hospitals, CCTV; Business fibre connections to enterprises and SMEs (often referred to as Fibre to the Premises FTTP); Mobile operators fibre connections to mobile base stations and small cells for 4G and future 5G mobile services (often referred to as Fibre to the Tower FTTT); and Consumers fibre connections to homes (often referred to as Fibre to the Home FTTH). Current trends, trading and outlook The Group continued its network footprint expansion throughout 2016, through a combination of acquisitions, organic growth and incremental sales on existing and acquired assets. In 2017, CityFibre continued to focus on growing revenues and connections across its existing footprint, as well as undertaking selective investments in new towns and cities. Financial performance relating to metro towns and cities was in line with management s expectations. At the end of May 2017, the Group had entered into contracts with Channel Partners, enabling CityFibre to launch business services into seven further towns and cities, and securing in excess of 8.3 million of new contracted revenue. Furthermore, the unrealised value of the Group s contracts was million, giving the Group good visibility of future income The profile of CityFibre s growth is characterised by securing a relatively small volume of larger value contracts that provide fibre connectivity to multiple sites. This is supplemented by securing smaller contracts at various times for individual fibre connections from existing Channel Partners. Therefore, timing of the larger contracts can affect month by month performance. The Group secured few large contracts in the first quarter of 2017, with a higher number of larger contracts expected in the second quarter and throughout the second half of The strong and growing pipeline of opportunities means that the Group expects to deliver overall 2017 financial performance in line with management expectations. In January 2017, CityFibre announced its intention to construct a new fibre network in Stirling having secured a seven-year anchor contract to provide full fibre connectivity to the public sector, followed in March 2017 with anchor contracts in the business market vertical to construct new networks in Cheltenham and Gloucester, two locations located near to the Company s national long distance network. CityFibre will continue to seek opportunities to enter new towns and cities underpinned by suitable anchor contracts. The Directors believe that current trading activity and its pipeline of opportunities will enable the Group to progress towards its stated medium-term target to reach no less than 50 towns and cities by In its existing towns and cities, CityFibre is undertaking investments in active platforms to provide wholesale Ethernet services to complement its current dark fibre offering. The Company is on track to deliver its active platforms into not less than five further towns and cities in the first half of 2017, and is targeting to expand Ethernet services to a further six towns and cities by the end of the year. In expanding its Ethernet services to the business market vertical, CityFibre intends to enter into launch partner contracts with Channel Partners to provide fibre connectivity to more businesses in its existing footprint. In April 2017 CityFibre announced contracts to support construction in Slough, Maidenhead and Wakefield followed in June 2017 with contracts in Plymouth and Exeter. These launch partner contracts demonstrate that CityFibre is making further progress to commercialise the network assets acquired from KCOM and Redcentric Solutions Limited in In the public sector, the Directors believe that recent government policy for full fibre, together with planned government stimulus to encourage local government to anchor new full fibre core metro networks, will accelerate opportunities for fibre connectivity to more public sector sites. CityFibre is engaged in a significant number of discussions with local authorities and Channel Partners and is building a pipeline of public sector opportunities with the potential for contracts to be awarded to the Group in the second half of 2017 and beyond. In 2016 CityFibre completed two landmark network deployments for the UK market: the FTTT network construction in Hull and the FTTH trial in York. As a result, the Company is now 2

9 exploring opportunities to deploy FTTT and FTTH in more UK towns and cities, and is progressing commercial negotiations with mobile operators and major Channel Partners accordingly. CityFibre has engaged in commercial discussions with major ISPs and a number of smaller ISPs, to secure Channel Partner relationships intended to provide full fibre broadband services to consumers using CityFibre s future FTTH infrastructure. These discussions are advanced and may or may not lead to binding agreements in due course. The Group has engagement with Channel Partners across all four primary market verticals, supported by market demands for fibre connectivity and policies that encourage the deployment of full fibre and 5G infrastructure to many homes and businesses. The Directors believe that CityFibre is well positioned to exploit these opportunities and to continue to expand its operations. B.5 Group structure The Company is the parent company of the Group. The table below contains a list of the principal subsidiaries of the Company (each of which is considered by the Group to be likely to have a significant effect on the assessment of the assets, liabilities, the financial position and/or the profits and losses of the Group): Name of subsidiary Country of incorporation Percentage owned Proportion of voting power held CityFibre Holdings England and Wales 100% by the Company 100% Limited CityFibre Networks England and Wales 100% by the Company 100% Limited FibreCity Holdings Ltd England and Wales 100% by the Company 100% Gigler Limited England and Wales 100% by the Company 100% CityFibre Metro England and Wales 100% by the Company 100% Networks Limited FibreCity England and Wales 100% by the Company 100% Bournemouth Ltd CityFibre Limited England and Wales 100% by the Company 100% B.6 Notifiable interests As at the Reference Date, the Company had been notified of, or was otherwise aware of, the following persons who are directly or indirectly interested in 3 per cent. or more of the existing issued ordinary share capital of the Company: Name of shareholder As at the Reference Date Number of Ordinary Shares % of total number of issued Ordinary Shares Immediately following Admission Number of % of total number of Ordinary issued Ordinary Shares Shares(1) Woodford Investment 48,218, ,672, % Management (2) Odey Asset 38,882, ,882, % Management Jupiter Asset 25,536, ,354, % Management Close Brothers Asset 10,320, ,065, % Management Employee Benefit 10,159, ,159, % Trust Otus Capital 8,828, ,101, % Management Herald Investment Management Ltd 8,369, ,187, % (1) Assuming no take up under the Offer for Subscription and that no new Ordinary Shares (other than the New Ordinary Shares) are issued from the Reference Date until Admission. (2) Woodford Investment Management Ltd is interested in these shares as agent and discretionary manager of certain discretionary managed funds. The shares are held by the funds via their respective nominees. 3

10 As at the Reference Date, the Company is not aware of any person who, directly or indirectly, jointly or severally, exercises or could exercise control over the Company nor is it aware of any arrangements the operation of which may at a subsequent date result in a change in control of the Company. As at the Reference Date, the Company had been notified of, or was otherwise aware of, its Directors, being persons discharging managerial responsibilities within the Company, being interested, directly or indirectly, in its issued ordinary share capital of the Company as follows: Name of Director As at the Reference Date Number of Ordinary Shares % of total number of issued Ordinary Shares Immediately following Admission Number of % of total number of Ordinary issued Ordinary Shares Shares (1) Greg Mesch (2) 572, , % Mark Collins (2) 162, , % Terry Hart (2) 43, , % Leo van Doorne (2) (via Kimardo II B.V.) 3,727, ,727, % Gary Mesch (2)(4) 1,166, ,166, % Sally Davis (2) 14, , % Steve Charlton (2) 0.00% Chris Stone (3) 1,181, % (1) Assuming no take up under the Offer for Subscription and that no new Ordinary Shares (other than the New Ordinary Shares) are issued from the Reference Date until Admission. (2) Excludes interests in Ordinary Shares pursuant to Share Incentive Arrangements and a warrant instrument dated 13 January (3) Chris Stone has agreed to subscribe for 1,181,818 Placing Shares at the Offer Price. Chris Stone will not be applying for any Offer for Subscription Shares. The number of Shares do not include the Shares to be awarded to Chris Stone under the Non-Employee LTIP. (4) 1,080,151 of the Ordinary Shares are held by TJL Investment Corporation, a company which Gary Mesch and persons connected with him have an interest in and 59,590 of the Ordinary Shares are held by persons connected with Gary Mesch. B.7 Selected historical key financial information Selected key historical financial information of the Group The selected historical financial information relating to the Group set out below has been extracted without material adjustment from the audited reports and accounts of the Group prepared under IFRS for the financial years ended 31 December 2014, 31 December 2015 and 31 December 2016: Consolidated income statement Year ended 31 December Revenue 3,844 6,408 15,363 Cost of sales (568) (888) (1,827) Gross profit (loss) 3,276 5,520 13,536 Administrative expenses (10,726) (11,679) (18,677) Operating (loss) (7,450) (6,159) (5,141) Finance income Finance charges (344) (278) (7,341) Share of results from associates and joint ventures (42) (126) (147) (Loss) before taxation (7,057) (6,393) (12,584) Taxation (Loss) for the year (7,026) (6,362) (12,584) Loss per share (0.09) (0.06) (0.05) 4

11 Consolidated balance sheet As at 31 December Assets Non-current assets 33,160 45, ,803 Current assets 36,989 15,915 28,778 Total assets 70,149 61, ,581 Liabilities Non-current liabilities (12,343) (10,194) (66,821) Current liabilities (7,943) (7,413) (10,216) Total liabilities (20,286) (17,607) (77,307) Net assets 49,863 43, ,544 Share capital 1,111 1,113 2,713 Share premium 63,243 63, ,943 Share warrant reserve Share based payments reserve 773 1,081 2,100 Merger reserve Retained earnings (15,680) (22,044) (34,628) Total equity 49,863 43, ,544 Consolidated statement of cash flows Year ended 31 December Net cash utilised in operating activities (3,552) (5,360) (2,367) Net cash (utilised in)/from investing activities (34,336) 13,782 (115,027) Net cash from/(utilised in) from financing activities 41,788 (2,877) 124,385 Net increase in cash and cash equivalents 3,900 5,545 6,991 Cash and cash equivalents at the beginning of the year 286 4,186 9,731 Cash and cash equivalents at the end of the year 4,186 9,731 16,722 The following significant changes in the Group s financial condition and operating results occurred in the years ended 31 December 2014, 2015 and Revenue increased by 2.6 million (66.7 per cent.) from 3.8 million in the year ended 31 December 2014 to 6.4 million in the year ended 31 December This increase was driven by organic growth (that is, the continued expansion in CityFibre s footprint along with the delivery of incremental revenues from both existing and new towns and cities). Revenues from the business market vertical improved by 1 million. The Group has been growing business revenues on new networks since the second half of 2014 when it started commercialising constructed and acquired networks of scale in addition to its York network. Significant growth and geographical diversification of revenues occurred in Gross profit increased by 2.2 million (68.5 per cent.) from 3.3 million in the year ended 31 December 2014 to 5.5 million in the year ended 31 December Gross margin increased by 0.9 percentage points from 85.2 per cent. in the year ended 31 December 2014 to 86.1 per cent. in the year ended 31 December 2015, reflecting the slightly higher profitability of new business added during the period. 5

12 Revenue increased by 9 million (139.7 per cent.) from 6.4 million in the year ended 31 December 2015 to 15.4 million in the year ended 31 December This increase was driven by organic growth, and contributions from the KCOM and Redcentric Solutions Limited leaseback agreements, following completion of the asset acquisitions from KCOM and Redcentric Solutions Limited in Gross profit increased by 8 million (145.2 per cent.) from 5.5 million in the year ended 31 December 2015 to 13.5 million in the year ended 31 December Gross margin increased by two percentage points, from 86.1 per cent. in the year ended 31 December 2015 to 88.1 per cent. in the year ended 31 December 2016, reflecting the continuing addition of more profitable incremental new business on the assets during the period. The KCOM commitment had a direct gross margin of 83 per cent. There has been no significant change in the Group s financial or trading position since 31 December 2016, the date of the last annual report and audited consolidated accounts of the Group. Selected key historical financial information of Entanet The selected historical financial information relating to Entanet for the eleven month period ended 31 December 2014 and the financial years ended 31 December 2015 and 31 December 2016 as set out in the following tables has been extracted without material adjustment from the audited financial information in Part 12 of this document: Consolidated income statement Period ended 31 December Year ended 31 December Turnover 25,753 31,887 35,754 Cost of sales (19,650) (24,075) (28,637) Gross profit 6,103 7,812 7,117 Administrative expenses (5,298) (4,405) (6,403) Operating profit 805 3, Finance income Finance charges (1,987) (1,087) (1,136) (Loss)/profit before taxation (1,167) 2,333 (407) Taxation (Loss)/profit for the period/year (1,140) 2,631 (263) 6

13 Consolidated balance sheet As at 31 December Assets Non-current assets 9,579 9,068 9,221 Current assets 5,065 10,219 8,057 Total assets 14,644 19,287 17,278 Liabilities Non-current liabilities (10,075) (11,545) (10,319) Current liabilities (4,149) (4,991) (4,471) Total liabilities (14,224) (16,536) (14,790) Net assets 420 2,751 2,488 Equity Share capital Share premium Merger reserve Retained earnings (530) 2,101 1,838 Total equity 420 2,751 2,488 Consolidated statement of cash flows Period ended 31 December Year ended 31 December Net cash inflow from operating activities 1,136 2,838 1,705 Net cash inflow (outflow) from investing activities 919 (561) (765) Net cash (outflow) from financing activities (416) (1,342) (1,345) Net increase (decrease) in cash and cash equivalents 1, (405) Cash and cash equivalents at the beginning of the period/ year 5 1,644 2,579 Cash and cash equivalents at the end of the year 1,644 2,579 2,174 The following significant changes in Entanet s financial condition and operating results occurred in the eleven month period ended 31 December 2014, and the years ended 31 December 2015 and Turnover grew from 25.8 million in the period ended 31 December 2014 to 31.9 million in the year ended 31 December The majority of growth was driven by increasing demand for Ethernet circuits, either as standalone connectivity or as the backbone of wider network solutions. Gross profit, which excludes core network costs grew from 6.1 million in the period ended 31 December 2014 to 7.8 million in the year ended 31 December 2015, representing a 24.5 per cent. gross margin. Although this was an improvement on the prior year there was an increase in margin pressure during 2015 arising from aggressive pricing by competitors, continued price deflation particularly in smaller capacity circuits and the increasing ease with which customers can obtain online quotes for circuits from competing wholesalers. During 2015, an exceptional item of 1.9 million income was recognised within administrative expenses, being the settlement of certain claims against a former shareholder and certain parties connected to that shareholder. Underlying EBITDA excluding exceptional items increased to 3.1 million in the year ended 31 December 2015 at a similar margin to the prior period. 7

14 Turnover grew from 31.9 million in the year ended 31 December 2015 to 35.8 million in the year ended 31 December The growth was largely driven by demand for Ethernet circuits, both in standalone connectivity and in IP based network solutions. There was also significant growth in Entanet s broadband base as a result of strong demand from a large consumer-focussed Channel Partner. Gross profit reduced from 7.8 million in the year ended 31 December 2015 to 7.1 million in the year ended 31 December 2016, representing a 19.9 per cent. gross margin. The fall in gross margin, from 24.5 per cent. in the year ended 31 December 2015, was driven predominantly by the direct acquisition cost of the growth in the consumer broadband base. The reduction in gross margin and increased investment in operational and developmental resources led to a reduction in underlying EBITDA excluding exceptional items from 3.1 million in the year ended 31 December 2015 to 2 million in the year ended 31 December There has been no significant change in Entanet s financial or trading position since 31 December 2016, the date of the last annual report and audited accounts of Entanet. The selected historical financial information relating to Entanet International for the seven weeks ended 20 February 2014 as set out in the following tables has been extracted without material adjustment from the audited financial information in Part 13 of this document: Income statement For the period ended 20 February 2014 For the period ended 31 December Revenue 4,072 25,753 Cost of sales (2,985) (19,650) Gross profit 1,087 6,103 Administrative expenses (479) (3,876) Depreciation (65) (460) Operating profit 543 1,767 Finance income - 19 Finance expense - (5) Profit before taxation 543 1,781 Taxation (125) 30 Profit for the period 418 1,811 Other comprehensive income - - Total comprehensive profit for the period 418 1,811 Balance Sheet As at 20 February 2014 As at 31 December Assets Non-current assets 1,318 1,853 Current assets 6,196 6,713 Total assets 7,514 8,566 Liabilities Non-current liabilities - (202) Current liabilities (5,079) (4,118) Total liabilities (5,079) (4,320) Net assets 2,435 4,246 Equity Issued share capital Retained profits 2,235 4,046 2,435 4,246 8

15 Statement of cash flows Net cash inflow/(outflow) from operating activities 2,028 (325) Net cash outflow from investing activities (44) (608) Net cash outflow from financing activities (343) (154) Net increase/(decrease) in cash and cash equivalents 1,641 (1,087) Cash and cash equivalents beginning of period 1,046 2,687 Cash and cash equivalents at end of period 2,687 1,600 B.8 Selected key pro forma financial information The following unaudited pro forma statement of net assets and pro forma income statement (the Pro Forma Financial Information ) have been prepared to show the effect on the consolidated net assets of the Group had the Entanet Acquisition occurred on 31 December 2016 and the effect on the income statement of the Group had the Entanet Acquisition occurred on 1 January The Pro Forma Financial Information has been prepared for illustrative purposes only and in accordance with Annex II of the Prospectus Directive Regulation, and should be read in conjunction with the notes set out below. Due to its nature, the Pro Forma Financial Information addresses a hypothetical situation and, therefore, does not represent the Group s actual financial position or results. Pro forma income statement Adjustments The Group Entanet Other Pro forma Year ended 31 December 2016 (1) Year ended 31 December 2016 (2) adjustments (3) earnings of the Enlarged Group Revenue 15,363 35,754-51,117 Cost of sales (1,827) (28,637) - (30,464) Gross profit 13,536 7,117-20,653 Total administrative expenses (18,677) (6,403) (4,987) (30,067) Operating (loss) profit (5,141) 714 (4,987) (9,414) Finance income Finance cost (7,341) (1,136) - (8,477) Share of post-tax losses of equity accounted Joint Venture (147) - - (147) Loss before taxation (12,584) (407) (4,987) (17,978) Income tax Loss for the year and total comprehensive income (12,584) (263) (4,987) (17,834) Notes: 1. The results of the Group for the year ended 31 December 2016 have been extracted without material adjustment from the financial statements of the Group for the year ended 31 December 2016 set out in Part 11 of this document. 2. The results of Entanet have been extracted without material adjustment from the financial information on Entanet for the year ended 31 December 2016, set out in Part 12 of this document. 3. This adjustment comprises the estimated costs of the Entanet Acquisition and the estimated costs of the Placing that cannot be set off against the share premium account. 4. No account has been taken of the effects of any synergies and of the costs for measures taken to achieve those synergies that may have arisen had the acquisition occurred on 1 January 2016 and that may subsequently have affected the results of the Group in the year ended 31 December No account has been taken of the trading performance of either the Group or Entanet since 31 December 2016 nor of any other event save as disclosed above. 6. Save for the costs of the Entanet Acquisition and the Placing, the pro forma income statement adjustments are expected to have a continuing effect on the Enlarged Group. 9

16 Pro forma statement of net assets The Group As at 31 December 2016 (1) Adjustments Entanet Acquisition (3) Entanet As at 31 December 2016 (2) Net Placing proceeds (4) Pro forma net assets of the Enlarged Group Assets Non-current assets Property, plant and equipment 155,159 2, ,843 Intangible assets 1,211 6,537 15,859-23,607 Investment in Joint Venture ,803 9,221 15, ,883 Current assets Inventory 3, ,986 Trade and other receivables 8,070 5, ,953 Cash and cash equivalents 16,722 2,174 (29,000) 191, ,909 Total current assets 28,778 8,057 (29,000) 191, ,848 Total assets 185,581 17,278 (13,141) 191, ,731 Liabilities Non-current liabilities Interest bearing loans and borrowings (55,280) (10,186) 10,186 - (55,280) Deferred revenue (11,091) (11,091) Deferred consideration (450) (450) Deferred tax - (133) - - (133) Total non-current liabilities (66,821) (10,319) 10,186 - (66,954) Current liabilities Interest bearing loans and borrowings - (467) Deferred revenue (2,864) (2,864) Trade and other payables (7,352) (4,004) - - (11,356) Total current liabilities (10,216) (4,471) (14,220) Total liabilities (77,037) (14,790) 10,653 - (81,174) Net assets 108,544 2,488 (2,488) 191, ,557 Notes: 1. The net assets of the Group at 31 December 2016 have been extracted without material adjustment from the financial statements of the Group for the year ended 31 December 2016 set out in Part 11 of this document. Adjustments 2. The net assets of Entanet have been extracted without material adjustment from the financial information on Entanet for the year ended 31 December 2016, set out in Part 12 of this document. 3. An adjustment has been made to reflect the estimated intangible assets arising on the Entanet Acquisition. For the purposes of this pro forma information, no adjustment has been made to the separate assets and liabilities of Entanet to reflect their fair value. The difference between the net assets of Entanet as stated at their book value at 31 December 2016 and the estimated consideration has therefore been presented as a single value in Intangible assets. The net assets of Entanet will be subject to a fair value restatement as at the effective date of the transaction. Actual intangible assets included in the Group s next published financial statements may therefore be materially different from those included in the pro forma statement of net assets. The estimated consideration for Entanet is 29 million (on a debt free and cash free basis and subject to adjustments), of which a proportion will be used to repay Entanet s indebtedness. It has been assumed that all of the deferred consideration will be payable in cash. 10

17 000 Consideration payable in cash 29,000 Repayment of debt (10,653) Consideration for Entanet s equity 18,347 Book value of net assets of Entanet as at 31 December 2016 (2,488) Estimated intangible assets arising on the transaction 15,859 The repayment of debt is based on the balance outstanding at 31 December The actual balance repaid is likely to differ from this amount. 4. The Placing will raise net proceeds of 191 million ( 200 million gross proceeds less estimated expenses of 9 million). No account has been taken of any proceeds from the Offer for Subscription. 5. No account has been taken of the financial performance of the Group or Entanet since 31 December 2016 nor of any other event save as disclosed above. B.9 Profit forecast and Estimate Not applicable; the Company has not made a profit forecast or estimate. B.10 Qualification in the audit reports Not applicable; the audit reports on the historical financial information contained in this document are not qualified. B.11 Working capital qualification Not applicable; the Company is of the opinion that, after taking account of the net proceeds of the Placing and the existing available facilities to the Group (but excluding any proceeds of the Offer for Subscription), the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this document. Section C Securities C.1 Type and class of the securities The Capital Raising comprises an offering of ordinary shares of 0.01 in the Company. C.2 Currency of the securities issue The Existing Ordinary Shares are priced in Sterling, and the New Ordinary Shares will be quoted and traded in Sterling. C.3 Shares issued/value per share As at the Reference Date, the Company had in issue 265,672,644 fully paid Ordinary Shares of 0.01 each. As at the Reference Date, the Company had in issue 5,653,865 Deferred Shares of 0.01 each. C.4 Description of the rights attaching to the securities The New Ordinary Shares will be issued as fully paid and will rank pari passu in all respects with the Existing Ordinary Shares, including for voting purposes and the right to receive dividends or other distributions declared, made or paid after Admission. C.5 Restrictions on free transferability of the securities The Ordinary Shares are freely transferable and there are no restrictions on transfer in the UK. C.6 Admission/Regulated markets where the securities are traded The Ordinary Shares have been admitted to trading on AIM. Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or trading on any regulated market or any other exchange. 11

18 C.7 Dividend policy The objective of the Directors is to achieve capital growth for Shareholders through the continued expansion of its fibre infrastructure. Consequently, they do not anticipate that the Company will pay dividends to Shareholders in the short to medium term. The Directors will keep this position under review and would intend, at an appropriate stage in the future, to pay a proportion of profits in each year to Shareholders by way of dividend. Section D Risks D.1 Summary information on the key risks that are specific to the Company or its industry The Group s infrastructure is used by Channel Partners and, therefore, revenues depend on Channel Partner relationships. However, many Channel Partners have existing relationships with other network providers such as Openreach. If the Group is unable to secure satisfactory relationships with Channel Partners, on terms favourable to the Group, it may be unable to implement its business plan in full. The Group s business requires the maintenance, upgrade and periodic replacement of facilities and networks to continue to function as expected. If there is damage to the network, the Group will be required to incur expenses to repair the network, which depending on the issue, could be substantial. Furthermore, as the Group s network elements become obsolete or reach their design life capacity, the Group s operating and capital expenses could significantly increase depending on the nature and extent of repairs or replacements. Advances in the process of delivering ultrafast communications could allow the Group s competitors to produce products and communications infrastructure faster and more efficiently, and at a substantially lower cost than the Group. If the Group is unable to adapt or incorporate technological advances into its operations, its offering could become less competitive. The deployment of the Group s networks requires large-scale civil engineering to construct duct and fibre either below the ground or overhead via poles. The Group depends on skilled third party contractors for the construction and maintenance of its infrastructure. The Group s operations may be adversely affected should there be a lack of available contract resources, higher than expected labour costs, under performance or insolvency of a contractor. The Group believes that its future revenue growth depends on the its ability to provide customers with quality service that meets and then exceeds customer service expectations. Interruptions in service or performance problems, for whatever reason, could undermine confidence in its services, damage its reputation and consequently limit its ability to retain existing customers or attract new customers. The communications market is regulated by Ofcom and the Communications Act The regulatory framework may change (including as a result of the UK s decision to leave the European Union) in a way that may be prejudicial to the Group s operations. Ofcom exercises a degree of control over Openreach by imposing access conditions and charge controls that affect Openreach products and pricing. There is a possibility that wholesale pricing will change and/or access conditions be amended. If these changes result in excessive or unpredicted price reductions being imposed on Openreach wholesale products, this could negatively affect the Company s pricing of competitive fibre. Ofcom is seeking to make Openreach more independent and this has led to BT agreeing to separate Openreach into a new company within the BT group. Any adverse change or significant delays to Ofcom s proposals may adversely affect the Company s ability to implement its business plan in full. The market in which the Group operates is dominated by one major entity, BT, which has much greater capital resources than the Group. Together with Virgin Media, these competitors, amongst others, will have significantly greater financial, technical, marketing and servicing resources than the Group and have longer operating histories or greater name recognition, with a more extensive network and significantly larger customer bases. The Group s relatively smaller size may therefore be considered negatively by prospective customers. In addition, the Group s competitors may be able to respond more quickly to changes in customer requirements and devote greater resources to the enhancement, promotion or sale of their products. 12

19 The Group is currently reliant on a limited number of key customers. If the Group loses one or more of its key customers, or if one or more of its key customers significantly decreases use of the Group s services, the Group s business would be materially and adversely affected. The Group s future operating results will depend on the success of these customers and its other large customers, and its success in selling services to them. If it were to lose a significant portion of the revenue from any of its top customers, the Group would not be able to replace that revenue in the short term. The Company will in the longer term require further capital through debt or equity financing or from other sources. The Group may be unable to obtain additional financing on acceptable terms or at all if market and economic conditions, the financial condition or operating performance of the Group or investor sentiment are unfavourable. The Group s inability to raise additional funding may hinder its ability to grow in the longer term. D.3 Key information on the key risks that are specific to the securities The market price of the Ordinary Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the Ordinary Shares. The fluctuations could result from national and global economic and financial conditions, factors the Group does not control including the market s response to the Capital Raising, and regulatory changes. Any of these events could result in a decline in the market price of the Ordinary Shares. There is no assurance that the public trading market price of the Ordinary Shares will not decline below the Offer Price. Should that occur, Shareholders who have acquired New Ordinary Shares in the Capital Raising and then sell their Ordinary Shares will suffer an immediate unrealised loss as a result. Moreover, there can be no assurance that, following Shareholders acquisition of New Ordinary Shares, Shareholders will be able to sell their New Ordinary Shares at a price equal to or greater than the acquisition price for those shares. Shareholders will experience dilution in their ownership and voting interests pursuant to the Placing whether or not Shareholders participate in the Offer for Subscription. Shareholders who do not (or cannot) participate in the Placing will be diluted by 57.8 per cent. (excluding the impact of the Offer for Subscription) or 59.5 per cent. (assuming full take up under the Offer for Subscription). The percentage of the Company s issued share capital that the Existing Ordinary Shares represent will be reduced by 57.8 per cent. to 42.2 per cent. as a result of the Capital Raising (excluding the impact of the Offer for Subscription) or by 59.5 per cent. to 40.5 per cent. (assuming full take up under the Offer for Subscription). Section E Offer E.1 Total net proceeds and costs of the issue CityFibre expects to raise net proceeds of 191 million by way of the Placing (after deduction of estimated expenses, including underwriting commissions but excluding VAT, of approximately 9 million) and net proceeds up to 14.8 million by way of the Offer for Subscription (after deduction of estimated expenses of approximately 0.2 million assuming the Offer for Subscription is taken up in full). E.2a Reasons for the offer/use of the proceeds Of the net proceeds, 29 million (on a cash free debt free basis and subject to adjustments) will be used to acquire Entanet, substantially increasing the Company s wholesale capabilities and its relationships with its Channel Partners, especially in the business and consumer market verticals, thereby extending CityFibre s channels to market. CityFibre intends to apply the balance of the net proceeds to fund the growth of the Group s full fibre network across UK towns and cities, serving the four primary market verticals of public sector, mobile, business and consumer. E.3 Terms and conditions of the offer The offer in respect of the Capital Raising comprises: i. an offer of 363,636,364 Placing Shares at the Offer Price to Placees pursuant to the Placing; and ii. an offer of up to 27,272,727 Offer for Subscription Shares at the Offer Price pursuant to the Offer for Subscription. 13

20 The Placing is fully underwritten by the Underwriters on the terms and conditions of the Underwriting Agreement and is conditional upon (among other things) (i) the Resolutions being passed at the General Meeting, (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and (iii) Admission becoming effective by not later than 8.00 a.m. on 28 July 2017 (or such later date as the Company and the Underwriters may agree). The Underwriting Agreement may be terminated by the Underwriters prior to Admission upon the occurrence of certain specified events, in which case neither the Placing nor the Offer for Subscription will proceed. The Placing The Company is offering 363,636,364 Placing Shares (representing per cent. of the Company s existing issued share capital and 55.4 per cent. of the Company s enlarged issued share capital immediately following completion of the Capital Raising, assuming that the Offer for Subscription is taken up in full) as part of the Placing to certain Shareholders and prospective institutional investors. The Placing is to be made at the Offer Price. The Offer Price represents a 9.09 per cent. discount to the closing price of pence per Ordinary Share on 4 July 2017 (being the last Business Day before announcement of the Capital Raising). The Offer Price in respect of Placing Shares is payable in full upon Admission, which is expected to become effective at 8.00 a.m. on 28 July The Placing will raise gross proceeds of 200 million. The Placing is fully underwritten by the Underwriters on the terms and conditions of the Underwriting Agreement. The Placing Shares will be placed with certain Shareholders and prospective institutional investors in transactions exempt from, or not subject to, the registration requirements of the US Securities Act. The Placing Shares will rank pari passu in all respects with each other and all Existing Ordinary Shares, and the Offer for Subscription Shares, as well as for voting purposes and the right to receive dividends or other distributions declared, made or paid after Admission. The Offer for Subscription Up to 27,272,727 Offer for Subscription Shares are being made available under the Offer for Subscription at the Offer Price (representing 10.3 per cent. of the Company s existing issued share capital and 4.2 per cent. of the Company s enlarged issued share capital immediately following completion of the Capital Raising, assuming in both cases that the Offer for Subscription is taken up in full). Applications under the Offer for Subscription must be for a minimum of 2,000 Offer for Subscription Shares (the Minimum Subscription ) and thereafter in multiples of 2,000 Offer for Subscription Shares. Any application for less than the Minimum Subscription or which is not for a multiple of 2,000 Offer for Subscription Shares will be rejected. The Offer for Subscription will raise gross proceeds of up to 15 million. The Placing has been fully underwritten by the Underwriters. The Offer for Subscription is not being underwritten by the Underwriters or anyone else. Application will be made for the Offer for Subscription Shares to be admitted to trading on AIM. It is expected that Admission will become effective on 28 July 2017 and that dealings for normal settlement in the Offer for Subscription Shares will commence at 8.00 a.m. on 28 July The Offer for Subscription Shares will rank pari passu in all respects with each other and all Existing Ordinary Shares, and the Placing Shares, as well as for voting purposes and the right to receive dividends or other distributions, made or paid after Admission. E.4 Interests that are material to the issue/conflicting interests Not applicable; there is no interest that is material to the Capital Raising. E.5 Selling Shareholders and lock-up arrangements Not applicable; there are no selling Shareholders nor lock-up arrangements in relation to the Capital Raising. 14

21 E.6 Dilution Following completion of the Capital Raising, Shareholders who do not (or cannot) participate in the Placing will suffer a dilution of approximately 57.8 per cent. pursuant to the Placing (excluding the impact of the Offer for Subscription) or 59.5 per cent. (assuming full take up under the Offer for Subscription). E.7 Estimated expenses charged to the investor Not applicable; the Company will not directly charge any expenses to the investors. 15

22 RISK FACTORS Any investment in the New Ordinary Shares is subject to a number of risks and uncertainties. Prior to investing in the New Ordinary Shares, prospective investors should carefully consider the factors, risks and uncertainties associated with any such investment, the Group s business, strategy and the industry in which it operates, together with all other information contained in this document including, in particular, the risk factors described below. Prospective investors should note that the risks and uncertainties identified in the Summary are the risks and uncertainties that the Directors believe to be the most relevant to an assessment by a prospective investor of whether to consider an investment in the New Ordinary Shares. However, as the risks and uncertainties which the Group faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in the Summary but also, among other things, the risks and uncertainties described below. The following is not an exhaustive list or explanation of all risks that prospective investors may face when making an investment in the New Ordinary Shares and should be used as guidance only. The order in which risks are presented is not necessarily an indication of the likelihood of the risks actually materialising, of the potential significance of the risks or of the scope of any potential harm to the Group s business, operating results, financial condition, prospects or future operations. Additional risks and uncertainties relating to the Group that are not currently known to the Group, or that the Group currently deems immaterial, may individually or cumulatively also have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. If any of the risks referred to below, or any new risks, should materialise, the price of the New Ordinary Shares may decline and investors could lose all or part of their investment. Investors should carefully consider whether an investment in the New Ordinary Shares is suitable for them in the light of the information in this document and their personal circumstances. Part A: Risks Relating to the Company The Group s business is dependent on establishing and maintaining relationships with Channel Partners who can use its fibre infrastructure The Group s infrastructure is used by Channel Partners and, therefore, revenues depend on Channel Partners relationships. However, many Channel Partners have existing relationships with other network providers such as Openreach. Although the Directors believe the Group s fibre infrastructure and wholesale product portfolio is attractive to Channel Partners, if the Group is unable to secure satisfactory relationships with Channel Partners, on terms favourable to the Group, it may be unable to implement its business plan in full. Moreover, Channel Partners may in the future decide to provide their own infrastructure rather than relying, for example, on that of the Group, which would adversely affect the Group s operations. Any failure by the Group to establish and maintain relationships with relevant Channel Partners may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. The growth of the Group s business is partly reliant on procuring contracts with public sector bodies The Group intends to enter into contracts with public sector ICT providers, local councils and other public bodies, amongst other types of customer. Public sector contracts may be subject to formal procurement processes, which are competitive and may cause delays to the implementation of the Group s business plan. Furthermore, the local council or public body may operate with only a pre-qualified framework of suppliers, which may exclude the Group. Any delay or failure to win public sector contracts may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Additionally, future budgetary cuts could reduce public sector appetite for fibre contracts, thereby having a negative impact on the Group s results. Contracts awarded pursuant to public procurement may be open to challenge or termination Contracts awarded pursuant to public procurement may, in some circumstances, be open to challenge by third parties claiming a breach of procurement rules or that payments made under the contract constitute state aid in violation of applicable laws and regulations. In the event that a public sector contract awarded to the Group, or to a private sector Channel Partner to the Group, is challenged, the Group may suffer delays in implementing the project or the contract may be terminated if the challenge is successful. Loss of one or more contracts awarded by public procurement or otherwise may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. 16

23 The Group s business is dependent upon the on-going maintenance, upgrading, and replacement of its network, components and facilities The Group s business requires the maintenance, upgrade and periodic replacement of facilities and networks to continue to function as expected in a cost-effective manner. This requires both management time as well as capital expenditure. If there is damage to the network, the Group will be required to incur expenses to repair the network which, depending on the issue, could be substantial. Furthermore, as the Group s network elements become obsolete or reach their design life capacity, the Group s operating and capital expenses could significantly increase depending on the nature and extent of repairs or replacements. Additionally, the operation of the network requires the coordination of specialist hardware and software. Failure of the Group to maintain or appropriately operate this could render a fibre system unable to perform at design specifications, or at all, which could lead to further interruptions and impacts on business continuity. This could have an adverse effect on the Group s ability to implement the business plan and in some cases may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Exclusivity requirements in future agreements may adversely affect the Group s business As part of the Company s strategy to grow using anchor tenant contracts, the Group at times may provide services to these tenants on an exclusive basis for a defined period of time. This could limit the potential to fully leverage and commercialise the assets across the network during that time period which may adversely affect the ability to implement the business plan in full. The Group has incurred operating losses in the past, and it may not be able to achieve or subsequently maintain profitability Since the Group s inception, it has incurred significant operating losses, and, as of 31 December 2016, the Group had retained losses of 34.6 million. Although the Group s revenue has grown rapidly, increasing from 3.8 million in 2014 to 15.4 million in 2016, the Directors believe that the Group s future revenue growth will depend on, among other factors, its ability to execute its strategies set out elsewhere in this document. Accordingly, investors should not rely on the revenue growth of any prior period as an indication of the Group s future performance. If the Group is unable to generate adequate revenue growth and to manage its expenses, it may continue to incur losses in the future and may not be able to achieve or maintain profitability. Slow-down in demand for the Group s infrastructure may have an adverse impact on the Group s business Data communications is an active area of research and development and new technologies may develop. Advances in the process of delivering ultrafast communications could allow the Group s competitors to produce products and communications infrastructure faster and more efficiently, and at a substantially lower cost than the Group. If the Group is unable to adapt or incorporate technological advances into its operations, its offering could become less competitive, which would have a materially adverse effect on the Group s business, operating results, financial condition, prospects and future operations. The construction of the Group s fibre infrastructure requires availability of skilled contractors, significant expenses and is subject to risks that could lead to disruptions in its services, cost overruns and unexpected capital expenditures The deployment of the Group s networks requires large-scale civil engineering to construct duct and fibre either below the ground or overhead via poles. The Group seeks to mitigate construction risks by entering into partnerships with civil engineering contractors; however, to do so the Group depends on skilled third party contractors for the timely construction and maintenance of its infrastructure in accordance with international standards of quality and safety. Whilst this model ensures that the correct skills are leveraged, the Group s operations may be adversely affected should there be a lack of available contract resources, higher than expected labour costs, under performance of a contractor or the insolvency of the contractor. In addition, the Group may face delays, cost overruns or penalties should the process of construction be delayed or disrupted, or if the costs of materials and labour are subject to unforeseen increases. Any of these factors, alone or in combination, may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. If the Group is unable to maintain a high level of customer service, customer satisfaction and demand for the Group s services could suffer The Group believes that its future revenue growth depends on its ability to provide customers with quality service that not only meets the Group s stated commitments, but meets and then exceeds customer service 17

24 expectations. Interruptions in service or performance problems, for whatever reason, could undermine confidence in its services, damage its reputation and consequently limit its ability to retain existing customers or attract new customers. The service the Group provides may be subject to failure resulting from a variety of factors which may be under the Group s control. This may include human error, equipment failure, power loss, failure of monitoring systems and maintenance activities, failure of services related to the internet and telecommunications provided by the Group, physical or electronic security breaches, as well as factors not under the Group s control, such as sabotage, vandalism, system failures of network service providers, fire, earthquake, flood and other natural disasters, water damage, fibre optic cable cuts, power loss not caused by the Group, improper building maintenance by the landlords of the buildings in which the equipment is located, and terrorism. In particular, a failure of the Group s operations support systems could adversely affect its ability to process orders and provision sales, and to bill for services efficiently and accurately, all of which could cause the Group to suffer customer dissatisfaction, loss of business, loss of revenue or the inability to add customers on a timely basis, any of which would adversely affect the Group s ability to generate revenue and negatively impact its operating results. In addition, because many of the Group s services are critical to its customers businesses, a significant interruption in service could result in lost profits or other loss to customers. Although the Group attempts to disclaim liability for these losses in its service agreements, a court might not enforce a limitation on liability under certain conditions, which could expose the Group to financial loss. In addition, the Group often provides customers with guaranteed service level commitments. If it is unable to meet these guaranteed service level commitments for whatever reason, it may be obligated to provide its customers with credits, generally in the form of free service for a short period of time, which could negatively affect its operating results and the Group may be exposed to other liabilities. The Group s ability to build its fibre infrastructure is dependent on receiving wayleaves, licences and permits The Group requires a number of permits to allow it to install and operate infrastructure. Whilst the Group holds an Ofcom Code Powers licence giving nationwide authority for construction in public land, wayleave agreements will be required where the network is routed across private land. In addition, the Group s ability to access public land relies on it retaining its Ofcom Code Powers licence. There is no certainty that such wayleaves or licences will be granted to the Group or in certain cases if granted may lapse or be revoked, which in any such case may delay or inhibit the implementation of the Group s business plan in full. The Group s business model contemplates that its fibre infrastructure will be used by customers in conjunction with third party communication networks that it does not control It is the Directors intention that, in the future, the Group s infrastructure will be used in conjunction with communications networks that are owned and operated by third parties which the Group does not control. For example, Ofcom is currently carrying out a review with regard to Openreach opening up access to its ducts and poles and the Group in the future may rely in part on access to this infrastructure. Ofcom has agreed in principle that other operators may have access to Openreach s ducts and poles, subject to restrictions against usage. A consultation is ongoing to relax these restrictions but this consultation is not yet complete. If access is denied or delayed, or is not made available on commercially attractive and viable terms, or there are performance failures on the part of any of these networks, it may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. The Group may be adversely affected by changes to industry-specific government regulations and regulatory framework, as well as changes to other applicable laws and regulations The communications market is regulated by Ofcom and the Communications Act The regulatory framework may change (including as a result of the UK s decision to leave the European Union) in a way that may be prejudicial to the Group s operations. If the Group is in breach of any of the regulations it may face a censure or fine which may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Due to Openreach s significant market power, Ofcom exercises a degree of control over Openreach by imposing access conditions and charge controls that affect Openreach products and pricing. Due to periodic market reviews conducted by Ofcom and a number of external factors in the UK communications market (see market changes immediately below) there is a possibility that wholesale pricing will change and/or access conditions be amended. If these changes result in excessive or unpredicted price reductions being imposed on Openreach wholesale products, this could negatively affect the Company s pricing of competitive fibre products and have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. 18

25 Changes in laws or regulations (or the interpretation of such laws or regulations), or national government or EU policy affecting the Group s activities and/or those of its customers and competitors, include regulation of prices and interconnection arrangements, regulation of access arrangements to types of infrastructure, decreasing revenue, increasing costs or impairing its ability to offer services. In addition, many of the Group s customers and competitors, especially incumbent local access network service providers, are subject to a wide range of regulations. These regulations could change from time to time in ways that are difficult to predict. Market changes, including those driven by Ofcom s Digital Communications Review, or changes in the competitive dynamics of markets affecting the Group s business may adversely affect the Group s business In accordance with its Digital Communications Review, published in February 2016, Ofcom is seeking to implement new regulation to promote greater investment in fibre and establish sustainable competition to deliver choice, quality and affordable prices. Linked to this, Ofcom is consulting on new price regulation and access conditions relating to Openreach s broadband infrastructure, as well as establishing proposals for better access to Openreach s ducts and poles. The proposed regulations will not be implemented until early 2018, and are subject to change and appeal. Furthermore, Ofcom s strategy to promote competition and investment in fibre infrastructure, whilst supportive of the Group s aims, might encourage new entrants to the market thereby changing the competitive landscape in which the Group operates. Ofcom is seeking to make Openreach more independent and this has led to BT agreeing to separate Openreach into a new company within the BT group. Whilst the proposed direction of regulation, including the separation of Openreach, is supportive of the Group s objectives, any adverse change or significant delays to Ofcom s proposals may adversely affect the Company s ability to implement its business plan in full, which could have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Furthermore, the communication sector is subject to mergers and consolidation. BT s recent acquisition of EE Limited in 2016 is an example of this. It is possible that further mergers or acquisitions will occur and this might affect the structure of the market in which the Group operates, or it may adversely affect the willingness of some providers to transact with the Group which might adversely affect the Group s operations. The recent general election in the UK may result in changes to government policy described in this document The statements in this document regarding government policy are attributable to the UK government in place prior to the general election held in the United Kingdom on 8 June 2017 ( General Election ). Whilst the Directors believe the statements of policy are likely to remain unchanged under the current government, there can be no assurance of this. Given the uncertainties arising from the results of the General Election, and the possibility of there being a further general election in the UK in short to medium term, there can be no guarantee these policies will remain in place. However, the manifestos for all the major UK political parties contain a commitment to improve broadband infrastructure in the UK, although policies may differ in this respect. The Group s business is subject to rapidly evolving technologies, and updating its own technology accordingly The data communications industry is subject to rapid and significant changes in technology, evolving industry standards, changing customer needs, emerging competition and frequent new product and service introductions. If the Group does not replace or upgrade its technology and equipment that becomes obsolete, there could be an adverse impact on business continuity. Additionally, if the technology choices it makes prove to be incorrect, ineffective or unacceptably costly, the Group will be unable to compete effectively because it will not be able to meet the expectations of its customers, which may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. The Group competes with companies with significantly greater financial and other resources and may face new competitors or new forms of competition The market in which the Group operates is dominated by one major entity, BT, which has much greater capital resources than the Group. Virgin Media, another major provider of broadband infrastructure, has announced plans to expand its network to more homes. These competitors, amongst others, will have significantly greater financial, technical, marketing and servicing resources than the Group and have longer operating histories or greater name recognition, with a more extensive network reach and significantly larger installed customer bases. As a result, many of the Group s competitors can raise capital at a lower cost than the Group can, and they may be able to adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities (including regulatory changes) more readily, and devote greater resources to the development, marketing and sale of products and services than the Group can. The Group s relatively smaller size may therefore be considered negatively by prospective customers. In addition, the Group s competitors may be able to respond more quickly to changes in customer requirements and devote greater resources to the enhancement, promotion or sale of their products. 19

26 The Group s competitors may announce or develop new products, services or enhancements, or be able to offer services at a much reduced cost, compared to the Group. In addition, new competitors or alliances among competitors could emerge. This increased competition may cause price reductions, reduced gross margins, failure to secure projects and loss of market share, any of which could have a material adverse effect on the Group s business, financial condition and results of operations. A significant portion of the Group s revenue comes from a limited number of customers Although the Group has approximately 500 long term contracts, it is currently reliant on a limited number of key customers, with approximately 50 per cent. of its revenue for the year ended 31 December 2016 generated from its four top customers. Although the Group is confident that the quality its services provide should continue to make those relationships successful, there is no assurance that will be the case. If the Group loses one or more of its major customers, or if one or more of its major customers significantly decreases use of the Group s services, the Group s business would be materially and adversely affected. The Group s future operating results will depend on the success of these customers and its other large customers, and its success in selling services to them. If it were to lose a significant portion of the revenue from any of its top customers, the Group would not be able to replace that revenue in the short term. Certain of the Group s customers may be subject to solvency risks The Group is reliant upon its contracts with various customers including but not limited to public authorities, Channel Partners and mobile network operators. As a result, any change to the financial health and/or solvency of any of these customers could adversely affect the business and operating results of the Group. The Company may have limited bargaining power with its customers in the negotiation of its customer and partner contracts The Group s contracts may lack uniformity or be based upon the terms and conditions set by its customers. The Group s customers include public authorities, Channel Partners and mobile network operators some of whom will have substantial purchasing power and negotiating leverage. As a result, the Group may negotiate contracts on a case-by-case basis and, in order to close a transaction, may sometimes accept onerous contract terms. Although the Directors consider that the terms negotiated with its customers and partners have, to date, been beneficial to the Group, there can be no guarantee that this will continue to be the case. If the Group is unable effectively to negotiate with key customers and partners, the business and operating results of the Company may be adversely affected. The Group acquired certain of its assets prior to their former owner going into liquidation, which assets could therefore be the subject of claims The Company s business was initially founded through the acquisition of various companies in January 2011 from i3 Group Limited (known as Earlestown Technology Limited as of 10 May 2011) ( i3 Group ). i3 Group went into administration in May 2011, and subsequently, in May 2012, went into liquidation and was dissolved on 20 November One of the companies acquired was H2O Networks Limited ( H2O Networks ). H2O Networks went into administration on 18 April 2011, and, in April 2012, went into and remains in liquidation. On 18 April 2011 CityFibre Networks Limited acquired all the business and assets of H2O Networks from the administrators by way of a pre-pack sale. The liquidators and administrators of each of i3 Group and H2O Networks could investigate the affairs of each company prior to their appointment, and the liquidators will review the conduct of the administrators. To date, the Group has not received notice of any claims. The latest liquidators report for H2O Networks states that investigations have now concluded with no further recoveries for creditors. Although now unlikely it remains possible that the liquidators could look to bring claims against the Group in relation to the transaction described above if they felt there were grounds for challenging them. If successful, any such claims could have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. In addition, certain individuals employed by H2O Networks prior to its acquisition by the Group were investigated and one was successfully prosecuted by the Serious Fraud Office ( SFO ) for various fraudulent offences carried out prior to the acquisition of H2O Networks by the Group. None of the CityFibre group of companies (other than H2O Networks), the Directors, nor any CityFibre group employees have, to the best of the knowledge and belief of the Directors, been investigated by the SFO in respect of these matters. The Group may not be able to achieve anticipated economies of scale The Group expects that economies of scale will allow it to increase revenues while incurring incremental costs that are proportionately lower than those applicable to its existing business. If the increased costs required to support its revenue growth turn out to be greater than anticipated, it may be unable to improve its profitability 20

27 and/or cash flows even if revenue growth goals are achieved. In addition, improvements in its cost structure in the short term may become more difficult as the amount of potential savings decreases due to the success of past savings initiatives. The Group s strategy longer term will require additional funds and the Group may be unsuccessful in raising such additional funds on attractive terms or at all In order successfully to pursue its strategy, the Company will in the longer term require further capital through debt or equity financing or from other sources. Any additional equity financing may be dilutive to holders of Ordinary Shares and any debt financing beyond the Facilities, if available, may require restrictions to be placed on the Group s future financing and operating activities. The Group may be unable to obtain additional financing beyond the Facilities on acceptable terms or at all if market and economic conditions, the financial condition or operating performance of the Group or investor sentiment (whether towards the Group in particular or towards the market sector in which the Group operates) are unfavourable. The Group s inability to raise additional funding may hinder its ability to grow in the longer term. The CFHL Group is subject to financial covenants that could limit its financial and operating flexibility, which could materially and adversely affect its business, financial condition and results of operations The Facility Agreement contains financial covenants which could limit the CFHL Group s ability to plan for, or react to, market conditions, as well as adversely affect its ability to make strategic acquisitions, investments or other capital needs, pursue business opportunities and engage in other business activities that may be in its best interests. Such limits placed on its financial and operating flexibility could materially and adversely affect its business, financial condition and results of operations. Fluctuations in interest rates and LIBOR may negatively impact the financial prospects and profitability of the CFHL Group The interest rate payable under the Facility Agreement is linked to LIBOR. Although the Group has put in place an interest rate hedging strategy, fluctuations in interbank interest rates and LIBOR are influenced by factors outside of the CFHL Group s control (such as the fiscal and monetary policies of governments, central banks and UK and international political and economic conditions) and can affect the CFHL Group s financial prospects and profitability. The Group may not be able to retain its key management personnel or attract additional skilled management personnel, and it also expects to be reliant on sub-contractors and contract workers The Group s success depends to a significant degree upon the continued contributions of the Executive Directors and other key personnel. The Group s future performance will be substantially dependent on its ability to retain and motivate such individuals. The loss of the services of the Executive Directors or of other key personnel could prevent the Group from executing its business strategy. Moreover, the Group s future success depends in part on its ability to hire, train and retain key, skilled personnel, and the Group competes with a number of other organisations for suitable personnel. If the Group fails to retain and hire a sufficient number and type of personnel, it will not be able to maintain and expand its business. The Group may be required to increase spending to retain personnel. In addition to full-time employees, the Group intends to utilise temporary contract workers provided by sub-contractors. There can be no assurance that the Group will be able to engage them on reasonable terms. Any disruption in the steady and regular supply of workers may adversely affect the Group s business. In addition, the Group s business expects to rely on a number of third party companies. The failure or inability of certain of these companies to provide the required services efficiently could disrupt the Group s operations and have an adverse effect on the Group s results of operations. The Group s future growth and prospects, and implementation of its strategy, will depend on its ability to manage the Group s growth effectively, including in relation to its acquisitions The ability of the Group to implement its strategy requires effective planning and management of control systems. The Group s growth plans may place a significant strain on its management and operational, financial and personnel resource. Therefore, the Group s future growth and prospects will depend on its ability to manage this growth. The Group has in the past, and may in the future, pursue acquisitions to grow its business. The process of integrating acquisitions with the Group s business so that the consolidated business operates as efficiently as possible requires significant corporate resources, and such efficiencies will be limited to some degree by the 21

28 Group s debt facilities from time to time. In addition, this process could cause the interruption to, or a loss of momentum in, the activities of the Group s or the Group s acquired businesses, including customer service, which could have a material adverse effect on its business, operating results, financial condition, prospects, and future operations. The management of the integration of the businesses, systems and culture of the Group s acquisitions requires the continued development of its financial and management controls, including the integration of information systems and structure, the integration of product offerings and customer base, the integration of networks, the retention of current personnel and the training of new personnel, all of which could disrupt the timeliness of financial information, place a strain on the Group s management resources and require significant expenditure. Any significant diversion of management s attention or any major difficulties encountered in the integration of the business such as insufficient revenue to offset expenses, inadequate return of capital, and issues not identified in the Company s pre-acquisition due diligence process, could have a material adverse effect on its business, operating results, financial condition, prospects, and future operations. The Group s insurance coverage may be inadequate to cover all losses or liabilities that may arise The Group maintains business interruption risk insurance and public liability insurance. It relies on its contractors to have in place sufficient and appropriate insurance cover in respect of the work they carry out. The occurrence of an event for which the Group is not insured or is inadequately insured may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Economic conditions and an economic downturn could adversely affect the Company s business Any economic downturn either globally, nationally or locally in any area in which the Group operates may have an adverse effect on the demand for the Group s products and services. A more prolonged economic downturn may lead to an overall decline in the volume of the Group s sales, restricting the Group s ability to realise a profit. The markets in which the Group offers its products and services are directly affected by many national and international factors that are beyond the Group s control. Changes in tax legislation could adversely affect the Group The Company does not currently pay corporation tax nor does it anticipate doing so in the short to medium term on account of the tax reliefs available, primarily relating to brought forward losses and capital allowances. Any change in tax legislation concerning utilisation of brought forward trading losses, capital allowances and/or non-domestic rate relief for the use of fibre infrastructure, may accelerate the time in which the Group is required to pay tax. This may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Terrorist attacks, cyber attacks or other acts of violence or war, or other events outside the Group s control, may adversely affect the Group s business either directly or by adversely affecting the Group s ability to obtain financing Significant terrorist attacks against the UK are possible. Since data communications networks and equipment may be considered critical infrastructure, it is possible that the Group s physical facilities or network control systems (and third party infrastructure on which the Group relies) could be the target of such attacks, or that such attacks could impact other data communications companies in a manner that disrupts the Group s operations. These concerns also could lead to volatility or illiquidity in world financial markets and could cause consumer confidence and spending to decrease or otherwise adversely affect the economy. These events could adversely affect the Group s business and its ability to obtain financing on favourable terms. Unauthorised access to CityFibre s infrastructure from outside parties (such as computer hackers or cyber terrorists) intent on extracting information, corrupting information or disrupting business processes could disrupt business and could result in a loss of assets, loss of data, litigation or arbitration claims or reputational damage, any of which may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Likewise, the Group s operations may be adversely affected by other risks outside its control including labour unrest, civil disorder, war, subversive activities or sabotage, fires, floods, explosions or other catastrophes, epidemics or quarantine restrictions or other events of force majeure that are, by their nature, out of the Group s control. Moreover, it is becoming increasingly difficult to obtain adequate insurance for losses incurred as a result of terrorist attacks and certain other events at reasonable rates. In some cases, such insurance may not be available. If any such event should occur, and the Group is not insured for such an event, it could have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. 22

29 The Group may become subject to future litigation The Group s industry is subject to legal claims, with and without merit. The Group may become involved in legal disputes in the future (including legal disputes with industry regulators). Defence and settlement costs can be substantial, even with respect to claims that have no merit, and they may distract management from pursuing the Company s strategy. Due to the inherent uncertainty in the litigation process, there can be no assurance that the resolution of any particular legal proceeding will not have a material adverse effect on the Group s financial position or results of operations. New accounting standards, amendments to standards and interpretations which have been issued but are not yet effective could adversely impact the presentation of the Group s operating results and financial condition New accounting 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 2016, including IFRS 15 which relates to accounting for revenues arising from contracts with customers, have not been adopted in preparing the financial statements of the Group included in Part 11 of this document. The implications of these new accounting standards on the Group have not yet been fully evaluated. The main accounting standards which may be relevant to the Group are set out in note 1 to the Group s financial statements as at and for the year ended 31 December 2016 as set out in Part 11 of this document. Once implemented, these new accounting standards could adversely impact the presentation of the Group s operating results and financial condition. Part B: Risks Related to the Entanet Acquisition The Entanet Acquisition may not complete Completion of the Entanet Acquisition is subject to the satisfaction of a number of conditions precedent contained in the Entanet Acquisition Agreement including, but not limited to, the approval of the Capital Raising by the Shareholders at the General Meeting and Admission. If Shareholders do not approve the Capital Raising at the General Meeting or another condition is not satisfied, or if the Entanet Acquisition Agreement is terminated because of a material breach, the Entanet Acquisition will not complete, which may adversely affect the Group s ability to realise its strategy in the timescale anticipated which in turn may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. The Group may not be able fully to realise the benefits of the Entanet Acquisition The Group s success will partially depend upon its ability following the Entanet Acquisition to integrate Entanet without significant disruption to the Group s or Entanet s business. The Entanet Acquisition may divert management s attention from the ordinary course operation of the business and raise unexpected issues and may take longer or prove more costly than anticipated. Although the Directors believe that such disruption is unlikely, issues may come to light during the course of integrating Entanet into the Group that may have an adverse effect on the financial condition and results of operations of the Group. There is no assurance that the Company will realise the potential benefits and cost synergies of the Entanet Acquisition including, without limitation, attracting new Channel Partners to and recurring revenue from the Company s network to the extent and within the time frame contemplated. It may also take longer than anticipated to migrate connections from Entanet s existing networks to CityFibre s network. Furthermore, the Company may be unable to migrate as many connections as anticipated, thus depriving the Group of some of the anticipated benefits of the Entanet Acquisition. If the Company is unable to integrate Entanet successfully into the Group then this could have a significantly negative impact on the Group s business, operating results, financial condition, prospects or future operations. The Group s success will partially depend on there being no adverse change in Entanet s business between the date of this document and the date of the completion of the proposed Entanet Acquisition. The Group may fail to retain Entanet s key personnel The calibre and performance of Entanet s senior management and other key employees is critical to the success of securing the benefits of the Entanet Acquisition. While key Entanet personnel will be eligible to participate in the Group s share incentive plans, there can be no assurance that the Entanet Acquisition will not result in the departure of key personnel from Entanet. If there were a departure of a significant number of management or key employees and the Group were not able to attract or develop suitable replacements, it may have an adverse effect on the Company s ability to execute its strategy in respect of Entanet, which in turn, may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. 23

30 The Entanet Acquisition may complete even if there is an adverse change or development in respect of Entanet, which may affect the value of Entanet, the Group and the Ordinary Shares Once the Resolutions have been passed at the General Meeting, the Company will be committed to proceed with the Entanet Acquisition, subject only to rights of termination and the other conditions under the Entanet Acquisition Agreement. The Company has rights to terminate the Entanet Acquisition Agreement if, prior to completion, certain events occur or warranties are breached that have a material adverse effect on Entanet. Accordingly, the Entanet Acquisition may proceed even if there is an adverse event or development in respect of Entanet which either falls short of this test or in circumstances where the Company determines to proceed in any event with the acquisition. In the event that the Entanet Acquisition completes and there is a factor of which the Company is not aware, an adverse event affecting the value of Entanet occurs or the value of Entanet s business declines prior to completion, the value of Entanet s business purchased by the Company may be less than the consideration agreed to be paid by the Company and, as a result, the net assets of the Group could be adversely affected. There can be no assurance that the Company would be able to renegotiate the consideration paid for Entanet in such circumstances and the Company may, therefore, pay an amount in excess of fair value for Entanet. A potential payment in excess of fair value may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. In addition, if a material adverse event occurs following completion of the Entanet Acquisition, the price of the Ordinary Shares may be adversely affected. Conversely, if the Company exercises its right to terminate the Entanet Acquisition prior to completion for a material breach, the price of the Ordinary Shares may be adversely affected. Recourse under the Entanet Acquisition Agreement is limited monetarily and by time The Company is relying on warranties, covenants and indemnities given by certain of the Sellers under the Entanet Acquisition Agreement. The Company s recourse under the Entanet Acquisition Agreement for losses and liabilities resulting from breach of any such warranty or covenant, or for amounts covered under indemnities, is subject to the monetary caps and time limitations specified in that agreement. In addition, the Company has also taken out warranty and indemnity insurance to cover certain warranties (up to the agreed limits in such insurance policies). Whilst the Company has carried out an extensive due diligence investigation of Entanet, any such investigation is limited by the information provided and involves an assessment by management of the nature, magnitude and likelihood of known potential losses and liabilities. The Company cannot assure Shareholders that its investigation and due diligence of Entanet has uncovered all events or conditions that might result in future losses or liabilities or that any known potential losses or liabilities have been fully addressed under the relevant provisions in the Entanet Acquisition Agreement. As a result, after completion of the Entanet Acquisition, the Group may suffer losses or incur liabilities for which it has limited or no recourse. Furthermore, if any such losses or liabilities exceed the monetary caps, or became known to the Company after expiry of the relevant time periods within which claims can be brought, each as specified in the Entanet Acquisition Agreement, the Company may not have any recourse under the Entanet Acquisition Agreement. While the Company has obtained warranty and indemnity insurance in respect of certain of the warranties in the Entanet Acquisition Agreement, its ability to recover under such insurance is also limited and subject to exclusions. If the Company was required to bear such losses or liabilities itself, subject to the quantum of such losses or liabilities, it may have a material adverse effect on the Group s financial position in the medium-to-long term. Entanet may require greater medium-term expenditure than currently estimated by Entanet s management which could adversely affect the financial benefits of the Entanet Acquisition and the prospects of the Group Entanet s current expenditure plan has been determined by its management in accordance with its strategy which was developed prior to the Entanet Acquisition. Following completion of the Entanet Acquisition, the CityFibre and Entanet management teams will set a business plan for Entanet in accordance with the Group s strategy. Given the differences in each of CityFibre and Entanet s strategies prior to the Entanet Acquisition, further medium-term expenditure may be required in order to develop and fulfil this strategy. Such additional costs may relate to, but are not limited to, the hiring of additional employees and further investment in IT systems. Although the Company s management has undertaken due diligence on, and appraisal of, Entanet s business plan, the level of medium-term capital expenditure required may be greater than is estimated by Entanet s management. This may have an adverse effect on the medium-term cash position of the Group, which in turn may have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. Third parties may terminate existing contracts with Entanet as a result of the Entanet Acquisition Entanet has a number of contracts or other arrangements with suppliers that contain change of control or similar clauses that may allow the counterparty to terminate their contract upon completion of the Entanet Acquisition. Termination of contracts or other arrangements with customers, suppliers and partners may result in 24

31 Entanet being unable to conduct its business on as favourable terms as it was able prior to the Entanet Acquisition. Where practicable, CityFibre and Entanet may seek to obtain consents or waivers from certain of these counterparties, but there can be no assurance that any consent or waiver can be obtained on reasonable terms or at all. If certain key third parties were to terminate or require alterations to their existing contracts with Entanet as a result of the Entanet Acquisition, it may have a material adverse effect on Entanet, and accordingly the realisation of the Group s strategy and consequently its business, operating results, financial condition, prospects or future operations. Part C: Risks Relating to the Capital Raising and the Ordinary Shares The market price of the Ordinary Shares may fluctuate The market price of the Ordinary Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the Ordinary Shares. The fluctuations could result from a number of factors including, in particular, the response of the market to: (a) (b) (c) (d) (e) (f) (g) (h) national and global economic, financial and political conditions; the Capital Raising and other changes in the Company s shareholding from time to time; the plans and proposals of the UK, US and other governments with respect to national and global economic, financial and political developments; market perceptions as to when the Company will be able to pay dividends on the Ordinary Shares; liquidity of financial markets; regulatory changes affecting the operations of the Group; variations in the Group s and/or its competitors operating results, forecasts or prospects, and business developments of the Group and/or its competitors; and changes in the Group s management team. Furthermore, the Group s operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the Ordinary Shares. The market price for Ordinary Shares may decline below the price at which investors subscribed for or acquired the Placing Shares or the Offer for Subscription Shares There is no assurance that the public trading market price of the Ordinary Shares will not decline below the Offer Price. Should that occur, investors, will suffer an immediate unrealised loss as a result. Moreover, there can be no assurance that, following the exercise of rights, Shareholders will be able to sell their New Ordinary Shares at a price equal to or greater than the acquisition price for those shares. The admission of the New Ordinary Shares to trading on AIM may not occur when expected Until the New Ordinary Shares are admitted to trading on AIM, they will not be fungible with Existing Ordinary Shares currently traded on AIM. There is no assurance that the admission to trading on AIM will take place when anticipated. Shareholders will experience dilution of existing ownership of Ordinary Shares Shareholders will experience dilution in their ownership and voting interests pursuant to the Placing whether or not Shareholders participate in the Offer for Subscription. Shareholders who do not participate in the Placing will be diluted by 57.8 per cent. (excluding the impact of the Offer for Subscription) or 59.5 per cent. (assuming full take up under the Offer for Subscription). The percentage of the Company s issued share capital that the Existing Ordinary Shares represent will be reduced by 57.8 per cent. to 42.2 per cent. as a result of the Capital Raising (excluding the impact of the Offer for Subscription) or by 59.5 per cent. to 40.5 per cent. (assuming full take up under the Offer for Subscription). The Ordinary Shares will not be admitted to the Official List Ordinary Shares (including the New Ordinary Shares) will be traded on AIM and will not be admitted to the Official List or admitted to trading on the London Stock Exchange s main market for listed securities. The rules of AIM are less demanding than those of the Official List and an investment in Ordinary Shares traded on AIM may carry a higher risk than an investment in shares admitted to the Official List. In addition, the market in Ordinary Shares on AIM may have limited liquidity, making it more difficult for an investor to realise its investment than might be the case in respect of an investment in shares which are quoted on the London Stock Exchange s main market for listed securities. Investors should therefore be aware that the market price of the Ordinary Shares may be more volatile than the market prices of shares quoted on the London Stock Exchange s 25

32 main market for listed securities and may not reflect the underlying value of the net assets of the Group. For these and other reasons, investors may not be able to sell at a price which permits them to recover their original investment. The ability of Overseas Shareholders to bring actions or enforce judgments against the Company or the Directors may be limited The ability of an Overseas Shareholder to bring an action against the Company may be limited under law. The Company is a public limited company incorporated in England and Wales. The rights of holders of Ordinary Shares are governed by UK law and by the Company s Articles of Association. These rights differ from the rights of shareholders in some other non-uk corporations. An Overseas Shareholder may not be able to enforce a judgment against some or all of the Directors and the executive officers. The majority of the Directors and executive officers of the Company are residents of the United Kingdom. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Directors and executive officers of the Company within the Overseas Shareholder s country of residence or to enforce against the Directors and executive officers of the Company judgments of courts of the Overseas Shareholder s country of residence based on civil liabilities under that country s securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the United Kingdom against the Directors or executive officers of the Company who are residents of the United Kingdom or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Directors or executive officers of the Company in any original action based solely on foreign securities laws brought against the Company or the Directors or executive officers of the Company in a court of competent jurisdiction in England or other countries. Overseas Shareholders may not be able to exercise future pre-emptive rights As part of the Capital Raising, the share capital of the Company will be increased and New Ordinary Shares will be issued. In addition, further share capital increases and share issues may be proposed in the future. Shareholders are entitled to pre-emptive rights in respect of new issues of shares for cash unless those rights are waived by a Shareholders resolution. Overseas Shareholders may not be able to exercise their pre-emptive rights as part of a future issue of shares for cash (even if pre-emption rights were not waived), unless the Company decides to comply with applicable local laws and regulations. This is because securities laws of certain jurisdictions may restrict the Company s ability to allow participation by certain Shareholders in any future issue of shares. In particular, Overseas Shareholders who are located in the United States may not be able to exercise their rights on a future issue of shares, unless a registration statement under the US Securities Act is effective with respect to such rights or an exemption from the registration requirements is available thereunder. The New Ordinary Shares will not be registered under the US Securities Act and the Company may not file any such registration statements for future share issues, and an exemption from the registration requirements of the US Securities Act may not be available in any case. In such an event, Overseas Shareholders with a registered address, or who are located, in the United States would be unable to participate in such an issue. Future issues of Ordinary Shares by the Company may dilute the holdings of Shareholders and a sale by a major shareholder of Ordinary Shares may depress the price of the Ordinary Shares In order successfully to pursue its strategy, the Company will in the longer term require further capital. This may consist of a further issue of Ordinary Shares, which may dilute the holdings of Shareholders. Likewise, a major shareholder may also decide to sell a substantial number of Ordinary Shares in the public market, which could adversely affect the prevailing market price of the Ordinary Shares and/or impair the Group s ability to raise capital through future sales of equity securities. There can be no guarantee that the Company will pay shareholders dividends The dividend policy for the Company is set out in section 8 of Part 1 of this document. As indicated there, the Group does not intend to pay dividends in the short to medium term and there can be no assurance that the Company will eventually declare dividends or as to the level of any dividends. The approval of the declaration and amount of any dividends of the Company is subject to the discretion of the directors of the Company (and, in the case of any final dividend, the discretion of the Shareholders) at the relevant time and will depend upon, among other things, the Group s earnings, financial position, cash requirements and availability of distributable profits, as well as the provisions of relevant laws and/or generally accepted accounting principles from time to time. 26

