TIDMCITY
RNS Number : 1609K
CityFibre Infrastructure Hldgs PLC
05 July 2017
-THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED
UNDER THE MARKET ABUSE REGULATION (EU NO. 596/2014).
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY,
IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES,
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REGULATIONS OF SUCH JURISDICTION. NO PUBLIC OFFER OF SECURITIES IS
BEING MADE BY VIRTUE OF THIS ANNOUNCEMENT.
THIS ANNOUNCEMENT DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS
EQUIVALENT DOCUMENT. NOTHING IN THIS ANNOUNCEMENT SHALL CONSTITUTE
OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER TO SELL
OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR
ANY SECURITIES REFERRED TO HEREIN NOR SHOULD IT FORM THE BASIS OF,
OR BE RELIED ON IN CONNECTION WITH, ANY CONTRACT OR COMMITMENT
WHATSOEVER.
INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SECURITIES
REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF THE
INFORMATION IN THE PLACING PROOF OF THE PROSPECTUS (THE "P-PROOF")
AND THE PROSPECTUS TO BE PUBLISHED BY CITYFIBRE INFRASTRUCTURE
HOLDINGS PLC IN CONNECTION WITH THE PLACING AND OFFER FOR
SUBSCRIPTION. COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION,
BE AVAILABLE FROM THE REGISTERED OFFICE OF CITYFIBRE INFRASTRUCTURE
HOLDINGS PLC.
5 July 2017
CityFibre Infrastructure Holdings PLC
Placing to raise minimum gross proceeds of GBP185 million
Offer for Subscription to raise up to a further GBP15
million
- Commencement of FTTH network build in 5 to 10 UK towns &
cities
- Acquisition of Entanet, provider of wholesale communications
services
- Expansion of full fibre metro networks into new towns &
cities
CityFibre Infrastructure Holdings PLC ("CityFibre" or the
"Company"), a designer, builder, owner and operator of fibre optic
infrastructure in UK towns and cities, today announces that it
intends to raise minimum gross proceeds of GBP185 million at 55
pence per share, fully underwritten by Citigroup, finnCap, Liberum
and Macquarie (the "Banks") (the "Firm Placing"), with the
intention to raise further proceeds through an accelerated
bookbuilding process which will be launched immediately following
this announcement (the "ABB Placing") (together, the "Placing"). In
addition, the Company intends to raise further gross proceeds of up
to GBP15 million through a non-underwritten offer for subscription
(the "Offer for Subscription").
The Company is pleased with the support of its new and existing
shareholders, including Woodford Investment Management Ltd who has
agreed to subscribe for 65,454,545 shares in the Firm Placing for a
total consideration of GBP36.0 million.
The net proceeds of the Placing and the Offer for Subscription
(together, the "Capital Raising") will be used to fund the growth
of the Company's full fibre network in the UK, including:
-- The expansion of CityFibre's fibre metro networks from 42 UK
towns and cities today to not less than 50 towns and cities by
2020;
-- The commencement of construction of Fibre to the Home
("FTTH"), addressing the residential market, in five to ten UK
towns and cities during 2018; and
-- In support of the Company's strategy to focus on wholesale fibre services and accelerate the commercialisation of CityFibre's fibre assets, the acquisition of Entanet International Limited ("Entanet"), a provider of wholesale communications services, for a consideration of GBP29 million in cash (on a cash free, debt free basis and subject to adjustments).
Growth in data traffic is driving demand for investment in
digital communications infrastructure and particularly in fibre
optic broadband networks. The UK has one of the highest levels of
internet adoption in the world, but lags behind nearly all OECD
nations in terms of fibre infrastructure. Recent UK government and
regulatory policy for greater competition and investment has
resulted in a promising pipeline of projects for which CityFibre,
as a builder and wholesaler of full fibre infrastructure, is well
positioned.
Today's announcement follows CityFibre's successful
participation in the FTTH trial in York. The trial demonstrated
strong demand from Internet Service Providers ("ISPs") and
consumers for gigabit speed FTTH services, and showed the
propensity for consumers to switch to FTTH connections. The York
trial demonstrates the commercial viability of FTTH in the UK.
CityFibre is now in advanced negotiations with ISPs that will
market full-fibre broadband services to consumers, deployed over
its networks.
The acquisition of Entanet, which has approximately 1,500
channel partners having conducted business with it in the 12 months
ending 31 December 2016, will substantially increase the Company's
wholesale capabilities and its relationships with service
providers, thereby extending CityFibre's channels to market. By
combining CityFibre's fibre infrastructure with Entanet's
established wholesale products, systems and relationships with
Channel Partners, the Company expects to realise synergies of over
GBP3 million per annum within three years.
CityFibre will extend its current metro footprint selectively,
ensuring that each new metro project is anchored by long term
contracts that deliver a satisfactory return on the capital
investment required and that cover a substantial portion of
projected capital expenditure. The same policy will apply to the
extension or expansion of existing town and city networks to serve
public sector, business and mobile customers.
Placing details
-- Fully underwritten Firm Placing of 336,363,636 Placing Shares
in the Company, representing approximately 126.6% of CityFibre's
existing issued ordinary share capital, to both existing and new
institutional investors and raising gross proceeds of minimum
GBP185 million
-- Potential to increase the Placing through an accelerated
bookbuilding process, to commence immediately following this
announcement, with the intention to raise further proceeds
-- The Placing is to be made at 55 pence per Placing Share,
representing a 9.09% discount to the Closing Price of 60.50 pence
per Ordinary Share on 4 July 2017
-- New Ordinary Shares in respect of which firm commitments are
obtained from investors in the ABB Placing will be underwritten by
the Banks upon completion
Offer for Subscription details
-- A non underwritten Offer for Subscription to raise up to
GBP15 million, comprising up to 27,272,727 Offer for Subscription
Shares, will be open to certain qualifying shareholders of the
Company
-- The Offer for Subscription is to be made at 55 pence per
Offer for Subscription Share, representing a 9.09% discount to the
Closing Price of 60.50 pence per Ordinary Share on 4 July 2017
-- Expected to open on or around 11 July 2017, alongside the publication of the Prospectus
A Prospectus containing full details of the Capital Raising is
expected to be published on or around 11 July 2017 and a General
Meeting in connection with the Capital Raising will be held on or
around 27 July 2017. Shareholders' approval is required for the
Capital Raising, including the Placing and the Offer for
Subscription, by way of a special resolution.
An application will be made to the London Stock Exchange for the
New Ordinary Shares to be admitted to AIM, and it is expected that
Admission will become effective and dealings in the New Ordinary
Shares will commence on or around 28 July 2017. The Prospectus will
be submitted to the National Storage Mechanism and will be
available for inspection at www.morningstar.co.uk/uk/nsm following
publication.
Greg Mesch, Chief Executive Officer of CityFibre, said:
"We are building Gigabit Britain, driven by growing demand from
Internet Service Providers and their customers to switch to
full-fibre infrastructure. Our announcement to enter the
residential market is the first step in our vision to bring gigabit
connectivity to millions of UK homes and small businesses.
"This is about more than just better broadband - this is about
future-proofing the digital infrastructure we've all come to rely
on at work, at school, at home and in our communities. It's also
about stimulating the market, creating jobs and growth. The
Government and Ofcom recognise that investment in alternative fibre
networks will catalyse growth in the UK's digital economy as well
as reduce the country's reliance on BT Openreach.
"With Entanet now part of the CityFibre family, our combined
offering will accelerate the take-up of services over our growing
network footprints, leveraging Entanet's enviable channel partner
network and continuing to transform digital connectivity for
thousands of UK businesses.
"Today's capital raising also better positions CityFibre to
undertake larger projects coming forward with the public sector as
well as mobile operators in readiness for their small-cell
roll-outs and 5G services."
Citigroup Global Markets Limited ("Citigroup" or "Citi") is
acting as Sole Global Coordinator, Joint Bookrunner and Joint
Underwriter, while Macquarie Capital (Europe) Limited
("Macquarie"), Liberum Capital Limited ("Liberum") and finnCap Ltd
("finnCap") are together acting as Joint Bookrunners and Joint
Underwriters in connection with the Capital Raising. N M Rothschild
& Sons Limited ("Rothschild") is acting as financial
adviser.
The preceding summary should be read in conjunction with the
full text of the following announcement, together with the
Prospectus.
The person responsible for making this announcement on behalf of
the Company is Terry Hart.
Enquiries
CityFibre Infrastructure Holdings plc +44 (0)845 293 0774
Greg Mesch, Chief Executive Officer
Terry Hart, Chief Financial Officer
James Enck, Head of Investor Relations
Vigo Communications +44 (0)20 7830 9703
Jeremy Garcia
Fiona Henson
Natalie Jones
Citigroup Global Markets Limited +44 (0) 207 986 4000
Sole Global Co-ordinator, Joint Bookrunner and Joint
Underwriter
Stuart Field
Alex Carter
Sumit Guha
finnCap Ltd +44 (0)20 7220 0500
Joint Bookrunner and Joint Underwriter
Stuart Andrews
Christopher Raggett
Simon Johnson
Liberum +44 (0)20 3100 2000
Joint Bookrunner and Joint Underwriter
Steve Pearce
Richard Bootle
Cameron Duncan
Macquarie Capital +44 (0) 203 037 2000
Joint Bookrunner and Joint Underwriter
Ben Bailey
Alex Reynolds
Rothschild +44 (0)20 7280 5000
Financial Advisor
Anton Black
Peter Nicklin
Noel Monro
Important information
The capitalised terms set out in this announcement are as
defined in the Appendix.
This announcement does not constitute a prospectus. Nothing in
this announcement should be interpreted as a term or condition of
or form a part of, and should not be construed as, any offer to
purchase, otherwise acquire, subscribe for, sell or otherwise
dispose of any securities or the solicitation of an offer to buy or
subscribe for any securities of the Company, nor should it or any
part of it form the basis of, or be relied on in connection with,
any contract or commitment whatsoever. Any decision to purchase,
otherwise acquire, subscribe for, sell or otherwise dispose of any
securities in the Company must be made only on the basis of the
information contained in the P-Proof and the Prospectus.
This announcement and the information contained herein is not
for release, publication or distribution, directly or indirectly,
in whole or in part, in or into or from the United States,
Australia, Canada, Japan, New Zealand or any other jurisdiction
where to do so might constitute a violation of the relevant laws or
regulations of such jurisdiction.
This announcement does not constitute or form part of any offer
to sell, or any solicitation of an offer to buy, securities in the
United States. Securities may not be offered or sold in the United
States absent (i) registration under the U.S. Securities Act of
1933, as amended (the "Securities Act") or (ii) an available
exemption from registration under the Securities Act. The Placing
Shares and the Offer for Subscription Shares have not been and will
not be registered under the Securities Act or under the securities
laws of any state or other jurisdiction of the United States and
may not be offered, sold, resold or delivered, directly or
indirectly, in or into the United States absent registration except
pursuant to an exemption from or in a transaction not subject to
the registration requirements of the Securities Act. No public
offering of the Placing Shares and the Offer for Subscription
Shares is being made in the United States.
The Placing and Offer for Subscription is being made (i) outside
the United States in offshore transactions (as defined in
Regulation S under the Securities Act ("Regulation S")) meeting the
requirements of Regulation S under the Securities Act; and (ii) to
a limited number of "qualified institutional buyers" within the
meaning of Rule 144A under the Securities Act as well as to a
limited number of other investors, in transactions that are exempt
from or not subject to the registration requirements of the
Securities Act. Persons receiving this announcement (including
custodians, nominees and trustees) must not forward, distribute,
mail or otherwise transmit it in or into the United States or use
the United States mails, directly or indirectly, in connection with
the Placing and Offer for Subscription.
This announcement does not constitute an offer to sell or issue
or a solicitation of an offer to buy or subscribe for Placing
Shares and Offer for Subscription Shares in any jurisdiction
including, without limitation, the United States, Australia,
Canada, Japan, New Zealand or any other jurisdiction in which such
offer or solicitation is or may be unlawful (an "Excluded
Jurisdiction"). This announcement and the information contained
herein are not for publication or distribution, directly or
indirectly, to persons in an Excluded Jurisdiction unless permitted
pursuant to an exemption under the relevant local law or regulation
in any such jurisdiction. No action has been taken by the Company,
Citi, finnCap, Rothschild, Liberum, Macquarie or any of their
respective affiliates that would permit an offer of the Placing
Shares or New Ordinary Shares or possession or distribution of this
announcement or any other publicity material relating to such
Placing Shares or Offer for Subscription Shares in any jurisdiction
where action for that purpose is required. Persons receiving this
announcement are required to inform themselves about and to observe
any such restrictions.
This announcement is directed at and is only being distributed
to: (A) persons in member states of the European Economic Area who
are "qualified investors", as defined in article 2.1(e) of the
Prospective Directive (Directive 2003/71/EC) as amended, (B) if in
the United Kingdom, persons who (i) have professional experience in
matters relating to investments who fall within the definition of
"investment professionals" in article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005 as
amended (the "FPO") or fall within the definition of "high net
worth companies, unincorporated associations etc." in article
49(2)(a) to (d) of the FPO and (ii) are "qualified investors" as
defined in section 86 of FSMA or (C) otherwise to persons to whom
it may otherwise lawfully be communicated (each, a "Relevant
Person"). No other person should act or rely on this announcement
and persons distributing this announcement must satisfy themselves
that it is lawful to do so. By accepting the terms of this
announcement, you represent and agree that you are a Relevant
Person.
Persons (including, without limitation, nominees and trustees)
who have a contractual or other legal obligation to forward a copy
of this announcement should seek appropriate advice before taking
any action.
Certain statements in this announcement are forward-looking
statements which are based on the Company's expectations,
intentions and projections regarding its future performance,
anticipated events or trends and other matters that are not
historical facts. These forward-looking statements, which may use
words such as "aim", "anticipate", "believe", "intend", "estimate",
"expect" and words of similar meaning, include all matters that are
not historical facts. These forward-looking statements involve
risks, assumptions and uncertainties that could cause the actual
results of operations, financial condition, liquidity and dividend
policy and the development of the industries in which the Company's
businesses operate to differ materially from the impression created
by the forward-looking statements. These statements are not
guarantees of future performance and are subject to known and
unknown risks, uncertainties and other factors that could cause
actual results to differ materially from those expressed or implied
by such forward-looking statements. Given those risks and
uncertainties, prospective investors are cautioned not to place
undue reliance on forward-looking statements. Forward-looking
statements speak only as of the date of such statements and, except
as required by the Financial Conduct Authority ("FCA"), the AIM
Rules, the Disclosure Guidance and Transparency Rules, the London
Stock Exchange or applicable law or relevant regulation, the
Company undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Any indication in this announcement of the price at which the
Ordinary Shares have been bought or sold in the past cannot be
relied upon as a guide to future performance. Persons needing
advice should consult an independent financial adviser. No
statement in this announcement is intended to be a profit forecast
and no statement in this announcement should be interpreted to mean
that earnings per share of the Company for the current or future
financial years would necessarily match or exceed the historical
published earnings per share of the Company.
Citigroup Global Markets Limited ("Citi"), which is authorised
by the Prudential Regulation Authority and regulated by the
Prudential Regulation Authority and the FCA, is acting as sole
global co-ordinator, Joint Bookrunner and Joint Underwriter to
CityFibre and no one else in connection with the Capital Raising,
and will not be responsible to any person other than CityFibre for
providing the regulatory and legal protections afforded to clients
of Citi nor for providing advice in relation to the contents of
this announcement or any matter, transaction or arrangement
referred to in it.
finnCap Ltd ("finnCap"), which is authorised and regulated in
the United Kingdom by the FCA, is acting for CityFibre and for no
one else in connection with the Capital Raising and will not be
responsible to anyone other than CityFibre for providing the legal
and regulatory protections afforded to clients of finnCap or for
affording advice in relation to the Capital Raising, or any other
matter, transaction or arrangement referred to in this
announcement.
N M Rothschild & Sons Limited ("Rothschild"), which is
authorised and regulated in the United Kingdom by the FCA, is
acting for CityFibre and for no one else in connection with the
Capital Raising and will not be responsible to anyone other than
CityFibre for providing the protections afforded to clients of
Rothschild or for providing any advice in relation to the Capital
Raising, or any other matter, transaction or arrangement referred
to in this announcement.
Liberum Capital Limited ("Liberum"), which is authorised and
regulated in the United Kingdom by the FCA, is acting for CityFibre
and for no one else in connection with the Capital Raising and will
not be responsible to anyone other than CityFibre for providing the
legal and regulatory protections afforded to clients of Liberum or
for affording advice in relation to the Capital Raising, or any
other matter, transaction or arrangement, referred to in this
announcement.
Macquarie Capital (Europe) Limited ("Macquarie"), which is
authorised and regulated in the United Kingdom by the FCA, is
acting for CityFibre and for no one else in connection with the
Capital Raising and will not be responsible to anyone other than
CityFibre for providing the protections afforded to clients of
Macquarie or for providing advice in relation to the Capital
Raising, or any matter referred to in this announcement.
Neither the content of the Company's website (or any other
website) nor the content of any website accessible from hyperlinks
on the Company's website (or any other website) is incorporated
into, or forms part of, this announcement.
CityFibre Infrastructure Holdings PLC
Placing to raise minimum gross proceeds of GBP185 million
Offer for Subscription to raise up to a further GBP15
million
- Commencement of FTTH network build in 5 to 10 UK towns &
cities
- Acquisition of Entanet, provider of wholesale communications
services
- Expansion of full fibre metro networks into new towns &
cities
1. Introduction
CityFibre Infrastructure Holdings PLC, a designer, builder,
owner and operator of fibre optic infrastructure in UK towns and
cities, today announces that it intends to raise minimum gross
proceeds of GBP185 million at 55 pence per share, fully
underwritten by Citi, finnCap, Liberum and Macquarie (the "Firm
Placing"), with the intention to raise further proceeds through an
accelerated bookbuilding process which will be launched immediately
following this announcement (the "ABB Placing") (together, the
"Placing"). In addition, the Company intends to raise further gross
proceeds of up to GBP15 million through a non-underwritten Offer
for Subscription.
The net proceeds of the Capital Raising will be used to fund the
growth of the Company's full fibre network in the UK, including
expansion of its metro networks to not less than 50 towns and
cities by 2020 and the commencement of construction of Fibre to the
Home in five to ten of these towns and cities during 2018. In
support of the Company's strategy to focus on wholesale fibre
services, part of the proceeds will also be used to fund the
acquisition of Entanet, a provider of wholesale communications
services.
The Capital Raising comprises the issue of a minimum of
336,363,636 Placing Shares at a price of 55 pence per Placing Share
(the "Offer Price") pursuant to the Firm Placing and up to
27,272,727 New Ordinary Shares at the Offer Price pursuant to the
Offer for Subscription (together representing 136.9% of the
existing issued ordinary share capital of the Company, and 57.8% of
the enlarged issued ordinary share capital immediately following
completion of the Capital Raising assuming the minimum number of
Placing Shares are issued and the Offer for Subscription is taken
up in full). In addition, the Capital Raising comprises an
accelerated bookbuilding process at the Offer Price, which will be
launched immediately following this announcement.
The Board believes the Capital Raising, which is subject to
Shareholder approval, to be in the best interests of CityFibre and
the Shareholders as a whole.
2. Background to and reasons for the Capital Raising
Since its formation in 2011, CityFibre has become established as
an independent provider of wholesale fibre infrastructure for
internet service providers as well as for mobile operators.
CityFibre provides fibre connectivity services through designing,
building, owning, and operating fibre optic network infrastructure.
The Group is a wholesale operator of fibre networks in towns and
cities outside London. The Group provides open access, shared fibre
infrastructure that enables gigabit-capable connectivity for
internet service providers and mobile network operators, who
in-turn deliver digital connectivity solutions to their end
customers spanning the public sector, business, and residential
markets.
The Company now has a presence in 42 towns and cities in the UK
providing infrastructure that is an alternative to Openreach.
