Network operator CityFibre has today published their annual accounts to the end of 2023, which among other things reveals that the provider is seeking fresh investment to fuel the ongoing roll-out of their 10Gbps capable Fibre-to-the-Premises (FTTP) based broadband ISP network and avoid problems further down the line.
Just to recap. The alternative network operator currently still aspires to cover up to 8 million UK premises with their new full fibre network (funded by c.£2.4bn in equity, c.£4.9bn debt and c.£800m of BDUK / public subsidy) – representing c.30% of the UK. So far, they’ve covered around 3.8m premises and have connected 400,000 customers (8th May 2024).
CityFibre has also won several stated aid funded contracts under the Government’s £5bn Project Gigabit broadband roll-out scheme, which is focused on upgrading the final 10-20% of hardest to reach premises (usually those in rural areas). The operator expects these to help boost their coverage by another 1.3 million premises.
However, it remains unclear precisely when they’ll reach the 8 million target, with their current build + M&A plan potentially get them up to c.6m (if it all goes well). The operator has already been through some redundancies and scaled back quite a few of their commercial builds at the start of 2024, largely in order to focus on the aforementioned delivery for Project Gigabit.
New results and a material uncertainty
The latest annual report, which covers the period to the end of December 2023, notes that CityFibre’s saw a big increase in revenue to £99.67m in 2023 (2022: £30.97m), added 163,000 customers and they had a gross profit of £42.76m (2022: –£20.19m).
The above is generally very positive, but on the flip side they also recorded a total loss for the year of £419.3m and that’s a surge on the £94.15m recorded in 2022 – dwarfing revenue. Gross debt also increased by £1.3bn million to £3.13bn (2022: £1.83bn) and that should be considered against the company having total assets of £4.172bn (2022: £3.221bn).
Suffice to say that, with key sources of funding due to run out by the middle of 2025, CityFibre are on the hunt for fresh investment and are said to have appointed US investment bank Evercore to help find a solution.
Extract from Director’s Report
As the Group and Company are reliant on securing further external funding which is not guaranteed, a material uncertainty exists which may cast significant doubt on the ability of the Group and Company to continue as a going concern and as a result they may be unable to realise this assets and discharge their liabilities in the normal course of business.
The financial statements for the Group and Company are prepared on a going concern basis, with the identification of this material uncertainty, but the Directors have a reasonable expectation that the Group can continue in operation and meet its liabilities as they fall due.
The ultimate parent company, Connect Infrastructure Topco Limited, has confirmed it will continue to provide financial support to the Group and Company to such levels as to enable the Group and Company to be able to pay its debts as and when they fall due for payment, for at least 12 months from the approval of these financial statements.
The need for further funding is nothing new and other network operators are facing many of the same challenges, much of which has been fueled by high interest rates, rising build costs and agressive competition from rivals that can make it harder to grow take-up. In addition, the current environment also makes it harder to attract fresh investment.
However, despite the challenges, CityFibre still views itself as being in a “strong position” as they approach future financing, not least due positive EBITDA, the recent addition of Sky Broadband to their portfolio of supporting ISPs, the ongoing acquisition and integration of altnet provider Lit Fibre, and the Project Gigabit wins. But there’s no doubt that this remains a difficult period and not just for CityFibre.
A CityFibre spokesperson said:
“We are at a particularly capital-intensive phase of our long-term business plan, as we accelerate our build to at least 8 million premises and invest billions into the UK’s digital infrastructure. But 2024 is proving to be a significant year for CityFibre: we are EBITDA positive, we’ve secured a long-term partnership with Sky and we’re a trusted partner of Government, which has awarded us £800m to connect rural communities to full fibre broadband as part of Project Gigabit.
CityFibre is in a strong position and we are raising financing in line with our long-term plan, building on our positive momentum throughout 2024 and cementing CityFibre’s place as the UKs third digital network.”
At the end of the day, there aren’t too many unexpected surprises to be found in the operator’s annual report, particularly given previous developments and the state of the wider market. Much will now depend upon the operator’s ability to resolve their financing issues and to produce more of those M&As (mergers and acquisitions) that they were so boldly talking about earlier in the year.
All of this will also provide some much-needed food for thought when Ofcom begins their Telecoms Access Review 2026 (TAR) in the near future, as the regulator will have to be careful with a market that is currently under such a significant strain.