33 Moreover, as and when the Company does determine to pay dividends, the Company s ability to pay them will depend on the level of distributions, if any, received from the Company s subsidiaries. Members of the Group may from time to time be subject to restrictions on their ability to make distributions to the Company, as a result of factors such as restrictive covenants contained within loan agreements, foreign exchange limitations, regulatory, fiscal or other restrictions. There can be no assurance that such restrictions will not have a material adverse effect on the Group s business, operating results, financial condition, prospects or future operations. 27

34 PRESENTATION OF INFORMATION 1. Introduction The contents of this document should not be construed as legal, financial or tax advice. Shareholders should consult their own solicitor, financial adviser or tax adviser for legal, financial or tax advice. 2. Notice to Investors Neither this document nor the Application Form constitutes, or will constitute, or form part of any offer or invitation to sell or issue, or any solicitation of any offer to subscribe for, purchase or acquire the New Ordinary Shares to any Shareholder with a registered address in or located in the United States. Notwithstanding the foregoing, the Company reserves the right to offer the New Ordinary Shares in the United States in transactions exempt from, or not subject to, the registration requirements of the US Securities Act. Shareholders in the United States, subject to certain exceptions, may not subscribe for or acquire any New Ordinary Shares in connection with the Capital Raising. 3. Financial Information and Other Information Unless otherwise indicated, financial information for the Company and the Group contained in this document has been extracted without material adjustment from the audited financial statements for the Group for the years ended 31 December 2014, 31 December 2015 and 31 December 2016, each prepared in accordance with IFRS, as adopted by the European Union, and presented in Sterling. For further information see Basis of Accounting in Part 11 of this document. The financial information for Entanet contained in this document has been adjusted to reflect the accounting policies adopted by the Company in its audited financial statements for the year ended 31 December Accordingly, such historical financial information differs, and may not be comparable to, the audited historical financial statements of Entanet for the period ended 31 December 2014, 31 December 2015 and 31 December 2016 filed with the UK s Company Registrar and included in Entanet s annual accounts for 2014, 2015 and Some of the information set out in this document is derived from studies performed by external parties, including market reports. Some of the other information set out in this document is available to the public. The Company considers all such information to be reliable, but this has not been verified by an independent expert. The Company cannot guarantee that any third party using different methods to combine, analyse or calculate the data on these business sectors would obtain the same results. The Company does not give any guarantees concerning the accuracy of such information. It is possible some of this information could prove erroneous or out of date. The Company does not undertake to publish updates of this information, except as required by any applicable legal or regulatory obligation. The Directors consider a variety of financial measures and operating metrics in analysing the Group s performance. The Directors believe that each of these measures provides useful information with respect to the performance of the Group s business and operations. These are non-ifrs financial measures and operating metrics, and are not audited. These non-ifrs financial measures and operating metrics are not meant to be considered in isolation or as a substitute for measures of financial performance reported in accordance with IFRS. Moreover, these non-ifrs financial measures and metrics may be defined or calculated differently by other companies, and as a result the Group s key performance indicators may not be comparable to similar measures and metrics calculated by its peers. 4. No Profit Forecast No statement in this document is intended to constitute a profit forecast or profit estimate for any period, nor should any statement be interpreted to mean that earnings or earnings per share will necessarily be greater or lesser than those for the relevant preceding financial period for the Company. 5. Forward-Looking Statements Certain statements contained in this document, including those in the sections headed Summary and Risk Factors and the Parts headed Information on CityFibre and Operating and Financial Review of CityFibre constitute forward-looking statements. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, plans, prepares, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. Each person should specifically consider the factors identified in this document, which could cause actual results to differ, before making an investment decision. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, 28

35 performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group s present and future business strategies, together with the strategy for the Group and the environment in which the Group will operate in the future. Such risks, uncertainties and other factors are set out more fully in the section of this document headed Risk Factors and include, among others: general economic and business conditions, industry trends, competition, changes in government regulation, economic downturn and the Group s ability to implement expansion plans. These forward-looking statements speak only as at the Reference Date. Except as required by the FCA, the Prospectus Rules, the AIM Rules, the Disclosure Guidance and Transparency Rules, the London Stock Exchange, applicable law or relevant regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in the Company s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. This statement does not seek to qualify the working capital statement given at section 13 of Part 10 of this document. 6. Available Information Corporate documents relating to the Company that are required to be made available to shareholders pursuant to applicable law, as well as the Company s historical financial information, may be consulted at the registered office of the Company. A copy of these documents may be obtained from the Company upon request. The Company is not required to file periodic reports under Section 13(a) or 15(d) of the US Exchange Act. For so long as the shares remain restricted securities under the US Securities Act and the Company is neither subject to Section 13(a) or 15(d) of the US Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, the Company will furnish, upon request, to any holder of Placing Shares or Offer for Subscription Shares or prospective purchaser designated by such shareholder, the information required to be delivered pursuant to Rule 144A(d)(4) under the US Securities Act to facilitate resales of the shares pursuant to Rule 144A. 7. Enforcement of Foreign Judgments and Service of Process The Company is a public limited company incorporated under the laws of England and Wales. Most of the Directors and executive officers of the Company reside outside the United States. In addition, all or substantially all of the assets of the Company, most of the Directors and the Company s executive officers are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon any of the Company, most of the Directors or executive officers of the Company located outside of the United States or to enforce against them any judgments of US courts, including judgments predicated upon civil liabilities under the securities laws of the United States or any state or territory within the United States. There is substantial doubt as to the enforceability in the United Kingdom in original actions, or in actions for enforcement of judgments of US courts, based on the civil liability provisions of US federal securities laws. In addition, punitive damages in actions brought in the United States or elsewhere may be unenforceable in England and Wales. 8. Rounding Certain figures included in this document have been subject to rounding adjustments. Accordingly, discrepancies in tables between the totals and the sums of the relevant amounts is due to rounding. 9. Websites The content of the Company s website (or any other website) and the content of any website accessible from hyperlinks on the Company s website (or any other website) is not incorporated into, nor does it form any part of, this document. 10. Time All references in this document to time are to London time unless stated. 11. Definitions Capitalised terms used in this document have the meanings ascribed to them in Part 14 of this document. 29

36 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Each of the times and dates in the table below is indicative only and may be subject to change. Please refer to the notes for this timetable set out below. Announcement of the Capital Raising 5 July 2017 Prospectus published, Forms of Proxy despatched and 11 July 2017 Application Forms despatched Offer for Subscription opens 11 July 2017 Latest time and date for receipt of Forms of Proxy a.m. on 25 July 2017 Latest time and date for receipt of completed Application Forms or settlement of relevant CREST instructions and payments in full a.m. on 26 July 2017 General Meeting a.m. on 27 July 2017 Announcement of results of the Capital Raising 27 July 2017 Completion and Admission and dealings in New Ordinary Shares, fully paid, commence on the London Stock Exchange by 8.00 a.m. on 28 July 2017 New Ordinary Shares credited to CREST stock accounts by 8.00 a.m. on 28 July 2017 Expected despatch of definitive share certificates for the New Ordinary Shares in certificated form by 11 August 2017 Notes: (1) The times and dates set out in the expected timetable of principal events above and mentioned in this document, the Application Form and in any other document issued in connection with the Capital Raising are subject to change by the Company, in which event details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange and, where appropriate, to Shareholders. (2) Any reference to a time in this document is to London time, unless otherwise specified. (3) The ability to participate in the Offer for Subscription is subject to certain restrictions relating to applicants with registered addresses or located or resident in countries outside the UK, details of which are set out in section 5 of part 2 of this document. 30

37 DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS Directors Christopher Michael Renwick Stone (Non-Executive Chairman) William Gregory Mesch (Chief Executive Officer) Mark Grahame Collins (Director, Public Policy) Terence Alan Hart (Chief Financial Officer) Leopold Wilhelmus Antonius Maria van Doorne (Non-Executive Director) Robert Gary Mesch (Non-Executive Director) Sally Margaret Davis (Non-Executive Director) Stephen Charlton (Non-Executive Director) Company Secretary Registered Office Christopher Gawn 15 Bedford Street, London, WC2E 9HE Telephone Company website Sole Global Co-ordinator, Joint Bookrunner and Joint Underwriter Nominated Adviser, Joint Underwriter and Joint Bookrunner Joint Underwriter and Joint Bookrunner Joint Underwriter and Joint Bookrunner Financial Adviser Reporting Accountant, Tax Adviser and Auditor Citigroup Global Markets Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB finncap Ltd 60 New Broad Street London EC2M 1JJ Liberum Capital Limited Ropemaker Place Level 12, 25 Ropemaker Street London EC2Y 9LY Macquarie Capital (Europe) Limited Ropemaker Place 28 Ropemaker Street London EC2Y 9HD N M Rothschild & Sons Limited New Court St Swithin s Lane London EC4N 8AL BDO LLP 55 Baker Street London W1U 7EU 31

38 Legal Advisers to CityFibre as to English and US law Legal Advisers to the Underwriters and Joint Bookrunners as to English and US law Registrar/Receiving Agent CMS Cameron McKenna Nabarro Olswang LLP Cannon Place 78 Cannon St London EC4N 6AF Norton Rose Fulbright LLP 3 More London Riverside London SE1 2AQ Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE 32

39 CAPITAL RAISING STATISTICS Shares in issue as at the Reference Date 265,672,644 Ordinary Shares Offer Price 55 pence Number of Placing Shares to be issued 363,636,364 Ordinary Shares Estimated gross proceeds of the Placing 200 million Number of Offer for Subscription Shares to be issued up to 27,272,727 Ordinary Shares Estimated gross proceeds of the Offer for Subscription up to 15 million Aggregate number of New Ordinary Shares to be issued pursuant to the Capital Raising (1) up to 363,636,364 Estimated gross proceeds of the Capital Raising (1) 200 million Estimated net proceeds receivable by the Company, after deduction of commissions, fees and expenses in respect of the Capital Raising (1) 191 million New Ordinary Shares as a percentage of the Company s enlarged issued share capital immediately after the Capital Raising (1)(2) 57.8 per cent. Shares in issue immediately after the Capital Raising (1)(2) 629,309,008 Ordinary Shares Notes: (1) This assumes nil take up of the Offer for Subscription. (2) Assuming that no new Ordinary Shares (other than the New Ordinary Shares) are issued from the Reference Date until Admission. 33

40 QUESTIONS AND ANSWERS ABOUT THE CAPITAL RAISING The questions and answers set out below ( Questions and Answers about the Capital Raising ) are intended to be generic guidance only and, as such, you should also read Part 2 of this document for further details of what action you should take if you wish to participate in the Capital Raising. If you are in any doubt about the action to be taken, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser duly authorised under FSMA if you are in the United Kingdom, or if you are not, from another appropriately authorised financial adviser. If you are an Overseas Person, you should read the answer to question 4.4 (What should I do if I live outside the United Kingdom?) below and you should take professional advice as to whether you are eligible and/or need to observe any formalities to enable you to participate in the Offer for Subscription. Shares in the Company can be held in certificated form (that is represented by one or more share certificate(s)) or in uncertificated form (that is, held through CREST). Accordingly, the questions and answers are split into four sections: Section 1: answers general questions you may have about the Capital Raising; Section 2: answers questions you may have in respect of the procedures for applying in the Offer for Subscription; and Section 3: answers some questions about your rights and the actions you may need to take. If you do not know whether you hold Ordinary Shares in certificated form or uncertificated form, please contact Computershare Investor Services PLC on or if calling from outside the UK on The helpline is open between 8.30 a.m. to 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes. 1. General 1.1 What is the Placing? The Placing is a proposed issue of Placing Shares on a non-pre-emptive basis by which certain Shareholders and prospective institutional investors will subscribe for a total of 363,636,364 Placing Shares at the Offer Price, being 55 pence per Placing Share. The Offer Price represents an approximate 9.09 per cent. discount to the Closing Price of pence per Ordinary Share on 4 July 2017 (being the last Business Day prior to announcement of the Capital Raising). The Offer Price (including the size of the discount) has been determined, following discussions with both existing Shareholders and Placees, to be at a level which the Board considers appropriate to ensure the success of the Capital Raising, taking into account the aggregate proceeds to be raised. The Offer Price in respect of the Placing Shares is payable in full upon Admission, which is expected to become effective at 8.00 a.m. on 28 July What is the Offer for Subscription? An offer for subscription is a way for companies to raise money. Companies do this by giving their existing shareholders and other investors a right to acquire further shares at a fixed price in such numbers as applicants may apply for (subject to scaling backing in the event of over-applications). In this instance, Shareholders and other investors are being given the opportunity to apply for Offer for Subscription Shares under the Offer for Subscription. This Offer for Subscription is an opportunity to apply to acquire up to an aggregate of 27,272,727 Offer for Subscription Shares at the Offer Price, being a price of 55 pence per Offer for Subscription Share. Other than, subject to certain exceptions, where you have a registered address or are located in the United States or an Excluded Territory, you will be entitled to apply to subscribe for Offer for Subscription Shares under the Offer for Subscription. The Offer Price represents an approximate 9.09 per cent. discount to the Closing Price of pence per Ordinary Share on 4 July 2017 (being the last Business Day prior to announcement of the Capital Raising). Applications under the Offer for Subscription must be for a minimum of 2,000 Offer for Subscription Shares (the Minimum Subscription ) and thereafter in multiples of 2,000 Offer for Subscription Shares, up to the maximum number of 27,272,727 Offer for Subscription Shares available in the Offer for Subscription. In the event that valid applications are received under the Offer for Subscription for more than the maximum number of Offer for Subscription Shares available, applications shall be allocated in such manner as the Directors may 34

41 determine, in their absolute discretion, although the Directors anticipate such allocations will take into account applications made by existing Shareholders for Offer for Subscription Shares. Any application for less than the Minimum Subscription or which is not for a multiple of 2,000 Offer for Subscription Shares will be rejected. No assurance can be given that applications (whether by Shareholders or others) under the Offer for Subscription will be met in full or in part or at all. Unlike in a rights issue, Application Forms are not negotiable documents and cannot themselves be traded. 1.3 Is the Capital Raising underwritten? The Placing is fully underwritten by the Underwriters but the Offer for Subscription is not underwritten. The Capital Raising is conditional upon (among other things) (i) the Resolutions being passed at the General Meeting, (ii) the Underwriting Agreement having become unconditional in all respects (other than in respect of Admission), and (iii) Admission becoming effective by no later than 8.00 a.m. on 28 July 2017, (or such later date as the Company and the Underwriters may agree). 1.4 What happens next? The Company has called a General Meeting to be held at a.m. on 27 July 2017 at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon St, London EC4N 6AF. Please see the Notice of General Meeting at the end of this document. As you will see from the contents of the Notice of General Meeting, the Board is seeking Shareholder approval for the allotment of the New Ordinary Shares in connection with the Capital Raising and disapplication of pre-emption rights associated with the issue of the New Ordinary Shares in connection with the Capital Raising. If the Resolutions are approved at the General Meeting, the Capital Raising will proceed (subject to certain conditions). Offer for Subscription Shares are expected to be conditionally allotted as soon as practicable after the General Meeting. 2. Applying under the Offer for Subscription 2.1 How do I know I am eligible to participate in the Offer for Subscription? If, subject to certain exceptions, you do not have a registered address or are located in the United States or any of the other Excluded Territories, then you should be eligible to participate in the Offer for Subscription. Subject to certain exceptions, if you have a registered address in the United States or any of the other Excluded Territories, you will not be eligible to participate in the Offer for Subscription. If you would like to apply for any Offer for Subscription Shares, you should complete the Application Form in accordance with the instructions printed on it and the information provided in this document. Completed Application Forms should be returned, along with a cheque drawn in the appropriate form, by post to Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH or by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE (during normal office hours only) so as to be received by them by no later than a.m. on 26 July 2017, after which time Application Forms will not be valid. If you wish to make payment electronically please contact Computershare at CityFibreOFS@computershare.co.uk, who will provide you with the necessary bank account details and a reference number to quote when making payment. Applicants choosing to settle via CREST, that is DVP will need to match their instructions to Computershare s participant account 8RA21 by no later than a.m. on 26 July 2017, allowing for the delivery and acceptance of Offer for Subscription Shares to be made against payment of the Offer Price per Offer for Subscription Share, following the CREST matching criteria set out in the Application Form. 2.2 What are my choices in relation to the Offer for Subscription? (a) If you do not want to participate in the Offer for Subscription If you do not want to participate in the Offer for Subscription, you do not need to do anything. In these circumstances, you will not receive any Offer for Subscription Shares. If you are an existing Shareholder and do not subscribe for Offer for Subscription Shares, then following the issue of the Offer for Subscription Shares pursuant to the Offer for Subscription and the Placing Shares pursuant to the Placing, your interest in the Company will be significantly diluted. Even if a Shareholder subscribes for Offer for Subscription Shares, their proportionate economic interest would be diluted by the issue of Offer for Subscription Shares pursuant to the Offer for Subscription and the issue of Placing Shares pursuant to the Placing. 35

42 (b) If you want to apply for Offer for Subscription Shares If you want to apply for Offer for Subscription Shares, you should write the number of Offer for Subscription Shares you want to apply for in Box 1 and the cash value (at the Offer Price) of the number of Offer for Subscription Shares you want to apply for in Box 2 of your Application Form. Such cash value must not exceed 15 million and must be in respect of a minimum of 2,000 Offer for Subscription Shares and thereafter in multiples of 2,000 Offer for Subscription Shares. To work out how much you need to pay for the Offer for Subscription Shares, you need to multiply the number of Offer for Subscription Shares you want (which must be in multiples of 2,000) by 55 pence, which is the price in pounds of each Offer for Subscription Share. You should write this amount in Box 2, rounding up to the nearest whole pence and this should be the amount your cheque is made out for. You should then return the completed Application Form, together with a cheque for that amount, by post to Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH or by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE (during normal office hours only) so as to be received by them by no later than a.m. on 26 July 2017, after which time Application Forms will not be valid. If you post your Application Form by first class post, you should allow at least four Business Days for delivery. If you wish to make payment electronically please contact Computershare at CityFibreOFS@computershare.co.uk, who will provide you with the necessary bank account details and a reference number to quote when making payment. Applicants choosing to settle via CREST, that is DVP will need to match their instructions to Computershare s participant account 8RA21 by no later than a.m. on 26 July 2017, allowing for the delivery and acceptance of Offer for Subscription Shares to be made against payment of the Offer Price per Offer for Subscription Share, following the CREST matching criteria set out in the Application Form. If valid applications are received under the Offer for Subscription for more than the maximum number of Offer for Subscription Shares available, applications shall be allocated in such manner as the Directors may determine, in their absolute discretion, although the Directors anticipate such allocations will take into account applications made by existing Shareholders for Offer for Subscription Shares. No assurance can be given that the applications (whether by Shareholders or others) will be met in full or in part or at all. If you apply for Offer for Subscription Shares to be issued to you in certificated form, a definitive share certificate will then be sent to you for the Offer for Subscription Shares that you are allocated under the Offer for Subscription. Your definitive share certificate for Offer for Subscription Shares is expected to be despatched to you, at your own risk, by no later than 10 business days from Admission. 2.3 How do I pay? Completed Application Forms should be returned with a cheque drawn in the appropriate form. All payments must be in pounds sterling and made by cheque made payable to CIS PLC RE: CityFibre Infrastructure Holdings plc Offer for Subscription A/C and crossed A/C Payee Only. Cheques must be drawn on a bank or building society or branch of a bank or building society in the United Kingdom or Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right-hand corner. Third party cheques will not be accepted with the exception of building society cheques where the building society or bank has confirmed the name of the account holder and the number of an account held in the applicant s name at the building society or bank by stamping or endorsing the cheque to such effect. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted. Third party cheques (other than building society cheques where the building society or bank has confirmed that the applicant has title to the underlying funds) will not be accepted. Cheques will be presented for payment upon receipt. The Company reserves the right to instruct Computershare Investor Services PLC to seek special clearance of cheques to allow the Company to obtain value for remittances at the earliest opportunity. No interest will be paid on payments made before they are due. It is a term of the Offer for Subscription that cheques shall be honoured on first presentation and the Company may elect to treat as invalid acceptances in respect of which cheques are not so honoured. All documents, cheques sent through the post will be sent at the risk of the sender. If you wish to make payment electronically please contact Computershare at CityFibreOFS@computershare.co.uk, who will provide you with the necessary bank account details and a reference number to quote when making payment. Applicants choosing to settle via CREST, that is DVP will need to match their instructions to Computershare s participant account 8RA21 by no later than a.m. on 26 July 2017, allowing for the delivery and acceptance of Offer for Subscription Shares to be made against payment of the Offer Price per Offer for Subscription Share, following the CREST matching criteria set out in the Application Form. 36

43 2.4 Where do I send my Application Form? You should send your completed Application Form together with the monies in the appropriate form, by post to Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH or by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE (during normal office hours only). If you post your Application Form by first-class post, you should allow at least four Business Days for delivery. If you do not want to apply for Offer for Subscription Shares then you need take no further action. 2.5 When do I have to decide if I want to apply for Offer for Subscription Shares? Computershare Investor Services PLC must receive the Application Form by no later than a.m. on 26 July 2017, after which time Application Forms will not be valid. If an Application Form is being sent by first class post in the UK, applicants are recommended to allow at least four Business Days for delivery. 2.6 When will I receive my new share certificate? It is expected that Computershare Investor Services PLC will post all new share certificates within 10 business days from Admission. 2.7 When will my CREST account be credited? If you apply for any Offer for Subscription Shares which are allocated to you to be credited to your CREST account, it is expected that those shares will be credited to the CREST account specified with effect from Admission. 3. Further procedures for shares whether in certificated form or in uncertificated form 3.1 What if I change my mind? Once you have sent your Application Form and payment to Computershare Investor Services PLC, you cannot withdraw your application or change the number of Offer for Subscription Shares for which you have applied, except in the very limited circumstances which are set out in this document. 3.2 What should I do if I live outside the United Kingdom? Your ability to apply for Offer for Subscription Shares under the Offer for Subscription may be affected by the laws of the country in which you live and you should take professional advice about any formalities you need to observe. Persons resident outside the United Kingdom, including those with a registered address or those located or resident in any Excluded Territory, should refer to section 5 of Part 2 of this document. 3.3 What if I hold options and awards under the Company Share Incentive Arrangements? The Company shall separately advise participants in the Share Incentive Arrangements of adjustments (if any) to be made to their awards or other rights as a result of the Capital Raising. 3.4 What do I do if I have any further queries about the Capital Raising or the action I should take? If you have any other questions, please contact Computershare Investor Services PLC on or if calling from outside the UK on The helpline is open between 8.30 a.m. to 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes. Your attention is drawn to the terms and conditions of the Offer for Subscription in Part 2 of this document. 37

44 WHERE TO FIND HELP If you have any questions relating to the procedure for acceptance and payment under the Offer for Subscription, please telephone the Shareholder Helpline on the numbers set out below. This helpline is available from 8.30 a.m. to 5.30 p.m. Monday to Friday (except bank holidays). Calls may be recorded and randomly monitored for security and training purposes. Shareholder Helpline (from inside the United Kingdom) or +44 (0) (from outside the United Kingdom) Please note that, for legal reasons, the Shareholder Helpline will only be able to provide information contained in this document and information relating to the Company s register of members and cannot provide advice on the merits of the Offer for Subscription or provide financial, tax, investment or legal advice. 38

45 PART 1 LETTER FROM THE CHAIRMAN OF CITYFIBRE INFRASTRUCTURE HOLDINGS PLC (incorporated in England and Wales with registered number ) Registered Office: 15 Bedford Street, London WC2E 9HE Directors: Christopher Stone (Non-Executive Chairman) Greg Mesch (Chief Executive Officer) Mark Collins (Director, Public Policy) Terry Hart (Chief Financial Officer) Leo van Doorne (Non-Executive Director) Gary Mesch (Non-Executive Director) Sally Davis (Non-Executive Director) Stephen Charlton (Non-Executive Director) To Shareholders and, for information only, to holders of Options 11 July 2017 Dear Shareholder Proposed Placing of 363,636,364 Placing Shares at 55 pence per Placing Share Proposed Offer for Subscription of 27,272,727 Offer for Subscription Shares at 55 pence per Offer for Subscription Share and Notice of General Meeting 1. Introduction On 5 July 2017 the Board announced that the Company intends to raise 200 million (approximately 191 million net of costs and expenses) by way of a Placing, which will be fully underwritten by the Underwriters, and up to 15 million by way of an Offer for Subscription, which is not underwritten, subject to certain conditions. The net proceeds of the Capital Raising will be used to fund the growth of the Group s full fibre network in the UK, including expansion of its metro networks to not less than 50 towns and cities by 2020 and the commencement of construction of Fibre to the Home in five to ten of these towns and cities during In support of the Company s strategy to focus on wholesale fibre services, part of the proceeds will also be used to fund the acquisition of Entanet, a provider of wholesale communications services. The purpose of this letter is to: (i) explain the background to and reasons for the Capital Raising; (ii) explain why the Board believes that the Capital Raising is in the best interests of the Company and its Shareholders as a whole; and (iii) recommend that you vote in favour of the Resolutions to be proposed at the General Meeting. In this respect, this document should be read in its entirety and you should not rely solely on the information in this Part 1. Your attention, in particular, is drawn to the risk factors set out in the section titled Risk Factors. As more fully described in section 3 of this Part 1, the Company proposes to undertake the Capital Raising to raise gross proceeds of at least 200 million and up to 215 million. The Capital Raising comprises the issue of 363,636,364 Placing Shares at a price of 55 pence per Placing Share pursuant to the Placing and up to 27,727,727 Offer for Subscription Shares at a price of 55 pence per Offer for Subscription Share pursuant to the Offer for Subscription (together representing per cent. of the existing issued ordinary share capital of the Company, and 59.5 per cent. of the enlarged issued ordinary share capital immediately following completion of the Capital Raising assuming that the Offer for Subscription is taken up in full). Application will be made to the London Stock Exchange for the Placing Shares and the Offer for Subscription Shares to be admitted to trading on AIM. It is expected that Admission will become effective and dealings in the Placing Shares and the Offer for Subscription Shares will commence on the London Stock Exchange at 8.00 a.m. on 28 July A General Meeting has been convened for a.m. on 27 July 2017 at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon St, London EC4N 6AF. Details of the Resolutions to be proposed at the General Meeting are set out in section 9 of this Part 1 and in the Notice of General Meeting at the end of this document. 39

46 2. Background to and reasons for the Capital Raising Since its formation in 2011, CityFibre has become established as an independent provider of wholesale fibre infrastructure for Channel Partners and mobile operators. CityFibre provides fibre connectivity services through designing, building, owning, and operating fibre optic network infrastructure. The Group is a wholesale operator of fibre networks in towns and cities outside London. The Group provides open access, shared fibre infrastructure that enables gigabit-capable connectivity for Channel Partners and mobile network operators, who in-turn deliver digital connectivity solutions to their end customers spanning the public sector, business, and residential markets. The Group now has a presence in 42 towns and cities in the UK providing infrastructure that is an alternative to Openreach. Having demonstrated its capability to deploy fibre infrastructure to address market demand, the Company now has opportunities to accelerate and expand its fibre network, and is undertaking the Capital Raising in order to capitalise on those opportunities. Growth in global data transmission is driving continued investment in digital communications infrastructure, and particularly in fibre optic broadband networks. Global IP traffic is forecasted to grow at a compounded rate of 22 per cent per annum between 2015 and 2020, driven by adoption of higher-speed broadband and the proliferation of digital connectivity devices, digital services and cloud computing. By 2019, it is predicted that two thirds of total IP traffic will originate or terminate in urban metro networks. (Source: Cisco VNI Forecast and Methodology ). The UK has one of the highest levels of internet adoption in the world, but in terms of fibre infrastructure it lags behind nearly all OECD nations. As of December 2016, 79 per cent. of premises in Spain and 70 per cent. of premises in Portugal had access to full fibre broadband. In contrast, the UK s coverage of full fibre was approximately 2 per cent. of premises (Source: Ofcom plans for a full-fibre future, Ofcom). The broadband network in the UK is currently heavily reliant on copper connections. Together Openreach and Virgin Media have announced plans to extend fibre infrastructure to, in aggregate, four million premises by 2020, which would only increase the percentage of UK premises with fibre access to 15 per cent., well below many other OECD nations. In February 2016 the communications regulator, Ofcom, published its Digital Communications Review, which outlined its strategy to promote investment in new fibre infrastructure whilst reducing the industry s dependence on Openreach. It targeted the creation of a new fibre infrastructure connecting to 40 per cent. or more UK premises. In November 2016 the previous UK government announced its policy for full fibre and 5G, pledging 1.14 billion of financial support for competitive fibre infrastructure and 5G projects. This was followed in March 2017 by Ofcom s proposals for new regulation to promote competitive investment in FTTH fibre broadband networks. To encourage new fibre network deployments, Ofcom has put forward proposals for consultation to encourage competitors to access Openreach s ducts and poles. In May 2017, Openreach announced a consultation process to engage with other fibre infrastructure builders and Channel Partners to explore the opportunities for a collaborative approach to FTTH rollout, with the potential to make full fibre connections available to 10 million premises by the mid 2020 s. As a builder of full fibre infrastructure (meaning there is no copper or co-axial cable used for the provision of data connectivity services in CityFibre s networks) CityFibre is well positioned to take advantage of these policy and regulatory changes. Having grown in scale, through organic growth and targeted acquisitions, CityFibre is able to respond to these new market developments by expanding the reach of its fibre infrastructure, to new towns and cities and also to more premises within its existing network footprint. CityFibre s strategy to deploy high capacity fibre infrastructure across many UK towns and cities, offering wholesale access to Channel Partners and mobile operators, is aligned to continued demand for fibre infrastructure across four primary market verticals: Š Public sector fibre connectivity to council buildings, schools, hospitals, CCTV; Š Business fibre connections to enterprises and SMEs (often referred to as Fibre to the Premises FTTP); Š Š Mobile operators fibre connections to mobile base stations and small cells for 4G and future 5G mobile services (often referred to as Fibre to the Tower FTTT); and Consumers fibre connections to homes (often referred to as Fibre to the Home FTTH). 40

47 Since its formation in 2011, the Company has grown its network, organically and through acquisition, to 42 UK towns and cities with 3,383 kilometres of ducted network. In addition, over the past two years the Group has undertaken three successful pilot projects: Š Deployment of Fibre to the Tower (FTTT) in Hull with MBNL, Three and EE marking the UK s first city-wide deployment of dark fibre infrastructure to mobile base stations; Š Deployment of Fibre to the Home (FTTH) in York in conjunction with Sky and TalkTalk demonstrating the opportunity to expand CityFibre s metro networks to full fibre connections for small businesses and homes; and Š Deployment of a new fibre infrastructure in Southend-on-Sea that uses Openreach s ducts for some parts of the fibre networks construction demonstrating the Company s ability to integrate its network with Openreach infrastructure and reduce overall construction costs. Having demonstrated its capability to deploy infrastructure to address the demands of the Company s four primary market verticals, including FTTT and FTTH, CityFibre has an opportunity to accelerate and expand its operations. Recent UK government policy for greater competition and investment in full fibre networks has resulted in a promising pipeline of projects. The Directors believe that there are significant opportunities to grow the Company s fibre network and its customer base and is undertaking the Capital Raising to support these opportunities as described in more detail in section 3 below. The Company will seek to extend its current metro footprint selectively, ensuring that each new metro project is anchored by long term contracts that deliver a satisfactory return on the capital investment required and that cover a substantial portion of projected capital expenditure. The same policy will apply to the extension or expansion of existing town and city networks to serve public sector, business and mobile customers. In relation to the construction of Fibre to the Home, the Company will work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, and would only proceed with construction if there were to be sufficiently robust demonstrations of demand. In support of the Company s strategy to focus on wholesale fibre services, part of the proceeds of the Placing will also be used to fund the Entanet Acquisition. 3. Use of proceeds from the Capital Raising The Company intends to raise 200 million ( 191 million net of costs and expenses) by way of the Placing and up to 15 million by way of the Offer for Subscription. Of the net proceeds, approximately 29 million (on a cash free, debt free basis and subject to adjustments) will be used to acquire Entanet, substantially increasing the Company s wholesale capabilities and its relationships with Channel Partners, especially in the business and consumer market verticals, thereby extending CityFibre s channels to market. CityFibre intends to apply the balance of the net proceeds to fund the growth of the Group s full fibre network across UK towns and cities, serving the four primary market verticals of public sector, mobile, business and consumer. It is the Directors intention that, following the Capital Raising, the Company will pursue its growth opportunities without drawing down further on its existing debt facilities and that the Company will seek to refinance its existing debt facilities during 2018 with a higher level of leverage, in order to optimise its capital structure to fund its future growth. In particular, the Company plans to apply the net proceeds of the Capital Raising: Š to expand the construction of CityFibre s metro fibre infrastructure to no less than 50 towns and cities by 2020; Š to increase metro connectivity in existing towns and cities; Š to initiate the Company s FTTH plan in a select number of towns and cities within CityFibre s existing or expanded metro footprint, with the intention of using part of the net proceeds of the Placing to commence construction of an FTTH network in five to ten of these towns and cities during 2018, delivering approximately 300 to 400 FTTH cabinets by the end of 2018; and Š to pursue opportunities for, and commence the deployment of, FTTT connectivity to mobile base stations and small cells. The markets in which CityFibre operates are dynamic and the opportunities potentially significant. The Company will review opportunities as they mature and deploy the net proceeds accordingly. To expand its fibre infrastructure in line with its strategy, an indicative use of proceeds is as follows: Š acquisition and integration of Entanet approximately 17 per cent. of the net proceeds of the Placing; 41

48 Š expand metro infrastructure to new towns and cities, and expansion of metro connectivity in existing towns and cities (including potential deployment of FTTT connectivity) 35 per cent. to 40 per cent. of the net proceeds of the Placing; and Š commence the construction of FTTH 40 per cent. to 50 per cent. of the net proceeds of the Placing. It is the Directors intention that any proceeds raised under the Offer for Subscription shall be applied to fund the rollout of the Company s FTTH plan as more particularly described above and in section 5.2 of Part 3 of this document. In assessing potential competing demands for capital, the Company intends to maintain its financial discipline. CityFibre s fibre infrastructure in each town and city is targeted to operate at gross margins of approximately 90 per cent.. At maturity (being approximately 5 to 7 years after first cabinet construction) the metro infrastructure is targeted to deliver a revenue yield on net capital expenditure of greater than 25 per cent. on a town or city basis. FTTH infrastructure is targeted at maturity to deliver a revenue yield on net capital expenditure of 18 to 22 per cent. per cabinet. In both cases revenue yield is the recurring annual revenue generated measured against the cumulative capital expenditure net of up-front fees paid by the customer for fibre connections. 3.1 Extend CityFibre s Footprint to More Towns and Cities The Group currently owns and operates metro fibre networks in 42 towns and cities. CityFibre seeks to secure anchor contracts to support entry into no less than eight new towns and cities, bringing the total footprint to no less than 50 towns and cities by The Directors believe that in the long term the Company could target up to 100 towns and cities. Market demand for new fibre infrastructure is giving rise to an accelerated expansion opportunity. For example, the previous UK government s policy for full fibre is set to encourage local authorities to aggregate demand for fibre connectivity to public sector locations. In this regard, 740 million of the 1.14 billion stimulus announced by the Chancellor in November 2016 is to be directed to local fibre projects, with potential for local authorities to anchor new full fibre networks. 3.2 Increase Metro Connectivity within CityFibre s Footprint In every town and city where CityFibre has established a metro fibre infrastructure, the Group s strategy is to add fibre connections to more premises and grow market share. CityFibre intends to work closely with Channel Partners to increase the use of CityFibre s metro fibre products across public sector and business market verticals. In particular: Š Growth in Public Sector Currently the Group has major public sector contracts in nine of its current 42 towns and cities. Recent UK government policy for full fibre connected public sector sites presents an opportunity to expand coverage through more local authority contracts. Š Expansion to Business Parks Enterprise and SME users in business parks remain underserved by legacy networks. On 29 November 2016 the Group announced the proposed expansion of its network to approximately 500 business parks that are located near to CityFibre s metro networks in its current metro footprint. The Group intends to accelerate this expansion following the Capital Raising. Š Increase Channel Partners As a wholesale provider, the Group currently has 54 Channel Partners that use its networks to provide data services to their end customers. These Channel Partners principally comprise ISPs, connectivity resellers and service integrators and address key markets including, business, public sector, consumer and data centres. CityFibre seeks to expand the number of Channel Partners with which it works and continues to invest in its IT systems, platforms and marketing programmes to support its partners. Š Expand Ethernet Product Portfolio CityFibre will develop its portfolio of connectivity services through the introduction of wholesale Ethernet products that complement existing dark fibre services. This will widen the addressable market for the use of CityFibre s infrastructure across its current and expanded footprint and open up the opportunity to attract national Channel Partners who seek city-to-city Ethernet services. In supporting the growth of its metro connectivity, the Group intends to use part of the net proceeds to acquire Entanet, as described further in section 4 below. 3.3 Commence Rollout of Fibre to the Home International benchmarks, described in more detail in Part 3 of this document, provide considerable weight to the need for, and success of, FTTH deployments worldwide. The UK currently ranks amongst the lowest of OECD nations for premises that are directly connected with fibre. 42

49 The Group s successful FTTH trial in York through its joint venture with Sky and TalkTalk, YorkCo, demonstrated the ability to expand CityFibre s metro infrastructure to Fibre to the Home. The Group now intends to expand its fibre infrastructure to residential households in a select number of towns and cities within CityFibre s current footprint. Subject to completion of the Capital Raising, construction is scheduled to commence in five to ten of these towns and cities during The deployment of FTTH has been central to both UK government and Ofcom policies, and CityFibre is well positioned to exploit this opportunity. The York trial demonstrated CityFibre s ability to deploy FTTH connectivity cost effectively and that its Channel Partners were able to offer full fibre broadband to their customers at attractive retail prices, thereby demonstrating the propensity for consumers to switch to FTTH connections. Of those homes in York whose boundaries are passed by the FTTH network constructed by YorkCo, more than 27 per cent. subscribed for an internet service from Sky or TalkTalk on the new YorkCo FTTH network by 31 May 2017, with the highest cabinet penetration now exceeding 40 per cent.. In undertaking its FTTH plan, CityFibre intends to work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, hence mitigating deployment risks by ensuring there is sufficient demand ahead of construction. The use of Openreach ducts and poles for some parts of the deployment (as proven by the Group s trial in Southend-on-Sea) provides an opportunity to lower construction costs for the FTTH deployment. CityFibre is now in advanced discussions with a number of consumer focused Channel Partners who are keen to take advantage of near gigabit speed broadband delivered on CityFibre s full fibre infrastructure. 3.4 The Opportunity for Fibre to the Tower Fibre connectivity to mobile base stations is referred to as Fibre to the Tower (FTTT), or mobile backhaul. Growth in mobile data is influencing mobile operators to seek higher bandwidth fibre connections to base stations with further demand to connect a large number of small cells over time as mobile operators prepare for 5G services by FTTT uses the same high capacity metro infrastructure deployed for the public sector and business market verticals. CityFibre is well positioned to serve the connectivity of mobile operators within its existing and expanded metro footprint, and has demonstrated this capability through its citywide FTTT deployment in Hull for MBNL, Three and EE. The Directors estimate there are approximately 7,300 mobile base stations within its existing footprint, with future potential for 36,500 or more small cells. The Group continues actively to explore opportunities with mobile operators who seek a transition to dark fibre based FTTT connections within CityFibre s existing or expanded metro footprint. Entry to further new towns and cities, if that potential arises, is intended to follow CityFibre s anchor tenancy model. 3.5 Experience in Building and Operating Fibre Infrastructure The Group s strategy to accelerate its expansion is supported by CityFibre s management capabilities and relationships with suppliers and civil engineering contractors. The Directors believe that the Group has established the capabilities to co-ordinate and manage fibre infrastructure construction at national scale, as demonstrated through its existing presence in 42 towns and cities. The Group will increase the number of employees only where essential, and it will continue to work with select engineering partners to deliver and operate CityFibre s national infrastructure. 4. Entanet Acquisition The Company has conditionally agreed to purchase the entire issued share capital of Entanet for a cash consideration of 29 million (on a debt free cash free basis and subject to adjustments). The consideration is payable in cash on completion of the Entanet Acquisition, other than 4.65 million which is deferred ( 3 million of which is deferred by the Company in respect of indemnity claims for up to 24 months from completion of the Entanet Acquisition and the balance of 1.65 million, which is due to certain management sellers, is deferred for up to 12 months in connection with certain leaver provisions set out in the agreement). The Company proposes to finance the Entanet Acquisition by utilising part of the net proceeds of the Placing. The Entanet Acquisition is conditional on the passing of the Resolutions to approve the Capital Raising and Admission. 4.1 Overview of Entanet Acquisition CityFibre s strategy is to become the leading alternative wholesale full fibre network provider to Openreach. As demand for fibre connectivity grows in the UK, CityFibre sees opportunities to expand and accelerate its network, channels to market and product portfolio. 43

50 Entanet is a wholesale communications provider that uses third party networks owned by other suppliers such as Openreach, to deliver a wide range of connectivity and telecommunication products and services to 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 will bring 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 would, following the acquisition, become a primary route for CityFibre to market its full fibre connectivity through Entanet s network of Channel Partners. 4.2 Reasons for the Entanet Acquisition and Future Strategy Entanet s strategy is focused on the development and growth of wholesale communications services. It packages data communications products, including broadband and leased line internet connectivity, IP telephony and hosting services and makes these products and services available nationally, with approximately 1,500 Channel Partners that serve the business and residential markets having conducted business with Entanet in the 12 months ended 31 December The Directors believe that the Entanet Acquisition will significantly enhance the Group s wholesale fibre capability and accelerate its future growth. By combining CityFibre s fibre infrastructure with Entanet s established wholesale products, systems and relationships with Channel Partners, the Group expects to realise the following synergies and benefits, estimated by the Directors to deliver cost synergies of over 3 million per annum within three years of completion of the Entanet Acquisition: Š Š Š Š Increase Relationships with Channel Partners The acquisition is expected to give CityFibre access to new Channel Partners due to Entanet s existing position as a wholesale provider with approximately 1,500 Channel Partners having conducted business with Entanet in the 12 months ended 31 December This represents a significant potential increase in CityFibre s indirect routes to market. Achieve Significant Migration Synergies Entanet s services operate on the networks of a number of suppliers, including BT Wholesale, Openreach, Virgin Media, Colt Technology and Vodafone. It currently services over 45,000 broadband connections and over 3,500 leased lines. A proportion of these connections originate and/or terminate in CityFibre s existing or expanded city footprint, giving rise to the opportunity to migrate these connections to the Company s fibre infrastructure over time. Trading and Support Interfaces The acquisition is expected to give CityFibre access to Entanet s wholesale systems that provide a layer of automated order and billing capabilities as well as customer portals and support systems. Complementary Products The acquisition is expected to enable CityFibre to utilise Entanet s wholesale product portfolio enhancing CityFibre s own wholesale fibre capabilities. Š National Ethernet Capability The national networks leased by Entanet from other suppliers support the end-to-end Ethernet capabilities that are required as part of CityFibre s product development. The acquisition is expected to accelerate both the timescale and scope of CityFibre s Ethernet strategy, enabling faster take up of the Group s fibre connectivity by national Channel Partners. The acquisition is expected to enable Entanet to offer the delivery of wholesale services across CityFibre s fibre infrastructure in both existing and future metro towns and cities, providing differentiated gigabit speed full fibre connectivity services through its established base of Channel Partners. One-off integration costs in respect of Entanet are expected to be approximately 3 million. The Capital Raising is not conditional on the Entanet Acquisition completing. If, for any reason, the Entanet Acquisition Agreement is terminated prior to Admission, the proceeds of the Capital Raising which were allocated to fund the Entanet Acquisition will be utilised by the Company for the other purposes described in section 3 of this Part 1. Further information on Entanet and the benefits of the acquisition are provided in Part 6 of this document. The terms of the acquisition are detailed in section 18.1 of Part 10 of this document. 5. Current Trading, Trends and Prospects The Group continued its network footprint expansion throughout 2016, through a combination of acquisitions, organic growth and incremental sales on existing and acquired assets. In 2017, CityFibre continued to focus on growing revenues and connections across its existing footprint, as well as undertaking selective investments in new towns and cities. Financial performance relating to metro towns and 44

51 cities was in line with management s expectations. At the end of May 2017, the Group had entered into contracts with Channel Partners, enabling CityFibre to launch business services into seven further towns and cities, and securing in excess of 8.3 million of new contracted revenue. Furthermore, the unrealised value of the Group s contracts was to million, giving the Group good visibility of future income. The profile of CityFibre s growth is characterised by securing a relatively small volume of larger value contracts that provide fibre connectivity to multiple sites. This is supplemented by securing smaller contracts at various times for individual fibre connections from existing Channel Partners. Therefore, timing of the larger contracts can affect month by month performance. The Group secured few large contracts in the first quarter of 2017, with a higher number of larger contracts expected in the second quarter and throughout the second half of The strong and growing pipeline of opportunities means that the Group expects to deliver overall 2017 financial performance in line with management expectations. 5.1 Expansion to New Towns and Cities In January 2017, CityFibre announced its intention to construct a new fibre network in Stirling having secured a seven-year anchor contract to provide full fibre connectivity to the public sector, followed in March 2017 with anchor contracts in the business market vertical to construct new networks in Cheltenham and Gloucester, two locations located near to the Company s national long distance network. CityFibre will continue to seek opportunities to enter new towns and cities underpinned by suitable anchor contracts. The Directors believe that current trading activity and its pipeline of opportunities will enable the Group to progress towards its stated medium-term target to reach no less than 50 towns and cities by Expansion in Existing Towns and Cities In its existing towns and cities, CityFibre is undertaking investments in active platforms to provide wholesale Ethernet services to complement its current dark fibre offering. The Company is on track to deliver its active platforms into not less than five further towns and cities in the first half of 2017, and is targeting to expand Ethernet services to a further six towns and cities by the end of the year. In expanding its Ethernet services to the business market vertical, CityFibre intends to enter into launch partner contracts with Channel Partners to provide fibre connectivity to more businesses in its existing footprint. In April 2017 CityFibre announced contracts to support construction in Slough, Maidenhead and Wakefield followed in May 2017 with contracts in Plymouth and Exeter. These launch partner contracts demonstrate that CityFibre is making further progress to commercialise the network assets acquired from KCOM and Redcentric Solutions Limited in In the public sector, the Directors believe that recent government policy for full fibre, together with planned government stimulus to encourage local government to anchor new full fibre core metro networks, will accelerate opportunities for fibre connectivity to more public sector sites. CityFibre is engaged in a significant number of discussions with local authorities and Channel Partners and is building a pipeline of public sector opportunities with the potential for contracts to be awarded to the Group in the second half of 2017 and beyond. 5.3 FTTT and FTTH In 2016 CityFibre completed two landmark network deployments for the UK market: the FTTT network construction in Hull and the FTTH trial in York. As a result, the Company is now exploring opportunities to deploy FTTT and FTTH in more UK towns and cities, and is progressing commercial negotiations with mobile operators and major Channel Partners accordingly. CityFibre has engaged in commercial discussions with major ISPs and a number of smaller ISPs, to secure Channel Partner relationships intended to provide full fibre broadband services to consumers using CityFibre s future FTTH infrastructure. These discussions are advanced and may or may not lead to binding agreements in due course. The Group has engagement with Channel Partners across all four primary market verticals, supported by market demands for fibre connectivity and policies that encourage the deployment of full fibre and 5G infrastructure to many homes and businesses. The Directors believe that CityFibre is well positioned to exploit these opportunities and to continue to expand its operations. 45

52 6. Structure and principal terms and conditions of the Capital Raising 6.1 Structure of the Capital Raising Introduction The Company proposes to raise gross proceeds of approximately 200 million by way of the Placing and up to 15 million by way of the Offer for Subscription. The decision to structure the Capital Raising by way of a combination of a Placing and an Offer for Subscription takes into account a number of factors, including the total net proceeds to be raised. The Board believes that the Placing, as part of the Capital Raising enables the Company to satisfy demand from new investors as well as current Shareholders wishing to increase their positions combined with the ability for Shareholders (along with other investors) to participate in the Offer for Subscription in order to mitigate the effect of the dilution arising from the Placing. Shareholders approval is required for the Capital Raising including the Placing and the Offer for Subscription, by way of a special resolution. Pricing The Offer Price represents a 9.09 per cent. discount to the Closing Price of pence on 4 July 2017 (being the last Business Day before the announcement of the Capital Raising). The Offer Price (including the size of the discount) has been determined, following discussions with both existing Shareholders and Placees, to be at the level which the Board considers appropriate to ensure the success of the Capital Raising. Dilution The Placing will: (i) result in 363,636,364 Placing Shares being issued and the number of Ordinary Shares being increased from a total of 265,672,644 Ordinary Shares (as at the Reference Date) to a total of 629,309,008 Ordinary Shares, representing an increase of per cent.; and (ii) reduce the proportional ownership and voting interest in the Ordinary Shares of the Shareholders (as at the Reference Date) by 57.8 per cent.. The Offer for Subscription will result in up to 27,272,727 Offer for Subscription Shares being issued and the number of Ordinary Shares being increased (assuming the Offer for Subscription is taken up in full) from a total of: (i) 265,672,644 Ordinary Shares to a total of 292,945,371 Ordinary Shares (disregarding the issue of the Placing Shares), representing an increase of 10.3 per cent.; or (ii) 629,309,008 Ordinary Shares (taking into account the issue of the Placing Shares) to a total of 656,581,735 Ordinary Shares, representing an increase of per cent. Following completion of the Capital Raising, Shareholders who do not (or cannot) participate in the Placing will suffer a dilution of approximately 57.8 per cent. (excluding the impact of the Offer for Subscription) or 59.5 per cent. (assuming full take up under the Offer for Subscription). 6.2 The Placing Under the Placing, the Underwriters have agreed to procure Placees for an aggregate of 363,636,364 Placing Shares at the Offer Price. The Placing is expected to raise gross proceeds of 200 million. The Placing is fully underwritten by the Underwriters on the terms and conditions of the Underwriting Agreement, details of which are set out in section 18.2 of Part 10 of this document. The Placing is conditional upon (among other things): (i) the Resolutions being passed at the General Meeting; (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission); and (iii) Admission becoming effective by not later than 8.00 a.m. on 28 July 2017 (or such later date as the Company and the Underwriters may agree). If the conditions are not satisfied then Capital Raising will not proceed. In those circumstances, the Entanet Acquisition will also not proceed. An application will be made to the London Stock Exchange for the Placing Shares to be admitted to AIM. It is expected that Admission will become effective and dealings in the Placing Shares will commence at 8.00 a.m. on 28 July The Placing Shares will, when issued, rank pari passu in all respects with, and will carry the same voting and dividend rights as, the Existing Ordinary Shares and the Offer for Subscription Shares. 6.3 The Offer for Subscription Up to 27,272,727 Offer for Subscription Shares are being made available under the Offer for Subscription at the Offer Price (representing 10.3 per cent. of the Company s existing issued share capital and 4.2 per cent. of the Company s enlarged issued share capital following completion of the Capital Raising, assuming in both cases that the Offer for Subscription is taken up in full). The terms and conditions of application under the Offer for Subscription are set out in Part 2 of this document and an Application Form is set out at the end of this document. Application for Offer for Subscription Shares must be for at least the Minimum Subscription. Applications for 46

53 less than the Minimum Subscription will be rejected. The terms and conditions should be read carefully before an application is made. Investors should consult their respective stockbroker, bank manager, solicitor, accountant or other financial adviser if they are in any doubt about the contents of this document. In order to apply for Offer for Subscription Shares, the Application should be completed in accordance with the instructions set out on it and returned with the appropriate remittance, by post to Computershare, Corporate Actions Projects, Bristol BS99 6AH or by hand (during normal business hours only) to Computershare, The Pavilions, Bridgwater Road, Bristol BS13 8AE, together, in each case, with payment in full, so as to be received no later than 11:00 a.m. on 26 July The Offer for Subscription is not an open offer or rights issue and Shareholders will not have an automatic entitlement to subscribe for any or a pro rata number of shares. Shareholders and other investors may apply for such number of Offer for Subscription Shares in multiples of 2,000 (over the Minimum Subscription) as they wish, up to the full number of 27,272,727 Offer for Subscription Shares available in the Offer for Subscription. If valid applications are received under the Offer for Subscription for more than the maximum number of Offer for Subscription Shares available, applications shall be allocated in such manner as the Directors may determine, in their absolute discretion, although the Directors anticipate such allocations will take into account applications made by existing Shareholders applying for Offer for Subscription Shares. The Offer for Subscription is not underwritten by the Underwriters or by anyone else. The Offer for Subscription is conditional upon (among other things) (i) the Resolutions being passed at the General Meeting; (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and (iii) Admission becoming effective by not later than 8.00 a.m. on 28 July 2017 (or such later date as the Company and the Underwriters may agree). An application will be made to the London Stock Exchange for the Offer for Subscription Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Offer for Subscription Shares will commence at 8.00 a.m. on 28 July The Offer for Subscription Shares will, when issued and fully paid, rank pari passu in all respects with, and will carry the same voting and dividend rights as, the Existing Ordinary Shares and the Placing Shares. Overseas Persons should refer to section 5 of Part 2 of this document for further information regarding their ability to participate in the Offer for Subscription. Some questions and answers on the Offer for Subscription (and the Placing) are set out at pages 33 to 36 of this document (Questions and Answers about the Capital Raising). Details of further terms and conditions of the Offer for Subscription (and the Placing) are set out in Part 2 of this document and, where relevant, will also be set out in the Application Form. 7. Admission and Settlement Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. Admission is expected to take place at 8.00 a.m. on 28 July To be traded on AIM, securities must be eligible for electronic settlement. Following Admission, the New Ordinary Shares will be eligible for CREST settlement. CREST is a paperless settlement system enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument in accordance with the CREST Regulations. Accordingly, following Admission, settlement of transactions in the New Ordinary Shares may take place within the CREST system if a Shareholder so wishes. CREST is a voluntary system and Shareholders who wish to receive and retain share certificates are able to do so. For more information concerning CREST, Shareholders should contact their brokers or Euroclear at 33 Cannon Street, London EC4M 5SB or by telephone on +44 (0) The ISIN number of the Ordinary Shares will remain GB00BH581H10. The TIDM code will remain CITY following Admission. 8. Dividend Policy The objective of the Directors is to achieve capital growth for Shareholders through the continued expansion of CityFibre s fibre infrastructure and the growth of revenue and profits generated from the use of the infrastructure. Consequently, they do not anticipate that the Company will pay dividends to Shareholders in the short to medium term. 47

54 As the Company s strategy is for the realisation of yield generating infrastructure, the Directors will keep this position under review and would intend, at an appropriate stage in the future, to pay a proportion of profits in each year to Shareholders by way of dividend. Pursuant to the Act, a dividend may only be paid if the Directors are satisfied that the Company has distributable profits pursuant to section 830 of the Act and, as it is a public limited company, its net assets exceed the aggregate of its called up share capital and distributable reserves pursuant to section 831 of the Act. 9. General Meeting A notice convening a general meeting of the Company to be held at CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon St, London EC4N 6AF at a.m. on 27 July 2017 is set out at the end of this document. The General Meeting is being held for the purpose of considering and, if thought fit, passing the Resolutions. The Resolutions to be proposed at the General Meeting are as follows: Resolution 1 Resolution 1 will be proposed as an ordinary resolution requiring a simple majority of votes in favour. Resolution 1 proposes that the Directors be generally and unconditionally authorised to allot shares in the Company up to a nominal amount of (i) 3,909, pursuant to, or in connection with, the Capital Raising. If granted this authority will apply until the conclusion of the annual general meeting of the Company to be held in 2018 or, if earlier, on 31 May Resolution 2 Resolution 2 will be proposed as a special resolution requiring at least 75 per cent. of votes in favour. Resolution 2 proposes that, subject to and conditional upon Resolution 1 being duly passed, the Directors be given power to allot equity securities as set out in that Resolution as if section 561 of the Act did not apply. The number of New Ordinary Shares to be issued if the Resolutions are passed will represent per cent. of the Company s issued ordinary share capital as at the Reference Date (assuming nil take up under the Offer for Subscription) and per cent. of the Company s issued ordinary share capital as at the Reference Date (assuming full take up under the Offer for Subscription). If granted, this authority will apply until the conclusion of the annual general meeting of the Company to be held in 2018 or, if earlier, on 31 May If any of the above Resolutions are not passed, the Capital Raising will not proceed. 10. Action to be taken In respect of the General Meeting You will find enclosed with this document a Form of Proxy for use at the General Meeting or at any adjournment thereof. Whether or not you propose to attend the meeting in person, you are requested to complete the Form of Proxy in accordance with the instructions printed on it and to return it as soon as possible, by post to Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH or by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE, by no later than a.m. on 25 July If you hold your Ordinary Shares in CREST, you may appoint a proxy by completing and transmitting a CREST proxy instruction form so that it is received by Computershare (under CREST participant ID 3RA50) by no later than a.m. on 25 July The time of receipt will be taken to be the time from which Computershare is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The completion and return of a Form of Proxy or completion and transmission of a CREST proxy instruction will not prevent you from attending the General Meeting and voting in person if you wish to do so. In respect of the Offer for Subscription Your attention is drawn to section 2 of Part 2 of this document which explains the actions to be taken in respect of the Offer for Subscription. 11. Irrevocable undertaking CityFibre has received an irrevocable undertaking from Woodford Investment Management Ltd agreeing to attend (or appoint a proxy to attend) the General Meeting and vote in favour of the Resolutions. 48

55 The irrevocable undertaking is given in terms such that it will cease to be binding and lapse at the earlier of 31 August 2017 and the date on which the Shareholders are notified that completion of the Capital Raising will not occur or a public announcement is made to this effect. 12. Related Party Transactions Woodford Investment Management Ltd is a related party of the Company for the purposes of the AIM Rules by virtue of its status as substantial shareholder (as such term is defined in the AIM Rules) as it beneficially owns or controls, directly or indirectly, 10 per cent. or more of the Existing Ordinary Shares. Woodford Investment Management Ltd has agreed to subscribe for 65,454,545 Placing Shares, conditional on Admission. Taking into account the related party transactions noted above, the Directors consider, having consulted with the Company s nominated advisor, finncap, that the terms of the Placing with Woodford Investment Management Ltd is fair and reasonable insofar as the Company s shareholders are concerned. 13. Overseas Persons The attention of Overseas Persons who have registered addresses outside the United Kingdom, or who are citizens or residents of, or are located in, countries other than the United Kingdom, is drawn to the information in section 5 of Part 2 of this document. Notwithstanding any other provision of this document or the Application Form, the Company reserves the right to permit any applicant to participate in the Offer for Subscription if the Company in its sole and absolute discretion is satisfied that the transaction in question will not violate applicable laws. 14. Taxation Certain information about UK and US taxation in relation to the Capital Raising is set out in Part 8 of this document. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the United Kingdom and the United States, you should consult your own independent tax adviser without delay. 15. Further Information and Risk Factors Your attention is drawn to the further information set out in Part 2 to Part 14 (inclusive) of this document and, in particular, to the risk factors on pages 15 to 26 of this document. 16. Directors Recommendation and Intentions The Board is fully supportive of the Capital Raising. I, Chris Stone, have agreed to subscribe for 1,181,818 Placing Shares at the Offer Price. Although I am a related party to the Company by virtue of being a Director, my subscription is not of sufficient size to constitute a related party transaction. The Board believes that the Capital Raising is in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board unanimously recommends that you vote in favour of all of the Resolutions to be proposed at the General Meeting in order to effect the Capital Raising, as they intend to do in respect of their own beneficial shareholdings held at the time of the General Meeting, amounting to 4,469,398 Ordinary Shares in aggregate as at the Reference Date (representing approximately 1.68 per cent. of the Company s existing issued ordinary share capital). Yours sincerely Chris Stone Chairman 11 July

56 PART 2 TERMS AND CONDITIONS OF THE OFFER FOR SUBSCRIPTION 1. Introduction The Company is proposing to offer up to 27,272,727 Ordinary Shares pursuant to the Offer for Subscription to raise gross proceeds of up to approximately 15 million. Subject to the fulfilment of the conditions of the Underwriting Agreement, the Offer for Subscription Shares will be offered under the Offer for Subscription at a price of 55 pence per Offer for Subscription Share (being the Offer Price). The Offer for Subscription Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares and the Placing Shares, including the right to any future dividends or other distributions made, paid or declared after the date of their issue. Application will be made to the London Stock Exchange for the Offer for Subscription Shares to be admitted to trading on AIM. It is expected that Admission will become effective, and that dealings in the Offer for Subscription Shares will commence on the London Stock Exchange, at 8.00 a.m. on 28 July The Offer for Subscription (like the Placing) is conditional upon (among other things) (i) the Resolutions being passed at the General Meeting, (ii) the Underwriting Agreement having become unconditional in all respects (other than in respect of Admission), and (iii) Admission becoming effective by no later than 8.00 a.m. on 28 July 2017, (or such later date as the Company and the Underwriters may agree). If these conditions are not satisfied the Capital Raising (including the Offer for Subscription) will not proceed. The Underwriting Agreement may be terminated by the Underwriters prior to Admission upon the occurrence of certain specified events, in which case the Capital Raising (including the Offer for Subscription) will not proceed. The Underwriting Agreement is not capable of termination following Admission. A summary of the principal terms of the Underwriting Agreement is set out in section 18.2 of Part 10 of this document. The Company reserves the right to decide not to proceed with the Capital Raising (including the Offer for Subscription) at any time prior to Admission and commencement of dealings in the Offer for Subscription Shares. The attention of all Shareholders and any other person (including, without limitation, custodians, nominees and trustees) who has a contractual or other legal obligation to forward this document into a jurisdiction other than the United Kingdom is drawn to section 5 of this Part 2. The Existing Ordinary Shares are already admitted to CREST. No further application for admission to CREST is required for the Offer for Subscription Shares and all of the Offer for Subscription Shares when issued may be held and transferred by means of CREST. All cheques and banker s drafts posted by applicants in order to participate in the Offer for Subscription will be posted at their own risk. The Offer for Subscription Subject to, amongst other things, the terms and conditions set out below, Shareholders and other investors are being given the opportunity to apply for Offer for Subscription Shares on the terms and conditions as set out in this Part 2 and in the Application Form. The Offer for Subscription is to be made in respect of up to 27,272,727 Offer for Subscription Shares at the Offer Price of 55 pence per Offer for Subscription Share, which represents a 9.09 per cent. discount to the Closing Price of pence on 4 July 2017 (being the last Business Day prior to announcement of the Capital Raising). The Minimum Subscription represents the minimum subscription per application being 2,000 Offer for Subscription Shares (equivalent to 1,100). Any application for less than the Minimum Subscription will be rejected. No applicant may subscribe for Offer for Subscription Shares in excess of the 15 million maximum. The Offer Price in respect of the Offer for Subscription is payable in full on application and free of all expenses. The Offer for Subscription (if taken up in full) will, therefore, raise gross proceeds of up to 15 million. The Offer for Subscription Shares are being offered only in transactions exempt from, or not subject to, the registration requirements of the US Securities Act. 50

57 Multiple applications may be submitted. The Offer for Subscription is not an open offer or rights issue and Shareholders will not have an automatic entitlement to subscribe for any or a pro-rata number of Ordinary Shares. Applicants may apply for such number of Offer for Subscription Shares in multiples of 2,000 (over the Minimum Subscription) as they wish, up to the full number of 27,272,727 Offer for Subscription Shares available in the Offer for Subscription. If valid applications are received under the Offer for Subscription for more than the maximum number of Offer for Subscription Shares available, applications shall be allocated in such manner as the Directors may determine, in their absolute discretion, although the Directors anticipate such allocations will take into account applications made by existing Shareholders applying for Offer for Subscription Shares. Shareholders should be aware that the Offer for Subscription is not a rights issue. As such, Shareholders should note that Application Forms are not negotiable documents and cannot be traded. A Shareholder that does not subscribe for any Offer for Subscription Shares will suffer a dilution of approximately 59.5 per cent. as a result of the Capital Raising (if the Offer for Subscription is taken up in full). Offer for Subscription Shares which are not taken up under the Offer for Subscription will not be sold in the market for the benefit of those who do not apply under the Offer for Subscription and Shareholders who do not apply to subscribe for Offer for Subscription Shares will have neither rights under the Offer for Subscription nor receive any proceeds from it. The Ordinary Shares are already admitted to CREST. Accordingly, no further application is required for the Offer for Subscription Shares to be admitted to CREST. All Offer for Subscription Shares, when issued and fully paid, may be held and transferred by means of CREST. The Offer for Subscription Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the Existing Ordinary Shares including the Placing Shares. The Offer for Subscription Shares will not be made available in whole or in part to the public except under the terms of the Offer for Subscription. Shareholders and other investors who are allocated Offer for Subscription Shares under the Offer for Subscription will, subject to the Company s ability to pay a dividend, and provided the Directors consider it appropriate to declare a dividend, receive dividends on the Offer for Subscription Shares in the same manner as they receive dividends on their Ordinary Shares. If the Directors consider it appropriate in the circumstances, options and awards under the Share Incentive Arrangements may be adjusted to take account of the Offer for Subscription. If this is the case, participants will be contacted separately. If the Underwriting Agreement does not become unconditional and the Capital Raising is terminated, any applications for Offer for Subscription Shares will be rejected. In these circumstances, application monies received by the Receiving Agent in respect of Offer for Subscription Shares will be returned (at the applicant s sole risk), without payment of interest, as soon as reasonably practicable thereafter. Please see section 18.2 of Part 10 of this document for a summary of the material terms of the Underwriting Agreement. Termination cannot occur after dealings in the Offer for Subscription Shares have begun. No temporary documents of title will be issued in respect of Offer for Subscription Shares held in uncertificated form. Definitive certificates in respect of Offer for Subscription Shares subscribed for are expected to be posted to those applicants who have validly elected to hold their Offer for Subscription Shares in certificated form on or around 11 August In respect of those applicants who validly elect to hold their Offer for Subscription Shares in uncertificated form, the Offer for Subscription Shares are expected to be credited to their stock accounts maintained in CREST by 8.00 a.m. on 28 July All monies received by the Receiving Agent in respect of Offer for Subscription Shares will be placed on deposit in a non-interest bearing account by the Receiving Agent. If for any reason it becomes necessary to adjust the expected timetable as set out in this document, the Company will make an appropriate announcement via a Regulatory Information Service giving details of the revised dates. 2. Action to be taken 2.1 General Subject as provided in section 5 of this Part 2 in relation to Overseas Persons, Shareholders and other investors may use the Application Form attached at the end of this document to apply for Offer for Subscription Shares. Applicants may apply for such number of Offer for Subscription Shares in multiples of 2,000 (over the Minimum Subscription) as they wish, up to the full number of 27,272,727 Offer for Subscription Shares available in the Offer for Subscription by completing Boxes 1 and 2 of the Application Form. The Application Form also sets out instructions regarding payment. 51