Having demonstrated its capability to deploy fibre infrastructure
to address market demand, the Company now has opportunities to
accelerate and expand its fibre network, and is undertaking the
Capital Raising in order to capitalise on those opportunities.
Growth in global data transmission is driving continued
investment in digital communications infrastructure, and
particularly in fibre optic broadband networks. Global IP traffic
is forecasted to grow at a compounded rate of 22% per annum between
2015 and 2020, driven by adoption of higher-speed broadband and the
proliferation of digital connectivity devices, digital services and
cloud computing.
The UK has one of the highest levels of internet adoption in the
world, but in terms of fibre infrastructure it lags behind nearly
all OECD nations. As of December 2016, 79% of premises in Spain and
70% of premises in Portugal had access to full fibre broadband. In
contrast, the UK's coverage of full fibre was approximately 2% of
premises (Source: Ofcom plans for a full-fibre future, Ofcom). The
broadband network in the UK is currently heavily reliant on copper
connections. Together Openreach, the infrastructure division of BT
plc, and Virgin Media Limited have announced plans to extend fibre
infrastructure to, in aggregate, four million premises by 2020,
which would only increase the percentage of UK premises with fibre
access to 15%, well below many other OECD nations.
Both Ofcom, the communications regulator, and the previous UK
government have introduced policies supporting the rollout of fibre
across the UK. For example, in February 2016 Ofcom outlined its
strategy to promote investment in new fibre infrastructure whilst
reducing the industry's dependence on Openreach, targeting the
creation of a new fibre infrastructure connecting to 40% or more UK
premises. As a builder of 'full fibre' infrastructure (meaning
there is no copper or co-axial cable used for the provision of data
connectivity services in CityFibre's networks) CityFibre is well
positioned to take advantage of these policy and regulatory
changes.
CityFibre's strategy to deploy high capacity fibre
infrastructure across many UK towns and cities, offering wholesale
access to internet service providers and mobile operators, is
aligned to continued demand for fibre infrastructure across four
primary market verticals:
-- Public sector - fibre connectivity to council buildings, schools, hospitals, CCTV;
-- Business - fibre connections to enterprises and SMEs (often
referred to as Fibre to the Premises - FTTP);
-- Mobile operators - fibre connections to mobile base stations
and small cells for 4G and future 5G mobile services (often
referred to as Fibre to the Tower - FTTT); and
-- Consumers - fibre connections to homes (often referred to as Fibre to the Home - FTTH).
CityFibre has grown its network, organically and through
acquisition, to 42 UK towns and cities with 3,383 kilometres of
ducted network. In addition, over the past two years the Company
has undertaken three successful pilot projects:
-- Deployment of Fibre to the Tower (FTTT) in Hull with MBNL,
Three and EE - marking the UK's first city-wide deployment of dark
fibre infrastructure to mobile base stations;
-- Deployment of Fibre to the Home (FTTH) in York in conjunction
with Sky and TalkTalk-demonstrating the opportunity to expand
CityFibre's metro networks to full fibre connections for small
businesses and homes; and
-- Deployment of a new fibre infrastructure in Southend-on-Sea
that uses Openreach's ducts for some parts of the fibre networks
construction - demonstrating the Company's ability to integrate its
network with Openreach infrastructure and reduce overall
construction costs.
Having demonstrated its capability to deploy infrastructure to
address the demands of the Company's four primary market verticals,
including FTTT and FTTH, CityFibre has an opportunity to accelerate
and expand its operations. Recent UK government policy for greater
competition and investment in 'full fibre' networks has resulted in
a promising pipeline of projects.
The Directors believe that there are significant opportunities
to grow the Company's fibre network and its customer base and is
undertaking the Capital Raising to support these opportunities. The
Company will seek to extend its current metro footprint
selectively, ensuring that each new metro project is anchored by
long term contracts that deliver a satisfactory return on the
capital investment required and that cover a substantial portion of
projected capital expenditure. The same policy will apply to the
extension or expansion of existing town and city networks to serve
public sector, business and mobile customers. In relation to the
construction of Fibre to the Home, the Company will work with
Channel Partners to secure commitments to use its FTTH network, or
to procure registrations of interest on a street or neighbourhood
basis, and would only proceed with construction if there were to be
sufficiently robust demonstrations of demand. In support of the
Company's strategy to focus on wholesale fibre services,
part of the proceeds of the Placing will also be used to fund
the Entanet Acquisition.
3. Use of Proceeds from the Capital Raising
Of the net proceeds of the Capital Raising, GBP29 million (on a
cash free debt free basis and subject to adjustments) will be used
to acquire Entanet, substantially increasing the Company's
wholesale capabilities and its relationships with Channel Partners,
especially in the business and consumer market verticals, thereby
extending CityFibre's channels to market.
CityFibre intends to apply the balance of the net proceeds to
fund the growth of the Company's full fibre network across UK towns
and cities, serving its four primary market verticals of public
sector, mobile, business and consumer.
It is the Directors' intention that following the Capital
Raising, the Company will pursue its growth opportunities without
drawing down further on its existing debt facilities and will seek
to refinance its existing debt facilities during 2018 with a higher
level of leverage, in order to optimise its capital structure to
fund its future growth.
In particular, the Company plans to apply the net proceeds of
the Capital Raising:
-- to expand the construction of CityFibre's metro fibre
infrastructure to no less than 50 towns and cities by 2020;
-- to increase metro connectivity in existing towns and cities;
-- to initiate the Company's FTTH plan in a select number of
towns and cities within CityFibre's existing or expanded metro
footprint, with the intention of commencing construction of an FTTH
network in five to ten of these towns and cities during 2018,
delivering approximately 300 to 400 FTTH cabinets by the end of
2018; and
-- to pursue opportunities for, and commence the deployment of,
FTTT connectivity to mobile base stations and small cells
The markets in which CityFibre operates are dynamic and the
opportunities potentially significant. The Company will review
opportunities as they mature and deploy the net proceeds
accordingly. To expand its fibre infrastructure in line with its
strategy, an indicative use of proceeds, assuming the minimum Firm
Placing and full take up under the Offer for Subscription, is as
follows:
-- acquisition and integration of Entanet - approximately 17% of the net proceeds
-- expand metro infrastructure to new towns and cities, and
expand metro connectivity in existing towns and cities (including
potential deployment of FTTT connectivity) - 35% to 40% of the net
proceeds
-- commence the construction of FTTH - 40% to 50% of the net proceeds
In assessing potential competing demands for capital, the
Company intends to maintain its financial discipline. CityFibre's
fibre infrastructure in each town and city is targeted to operate
at gross margins of approximately 90%. At maturity (being
approximately 5 to 7 years after first cabinet construction) the
metro infrastructure is targeted to deliver a revenue yield on net
capital expenditure of greater than 25% on a town or city basis.
FTTH infrastructure is targeted at maturity to deliver a revenue
yield on net capital expenditure of 18 to 22% per cabinet. In both
cases, revenue yield is the recurring annual revenue generated
measured against the cumulative capital expenditure net of up-front
fees paid by the customer for fibre connections.
3.1 Extend CityFibre's footprint to more towns and cities
The Company currently owns and operates metro fibre networks in
42 towns and cities. CityFibre seeks to secure anchor contracts to
support entry into no less than eight new towns and cities,
bringing the total footprint to no less than 50 towns and cities by
2020. The Directors believe that in the long term the Company could
target up to 100 towns and cities.
Market demand for new fibre infrastructure is giving rise to an
accelerated expansion opportunity. For example, the previous UK
government's policy for 'full fibre' is set to encourage local
authorities to aggregate demand for fibre connectivity to public
sector locations. In this regard, GBP740 million of the GBP1.14
billion stimulus announced by the Chancellor in November 2016 is to
be directed to local fibre projects, with potential for local
authorities to anchor new full fibre networks.
3.2 Increase Metro connectivity within CityFibre's footprint
In every town and city where CityFibre has established a metro
fibre infrastructure, the Company's strategy is to add fibre
connections to more premises and grow market share. CityFibre
intends to work closely with internet service providers to increase
the use of CityFibre's metro fibre products across public sector
and business market verticals. In particular:
-- Growth in Public Sector - Currently the Company has major
public sector contracts in nine of its current 42 towns and cities.
Recent UK government policy for full fibre connected public sector
sites presents an opportunity to expand coverage through more local
authority contracts.
-- Expansion to Business Parks - Enterprise and SME users in
business parks remain underserved by legacy networks. On 29
November 2016 the Company announced the proposed expansion of its
network to approximately 500 business parks that are located near
to CityFibre's metro networks in its current metro footprint. The
Company intends to accelerate this expansion following the Capital
Raising.
-- Increase Channel Partners - As a wholesale provider, the
Company currently has 54 Channel Partners that use its networks to
provide data services to their end customers. These Channel
Partners principally comprise internet service providers,
connectivity resellers and service integrators and address key
markets including, business, public sector, consumer and data
centres. CityFibre seeks to expand the number of Channel Partners
with which it works and continues to invest in its IT systems,
platforms and marketing programmes to support its partners.
-- Expand Ethernet Product Portfolio - CityFibre will develop
its portfolio of connectivity services through the introduction of
wholesale Ethernet products that complement existing dark fibre
services. This will widen the addressable market for the use of
CityFibre's infrastructure across its current and expanded
footprint and open up the opportunity to attract national internet
service providers who seek city-to-city Ethernet services.
3.3 Commence Rollout of Fibre to the Home
International benchmarks provide considerable weight to the need
for, and success of, FTTH deployments worldwide. The UK currently
ranks amongst the lowest of OECD nations for premises that are
directly connected with fibre.
The Group's successful FTTH trial in York through its joint
venture with Sky and TalkTalk, YorkCo, demonstrated the ability to
expand CityFibre's metro infrastructure to Fibre to the Home. The
Company now intends to expand its fibre infrastructure to
residential households in a select number of towns and cities
within CityFibre's current footprint. Subject to completion of the
Capital Raising, construction is scheduled to commence in five to
ten of these towns and cities during 2018.
The deployment of FTTH has been central to both UK government
and Ofcom policies, and CityFibre is well positioned to exploit
this opportunity. The York trial demonstrated CityFibre's ability
to deploy FTTH connectivity cost effectively and that its Channel
Partners were able to offer full fibre broadband to their customers
at attractive retail prices, thereby demonstrating the propensity
for consumers to switch to FTTH connections. Of those homes in York
whose boundaries are passed by the FTTH network constructed by
YorkCo, more than 27% subscribed for an internet service from Sky
or TalkTalk on the new YorkCo FTTH network by 31 May 2017, with the
highest cabinet penetration now exceeding 40%. In undertaking its
FTTH plan, CityFibre intends to work with Channel Partners to
secure commitments to use its FTTH network, or to procure
registrations of interest on a street or neighbourhood basis, hence
mitigating deployment risks by ensuring there is sufficient demand
ahead of construction. The use of Openreach ducts and poles for
some parts of the deployment (as proven by the Group's trial in
Southend-on-Sea) provides an opportunity to lower construction
costs for the FTTH deployment.
CityFibre is now in advanced discussions with a number of
consumer focused Channel Partners who are keen to take advantage of
near gigabit speed broadband delivered on CityFibre's full fibre
infrastructure.
3.4 The Opportunity for Fibre to the Tower
Fibre connectivity to mobile base stations is referred to as
Fibre to the Tower (FTTT), or 'mobile backhaul'. Growth in mobile
data is influencing mobile operators to seek higher bandwidth fibre
connections to base stations with further demand to connect a large
number of 'small cells' over time as mobile operators prepare for
5G services by 2020.
FTTT uses the same high capacity metro infrastructure deployed
for the public sector and business market verticals. CityFibre is
well positioned to serve the connectivity of mobile operators
within its existing and expanded metro footprint, and has
demonstrated this capability through its citywide FTTT deployment
in Hull for MBNL, Three and EE. The Directors estimate there are
approximately 7,300 mobile base stations within its existing
footprint, with future potential for 36,500 or more small cells.
The Company continues actively to explore opportunities with mobile
operators who seek a transition to dark fibre based FTTT
connections within CityFibre's existing or expanded metro
footprint. Entry to further new towns and cities, if that potential
arises, is intended to follow CityFibre's anchor tenancy model.
3.5 Experience in Building and Operating Fibre
Infrastructure
The Group's strategy to accelerate its expansion is supported by
CityFibre's management capabilities and relationships with
suppliers and civil engineering contractors. The Directors believe
that the Group has established the capabilities to co-ordinate and
manage fibre infrastructure construction at national scale, as
demonstrated through its existing presence in 42 towns and cities.
The Group will increase the number of employees only where
essential, and it will continue to work with select engineering
partners to deliver and operate CityFibre's national
infrastructure.
4. Entanet acquisition
The Company has conditionally agreed to purchase the entire
issued share capital of Entanet for a cash consideration of GBP29
million (on a debt free cash free basis and subject to
adjustments). The consideration is payable on completion of the
Entanet Acquisition, other than GBP4.65 million which is deferred
(GBP3 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 GBP1.65 million, which is due to
certain management sellers, is deferred for up to 12 months in
connection with certain leaver provisions set out in the
agreement). The Company proposes to finance the Entanet Acquisition
by utilising part of the net proceeds of the Placing. The Entanet
Acquisition is conditional on the passing of the Resolutions to
approve the Capital Raising and Admission.
4.1 Overview of Entanet acquisition
CityFibre's strategy is to become the leading alternative
wholesale full fibre network provider to Openreach. As demand for
fibre connectivity grows in the UK, CityFibre sees opportunities to
expand and accelerate its network, channels to market and product
portfolio.
Entanet is a wholesale communications provider that uses third
party networks owned by other suppliers such as Openreach, to
deliver a wide range of connectivity and telecommunication products
and services to internet service providers, including broadband,
Ethernet, private and wide area networks, IP and PSTN telephony,
colocation, hosting and associated services.
The Directors believe the Entanet Acquisition will bring
together two complementary wholesale capabilities: CityFibre's
national wholesale fibre infrastructure and Entanet's established
wholesale product portfolio and commercial relationships with an
extensive number of internet service providers. Entanet would,
following the acquisition, become a primary route for CityFibre to
market its full fibre connectivity through Entanet's network of
internet service providers.
4.2 Reasons for the Entanet Acquisition and Future Strategy
Entanet's strategy is focused on the development and growth of
wholesale communications services. It packages data communications
products, including broadband and leased line internet
connectivity, IP telephony and hosting services and makes these
products and services available nationally, with approximately
1,500 Channel Partners that serve the business and residential
markets having acquired circuits from Entanet in the 12 months
ended 31 December 2016.
The Directors believe that the Entanet Acquisition will
significantly enhance the Company's wholesale fibre capability and
accelerate its future growth. By combining CityFibre's fibre
infrastructure with Entanet's established wholesale products,
systems and relationships with Channel Partners, the Company
expects to realise the following synergies and benefits, estimated
by the Directors to deliver cost synergies of over GBP3 million per
annum within three years of completion of the Entanet
Acquisition:
-- Increase Relationships with Channel Partners - The
acquisition is expected to give CityFibre access to new Channel
Partners due to Entanet's existing position as a wholesale provider
with approximately 1,500 Channel Partners having acquired circuits
from Entanet in the 12 months ended 31 December 2016. This
represents a significant potential increase in CityFibre's indirect
routes to market.
-- Achieve Significant Migration Synergies - Entanet's services
operate on the networks of a number of suppliers, including BT
Wholesale, Openreach, Virgin Media, Colt Technology and Vodafone.
It currently services over 45,000 broadband connections and over
3,500 leased lines. A proportion of these connections originate
and/or terminate in CityFibre's existing or expanded city
footprint, giving rise to the opportunity to migrate these
connections to the Company's fibre infrastructure over time.
-- Trading and Support Interfaces - The acquisition is expected
to give CityFibre access to Entanet's wholesale systems that
provide a layer of automated order and billing capabilities as well
as customer portals and support systems.
-- Complementary Products - The acquisition is expected to
enable CityFibre to utilise Entanet's wholesale product portfolio
enhancing CityFibre's own wholesale fibre capabilities.
-- National Ethernet Capability - The national networks leased
by Entanet from other suppliers support the end-to-end Ethernet
capabilities that are required as part of CityFibre's product
development. The acquisition is expected to accelerate both the
timescale and scope of CityFibre's Ethernet strategy, enabling
faster take up of the Company's fibre connectivity by national
Channel Partners.
The acquisition is expected to enable Entanet to offer the
delivery of wholesale services across CityFibre's fibre
infrastructure in both existing and future metro towns and cities,
providing differentiated gigabit speed full fibre connectivity
services through its established base of Channel Partners. One-off
integration costs in respect of Entanet are expected to be
approximately GBP3 million.
The Capital Raising is not conditional on the Entanet
Acquisition completing. If, for any reason, the Entanet Acquisition
Agreement is terminated prior to Admission, the proceeds of the
Capital Raising which were allocated to fund the Entanet
Acquisition will be utilised by the Company for the other purposes
described in this announcement. Oakley Advisory Limited acted as
financial advisor to CityFibre on the acquisition of Entanet.
5. Current Trading, Trends and Prospects
The Company continued its network footprint expansion throughout
2016, through a combination of acquisitions, organic growth and
incremental sales on existing and acquired assets.
In 2017, CityFibre continued to focus on growing revenues and
connections across its existing footprint, as well as undertaking
selective investments in new towns and cities. Financial
performance relating to metro towns and cities was in line with
management's expectations. At the end of May 2017, the Company had
entered into contracts with Channel Partners, enabling CityFibre to
launch business services into seven further towns and cities, and
securing in excess of GBP8.3 million of new contracted revenue.
Furthermore, the unrealised value of its contracts was GBP102.2
million, giving the Company good visibility of future income.
The profile of CityFibre's growth is characterised by securing a
relatively small volume of larger value contracts that provide
fibre connectivity to multiple sites. This is supplemented by
securing smaller contracts at various times for individual fibre
connections from existing Channel Partners. Therefore, timing of
the larger contracts can affect month by month performance. The
Company secured few large contracts in the first quarter of 2017,
with a higher number of larger contracts expected in the second
quarter and throughout the second half of 2017. The strong and
growing pipeline of opportunities means that the Company expects to
deliver overall 2017 financial performance in line with management
expectations.
5.1 Expansion to new towns and cities
In January 2017, CityFibre announced its intention to construct
a new fibre network in Stirling having secured a seven-year anchor
contract to provide full fibre connectivity to the public sector,
followed in March 2017 with anchor contracts in the business market
vertical to construct new networks in Cheltenham and Gloucester,
two locations located near to the Company's national long distance
network.
CityFibre will continue to seek opportunities to enter new towns
and cities underpinned by suitable anchor contracts. The Directors
believe that current trading activity and its pipeline of
opportunities will enable the Company to progress towards its
stated medium-term target to reach no less than 50 towns and cities
by 2020.
5.2 Expansion in existing towns and cities
In its existing towns and cities, CityFibre is undertaking
investments in active platforms to provide wholesale Ethernet
services to complement its current dark fibre offering. The Company
is on track to deliver its active platforms into not less than five
further towns and cities in the first half of 2017, and is
targeting to expand Ethernet services to a further six towns and
cities by the end of the year.
In expanding its Ethernet services to the business market
vertical, CityFibre intends to enter into launch partner contracts
with Channel Partners to provide fibre connectivity to more
businesses in its existing footprint. In April 2017 CityFibre
announced contracts to support construction in Slough, Maidenhead
and Wakefield followed in May 2017 with contracts in Plymouth and
Exeter. These launch partner contracts demonstrate that CityFibre
is making further progress to commercialise the network assets
acquired from KCOM and Redcentric Solutions Limited in 2016.
In the public sector, the Directors believe that recent
government policy for full fibre, together with planned government
stimulus to encourage local government to anchor new full fibre
core metro networks, will accelerate opportunities for fibre
connectivity to more public sector sites. CityFibre is engaged in a
significant number of discussions with local authorities and
Channel Partners and is building a pipeline of public sector
opportunities with the potential for contracts to be awarded to the
Company in the second half of 2017 and beyond.