58 The instructions and other terms set out in the Application Form form part of the terms of the Offer for Subscription. 2.2 Application Forms Applications to acquire Offer for Subscription Shares may only be made on the Application Form. Application Forms may not be assigned, transferred or split. The Application Form is not a negotiable document and cannot be separately traded. The Application Form should not be forwarded to or transmitted in or into any of the Excluded Territories. 2.3 Excess Applications Shareholders and other investors may apply for any number Offer for Subscription Shares up to the maximum available under the Offer for Subscription. However, the total number of Offer for Subscription Shares is fixed and will not be increased in response to excess applications under the Offer for Subscription. If valid applications are received under the Offer for Subscription for more than the maximum number of Offer for Subscription Shares available, applications shall be allocated in such manner as the Directors may determine, in their absolute discretion, although the Directors anticipate such allocations will take into account applications made by existing Shareholders for Offer for Subscription Shares. No assurance can be given that applications will be met in full or in part or at all. Excess monies in respect of applications which are not met in full will be returned to the applicant (at the applicant s risk) without interest as soon as practicable thereafter by way of cheque or CREST payment, as appropriate. 2.4 Application procedures Shareholders and other investors wishing to apply to acquire Offer for Subscription Shares under the Offer for Subscription should complete the Application Form in accordance with the instructions printed on it. Completed Application Forms should be returned to the Receiving Agent, Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH or by hand to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE (during normal office hours only), so as to be received by the Receiving Agent by no later than a.m. on 26 July 2017, after which time, subject to the limited exceptions below, Application Forms will not be valid. Application Forms delivered by hand will not be checked upon delivery and no receipt will be provided. Within the United Kingdom, Applicants should note that applications, once made, will be irrevocable and receipt thereof will not be acknowledged. If an Application Form is being sent by firstclass post in the UK or using the reply-paid envelope included with the Application Form in the UK, Applicants are recommended to allow at least four business days for delivery. Completed Application Forms should be returned with a cheque or banker s draft drawn in pounds sterling on a bank or building society in the UK which is either a member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker s drafts to be cleared through facilities provided by any of those companies. Such cheques or banker s drafts must bear the appropriate sort code in the top right hand corner and must be for the full amount payable on application. Cheques should be drawn on a personal account in respect of which the applicant has sole or joint title to the funds and should be made payable to CIS PLC RE: CityFibre Infrastructure Holdings plc Offer for Subscription and crossed A/C Payee only. Third party cheques (other than building society cheques or banker s drafts where the building society or bank has confirmed that the relevant applicant has title to the underlying funds) will be subject to the Money Laundering Regulations which would delay or prevent successful applicants receiving their Offer for Subscription Shares (please see section 4 below). All documents and cheques sent through the post by applicants will be sent at their own risk and any cheques not received by the Receiving Agent will need to be re-issued and resent by the applicant. Payments via CHAPS, BACS or electronic transfer will not be accepted. Cheques and banker s drafts will be presented for payment on receipt and it is a term of the Offer for Subscription that cheques and banker s drafts will be honoured on first presentation. The Company may elect to treat as valid or invalid any applications made by applicants in respect of which cheques are not so honoured. Should such cheques or banker s drafts not be so honoured, the Company may undertake any action to recover the value of the application and any costs associated with such recovery (including the forfeiture and sale of any Offer for Subscription Shares allotted pursuant to such an application). If cheques or banker s drafts are presented for payment before the conditions of the Offer for Subscription are fulfilled, the application monies will be kept in a separate bank account, with interest, if any, being retained for the Company until all conditions are met. If the Offer for Subscription does not become unconditional, no Offer for Subscription Shares will be issued and all monies will be returned (at the applicant s sole risk), without payment of interest, to applicants as soon as reasonably practicable following the lapse of the Offer for Subscription. 52

59 Subject to the provisions of the Underwriting Agreement, the Company may in its sole discretion, but shall not be obliged to, treat an Application Form as valid and binding on the person by whom or on whose behalf it is lodged, even if not completed in accordance with the relevant instructions or not accompanied by a valid power of attorney where required, or if it otherwise does not strictly comply with the terms and conditions of the Capital Raising. The Company further reserves the right (but shall not be obliged) to accept either: (i) Application Forms received after a.m. on 26 July 2017; or (ii) applications in respect of which remittances are received before a.m. on 26 July 2017 from authorised persons (as defined in the FSMA) specifying the Offer for Subscription Shares applied for and undertaking to lodge the Application Form in due course but, in any event, within two business days. Multiple applications will not be accepted. All documents and remittances sent by post by or to an applicant (or as the applicant may direct) will be sent at the applicant s own risk. If Offer for Subscription Shares have already been allotted to an applicant and such applicant s cheque or banker s draft is not honoured upon first presentation or such application is subsequently otherwise deemed to be invalid, the Company shall be authorised (in its absolute discretion as to manner, timing and terms) to make arrangements, on behalf of the applicant, for the sale of such applicant s Offer for Subscription Shares. None of the Receiving Agent or any of the Bookrunners or the Company, nor any other person, shall be responsible for, or have any liability for, any loss, expense or damage suffered by such applicant as a result. 2.5 Effect of application By completing and delivering an Application Form, the applicant: (i) (ii) (iii) (iv) (v) (vi) (vii) represents and warrants to the Company, the Underwriters and the Receiving Agent that he or she has the right, power and authority, and has taken all action necessary, to make the application under the Offer for Subscription and to execute, deliver and exercise his or her rights and perform his or her obligations under any contracts resulting therefrom and that he or she is not a person otherwise prevented by legal or regulatory restrictions from applying for Offer for Subscription Shares or acting on behalf of any such person on a non-discretionary basis; agrees with the Company and the Underwriters that all applications under the Offer for Subscription and contracts resulting therefrom shall be governed by and construed in accordance with the laws of England; confirms to the Company and the Underwriters that in making the application he or she is not relying on (and irrevocably waives any right he or she may have in respect of) any information or representation in relation to the Group other than that contained in this document, and the applicant accordingly agrees that no person responsible solely or jointly for this document or any part thereof, or involved in the preparation thereof, shall have any liability for any such information or representation not so contained and further agrees that, having had the opportunity to read this document, he or she will be deemed to have had notice of all information in relation to the Group contained in this document (including information incorporated by reference); confirms to the Company and the Underwriters that in making the application he or she is not relying and has not relied on the Underwriters or any person affiliated with the Underwriters in connection with any investigation of the accuracy of any information contained in this document or his or her investment decision; confirms to the Company and the Underwriters that no person other than the Company has been authorised to give any information or to make any representation concerning the Company, or its subsidiaries, or the Offer for Subscription Shares (other than as contained in this document) and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company or the Underwriters; requests that the Offer for Subscription Shares to which he or she will become entitled be issued to him on the terms set out in this document and the Application Form subject to the Articles; represents and warrants to the Company, the Underwriters and the Receiving Agent that he or she is not, nor is he or she applying on behalf of any person who is resident or is located in the 53

60 United States or a citizen or resident, or which is a corporation, partnership or other entity created or organised in or under any laws of, any of the Excluded Territories or any jurisdiction in which the application for Offer for Subscription Shares by such person is prevented by law and he or she is not applying with a view to re-offering, re-selling, transferring or delivering any of the Offer for Subscription Shares which are the subject of his or her application to, or for the benefit of, a person who is a citizen or resident or which is a corporation, partnership or other entity created or organised in or under any laws of, or any of the Excluded Territories or any jurisdiction in which the application for Offer for Subscription Shares by such person is prevented by law (except where proof satisfactory to the Company has been provided that he or she is able to accept the invitation by the Company free of any requirement which it (in its absolute discretion) regards as unduly burdensome), nor acting on behalf of any such person on a nondiscretionary basis nor (a) person(s) otherwise prevented by legal or regulatory restrictions from applying for Offer for Subscription Shares under the Offer for Subscription; (viii) represents and warrants to the Company, the Underwriters and the Receiving Agent that he or she is not, and nor is he or she applying as nominee or agent for, a person who is or may be liable to notify and account for tax under the Stamp Duty Reserve Tax Regulations 1986 at any of the increased rates referred to in sections 67, 70, 93 or 96 (depository receipts and clearance services) of the Finance Act 1986 (a Specified Person ) and that if any stamp duty, stamp duty reserve tax, or any other transfer, issuance tax or related interest and penalties ( Stamp Tax ) arises in connection with his or her acquisition of the Offer for Subscription Shares or any subsequent transfer by him, or his or her agent, of such shares to a Specified Person or a nominee or agent for such person, he or she agrees that he or she will pay and bear, or procure the payment of, the cost of such Stamp Tax. All enquiries in connection with the procedure for application and completion of the Application Form should be addressed to the Receiving Agent, Computershare Investor Services PLC, Corporate Actions Project, Bridgwater Road, Bristol BS99 6AH (telephone from within the UK, or if calling from overseas). Please note that the Receiving Agent cannot provide financial advice on the merits of the Capital Raising or as to whether Shareholders or other investors should apply for Offer for Subscription Shares under the Offer for Subscription. Shareholders who do not want to apply for Offer for Subscription Shares under the Offer for Subscription should take no action and should not complete or return the Application Form. 3. Withdrawal rights Persons wishing to exercise or direct the exercise of statutory withdrawal rights pursuant to section 87Q(4) of the FSMA after the issue by the Company of a prospectus supplementing this document must do so by lodging a written notice of withdrawal within two business days of the date on which the supplementary prospectus is published. The withdrawal notice must include the full name and address of the person wishing to exercise statutory withdrawal rights. The notice of withdrawal must be delivered by post or by hand (during normal business hours only) to the Receiving Agent, Computershare Investor Services PLC, Corporate Action Projects, Bristol BS99 6AH (please call Computershare Investor Services PLC on (if calling from within the United Kingdom, or on (if calling from overseas) between the hours of 8.30 a.m. and 5.30 p.m. for further details) so as to be received before the end of the withdrawal period. The notice of withdrawal will be deemed to be received upon posting to or deposit with the Receiving Agent. Notice of withdrawal given by any other means or which is deposited with the Receiving Agent after such expiry of such period will not constitute a valid withdrawal. The Company will not permit the exercise of withdrawal rights after payment by the relevant person for the Offer for Subscription Shares to which they are entitled in full, and the allotment of such Offer for Subscription Shares to such person becoming unconditional, save to the extent required by statute. In such event, such persons are advised to seek independent legal advice. 4. Money Laundering Regulations To ensure compliance with the Money Laundering Regulations, the Receiving Agent may require, at its absolute discretion, verification of the identity of the person by whom or on whose behalf an Application Form is lodged with payment (which requirements are referred to below as the verification of identity requirements ). If the Application Form is submitted by a UK regulated broker or intermediary acting as agent, and which is itself subject to the Money Laundering Regulations, any verification of identity requirements are the responsibility of such broker or intermediary and not of the Receiving Agent. In such case, the lodging agent s stamp should be inserted on the Application Form. 54

61 The person lodging the Application Form with payment, and in accordance with the other terms as described above (the acceptor), including any person who appears to the Receiving Agent to be acting on behalf of some other person, accepts the Offer for Subscription in respect of such number of Offer for Subscription Shares as is referred to therein (for the purposes of this section 4, the relevant Offer for Subscription Shares ) and shall thereby be deemed to agree to provide the Receiving Agent with such information and other evidence as the Receiving Agent may require to satisfy the verification of identity requirements. If the Receiving Agent determines that the verification of identity requirements apply to any acceptor or application, the relevant Offer for Subscription Shares (notwithstanding any other term of the Offer for Subscription) will not be issued to the relevant acceptor unless and until the verification of identity requirements have been satisfied in respect of that acceptor or application. The Receiving Agent is entitled, in its absolute discretion, to determine whether the verification of identity requirements apply to any acceptor or application and whether such requirements have been satisfied, and neither the Receiving Agent nor the Company will be liable to any person for any loss or damage suffered or incurred (or alleged), directly or indirectly, as a result of the exercise of such discretion. If the verification of identity requirements apply, failure to provide the necessary evidence of identity within a reasonable time may result in delays in the despatch of share certificates or in crediting CREST accounts. If, within a reasonable time following a request for verification of identity and, in any case by 26 July 2017, the Receiving Agent has not received evidence satisfactory to it as aforesaid, the Company may, in its absolute discretion, treat the relevant application as invalid, in which event the monies payable on acceptance of the Offer for Subscription will be returned (at the acceptor s risk) without interest to the account of the bank or building society on which the relevant cheque or banker s draft was drawn. Submission of an Application Form with the appropriate remittance will constitute a warranty from the applicant that the Money Laundering Regulations will not be breached by application of such remittance. The verification of identity requirements will not usually apply: (a) if the applicant is an organisation required to comply with the Money Laundering Directive (the Council Directive on prevention of the use of the financial system for the purpose of money laundering (no. 91/308/EEC)); (b) if the acceptor is a regulated United Kingdom broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations; (c) if the applicant (not being an applicant who delivers his or her application in person) makes payment by way of a cheque drawn on an account in the applicant s name; or (d) if the aggregate price for the Offer for Subscription Shares is less than Euro 15,000 (or its sterling equivalent). In other cases the verification of identity requirements may apply. Satisfaction of these requirements may be facilitated in the following ways: (i) if payment is made by cheque or banker s draft in pounds sterling drawn on a branch in the United Kingdom of a bank or building society which bears a UK bank sort code number in the top right hand corner the following applies. Cheques should be made payable to CIS PLC RE: CityFibre Infrastructure Holdings plc Offer for Subscription A/C in respect of an application and crossed A/C Payee Only. Third party cheques may not be accepted with the exception of building society cheques or banker s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque/banker s draft to such effect. The account name should be the same as that shown on the Application Form; or (ii) if the Application Form is lodged with payment by an agent which is an organisation of the kind referred to in (a) above or which is subject to anti-money laundering regulation in a country which is a member of the Financial Action Task Force (the non-european Union members of which are Argentina, Australia, Brazil, Canada, China, Gibraltar, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, Russian Federation, Singapore, South Africa, Switzerland, Turkey, UK Crown Dependencies and the US and, by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), the agent should provide, with the Application Form, written confirmation that it has that status and a written assurance that it has obtained and recorded evidence of the identity of the person for whom it acts and that it will on demand make such evidence available to the Receiving Agent. If the agent is not such an organisation, it should contact the Receiving Agent at Computershare Investor Services PLC, Corporate Actions Project, Bridgwater Road, Bristol BS99 6AH. 55

62 To confirm the acceptability of any written assurance referred to in (ii) above, or in any other case, the acceptor should contact the Receiving Agent. The telephone number of the Receiving Agent is (if calling from within the United Kingdom, or (if calling from overseas), between the hours of 8.30 a.m. and 5.30 p.m. on any business day. If the Application Form(s) is/are in respect of Offer for Subscription Shares with an aggregate price of Euro 15,000 (or the Sterling equivalent) or more and is/are lodged by hand by the acceptor in person, or if the Application Form(s) in respect of Offer for Subscription Shares is/are lodged by hand by the acceptor and the accompanying payment is not the acceptor s own cheque, he or she should ensure that he or she has with him or her evidence of identity bearing his or her photograph (for example, his or her passport) and separate evidence of his or her address. If, within a reasonable period of time following a request for verification of identity, and in any case by no later than 26 July 2017, the Receiving Agent has not received evidence satisfactory to it as aforesaid, the Receiving Agent may, at its discretion, as agent of the Company, reject the relevant application, in which event the monies submitted in respect of that application will be returned without interest to the account at the drawee bank from which such monies were originally debited (without prejudice to the rights of the Company to undertake proceedings to recover monies in respect of the loss suffered by it as a result of the failure to produce satisfactory evidence as aforesaid). 5. Overseas Persons This document has been approved by the FCA, being the competent authority in the UK. The making of the Offer for Subscription to persons located or resident in, or who are citizens of, or who have a registered address in, countries other than the UK may be affected by the laws of the relevant jurisdiction. The comments set out in this section 5 are intended as a general guide only and any Overseas Persons who are in any doubt as to their position should consult their professional advisers without delay. 5.1 General The distribution of this document and the making of the Offer for Subscription to persons who have registered addresses in, or who are located, resident or ordinarily resident in, or citizens of, or which are corporations, partnerships or other entities created or organised under the laws of countries other than the United Kingdom or to persons who are nominees of or custodians, trustees or guardians for citizens or residents in or nationals of, countries other than the United Kingdom, may be affected by the laws or regulatory requirements of the relevant jurisdictions. Those persons should consult their professional advisers as to whether they require any governmental or other consents or need to observe any applicable legal requirements or other formalities to enable them to apply for Offer for Subscription Shares under the Offer for Subscription. No action has been or will be taken by the Company, the Underwriters, or any other person, to permit a public offering or, subject to certain exceptions, distribution of this document (or any other offering or publicity materials or application form(s) relating to the Offer for Subscription Shares) in any jurisdiction where action for that purpose may be required, other than in the United Kingdom. Receipt of this document and/or an Application Form will not constitute an invitation or offer of securities for subscription, sale, acquisition or purchase in those jurisdictions in which it would be illegal to make such an invitation or offer and, in those circumstances, this document and/or the Application Form must be treated as sent for information only and should not be copied or redistributed. No person receiving a copy of this document and/or an Application Form in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him or her, nor should he or she in any event use any such Application Form unless, in the relevant territory, such an invitation or offer could lawfully be made to him or her and such Application Form could lawfully be used, and any transaction resulting from such use could be effected, without contravention of any registration or other legal or regulatory requirements. In circumstances where an invitation or offer would contravene any registration or other legal or regulatory requirements, this document and/or the Application Form must be treated as sent for information only and should not be copied or redistributed. It is the responsibility of any person (including, without limitation, custodians, agents, nominees and trustees) outside the United Kingdom wishing to apply for Offer for Subscription Shares under the Offer for Subscription to satisfy himself or herself as to the full observance of the laws of any relevant territory in connection therewith, including obtaining any governmental or other consents that may be required, observing any other formalities required to be observed in such territory and paying any issue, transfer or other taxes due in such territory. 56

63 Persons (including, without limitation, custodians, agents, nominees and trustees) receiving a copy of this document and/or an Application Form, in connection with the Offer for Subscription or otherwise, should not distribute or send either of those documents in or into any jurisdiction where to do so would or might contravene local securities laws or regulations. If a copy of this document and/or an Application Form is received by any person in any such territory, or by his or her custodian, agent, nominee or trustee, he or she must not seek to apply for Offer for Subscription Shares unless the Company determines that such action would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, agents, nominees and trustees) who does forward a copy of this document and/or an Application Form into any such territory, whether pursuant to a contractual or legal obligation or otherwise, should draw the attention of the recipient to the contents of this Part 2 and specifically the contents of this section 5. Subject to sections 5.2 to 5.7 below, any person (including, without limitation, custodians, agents, nominees and trustees) outside the United Kingdom wishing to apply for Offer for Subscription Shares must satisfy himself or herself as to the full observance of the applicable laws of any relevant territory, including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. None of the Company, the Underwriters, nor any of their respective representatives, is making any representation to any offeree of the Offer for Subscription Shares regarding the legality of an investment in the Offer for Subscription Shares by such offeree under the laws applicable to such offeree. The Company reserves the right, but shall not be obliged, to treat as invalid, and will not be bound to allot or issue any Offer for Subscription Shares in respect of, any application or purported application for Offer for Subscription Shares that appears to the Company or its agents to have been executed, effected or despatched from any of the Excluded Territories or in a manner that may involve a breach of the laws or regulations of any jurisdiction or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements or if it provides an address for delivery of the share certificates of Offer for Subscription Shares or to a stock account in CREST, to a CREST member whose registered address would be, in any of the Excluded Territories or any other jurisdiction outside the United Kingdom in which it would be unlawful to deliver such share certificates or make such a credit. The attention of Overseas Persons is drawn to sections 5.2 to 5.7 below. Notwithstanding any other provision of this document or the Application Form, the Company reserves the right to permit any person to apply for Offer for Subscription Shares if the Company and the Underwriters are satisfied that the transaction in question is exempt from, or not subject to, the legislation or regulations giving rise to the restrictions in question. Overseas Persons who wish, and are permitted, to apply for Offer for Subscription Shares should note that payment must be made in pounds sterling denominated cheques or banker s drafts through CREST. Due to restrictions under the securities laws of the Excluded Territories, and subject to certain exceptions, persons who have registered addresses or are located in the United States, or who are resident or ordinarily resident in, or citizens of, any Excluded Territories will not qualify to participate in the Offer for Subscription. The Offer for Subscription Shares have not been and will not be registered under the relevant laws of any of the Excluded Territories or any state, province or territory thereof and may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into any of the Excluded Territories or for the account of any person with a registered address in, or located in, the United States, or any person who is resident or ordinarily resident in, or a citizen of, any of the Excluded Territories except pursuant to an applicable exemption. No public offer of Offer for Subscription Shares is being made by virtue of this document or the Application Forms into any of the Excluded Territories. Receipt of this document and/or an Application Form will not constitute an invitation or offer of securities for subscription, sale, acquisition or purchase in those jurisdictions in which it would be illegal to make such an invitation or offer and, in those circumstances, this document and/or the Application Form must be treated as sent for information only and should not be copied or redistributed. 5.2 Offering restrictions relating to the United States The New Ordinary Shares have not been and will not be registered under the US Securities Act or under any relevant securities laws of any state or other jurisdiction of the United States and may not be offered, sold, pledged, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, into or within the United States absent registration or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable state securities laws. The New Ordinary Shares have not been approved or disapproved by the SEC, any state securities commission in 57

64 the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Placing Shares and/or the Offer for Subscription Shares, or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States. Prospective investors are hereby notified that sellers of the New Ordinary Shares may be relying on the exemption from registration provisions under section 5 of the Securities Act provided by Rule 144A thereunder. Accordingly, subject to certain exceptions, the Placing and the Offer for Subscription is not being made in the United States and neither this document nor the Application Form constitutes or will constitute an offer, or an invitation to apply for, or an offer or an invitation to subscribe for or acquire any Placing Shares or Offer for Subscription Shares in the United States. Subject to certain limited exceptions, envelopes containing Application Forms should not be postmarked in the United States or otherwise despatched from the United States, and all persons subscribing for or acquiring New Ordinary Shares and wishing to hold such shares in certificated form must provide an address for registration of the New Ordinary Shares issued upon exercise thereof outside the United States. Subject to certain limited exceptions, any person who subscribes for or acquires Placing Shares or Offer for Subscription Shares will be deemed to have declared, warranted and agreed, by accessing this document or accepting delivery of the Application Form and delivery of the Placing Shares or Offer for Subscription Shares (i) that it is not, and that at the time of subscribing for or acquiring the Placing Shares or Offer for Subscription Shares it will not be, in the United States or (ii) that it is a QIB. The Company and the Underwriters reserve the right to treat as invalid any Application Form: (a) that appears to the Company, the Underwriters or their respective agents to have been executed in or despatched from the United States or that provides an address in the United States for applications under the Offer for Subscription Shares, (b) that does not include the relevant warranty set out in the Application Form headed Overseas Persons to the effect that the person applying under the Application Form does not have a registered address and is not located in the United States and is not subscribing for or acquiring, Offer for Subscription Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Placing Shares or Offer for Subscription Shares in the United States, or (c) where the Company and the Underwriters believe acceptance of such Application Form may infringe applicable legal or regulatory requirements, and the Company and the Underwriters shall not be bound to allot (on a non-provisional basis) or issue any Offer for Subscription Shares, in respect of any such Application Form. Any person in the United States who obtains a copy of this document and/or on Application Form and who is not a QIB is required to disregard them. Until 40 days after the commencement of the Offer for Subscription, any offer, sale or transfer of the Placing Shares or Offer for Subscription Shares, within the United States by a dealer (whether or not participating in the Offer for Subscription) may violate the registration requirements of the US Securities Act. 5.3 US transfer restrictions Any person within the United States that acquires or subscribes for Placing Shares or Offer for Subscription Shares must meet certain requirements by accepting delivery of this document and will be deemed to have represented, acknowledged and agreed that it has received a copy of this document and such other information as it deems necessary to make an investment decision and as follows (terms defined in Rule 144A or Regulation S shall have the same meaning in this section): (a) it is a QIB and, if it is subscribing for or acquiring the Placing Shares or Offer for Subscription Shares as a fiduciary or agent for one or more investor accounts, (i) each such account is a QIB, (ii) it has investment discretion with respect to each such account, and (iii) it has full power and authority to make the representations, warranties, agreements and acknowledgements in this document on behalf of each such account; (b) to the extent it is an existing shareholder of the Company, it is the beneficial holder of and/or exercises full investment discretion with respect to its Ordinary Shares, as applicable; (c) it is aware and understands that an investment in Placing Shares and/or Offer for Subscription Shares involves a considerable degree of risk and no US federal or state or non US regulatory authority has made any finding or determination as to the fairness for investment or any recommendation or endorsement of any such investment; (d) it will base its investment decision solely on this document. It acknowledges that none of the Company, any of its affiliates or any other person (including the Underwriters or any of their 58

65 (e) (f) (g) (h) (i) respective affiliates) has made any representations, express or implied, to it with respect to the Company, the Placing, the Offer for Subscription, the Placing Shares or the Offer for Subscription Shares or the accuracy, completeness or adequacy of any financial or other information concerning the Company, the Placing, the Offer for Subscription, the Placing Shares or the Offer for Subscription Shares, other than (in the case of the Company and its affiliates only) the information contained in this document. It acknowledges and agrees that it will not hold the Underwriters or any of their affiliates or any person acting on their behalf responsible or liable for any misstatements in or omissions from any publicly available information relating to the Company. It acknowledges that it has not relied on any investigation that the Underwriters or any person acting on their behalf may or may not have conducted, nor any information contained in any research reports prepared by the Underwriters or any of their respective affiliates, and it has relied solely on its own judgment, examination and due diligence of the Company, and the terms of the transaction, including the merits and risks involved, and not upon any view expressed by or information provided by, or on behalf of, the Underwriters or any of their respective affiliates. It understands that this document has been prepared in accordance with the Prospectus Rules of the Financial Conduct Authority of the United Kingdom, which differ from US disclosure requirements. In particular, but without limitation, the financial information contained in this document has been prepared in accordance with IFRS as adopted in the European Union, and thus may not be comparable with financial statements of US companies prepared in accordance with US GAAP as adopted by the Public Company Accounting Oversight Board. It agrees that it will not distribute, forward, transfer or otherwise transmit this document, or any other presentational or other materials concerning the Placing or the Offer for Subscription (including electronic copies thereof) to any person within the United States (other than a QIB on behalf of which it acts), and it has not distributed, forwarded, transferred or otherwise transmitted any such materials to any person (other than a QIB on behalf of which it acts). It acknowledges that it has read and agreed to the matters set forth under section 5 of this Part 2; it is aware and each beneficial owner of the New Ordinary Shares has been advised that the sale of the New Ordinary Shares to them is being made in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act; it acknowledges that its purchase of any New Ordinary Shares is subject to and based upon all the terms, conditions, representations, warranties, acknowledgements, agreements and undertakings and other information contained in this document. It agrees that it (i) has no need for liquidity with respect to its investment in the New Ordinary Shares and (ii) has no reason to anticipate any change in its circumstances, financial or otherwise, which may cause or require any sale or distribution by it of all or any part of the New Ordinary Shares; it is an institution which (i) invests in or purchases securities similar to the New Ordinary Shares in the normal course of business, (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the New Ordinary Shares, and (iii) is, and any accounts for which it is acting are, able to bear the economic risk, and sustain a complete loss, of such investment in the New Ordinary Shares for an indefinite period of time. It agrees that it will not look to the Underwriters or any of their respective affiliates for all or part of any loss it may suffer; it has made its own independent investigation and appraisal of the business, results, financial condition, prospects, creditworthiness, status and affairs of the Company, and it has made its own investment decision to subscribe for or acquire the New Ordinary Shares. It understands that there may be certain consequences under US and other laws, including applicable tax laws, resulting from an investment in the New Ordinary Shares, including that it must bear the economic risk of an investment in the New Ordinary Shares for an indefinite period of time, and it will make such investigation and consult such tax, legal, and/or other advisers with respect thereto as it deems appropriate, and that it possesses such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the New Ordinary Shares; any New Ordinary Shares that it subscribes for or acquires will be for its own account (or for the account of a QIB as to which it exercises sole investment discretion and has authority to make these statements) for investment purposes, and not with a view to distribution within the meaning of the US securities laws, subject to the understanding that the disposition of its property shall at all times be and remain within its control; 59

66 (j) (k) (l) (m) (n) it acknowledges and agrees that it is not subscribing for or acquiring New Ordinary Shares as a result of any general solicitation or general advertising (within the meaning of Regulation D under the US Securities Act) or directed selling efforts (as that term is defined in Regulation S); it acknowledges that the New Ordinary Shares will be restricted securities within the meaning of Rule 144(a)(3) under the US Securities Act and agrees that for so long as such New Ordinary Shares are restricted securities (as so defined), they may not be deposited into any unrestricted depositary facility established or maintained by any depositary bank; it, and each other QIB, if any, for whose account it is acquiring New Ordinary Shares has been advised, understands and has acknowledged that the New Ordinary Shares are being offered in a transaction not involving any public offering in the United States within the meaning of the US Securities Act and that the New Ordinary Shares are not being and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration requirement of the US Securities Act and in accordance with the applicable securities law of any securities regulatory authority of any state or other jurisdiction of the United States. As long as the New Ordinary Shares are restricted securities within the meaning of Rule 144(a)(3) under the US Securities Act, it will not offer, sell, pledge or otherwise transfer the New Ordinary Shares except (i) outside the United States, in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, (ii) in the United States, to a QIB in a transaction meeting the requirements of Rule 144A, or (iii) pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act, in each case in accordance with any applicable securities laws of any state or other jurisdiction of the United States. It understands that no representation has been made as to the availability of Rule 144 of the US Securities Act or any other exemption under the US Securities Act or any state securities laws for the offer, resale, pledge or transfer of the New Ordinary Shares; it acknowledges that, to the extent the New Ordinary Shares are delivered in certificated form, the certificate delivered in respect of the New Ordinary Shares will bear a legend substantially to the following effect for so long as the securities are restricted securities within the meaning of Rule 144(a)(3) under the US Securities Act: THE ORDINARY SHARES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT, OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE US SECURITIES ACT, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, OR (C) IN A TRANSACTION PURSUANT TO ANOTHER EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE US SECURITIES ACT FOR RESALES OF THE ORDINARY SHARES REPRESENTED HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE ORDINARY SHARES MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY MAINTAINED BY A DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF THESE SHARES, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS. It will notify any person to whom it subsequently reoffers, resells, pledges or otherwise transfers the New Ordinary Shares of the foregoing restrictions on transfer; it acknowledges and agrees that the Company shall not have any obligation to recognise any offer, resale, pledge or other transfer made other than in compliance with the restrictions on 60

67 transfer set forth and described in this section and that the Company may make notations on its records or give instructions to any transfer agent of the New Ordinary Shares in order to implement such restrictions; (o) it confirms that, to the extent it is purchasing New Ordinary Shares for the account of one or more persons, (i) it has been duly authorised to make the confirmations, acknowledgements and agreements set forth herein on their behalf and (ii) these provisions constitute legal, valid and binding obligations of it and any other persons for whose account it is acting; (p) it acknowledges and agrees that the Company, its affiliates, the Underwriters, their respective affiliates, the Registrar and others will rely upon the truth and accuracy of the foregoing warranties, acknowledgements, representations and agreements. It agrees that if any of the representations, warranties, agreements and acknowledgements deemed to be made cease to be accurate, it shall promptly notify the Company and the Underwriters; (q) it hereby represents and warrants that all necessary actions have been taken to authorise the purchase by it of the New Ordinary Shares; (r) it and any person acting on its behalf have all necessary consents and authorities to enable it to enter into the transactions contemplated hereby and to perform its obligations in relation thereto; and (s) it understands that the foregoing acknowledgements, representations, warranties and agreements are required in connection with US securities laws and that the Company, the Underwriters and their respective affiliates will rely upon the truth and accuracy of the foregoing acknowledgements, representations, warranties and agreements, and it irrevocably authorises the Company and the Underwriters to produce the Application Form and this document to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered herein. Prospective purchasers are hereby notified that sellers of the New Ordinary Shares may be relying on the exemption from the registration requirements of the US Securities Act provided by Rule 144A. 5.4 Other Excluded Territories Due to restrictions under the securities laws of the Excluded Territories (other than the US) and subject to certain exceptions, persons who have registered addresses in, or who are located, resident or ordinarily resident in, or citizens of, any such Excluded Territories will not qualify to participate in the Offer for Subscription and will not be sent an Application Form. The Offer for Subscription Shares have not been, and will not be, registered under the relevant laws of any Excluded Territories (other than the US) or any state, province or territory thereof and may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into any such Excluded Territories or to, or for the account or benefit of, any person with a registered address in, or who is located, resident or ordinarily resident in, or a citizen of, any such Excluded Territories except pursuant to an applicable exemption. Subject to certain exceptions, no offer of Offer for Subscription Shares is being made by virtue of this document or the Application Forms into any Excluded Territories (other than the US). Accordingly, except as set out below, the Company reserves the right to treat as invalid any Application Form which does not make the representations and warranties set out in section 2.5 of this Part 2. The attention of persons holding for the account of persons located in any of the Excluded Territories is directed to such paragraphs. 5.5 Jurisdictions other than Excluded Territories Overseas Persons in jurisdictions other than any Excluded Territories may, subject to the laws of their relevant jurisdiction, acquire Offer for Subscription Shares under the Offer for Subscription in accordance with the instructions set out in this document and, if relevant, the Application Form. Prospective applicants for Offer for Subscription Shares who have registered addresses in or who are located or resident in, or who are citizens of, countries other than the United Kingdom should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to apply for Offer for Subscription Shares in respect of the Offer for Subscription. 61

68 5.6 Member States of the EEA (other than the United Kingdom) In relation to each Member State of the EEA which has implemented the Prospectus Directive (as defined below) (except the United Kingdom) (each a Relevant Member State ), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, none of the Offer for Subscription Shares may be offered or sold to the public in that Relevant Member State prior to the publication of this Prospectus in relation to the Offer for Subscription Shares, which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, other than the offers contemplated in this document in a Relevant Member State after the date of such publication or notification, and except that an offer of shares may be made to the public in that Relevant Member State: (a) (b) (c) to any legal entity which is a qualified investor as defined in the Prospectus Directive; fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive (as defined below), 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive for any such offer; or in any other circumstances falling within article 3(2) of the Prospectus Directive, provided that no such offer of Offer for Subscription Shares shall require CityFibre to publish a prospectus pursuant to article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in a Relevant Member State and each person who initially acquires any Offer for Subscription Shares or to whom any offer is made under the Capital Raising will be deemed to have represented, acknowledged and agreed that it is a qualified investor within the meaning of article 2(1)(e) of the Prospectus Directive. For the purposes of this selling restriction, the expression an offer of shares to the public in relation to any Offer for Subscription Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Offer for Subscription Shares, to be offered so as to enable an investor to decide to acquire the Offer for Subscription Shares,, as the same may be varied in that Relevant Member State, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented by the Relevant Member State) and includes any relevant implementing measure in the Relevant Member State, and the expression 2010 PD Amending Directive means Directive 2010/73/EU. In the case of the Offer for Subscription Shares being offered to a financial intermediary, as that term is used in article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the Offer for Subscription Shares acquired by it have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any Offer for Subscription Shares to the public other than their offer or resale in a Relevant Member State to qualified investors within the meaning of article 2(1)(e) of the Prospectus Directive. CityFibre, the Underwriters and their respective affiliates will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement. If you are in any doubt as to your eligibility to accept the offer of Offer for Subscription Shares, you should contact your appropriate professional adviser immediately. 5.7 Representations and warranties relating to overseas territories Any person requesting registration of interests in Offer for Subscription Shares comprised therein represents and warrants to the Company and the Underwriters that, except where proof has been provided to the satisfaction of the Company and the Underwriters that such person s effecting of an instruction will not result in the contravention of any applicable legal requirement in any jurisdiction: (i) such person is not requesting registration of the relevant Offer for Subscription Shares or giving such instruction from a registered address, nor is it located or resident in the United States or any of the other Excluded Territories; (ii) such person does not hold a registered address, nor is located or resident in any territory in which it is unlawful to make or accept an offer to subscribe for Offer for Subscription Shares in any manner in which such person has used or will use it or to give instructions; (iii) such person is not acting on a non-discretionary basis for, or on behalf of, or for the account or benefit of a person located within the United States or any other Excluded Territory or any territory referred to in (ii) above at the time the instruction to accept or renounce was given; and (iv) such person is not subscribing for Offer for Subscription Shares with a view to the offer, sale, pledge, resale, transfer, delivery or distribution, directly or indirectly, of any such Offer for Subscription Shares into the United States or any other Excluded Territory or any territory referred to in (ii) above. 62

69 The Company and the Underwriters may treat as invalid any acceptance or purported acceptance of the allotment of Offer for Subscription Shares if it: (i) appears to the Company and the Underwriters to have been executed in or despatched from the United States or any other Excluded Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction or if they believe the same may violate any applicable legal or regulatory requirement; (ii) provides an address in the United States or any other Excluded Territory for delivery of definitive share certificates for Offer for Subscription Shares (or any jurisdiction outside the United Kingdom in which it would be unlawful to deliver such certificates); or (iii) purports to exclude the warranty required by this section. 5.8 Waiver The provisions of this section 5 and of any other terms of the Offer for Subscription relating to Overseas Persons may be waived, varied or modified as regards specific persons or on a general basis by the Company, in its absolute discretion (but subject to the provisions of the Underwriting Agreement). Subject to this, the provisions of this section 5 supersede any terms of the Offer for Subscription inconsistent herewith. References in this section 5 to the Shareholders shall include references to the person or persons executing an Application Form and, in the event of more than one person executing an Application Form, the provisions of this section 5 shall apply to them jointly and to each of them. 6. Admission to trading The result of the Offer for Subscription is expected to be announced on 27 July An application will be made to the London Stock Exchange for the Offer for Subscription Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence at 8.00 a.m. on 28 July The Ordinary Shares are already admitted to CREST. No further application for admission to CREST is accordingly required for the Offer for Subscription Shares. All such shares, when issued and fully paid, may be held and transferred by means of CREST. Notwithstanding any other provision of this document, the Company reserves the right to allot and/or issue any Offer for Subscription Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of the facilities and/or systems operated by the Receiving Agent in connection with CREST. For applicants who have applied for Offer for Subscription Shares to be issued to them in certified form, share certificates in respect of any Offer for Subscription Shares allocated to them are expected to be despatched by post on or around 11 August No temporary documents of title will be issued and, pending the issue of definitive certificates, transfers will be certified against the UK share register of the Company. For applicants who have applied for Offer for Subscription Shares to be issued to them in uncertificated form, any Offer for Subscription Shares allocated to them are expected to be credited to their stock accounts maintained in CREST by 8.00 a.m. on 28 July All documents or remittances sent by or to applicants, or as they may direct, will be sent through the post at their own risk. For more information as to the procedure for application, prospective applicants are referred to section 2.1 of this Part 2 and the Application Form. 7. Taxation Certain statements regarding taxation in respect of the Capital Raising for Shareholders and Placees resident in the United Kingdom or the United States for tax purposes are set out in Part 8 (Taxation) of this document. Persons who are in any doubt as to their tax position in relation to applying for Offer for Subscription Shares under the Offer for Subscription or who may be subject to tax in any jurisdiction other than the United Kingdom or the United States are strongly recommended to consult an appropriate professional adviser immediately. 8. Times and dates The Company shall, in agreement with the Underwriters and after consultation with its financial and legal advisers, be entitled to amend the dates that Application Forms are despatched or amend or extend the latest date for acceptance under the Offer for Subscription, and all related dates set out in this document, and in such circumstances shall notify the UK Listing Authority, and make an announcement on a Regulatory Information Service and, if appropriate, Shareholders. Shareholders may not receive any further written communication. If a supplementary prospectus is issued by the Company two or fewer business days prior to the latest time and date for acceptance and payment under the Offer for Subscription specified in this document, the latest date for 63

70 acceptance under the Offer for Subscription shall be extended to the date that is three business days after the date of issue of the supplementary prospectus (and the dates and times of principal events due to take place following such date shall be extended accordingly). 9. Share Incentive Arrangements The Company shall separately advise participants in the Share Incentive Arrangements of adjustments (if any) to be made to their awards or other rights as a result of the Capital Raising. 10. Governing law The terms and conditions of the Offer for Subscription as set out in this document and the Application Form and any non-contractual obligations related thereto shall be governed by, and construed in accordance with, the laws of England and Wales (including, without limitation, any non-contractual obligations arising out of or in connection with the Offer for Subscription and, where appropriate, the Application Form). 11. Jurisdiction The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Offer for Subscription, this document or the Application Form (including, without limitation, disputes relating to any non-contractual obligations arising out of or in connection with the Offer for Subscription, this document or the Application Form). By applying for Offer for Subscription Shares under the Offer for Subscription in accordance with the instructions set out in this document, the Application Form, or by otherwise participating in the Offer for Subscription, Shareholders and prospective investors irrevocably submit to the jurisdiction of the courts of England and Wales (including, without limitation, in relation to any disputes relating to any non-contractual obligations arising out of or in connection with the Offer for Subscription, this document or the Application Form) and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum. 12. Further Information Your attention is drawn to the further information set out in this document and incorporated by reference into this document and also to the terms, conditions and other information printed on the Application Form. 64

71 PART 3 INFORMATION ON CITYFIBRE 1. Overview of the Company CityFibre provides fibre connectivity services through designing, building, owning, and operating fibre optic network infrastructure. The Group is a wholesale operator of fibre networks in towns and cities outside London which provide open access, shared fibre infrastructure that enables gigabit-capable connectivity for Channel Partners and mobile network operators, who in-turn deliver digital connectivity solutions to their end customers spanning the public sector, business and residential markets. CityFibre operates across the UK, and currently has full fibre optic metropolitan area networks in 42 towns and cities including: Aberdeen, Bristol, Coventry, Edinburgh, Glasgow, Manchester, Milton Keynes, Peterborough, and York. Furthermore, the Company owns and operates a long distance fibre-optic network that interconnects 22 of its current towns and cities. CityFibre is a provider of full fibre infrastructure, meaning there is no copper or co-axial cable used for the provision of data connectivity services in CityFibre s networks. This sets it apart from other infrastructure competitors, notably Openreach and Virgin Media, who rely heavily on legacy copper and co-axial cables connecting to premises on all but a small percentage of their networks. The Directors believe that the current policy and regulatory environment in the UK is supportive of full fibre investment and an increased level of infrastructure alternatives to Openreach. The Company is well positioned to expand its operations to more towns and cities as well as deepen the supply of connectivity services in its existing footprint. CityFibre s network is constructed to provide high capacity fibre infrastructure that serves four primary market verticals: Š Public sector fibre connectivity to council buildings, schools, hospitals, CCTV; Š Business fibre connections to enterprises and SMEs (often referred to as Fibre to the Premises FTTP); Š Mobile operators fibre connections to mobile base stations and small cells for 4G and future 5G mobile services (often referred to as Fibre to the Tower FTTT); and Š Consumers fibre connections to homes (often referred to as Fibre to the Home FTTH). In relation to public, business and mobile sectors, the Company operates a contract-backed model whereby infrastructure construction (or acquisition) is committed to only once the Company has secured contracted revenues which cover a substantial portion of capital expenditure. This anchor contract approach also provides the basis for further success-based network expansion in a city, which the Directors believe should deliver a high level of financial return on incremental investment. 2. Market opportunity 2.1 Demand for digital infrastructure Global IP traffic is estimated to grow at a compound annual growth rate of 22 per cent. between 2015 and 2020, according to forecasts from Cisco (Source: Cisco Visual Networking Index, June, 2016). The continued growth of broadband adoption, the proliferation of interconnected devices and the advance in internet-delivered services and cloud computing is driving the need for increased data capacity in networks. Cisco forecasts anticipate that by 2019 approximately two-thirds of total IP traffic will originate or terminate within urban networks. To support the rapid growth in data traffic, high capacity digital infrastructure is needed in the metropolitan markets, particularly in local access networks (i.e., the last mile connections into businesses, schools and homes etc.). The UK boasts one of the highest levels of internet adoption in the world, with internet-related economic activity accounting for a larger proportion of Gross Domestic Product than in any other G20 member nation. The sector continues to grow strongly and in 2015 the digital sector represented 7.1 per cent. of UK GVA and accounted for 4.4 per cent. of UK jobs and 9.5 per cent. of UK enterprises (Source: Government Response to the Business, Innovation and Skills Committee s Second Report, ). The number of digital technology jobs in the UK has grown at more than twice the rate of non-digital technology sectors (Source: TechCity conference, 21 March 2017). 65

72 As a digital economy, the UK has attracted investment in digital technology, reaching 6.8 billion in This was more than 50 per cent. greater than the investment in digital technology in any other European country in 2016 (Source: Tech Nation 2017 Report, Tech City UK). The Directors believe that the UK government will remain keen to preserve this momentum in order to promote growth in the UK economy. The economic contribution of the UK digital technology worker is large and growing, almost twice as high as the non-digital technology worker (Source: Tech Nation 2017 Report, Tech City UK). Data growth in the UK will continue to rise as internet and data communications users continue to adopt digital applications. There remains strong demand for digital infrastructure and higher speed connectivity across all four of CityFibre s targeted market verticals: Š Š Š Public sector The use of digital technologies in education and healthcare, for example, means that public services require higher bandwidth connectivity. In a number of CityFibre s projects with local authorities, fibre connections are provided to schools, council sites and hospitals. Furthermore, the Company is supplying full fibre connections for CCTV and other public sector applications. Business Alongside the development and growth of digital services and the digital economy, businesses dependency on digital infrastructure has continued to rise to the point that 94 per cent. of small business owners consider a reliable internet connection critical to the success of their business (Source: Federation of Small Businesses, February 2016). Dependency on inadequate digital connectivity remains a major concern for many businesses. According to the figures published by the Federation of Small Businesses, 14 per cent. of small businesses considered lack of reliable and fast broadband connectivity to be their main barrier to growth and, at the time of the report s publication in July 2014, 45,000 small businesses (1 per cent. of the UK s 4.5 million small businesses) had to rely on a dial-up connection. In the nation s business parks, almost half of small businesses are unable to receive speeds above 10Mbps (Source: Connected Nations Report 2015, Ofcom). Consumer The use of internet delivered entertainment services such as Netflix, Now TV and Amazon Prime is driving the need for higher bandwidth connection to the home, and demand for fibre connections will increase, for example, as the adoption of ultra-high definition smart televisions proliferate. Furthermore, as workers increasingly use their homes as a place of work, broadband connections must also support the data needs of accessing a business s IT systems remotely. Š Mobile According to Cisco s forecasts, global mobile data traffic will increase sevenfold between 2016 and 2021, a compound annual growth rate of 47 per cent. The average mobile network connection will increase threefold to reach 20.4 Mbps in the same time period. According to UK government figures, this expected growth in mobile data will drive the need for high bandwidth fibre connectivity to mobile base stations and future small cells. The trend for increasing global data, fuelled by society s increasing use of the internet for digital applications and content alongside the proliferation of connected devices simultaneously connected to the internet, is creating the need for higher bandwidth connectivity at home, at work and on the move. The Directors believe that these trends will drive investment in modern full fibre infrastructure in markets in which the Group operates. Full fibre infrastructure is capable of supporting significantly increased bandwidth services when compared to legacy copper or copper-fibre hybrid networks. As data consumption and therefore demand continue to rise, full fibre s data transmission capabilities can be easily upgraded by replacing the active electronics attached to each end of the fibre rather than upgrading the physical infrastructure itself. A further benefit is the reliability of full fibre networks which significantly exceeds that of other network technologies. Reliability is essential as dependency on infrastructure increases. 66

73 2.2 Supply of fibre-optic infrastructure internationally and in the UK As a predominately service-based economy, the importance of digital infrastructure to the UK is clear. However, the UK is near the bottom of the full fibre infrastructure league tables amongst OECD nations, as shown in the graph below. Fibre coverage to premises in OECD nations, end-2016 (% of premises passed) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Japan South Korea Spain Portugal Lithuania Sweden Iceland Estonia Israel Norway Finland Switzerland Denmark Netherlands Slovenia Canada France USA Chile Slovakia Australia Turkey Mexico Poland Hungary Austria Italy Germany UK Czech Republic FTTP FTTB/VDSL (Source: Ofcom, Wholesale Local Access Market Review Initial Consultation, 6 December 2016 based on data provided by Analysys Mason, November 2016) The investment in, and availability of, fibre to the premises networks to homes and businesses has been a priority for many OECD countries, in particular in Asia where, as illustrated in the graph above, Japan and South Korea now benefit from near ubiquitous coverage of full fibre. In some European countries, major investment programmes by communications providers have resulted in extensive deployments in full fibre broadband. As of December 2016, 79 per cent. of premises in Spain and 70 per cent. of premises in Portugal had access to full fibre broadband. In contrast, the UK s coverage of full fibre was approximately 2 per cent. of premises (Source: Ofcom plans for a full-fibre future, Ofcom). Whereas the UK benefits from a number of competitive fibre suppliers (including Openreach, Virgin Media, Colt Technology Services Group Limited, CenturyLink Limited, SSE Energy Supply Limited, and Zayo Group LLC) for national long distance networks that connect major cities across the country, at the local access network level the market is dominated by the two incumbent operators, Openreach and Virgin Media. Whilst Openreach and Virgin Media offer some full fibre connectivity in the leased line market, the majority of their customers, in particular in the last mile local access networks, are served using connectivity to premises based on either copper wires or copper co-axial cables. Openreach Openreach s copper network has almost full UK national coverage, and is complemented by a portfolio of fibrebased leased lines. In the consumer broadband market Openreach has progressively upgraded its traditional copper based ADSL network to a Fibre-to-the-Cabinet (FTTC) solution, based on a hybrid of fibre fed cabinets and copper wire connections to premises. Unlike a full fibre connection, this solution is incapable of symmetrical services and currently only delivers headline download speeds of 76Mbps, and headline upload speeds of 19Mbps, with both download and upload speeds degrading over distance. Openreach has a stated goal of taking this FTTC solution from 90 per cent. to 95 per cent. of UK household coverage during In May 2016, Openreach announced plans for further investment in its broadband infrastructure with an ambition to rollout ultrafast broadband (defined as connections greater than 300Mbps) to twelve million premises, comprising ten million premises upgraded to G.Fast, a broadband technology that continues to use copper connections, and a further two million premises upgraded to full fibre FTTP connections. In May 2017, Openreach announced a consultation process to engage with other fibre infrastructure builders and Channel Partners to explore opportunities for a collaborative approach to FTTH rollout, with the potential to make full fibre connections available to 10 million premises by the mid 2020s. 67

74 Virgin Media Virgin Media s network covers approximately half of UK households, and is a consolidation of many separate cable companies that undertook the construction of cable TV and telephony networks throughout the 1980s and 1990s. Today its broadband services are delivered via a hybrid fibre co-axial (HFC) cable architecture, which uses copper co-axial cable connections to premises. Virgin Media s consumer broadband products advertise download speeds of up to 300Mbps, although this service is asymmetrical with upload speeds, based on Virgin Media s own network measurement data, of between 6Mbps and 20Mbps. Virgin Media has announced Project Lightning in which it intends to expand its network to four million additional premises, thereby growing its coverage to seventeen million addressable households. Two million of these premises will be served with full fibre FTTP connections, with the remaining premises connected by co-axial cables. UK s Alternative Network Operators In recent years a number of businesses have emerged which focus on the deployment of new digital networks in competition with both BT and Openreach. Known as Altnets, high-profile examples include: Gigaclear plc, Hyperoptic Ltd, B4RN Limited and Wireless Infrastructure Group Limited. The Altnets provide full fibre networks, fixed wireless networks (FWA), hybrid networks and satellite broadband services. They operate in urban and rural areas and have a range of business models, using commercial investment to build brand new networks. Altnets already have networks which, in aggregate, pass the boundaries of more than twice as many premises with full fibre as Openreach (Source: Building Gigabit Britain, September 2016). Supply of wholesale infrastructure in the UK In the UK fixed line access market there is a notable absence of any significant wholesale competitor to Openreach, which is mandated to offer wholesale access in all areas and markets where it is deemed to hold a dominant market position. Whereas London supports a competitive market of alternative fibre infrastructure providers via metropolitan area networks, the availability to service providers of alternative wholesale infrastructure outside London is limited. The reasons for this include the following: 1. Virgin Media s network infrastructure is not generally made available to third party service providers on a wholesale basis, especially to homes and small businesses. 2. Historical network investment by alternative network operators in the UK has been less significant than in other international markets, resulting in very limited wholesale competition to Openreach outside London. In recognition of this lack of competitive infrastructure outside the capital, Ofcom applies wholesale access regulation to Openreach across the UK. Further information regarding the regulatory environment in which CityFibre operates is set out in section 7 of this Part 3. Openreach s obligation to make its networks open to competition has resulted in a significant growth of Channel Partners that compete with BT, and each other, at a retail level. However, they are largely dependent on the use of Openreach s networks for connectivity to premises. As demand for higher speed connectivity increases, the Directors believe the opportunity for CityFibre as an alternative wholesale fibre infrastructure provider to UK towns and cities outside London is significant. The Group s current footprint of 42 towns and cities is estimated by the Directors to provide the Group with a total addressable market of approximately 43,800 public sector sites, 349,400 businesses, an estimated 7,300 cell sites, and 4.4 million homes. The Directors further estimate that the proposed expansion of its network to 50 towns and cities would provide the Group with a total addressable market of approximately 52,000 public sector sites, 420,000 businesses, an estimated 8,700 cell sites and 5.2 million homes. 2.3 Government polices to encourage supply of full fibre networks CityFibre s market opportunity stems from the current lack of full fibre infrastructure within the UK where, as described above, the UK lags behind nearly all OECD nations in the provision of fibre infrastructure. Furthermore, the full fibre investment plans currently announced by Openreach and Virgin Media targeting, in aggregate, four million premises by 2020 amounts to less than 15 per cent. of total UK premises, lower than current full fibre coverage in Chile, Turkey and Mexico based on OECD figures. The low coverage of full fibre infrastructure in the UK has triggered a shift towards policies that support greater competition and investment in alternative fibre networks. 68

75 In February 2016 the communications regulator, Ofcom, published its Digital Communications Review, outlining its strategy to promote investment in new fibre infrastructure whilst reducing the industry s dependence on Openreach. It detailed its proposal on how best to achieve this aim in July 2016 where it stated: Network competition is the most effective spur for continued investment in high quality, fibre-based networks. At present, about half the country has access to two network providers. We have suggested that a good long-term outcome would be to achieve full competition between three or more networks for around 40% of premises, with competition from two providers in many areas beyond that. (Source: Strengthening Openreach s strategic and operational independence, Ofcom, 26 July 2016). Another key consultation proposal by Ofcom to promote competitive investment in full fibre broadband networks was to make it easier for competitors to access Openreach s ducts and poles to expedite and reduce the cost of construction of new fibre networks. In November 2016, as part of its Autumn Statement, the previous UK government announced its policy for full fibre and 5G, pledging 1.14 billion of financial support for competitive fibre infrastructure and 5G projects, comprising: Š 740 million to encourage local authorities to support competitive local full fibre and 5G projects. For example, the government s policy for full fibre is set to encourage local authorities to aggregate demand for fibre connectivity to public sector locations with potential for local authorities to anchor new full fibre networks. Š 400 million to be invested by the government into a Digital Infrastructure Investment Fund (DIIF), which is intended to be matched by other institutional investors creating a fund of at least 800 million to be invested into competitive full fibre infrastructure projects. In the Autumn Statement the government also announced 100 per cent. business rates relief for new full-fibre infrastructure for a 5 year period from 1 April 2017, which is designed to support full fibre roll out to more homes and businesses. Furthermore the Conservative Party manifesto for the 2017 general election in the United Kingdom contained a pledge to ensure there are major fibre core metro networks in over 100 towns and cities in the UK by CityFibre is well positioned to benefit from these policies. For example, the 5 year business rates relief will apply to new fibre networks built by CityFibre. CityFibre in is discussion with the government to explore opportunities for the DIIF to play a role in supporting CityFibre s expansion plans in the future. The Directors believe the changes to regulation to promote fibre infrastructure competition, supported by recent government policies and funding to stimulate further investment in new full fibre infrastructure, provide a positive backdrop for CityFibre to expand its operations to address the supply of fibre infrastructure to service the growing demand for high speed fibre connectivity from its Channel Partners. 3. CityFibre s strengths and its strategy for growth 3.1 Key strengths As an established wholesale operator, with a focus on building, operating and commercialising full fibre networks across the UK, the Group has a number of key strengths that can be summarised as follows: Š Š Š Commitment to full fibre Full fibre infrastructure has significant performance benefits compared to both legacy copper and co-axial cable networks. The Group s focus on this technology choice provides clarity and efficiency to the design, construction and operation of its networks. Full fibre represents a single solution to the current and future bandwidth requirements of CityFibre s four primary market verticals of public sector, business, mobile, and consumer. The Company does not operate any legacy copper network for the provision of data connectivity services. Alignment to government s policy objectives The Group s focus on full fibre investment in towns and cities, coupled with a wholesale approach that is an alternative to Openreach, is aligned to the UK government s policy goals and Ofcom s strategic objectives. Established market presence The Group s metro infrastructure presence in 42 towns and cities provides an established platform from which it can continue to expand to serve customers across the public sector, business and mobile operator market verticals. These metro networks also provide the backbone required to support the rollout of FTTP and FTTH, accelerating CityFibre s ability to construct FTTP and FTTH networks cost effectively. 69

76 Š Š Š High quality, diversified customer base and wholesale model As a wholesale operator, the Group has an established and diversified base of Channel Partners including public sector integrators, business ISPs, mobile operators and consumer ISPs. CityFibre currently benefits from relationships with 54 Channel Partners. However, as an open access infrastructure provider, there are significant opportunities to expand the number of partners and thereby accelerate revenue growth. Proven anchor tenancy approach The Group s current national footprint demonstrates its anchor tenancy approach that mitigates market entry risks, through securing long term anchor contracts with Channel Partners that cover a substantial portion of capital expenditure prior to construction commencing, and by aggregating demand ahead of construction, or through select purchase and leaseback of existing fibre infrastructure. CityFibre s track record of successful anchor contracts in its four primary market verticals positions the Group well to expand to new towns and cities. Cost advantages compared to Openreach and Virgin Media Compared to traditional copper and cable based networks, a full fibre infrastructure can be expected to benefit from higher reliability and lower operating costs. Furthermore, as a new provider, CityFibre s operations are established with platforms that run an efficient fibre only network, thus providing cost advantages compared to incumbent operators. Š Strong management with a proven track-record of entrepreneurship CityFibre s management team has considerable experience of establishing and developing high growth communications infrastructure based companies. Together with its construction partners, the Group has the expertise in place to exploit the large scale opportunity for full fibre infrastructure across the UK. The Directors believe that the Group s strengths outlined above position the Company well to expand its operations and accelerate the construction of its network to new locations. Against the backdrop of legacy copper and cable infrastructure provided by Openreach and Virgin Media, the Group has the potential to exploit the significant opportunities for competitive full fibre, in line with recent UK government policy and supported by strong market demand. 3.2 Strategy for growth The Group has established a strategy to grow and commercialise its full fibre network as follows: Š Extend CityFibre s footprint to more towns and cities Currently the Group has metro fibre networks in 42 UK towns and cities. Market demand for new fibre infrastructure is giving rise to an accelerated expansion opportunity. In the short to medium term, CityFibre seeks to secure anchor contracts to support entry into no less than eight new towns and cities, bringing the total footprint to no less than 50 UK towns and cities by CityFibre believes that there is a longer term opportunity to expand its footprint to approximately 100 towns and cities. Š Š Š Increasing returns from existing assets Working in collaboration with its growing portfolio of Channel Partners, CityFibre intends to increase the amount of network in its footprint, expanding connectivity to more end customer sites in its four primary market verticals and increasing returns from its existing assets. Increase metro connectivity within CityFibre s footprint CityFibre will seek to increase the supply of full fibre connectivity across its four primary market verticals. For example, the Group has secured public sector contracts in nine of its current 42 towns and cities. The recent UK government policy direction for full fibre connected public sector sites presents the opportunity to expand coverage through more local authority contracts. Furthermore, enterprise and SME users located in business parks remain underserved by legacy networks, and this is providing an opportunity for the Group to rollout full fibre infrastructure to approximately 500 business parks that are located near to CityFibre s metro networks in its current metro footprint. Commence rollout of Fibre to the Home (FTTH) The deployment of FTTH has been a key element of government policy on communications infrastructure. The Group s successful FTTH trial in York demonstrated the ability to expand CityFibre s metro infrastructure to full fibre connections to homes and CityFibre s ability to deploy FTTH connectivity cost effectively. The Channel Partners were able to offer full fibre broadband to their customers at attractive retail prices, thereby demonstrating the propensity for consumers to switch to FTTH connections. Based on the success of the York trial, the Group now intends to commence the construction of fibre infrastructure to residential households in a select number of towns and cities within CityFibre s current footprint. Further information on the FTTH trial in York is set out in section 5.2 of this Part 3. 70

77 Š Secure opportunities for Fibre to the Tower (FTTT) Fibre connectivity to mobile base stations is referred to as Fibre to the Tower (FTTT), or mobile backhaul. Growth in mobile data is influencing operators to seek higher bandwidth fibre connections to base stations with further demand to connect a large number of small cells over time as mobile operators prepare for 5G services by As FTTT can be provided using the same high capacity metro infrastructure deployed for public sector and business market verticals, CityFibre is well positioned to serve the connectivity of mobile operators, having demonstrated its FTTT capabilities in the successful pilot in Hull for MBNL, Three and EE. The Group continues actively to explore opportunities with mobile operators that seek a transition to dark fibre based FTTT connections within CityFibre s existing or expanded city footprint. The execution of the above strategy is expected to enable CityFibre to grow its full fibre footprint into new towns and cities, as well as expand penetration and yield across its footprint. In support of the Group s strategy, the Company further plans to: Š Š Š Š Š Increase Channel Partners As a wholesale provider, CityFibre expects to expand the number of Channel Partners as well as invest in IT platforms to support Channel Partners. Currently the Group has 54 Channel Partners that use CityFibre s fibre infrastructure. The Entanet Acquisition gives CityFibre access to new Channel Partners due to Entanet s existing position as a wholesale provider with approximately 1,500 Channel Partners having conducted business with Entanet in the 12 months ended 31 December This represents a significant increase in CityFibre s indirect routes to market. Expand Ethernet product portfolio CityFibre will develop its portfolio of connectivity services through the introduction of wholesale Ethernet products that complement existing dark fibre services. This is expected to widen the addressable market for the use of CityFibre s infrastructure across its current and expanded footprint and open up the opportunity to attract national Channel Partners who seek city-to-city Ethernet services. Entanet s national network supports end-to-end Ethernet capabilities that are required as part of CityFibre s product development. The acquisition significantly accelerates both the timescale and scope of CityFibre s Ethernet strategy, enabling faster take up of the Group s fibre connectivity by national Channel Partners in all four primary market verticals. Ensure efficient network design The Group seeks to optimise network design through accurate demand mapping, in order to design a high capacity fibre architecture that will efficiently support both current and future demand across all four primary market verticals, including FTTH. Exploit third party duct infrastructure where appropriate Where available on beneficial terms, CityFibre will seek to make use of third party duct infrastructure where appropriate. For example, CityFibre has made use of local authority owned ducts in some of its existing towns and cities. Furthermore, the use of Openreach ducts and poles for some parts of the deployment (as proven by the Group s trial in Southend-on-Sea) provides the opportunity to lower FTTH construction costs. Develop partnerships with key suppliers and civil engineering contractors The Group s strategy to accelerate its expansion will be supported by CityFibre s management capabilities and relationships with suppliers and civil engineering contractors. The Group has proven its capabilities to co-ordinate and manage fibre infrastructure construction, as demonstrated in the construction and expansion of metro networks in 42 towns and cities. The Group will increase the number of employees only where essential, and it will continue to work with select engineering partners to deliver and operate CityFibre s national infrastructure. Š Pursue select acquisitions of fibre infrastructure assets and complementary businesses Where appropriate to the acceleration of its strategy, the Group will consider growth opportunities through acquisition of fibre assets (similar to its past acquisitions of KCOM s national infrastructure and Redcentric Solutions Limited s metro fibre assets), or complementary businesses (for example, the Entanet Acquisition which is described in more detail in Part 6 of this document). The Directors believe that the Group s strategy will enable the Group to accelerate its growth and respond to the market opportunity for full fibre across the UK. This strategy is also expected to establish CityFibre as a leading alternative wholesale full fibre network provider to Openreach in its chosen markets, with a large footprint of long term yield generating fibre network assets. 4. CityFibre s Network, Wholesale Products and Customers In line with the Group s strategy, CityFibre s networks are full fibre networks that do not use any copper wires or co-axial cables for the provision of data connectivity services. Wholesale connectivity services provided by CityFibre to its Channel Partners are provided across its fibre infrastructure, enabling end-to-end fibre connectivity and the delivery of the fibre optic connection all the way to the premises. 71

78 4.1 Overview of the Network As at 31 December 2016, CityFibre operated 2,244 kilometres of metro local access duct and fibre networks across 42 towns and cities, as well as a 1,139 kilometre national long distance network connecting 22 towns and cities to data centres in London and the UK regions, as illustrated in the map below. Figure 4.1 Map showing the location of CityFibre s national fibre infrastructure CityFibre s typical metro local access network comprises two or four 90 millimetre ducts, each capable of housing four or more sub-ducts. The ducts and sub-ducts house fibre optic cables that provide fibre connectivity. CityFibre s metro local access networks are a combination of assets acquired in 2011, 2014, and 2016, as well as network constructed by CityFibre. In both the networks it has built and those it has acquired, CityFibre typically enjoys significant underutilised duct capacity in the metro local access networks, meaning that the infrastructure can be upgraded to higher capacity by installing new fibre cables in empty duct space. This is a standard process in the operation of fibre optic infrastructure for wholesale fibre services to multiple customer segments. The national long distance network, acquired in January 2016, was built between 2000 and 2001 and has a figure of 8 configuration, stretching from Manchester and Leeds in the north to Bristol and London in the south. The long distance network generally consists of two 90 millimetre ducts, each of which has capacity for four sub-ducts. Current utilisation of the long distance network is low, so this offers significant incremental capacity which CityFibre will seek to exploit in capturing emerging opportunities with mobile operators and other Channel Partners seeking city-to-city, regional, or national dark fibre connectivity. 4.2 Expansion of Local Access Networks to Address Demand CityFibre s typical strategy is to enter a town or city through the construction or acquisition of a core metro infrastructure, and then expand the network to address incremental demand from its wholesale Channel Partners. To illustrate CityFibre s network expansion methodology, the following is an overview of its network deployment in Peterborough: Š Š Š New anchor network construction - The original 90 kilometre anchor network was designed and built by CityFibre in response to an initial anchor contract with Serco Plc (the IT provider to Peterborough City Council) to connect 106 public sector sites in Peterborough. Construction was completed in March Incremental business demand and network extension As the anchor network was under construction, CityFibre and its Channel Partners serving the business market began a demand aggregation campaign, which is ongoing. As at 28 February 2017, this activity generated the sale of 258 new business connections on the network, which necessitated incremental network construction to expand the network to new areas of the city. The cost of this incremental construction is recovered in part through connection charges, and in part through monthly rental charges. Incremental public sector demand and further network extension - In 2016 CityFibre secured a further public sector contract to connect 220 CCTV and traffic control sites in the city to full fibre. This requires an additional 24 kilometres of network extension. 72

79 CityFibre s design methodology is to construct its network most effectively and efficiently to service its customers across all four primary market verticals. In the case of Peterborough, the configuration of the network built for the public sector anchor contract was constructed to take it close to areas of business demand, in turn enabling CityFibre and its partners to connect businesses efficiently. Additionally, the CCTV network extension takes the CityFibre network into business districts previously unserved by CityFibre, effectively supporting the cost of building closer to new potential business customers. Through optimising network design and extension in this manner, CityFibre s incremental costs to connect customers continually reduce over time as the networks become denser, thus offering a lower cost to connect new customers. Furthermore, expansion in this manner takes into account future FTTT connectivity to mobile base stations as well as future capacity requirement to support FTTH. 4.3 CityFibre s Wholesale Fibre Connectivity Products CityFibre offers a range of full fibre-based connectivity products for service providers, carriers, systems integrators, mobile operators and data centres, covering both passive and active services. Active services is a term used to describe the provision or sale of any services in which the electronics and ability to transmit data are included alongside access to the fibre optic cable, typically enabling Ethernet connectivity and access to Internet services. Passive services is the term used to describe the provision or sale of access to a raw, un-lit fibre optic cable. When purchasing a passive service, a Channel Partner is required to add their own electronics to either end of the fibre in order to enable the transmission of data and the provision of services to their end customer. Traditionally, most service providers have purchased an active service in the form of a managed service-based leased line from a wholesale provider. Such active services incorporate both the physical infrastructure (fibre) and the service component (electronics and software) into a standardised product, which presents no flexibility to the service provider. However, in recent years Channel Partners increasingly prefer a dark fibre solution. Dark fibre is the raw unlit fibre and offers very high bandwidth capacity to the service provider, as the only constraints in data transmission relate to the electronic equipment used at either end of the fibre strand. This feature allows the service provider to provision services specific to its customers needs, while maintaining visibility of cost in the underlying infrastructure. Recognising that the market comprises Channel Partners who require both active and dark fibre services, the Group s product portfolio accommodates both. Passive dark fibre connectivity products comprise: Š Metro point-to-point dark fibre CityFibre s metro dark fibre networks provide abundant capacity for data transmission and are based on a ducted/sub-ducted ring architecture, with Points-of-Presence (PoPs) across its towns and cities. This allows a variety of uses, including bespoke private fibre rings, connections between internet exchanges, business connectivity and the connections for public sector sites such as schools and hospitals. Š FTTT point-to-point dark fibre This is essentially the same product as metro dark fibre but is provided to mobile operators to enable fibre connectivity to base stations and small cells. Dark fibre is increasingly important for mobile operators who are seeking to migrate away from traditional incumbent leased line circuits or restricted capacity microwave connections. Š Long distance dark fibre CityFibre s 1,139 kilometre national long distance network provides a dark fibre option for carriers or service providers looking for intercity or regional fibre connectivity or who wish to construct their own active long distance networks. The ducted and sub-ducted network connects CityFibre s metro network in 22 of its towns and cities to strategic data centres in London and the UK regions. Active Ethernet based fibre connectivity products: Š Metro GIG Connect Ethernet based internet connectivity circuits at either 500 Mbps or 1 Gbps. These are suited to high bandwidth applications, such as cloud computing, that require IP transit capabilities and direct connectivity to the internet. Š Metro GIG Hub This is an aggregation solution which allows CityFibre s service provider partners to connect multiple local access circuits (such as the GIG Connect products mentioned above) into a single 1Gbps or 10Gbps circuit. This allows for the aggregation of traffic to a remote handover point up to 20 kilometres away, and potentially further. This is a valuable tool for service providers looking to migrate clusters of customers from legacy services and onto CityFibre s network, or alternatively to drive geographically targeted customer acquisition programmes. 73