5.3 FTTT and FTTH
In 2016 CityFibre completed two landmark network deployments for
the UK market: the FTTT network construction in Hull and the FTTH
trial in York. As a result, the Company is now exploring
opportunities to deploy FTTT and FTTH in more UK towns and cities,
and is progressing commercial negotiations with mobile operators
and major Channel Partners accordingly.
CityFibre has engaged in commercial discussions with major
internet service providers and a number of smaller internet service
providers, to secure Channel Partner relationships intended to
provide full fibre broadband services to consumers using
CityFibre's future FTTH infrastructure. These discussions are
advanced and may or may not lead to binding agreements in due
course.
The Company has engagement with Channel Partners across all four
primary market verticals, supported by market demands for fibre
connectivity and policies that encourage the deployment of full
fibre and 5G infrastructure to many homes and businesses. The
Directors believe that CityFibre is well positioned to exploit
these opportunities and to continue to expand its operations.
6. Structure and principal terms and conditions of the Capital
Raising
6.1 Structure of the Capital Raising
Introduction
The Company proposes to raise minimum gross proceeds of GBP185
million by way of the Firm Placing, with the opportunity to raise
further proceeds through the ABB Placing which will be launched
immediately following this announcement (together, the "Placing").
In addition, the Company intends to raise further gross proceeds of
up to GBP15 million by way of the Offer for Subscription. The
decision to structure the Capital Raising by way of a combination
of a Placing and Offer for Subscription takes into account a number
of factors, including the total net proceeds to be raised. The
Board believes that the Placing, as part of the Capital Raising
enables the Company to satisfy demand from new investors as well as
current Shareholders wishing to increase their positions combined
with the ability for Shareholders to participate in the Offer for
Subscription in order to mitigate the effect of the dilution
arising from the Placing. Shareholders' approval is required for
the Capital Raising, including the Placing and the Offer for
Subscription, by way of a special resolution.
Pricing
The Offer Price represents a 9.09% discount to the Closing Price
of 60.50 pence on 4 July 2017 (being the last Business Day before
the announcement of the Capital Raising). The Offer Price
(including the size of the discount) has been determined, following
discussions with both existing Shareholders and Placees identified
prior to this announcement, to be at the level which the Board
considers appropriate to ensure the success of the Capital
Raising.
Dilution
The Firm Placing (assuming the minimum amount of GBP185 million
is raised through the Firm Placing) will: (i) result in 336,363,636
Placing Shares being issued and the number of Ordinary Shares being
increased from a total of 265,672,644 Ordinary Shares (as at the
Reference Date) to a total of 602,036,280 Ordinary Shares,
representing an increase of 126.6%; and (ii) reduce the
proportional ownership and voting interest in the Ordinary Shares
of the Shareholders (as at the Reference Date) by 55.9%.
The Offer for Subscription will result in up to 27,272,727 Offer
for Subscription Shares being issued and the number of Ordinary
Shares being increased (assuming the Offer for Subscription is
taken up in full) from a total of: (i) 265,672,644 Ordinary Shares
to a total of 292,945,371 Ordinary Shares (disregarding the issue
of the Placing Shares), representing an increase of 10.3%; or (ii)
602,036,280 Ordinary Shares (taking into account the issue of the
minimum number of Placing Shares) to a total of 629,309,007
Ordinary Shares, representing an increase of 4.5%.
Following completion of the Capital Raising, Shareholders who do
not (or cannot) participate in the Placing or the Offer for
Subscription will suffer a dilution of approximately 57.8%
(assuming the Offer for Subscription is taken up in full and
excluding any potential impact due to the ABB Placing).
6.2 The Placing
Under the Firm Placing, the Underwriters have agreed to procure
Placees for an aggregate of 336,363,636 Placing Shares at the Offer
Price. The Placing is expected to raise gross proceeds of a minimum
GBP185 million, fully underwritten by the Underwriters on the terms
and conditions of the Underwriting Agreement, with the opportunity
to raise further proceeds through an accelerated bookbuilding
process which will be launched immediately following this
announcement. The Placing is conditional upon (among other things):
(i) the Resolutions being passed at the General Meeting; (ii) the
Underwriting Agreement having become unconditional in all respects
(save for the condition relating to Admission); and (iii) Admission
becoming effective on or around 28 July 2017 (or such later date as
the Company and the Underwriters may agree). If the conditions are
not satisfied then the Capital Raising will not proceed. In those
circumstances, the Entanet Acquisition will also not proceed.
An application will be made to the London Stock Exchange for the
Placing Shares to be admitted to AIM. It is expected that Admission
will become effective and dealings in the Placing Shares will
commence on or around 28 July 2017.
The Placing Shares will, when issued, rank pari passu in all
respects with, and will carry the same voting and dividend rights
as, the Existing Ordinary Shares and the Offer for Subscription
Shares.
6.3 The Offer for Subscription
Up to 27,272,727 Offer for Subscription Shares are being made
available under the Offer for Subscription, which may only be open
to certain qualifying shareholders of the Company, at the Offer
Price (representing 10.3% of the Company's existing issued share
capital and 4.3% of the Company's enlarged issued share capital
following completion of the Capital Raising, assuming in both cases
that the Offer for Subscription is taken up in full). The terms and
conditions for the Offer for Subscription, and the latest time and
date for receipt of completed Application Forms and payment in full
under the Offer for Subscription, will be set out in the Prospectus
and should be read carefully before an application is made.
Investors should consult their respective stockbroker, bank
manager, solicitor, accountant or other financial adviser if they
are in any doubt about the terms and conditions of the Capital
Raising.
If valid applications are received under the Offer for
Subscription for more than the maximum number of Offer for
Subscription shares available, applications shall be allocated in
such manner as the Directors may determine, in their absolute
discretion, although the Directors anticipate such allocations will
be made pro rata to the shareholdings of those qualifying
shareholders validly applying for Offer for Subscription
Shares.
The Offer for Subscription is not underwritten by the
Underwriters or by anyone else.
The Offer for Subscription is conditional upon (among other
things) (i) the Resolutions being passed at the General Meeting;
(ii) the Underwriting Agreement having become unconditional in all
respects (save for the condition relating to Admission) and (iii)
Admission becoming effective on or around 28 July 2017 (or such
later date as the Company and the Underwriters may agree).
An application will be made to the London Stock Exchange for the
Offer for Subscription Shares to be admitted to trading on AIM. It
is expected that Admission will become effective and that dealings
in the Offer for Subscription Shares will commence on or around 28
July 2017.
The Offer for Subscription Shares will, when issued and fully
paid, rank pari passu in all respects with, and will carry the same
voting and dividend rights as, the Existing Ordinary Shares and the
Placing Shares.
7. Admission and Settlement
Application will be made to the London Stock Exchange for the
New Ordinary Shares to be admitted to trading on AIM. Admission is
expected to take place on or around 28 July 2017.
To be traded on AIM, securities must be eligible for electronic
settlement. Following Admission, the New Ordinary Shares will be
eligible for CREST settlement. CREST is a paperless settlement
system enabling securities to be evidenced otherwise than by a
certificate and transferred otherwise than by a written instrument
in accordance with the CREST Regulations.
Accordingly, following Admission, settlement of transactions in
the New Ordinary Shares may take place within the CREST system if a
Shareholder so wishes. CREST is a voluntary system and Shareholders
who wish to receive and retain share certificates are able to do
so.
For more information concerning CREST, Shareholders should
contact their brokers or Euroclear at 33 Cannon Street, London EC4M
5SB or by telephone on +44 (0) 207 849 0000.
The ISIN number of the Ordinary Shares will remain GB00BH581H10.
The TIDM code will remain CITY following Admission.
8. Dividend Policy
The objective of the Directors is to achieve capital growth for
Shareholders through the continued expansion of CityFibre's fibre
infrastructure and the growth of revenue and profits generated from
the use of the infrastructure. Consequently, they do not anticipate
that the Company will pay dividends to Shareholders in the short to
medium term.
As the Company's strategy is for the realisation of yield
generating infrastructure, the Directors will keep this position
under review and would intend, at an appropriate stage in the
future, to pay a proportion of profits in each year to Shareholders
by way of dividend.
9. Related Party Transactions
Woodford Investment Management Ltd is a related party of the
Company for the purposes of the AIM Rules by virtue of its status
as a "substantial shareholder" (as such term is defined in the AIM
Rules) as it beneficially owns or controls, directly or indirectly,
10% or more of the Existing Ordinary Shares. Woodford Investment
Management Ltd has agreed to subscribe for 65,454,545 Placing
Shares, conditional on Admission. Taking into account the related
party transaction noted above, the Directors consider, having
consulted with the Company's nominated advisor, finnCap, that the
terms of the Placing with Woodford Investment Management Ltd is
fair and reasonable insofar as the Company's shareholders are
concerned.
10. Overseas Shareholders
The attention of Overseas Shareholders who have registered
addresses outside the United Kingdom, or who are citizens or
residents of, or are located in, countries other than the United
Kingdom, is drawn to the information in the Terms and Conditions
for the Placing and the Prospectus.
Notwithstanding any other provision, the Company reserves the
right to permit any Shareholder on the register at the Record Date
to participate in the Offer for Subscription if the Company in its
sole and absolute discretion is satisfied that the transaction in
question will not violate applicable laws.
11. Taxation
Certain information about UK and US taxation in relation to the
Capital Raising will be set out in the Prospectus. If you are in
any doubt as to your tax position, or you are subject to tax in a
jurisdiction other than the United Kingdom and the United States,
you should consult your own independent tax adviser without
delay.
12. Directors' Recommendation and Intentions
The Board is fully supportive of the Capital Raising. Chris
Stone, CityFibre's Chairman, has agreed to subscribe for 1,181,818
Placing Shares at the Offer Price. Although he is a related party
to the Company by virtue of being a Director, his subscription is
not of sufficient size to constitute a related party transaction.
In accordance with the terms of the offer of appointment to Chris
Stone as non-executive Director, the Company has committed to grant
a "matching award" to Chris Stone equal to the same number of
Ordinary Shares as represent the number of Placing Shares he
subscribes for.
The Board believes that the Capital Raising is in the best
interests of the Company and the Shareholders as a whole.
Accordingly, the Board unanimously recommends that you vote in
favour of all of the Resolutions to be proposed at the General
Meeting in order to effect the Capital Raising, as they intend to
do in respect of their own beneficial shareholdings held at the
time of the General Meeting, amounting to 4,469,398 Ordinary Shares
in aggregate as at the Reference Date (representing approximately
1.68% of the Company's existing issued ordinary share capital).
13. Abridged expected timetable of principal events(1)
Each of the times and dates below is indicative only and may be
subject to change:
Announcement of the Capital 5 July 2017
Raising
Prospectus published, Forms on or around 11 July
of Proxy despatched and 2017
Application Forms despatched
Offer for Subscription opens on or around 11 July
2017
General Meeting on or around 27 July
2017
Announcement of results on or around 27 July
of the Capital Raising 2017
Completion and Admission on or around 28 July
and dealings in New Ordinary 2017
Shares, fully paid, commence
on the London Stock Exchange
New Ordinary Shares credited on or around 28 July
to CREST stock accounts 2017
Expected despatch of definitive by 11 August 2017
share certificates for the
New Ordinary Shares in certificated
form
(1) The times and dates set out in the expected timetable of
principal events above and mentioned in this document, the
Prospectus and any other document issued in connection with the
Capital Raising are subject to change by the Company, in which
event details of the new times and dates will be notified to the UK
Listing Authority, the London Stock Exchange and, where
appropriate, to Shareholders
14. Additional information on CityFibre
14.1 CityFibre's business model characteristics
CityFibre operates a business model whereby it seeks to enter a
town or city via an anchor contract with a Channel Partner that
serves the public sector or business market verticals, a mobile
operator or via an acquisition. Its strategy is to build or acquire
an anchor metro network to service the initial contract and then
expand the network through the provision of fibre connectivity to
more premises in its three primary metro market verticals: public
sector, business and mobile. Once deployed, the metro network may
be expanded to FTTH, serving a fourth market vertical, consumer, as
described below. Through its strategy to enter and grow metro
networks, CityFibre typically seeks:
-- customer contract value from the initial contract to cover a
substantial proportion of the capital expenditure to either
construct or acquire the network;
-- targeted gross margins of approximately 90% on subsequent incremental business;
-- capital expenditure on incremental connections in the town or
city having a targeted payback of less than three years ("payback"
being the period of time it takes to generate gross margin on an
incremental connection equal to the net capital expenditure
required to connect it);
-- targeted recurring revenue yield (net of upfront fees paid by
customers for the fibre connection) on net capital expenditure in a
town or city in excess of 25% at maturity (being approximately 5 to
7 years after first cabinet construction); and
-- targeted recurring revenue yield on anchor contracts of approximately 10%.
Following construction or acquisition of the anchor network,
through further densification of the network CityFibre seeks to
lower its average capital cost per additional connection, and
provide additional yield on capital employed in the town or
city.
The Directors expect most Channel Partner contracts for fibre
connectivity will renew at the end of their initial term with low
rates of churn. Contract renewals typically do not require further
expenditure by CityFibre.
CityFibre's business model in relation to new towns and cities
anchored through FTTT connections to mobile base stations, or for
the rollout of FTTH to consumers, is expected to follow a similar
approach:
FTTT
-- Anchor contracts with mobile operators for FTTT will be
pursued where the contract value, to cover a proportion of the
capital expenditure associated with network construction, is deemed
acceptable by the Directors.
-- Consideration may include a combination of up-front
connection fees and ongoing rental fees, with CityFibre having
flexibility to tailor the commercial structure of contracts.
FTTH
-- Construction of FTTH is expected to commence in five to ten
towns and cities within CityFibre's existing or expanded metro
footprint in 2018, based on the delivery of approximately 300 to
400 FTTH cabinets served by CityFibre's existing metro
infrastructure by the end of 2018
-- In undertaking its FTTH plan, CityFibre intends to work with
Channel Partners to secure commitments to use its FTTH network, or
to procure registrations of interest on a street or neighbourhood
basis, hence mitigating deployment risks by ensuring there is
sufficient demand ahead of construction
14.2 Market opportunity
The UK boasts one of the highest levels of internet adoption in
the world, with internet-related economic activity accounting for a
larger proportion of Gross Domestic Product than in any other G20
member nation. The sector continues to grow strongly and in 2015
the digital sector represented 7.1% of UK GVA and accounted for
4.4% of UK jobs and 9.5% of UK enterprises (Source: Government
Response to the Business, Innovation and Skills Committee's Second
Report, 2016-2017). The number of digital technology jobs in the UK
has grown at more than twice the rate of non-digital technology
sectors (Source: TechCity conference, 21 March 2017).
As a digital economy, the UK has attracted investment in digital
technology, reaching GBP6.8 billion in 2016. This was more than 50%
greater than the investment in digital technology in any other
European country in 2016 (Source: Tech Nation 2017 Report, Tech
City UK). The Directors believe that the UK government will remain
keen to preserve this momentum in order to promote growth in the UK
economy. The economic contribution of the UK digital technology
worker is large and growing, almost twice as high as the
non-digital technology worker (Source: Tech Nation 2017 Report,
Tech City UK).
Data growth in the UK will continue to rise as internet and data
communications users continue to adopt digital applications. There
remains strong demand for digital infrastructure and higher speed
connectivity across all four of CityFibre's targeted market
verticals:
-- Public sector - The use of digital technologies in education
and healthcare, for example, means that public services require
higher bandwidth connectivity. In a number of CityFibre's projects
with local authorities, fibre connections are provided to schools,
council sites and hospitals. Furthermore, the Company is supplying
full fibre connections for CCTV and other public sector
applications.
-- Business - Alongside the development and growth of digital
services and the digital economy, businesses' dependency on digital
infrastructure has continued to rise to the point that 94% Of small
business owners consider a reliable internet connection critical to
the success of their business (Source: Federation of Small
Businesses, February 2016). Dependency on inadequate digital
connectivity remains a major concern for many businesses. According
to the figures published by the Federation of Small Businesses, 14%
of small businesses considered lack of reliable and fast broadband
connectivity to be their main barrier to growth and, at the time of
the report's publication in July 2014, 45,000 small businesses (1%
of the UK's 4.5 million small businesses) had to rely on a dial-up
connection. In the nation's business parks, almost half of small
businesses are unable to receive speeds above 10Mbps (Source:
Connected Nations Report 2015, Ofcom).
-- Consumer - The use of internet delivered entertainment
services such as Netflix, Now TV and Amazon Prime is driving the
need for higher bandwidth connection to the home, and demand for
fibre connections will increase, for example, as the adoption of
ultra-high definition smart televisions proliferate. Furthermore,
as workers increasingly use their homes as a place of work,
broadband connections must also support the data needs of accessing
a business's IT systems remotely.
-- Mobile - According to Cisco's forecasts, global mobile data
traffic will increase sevenfold between 2016 and 2021, a compound
annual growth rate of 47% The average mobile network connection
will increase threefold to reach 20.4 Mbps in the same time period.
According to UK government figures, this expected growth in mobile
data will drive the need for high bandwidth fibre connectivity to
mobile base stations and future small cells
The trend for increasing global data, fuelled by society's
increasing use of the internet for digital applications and content
alongside the proliferation of connected devices simultaneously
connected to the internet, is creating the need for higher
bandwidth connectivity at home, at work and on the move. The
Directors believe that these trends will drive investment in modern
full fibre infrastructure in markets in which the Group
operates.
Full fibre infrastructure is capable of supporting significantly
increased bandwidth services when compared to legacy copper or
copper-fibre hybrid networks. As data consumption and therefore
demand continue to rise, full fibre's data transmission
capabilities can be easily upgraded by replacing the active
electronics attached to each end of the fibre rather than upgrading
the physical infrastructure itself. A further benefit is the
reliability of full fibre networks which significantly exceeds that
of other network technologies. Reliability is essential as
dependency on infrastructure increases.
Supply of fibre-optic infrastructure internationally and in the
UK
As a predominately service-based economy, the importance of
digital infrastructure to the UK is clear. However, the UK is near
the bottom of the full fibre infrastructure league tables amongst
OECD nations.
The investment in, and availability of, fibre to the premises
networks to homes and businesses has been a priority for many OECD
countries, in particular in Asia where Japan and South Korea now
benefit from near ubiquitous coverage of full fibre. In some
European countries, major investment programmes by communications
providers have resulted in extensive deployments in full fibre
broadband. As of December 2016, 79% of premises in Spain and 70% of
premises in Portugal had access to full fibre broadband. In
contrast, the UK's coverage of full fibre was approximately 2% of
premises (Source: Ofcom plans for a full-fibre future, Ofcom).
The UK benefits from a number of competitive fibre suppliers
(including Openreach, Virgin Media, Colt Technology Services Group
Limited, CenturyLink Limited, SSE Energy Supply Limited, and Zayo
Group LLC) for national long distance networks that connect major
cities across the country, however at the local access network
level the market is dominated by the two incumbent operators,
Openreach and Virgin Media.
Whilst Openreach and Virgin Media offer some full fibre
connectivity in the leased line market, the majority of their
customers, in particular in the 'last mile' local access networks,
are served using connectivity to premises based on either copper
wires or copper co-axial cables.
Supply of wholesale infrastructure in the UK
In the UK fixed line access market there is a notable absence of
any significant wholesale competitor to Openreach, which is
mandated to offer wholesale access in all areas and markets where
it is deemed to hold a dominant market position.
Whereas London supports a competitive market of alternative
fibre infrastructure providers via metropolitan area networks, the
availability to service providers of alternative wholesale
infrastructure outside London is limited.
The reasons for this include the following:
-- Virgin Media's network infrastructure is not generally made
available to third party service providers on a wholesale basis,
especially to homes and small businesses.
-- Historical network investment by alternative network
operators in the UK has been less significant than in other
international markets, resulting in very limited wholesale
competition to Openreach outside London.
In recognition of this lack of competitive infrastructure
outside the capital, Ofcom applies wholesale access regulation to
Openreach across the UK. Openreach's obligation to make its
networks open to competition has resulted in a significant growth
of Channel Partners that compete with BT, and each other, at a
retail level. However, they are largely dependent on the use of
Openreach's networks for connectivity to premises.