80 4.4 CityFibre s Customers CityFibre is a provider of wholesale connectivity services. CityFibre does not provide retail services to end users, but instead provides full fibre connectivity in a wholesale model to Channel Partners, who in turn use the Group s fibre infrastructure to provide solutions to their customers. CityFibre currently has active relationships with 54 Channel Partners, encompassing national and international carriers serving the enterprise market, national and local service providers catering to the needs of small and medium-sized businesses, systems integrators and ICT specialists serving the public sector, mobile carriers and mobile infrastructure operators, and consumer ISPs. CityFibre s market is divided into the four primary market verticals detailed below. Public Sector When CityFibre commenced business in 2011, it was almost exclusively focused on the suppliers of ICT services to the public sector. The public sector remains a key market vertical for CityFibre, comprising approximately 30 per cent. of connected customer premises, and approximately 25 per cent. of new connections sold in the year to 31 December Key Channel Partners in the public sector market vertical include Pinacl Solutions UK Ltd, Serco Limited, Interoute Communications Limited, Logicalis UK Ltd, Commsworld Limited and Exa Networks Limited. Contracts with suppliers to the public sector typically range in duration from seven to as long as 20 years. As at 31 December 2016, CityFibre had significant public sector contracts in nine towns and cities, including both delivered connections and contractually committed connections. Business Sector CityFibre has commercial relationships with a wide range of Channel Partners who serve the business market within its network. These range from highly localised providers such as Triangle Networks Limited or Between the Lines Communication Ltd, to regional players such as Commsworld Limited and Exa Networks Limited, to national operators such as Onecom Limited and Gamma Telecom Ltd. CityFibre typically provides these customers with either an active product or dark fibre solution, depending on the preferences of the Channel Partner. Contracts with business Channel Partners typically range from three to six years and are usually paid in monthly instalments. CityFibre currently has contracts with Channel Partners to provide fibre connectivity to businesses in 25 of the 42 towns and cities within its existing footprint. In some circumstances, CityFibre has partnered with business Channel Partners who have provided a commitment to use CityFibre s network in a town or city, once constructed by CityFibre. For example, in Aberdeen and Edinburgh, CityFibre s initial networks were constructed in response to aggregated demand from business Channel Partners, and once built the networks benefited from subsequent orders from the public sector. Mobile Operators In 2014 CityFibre signed a framework agreement with Three, EE and MBNL to provide dark fibre-based backhaul connectivity to mobile base stations. The first deployment was completed in Hull in early 2016, connecting 37 macro cell sites to a 56 kilometre dark fibre network, the first of its kind in the UK. Three UK subsequently reported a 380 per cent. increase in data throughput when the network was launched into service. CityFibre has established active dialogue with mobile network operators in the UK, who are evaluating their future network architecture and connectivity needs in light of high mobile data growth from 4G and future deployments of 5G and small cells. The Directors believe it is likely that dark fibre connectivity will be preferred for FTTT applications and the Group is confident that its network of fibre infrastructure in its 42 towns and cities provides an attractive platform for mobile operators evaluating migration to an alternative network based on dark fibre. Consumer FTTH As further described in section 5 of this Part 3, in 2014 CityFibre entered into a joint venture with Sky and TalkTalk to construct an FTTH network in York. Having successfully completed the trial, the Directors believe there is significant opportunity to deploy FTTH infrastructure effectively and efficiently in selected towns and cities where CityFibre has an extensive metro network. Following the success of the York trial, CityFibre is now engaged in active dialogue with a number of consumer focused Channel Partners who are keen to take advantage of near gigabit speed broadband delivered on CityFibre s full fibre infrastructure. 5. Expansion Strategy The demand for digital infrastructure, coupled with proposals for full fibre and greater network level competition, is providing an environment in which the Group can consider its expansion strategy. Having 74

81 established a presence in 42 towns and cities, and undertaken successful trials of FTTT and FTTH, the Company s network growth plan is based on expansion of its metro presence, as well as extension of the metro infrastructure toward FTTH for consumers. 5.1 Metro expansion, including FTTT for mobile CityFibre s expansion strategy is to accelerate the rollout of CityFibre s metro fibre infrastructure to no less than 50 towns and cities by Therefore, CityFibre will target expansion of its metro network presence to no less than eight new towns and cities supported by anchor contracts to support this expansion. These anchor contracts will be targeted from one or more of the three primary market verticals linked to metro connectivity: public sector, business and FTTT mobile connectivity. FTTT uses the metro fibre infrastructure to connect to mobile stations and is a standard metro network product. Contracts with mobile operators for FTTT connectivity may result in CityFibre providing connectivity within its existing footprint as well as expansion to new towns and cities. In considering metro expansion to new towns and cities, CityFibre s management intends to maintain its established financial discipline for anchor contracts, in particular its focus on targeting gross margins in excess of 90 per cent. and an initial contract value that covers a substantial proportion of the network construction costs. 5.2 FTTH expansion to consumers CityFibre s FTTH rollout strategy is to deploy fibre to homes as an extension of its metro infrastructure. For example, the metro duct infrastructure is constructed or adapted to take into account the future fibre capacity for FTTH and also the locations of FTTH street cabinets that will be located on or near to the metro network. The metro network itself is used to carry FTTH fibre cables from centrally located points of presence (POPs) within a city to the FTTH street cabinets located in residential areas. Compared to greenfield network construction, the presence of CityFibre s metro infrastructure provides time and cost benefits to its planned FTTH rollout. This results from a proportion of the network infrastructure required for FTTH already being established through the metro infrastructure in the 42 towns and cities where CityFibre has a presence. CityFibre s strategy for FTTH rollout is based on the deployment of cabinets, connected to the metro infrastructure, that are capable of providing fibre connectivity to 350 to 450 premises per cabinet. The number of premises in a city will dictate the maximum number of FTTH cabinets required, although in order to optimise the economics of any deployment, CityFibre will retain flexibility to determine the speed of rollout and the areas where FTTH infrastructure will be deployed. The York Trial In 2014, CityFibre announced the formation of a joint venture with Sky and TalkTalk, YorkCo, to deploy an FTTH network in York. This trial aimed to demonstrate the suitability of CityFibre s metro infrastructure to support the expansion of full fibre connectivity to homes. CityFibre s existing metro network in York was a result of CityFibre s anchor contract on behalf of the City of York Council for 105 council sites and schools. CityFibre subsequently added 175 net incremental public sector and business connections to its York metro network and as at 31 December 2016, CityFibre s metro network infrastructure in York comprised more than 125 kilometres of network, connecting 280 council sites and businesses. Construction of the FTTH network, passing 13,582 homes, supervised by CityFibre s technical teams, was completed by 31 May The project demonstrated CityFibre s approach to constructing an FTTH network through the incorporation of CityFibre s existing metro infrastructure. The FTTH network in York was expanded at a cost of less than 500 per home whose boundary was passed by the network. The Directors estimate that the use of CityFibre s existing metro network delivered cost savings of 20 to 25 per cent. (compared to constructing all the network including the metro element) and reduced the time to construct the network by 12 to 18 months. Furthermore, the trial demonstrated demand from Channel Partners to offer near gigabit speed FTTH services, as well as the propensity for consumers to switch to FTTH connections. The York trial demonstrates the commercial viability of FTTH in the UK. CityFibre s Channel Partners in York offer connection speeds of up to 940Mbps for prices ranging from to per month. By comparison, BT s Unlimited Infinity 2 FTTC product available in York has a maximum advertised download speed of 76Mbps and a 19Mbps upload speed at a price of per month. Virgin Media s coaxial cable-based 300Mbps product offers a maximum advertised download speed of 300Mbps and a 20Mbps upload speed at a price of 47 per month. The differentiated and competitively priced CityFibre FTTH product has been well-received in the York market. As at 31 May 2017, of the 13,582 homes in York whose boundaries are passed by the FTTH network constructed 75

82 by YorkCo, 3,684, being more than 27 per cent., had subscribed for an internet service from Sky or TalkTalk on the new network, with the highest cabinet penetration now exceeding 40 per cent.. The graph below illustrates the percentage of serviceable premises in York that have subscribed for FTTH services from Sky or TalkTalk % 28.00% 26.00% 24.00% 22.00% 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% York FTTH Percentage of Homes Taking Services The YorkCo joint venture agreement contained a restriction on CityFibre, preventing it from participating in any trial or rollout of FTTH services to residential customers in any other part of the UK. This restriction applied for 12 months after the commercial launch of the York fibre network. The restriction has now expired. International Benchmarks FTTH deployments in Europe demonstrate fast growth in user subscriptions to full fibre broadband services. According to the FTTH Council Europe, there will be more than 36 million FTTH connections in use across Europe by 2019, with penetration expected to exceed 40 per cent. of homes passed in several countries which were early adopters of FTTH. For example, household penetration in Latvia is expected to reach 60 per cent. by 2019, followed by Sweden (51 per cent.), Spain (50 per cent.), Norway (49 per cent.), Romania (48 per cent.), and Portugal (46 per cent.). Altnet fibre builders will deliver the highest proportion of FTTH lines. (Source: FTTH in Europe Forecast : Behind The Numbers, FTTH Council Europe, 16th May 2017). Regulated Duct and Pole Access Ofcom s consultation on proposed changes to duct and pole access regulations, announced in April 2017, is designed to encourage the use of Openreach s physical infrastructure in the deployment of competitive full fibre networks. In 2016, CityFibre commenced its deployment of full fibre infrastructure in Southend-on-Sea, trialing the use Openreach ducts for part of the network construction to lower construction costs. Construction of the Southend network substantially completed in March 2017 and demonstrated a 27 per cent. reduction in forecast capital expenditure resulting from the selected use of Openreach duct for parts of the network construction. The Directors believe that incorporating the use of Openreach ducts and poles in selected parts of the construction of CityFibre s infrastructure will lead to a reduction in FTTH network construction costs. Accordingly, the Group s planned rollout of FTTH infrastructure will be optimised through infrastructure constructed by CityFibre that is supplemented in part with use of Openreach ducts and poles where appropriate. CityFibre s Planned FTTH Rollout Following the success of the York and Southend trials the Directors believe there is an opportunity to deploy FTTH infrastructure effectively and efficiently in towns and cities where CityFibre has an extensive metro footprint. In this regard, and following the Capital Raising, it is the Group s intention to commence a larger scale FTTH deployment. Following detailed planning of the FTTH infrastructure, CityFibre expects that construction will commence in five to ten towns and cities within its existing or expanded metro footprint during 2018 delivering approximately 300 to 400 FTTH cabinets by the end of The construction period will depend on the number of premises in each town or city, with an average duration expected to be in the region of 20 months to 24 months per town or city. 76

83 CityFibre intends to work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, hence mitigating deployment risks by ensuring there is sufficient demand ahead of construction. Following the expiry of the restrictions in the YorkCo joint venture agreement, CityFibre has engaged in commercial discussions with major ISPs and a number of smaller ISPs to secure Channel Partner relationships that are intended to provide full fibre broadband services to consumers using CityFibre s future FTTH infrastructure. These discussions are advanced and may or may not lead to a binding agreement in due course. Such agreements potentially will include exclusivity for a period of time or other preferential terms in response to penetration commitments that may be made by Channel Partners. If entered into, these agreements would be consistent with CityFibre s strategy. If CityFibre gains firm commitments from Channel Partners supporting FTTH expansion beyond the plans outlined in this document, the Company could be required to raise further debt or equity capital in the longer term. Illustrative Economics of the FTTH Rollout CityFibre will rollout FTTH on a cabinet by cabinet basis. Each FTTH street cabinet is capable of providing fibre connectivity to 350 to 450 premises per cabinet, being approximately 90 per cent. homes and approximately 10 per cent. SME businesses per cabinet. The total capital expenditure, based on self-build and the selected use of Openreach duct and pole access, is estimated by the Directors to be approximately 170,000 to 200,000 per cabinet (net of up-front fees paid by customers for fibre connections), being approximately 75 to 85 per cent. fixed capital expenditure (enabling construction of the FTTH infrastructure to the boundary of all premises served by the cabinet) and 15 to 25 per cent. success based capital expenditure (for construction from the boundary into the premises that have subscribed for an FTTH connection). CityFibre expects that the wholesale price charged to its Channel Partners will be competitive in the context of the range of 40 Mbps to 300 Mbps wholesale broadband products provided by Openreach. Assuming early subscriber penetration growing in line with the York FTTH trial and international benchmarks the Directors estimate subscriber penetration to reach at least 50 per cent. within five years, with payback per cabinet (being the period of time it takes to generate gross margin from connections equal to the net capital expenditure required to construct the FTTH cabinet) targeted to occur within seven to nine years of the start of construction. The revenue yield on net capital expenditure is targeted to be approximately 18 per cent. to 22 per cent. per cabinet at maturity, being five to seven years following cabinet construction. Revenue yield is defined as the recurring annual revenue generated per cabinet, measured against the capital expenditure per cabinet, net of up-front fees paid by the customers for fibre connections. CityFibre expects that construction will commence in five to ten towns and cities within its existing or expanded metro footprint during An illustrative city rollout will deliver approximately 200 cabinets over a 20 to 24 month period that pass approximately 80,000 premises. CityFibre expects to invest approximately 35 to 40 million of aggregate net capital expenditure (net of up-front fees paid by customers for fibre connections) until maturity of the illustrative city, being within five to seven years after the commencement of the first cabinet construction. The Directors believe that the construction of FTTH will enable CityFibre to scale its customer base more rapidly than a metro-only offering and will enhance the Company s barriers to entry in its chosen markets. In addition the Directors believe that an FTTH revenue stream, derived from strong relationships with Channel Partners, would further enable the Company to target re-financing of its existing debt facilities in 2018 with a higher level of leverage, in order to optimise its capital structure to fund its future growth. As the FTTH network deploys a near ubiquitous fibre infrastructure over time throughout the relevant town or city, there are potential cost efficiencies for CityFibre s broader portfolio of metro fibre products delivered to locations in or near residential areas in all four primary market verticals: public sector, business, mobile and consumer. 6. History and Recent developments CityFibre is a company incorporated in England and Wales and is the holding company of the Group. The Group owns and operates over 3,300 route kilometres of local access fibre networks serving over 3,900 customer locations in 42 towns and cities in the UK. In the period prior to the 2014 Admission, the Group was engaged in developing its business following the acquisition of assets from i3 Group Limited (known as Earlestown Technology Limited as of 10 May 2011) and H2O Networks Limited in In this period, the construction of the York network was completed and the Gigler service was launched in Bournemouth as a limited provider of FTTH services. In November 2013 CFHL secured an anchor contract with Serco Limited to deploy a 90 kilometre fibre optic network in Peterborough. 77

84 CityFibre s Ordinary Shares were admitted to trading on AIM on 17 January 2014 with an associated placing of Ordinary Shares raising 16.5 million (before expenses). The Group subsequently raised an additional 30 million (before expenses) pursuant to a placing in June In April 2014, CityFibre announced a joint venture with Sky and TalkTalk, to develop a trial FTTH network in York. The joint venture, which is owned 33.3 per cent. equally by the three partners, has successfully completed the trial deployment, passing 13,582 homes in one section of York by 31 May Sky and TalkTalk commenced marketing of FTTH broadband services under the proposition brand of Ultra Fibre Optic (UFO), in The Peterborough project commenced construction in April 2014 and was completed in March Network route length is approximately 90 kilometres serving more than 250 customer sites. In June 2014 the Group completed the acquisition of the Coventry metro network asset from Coventry City Council, a network asset of approximately 180 kilometres. In November 2014, CityFibre entered into a national framework agreement with major mobile operators Three UK and EE, along with their infrastructure joint venture MBNL, to supply dark fibre FTTT for backhaul connectivity to mobile base stations. Approximately 56 kilometres of network has been built in Hull, connecting 37 sites for MBNL. In March 2015, CityFibre entered into an anchor contract in Edinburgh for 50 kilometres of network connecting 200 business sites. This was supplemented in September 2015 by a further contract to connect 294 local authority sites with an additional 100 kilometres of network, taking the total in Edinburgh to 150 kilometres. In October 2015, CityFibre entered into the first contract under a Master Services Agreement with Vodafone, utilising its existing York network asset. In November 2015, CityFibre signed an anchor contract with ISP HighNet to construct a new fibre network in Glasgow. The network will initially comprise approximately 30 kilometres serving 100 customers. In January 2016, CityFibre completed the acquisition of certain national network infrastructure assets from KCOM Group Plc, for cash consideration of 90 million. The acquisition of these assets from KCOM did not constitute the acquisition of a business and therefore the relevant financial information is included by incorporation in the 2016 accounts. At the same time the Company raised 80 million (before expenses) through a placing of Ordinary Shares and entered into a 100 million debt facility. The acquisition constituted a reverse takeover for the purposes of the AIM Rules, and accordingly the Company s entire issued share capital was re-admitted to AIM on 18 January The network assets acquired consisted of approximately 2,200 route kilometres of ducted infrastructure together with fibre optic cable, access chambers and other assets. This comprised 1,100 kilometres of network in 24 towns and cities across the UK (the metropolitan networks), together with a 1,100 kilometre national figure of eight Long Distance Network (LDN) that interconnects 22 of the 24 metropolitan networks. CityFibre also entered into a network access and maintenance agreement with KCOM as the anchor contract for the acquisition of the KCOM network assets. The 15-year national framework agreement governs KCOM s continued use of the network assets. In March 2016, CityFibre announced a contract with Southend-on-Sea Borough Council to build a 50 kilometre network connecting 120 public sector sites throughout the town. The network was constructed using Openreach ducts for some of the build. In July 2016, CityFibre entered into a 20-year agreement for the connection of an additional 220 locations in Peterborough, comprising high definition closed circuit television and urban traffic control sites. CityFibre will extend its existing 90 kilometre Peterborough network by a further 24 kilometres. In August 2016, CityFibre announced a six-year contract under its existing national framework with Exa Networks, to connect 250 schools and businesses in Sheffield, Doncaster and Rotherham. In September 2016, CityFibre announced a five-year agreement with national business ISP Onecom, to deliver 150 business connections on the Group s network under construction in Southend. In October 2016, CityFibre announced a five-year contract with Onecom, to provide 300 business connections on its Coventry, Leicester and Nottingham assets. In September 2016, CityFibre announced the acquisition of the metro fibre network assets of Redcentric Solutions Limited, for a cash consideration of 5 million. The acquisition of these assets from Redcentric Solutions Limited did not constitute the acquisition of a business and therefore the relevant financial information is included by incorporation in the 2016 accounts. The assets comprise 137 kilometres of ducted network 78

85 principally in Cambridge, Portsmouth and Southampton, with complementary partial network footprints in existing CityFibre towns and cities. Under the terms of the acquisition, CityFibre will continue to provide services to 188 Redcentric connections under a 10-year leaseback arrangement. In December 2016, CityFibre signed a 25-year national dark fibre core network migration agreement with Gamma, utilising the Company s national long-distance network and metro interconnects to provide a 1,300 kilometre national route connecting 15 data centres and Openreach exchanges in London and the UK regions. In January 2017, CityFibre announced a seven-year contract with managed service provider MLL Telecom to connect 33 council sites on a newly constructed network in Stirling, followed in March 2017 with anchor contracts in the business market vertical to construct new networks in Cheltenham and Gloucester, two locations located near to the Company s national long distance network. In rolling out its Ethernet services to the business market vertical, CityFibre intends to enter into launch partner contracts with Channel Partners to provide fibre connectivity to more businesses in its existing footprint. In April 2017 CityFibre announced contracts to support rollout to Slough, Maidenhead and Wakefield, followed in May 2017 with contracts to rollout to Plymouth and Exeter. These launch partner contracts demonstrate that CityFibre is making further progress to commercialise the network assets acquired from KCOM and Redcentric Solutions Limited in Regulation and Government Policy The Group operates within a UK market that the Directors believe is widely regarded as having an advanced and sophisticated regulatory and policy environment for telecommunications and broadband. A recent focus of government and regulatory policy has been to accelerate both the capability and the speed of construction of full fibre networks by promoting effective competition, accompanied by targeted public intervention. Ofcom s strategy, as set out in its Digital Communications Review (DCR) of 2016, is to transition the market from dependence on the legacy network of Openreach towards a full fibre future spearheaded by competitive FTTP investment. CityFibre is a potential beneficiary of this change of approach. It remains the case, however, that Ofcom regulation, governed by the EU Common Regulatory Framework, is at present largely focused on interventions that mandate access to incumbents legacy networks. Ofcom conducts periodic market reviews to determine potential competition issues, and in particular the market dominance of incumbent networks. In the UK context, Ofcom continues to find that Openreach has Significant Market Power (SMP) and in order to protect against potential abuse of its SMP position, the regulator imposes access conditions and price regulation, in particular to the local access networks operated by Openreach. The periodic market reviews that are relevant to CityFibre are the Business Connectivity Market Review (BCMR) and the Wholesale Local Access Market Review (WLAMR). Business Connectivity Market Review The BCMR, which analyses the availability of networks and competition in the leased lines market, concluded in 2016 and is based on analysis largely conducted before publication of Ofcom s strategic change in direction to competitive fibre, which was announced in Ofcom s DCR. As a result, the BCMR continued to focus almost exclusively on regulating access to Openreach s existing network, with mandated price reductions to Openreach s portfolio of Ethernet leased line products together with the obligation for Openreach to introduce a local access dark fibre product from October BT, TalkTalk and CityFibre have each lodged appeals relating to different parts of the new BCMR regulation with the Competition Appeal Tribunal. CityFibre s appeal is further described in section 15 of Part 10 of this document. Wholesale Local Access Market Review The WLAMR, published in March 2017, aligns more closely with the policy direction of the DCR. In particular, it signals future deregulation of broadband markets as a spur to market participants to build or buy access to full fibre networks of the kind that CityFibre constructs. In this regard, Ofcom proposes new price regulation for Openreach s entry level 40Mbps broadband product and allows Openreach price freedom on broadband products above 40Mbps. Ofcom s strategy, as stated in the WLAMR, is to encourage service providers to make decisions to move away from the continued use of Openreach access infrastructure, and in turn construct or consume alternative full fibre infrastructure. Revised Duct and Pole Access Regulations As part of the WLAMR, Ofcom has also published consultation proposals to reduce construction costs for new FTTH networks by mandating access to Openreach s existing ducts and overhead poles (DPA). It is expected that 79

86 the new regulation will lift some current usage restrictions such that DPA can be used for leased lines and broadband connections, and that there will be improvements to information sharing that make it easier for BT s competitors to construct new full fibre networks. CityFibre is expected to be a beneficiary of the revised DPA regulations. The Common Regulatory Framework The Common Regulatory Framework is itself under review with a re-orientation of the draft legislation designed to encourage FTTP/FTTH construction. The current draft of the revision, published in October 2016 and now called the Electronic Communications Code, includes a presumption against regulation of open access fibre networks as in CityFibre s business model, along with stronger incentives to invest in FTTP/FTTH. Government Policy The previous UK government announced that 1.14 billion of public money will be used to promote faster and more widespread construction, adoption and use of full fibre networks. This includes the establishment of a Digital Infrastructure Investment Fund for new FTTH projects, to encourage public procurement of full fibre based services and vouchers for businesses who wish to purchase full fibre connectivity. Digital infrastructure is at the heart of a new, proactive industrial strategy set out by the government in March The Directors believe that CityFibre is well positioned to be a beneficiary of these measures. The previous government also introduced revisions to legislation that allow the government to set out its full fibre strategy in a way that requires Ofcom to take account of the government s strategy in exercising its functions and duties. CityFibre considers that this signalled the government s intention to ensure that regulation and industrial strategy are fully aligned behind the full fibre policy goal. The Directors believe this strategy will continue under the current Conservative government following the 8 June 2017 general election in the UK. 8. Organisational and management structure The Company is the holding company of various principal subsidiaries listed in section 19 of Part 10 of this document. The principal businesses operated by those subsidiaries are also listed in section 19 of Part 10. The Company s management structure is headed by the Directors. 9. Directors and corporate governance Directors The names, business experience and principal business activities outside the Group of each of the Directors are set out below: Chris Stone, aged 54 (Non-Executive Chairman) Chris was appointed Non-Executive Chairman of the Group on 27 February Chris has a background in the technology and services industry. He was responsible for leading the transformation of Northgate Information Solutions (formerly known as McDonnell Douglas Information Systems) between 1999 to 2011 to become the world s second largest specialist HR technology and services business and the leading provider of software and services to the UK public sector. Chris is currently a Non-Executive Director (formerly Chief Executive Officer) of Radius Worldwide, which provides accounting, HR, legal, tax and compliance support to companies international operations. He led the business during its successful acquisition by private equity firm, HG Capital, in August Chris has also previously held senior roles at Accenture, Electronic Data Systems, Digital Equipment Company, Fitness First and CSR, where he served as Non-Executive Director and Chairman of the Remuneration Committee. Greg Mesch, aged 57 (Chief Executive Officer) Greg is co-founder of CityFibre with over 25 years of experience designing, building and operating fibre infrastructure, and has grown five companies from start-up. Greg was a founding member and Chief Operating Officer of ESAT Telecom in Ireland (which listed on NASDAQ and was subsequently purchased by BT for over 1 billion) and a founding member and Chief Operating Officer of Versatel Telecom NV, building one of the largest fibre based infrastructures in the Dutch and German markets. Versatel listed on the NASDAQ and the Dutch AEX exchange and was purchased by Tele2 and Apax for over $1.5 billion. Greg was also Non-Executive Director of EU Networks from 2009 to Greg Mesch s brother, Gary Mesch, is a non-executive director. 80

87 Mark Collins, aged 49 (Director, Public Policy) Mark is co-founder of CityFibre with over 20 years of experience in the telecoms sector, specialising in competition strategy and regulation. Mark founded Equador Consulting, a firm specialising in the development of early stage telecoms companies including Virgin Media, Sprint, ESAT Telecom, Versatel Telecom, Completel and others. Equador was recognised in 2000 by the Sunday Times Fast-track 100 awards as the UK s fastest growing TMT firm, and was sold to CH2M-HILL in Mark was founder and CEO of the mobile media firm Muzicall, recognised in 2009 as the UK s second fastest growing mobile media firm. He holds a degree in electronics and telecommunications gained as a sponsored student of GEC Telecommunications. Terry Hart, aged 51 (Chief Financial Officer) Terry has over 25 years of financial and operations experience, and since 2000 has specialised in telecoms and technology. As UK Finance Director of Easynet Group plc, he provided the financial leadership to manage the business through high growth, including the first national roll-out of unbundled broadband. Terry later became UK managing director of Easynet and managed its successful sale to BSkyB. More recently Terry was CEO of Telstra International EMEA. Terry was Finance Director of Serco Aviation and trained as a Chartered Accountant with BDO. Leo van Doorne, aged 57 (Non-Executive Director) Leo is the former managing director of NeSBIC venture funds. NeSBIC was the founding venture investor in Versatel Telecom NV where Leo was Chairman through the firm s rapid growth. Previously, he held the office of Regional Director at Banque de Suez Nederland NV and numerous directorships, including Van Ommeren Shipping Holding BV, Seed Capital Investments BV, Pallieter Holding BV, Koninklijke Verenigde Leder BV and OTB Group. He holds a Law Degree from the University of Utrecht. Gary Mesch, aged 64 (Non-Executive Director) Gary Mesch has been the founder and Managing Director of several successful data and telecom companies operating in the US and Europe. He founded Versatel telecom in 1995 in Amsterdam and served as CEO and then Chairman until Versatel grew to become an infrastructure-based telecoms operator throughout the Netherlands, Belgium, and Germany. In 2005, Versatel was purchased by Tele2 of Sweden and Apax for over 1.5 billion. Prior to Versatel, Gary was managing director of Open Skies Inc., a consulting company based in Amsterdam. Gary Mesch is the brother of Greg Mesch (Chief Executive Officer). Sally Davis, aged 63 (Non-Executive Director) Sally brings over 25 years of telecommunications and media experience from both Europe and North America and has served as a non-executive director for a number of FTSE and NASDAQ quoted companies. Sally has been voted one of the top 100 Global Telecoms executives in Global Telecoms Business. Sally joined CityFibre having previously been CEO of BT Wholesale ( ), a division within BT which generated revenues of over 4bn in She held a number of roles whilst at BT, including President of Global product ( ) and Director, Group Internet & Multimedia ( ). Prior to BT, Sally worked in the telecoms industry and her experience includes NYNEX/Bell/Verizon ( ), where she worked both in the UK and US, Cable London and Mercury Communications. Sally is currently a non-executive director of Logitech, a Swiss computer peripherals company, quoted on both NASDAQ and the SIX Swiss Exchange, and Telenor, the major Norwegian telecoms operator with significant mobile operations in 13 markets (including India, Thailand and Malaysia). Steve Charlton, aged 59 (Non-Executive Director) Steve, a chartered accountant, has more than 30 years of experience in the financial and investment arena, encompassing accounting, investment management, banking, equity and debt capital markets, real estate and private equity. From 2004 to 2014, Steve was a managing director within a subsidiary of Fortress Investment Group, a diversified global investment manager. During his career, Steve held CFO and CEO positions within two of Fortress Investment Group s listed portfolio companies, Gagfah S.A. and Eurocastle Investment Limited, where 81

88 he oversaw debt financing/re-financing totalling more than 10 billion and equity raises within the public markets of 1.5 billion, as well as creating efficient capital structures with low cost of capital. Immediately prior to joining Fortress, Steve spent almost ten years as CFO of Gordian Knot, a UK investment manager. Steve is currently CFO of PEAC (UK) Limited, an independent European asset finance leasing business. Corporate Governance As detailed below, the Board has an audit committee (the Audit Committee ), a remuneration committee (the Remuneration Committee ) and a risk and strategy committee (the Risk and Strategy Committee ). The Board meets at least eight times per year and may meet at other times at the request of any Director. Each Director has one vote but, in the case of equality of votes, the Chairman of the meeting has a casting vote. The Articles contain procedures to deal with any conflict of interest that may arise in the proceedings of the Board. Each Director is required to disclose to the Board any interest that the Director has in any proceedings of the Board and, except as otherwise provided by the Articles, the Director shall not vote at a meeting of the Board or a committee of the Board on any resolution concerning any contracts, arrangements or other proposals in which he or she has an interest. The Board recognises the importance of good corporate governance and has sought to comply with a number of the provisions of the QCA Guidelines in so far as it considers them appropriate for a company of its size and nature. The Board consists of eight directors comprising three Executive Directors (Greg Mesch, Mark Collins and Terry Hart), and five Non-Executive Directors (Chris Stone, Leo van Doorne, Gary Mesch, Sally Davis and Steve Charlton). Details of the Board members beneficial interests in Ordinary Shares and options are set out in section 4.4 of Part 10 of this document. The Directors understand their obligation to comply with MAR relating to Directors dealings and will take all reasonable steps to ensure compliance by employees of the Company, and their Persons Closely Associated, to whom MAR applies. The Company has, in addition, adopted a share dealing code pursuant to and in accordance with Rule 21 of the AIM Rules. The Audit Committee is comprised of Steve Charlton and Leo van Doorne. The Audit Committee s responsibilities include making recommendations to the Board on the appointment of the Company s auditors, approving the auditor s fees, reviewing the findings of the audit and monitoring and reviewing effectiveness of the Company s internal audit function. The Audit Committee is also responsible for monitoring the integrity of the financial statements of the Company, including its annual and half yearly reports and interim management statements. Steve Charlton will continue to chair the Audit Committee following Admission. The Remuneration Committee is comprised of Sally Davis and Steve Charlton. The Remuneration Committee s responsibilities include determining the remuneration of the Executive Directors, reviewing the design of all share incentive plans and determining in each year whether awards will be made, and if so, the overall amount of such awards, the individual awards to Executive Directors and the performance targets to be used. Sally Davis will continue to chair the Remuneration Committee following Admission. The Risk and Strategy Committee is comprised of Gary Mesch and Sally Davis. Mark Collins also attends, and provides materials for, the Risk and Strategy Committee meetings, but he is not a member of the committee. The Risk and Strategy Committee s responsibilities include the review of external risk factors that the Group faces through changes in policy and regulation, as well as changes in the competitive market. The Board has determined that it is appropriate for matters that would normally be delegated to a nomination committee to be deferred to the full Board. The Board, acting as Nomination Committee, meets as appropriate to carry out the selection process for new Board members and to proposed any new appointments to the Board, whether executive or non-executive. 82

89 PART 4 SELECTED FINANCIAL AND OTHER INFORMATION The selected consolidated financial information below should be read in conjunction with the information in Part 5 and Part 11 of this document. The selected historical financial information relating to the Group set out below has been extracted without material adjustment from the audited reports and accounts of the Group prepared under IFRS for the financial years ended 31 December 2014, 31 December 2015 and 31 December 2016: 1. Consolidated income statement Year ended 31 December Revenue 3,844 6,408 15,363 Cost of sales (568) (888) (1,827) Gross profit (loss) 3,276 5,520 13,536 Administrative expenses (10,726) (11,679) (18,677) Operating (loss) (7,450) (6,159) (5,141) Finance income Finance charges (344) (278) (7,341) Share of results from associates and joint ventures (42) (126) (147) (Loss) before taxation (7,057) (6,393) (12,584) Taxation (Loss) for the year (7,026) (6,362) (12,584) Loss per share (0.09) (0.06) (0.05) 2. Consolidated balance sheet As at 31 December Assets Non-current assets 33,160 45, ,803 Current assets 36,989 15,915 28,778 Total assets 70,149 61, ,581 Liabilities Non-current liabilities (12,343) (10,194) (66,821) Current liabilities (7,943) (7,413) (10,216) Total liabilities (20,286) (17,607) (77,307) Net assets 49,863 43, ,544 Share capital 1,111 1,113 2,713 Share premium 63,243 63, ,943 Share warrant reserve Share based payments reserve 773 1,081 2,100 Merger reserve Retained earnings (15,680) (22,044) (34,628) Total equity 49,863 43, ,544 83

90 3. Consolidated statement of cash flows Year ended 31 December Net cash utilised in operating activities (3,552) (5,360) (2,367) Net cash (utilised in)/from investing activities (34,336) 13,782 (115,027) Net cash from/(utilised in) financing activities 41,788 (2,877) 124,385 Net increase in cash and cash equivalents 3,900 5,545 6,991 Cash and cash equivalents at the beginning of the year 286 4,186 9,731 Cash and cash equivalents at the end of the year 4,186 9,731 16, Key Performance Indicators (1) The following table sets out certain measures considered by the Directors to be key operational and financial measures for the Group. These are non-ifrs financial measures and operating metrics, and are not audited. Year ended 31 December CityFibre towns and cities Orders Order book - initial contract value ( ICV ) ( m) Cumulative ICV ( m) Unrealised ICV ( m) Channel Partners Customer connections sold (cumulative) Public sector sites 941 1,429 1,888 Business ,595 Mobile Total customer connections sold 1,308 2,457 7,520 Total connected customer premises Public sector sites ,189 Business ,738 Mobile FTTH ,852 Total sites delivered (excluding FTTH) 885 1,200 3,962 Network assets Metro network length (km) at period end ,244 Long distance network length (km) at period end - - 1,139 Connections sold per metro kilometre Connections delivered per metro kilometre Total cumulative metro network capital expenditure ( m) Average cost per metre of metro network construction ( ) Human resources employees at year end (1) Further information about the key performance indicators set out in this table is provided at section 4 of Part 5 of this document. 84

91 PART 5 OPERATING AND FINANCIAL REVIEW OF CITYFIBRE The following discussion of the Group s financial condition and results of operations should be read in conjunction with the Group s historical financial information as at and for the years ended 31 December 2014, 2015 and 2016 and the accompanying notes included in Part 11 of this document. The discussion includes forward-looking statements that reflect the current view of the Group s management and involve risks and uncertainties. The Group s actual results could differ materially from those contained in any forward-looking statements as a result of factors discussed below and elsewhere in this document, particularly in the sections headed Risk Factors and Presentation of Information Forward-looking statements. Shareholders and prospective investors should read the whole of this document and not just rely on summarised information set out in this Part Overview CityFibre provides fibre connectivity services through designing, building, owning, and operating fibre optic network infrastructure. The Group is a wholesale operator of fibre networks in towns and cities outside London which provide open access, shared fibre infrastructure that enables gigabit-capable connectivity for Channel Partners and mobile network operators, who in turn deliver digital connectivity solutions to their end customers spanning the public sector, business and residential markets. In relation to public, business and mobile sectors CityFibre operates a contract-backed model, whereby infrastructure construction (or acquisition) is committed to only once the Company has secured contracted revenues which cover a substantial portion of capital expenditure. This anchor contract approach also provides the basis for further success-based network expansion in a city, which the Directors believe should deliver a high level of financial return on incremental investment. The Group s total assets as at 31 December 2016 were million and on a pro forma basis after giving effect to the Entanet Acquisition the Group s total assets were million excluding goodwill. The Group s revenue for the financial year ended 31 December 2016 was 15.4 million and on a pro forma basis after giving effect to the Entanet Acquisition the Group s revenue was 51.1 million. The Group had a loss for the year of 12.6 million and on a pro forma basis after giving effect to the Entanet Acquisition had a loss for the year of 12.8 million (before adjustments). 2. Business model characteristics CityFibre operates a business model whereby it seeks to enter a town or city via an anchor contract with a Channel Partner that serves the public sector or business market verticals, a mobile operator or via an acquisition. Its strategy is to build or acquire an anchor metro network to service the initial contract and then expand the network through the provision of fibre connectivity to more premises in its three primary metro market verticals: public sector, business and mobile. Once deployed, the metro network may be expanded to FTTH, serving a fourth market vertical, consumer, as described below. Through its strategy to enter and grow metro networks, CityFibre typically seeks: Š Š Š Š customer contract value from the initial contract to cover a substantial proportion of the capital expenditure to either construct or acquire the network; targeted gross margins of approximately 90 per cent. on subsequent incremental business; capital expenditure on incremental connections in the town or city having a targeted payback of less than three years ( payback being the period of time it takes to generate gross margin on an incremental connection equal to the net capital expenditure required to connect it); targeted recurring revenue yield (net of upfront fees paid by customers for the fibre connection) on net capital expenditure in a town or city in excess of 25 per cent. at maturity (being approximately 5 to 7 years after first cabinet construction); and Š targeted recurring revenue yield on anchor contracts of approximately 10 per cent.. Following construction or acquisition of the anchor network, through further densification of the network CityFibre seeks to lower its average capital cost per additional connection, and provide additional yield on capital employed in the town or city. The Directors expect most Channel Partner contracts for fibre connectivity will renew at the end of their initial term with low rates of churn. Contract renewals typically do not require further expenditure by CityFibre. 85

92 CityFibre s business model in relation to new towns and cities anchored through FTTT connections to mobile base stations, or for the rollout of FTTH to consumers, is expected to follow a similar approach: FTTT Š Š FTTH Š Š Anchor contracts with mobile operators for FTTT will be pursued where the contract value, to cover a proportion of the capital expenditure associated with network construction, is deemed acceptable by the Directors. Consideration may include a combination of up-front connection fees and ongoing rental fees, with CityFibre having flexibility to tailor the commercial structure of contracts. Construction of FTTH is expected to commence in five to ten towns and cities within CityFibre s existing or expanded metro footprint in 2018, based on the delivery of approximately 300 to 400 FTTH cabinets served by CityFibre s existing metro infrastructure by the end of In undertaking its FTTH plan, CityFibre intends to work with Channel Partners to secure commitments to use its FTTH network, or to procure registrations of interest on a street or neighbourhood basis, hence mitigating deployment risks by ensuring there is sufficient demand ahead of construction. 3. Key factors affecting the Group s results of operation The Directors believe the results of the Group s operations have been, and will continue to be, affected by many factors, some of which are beyond the Group s control, including the following key factors affecting the Group s results of operations: Š Š Š Š Š Š Š Š relationships with Channel Partners; public sector procurement; contract value added and customer connections sold; management of growth; commercialisation of acquired assets; FTTH trial and FTTT projects; changes in the cost of infrastructure construction; and changes in regulatory environment. Relationships with Channel Partners CityFibre s revenues in large part depend on both new and existing relationships with Channel Partners. The Group currently has 54 Channel Partners in its wholesale channel, covering a diverse range from small local operators to leading national and international carriers and systems integrators. The Group s infrastructure is principally used by Channel Partners and, therefore, revenues depend on Channel Partner relationships; however, many Channel Partners have existing and well-established long-term relationships with existing network providers such as Openreach. Although the Directors believe the Group s fibre infrastructure providing gigabit speed connectivity is attractive to its diversified portfolio of Channel Partners, if the Group is unable to secure and/or maintain satisfactory relationships with Channel Partners, it may be unable to implement its business plan in full. The Entanet Acquisition, given Entanet s established wholesale platforms and relationships with Channel Partners, is a key accelerator of CityFibre s strategy to grow its channels to market. Public sector procurement CityFibre s revenues also in part depend on contracts with Channel Partners that serve local councils and other public bodies. CityFibre s strategy in the public sector market vertical involves, in addition to developing relationships with Channel Partners, the development of close relationships with local and regional authorities, chambers of commerce and key stakeholders in the local economy. Whilst the Group has to date been successful in forming partnerships and framework agreements with leading suppliers to the public sector, a delay or failure to win public sector contracts may have an adverse effect on the Group s plans to expand to no less than 50 towns and cities by However, proposed government stimulus to encourage local authorities to anchor new full fibre metro networks has the potential to accelerate public sector opportunities for the Group. 86

93 Contract value added The Group added 75.5 million in new initial contract value sold during 2016, an improvement of per cent. from 2015, reflecting both strong organic and inorganic growth. The long-term nature of contracts entered into means that CityFibre has a significant amount of unrealised contract value to recognise as revenue over the duration of the contract terms (approximately 106 million at 31 December 2016). The Directors believe the visibility of future years earnings gives a degree of assurance over expectations of performance. The Group s metro business plan is dependent on achieving a target level of market penetration across three of the Group s primary market verticals: public sector, business and mobile operators. Whilst the Board is pleased with sales trends achieved to date within the Company s operational markets, there is no guarantee that the targeted levels of market penetration will necessarily be achieved. The Directors believe that the Group s future revenue growth is dependent on its ability to provide customers with quality service that not only meets the Group s stated commitments, but meets and then exceeds customer service expectations. Customer connections Customer connections are the key driver of business growth for CityFibre. The volume of delivered connections drives the Group s revenues and gross profit growth. The following table sets out certain data relating to delivered connections as at the dates indicated. Year ended 31 December Connected customer premises 3,962 1, Towns and cities connected (1) Metro local access duct and fibre (km) 2, National long distance network (km) 1, Total network length (km) 3, (1) Represents towns and cities connected to key locations and data centres in London and the UK regions. Revenue in relation to these contracts is also driven by the contracted pricing obtained by CityFibre, which is benchmarked to competitive Openreach and BT Wholesale products. Openreach products are subject to regulated price reductions on a 3 year review cycle, which has resulted in price decreases to some products which are relevant to CityFibre s market. While CityFibre adapts its commercial propositions to the evolving market, price decreases do not impact CityFibre s income statement immediately because customers are on long-term contracts which typically have a fixed term of 3 or more years. Management of growth The ability of the Group to implement its strategy requires effective planning and management of control systems. The Directors believe the experience of the Group s executives, management and employees enable it to become a significant force in the rapidly evolving fibre infrastructure arena. Senior management have experience in growing businesses and scaling resources. Commercialisation of acquired assets The Group pursues a strategy of network footprint expansion via a combination of acquisitions, organic new city growth and incremental sales on existing and acquired assets. Accordingly, the Group s results of operations will depend in part on the Group s ability successfully to commercialise the assets it acquires. Entanet Acquisition The Directors believe that the Entanet Acquisition will impact the Group s results of operations in several ways going forward. The principal effects on results of operations are expected to be: Š A significantly increased customer base. On a pro forma basis, the Enlarged Group would have annual revenues in excess of 50 million as at 31 December 2016, had the Entanet Acquisition occurred then 87

94 Š (see part 7 of this document for further explanation of the pro forma information). The Group will have access to a significant number of new Channel Partners that will be able to order services over CityFibre s existing networks. Cost and operational synergies to be realised during the first three years which the Directors believe will improve both annual revenues and net profitability. KCOM Acquisition The national infrastructure acquired by CityFibre through the KCOM Acquisition comprised 1,156 route kilometres of ducted metro fibre assets in 24 towns and cities, 21 of which were new markets for the Group, and a national long distance network totalling approximately 1,139 route kilometres of two-way ducting and fibre that connects 22 towns and cities to data centres in London and the UK regions. The Directors estimated that the cash consideration paid of 90 million represented a 45 per cent. discount to the cost of constructing an equivalent network to the KCOM network acquired. The acquisition of these assets from KCOM did not constitute the acquisition of a business and therefore the relevant financial information is included by incorporation in the 2016 accounts. Under the terms of the KCOM Acquisition, CityFibre agreed to provide KCOM with access to the acquired infrastructure for a term of up to 15 years, subject to a minimum term of five years and minimum revenue of 5 million per annum for those five years. Since the KCOM Acquisition completed on 18 January 2016, CityFibre has successfully completed agreements with Channel Partners on 17 of the acquired metro networks, including Bristol, Leeds, Bradford, Milton Keynes, Northampton, Reading, Bracknell, Sheffield, Rotherham, Doncaster, Leicester, Nottingham, Maidenhead, Slough and Wakefield. This equates to 2,120 connections sold and total initial contract value of 27.1 million. The Group has seen interest from carriers in its acquired 1,139 kilometre national network. In April 2016 the Group signed a 2.3 million regional capacity agreement with SSE Enterprise Telecoms for a connection between Reading and Slough, and in December it signed a 25-year national dark fibre core network migration agreement with Gamma Telecom, utilising the Company s national long-distance network and metro infrastructure to provide a 1,300 kilometre national route connecting 15 data centres and Openreach exchanges in London and the UK regions. The Directors believe the national network to be an important strategic asset for the Group, with the potential to accelerate commercial opportunities in the national carrier and mobile arenas, and in the metro networks themselves. Redcentric Acquisition On 26 September 2016, the Group announced the acquisition of the entire portfolio of metro fibre network assets of Redcentric Solutions Limited, for a cash consideration of 5 million. The assets comprise 137 kilometres of duct and fibre networks serving 188 Redcentric customer connections, with principal footprints covering Cambridge, Portsmouth, and Southampton, along with complementary incremental coverage in the existing CityFibre footprints of Nottingham, Derby and Northampton. The acquisition of these assets from Redcentric Solutions Limited did not constitute the acquisition of a business and therefore the relevant financial information is included by incorporation in the 2016 accounts. Under the terms of the acquisition, Redcentric Solutions Limited agreed to a lease-back revenue commitment of 4.5 million over 10 years, for the ongoing delivery of service to its existing customers. FTTH trial and FTTT project FTTH The Group completed construction of the YorkCo FTTH trial network in The use of CityFibre s existing metro infrastructure in constructing the FTTH network, delivered both costs savings and reduced the time to market. As at 31 May 2017, of the 13,582 homes in York whose boundaries are passed by the FTTH network constructed by YorkCo, 3,684, being more than 27 per cent., had subscribed for an internet service from Sky or TalkTalk on the new network, with the highest cabinet penetration now exceeding 40 per cent. 88

95 FTTT In July 2016, the final sites went live on CityFibre s 56 kilometre Hull network, constructed on behalf of MBNL, Three UK and EE. Three UK subsequently reported a 380 per cent. increase in data throughput on the new network. The Directors estimate that CityFibre s existing footprint is capable of addressing an estimated 7,300 macro cell sites, and the Company anticipates that the number of small cells required under the future 5G specification will be significantly higher than the number of macro sites in service today. Changes in the cost of infrastructure construction CityFibre s cost base is highly dependent upon the execution of large-scale civil engineering projects. CityFibre has a number of partnerships with mid-tier civil engineering contractors with relevant experience and capability to complete the construction of new networks. Nevertheless, there is potential for construction cost overruns in large scale network construction. CityFibre seeks to mitigate this risk by agreeing a schedule of rates with contractors in advance of a significant network construction. In addition, CityFibre has a team of experienced project supervisors who work closely with contractors, regularly reviewing and certifying work done. These supervisors approve changes to contracted scopes of work and additional cost in accordance with the Group s delegated authority procedures. Fluctuations in third-party contractor labour costs are also a risk. CityFibre agrees labour rates at the outset of a construction contract to protect against short-term fluctuations. Over time, the Directors believe it is likely that there will be upward pressure on labour rates. However, as CityFibre s business grows in scale there should be an increased ability to agree volume-related discounts with construction partners. It is anticipated that access to Openreach s existing ducts and overhead poles will provide an opportunity to reduce network costs and speed up the deployment of network infrastructure (as demonstrated by the Group s trial in Southend-on-Sea). The Directors will also continue to consider, on a case-by-case basis, the purchase of network infrastructure assets where they believe a compelling commercial opportunity is present. Changes in regulatory environment The UK communications market is regulated by Ofcom in line with a regulatory framework set by the European Commission. Two specific segments of regulation particularly affect the services provided by CityFibre: Š the Business Connectivity Market Review (BCMR, for point-to-point fibre connections to enterprise customers), and Š the Wholesale Local Access Market Review (WLAMR, for broadband connections to homes and small businesses). In both cases, regulation is imposed on Openreach as the only operator deemed by Ofcom s analysis to have significant market power in the UK (outside the Hull area). BCMR and WLAMR regulation is set and reviewed periodically, with the objective of promoting effective competition through access to Openreach infrastructure at regulated prices. Price regulation can affect the commercial offerings of Openreach s competitors, including CityFibre. For example, revenue growth in the communications sector might lead to reductions in regulated prices. The BCMR led to Ofcom imposing annual price reductions on Openreach in the range of 6 per cent. to 12 per cent., resulting in some price reductions of CityFibre s connectivity services. The WLAMR could see similar price reductions to certain Openreach products in the broadband market. To counteract the effects of price reduction imposed on Openreach, Ofcom is seeking to lower construction costs incurred by Openreach s competitors, including CityFibre, by promoting access to Openreach s ducts and poles. CityFibre constantly reviews changes to regulation and where necessary seeks to adapt products, pricing or operating models to mitigate against any adverse effects. 4. Key operational and financial measures In addition to revenue, gross margin, EBITDA and Adjusted EBITDA (having the meanings described below), the Directors consider the following to be the key operational and financial measures of the Group. Š Order book - initial contract value ( ICV ) sold. This is the total contracted customer revenues receivable up to the first contract break point, i.e., when the contract terminates or may be terminated by the customer, sold during a financial period. CityFibre also reports cumulative ICV as at the end of the financial period. 89

96 Š Š Š Š Š Š Š Unrealised ICV. This is the total contracted customer revenues, receivable up to the first contract break point, not yet recognised in the income statement as at the end of the financial period. Customer connections sold. CityFibre reports on connections sold during a financial period including by reference to public sector sites, business sites and mobile sites. Total connected customer premises. CityFibre reports the number of unique customer premises connected to its network and receiving services during a financial period including by reference to public sector sites, business sites, mobile sites and FTTH sites. Total metro network route fibre kilometers. This is the distance of the duct network owned by CityFibre in the towns and cities in which it operates at the end of a financial period plus its long distance network. Customer premises connected per kilometre of metro network. CityFibre employs this as a measure of network utilisation and density. Total cumulative metro network capital expenditure and average cost per metre of metro network construction. This is the expenditure required to construct a network and the average cost per metre of such construction. Yield on net capex. This is the recurring annual revenue generated in a town or city, measured against the cumulative capital expenditure in that town or city, net of connection fees paid by the customer. 5. Alternative Performance Measures CityFibre presents EBITDA and Adjusted EBITDA as alternative performance measures to enhance the investor s and analysts understanding of CityFibre s operating results. EBITDA and Adjusted EBITDA are not measures of performance under IFRS and should not be considered by prospective investors and analysts as alternatives to (i) operating loss; (ii) loss for the period; (iii) cash flow from operating activities; or (iv) any other measure of performance under IFRS. The Directors believe that EBITDA and Adjusted EBITDA are meaningful measures of CityFibre s operating performance because they should assist investors in evaluating CityFibre s cash flows from operations, for comparing CityFibre s operating performance with that of other companies that have different capital structures and for evaluating CityFibre s capital expenditure and working capital requirements. Other companies may not calculate similarly named measures on a basis consistent with that used by CityFibre. Accordingly, prospective investors should not place undue reliance on EBITDA, Adjusted EBITDA or any other non-ifrs measure contained in this document. CityFibre defines EBITDA as earnings before interest, tax, depreciation and amortisation. CityFibre s definition of Adjusted EBITDA is EBITDA excluding share-based payments and significant non-recurring expenses. The table below provides a reconciliation of reported operating loss to EBITDA and Adjusted EBITDA for 2014, 2015 and Year ended 31 December Operating loss (as reported) (5,141) (6,159) (7,450) Add back: Depreciation 3,572 1,707 1,393 Amortisation EBITDA (1,211) (4,219) (5,943) Fees in connection with regulatory review Share-based payments charge ,393 Operational and financing costs in respect of the KCOM acquisition 1, Operational and financing costs in respect of the KCOM acquisition and the Joint Venture One off bonuses One off costs relating to fundraising activities Adjusted EBITDA 2,485 (2,920) (3,643) 90

97 6. Effects of non-recurring costs on comparability of results for the years ended 31 December 2014, 2015 and 2016 During the years ended 31 December 2014, 2015 and 2016 the results of CityFibre have included some significant non-recurring items in connection with strategic decisions taken by CityFibre. In recent years these expenses have included costs associated with the KCOM Acquisition, costs of the 2014 Admission and regulatory costs. These non-recurring expenses incurred are reported within administrative expenses. In the relevant alternative performance measure used by CityFibre they appear below Adjusted EBITDA. The table below shows these non-recurring costs: Year ended 31 December Regulatory fees Operating and finance costs for KCOM Acquisition 1, Operational costs in respect of YorkCo One-off 2014 Admission bonus Costs relating to 2014 Admission fundraising activities Total non-recurring costs 2, Description of Key Components of the Group s Income Statement The following is a brief description of the principal income statement line items of the Group. Revenue Revenue principally represents network lease sales and installation sales to external customers. 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 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. 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. 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. Costs of sales Costs of sales comprise costs incurred which are directly attributable to the operation and maintenance of the networks over which services are delivered. These include third party network rentals, colocation, backhaul, repairs and maintenance costs. Administrative expenses Administrative expenses comprise staff costs and other general administrative costs, which include marketing, property, legal and professional, travel and IT costs, as well as depreciation and amortisation expenses. The Group s income statement does not include capitalised staff costs. Staff costs are capitalised when work is performed to bring an asset into use and are subsequently depreciated over the useful economic life of the asset. Typically this is for network assets constructed, though some costs are capitalised for bringing software systems into use. 91

98 Depreciation As noted above, CityFibre reports depreciation within its administrative expenses. Depreciation is incurred on all assets that have been brought into use and charged to the income statement on a straight-line basis. With respect to network assets, duct assets are depreciated over 40 years, while cabling is depreciated over 20 years. The Group conducted a review of its network asset depreciation policy during Duct assets are typically the longest-lived assets in telecommunications networks, with asset lives now typically assessed by companies in the industry to be of the order of 40 years. Taking into account these assets are relatively new, have a long life and there is now enhanced evidence of the durability of these assets, CityFibre updated its accounting estimate accordingly. If this change in useful economic life had not been made depreciation for 2016 would have been 6.6 million, 3 million greater than the actual charge for the year. Finance cost Finance costs primarily relate to interest payable with respect to the Facility Agreement entered into in December 2015 and first drawn upon in January Prior to that time, finance costs principally related to interest on bank loans. Share of post-tax losses of equity accounted joint venture This represents the Group s share of the total recognised gains and losses of its YorkCo joint venture using the equity method, from the date that significant influence commenced, based on present ownership interests, less any impairment losses. Income tax The standard rate of corporation tax in the United Kingdom was 20 per cent. in 2016, per cent. in 2015 and 21.5 per cent. in The standard rate of corporation tax in the United Kingdom reduced with effect from 1 April 2017 to 19 per cent.. The Group s losses in each of the years under review, has meant the Group s effective tax rate has been less than 1 per cent.. 8. Results of Operations The following table sets out selected information from the Group s consolidated statement of comprehensive income for each of the years ended 2014, 2015 and 2016 as set out in Part 11 of this document. Year ended 31 December Revenue 15,363 6,408 3,844 Cost of sales (1,827) (888) (568) Gross profit 13,536 5,520 3,276 Administrative expenses (18,677) (11,679) (10,726) Operating loss (5,141) (6,159) (7,450) Finance income Finance cost (7,341) (278) (344) Share of post-tax losses of equity accounted joint venture (147) (126) (42) Loss on ordinary activities before taxation (12,584) (6,393) (7,057) Income tax Loss for the year and total comprehensive income (12,584) (6,362) (7,026) Loss per share Basic and diluted loss per share (1) (0.05) (0.06) (0.09) (1) Potentially issuable shares are not considered to be dilutive because the Group made a loss in 2014, 2015 and Options, shares and warrants referred to in notes 5, 16 and 17 of the Group s financial statements, as set out in Part 11 of this document, as at and for the years ended 31 December 2015 and 2016 may have an effect on future reported earnings. 92

99 Comparison of the years ended 31 December 2016 and 2015 Revenue Revenue increased by 9 million (139.7 per cent.) to 15.4 million in 2016 from 6.4 million in This increase was driven by organic growth (that is, the continued expansion in CityFibre s footprint and incremental revenues from both existing and new towns and cities), and contributions from the KCOM and Redcentric Solutions Limited leaseback agreements, as shown in the table below. Year ended 31 December Organic revenue growth 10,436 6,408 KCOM and Redcentric leaseback agreements 4,927 - Total revenue 15,363 6,408 Excluding the contributions from KCOM and Redcentric Solutions Limited, organic revenue growth was 62.9 per cent.. Key drivers of organic revenue growth (which includes anchor and other revenue) included a greater contribution from the Edinburgh project, which was completed in 2016, as well as continued strong incremental sales on existing assets, including launch partner revenue from those assets acquired during the year. Gross profit and gross margin Gross profit increased by 8 million (145.2 per cent.) to 13.5 million in 2016, from 5.5 million in Gross margin increased by two percentage points, to 88.1 per cent., from 86.1 per cent. in 2015, reflecting the continuing addition of more profitable incremental new business on the assets during the period. The KCOM commitment had a direct gross margin of 83 per cent.. Administrative costs Administrative costs increased by 7 million (59.9 per cent.) to 18.7 million in 2016, from 11.7 million in Excluding non-recurring costs, depreciation and amortisation, and share-based payments charges, underlying administrative costs were 11.1 million, representing growth of 30.9 per cent. from 8.4 million in the prior year. The following table sets out the components of the Group s administrative expenses for 2015 and The components are shown net of non-recurring costs, which are separately presented in the table. Year ended 31 December Staff costs, excluding share-based payments 7,877 6,059 Depreciation 3,572 1,707 Other general administrative expenses 3,174 2,381 Non-recurring costs (1) 2, Share-based payments Amortisation Administrative expenses 18,677 11,679 (1) For an explanation of non-recurring costs, see section 6 of this Part 5 above. Staff costs, excluding share-based payments and the one-off bonuses paid with respect to work performed on the KCOM transaction, increased by 30 per cent. to 7.9 million in 2016, up from 6.1 million in Average headcount was 116 staff, up from 83 in The increase is primarily due to the addition of engineering and operational staff, reflecting the expanded number of projects under way on the organic and acquired network footprints. Other general administrative expenses increased by 0.8 million as a result of the expanded number of new and current projects. 93

100 Total non-recurring costs, depreciation and amortisation, and share-based payments charges were 7.6 million in 2016, up from 3.2 million in 2015 and are detailed below: Š Š Š Š Š Depreciation increased by 1.9 million, to 3.6 million, due to the substantial increase in the asset base through acquisitions and completed construction projects. As described above, this followed a change in the Company s depreciation policy. If this change had not been made depreciation would have been 6.6 million. During the year the Group incurred acquisition and integration costs totalling 1.9 million. These costs were incurred primarily to execute the KCOM Acquisition. Non-recurring costs also included 0.9 million of legal and professional fees in connection with regulatory issues. During 2016, Ofcom published its Digital Communications Review (which included a review of the structure of BT and Openreach) and the Business Connectivity Market Review (which included consideration of availability and pricing of fibre products). Fees included work required in relation to a referral to the Competition Appeal Tribunal ( CAT ) following on from the Group s original appeal. 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 0.9 million, up from 0.3 million in 2015 due to an LTIP award in the year and a full year s charge for share options awarded in the prior year. CityFibre grants share options under its long term incentive plan over no more than 1.5 per cent. of the Company s share capital per annum (save in exceptional circumstances such as recruitment). Option grants in the period were in line with such parameters. The amortisation charge for the year increased to 0.4 million (2015: 0.2 million), reflecting further development of the Group s network and financial management systems. Operating loss Reflecting the above factors, operating loss improved to 5.1 million in 2016 from 6.2 million in 2015, largely driven by increased gross profit of 13.5 million from 5.5 million in Finance costs Finance costs increased to 7.3 million in 2016 from 278,000 in Additional financing costs were incurred due to the Group entering into the Facility Agreement. A 35 million term loan facility was drawn under the Facility Agreement to partly fund the KCOM Acquisition. During 2016, a further 24.8 million was drawn to finance permitted growth capital expenditure by reference to contracted revenues under customer contracts and permitted acquisitions. Share of post-tax losses of equity accounted joint venture CityFibre s share of post-tax losses of the equity accounted YorkCo joint venture increased by 21,000 to 147,000 in 2016 from 126,000 in 2015, reflecting an increase in project activities compared with the prior year. Loss for the year Reflecting the above factors, the Group s net loss for the year increased by 97.8 per cent. to 12.6 million in 2016, from 6.4 million in Comparison of the years ended 31 December 2015 and 2014 Revenue Revenue increased by 2.6 million (66.7 per cent.) to 6.4 million in 2015 from 3.8 million in This increase was driven by organic growth (that is, the continued expansion in CityFibre s footprint along with the delivery of incremental revenues from both existing and new towns and cities). Revenues from the business market vertical improved by 1 million. The Group has been growing business revenues on new networks since the second half of 2014 when it started commercialising constructed and acquired networks of scale in addition to its York network. Significant growth and geographical diversification of these revenues occurred in

101 Gross profit and gross margin Gross profit increased by 2.2 million (68.5 per cent.) to 5.5 million in 2015, from 3.3 million in Gross margin increased by 0.9 percentage points, to 86.1 per cent., from 85.2 per cent. in 2014, reflecting the slightly higher profitability of new business added during the period. Administrative expenses Administrative expenses increased by 1 million (8.9 per cent.) to 11.7 million in 2015, from 10.7 million in The following table sets out the components of the Group s administrative expenses for 2014 and The components are shown net of the non-recurring costs, which are separately presented in the table. Year ended 31 December Staff costs, excluding share-based payments 6,059 4,702 Depreciation 1,707 1,393 Other general administrative expenses 2,381 2,217 Non-recurring costs (1) Share-based payments 343 1,393 Amortisation Administrative expenses 11,679 10,726 (1) For an explanation of non-recurring costs, see section 6 of this Part 5 above. The movements between 2014 and 2015 include: Š Š Š Š Š Staff costs excluding share-based payments increased to 6.1 million from 4.7 million in This included non-recurring costs of 0.6 million in relation to the KCOM Acquisition and non-recoverable operational costs in respect to the York FTTH trial. Average headcount was 83 staff, up from 46 in 2014, largely as a result of the full year effect of an expansion through the second half of The increase was primarily due to the addition of operational staff, reflecting the expanded number of projects under way. Other general administrative expenses increased by 0.2 million as a result of the expanded number of new and current projects. Share-based payment charges reduced by 1.1 million to 0.3 million. The prior year included exceptional share option awards associated with the 2014 Admission and placing of Ordinary Shares by the Company in June Depreciation increased by 0.3 million as new assets were brought into service. Total non-recurring costs were 1 million in 2015 and are detailed below: - Non-recurring costs in the period totalled 1 million. During the year the Group made an additional investment in resources of 0.6 million, primarily to execute the KCOM Acquisition, but also to establish an enlarged organisational structure to enable the business successfully to integrate and commercialise the assets. In addition certain non-recoverable operational costs were incurred in respect to the York FTTH trial. - Costs included 0.2 million of legal and professional fees in relation to regulatory issues. During 2016, Ofcom published its Digital Communications Review (which included a review of the structure of BT and Openreach) and the Business Connectivity Market Review (which included consideration of availability and pricing of fibre products). - Other non-recurring costs related to the KCOM Acquisition. Excluding non-recurring costs, depreciation and amortisation, and share-based payments charges, underlying growth in administrative expenses was 22 per cent.. 95

102 Operating loss Reflecting the above factors, operating loss improved to 6.2 million in 2015 from 7.5 million in Finance costs Finance costs decreased to 278,000 in 2015 from 344,000 in Share of post-tax losses of equity accounted joint venture CityFibre s share of post-tax losses of the equity accounted YorkCo joint venture increased by 84,000 to 126,000 in 2015 from 42,000 in This reflected an increase in project activities compared with the prior year. The YorkCo joint venture commenced operations in April Loss for the year Reflecting the above factors, the Group s net loss for the year decreased to 6.4 million in 2015, from 7 million in Liquidity and Capital Resources Overview The Group s primary sources of liquidity for its operations are the cash flows generated from its operations, along with drawdowns under the Facility Agreement. As at 31 December 2016, the Group s cash and cash equivalents were 16.7 million and the Group had 40.2 million in undrawn credit, of which 30 million is a revolving credit facility under the Facilities. The Group s cash is typically held in demand and short-term bank deposits at financial institutions deemed to be investment grade by reference to the major credit rating agencies, being Moody s S&P, Fitch and approved by CityFibre s audit committee. In order of priority the objectives used in determining the investment policy are: Š Š Š Safety and preservation of capital; Liquidity to meet projected and contingent cash needs; and Yield to be consistent with safety, liquidity and diversification of counterparty risk. Cash flows The table below sets out summary of cash flow information for the three years ending 31 December Year ended 31 December Cash flows from operating activities (2,367) (5,360) (3,552) Cash flows from investing activities (115,027) 13,782 (34,336) Cash flows from financing activities 124,385 (2,877) 41,788 Net increase in cash and cash equivalents 6,991 5,545 3,900 Cash and cash equivalents at end of period 16,722 9,731 4,186 Cash flows from operating activities Cash flows from operating activities for the 2016 period showed a net outflow of 2.4 million, compared to a net outflow of 5.4 million in 2015 and 3.6 million in After excluding the 3.6 million classification of network assets acquired from KCOM as inventory in 2016, the adjusted net inflow of 1.2 million in 2016 reflects a 6.6 million improvement against the prior year on a like for like basis. 2.4 million of this improvement relates to phasing of construction projects spanning the 2015 year 96