As demand for higher speed connectivity increases, the Directors
believe the opportunity for CityFibre as an alternative wholesale
fibre infrastructure provider to UK towns and cities outside London
is significant. The Group's current footprint of 42 towns and
cities is estimated by the Directors to provide the Group with a
total addressable market of approximately 43,800 public sector
sites, 349,400 businesses, an estimated 7,300 cell sites, and 4.4
million homes.
The Directors further estimate that the proposed expansion of
its network to 50 towns and cities would provide the Group with a
total addressable market of approximately 52,000 public sector
sites, 420,000 businesses, an estimated 8,700 cell sites and 5.2
million homes.
Government polices to encourage supply of full fibre
networks
CityFibre's market opportunity stems from the current lack of
full fibre infrastructure within the UK where, as described above,
the UK lags behind nearly all OECD nations in the provision of
fibre infrastructure.
Furthermore, the full fibre investment plans currently announced
by Openreach and Virgin Media targeting, in aggregate, four million
premises by 2020 amounts to less than 15% of total UK premises,
lower than current full fibre coverage in Chile, Turkey and Mexico
based on OECD figures. The low coverage of full fibre
infrastructure in the UK has triggered a shift towards policies
that support greater competition and investment in alternative
fibre networks.
In February 2016 the communications regulator, Ofcom, published
its Digital Communications Review, outlining its strategy to
promote investment in new fibre infrastructure whilst reducing the
industry's dependence on Openreach. It detailed its proposal on how
best to achieve this aim in July 2016 where it stated:
"Network competition is the most effective spur for continued
investment in high quality, fibre-based networks. At present, about
half the country has access to two network providers. We have
suggested that a good long-term outcome would be to achieve full
competition between three or more networks for around 40% of
premises, with competition from two providers in many areas beyond
that."
(Source: Strengthening Openreach's strategic and operational
independence, Ofcom, 26 July 2016).
Another key consultation proposal by Ofcom to promote
competitive investment in full fibre broadband networks was to make
it easier for competitors to access Openreach's ducts and poles to
expedite and reduce the cost of construction of new fibre
networks.
In November 2016, as part of its Autumn Statement, the previous
UK government announced its policy for 'full fibre and 5G',
pledging GBP1.14 billion of financial support for competitive fibre
infrastructure and 5G projects, comprising:
-- GBP740 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.
-- GBP400 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 GBP800 million to be invested into competitive full fibre
infrastructure projects.
In the Autumn Statement the government also announced 100%
business rates relief for new full-fibre infrastructure for a 5
year period from 1 April 2017, which is designed to support full
fibre roll out to more homes and businesses. Furthermore the
Conservative Party manifesto for the 2017 general election in the
United Kingdom contained a pledge to ensure there are major fibre
core metro networks in over 100 towns and cities in the UK by
2022.
CityFibre is well positioned to benefit from these policies. For
example, the 5 year business rates relief will apply to new fibre
networks built by CityFibre. CityFibre in is discussion with the
government to explore opportunities for the DIIF to play a role in
supporting CityFibre's expansion plans in the future.
The Directors believe the changes to regulation to promote fibre
infrastructure competition, supported by recent government policies
and funding to stimulate further investment in new full fibre
infrastructure, provide a positive backdrop for CityFibre to expand
its operations to address the supply of fibre infrastructure to
service the growing demand for high speed fibre connectivity from
its Channel Partners.
14.3 CityFibre's strengths and its strategy for growth
Key strengths
As an established wholesale operator, with a focus on building,
operating and commercialising full fibre networks across the UK,
the Group has a number of key strengths that can be summarised as
follows:
-- Commitment to full fibre - Full fibre infrastructure has
significant performance benefits compared to both legacy copper and
co-axial cable networks. The Group's focus on this technology
choice provides clarity and efficiency to the design, construction
and operation of its networks. Full fibre represents a single
solution to the current and future bandwidth requirements of
CityFibre's four primary market verticals of public sector,
business, mobile, and consumer. The Company does not operate any
legacy copper network for the provision of data connectivity
services.
-- Alignment to government's policy objectives - The Group's
focus on full fibre investment in towns and cities, coupled with a
wholesale approach that is an alternative to Openreach, is aligned
to the UK government's policy goals and Ofcom's strategic
objectives.
-- Established market presence - The Group's metro
infrastructure presence in 42 towns and cities provides an
established platform from which it can continue to expand to serve
customers across the public sector, business and mobile operator
market verticals. These metro networks also provide the backbone
required to support the rollout of FTTP and FTTH, accelerating
CityFibre's ability to construct FTTP and FTTH networks cost
effectively.
-- High quality, diversified customer base and wholesale model -
As a wholesale operator, the Group has an established and
diversified base of Channel Partners including public sector
integrators, business ISPs, mobile operators and consumer ISPs.
CityFibre currently benefits from relationships with 54 Channel
Partners. However, as an open access infrastructure provider, there
are significant opportunities to expand the number of partners and
thereby accelerate revenue growth.
-- Proven anchor tenancy approach - The Group's current national
footprint demonstrates its anchor tenancy approach that mitigates
market entry risks, through securing long term anchor contracts
with Channel Partners that cover a substantial portion of capital
expenditure prior to construction commencing, and by aggregating
demand ahead of construction, or through select purchase and
leaseback of existing fibre infrastructure. CityFibre's track
record of successful anchor contracts in its four primary market
verticals positions the Group well to expand to new towns and
cities.
-- Cost advantages compared to Openreach and Virgin Media -
Compared to traditional copper and cable based networks, a full
fibre infrastructure can be expected to benefit from higher
reliability and lower operating costs. Furthermore, as a new
provider, CityFibre's operations are established with platforms
that run an efficient fibre only network, thus providing cost
advantages compared to incumbent operators.
-- Strong management with a proven track-record of
entrepreneurship - CityFibre's management team has considerable
experience of establishing and developing high growth
communications infrastructure based companies. Together with its
construction partners, the Group has the expertise in place to
exploit the large scale opportunity for full fibre infrastructure
across the UK.
The Directors believe that the Group's strengths outlined above
position the Company well to expand its operations and accelerate
the construction of its network to new locations. Against the
backdrop of legacy copper and cable infrastructure provided by
Openreach and Virgin Media, the Group has the potential to exploit
the significant opportunities for competitive full fibre, in line
with recent UK government policy and supported by strong market
demand.
Strategy for growth
The Group has established a strategy to grow and commercialise
its full fibre network as follows:
-- Extend CityFibre's footprint to more towns and cities -
Currently the Group has metro fibre networks in 42 UK towns and
cities. Market demand for new fibre infrastructure is giving rise
to an accelerated expansion opportunity. In the short to medium
term, CityFibre seeks to secure anchor contracts to support entry
into no less than eight new towns and cities, bringing the total
footprint to no less than 50 UK towns and cities by 2020. CityFibre
believes that there is a longer term opportunity to expand its
footprint to approximately 100 towns and cities.
-- Increasing returns from existing assets - Working in
collaboration with its growing portfolio of Channel Partners,
CityFibre intends to increase the amount of network in its
footprint, expanding connectivity to more end customer sites in its
four primary market verticals and increasing returns from its
existing assets.
-- Increase metro connectivity within CityFibre's footprint -
CityFibre will seek to increase the supply of full fibre
connectivity across its four primary market verticals. For example,
the Group has secured public sector contracts in nine of its
current 42 towns and cities. The recent UK government policy
direction for full fibre connected public sector sites presents the
opportunity to expand coverage through more local authority
contracts. Furthermore, enterprise and SME users located in
business parks remain underserved by legacy networks, and this is
providing an opportunity for the Group to rollout full fibre
infrastructure to approximately 500 business parks that are located
near to CityFibre's metro networks in its current metro
footprint.
-- Commence rollout of Fibre to the Home (FTTH) - The deployment
of FTTH has been a key element of government policy on
communications infrastructure. The Group's successful FTTH trial in
York demonstrated the ability to expand CityFibre's metro
infrastructure to full fibre connections to homes and CityFibre's
ability to deploy FTTH connectivity cost effectively. The Channel
Partners were able to offer full fibre broadband to their customers
at attractive retail prices, thereby demonstrating the propensity
for consumers to switch to FTTH connections. Based on the success
of the York trial, the Group now intends to commence the
construction of fibre infrastructure to residential households in a
select number of towns and cities within CityFibre's current
footprint.
-- Secure opportunities for Fibre to the Tower (FTTT) - Fibre
connectivity to mobile base stations is referred to as Fibre to the
Tower (FTTT), or 'mobile backhaul'. Growth in mobile data is
influencing operators to seek higher bandwidth fibre connections to
base stations with further demand to connect a large number of
'small cells' over time as mobile operators prepare for 5G services
by 2020. As FTTT can be provided using the same high capacity metro
infrastructure deployed for public sector and business market
verticals, CityFibre is well positioned to serve the connectivity
of mobile operators, having demonstrated its FTTT capabilities in
the successful pilot in Hull for MBNL, Three and EE. The Group
continues actively to explore opportunities with mobile operators
that seek a transition to dark fibre based FTTT connections within
CityFibre's existing or expanded city footprint.
The execution of the above strategy is expected to enable
CityFibre to grow its full fibre footprint into new towns and
cities, as well as expand penetration and yield across its
footprint. In support of the Group's strategy, the Company further
plans to:
-- Increase Channel Partners - As a wholesale provider,
CityFibre expects to expand the number of Channel Partners as well
as invest in IT platforms to support Channel Partners. Currently
the Group has 54 Channel Partners that use CityFibre 's fibre
infrastructure. The Entanet Acquisition gives CityFibre access to
new Channel Partners due to Entanet's existing position as a
wholesale provider with approximately 1,500 Channel Partners having
conducted business with Entanet in the 12 months ended 31 December
2016. This represents a significant increase in CityFibre's
indirect routes to market.
-- Expand Ethernet product portfolio - CityFibre will develop
its portfolio of connectivity services through the introduction of
wholesale Ethernet products that complement existing dark fibre
services. This is expected to widen the addressable market for the
use of CityFibre's infrastructure across its current and expanded
footprint and open up the opportunity to attract national Channel
Partners who seek city-to-city Ethernet services. Entanet's
national network supports end-to-end Ethernet capabilities that are
required as part of CityFibre's product development. The
acquisition significantly accelerates both the timescale and scope
of CityFibre's Ethernet strategy, enabling faster take up of the
Group's fibre connectivity by national Channel Partners in all four
primary market verticals.
-- Ensure efficient network design - The Group seeks to optimise
network design through accurate demand mapping, in order to design
a high capacity fibre architecture that will efficiently support
both current and future demand across all four primary market
verticals, including FTTH.
-- Exploit third party duct infrastructure where appropriate -
Where available on beneficial terms, CityFibre will seek to make
use of third party duct infrastructure where appropriate. For
example, CityFibre has made use of local authority owned ducts in
some of its existing towns and cities. Furthermore, the use of
Openreach ducts and poles for some parts of the deployment (as
proven by the Group's trial in Southend-on-Sea) provides the
opportunity to lower FTTH construction costs.
-- Develop partnerships with key suppliers and civil engineering
contractors - The Group's strategy to accelerate its expansion will
be supported by CityFibre's management capabilities and
relationships with suppliers and civil engineering contractors. The
Group has proven its capabilities to co-ordinate and manage fibre
infrastructure construction, as demonstrated in the construction
and expansion of metro networks in 42 towns and cities. The Group
will increase the number of employees only where essential, and it
will continue to work with select engineering partners to deliver
and operate CityFibre's national infrastructure.
-- Pursue select acquisitions of fibre infrastructure assets and
complementary businesses - Where appropriate to the acceleration of
its strategy, the Group will consider growth opportunities through
acquisition of fibre assets (similar to its past acquisitions of
KCOM's national infrastructure and Redcentric Solutions Limited's
metro fibre assets), or complementary businesses.
The Directors believe that the Group's strategy will enable the
Group to accelerate its growth and respond to the market
opportunity for full fibre across the UK. This strategy is also
expected to establish CityFibre as a leading alternative wholesale
full fibre network provider to Openreach in its chosen markets,
with a large footprint of long term yield generating fibre network
assets.
14.4 CityFibre's Network, Wholesale Products and Customers
In line with the Group's strategy, CityFibre's networks are full
fibre networks that do not use any copper wires or co-axial cables
for the provision of data connectivity services. Wholesale
connectivity services provided by CityFibre to its Channel Partners
are provided across its fibre infrastructure, enabling end-to-end
fibre connectivity and the delivery of the fibre optic connection
all the way to the premises.
Overview of the Network
As at 31 December 2016, CityFibre operated 2,244 kilometres of
metro local access duct and fibre networks across 42 towns and
cities, as well as a 1,139 kilometre national long distance network
connecting 22 towns and cities to data centres in London and the UK
regions, as illustrated in the map below.
CityFibre's typical metro local access network comprises two or
four 90 millimetre ducts, each capable of housing four or more
sub-ducts. The ducts and sub-ducts house fibre optic cables that
provide fibre connectivity. CityFibre's metro local access networks
are a combination of assets acquired in 2011, 2014, and 2016, as
well as network constructed by CityFibre.
In both the networks it has built and those it has acquired,
CityFibre typically enjoys significant underutilised duct capacity
in the metro local access networks, meaning that the infrastructure
can be upgraded to higher capacity by installing new fibre cables
in empty duct space. This is a standard process in the operation of
fibre optic infrastructure for wholesale fibre services to multiple
customer segments.
The national long distance network, acquired in January 2016,
was built between 2000 and 2001 and has a "figure of 8"
configuration, stretching from Manchester and Leeds in the north to
Bristol and London in the south. The long distance network
generally consists of two 90 millimetre ducts, each of which has
capacity for four sub-ducts. Current utilisation of the long
distance network is low, so this offers significant incremental
capacity which CityFibre will seek to exploit in capturing emerging
opportunities with mobile operators and other Channel Partners
seeking city-to-city, regional, or national dark fibre
connectivity.
Expansion of Local Access Networks to Address Demand
CityFibre's typical strategy is to enter a town or city through
the construction or acquisition of a core metro infrastructure, and
then expand the network to address incremental demand from its
wholesale Channel Partners. To illustrate CityFibre's network
expansion methodology, the following is an overview of its network
deployment in Peterborough:
-- New anchor network construction - The original 90 kilometre
anchor network was designed and built by CityFibre in response to
an initial anchor contract with Serco Plc (the IT provider to
Peterborough City Council) to connect 106 public sector sites in
Peterborough. Construction was completed in March 2015.
-- Incremental business demand and network extension - As the
anchor network was under construction, CityFibre and its Channel
Partners serving the business market began a demand aggregation
campaign, which is ongoing. As at 28 February 2017, this activity
generated the sale of 258 new business connections on the network,
which necessitated incremental network construction to expand the
network to new areas of the city. The cost of this incremental
construction is recovered in part through connection charges, and
in part through monthly rental charges.
-- Incremental public sector demand and further network
extension - In 2016 CityFibre secured a further public sector
contract to connect 220 CCTV and traffic control sites in the city
to full fibre. This requires an additional 24 kilometres of network
extension.
CityFibre's design methodology is to construct its network most
effectively and efficiently to service its customers across all
four primary market verticals. In the case of Peterborough, the
configuration of the network built for the public sector anchor
contract was constructed to take it close to areas of business
demand, in turn enabling CityFibre and its partners to connect
businesses efficiently. Additionally, the CCTV network extension
takes the CityFibre network into business districts previously
unserved by CityFibre, effectively supporting the cost of building
closer to new potential business customers.
Through optimising network design and extension in this manner,
CityFibre's incremental costs to connect customers continually
reduce over time as the networks become denser, thus offering a
lower cost to connect new customers. Furthermore, expansion in this
manner takes into account future FTTT connectivity to mobile base
stations as well as future capacity requirement to support
FTTH.
CityFibre's Wholesale Fibre Connectivity Products
CityFibre offers a range of full fibre-based connectivity
products for service providers, carriers, systems integrators,
mobile operators and data centres, covering both passive and active
services. Active services is a term used to describe the provision
or sale of any services in which the electronics and ability to
transmit data are included alongside access to the fibre optic
cable, typically enabling Ethernet connectivity and access to
Internet services.
Passive services is the term used to describe the provision or
sale of access to a raw, un-lit fibre optic cable. When purchasing
a passive service, a Channel Partner is required to add their own
electronics to either end of the fibre in order to enable the
transmission of data and the provision of services to their end
customer. Traditionally, most service providers have purchased an
active service in the form of a managed service-based leased line
from a wholesale provider. Such active services incorporate both
the physical infrastructure (fibre) and the service component
(electronics and software) into a standardised product, which
presents no flexibility to the service provider. However, in recent
years Channel Partners increasingly prefer a dark fibre
solution.
Dark fibre is the raw unlit fibre and offers very high bandwidth
capacity to the service provider, as the only constraints in data
transmission relate to the electronic equipment used at either end
of the fibre strand. This feature allows the service provider to
provision services specific to its customers' needs, while
maintaining visibility of cost in the underlying infrastructure.
Recognising that the market comprises Channel Partners who require
both active and dark fibre services, the Group's product portfolio
accommodates both.
Passive dark fibre connectivity products comprise:
-- Metro point-to-point dark fibre - CityFibre's metro dark
fibre networks provide abundant capacity for data transmission and
are based on a ducted/sub-ducted ring architecture, with
Points-of-Presence (PoPs) across its towns and cities. This allows
a variety of uses, including bespoke private fibre rings,
connections between internet exchanges, business connectivity and
the connections for public sector sites such as schools and
hospitals.
-- FTTT point-to-point dark fibre - This is essentially the same
product as metro dark fibre but is provided to mobile operators to
enable fibre connectivity to base stations and small cells. Dark
fibre is increasingly important for mobile operators who are
seeking to migrate away from traditional incumbent leased line
circuits or restricted capacity microwave connections.
-- Long distance dark fibre - CityFibre's 1,139 kilometre
national long distance network provides a dark fibre option for
carriers or service providers looking for intercity or regional
fibre connectivity or who wish to construct their own active long
distance networks. The ducted and sub-ducted network connects
CityFibre's metro network in 22 of its towns and cities to
strategic data centres in London and the UK regions.
Active Ethernet based fibre connectivity products:
-- Metro GIG Connect - Ethernet based internet connectivity
circuits at either 500 Mbps or 1 Gbps. These are suited to high
bandwidth applications, such as cloud computing, that require IP
transit capabilities and direct connectivity to the internet.
-- Metro GIG Hub - This is an aggregation solution which allows
CityFibre's service provider partners to connect multiple local
access circuits (such as the GIG Connect products mentioned above)
into a single 1Gbps or 10Gbps circuit. This allows for the
aggregation of traffic to a remote handover point up to 20
kilometres away, and potentially further. This is a valuable tool
for service providers looking to migrate clusters of customers from
legacy services and onto CityFibre's network, or alternatively to
drive geographically targeted customer acquisition programmes.
CityFibre's Customers
CityFibre is a provider of wholesale connectivity services.
CityFibre does not provide retail services to end users, but
instead provides full fibre connectivity in a wholesale model to
Channel Partners, who in turn use the Group's fibre infrastructure
to provide solutions to their customers.
CityFibre currently has active relationships with 54 Channel
Partners, encompassing national and international carriers serving
the enterprise market, national and local service providers
catering to the needs of small and medium-sized businesses, systems
integrators and ICT specialists serving the public sector, mobile
carriers and mobile infrastructure operators, and consumer ISPs.
CityFibre's market is divided into the four primary market
verticals detailed below.
Public Sector
When CityFibre commenced business in 2011, it was almost
exclusively focused on the suppliers of ICT services to the public
sector. The public sector remains a key market vertical for
CityFibre, comprising approximately 30% of connected customer
premises, and approximately 25% of new connections sold in the year
to 31 December 2016. Key Channel Partners in the public sector
market vertical include Pinacl Solutions UK Ltd, Serco Limited,
Interoute Communications Limited, Logicalis UK Ltd, Commsworld
Limited and Exa Networks Limited.