103 end which led to a working capital requirement not replicated in million relates to a reduction in the EBITDA loss from 2015 after adjusting for share based payments and transaction costs, which was driven by the per cent. increase in revenues. The increase in net cash outflows from operating activities of 1.8 million between 2014 and 2015 was driven by a 2.5 million increase in working capital requirements in 2015 in relation to an expanded number of construction projects spanning the 2015 year as noted above and 700,000 related to a reduction in the EBITDA loss from 2014 after adjusting for share based payments, which was driven by a 66.7 per cent. increase in revenues. Cash flows from investing activities Cash flows from investing activities for the 2016 period showed a net outflow of 115 million, compared to a net inflow of 13.8 million in 2015 and net outflow of 34.3 million in The movement in cash flows from investing activities of million between the 13.8 million inflow in 2015 and the 115 million outflow in 2016 was largely driven by the 97.9 million increase in acquisitions of property plant and equipment ( PPE ). This increase was a result of the 91.8 million of PPE acquired from KCOM and Redcentric Solutions Limited, with the remainder relating to increases in organic PPE additions for the Group s Hull, Kirklees, Aberdeen, Edinburgh and Glasgow projects. The remaining movement of 30.9 million in cash flows from investing activities was predominantly driven by the 29 million receipt of cash from short term deposits reaching maturity in No such inflow occurred in The movement in cash flows from investing activities of 48.1 million between the 34.3 million outflow in 2014 and the 13.8 million inflow in 2015 was largely driven by a 58 million fluctuation in cash flows as a result of the 29 million invested in short term deposits in 2014 which was subsequently received back in The remaining movement of 9.9 million in cash flows from investing activities was mainly driven by 10.1 million of PPE additions and capitalised labour costs in relation to construction of the Group s Peterborough, Hull, Kirklees, Aberdeen, Edinburgh and Glasgow projects, together with additional construction to support new customer connections in existing towns and cities. Cash flows from financing activities Cash flows from financing activities for the 2016 period showed a net inflow of million, compared to a net outflow of 2.9 million in 2015 and net inflow of 41.8 million in The movement in cash flows from financing activities of million between the 2.9 million outflow in 2015 and the million inflow in 2016 was largely driven by an 80 million equity placing of 160,000,000 new Ordinary Shares at 50p per Ordinary Share, along with committed debt facilities of 59.8 million drawn down under the Facility Agreement. This financing was utilised to fund the KCOM Acquisition and Redcentric Solutions Limited asset acquisition along with continued organic network development. These financing options also incurred transaction costs of 8.9 million for a net impact from the above funding of million cash inflow from financing. The remaining movement of 3.6 million relates to an increase of 6.3 million in interest paid for 2016 as a result of drawdown under the Facility Agreement, being offset by a 2.6 million loan repayment to Citibank in This loan was repaid in full in 2015 prior to the KCOM Acquisition. The movement in cash flows from financing activities of 44.7 million between the 41.8 million inflow in 2014 and the 2.9 million outflow in 2015 was largely driven by a net cash inflow from the issue of Ordinary Shares raising 43.7 million in The remaining movement of 1 million was due to an increase in loan repayments to Citibank of 1.7 million in This was then offset by the repayment of a 700,000 share warrant in 2014 in advance of the 2014 Admission. Borrowings 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. The Facility Agreement comprises three main facilities (the Facilities ): Š a 35 million term loan facility (the Acquisition Facility ) which was drawn down in full upon completion of the KCOM Acquisition; 97

104 Š Š a 35 million term loan facility (the Capex Facility together with the Acquisition Facility the Term Facilities ) which will be used to finance permitted growth capital expenditure by reference to contracted revenues under customer contracts and permitted acquisitions, and which is available for two years from the date of the agreement; and a 30 million super senior revolving credit facility (the RCF ) which is made available for the same purposes as the Capex Facility and up to 5 million towards general corporate and working capital purposes, and which is available for five years and 11 months years from the date of the agreement. In addition, the Facility Agreement contains a 65 million accordion facility which may be made available by the Lender under the Term Facilities at its discretion to refinance the loans under the RCF, provided that drawdown under any use of this facility occurs before January The Term Facilities carry a margin of 10 per cent. above LIBOR, and the RCF carries a margin of 4.5 per cent. above LIBOR. A ratchet mechanism based on leverage levels may bring these margins down to 8 per cent. and 4 per cent. respectively. The Term Facilities do not amortise and are payable in full seven years from the date of the Facility Agreement. The RCF will terminate six years from the date of the Facility Agreement. The Term Facilities may be drawn subject to certain ratios relating to capex coverage and yield, such that the Group may only make use of the facilities to fund projects with expected returns above the set hurdle rates. The Facility Agreement has certain covenants which relate to the leverage, interest cover and ratio of net debt to PPE of CityFibre, as well as the cash balance at a Group level. These covenants are tested quarterly and must be complied with during the life of the Facilities. As at 31 December 2016, the Group had drawn down 59.8 million from its senior secured credit facilities under the Facility Agreement. From 2012 until 2015 the Group had a loan facility with Citibank which was used to fund working capital requirements. Prior to entering into the Facility Agreement in December 2015 the Group made a payment of 1.7 million to Citibank to repay the remaining balance outstanding on its loan facility. 10. Contractual commitments CityFibre has various contractual and commercial commitments to make future payments, including debt obligations, capital commitments, lease obligations and trade payables. The table below sets out CityFibre s contractual obligations as at 31 December Carrying Contractual < 1 year 1-5 years > 5 years amount cash flow Interest bearing loans 55,280 59, ,800 Interest payable on loans - 45,512 7,645 30,578 7,289 Capital commitments - 33,242 19,945 13,297 - Operating lease commitments - 1, Trade and other payables 7,352 7,352 6, , ,147 34,944 44,996 67,207 Interest bearing loans and interest payable on loans relate to CityFibre s debt facilities under the Facility Agreement. The difference between carrying and contractual amounts relates to capitalised finance costs. Capital commitments include amounts in relation to sales contracts signed in 2016 for which construction will take place after the balance sheet date. 11. Off balance sheet arrangements As at 31 December 2016, the Group had no significant off balance sheet arrangements. 98

105 12. Market risks In the normal course of business CityFibre is exposed to financial and market risks related to interest rates, liquidity and credit. Interest rates and liquidity Any significant rise in LIBOR would increase the amount of interest payable in the relevant period, thus negatively impacting Group liquidity. The Group monitors covenant compliance on an ongoing basis and has implemented an interest rate hedging policy to mitigate this risk. Credit Counterparty risk exists on cash and deposits held by CityFibre with counterparty banks. This risk is mitigated by selecting counterparties of respectable creditworthiness as approved by CityFibre s audit committee and in accordance with the Group s credit policy, so there is no concentration of credit risk. 13. Critical accounting policies involving uncertainty The preparation of the Group s 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. Matters involving a higher degree of judgement or complexity, or where assumptions or estimates are significant to the financial statements include: Š Š Š Š Assessment of useful economic lives of property, plant and equipment; Impairment of non-current assets; Classification of network assets as inventory; and Revenue recognition of installation revenues. For further information regarding these matters, see note 1 to the Group s financial statements as at and for the year ended 31 December 2016, as set out in Part 11 of this document. 14. 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 2016 have been adopted but had no significant impact on the Group. 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 2016 have not been adopted in preparing these financial statements. The implications of these new accounting standards on the Group have not yet been fully evaluated. The main accounting standards which may be relevant to the Group are set out in note 1 to the Group s financial statements as at and for the year ended 31 December 2016 as set out in Part 11 of this document. 99

106 15. Capitalisation and net indebtedness statement (1) The table below sets out the capitalisation and indebtedness of the Group as at 31 December 2016 and 30 April 2017 respectively. (Unaudited) 000 Total current debt Guaranteed - Secured - Unguaranteed/unsecured - Total non-current debt (excluding current portion of long term debt) Guaranteed - Secured 63,300 Unguaranteed/unsecured - Total indebtedness 63,300 Shareholders equity Issued capital 2,713 Share premium 137,943 Share-based payment reserve 2,100 Share warrant reserve 85 Merger reserve 331 Total capitalisation 143,172 The table below sets out the net financial indebtedness of the Group as at 30 April (Unaudited) 000 Cash and cash equivalents 13,559 Investment in short-term deposits - Liquidity 13,559 Current financial receivables Current bank debt Other current financial debt Current financial debt Net current financial indebtedness 13,559 Non-current bank loans Other non-current loans (63,300) - Non-current financial indebtedness (63,300) Net financial indebtedness (49,741) As of 30 April 2017, the Group had no material contingent or indirect indebtedness. (1) Notes to the capitalisation and net indebtedness statement (a) (b) The Shareholders equity, which relates solely to the Company, is extracted without material adjustment from the audited financial statements of the Group for the year ended 31 December Capitalisation does not include profit and loss reserve in accordance with the ESMA update of the CESR recommendations for the consistent implementation of the European Commission s Regulation on Prospectuses No. 809/2004. There has been no material change in the capitalisation of the Group since 31 December 2016 to the date of this document. 100

107 PART 6 INFORMATION ON ENTANET 1. Entanet Acquisition The Company has agreed to purchase the entire issued share capital of Entanet for a cash consideration of 29 million (on a debt free and cash free basis and subject to adjustments). The Company proposes to finance the Entanet Acquisition by utilising part of the net proceeds of the Placing. Further information on the terms of the Entanet Acquisition is set out in section 18.1 of Part 10 of this document. In addition to the growth opportunities presented by the Entanet Acquisition, the Directors believe that the acquisition will enable the Group to benefit from over 3 million of annual cost synergies within three years. 1.1 Background and Description of Entanet Entanet is a wholesale communications provider, delivering and supporting Channel Partners with a wide range of connectivity and telecommunication products and services, including broadband, Ethernet, private and wide area networks, IP telephony, colocation, hosting and associated services. Entanet provides its services on networks owned by other suppliers, such as Openreach, Virgin Media and Colt Technology, from whom it leases capacity on such networks. The Directors believe the Entanet Acquisition will bring together two complementary wholesale capabilities: CityFibre s wholesale fibre infrastructure with Entanet s established wholesale product portfolio and commercial relationships with an extensive number of Channel Partners. Entanet would, following the acquisition, become a primary route for CityFibre to market its full fibre connectivity services through Entanet s network of Channel Partners. Entanet s strategy is focused on the development and growth of wholesale communications services. It packages data communications products, including broadband and leased line internet connectivity, IP telephony and hosting services and makes these products and services available nationally, with approximately 1,500 Channel Partners that serve the business and consumer connectivity markets having conducted business with Entanet in the 12 months ended 31 December Reasons for the Entanet Acquisition and Future Strategy The Directors believe that the Entanet Acquisition is aligned with the Group s strategy set out in section 3 of Part 3 of this document. By combining CityFibre s fibre infrastructure with Entanet s wholesale connectivity products, systems and relationships with Channel Partners the Group expects to realise the following benefits: Š Š Š Š Increase Relationships with Channel Partners the acquisition is expected to give CityFibre access to new Channel Partners due to Entanet s existing position as a wholesale provider, with approximately 1,500 Channel Partners having conducted business with Entanet in the 12 months ended 31 December This represents a significant potential increase in CityFibre s indirect routes to market. Trading and Support Interfaces the acquisition is expected to give CityFibre access to Entanet s wholesale systems that provide a layer of automated order and billing capabilities as well as customer portals and support systems. Complementary Products the acquisition is expected to enable CityFibre to utilise Entanet s wholesale product portfolio enhancing CityFibre s own wholesale fibre capabilities. National Ethernet Capability the national networks leased by Entanet from other suppliers support end-to-end Ethernet capabilities that are required as part of CityFibre s product development. The acquisition is expected to accelerate both the timescale and scope of CityFibre s Ethernet strategy, enabling faster take up of the Group s fibre connectivity by national Channel Partners. Once integrated, the acquisition will enhance CityFibre s strategy to become the leading alternative wholesale full fibre network provider to Openreach. By combining CityFibre s full fibre networks and products with Entanet s trading interfaces and mature sales channels, the Group will be able to provide a broader range of wholesale capabilities. The acquisition enhances CityFibre s ability to realise its strategy for full fibre wholesale infrastructure and serving the four primary market verticals of public sector, mobile, business and consumer. 101

108 1.3 Cost Synergies Cost synergies mainly constitute migration benefits that arise from the opportunity to migrate third party connectivity onto CityFibre s full fibre networks. Currently Entanet s services operate on the networks of a number of suppliers, including BT Wholesale, Openreach, Virgin Media, Colt Technology and Vodafone. It currently services over 45,000 broadband connections and over 3,500 leased lines, with approximately 50 per cent. of Entanet s revenue for the year ended 31 December 2016 derived from these leased lines. Approximately 25 per cent. of these connections originate and/or terminate in CityFibre s existing or expanded city footprint, giving rise to the opportunity to migrate these connections to the Company s fibre infrastructure over time. The Directors believe there is the possibility of obtaining costs synergies of more than 3 million per annum within three years of completing the Entanet Acquisition. The plan for delivering these synergies is expected to comprise a combination of: Š Š Š migrating existing Entanet leased lines from current third party networks onto CityFibre s infrastructure in its current 42 towns and cities; migrating existing Entanet leased lines from current third party networks onto CityFibre s infrastructure as CityFibre expands to its target new towns and cities in response to current anchor tenancy contracts, and where Entanet s existing leased lines act as an anchor in their own right; delivering Entanet leased line sales onto CityFibre s infrastructure in accordance with the proportion of Entanet sales in 2015 and 2016 that would have been within CityFibre s existing footprint; and Š operational and back office synergies. In addition to migration synergies, the Directors believe CityFibre may achieve significant supplementary savings and future potential revenue and cost avoidance measures. The Directors believe these could be delivered through a combination of: Š Š Š Š migrating existing Entanet leased lines from current third party networks onto CityFibre s infrastructure by selling customers superior products to those they already use; improving Entanet s leased line pipeline sales conversion within CityFibre s footprint by directing sales, marketing and promotional activity towards CityFibre s network footprint; migrating a small proportion of Entanet broadband customers onto CityFibre s fibre infrastructure; accelerating leased line sales in new public sector or mobile anchored towns and cities over and above those currently targeted; and Š migrating Entanet existing broadband and leased lines from third party infrastructure onto CityFibre s fibre infrastructure as the FTTH network is constructed. The execution plan for integrating Entanet has already been developed. The Directors believe that the acquisition will significantly enhance the Group s wholesale fibre capability and accelerate its future growth. 102

109 2. Result of Operations The following table sets out selected data extracted without material adjustment from Entanet s historical financial information set out in Part 12 of this document. Year ended 31 December Period ended 31 December Revenue 35,754 31,887 25,753 Cost of sales (28,637) (24,075) (19,650) Gross profit 7,117 7,812 6,103 Administrative expenses (6,403) (4,405) (5,298) Underlying EBITDA excluding exceptional items 2,041 3,120 2,034 Depreciation (810) (692) (460) Amortisation (517) (890) (769) Exceptional items - 1,869 - Operating profit 714 3, Finance income Finance cost (1,136) (1,087) (1,987) (Loss)/profit on ordinary activities before taxation (407) 2,333 (1,167) Income tax (Loss)/profit for the year/period and total comprehensive income (263) 2,631 (1,140) 2.1 Comparison of results for the year-ended 31 December 2016 to the results for the year ended 31 December 2015 Turnover grew during the year to 35.8 million. The growth was largely driven by demand for Ethernet circuits, both in standalone connectivity and in IP based network solutions. There was also significant growth in Entanet s broadband base as a result of strong demand from a large consumer-focused Channel Partner Gross profit reduced to 7.1 million for the year, representing a 19.9 per cent. gross margin. The fall in gross margin, from 24.5 per cent. in 2015, was driven predominantly by the direct acquisition cost of the growth in the consumer broadband base. Underlying administrative expenses increased by 2.1 per cent. to 6.4 million. These costs consist primarily of staff, office costs, back office systems, depreciation and amortisation. Headcount investments were made to ensure service quality continuity and customer satisfaction as Entanet grows. The reduction in gross margin and increased investment in operational and developmental resources led to a reduction in underlying EBITDA excluding exceptional items to 2 million. 2.2 Comparison of results for the year-ended 31 December 2015 to the results for the eleven months ended 31 December 2014 Turnover grew to 31.9 million. The majority of growth was driven by increasing demand for Ethernet circuits, either as standalone connectivity or as the backbone of wider network solutions. Broadband services also saw growth, with a number of wholesale partners increasing their customer bases and resellers benefitting from sales of Entanet s broadband packages to end-users. Gross profit, which excludes core network costs, represents a 24.5 per cent. gross margin. Although this was an improvement on the prior year there was an increase in margin pressure over the year arising from aggressive pricing by competitors, continued price deflation particularly in smaller capacity circuits and the increasing ease with which customers can obtain online quotes for circuits from competing wholesalers. With this trend expected to continue Entanet strategically focused on accelerating its investment in expanding and developing higher margin products and services. Administrative expenses primarily relate to staff and office costs. Investment in headcount continued in a number of departments during the year to deliver and support the increase in business levels as well as continuing to develop and improve partner portals and back office systems. 103

110 During the year, an exceptional item of 1.9 million income was recognised within administrative expenses, being the settlement of certain claims against a former shareholder and certain parties connected to that shareholder. Underlying EBITDA excluding exceptional items increased to 3.1 million at a similar margin to the prior year. 3. Factors affecting the result of operations 3.1 Exceptional items During 2016 Entanet International settled certain claims against Entanet International and the Entanet Group also concluded claims it had against a former shareholder of Entanet International and certain parties connected to that shareholder. The financial impact of the claims is reflected in the 2015 results and resulted in a charge to the income statement of 1.4 million. 3.2 Liquidity and cash flow Entanet s primary sources of liquidity for its operations are the cash flows generated from its operations and debt in the form of loans with fixed rates of interest and bullet redemption premiums. 3.3 Loan covenants and maturity Loans of 9.8 million at 31 December 2016 are repayable in more than two but less than five years and are secured by a fixed and floating charge over the assets of Entanet. The loans include 3.5 million (2015: 3.5 million) attracting interest at 6 per cent. and other loans with a carrying value of 4.2 million with an interest rate of per cent. and a bullet redemption premium at the end of the term of 2.6 million. 4. Principal risks Entanet is subject to the risks common to other wholesale communication providers who provide their services on networks on networks owned by third parties, including but not limited to: Establishing and maintaining relationships with Channel Partners and infrastructure providers, as well as the common risks inherent in any such relationships, Changes to industry-specific government regulations as well as applicable law more generally; Changes in the markets Entanet serves as the well as the level of demand of customers in those markets; The impact of technological evolution on Entanet s business; The adverse effect of any economic downturn in the markets Entanet serves; Increased competition in locations where Entanet operates; and Risks associated with legal proceedings, regulatory disputes or similar claims. While not intended to be an exhaustive list or explanation of all the risks Entanet faces, the Directors believe in particular the following are the principal risks in relation to Entanet s business. 4.1 Cyber Security Entanet s core network provides customers with access to the internet, presenting a risk of cyber threat. This risk is mitigated through procedures for identifying and neutralising such threats, including the constant monitoring of unusual traffic patterns by sophisticated applications. 4.2 Competition Competition in the UK wholesale supply market remains strong, with continued merger and acquisition activity as key players seek ways to grow their customer and revenue base. This has given rise to further price competition, often at the expense of service quality. Entanet counters these risks by offering quality products and services to Channel Partners, implementing new supplier relationships, supply contract negotiation and also leveraging and improving on its relationships with key partners and resellers. 104

111 4.3 Network performance Entanet operates a core leased network which customers depend on for speed, capacity and reliability. Any interruption in network performance may have a detrimental effect on customers. The core network is designed to be fully resilient, so that should part of the network be interrupted, traffic is routed through alternative paths. 105

112 PART 7 UNAUDITED PRO-FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP Section A: Unaudited pro forma income statement The following unaudited pro forma income statement of the Enlarged Group has been prepared to illustrate the effect of the acquisition of Entanet and the Placing as if they had occurred at the start of the last reported period, 1 January The unaudited pro forma income statement has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Enlarged Group s actual financial position or results nor is it indicative of the results that may or may not be expected to be achieved in the future. The unaudited pro forma income statement is based on the consolidated results of the Group for the year ended 31 December 2016 as set out in the financial statements of the Group for the year ended 31 December 2016 set out in Part 11 of this document and the results of Entanet for the year ended 31 December 2016 as set out in the financial information on Entanet for the year ended 31 December 2016 set out in Part 12 of this document, and has been prepared in a manner consistent with the accounting policies adopted by the Company in preparing such information and on the basis set out in the notes set out below. BDO LLP s report on the unaudited pro forma information is set out in Section C of this Part 7. Pro forma income statement Adjustments Year ended 31 December 2016 The Group Entanet Other adjustments Pro forma earnings of the Enlarged Group (note 1) (note 2) (note 3) Revenue 15,363 35,754-51,117 Cost of sales (1,827) (28,637) - (30,464) Gross profit 13,536 7,117-20,653 Total administrative expenses (18,677) (6,403) (4,987) (30,067) Operating (loss) profit (5,141) 714 (4,987) (9,414) Finance income Finance cost (7,341) (1,136) - (8,477) Share of post-tax losses of equity accounted Joint Venture (147) - - (149) Loss before taxation (12,584) (407) (4,987) (17,978) Income tax Loss for the year and total comprehensive income (12,584) (263) (4,987) (17,834) Notes: 1. The results of the Group for the year ended 31 December 2016 have been extracted without material adjustment from the financial statements of the Group for the year ended 31 December 2016 set out in Part 11 of this document. 2. The results of Entanet have been extracted without material adjustment from the financial information on Entanet for the year ended 31 December 2016, set out in Part 12 of this document. 3. This adjustment comprises the estimated costs of the Entanet Acquisition and the estimated costs of the Placing that cannot be set off against the share premium account. 106

113 4. No account has been taken of the effects of any synergies and of the costs for measures taken to achieve those synergies that may have arisen had the acquisition occurred on 1 January 2016 and that may subsequently have affected the results of the Enlarged Group in the year ended 31 December No account has been taken of the trading performance of either the Group or Entanet since 31 December 2016 nor of any other event save as disclosed above. 6. Save for the costs of the Entanet Acquisition and the Placing, the pro forma income statement adjustments are expected to have a continuing effect on the Enlarged Group. 107

114 Section B: Unaudited pro forma statement of net assets The following unaudited pro forma statement of net assets of the Enlarged Group has been prepared to illustrate the effect of the Entanet Acquisition and the Placing as if they had occurred on 31 December The unaudited pro forma statement of net assets has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Enlarged Group s actual financial position or results. The unaudited pro forma statement of net assets is based on the net assets of the Group as at 31 December 2016, as set out in the financial statements of the Group for the year ended 31 December 2016 set out in Part 11 of this document and the net assets of Entanet as at 31 December 2016, as set out in the financial information on Entanet for the year ended 31 December 2016 set out in Part 12 of this document and has been prepared in a manner consistent with the accounting policies adopted by the Company in preparing such information and on the basis set out in the notes set out below. BDO LLP s report on the unaudited pro forma information is set out in Section C of this Part

115 Pro forma statement of net assets Assets Adjustments As at 31 December 2016 The Group Entanet Entanet Acquisition Net Placing proceeds Pro forma net assets of the Enlarged Group (note 1) (note 2) (note 3) (note 4) Non-current assets Property, plant and equipment 155,159 2, ,843 Intangible assets 1,211 6,537 15,859-23,607 Investment in Joint Venture ,803 9,221 15, ,883 Current assets Inventory 3, ,986 Trade and other receivables 8,070 5, ,953 Cash and cash equivalents 16,722 2,174 (29,000) 191, ,909 Total current assets 28,778 8,057 (29,000) 191, ,848 Total assets 185,581 17,278 (13,141) 191, ,731 Liabilities Non-current liabilities Interest bearing loans and borrowings (55,280) (10,186) 10,186 - (55,280) Deferred revenue (11,091) (11,091) Deferred consideration (450) (450) Deferred tax - (133) - - (133) Total non-current liabilities (66,821) (10,319) 10,186 - (66,954) Current liabilities Interest bearing loans and borrowings - (467) Deferred revenue (2,864) (2,864) Trade and other payables (7,352) (4,004) - - (11,356) Total current liabilities (10,216) (4,471) (14,220) Total liabilities (77,037) (14,790) 10,653 - (81,174) Net assets 108,544 2,488 (2,488) 191, ,557 Notes: 1. The net assets of the Group at 31 December 2016 have been extracted without material adjustment from the financial statements of the Group for the year ended 31 December 2016 set out in Part 11 of this document. 109

116 Adjustments 2. The net assets of Entanet have been extracted without material adjustment from the financial information on Entanet for the year ended 31 December 2016, set out in Part 12 of this document. 3. An adjustment has been made to reflect the estimated intangible assets arising on the Entanet Acquisition. For the purposes of this pro forma information, no adjustment has been made to the separate assets and liabilities of Entanet to reflect their fair value. The difference between the net assets of Entanet as stated at their book value at 31 December 2016 and the estimated consideration has therefore been presented as a single value in Intangible assets. The net assets of Entanet will be subject to a fair value restatement as at the effective date of the transaction. Actual intangible assets included in the Group s next published financial statements may therefore be materially different from those included in the pro forma statement of net assets. The estimated consideration for Entanet is approximately 29 million (on a cash free debt free basis and subject to adjustments), of which a proportion will be used to repay Entanet s indebtedness. It has been assumed that all of the deferred consideration will be payable in cash. 000 Consideration payable in cash 29,000 Repayment of debt (10,653) Consideration for Entanet s equity 18,347 Book value of net assets of Entanet as at 31 December 2016 (2,488) Estimated intangible assets arising on the transaction 15,859 The repayment of debt is based on the balance outstanding at 31 December The actual balance repaid is likely to differ from this amount. 4. The Placing is estimated to raise net proceeds of 191 million ( 200 million gross proceeds less estimated expenses of 9 million). No account has been taken of any proceeds from the Offer for Subscription. 5. No account has been taken of the financial performance of the Group or Entanet since 31 December 2016 nor of any other event save as disclosed above. 110

117 Section C: Reporting Accountant s report on the unaudited pro forma financial information of the Enlarged Group BDO LLP 55 Baker Street London W1U 7EU The Directors CityFibre Infrastructure Holdings plc 15 Bedford Street, London WC2E 9HE 11 July 2017 finncap Limited 60 New Broad Street London EC2M 1JJ Dear Sirs and Madam CityFibre Infrastructure Holdings plc (the Company ) Pro forma financial information We report on the unaudited pro forma income statement and statement of net assets (the Pro Forma Financial Information ) set out in Part 7 of the prospectus dated 11 July 2017 (the Prospectus ) which has been prepared on the basis described, for illustrative purposes only, to provide information about how the acquisition of Entanet Holdings Limited and the proceeds of the placing and offer for subscription might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing its financial statements for the year ended 31 December This report is required by item 20.2 of Annex I of the Commission Regulation (EC) No. 809/2004 (the PD Regulation ) and is given for the purpose of complying with that item and for no other purpose. Responsibilities It is the responsibility of the directors of the Company (the Directors ) to prepare the Pro Forma Financial Information in accordance with item 20.2 of Annex I of the PD Regulation. It is our responsibility to form an opinion, as required by item 7 of Annex II of the PD Regulation, as to the proper compilation of the Pro Forma Financial Information and to report that opinion to you. Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I of the PD Regulation, consenting to its inclusion in the Prospectus. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, 111

118 which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors. We planned and performed our work so as to obtain the information and explanations which we considered necessary in order to provide us with reasonable assurance that the Pro Forma Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States or other jurisdictions outside the United Kingdom and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion: (a) (b) the Pro Forma Financial Information has been properly compiled on the basis stated; and such basis is consistent with the accounting policies of the Company. Declaration For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I of the PD Regulation. Yours faithfully BDO LLP Chartered Accountants BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) 112

119 PART 8 TAXATION Section A: United Kingdom 1. General The following statements: (a) do not constitute tax advice and are intended to apply only as a general guide to the position under current UK tax law and the published practice of HMRC as at the Reference Date, either of which is subject to change at any time (possibly with retrospective effect); (b) relate only to certain limited aspects of the UK taxation treatment of Shareholders and are intended to apply only to Shareholders who: (i) are resident in (and only in) the UK for UK tax purposes (unless the context otherwise requires) and to whom split-year treatment does not apply; (ii) hold their Existing Ordinary Shares as investments (and the Existing Ordinary Shares are not held through an individual saving account or a self-invested personal pension); and (iii) are the direct absolute beneficial owners of their Existing Ordinary Shares; and (c) may not apply to certain classes of Shareholders such as, for example, dealers in securities, insurance companies, collective investment schemes and Shareholders who have (or who are deemed to have) acquired their Existing Ordinary Shares by virtue of an office or employment. Any person who is in any doubt as to his or her tax position or who may be subject to tax in any jurisdiction other than the United Kingdom should consult an appropriate professional tax adviser without delay. 2. Taxation of chargeable gains UK taxation of chargeable gains in respect of Ordinary Shares 2.1 Offer for Subscription Shares acquired pursuant to the Offer for Subscription No liability to UK taxation on chargeable gains should arise in respect of the issue of Offer for Subscription Shares to the extent that a Shareholder subscribes for any Offer for Subscription Shares. The issue of Offer for Subscription Shares to UK tax resident Shareholders pursuant to the Offer for Subscription will not be regarded as a reorganisation of the share capital of the Company for the purposes of UK taxation of chargeable gains. The acquisition of Offer for Subscription Shares pursuant to the Offer for Subscription will, for the purposes of UK taxation of chargeable gains, be treated as acquired as part of a separate acquisition of Ordinary Shares when computing any gain or loss on any subsequent disposal. When computing any gain or loss on a disposal of Ordinary Shares, for UK chargeable gains purposes, HMRC s share identification provisions will need to be taken into consideration. 2.2 Placing Shares acquired pursuant to the Placing The issue of Placing Shares under the Placing which are not subject to the Offer for Subscription will not constitute a reorganisation of share capital for the purposes of the UK taxation of chargeable gains and, accordingly, any Placing Shares acquired pursuant to the Placing will be treated as acquired as part of a separate acquisition of Ordinary Shares. 2.3 Subsequent Disposals of New Ordinary Shares (A) Individual Shareholders A disposal or deemed disposal of New Ordinary Shares may, depending on the circumstances and subject to any available exemption or relief, give rise to a chargeable gain (or an allowable loss) for the purposes of UK taxation of chargeable gains. An individual Shareholder who is resident in the UK for UK tax purposes and whose total taxable gains and income in a given tax year, including any gains made on the disposal or deemed disposal of his New Ordinary Shares, are less than or equal to the upper limit of the income tax basic rate band applicable in respect of that tax year (the Band Limit ) will generally be subject to UK capital gains tax at the flat rate of 10 per cent. (for the tax year 2017/18) in respect of any gain arising on a disposal or deemed disposal of his New Ordinary Shares. 113

120 An individual Shareholder who is resident in the UK for UK tax purposes and whose total taxable gains and income in a given tax year, including any gains made on the disposal or deemed disposal of his New Ordinary Shares, are more than the Band Limit will generally be subject to UK capital gains tax at the flat rate of 10 per cent. in respect of any gain arising on a disposal or deemed disposal of his New Ordinary Shares to the extent that, when added to the Shareholder s other taxable gains and income in that tax year, the gain is less than or equal to the Band Limit and at the flat rate of 20 per cent. (for the tax year 2017/18) in respect of the remainder. No indexation allowance will be available to an individual Shareholder in respect of any disposal or deemed disposal of New Ordinary Shares. However, each individual has an annual exemption, such that UK capital gains tax is chargeable only on gains arising from all sources during the tax year in excess of this figure. The annual exemption is 11,300 for the tax year 2017/18. Shareholders who are not resident in the United Kingdom for tax purposes will not, depending on their personal circumstances, be liable to UK taxation on chargeable gains arising from the sale or other disposal of their Ordinary Shares (including New Ordinary Shares acquired pursuant to the Offer for Subscription or the Placing) unless they carry on a trade, profession or vocation in the United Kingdom through a branch or agency with which their Ordinary Shares are connected or, in the case of a corporate Shareholder, through a permanent establishment in connection with which the Ordinary Shares are held. Individual Shareholders who are temporarily not UK resident and who dispose of all or part of their Ordinary Shares during that period may be liable to UK capital gains tax on chargeable gains realised on their return to the United Kingdom, subject to any available exemptions or reliefs. Shareholders who are resident for tax purposes outside the United Kingdom may be subject to foreign taxation on capital gains depending on their circumstances. (B) Corporate Shareholders Where a Shareholder is within the charge to UK corporation tax, a disposal or deemed disposal of New Ordinary Shares may, depending on the circumstances and subject to any available exemption or relief, give rise to a chargeable gain (or an allowable loss) for the purposes of UK corporation tax. UK corporation tax is charged on chargeable gains at the rate of corporation tax applicable to that Shareholder. It should be noted that, for the purposes of calculating any indexation allowance available on a disposal of New Ordinary Shares, generally the expenditure incurred in acquiring the New Ordinary Shares will be treated as incurred only when the Shareholder made, or became liable to make, payment, and not at the time those shares are otherwise deemed to have been acquired. 3. Taxation of dividends The Company is not required to withhold tax at source from dividend payments that it makes. 3.1 Individuals A Shareholder who is an individual resident in the UK for UK tax purposes and who receives a dividend from the Company may, depending on the circumstances and subject to any available exemption or relief, be subject to UK income tax on the amount of the cash dividend received. Such a Shareholder will pay no tax on the first 5,000 of dividend income received in the tax year 2017/18 (the dividend allowance ). The government has announced its intention to reduce the dividend allowance to 2,000 with effect from (and including) the tax year 2018/19. The rates of income tax on dividends received above the dividend allowance for the tax year 2017/18 are: (a) 7.5 per cent. for dividends taxed in the basic rate band; (b) 32.5 per cent. for dividends taxed in the higher rate band; and (c) 38.1 per cent. for dividends taxed in the additional rate band. Dividend income that is within the dividend allowance counts towards an individual s basic or higher rate limits and may therefore affect the rates and allowances to which both the remainder of the dividend income (if any) and any other income is subject. In calculating into which tax band any dividend income over the 5,000 allowance falls, dividend income is treated as the top slice of an individual s income. 114

121 3.2 Companies A Shareholder within the charge to UK corporation tax which is a small company (for the purposes of UK taxation of dividends) will not generally be subject to UK tax on dividends from the Company, provided certain conditions are met. Other Shareholders within the charge to UK corporation tax will not be subject to UK tax on dividends from the Company so long as the dividends fall within an exempt class and do not fall within certain specified antiavoidance provisions and the Shareholder has not elected for the dividends not to be exempt. Each Shareholder s position will depend on its own individual circumstances, although it would normally be expected that dividends paid by the Company would fall within an exempt class. Examples of dividends that are within an exempt class are dividends in respect of portfolio holdings, where the recipient owns less than 10 per cent. of the issued share capital, assets and profits of the payer (or any class of that share capital). 4. Stamp duty and SDRT The following statements are intended as a general and non-exhaustive guide to the current UK stamp duty and SDRT position and apply regardless of whether or not a Shareholder is resident in the UK for UK tax purposes. On the basis of current law, dealings in New Ordinary Shares will be exempt from UK stamp duty and SDRT if and for as long as: (i) the New Ordinary Shares are admitted to trading on AIM; (ii) AIM is a recognised growth market for the purposes of UK stamp duty and SDRT; and (iii) the New Ordinary Shares are not listed on a recognised stock exchange for the purposes of UK stamp duty and SDRT. AIM is currently a recognised growth market for the purposes of UK stamp duty and SDRT. Companies whose shares are traded on AIM are required to submit a self-certification to Euroclear that the above conditions apply to its shares; otherwise SDRT will continue to be applied on dealings in the company s shares (although it may then be possible for the purchaser to claim a refund from HMRC of this SDRT). The Company has made this submission and Euroclear now treats its shares as benefiting from the exemption. (A) (B) Issue of New Ordinary Shares No stamp duty or SDRT will generally be payable on the issue of definitive share certificates, or on the issue in uncertificated form of New Ordinary Shares. Where New Ordinary Shares are registered in the name of the Shareholder entitled to such shares on issue, or where New Ordinary Shares are credited in uncertificated form to an account in CREST, no liability to stamp duty or SDRT will generally arise. Following the decision of the ECJ in HSBC Holdings and Vidacos Nominees (Case 569/07) and the First-tier Tax Tribunal decision in HSBC Holdings and The Bank of New York Mellon, HMRC has confirmed that SDRT is no longer payable when new shares are issued into a clearance service or depositary receipt service. The effect of the UK s anticipated exit from the EU on the applicability of this decision is not yet known, but any such change in law is likely to take effect after the Placing and Offer for Subscription. In any case, for as long as the AIM market exemption mentioned above continues to apply to the Company s shares, SDRT will not be payable if New Ordinary Shares are issued into a clearance service or depositary receipt service. Subsequent dealings in New Ordinary Shares For as long as the AIM market exemption mentioned above continues to apply to the Company s shares, no stamp duty or SDRT will be payable on any subsequent dealings in New Ordinary Shares. If the AIM market exemption mentioned above ceases to apply to the Company s shares, then, except in relation to depositary receipt systems and clearance services (to which the special rules outlined below will apply), any subsequent dealings in New Ordinary Shares will be subject to stamp duty or SDRT in the normal way. Subject to an exemption for certain low value transactions, the transfer on sale of New Ordinary Shares effected outside CREST will generally be liable to stamp duty at the rate of 0.5 per cent. of the amount or value of the consideration payable (rounded up to the nearest multiple of 5) or, if an unconditional agreement to transfer the New Ordinary Shares is not completed by a duly stamped transfer 115

122 within 6 years of the date of the agreement becoming unconditional, or where the transfer is effected in CREST, SDRT at the rate of 0.5 per cent. of the amount or value of the consideration payable. Stamp duty and SDRT are normally payable by the purchaser. Where New Ordinary Shares are transferred: (a) to, or to a nominee or an agent for, a person whose business is or includes the provision of clearance services; or (b) to, or to a nominee or an agent for, a person whose business is or includes issuing depositary receipts, stamp duty or SDRT will generally be payable at the higher rate of 1.5 per cent. of the amount or value of the consideration given or, in certain circumstances, the value of the New Ordinary Shares. There is an exception from the 1.5 per cent. charge on the transfer to, or to a nominee or agent for, a clearance service where the clearance service has made and maintained an election under section 97A(1) of the Finance Act 1986, which has been approved by HMRC. In these circumstances, SDRT at the rate of 0.5 per cent. of the amount or value of the consideration payable for the transfer will arise on any transfer of shares in the Company into such an account and on subsequent agreements to transfer such shares within such account. Any liability for stamp duty or SDRT in respect of a transfer into a clearance service or depositary receipt system, or in respect of a transfer within such a service, which does arise will strictly be accountable by the clearance service or depositary receipt system operator or their nominee, as the case may be, but will, in practice, be payable by the participants in the clearance service or depositary receipt system. 116

123 Section B: Certain US Federal Income Tax Considerations 1. General The following summary describes certain US federal income tax consequences relating to the purchase, ownership and disposition of Placing Shares and Offer for Subscription Shares (collectively, the Subject Shares ) as of the date of this document. Except where noted, this discussion deals only with holders who purchase the Company s Subject Shares in connection with the Placing and/or the Offer for Subscription, as the case may be, and hold the Company s Subject Shares as capital assets for US federal income tax purposes (generally, property held for investment). This summary is not directed to a holder of Subject Shares that is subject to special treatment under the US federal income tax laws, including, without limitation: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) a dealer or trader in securities; a bank or other financial institution; a regulated investment company; a real estate investment trust; an insurance company; a tax-exempt entity (including an individual retirement account ); a person holding the Company s Subject Shares as part of a hedging transaction, wash sale, conversion transaction, a constructive sale or a straddle; a person who owns 10 per cent. or more (directly, indirectly or through application of certain constructive ownership rules) of the voting stock or value of the Company; US expatriates and former long-term residents of the United States; or a US Holder (as defined below) whose functional currency is not the US dollar. As used herein, US Holder means a holder of the Company s Subject Shares that is for US federal income tax purposes a beneficial owner of Subject Shares and is (i) an individual citizen or resident of the United States, (ii) a corporation (or other entity classified as a corporation), created or organised in or under the laws of the United States, any state therein or the District of Columbia; (iii) an estate the income of which is subject to US federal income taxation regardless of its source; or (iv) a trust if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all substantial decisions of the trust (or otherwise if the trust has a valid election in effect under current Treasury regulations to be treated as a United States person). A Non US Holder is a beneficial owner of the Company s Subject Shares that is an individual, corporation, estate or trust and is not a US Holder. If an entity that is classified as a partnership for US federal income tax purposes holds the Subject Shares, the US federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding the Subject Shares and partners in such partnerships should consult their tax advisers as to the particular US federal income tax consequences of holding and disposing of the Subject Shares. The discussion below is based upon the provisions of the US Internal Revenue Code of 1986, as amended (the Code ), and final, temporary and proposed regulations (the Regulations ), rulings and judicial decisions thereunder as of the date of this document, and treaties as of the date of this document, including the Convention Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains of 24 July 2001, as amended (the Treaty ), and such authorities may be replaced, revoked or modified (possibly with retroactive effect) or subject to differing interpretations so as to result in US federal income tax consequences different from those discussed below. In addition, this discussion does not address the US federal estate, gift or alternative minimum tax consequences, or any state, local or non US tax consequences of the acquisition, ownership and disposition of the Subject Shares. US Holders should consult their tax advisers concerning the US federal, state, local and non US tax consequences of acquiring, owning and disposing of the Subject Shares based on their particular circumstances. No advance rulings have been or will be sought from the US Internal Revenue Service ( IRS ) regarding any matter discussed herein. Counsel to the Company has not rendered any legal opinion regarding any US federal income tax consequences relating to the Company or an investment in the Company s Subject Shares. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below. 117

124 If you are considering the purchase, ownership or disposition of the Company s Subject Shares, you should consult your own tax advisers concerning the US federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction. 2. The Company The Company is a public limited company organised under the laws of England and Wales, and will be treated as a corporation for US federal income tax purposes. As such, for US federal income tax purposes, subject to the discussion at section 5.2 below, the income, gains, losses, deductions, and expenses of the Company will not be passed through to holders of the Company s Subject Shares, and all distributions by the Company to the US Holders generally will be treated as dividends, return of capital and/or gains, as described below. The Company is expected to be operated in a manner that it will not be deemed to be engaged in a trade or business in the United States, and as a result, it is expected that the Company will not be subject to US federal income tax on a net basis. 3. Taxation of Dividends Subject to the discussion in section 5 below, distributions on the Company s Subject Shares, other than certain pro rata distributions of Subject Shares to all shareholders, received by a US Holder on Subject Shares, including any amounts withheld in respect of any UK withholding tax thereon, will be taxable as dividends to the extent paid out of the Company s current or accumulated earnings and profits as determined under US federal income tax principles measured at the end of the tax year in which such distribution is actually or constructively received. Distributions in excess of such earnings and profits will be applied against and will reduce the US Holder s tax basis in its Subject Shares and, to the extent in excess of such basis, will be treated as long-term capital gain if the US Holder held its Subject Shares for more than one year, and as short-term capital gain if the US Holder held its Subject Shares for one year or less. Since the Company does not maintain calculations of its earnings and profits for US federal income tax purposes, it is expected that any distribution on the Company s Subject Shares will be reported to US Holders as a dividend for US federal income tax purposes. Such dividends are not expected to be eligible for the dividends received deduction allowed to corporations. 3.1 Currency Gain or Loss on Dividends The US dollar value of any distribution on the Company s Subject Shares made in Sterling should be calculated by reference to the exchange rate between the US dollar and the Sterling in effect on the date of receipt of such distribution by the US Holder, regardless of whether the Sterling amount so received is in fact converted into US dollars. If the Sterling amount so received is converted into US dollars on the date of receipt, such US Holder generally should not recognise foreign currency gain or loss on such conversion. If it is not converted into US dollars on the date of receipt, such US Holder will have a basis in such Sterling equal to the US dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of such Sterling generally will be treated as ordinary income or loss to such US Holder and generally will be income or loss from sources within the United States for US foreign tax credit purposes. 3.2 Qualified Dividends for Individuals Distributions treated as dividends that are received by certain non-corporate US Holders (including individuals) from qualified foreign corporations generally qualify for preferential rates so long as certain holding period and other requirements are met. A non US corporation (other than a corporation that was treated as a passive foreign investment company (as described in section 5 below) with respect to a US Holder in the year in which the dividends are paid, or in the year prior to the year in which the dividends are paid) generally will be considered to be a qualified foreign corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States. The Company expects to be considered a qualified foreign corporation for this purpose. 3.3 Foreign Tax Credits and Sourcing Subject to certain conditions and limitations, any non-refundable UK taxes withheld from dividends on the Company s Subject Shares at a rate not exceeding the rate provided in the Treaty (if applicable) may be treated as foreign taxes eligible for a credit against the US federal income tax liability of a US Holder. This US foreign tax credit is subject to numerous complex limitations that must be determined and applied on an individual basis. In applying this limitation, a US Holder s various items of income and deduction must be classified, under complex rules, as either foreign source or US source. Generally, the credit cannot exceed the proportionate share of a US Holder s US federal income tax liability that such US Holder s foreign source taxable income bears to such US Holder s worldwide taxable income. In addition, this limitation is calculated separately with respect to specific categories of income. For purposes of calculating this limitation, dividends paid on Subject 118

125 Shares generally will be treated as income from sources outside the United States and will generally constitute passive category income. Further, in certain circumstances, if a US Holder that holds its Subject Shares for less than a specified minimum period, the US Holder will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on its Subject Shares. US Holders should consult their own tax advisers regarding the availability of the foreign tax credit under their particular circumstances. 4. Sale or Other Disposition of Shares Subject to the discussion in section 5 below, for US federal income tax purposes, a US Holder will recognise taxable gain or loss on any sale, exchange or other disposition of its Subject Shares in an amount equal to the difference between the amount realised and such US Holder s tax basis in the Subject Shares. Such gain or loss will generally be capital gain or loss. Capital gains of non-corporate shareholders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations under the Code. Any gain or loss recognised on a disposition by a US Holder of its Subject Shares generally will be treated as US source gain or loss. The tax basis of Placing Shares will be the amount paid by the holder for such shares and the holding period will start on the acquisition date of such shares. 4.1 Currency Gain or Loss on Disposition of Shares In the case of a US Holder that receives non US currency from a sale, exchange or other disposition of the Company s Subject Shares, the amount realised will be equal to the US dollar value of such non US currency on the date of disposition of the Subject Shares. However, if the Subject Shares are treated as being traded on an established securities market, a cash basis or electing accrual basis taxpayer will determine the US dollar value of the amount realised by translating such amount at the spot rate on the settlement date of the sale. If an accrual basis US Holder makes the election described above, it must be applied consistently from year to year and cannot be revoked without the consent of the IRS. A US Holder will have a tax basis in any non US currency received in respect of the sale, exchange or other disposition of its Subject Shares equal to its US dollar value calculated at the exchange rate in effect on the date of such sale, exchange or other disposition (or in the case of a cash basis or electing accrual basis taxpayer the exchange rate in effect on the date of settlement). Any gain or loss recognised upon a subsequent disposition of non US currency will be treated as ordinary income or loss to such US Holder and generally will be income or loss from sources within the United States for US foreign tax credit purposes. 5. Passive Foreign Investment Company In general, a non US corporation will be classified as a Passive Foreign Investment Company ( PFIC ) for any taxable year if at least (i) 75 per cent. of its gross income for that year is classified as passive income or (ii) 50 per cent. of the value of its assets (determined on the basis of a quarterly average for that year) produce or are held for the production of passive income. For these purposes, passive income generally includes, among other things, dividends, interest, rents, royalties and the excess of gains over losses from the disposition of assets that produce passive income. In making this determination, the non US corporation is treated as earning its proportionate share of any income and owning its proportionate share of any assets of any corporation in which it directly or indirectly holds 25 per cent. or more (by value) of the stock. The Company has not determined whether it was a PFIC for any taxable year. Such determination is made annually after the close of the relevant taxable year, is highly fact specific and will depend in particular on the composition of the Company s income and assets, the market price of the Company s Subject Shares, and the actual amount and timing of the use of the proceeds from the Placing and the Offer for Subscription (including the timing of the planned Entanet Acquisition). Accordingly, while the Company does not believe it should be a PFIC for the taxable year ending 31 December 2017, no assurance can be given that the Company will not be a PFIC for such taxable year or any future taxable year. If the Company is considered a PFIC at any time that a US Holder holds the Company s Subject Shares, any gain recognised by the US Holder on a sale or other disposition of the Subject Shares, as well as the amount of an excess distribution (defined below) received by such holder, would be allocated rateably over the US Holder s holding period for the Subject Shares. The amounts allocated to the taxable year of the sale or other disposition (or the taxable year of receipt, in the case of an excess distribution) and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year also is taxed as ordinary income and the tax imposed will be the deferred tax amount (an amount calculated by multiplying the amount allocated to each prior year by the highest rate of tax in effect for individuals or corporations, as appropriate, for that taxable year, together with an interest charge). For purposes of these rules, an excess distribution is the amount by which any distribution received by a US Holder on its Subject Shares in a taxable year exceeds 125 per cent. of the average of the annual distributions on the Subject Shares received during the preceding three years or the US Holder s holding period, whichever is shorter. Certain elections may be available that would result in alternative treatments (such as an election for mark-to-market treatment or to be treated as a qualified electing fund, each as discussed below) of the Subject Shares. 119

126 Under the PFIC rules, if the Company were considered a PFIC at any time that a US Holder holds the Company s Subject Shares, the Company would continue to be treated as a PFIC with respect to such US Holder s investment unless (i) the Company ceases to be a PFIC and (ii) the US Holder has made a deemed sale election under the PFIC rules. If the Company is treated as a PFIC with respect to a US Holder for any taxable year, a US Holder will also be deemed to own a proportionate interest in any of the Company s subsidiaries that are also PFICs, if any. Special rules apply with respect to the application of the PFIC rules with respect to indirect distributions from, or indirect dispositions of, such a subsidiary that is a PFIC. An election for mark-to-market treatment would likely not be available with respect to any such subsidiaries. If a US Holder owns the Company s Subject Shares during any year in which the Company is a PFIC, the US Holder generally must file an IRS Form 8621 with respect to the Company, generally with the US Holder s US federal income tax return for that year. US Holders should consult their tax advisers regarding whether the Company is a PFIC and the potential application of the PFIC rules. 5.1 Mark-to-market Election To mitigate the application of the PFIC rules discussed above, a US Holder may make an election to include gain or loss on the Subject Shares as ordinary income or loss under a mark-to-market method, provided that the Subject Shares are regularly traded on a qualified exchange. Application has been made for the Subject Shares to be listed on AIM, which the Company expects to be a qualified exchange. However, no assurance can be given that the Subject Shares will be regularly traded as defined by the Code for purposes of the mark-to-market election. If a US Holder makes an effective mark-to-market election, the US Holder will include in each year as ordinary income the excess of the fair market value of its Subject Shares at the end of the year over its adjusted tax basis in the Subject Shares. The US Holder will be entitled to deduct as an ordinary loss each year the excess of its adjusted tax basis in the Subject Shares over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A US Holder s adjusted tax basis in the Subject Shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition, gains from an actual sale or other disposition of Subject Shares will be treated as ordinary income, and any losses will be treated as ordinary losses to the extent of any mark-to-market gains for prior years. If a US Holder makes a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the Subject Shares are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. 5.2 Qualified Electing Fund Election To mitigate the application of the PFIC rules discussed above, a US Holder may make an election to treat the Company as a qualified electing fund ( QEF ) for US federal income tax purposes. A US Holder of a QEF is required for each taxable year to include in income a pro rata share of the ordinary earnings of the QEF as ordinary income and a pro rata share of the net capital gain of the QEF as capital gain and pay tax thereon, regardless of whether the Company has distributed such earnings or gain, subject to a separate election to defer payment of taxes. Such deferral is subject to an interest charge. If the Company later were to distribute the income or gain on which the US Holder has already paid taxes, amounts so distributed to the US Holder would not be further taxable to the US Holder. A US Holder s tax basis in the Company s Subject Shares would be increased by the amount so included and decreased by the amount of non-taxable distributions. To make a QEF election, the Company must provide US Holders with information compiled according to US federal income tax principles. The Company currently does not intend to compile such information for US Holders, and therefore it is expected that this election will be unavailable. 6. Non US Holders A Non US Holder generally should not be subject to US federal income or withholding tax on any distributions made on the Company s Subject Shares or gain from the sale, exchange or other disposition of the Company s Subject Shares unless: (i) that distribution and/or gain is effectively connected with the conduct by that Non US Holder of a trade or business in the United States; or (ii) in the case of any gain realised on the sale or exchange of Subject Shares by an individual Non US Holder, that Non US Holder is present in the United States for 183 days or more in the taxable year of the sale, exchange or retirement and certain other conditions are met. 7. Medicare Tax A US Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, generally will be subject to a 3.8 per cent. tax, referred to as the Medicare tax, on the lesser of 120

127 (1) the US Holder s net investment income (or, in the case of a US Holder that is an estate or trust, the US Holder s undistributed net investment income ) for the relevant taxable year and (2) the excess of the US Holder s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between US$125,000 and US$250,000, depending on the individual s tax return filing status). The net investment income of a US Holder generally will include dividend income and any net gains from the disposition of Subject Shares, unless such dividend income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive trading activities). US Holders should consult their tax advisers regarding the applicability of the Medicare tax to their income and gains in respect of their investment in the Company. 8. Information Reporting and Backup Withholding 8.1 Investment in Subject Shares Under the Code and Regulations, certain categories of US persons must file information returns with respect to their investment in the equity interests of a non US corporation. A US Holder that purchases for cash the Company s Subject Shares will be required to file IRS Form 926 or a similar form if the transfer of cash to the Company, when aggregated with all transfers made by such person (or any related person) to the Company within the preceding 12-month period, exceeds US$100,000. In the event a US Holder fails to file any such required form, the US Holder could be required to pay a penalty equal to 10 per cent. of the gross amount paid for such Subject Shares up to a maximum penalty of US$100, Dividends and Dispositions In general, information reporting will apply to dividends in respect of the Company s Subject Shares and the proceeds from the sale, exchange or other disposition of the Company s Subject Shares that are paid within the United States (and in certain cases, outside the United States), unless a holder establishes that it is an exempt recipient (such as a corporation). Backup withholding (currently at a rate of 28 per cent.) may apply to such payments if a holder fails to provide a taxpayer identification number and a duly executed IRS Form W-9 or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules will be allowed as a credit or a refund against the holder s US federal income tax liability provided the required information is timely furnished to the IRS. 8.3 Reportable Transactions A US Holder participating in a reportable transaction within the meaning of the Regulations is required to file IRS Form 8886 with their US federal income tax return, and submit a copy of IRS Form 8886 with the Office of Tax Shelter Analysis of the IRS. Reportable transactions subject to this disclosure requirement could include, among other things, the recognition of losses exceeding certain thresholds upon a disposition of Subject Shares or the recognition of foreign currency exchange losses exceeding certain thresholds. A significant penalty is imposed on taxpayers who fail to make the required disclosure. US Holders are urged to consult their own tax advisers concerning the application of these reporting obligations to their specific situations and the penalty discussed above. 9. Foreign Financial Asset Reporting Certain US Holders may be subject to substantial penalties if they fail to comply with special information reporting requirements with respect to their ownership of the Company s Subject Shares, unless the Subject Shares are held in accounts at certain financial institutions. In particular, US Holders may be required to file an FBAR ( Report of Foreign Bank and Financial Account ) with the US Department of the Treasury with respect to a foreign financial account holding their investment in the Company. Certain US Holders also will be required to attach IRS Form 8938 to their US federal income tax returns for any year in which the aggregate value of all specified foreign financial assets held by such US Holder exceeds certain specified thresholds (generally, US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year (higher thresholds apply for certain married individuals filing joint returns)). A specified foreign financial asset generally includes, among other things, stock issued by a non US corporation that is held for investment and not held in an account at a financial institution. Penalties may be imposed for the failure to disclose such information regarding specified foreign financial assts. US Holders should consult their tax advisers regarding the potential application of these reporting requirements to their interest in the Company. The above summary is not intended to constitute a complete analysis of all US federal income tax consequences relating to the acquisition, holding and disposition of the Subject Shares. Prospective purchasers of the ordinary Subject Shares should consult their own tax advisers concerning the tax consequences based on their particular situations. 121

128 PART 9 INFORMATION CONCERNING THE NEW ORDINARY SHARES 1. Description of the type and class of securities being offered The New Ordinary Shares will have a nominal value of 1 pence each. The rights of the New Ordinary Shares are set out in the Articles of Association, a summary of which is set out in section 10 of Part 10 of this document. The ISIN code for the New Ordinary Shares, when issued, will be GB00BH581H10, being the same ISIN code as for the Existing Ordinary Shares. The New Ordinary Shares will be issued credited as fully paid and free from all liens, equities, charges, encumbrances and other interests, and will rank in full for all dividends and distributions on the ordinary share capital of the Company declared, made or paid after their issue and otherwise pari passu in all respects with the Existing Ordinary Shares. 2. Legislation under which the New Ordinary Shares will be created The New Ordinary Shares will be created under the Act. 3. Admission to trading An application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence on the London Stock Exchange at 8.00 a.m. on 28 July The admission to trading of the New Ordinary Shares is not being sought on any stock exchange other than AIM, on which the Existing Ordinary Shares are admitted to trading. 4. Form and currency of the New Ordinary Shares The New Ordinary Shares will, when issued, be in registered form and will be capable of being held in certificated and uncertificated form. Title to certificated New Ordinary Shares will be evidenced by entry in the register of members of the Company and title to uncertificated New Ordinary Shares will be evidenced by entry in the operator register maintained by Euroclear (which forms part of the register of members of the Company). No share certificates will be issued in respect of the New Ordinary Shares in uncertificated form. If any such Ordinary Shares are converted to be held in certificated form, share certificates will be issued in respect of those Ordinary Shares in accordance with applicable legislation. The New Ordinary Shares will be denominated in Sterling. 5. Rights attached to the New Ordinary Shares Each New Ordinary Share will rank, when issued and fully paid, pari passu in all respects with each Existing Ordinary Share and will have the same rights (including voting and dividend rights and rights on a return of capital and restrictions as each Existing Ordinary Share, as set out in the Articles of Association. All registered holders of Ordinary Shares have the right to attend and vote at general meetings of the Company or to appoint a proxy to attend and vote at such meetings on their behalf. At general meetings, resolutions will be determined by a show of hands or by poll. On a poll, every Shareholder present in person or by proxy will have one vote for every share that he holds. Subject to the Act, any equity securities issued by the Company for cash must first be offered to Shareholders in proportion to their holdings of Ordinary Shares. The Act allows for the disapplication of pre-emption rights, which may be waived by a special resolution of the Shareholders, either generally or specifically for a maximum period not exceeding five years. Except in relation to dividends which have been declared and rights on a liquidation of the Company, the Shareholders have no rights to share in the profits of the Company. The New Ordinary Shares are not redeemable. The Company may purchase or contract to purchase any of the Ordinary Shares on or off market, subject to the Act. The Company may purchase Ordinary Shares only out of distributable reserves or the proceeds of a new issue of shares made to fund the repurchase. Further details of the rights attached to the New Ordinary Shares in relation to attendance and voting at general meetings, entitlements on a winding up of the Company and transferability of shares are set out in section 10 of Part 10 of this document. 122

129 6. Description of restrictions on free transferability Save as set out below and in section 10 of Part 10 of this document, the New Ordinary Shares will be freely transferable. The Company may, under the Act, send out statutory notices to those it knows or has reasonable cause to believe have an interest in its shares, asking for details of those who have an interest and the extent of their interest in a particular holding of shares. When a person receives a statutory notice and fails to provide any information required by the notice within the time specified in it, the Company can apply to the court for an order directing, among other things, that any transfer of shares, which are the subject of the statutory notice, is void. 7. Mandatory bids, squeeze-out and sell-out rules relating to the New Ordinary Shares Please see section 26 of Part 10 of this document for information relating to mandatory bids, squeeze-out and sell-out rules which are relevant to holders of Ordinary Shares. 123

130 PART 10 ADDITIONAL INFORMATION 1. Responsibility The Company and the Directors accept responsibility for all the information contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. 2. Incorporation and Registered Office The Company was incorporated on 13 November 2013 and registered as a private company limited by shares in England and Wales under the name Newincco 1269 Limited. On 11 December 2013, the Company changed its name to CityFibre Limited. On 10 January 2014, the Company was re-registered as a public company limited by shares pursuant to Part 7 of the Act and changed its name to CityFibre Infrastructure Holdings plc. The Company s registration number is On 17 January 2014, the Company s entire issued share capital was admitted to trading on AIM. On 14 January 2016 the Company s entire issued share capital was re-admitted to AIM following the KCOM Acquisition which constituted a reverse takeover for the purposes of the AIM Rules. The liability of the members of the Company is limited to the amount paid up or to be paid up on their shares. The principal legislation under which the Company operates is the Act. The registered office of the Company is at 15 Bedford Street, London, WC2E 9HE and will remain so on Admission. The Company is domiciled in the United Kingdom. The principal place of business of the Group is at 15 Bedford Street, London, WC2E 9HE. The telephone number of the Company at its principal place of business is The Group s website is: The Company is a holding company and its principal activity is that of a holding company. It is the ultimate parent company of the Group comprising the Company and the subsidiary undertakings set out in section 19 below. The Company s accounting reference date is 31 December. The auditor of the Company and its subsidiaries is BDO LLP of 55 Baker Street, London W1U 7EU, which is a member firm of the Institute of Chartered Accountants in England and Wales. The Company was inserted as a new holding company of the Group by way of a share for share exchange with the shareholders of CFHL to acquire all the issued share capital of CFHL in consideration for the Company allotting and issuing new shares in the Company to all the existing shareholders of CFHL, which completed on 9 January The Company s Share Capital 3.1 Share Capital On the date of incorporation, the issued share capital of the Company was 1.00, divided into one ordinary share of 1.00, which share was in issue fully paid to the subscriber to the Company s memorandum of association, being Olswang Nominees Limited. The following changes in the share capital of the Company have taken place between incorporation and the date of this document: (a) on 10 December 2013 the subscriber share was transferred from Olswang Nominees Limited to Greg Mesch; (b) on 9 January 2014 the Company subdivided the sole issued share of 1.00 in the capital of the Company into two shares of 0.50 each; (c) on 9 January 2014 the Company issued 115,383 new ordinary shares of 0.50 each in the capital of the Company in connection with the share for share exchange described in section 2 of this Part 10; (d) on 10 January 2014 the Company subdivided and redesignated each of its existing ordinary shares of 0.50 into one ordinary share of 0.01 and 49 Deferred Shares; (e) on 17 January 2014 the Company issued 52,119,263 new ordinary shares of 0.01 each in the capital of the Company; (f) on 12 May 2014 the Company issued 338,583 new ordinary shares of 0.01 each in the capital of the Company; 124

131 (g) (h) (i) (j) (k) on 26 May 2014 the Company issued 5,577,085 new ordinary shares of 0.01 each in the capital of the Company; on 9 June 2014 the Company issued 47,207,584 new ordinary shares of 0.01 each in the capital of the Company; on 22 July 2014 the Company issued 2,963 new ordinary shares of 0.01 each in the capital of the Company in respect of the exercise of warrants; on 22 January 2015 the Company issued 231,781 new ordinary shares of 0.01 each in the capital of the Company to the CityFibre Employee Benefit Trust in respect of options granted to Stephen Charlton; and on 12 January 2016 the Company issued 160,000,000 new ordinary shares of 0.01 each in the capital of the Company in connection with the underwritten placing by finncap and Liberum, pursuant to the underwriting agreement dated 14 December 2015 (as set out in section of Part 10 of this document). The following table sets out the issued share capital of the Company as at the Reference Date: Number of Deferred Shares at the date of this document Aggregate Nominal Value of Deferred Shares at the date of this document Number of Ordinary Shares at the date of this document Aggregate Nominal Value of Ordinary Shares at the date of this document 5,653,865 56, ,672,644 2,656, The number of Deferred Shares in issue following Admission will not change. The New Ordinary Shares will rank pari passu in all respects with the Existing Ordinary Shares and shall rank pari passu for all dividends or other distributions hereafter declared, paid or made on Existing Ordinary Shares. The Deferred Shares have no voting or economic rights as described in section of this Part 10. No application will be made for the Deferred Shares to be admitted to trading on AIM or any other market. 3.2 Share Awards As at the Reference Date there were approximately 20,300,356 Ordinary Shares under option or awards under the Share Incentive Arrangements. These options or awards were awarded under the Option Schemes described in section 11 of this Part 10. In addition, the total number of Ordinary Shares that the Company may be required to issue in respect of all options outstanding under the Pre-Admission Option Plans is 3,682, Warrants On 13 January 2014, the Company executed a warrant instrument pursuant to which the Company issued warrants to certain persons who had previously held loan notes in CFHL and which entitled such persons to subscribe for 635,536 Ordinary Shares (with a value of 381, at the issue price (being 0.60)). The exercise price is equal to such issue price. The warrants may be exercised at any time prior to 17 January 2019 (and otherwise they lapse on such date). No application has been or will be made for the warrants to be listed or traded. As at the Reference Date, warrants in respect of 632,973 Ordinary Shares remain unexercised. The Company shall separately advise holders of warrants of adjustments (if any) to be made to the warrants as a result of the Capital Raising. 3.4 Existing Shareholder Authorities At the annual general meeting of the Company held on 15 June 2017: (a) an ordinary resolution was passed by the members of the Company generally and unconditionally authorising the Directors under section 551 of the Act to exercise all the powers of the Company to allot shares in the Company or grant rights to subscribe for, or to convert any security into, shares in the Company ( Rights ): (i) up to an aggregate nominal amount of 885,575.48; and 125

132 (b) (ii) comprising equity securities (as defined in section 560(1) of the Act 2006), up to a further aggregate nominal amount of 885, in connection with an offer by way of a rights issue to: 1. ordinary shareholders in proportion (as nearly as may be) to their existing holdings; and 2. holders of other equity securities, if this is required by the rights of those securities or, if the Directors consider it necessary as permitted by the rights of those securities, but subject to such exclusions and other arrangements as the Directors may consider necessary or appropriate in relation to fractional entitlements, record dates, treasury shares or any legal, regulatory or practical problems under the laws of any territory (including the requirements of any regulatory body or stock exchange) or any other matter, such authorities to expire (unless previously revoked by the Company) at the conclusion of the next annual general meeting of the Company (or, if earlier, on 15 September 2018) save that, in each case, during such period the Company may make an offer or agreement which would or might require shares to be allotted or Rights to be granted after the authority has expired and the Directors may allot shares or grant Rights in pursuance of any such offer or agreement notwithstanding that this authority has expired. All previous authorities to allot shares or grant Rights, to the extent unused, were revoked; and a special resolution was passed by the members of the Company authorising the Directors under section 570 of the Act to allot equity securities (as defined in Section 560 of the Act) for cash under the authority referred to in section (a) above as if section 561 of the Act did not apply to the allotment provided that such power be limited to: (i) (ii) the allotment of equity securities in connection with an offer or issue of equity securities (but in the case of the authority referred to in section (a)(i) above, by way of a rights issue only) to: 1. ordinary shareholders in proportion (as nearly as may be) to their existing holdings; and 2. holders of other equity securities, if this is required by the rights of those securities or, if the Directors consider it necessary as permitted by the rights of those securities, but subject to such exclusions and other arrangements as the Directors may consider necessary or appropriate in relation to fractional entitlements, record dates, treasury shares or any legal, regulatory or practical problems under the laws of any territory (including the requirements of any regulatory body or stock exchange) or any other matter; and the allotment of equity securities (otherwise than under the authority referred to in this section (i)) up to an aggregate nominal amount of 265,672.64; such power to expire when the authority referred to under section (a) is revoked or expires (save that, during such period the Company may make an offer or agreement which would or might require equity securities to be allotted after this authority expires and the Directors may allot equity securities in pursuance of that offer or agreement notwithstanding that the authority has expired). 3.5 Proposed Shareholder Authorities At the General Meeting, the following resolutions are proposed in addition to all existing authorities: (a) (b) that the Directors be generally and unconditionally authorised to allot shares in the Company up to an aggregate nominal amount of 3,909, pursuant to or in connection with the Capital Raising such authorities to expire on the conclusion of the annual general meeting of the Company to be held in 2018 or, if earlier, on 31 May 2018; and that subject to the passing of the above resolution, the Directors be given power to allot such equity securities as if section 561 of the Act did not apply. The number of New Ordinary 126

133 Shares to be issued if the Resolutions are passed will represent per cent. of the Company s issued ordinary share capital as at the Reference Date (assuming nil take up under the Offer for Subscription) and per cent. of the Company s issued ordinary share capital as at the Reference Date (assuming full take up under the Offer for Subscription). If granted, this authority will apply until the conclusion of the annual general meeting of the Company to be held in 2018 or, if earlier, on 31 May General The provisions of section 570 of the Act (which confers on shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) will apply to unissued share capital of the Company which is not the subject of the disapplications referred to above. The legislation under which the Ordinary Shares have been, and the New Ordinary Shares will be created is the Act and regulations made under the Act. The Ordinary Shares are, and the New Ordinary Shares will be denominated in Sterling. The ISIN of the Ordinary Shares will remain GB00BH581H10, and the New Ordinary Shares will be, GB00BH581H10. The Ordinary Shares and the New Ordinary Shares will be in registered form. They will be capable of being held in certificated form or in uncertificated form and traded on CREST. The records in respect of the Ordinary Shares and New Ordinary Shares held in uncertificated form will be maintained by Computershare. Except as described in this section 3 of Part 10 of this document, no alterations to the Company s issued ordinary share capital have occurred prior to publication of this document. The Company does not have any shares not representing capital. There is no class of shares in issue other than Ordinary Shares and Deferred Shares and no Ordinary Shares or Deferred Shares have been issued other than as fully paid. The Ordinary Shares are freely transferable provided that they are fully paid. Following completion of the Capital Raising, the New Ordinary Shares will have the same rights in all respects as the Existing Ordinary Shares (including the right to receive all dividends or other distributions declared after the date of issue of the New Ordinary Shares). Save as set out in this Part 10, as at the Reference Date the Company does not hold any of its own Ordinary Shares as treasury shares and none of the Company s subsidiaries hold any Ordinary Shares. 4. Directors of the Company 4.1 Directors The following table sets out information relating to each of the Directors of the Company: Directors Role Chris Stone Greg Mesch Mark Collins Terry Hart Leo van Doorne Gary Mesch Sally Davis Steve Charlton (Non-Executive Chairman) (Chief Executive Officer) (Director, Public Policy) (Chief Financial Officer) (Non-Executive Director) (Non-Executive Director) (Non-Executive Director) (Non-Executive Director) The company secretary for the Group is Christopher Gawn. The service address of each of the Directors is CityFibre Infrastructure Holdings plc, 15 Bedford Street, London WC2E 9HE. 127