Contracts with suppliers to the public sector typically range in
duration from seven to as long as 20 years. As at 31 December 2016,
CityFibre had significant public sector contracts in nine towns and
cities, including both delivered connections and contractually
committed connections.
Business Sector
CityFibre has commercial relationships with a wide range of
Channel Partners who serve the business market within its network.
These range from highly localised providers such as Triangle
Networks Limited or Between the Lines Communication Ltd, to
regional players such as Commsworld Limited and Exa Networks
Limited, to national operators such as Onecom Limited and Gamma
Telecom Ltd. CityFibre typically provides these customers with
either an active product or dark fibre solution, depending on the
preferences of the Channel Partner.
Contracts with business Channel Partners typically range from
three to six years and are usually paid in monthly instalments.
CityFibre currently has contracts with Channel Partners to provide
fibre connectivity to businesses in 25 of the 42 towns and cities
within its existing footprint.
In some circumstances, CityFibre has partnered with business
Channel Partners who have provided a commitment to use CityFibre's
network in a town or city, once constructed by CityFibre. For
example, in Aberdeen and Edinburgh, CityFibre's initial networks
were constructed in response to aggregated demand from business
Channel Partners, and once built the networks benefited from
subsequent orders from the public sector.
Mobile Operators
In 2014 CityFibre signed a framework agreement with Three, EE
and MBNL to provide dark fibre-based backhaul connectivity to
mobile base stations. The first deployment was completed in Hull in
early 2016, connecting 37 macro cell sites to a 56 kilometre dark
fibre network, the first of its kind in the UK. Three UK
subsequently reported a 380% increase in data throughput when the
network was launched into service.
CityFibre has established active dialogue with mobile network
operators in the UK, who are evaluating their future network
architecture and connectivity needs in light of high mobile data
growth from 4G and future deployments of 5G and small cells. The
Directors believe it is likely that dark fibre connectivity will be
preferred for FTTT applications and the Group is confident that its
network of fibre infrastructure in its 42 towns and cities provides
an attractive platform for mobile operators evaluating migration to
an alternative network based on dark fibre.
Consumer FTTH
In 2014 CityFibre entered into a joint venture with Sky and
TalkTalk to construct an FTTH network in York. Having successfully
completed the trial, the Directors believe there is significant
opportunity to deploy FTTH infrastructure effectively and
efficiently in selected towns and cities where CityFibre has an
extensive metro network. Following the success of the York trial,
CityFibre is now engaged in active dialogue with a number of
consumer focused Channel Partners who are keen to take advantage of
near gigabit speed broadband delivered on CityFibre's full fibre
infrastructure.
14.5 CityFibre's Expansion Strategy
The demand for digital infrastructure, coupled with proposals
for full fibre and greater network level competition, is providing
an environment in which the Group can consider its expansion
strategy. Having established a presence in 42 towns and cities, and
undertaken successful trials of FTTT and FTTH, the Company's
network growth plan is based on expansion of its metro presence, as
well as extension of the metro infrastructure toward FTTH for
consumers.
Metro expansion, including FTTT for mobile
CityFibre's expansion strategy is to accelerate the rollout of
CityFibre's metro fibre infrastructure to no less than 50 towns and
cities by 2020. Therefore, CityFibre will target expansion of its
metro network presence to no less than eight new towns and cities
supported by anchor contracts to support this expansion. These
anchor contracts will be targeted from one or more of the three
primary market verticals linked to metro connectivity: public
sector, business and FTTT mobile connectivity.
FTTT uses the metro fibre infrastructure to connect to mobile
stations and is a standard metro network product. Contracts with
mobile operators for FTTT connectivity may result in CityFibre
providing connectivity within its existing footprint as well as
expansion to new towns and cities.
In considering metro expansion to new towns and cities,
CityFibre's management intends to maintain its established
financial discipline for anchor contracts, in particular its focus
on targeting gross margins in excess of 90% and an initial contract
value that covers a substantial proportion of the network
construction costs.
FTTH expansion to consumers
CityFibre's FTTH rollout strategy is to deploy fibre to homes as
an extension of its metro infrastructure. For example, the metro
duct infrastructure is constructed or adapted to take into account
the future fibre capacity for FTTH and also the locations of FTTH
street cabinets that will be located on or near to the metro
network. The metro network itself is used to carry FTTH fibre
cables from centrally located points of presence (POPs) within a
city to the FTTH street cabinets located in residential areas.
Compared to greenfield network construction, the presence of
CityFibre's metro infrastructure provides time and cost benefits to
its planned FTTH rollout. This results from a proportion of the
network infrastructure required for FTTH already being established
through the metro infrastructure in the 42 towns and cities where
CityFibre has a presence.
CityFibre's strategy for FTTH rollout is based on the deployment
of cabinets, connected to the metro infrastructure, that are
capable of providing fibre connectivity to 350 to 450 premises per
cabinet. The number of premises in a city will dictate the maximum
number of FTTH cabinets required, although in order to optimise the
economics of any deployment, CityFibre will retain flexibility to
determine the speed of rollout and the areas where FTTH
infrastructure will be deployed.
The York Trial
In 2014, CityFibre announced the formation of a joint venture
with Sky and TalkTalk, YorkCo, to deploy an FTTH network in York.
This trial aimed to demonstrate the suitability of CityFibre's
metro infrastructure to support the expansion of full fibre
connectivity to homes. CityFibre's existing metro network in York
was a result of CityFibre's anchor contract on behalf of the City
of York Council for 105 council sites and schools. CityFibre
subsequently added 175 net incremental public sector and business
connections to its York metro network and as at 31 December 2016,
CityFibre's metro network infrastructure in York comprised more
than 125 kilometres of network, connecting 280 council sites and
businesses. Construction of the FTTH network, passing 13,582 homes,
supervised by CityFibre's technical teams, was completed by 31 May
2017.
The project demonstrated CityFibre's approach to constructing an
FTTH network through the incorporation of CityFibre's existing
metro infrastructure. The FTTH network in York was expanded at a
cost of less than GBP500 per home whose boundary was passed by the
network. The Directors estimate that the use of CityFibre's
existing metro network delivered cost savings of 20 to 25%
(compared to constructing all the network including the metro
element) and reduced the time to construct the network by 12 to 18
months.
Furthermore, the trial demonstrated demand from Channel Partners
to offer near gigabit speed FTTH services, as well as the
propensity for consumers to switch to FTTH connections. The York
trial demonstrates the commercial viability of FTTH in the UK.
CityFibre's Channel Partners in York offer connection speeds of up
to 940Mbps for prices ranging from GBP21.70 to GBP48.99 per month.
By comparison, BT's Unlimited Infinity 2 FTTC product available in
York has a maximum advertised download speed of 76Mbps and a 19Mbps
upload speed at a price of GBP44.99 per month. Virgin Media's
coaxial cable-based 300Mbps product offers a maximum advertised
download speed of 300Mbps and a 20Mbps upload speed at a price of
GBP47 per month.
The differentiated and competitively priced CityFibre FTTH
product has been well-received in the York market. As at 31 May
2017, of the 13,582 homes in York whose boundaries are passed by
the FTTH network constructed by YorkCo, 3,684, being more than 27%,
had subscribed for an internet service from Sky or TalkTalk on the
new network, with the highest cabinet penetration now exceeding
40%.
The YorkCo joint venture agreement contained a restriction on
CityFibre, preventing it from participating in any trial or rollout
of FTTH services to residential customers in any other part of the
UK. This restriction applied for 12 months after the commercial
launch of the York fibre network. The restriction has now
expired.
International Benchmarks
FTTH deployments in Europe demonstrate fast growth in user
subscriptions to full fibre broadband services.
According to the FTTH Council Europe, there will be more than 36
million FTTH connections in use across Europe by 2019, with
penetration expected to exceed 40% of homes passed in several
countries which were early adopters of FTTH. For example, household
penetration in Latvia is expected to reach 60% By 2019, followed by
Sweden (51%), Spain (50%), Norway (49%), Romania (48%), and
Portugal (46%). Altnet fibre builders will deliver the highest
proportion of FTTH lines. (Source: 'FTTH in Europe Forecast
2016-2019: Behind The Numbers', FTTH Council Europe, 16th May
2017).
Regulated Duct and Pole Access
Ofcom's consultation on proposed changes to duct and pole access
regulations, announced in April 2017, is designed to encourage the
use of Openreach's physical infrastructure in the deployment of
competitive full fibre networks. In 2016, CityFibre commenced its
deployment of full fibre infrastructure in Southend-on-Sea,
trialing the use Openreach ducts for part of the network
construction to lower construction costs. Construction of the
Southend network substantially completed in March 2017 and
demonstrated a 27% reduction in forecast capital expenditure
resulting from the selected use of Openreach duct for parts of the
network construction.
The Directors believe that incorporating the use of Openreach
ducts and poles in selected parts of the construction of
CityFibre's infrastructure will lead to a reduction in FTTH network
construction costs. Accordingly, the Group's planned rollout of
FTTH infrastructure will be optimised through infrastructure
constructed by CityFibre that is supplemented in part with use of
Openreach ducts and poles where appropriate.
CityFibre's Planned FTTH Rollout
Following the success of the York and Southend trials the
Directors believe there is an opportunity to deploy FTTH
infrastructure effectively and efficiently in towns and cities
where CityFibre has an extensive metro footprint. In this regard,
and following the Capital Raising, it is the Group's intention to
commence a larger scale FTTH deployment.
Following detailed planning of the FTTH infrastructure,
CityFibre expects that construction will commence in five to ten
towns and cities within its existing or expanded metro footprint
during 2018 delivering approximately 300 to 400 FTTH cabinets by
the end of 2018. The construction period will depend on the number
of premises in each town or city, with an average duration expected
to be in the region of 20 months to 24 months per town or city.
CityFibre intends to work with Channel Partners to secure
commitments to use its FTTH network, or to procure registrations of
interest on a street or neighbourhood basis, hence mitigating
deployment risks by ensuring there is sufficient demand ahead of
construction.
Following the expiry of the restrictions in the YorkCo joint
venture agreement, CityFibre has engaged in commercial discussions
with major ISPs and a number of smaller ISPs to secure Channel
Partner relationships that are intended to provide full fibre
broadband services to consumers using CityFibre's future FTTH
infrastructure. These discussions are advanced and may or may not
lead to a binding agreement in due course. Such agreements
potentially will include exclusivity for a period of time or other
preferential terms in response to penetration commitments that may
be made by Channel Partners.
If entered into, these agreements would be consistent with
CityFibre's strategy. If CityFibre gains firm commitments from
Channel Partners supporting FTTH expansion beyond the plans
outlined in this announcement, the Company could be required to
raise further debt or equity capital in the longer term.
Illustrative Economics of the FTTH Rollout
CityFibre will rollout FTTH on a cabinet by cabinet basis. Each
FTTH street cabinet is capable of providing fibre connectivity to
350 to 450 premises per cabinet, being approximately 90% homes and
approximately 10% SME businesses per cabinet. The total capital
expenditure, based on self-build and the selected use of Openreach
duct and pole access, is estimated by the Directors to be
approximately GBP170,000 to GBP200,000 per cabinet (net of up-front
fees paid by customers for fibre connections), being approximately
75 to 85% fixed capital expenditure (enabling construction of the
FTTH infrastructure to the boundary of all premises served by the
cabinet) and 15 to 25% success based capital expenditure (for
construction from the boundary into the premises that have
subscribed for an FTTH connection).
CityFibre expects that the wholesale price charged to its
Channel Partners will be competitive in the context of the range of
40 Mbps to 300 Mbps wholesale broadband products provided by
Openreach. Assuming early subscriber penetration growing in line
with the York FTTH trial and international benchmarks the Directors
estimate subscriber penetration to reach at least 50% within five
years, with payback per cabinet (being the period of time it takes
to generate gross margin from connections equal to the net capital
expenditure required to construct the FTTH cabinet) targeted to
occur within seven to nine years of the start of construction. The
revenue yield on net capital expenditure is targeted to be
approximately 18% to 22% per cabinet at maturity, being five to
seven years following cabinet construction. Revenue yield is
defined as the recurring annual revenue generated per cabinet,
measured against the capital expenditure per cabinet, net of
up-front fees paid by the customers for fibre connections.
CityFibre expects that construction will commence in five to ten
towns and cities within its existing or expanded metro footprint
during 2018. An illustrative city rollout will deliver
approximately 200 cabinets over a 20 to 24 month period that pass
approximately 80,000 premises. CityFibre expects to invest
approximately GBP35 to GBP40 million of aggregate net capital
expenditure (net of up-front fees paid by customers for fibre
connections) until maturity of the illustrative city, being within
five to seven years after the commencement of the first cabinet
construction. The Directors believe that the construction of FTTH
will enable CityFibre to scale its customer base more rapidly than
a metro-only offering and will enhance the Company's barriers to
entry in its chosen markets. In addition the Directors believe that
an FTTH revenue stream, derived from strong relationships with
Channel Partners, would further enable the Company to target
re-financing of its existing debt facilities in 2018 with a higher
level of leverage, in order to optimise its capital structure to
fund its future growth.
As the FTTH network deploys a near ubiquitous fibre
infrastructure over time throughout the relevant town or city,
there are potential cost efficiencies for CityFibre's broader
portfolio of metro fibre products delivered to locations in or near
residential areas in all four primary market verticals: public
sector, business, mobile and consumer.
14.6 Regulation and Government Policy
The Group operates within a UK market that the Directors believe
is widely regarded as having an advanced and sophisticated
regulatory and policy environment for telecommunications and
broadband. A recent focus of government and regulatory policy has
been to accelerate both the capability and the speed of
construction of full fibre networks by promoting effective
competition, accompanied by targeted public intervention.
Ofcom's strategy, as set out in its Digital Communications
Review (DCR) of 2016, is to transition the market from dependence
on the legacy network of Openreach towards a 'full fibre' future
spearheaded by competitive FTTP investment. CityFibre is a
potential beneficiary of this change of approach.
It remains the case, however, that Ofcom regulation, governed by
the EU Common Regulatory Framework, is at present largely focused
on interventions that mandate access to incumbents' legacy
networks. Ofcom conducts periodic market reviews to determine
potential competition issues, and in particular the market
dominance of incumbent networks. In the UK context, Ofcom continues
to find that Openreach has Significant Market Power (SMP) and in
order to protect against potential abuse of its SMP position, the
regulator imposes access conditions and price regulation, in
particular to the local access networks operated by Openreach.
The periodic market reviews that are relevant to CityFibre are
the Business Connectivity Market Review (BCMR) and the Wholesale
Local Access Market Review (WLAMR).
Business Connectivity Market Review
The BCMR, which analyses the availability of networks and
competition in the leased lines market, concluded in 2016 and is
based on analysis largely conducted before publication of Ofcom's
strategic change in direction to competitive fibre, which was
announced in Ofcom's DCR. As a result, the BCMR continued to focus
almost exclusively on regulating access to Openreach's existing
network, with mandated price reductions to Openreach's portfolio of
Ethernet leased line products together with the obligation for
Openreach to introduce a local access dark fibre product from
October 2017.
BT, TalkTalk and CityFibre have each lodged appeals relating to
different parts of the new BCMR regulation with the Competition
Appeal Tribunal. CityFibre's appeal is further described in the
Prospectus.
Wholesale Local Access Market Review
The WLAMR, published in March 2017, aligns more closely with the
policy direction of the DCR. In particular, it signals future
deregulation of broadband markets as a spur to market participants
to build or buy access to full fibre networks of the kind that
CityFibre constructs. In this regard, Ofcom proposes new price
regulation for Openreach's entry level 40Mbps broadband product and
allows Openreach price freedom on broadband products above 40Mbps.
Ofcom's strategy, as stated in the WLAMR, is to encourage service
providers to make decisions to move away from the continued use of
Openreach access infrastructure, and in turn construct or consume
alternative full fibre infrastructure.
Revised Duct and Pole Access Regulations
As part of the WLAMR, Ofcom has also published consultation
proposals to reduce construction costs for new FTTH networks by
mandating access to Openreach's existing ducts and overhead poles
(DPA). It is expected that the new regulation will lift some
current usage restrictions such that DPA can be used for leased
lines and broadband connections, and that there will be
improvements to information sharing that make it easier for BT's
competitors to construct new full fibre networks. CityFibre is
expected to be a beneficiary of the revised DPA regulations.
The Common Regulatory Framework
The Common Regulatory Framework is itself under review with a
re-orientation of the draft legislation designed to encourage
FTTP/FTTH construction. The current draft of the revision,
published in October 2016 and now called the Electronic
Communications Code, includes a presumption against regulation of
open access fibre networks as in CityFibre's business model, along
with stronger incentives to invest in FTTP/FTTH.
Government Policy
The previous UK government announced that GBP1.14 billion of
public money will be used to promote faster and more widespread
construction, adoption and use of 'full fibre' networks. This
includes the establishment of a Digital Infrastructure Investment
Fund for new FTTH projects, to encourage public procurement of full
fibre based services and vouchers for businesses who wish to
purchase full fibre connectivity. Digital infrastructure is at the
heart of a new, proactive industrial strategy set out by the
government in March 2017. The Directors believe that CityFibre is
well positioned to be a beneficiary of these measures.
The previous government also introduced revisions to legislation
that allow the government to set out its 'full fibre' strategy in a
way that requires Ofcom to take account of the government's
strategy in exercising its functions and duties. CityFibre
considers that this signalled the government's intention to ensure
that regulation and industrial strategy are fully aligned behind
the 'full fibre' policy goal.
The Directors believe this strategy will continue under the
current Conservative government following the 8 June 2017 general
election in the UK.
15. Selected key historical financial information of Entanet
The selected historical financial information relating to
Entanet for the eleven month period ended 31 December 2014 and the
financial years ended 31 December 2015 and 31 December 2016 as set
out in the following tables has been extracted without material
adjustment from the audited financial information which will be set
out in the Prospectus:
Consolidated income statement
Period ended Year ended 31 December
31 December
2014 2015 2016
GBP000 GBP000 GBP000
============= ============ ===========
Turnover 25,753 31,887 35,754
Cost of sales (19,650) (24,075) (28,637)
============= ============ ===========
Gross profit 6,103 7,812 7,117
Administrative
expenses (5,298) (4,405) (6,403)
============= ============ ===========
Operating profit 805 3,407 714
Finance income 15 13 15
Finance charges (1,987) (1,087) (1,136)
============= ============ ===========
(Loss)/profit before
taxation (1,167) 2,333 (407)
Taxation 27 298 144
============= ============ ===========
(Loss)/profit for
the period/year (1,140) 2,631 (263)
============= ============ ===========
Consolidated balance sheet
As at 31 December
2014 2015 2016
GBP000 GBP000 GBP000
========= ========= =========
Assets
Non-current assets 9,579 9,068 9,221
Current assets 5,065 10,219 8,057
========= ========= =========
Total assets 14,644 19,287 17,278
========= ========= =========
Liabilities
Non-current liabilities (10,075) (11,545) (10,319)
Current liabilities (4,149) (4,991) (4,471)
========= ========= =========
Total liabilities (14,224) (16,536) (14,790)
========= ========= =========
Net assets 420 2,751 2,488
========= ========= =========
Equity
Share capital 25 25 25
Share premium 625 625 625
Merger reserve 300 - -
Retained earnings (530) 2,101 1,838
========= ========= =========
Total equity 420 2,751 2,488
========= ========= =========
Consolidated statement of cash flows
Period Year ended 31
ended December
31 December
============= ==================
2014 2015 2016
GBP000 GBP000 GBP000
============= ======== ========
Net cash inflow from operating
activities 1,136 2,838 1,705
Net cash inflow (outflow)
from investing activities 919 (561) (765)
Net cash (outflow) from
financing activities (416) (1,342) (1,345)
============= ======== ========
Net increase (decrease)
in cash and cash equivalents 1,639 935 (405)
Cash and cash equivalents
at the beginning of the
period/year 5 1,644 2,579
============= ======== ========
Cash and cash equivalents
at the end of the year 1,644 2,579 2,174
============= ======== ========
The following significant changes in Entanet's financial
condition and operating results occurred in the eleven month period
ended 31 December 2014, and the years ended 31 December 2015 and
2016.
Turnover grew from GBP25.8 million in the period ended 31
December 2014 to GBP31.9 million in the year ended 31 December
2015. The majority of growth was driven by increasing demand for
Ethernet circuits, either as standalone connectivity or as the
backbone of wider network solutions. Gross profit, which excludes
core network costs grew from GBP6.1 million in the period ended 31
December 2014 to GBP7.8 million in the year ended 31 December 2015,
representing a 24.5% gross margin. Although this was an improvement
on the prior year there was an increase in margin pressure during
2015 arising from aggressive pricing by competitors, continued
price deflation particularly in smaller capacity circuits and the
increasing ease with which customers can obtain online quotes for
circuits from competing wholesalers.
During 2015, an exceptional item of GBP1.9 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 GBP3.1 million in the year ended 31
December 2015 at a similar margin to the prior period.
Turnover grew from GBP31.9 million in the year ended 31 December
2015 to GBP35.8 million in the year ended 31 December 2016. The
growth was largely driven by demand for Ethernet circuits, both in
standalone connectivity and in IP based network solutions. There
was also significant growth in Entanet's broadband base as a result
of strong demand from a large consumer-focussed Channel Partner.
Gross profit reduced from GBP7.8 million in the year ended 31
December 2015 to GBP7.1 million in the year ended 31 December 2016,
representing a 19.9% gross margin. The fall in gross margin, from
24.5% in the year ended 31 December 2015, was driven predominantly
by the direct acquisition cost of the growth in the consumer
broadband base. The reduction in gross margin and increased
investment in operational and developmental resources led to a
reduction in underlying EBITDA excluding exceptional items from
GBP3.1 million in the year ended 31 December 2015 to GBP2 million
in the year ended 31 December 2016.
There has been no significant change in Entanet's financial or
trading position since 31 December 2016, the date of the last
annual report and audited accounts of Entanet.
The selected historical financial information relating to
Entanet International for the seven weeks ended 20 February 2014 as
set out in the following tables has been extracted without material
adjustment from the audited financial information in the
Prospectus:
Income statement
For the period For the period
ended 20 February ended 31 December
2014 2014
GBP000 GBP000
=================== ===================
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 As at 31 December
2014 2014
GBP000 GBP000
================== ==================
Assets
Non-current assets 1,318 1,853
Current assets 6,196 6,713
================== ==================
Total assets 7,514 8,566
================== ==================
Liabilities
Non-current liabilities - (202)
Current liabilities (5,079) (4,118)
================== ==================
Total liabilities (5,079) (4,320)
================== ==================
Net assets 2,435 4,246
================== ==================
Equity
Issued share capital 200 200
Retained profits 2,235 4,046
================== ==================
2,435 4,246
================== ==================
Statement of cash flows
Net cash inflow/(outflow)
from operating activities 2,028 (325)
====== ========
Net cash outflow from investing
activities (44) (608)
====== ========
Net cash outflow from financing
activities (343) (154)
====== ========
Net increase/(decrease)
in cash and cash equivalents 1,641 (1,087)
Cash and cash equivalents
beginning of period 1,046 2,687
====== ========
Cash and cash equivalents
at end of period 2,687 1,600
====== ========
16. Selected key pro forma financial information
The following unaudited pro forma statement of net assets and
pro forma income statement (the "Pro Forma Financial Information")
have been prepared to show the effect on the consolidated net
assets of the Group had the Entanet Acquisition occurred on 31
December 2016 and the effect on the income statement of the Group
had the Entanet Acquisition occurred on 1 January 2016.
The Pro Forma Financial Information has been prepared for
illustrative purposes only and in accordance with Annex II of the
Prospectus Directive Regulation, and should be read in conjunction
with the notes set out below. Due to its nature, the Pro Forma
Financial Information addresses a hypothetical situation and,
therefore, does not represent the Group's actual financial position
or results.
Pro forma income statement
Adjustments
The Group Entanet Other Pro forma
Year ended Year ended adjustments earnings
31 December 31 December (3) of
2016 (1) 2016 (2) the Enlarged
Group
GBP000 GBP000 GBP000 GBP000
============= ============= ============= ==============
Revenue 15,363 35,754 - 51,117
Cost of sales (1,827) (28,637) - (30,464)
============= ============= ============= ==============
Gross profit 13,536 7,117 - 20,653
Total administrative
expenses (18,677) (6,403) (4,987) (30,067)
============= ============= ============= ==============
Operating (loss)
profit (5,141) 714 (4,987) (9,414)
Finance income 45 15 - 60
Finance cost (7,341) (1,136) - (8,477)
Share of post-tax
losses of equity
accounted Joint
Venture (147) - - (147)
============= ============= ============= ==============
Loss before taxation (12,584) (407) (4,987) (17,978)
Income tax - 144 - 144
============= ============= ============= ==============
Loss for the year
and total
comprehensive
income (12,584) (263) (4,987) (17,834)
============= ============= ============= ==============
Notes:
1. The results of the Group for the year ended 31 December 2016
have been extracted without material adjustment from the financial
statements of the Group for the year ended 31 December 2016 which
will be set out in the Prospectus.
2. The results of Entanet have been extracted without material
adjustment from the financial information on Entanet for the year
ended 31 December 2016 which will be set out in the Prospectus.
3. This adjustment comprises the estimated costs of the Entanet
Acquisition and the estimated costs of the Placing that cannot be
set off against the share premium account.
4. No account has been taken of the effects of any synergies and
of the costs for measures taken to achieve those synergies that may
have arisen had the acquisition occurred on 1 January 2016 and that
may subsequently have affected the results of the Group in the year
ended 31 December 2016.
5. No account has been taken of the trading performance of
either the Group or Entanet since 31 December 2016 nor of any other
event save as disclosed above.
6. Save for the costs of the Entanet Acquisition and the Capital
Raising, the pro forma income statement adjustments are expected to
have a continuing effect on the Enlarged Group.
Pro forma statement of net assets
Adjustments
The Group Entanet Entanet Net Placing Pro forma
Year Year Acquisition proceeds earnings
ended ended (3) (4) of
31 December 31 December the Enlarged
2016 2016 Group
(1) (2)
GBP000 GBP000 GBP000 GBP000 GBP000
============= ============= ============= ============ ==============
Assets
Non-current assets
Property, plant
and equipment 155,159 2,684 - - 157,843
Intangible assets 1,211 6,537 15,859 - 23,607
Investment in
Joint Venture 433 - - - 433
============= ============= ============= ============ ==============
156,803 9,221 15,859 - 181,883
============= ============= ============= ============ ==============
Current assets
Inventory 3,986 - - - 3,986
Trade and other
receivables 8,070 5,883 - - 13,953
Cash and cash
equivalents 16,722 2,174 (29,000) 176,313 166,209
============= ============= ============= ============ ==============
Total current
assets 28,778 8,057 (29,000) 176,313 184,418
============= ============= ============= ============ ==============
Total assets 185,581 17,278 (13,141) 176,313 366,031
============= ============= ============= ============ ==============
Liabilities
Non-current liabilities
Interest bearing
loans and borrowings (55,280) (10,186) 10,186 - (55,280)
Deferred revenue (11,091) - - - (11,091)
Deferred consideration (450) - - - (450)
Deferred tax - (133) - - (133)
============= ============= ============= ============ ==============
Total non-current
liabilities (66,821) (10,319) 10,186 - (66,954)
============= ============= ============= ============ ==============
Current liabilities
Interest bearing
loans and borrowings - (467) 467 - -
Deferred revenue (2,864) - - - (2,864)
Trade and other
payables (7,352) (4,004) - - (11,356)
============= ============= ============= ============ ==============
Total current
liabilities (10,216) (4,471) 467 - (14,220)
============= ============= ============= ============ ==============
Total liabilities (77,037) 14,790) 10,653 - (81,174)
============= ============= ============= ============ ==============
Net assets 108,544 2,488 (2,488) 176,313 284,857
============= ============= ============= ============ ==============
Notes:
1. The net assets of the Group at 31 December 2016 have been
extracted without material adjustment from the financial statements
of the Group for the year ended 31 December 2016, set out in
Prospectus.
Adjustments
2. The net assets of Entanet have been extracted without
material adjustment from the financial information on Entanet for
the year ended 31 December 2016 which will be set out in the
Prospectus.
3. An adjustment has been made to reflect the estimated
intangible assets arising on the Entanet Acquisition. For the
purposes of this pro forma information, no adjustment has been made
to the separate assets and liabilities of Entanet to reflect their
fair value. The difference between the net assets of Entanet as
stated at their book value at 31 December 2016 and the estimated
consideration has therefore been presented as a single value in
"Intangible assets". The net assets of Entanet will be subject to a
fair value restatement as at the effective date of the transaction.
Actual intangible assets included in the Group's next published
financial statements may therefore be materially different from
those included in the pro forma statement of net assets.
The estimated consideration for Entanet is GBP29 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.
GBP000
=========
Consideration payable in cash 29,000
=========
Repayment of debt (10,653)
Consideration for Entanet's equity 18,347
Book value of net assets of Entanet
as at 31 December 2016 (2,488)
Estimated intangible assets arising
on the transaction 15,859
=========
The repayment of debt is based on the balance outstanding at 31
December 2016. The actual balance repaid is likely to differ from
this amount.
4. The Firm Placing will raise net proceeds of GBP176.3 million
(GBP185 million gross proceeds less estimated expenses of GBP8.7
million). No account has been taken of any proceeds from the ABB
Placing or the Offer for Subscription.
5. No account has been taken of the financial performance of the
Group or Entanet since 31 December 2016 nor of any other event save
as disclosed above.
Appendix 1 - Definitions
The following definitions apply throughout this announcement,
unless the context otherwise requires:
"Act" the Companies Act 2006 (as
amended)
"Admission" admission of the New Ordinary
Shares to trading on AIM
and such admission becoming
effective in accordance
with the AIM Rules
"AIM" the market of that name
operated by the London Stock
Exchange
"AIM Rules" the rules for companies
whose securities are admitted
to trading on AIM, as published
by the London Stock Exchange
from time to time
"Application Form" the application to be comprised
within the Prospectus in
respect of the Offer for
Subscription
"BCMR" Business Connectivity Market
Review published by Ofcom
on 28 April 2016
"Board" the board of directors of
the Company as constituted
from time to time
"BT" BT Group plc
"BT Wholesale" the BT Wholesale and Ventures
division of BT providing
network products and services
to client communication
providers
"Business Day" any day (other than a Saturday
or Sunday or public holiday)
on which banks are open
for business in London
"Canada" Canada, its possessions
and territories and all
areas subject to its jurisdiction
or any political subdivision
thereof
"Capital Raising" the Placing and the Offer
for Subscription
"certificated" or "in where a share or other security
certificated form" is not in uncertificated
form (that is, not in CREST)
"Channel Partners" internet service providers,
connectivity resellers and
service integrators
"Citi" Citigroup Global Markets
Limited
"CityFibre" or "Company" CityFibre Infrastructure
Holdings plc (registered
number 08772997) of 15 Bedford
Street, London WC2E 9HE
"Closing Price" the closing middle market
quotation of an Existing
Ordinary Share as derived
from the Daily Official
List
"CREST" the relevant system, as
defined in the CREST Regulations
(in respect of which Euroclear
is the operator as defined
in the CREST Regulations)
"CREST member" a person who has been admitted
to Euroclear as a system
member (as defined in the
CREST Regulations)
"CREST Regulations" the Uncertificated Securities
Regulations 2001 (SI 2001
No. 3755), as amended
"Daily Official List" the daily official list
of the London Stock Exchange
"Digital Communications the report, Initial Conclusions
Review" from the Strategic Review
of Digital Communications,
published by Ofcom on 25
February 2016
"Directors" The directors of the Company,
and "Director" means any
one of them
"Disclosure Guidance the Disclosure Guidance
and Transparency Rules" and Transparency Rules published
by the FCA
"EBITDA" earnings before interest,
taxes, depreciation and
amortisation
"EE" EE Limited
"Enlarged Group" the Company and its subsidiaries
following completion of
the Entanet Acquisition
"Entanet Acquisition" the Company's proposed acquisition
of the entire issued share
capital of Entanet pursuant
to the Entanet Acquisition
Agreement
"Entanet Acquisition the agreement dated 5 July
Agreement" 2017 between Yun-Ju Elsa
Chen and others and the
Company relating to the
Entanet Acquisition
"Entanet" Entanet Holdings Limited,
a company incorporated in
England and Wales with registered
number 07902027 and whose
registered office is at
Stafford Park 6, Telford,
Shropshire, TF3 3AT and,
where the context requires,
its subsidiary undertaking
Entanet International
"Entanet International" Entanet International Limited,
a company incorporated in
England and Wales with registered
number 03274237 and whose
registered office is at
Stafford Park 6, Telford,
Shropshire, TF3 3AT, being
a wholly owned subsidiary
of Entanet
"EU" the European Union first
established by the treaty
made at Maastricht on 7
February 1992
"Euroclear" Euroclear UK and Ireland
Limited, a company incorporated
under the laws of England
and Wales under number 2872738,
which operates CREST
"Excluded Territories" Australia, Canada, Japan,
New Zealand, the United
States and any other jurisdiction
where the extension or availability
of the Capital Raising (and
any other transaction contemplated
thereby) would breach any
applicable law or regulation
"Existing Ordinary Shares" the 265,672,644 Ordinary
Shares in issue as at the
Reference Date
"Financial Conduct Authority" the Financial Conduct Authority
or "FCA" of the United Kingdom
"financial year" for a particular year, the
financial year of the Company
ending on 31 December in
such year and in respect
of which audited accounts
have been prepared
"finnCap" finnCap Ltd
"FSMA" the Financial Services and
Markets Act 2000 (as amended)
"General Meeting" the general meeting of the
Company to be convened in
connection with the Capital
Raising pursuant to the
Notice of General Meeting
"Group" the Company, its subsidiaries
and subsidiary undertakings,
and "member of the Group"
shall be construed accordingly
"ISIN" International Securities
Identification Number
"Joint Bookrunners" Citi, finnCap, Liberum and
Macquarie
"KCOM" KCOM Group plc
"Liberium" Liberum Capital Limited
"London Stock Exchange" London Stock Exchange plc,
together with any successors
thereto
"Macquarie" Macquarie Capital (Europe)
Limited
"MAR" the EU Market Abuse Regulation
(EU/596/2014)
"MBNL" Mobile Broadband Network
Limited
"New Ordinary Shares" the new Ordinary Shares
to be issued by the Company
pursuant to the Capital
Raising
"Notice of General Meeting" the notice convening the
General Meeting to be set
out in the Prospectus
"OECD" the Organisation for Economic
Co-operation and Development
"Ofcom" the independent regulator
and competition authority
for the UK communications
industries
"Offer for Subscription" the invitation, which may
only be to Qualifying Shareholders
to subscribe for the Offer
for Subscription Shares
at the Offer Price on the
terms and subject to the
conditions to be set out
in the Prospectus and the
Application Form
"Offer for Subscription the New Ordinary Shares
Shares" to be issued by the Company
pursuant to the Offer for
Subscription
"Offer Price" 55 pence per New Ordinary
Share
"Openreach" the infrastructure division
of BT Group plc that will
be incorporated into a new
legal entity within BT Group
plc in accordance with undertakings
agreed with Ofcom
"Ordinary Shares" the ordinary shares of 1
pence each in the share
capital of the Company
"Overseas Shareholder" a Shareholder with a registered
address outside the United
Kingdom or who is a citizen
or resident of a country
outside the United Kingdom
"Placees" the persons with whom Placing
Shares are placed
"Placing" the placing of Placing Shares
as described in this document
"Placing Shares" the New Ordinary Shares
to be issued by the Company
pursuant to the Placing
at the Offer Price
"Prospectus" The prospectus to be published
by the Company in connection
with the Capital Raising
"Qualifying Shareholders" holders of Ordinary Shares
on the register of members
of the Company at the Record
Date
"Record Date" the Business Day immediately
prior to publication of
the Prospectus (unless altered
by CityFibre in consultation
with the Underwriters and
notified to the London Stock
Exchange and, where appropriate,
Qualifying Shareholders)
"Reference Date" 4 July 2017, being the last
practicable date prior to
the date of this announcement
"Regulation S" Regulation S under the US
Securities Act
"Resolutions" the resolutions to be proposed
at the General Meeting,
as set out in the Notice
of General Meeting
"Rothschild" N M Rothschild & Sons Limited
"Rule 144A" Rule 144A under the US Securities
Act
"Securities Act" the US Securities Act of
1933, as amended
"Shareholder(s)" holder(s) of Ordinary Shares
"Sky" Sky UK Limited
"sterling" or "pounds the lawful currency of the
sterling" United Kingdom
"stock account" an account within a member
account in CREST to which
a holding of a particular
share or other security
in CREST is credited
"subsidiary" or "subsidiary each have the meanings given
undertaking" or "undertaking" by the Act
"TalkTalk" TalkTalk Telecom Group plc
"TIDM" Tradable Instrument Display
Mnemonic
"Three" Hutchinsom 3G UK Limited
"UK" or "United Kingdom" the United Kingdom of Great
Britain and Northern Ireland
"Underwriters" or "Joint Citi, finnCap, Liberum and
Underwriters" Macquarie
"Underwriting Agreement" the conditional underwriting
agreement dated 5 July 2017
between the Company and
the Underwriters in relation
to the Capital Raising
"US" or "United States" the United States of America,
its territories and possessions,
any State of the United
States and the District
of Columbia and all other
areas subject to its jurisdiction
"US Exchange Act" the US Securities Exchange
Act of 1934, as amended,
and the rules and regulations
promulgated under such Act
"US GAAP" generally accepted accounting
principles in the United
States
"US Securities Act" the US Securities Act of
1933, as amended, and the
rules and regulations promulgated
under such Act
"Virgin Media" Virgin Media Limited
"YorkCo" Bolt Pro Tem Limited, the
joint venture company established
by CityFibre, Sky and TalkTalk
for the York FTTH trial
Appendix 2 - Terms and Conditions of the Placing
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS
RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION,
DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE
UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA
OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH
JURISDICTION.
IMPORTANT INFORMATION ON THE PLACING FOR INVITED PLACEES
ONLY.
NOTHING IN THIS APPIX SHOULD BE INTERPRETED AS A TERM OR
CONDITION OF OR FORM A PART OF, AND SHOULD NOT BE CONSTRUED AS, ANY
OFFER TO PURCHASE, OTHERWISE ACQUIRE, SUBSCRIBE FOR, SELL OR
OTHERWISE DISPOSE OF ANY SECURITIES OR THE SOLICITATION OF AN OFFER
TO BUY OR SUBSCRIBE FOR ANY SECURITIES OF THE COMPANY, NOR SHOULD
IT OR ANY PART OF IT FORM THE BASIS OF, OR BE RELIED ON IN
CONNECTION WITH, ANY CONTRACT OR COMMITMENT WHATSOEVER. ANY
DECISION TO PURCHASE, OTHERWISE ACQUIRE, SUBSCRIBE FOR, SELL OR
OTHERWISE DISPOSE OF ANY SECURITIES IN THE COMPANY MUST BE MADE
ONLY ON THE BASIS OF THE INFORMATION CONTAINED IN THE PLACING PROOF
OF THE PROSPECTUS (THE "P-PROOF") AND THE PROSPECTUS TO BE
PUBLISHED BY THE COMPANY.
THIS APPIX DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER TO
SELL, OR ANY SOLICITATION OF AN OFFER TO BUY, SECURITIES TO THE
PUBLIC IN THE UNITED STATES. SECURITIES MAY NOT BE OFFERED OR SOLD
IN THE UNITED STATES ABSENT (I) REGISTRATION UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMED (THE "SECURITIES ACT") OR (II) AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. THE
PLACING SHARES AND THE OFFER FOR SUBSCRIPTION SHARES HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED
STATES AND MAY NOT BE OFFERED, SOLD, RESOLD OR DELIVERED, DIRECTLY
OR INDIRECTLY, IN OR INTO THE UNITED STATES ABSENT REGISTRATION
EXCEPT PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT
SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. NO
PUBLIC OFFERING OF THE PLACING SHARES AND THE OFFER FOR
SUBSCRIPTION SHARES IS BEING MADE IN THE UNITED STATES.