134 4.2 Directorships and Partnerships of the Directors Save as set out below, none of the Directors has either (i) held a directorship of any company, other than those companies in the Group, or (ii) been a partner in a partnership at any time within the past five years prior to the date of this document: Name of Director As at the Reference Date Directorship Partnership or other interest During the five years preceding the date of this document Directorship Partnership or other interest Chris Stone Event Rider Masters Limited Hatch Farm Land Limited Hatch Farm Trading Limited NCC Group plc Qorex Ltd Radius Worldwide (trading as HSP International Inc.) Rebus HR Group Limited Tattleton Services Limited Zighy Holdings Limited CSR Limited Radius Bidco Limited Radius Debtco Limited Radius Holdco Limited Radius Midco Limited Radius Pledgeco Limited Greg Mesch H2O Networks Ltd FibreCity Dundee Ltd Opencity Media Limited Mark Collins H2O Networks Ltd Lodgfield Estate Ltd (secretary) Bolt Pro Tem Limited FibreCity Dundee Ltd Opencity Media Limited Perspect Consulting Limited Terry Hart - - Leo van Doorne Ballast Nedam NV Contateq BV Diana Capital SGECR, SA Eindhoven 365 (EHV365) Foundation Thomas van VillanovA. Innovalens BV Kimardo II BV Kimardo Management BV Optics Innovation Group Pallieter Reneff BV Shanxi Guangyu LED Lighting Co., Ltd. Verder Group BV Muziekgebouw Eindhoven 128

135 Name of Director Sally Davis As at the Reference Date Directorship Arqiva Broadcast Finance PLC Arqiva Broadcast Holdings Limited Arqiva Broadcast Intermediate Limited Arqiva Broadcast Parent Limited Arqiva Financing No 1 Limited Arqiva Financing No 2 Limited Arqiva Financing No 3 PLC Arqiva Financing PLC Arqiva Group Holdings Limited Arqiva Group Intermediate Limited Arqiva Group Limited Arqiva Group Parent Limited Arqiva Holdings Limited Arqiva International Holdings Limited Arqiva Limited Arqiva PP Financing PLC Arqiva Senior Finance Limited Arqiva Services Limited Arqiva Smart Financing Limited Arqiva Smart Holdings Limited Arqiva Smart Metering Limited Arqiva Smart Parent Limited Arqiva Telecoms Investment Limited Arqiva UK Broadcast Holdings Limited Leonard Cheshire Disability Partnership or other interest During the five years preceding the date of this document Directorship Business Disability Forum Partnership or other interest Gary Mesch - - Steve Charlton PEAC (UK) Limited Trehurst Consulting Limited Fortress Investment Group (UK) Ltd Save as set out below in this section 4.2, none of the Directors has: (a) any unspent criminal convictions in relation to indictable offences; (b) had a bankruptcy order made against him or her or entered into any form of individual voluntary arrangements; (c) been a director of a company which has been placed in receivership, compulsory liquidation, creditors voluntary liquidation, administrations, company voluntary arrangement or any composition or arrangement with its creditors generally or any class of its creditors of any company where he or she was a director at that time of or within the 12 months preceding such events; 129

136 (d) (e) (f) been a partner in a firm which has been placed in compulsory liquidation or administration or which has entered into a partnership voluntary arrangement whilst he or she was at the firm at that time or within the 12 months preceding such events; had any asset belonging to him or her placed in receivership or been a partner in a partnership whose assets have been placed in receivership whilst he or she was a partner of that firm or within the 12 months preceding such events; or been the subject of any public criticisms by any statutory or regulatory authorities (including recognised professional bodies) nor disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of any company. Greg Mesch and Mark Collins were directors of: (i) Opencity Media Limited (both appointed 13 January 2011); and (ii) Fibrecity Dundee Limited (both appointed 27 January 2011). These companies went into creditors voluntary liquidation and were dissolved on 8 September 2012 and 22 July 2013 respectively. This was a consequence of a restructuring of the Group following the acquisition of those companies on 13 January Greg Mesch and Mark Collins are directors of H2O Networks Limited (both appointed 13 January 2011). H2O Networks Limited went into administration on 18 April 2011 and subsequently entered into creditors voluntary liquidation on 3 April It is currently in liquidation. Gary Mesch was a director of MicroPhage, Inc. which declared bankruptcy in December 2012, was liquidated in June 2013 and subsequently wound up. 4.3 Directors Conflicts of interest None of the Directors is considered to be subject to any conflicts of interest between his duties to the Company and his private interests or other duties. No Director has been interested in any transaction with the Company that was unusual in its nature or conditions or was significant to the business of the Company taken as a whole and which was effected by the Company since its incorporation and which at the date of this document remains outstanding or unperformed. As at the Reference Date, there were no outstanding loans granted by any member of the Group to any Director, nor by any Director to any member of the Group, nor was any guarantee which had been provided by any member of the Group for the benefit of any Director, or by any Director for the benefit of any member of the Group, outstanding. 4.4 Directors interests in shares and share options Save as disclosed in sections (A) to (C) below, none of the Directors have any interests, beneficial or non-beneficial, in the share capital of the Company or any of its subsidiaries. (A) Issued share capital Set out below are the interests (all of which are beneficial unless otherwise stated), as at the Reference Date, of the Directors (as well as their immediate families) in the share capital of the Company or (so far as is known or could with reasonable due diligence be ascertained by the relevant Director) interests of any person connected (within the meaning of section of the Act) with a Director and the existence of which was known to or could, with reasonable due diligence, be ascertained by the relevant Director as at the Reference Date. The table also sets out the expected interests of the Directors in the issued share capital of the Company following Admission, taking into account Chris Stone s proposed participation in the Placing. 130

137 Table A Name of Director As at the Reference Date Number of Ordinary Shares per cent. of total number of issued Ordinary Shares Immediately following Admission Number of Ordinary Shares per cent. of total number of issued Ordinary Shares (1) Greg Mesch (2) 572, , Mark Collins (2) 162, , Terry Hart (2) 43, , Leo van Doorne (via Kimardo II B.V.) (2) (4) 3,727, ,727, Gary Mesch (2) (5) 1,166, ,166, Sally Davis (2) 14, ,910 Steve Charlton (2) Chris Stone (3) 1,181, (1) Assuming no take up under the Offer for Subscription and that no new Ordinary Shares (other than the New Ordinary Shares) are issued from the Reference Date until Admission. (2) Excludes interests in Ordinary Shares pursuant to Share Incentive Arrangements, as set out in section 4.4(B) of this Part 10 and interests in Ordinary Shares pursuant to warrants, as set out in section 4.4(C) of this Part 10. (3) Chris Stone has agreed to subscribe for 1,181,818 Placing Shares at the Offer Price. Chris Stone will not be applying for any Offer for Subscription Shares. The number of shares do not include the shares to be awarded to Chris Stone under the Non-Employee LTIP as set out in section 4.4(B) of this Part 10. (4) The Shares are held by Kimardo II B.V. a company controlled by Leo van Doorne (within the meaning of section 252 and 255 of the Act). (5) 1,080,151 of the Ordinary Shares are held by TJL Investment Corporation, a company which Gary Mesch and persons connected with him have an interest in and 59,590 of the Ordinary Shares are held by persons connected with Gary Mesch. Table B Name of Director Greg Mesch Terry Hart (B) Share Incentive Arrangements As at the Reference Date, the following awards over Ordinary Shares have been granted to the following Directors: Number of Ordinary Shares over which award was granted Date of grant Type of award 462,962 16/1/14 Pre- Admission Option Plan (EMI option) 1,405,306 23/5/14 Employee JSOP 1,868,269 23/5/14 Employee JSOP 2,006,039 9/6/14 Employee JSOP 1,610,000 17/2/16 Employee LTIP 462,962 16/1/14 Pre- Admission Option Plan (EMI option) 70,829 23/5/14 Employee JSOP Share price at grant (pence) Exercise price/ hurdle (pence) Exercise period 60 From 16/01/ From 16/01/ In line with vesting In line with vesting 51 Nil In line with vesting 60 From 16/01/ From 16/01/2015 Expiry / lapse date 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant Total number of Ordinary Shares under outstanding awards as at Reference Date 462,962 1,405,306 1,868,269 2,006,039 1,610, ,962 70,

138 Name of Director Mark Collins Gary Mesch Leo van Doorne Sally Davis Number of Ordinary Shares over which award was granted Date of grant Type of award 533,791 23/5/14 Employee JSOP 696,760 9/6/14 Employee JSOP 950,000 17/2/16 Employee LTIP 462,962 16/1/14 Pre- Admission Option Plan (EMI option) 204,276 23/5/14 Employee JSOP 667,239 23/5/14 Employee JSOP 429,865 9/6/14 Employee JSOP 690,000 17/2/16 Employee LTIP 160,137 16/1/14 Pre- Admission Option Plan (unapproved option) 71,644 9/6/14 Non- Employee Option Scheme 160,137 16/1/14 Pre- Admission Option Plan (unapproved option) 71,644 9/6/14 Non- Employee Option Scheme 160,137 23/05/14 Non- Employee JSOP 71,644 9/6/14 Non- Employee JSOP Share price at grant (pence) Exercise price/ hurdle (pence) Exercise period In line with vesting In line with vesting 51 Nil In line with vesting 60 From 16/01/ From 16/01/ In line with vesting In line with vesting 51 Nil In line with vesting 60 From 16/01/ In line with vesting 60 From 16/01/ In line with vesting June In line with vesting Expiry / lapse date 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant 10 th anniversary from date of grant Total number of Ordinary Shares under outstanding awards as at Reference Date 533, , , , , , , , ,137 71, ,137 71, ,137 71,

139 Name of Director Steve Charlton Number of Ordinary Shares over which award was granted Date of grant Type of award 231,781 22/1/15 Non- Employee JSOP Share price at grant (pence) Exercise price/ hurdle (pence) Exercise period In line with vesting Expiry / lapse date 10 th anniversary from date of grant Total number of Ordinary Shares under outstanding awards as at Reference Date 231,781 (C) As at the Reference Date, the Trustee is the registered owner of 10,159,308 Ordinary Shares, of these, 8,847,402 relate to outstanding awards under the JSOPs. In addition, the total number of Ordinary Shares that the Company may be required to issue in respect of all the outstanding options under the Option Schemes, the Employee LTIP and the Pre-Admission Option Plans is 11,452,954. Following Admission, it is also proposed that awards to subscribe for up to 2 per cent. of the existing issued share capital in total will be granted under the Employee LTIP. If Chris Stone acquires the number of Ordinary Shares as set out in Table A in section 4.4(A) of this Part 10 above ( Investment Shares ), the Company will, in accordance with the terms of its offer of appointment to Chris Stone as Non-Executive Director, grant Chris Stone a Matching Award under the terms of the Non-Employee LTIP (as described in section 11.2 of this Part 10). The Matching Award will be over the same number of Ordinary Shares as represent the number of Investment Shares. In order to grant the Matching Award, the Company intends to adopt the Non-Employee LTIP as soon as reasonably practicable following Admission. Warrants As at the Reference Date, the following warrants over Ordinary Shares had been granted to the following Directors in accordance with the warrant instrument described in section 3.3 of this Part 10: Table C Director Number of Warrants granted over Ordinary Shares Date granted Exercise Period Exercise Price per Warrant (pence) Greg Mesch 173,301 23/01/2014 Five years from 17/01/2014 Mark Collins 74,272 23/01/2014 Five years from 17/01/2014 Leo 45,000 23/01/2014 Five years from van Doorne(1) 17/01/2014 Expiry/ lapse date 60 16/01/ /01/ /01/2019 (1)The warrants are held by Kimardo II B.V. a company controlled by Leo van Doorne (within the meaning of section 252 and 255 of the Act). (D) General None of the Directors have shareholders voting rights which are different to any other holders of Ordinary Shares. Except as disclosed in this section 4.4 of this Part 10, none of the Directors, nor any member of their respective immediate families, nor any person connected with them (within the meaning of sections 252 to 255 of the Act), has any interest in the share capital of the Company. None of the Directors or persons connected with them within the meaning of sections 252 to 255 of the Act has a related financial product (as defined in the AIM Rules) referenced to the Ordinary Shares. 5. Remuneration and terms and conditions of appointment of the Directors Information on the current employment and remuneration arrangements for the Directors and the arrangements in place during the year ended 31 December 2016 is set out below. The Directors have each entered into a service contract or, as appropriate, a letter of appointment, with the Company relating to their appointment to the Board, which are summarised below. 133

140 5.1 Directors remuneration for the financial year ended 31 December 2016 Salary Benefits Pension Bonus Total Executive Directors Greg Mesch Terry Hart Mark Collins Non-Executive Directors Peter Manning(1) Gary Mesch Leo van Doorne Sally Davis Steve Charlton Chris Stone(2) Total ,588 (1) In addition to the base Non-Executive Director fees, the Company paid 12,000 (2015: 29,000) to BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. (2) Chris Stone was not appointed until February Service Agreements of the Executive Directors On 13 January 2014, the Company entered into a service contract with Greg Mesch. The contract provides for Greg Mesch to act as the Chief Executive Officer of the Company with a salary of 240,000 per annum. Greg Mesch s salary was subsequently increased to 290,000 which was effective from 1 July Greg Mesch commenced in that office for CFHL on 13 January 2011 and, accordingly, has served in that office for six years and 5 months. The agreement has no fixed term and is terminable by 12 months notice in writing by either party. Under the agreement, Greg Mesch is entitled to 25 paid working days holiday each year and to the benefit of private health insurance. He is subject to non-competition and non-solicitation covenants for a period of six and 12 months respectively following termination of his employment with the Company and to a confidentiality undertaking that is without limit in time. Greg Mesch s service contract also provides that if, within six months following a change of control of the Company, either directly or indirectly in connection with it, the Company terminates Greg Mesch s employment in breach of the terms of his service agreement, or Greg Mesch terminates due to a fundamental breach of contract by the Company, the Company shall pay an amount equal to the gross value of two years basic salary within one month following termination. On 13 January 2014, the Company entered into a service contract with Mark Collins on terms identical to those of Greg Mesch set out in section 5.2 of this Part 10 save that Mark Collins was appointed as the Director of Policy Regulation of the Company with a salary of 170,000 per annum. Mark Collins commenced in that office for CFHL on 1 May 2012 and, accordingly, has served in that office for 5 years and 1 month. In addition to the aforementioned differences, the change of control provisions contained in Mark Collins service agreement provide that Mark Collins will receive an amount equal to the gross value of one years basic salary. On 13 January 2014, the Company entered into a service contract with Terry Hart on terms identical to those of Greg Mesch set out in section 5.2 of this Part 10 save that Terry Hart was appointed as the Chief Financial Officer of the Company with a salary of 165,000 per annum. Terry Hart s salary was subsequently increased to (i) 175,000 which was effective on 1 April 2015 and (ii) 215,000 which was effective 1 July Terry Hart commenced in that office for CFHL on 1 January 2012 and, accordingly, has served in that office for 5 years and 6 months. In addition to the aforementioned differences, the change of control provisions contained in Terry Hart s service agreement provide that Terry Hart will receive an amount equal to the gross value of one years basic salary in relation to a change of control of the Company. 5.3 Non-Executive Directors On 27 February 2017, Chris Stone was engaged by the Company as a Non-Executive Director and independent Chairman on the terms of a letter of appointment for no fixed term and terminable on not less than 30 days notice from either party. Chris Stone receives a fee of 100,000 per annum for attendance at a monthly board meeting and for serving as independent Chairman to the Company, and is subject to confidentiality undertakings. Chris Stone has agreed to subscribe for 1,181,818 Placing Shares at the Offer Price ( Investment Shares ). Chris Stone will not be applying for any Offer for Subscription Shares. The Company has committed to grant a Matching Award to Chris Stone (as described in section 4.4(B) of this Part 10) to acquire the same number of Ordinary Shares as represent the number of Investment Shares. 134

141 On 13 January 2014, Gary Mesch was engaged by the Company as a Non-Executive Director on the terms of a letter of appointment for no fixed term and terminable on not less than 30 days notice from either party. Gary Mesch receives a fee of 20,000 per annum, and is subject to confidentiality undertakings. On 13 January 2014, Leo van Doorne was engaged by the Company as a Non-Executive Director on the terms of a letter of appointment for no fixed term and terminable on not less than 30 days notice from either party. Leo van Doorne receives a fee of 20,000 per annum, and is subject to confidentiality undertakings. On 12 February 2014, Sally Davis was engaged by the Company as a Non-Executive Director on the terms of a letter of appointment for no fixed term and terminable on not less than 30 days notice from either party. Sally Davis receives a fee of 35,000 per annum, and is subject to confidentiality undertakings. On 18 November 2014, Steve Charlton was engaged by the Company as a Non-Executive Director on the terms of a letter of appointment for no fixed term and terminable on not less than 30 days notice from either party. Steve Charlton receives a fee of 35,000 per annum, and is subject to confidentiality undertakings. Save as set out above, there are no existing or proposed service agreements between any of the Directors and the Company or any other member of the Group and there are no existing or proposed service contracts between any of the Directors and the Company or any other member of the Group which provide for benefits upon termination of employment. Save as disclosed above, there are no service agreements between any Director and any member of the Group. 6. Aggregate remuneration and pension benefits granted to the Directors The aggregate amount of remuneration paid (including contingent or deferred compensation), and benefits in-kind granted, by the Group to the Directors for the year ended 31 December 2016 was 1,588,000. Benefits for each Executive Director include a car allowance, private medical cover, life assurance, income protection and access to a number of salary exchange schemes. No amount has been set aside or accrued by the Group to provide pension, retirement or similar benefits for the Directors. 7. Employees In the financial year ended 31 December 2016 the Group employed on average 116 employees (including the Directors). In each of the last three financial years, the Group s average number of employees (all of which were located in the United Kingdom) was as follows: 7.1 In the year to 31 December 2014, the Company employed 46 employees as follows: Category of activity Number of permanent employees Geographic location Head office and administration 11 London (11) Sales and marketing From home (7) Warrington (1) 12 and London (4) Operations 23 London (3) Home (6) Warrington (8) Bournemouth (3) Peterborough (2) and Coventry (1) Total

142 7.2 In the year to 31 December 2015, the Company employed 83 employees as follows: Category of activity Number of permanent employees Geographic location Head office and administration 15 London (15) Sales and marketing 14 From home (10) London (4) Operations 54 From Home (19), London (15), Warrington (10), Peterborough (2), Coventry (2), Bournemouth (2), Huddersfield (1), Aberdeen (1), Edinburgh (1) and Hull (1) Total In the year to 31 December 2016, the Company employed 116 employees as follows: Category of activity Number of permanent employees Geographic location Head office and administration 22 London (22) Sales and marketing 16 From home (11) and London (5) Operations 78 From London (19), Warrington (23), Peterborough (7), Edinburgh (7), Hull (5), Glasgow (4), Bournemouth (3), Coventry (2), Aberdeen (2), Southend-on-Sea (2), Cambridge (2) and Bristol (2) Total Material Properties The properties occupied by CityFibre and/or its subsidiaries which are material to the business of the Group are: Address Annual Rent Tenure & Term Use 15 Bedford Street, London WC2E 9HE 193,635 5 year term, expiring Office premises 16/01/2019 Suite 1A, Rutherford House, Warrington Road, Birchwood, Warrington WA3 6ZH 43,430 5 year term, expiring 01/11/2020 (with a break at 02/11/18) Office premises The properties occupied by Entanet and/or its subsidiaries which are material to the business of Entanet are: Address Annual Rent Tenure & Term Use Stafford Park 6, Telford, Shropshire TF3 3AT 62,700 fifteen year term, expiring 19 February 2029 Office premises 9. Material tangible fixed assets The Group owns network assets (including ducts, sub-ducts and cable) in the United Kingdom which constitute tangible fixed assets material to the Group. These assets comprise the networks which the Company leases to communication providers and mobile operators. The annual reports and audited consolidated accounts of the Group for the year ended 31 December 2016 record that these network assets accounted for million of total property plant and equipment of million. The Group has granted fixed and floating charges over certain of its network assets in favour of the Lenders under the terms of the Facility Agreement. 136

143 Insofar as the Directors are aware, there are no environmental issues or, other than as set out above, major encumbrances that may affect the Group s utilisation of the tangible fixed assets. 10. Articles of Association The following is a summary of the Company s Articles of Association, which are available for inspection as set out in section 27 of this Part Objects The Articles contain no specific restrictions on the Company s objects and therefore, by virtue of section 31(1) of the Act the Company s objects are unrestricted Voting Rights Subject to section 10.7 below, and to any special rights or restrictions attached to any share, on a vote on a resolution (whether on a show of hands or on a poll) every member who, being an individual, is present in person or by proxy or, being a corporate member, is present by a duly appointed representative, shall have one vote for every ordinary share in the capital of the Company held by him, except that on a vote on a resolution on a show of hands at a meeting a proxy has one vote for and one vote against the resolution if the proxy has been duly appointed by more than one member entitled to vote on the resolution and the proxy has been instructed by one or more of those members to vote in one way and is given discretion as to how to vote by one or more other of those members and wishes to use that discretion to vote in the other way. A proxy need not be a member of the Company Variation of rights If at any time the share capital of the Company is divided into different classes of shares, all or any of the rights attached to any class of share may be varied or abrogated in such manner as is provided for in the Act and otherwise with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any treasury shares) or with the authority of a special resolution passed at a separate general meeting of the holders of the shares of that class. The quorum at any such meeting shall be two persons holding or representing by proxy at least one-third in nominal value of the issued shares of that class (excluding any treasury shares) Alteration of capital The Company may, subject to the Act, increase its share capital, consolidate and divide all or any of its share capital into shares of a larger nominal value, sub-divide all or any of its shares into shares of a small nominal value and cancel any shares not taken, or agreed to be taken, by any person Transfer of shares A member may transfer all or any of his shares (1) in the case of certificated shares by instrument in writing in any usual or common form, or in any form approved by the Directors and (2) in the case of uncertificated shares, through any relevant system in which the shares are participating securities (in accordance with the provisions of the CREST Regulations), in accordance with and subject to the requirements of the relevant system concerned. The instrument of transfer of a certificated share shall be executed by or on behalf of, the transferor and (except in the case of fully paid shares) by or on behalf of the transferee. The Directors may refuse to register any transfer of a certificated share which is not a fully paid share provided that in the case of any class of shares which is admitted to trading on AIM the refusal could not prevent the shares from continuing to be admitted to trading on AIM. The operator of the relevant system may also refuse to register any transfer of an uncertificated share in the circumstances set out in the CREST Regulations. The Directors may also refuse to register a transfer of the shares if the transfer is in favour of more than four persons jointly. Subject to that and to section 10.7 below, the Articles contain no restrictions on the free transferability of fully paid shares provided that the transfer is in respect of only one class of share, (except where the shares are registered in the name of a market nominee and no certificate has been issued for them) is accompanied (in the case of a certificated share) by the relevant share certificate and any other evidence of title required by the Directors and that the provisions in the Articles relating to the deposit of instruments for transfer has been complied with Dividends The Company may, by ordinary resolution, declare dividends in accordance with the respective rights of the members, and may fix the time for payment of such dividends, but no dividend shall exceed the amount recommended by the directors. The Directors may pay interim dividends (including any dividend payable at a fixed rate) if it appears to the Directors that they are justified by the financial position of the Company. 137

144 Subject to the rights attached to, or the terms of issue of, any share, and subject to section 10.7 below, all dividends shall be apportioned and paid pro rata according to the amounts paid on the shares during any portion or portions of the period in respect of which the dividend is paid (provided that, no amount paid on a share in advance of calls shall be treated as paid on that share). The Directors may, with the authority of an ordinary resolution of the Company, offer any holders of any particular class of shares (excluding the Company as holder of treasury shares) the right to elect to receive further shares (whether or not of that class), credited as fully paid instead of cash in respect of all (or some part) of any dividend specified by the ordinary resolution. The Directors may decide that the right of election shall not be made available to any members with registered addresses in any territory where, in the opinion of the directors, this would be unlawful or compliance with local laws or regulations would be unduly onerous. Any dividend unclaimed after a period of 12 years from the date when it became due for payment shall, if the Directors so resolve, be forfeited and shall cease to remain owing by the Company Suspension of rights If the holder of, or any other person appearing to be interested in, any share has been given notice under section 793 of the Act and that holder or other such person has, at the end of the period of 14 days from service of that notice (or such longer period as may be specified by the Company), failed to give the Company the information required by that notice in relation to that share or made a statement which is false or inadequate in any material particular in relation to that share, such member shall not be entitled to vote at any general meeting or at any separate meeting of the holders of that class of shares or to exercise any other right conferred by membership in relation to general meetings in respect of the shares which are the subject of such notice. Where the interest represents 0.25 per cent. or more in nominal value of the issued shares of their class (excluding any treasury shares), the payment of dividends may be withheld, and no transfer of any shares held by the member shall be registered except as provided for in the Articles Return of capital If the Company is being wound up the liquidator may, with the authority of a special resolution and any other sanction required by the Act divide among the members in specie the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how such division shall be carried out as between the members or different classes of members. The liquidator may also vest the whole or any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit but so that no member shall be compelled to accept any assets in respect of which there is any liability Pre-emption rights There are no rights of pre-emption under the Articles in respect of transfers of issued Ordinary Shares. In certain circumstances, the Company s shareholders may have statutory pre-emption rights under the Act in respect of the allotment of new shares in the Company. These statutory pre-emption rights would require the Company to offer new shares for allotment to existing shareholders on a pro rata basis before allotting them to other persons. In such circumstances, the procedure for the exercise of such statutory pre-emption rights would be set out in the documentation by which such shares would be offered to the Company s shareholders Shareholder meetings Annual general meetings must be held within the time periods specified by the Act. Other general meetings may be convened by the board whenever it thinks fit or when one has been requisitioned in accordance with the 2006 Act or the Articles. The quorum requirements in section 318 of the Act shall apply to the Company, except that a person shall not count as a qualifying person for this purpose unless (in addition to satisfying the requirements of the 2006 Act) he is entitled to vote on the business to be transacted at the meeting. Save as permitted or required by the Act, an annual general meeting shall be called by notice of at least 21 days, exclusive of the day on which the notice is served or deemed to be served and the day on which the meeting is to be held. In the case of any other general meeting, at least 14 days notice shall be given, exclusive of the day on which the notice is served or deemed to be served and the day on which the meeting is to be held. A general meeting may be called on shorter notice as permitted by the Act. Every notice calling a meeting of the Company must state the time and date of the meeting and the place of that meeting including identification of the principal venue, and any other place at which the meeting is to be held in accordance with the Articles. The notice shall also include details of any arrangements, for persons entitled to attend a general meeting, to be able to view and hear the proceedings of, and to speak at, that meeting from a location which is not classified as a meeting place (making clear that participation in these arrangements will not 138

145 amount to attendance at the meeting to which the notice relates). The Directors may also make such arrangements for limiting the level of attendance at any general meeting or alternative viewing location but such arrangements must allow any members and proxies excluded from attendance at the principal venue to attend at one of the other venues Deferred Shares Notwithstanding any other provision of the Articles to the contrary, the Deferred Shares shall not entitle the holders (in that capacity) to receive notice of or to attend or vote at any general meeting of the Company, not entitle the holders (in that capacity) to participate in any profits or assets of the Company, whether by dividend or upon any return of capital (whether on a winding up or otherwise), nor be capable of transfer except with the written consent of all of the directors, or as outlined in article 6. Each holder of Deferred Shares shall be deemed to have conferred irrevocable authority on the Company at any time to appoint any person, for and on behalf of such holder, to receive notice of, attend and vote at any meeting of the class of Deferred Shares, agree and execute any transfer of (and any agreement to re-purchase transfer or otherwise dispose of) some or all of the Deferred Shares to such persons as the Company may determine (including, without limitation, the Company itself), agree to sell or cancel all of the Deferred Shares then in issue for not more than one penny for all such Deferred Shares, and/or receive any consideration payable upon a transfer or re-purchase made pursuant to the above, in each case without obtaining the sanction of the holders, of such Deferred Shares, and in respect of any transfer and/or purchase; and to retain the certificate(s) for such Deferred Shares. The Company may at its option re-purchase all of the Deferred Shares then in issue, at a price not exceeding one penny (in aggregate) for all such Deferred Shares purchased at any one time. Notwithstanding any other provisions of the Articles, entering into a contract to purchase, and the purchase of, Deferred Shares shall not require the sanction of a resolution passed at a meeting of the holders of the Deferred Shares or any other consent of such holders. In the event of any conflict or inconsistency in the Articles, the provisions of article 6 as summarised by this section shall prevail in respect of any matter relating to the Deferred Shares Directors Unless otherwise determined by ordinary resolution of the Company, the number of Directors shall not be less than 2 nor more than 10. Subject to the provisions of the Articles, the Company may by ordinary resolution appoint a person who is willing to act as a director to fill a vacancy or as an additional director of the Company. The Directors may appoint a person who is willing to act as a Director, either to fill a vacancy or as an additional director, provided the appointment does not cause the number of directors of the Company to exceed any number fixed by or in accordance with the Articles as the maximum number of Directors. A Director so appointed shall hold office only until the next following annual general meeting when he shall retire from office and be eligible for reappointment. If not reappointed at such annual general meeting, he shall vacate office at its conclusion. At each annual general meeting one-third of the Directors or, if their number is not three or an integral multiple of three, the number nearest to but not exceeding one-third, shall retire from office. Notwithstanding anything else in the Articles, each Director must retire at the third annual general meeting following his appointment or re-appointment in a general meeting. In addition to any power of removal conferred by the Act, the Company may by ordinary resolution of its shareholders, or a unanimous resolution of its Directors, remove any Director of the Company before the expiration of his period of office. Such removal shall be without prejudice to any claim such Director may have for damages for breach of any contract of service between him and the Company. A Director shall not vote (or be counted in the quorum at a meeting) in respect of any resolution concerning his own appointment (including fixing or varying the terms of appointment), or the termination of his own appointment, as the Director of, or the holder of any other office or place of profit with, the Company or any undertaking in which the Company is interested. However, where proposals for such resolutions relate to two or more Directors, those proposals may be divided and a resolution may be put in relation to each Director separately and in such case each of the Directors concerned (if not otherwise debarred from voting) shall be entitled to vote (and be counted in the quorum) in respect of each resolution, except that concerning him. Save as otherwise provided in the Articles, a Director shall not vote (or be counted in the quorum) in respect of any transaction or arrangement or any other proposal in which he (or any person connected with him) has an interest which may reasonably be regarded as likely to give rise to a conflict of interest and, if he purports to do so, his vote shall not be counted. 139

146 The Directors may, to the fullest extent permitted by law in accordance with the Articles, authorise a Director to be involved in any matter which would otherwise constitute or give rise to a breach by a Director of his duty under the Act to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts or possibly may conflict with the interests of the Company (including a breach which would arise by virtue of his appointment as director). A Director may (unless otherwise prohibited under the Articles) vote and be counted in the quorum in respect of any resolution concerning any of the following matters: (a) (b) any transaction, arrangement or proposal in which he is interested by virtue of an interest in shares, debentures or other securities of the Company or otherwise in or through the Company; the giving of any guarantee, security or indemnity in respect of: (i) (ii) money lent or obligations incurred by him or by any other person at the request of, or for the benefit of, the Company or any of its subsidiary undertakings; or a debt or obligation of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility (in whole or in part and whether alone or jointly with others) under a guarantee or indemnity or by the giving of security; (c) (d) (e) (f) (g) (h) any arrangement, transaction or proposal concerning the issue or offer of shares, debentures or other securities of or by the Company or any of its subsidiary undertakings for subscription or purchase, in respect of which he is or may be entitled to participate in his capacity as a holder of any such securities or as an underwriter or sub-underwriter; any transaction, arrangement or proposal concerning any other company in which he is interested, directly or indirectly, and whether as an officer or shareholder or otherwise, provided that he (together with persons connected with him) does not hold an interest representing one per cent. or more of any class of the equity share capital of such company (or of any third company through which his interest is derived) or of the voting rights available to members of the relevant company; any transaction or arrangement for the benefit of employees of the Company or of any of its subsidiary undertakings which does not accord to him any privilege or benefit not generally accorded to the employees to whom the transaction or arrangement relates; the purchase or maintenance of insurance either for or for the benefit of any Director or persons who include Directors; the giving of any indemnity against liability incurred by him in connection with his duties, powers or office in relation to the Company or any of its subsidiary undertakings, where all other Directors are also offered indemnities on substantially the same terms; and any transaction, arrangement or proposal relating to the funding of expenditure incurred by him in defending proceedings in connection with his duties, powers or office in relation to the Company or any of its subsidiary undertakings (or enabling him to avoid incurring such expenditure), where all other Directors are also offered a transaction, arrangement or proposal on substantially the same terms. To the extent permitted by the Act, and provided that he has declared the nature and extent of his interest: (a) (b) (c) a Director may hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Directors may decide; a Director may enter into any transaction or arrangement with the Company with regard to his tenure of any office or position in the management, administration or conduct of its business or as vendor, purchaser or otherwise; a Director may act by himself or by his firm in a professional capacity for the Company (except as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director. 140

147 No Director shall, by reason of his holding office be liable to account to the Company for any remuneration, profit or benefit received as a result of any aforementioned permitted interest and no transaction or arrangement shall be avoided by reason of any Director having any such permitted interested. The fees of the Directors (other than any Director who holds an executive office or employment with the Company or any subsidiary of the Company) for their services as directors shall not exceed in aggregate 250,000 per annum (or such higher amount as the Company may decide to set by ordinary resolution). Subject to this limit, a director shall be paid a fee (to accrue from day to day) at such rate as the Directors may decide. Any Director who holds any executive office (including the office of chairman or deputy chairman whether or not such office is held in an executive capacity) or who serves on any committee or who acts as trustee of a retirement benefits scheme or employees share scheme or who otherwise performs services which, in the opinion of the Directors are beyond the ordinary duties of a Director may be paid such extra remuneration by way of salary, commission or otherwise as the Directors may decide in accordance with the Articles. The Company will pay to any Director all proper and reasonable expenses incurred by him in attending and returning from meetings of the board or of any committee or general meetings or otherwise in connection with the business of the Company or in the performance of his duties as a Director Borrowing powers The Articles contain no restrictions on the borrowings of the Company Notices Any notice or other document to be sent or given pursuant to the Articles shall be in writing except that a notice calling a meeting of the directors of the Company need not be in writing. Any such notice or other document may be sent using electronic communications to such address (if any) as may for the time being be notified for that purpose to the person sending the notice or other document by or on behalf of the person to whom the notice or document is sent. The Directors may from time to time specify the form and manner in which a notice may be given by or to the Company by electronic communications. The Company may give any notice in writing, document or other communication to a member: (a) (b) (c) (d) personally; by sending it by post in a prepaid envelope addressed to the member at his address in the Register; by leaving it at that address; or by sending it using electronic communication to such address (if any) as may for the time being be notified to the Company by or on behalf of the member for that purpose. In the case of joint holders of a share, all notices and other documents shall be given to the joint holder whose name stands first in the Register in respect of the joint holding and notice so given shall be sufficient notice to all the joint holders. A member whose address in the register is not within the United Kingdom and who gives to the Company a postal address within the United Kingdom at which notices may be given to him shall be entitled to have notices given to him at that postal address, but otherwise no such member shall be entitled to receive any notice from the Company throughout the postal system. 11. Share Incentive Arrangements 11.1 General All of the Share Incentive Arrangements are discretionary share plans. The Employee Option Schemes, the Employee LTIP and the Employee JSOP are administered by the Remuneration Committee. The Non-Employee Option Scheme, the Non-Employee JSOP and the Non-Employee LTIP are administered by the Board. With the exception of the persons to whom awards may be granted (see Eligibility below), the commercial terms of the Non-Employee Option Scheme broadly mirror those of the Employee Option Scheme, the commercial terms of the Non-Employee JSOP broadly mirror those of the Employee JSOP and the commercial terms of the Non-Employee LTIP broadly mirror those of the Employee LTIP. Where the terms differ, the difference is explained below. 141

148 The Qualifying Employee Option Scheme is registered with HMRC as a Schedule 4 CSOP scheme (as defined in the Income Tax (Earnings and Pensions) Act 2003) Awards Awards under the Option Schemes take the form of options to acquire Ordinary Shares. The exercise price per Ordinary Share payable under an option is determined by the Remuneration Committee (or the Board, as the case may be) at the time of grant of an option. Options granted pursuant to the Qualifying Employee Option Scheme may not have an exercise price that is less than the market value of an Ordinary Share as at the date of grant. Awards granted under the LTIPs take the form of options with a nil or nominal exercise price, contingent rights to acquire Ordinary Shares for no consideration or awards of restricted shares for no consideration. In general, and unless there are legal and/or tax reasons for doing otherwise, awards take the form of options with an exercise price of nil which are usually capable of exercise, once vested, at any time before the tenth anniversary of their date of grant. Contingent awards and options granted under the Non-Employee LTIP may be granted in connection with the acquisition by an eligible participant of Ordinary Shares, either by way of subscription from the Company or by purchase from an existing Shareholder or Shareholders ( Matching Award ). Awards granted under the JSOPs are structured as an interest in Ordinary Shares, jointly owned with the Trustee ( JSOP Awards ). An award holder s interest in Ordinary Shares pursuant to a JSOP Award is a beneficial interest in the value of each of the Ordinary Shares above a specified hurdle. The hurdle of a JSOP Award is determined by the Remuneration Committee (or the Board, as the case may be) at the time of grant of the award. In conjunction with a JSOP Award, the Committee (or the Board, as the case may be) has discretion to grant rights to receive a cash payment to participants. The intention is to use these cash awards to supplement JSOP Awards in the event that the hurdle set on the JSOP Award is greater than the prevailing market value of an Ordinary Share on the date of grant of JSOP Award (or greater than such other strike price that the Committee or Board, as the case may be, wishes to establish) Eligibility All employees (including executive directors) of the Group may be granted awards under the Employee Option Schemes, the Employee LTIP and/or the Employee JSOP. Non-Executive Directors and other non-employees of the Group may be granted awards under the Non-Employee Option Scheme, the Non-Employee JSOP and/or the Non-Employee LTIP Grant of Awards The Committee (or, in the case of the Non-Employee Option Scheme, the Non-Employee JSOP and the Non-Employee LTIP, the Board) has absolute discretion to select the persons to whom awards may be granted and, subject to the limits set out below, in determining the number of Ordinary Shares to be subject to each award. Awards may ordinarily be granted during the period of 42 days commencing on: (a) the date of the preliminary announcement of the Company s annual results or the announcement of its half-yearly results in any year; or (b) any other time fixed by the Committee (or, as the case may be, the Board) where, in its discretion, circumstances are considered to be exceptional so as to justify the grant of awards. No award will be granted after the tenth anniversary of the date on which the relevant Share Incentive Arrangement was adopted by the Company Plan limits On a given date, the total number of Ordinary Shares issued or transferred from treasury (or capable of issue or transfer from treasury) in respect of awards granted under the Option Schemes or the JSOPs, when added to all other awards or rights granted in the preceding ten year period under any share incentive scheme operated by the Company enabling Executive or Non-Executive Directors, employees or consultants of any Company in the Group to acquire Ordinary Shares ( Other Share Scheme ) will not exceed 16,500,000 ( 16,500,000 Limit ). On a given date, the total number of Ordinary Shares issued or transferred from treasury (or capable of issue or transfer from treasury) in respect of awards granted under the Employee LTIP or the Non-Employee LTIP, when added to all other awards or rights granted in the preceding ten year period under any Other Share Scheme, will not exceed 12.5 per cent. of the ordinary share capital of the Company in issue at that time ( LTIP Plan Limits ). Ordinary Shares subject to awards granted under the Pre-Admission Option Plans prior to 17 January 2014 (being the date on which the Company was originally admitted to trading on AIM) do not count towards the LTIP Plan Limits. A further 5,416,948 Ordinary Shares issued in respect of JSOP Awards (being awards which were granted as replacement awards for awards granted prior to 17 January 2014) also do not count towards the LTIP Plan Limits. 142

149 Ordinary Shares previously issued pursuant to a JSOP Award which has been released or cancelled (so that the Ordinary Shares are solely held by the Trustee) continue to be counted for the purposes of applying the 16,500,000 Limit and the LTIP Plan Limits Individual limits Each individual s participation in the Qualifying Employee Option Scheme will be limited so that the aggregate market value of Ordinary Shares subject to all options (calculated as at the date of grant of each option) held by that individual and granted under the Qualifying Employee Option Scheme or any other Schedule 4 CSOP scheme operated by the Company or any associated company will not exceed 30,000 (or such other amount as may be permitted under the Schedule 4 of the Income Tax (Earnings and Pensions) Act 2003 from time to time). Each individual s participation in the Employee LTIP will be limited so that, in any one financial year of the Company, the aggregate market value of Ordinary Shares subject to all awards (calculated as at the date of grant of each award) granted to the individual under the LTIP in that financial year shall not exceed 100 per cent. of the individual s base salary at the date of grant. This individual limit can be exceeded (up to an absolute limit of 200 per cent. of the individual s base salary) in circumstances that the Committee considers to be exceptional Performance conditions The vesting of awards may be made conditional on the achievement of objective performance conditions, and/or the passage of time, set at the time of grant. The vesting of awards under the LTIPs will be subject to performance conditions measured over a period of at least three years. After an award has been granted, the Committee (or the Board, as the case may be) may vary a performance condition if anything happens which causes the Committee (or the Board, as the case may be) to consider it appropriate to do so provided that any amended condition is not materially more difficult and is no less challenging to satisfy than the original performance condition was intended to be when originally set Dividends If during the vesting period of an award granted under a LTIP the Company pays any dividends then, on the vesting of the award, the award shall vest as to a number of additional Ordinary Shares that have a value equal to total value of the dividends that would have been paid during the vesting period on the Ordinary Shares in respect of which the award vests. Alternatively, the Committee may determine to settle in cash the value of the dividends that would have been paid during the vesting period on the Ordinary Shares in respect of which the award vests. The Trustee and the relevant award holder are required to waive their entitlement to receive dividends in respect of jointly owned Ordinary Shares under the JSOPs and to abstain from casting votes attaching to such Ordinary Shares Cessation of employment An award will normally lapse upon the holder of the award ceasing to be employed by (or holding office with) the Group. If, however, an award holder s employment ceases: (a) (b) (c) due to injury, ill-health or disability; or in the case of awards granted pursuant to the Employee Option Schemes, the Employee LTIP or the Employee JSOP, due to retirement, redundancy or upon the transfer out of the Group of a company or business by which the award holder is employed; or in any other circumstance determined by the Committee (or the Board, as the case may be) to be one in which it is fair that an award should be retained, an award held by that individual will not lapse. Instead: (a) (b) options granted under the Option Schemes may be exercised, and Ordinary Shares under a JSOP Award may be drawn down at any time within the 90 day period commencing on the date of cessation of employment (or office), but only to the extent that it has vested at such time (or to such further extent as permitted by the Committee (or the Board, as the case may be) in its absolute discretion); and awards granted under a LTIP may be retained and will vest at the end of the usual vesting period subject to: (i) (ii) the extent to which the performance conditions are met; and unless the Committee in its discretion determines otherwise, being scaled back to reflect the proportion of the usual vesting period which had expired before the cessation of employment. 143

150 Where an award holder dies, the estate shall normally benefit from the awards. The Committee (or the Board, as the case may be) may waive any outstanding vesting conditions and/or apply performance conditions on such modified basis as it considers appropriate. Any option granted under the Option Schemes must be exercised, and any Ordinary Shares under a JSOP Award must be drawn down, within 12 months of the date of death Lapse of Matching Awards It is intended that if, before a Matching Award granted under the Non-Employee LTIP vests, the holder of the Matching Award sells or otherwise disposes of any of the Ordinary Shares in connection with which the Matching Award was granted to the award holder ( Investment Shares ), the Matching Award will immediately lapse as to such proportion of the Ordinary Shares under the Matching Award as is equal to the proportion of the Investment Shares sold or disposed of on that occasion (unless the Board in its discretion determines otherwise) Takeover events In the event of a takeover or scheme of arrangement of the Company: (a) options granted under the Option Schemes may be exercised, and Ordinary Shares under a JSOP Award may be drawn down, but only to the extent that they have vested at such time (or to such further extent as permitted by the Committee (or the Board, as the case may be) in its absolute discretion); and (b) awards granted under a LTIP will vest early subject to: (i) the extent to which the performance conditions have been met (assessed on such modified basis as the Committee determines to be appropriate); and (ii) unless the Committee in its discretion determines otherwise, being scaled back to reflect the proportion of the usual vesting period which had expired before the takeover, scheme of arrangement or winding-up of the Company. In the event of a voluntary winding up of the Company: (a) options granted under the Option Schemes may be exercised, and Ordinary Shares under a JSOP Award may be drawn down, but only to the extent that they have then vested (or to such further extent as is permitted by the Committee (or the Board, as the case may be) in its absolute discretion) and conditional on the passing of the resolution; and (b) awards granted under the LTIP will vest early on the basis described above in the context of a takeover Other Award terms Awards granted under the Share Incentive Arrangements are not capable of transfer or assignment. Benefits obtained under the Share Incentive Arrangements are not pensionable Adjustment of Options and Awards The number of Ordinary Shares under an award, their nominal value and, in the case of options granted under the Option Schemes, the exercise price of an option may be adjusted by the Committee or the Board, as the case may be, in the event of any alteration to the share capital of the Company, a rights issue, a demerger or a special dividend. JSOP Awards may be adjusted by the Committee (or the Board, as the case may be) in the event of any alteration to the share capital of the Company, a rights issue, a demerger or a special dividend. In the event of a rights issue, the Trustee and a JSOP Award holder must sell sufficient of the nil paid rights on the jointly owned Ordinary Shares to fund the exercise of the balance of such rights. Additional Ordinary Shares acquired pursuant to the rights issue are added to and held on the same terms as the original jointly owned Ordinary Shares LTIP Clawback The rules of the LTIPs include clawback provisions that apply where it is discovered (within three years following the vesting of an award) that there has been a material misstatement in the financial results of the Company, an error in the assessment of any performance condition or an act of gross misconduct on the part of the award holder prior to the vesting of an award, and such misstatement, error or unknown conduct has resulted in an award under the LTIPs vesting to a greater extent than it otherwise should have done. In these circumstances, the Committee may make reductions to other awards held by the award holder in question which would otherwise vest under the LTIPs, make reductions to other awards held by the award holder granted pursuant to share incentive arrangements adopted in the future and/or require the award holder in question to pay an amount equal to the value of the amount of an award which has not otherwise been recovered. 144

151 11.15 Administration and amendment The Committee (or the Board, as the case may be) may amend the provisions of the Share Incentive Arrangements. The rules of the Share Incentive Arrangements that relate to: (a) the persons to whom awards may be granted; (b) the limits on the number of Ordinary Shares that may be issued; (c) the maximum entitlement of any award holder; and (d) the basis for determining an award holder s entitlement to Ordinary Shares or awards and for the adjustment thereof or of an award holder s interest in Ordinary Shares following any increase or variation in the share capital of the Company, cannot be amended to the advantage of any award holder or potential award holder without the prior approval of the Company in general meeting except for minor amendments to benefit the administration of the Share Incentive Arrangements, to take account of any change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for award holders, the Company or any subsidiary of the Company. 12. Significant Shareholders As at the Reference Date, and so far as is known to the Company by virtue of the notifications made to it pursuant to the Act, the name of each person (other than any Director) who, directly or indirectly, is interested in three per cent. or more of the Company s share capital (the Significant Shareholders ), and the amount of such person s interest, is set out in the table below: Name of shareholder As at the Reference Date Number of Ordinary Shares Per cent. of total number of issued Ordinary Shares Immediately following Admission Number of Ordinary Shares Per cent. of total number of issued Ordinary Shares (1) Woodford Investment Management(2) 48,218, ,672, Odey Asset Management 38,882, ,882, Jupiter Asset Management 25,536, ,354, Close Brothers Asset Management 10,320, ,065, Employee Benefit Trust 10,159, ,159, Otus Capital Management 8,828, ,101, Herald Investment Management Ltd 8,369, ,187, (1) Assuming no take up under the Offer for Subscription and that no new Ordinary Shares (other than the New Ordinary Shares) are issued from the Reference Date until Admission. (2) Woodford Investment Management Ltd is interested in these shares as agent and discretionary manager of certain discretionary managed funds. The shares are held by the funds via their respective nominees. The Significant Shareholders do not have different voting rights from any of the Company s other Shareholders. As at the Reference Date, the Company is not aware of any person who, directly or indirectly, jointly or severally, exercises or could exercise control over the Company nor is it aware of any arrangements the operation of which may at a subsequent date result in a change in control of the Company. 13. Working capital statement The Company is of the opinion that, after taking account of the net proceeds of the Placing and the existing available facilities to the Group (but excluding any proceeds of the Offer for Subscription), the Enlarged Group has sufficient working capital for its present requirements, that is, for at least the next twelve months from the date of this document. For the purposes of the AIM Rules, the Directors are of the opinion, having made due and careful enquiry that, after taking into account the net proceeds of the Placing and the existing available facilities to the Group, (but excluding any proceeds of the Offer for Subscription) the working capital available to the Enlarged Group will be sufficient for its present requirements, that is for the period of at least 12 months from the date of Admission. 145

152 14. Significant change There has been no significant change in the Group s financial or trading position since 31 December 2016, the date of the last annual report and audited consolidated accounts of the Group, contained in Part 11 of this document. There has been no significant change in Entanet s financial or trading position since 31 December 2016, the date of the last annual report and audited accounts of Entanet, contained in Part 12 of this document. 15. Litigation 15.1 CityFibre Save as set out below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) during the 12 months preceding the date of this document which may have, or have had in the recent past a significant effect on the Company s and/or the Group s financial position or profitability. Business Connectivity Market Review In its BCMR, Ofcom reviewed competition in the provision of leased lines to businesses in the UK (being highquality, dedicated, point-to-point data transmission services used by businesses and providers of communications services of relevance to many business information and communication technology services and mobile and residential broadband services). As part of the review, Ofcom set out its analysis of the relevant markets, identified any provider with significant market powers within those markets, and set out remedies to address competition issues which might otherwise arise from significant market power. As a result of the review, Ofcom imposed (i) a dark fibre access remedy on Openreach, requiring it provide unlit strands of optical fibre to other communication providers; and (ii) a price cap on leased line services. CityFibre submitted an appeal against certain aspects of the BCMR in June 2016, challenging Ofcom s conclusions as to (i) its definition of the relevant product and geographic markets; (ii) its design of the leased lines price cap and related pricing methodologies adopted by Ofcom; and (iii) the suitability of Ofcom s proposed remedies. Certain matters in respect of CityFibre s appeal were submitted to the Competition and Markets Authority, which determined that Ofcom was not wrong in its choice of pricing methodology for leased lines; the remainder of CityFibre s appeal is on-going in the Competition Appeals Tribunal and is being considered alongside appeals submitted by BT and TalkTalk against certain aspects of the BCMR. CityFibre s appeal relates to certain conclusions of the BCMR, and as such, is not a claim for damages which can be quantified. Should the challenges brought by CityFibre, BT and TalkTalk prove unsuccessful, the BCMR will remain unchanged Entanet Save as set out below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) during the 12 months preceding the date of this document which may have, or have had in the recent past a significant effect on the Entanet Group s financial position or profitability. In November 2016 Entanet International (a wholly owned subsidiary of Entanet) settled a claim from the liquidator of Changtel Solutions UK Limited ( Changtel ), a company previously associated with Entanet International. This related to certain loan repayments received by Entanet International from Changtel in 2013 which were subject to a claim by the liquidators of Changtel under s127 of the Insolvency Act 1986 (concerning dispositions of a company s property after commencement of its winding up). In connection with the above matter, in September 2016, the Entanet Group settled claims it had against a former shareholder of Entanet International and certain parties connected to that shareholder. The claims were in connection with dividends previously paid by Entanet International and claims made in connection with the share purchase agreement under which Entanet acquired Entanet International in As part of the settlement with the former shareholder of Entanet International and certain parties connected to that shareholder, it was also agreed that the 300,000 F ordinary shares in Entanet that were issued as part of the purchase consideration, would be repurchased by Entanet at their nominal value of Research and Development The Company does not undertake significant research and development activities and has not operated formal research and development policies for the financial years ended 31 December 2014, 2015 and

153 17. Intellectual Property The Company s business is not dependent to a material extent on any intellectual property rights, however the Group s trademarks, domain names and other intellectual property rights are important to its success. 18. Material contracts Set out below is a summary of each contract (not being a contract entered into in the ordinary course of business) entered into by the Company or any member of the Group (i) within the two years immediately preceding the date of this document and which are or may be material to the Group; or (ii) which contain any provision under which any member of the Group has any obligation or entitlement which is material to the Group as at the Reference Date Entanet Acquisition Agreement On 5 July 2017, the Company entered into a share purchase agreement pursuant to which the Company agreed, conditionally, to purchase the entire issue share capital of Entanet from Yun-Ju Elsa Chen and others (the Sellers ). The consideration of 29 million (on a debt free and cash free basis and therefore subject to adjustments, plus a daily rate of 5,518 for each day between signing and completion) is payable in cash on completion, other than 4.65 million which is deferred (the Deferred Consideration ) million of the Deferred Consideration which is due to certain of the Sellers (being the Management Sellers ) shall be deferred for up to 12 months and may be forfeited if a Management Seller is deemed to be a bad leaver during that period. Subject to the relevant Management Seller not being a bad leaver, a Management Seller may elect, on or prior to the date falling 12 months after completion of the Entanet Acquisition, to apply any or all of his entitlement to 1.65 million of the Deferred Consideration in subscribing for shares in the Company. Pursuant to the terms of the restricted share agreement which shall be entered into in the event of such an election by a Management Seller, any such shares subscribed for will be subject to a lock-in for the earlier of (i) the first anniversary of the subscription date; or (ii) the date falling 18 months after completion of the Entanet Acquisition and will be forfeit if such Management Seller is deemed to be a bad leaver prior to the expiry of the 12 month period. 3 million of the Deferred Consideration which is due to all Sellers shall be deferred for up to 24 months and only payable to the extent there are no indemnity claims or claims which are not covered by the warranty and indemnity insurance policy (the W&I Policy ). The Entanet Acquisition Agreement is conditional upon, inter alia, (i) the approval by the Shareholders of the Resolutions numbered 1 and 2 at the General Meeting; (ii) the Underwriting Agreement becoming unconditional in accordance with its terms; and (iii) the admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules. Completion of the Entanet Acquisition is expected to occur, subject to satisfaction of the conditions, within two business days following Admission. Under the terms of the Entanet Acquisition Agreement warranties and indemnities and a tax covenant have been given by certain of the sellers, and a W&I Policy has been taken out by the Company in respect of potential future claims made under the warranties and tax covenant (subject to market standard exclusions). In the event that the conditions in the Entanet Acquisition Agreement are not satisfied, the Company has agreed to cover the Sellers non-contingent legal and financial professional fees up to an agreed cap. The Sellers liability under the Entanet Acquisition Agreement is limited in time and amount and does not exceed the amount of consideration (including Deferred Consideration (if any)) paid to the relevant Seller and is further limited where such claims are covered by the W&I Policy to 290,000 in aggregate. Where claims are not covered by the W&I Policy, liability for breach of warranty or the tax covenant is capped at 600,000 in aggregate. Any claims under the non-tax warranties must be notified within 18 months of completion of the Entanet Acquisition and any claims under the tax warranties or tax covenant must be notified on or before the date falling 40 Business Days after the sixth anniversary of the end of the accounting period of Entanet current at completion of the Entanet Acquisition. The Entanet Acquisition Agreement is capable of termination by the Company following signing but prior to completion of the Entanet Acquisition if the Company becomes aware of: (i) any breach of any of the title and capacity warranties; (ii) any facts or matters which would constitute a breach of any of the title and capacity warranties if they were repeated at completion of the Entanet Acquisition; (iii) any disposal or grant of any encumbrance over the shares to be sold pursuant to the Entanet Acquisition; (iv) any sale or disposal of any material assets by Entanet or the Entanet Group without the prior written consent of the Company; and (v) a material adverse change Underwriting Agreement On 5 July 2017 the Company and the Underwriters entered into an Underwriting Agreement in connection with the proposed Placing of the Placing Shares by way of a firm placing to raise gross proceeds of 185 million 147

154 (the Firm Placing ) and an additional placing to raise further gross proceeds of 15 million by way of an accelerated book build (the ABB Placing ). Under the terms and conditions of the Underwriting Agreement, each of the Underwriters severally agreed to use reasonable endeavours to procure placees to subscribe for the Placing Shares at the Offer Price and to the extent placees are not procured, to subscribe themselves in their relevant proportion for any of the 336,363,636 Placing Shares to be issued for cash pursuant to the Firm Placing (the Firm Placing Shares ) at the Offer Price. In addition to the extent that any placee procured by the Underwriters fails to subscribe for all or any of the New Ordinary Shares which have been allocated to it in the ABB Placing and for which it has agreed to subscribe (the ABB Defaulted Shares ), each of the Underwriters severally agreed to subscribe themselves in their relevant proportion for the ABB Defaulted Shares at the Offer Price. The Placing is conditional, inter alia, upon: (i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms; (ii) Admission becoming effective by not later than 8.00 a.m. on 28 July 2017 (or such later date as the Company may agree with the Underwriters); and (iii) the passing, without material amendment, of the Resolutions. The Company has given certain market standard warranties and indemnities to the Underwriters concerning, among other things, the accuracy of the information contained in this document. The Underwriters have the right to terminate the Underwriting Agreement in certain circumstances prior to Admission, including, in particular, in the event of a breach of the warranties. Subject to the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms, the Underwriters shall be entitled to a commission (to be shared amongst them in agreed proportions), together with any VAT chargeable thereon, equal to: a) 1.25 per cent. of the product of the Offer Price and total number of New Ordinary Shares issued in the Capital Raising; b) 0.25 per cent. of the product of the Offer Price and the total number of Firm Placing Shares issued to Placees who are not current shareholders; and c) a discretionary commission of up to 0.5 per cent. of the product of the Offer Price and the total number of Firm Placing Shares issued; d) a discretionary commission of up to 1.75 per cent. of the product of the Offer Price and the total number of New Ordinary Shares issued in the ABB Placing; and e) a discretionary commission of up to 1.75 per cent. of the product of the Offer Price and the total number of Offer for Subscription Shares issued in the Offer for Subscription Redcentric Acquisition Agreement On 23 September 2016 Redcentric Solutions Limited, Redcentric Managed Solutions Limited, Redcentric MS Limited, Redcentric Communications Limited, CityFibre Limited and CityFibre Metro Networks Limited entered into an asset purchase agreement pursuant to which CityFibre Limited agreed to purchase 137 kilometres of ducted network (located, inter alia, in Cambridge, Portsmouth, Southampton and Nottingham) from Redcentric Solutions Limited. The consideration was 5 million (together with VAT of 1 million) payable in cash on completion of the acquisition, which completed on 23 September The acquisition agreement contained certain warranties given by Redcentric Solutions Limited in relation to the acquired assets, subject to certain limitations as to quantum. The time period for bringing claims under the warranties expires 18 months from completion of the acquisition Redcentric Network Access and Maintenance Agreement On 23 September 2016 CityFibre Limited and Redcentric Solutions Limited entered into a Network Access and Maintenance Agreement under which CityFibre Limited granted rights to Redcentric Solutions Limited to use CityFibre s passive fibre networks which in turn allowed Redcentric to provide services to its customers. These rights include: (i) the right for Redcentric Solutions Limited to continue to use fibre contained within certain network assets acquired by CityFibre from Redcentric Solutions Limited and (ii) to deliver services to certain connected sites in Cambridge and Portsmouth. Redcentric Solutions Limited has agreed to pay to CityFibre Limited no less than 4,540,800 over an initial 10-year period for these connections (as they may be replaced in line with the terms of the agreement from time to time). The right to use these connections may continue beyond this initial 10 year term unless terminated by either party. 148

155 18.5 KCOM Acquisition Agreement On 11 December 2015 KCOM, Affiniti Integrated Solutions Limited, CityFibre Limited, CityFibre Metro Networks Limited and the Company entered into an asset purchase agreement pursuant to which CityFibre Limited agreed, conditionally, to purchase the network assets from KCOM and Affiniti Integrated Solutions Limited. The consideration was 90 million (together with VAT of 18 million) payable in cash on completion of the KCOM Acquisition. Completion of the KCOM Acquisition took place on 18 January The KCOM Acquisition Agreement contained certain warranties given by KCOM in relation to the Assets, subject to certain limitations as to quantum. The time period for bringing claims under the warranties expires 18 months from completion of the acquisition. The Company agreed to procure the performance by CityFibre Limited and CityFibre Metro Networks Limited of all of their obligations under the KCOM Acquisition Agreement pursuant to the terms of a parent company guarantee, further described in section 18.7 of this Part KCOM Network Access and Maintenance Agreement On 11 December 2015 CityFibre Limited and KCOM entered into a Network Access and Maintenance Agreement (the NAA ). Under the NAA, CityFibre Limited grants to KCOM rights to use CityFibre s passive fibre networks (including network assets acquired by CityFibre Limited under the KCOM Acquisition Agreement) which in turn allows KCOM to provide services to its customers. The NAA has an initial term of 15 years and may continue in effect after this period unless either party decides to terminate it. KCOM also benefits from a break clause that allows it to terminate the NAA for convenience on six months notice, with effect on the fifth (or any subsequent) anniversary of commencement. KCOM has various other termination rights, including for CityFibre Limited s insolvency or material breach, specific types of default or if CityFibre Limited persistently fails to meet the agreed service levels. Following termination, CityFibre Limited must continue to support KCOM for up to 24 months while KCOM puts in place alternative arrangements. KCOM agreed to meet a minimum financial commitment of 5 million per year for the first five years. After the first five years, KCOM has the right to benchmark the services being provided by CityFibre Limited, which could cause the charges under the NAA to decrease (or potentially to increase). CityFibre Limited has committed to specific service levels in relation to the time taken to fix any faults that occur on the network. Certain events that are outside CityFibre Limited s control do not count towards CityFibre Limited s satisfaction of the service levels. Failure to meet a service level will result in CityFibre Limited being required to pay service credits to KCOM, subject to an annual cap of 560,000 (with certain exceptions). CityFibre Limited s general liability under the NAA is subject to a cap of 3 million in respect of any one claim, an annual liability cap of 125 per cent. of any amounts payable by KCOM in that year and an aggregate liability cap over the 15 year term of 25 million (subject to certain exceptions). CityFibre Limited has a separate liability cap of 10 million in respect of loss or damage to property Parent Company Guarantee On 11 December 2015 the Company and KCOM entered into a parent company guarantee in relation to the NAA (as defined in section 18.6 of this Part 10) (the PCG ). Under the PCG, the Company guaranteed all of CityFibre Limited s obligations under the NAA and indemnified KCOM in respect of any loss or damage caused by CityFibre Limited s failure to perform its obligations under the NAA. KCOM is obliged to exercise its remedies against CityFibre Limited under the NAA before claiming under the PCG. The PCG continues until the date of termination of the NAA or (if later) until the end of any termination assistance period under the NAA. The Company s liability under the PCG shall not in any circumstances be greater than CityFibre Limited s liability under the NAA Management Services Agreement On 11 December 2015 CFHL and CityFibre Limited entered into a management services agreement pursuant to which CFHL agreed to provide a variety of services such as general office and administrative functions, accounting, pricing, engineering, maintenance work and customer care (the Services ), to enable CityFibre Limited to operate a number of contracts which were assigned to CityFibre Limited pursuant to an intra-group transfer agreement dated 11 December 2015 between CFHL, CityFibre Networks Limited and CityFibre Limited. Under the management services agreement CityFibre Limited has agreed to pay CFHL a monthly fee of 12.5 per cent. of revenue plus any capitalised labour costs incurred by CFHL during the provision of the Services. 149

156 The agreement will terminate on the termination of the Facility Agreement or may be terminated by CityFibre Limited by providing 30 days notice Facility Agreement On 14 December 2015, CityFibre Limited as borrower entered into a facilities agreement (the Facility Agreement ) with Proventus Capital Partners III AB (publ.) as agent and security agent ( PCP ). The lenders are funds managed by Proventus Capital Management AB or Proventus Capital Partners III and affiliated funds ( Lender(s) ). The Facility Agreement comprises three main facilities (the Facilities ): (a) (b) (c) a 35 million term loan facility (the Acquisition Facility ) which was drawn down on 18 January 2016 and used towards financing the purchase price for the KCOM Acquisition; a 35 million term loan facility (the Capex Facility together with the Acquisition Facility, the Term Facilities ) which is made available to finance permitted growth capital expenditure by reference to contracted revenues under customer contracts and permitted acquisitions and which is available for two years from the date of the Facility Agreement; and a 30 million super senior revolving credit facility (the RCF ) which is made available for the same purposes as the Capex Facility and up to 5 million towards general corporate and working capital purposes and which is available for five years and 11 months years from the date of the Facility Agreement. In addition, the Facility Agreement contains a 65 million accordion facility which may be made available by any Lender under the Term Facilities at its discretion to refinance loans under the RCF, provided that drawdown under any use of this facility occurs before January CityFibre Limited agreed to pay the following: (a) (b) (c) (d) (e) interest at a rate of 10 per cent. for the Term Facilities and 4.5 per cent. for the RCF, in each case over LIBOR. A ratchet mechanism based on leverage levels may bring these margins down to 8 per cent. and 4 per cent. respectively. Additional default interest of 2 per cent. will accrue on unpaid sums; commitment fees of 45 per cent. of the applicable margin in relation to the Capex Facility and the RCF payable quarterly in arrears; an arrangement fee of 3.5 per cent. on the amount of the Facilities, which was payable on drawdown of the Acquisition Facility; agency fees of 20,000 per annum payable to PCP as agent and 10,000 per annum payable to PCP as security agent; and prepayment fee: equal 1.36 times the amount of the Term Facilities. The prepayment fee is due on certain prepayments with some limited exclusions. The prepayment fee is payable on the final discharge date and its amount is calculated on that date. The Term Facilities do not amortise and are payable in full seven years from the date of the Facility Agreement. The RCF will terminate six years from the date of the Facility Agreement. The Facility Agreement contains customary prepayment events including (i) upon change of control of CityFibre or a sale of all or substantially all of the assets of the CFHL Group; (ii) upon receipt of proceeds of disposals of certain assets, certain insurance claims and certain claims under the acquisition documents and related reports, together with customary covenants which are tested quarterly. In connection with the Facilities, CFHL, CityFibre Networks Limited, CityFibre Limited, Fibrecity Holdings Limited and CityFibre Metro Networks Limited gave guarantees and security over their assets. In addition, CityFibre granted security over (i) the entire issued share capital of CFHL; and (ii) its interest in shareholder loan agreements between itself and CFHL. Pursuant to these collateral arrangements CFHL, CityFibre Networks 150