THE PLACING IS BEING MADE (I) OUTSIDE THE UNITED STATES IN
OFFSHORE TRANSACTIONS (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT ("REGULATION S")) MEETING THE REQUIREMENTS OF
REGULATION S UNDER THE SECURITIES ACT; AND (II) TO A LIMITED NUMBER
OF "QUALIFIED INSTITUTIONAL BUYERS" WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT WHO HAVE EXECUTED A US INVESTOR LETTER AND
DELIVERED THE SAME TO A JOINT UNDERWRITER OR ONE OF THEIR
RESPECTIVE AFFILIATES, IN TRANSACTIONS THAT ARE EXEMPT FROM OR NOT
SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PERSONS RECEIVING THIS ANNOUNCEMENT (INCLUDING CUSTODIANS, NOMINEES
AND TRUSTEES) MUST NOT FORWARD, DISTRIBUTE, MAIL OR OTHERWISE
TRANSMIT IT IN OR INTO THE UNITED STATES OR USE THE UNITED STATES
MAILS, DIRECTLY OR INDIRECTLY, IN CONNECTION WITH THE PLACING AND
OFFER FOR SUBSCRIPTION.
THIS APPIX DOES NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR A
SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR PLACING SHARES AND
OFFER FOR SUBSCRIPTION SHARES IN ANY JURISDICTION INCLUDING,
WITHOUT LIMITATION, THE UNITED STATES (SUBJECT TO THE EXCEPTIONS
REFERRED TO HEREIN), AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH
AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS OR MAY BE UNLAWFUL (AN "EXCLUDED JURISDICTION").
THIS APPIX AND THE INFORMATION CONTAINED HEREIN ARE NOT FOR
PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, TO PERSONS IN
AN EXCLUDED JURISDICTION UNLESS PERMITTED PURSUANT TO AN EXEMPTION
UNDER THE RELEVANT LOCAL LAW OR REGULATION IN ANY SUCH
JURISDICTION. NO ACTION HAS BEEN TAKEN BY THE COMPANY, CITIGROUP,
FINNCAP, LIBERUM, MACQUARIE, ROTHSCHILD OR ANY OF THEIR RESPECTIVE
AFFILIATES THAT WOULD PERMIT AN OFFER OF THE PLACING SHARES OR NEW
ORDINARY SHARES OR POSSESSION OR DISTRIBUTION OF THIS ANNOUNCEMENT
OR ANY OTHER PUBLICITY MATERIAL RELATING TO SUCH PLACING SHARES OR
OFFER FOR SUBSCRIPTION SHARES IN ANY JURISDICTION WHERE ACTION FOR
THAT PURPOSE IS REQUIRED. PERSONS RECEIVING THIS ANNOUNCEMENT ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY SUCH
RESTRICTIONS.
THIS ANNOUNCEMENT (WHICH IS FOR INFORMATION PURPOSES ONLY) AND
THE TERMS AND CONDITIONS SET OUT IN THIS APPIX ARE DIRECTED AT: (A)
PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA WHO ARE
"QUALIFIED INVESTORS", AS DEFINED IN ARTICLE 2.1(E) OF THE
PROSPECTIVE DIRECTIVE (DIRECTIVE 2003/71/EC) AS AMED, (B) IF IN THE
UNITED KINGDOM, PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE IN
MATTERS RELATING TO INVESTMENTS WHO FALL WITHIN THE DEFINITION OF
"INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) OF THE FINANCIAL
SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 AS
AMED (THE "FPO") OR FALL WITHIN THE DEFINITION OF "HIGH NET WORTH
COMPANIES, UNINCORPORATED ASSOCIATIONS ETC." IN ARTICLE 49(2)(A) TO
(D) OF THE FPO AND (II) ARE "QUALIFIED INVESTORS" AS DEFINED IN
SECTION 86 OF FSMA OR (C) OTHERWISE TO PERSONS TO WHOM IT MAY
OTHERWISE LAWFULLY BE COMMUNICATED (EACH, A "RELEVANT PERSON"). NO
OTHER PERSON SHOULD ACT OR RELY ON THIS ANNOUNCEMENT AND PERSONS
DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS
LAWFUL TO DO SO. BY ACCEPTING THE TERMS OF THIS ANNOUNCEMENT, YOU
REPRESENT AND AGREE THAT YOU ARE A RELEVANT PERSON.
EACH PLACEE SHOULD CONSULT WITH ITS OWN ADVISERS AS TO LEGAL,
TAX, BUSINESS AND RELATED ASPECTS OF AN ACQUISITION OF PLACING
SHARES.
Persons who are invited to and who choose to participate in the
Placing by making an oral or written offer (which includes email)
to acquire Placing Shares, including any individuals, funds or
others on whose behalf a commitment to acquire Placing Shares is
given (the Placees), will: (i) be deemed to have read and
understood this Announcement, including the Appendix, in its
entirety; and (ii) be making such offer on the terms and conditions
contained in the Appendix, including being deemed to be providing
(and shall only be permitted to participate in the Placing on the
basis that they have provided) the confirmations, representations,
warranties, acknowledgements and undertakings set out herein.
In particular each such Placee confirms, represents, warrants
and acknowledges that:
(a) it is a Relevant Person (as defined above) and undertakes
that it will acquire, hold, manage or dispose of any Placing Shares
that are allocated to it for the purposes of its business;
(b) it is and, at the time the Placing Shares are acquired, will
be either: (i) outside the United States and is acquiring the
Placing Shares in an "offshore transaction" in accordance with
Regulation S under the Securities Act (Regulation S); or (ii) a
"qualified institutional buyer" (a QIB) as defined in Rule 144A
under the Securities Act (Rule 144A), which is acquiring the
Placing Shares for its own account or for the account of one or
more QIBs, each of which is acquiring beneficial interests in the
Placing Shares for its own account and has duly executed a US
Investor Letter and delivered the same to a Joint Underwriter or
one of their respective affiliates; if acquiring the Placing Shares
for the account of one or more other persons, it has full power and
authority to make the representations, warranties, agreements and
acknowledgements herein on behalf of each such account; or
(c) if it is a financial intermediary, as that term is used in
Article 3(2) of the Prospectus Directive, that it understands the
resale and transfer restrictions set out in this Appendix and that
any Placing Shares acquired by it in the Placing will not be
acquired on a non-discretionary basis on behalf of, nor will they
be acquired with a view to their offer or resale to, persons in
circumstances which may give rise to an offer of securities to the
public other than an offer or resale in a member state of the EEA
which has implemented the Prospectus Directive to Qualified
Investors, or in circumstances in which the prior consent of the
Joint Underwriters has been given to each such proposed offer or
resale.
The Company and the Joint Underwriters will rely on the truth
and accuracy of the foregoing confirmations, acknowledgments,
representations, warranties and acknowledgements.
The Placing Shares are being offered and sold outside the United
States in accordance with Regulation S. Any offering to be made in
the United States will be made to a limited number of QIBs pursuant
to an exemption from registration under the Securities Act in a
transaction not involving any public offering.
Persons (including, without limitation, nominees and trustees)
who have a contractual or other legal obligation to forward a copy
of the Appendix or the Announcement of which it forms part should
seek appropriate advice before taking any action.
Each Joint Underwriter is acting for City Fibre and no one else
in connection with the Capital Raising and the Placing, and will
not be responsible to any person other than City Fibre for
providing the regulatory and legal protections afforded to clients
of the respective Joint Underwriter nor for providing advice in
relation to the contents of this document or any matter,
transaction or arrangement referred to in it.
Details of the Placing and the Underwriting Agreement
The Placing
The Placing is part of the proposed Capital Raising and consists
of (i) a proposed firm placing of Placing Shares at the Offer Price
(the "Firm Placed Shares") comprising minimum gross proceeds of
GBP185 million and fully underwritten by the Joint Underwriters
(the "Firm Placing"), and (ii) a proposed placing on a reasonable
endeavours basis of Placing Shares at the Offer Price (the "ABB
Placed Shares") to eligible institutional investors by way of an
accelerated bookbuilding process, to be launched immediately
following this announcement (the "ABB Placing" and, together with
the Firm Placing, the "Placing".
ABB Placed Shares in respect of which firm commitments are
obtained from investors in the ABB Placing will be underwritten by
the Joint Underwriters from the time of the results announcement of
the ABB Placing, but the Joint Underwriters will not be obliged to
take up New Ordinary Shares in respect of which Placees are not
procured in the ABB Placing. There is therefore no guarantee that a
minimum amount will be raised through the ABB Placing.
In addition to the Placing, the Capital Raising includes the
Offer for Subscription for up to GBP15 million, which will not be
underwritten by the Joint Underwriters or anyone else and which may
only made available to Qualifying Shareholders, once an
FCA-approved prospectus ("Prospectus") is published by the Company
in connection with the Capital Raising, currently anticipated to be
on or around 11 July 2017. The Placing and the Capital Raising are
conditional, inter alia, on (i) the Underwriting Agreement becoming
unconditional in all respects and not being terminated in
accordance with its terms before Admission, and (ii) Admission
occurring. Further details of the conditions to the Placing and the
Capital Raising are described in Paragraph "Conditions to the
Placing and the Capital Raising" below.
The Firm Placing and the Underwriting Agreement
The Joint Underwriters and the Company have entered into the
Underwriting Agreement under which each Underwriter has severally
undertaken, on the terms and subject to the conditions set out in
the Underwriting Agreement (as further described in Paragraph
"Conditions of the Placing and the Capital Raising" below), to use
its reasonable endeavours to procure Placees for the Firm Placed
Shares at the Offer Price. In accordance with the terms of the
Underwriting Agreement, to the extent any Placee fails to take up
its allocation of Firm Placed Shares at the Offer Price, the Joint
Underwriters have severally agreed to take up such Firm Placed
Shares in their respective Relevant Proportions (as defined in the
Underwriting Agreement) and the Company agrees to allot and issue
such Firm Placed Shares to the Joint Underwriters accordingly, in
each case at the Offer Price and on the terms set out in the
Underwriting Agreement.
The ABB Placing and the Underwriting Agreement
Pursuant to the Underwriting Agreement, the Joint Underwriters
have also severally undertaken, on the terms and subject to the
conditions set out in the Underwriting Agreement, to use their
reasonable endeavours to procure Placees for the ABB Placed Shares
at the Offer Price through an accelerated bookbuilding process to
eligible institutional investors to be launched immediately
following this Announcement. The Joint Underwriters will only be
obliged to take up ABB Placed Shares in their respective Relevant
Proportions to the extent that commitments from Placees are
received in respect of such ABB Placed Shares following completion
of the bookbuild.
The Firm Placed Shares and the ABB Placed Shares
The Firm Placed Shares and the ABB Placed Shares will, when
issued, be subject to the Articles, be credited as fully paid and
rank pari passu in all respects with, and be identical to, the
Existing Ordinary Shares of the Company and the Offer for
Subscription Shares to be allotted under the Offer for
Subscription, including the right to receive all dividends and
other distributions declared, made or paid after Admission.
Each Placee that participates in the Firm Placing or (as
applicable) the ABB Placing will be required to pay to the Joint
Underwriters, on the Company's behalf, an amount equal to the
product of the Offer Price and the number of Placing Shares that
such Placee is required to be allotted under the Firm Placing or
(as applicable) the ABB Placing, in accordance with the terms set
out in or referred to in this Appendix. Each Placee's obligation to
be allotted and pay for Placing Shares under the Firm Placing or
(as applicable) the ABB Placing will be owed to each of the Company
and to the Joint Underwriters. Each Placee will be deemed to have
read this Appendix in its entirety. No Joint Underwriter nor any
respective holding company thereof, any subsidiary thereof, any
subsidiary of any such holding company, any branch, affiliate or
associated undertaking of any such company nor any of their
respective directors, partners, officers, agents and employees
(each a "Representative") will have any liability (to the maximum
extent permitted by applicable legislation and regulations) to
Placees or to any person other than the Company in respect of the
Placing or the Capital Raising.
Application for Admission
Application will be made to the London Stock Exchange for
admission of the Placing Shares allotted pursuant to the Firm
Placing and the ABB Placing, and the Offer for Subscription Shares
to be allotted to Qualifying Shareholders under the Offer for
Subscription, to trading on AIM.
It is expected that Admission will take place on or before 8.00
a.m. (London time) on or around 28 July 2017 and that dealings in
the Placing Shares allotted pursuant to the Firm Placing and the
ABB Placing, and the Offer for Subscription Shares allotted under
the Subscription for Offer, will commence at that time.
ABB Placing process
The Joint Underwriters will today commence the process for the
ABB Placing (the "Bookbuild Process") to determine demand for
participation in the ABB Placing by Placees. This Appendix gives
details of the terms and conditions of, and the mechanics of
participation in, the ABB Placing by Placees. No commissions will
be paid to Placees or by Placees in respect of any ABB Placed
Shares they subscribe for.
The Joint Underwriters (in consultation with the Company) shall
be entitled to effect the ABB Placing by such alternative method to
the Bookbuild Process as they may, in their absolute discretion,
determine.
Principal terms of the Bookbuild Process and ABB Placing
Each of the Joint Underwriters (whether through itself or any of
its affiliates) is arranging the ABB Placing on behalf of the
Company for the purpose of using its reasonable endeavours to
procure Placees at the Offer Price for the ABB Placed Shares. Each
Joint Underwriter is acting exclusively for the Company and no one
else in connection with the matters referred to in this
Announcement, including the ABB Placing, and will not be
responsible to anyone other than the Company for providing the
afforded to the customers of each Joint Underwriter or for
providing advice in relation to any matters described in this
Announcement.
Participation in the ABB Placing will only be available to
persons who may lawfully be, and are, invited to participate by the
Joint Underwriters.
The Offer Price is a fixed price of 55 pence per New Ordinary
Share allotted under the ABB Placing.
Each prospective Placee's allocation of ABB Placed Shares will
be confirmed orally by or on behalf of the Joint Underwriters and a
contract note or electronic confirmation will be dispatched or
verbal confirmation given as soon as practicable thereafter as
evidence of such Placee's allocation and commitment. The terms and
conditions of this Appendix will be deemed incorporated into such
contract note, electronic communication or verbal confirmation.
Oral confirmation of a prospective Placee's allocation will
constitute an irrevocable legally binding commitment upon that
person (who at that point will become a Placee) in favour of the
Company and the Joint Underwriters to subscribe for the number of
ABB Placed Shares allocated to it at the Offer Price on the terms
and conditions set out in this Appendix and in accordance with the
Articles. An offer to acquire ABB Placed Shares, which has been
communicated by a prospective Placee to any Joint Underwriter which
has not been withdrawn or revoked prior to the time the Bookbuild
Process closes shall not be capable of withdrawal or revocation
without the consent of the Joint Underwriters.
Irrespective of the time at which a Placee's allocation pursuant
to the ABB Placing is confirmed, settlement for all ABB Placed
Shares to be acquired pursuant to the ABB Placing will be required
to be made at the same time, on the basis explained below under
Paragraph "Registration and Settlement" of this Appendix.
All obligations under the ABB Placing will be subject to
fulfilment or (where applicable) waiver of amongst other things,
the conditions referred to below under Paragraph "Conditions of the
Placing" of this Appendix and to the Placing not being terminated
on the basis referred to below under Paragraph "Right to terminate
under the Underwriting Agreement" of this Appendix.
By participating in the ABB Placing, each Placee will agree that
its rights and obligations in respect of the ABB Placing will
terminate only in the circumstances described below and will not be
capable of rescission or termination by the Placee.
Each Placee's obligations will be owed to the Company, and to
the Joint Underwriters. Following the oral confirmation referred to
above, each Placee will also have an immediate, separate,
irrevocable and binding obligation, owed to the Joint Underwriters
as agents of the Company and to the Company, to pay the Joint
Underwriters in cleared funds an amount equal to the product of the
Offer Price and the number of ABB Placing Shares such Placee has
agreed to acquire. Subject to the paragraph below, the Joint
Underwriters will procure the allotment of the ABB Placing Shares
to Placees who participate in the ABB Placing.
Each Placee who participates in the ABB Placing acknowledges and
agrees that the Company is responsible for the allotment of the ABB
Placed Shares to the Placees and that no Joint Underwriter shall
have any liability to Placees for the failure of the Company to
fulfil those obligations.
Registration and Settlement
If Placees are allocated Placing Shares pursuant to either the
Firm Placing or the ABB Placing they will be sent a contract note
or electronic confirmation or will receive verbal confirmation
which will confirm the number of such Placing Shares at the Offer
Price and the aggregate amount owed by them to the Joint
Underwriters. Each Placee will be deemed to agree that it will do
all things necessary to ensure that delivery and payment is
completed in accordance with either the standing CREST or
certificated settlement instructions which they have in place with
the relevant Joint Underwriter or otherwise as the Joint
Underwriters may direct.
Settlement of transactions in the Placing Shares to be allotted
pursuant to the Firm Placing and the ABB Placing following (and
subject to) Admission will take place within the CREST system.
Settlement through CREST will be on a T+3 basis unless otherwise
notified by Citigroup (acting on behalf of the Joint Underwriters)
and is expected to occur on or around 28 July 2017 (the "Settlement
Date"). Settlement will be on a delivery versus payment basis.
However, in the event of any difficulties or delays in the
admission of the Placing Shares allotted pursuant to the Firm
Placing and the ABB Placing to CREST or the use of CREST in
relation to the Placing generally, the Company and the Joint
Underwriters may agree that such Placing Shares should be issued in
certificated form. The Joint Underwriters reserve the right to
require settlement for the Placing Shares, and to deliver the
Placing Shares to Placees, by such other means as they deem
necessary if delivery or settlement to Placees is not practicable
within the CREST system or would not be consistent with regulatory
requirements in a Placee's jurisdiction.
Interest is chargeable daily on payments not received from
Placees on the due date in accordance with the arrangements set out
above, in respect of either CREST or certificated deliveries, at
the rate of interest at a rate equal to the London Inter-Bank
Offered Rate for seven day deposits in sterling plus 2 per cent.
per annum, or as determined by the Joint Underwriters in their
absolute discretion.
If Placees do not comply with their obligations the Joint
Underwriters may sell any or all of the Placing Shares allocated to
them under the Firm Placing or (as applicable) the ABB Placing on
their behalf and retain from the proceeds, for their own account
and benefit, an amount equal to the Offer Price of each such
Placing Share sold plus any interest due. Placees will, however,
remain liable for any shortfall below the Offer Price and for any
stamp duty or stamp duty reserve tax (together with any interest or
penalties) which may arise upon the sale of the relevant Placing
Shares on their behalf.
If Placing Shares allotted under the Firm Placing or (as
applicable) the ABB Placing are to be delivered to a custodian or
settlement agent, Placees must ensure that, upon receipt, the
conditional contract note, electronic confirmation or verbal
confirmation is copied and delivered immediately to the relevant
person within that organisation. Insofar as Placing Shares are
registered in a Placee's name or that of its nominee or in the name
of any person for whom a Placee is contracting as agent or that of
a nominee for such person, such Placing Shares should, subject as
provided below, be so registered free from any liability to UK
stamp duty or stamp duty reserve tax. Placees will not be entitled
to receive any fee or commission in connection with the
Placing.
Conditions of the Placing and the Capital Raising
The Placing and the Capital Raising are conditional upon:
(a) the Underwriting Agreement becoming unconditional in all
respects by, and not being terminated in accordance with its terms
before Admission; and
(b) Admission occurring.
By accepting the obligations set out herein, you agree that any
exercise by Citigroup (acting on behalf of the Joint Underwriters)
of any right to terminate the Underwriting Agreement shall be
within Citigroup's absolute discretion and that neither Citigroup
nor any of the Joint Underwriters shall have any liability to you
whatsoever in connection with any decision to exercise or not to
exercise any such right, to waive (or not waive) any condition to
the Underwriting Agreement or to extend (or refuse to extend) the
time for satisfaction of any such condition. The right is reserved
in Citigroup's absolute discretion, acting on behalf of the Joint
Underwriters, to agree with the Company to extend the time for the
satisfaction of all or any of the conditions of the Underwriting
Agreement, and otherwise to adjust the timetable for the
implementation of the Placing and/or the Capital Raising to take
account of any change of circumstances that may arise on or after
the date of signing the Underwriting Agreement, save that such
extension may not run beyond 31 August 2017 (being the "Long Stop
Date" as defined in the Underwriting Agreement). All times and
dates referred to herein are therefore subject to adjustment in
accordance with that reservation.
The obligations of the Joint Underwriters under the Underwriting
Agreement are conditional, inter alia, upon:
(a) no event referred to in section 87G(1) of FSMA arising
between the time of publication of the Prospectus and
Admission;
(b) any supplementary prospectus required to be published prior
to Admission being approved by the Joint Underwriters and formally
approved by the UKLA and published prior to Admission;
(c) the passing of the Resolutions without amendment at the
General Meeting (and not, except with the prior written consent of
Citigroup (acting on behalf of the Joint Underwriters), at any
adjournment thereof);
(d) each of the warranties therein and any statement made in
(inter alia) the Prospectus not being untrue, inaccurate or
misleading in any respect when made, nor becoming untrue, in
accurate or misleading by reference to the facts existing at that
time, in each case prior to Admission;
(e) there not having occurred prior to Admission a material
adverse change in, or any development reasonably likely to involve
a prospective material adverse change in or affecting, the
condition (financial, operational, legal or otherwise) or the
earnings or business affairs or business prospects of the CFHL
Group, whether or not arising in the ordinary course of business;
and
(f) Admission taking place by not later than 8.00 a.m. on the 31
August 2017 (being the Long Stop Date under the Underwriting
Agreement) or such later time and/or date (not being later than
that Long Stop Date) as the Company and the Joint Underwriters may
agree.
If the above conditions have not been satisfied before the Long
Stop Date, or the Underwriting Agreement is not entered into, or is
terminated, the Placing and the Capital Raising will not proceed
and all of your liabilities in connection with the Firm Placing or
(as applicable) the ABB Placing under these terms and conditions
shall cease and determine and no party shall have any claim against
the other and any monies previously paid by you will be returned
without interest to you by cheque or to the account of the drawee
bank from which they were originally debited and at your risk.
Termination of the Placing
The Underwriting Agreement may be terminated by Citigroup
(acting on behalf of the Joint Underwriters) before Admission
where, inter alia, there has been a breach of any of the warranties
contained in the Underwriting Agreement or where there has occurred
a material adverse change or an event of force majeure.
By accepting the obligations set out in these terms and
conditions, you agree that any exercise by Citigroup (acting on
behalf of the Joint Underwriters) of any right to terminate the
Underwriting Agreement shall be within Citigroup's absolute
discretion and that neither Citigroup nor any of the Joint
Underwriters shall have any liability to you whatsoever in
connection with any decision to exercise or not to exercise any
such right, to waive (or not waive) any condition to the
Underwriting Agreement or to extend (or refuse to extend) the time
for satisfaction of any such condition. The right is reserved in
Citigroup's absolute discretion, acting on behalf of the Joint
Underwriters, to agree with the Company to extend the time for the
satisfaction of all or any of the conditions of the Underwriting
Agreement, and otherwise to adjust the timetable for the
implementation of the Placing and/or the Capital Raising to take
account of any change of circumstances that may arise on or after
the date of signing the Underwriting Agreement, save that such
extension may not run beyond 31 August 2017 (being the Long Stop
Date under the Underwriting Agreement). All times and dates
referred to herein are therefore subject to adjustment in
accordance with that reservation.
Representations, warranties and further terms
By participating in the Placing, you (and any person acting on
your behalf) acknowledge, confirm, agree, represent, warrant and
undertake to the Joint Underwriters and the Company and their
respective Representatives that:
1 You have read this Announcement in its entirety and
acknowledge that your participation in the Placing shall be
governed by the terms and conditions set out in this Appendix;
2 You will subscribe at the Offer Price for such number of
Placing Shares as is allocated to you under the Placing and in
accordance with the terms and conditions set out in this
Appendix;
3 You will pay the full subscription amount as and when required
in respect of all Placing Shares allocated to you in accordance
with such terms and will do all things necessary on your part to
ensure that payment for such shares and their delivery to you or at
your direction is completed in accordance with the standing CREST
instructions (or, where applicable, standing certificated
settlement instructions) that you have in place with any Joint
Underwriter with its agreement;
4 To the extent that you are a Qualifying Shareholder of the
Company as at the Record Date, you will not apply for any New
Ordinary Shares to be issued under the Offer for Subscription;
5 You understand that the contents of the P-Proof and the
Prospectus are the responsibility of the Company and that none of
the Joint Underwriters nor any of their respective Representatives
has or shall have any liability for any information, representation
or statement contained in the P-Proof or the Prospectus or any
information previously published in respect of the Company and will
not be liable for any Placee's decision to participate in the
Placing based on any information, representation or statement
contained in the P-Proof or the Prospectus or omission
therefrom;
6 You understand that none of the Joint Underwriters nor any of
their respective Representatives has or shall have any liability
for any publicly available or filed information or representation
in relation to the Company, provided that nothing in this paragraph
excludes the liability of any person for fraud;
7 To the fullest extent permissible by law, none of the Joint
Underwriters nor any of their respective Representatives shall have
any liability to any Placee (or to any other person whether acting
on behalf of a Placee or otherwise). None of the Joint Underwriters
are acting for you and that you do not expect any of the Joint
Underwriters to have any duties or responsibilities to you for
providing protections afforded to their customers or clients under
the rules of the Financial Conduct Authority and that you are not,
and will not be, a customer or client of any of the Joint
Underwriters as defined by the Rules of the Financial Conduct
Authority. Likewise, no Joint Underwriter will treat any payment by
you pursuant to the Placing as client money governed by the rules
of the Financial Conduct Authority's Conduct of Business
Sourcebook. Payments by you to any Joint Underwriter are as banker
and not as trustee and, as a result, the money will not be held in
accordance with the client money rules of the Financial Conduct
Authority's Conduct of Business Sourcebook;
8 None of the Joint Underwriters nor any of their respective Representatives are making any recommendation to you nor advising you regarding the suitability or merits of your participation in the Placing or entering into any transaction connected with them, and that, for the purposes of the Rules of the Financial Conduct Authority you do not expect any of the Joint Underwriters to have any duties or responsibilities similar or comparable to the Rules of the Financial Conduct Authority regarding best execution, suitability or otherwise;
9 Save for the information contained in the P-Proof, you have
not relied on any information given or any representations,
warranties, undertakings (express or implied) or statements,
written or oral, made at any time by or on behalf of the Company or
any of the Joint Underwriters or by any subsidiary, holding
company, branch or associate of the Company or any of the Joint
Underwriters, or any of their respective Representatives or any
other person in connection with the Placing, the Company and its
subsidiaries or the Placing Shares and that, in making your
application under the Placing, you will be relying solely on the
information in the P-Proof and on other information concerning the
Company which has been publicly announced to a Regulatory
Information Service (as defined in the AIM Rules for Companies) by
or on behalf of the Company prior to the date of this Announcement
and the information and terms and conditions contained in this
Announcement and you will not be relying on any representations,
warranties, undertakings or statements by the Company or any of the
Joint Underwriters or any of their respective Representatives other
than as expressly set out in this Appendix;
10 Your acceptance of your participation in the Placing on the
terms set out in this Appendix is binding on you and is irrevocable
and will not be capable of revocation, rescission or termination by
you except in the event that Citigroup, acting on behalf of the
Joint Underwriters, terminates the Underwriting Agreement prior to
Admission;
11 The exercise by Citigroup, acting on behalf of the Joint
Underwriters, of any of their rights to terminate the Joint
Underwriters' obligations under the Underwriting Agreement and the
exercise of any right or discretion or waiver conferred on
Citigroup, acting on behalf of the Joint Underwriters, under the
Underwriting Agreement (including any such right or discretion
conferred as agent or trustee) shall be in the absolute discretion
of Citigroup, acting on behalf of the Joint Underwriters, and none
of the Joint Underwriters nor any of their respective
Representatives need make any reference to you and shall not have
any liability to you whatsoever in connection with any decision to
exercise or not exercise any such rights. No Bank shall be
responsible or liable for the actions or omissions of the Company
or any other Bank or any of their respective Representatives;
12 Should any stamp duty or stamp duty reserve tax be payable on
your subscription for Placing Shares, this will be to your account
and neither the Company nor any of the Joint Underwriters will be
responsible in respect thereof and if any such person is obliged by
law to pay any such tax, they shall be entitled to recover it from
you;
13 All times and dates referred to in this Appendix are subject
to adjustment in accordance with the absolute discretion reserved
by Citigroup, acting on behalf of the Joint Underwriters, in the
Underwriting Agreement and the Joint Underwriters shall notify you
of any such amendments. Save as provided, time shall be of the
essence as regards obligations pursuant to this Appendix;
14 No action has been taken by you to permit the distribution of
this Announcement in any jurisdiction outside the United
Kingdom;
15 You have not taken any action or omitted to take any action
which will or may result in any of the Joint Underwriters or the
Company, or any of their respective Representatives acting in
breach of any law or regulatory requirements of any territory or
jurisdiction in connection with your participation in the
Placing;
16 You are a person of a kind described in articles 19(5) or
49(2) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005, as amended, and in section 86(1)(a) of FSMA
(qualified investors) or a person to whom it is otherwise lawful to
offer a participation in and communicate with regarding the
Placing;
17 You agree that you have no rights against any of the Joint
Underwriters or the Company, or any of their respective directors
and employees or proposed directors of the Company, under the
Underwriting Agreement pursuant to the Contracts (Rights of Third
Parties) Act 1999;
18 You understand that the P-Proof has not been, the Prospectus
will not be and this Announcement has not been approved by a person
authorised under section 21 of FSMA;
19 You are (or will be, as the context may require) entitled to
acquire the Placing Shares comprising your participation in the
Placing under the laws of all jurisdictions which apply to you and
you have fully observed such laws and have obtained all necessary
consents and authorities to enable you to give your commitment to
subscribe for the Placing Shares comprising your participation in
the Placing and to perform your obligations under any contract
which has been or may be entered into by you in connection with the
Placing.
The confirmations, warranties, representations and undertakings
in paragraphs 1 to 19 (inclusive) and 22 to 38 (inclusive) will
survive completion of the Placing.
20 No person receiving a copy of this Announcement in any
territory other than the United Kingdom may treat it either as
constituting an offer or invitation to him to purchase or subscribe
for Placing Shares nor should he in any event purchase Placing
Shares unless such an invitation or purchase complies with any
registration or other legal or regulatory requirements in the
relevant territory. It is the responsibility of any person outside
the United Kingdom wishing to purchase Placing Shares to satisfy
himself that, in doing so, he complies with the laws of any
relevant territory in connection with such purchase and that he
obtains any requisite governmental or other consents and observes
any other applicable formalities.
21 This Announcement does not constitute an offer to sell, or
the solicitation of an offer to buy or to subscribe for, Placing
Shares in any jurisdiction in which such an offer or solicitation
is unlawful nor will any of them be distributed in or into the
United States, Australia, Canada, Japan, New Zealand, or the
Republic of South Africa except in transactions or in a manner
exempt from or not subject to the registration requirements of
those countries' securities legislation.
22 The Existing Ordinary Shares, Placing Shares and Offer for
Subscription Shares have not been and will not be registered under
the United States Securities Act 1933, as amended (the "US
Securities Act") or the relevant securities legislation in
Australia, Canada, Japan, New Zealand or the Republic of South
Africa and therefore the Placing Shares may not be offered, sold,
transferred or delivered directly or indirectly in or into the
United States or in or into Australia, Canada, Japan, New Zealand
or the Republic of South Africa or their respective territories and
possessions, except, in the case of the United States, pursuant to
an exemption from, or in a transaction not subject to, the
registration requirements of the US Securities Act. United States
means the United States of America, its territories and
possessions, and state of the United States, and the District of
Columbia. You warrant, acknowledge and undertake that: (i) you are
not within the United States, Australia, Canada, Japan, New Zealand
or the Republic of South Africa and are purchasing the Placing
Shares outside the United States in an offshore transaction meeting
the requirements of Regulation S under the US Securities Act
("Regulation S") and are not a citizen of Australia, Canada, Japan,
New Zealand or the Republic of South Africa or, if inside the
United States, you are a "qualified institutional buyer" as defined
in Rule 144A under the US Securities Act and you have duly executed
a US Investor Letter and delivered the same to a Joint Underwriter
or one of their respective affiliates; (ii) you have not offered,
sold or delivered and will not offer to sell or deliver any of the
Placing Shares to persons within the United States, directly or
indirectly, or into Australia, Canada, Japan, New Zealand or the
Republic of South Africa; (iii) neither you, your affiliates, nor
any persons acting on your behalf, have engaged or will engage in
any directed selling efforts (as defined in Regulation S) with
respect to the Placing Shares; (iv) you are not taking up the
Placing Shares for resale in or into the United States, Australia,
Canada, Japan, New Zealand or the Republic of South Africa; and (v)
you will not distribute any offering material, directly or
indirectly, in or into the United States, Australia, Canada, Japan,
New Zealand or the Republic of South Africa or to any persons
resident in such countries. Unless defined elsewhere in this
Appendix, terms and expressions used in this paragraph have the
meanings given to them by Regulation S.
23 By participating in the Placing you warrant that you: (i)
have the necessary capacity and authority to acquire the Placing
Shares and are entitled to enter into and to perform your
obligations in accordance with the terms and conditions set out in
this Announcement; (ii) may lawfully acquire the Placing Shares
comprising your participation in the Placing; (iii) have complied
with all relevant laws of all relevant territories; (iv) obtained
all requisite government or other consents which may be required in
connection with your participation in the Placing; (v) complied
with all requisite formalities and (vii) not taken any action or
omitted to take any action which will or may result in any of the
Joint Underwriters, the Company, or any of their respective
Representatives acting in breach of the legal or regulatory
requirements of any territory in connection with the Placing and
your participation in the Placing.
24 By participating in the Placing , you confirm that, to the extent applicable to you:
(g) you are aware of your obligations in connection with the
Criminal Justice Act 1993 and Part VIII of FSMA and you have
complied with those obligations;
(h) if you are making payment or acting on behalf of a third
party you have identified such third party in accordance with the
Money Laundering Regulations 2017, the money laundering provisions
of the Criminal Justice Act 1993, the Terrorism Act 2000, the
Anti-Terrorism Crime and Security Act 2001, the Proceeds of Crime
Act 2002 and the Terrorism Act 2006 and that you have complied
fully with your obligations pursuant thereto; and
(i) you are a person falling within one or more of the
categories of persons set out in Article 19(5) (Investment
Professionals) or Article 49(2) (High net worth companies,
unincorporated associations etc) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 and also within
section 86(1)(a) of FSMA (qualified investors).
25 You are not, and are not acting or applying as nominee or
agent for, a person who is or may be liable to stamp duty or stamp
duty reserve tax ("SDRT") in respect of any acquisition of shares
(or agreement to acquire) or other securities at a rate in excess
of 50p per GBP100 (including, without limitation, under sections
67, 70, 93 or 96 of the Finance Act 1986 concerning depository
receipts and clearance services). For the avoidance of doubt, if
this confirmation is incorrect, additional stamp duty or SDRT may
be payable for which none of the Joint Underwriters nor the Company
will be responsible and if, as a result, any of those persons is
obliged by law to pay any such stamp duty or SDRT, they shall be
entitled to receive it from you. You should be aware that taxation
levels, bases and reliefs can change and that any tax you may pay
(and available reliefs) will depend on each shareholder's personal
circumstances. If you are in any doubt about the tax treatment of
the Placing Shares you should consult your tax adviser or an
independent financial adviser or other person authorised by the
Financial Conduct Authority who specialises in advising on the
acquisition or disposal of shares and other securities.
26 You warrant that you and each person or body (including,
without limitation, any local authority or the managers of any
pension fund) on whose behalf you accept your participation in the
Placing or to whom you allocate any Placing Shares in whole or in
part has the capacity and authority to enter into and to perform
its obligations as a Placee of the Placing Shares comprised therein
and will honour those obligations and, if a company, you are a
valid and subsisting company and have all the necessary corporate
capacity and authority to execute your obligations in connection
with this Announcement.
27 You warrant and represent that you have not offered or sold
and will not offer or sell any Placing Shares to persons in the
United Kingdom in circumstances which would result in the Placing
Shares being offered to the public in the United Kingdom within the
meaning of section 85(1) of FSMA.
28 Your purchase of the Placing Shares does not trigger in the
jurisdiction in which you are resident:
(a) any obligation to prepare or file a prospectus or similar
document or any other report with respect to such purchase;
(b) any disclosure reporting obligation of the Company; or
(c) any registration or other obligation on the part of the Company.
29 The offer and sale to you of the Placing Shares was not made
through an advertisement of the Placing Shares in printed media of
general and regular paid circulation, radio or television or any
other form of advertisement.
30 You shall (or shall procure that your nominee shall, if
appropriate) make notification to the Company of interests in
Ordinary Shares in accordance with Chapter 5 of the Disclosure and
Transparency Rules, to be received by the Company within two
Business Days of becoming the holder of your Placing Shares.
31 You acknowledge that no securities commission or similar
regulatory authority has reviewed or passed on the merits of the
Placing Shares and that there is no government or other insurance
covering the Placing Shares and there are risks associated with the
purchase of the Placing Shares.
32 You warrant and represent that, in the event that you are
conditionally subscribing for Placing Shares comprising your
Placing Participation in the capacity of either an advisory
investment manager or an execution only broker on behalf of private
clients, neither you, nor your directors, employees, affiliates or
agents will make or direct the offer of any of the Placing Shares
to more than five persons.
33 You warrant and represent to the Joint Underwriters that, in
the event that you are not conditionally subscribing for Placing
Shares comprising your participation in the Placing in the capacity
of either an advisory investment manager or an execution only
broker on behalf of private clients, neither you, nor your
directors, employees or agents have offered or sold and will not
offer or sell any Placing Shares to persons in the United Kingdom
in circumstances which would result in the Placing Shares being
offered to the public in the United Kingdom within the meaning of
section 85(1) of FSMA.
34 You acknowledge that, if you participate in the Placing, you
will be providing personal information to the Company and the
Company's share registry. The Company is permitted to collect, hold
and use that information to assess and process the Form of
Confirmation, service your needs as a shareholder, facilitate
distribution of payments and make corporate communications to you
as a shareholder. The information may be disclosed if required by
law or by any applicable rules or regulations including those of
AIM and/or the LSE. You can access, correct and update your
personal information by contacting the Company.
35 You acknowledge that, by participating in the Placing, you
irrevocably appoint any director or employee of any Joint
Underwriter as your agent for the purpose of executing and
delivering to the Company and/or its registrars any document on
your behalf necessary to enable you to be registered as the holder
of the Placing Shares allocated to you pursuant to the Placing.
36 You agree to be bound by the terms of the Articles.
37 You acknowledge that the value of shares can fluctuate in
value in money terms and accordingly that you may not realise, on
disposal by you of those of the Placing Shares to be subscribed by
you, the full amount or any part of your investment.
38 You acknowledge and understand that the Company, the Joint
Underwriters and their respective Representatives will rely upon
truth and accuracy of the foregoing confirmations,
acknowledgements, undertakings, warranties, representations and
agreements.
39 The agreement contained herein and these terms and conditions
shall be governed by and construed in accordance with English law
and you irrevocably agree that the Courts of England are to have
exclusive jurisdiction to settle any dispute which may arise out of
or in connection with the same (including any dispute, claim or
matter relating to any non-contractual obligations arising out of
or in connection with this Announcement).
This information is provided by RNS
The company news service from the London Stock Exchange
END
IOEEASXSELEXEEF
(END) Dow Jones Newswires
July 05, 2017 02:00 ET (06:00 GMT)
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