157 Limited and CityFibre Limited assigned by way of security in favour of PCP all of their respective rights and interests under the acquisition of the KCOM assets and all customer contracts to which those companies are parties Underwriting Agreement On 14 December 2015 the Company, finncap and Liberum entered into an Underwriting Agreement, pursuant to which finncap and Liberum agreed to use their reasonable endeavours to procure placees for new Ordinary Shares to be issued pursuant to the an underwritten placing of 160 million Ordinary Shares. finncap and Liberum agreed to underwrite the issue of all of the new Ordinary Shares severally in certain proportions. The agreement contained certain warranties from the Company in favour of finncap and Liberum. In addition, the Company agreed to indemnify finncap and Liberum in respect of certain liabilities they may have incurred in respect of the placing and re-admission to AIM of the Company s share capital. The Company agreed to pay a broking commission shared between finncap and Liberum (proportionate to their respective underwriting commitments) and a base commission apportioned equally between finncap and Liberum Joint Venture Agreement On 14 April 2014 the Company, CFHL, Sky, TalkTalk and YorkCo entered into a joint venture agreement pursuant to which Sky, TalkTalk and CFHL each agreed to subscribe for one third of the shares in YorkCo and agreed that YorkCo would conduct a trial of fibre network services in the city of York (the York Fibre Network ) (the JVA ). CFHL was issued its third of the shares in YorkCo at nominal value in exchange for CFHL granting YorkCo a licence to use its metro network ring of ducting and passive fibre infrastructure in York ( Metro Ring Right of Use Agreement ). The parties agreed to enter into the JVA to give effect to various matters in respect of such joint venture governing: (i) the provision of assets and finance to YorkCo; (ii) the management and activities of YorkCo; and (iii) the respective interests of the parties. The Company was a party to the JVA to procure that certain obligations of CFHL and other members of the group were satisfied and to give certain warranties and covenants, together with CFHL, in favour of Sky and TalkTalk. The JVA contains compulsory transfer provisions pursuant to which CFHL shall be obliged to sell its shares in YorkCo to the other shareholders (pro-rata) if it (i) commits a material breach of the agreement, (ii) commits a material breach of the Metro Ring Right of Use Agreement or (iii) if it is unable to pay its debts as they fall due or in the event that insolvency proceedings are brought against it. The JVA also contains a change of control provision whereby if CFHL (or any permitted transferee) is subject to a change of control, CFHL (or any permitted transferee) shall be obligated to offer its shares in YorkCo to Sky and TalkTalk (pro rata). The JVA contains drag along rights pursuant to which CFHL may be obliged to sell its shares in YorkCo in the event that a third party offers to purchase such equal proportion of both Sky and TalkTalk s shares in an aggregate amount of not less than 50 per cent. of the total issued share capital of YorkCo. Tag along rights also provide that in the event Sky and TalkTalk agree to transfer any of their shares to a third party, CFHL shall have the option to require Sky and TalkTalk to procure that the third party makes an offer to purchase a pro rata amount of CFHL s shares on the same terms and conditions and for the same price. Under the JVA both the Company and CFHL undertook to Sky, TalkTalk and YorkCo that during the Trial Period (i.e. the period commencing on 14 April 2014 and ending on the expiry of 12 months after commercial launch of the York Fibre Network) they shall not, and they shall procure that members of the Group shall not discuss, conduct or participate in any trial or rollout of fibre access services for the supply of FTTH broadband services to residential customers in York or in any other part of the United Kingdom or FTTP broadband services in York. The Trial Period has now come to an end. The liability of CFHL under the agreement is limited to 5 million (which may be reduced in accordance with the agreement but will not fall below 1 million) Security in respect of the Joint Venture On 6 February 2015, as part of the joint venture arrangements detailed above in section above CityFibre Networks Limited and CFHL granted a first ranking fixed charge to YorkCo over the assets known as the York Metro Ring (being the then existing passive ducting, chambers, joint chambers, sub-ducts and dark fibre network owned and maintained by each of CityFibre Networks Limited and CFHL in York). This was to secure all obligations, undertakings and liabilities of CityFibre Networks Limited and CFHL to YorkCo under the Metro Right of Use Agreement (described in section below) and the fixed charge. 151

158 18.13 Passive Services Agreement On 14 April 2014 CFHL, CityFibre Metro Networks Limited and YorkCo entered into a passive services agreement that allows CFHL and CityFibre Metro Networks Limited to provide certain services to YorkCo. As part of this CFHL and CityFibre Metro Networks Limited have been granted a licence to use and operate the YorkCo network to fulfil its obligations under the agreement and to do anything in respect of the YorkCo network that requires the use of Code Powers. The term of the agreement is unlimited unless terminated by either party on six months written notice providing such notice does not expire before 31 December 2016 or with immediate effect where one or more of the other joint venture agreements are terminated. Pursuant to the agreement all charges are on a pass through or open book cost plus basis Metro Ring Right of Use Agreement On 14 April 2014 CFHL, CityFibre Networks Limited, the Company and YorkCo entered into a metro ring right of use agreement for the existing CityFibre network in York (the Metro Ring ). The agreement gives YorkCo an irrevocable, perpetual and unconditional right to use the Metro Ring and allows it to access, connect and use the Metro Ring. CFHL also has the right to access the assets in YorkCo s passive ducting and dark fibre feeder and distribution network in York for the purpose of maintaining or repairing the Metro Ring. The agreement contains a warranty by CFHL that the Metro Ring shall be fit for purpose and shall comply with the specification set out in the agreement for a period of twenty-five years (regardless of the length of the agreement). The agreement is for an unlimited term. YorkCo has the right to terminate at any time on six months notice in writing to all the agreement counterparties. 19. Subsidiary undertakings The Company is the holding company of the Group and has the following subsidiary undertakings each of which is directly or indirectly wholly-owned by the Company. In each case, the issued share capital of each is fully paid. The country of incorporation of each of the companies is stated in the second column below. Name of subsidiary Country of incorporation Percentage owned Principal Activities CityFibre Holdings Limited England and Wales 100% by the Company Holding company CityFibre Networks Limited England and Wales 100% by the Company Provision of telecommunications network FibreCity Holdings Ltd England and Wales 100% by the Company Gigler Limited England and Wales 100% by the Company CityFibre Metro Networks Limited England and Wales 100% by the Company FibreCity Bournemouth Ltd England and Wales 100% by the Company CityFibre Limited England and Wales 100% by the Company Holding Company Provision of Internet Services in Bournemouth Holding Company Provision of telecommunications network in Bournemouth Provision of telecommunications network 152

159 Save for the material subsidiaries disclosed in this section 19, and YorkCo, as described in section 18.11, the Company does not hold capital in any other undertakings that have a significant effect on the assessment of the Company s assets and liabilities, financial position or profits and losses. 20. Related party transactions 31 December 2014 For the year ended 31 December 2014, the Company had entered into the following material transactions with related parties: The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. Subsidiaries The subsidiary undertakings of the company at 31 December 2014 were as follows: Name of subsidiary Country of Percentage owned Principal Activities incorporation CityFibre Holdings Limited England and Wales 100% by the Company CityFibre Networks Limited England and Wales 100% by the Company FibreCity Holdings Ltd England and Wales 100% by the Company Gigler Limited (formerly known as Fibrecity Wessex Limited) CityFibre Metro Networks Limited England and Wales England and Wales 100% by the Company 100% by the Company FibreCity Bournemouth Ltd England and Wales 100% by the Company Holding company Provision of telecommunications network Holding Company Provision of Internet Services in Bournemouth Holding Company Provision of telecommunications network in Bournemouth All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The directors are considered to be the key management personnel. Key management compensation was as follows: Year ended 31 December 2014 Directors 2014 Directors 2013 Highest paid director 2014 Highest paid director Fees Benefits in kind Pension contributions Bonus , Share based payments 1, , , Social security costs Total directors emoluments 2, ,

160 Bonuses paid in 2014 included one-off amounts in respect of performance leading up to the 2014 Admission, as well as a bonus in respect of work performed in In respect of the highest paid director, the one-off bonus was 168,000. No bonuses were paid in During the year, the Group was charged 18,000 (up from 14,500 in 2013) by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. Of this, 2,000 was owed at the year-end. No money had been owed at the year-end in At 31 December 2014 the directors did not consider there to be an ultimate controlling party. In 2013 the ultimate controlling party was considered to be Greg Mesch. During the year the Group charged YorkCo, an associate of CFHL, 343,000 in respect of services provided. All of this balance was outstanding at the year end. No charge was made in Loan notes At 31 December 2014 no loan notes, including accrued interest, had been issued to related parties. At 31 December 2013 loan notes of million, including accrued interest had been issued to related parties. 31 December 2015 For the year ended 31 December 2015, the Company had entered into the following material transactions with related parties: The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. Subsidiaries The subsidiary undertakings of the Company at 31 December 2015 were as follows: Name of subsidiary Country of Percentage owned Principal Activities incorporation CityFibre Holdings Limited England and Wales 100% by the Company Holding company CityFibre Networks Limited England and Wales 100% by the Company Provision of telecommunications network FibreCity Holdings Ltd England and Wales 100% by the Company Holding Company Gigler Limited England and Wales 100% by the Company Provision of Internet Services in Bournemouth CityFibre Metro Networks England and Wales 100% by the Company Holding Company Limited FibreCity Bournemouth Ltd England and Wales 100% by the Company Provision of telecommunications network in Bournemouth CityFibre Limited England and Wales 100% by the Company Provision of telecommunications network All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The key management personnel are the directors and members of the executive management team. 154

161 Key management compensation was as follows: Key management personnel 2015 Year ended 31 December 2015 Key Highest paid management director 2015 personnel 2014 Highest paid director Fees 1,502 1, Benefits in kind Pension contributions Bonus Share based payments 282 1, ,422 3, ,104 Social security costs Total emoluments 2,707 3, ,178 Bonuses paid in 2014 included one-off amounts in respect of the 2014 Admission, as well as a bonus in respect of work performed in During the year, the Group was charged 29,000, compared to 18,000 in 2014, by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. Of this, 20,000 was owed at the year-end, compared to 2,000 in During the year, the Group was charged 255,000, compared to 216,000 in 2014, by Teleconsult (2011) Ltd, a company owned and controlled by Seamus Given, a member of key management personnel during the year, in respect of consultancy fees. Of this, 17,000 was owed at the year-end. 17,000 had also been owed at the yearend in At 31 December 2015 and 31 December 2014 the directors did not consider there to be an ultimate controlling party. During the year the Group charged YorkCo, an associate of CFHL, 610,000 in respect of services provided, an increase from 343,000 in Of this, 102,000 was as receivable at the year-end, compared to 343,000 in December 2016 For the year ended 31 December 2016, the Company had entered into the following material transactions with related parties: The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. 155

162 Subsidiaries The subsidiary undertakings of the Company at 31 December 2016 were as follows: Company Country of incorporation Principal activities CityFibre Holdings Limited UK Provision of telecommunication networks CityFibre Networks Limited UK Provision of telecommunication networks % holding of ordinary share capital Fibrecity Holdings Limited UK Holding company 100 Gigler Limited UK Provision of internet services in Bournemouth 100 CityFibre Metro Networks Limited UK Holding company 100 Fibrecity Bournemouth Limited UK Provision of telecommunication networks within Bournemouth CityFibre Limited UK Provision of telecommunication networks All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The key management personnel are the directors and members of the executive management team. Key management compensation was as follows: Key management personnel 2016 Key management personnel 2015 Highest paid director 2016 Highest paid director Fees 1,459 1, Benefits in kind Pension contributions Bonus 1, Termination fees Share based payments ,404 2, Social security costs Total emoluments 3,772 2, Bonuses paid in 2016 included one-off amounts in respect of the KCOM Acquisition, as well as a bonus in respect of work performed in

163 During the year, the Group was charged 12,000 by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. This compared to 29,000 in Of this, 1,000 was owed at the year-end, compared to 20,000 in During the year, the Group was charged 89,000 compared to 255,000 in 2015 by Teleconsult (2011) Ltd, a company owned and controlled by Seamus Given, a member of key management personnel during the year, in respect of consultancy fees. Of this, nil was owed at the year-end, compared to 17,000 in At 31 December 2016 and 31 December 2015 the directors did not consider there to be an ultimate controlling party. During the year the Group charged YorkCo, an associate of CFHL, 756,000 compared to 610,000 in 2015, in respect of services provided. Of this, 91,000 was receivable at the year-end, compared to 102,000 in December 2016 Reference Date For the period from 31 December 2016 to 31 May 2017, the Company had entered into the following material transactions with related parties: The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. Subsidiaries The subsidiary undertakings of the Company at the Reference Date were as follows: Company Country of incorporation Principal activities CityFibre Holdings Limited UK Provision of telecommunication networks CityFibre Networks Limited UK Provision of telecommunication networks % holding of ordinary share capital Fibrecity Holdings Limited UK Holding company 100 Gigler Limited UK Provision of internet services in Bournemouth 100 CityFibre Metro Networks Limited UK Holding company 100 Fibrecity Bournemouth Limited UK Provision of telecommunication networks within Bournemouth CityFibre Limited UK Provision of telecommunication networks All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The key management personnel are the directors and members of the executive management team. 157

164 Key management compensation was as follows: 2017 to Reference Date Key management personnel Highest paid director Fees Benefits in kind Pension contributions 12 - Bonus - - Termination fees - - Share based payments , Social security costs Total emoluments 1, During the period, the Group was charged 1,000 by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. During the period the Group charged YorkCo, an associate of CityFibre Holdings Ltd, 242,000 in respect of services provided. 21. Consents and related matters Citi, whose address is Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB United Kingdom, has given and not withdrawn its written consent to the issue of this document with references to its name being included in the form and context in which they appear. finncap, whose address is 60 New Broad Street, London, EC2M 1JJ, has given and not withdrawn its written consent to the issue of this document with references to its name being included in the form and context in which they appear. Liberum, whose address is Ropemaker Place, Level 12, 25 Ropemaker Street London, EC2Y 9LY, has given and not withdrawn its written consent to the issue of this document with references to its name being included in the form and context in which they appear. Macquarie Capital (Europe) Limited whose address is Ropemaker Place, 28 Ropemaker Street, London, EC2Y 9HD, has given and not withdrawn its written consent to the issue of this document with references to its name being included in the form and context in which they appear. Rothschild, whose address is New Court, St Swithin s Lane, London, EC4N 8AL, has given and not withdrawn its written consent to the issue of this document with references to its name being included in the form and context in which they appear. BDO LLP, whose address is at 55 Baker Street, London, W1U 7EU, has given and not withdrawn its written consent to the inclusion of its reports set out in Part 7, Part 12 and Part 13 of this document in the form and context in which they appear and has authorised the contents of those reports for the purposes of Rule 5.3.3R(2)(f) of the Prospectus Rules. 22. Expenses The total costs and expenses of the Capital Raising (assuming full take up under the Offer for Subscription), including FCA fees, LSE fees, commissions and fees payable to advisers and printing and distribution costs are estimated to amount to approximately 9.2 million (exclusive of VAT). 23. Registrar The registrar of the Company is Computershare, The Pavilions, Bridgwater Road, Bristol BS13 8AE and will in relation to Ordinary Shares in certificated form be responsible for keeping the Company s share records. 24. Third party information Where information contained in this document originates from a third party source, it is identified where it appears in this document together with the name of its source. Such third party information has been accurately 158

165 reproduced and, so far as CityFibre is aware and is able to ascertain from information published by the relevant third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. 25. Announcement of results of the Capital Raising CityFibre will make an appropriate announcement to a Regulatory Information Service giving details of the results of the Capital Raising. 26. Takeover bids 26.1 Mandatory bids The Takeover Code applies to the Company. Under the Takeover Code, if an acquisition of interests in the Company s Ordinary Shares were to increase the aggregate holding of an acquirer and persons acting in concert with it to an interest in the Company s Ordinary Shares carrying 30 per cent. or more of the voting rights in the Company, the acquirer and, depending upon the circumstances, persons acting in concert with it, would be required (except with the consent of The Panel on Takeovers and Mergers) to make a cash offer for the outstanding Ordinary Shares. A similar obligation to make such a mandatory offer would also arise on the acquisition of an interest in Ordinary Shares by a person holding (together with persons acting in concert with it) an interest in Ordinary Shares carrying between 30 per cent. and 50 per cent. of the voting rights in the Company if the effect of such acquisition were to increase that person s percentage of the voting rights Squeeze-out Under the Act, if a takeover offer (as defined in section 974 of the Act) is made for the Company s Ordinary Shares and the offeror were to acquire, or unconditionally contract to acquire, not less than 90 per cent. in value of the shares to which the offer relates (the Offer Shares ) and not less than 90 per cent. of the voting rights attached to the Offer Shares, within three months of the last day on which its offer can be accepted, it could acquire compulsorily the remaining 10 per cent. It would do so by sending a notice to outstanding Shareholders telling them that it will acquire compulsorily their Offer Shares and then, six weeks later, it would execute a transfer of the outstanding Offer Shares in its favour and pay the consideration to the Company, which would hold the consideration on trust for outstanding Shareholders. The consideration offered to the Shareholders whose Offer Shares are acquired compulsorily under the Act must, in general, be the same as the consideration that was available under the takeover offer Sell-out The Act also gives minority Shareholders a right to be bought out in certain circumstances by an offeror who has made a takeover offer. If a takeover offer related to all the Ordinary Shares and at any time before the end of the period within which the offer could be accepted the offeror held or had agreed to acquire not less than 90 per cent. of the Ordinary Shares to which the offer relates, any holder of Ordinary Shares to which the offer related who had not accepted the offer could by a written communication to the offeror require it to acquire those Ordinary Shares. The offeror is required to give any Shareholder notice of its right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of the minority Shareholders to be bought out, but that period cannot end less than three months after the end of the acceptance period. If a Shareholder exercises his or her rights, the offeror is bound to acquire those Ordinary Shares on the terms of the offer or on such other terms as may be agreed Takeover bids No public takeover bid has been made in relation to the Company during the last financial year or the current financial year. 27. Documents available for Inspection Copies of the following documents may be physically inspected at the London offices of the Company at 15 Bedford Street, London WC2E 9HE during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this document up to and including the date of Admission: (a) the Articles of Association; (b) the annual reports and audited consolidated accounts of the Group as at, and for the three financial years ended 31 December 2014, 2015 and 2016; (c) the consent letters referred to in section 21 of this Part 10; (d) the audited accounts of Entanet for the three financial years ended 31 December 2014, 2015 and 2016; 159

166 (e) (f) the reports by BDO LLP on (i) the unaudited pro forma financial information set out at Part 7 of this document, and (ii) the financial information on Entanet set out in Part 12 of this document and (iii) the historical financial information on Entanet International for the seven weeks ended 20 February 2014 set out in Part 13 of this document; and this document. Copies of this document are also available for inspection at the National Storage Mechanism at In addition this document will be published in electronic form and available on the Company s website at subject to certain access restrictions. Date: 11 July

167 PART 11 HISTORICAL FINANCIAL INFORMATION OF THE GROUP Annual report and accounts for the year ended 31 December 2014 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF CITYFIBRE INFRASTRUCTURE HOLDINGS PLC We have audited the financial statements of CityFibre Infrastructure Holdings plc for the year ended 31 December 2014 which comprise the consolidated and company statements of financial position, the consolidated statement of comprehensive income, the consolidated and company statements of cash flows, the consolidated and company statements of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council s (FRC s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC s website at Opinion on financial statements In our opinion: Š Š Š the financial statements give a true and fair view of the state of the group s and the parent company s affairs as at 31 December 2014 and of the group s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Š the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and directors report for the financial year for which the financial statements are prepared is consistent with the financial statements. 1. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: Š Š adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or 161

168 Š Š certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Julian Frost (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom 20 March 2015 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 162

169 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 31 December 2014 Note Revenue (2) 3,844 1,874 Cost of sales (568) (365) Gross profit 3,276 1,509 Total administrative expenses (10,726) (5,713) Operating loss (3) (7,450) (4,204) Finance income (6) Finance cost (7) (344) (2,115) Share of post-tax losses of equity accounted Joint Venture (42) - Loss on ordinary activities before taxation (7,057) (6,318) Income tax (8) Loss for the year and total comprehensive income (7,026) (6,287) Loss per share Basic and diluted loss per share (27) (0.09) (55.60) 163

170 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company number As at 31 December 2014 Note Assets Non-current assets Property, plant and equipment (9) 31,778 19,254 Intangible assets (10) Investment in Joint Venture (11) ,160 19,579 Current assets Inventory (12) Trade and other receivables (13) 3,720 1,677 Investment in short-term deposits 29,000 - Cash and cash equivalents 4, Total current assets 36,989 2,085 Total assets 70,149 21,664 Equity Issued capital (16) 1,111 - Share Premium (17) 63, Warrant reserve (18) Share warrant reserve (19) 85 - Share-based payments reserve Merger reserve Retained Earnings (15,680) (2,054) Total equity 49,863 (965) Liabilities Non-current liabilities Interest bearing loans and borrowings (20) 1,814 2,447 Deferred revenue (21) 10, Deferred consideration (15) Deferred tax (14) Total non-current liabilities 12,343 3,106 Current liabilities Interest bearing loans and borrowings (20) ,729 Deferred revenue (21) 2, Trade and other payables (22) 5,130 2,855 Total current liabilities 7,943 19,523 Total liabilities 20,286 22,629 Total equity and liabilities 70,149 21,664 These financial statements were approved by the Board of Directors and authorised for issue on 20 March They were signed on its behalf by: W G Mesch Director 164

171 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 31 December 2014 Share capital Share Premium Warrant reserve Share warrant reserve Shares to be issued reserve Share- based payments reserve Merger reserve Retained earnings Total Balance at 1 January ,233 5,315 Comprehensive income Loss and total comprehensive income for the year (6,287) (6,287) Transactions with owners Shares to be issued Shares issued (389) Balance at 31 December (2,054) (965) Balance at 1 January (2,054) (965) Comprehensive income Loss and total comprehensive income for the year (7,026) (7,026) Transactions with owners New ordinary shares issued 1,050 65, ,035 Issue of shares held by JSOP (6,600) (6,600) Cost of issuing new ordinary shares - (2,948) (2,948) Share warrant charge Exercise of share warrants (204) Share-based payments Group reconstruction 58 (389) Discharge of warrant reserve - - (700) (700) Balance at 31 December ,111 63, (15,680) 49,

172 CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 31 December Cash flows from operating activities Loss before tax (7,057) (6,318) Amortisation of intangibles Share based payments 1,393 7 Finance income (779) (1) Finance costs 344 2,115 Depreciation 1,393 1,108 Profit on disposal of PPE (62) - Right of use income (161) - Decrease/(Increase) in inventory 21 (87) Increase in receivables (1,946) (857) Increase in payables 3,146 1,786 Share of loss from associated company 42 - (3,552) (2,139) Tax paid - - Net cash utilised in operating activities (3,552) (2,139) Cash flows from investing activities Interest received 31 1 Investment in short-term deposits (29,000) - Acquisition of intangible assets (324) (13) Acquisition of property, plant and equipment (4,499) (532) Capitalised staff costs (544) - Net cash utilised in investing activities (34,336) (544) Cash flows from financing activities Proceeds from the issue of share capital 46,523 - Costs of issuing share capital (2,839) - Proceeds from issue of loan stock and debentures - 3,645 Repayment of borrowings (940) (568) Repayment of warrant reserve (700) - Interest paid (256) (348) Net cash from financing activities 41,788 2,729 Net increase in cash and cash equivalents 3, Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 4,

173 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are summarised below. They have all been applied consistently throughout the year and preceding period. Nature of Group CityFibre Infrastructure Holdings plc (the Company ) is a company registered in England and Wales. The consolidated financial statements for the year ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the Group ). Basis of accounting The financial statements of the Company have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ( IFRS ) and their interpretations issued by the International Accounting Standards Board ( IASB ), as adopted by the European Union. These are the Group s first financial statements. They have also been prepared with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Group has not adopted any Standards or Interpretations in advance of the required implementation dates. It is not expected that adoption of Standards or Interpretations which have been issued by the IASB but are not yet effective will have a material impact on the financial statements. Basis of consolidation The consolidated financial statements incorporate the results of CityFibre Infrastructure Holdings plc and all of its subsidiary undertakings as at 31 December The results of subsidiary undertakings are included from the date of acquisition. CityFibre Infrastructure Holdings plc was incorporated on 13 November 2013, and on 9 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 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 recognized 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 per cent. 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 consolidated 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. 167

174 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 Plant and machinery Fixtures and fittings Motor vehicles 5 years 20 years 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. 168

175 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, bank loans and the host debt element of its convertible 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. The conversion option embedded into the Group s convertible debt is classified as a financial liability. The conversion option derivative is initially and subsequently measured at its fair value with changes in that fair value recognised in finance income/cost in the statement of comprehensive income. Upon conversion of the instrument the embedded derivative, the value of the loan, and any accumulated finance costs are extinguished and converted into share capital and share premium. 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 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. 169

176 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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 consolidated 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 consolidated 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. The carrying amounts of the Group s and the Company s PPE at 31 December 2014 are disclosed in Note 9 to the financial statements. 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. In the current year this relates solely to the Coventry MAN acquisition. 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). 170

177 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SEGMENTAL REPORTING The Group s operations relate to the management of transformational fibre optic infrastructure and as such the Group has only one segment. All turnover from operations, non-current assets and liabilities arose in the United Kingdom. During the year the entity received revenues of 667,000 and 525,000 ( 2013: 600,000 and nil) from two major customers arising in the Group s only identified segment. 3. OPERATING LOSS Operating loss is after charging/(crediting): Operating lease income (1,876) (1,798) Depreciation of property, plant and equipment 1,393 1,108 Amortisation of intangibles Staff costs (note 4) 6,095 2,526 One-off fundraising costs Operating lease costs Land and buildings Others The analysis of auditor s remuneration is as follows: Fees payable to the Group s auditor for the audit of the Group s annual financial statements Total audit fees Tax services Assurance services 81 - Corporate finance services Total non-audit services Total fees STAFF COSTS The average number of staff employed (including directors) by the company during the financial year amounted to: Sales 12 9 Operations Administration The aggregate payroll costs of the above were: Wages and salaries 4,136 2,228 Social security costs Other pension costs Share-based payments 1,393-6,095 2,

178 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Wages and salaries for 2014 include one-off bonuses totaling 585,000 in respect of work performed leading up to the IPO. No bonuses were paid in SHARE BASED PAYMENTS During the year the Company granted share options to key personnel to purchase shares in the entity. The number and weighted average exercise prices of share options are as follows: Weighted average exercise price Number of options Weighted average exercise price Number of options Outstanding at the beginning of the period - - Granted during the period ,579, Forfeited during the period 0.60 (371,588) - - Outstanding at the end of the period ,208, The options outstanding at 31 December 2014 have an exercise price in the range of 0.60 to 0.70 and a weighted average remaining contractual life of 9.3 years. At 31 December 2014, 1,107,616 of the options had vested, but were not exercisable as the options are only exercisable 12 months after the vesting date. Details of movements in share options in 2014 are as follows: Number of options Outstanding Granted Forfeited/ Outstanding Exercisable at beginning exercised at end of at end of of period period period Exercise price Exercisable period Grant date Expiry date - 2,129,732 (371,588) 1,758, January January ,388,886-1,388, January January ,361,166-1,361, January January ,606,335-2,606, May May , , May May , , May May ,680,411-1,680, May May ,069,299-3,069, May May ,259,599-1,259, June June ,863,434-3,863, June June ,579,902 (371,588) 15,208,314 - The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on two models: the Black-Scholes model and the Monte Carlo Model. The Monte Carlo model is used to value share options that include market-based vesting conditions, while the Black-Scholes model is used to value all other options. The expected life of the option (4 years) is used as an input into both of these models; expectations of early exercise are incorporated into both models. Fair value of share options and assumptions Weighted average fair value of options granted during the year Weighted average share price Weighted average exercise price Expected volatility (expressed as weighted average volatility) 30% - Option life 4 - Expected dividends - - Risk-free interest rate (based on national government bonds) 0.5% - 172

179 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS These assumptions are used in both the Black-Scholes and Monte Carlo models. These assumptions are also used for the calculation of the fair value of the share warrants. The expected volatility is based on the historic volatility of the share price (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information Total expense recognised as employee and consultants costs 1,393 - Total liability recognised on cash-settled elements of share option awards FINANCE INCOME Interest on bank deposits Gain on conversion of loan notes The gain on conversion of loan notes arose when the finance costs of the loan notes were reduced in advance of the conversion in January As the final loan note balance, including interest, converted was lower than the original carrying amount and interest to be extinguished, a gain was recognised. 7. FINANCE COSTS Interest on bank loans Interest on other loans 19 - Interest on loan notes - 1, , TAXATION Current tax UK corporation tax based on the results for the year at 21.5% (2013: 23.25%) - - Total current tax - - Deferred tax Temporary differences on which deferred tax has been recognised Effect of change in tax rates 7 7 Tax on loss on ordinary activities

180 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Factors affecting current tax credit The tax assessed for the year differs from the standard rate of corporation tax in the UK of 21.5 per cent. (2013: per cent.) as follows: Loss on ordinary activities before taxation (7,057) (6,318) Tax on loss on ordinary activities at standard rate (1,517) (1,469) Factors affecting charge Effect of change in tax rates 7 7 Expenses not deductible for tax purposes Origination of temporary differences on which no deferred tax has been recognised Effect of tax losses not recognised 1, Total tax Factors that may affect future tax charges The standard rate of UK corporation tax will reduce to 20 per cent. effective 1 April PROPERTY, PLANT AND EQUIPMENT Leasehold property Network assets Plant and machinery Fixtures and fittings Motor vehicles Total Cost At 1 January , ,006 Additions At 31 December , ,661 At 1 January , ,661 Additions - 13, ,080 Disposals - (162) (1) - - (163) At 31 December , ,578 Accumulated depreciation At 1 January , ,299 Charge in the period ,108 At 31 December , ,407 At 1 January , ,407 Charge in the year 20 1, ,393 At 31 December , ,800 Net book value At 31 December , ,778 At 31 December , ,254 Included in network assets above are network assets under construction and not yet depreciated which are held at a cost of 4,454,000 (2013: 1,131,000) at the date of the statement of financial position. 174

181 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. INTANGIBLE ASSETS Website costs Customer contracts Software costs Total Cost At 1 January Additions At 31 December At 1 January Additions At 31 December Accumulated amortisation At 1 January Amortisation At 31 December At 1 January Amortisation At 31 December Net book value At 31 December At 31 December INVESTMENT IN JOINT VENTURE The following entity has been included in the consolidated financial statements using the equity method: Name Country of incorporation Proportion of ownership interest held YorkCo UK 33% Investment in JV 1,000 Elimination of profit (111) Share of comprehensive loss for the year of the equity accounted JV (42) As at 31 December The original investment value was derived from the market value of an equivalent investment in the JV. Subsequently a share of the profits, made on services provided and disposal of PPE 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. The summarised financial information for the JV is as follows: Period ended 31 December Loss from continuing operations 126 Other comprehensive income - Total comprehensive loss

182 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. INVENTORY Raw materials and consumables Inventory is stated net of an impairment provision of nil ( nil). 13. TRADE AND OTHER RECEIVABLES Trade receivables 2, Other debtors 329 1,040 Prepayments and accrued income 1, ,720 1,677 Trade receivables are stated net of a doubtful debt provision of 26,000 ( ,000). 14. DEFERRED TAX Balance at start of period Credit for the period (31) (31) Balance at end of period Deferred tax assets have not been recognised in respect of the following items: Difference of taxation allowances over depreciation on fixed assets Tax losses available 3,202 2,053 Other temporary differences ,836 2,583 Deferred tax assets have not been recognised on the basis that it is uncertain that future taxable profits will be available against which the Group can utilise the benefits there from. 15. DEFERRED CONSIDERATION 000 Balance at start of period - Recognition of deferred consideration 396 Release to income statement unwinding of discount Deferred consideration arose on the acquisition of the Coventry MAN network. This balance has been discounted over the three year period until the consideration is payable. 16. CALLED UP SHARE CAPITAL Authorised, called up, allotted and fully paid 105,440,863 (2013:115,385) ordinary shares of 0.01 (2013: 0.001) each 1,054-5,653,865 (2013: Nil) deferred ordinary shares of ,

183 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2014 No. Balance at start of period 115,385 17/01/2014 on conversion of loan notes 24,545,987 17/01/2014 for cash of 0.60 per share 26,732,981 17/01/2014 for cash of 0.48 per share 539,747 17/01/2014 for cash of 0.54 per share 380,548 12/05/2014 for cash of 0.01 on exercise of warrants 338,583 26/05/2014 issued to JSOP at 0.01 per share 827,375 26/05/2014 issued to JSOP at 0.77 per share 4,749,710 09/06/2014 for cash of 0.70 per share 42,857,142 09/06/2014 issued to JSOP at 0.75 per share 3,920,577 09/06/2014 issued to JSOP at 0.01 per share 429,865 22/07/2014 for cash of 0.60 on exercise of warrants 2,963 Balance at end of period 105,440,863 On 17 January 2014, the Company was admitted to trading on AIM via an IPO, which generated gross proceeds of 16.5 million ( 14.9 million net proceeds) from the issue of 26,732,981 new ordinary shares at 60p per share, 539,747 new ordinary shares at 48p per share, and 380,548 new ordinary shares at 54p per share. As part of this process, the loan note investments in CityFibre Holdings Limited were hived up into CityFibre Infrastructure Holdings plc. The loan notes, together with accrued interest and applicable discounts converted into 24,545,987 ordinary shares, valued at 14.7 million, at the IPO placing price of 60p per share. On 9 June 2014, the Company generated gross proceeds of 30 million ( 28.7 million net proceeds) via the issue of 42,857,142 new ordinary shares at a placing price of 70p per ordinary share. During the period, the Company has issued share options, of which 9,927,527 have been issued to an employee benefit trust by way of a joint share ownership plan. On 26 May 2014, 827,375 shares were issued at the nominal price of 1p per share, while 4,749,710 ordinary shares were issued at a value of 77p per share. A further issue took place on 9 June 2014, with 429,865 shares issued at the nominal price of 1p per share, while 3,920,577 ordinary shares were issued at a value of 75p per share. On 12 May 2015, 338,583 share warrants were exercised at their nominal value of 1p per share. On 22 July 2014, a further 2,963 share warrants were exercised at 60p per ordinary share issued. 17. SHARE PREMIUM During the year costs of 2,948 million were incurred in relation to the issue of new share capital; these were debited to the share premium account. 000 Share premium at start of period 389 Group reconstruction (389) Gross share premium on new shares issued in the year 66,191 Costs of issuing new share capital (2,948) Share premium at end of period 63, WARRANT RESERVE Warrant reserve balance On 18 April 2011 the company issued a warrant to subscribe for such number of Ordinary Shares at par value as would be equal to 5 per cent. of the fully diluted equity share capital of the Company from time to time. The fair value of the warrant was estimated by management based on the estimate of the company s value and length of the warrant. The fair value of services received in return for the warrant issued is measured by reference to the fair value of the warrant issued in the absence of information on the fair value of the services provided. The warrant reserve was settled in cash on 29 January 2014 for the fair value of 700,

184 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. SHARE WARRANT RESERVE Share warrant reserve 85 - This relates to warrants issued to certain investors in CityFibre Holdings Limited to acquire shares in the Company at an exercise price of 0.60 per share. The valuation of this reserve was calculated using a Black- Scholes model; details of this are included in note INTEREST BEARING LOANS AND BORROWINGS Bank loan 2,604 3,325 Loans Loan notes Equity conversion option liability ,092 1,616 2,604 18,176 Due within one year ,729 Due after one year 1,814 2,447 2,604 18,176 On 14 April 2011 the Company issued up to 5 million secured convertible loan notes. These were fully subscribed during The loan notes carried an interest rate of 15 per cent. and were converted into 10,478,917 Ordinary shares on 17 January On 16 April 2012 the Company issued up to 10 million secured convertible loan notes. Of these, 6.4 million of convertible loan notes were subscribed at 31 December The loan notes carried an interest rate of 15 per cent. up to the date of the first anniversary, 20 per cent. between the first and second anniversaries and 25 per cent. from the second anniversary onwards. The loan notes were converted into 14,067,070 Ordinary shares on 17 January The Group received a bank loan of 4.5 million during The bank loan carries interest at 7.5 per cent. over LIBOR and is repayable in quarterly installments over five years with a balancing payment due on 31 March The bank loan is secured on certain long-term revenues and the assets of the group. The bank loan is stated net of unamortised finance costs of 181,000 (2013: 257,000). The group has charged the Consolidated statement of comprehensive income issue costs of 76,000 ( ,000) in respect to these facilities. These costs are allocated to the income statement over the term of the facility at a constant rate on the carrying amount. Maturity analysis Bank and other loans In one year or less or on demand 790 1,021 In more than one year but not more than two years In more than two years but not more than five years 926 1,750 2,604 3,468 Loan notes In one year or less or on demand - 13,092-13,092 Equity conversion option liability In one year or less or on demand - 1,616-1,

185 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. DEFERRED REVENUE Maturity analysis Deferred revenue In one year or less or on demand 2, In more than one year but not more than two years In more than two years but not more than five years 2, In more than five years 6, TRADE AND OTHER PAYABLES 12,106 1, Trade payables 1,273 1,164 Other taxation and social security Other creditors Share-based payments liability (note 5) Accruals 2, OPERATING LEASES 5,130 2,855 Leases as lessor The Group leases its network assets under operating leases which give the lessee the right to control the use of the asset. The leases are for period of between 1 and 20 years. At the end of the reporting period, the future minimum lease payments receivable under non-cancellable operating leases are receivable as follows: Within one year 1,636 1,511 In two and five years 5,042 4,980 After five years 984 1,719 7,662 8,210 Leases as lessee At the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable as follows. Land and buildings Other items Within one year In two to five years After five years CAPITAL COMMITMENTS Contracted but not provided for 12,183 4,265 12,183 4,

186 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Capital commitments include amounts in relation to sales contracts signed in 2014 for which construction will take place in FINANCIAL INSTRUMENTS The Group s financial instruments comprise borrowings, cash and cash equivalents and various items such as trade receivables and payables that arise directly from its operations. The main purpose of these instruments is to raise finance for operations. The Group has not entered into derivatives transactions nor does it trade in financial instruments as a matter of policy. The main risks arising from the Group s financial instruments are interest rate risk, liquidity risk and credit risk. Management s policy on each is described in Note 1. Operations are financed through working capital management and external loan funding. Liquidity risk In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group uses long-term finance in the form of a bank loan. This loan carries covenants that relate to the leverage, debt service cover and expenditure of CityFibre Networks Limited. The Group s trade payables, other payables and accrued expenses are generally due between one and three months and the Group s other financial liabilities are due as follows: Interest bearing loans and borrowings gross payments Due within one year ,705 Due within one to two years Due within two to three years Due within three to four years - 1,027 Due within four to five years - - 2,785 18,333 Interest rate risk Interest rate risk arising from borrowing at variable rates is not hedged as management do not consider the risk to be significant Interest rate risk showing a 1 per cent. increase on floating rate liabilities is as follows: per cent increase in interest rates Credit risk The Group s principal financial assets are bank balances and cash, trade and other debtors and investments, The Group s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of financial position are net of allowances for doubtful debts. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Trade receivable ageing Under 30 days overdue 1, Between 31 to 60 days overdue Between 61 to 90 days overdue 38 9 Over 90 days overdue , A provision of 8,000 was made against doubtful receivables during the year and the balance of the provision was 26,000 at 31 December 2014 (2013: 37,000). Cash and cash equivalents are held in Sterling in UK banks. 180

187 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial assets The floating rate financial assets comprise interest earning bank deposits at rates set by reference to the prevailing LIBOR or equivalent to the relevant country. At 31 December 2014, the Group had invested 29 million in short-term deposits, which yield a fixed interest rate. Fair values In management s opinion there is no material difference between the book value and fair value of any of the Group s financial instruments. Classes of financial instruments The classes of financial instruments are the same as the line items included on the face of the statement of financial position and have been analysed in more detail in the notes to the accounts. All the Group s financial assets are categorised as loans and receivables and all financial liabilities are measured at amortised cost. 26. RELATED PARTY TRANSACTIONS The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. Subsidiaries The subsidiary undertakings of the company at 31 December 2014 were as follows: Company Country of incorporation Principal activities % holding of ordinary share capital CityFibre Holdings Limited UK Holding company 100 CityFibre Networks Limited UK Provision of telecommunication networks 100 Fibrecity Holdings Limited UK Holding company 100 Gigler Limited (formerly known as Fibrecity Wessex Limited) UK Provision of internet services in Bournemouth 100 CityFibre Metro Networks Limited UK Holding company 100 Fibrecity Bournemouth Limited UK Provision of telecommunication networks within Bournemouth 100 All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The directors are considered to be the key management personnel. Key management compensation was as follows: Year ended 31 December 2014 Directors 2014 Directors 2013 Highest paid director 2014 Highest paid director Fees Benefits in kind Pension contributions Bonus , Share based payments 1, , , Social security costs Total directors emoluments 2, ,

188 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Bonuses paid in 2014 included one-off amounts in respect of performance leading up to the IPO, as well as a bonus in respect of work performed in In respect of the highest paid director, the one-off bonus was 168,000. No bonuses were paid in During the year, the Group was charged 18,000 (2013: 14,500) by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. Of this, 2,000 (2013: nil) was owed at the year-end. At 31 December 2014 the directors did not consider there to be an ultimate controlling party. In 2013 the ultimate controlling party was considered to be W G Mesch. During the year the Group charged YorkCo, an associate of CityFibre Holdings Ltd, 343,000 (2013: nil) in respect of services provided. All of this balance was outstanding at the year end. Loan notes At 31 December 2014 no loan notes (2013: 7,717,000), including accrued interest, had been issued to related parties. 27. EARNINGS PER SHARE Basic earnings per share The calculation of basic earnings per share is based on the loss attributable to ordinary shareholders and the weighted average number of Ordinary Shares outstanding during the year calculated as follows: Loss attributable to ordinary shareholders Loss for the period attributable to ordinary shareholders used in basic and diluted earnings per share (7,026,000) (6,287,000) Weighted average number of shares used in basic and diluted earnings per share 74,312, ,077 Basic and diluted earnings per share (0.09) (55.60) Potentially issuable shares are not considered to be dilutive because the group made a loss in 2014 and Shares, options and warrants referred to in notes 5, 16, and 19 could have an effect on future reported earnings per share. 28. PENSIONS A defined contribution pension scheme is operated by the group on behalf of the employees of the company and the subsidiary undertakings. The assets of the scheme are held separately from those of the company in an independently administered fund. The pension charge represents contributions payable by the group to the fund and amounted to 49,000 (2013: 29,000). Contributions totalling 5,000 (2013: 2,000) were payable to the fund at the period end and are included in creditors. 29. SUBSEQUENT EVENTS On 22 January 2015, the Company issued 231,781 ordinary shares to the Nedgroup Trust (Jersey) Limited (the Trustee ), in its capacity as the trustee of the CityFibre Employee Benefit Trust. The JSOP Shares will be held by the Trustee for the joint benefit of itself and Stephen Charlton, Non-Executive Director, with Mr. Charlton being beneficially interested in any value in each of the JSOP Shares above 100p. 182

189 Annual report and accounts for the year ended 31 December

190 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF CITYFIBRE INFRASTRUCTURE HOLDINGS PLC We have audited the financial statements of CityFibre Infrastructure Holdings plc for the year ended 31 December 2015 which comprise the consolidated and parent company statements of financial position, the consolidated statement of comprehensive income, the consolidated and parent company statements of cash flows, the consolidated and parent company statements of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council s (FRC s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC s website at auditscopeukprivate. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group s and the parent company s affairs as at 31 December 2015 and of the group s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and directors report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or 184

191 certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Julian Frost (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom 15 April 2016 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 185

192 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 31 December 2015 Note Revenue (2) 6,408 3,844 Cost of sales (888) (568) Gross profit 5,520 3,276 Total administrative expenses (11,679) (10,726) Operating loss (3) (6,159) (7,450) Finance income (6) Finance cost (7) (278) (344) Share of post-tax losses of equity accounted Joint Venture (126) (42) Loss on ordinary activities before taxation (6,393) (7,057) Income tax (8) Loss for the year and total comprehensive income (6,362) (7,026) Loss per share Note Basic and diluted loss per share (26) (0.06) (0.09) 186

193 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company number As at 31 December 2015 Note Assets Non-current assets Property, plant and equipment (9) 43,987 31,778 Intangible assets (10) Investment in Joint Venture (11) ,501 33,160 Current assets Inventory (12) Trade and other receivables (13) 5,994 3,720 Investment in short-term deposits - 29,000 Cash and cash equivalents 9,731 4,186 Total current assets 15,915 36,989 Total assets 61,416 70,149 Equity Issued capital (16) 1,113 1,111 Share Premium (17) 63,243 63,243 Share warrant reserve (18) Share-based payments reserve 1, Merger reserve Retained Earnings (22,044) (15,680) Total equity 43,809 49,863 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note Non-current liabilities Interest bearing loans and borrowings (19) - 1,814 Deferred revenue (20) 9,746 10,083 Deferred consideration (15) Deferred tax (14) - 31 Total non-current liabilities 10,194 12,343 Current liabilities Interest bearing loans and borrowings (19) Deferred revenue (20) 2,152 2,023 Trade and other payables (21) 5,261 5,130 Total current liabilities 7,413 7,943 Total liabilities 17,607 20,286 Total equity and liabilities 61,416 70,149 These financial statements were approved by the Board of Directors and authorised for issue on 15 April They were signed on its behalf by: W G Mesch Director 187

194 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 31 December 2015 Share capital Share Premium Warrant reserve Share warrant reserve Sharebased payments reserve Merger reserve Earnings Retained Balance at 1 January (2,054) (965) Comprehensive income Loss and total comprehensive income for the year (7,026) (7,026) Transactions with owners New ordinary shares issued 1,050 65, ,035 Issue of share held by JSOP (6,600) (6,600) Cost of issuing new ordinary shares - (2,948) (2,948) Share warrant charge Exercise of share warrants (204) Share-based payments Group reconstruction 58 (389) Discharge of warrant reserve - - (700) (700) Balance at 31 December ,111 63, (15,680) 49,863 Comprehensive income Loss and total comprehensive income for the year (6,362) (6,362) Transactions with owners New ordinary shares issued Issue of share held by JSOP (2) (2) Share-based payments Balance at 31 December ,113 63, , (22,044) 43,809 Total 188

195 CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 31 December Cash flows from operating activities Loss before tax (6,393) (7,057) Amortisation of intangibles Share based payments 343 1,393 Finance income (170) (779) Finance costs Depreciation 1,707 1,393 Profit on disposal of PPE - (62) Right of use income (224) (161) (Increase)/decrease in inventory (107) 21 Increase in receivables (1,990) (1,946) Increase in payables 837 3,146 Share of loss from associated company Tax paid (5,360) (3,552) - - Net cash utilised in operating activities (5,360) (3,552) Cash flows from investing activities Interest received Investment in short-term deposits - (29,000) Receipts from short-term deposits 29,000 - Acquisition of intangible assets (350) (324) Acquisition of property, plant and equipment (12,703) (4,499) Proceeds on disposal of property, plant and equipment 17 - Capitalised labour costs (2,404) (544) Net cash from/(utilised in) investing activities 13,782 (34,336) Cash flows from financing activities Proceeds from the issue of share capital - 46,523 Costs of issuing share capital - (2,839) Repayment of borrowings (2,604) (940) Repayment of warrant reserve - (700) Interest paid (273) (256) Net cash (utilised in)/from financing activities (2,877) 41,788 Net increase in cash and cash equivalents 5,545 3,900 Cash and cash equivalents at beginning of period 4, Cash and cash equivalents at end of period 9,731 4,

196 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are summarised below. They have all been applied consistently throughout the year and preceding period. Nature of Group CityFibre Infrastructure Holdings plc (the Company ) is a company registered in England and Wales. The consolidated financial statements for the year ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the Group ). 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. The directors note that the following accounting standards will take effect for future accounting periods: - IFRS 15 Revenue from Contracts with Customers (effective in 2018) - IFRS 9 Financial Instruments (effective in 2018) - IFRS 16 Leases (effective in 2019) The Group intends to examine the potential impact of the adoption of these standards for the Group during It is not expected that adoption of other Standards or Interpretations which have been issued by the IASB but are not yet effective will have a material effect on the financial statements. 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 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 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 recognized 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 per cent. equity in the other entity. 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 consolidated financial statements include the Group s share of the total recognised gains and losses of a joint venture using the equity method, from the date that significant influence commenced, based on present ownership interests, less any impairment losses. Under the equity method, investments in joint ventures 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 associate, less any impairment in the value of the investment and the Group s share of any gain on contribution of assets to the joint venture. 190

197 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 lease 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 mobilization to customer handover. 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. 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 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 six 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 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. 191

198 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net realisable value is based on estimated selling price less additional costs to completion and disposal. Finance costs Finance costs are charged to profit over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance costs include issue costs, which are initially recognized as a reduction in the proceeds of the associated capital instrument. 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 Financial liabilities, including trade payables, bank loan and convertible instruments, 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 investments Short-term investments are amounts held on cash deposit, at financial institutions, which mature in periods exceeding 3 months. 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. 192

199 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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. 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. The carrying amounts of the Group s and the Company s property, plant and equipment at 31 December 2015 are disclosed in Note 9 to the financial statements. Impairment of non-current assets Property, plant and equipment is recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Network assets comprises assets purchased at cost and fair value and built at cost, together with capitalised labour directly attributable to the cost of construction. 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. 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 193

200 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS include contract length, technical challenges in delivering the contract and assessment of any associated local economic issues. 2. SEGMENTAL REPORTING The Group s operations relate to the management of transformational fibre optic infrastructure and as such the Group has only one segment. All turnover from operations, non-current assets and liabilities arose in the United Kingdom. During the year the entity received revenues of 772,000 and 729,000 (2014: 667,000 and 525,000) from two major customers arising in the Group s only identified segment. 3. OPERATING LOSS Operating loss is after charging/(crediting): Operating lease income (2,374) (1,876) Depreciation of property, plant and equipment 1,707 1,393 Amortisation of intangibles One-off fundraising costs Operating lease costs Land and buildings Others The analysis of auditor s remuneration is as follows: Fees payable to the Group s auditor for the audit of the Group s annual financial statements Total audit fees Tax services Assurance services 2 81 Corporate finance services 28 - Total non-audit services Total fees STAFF COSTS The average number of staff employed (including directors) by the Group during the financial year amounted to: No. No. Sales Operations Administration The aggregate payroll costs of the above were: Wages and salaries 5,131 4,136 Social security costs Other pension costs Share-based payments 343 1,393 6,402 6,095 The analysis of payroll costs above includes only expensed costs. Capitalised staff costs for 2015 are 1,468,000 (2014: 418,000). Wages and salaries for 2014 include one-off bonuses totaling 585,000 in respect of work performed for the IPO. 194

201 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. SHARE BASED PAYMENTS During the year the Company granted share options to key personnel to purchase shares in the entity. The number and weighted average exercise prices of share options are as follows: Weighted average exercise price 2015 Number of options 2015 Weighted average exercise price 2014 Number of options 2014 Outstanding at the beginning of the period ,208, Granted during the period ,344, ,579,902 Forfeited during the period 0.61 (248,480) 0.60 (371,588) Outstanding at the end of the period ,304, ,208,314 The options outstanding at 31 December 2015 have an exercise price in the range of nil to 0.70 and a weighted average remaining contractual life of 8.5 years. At 31 December 2015, 2,122,428 of the options had vested, but were not exercisable as the options are only exercisable 12 months after the vesting date (2014: 1,107,616). Details of movements in share options in 2015 are as follows: Outstanding at beginning of period Number of options Granted Forfeited/ exercised Outstanding at end of period Exercisable at end of period Exercise price Grant date Expiry date 1,758,144 - (219,909) 1,538, January January ,388, ,388,886 1,388, January January ,361, ,361, , January January , , May May , , May May ,680, ,680,411 1,680, May May ,069, ,069, , May May ,259,599 - (28,571) 1,231, June June ,863, ,863, June June , , January January ,112,889-2,112,889 - nil 21 December December ,208,314 2,344,670 (248,480) 17,304,504 4,176,913 The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on two models: the Black-Scholes model and the Monte Carlo Model. The Monte Carlo model is used to value share options that include market-based vesting conditions, while the Black-Scholes model is used to value all other options. The expected life of the option (4 years) is used as an input into both of these models; expectations of early exercise are incorporated into both models. Fair value of share options and assumptions Weighted average fair value of options granted during the year Weighted average share price Weighted average exercise price Expected volatility (expressed as weighted average volatility) 30% 30% Option life 4 4 Expected dividends - - Risk-free interest rate (based on national government bonds) 0.5% 0.5% These assumptions are used in both the Black-Scholes and Monte Carlo models. 195

202 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The expected volatility is based on the historic volatility of the share price (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information Total expense recognised as employee and consultants costs 343 1,393 Total liability recognised on cash-settled elements of share option awards FINANCE INCOME Interest on bank deposits Gain on conversion of loan notes The gain on conversion of loan notes arose when the finance costs of the loan notes were reduced in advance of the conversion. As the total loan converted was lower than the original carrying amount and interest to be extinguished, a gain was recognised. 7. FINANCE COSTS Interest on bank loans Other interest TAXATION Current tax UK corporation tax based on the results for the year at per cent. (2014: 21.5 per cent.) - - Total current tax - - Deferred tax Temporary differences on which deferred tax has been recognised Effect of change in tax rates 2 7 Tax on loss on ordinary activities Factors affecting current tax credit The tax assessed for the year differs from the standard rate of corporation tax in the UK of per cent. (2014: 21.5 per cent.) as follows: Loss on ordinary activities before taxation (6,393) (7,057) Tax on loss on ordinary activities at standard rate (1,295) (1,517) Factors affecting charge Effect of change in tax rates 2 7 Expenses not deductible for tax purposes Origination of temporary differences on which no deferred tax has been recognised Effect of tax losses not recognised 885 1,104 Total tax

203 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Factors that may affect future tax charges The standard rate of UK corporation tax will reduce to 19 per cent. effective 1 April PROPERTY, PLANT AND EQUIPMENT Leasehold Network Plant and Fixtures Motor Total Property assets Machinery and fittings vehicles Cost At 1 January , ,661 Additions - 13, ,080 Disposals - (162) (1) - - (163) At 31 December , ,578 At 1 January , ,578 Additions 2 13, ,933 Disposals - (17) - - (8) (25) At 31 December , ,486 Accumulated depreciation At 1 January , ,407 Charge in the year 20 1, ,393 At 31 December , ,800 At 1 January , ,800 Charge in the year 17 1, ,707 Disposals (8) (8) At 31 December , ,499 Net book value At 31 December , ,987 At 31 December , ,778 Included in network assets above are network assets under construction and not yet depreciated which are held at a cost of 8,537,000 (2014: 4,454,000) at the date of the statement of financial position. 10. INTANGIBLE ASSETS Website costs Customer Software costs Total contracts Cost At 1 January Additions At 31 December At 1 January Additions At 31 December ,539 Accumulated amortisation At 1 January Amortisation At 31 December At 1 January Amortisation At 31 December Net book value At 31 December At 31 December

204 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. INVESTMENT IN JOINT VENTURE The following entity has been included in the consolidated financial statements using the equity method: Name Country of incorporation Proportion of ownership interest held YorkCo UK 33% The summarised financial information is as follows: Year ended 31 December Loss from continuing operations Other comprehensive income Total comprehensive income (378) - (378) Investment in Joint Venture As at 1 January Elimination of related party profit (112) Share of comprehensive loss for the year of the equity accounted JV (126) As at 31 December INVENTORY Raw materials and consumables Inventory is stated net of an impairment provision of nil (2014: nil). 13. TRADE AND OTHER RECEIVABLES Trade receivables are stated net of a doubtful debt provision of 28,000 (2014: 26,000). 14. DEFERRED TAX Balance at start of period Credit for the period (31) (31) Balance at end of period - 31 Deferred tax assets have not been recognised in respect of the following items: Difference of taxation allowances over depreciation on fixed assets Tax losses available 4,022 3,202 Other temporary differences ,815 3,

205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets have not been recognised on the basis that it is uncertain that future taxable profits will be available against which the Group can utilise the benefits there from. 15. DEFERRED CONSIDERATION 000 Balance at start of period 415 Recognise through income statement CALLED UP SHARE CAPITAL Authorised, called up, allotted and fully paid 105,672,644 (2014:105,440,863) ordinary shares of 0.01 each 1,056 1,054 5,653,865 (2014: 5,653,865) deferred ordinary shares of 0.01 each ,113 1, (No.) Balance at start of period 105,440,863 22/01/2015 issued to JSOP at 0.01 per share 231,781 Balance at end of period 105,672,644 On 17 January 2014, the Company was admitted to trading on AIM via an IPO, which generated gross proceeds of 16.5 million ( 14.8 million net proceeds) from the issue of 26,732,981 new ordinary shares at 60p per share, 539,747 new ordinary shares at 48p per share, and 380,548 new ordinary shares at 54p per share. As part of this process, the loan note investments in CityFibre Holdings Limited were hived up into CityFibre Infrastructure Holdings plc. The loan notes, together with accrued interest and applicable discounts converted into 24,545,987 ordinary shares, valued at 14.7 million, at the IPO placing price of 60p per share. On 9 June 2014, the Company generated gross proceeds of 30 million ( 28.7 million net proceeds) via the issue of 42,857,142 new ordinary shares at a placing price of 70p per ordinary share. During the prior period, the Company issued share options, of which 9,927,527 were issued to an employee benefit trust by way of a joint share ownership plan. On 26 May 2014, 827,375 shares were issued at the nominal price of 1p per share, while 4,749,710 ordinary shares were issued at a value of 77p per share. A further issue took place on 9 June 2015, with 429,865 shares issued at the nominal price of 1p per share, while 3,920,577 ordinary shares were issued at a value of 75p per share. On 12 May 2014, 338,583 share warrants were exercised at their nominal value of 1p per share. On 22 July 2014, a further 2,963 share warrants were exercised at 60p per ordinary share issued. On 22 January 2015, the Company issued 231,781 ordinary shares to an employee benefit trust by way of a joint share ownership plan. The shares were issued at the nominal price of 1p per share. 17. SHARE PREMIUM During the year no costs were incurred in relation to the issue of new share capital. 000 Share premium at start and end of period 63, Share warrant reserve This relates to warrants issued to certain investors in CityFibre Holdings Limited to acquire shares in the Company. 199

206 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INTEREST BEARING LOANS AND BORROWINGS Bank loan Due within one year Due after one year ,604-2, ,814-2,604 The Group received a bank loan of 4.5 million during The bank loan carried interest at 7.5 per cent. over LIBOR and was repayable in quarterly installments. The bank loan was repaid in full on 11 December Maturity analysis Bank and other loans In one year or less or on demand In more than one year but not more than two years In more than two years but not more than five years , DEFERRED REVENUE Period of performance obligation Deferred revenue In one year or less or on demand 2,152 2,023 In more than one year but not more than two years In more than two years but not more than five years 2,393 2,470 In more than five years 6,371 6,772 11,898 12, TRADE AND OTHER PAYABLES Trade payables 1,880 1,273 Other taxation and social security Other creditors 1, Share-based payments liability (note 5) Accruals 1,330 2,705 5,261 5, OPERATING LEASES Leases as lessor The Group leases its network assets under operating leases which give the lessee the right to control the use of the asset. The leases are for period of between 1 and 20 years. 200

207 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS At the end of the reporting period, the future minimum lease payments receivable under non-cancellable operating leases are receivable as follows Within one year 2,024 1,636 In two and five years 5,753 5,042 After five years ,054 7,662 Leases as lessee At the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable as follows. Land and buildings Other items Within one year In two to five years After five years CAPITAL COMMITMENTS Contracted but not provided for 21,010 12,183 21,010 12,183 Capital commitments include amounts in relation to sales contracts signed in 2015 for which construction will take place in FINANCIAL INSTRUMENTS The Group s financial instruments comprise borrowings, cash and cash equivalents and various items such as trade receivables and payables that arise directly from its operations. The main purpose of these instruments is to raise finance for operations. The Group has not entered into derivatives transactions nor does it trade in financial instruments as a matter of policy. The main risks arising from the Group s financial instruments are interest rate risk, liquidity risk and credit risk. Managements policy on each is described in Note 1. Operations are financed through working capital management and external loan funding. Liquidity risk In order to maintain liquidity to ensure that sufficient funds were available for ongoing operations and future developments, the Group used long-term finance in the form of a bank loan. This loan carried covenants that relate to the leverage, debt service cover and expenditure of CityFibre Networks Limited. This bank loan was repaid in full on 11 December

208 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Group s trade payables, other payables and accrued expenses are generally due between one and three months and the Company s other financial liabilities were due as follows: Interest bearing loans and borrowings gross payments Due within one year Due within one to two years Due within two to three years Due within three to four years - - Due within four to five years ,785 Interest rate risk As at 31 December 2015 the Group does not have any financial instruments subject to material interest rate risk. Credit risk The Group s principal financial assets are bank balances and cash, trade and other debtors and investments, The Group s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of financial position are net of allowances for doubtful debts. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Trade receivable ageing Under 30 days overdue 169 1,723 Between 31 to 60 days overdue Between 61 to 90 days overdue Over 90 days overdue ,247 A provision of 2,000 was made against doubtful receivables during the year and the balance of the provision was 28,000 at 31 December 2015 (2014: 26,000). Cash and cash equivalents are held in Sterling in UK banks. Financial assets The floating rate financial assets comprise interest earning bank deposits at rates set by reference to the prevailing LIBOR or equivalent to the relevant country. At 31 December 2015, the Group had no investments (2014: 29 million) in short-term deposits that yield a fixed interest rate. Fair values In management s opinion there is no material difference between the book value and fair value of any of the Group s financial instruments. Classes of financial instruments The classes of financial instruments are the same as the line items included on the face of the statement of financial position and have been analysed in more detail in the notes to the accounts. All the Group s financial assets are categorised as loans and receivables and all financial liabilities are measured at amortised cost. 24. RELATED PARTY TRANSACTIONS The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. 202

209 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Subsidiaries The subsidiary undertakings of the Company at 31 December 2015 were as follows: Company Country of Principal activities incorporation % holding of ordinary share capital CityFibre Holdings Limited UK Provision of telecommunication 100 networks CityFibre Networks Limited UK Provision of 100 telecommunication networks Fibrecity Holdings Limited UK Holding company 100 Gigler Limited UK Provision of internet services 100 in Bournemouth CityFibre Metro Networks Limited UK Holding company 100 Fibrecity Bournemouth Limited UK Provision of telecommunication networks within Bournemouth 100 CityFibre Limited UK Provision of telecommunication networks All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The key management personnel are the directors and members of the executive management team. Key management compensation was as follows: 100 Key management personnel 2015 Year ended 31 December 2015 Key Highest paid management director personnel Highest paid director Fees 1,502 1, Benefits in kind Pension contributions Bonus Share based payments 282 1, ,422 3, ,104 Social security costs Total emoluments 2,707 3, ,178 Bonuses paid in 2014 included one-off amounts in respect of the IPO, as well as a bonus in respect of work performed in During the year, the Group was charged 29,000 (2014: 18,000) by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. Of this, 20,000 (2014: 2,000) was owed at the year-end. During the year, the Group was charged 255,000 (2014: 216,000) by Teleconsult (2011) Ltd, a company owned and controlled by Seamus Given, a member of key management personnel during the year, in respect of consultancy fees. Of this, 17,000 (2014: 17,000) was owed at the year-end. At 31 December 2015 and 31 December 2014 the directors did not consider there to be an ultimate controlling party. During the year the Group charged YorkCo, an associate of CityFibre Holdings Ltd, 610,000 (2014: 343,000) in respect of services provided. Of this, 102,000 (2014: 343,000) was receivable at the year-end. 203

210 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. EARNINGS PER SHARE Basic earnings per share The calculation of basic earnings per share is based on the loss attributable to ordinary shareholders and the weighted average number of Ordinary Shares outstanding during the year calculated as follows: Loss attributable to ordinary shareholders Loss for the period attributable to ordinary shareholders used in basic and diluted earnings per share (6,362,000) (7,026,000) Weighted average number of shares used in basic and diluted earnings per share 105,656,134 74,312,769 Basic and diluted earnings per share (0.06) (0.09) Potentially issuable shares are not considered to be dilutive because the Group made a loss in 2015 and Options, shares and warrants referred to in notes 5, 16, and 18 could have an effect on future reported earnings per share. 26. PENSIONS A defined contribution pension scheme is operated by the Group on behalf of the employees of the Group. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension charge represents contributions payable by the Group to the fund and amounted to 119,000 (2014: 49,000). Contributions totalling 15,000 (2014: 5,000) were payable to the fund at the period end and are included in creditors. 27. SUBSEQUENT EVENTS On 18 January 2016 the Group completed the acquisition of certain network assets from KCOM Group plc. The acquisition constituted a reverse takeover under Rule 14 of the AIM Rules for Companies, requiring de-listing and readmission, which occurred on 14 January The acquisition of network assets for 90 million will result in CityFibre adding network assets and a negligible amount of stock onto its balance sheet. The acquisition was funded by an 80 million placing of new equity at 50p per share and a loan facility of 100 million with Proventus Capital Partners III AB, of which 35 million was utilised in the asset purchase, the balance of 65 million being available as a working capital facility for capital projects. The Group is treating this transaction as an acquisition of assets, as per IAS 16, rather than a business combination as per IFRS 3. Completion occurred on 18 January 2016, therefore this acquisition will be recognised in

211 Annual report and accounts for the year ended 31 December

212 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF CITYFIBRE INFRASTRUCTURE HOLDINGS PLC We have audited the financial statements of CityFibre Infrastructure Holdings plc for the year ended 31 December 2016 which comprise the consolidated and parent company statements of financial position, the consolidated statement of comprehensive income, the consolidated and parent company statements of cash flows, the consolidated and parent company statements of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council s (FRC s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC s website at Opinion on financial statements In our opinion: Š Š Š the financial statements give a true and fair view of the state of the group s and the parent company s affairs as at 31 December 2016 and of the group s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Š the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: Š Š the information given in the strategic report and directors report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and directors report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: Š Š adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or 206

213 Š Š certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Nicole Martin (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom Date 24 April 2017 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 207

214 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 31 December 2016 Note Revenue (2) 15,363 6,408 Cost of sales (1,827) (888) Gross profit 13,536 5,520 Total administrative expenses (18,677) (11,679) Operating loss (3) (5,141) (6,159) Finance income (6) Finance cost (7) (7,341) (278) Share of post-tax losses of equity accounted Joint Venture (11) (147) (126) Loss on ordinary activities before taxation (12,584) (6,393) Income tax (8) - 31 Loss for the year and total comprehensive income (12,584) (6,362) Basic and diluted loss per share (25) (0.05) (0.06) 208

215 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company number As at 31 December 2016 Note Assets Non-current assets Property, plant and equipment (9) 155,159 43,987 Intangible assets (10) 1, Investment in Joint Venture (11) ,803 45,501 Current assets Inventory (12) 3, Trade and other receivables (13) 8,070 5,994 Cash and cash equivalents 16,722 9,731 Total current assets 28,778 15,915 Total assets 185,581 61,416 Equity Issued capital (16) 2,713 1,113 Share premium 137,943 63,243 Share warrant reserve (17) Share-based payments reserve 2,100 1,081 Merger reserve Retained earnings (34,628) (22,044) Total equity 108,544 43,809 Liabilities Non-current liabilities Interest bearing loans and borrowings (18) 55,280 - Deferred revenue (19) 11,091 9,746 Deferred consideration (15) Total non-current liabilities 66,821 10,194 Current liabilities Deferred revenue (19) 2,864 2,152 Trade and other payables (20) 7,352 5,261 Total current liabilities 10,216 7,413 Total liabilities 77,037 17,607 Total equity and liabilities 185,581 61,416 These financial statements were approved by the Board of Directors and authorised for issue on 24 April 2017 They were signed on its behalf by: W G Mesch Director 209

216 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 31 December 2016 Share capital Share premium Share warrant reserve Share-based payments reserve Merger reserve Retained earnings Balance at 1 January ,111 63, (15,680) 49,863 Comprehensive income Loss and total comprehensive income for the year (6,362) (6,362) Transactions with owners New ordinary shares issued Issue of share held by JSOP (2) (2) Share-based payments Balance at 31 December ,113 63, , (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, ,000 Cost of issuing new ordinary shares - (3,700) (3,700) Share-based payments , ,019 Balance at 31 December , , , (34,628) 108,544 Total 210

217 CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 31 December Cash flows from operating activities Loss before tax (12,584) (6,393) Amortisation of intangibles Share based payments Finance income (45) (170) Finance costs 7, Depreciation 3,572 1,707 Right of use income 29 (224) Increase in inventory (3,797) (107) Increase in receivables (3,023) (1,990) Increase in payables 4, Transaction costs Share of loss from associated company (2,367) (5,360) Tax paid - - Net cash utilised in operating activities (2,367) (5,360) Cash flows from investing activities Interest received Receipts from short-term deposits - 29,000 Acquisition of intangible assets (517) (350) Acquisition of property, plant and equipment (110,560) (12,703) Costs of acquiring property, plant and equipment (1,077) - Proceeds on disposal of property, plant and equipment - 17 Capitalised labour costs (2,946) (2,404) Net cash from investing activities (115,027) 13,782 Cash flows from financing activities Proceeds from the issue of share capital 80,000 - Costs of issuing share capital (3,562) - Debt finance costs paid (5,320) - Drawdown of borrowings 59,800 - Repayment of borrowings - (2,604) Interest paid (6,533) (273) Net cash utilised in financing activities 124,385 (2,877) Net increase in cash and cash equivalents 6,991 5,545 Cash and cash equivalents at beginning of period 9,731 4,186 Cash and cash equivalents at end of period 16,722 9,731 Notes 1 to 27 form part of these financial statements. 211

218 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are summarised below. They have all been applied consistently throughout the year and preceding period. Nature of Group CityFibre Infrastructure Holdings plc (the Company ) is a company registered in England and Wales. The consolidated financial statements for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the Group ). 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 2016 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 2016 have not been early adopted in preparing these financial statements. The implications of these new accounting standards on the Group and Company have not yet been fully evaluated. The main accounting standards which may be relevant to the Group are set out below: IFRS 9 Financial Instruments - (effective for 2019 financial report) 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 and Company 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. IFRS 15 Revenue from Contracts with Customers - (effective for 2018 financial report) IFRS 15 was issued in May 2014 and establishes a five step model to account for revenue arising from contracts with customers. 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. In applying IFRS 15, the Company s initial views on the key changes to accounting requirements under IFRS 15 which may be relevant to the Group include: (a) Sale of goods In relation to IRU contracts with customers in which sale of inventory assets are the only performance obligation, revenue recognition under IFRS 15 is likely to occur at a point in time when control of the asset has transferred to the customer; this generally occurs on execution of the IRU contracts with customers. This would not be a material change from the current accounting treatment. (b) Installation services Contracts with customers in which installation services are provided over the period of construction of the asset could be subject to future changes in accounting treatment. The Group considers these revenues would continue to be recognised over time under IFRS 15. Further analysis needs to be performed on the appropriate timing of revenue recognition. (c) Network lease services Contracts with customers in which network lease services are provided to customers are likely to be recognised over time under IFRS 15 from the time that the network service becomes available for use by the customer. This would not be a material change from the current accounting treatment. 212

219 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (d) 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 may be a requirement to recognise a finance cost in connection with payments received up front from customers ahead of services being provided. IFRS 16 Leases (effective for 2019 financial report) IFRS 16 will require the Group to recognise leases on its premises as both an asset and a rental commitment in its consolidated statement of financial position, but is not expected to have material effect on the Group s results. The implications of these accounting standards on CityFibre Infrastructure Holdings plc are expected to be evaluated in more detail during the financial year 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 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 per cent. equity in the other entity. 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 consolidated financial statements include the Group s share of the total recognised gains and losses of a joint venture using the equity method, from the date that significant influence commenced, based on present ownership interests, less any impairment losses. Under the equity method, investments in joint ventures 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 associate, less any impairment in the value of the investment and the Group s share of any gain on contribution of assets to the joint venture. 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 lease 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. 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. 213

220 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 Network assets - Duct Network assets Cabling Plant and machinery Fixtures and fittings Motor vehicles 5 years 40 years 20 years 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. During the year the estimated useful economic life of Duct was changed from 20 years to 40 years, as management considered this to be a better reflection of the period over which economic benefit is derived from the assets. Taking into account these assets are relatively new, have a long life and there is now enhanced evidence of the durability of these assets, CityFibre updated its accounting estimate during the year. Using the previous useful economic life, the depreciation for the year would have been 6,595,000, which is 3,023,000 greater than the depreciation recognised during the year. 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. 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 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. 214

221 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 includes the cost of specific network assets allocated for sale under indefeasible right of use (IRU) agreements. Net realisable value is based on estimated selling price less additional costs to completion and disposal. Certain network assets were classified as inventory assets during the year. The Group intends to sell these network capacity assets on a regular basis where it is considered to be a strategically viable product. 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 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. 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 vesting period 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. 215

222 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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. 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. The carrying amounts of the Group s property, plant and equipment at 31 December 2016 are disclosed in note 9 to the financial statements. Impairment of non-current assets Property, plant and equipment is recorded at historical cost less accumulated depreciation and any accumulated impairment losses. Network assets comprises assets purchased at cost and fair value and built at cost, together with capitalised labour directly attributable to the cost of construction. 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. Classification of network assets as inventory Certain network assets have been classified as inventory assets during the year. Management believes this classification performed is 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. 216

223 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. In addition to the above matters, refer to note 28 for the accounting treatment for the KCOM asset acquisition. 2. SEGMENTAL REPORTING The Group s operations relate to the management of transformational fibre optic infrastructure and as such the Group has only one segment. All turnover from operations, non-current assets and liabilities arose in the United Kingdom. During the year the entity received revenues of 4,906,000 and 1,539,000 (2015: 772,000 and 729,000) from two major customers arising in the Group s only identified segment. 3. OPERATING LOSS Operating loss is after charging/(crediting): Operating lease income (8,915) (2,374) Depreciation of property, plant and equipment 3,572 1,707 Amortisation of intangibles One-off transaction costs (see note 27) 1,884 - Operating lease costs Land and buildings Others 1, The analysis of auditor s remuneration is as follows: Fees payable for the audit of the Group s annual financial statements Fees payable for the audit of the Group s subsidiaries financial statements Total audit fees Tax services Assurance services 5 2 Corporate finance services - 28 Total non-audit services Total fees STAFF COSTS The average number of staff employed (including directors) by the Group during the financial year amounted to: No. No. Sales Operations Administration

224 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The aggregate payroll costs of the above were: Wages and salaries 7,351 5,131 Social security costs 1, Other pension costs Share-based payments ,646 6,402 The analysis of payroll costs above includes only expensed costs. Capitalised staff costs for 2016 are 2,201,000 (2015: 1,468,000). Wages and salaries for 2016 include one-off bonuses totaling 861,000 in respect of work performed for the KCOM asset acquisition. 5. SHARE BASED PAYMENTS During the year the Company granted share options to key personnel to purchase shares in the entity. The number and weighted average exercise prices of share options are as follows: Weighted average exercise price 2016 Number of options 2016 Weighted average exercise price 2015 Number of options 2015 Outstanding at the beginning of the period ,304, ,208,314 Granted during the period ,052, ,344,670 Forfeited during the period 0.54 (987,670) 0.61 (248,480) Outstanding at the end of the period 21,369, ,304,504 The options outstanding at 31 December 2016 have an exercise price in the range of nil to 0.70 and a weighted average remaining contractual life of 7.9 years. At 31 December 2016, 1,226,391 of the options had vested, but were not exercisable as the options are only exercisable 12 months after the vesting date (2015: 2,122,428). Details of movements in share options in 2016 are as follows: Outstanding at beginning of period Number of options Granted Forfeited/ exercised Outstanding at end of period Exercisable at end of period Exercise price Grant date Expiry date 1,538,235 - (152,245) 1,385, , January January ,388, ,388,886 1,388, January January ,361,166 - (453,722) 907, , January January , ,137 84, May May , , , May May ,680, ,680,411 1,680, May May ,069, ,069, , May May ,231, ,231, , June June ,863,434 - (243,590) 3,619, June June , ,781 70, January January ,112,889 - (138,113) 1,974,776 - nil 21 December December ,052,857-5,052,857 - nil 17 February February ,304,504 5,052,857 (987,670) 21,369,691 6,071,

225 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on two models: the Black-Scholes model and the Monte Carlo Model. The Monte Carlo model is used to value share options that include market-based vesting conditions, while the Black-Scholes model is used to value all other options. The expected life of the option (4 years) is used as an input into both of these models; expectations of early exercise are incorporated into both models. Fair value of share options and assumptions Weighted average fair value of options granted during the year Weighted average share price Weighted average exercise price Expected volatility (expressed as weighted average volatility) 30% 30% Option life 4 4 Expected dividends - - Risk-free interest rate (based on national government bonds) 0.5% 0.5% These assumptions are used in both the Black-Scholes and Monte Carlo models. The expected volatility is based on the historic volatility of the share price (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information Total expense recognised as employee and consultants costs Total liability recognised on cash-settled elements of share option awards FINANCE INCOME Interest on bank deposits FINANCE COSTS Interest on bank loans 7, Other interest ,

226 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. TAXATION Current tax UK corporation tax based on the results for the year at 20 per cent. (2015: per cent.) Total current tax Deferred tax Temporary differences on which deferred tax has been recognised - 29 Effect of change in tax rates - 2 Tax on loss on ordinary activities - 31 Factors affecting current tax credit The tax assessed for the year differs from the standard rate of corporation tax in the UK of 20 per cent. (2015: per cent.) as follows: Loss on ordinary activities before taxation (12,584) (6,393) Tax on loss on ordinary activities at standard rate (2,517) (1,295) Factors affecting charge Effect of change in tax rates (3) 2 Expenses not deductible for tax purposes Origination of temporary differences on which no deferred tax has been 2, recognised Effect of tax losses not recognised Property, plant and equipment differences Total tax - 31 Factors that may affect future tax charges The standard rate of UK corporation tax will reduce to 19 per cent. effective 1 April

227 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. PROPERTY, PLANT AND EQUIPMENT Leasehold property Network assets Plant and machinery Fixtures and fittings Motor vehicles Total Cost At 1 January , ,578 Additions 2 13, ,933 Disposals - (17) - - (8) (25) At 31 December , ,486 At 1 January , ,486 Additions - 113, ,785 Recategorisation - (340) Disposals - (41) (41) At 31 December ,152 1, ,230 Accumulated depreciation At 1 January , ,800 Charge in the year 17 1, ,707 Disposals (8) (8) At 31 December , ,499 At 1 January , ,499 Charge in the year 2 3, ,572 Recategorisation - (2) At 31 December , ,071 Net book value At 31 December ,877 1, ,159 At 31 December , ,987 Included in network assets above are network assets under construction and not yet depreciated which are held at a cost of 733,000 (2015: 8,537,000) at the date of the statement of financial position. Impairment reviews were carried out on the Group s network assets at 31 December Recoverable values for the city network assets and the network asset acquired from KCOM were determined using value in use (VIU) models which calculated the net present value of the future cash flows from the network assets over the useful economic lives of the assets. Assumptions have been made in the VIU models regarding future annual growth rates in revenues over years 1 to 5. The revenue forecasts are based on management approved budgets until 2022 which reflect increases in revenues associated with the commercialisation of a major asset acquired in the year and the Group s other assets which are newly built assets. Management have assessed that the recoverable values of the network assets exceed their carrying amounts at 31 December In performing sensitivity analysis on the forecasts, revenue forecasts were adjusted downwards by 10 per cent. and recoverable values were such that no impairment would occur. 221

228 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. INTANGIBLE ASSETS Website costs Customer Software costs Total contracts Cost At 1 January Additions At 31 December ,539 At 1 January ,539 Additions Disposals (35) - - (35) At 31 December ,540 2,183 Website costs Customer Software costs Total contracts Accumulated amortisation At 1 January Amortisation At 31 December At 1 January Amortisation Disposals (20) - - (20) At 31 December Net book value At 31 December ,171 1,211 At 31 December INVESTMENT IN JOINT VENTURE The following entity has been included in the consolidated financial statements using the equity method: Name Country of incorporation Proportion of ownership interest held YorkCo UK 33% The summarised financial information is as follows: Year ended 31 December Loss from continuing operations Other comprehensive income Total comprehensive income (442) - (442) Investment in Joint Venture As at 1 January Elimination of related party profit (29) Share of comprehensive loss for the year of the equity accounted JV (147) As at 31 December

229 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. INVENTORY Completed assets held-for-sale 3,583 - Raw materials and consumables , Inventory is stated net of an impairment provision of nil (2015: nil). 13. TRADE AND OTHER RECEIVABLES Trade receivables 2, Other debtors 974 2,862 Prepayments Accrued income 3,835 2,021 8,070 5,994 Trade receivables are stated net of a doubtful debt provision of 29,000 (2015: 28,000). 14. DEFERRED TAX Balance at start of period - 31 Credit for the period - (31) Balance at end of period - - Deferred tax assets have not been recognised in respect of the following items: Difference of taxation allowances over depreciation on fixed assets Tax losses available 4,956 4,022 5,638 4,815 Deferred tax assets have not been recognised on the basis that it is uncertain that future taxable profits will be available against which the Group can utilise the benefits there from. 15. DEFERRED CONSIDERATION 000 Balance at start of period 448 Recognised through income statement Deferred consideration arose on the acquisition of the Coventry MAN network. This balance has been discounted over the three year period until the consideration is payable. 223

230 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. CALLED UP SHARE CAPITAL Authorised, called up, allotted and fully paid 265,672,644 ordinary shares of 0.01 each (2015:105,672,644) 2,656 1,056 5,653,865 deferred ordinary shares of 0.01 each (2015: 5,653,865) ,713 1,113 Number 2016 No. Ordinary shares (issued) Balance at start of period 105,672,644 14/01/2016 New ordinary shares issued for cash of 0.50 per share 160,000,000 Balance at end of period 265,672,644 On 22 January 2015, the Company issued 231,781 ordinary shares to an employee benefit trust by way of a joint share ownership plan. The shares were issued at the nominal price of 1p per share. On 14 January 2016, the Company generated gross proceeds of 80 million ( 76.3 million net proceeds) via the issue of 160,000,000 new ordinary shares at a placing price of 50p per ordinary share. 17. RESERVES Share premium This relates to the excess of consideration received for ordinary share capital issued above the nominal value of the shares. Share based payments reserve This relates to the accumulated share based payments costs recognised through profit and loss for equity settled financial instruments (share options) which have not vested prior to the reporting date. Retained earnings/accumulated losses This relates to the accumulated retained earnings/accumulated losses for the current year and prior years. Share warrant reserve This relates to warrants issued to certain investors in CityFibre Holdings Limited to acquire shares in the Company. 18. INTEREST BEARING LOANS AND BORROWINGS Bank loan 55,280-55,280 - Due within one year - - Due after one year 55,280-55,280 - The Group received a gross bank loan of 59.8 million during The bank loan carries interest at 10 per cent. over LIBOR, LIBOR having a floor of 1 per cent., and has a term of 7 years. This loan carries covenants that relate to the leverage, interest cover and ratio of net debt to PPE of CityFibre Limited and CityFibre Networks Limited, as well as the cash balance of CityFibre Holdings Limited. The Group is in compliance with its covenants for the year, and is forecast to remain in compliance with its covenants for future periods to 30 April

231 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Maturity analysis Bank and other loans In one year or less or on demand - - In more than one year but not more than two years - - In more than two years but not more than five years ,280-55, DEFERRED REVENUE Period of performance obligation Deferred revenue In one year or less or on demand 2,864 2,152 In more than one year but not more than two years 1, In more than two years but not more than five years 3,176 2,393 In more than five years 6,664 6,371 13,955 11, TRADE AND OTHER PAYABLES Trade payables 1,091 1,880 Other taxation and social security Other creditors 2,027 1,127 Share-based payments liability (note 5) Accruals 3,387 1,330 7,352 5, OPERATING LEASES Leases as lessor The Group leases its network assets under operating leases which give the lessee the right to control the use of the asset. The leases are for period of between 1 and 20 years. At the end of the reporting period, the future minimum lease payments receivable under non-cancellable operating leases are receivable as follows: Within one year 8,496 2,024 In two and five years 24,026 5,753 After five years 2, ,556 8,

232 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Leases as lessee At the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable as follows: Land and buildings Other items Within one year In two to five years After five years CAPITAL COMMITMENTS Contracted but not provided for 33,242 21,010 33,242 21,010 Capital commitments include amounts in relation to sales contracts signed in 2016 for which construction will take place in FINANCIAL INSTRUMENTS The Group s financial instruments comprise borrowings, cash and cash equivalents and various items such as trade receivables and payables that arise directly from its operations. The main purpose of these instruments is to raise finance for operations. The Group has not entered into derivatives transactions during the year; the Group regularly reviews hedging and treasury requirements. The main risks arising from the Group s financial instruments are interest rate risk, liquidity risk and credit risk. Operations are financed through working capital management and external loan funding. Liquidity risk In order to maintain liquidity to ensure that sufficient funds were available for ongoing operations and future developments, the Group uses long-term finance in the form of a bank loan. This loan carries covenants that relate to the leverage, interest cover and ratio of net debt to PPE of CityFibre Limited and CityFibre Networks Limited, as well as the cash balance of CityFibre Holdings Limited. The Group s trade payables, other payables and accrued expenses are generally due between one and three months and the Company s other financial liabilities were due as follows: Interest bearing loans and borrowings - gross payments Due within one year 7,645 - Due within one to two years 7,645 - Due within two to three years 7,645 - Due within three to four years 7,645 - Due within four to five years 7,645 - Due within five to six years 67, ,314 - Future payments of interest have been calculated based on the principal at 31 December 2016 and the prevailing interest rate. Future payments do not reflect either reductions in interest rates as the Group deleverages or is able to borrow at more favourable rates. 226

233 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Interest rate risk As at 31 December 2016 the bank loan is the only financial instrument subject to interest rate risk; management do not consider this risk to be material. Credit risk The Group s principal financial assets are bank balances and cash, trade and other receivables and investments, The Group s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of financial position are net of allowances for doubtful debts. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Trade receivable ageing Under 30 days overdue 1, Between 31 to 60 days overdue Between 61 to 90 days overdue Over 90 days overdue , A provision of 1,000 was made against doubtful receivables during the year and the balance of the provision was 29,000 at 31 December 2016 (2015: 28,000). Cash and cash equivalents are held in Sterling in UK banks. Fair values In management s opinion there is no material difference between the book value and fair value of any of the Group s financial instruments. Classes of financial instruments The classes of financial instruments are the same as the line items included on the face of the statement of financial position and have been analysed in more detail in the notes to the accounts. All the Group s financial assets are categorised as loans and receivables and all financial liabilities are measured at amortised cost. 24. RELATED PARTY TRANSACTIONS The Company has a related party relationship with its subsidiaries, its associates, its directors and the directors of its subsidiaries. Subsidiaries The subsidiary undertakings of the Company at 31 December 2016 were as follows: Company Country of incorporation Principal activities % holding of ordinary share capital CityFibre Holdings Limited UK Provision of telecommunication 100 networks CityFibre Networks Limited UK Provision of telecommunication 100 networks Fibrecity Holdings Limited UK Holding company 100 Gigler Limited UK Provision of internet services in 100 Bournemouth CityFibre Metro Networks Limited UK Holding company 100 Fibrecity Bournemouth Limited UK Provision of telecommunication 100 networks within Bournemouth CityFibre Limited UK Provision of telecommunication networks 100 All subsidiaries are registered at the following address: 15 Bedford Street, London, WC2E 9HE. 227

234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All transactions with subsidiary undertakings in the year eliminate on consolidation. Transactions with key management personnel The key management personnel are the directors and members of the executive management team. Key management compensation was as follows: Key management personnel 2016 Key management personnel 2015 Highest paid director 2016 Highest paid director Fees 1,459 1, Benefits in kind Pension contributions Bonus 1, Termination fees Share based payments ,404 2, Social security costs Total emoluments 3,772 2, Bonuses paid in 2016 included one-off amounts in respect of the KCOM Group plc transaction, as well as a bonus in respect of work performed in During the year, the Group was charged 12,000 (2015: 29,000) by BJC Networks Ltd, a company owned and controlled by Peter Manning, the former chairman, in respect of consultancy fees. Of this, 1,000 (2015: 20,000) was owed at the year-end. During the year, the Group was charged 89,000 (2015: 255,000) by Teleconsult (2011) Ltd, a company owned and controlled by Seamus Given, a member of key management personnel during the year, in respect of consultancy fees. Of this, nil (2015: 17,000) was owed at the year-end. At 31 December 2016 and 31 December 2015 the directors did not consider there to be an ultimate controlling party. During the year the Group charged YorkCo, an associate of CityFibre Holdings Ltd, 756,000 (2015: 610,000) in respect of services provided. Of this, 91,000 (2015: 102,000) was receivable at the year-end. 25. EARNINGS PER SHARE Basic earnings per share The calculation of basic earnings per share is based on the loss attributable to ordinary shareholders and the weighted average number of Ordinary Shares outstanding during the year calculated as follows: Loss attributable to ordinary shareholders Loss for the period attributable to ordinary shareholders used in basic and diluted earnings per share (12,584,000) (6,362,000) Weighted average number of shares used in basic and diluted earnings per share 259,989, ,656,134 Basic and diluted earnings per share (0.05) (0.06) Potentially issuable shares are not considered to be dilutive because the Group made a loss in 2016 and Options, shares and warrants referred to in notes 5, 16, and 17 could have an effect on future reported earnings per share. 228

235 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. PENSIONS A defined contribution pension scheme is operated by the Group on behalf of the employees of the Group. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension charge represents contributions payable by the Group to the fund and amounted to 270,000 (2015: 119,000). Contributions totalling 29,000 (2015: 15,000) were payable to the fund at the period end and are included in creditors. 27. ADJUSTED EBITDA In addition to measuring total performance in the consolidated statement of comprehensive income, the Group discloses additional analysis which the directors believe enhances the understanding of the underlying operating results of the Group. Items which are excluded from underlying operating results are as follows: Exceptional items are one off costs or income and not expected to recur in future periods. Share based payments are non-cash costs relating to remuneration of staff and the directors. Depreciation is a non-cash cost relating to the amortisation of property plant and equipment. Amortisation and impairment charges are non-cash costs relating to the amortisation and impairment of goodwill and intangible assets. The following table shows the calculations of EBITDA and adjusted EBITDA: Year to Year to 31 Dec Dec Operating loss per accounts (5,141) (6,159) Add back: Depreciation 3,572 1,707 Amortisation EBITDA (1,211) (4,219) Fees in connection with regulatory review Share-based payments charge Operational and financing costs in respect of the Acquisition 1, Operational and financing costs in respect of the Joint Venture Adjusted EBITDA 2,485 (2,920) 28. ACQUISITION OF NETWORK FROM KCOM On 18 January 2016 the Group completed the acquisition of certain network assets from KCOM Group plc. The acquisition constituted a reverse takeover under Rule 14 of the AIM Rules for Companies, requiring de-listing and readmission, which occurred on 14 January The acquisition of assets for 90 million resulted in CityFibre adding network assets and inventory onto its balance sheet. The acquisition was funded by an 80 million placing of new equity at 50p per share and a loan facility of 100 million with Proventus Capital Partners III AB, of which 35 million was utilised in the asset purchase, the balance of 65 million has been made available as a working capital facility for capital projects. The Group treated this transaction as an acquisition of assets, as per IAS 16, rather than a business combination as per IFRS 3. Completion occurred on 18 January 2016, therefore this acquisition was recognised in SUBSEQUENT EVENTS No material subsequent events have occurred subsequent to the reporting date. 229

236 PART 12 HISTORICAL FINANCIAL INFORMATION ON ENTANET Section A Reporting Accountant s report on the historical financial information of Entanet BDO LLP 55 Baker Street London W1U 7EU The Directors CityFibre Infrastructure Holdings plc 15 Bedford Street, London WC2E 9HE 11 July 2017 finncap Limited 60 New Broad Street London EC2M 1JJ Dear Sirs and Madam CityFibre Infrastructure Holdings plc (the Company ) and its subsidiaries (together, the Group ): Entanet Holdings Limited Introduction We report on the financial information set out in Section B of Part 12 of the prospectus dated 11 July 2017 of CityFibre Infrastructure Holdings plc (the Prospectus ). This financial information has been prepared for inclusion in the Prospectus on the basis of the accounting policies set out in note 2 to the financial information of Entanet in Section B of Part 12 of the Prospectus. This report is required by item 20.1 of annex I of the Commission Regulation (EC) No. 809/2004 (the PD Regulation ) and is given for the purpose of complying with that item and for no other purpose. Responsibilities The Directors of the Company are responsible for preparing the financial information in accordance with International Financial Reporting Standards as adopted by the European Union. It is our responsibility to form an opinion on the financial information and to report our opinion to you. Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of annex I of the PD Regulation, consenting to its inclusion in the Prospectus. Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity s circumstances, consistently applied and adequately disclosed. 230

237 We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States or other jurisdictions outside the United Kingdom and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair view of the state of affairs of Entanet Holdings Limited as at 31 December 2014, 31 December 2015 and 31 December 2016 and of its results, cash flows, changes in equity for the period ended 31 December 2014 and the years ended 31 December 2015 and 2016 in accordance with International Financial Reporting Standards as adopted by the European Union. Declaration For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of annex I of the PD Regulation. Yours faithfully BDO LLP Chartered Accountants BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) 231

238 Section B Financial information on Entanet CONSOLIDATED INCOME STATEMENT For the eleven month period ended 31 December 2014 and the years ended 31 December 2015 and 31 December 2016 Note Revenue (4) 25,752,890 31,887,336 35,753,801 Cost of sales (19,650,358) (24,075,078) (28,636,797) Gross profit 6,102,532 7,812,258 7,117,004 Administrative expenses exceptional items (7) - (1,269,876) - Administrative expenses other (4,069,826) (4,690,882) (5,076,254) Depreciation (13) (459,625) (692,336) (809,943) Amortisation (12) (768,323) (890,280) (516,556) Exceptional items reduction in purchase consideration (7) - 3,138,706 - Operating profit (6) 804,758 3,407, ,251 Finance income (8) 14,726 13,392 15,125 Finance charges (8) (1,986,666) (1,087,673) (1,136,285) (Loss)/profit before taxation (1,167,182) 2,333,309 (406,909) Taxation (10) 27, , ,972 (Loss)/profit for the period/year (1,140,165) 2,631,356 (262,937) Other comprehensive income Total comprehensive (loss)/profit for the period/year (1,140,165) 2,631,356 (262,937) (Loss)/earnings per share attributable to the ordinary equity holders of Entanet Basic and diluted (loss)/earnings per share (11) (0.51) 1.11 (0.13) 232

239 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2014, 31 December 2015 and 31 December 2016 Note Assets Non-current assets Intangible assets (12) 7,726,933 6,836,653 6,536,756 Property, plant and equipment (13) 1,852,631 2,230,759 2,684,193 Total non-current assets 9,579,564 9,067,412 9,220,949 Current assets Trade and other receivables (14) 3,399,740 7,310,815 5,673,270 Current tax receivable 20, , ,000 Cash and cash equivalents (15) 1,644,306 2,579,021 2,173,559 Total current assets 5,064,878 10,219,344 8,056,829 Total assets 14,644,442 19,286,756 17,277,778 Equity and liabilities Equity Issued share capital (19) 25,202 25,202 25,201 Share premium (20) 624, , ,800 Merger reserve (20) 300, Retained losses (20) (530,482) 2,100,874 1,837,937 Total equity 419,520 2,750,876 2,487,938 Non-current liabilities Borrowings and loans (17) 9,661,309 9,848,396 10,186,370 Deferred tax (10) 413, , ,721 Provisions (18) - 1,431,173 - Total non-current liabilities 10,075,118 11,544,698 10,319,091 Current liabilities Borrowings and loans (17) 249, , ,936 Trade and other payables (16) 3,900,690 4,676,722 4,003,813 Total current liabilities 4,149,804 4,991,182 4,470,749 Total liabilities 14,224,922 16,535,880 14,789,840 Total equity and liabilities 14,644,442 19,286,756 17,277,

240 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Share Premium Merger Reserve Retained (losses)/ profit Total equity Balance at 1 February ,800 1,599,200 - (587,317) 1,013,683 Comprehensive Income Loss for the period (1,140,165) (1,140,165) Transactions with owners Shares issue during period 25, , , ,002 Shares redeemed during the period (1,600) (2,400) - - (4,000) Transfer from share premium account to retained losses - (1,197,000) - 1,197,000 - Balance at 31 December , , ,000 (530,482) 419,520 Balance at 1 January , , ,000 (530,482) 419,520 Comprehensive Income Profit for the year ,631,356 2,631,356 Transactions with owners Reduction arising from settlement - - (300,000) - (300,000) Balance at 31 December , ,800-2,100,874 2,750,876 Balance at 1 January , ,800-2,100,874 2,750,876 Comprehensive Income Loss for the year (262,937) (262,937) Transactions with owners Reduction arising from repurchase and cancellation of shares (1) (1) Balance at 31 December , ,800-1,837,937 2,487,

241 CONSOLIDATED STATEMENT OF CASH FLOWS For the eleven month period ended 31 December 2014 and the years ended 31 December 2015 and 31 December 2016 Note Cash flows from operating activities (Loss)/profit before taxation (1,167,182) 2,333,309 (406,909) Adjustments for non-cash/non-operating items: Depreciation (13) 459, , ,943 Amortisation (12) 768, , ,556 Reduction in purchase consideration - (3,138,705) - Interest received (8) (14,726) (13,392) (15,125) Interest paid (8) 1,986,666 1,087,673 1,136,285 2,032,706 1,851,501 2,040,750 Changes in working capital: Decrease/(increase) in trade and other receivables 88,738 (911,908) 1,637,545 (Decrease)/increase in trade and other payables (781,153) 786,876 (672,911) Increase/(decrease) in provisions (18) - 1,269,879 (1,431,173) Cash inflow from operations 1,340,291 2,996,348 1,574,211 Taxation paid (204,249) (158,477) 131,072 Net cash inflow from operating activities 1,136,042 2,837,871 1,705,283 Cash flows from investing activities Purchase of property, plant and equipment (627,212) (574,738) (563,771) Purchase of subsidiary undertaking (5,162,772) - - Cash acquired 2,686, Purchase of intangible assets - - (216,659) Interest received 14,726 13,392 15,125 Sale of unlisted investments 4,007, Net cash inflow/(outflow) from investing activities 918,601 (561,346) (765,305) Cash flows from financing activities Issue of ordinary shares 2,055, Redemption of ordinary shares (4,000) Proceeds from shareholder s loans 3,006,105 3,407,245 - Repayment of bank borrowings (3,497,990) (3,500,000) - Repayment of capital element of finance lease contracts (148,660) (353,923) (432,839) Interest paid (1,826,406) (895,132) (912,601) Net cash outflow from financing activities (415,951) (1,341,810) (1,345,440) Net increase/(decrease) in cash and cash equivalents 1,638, ,715 (405,462) Cash and cash equivalents beginning of period 5,614 1,644,306 2,579,021 Cash and cash equivalents at end of period (15) 1,644,306 2,579,021 2,173,

242 NOTES TO THE CONSOLIDATED HISTORICAL FINANCIAL INFORMATION 1. GENERAL INFORMATION Entanet Holdings Limited ( Entanet ) is a private company incorporated in England and Wales. Entanet is domiciled in England and the registered office is Stafford Park 6, Telford, Shropshire, TF3 3AT. Entanet is the parent company of Entanet International Limited (collectively, the Entanet Group ). The principal activity of the Entanet Group is a wholesale communications provider, delivering and supporting a channel of partners and resellers with range of connectivity and telecommunication products and services, including broadband, Ethernet, private and wide area networks, IP and PSTN telephony, colocation, hosting and associated services. Details of Entanet s subsidiaries are included in note 21. The Entanet Group s historical consolidated financial information is presented for the eleven months ended 31 December 2014 and the years ended 31 December 2015 and 31 December The subsidiary of the Entanet Group is 100 per cent. owned within the Entanet Group and has been included in the historical consolidated financial information with effect from 20 February 2014 in the periods of the historical financial information presented. The subsidiary included is Entanet International Limited. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation This historical financial information presents the financial track record of the Entanet Group for the two years ended 31 December 2015 and 2016 and the eleven-month period ended 31 December This financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS ), and with those parts of the Companies Act 2006 as applicable to companies reporting under IFRS. This historical financial information is prepared in accordance with IFRS under the historical cost convention, as modified by the use of fair value for financial instruments measured at fair value. The historical financial information is presented in pounds sterling ( ) except where otherwise indicated. The Entanet Group has applied IFRS for the first time from 1 February The principles and requirements for first time adoption of IFRS are set out in IFRS 1. IFRS 1 allows certain exemptions in the application of particular standards to prior periods in order to assist companies with the transition process. The Entanet Group did not make any acquisitions prior to 1 February The principal accounting policies adopted in the preparation of the historical financial information are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. (b) Going concern This historical financial information relating to the Entanet Group has been prepared on the going concern basis. The directors of Entanet (the Entanet Directors ) have a reasonable expectation that the Entanet Group has adequate resources to continue in operational existence for the foreseeable future and for at least one year from the date of this historical financial information. For these reasons, they continue to adopt the going concern basis in preparing the Entanet Group s historical financial information. (c) New standards, amendments and interpretations The following new standards have not been early adopted in this historical financial information: - IFRS 9 Financial instruments effective 1 January 2018; - IFRS 15 Revenue from contracts with customers, effective 1 January 2018; and - IFRS 16 Leases, effective 1 January The Entanet Group notes IFRS15 Revenue from Contracts with Customers which is to be adopted for all accounting periods beginning on or after 1 January At this time, it is not practical to provide a reasonable estimate in relation to the effect of IFRS15 until a detailed review has been completed. In assessing any impact during the detailed review the Entanet Group will consider the revenue streams and current recognition policies, as disclosed in note 2 (e) below, in relation to the move from the recognition of revenue on the transfer of risks and rewards to the transfer of control. 236

243 (d) (e) (f) The Entanet Group also notes IFRS16 Leases which takes effect and will be adopted in This IFRS will require the Entanet Group to recognise the lease on its premises as both an asset and a rental commitment in its consolidated statement of financial position. Details of the Entanet Group s future obligations are disclosed in note 22(b). The directors have yet to assess the impact of IFRS 16 on the Entanet Group s financial information. 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 Trade and Other Receivables 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. Basis of consolidation Subsidiaries Subsidiaries are all entities (including structured entities) over which the Entanet Group has control. The Entanet Group controls an entity when the Entanet Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Entanet Group. They are deconsolidated from the date that control ceases. The Entanet Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Entanet Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Transactions eliminated on consolidation Intra-group balances, and any gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the historical financial information. Losses are eliminated in the same way as gains, but only to the extent that there is no evidence of impairment. Revenue recognition Revenues generated from ADSL network services (including broadband connections) and leased line network services (including ethernet, private and wide area networks) are recognised on a straight line basis over the period of the services rendered. Billings in advance for future periods after the reporting date are deferred and recognised as deferred income on the balance sheet. Revenues generated from call charges are recognised on an accruals basis in the reporting period in which the calls are made. Revenues generated from excess usage (overage) are recognised on an accruals basis in the reporting period in which usage has been exceeded by customers. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. The following criteria must also be met before revenue is recognised: Rendering of services Revenue from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all the following conditions are satisfied: Š Š Š the amount of revenue can be measured reliably; is it probable that the Entanet Group will receive the consideration due under the contract; the stage of completion of the contract at the end of the reporting period can be measured reliably, and; Š the costs incurred and the costs to complete the contract can be measured reliably. Segmental reporting The Entanet Group has one single business segment and operates in a single geographical market in the UK. This is consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance, has been 237

244 (g) (h) (i) identified as the management team comprising the Executive Directors of Entanet who make strategic decisions. Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Entanet Group and the cost of the item can be measured reliably. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Š Plant, machinery and motor vehicles 20 per cent. straight line Š Fixtures, fittings and equipment 20 per cent. straight line The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, or if there is an indication of a significant change since the last reporting date. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other operating income in the Consolidated Statement of Comprehensive Income. Intangible Assets Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Entanet Group s interest in the fair value of the identifiable assets and liabilities of a subsidiary, at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss. For the purpose of impairment testing, goodwill is allocated to each of the Entanet Group s cash generating units expected to benefit from the synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss recognised for goodwill is not reversed in a subsequent period. Other Intangible assets Customer contracts, which have arisen through a business combination, are assessed by reviewing their net present value of future cash flows. Customers contracts are amortised over their useful life, not exceeding 5 years. Software costs that are directly attributable to IT systems controlled by the Entanet Group are recognised as Intangible Assets and the costs are amortised over their useful lives not exceeding 5 years. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). 238

245 Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Financial assets Classification The Entanet Group classifies its financial assets as loans and receivables, or as available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments. They are initially recognised at fair value, and are subsequently stated at amortised cost using the effective interest method. Impairment of financial assets Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Entanet Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired asset. (k) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. (l) Trade and other payables Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. (m) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are de-recognised from the balance sheet when the obligation specified in the contract is discharged, is cancelled or expires. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other operating income or finance costs. Borrowings are classified as current liabilities unless the Entanet Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (n) Employee benefits: Pension obligations The Entanet Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Entanet Group pays fixed contributions into a separate entity. The Entanet Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Entanet Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (o) Provisions A provision is recognised in the balance sheet when the Entanet Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. The increase in the provision due to the passage of time is recognised in finance costs. 239

246 (p) Share capital Ordinary shares are classified as equity. There are various classes of ordinary shares in issue, as detailed in note 20. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds. (q) Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Entanet Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Entanet Group s general policy on borrowing costs (see below). Contingent rentals are recognised as expenses in the periods in which they are incurred. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The total costs associated with operating leases are taken to the income statement on an accruals basis over the period of the lease. (r) Net finance costs Finance costs Finance costs comprise interest payable on borrowings, and direct issue costs, and are expensed in the period in which they are incurred. Finance income Finance income comprises interest receivable on funds invested. Interest income is recognised in profit or loss as it accrues using the effective interest method. (s) Income tax Income tax for the years presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income or in equity, in which case it is recognised in other comprehensive income or in equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. The following temporary differences are not recognised if they arise from a) the initial recognition of goodwill, and b) for the initial recognition of other assets or liabilities in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES The preparation of the Entanet Group s historical financial information under IFRS as endorsed by the EU requires the Entanet directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. 240

247 The Entanet directors consider that the following estimates and judgements are likely to have the most significant effect on the amounts recognised in the consolidated financial information. Carrying value of intangible assets and property, plant and equipment In determining whether there are indicators of impairment of the Entanet Group s non-current assets, the Entanet directors take into consideration various factors including the economic viability and expected future financial performance of the asset and when it relates to the intangible assets arising on a business combination, the expected future performance of the business acquired. Contingent asset In determining the accounting treatment for the Contingent Asset (refer to note 26), the directors have assessed that, as at 31 December 2016, Ofcom s investigation was in progress and had not yet been concluded. At this time, it was uncertain whether the group would be entitled to compensation and therefore, a receivable was not recognised. Following receipt of the offer of compensation subsequent to the year end, there may be some upside associated with the amount which will be recognised as an asset and exceptional income during the next financial period. The final settlement amount is subject to final agreement between Entanet s management and its supplier, and therefore the impact of this matter on the group s results for the next financial period is dependent on future events. 4. REVENUE The Entanet Group s revenue arises entirely from the rendering of services and in the geographical market of the United Kingdom. 5. EMPLOYEES AND DIRECTORS (a) Staff costs for the Entanet Group were as follows: Wages and salaries 2,372,612 3,109,467 3,420,829 Social security costs 229, , ,059 Other pension costs 28,475 46,127 48,750 2,630,667 3,469,741 3,814,638 Average monthly number of people (including executive directors) employed by activity: No. No. No. Management and administration Marketing and sales (b) Directors emoluments Salaries and fees 301, , ,699 Post-employment benefits 5,590 8,612 11,039 Amounts paid to third parties for Directors services 49,065 36,000 36, , , ,738 Two of Entanet s directors were in Entanet s defined contribution pension scheme during the periods above. Highest paid director Salaries and fees 136, , ,072 Post-employment benefits 3,203 5,727 6, , , ,

248 (c) Key management compensation The following table details the aggregate compensation paid in respect of the members of the Board of directors Salaries and fees 301, , ,699 Post-employment benefits 5,590 8,612 11,039 Amounts paid to third parties for Directors services 49,065 36,000 36, , , ,738 Key management personnel include all directors who together have authority and responsibility for planning, directing, and controlling the activities of the Entanet Group. Two directors were in the Entanet Group s defined contribution pension scheme during the periods above. 6. OPERATING PROFIT Operating profit is stated after charging/(crediting): Depreciation -Owned plant and equipment 308, , ,006 -Leased plant and equipment 150, , ,937 Amortisation of other intangible assets 768, , ,556 Operating lease costs 9,025,505 10,878,243 12,501,494 Exceptional items (note 7): -Provision for liabilities and claims - 1,269, Reduction in purchase consideration - (3,138,706) - Auditor remuneration (note 9) 27,250 46,280 37, EXCEPTIONAL ITEMS Exceptional items as disclosed in the consolidated income statements are as follows: Provision for liabilities and claims - 1,269,876 - Reduction in purchase consideration - (3,138,706) - During 2016, the Entanet Group settled a claim from the liquidator of Changtel Limited, a company previously associated with the Entanet Group. This related to certain loan repayments received in the normal course of business by the Entanet Group in 2013 which were subject to a claim under S127 of the Insolvency Act notified in An exceptional charge of 1,269,879 was recorded in 2015 in respect of the provision that was made for the cost of settlement together with associated legal costs. All claims have been settled in full during 2016 at the amounts provided and there is no further liability in this regard. In 2016, the Entanet Group successfully concluded claims against a former shareholder of Entanet International and certain related parties connected to that shareholder in connection with dividends previously paid by Entanet International and warranty claims under the Sale and Purchase Agreement in connection with the amount paid by Entanet as consideration for the acquisition of Entanet International in A receivable was recognised in 2015 within other debtors for the amount of the settlement recoverable. The corresponding credit has been recognised as an exceptional gain on the basis the credit represents consideration falling outside of the period 12 months after the acquisition date. 242

249 8. NET FINANCE COSTS Interest income 14,726 13,392 15,125 Total finance income 14,726 13,392 15,125 Finance lease interest payable 5,010 2,310 31,192 Loan stock early redemption premium (1) 998, Finance costs on loans 983,646 1,085,363 1,105,093 Total finance costs 1,986,666 1,087,673 1,136,285 (1) Loan stock early redemption premium relates to loans classified as liabilities held at fair value through profit or loss that were redeemed early in AUDITOR REMUNERATION The Entanet Group obtained the following services from Entanet s auditors at costs as detailed below: Fee payable to Entanet s auditor and its associates for the audit of consolidated financial statements 25,150 37,800 28,600 Fees payable to Entanet s auditor and its associates for taxation compliance and financial reporting services 2,100 8,480 8,480 27,250 46,280 37, TAXATION Analysis of charge in year Current tax charge on profits for the period/year 51, Adjustments in respect of prior periods - (149,367) (11,564) Income tax charge/(credit) 51,734 (149,367) (11,564) Deferred tax Origination and reversal of temporary differences (78,751) (127,348) (131,685) Adjustments in respect of prior years - - (978) Changes to tax rates - (21,332) 255 Taxation credit on (loss)/profit from ordinary activities (27,017) (298,047) (143,972) The standard rate of corporation tax in the UK changed from 24 per cent to 23 per cent with effect from 1 April 2013 then to 21 per cent. with effect from 1 April 2014, and subsequently to 20 per cent. with effect from 1 April The Entanet Group s profits for the years ended 31 December 2014, 31 December 2015 and 31 December 2016 are taxed at an effective rate of per cent., per cent. and 20 per cent. respectively. In September 2016, the UK government passed legislation that resulted in the substantively enacted tax rates in the UK being 19 per cent. from 1 April 2017 and 17 per cent. from 1 April This has had a subsequent effect on the Entanet Group deferred tax asset being recognised. 243

250 The tax charge for the year differs from the standard rate of corporation tax in the UK of 20 per cent. (2015: per cent., 2014: per cent.). The differences are explained below: (Loss)/profit on ordinary activities before tax (1,167,182) 2,333,309 (406,909) (Loss)/profit on ordinary activities multiplied by the rate of corporation tax in the UK as above (250,944) 472,495 (81,382) Effects of: Expenses not deductible ,035 Adjustments to tax charge in respect of prior years - (149,367) (12,542) Utilisation of brought forward losses - - (28,248) Unrelieved tax losses carried forward 240, Deferred tax not recognised 2,568 64,315 - Tax credits - (22,308) (29,210) Deferred tax rate adjustment 5,995 (27,958) 5,375 Exceptional gain purchase consideration claim (non-taxable) - (635,591) - Other items (25,752) - - Total taxation credit (27,017) (298,047) (143,972) Deferred tax assets and liabilities are offset where the Entanet Group has a legally enforceable right to do so. The following is an analysis of the deferred tax balances for financial reporting purposes Capital allowances 56,091 (2,599) 19,056 Tax losses carried forward 6,900 6,210 14,292 Arising on intangible from business combination (476,800) (268,740) (166,069) (413,809) (265,129) (132,721) 11. (LOSS)/EARNINGS PER SHARE The basic earnings/(loss) per share is based on a profit/(loss) for the period/year attributable to equity holders of the parent company of ( 262,937), (2015: 2,631,356, 2014: ( 1,140,165)) and the weighted average number of ordinary shares in issue for the year of 2,074,980 (2015: 2,374,980, 2014: 2,237,983). There are no instruments in issue that would give rise to the above earnings per share being diluted. 244

251 12. INTANGIBLE ASSETS Trademarks Development costs Customer contracts Software and technology Goodwill Cost or deemed cost At 1 February Acquired in business combination 364-2,702, ,750 5,343,154 8,495,256 At 31 December ,702, ,750 5,343,154 8,495,256 Total Accumulated amortisation At 1 February Amortisation ,778 77, ,323 At 31 December ,778 77, ,323 Net book amount At 31 December ,012, ,295 5,343,154 7,726,933 Cost At 1 January 2015 and 31 December ,702, ,750 5,343,154 8,495,256 Accumulated amortisation At 1 January ,778 77, ,323 Amortisation ,425 89, ,280 At 31 December ,491, ,205-1,658,603 Net book amount At 31 December ,211, ,545 5,343,154 6,836,653 Cost or deemed cost At 1 January ,702, ,750 5,343,154 8,495,256 Additions at cost - 216, ,659 At 31 December ,659 2,702, ,750 5,343,154 8,711,915 Accumulated amortisation At 1 January ,491, ,205-1,658,603 Amortisation ,702 89, ,556 At 31 December ,917, ,954-2,175,159 Net book amount At 31 December , , ,796 5,343,154 6,536,756 The goodwill relates to the acquisition of the business of Entanet International on 20 February 2014, and has not been impaired since acquisition. The goodwill fully relates to the one cash generating unit (CGU). The Entanet Group estimates the recoverable amount of the CGU using fair value less costs to sell methodology using a valuation multiple of earnings in transactions involving comparable businesses to measure fair value. The total recoverable amount in respect of goodwill as assessed by the management of the Entanet Group using the above assumptions is greater than the carrying amount and therefore no impairment charge has been booked in each period. The Entanet Group management consider that it is not reasonably possible for the assumptions to change so significantly as to eliminate the excess. 245

252 13. PROPERTY, PLANT AND EQUIPMENT Motor vehicles Fixtures, fittings and equipment Cost At 1 February Additions - 994, ,386 On acquisition of subsidiary 3,258 1,314,612 1,317,870 At 31 December ,258 2,308,998 2,312,256 Depreciation At 1 February Charge for the period/year 1, , ,625 At 31 December , , ,625 Net book amount At 31 December ,423 1,851,208 1,852,631 Cost At 1 January ,258 2,308,998 2,312,256 Additions - 1,070,464 1,070,464 At 31 December ,258 3,379,462 3,382,720 Depreciation At 1 January , , ,625 Charge for the period 1, , ,336 At 31 December ,258 1,148,703 1,151,961 Net book amount At 31 December ,230,759 2,230,759 Cost At 1 January ,258 3,379,462 3,382,720 Additions - 1,263,377 1,263,377 Disposals - (148,867) (148,867) At 31 December ,258 4,493,972 4,497,230 Depreciation At 1 January ,258 1,148,703 1,151,961 Charge for the period - 809, ,943 Disposals - (148,867) (148,867) At 31 December ,258 1,809,779 1,813,037 Net book amount At 31 December ,684,193 2,684,193 The net book value of assets held under hire purchase contracts was as follows: Fixtures, fittings and equipment 660, ,572 1,257, TRADE AND OTHER RECEIVABLES Amounts falling due within one year: Trade receivables 2,336,672 2,460,968 3,519,328 Other receivables 528,206 4,225,134 1,503,699 Prepayments and accrued income 534, , ,243 Total 3,399,740 7,310,815 5,673,

253 The Entanet Group has no receivables past due or considered to be impaired at the balance sheet date. All receivables are denominated in Sterling. 15. CASH AND CASH EQUIVALENTS Cash at bank and in hand 1,644,306 2,579,021 2,173,559 All bank balances are denominated in Sterling. 16. TRADE AND OTHER PAYABLES 1,644,306 2,579,021 2,173, Trade payables 1,555,676 2,272,332 1,724,156 Taxation and social security 239, , ,977 Accruals 924, , ,414 Deferred income 1,180,613 1,125,559 1,326,266 3,900,690 4,676,722 4,003,813 Trade and other payables comprise amounts outstanding for trade purchases and on-going costs. All trade and other payables are due in less than 1 year. All balances are denominated in Sterling. 17. BORROWINGS AND LOANS Non-current Shareholder loan notes 9,459,001 9,569,631 9,793,314 Obligations under finance lease and hire purchase contracts 202, , ,056 9,661,309 9,848,396 10,186,370 Current Obligations under finance lease and hire purchase contracts 249, , ,936 Total borrowings and loans 249, , ,936 The Entanet directors consider the carrying value of all financial liabilities to be equivalent to their fair value. Details of the various borrowings shown above are given below: Shareholder loans The Entanet Group maintains loans with various shareholders. The loans are repayable in more than two but less than five years and are secured by a fixed and floating charge over the assets of the Entanet Group. The loans attract interest ranging between 6 per cent. and per cent. per annum. The loans with an interest rate of per cent. include a bullet premium on redemption of 2.6 million, the interest charge is determined on the amortised cost basis as set out in the accounting policies. Obligations under finance lease and hire purchase contracts The Entanet Group has taken out various hire purchase contracts on the purchase of property, plant and equipment. Obligations under hire purchase contracts are secured on the related fixed asset. The arrangements attract interest ranging from 6 per cent. to 8 per cent., are repayable over periods ranging between one year and three years and are secured on the assets to which they relate. 247

254 18. PROVISIONS Provisions for liabilities and claims At beginning of period - - 1,431,173 Charge in the year - 1,269,879 - Provision for costs attributed to cost of acquisition - 161,294 - Utilised in the year - - (1,431,173) At end of period - 1,431,173 - During 2016, the Entanet Group settled a claim from the liquidator of Changtel Limited, a company previously associated with the Entanet Group. This related to certain loan repayments received in the normal course of business by the Entanet Group in 2013 which were subject to a claim under S127 of the Insolvency Act notified in An exceptional charge of 1,269,879 was recorded in 2015 in respect of the provision that was made for the cost of settlement together with associated legal costs. All claims have been settled in full during 2016 at the amounts provided and there is no further liability in this regard. 19. CALLED UP SHARE CAPITAL No. No. No. Allotted, called up and fully paid A ordinary shares of 0.01 each 20,000 20,000 20,000 B ordinary shares of each 450, , ,000 C ordinary shares of each 1,350,000 1,350,000 1,350,000 D ordinary shares of each 5,000 5,000 5,000 E1 ordinary shares of 0.10 each 120, , ,990 E2 ordinary shares of 0.10 each 130, , ,990 F ordinary shares of each 300, , Allotted, called up and fully paid A ordinary shares of 0.01 each B ordinary shares of each C ordinary shares of each D ordinary shares of each E1 ordinary shares of 0.10 each 11,999 11,999 11,999 E2 ordinary shares of 0.10 each 12,999 12,999 12,999 F ordinary shares of each ,202 25,202 25,201 During 2016, 300,000 F ordinary shares were bought back and cancelled by Entanet as part of the settlement claims detailed in note 7. In addition to the allotted share capital the authorised share capital of Entanet includes 53,571 G ordinary shares of each that are authorised but not issued. Voting rights The holders of A and C ordinary shares and D preferred ordinary shares do not carry any voting rights. The holders of E1 and E2 shares are in aggregate entitled to 25 per cent. of votes at a general meeting. The holders of B, F and G shares are entitled to one voting right, such votes in aggregate carrying a percentage right in proportion to the remaining votes after E share votes divided by the total votes of all classes of share. 248

255 Dividends The D preferred ordinary share are, from the 2019 financial year, entitled to dividends out of the profits of Entanet available for distribution at an amount of 20 per cent. of net profit of the Entanet Group before amortisation costs, less any dividends paid to B ordinary shareholders. The E ordinary shares in aggregate shall be entitled to 25 per cent. of dividends declared to ordinary shareholders The B, F and G ordinary shares rank pari passu in the entitlement to 75 per cent. of dividends declared to ordinary shareholders. The A and C ordinary shares have no dividend rights. Capital The A and C ordinary shares have a fixed capital value in aggregate of 1,000 and 16,250 respectively. The D preferred ordinary shares have a fixed value of 5,000 in aggregate. The E ordinary shares are entitled in aggregate to 25 per cent. of the capital of the Entanet Group. The B, F and G ordinary shares rank equally in the entitlement to 75 per cent. of the capital of Entanet. 20. RESERVES Share premium Includes all current and prior period premiums on shares allotted. Merger reserve The merger reserve relates to the differences between the issue value and nominal value of equity shares that are issued in connection with the acquisition of the share capital of another company, where the acquisition meets the merger relief conditions of the Companies Act. As part of the settlement with the former shareholders in 2015, it was agreed that 300,000 F ordinary shares that were issued as part of the purchase consideration would be repurchased by the company at their nominal value of The value of 0.3 million that was originally attributed to these shares as part of the purchase consideration, and which was reflected in the merger reserve in the 2014 balance sheet, was similarly credited to the income statement as an exceptional item. Retained losses Includes all current and prior period retained profits and losses. 21. INVESTMENTS IN SUBSIDIARIES Principal subsidiary undertakings of Entanet Entanet substantially owns directly or indirectly the whole of the issued and fully paid ordinary share capital of its subsidiary undertakings. Subsidiary undertakings of Entanet are presented below: Subsidiary % Country of incorporation Proportion of ordinary shares held by parent Proportion of ordinary shares held by the Entanet Group Registered Address Entanet International UK 100% 100% Stafford Park, Telford, Shropshire TF3 3AT Entanet is the parent company of Entanet International Limited. The principal activity of the Entanet Group is a wholesale communications provider, delivering and supporting a channel of partners and resellers with range of connectivity and telecommunication products and services, including broadband, Ethernet, private and wide area networks, IP and PSTN telephony, colocation, hosting and associated services. The results of all companies are included within the consolidated financial statements. All Group companies prepare financial statements to 31 December. There are no restrictions on Entanet s ability to access or use the assets and settle the liabilities of Entanet s subsidiaries. 249

256 22. COMMITMENTS AND CONTINGENCIES (a) Capital commitments There were no capital commitments at 31 December 2016, 31 December 2015 or 31 December (b) Operating lease commitments The Entanet Group has leased various properties under non-cancellable operating lease agreements. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Within 1 year 5,174,179 5,016,903 7,256,533 Later than 1 year and less than 5 years 6,368,736 5,061,869 7,962,736 After 5 years 689, , ,900 12,232,615 10,705,772 15,658,169 The operating lease commitment for the rental of the property is calculated on a straight-line basis over the length of the lease. 23. FINANCIAL INSTRUMENTS CLASSIFICATION AND MEASUREMENT Financial assets Financial assets measured at amortised cost comprise cash, trade receivables and other receivables, as follows: Trade receivables 2,336,672 2,460,968 3,519,328 Other receivables 528,206 4,225,134 1,503,699 Cash at bank 1,644,306 2,579,021 2,173,559 4,509,184 9,265,123 7,196,586 Financial liabilities Financial liabilities measured at amortised cost comprise trade payables, accruals, other loans and obligations under finance leases and hire purchase contracts as follows: Trade payables 1,555,676 2,272,332 1,724,156 Accruals 924, , ,414 Other loans 9,459,001 9,569,631 9,793,314 Obligations under finance leases and hire purchase contracts 451, , , FINANCIAL INSTRUMENTS RISK MANAGEMENT 12,390,845 13,404,880 13,026,876 Financial risk management The Entanet Group s activities expose it to a variety of financial risks: market risk (including cash flow interest rate risk), credit risk and liquidity risk. Risk management is carried out by the board of directors. The Entanet Group uses financial instruments to provide flexibility regarding its working capital requirements and to enable it to manage specific financial risks to which it is exposed. 250

257 (a) Market risk i. Interest rate risk The interest rate profile of the Entanet Group s borrowings is shown below: Interest rate profile of interest bearing borrowings Fixed rate borrowings Shareholder loans Hire purchase contracts Debt Interest rate Debt Interest rate Debt 9,459,001 6% to 15.87% 9,659,631 6% to 8% 593,225 6% to 15.87% 9,793,314 6% to 8% 859,992 Interest rate 6% to 15.87% 6% to 8% 451,422 Weighted average cost of fixed rate borrowings 12% 12% 12% Details of the above borrowings can be found in note 17 above. Interest rate sensitivity analysis As the interest rates on shareholder loans and hire purchase contracts are fixed, interest rate risk is considered to be very low. (b) Liquidity risk A maturity analysis of the Entanet Group s Shareholder borrowings is shown below: Less than one year 881, , ,400 One to two years 1,762,800 1,762, ,400 Two to five years 10,550,401 9,779,631 10,003,314 Total including interest cash flows 13,194,601 12,423,831 11,766,114 Less: interest cash flows (3,735,600) (2,854,200) (1,972,800) Total principal cash flows 9,459,001 9,569,631 9,793,314 A maturity analysis of the Entanet Group s hire purchase contracts is shown below: Less than one year 249, , ,114 One to two years 228, , ,621 Total including interest cash flows 477, , ,735 Less: interest cash flows (26,328) (43,506) (37,743) Total principal cash flows 451, , ,992 Capital risk management The Entanet Group is both equity and debt funded and these two elements combine to make up the capital structure of the business. Equity comprises share capital, share premium and retained losses and is equal to the amount shown as Equity in the balance sheet. Debt comprises various items which are set out in further detail above and in note 17. The Entanet Group s current objectives when maintaining capital are to: Safeguard the Entanet Group s ability as a going concern so that it can continue to pursue its growth plans; 251

258 Provide a reasonable expectation of future returns to shareholders; and Maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long term. The Entanet Group sets the amount of capital it requires in proportion to risk. The Entanet Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust the capital structure, the Entanet Group may issue new shares or sell assets to reduce debt. During the periods ended 31 December 2014, 31 December 2015 and 31 December 2016 the Entanet Group s strategy remained unchanged. Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Entanet Group. In order to minimise the risk, the Entanet Group endeavours only to deal with companies which are demonstrably creditworthy and this, together with the aggregate financial exposure, is continuously monitored. The maximum exposure to credit risk is the value of the outstanding amount. The directors do not consider that there is any concentration of risk within either trade or other receivables. There are no impairments to trade or other receivables in each of the years presented. Credit risk on cash and cash equivalents is considered to be very low as the counterparty is a major UK listed bank. 25 RELATED PARTY TRANSACTIONS Loans and transactions concerning directors and officers of Entanet During the financial period 31 December 2014, Elsa Chen acquired 130, E2 ordinary shares in Entanet for a consideration of 130,000. During the financial period ended 31 December 2014, Ian Brewer acquired 35, E1 ordinary shares in Entanet for a consideration of 35,000. During the financial period ended 31 December 2014, Richard Atkins acquired 50, E1 ordinary shares in Entanet for cash consideration of 50,000 and 50,000 loan notes in Entanet for cash consideration of 50,000 which were still outstanding at that period end. Interest amounting to 6,000 (2015: 6,000; period ended 31 December 2014: 5,178) was paid to him during the year ended 31 December 2016 in respect of these loan notes. Shares were acquired at a market rate in arms length transactions. 26 CONTINGENT ASSET Ofcom announced on 6 November 2015 that it had opened up an own-initiative investigation into whether one of the group s telecommunications supplier s use of deemed consent over the period from 1 September 2012 to 31 December 2014 in relation to the provision of certain Ethernet Services was in accordance with the relevant regulatory obligations. On 27 March 2017, Ofcom s investigation was concluded. Ofcom determined that the supplier had, on various occasions, breached its regulatory obligations which applied to the provision of the services and had failed to pay compensation in the event of the late delivery of those services. Subsequent to the 2016 year-end balance sheet date, the company is in receipt of a settlement offer dated 19 May 2017 from the supplier. The company is not at liberty to disclose the nature and amount of the offer as at 31 December 2016 as this could be seriously prejudicial to the position of the company. The settlement offer represents a minimum compensation value and the precise terms are legally required to remain confidential until the final settlement has been agreed; breaching the confidentiality agreement would prejudice the Entanet Group s position in terms of negotiating the final settlement amount. The directors anticipate that settlement will be reached within four months of the offer date. As at 31 December 2016, this represents a contingent asset. 252

259 27 ACQUISITION OF ENTANET INTERNATIONAL The 2014 results of Entanet International Limited prior to and subsequent to its acquisition by Entanet Holdings on 20 February 2014 and for the year ended 31 December 2014 were as follows: INCOME STATEMENT 1 January 2014 to 20 February February 2014 to 31 December January 2014 to 31 December 2014 Revenue 4,071,914 25,752,890 29,824,804 Cost of sales (2,985,260) (19,650,358) (22,635,618) Gross profit 1,086,654 6,102,532 7,189,186 Administrative expenses (479,090) (3,876,377) (4,355,467) Depreciation (65,226) (459,630) (524,856) Amortisation (15) (90) (105) Operating profit 542,323 1,766,435 2,308,758 Finance income 1 19,145 19,146 Finance charges - (5,010) (5,010) Profit before taxation 542,324 1,780,570 2,322,894 Taxation (124,747) 29,943 (94,804) Profit and total comprehensive income for the year 417,577 1,810,513 2,228,690 The net assets acquired, and the resulting goodwill were as follows: Fair value Assets Property, plant and equipment 1,317,870 Intangibles 3,152,102 Trade and other receivables 3,672,422 Cash and bank balances 2,686,605 Total assets 10,828,999 Liabilities Trade and other payables 5,079,381 Deferred tax liability 630,000 Total liabilities 5,709,381 Net assets acquired 5,119,618 Consideration Cash consideration 5,162,772 Loan notes issued 5,000,000 Shares issued 300,000 10,462,772 Goodwill on acquisition 5,343, TRANSITION TO IFRS The Entanet Group s effective IFRS transition date for the purposes of this financial information was 1 February The effects of transition to IFRS on the balance sheets at 1 February 2014, 31 December 2014, 31 December 2015 and 31 December 2016, and the income statements for the period ended 31 December 2014, year ended 31 December 2015 and year ended 31 December 2016, are shown below. The adjustments required on applying IFRS, as numbered in the tables below, were: 1) Removal of amortisation of Goodwill from 1 February 2014 onwards; 2) Moving the adjustment for the reduction in consideration from Goodwill to Exceptional Items; and 3) Moving the acquisition costs resulting from the 20 February 2014 acquisition from Goodwill to the Income Statement. 253

260 Balance sheets at 1 Febuary 2014 and 31 December 2014 Note As at 1 February** 2014 UK GAAP previously reported As at 31 December 2014 FRS 102* previously reported Transition adjustments As at 31 December 2014 IFRS Assets Non-current assets Intangible assets (1,3) - 7,011, ,403 7,726,933 Property, plant and equipment - 1,852,631-1,852,631 Total non-current assets - 8,864, ,403 9,579,564 Current assets Investments (4) 4,007, Trade and other receivables - 3,399,740-3,399,740 Current tax receivable - 20,832-20,832 Cash and cash equivalents 5,614 1,644,306-1,644,306 Total current assets 4,012,868 5,064,878-5,064,878 Total assets 4,012,868 13,929, ,403 14,644,442 Equity and liabilities Equity Issued share capital 1,800 25,202-25,202 Share premium 1,599, , ,800 Merger reserve - 300, ,000 Retained (losses)/profit (587,317) (1,245,885) 715,403 (530,482) Total equity 1,013,683 (295,883) 715, ,520 Non-current liabilities Borrowings and loans (5) 2,997,990 9,661,309-9,661,309 Deferred tax - 413, ,809 Total non-current liabilities 2,997,990 10,075,118-10,075,118 Current liabilities Borrowings and loans - 249, ,114 Trade and other payables 1,195 3,900,690-3,900,690 Total current liabilities 1,195 4,149,804-4,149,804 Total liabilities 2,999,185 14,224,922-14,224,922 Total equity and liabilities 4,012,868 13,929, ,403 14,644,442 * The Entanet Group adopted FRS 102 for the first time for the year ended 31 December The previously reported numbers above reflect the adjustments to the comparatives within the 31 December 2015 FRS 102 accounts. ** There are no transitional adjustments to the opening balance sheet at 1 February As at 1 February 2014 (4) Investments (at cost) Other investments 4,007,254 (5) Borrowings and loans Other loans due to shareholders 2,997,

261 Income statement for the period ended 31 December 2014 Note FRS 102* previously reported Transition adjustments IFRS Revenue 25,752,890-25,752,890 Cost of sales (19,650,358) - (19,650,358) Gross profit 6,102,532-6,102,532 Administrative expenses (3) (3,820,583) (248,557) (4,069,140) Depreciation (459,625) - (459,625) Amortisation (1) (1,732,969) 963,960 (769,009) Operating profit 89, , ,758 Finance income 14,726-14,726 Finance charges (1,986,666) - (1,986,666) Loss before taxation (1,882,585) 715,403 (1,167,182) Taxation 27,017-27,017 Loss for the period (1,855,568) 715,403 (1,140,165) Other comprehensive income Total comprehensive loss for the period (1,855,568) 715,403 (1,140,165) * The Entanet Group adopted FRS 102 for the first time for the year ended 31 December The previously reported numbers above reflect the adjustments to the comparatives within the 31 December 2015 FRS 102 accounts. 255

262 Balance sheet at 31 December 2015 Note FRS 102 previously reported Transition adjustments IFRS Assets Non-current assets Intangible assets (1,2) 2,622,895 4,213,758 6,836,653 Property, plant and equipment 2,230,759-2,230,759 Total non-current assets 4,853,654 4,213,758 9,067,412 Current assets Trade and other receivables 7,310,815-7,310,815 Current tax receivable 329, ,508 Cash and cash equivalents 2,579,021-2,579,021 Total current assets 10,219,344-10,219,344 Total assets 15,072,998 4,213,758 19,286,756 Equity and liabilities Equity Issued share capital 25,202-25,202 Share premium 624, ,800 Retained (losses)/profit (2,112,884) 4,213,758 2,100,874 Total equity (1,462,882) 4,213,758 2,750,876 Non-current liabilities Borrowings and loans 9,848,396-9,848,396 Deferred tax 265, ,129 Provisions 1,431,173-1,431,173 Total non-current liabilities 11,544,698-11,544,698 Current liabilities Borrowings and loans 314, ,460 Trade and other payables 4,676,722-4,676,722 Total current liabilities 4,991,182-4,991,182 Total liabilities 16,535,880-16,535,880 Total equity and liabilities 15,072,998 4,213,758 19,286,

263 Income statement for the period ended 31 December 2015 Note FRS 102 previously reported Transition adjustments IFRS Revenue 31,887,336-31,887,336 Cost of sales (24,075,078) - (24,075,078) Gross profit 7,812,258-7,812,258 Administrative expenses (4,690,882) - (4,690,882) Depreciation (692,336) - (692,336) Amortisation (1) (1,249,929) 359,649 (890,280) Exceptional items (2) (1,269,876) 3,138,706 1,868,830 Operating (loss)/profit (90,765) 3,498,355 3,407,590 Finance income 13,392-13,392 Finance charges (1,087,673) - (1,087,673) (Loss)/profit before taxation (1,165,046) 3,498,355 2,333,309 Taxation 298, ,047 (Loss)/profit for the year (866,999) 3,498,355 2,631,356 Other comprehensive income Total comprehensive (loss)/profit for the year (866,999) 3,498,355 2,631,

264 Balance sheet at 31 December 2016 Note FRS 102 previously reported Transition adjustments IFRS Assets Non-current assets Intangible assets (1) 1,963,349 4,573,407 6,536,756 Property, plant and equipment 2,684,193-2,684,193 Total non-current assets 4,647,542 4,573,407 9,220,949 Current assets Trade and other receivables 5,673,270-5,673,270 Current tax receivable 210, ,000 Cash and cash equivalents 2,173,559-2,173,559 Total current assets 8,056,829-8,056,829 Total assets 12,704,371 4,573,407 17,277,778 Equity and liabilities Equity Issued share capital 25,201-25,201 Share premium 624, ,800 Retained (losses)/profit (2,735,470) 4,573,407 1,837,937 Total equity (2,085,469) 4,573,407 2,487,938 Non-current liabilities Borrowings and loans 10,186,370-10,186,370 Deferred tax 132, ,721 Provisions Total non-current liabilities 10,319,091-10,319,091 Current liabilities Borrowings and loans 466, ,936 Trade and other payables 4,003,813-4,003,813 Total current liabilities 4,470,749-4,470,749 Total liabilities 14,789,840-14,789,840 Total equity and liabilities 12,704,371 4,573,407 17,277,

265 Income statement for the period ended 31 December 2016 Note FRS 102 previously reported Transition adjustments IFRS Revenue 35,753,801-35,753,801 Cost of sales (28,636,797) - (28,636,797) Gross profit 7,117,004-7,117,004 Administrative expenses (5,076,254) - (5,076,254) Depreciation (809,943) - (809,943) Amortisation (1) (876,205) 359,649 (516,556) Operating profit 354, , ,251 Finance income 15,125-15,125 Finance charges (1,136,285) - (1,136,285) Loss before taxation (766,558) 359,649 (406,909) Taxation 143, ,972 Loss for the year (622,586) 359,649 (262,937) Other comprehensive income Total comprehensive loss for the year (622,586) 359,649 (262,937) 259

266 PART 13 HISTORICAL FINANCIAL INFORMATION ON ENTANET INTERNATIONAL FOR THE SEVEN WEEKS ENDED 20 FEBRUARY 2014 Section A Accountant s Report BDO LLP 55 Baker Street London W1U 7EU The Directors CityFibre Infrastructure Holdings plc 15 Bedford Street, London WC2E 9HE 11 July 2017 finncap Limited 60 New Broad Street London EC2M 1JJ Dear Sirs and Madam CityFibre Infrastructure Holdings plc (the Company ) and its subsidiaries (together, the Group ): Entanet International Limited Introduction We report on the financial information set out in Section B of Part 13. This financial information has been prepared for inclusion in the prospectus dated 11 July 2017 of CityFibre Infrastructure Holdings plc (the Prospectus ) on the basis of the accounting policies set out in note 2 to the financial information. This report is required by item 20.1 of annex I of the Commission Regulation (EC) No. 809/2004 (the PD Regulation ) and is given for the purpose of complying with that item and for no other purpose. Responsibilities The directors of the Company are responsible for preparing the financial information in accordance with International Financial Reporting Standards as adopted by the European Union. It is our responsibility to form an opinion on the financial information and to report our opinion to you. Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of annex I of the PD Regulation, consenting to its inclusion in the Prospectus. Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements 260